Aberdeen Latin American Income says, in the six month period ended 29 February 2016, the NAV total return (capital return plus dividends reinvested) in sterling terms fell by 0.2% which underperformed the composite benchmark’s total return of 0.9% for the same period. The shares delivered a share price total return of -6.2% for the six months.
They declared a second interim dividend of 0.875p per Ordinary share in respect of the year to 31 August 2016 payable on 29 April 2016 to Ordinary shareholders on the register on the record date of 22 April 2016. As indicated at the time of the Annual Report, it remains the Board’s intention to pay an annual dividend of 3.5p per Ordinary share for the financial year ending 31 August 2016.
Stock selection in Mexico and Brazil contributed the most to the portfolio’s relative return. This more than compensated for the negative effects of an underweight to Mexico and overweight to Brazil. Mexico outshone the regional equity index on the back of better-than-expected economic growth. Brazilian equities, on the other hand, fell by 7%, while deteriorating economic and political conditions resulted in the loss of its investment-grade rating.
At the company level, several of the portfolio’s core Mexican holdings outperformed the local benchmark. Financial services company Banorte’s share price rallied on the back of solid growth in net interest income and better asset quality, despite more conservative loan growth and earnings forecasts for 2016. Airport operator Asur was driven by consistent growth in passenger traffic. Femsa was lifted by continued expansion in its convenience store chain Oxxo and expectations of resilient beverage sales, while acquisitions in its pharmacy business should help deepen its presence in the small-box retail segment. Walmart’s Mexican division Walmex reported impressive sales due to better execution and a recovery in customer traffic.
In Brazil, the portfolio gained from the overweight to both mall operator Multiplan and cosmetics company Natura Cosmeticos. The stocks rallied on news that the government plans to stimulate the economy by boosting credit lines to small businesses and personal loans to consumers. The lack of exposure to Petrobras also aided relative performance as the oil company’s share price remained buffeted by the ongoing corruption scandal that has deepened the political crisis.
Elsewhere, the portfolio’s non-benchmark exposure to Argentina was positive as the local market outperformed after opposition candidate Mauricio Macri swept to power on a pro-reform platform. However, gains in sterling terms were eroded by the peso’s tumble following the removal of currency controls.
Stock selection in Peru detracted. The non-benchmark holding in Grana y Montero weighed on relative performance as the stock was pressured by weakness at the company’s engineering and construction division, while its energy business was hurt by the lower crude price.
Emerging markets debt experienced bumpy performance over the period as risk sentiment waxed and waned particularly in the run-up to the tightening of US monetary policy, before recovering strongly at the end of the period. Latin American currencies tracked the weakness and the subsequent rebound of commodities prices, while most bond markets delivered positive returns in local currency terms. The Brazilian bond market had the strongest performance, as markets started to price in the downturn in inflation. Colombia was the only country with negative bond returns in the portfolio as the country’s central bank failed to adequately tackle the strong pickup in inflation. The company’s bond portfolio has increased by 3.5% in sterling terms over the half-year review period, as the depreciation of sterling more than offset the continued weakness of the Latin American currencies against the US dollar, while bond markets started to recover at the end of the period. The portfolio has underperformed the benchmark, primarily due to the underweight positioning in Brazilian bonds.
ALAI : Aberdeen Latin American Income reports small underperformance