Over the year to 31 August 2016, Aberdeen Latin American Income Fund’s NAV total return was 46.2%, ahead of the 38.8% rise in its composite benchmark’s return. On a total return basis the Ordinary share price rose by 36.7% to 66.63p reflecting a widening in the level of discount to NAV per share which moved from 4.8% to 11.8% at the year end. The Company has declared four interim dividends of 0.875p per Ordinary share in respect of the year bringing the total level of dividends to 3.5p (2015:4.25p).
As part of the dividend rebasing exercise last year, Aberdeen agreed to waive its company secretarial and administration fee of GBP112,000 per annum, for the year ended 31 August 2015. The waiver has remained in place for 2016. However, in light of the signs of strengthening currencies and improved confidence in the region, the Board has agreed to reinstate the company secretarial fee at the level of GBP114,000 for the year ending 31 December 2017.
During the year the portfolio allocation between equities and bonds remained constant at 39% equities and 61% bonds as the investment manager continued to seek to exploit market opportunities. The manager currently expects to maintain this allocation in the near term although the allocation to equities is likely to increase over time as economic conditions improve and the fund’s revenue streams stabilise further.
The equity portfolio rose by 53.28% (gross), beating the benchmark index’s total return of 41.24% and the bond portfolio returned 36.96% (gross) over the year, outperforming the benchmark performance of 34.79%.
The report says that Mexico contributed the most to the fund’s relative performance. An equity underweight position was positive as was not holding some laggards, such as America Movil, which suffered regulatory and competitive pressures. Kimberly Clark de Mexico proved resilient despite the slowing consumer environment. Within the bond portfolio, an underweight exposure to Mexican rates and currency was the largest source of relative outperformance for the fund.
Brazil was the best performing market both in terms of rates and currencies and they were overweight here. Long-term bond yields declined from over 16.5% in January to below 12% by summer. Banco Bradesco rebounded sharply to narrow its discount to sectoral peers. Mall operator Multiplan and shoe retailer Arezzo benefited from expectations that the consumer downturn was bottoming and a lower interest rate cycle was beginning. Fashion retailer Lojas Renner and car rental company Localiza outshone their counterparts despite tough operating conditions. BM&F Bovespa was up, partly in anticipation of a successful merger with Cetip. Conversely, the biggest detractor was the lack of exposure to state-owned oil giant Petrobras, embroiled in a corruption scandal. It rallied after the Temer administration appointed new management, and the real’s appreciation cut its hefty US-dollar debt burden in local currency terms.
In Chile, positive stock selection was the main highlight. Coca Cola bottler Embotelladora Andina’s results met expectations, as higher prices offset lower volumes sold, while profits received a fillip from the lower tax burden. Mall operator Parque Arauco posted healthy sales, a stable occupancy ratio and higher operating margins. It also undertook a successful capital raising to finance projects in Chile, Peru and Colombia.
In Peru long term yields have fallen from over 7.5% at the start of the year to below 6% in August, and they profited from their long rates exposure. In Colombia, their underweight exposure had overall little impact on relative performance. An off-benchmark position in Uruguayan inflation linked bonds had an overall small positive contribution.
ALAI : Bumper year for Aberdeen Latin American