BlackRock Latin American says it made a 25.2% return on net assets for the year ended 31 December 2016 – in US dollars. The weakness of sterling meant that, despite a widening of the discount, shareholders made a 45.9% return. The dividend for the year was 15 cents, a fall of 28.6% on the previous year. The fund underperformed its benchmark which returned 31.5% in US dollar terms. The report attributes this to the manager’s stock selection.
The Board is concerned that a 2 year performance target for the tender mechanism and the liquidity implications of funding a possible call on capital is restricting the Investment Manager’s ability to take a sufficiently long term approach to investing in quality companies in the region. They are thinking about whether, next time around, the performance measurement period for the tender should be longer.
The manager’s report says that, for the full year, the major areas of negative attribution stemmed from underperforming the Brazilian market rally early in the year, and, to a lesser extent, not being aggressive enough in reducing Mexican positions during the second half of the year. Positive cash balances early in the year also hurt performance as the market rallied. The primary detractor from performance was stock selection in Brazil. They also suffered from an overweight position in Mexico in the first half of the year, further impacted by negative stock selection during the fourth quarter. At the stock level, being underweight Brazilian iron ore miner Vale for a significant part of the year had the largest negative effect on overall portfolio performance, detracting over 2%. Holding on to Brazilian pulp stock, Fibria Celulose, for too long earlier in the year as the Brazilian Real rallied also cost close to 2% in performance. Within Mexico, overweight positions to Femsa, Grupo Financiero Banorte, Corporacion Inmobiliaria Vesta, Walmart de Mexico and Volaris together accounted for approximately 300 bps of underperformance.
On the positive contribution side of the equation, the portfolio benefited from an underweight position in Chile, which was a laggard for the full year. In
addition, an overweight position and stock selection in Peru, which was the second best performing market in the region for the year behind Brazil, also proved correct. The option overwriting strategy also added to performance. The largest individual contributor to performance for the year was an underweight
position in Mexican broadcaster Grupo Televisa, which suffered due to weakness in its broadcast business, a weak macro environment and overall concerns about its exposure to Univision in the US broadcast market. An underweight position in Mexican telecommunications company America Movil added to returns as the stock was impacted by ongoing competitive pressures, especially in Mexico and Brazil, and post the Brexit vote given its exposure to Europe. A lack of exposure to Brazilian industrial stock Embraer contributed positively to performance as the stock suffered as a result of the strengthening of the
Brazilian Real, the low visibility on the company’s business jet division and increased competition in the commercial segment. In addition, an overweight position in top private Brazilian bank Itaú was a positive contributor given the rally in large capitalization Brazilian stocks, as was an overweight to Peruvian gold producer Minas Buenaventura given the strong performance of gold.
BRLA : BlackRock Latin wants to extend measurement period for tender