Performance at month end with net income reinvested
|Net asset value^||-4.9||1.1||-3.9||18.5||43.7|
|MSCI EM Latin America|
|Net asset value^||-5.3||3.0||-3.6||24.1||26.0|
|MSCI EM Latin America|
^^The Company’s performance benchmark (the MSCI EM Latin America Index) may be calculated on either a Gross or a Net return basis. Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis (which assumes that no withholding tax is suffered). As the Company is subject to withholding tax rates for the majority of countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.
Sources: BlackRock, Standard & Poor’s Micropal
|At month end|
|Net asset value – capital only:||519.24p|
|Net asset value – cum income:||519.24p|
|Discount (share price to cum income NAV):||6.0%|
|Average discount* over the month – cum income:||12.0%|
|Net cash at month end**:||0.7%|
|Gearing range (as a % of net assets):||0-25%|
|Ordinary shares in issue (excluding 2,181,662 shares held in treasury):||39,259,620|
#Total assets include current year revenue.
##The yield of 5.4% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 34.89 cents per share) and using a share price of 643.29 US cents per share (equivalent to the sterling price of 488.00 pence per share translated in to US cents at the rate prevailing at 31 January 2020 of $1.3182 dollars to £1.00).
2019 Q1 interim dividend of 8.56 cents per share (paid on 17 May 2019).
2019 Q2 interim dividend of 9.15 cents per share (paid on 16 August 2019).
2019 Q3 interim dividend of 8.03 cents per share (paid on 8 November 2019).
2019 Q4 Final dividend of 9.15 cents per share (ex-date 09 January 2020 and payable on 06 February 2020).
*The discount is calculated using the cum income NAV (expressed in sterling terms).
**Net cash/net gearing is calculated using debt at par, less cash and cash equivalents and fixed interest investments as a percentage of net assets.
*** Calculated as a percentage of average net assets and using expenses, excluding interest costs for the year ended 31 December 2019.
|Geographic Exposure||% of Total Assets^||% of Equity|
Latin America Index
|Net current assets|
(inc. fixed interest)
^Total assets for the purposes of these calculations exclude bank overdrafts, and the net current assets figure shown in the table above therefore excludes bank overdrafts equivalent to 1.3% of the Company’s net asset value.
|Sector||% of Equity Portfolio *||% of Benchmark|
*excluding net current assets & fixed interest
Ten Largest Equity Investments (in percentage order)
Country of Risk
|Banco do Brasil||Brazil||4.3||1.5|
|Walmart de Mexico y Centroamerica||Mexico||3.7||2.3|
|Grupo Financiero Banorte||Mexico||3.5||2.4|
Commenting on the markets, Ed Kuczma and Sam Vecht, representing the Investment Manager noted;
For the month of January 2020, the Company’s NAV returned -4.9%1 with the share price moving +2.0%1. The Company’s benchmark, the MSCI EM Latin America Index, returned -5.1%1 on a net basis (all performance figures are in sterling terms with dividends reinvested).
Investor sentiment and equity markets started the year strongly, confirming the nascent recovery in global growth, until fears around the Coronavirus brought uncertainty and volatility. Investors sought refuge in gold, treasuries, US$ assets and developed equity markets. Weaker commodity prices led Latin American markets lower, further putting pressure on local currencies. Brazil, Chile, Columbia, Peru and Argentina all posted negative market performance with currencies selling off another 4% to 6%. Mexico was a relative winner outperforming in the region. The Company’s allocation to Mexico was the largest contributor to relative returns, while Argentine stock selection detracted the most from relative performance in January.
An off benchmark holding in Via Varejo, a Brazilian retail company, was the top contributor, on a relative basis, as the stock rose benefitting from the turnaround of the firm’s e-commerce platform under the new management and record number of Black Friday sales. Our off benchmark holding in Arco Platform, an educational software company, was also among the top contributors given strong business growth, high margins and high FCF (free cash flow) conversion. On the other hand, an overweight position in Banco do Brasil was the biggest detractor over the month (on a relative basis), as the stock declined given fee pressure on Brazilian banks. Not holding Magazine Luiza within our portfolio also weighed on relative returns as the stock rose post the release of year end results, which disclosed continued strong business growth.
Over the month we have been increasing exposure to Colombia by adding to Bancolombia on outlook for GDP (Gross Domestic Product) growth acceleration in 2020 and following a positive research trip to Colombia in November last year. We expect Bancolombia to continue to improve its loan mix towards higher yielding retail loans and hence ROE (Return on Earnings) to accelerate going forward. We initiated a position in Eletrobras, a major Brazilian electric utilities company, given plans to capitalize and privatize the company, as well as attractive stock valuations. We cut our holding in Suzano, a Brazilian pulp and paper company, by locking in profits as the stock outperformed on reduction in pulp producer inventories. We also sold our holding in Brazilian company, Via Varejo, by taking in profits after the stock’s strong performance.
Brazil continues to display a constructive environment in congress to advance President Jair Bolsonaro’s ambitious set of fiscal and administrative reforms. We maintain the view that Brazil is on the path of modest economic recovery backed by structural tailwinds including an uptick in private investment, a significant increase in oil production and increased formal job creation. In Mexico, economic growth has ground to a halt as the private sector has reigned in investment related to President Lopez Obrador’s uncertain policy initiatives. We see equity valuations in Mexico trading at multi-year lows, reflecting a lower growth environment, and look towards easing monetary policy and eventual approval of the USMCA (United States-Mexico-Canada) trade agreement in North America and the launch of a national infrastructure plan as catalysts to improve business sentiment. In Peru, we are underweight as we see negative newsflow on politics as President Vizcarra’s initiatives to dissolve Congress continues to result in further political uncertainty, leading to reduced business confidence. The Company has recently reduced its underweight position in Colombia as valuations and economic stability has led to intriguing investment opportunities. Argentina’s presidential transition continues to present uncertainty and we look to take advantage of opportunities arising from volatility and extreme pessimism in the near term. Finally, we remain comfortable with an underweight position in Chile amidst a background of protests related to social inequality and signs of economic growth deceleration in the economy. While the political landscape in Latin America continues to present both opportunities and challenges in equity markets, we are encouraged as the external environment appears to support asset prices due to reduction in trade tensions between the U.S. and China and global coordination to maintain low interest rates, supporting economic expansion.
1Source: BlackRock, as of 31 January 2020.