BRFS, CX Dragged Down BlackRock Latin America Fund in October 2015

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Performance evaluation

The BlackRock Latin America Fund – A (MDLTX) rose just 3.8% in October 2015 from a month ago. In the three-month and six-month periods ended October 30, the fund has fallen 12.4% and 23.1%, respectively. In the YTD (year-to-date) period, the fund is down by 25.0%, as well as being down 33.9% from a year ago. However, from the end of October until November 25, the fund is up 1.5%.

For the six-month and one-year periods, MDLTX stood fifth among nine funds—its best ranking across all periods. For October, the fund was the worst performer among its peers. Let’s look at what has contributed to this fund’s poor performance.

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Portfolio composition and contribution to returns

Launched in September 1991, MDLTX has the longest track record among the funds in this review. According to its latest geographical disclosure, Brazil, Mexico, and Peru are the top three invested geographies, in that order, making up ~94% of the fund’s assets.

Since the latest available complete portfolio of the fund is as of August 2015, we will consider that as our base. For October, we will consider valuation changes for our analysis. All portfolio percentages refer to their weights according to changes in valuation from August to October.

Financials accounted for the lion’s share of the fund’s returns for October. The highest individual contributors from the sector included Grupo Financiero Banorte, S.A.B. de C.V., Credicorp Ltd. (BAP), and the sponsored ADR of Itaú Unibanco Holding S.A. (ITUB).

Consumer staples emerged as the second biggest contributor to the fund’s overall returns. They were led by the sponsored ADR of Fomento Económico Mexicano, S.A.B de C.V. (FMX). However, Brazil’s BRF S.A. (BRFS) had quite a large negative impact on the sector, thus reducing its contribution by a sizable margin.

The drag from BRFS on the consumer staples sector can be gauged from the fact that the consumer discretionary sector emerged as a close third-highest contributor to consumer staples, which forms 23% of the portfolio. BRFS occupies only 6% of the fund’s portfolio. The sponsored ADR of Grupo Televisa, S.A.B. (TV) led the consumer discretionary sector.

Argentine energy company YPF S.A. (YPF), preferred shares of Telefônica Brasil S.A. (VIV), and the sponsored ADR of America Movil S.A.B. de C.V. (AMX) contributed positively to the fund. However, the sponsored ADR of CEMEX, S.A.B. de C.V. (CX) hurt the fund.

Reasons for poor performance

BRFS and CX had a large role to play in reducing the overall returns of the fund, and some of the top picks having an ordinary October were also responsible for the MDLTX’s poor showing in the month.

Let’s move on to the T. Rowe Price Latin America Fund (PRLAX) in the next article.

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