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BlackRock Latin America Fund and Brazilian Equities

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Updated

Fund overview

In this part of our series, we’ll look at the BlackRock Latin America Fund – A (MDLTX). It was managing assets worth $139.2 million as of February 2016. That month, its assets were spread across 59 holdings and included stocks of companies such as Banco Bradesco (BBDO), BRF (BRFS), Southern Copper (SCCO), Telefônica Brasil (VIV), and Petrobras (PBR).

 

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Fund performance

From a purely NAV (net asset value) return standpoint, MDLTX had a below-average one-year period until March 24, 2016. It ranked sixth for the period among its peer group. When we refer to the peer group, we mean the group of nine funds chosen for this review. For return comparison, we have chosen two ETFs: the iShares Latin America 40 ETF (ILF) and the iShares MSCI Emerging Markets Latin America ETF (EEML).

Other metrics

MDLTX’s standard deviation, or the volatility of returns, in the one-year period until March 24, 2016, was 24.6%. This is lower than both the MSCI EM Latin America Gross Return USD Index’s 27.7% and the peer group’s average of 25.2%.

The fund’s risk-adjusted returns, calculated through the Sharpe Ratio, were negative for the one-year period ended March 24. Evaluating a negative Sharpe Ratio may be misleading, so we’ll avoid that. For 2016 YTD (year-to-date), the ratio was positive. It placed MDLTX eighth among its peer group and showed that its risk-adjusted returns were much lower than that generated by the MSCI EM Latin America Gross Return USD Index.

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The information ratio, calculated with the MSCI EM Latin America Gross Return USD Index, was negative for the one-year period ended March 24. The information ratio shows the consistency of a fund manager along with measuring his or her ability to generate excess returns over a benchmark. The higher the reading, the better the consistency. We can’t evaluate a negative information ratio, though. For 2016 YTD, the fund’s information ratio was negative.

Investor takeaways

MDLTX’s alpha for the one-year period ended March 24, 2016, and for 2016 YTD ranked it among the bottom two funds. The fund’s disappointing performance in 2016 YTD, even after a surge in Brazilian stocks, is not great news. A sharp decline in 2015, which has hurt several stocks, makes it difficult for fund managers to change the fund’s holdings at this time. Investors who have been with the fund for a while may need to consider the recent performance and evaluate their portfolios.

In the next article, we’ll look at the T. Rowe Price Latin America Fund (PRLAX).

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