Why Has BlackRock’s Latin America Fund Been Unimpressive in 2016?

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Performance evaluation of the BlackRock Latin America Fund

The BlackRock Latin America Fund Class A (MDLTX) has been the second-worst performer year-to-date among the seven funds chosen for this review.

Except for the one-month period, the fund has been a below average performer for all the periods under review. We’ve graphed its performance against the iShares Latin America 40 ETF (ILF) to give a comparison between its and the passive fund’s performances. Let’s look at what’s contributed to MDLTX’s forgettable performance so far in 2016.

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Contribution to returns

Financials is not just MDLTX’s largest invested sector, it’s also the biggest positive contributor to the fund year-to-date as of August’s end. The ADR (American depositary receipt) of Banco Bradesco (BBDO) has contributed over one-third of the sector’s overall contributions.

Another third has been contributed by the sponsored preference ADR of Itaú Unibanco Holding (ITUB). Itaú CorpBanca (ITCB) and Credicorp (BAP) are among the sector’s other positive contributors. On the other end of the spectrum are Morgan Stanley (MS) and Banco do Brasil, which have weighed on the sector’s returns.

Consumer staples, the fund’s second-largest invested sector, has followed financials in terms of positive contributions. Ambev (ABEV) has towered above all other positive contributors, including Raia Drogasil and BRF (BRFS). Meanwhile, Walmart de Mexico and Adecoagro (AGRO) have emerged as negative contributors from the sector.

All components of the energy sector—Petrobras (PBR), Ultrapar Participações (UGP), and YPF (YPF)—have helped it to gain. Meanwhile, Telefônica Brasil (VIV) has dialed it right for telecommunications services, though the sector has been held back by negative contributions from America Movil (AMX).

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The materials sector has also been a positive contributor. It’s been led by the sponsored ADR of CEMEX (CX), with Compañía de Minas Buenaventura (BVN) also playing a major role in its performance. However, some of these gains have been chipped away by the common stocks and sponsored ADR of Fibria Celulose (FBR).

Investor takeaway

No sector has contributed negatively to MDLTX. Even so, it has emerged as a below average performer so far this year. The primary reason for this underperformance has been the financials sector’s relatively low positive contribution to its returns. The materials and utilities sectors have also disappointed, leading to MDLTX’s underperforming the passively managed ILF.

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

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