Statement of Net Assets
As at 31 March 2016
US$'000 Assets
Investments in securities at market value (note 2.2) 51,358
Cash at bank 306
Interest receivable 1,002 Subscriptions receivable 786
Total assets 53,452
Liabilities
Taxes and expenses payable 60 Redemptions payable 410 Other liabilities 301
Total liabilities 771
Net assets at the end of the period 52,681
Statement of Changes in Net Assets
For the period from 1 October 2015 to 31 March 2016
US$'000
Net assets at the beginning of the period 41,194 Net gains from investments 3,044 Net realised losses (4,224) Net unrealised gains 10,796 Proceeds from shares issued 8,324 Payments for shares redeemed (5,890) Net equalisation received (note 10) 16 Dividends paid (note 5) (579)
Net assets at the end of the period 52,681
Statement of Operations
For the period from 1 October 2015 to 31 March 2016
US$'000 Income
Investment income 3,359
Total income 3,359
Expenses
Management fees (note 4.2) 216 Operating, administrative and servicing fees (note 4.4) 99
Total expenses 315
Net gains from investments 3,044
Realised losses on investments (4,192) Realised gains on forward currency exchange contracts 1 Realised currency exchange losses (33)
Net realised losses (4,224)
Decrease in unrealised depreciation on investments 10,796
Net unrealised gains 10,796
Net increase in assets as a result of operations 9,616
Share Transactions
For the period from 1 October 2015 to 31 March 2016
A-1 A-2 E(EUR)-1
Shares outstanding at the beginning of the period 134,207 90,819 10,550 Shares issued during the period 61,957 6,325 13,017 Shares redeemed during the period (21,816) (24,759) (2,068)
Shares outstanding at the end of the period 174,348 72,385 21,499
Net asset value per share 5.8497 102.1333 6.4907
Share Transactions
For the period from 1 October 2015 to 31 March 2016
I-1 I-2 N(JPY)-1
Shares outstanding at the beginning of the period – 33,646 34,567 Shares issued during the period 790 11,281 46 Shares redeemed during the period – (2,140) (5,782)
Shares outstanding at the end of the period 790 42,787 28,831
Net asset value per share 11.0590 745.9974 47,490.0221
Portfolio Statement
As at 31 March 2016
Security Coupon (%) Maturity
Nominal/ Quantity Market Value US$’000 Percentage of total net assets % Transferable securities and money market instruments admitted to an official exchange listing / dealt in on another regulated market 97.49% Bonds 97.49%
Government Bonds 97.49% Brazil 97.49%
Brazil (Federal Republic of) 10.0000 01/01/18 43,650,000 11,684 22.18 Brazil (Federal Republic of) 6.0000 15/05/17 13,970,000 11,209 21.28 Brazil (Federal Republic of) 10.0000 01/01/17 35,410,000 9,731 18.47 Brazil (Federal Republic of) 6.0000 15/08/18 10,990,000 8,725 16.56 Brazil (Federal Republic of) - 01/10/16 14,210,000 3,749 7.12 Brazil (Federal Republic of) 10.0000 01/01/19 11,300,000 2,941 5.58 Brazil (Federal Republic of) - 01/07/16 950,000 259 0.49 Brazil (Federal Republic of) (INDX) 6.0000 15/05/19 3,850,000 3,060 5.81
51,358 97.49
Total Government Bonds 51,358 97.49
Total Bonds 51,358 97.49
Total Transferable securities and money market instruments admitted to an official
exchange listing / dealt in on another regulated market 51,358 97.49
Total investments 51,358 97.49
Other net assets 1,323 2.51
Performance
For the six month period ended 31 March 2016, the value of Brazil Equity - A Accumulation Shares increased by 22.84% compared to an increase of 25.57% in the benchmark, the MSCI Brazil 10/40 Index.
Source: Lipper, Basis: total return, NAV to NAV, net of annual charges, gross income reinvested, USD.
Market review
Brazilian equities rose during the six months under review. At first, renewed weakness in commodity and energy prices, as well as volatility arising from China, weighed on investor sentiment. The US Federal Reserve’s rate hike in December also triggered some knee-jerk outflows. Domestically, the country sank deeper into a recession, as inflation rose to a 12-year high and unemployment reached 7.6%. Finance minister Joaquim Levy resigned after disagreements with both congress and government over his policies.
However in 2016, the stockmarket gained momentum to become the best-performing for the period, buoyed by increasing optimism about president Dilma Rousseff’s impeachment. This followed her attempts to reinstate her predecessor Lula da Silva as chief-of-staff and his subsequent detention on corruption allegations, as the Operation Car Wash investigations deepened and massive demonstrations increased the political pressure. Sentiment was geared towards a possible regime change, which could spur reforms to arrest the economy’s slide.
Portfolio review
At the stock level, Valid Solucoes was a key detractor from relative performance. The payment and mobile solutions company posted weaker-than-expected results because of poor performance in the means-of-payment division. BRF also fell after disappointing third- quarter results caused by the weak Brazilian consumer demand and stiff competition in the domestic market. Not holding scandal-hit Petrobras also proved costly, as its stock rallied ahead of the wider Brazilian market.
Conversely, the Fund was aided by not holding certain stocks that were hurt by an appreciating real, namely pulp and paper company Fibria Celulose. Our lack of exposure to meat producer JBS was also beneficial, as the stock tumbled after company executives were accused of financial crimes. Holding Natura Cosmeticos lifted relative returns, as its shares rebounded from recent lows, thanks to the surprisingly impressive performance from its international markets. In portfolio activity, we sold Souza Cruz shares to parent BAT, which had raised its bid to take the unit private. We switched from Banco Bradesco’s ordinary shares to preference shares to capitalise on the widening discount. We also added to Ambev, BRF, Localiza, Iguatemi, Ultrapar, Valid, and Weg, and trimmed BM&F Bovespa, Itausa, Lojas Renner, Natura and Vale.
Outlook
The recent stockmarket rebound is unlikely to be long-lasting. Brazil’s political saga continues to unfold, fuelling widespread desire for rapid change. However, the reality is that impeachment is a long, drawn-out process and the economy is likely to continue contracting. Vice president Michel Temer is already waiting in the wings, outlining pragmatic, business-friendly ideas to stem the economic slide and scouring the nation for a potential finance minister, should the Senate vote to put president Rousseff on trial and he has to step in. While this is positive, there is a risk he may himself be forced from office over the same case being brought against Rousseff. Meanwhile, an alarming rise in the number of mosquito-borne Zika virus cases casts a shadow over the Olympics in August.
Despite such an unstable environment, our portfolio continues to reflect the strategy of diversification as we look for businesses that boast relatively unique attributes. We remain confident that our holdings can take advantage of long-term growth drivers in Brazil to reap sustainable rewards.
Aberdeen Global Emerging Markets Equity Team
April 2016