Lagging Latin American trust forced into 25% tender offer

High-yielding BlackRock Latin American confirms it will offer to buy back up to a quarter of its shares after failing to beat its stock market benchmark over the past four years.

BlackRock Latin American (BRLA ) is set to shrink by up to a quarter after failing to beat its stock market benchmark over the past four years.

As of 31 December, the high-yielding £134m regional fund had trailed the MSCI Emerging Markets Latin America index by 0.94% on an annualised basis since the end of 2017.

This broke the terms of a conditional tender offer agreed in 2018 in which the trust aimed to deliver an annualised dollar return at least 1% above the MSCI benchmark.

The underperformance by fund managers Ed Kuczma and Sam Vecht means the trust will offer to buy up to 24.99% of its stock at a price of 2% plus costs below net asset value.

A shareholder vote to implement the tender offer will take place immediately after the trust’s biennial continuation vote in May.

Shares in the 6%-yielder added 3.5p or 1% to 344p on Tuesday, having closed last week on a 6.5% discount to their underlying net asset value.

Nearly half of the shares are held by discount-chasing value investors City of London, Lazards and 1607 Capital Partners. They are likely to tender their shares on the narrow discount and buy back in should the discount widen again. This could lock the trust into a downward spiral of contraction unless it can improve performance and attract long-term retail investors.

Kuczma and Vecht have run the trust since December 2018 after the departure of its former fund manager Will Landers.

The trust has struggled against difficult market conditions. Over 10 years, the shares have delivered a total return of -2%, including dividends, although that beats the 12% decline in the MSCI index and the 11% fall in smaller rival Aberdeen Latin American Income (ALAI ).

Last year the shares, including dividends, fell 11%, behind the 7.5% decline in the index, according to Morningstar.

Last month the fund managers complained it had been another tough year for Latin America, many of whose countries have been hit hard by Covid-19, but said there could be ‘better times ahead’ as the world recovers from the pandemic, fuelling demand for the commodities it produces.

As part of the measures to control the share price discount in 2018, the trust adopted a policy of paying a 1.5% quarterly dividend. This afternoon it declared a fourth quarterly dividend of 6.21 cents per share.

The trust had to meet two conditions to avoid having to tender for its shares. It narrowly met the other criteria for its shares to stick within a 12% discount, having stood at an average 11.65% discount in the four-year period.

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