Fund Review: Aberdeen Latin American Equity

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Fund Review: Latin America

This fund was launched in February 2011 and is already £152.7m in size.

It is run by the Aberdeen global emerging markets equity team and aims to provide income and growth by investing in Latin American companies.

Fiona Manning, senior investment manager at Aberdeen Asset Management, reveals: “We carry out rigorous first-hand research on companies before we buy them to ensure they satisfy our quality criteria.

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“Our checklist includes strong finances, regard for minority shareholders, good corporate governance, sustainable businesses and solid, long-term prospects. Then we make sure companies are fairly priced.”

Ms Manning explains that this process continues even after it has introduced a company to the portfolio and claims picking stocks this way is the best defence against market uncertainty.

As for consideration of macroeconomic factors in the stockpicking process, she remarks that these remain secondary.

“Markets reward companies not economies; there is little evidence linking equity returns to economic growth,” she notes. “For example, we’re finding well run companies in countries such as Brazil, where growth has been slowing.”

On a risk-reward profile, the fund sits at level six out of a possible seven and this is reflected in its ongoing charges, which are 2 per cent. The portfolio is currently overweight Brazil with 62.6 per cent in this country, followed by Mexico at 19.1 per cent of the fund.

Ms Manning comments: “The fund is overweight towards Brazil, where we found most opportunities in terms of high-quality companies at decent valuations, and underweight Mexico for the converse reason. We struggle to find lots of high-quality businesses there and valuations tend to be a bit more expensive.”

She adds: “For the first time we have become overweight in Chile, really reflecting the opportunities we are seeing there, particularly given valuations there have become much more reasonable post the fall in markets.”

The manager points out that the portfolio is still overweight sectors that benefit from domestic demand in Latin America, while it is underweight to more cyclical sectors or those that are strongly influenced by regulators and governments, such as telcos and utilities.

The fund has not had an easy ride since its launch in 2011, with its performance suffering. According to FE Analytics, in the three years to November 12, the fund made a loss of 9.06 per cent against a 13.25 per cent loss generated by its benchmark, the MSCI EM Latin America 10/40 index.

“Much of the losses in emerging markets generally were felt in 2013 due to concerns on the effect of the Federal Reserve beginning to taper its quantitative easing programme and slowing growth in China,” she observes.

Turning to individual stocks, Ms Manning says: “The past few months have been fairly tough for the market and for the fund itself. In terms of where that underperformance came from, essentially a lot came from Mexico and that was largely a function of not owning América Móvil, which benefited as investors started to become more positive about its asset sales and the potential value that could unlock this.