Introduction
This compares unfavourably to the MSCI Emerging Markets index, which in the same period delivered a return of 23.26 per cent. Meanwhile, the MSCI World index returned a much more impressive 73.61 per cent, according to data from FE Analytics.
In theory the main driver within Latin America should be Brazil, a member of the emerging market Bric standouts (alongside Russia, India and China), with the country accounting for more than 50 per cent of the MSCI Emerging Markets Latin America index.
But figures show that across one, three and five years the MSCI Brazil index has significantly underperformed its Latin American counterparts, with only the MSCI Chile index delivering a worse performance for one- and three-year periods to November 10.
Geopolitical turmoil could be responsible to some extent for the below-par performance, particularly in recent months as a result of the presidential election, where incumbent Dilma Rouseff secured another victory last month with almost 52 per cent of the vote.
Jan Dehn, head of research at Ashmore, notes that while the victory had been priced into markets in the weeks preceding the second vote, the big question is what happens in her second term.
He explains: “The economic policies adopted by [Brazil’s] finance minister Guido Mantega have significantly undermined business confidence in Brazil over the past couple of years. In response, the government has stepped up public spending orders to sustain ever-weakening economic momentum against a backdrop of a weaker currency, widening external balances, and stubbornly high inflation.
“We expect a new and more market-friendly economic team as Mr Mantega is replaced. We also expect fiscal measures to be implemented in order to reverse the ongoing deterioration in the public finances and to avoid a sovereign downgrade.”
Interestingly, one of the better performing Latin American countries of the past five years has been Argentina, in spite of its political turmoil, bond default issues and its nationalising of companies. For the five years to November 10 the MSCI Argentina index has delivered an impressive 47.58 per cent, while for the year to date it has returned 34.37 per cent.
With an election scheduled for 2015, and suggestions that current president Cristina Fernández de Kirchner will be replaced, this opens up opportunities for further reform and potentially even better returns.
Latin America comprises a diverse selection of countries, and with the election cycle in the subregion coming to an end in the next 12 months, this area could be the next star of emerging and frontier markets.
THE PICKS
JPMorgan Latin America Equity
One of the longest running Latin American funds, having been launched in May 1992, this $1.47bn (£927m) vehicle is managed by Luis Carrillo and Sophie Bosch de Hood. It has delivered the strongest 10-year performance of the six IMA-listed Latin American-named funds, with a return of 269.59 per cent for the decade to November 10 2014. Its largest sector weighting is to financials at roughly 34.6 per cent of the fund, while Brazil is the largest geographical position at approximately 54.9 per cent of the portfolio.
Pictet Latin American Local Currency Debt
Managed by Simon Lue-Fong, Mary-Therese Barton and Orlena Yee this £451m fund was launched in June 2008. It is one of only three IMA-listed Latin American-named funds to deliver a positive return in the 12 months to November 10, topping its peer group with a 3.33 per cent return. The portfolio seeks capital growth by investing at least two-thirds of its total assets in bonds and other debt instruments denominated in the local currencies of emerging Latin American markets. It has a relatively concentrated portfolio of just 34 holdings.
EDITOR’S PICK
First State Latin America
Topping the list of IMA Latin American funds over both three and five years, this vehicle was launched in April 2009 and is managed by Tom Prew and Millar Mathieson. The portfolio invests in shares of companies based in, or having significant operations in, Latin America, with its largest sector weighting in consumer staples. Although it is quite small at just £66m, the fund has a concentrated portfolio of just 30 names, with its largest country allocation towards Chile at 52.1 per cent of the portfolio. Its five-year return of 21.8 per cent leads the way among other Latin American funds, although its one- and three-year performance has dipped into negative territory. However, this could be one to watch as a turnaround option.
