The MSCI EM Latin America index has returned 31 per cent since the start of the crisis in August 2007, and 277 per cent in the last five years. Both these figures put Latin America at the top of the world’s regions for performance, far exceeding rival emerging market Asia.
Performance of MSCI EM Latin America over 5-yrs
Source: Financial Express Analytics
The performance of Brazil in recent years has been exceptional but the past five years has seen strong performances from all countries in Latin America.
Top performing funds over 5-yrs
Source: Trustnet.com
Dean Newman, fund manager of
Invesco Perpetual’s Latin America fund believes that these impressive returns have been underpinned by a significant improvement in the fundamentals, at both a country and corporate level.
“Enormous progress has been made by governments through the implementation of sounder and more credible monetary and fiscal policies. Today we have low inflation and interest rates, strong currencies, primary surpluses and healthy international reserves,” says Newman.
The
Invesco Perpetual Latin America fund was launched in 1995, it is the oldest fund focused on the region and has returned 237 per cent in the last five years.
Performance of Invesco Perpetual Latin America fund over 1-yr
Source: Financial Express Analytics
Despite this performance, UK investors have shied away in favour of other emerging markets. Brian Dennehy, managing director of financial advisers
Dennehy and Weller, believes that there is a lack of understanding about what Latin America represents.
He says: "The 24 hour media has a lot of coverage of an entrepreneurial Asia, and booming China – but coverage of Latin America is all too often focused on drug barons or white men in dugout canoes. So investors and advisers tend to focus on Asia or general emerging market funds."
The lack of demand has resulted in the fact that there are just five Latin America focused funds available for UK retail investors, in contrast there are 85 funds investing in Asia. There is some debate amongst investment professionals as to the reasons for the lack of popularity for investing in Latin America.
Tim Cockerill, head of research at
Rowan Independent Financial Advisers, argues that a history of political instability, high inflation and government defaults has turned off investors. He believes that the negative news stories coming out of the region masks the positive changes that have taken place.
Conversely, Dean Newman argues that the UK’s long standing economic, financial and personal links to Asia has led to a greater level of investment from UK retail investors. "By contrast, the Latin American region has been more successful in attracting investors from the US, which has tended to have closer historic links to the region".
The unpopularity of the region is reflected in the fact that only one of the
16 Adviser Fund Index (AFI) advisers has chosen a Latin America fund in the November rebalancing.
The AFI is a series of indices made up of the fund choices of a panel of leading financial advisers, its constituents are therefore representative of the funds currently being recommended by advisers all over the country.
Seeing the potential in the region,
First State Investments chose to enter the Latin American funds arena in April. The fund has returned 43 per cent since its launch and the management is optimistic for future growth.
Whilst investors who were slow to realise the potential in the region may have forgone the short term gains of 2009, investment professionals agree that Latin America has a lot to offer in the long-term.
This article first appeared in the Daily Telegraph