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Which Latin America-focused funds outperformed in 2016?

06 February 2017

With Latin America funds being among the strongest performers in 2016, FE Trustnet takes a closer look at the strategies that stood out last year.

By Rob Langston,

News editor, FE Trustnet

After three successive years of poor performance, Latin America funds finally shone during 2016 with all funds focused on the region reporting double-digit gains.

The MSCI Emerging Markets Latin America index was up by 56.31 per cent in 2016, following a 27.04 per cent loss during the prior year.

The index has continued to perform well in 2017 and is up by 8.39 per cent up to 3 February.

Indeed, the outlook for many of the countries in Latin America is positive for 2017: the International Monetary Fund forecast growth 1.2 per cent for Latin America & the Caribbean in its latest World Economic Outlook update last month.

Using FE Analytics, FE Trustnet compiled a sub-sector made up of equity funds focused on the region and compared it with the MSCI Emerging Markets Latin America index to find out which were the best performing funds of 2016.

As the chart below shows, despite a strong year for Latin American markets the average fund from the sector underperformed the index during 2016.

FE Trustnet’s Latin America funds sector vs index in 2016

   
Source: FE Analytics

The average fund returned 47.69 per cent compared with the superior return for the index over 2016.

Below, FE Trustnet takes a closer look at some of the best performing Latin America equity funds over 2016.


Scottish Widows Latin American

The highest returning Latin America fund of 2016 was also one of the smallest – the four crown-rated Scottish Widows Latin American fund, managed by the Scottish Widows global emerging markets team.

With an aim of providing long-term capital growth through investment in companies operating in Latin America, the fund returned 64.69 per cent over 2016.

Conversely, the fund was one of worst performing Latin American funds in 2015, a difficult year for funds focused on the region, recording a 27.16 per cent loss.

Over three years, the fund has returned 8.61 per cent compared with a gain for the index of 6.23 per cent. The return for the average fund in the peer group over three years is a paltry 0.33 per cent gain.

Performance of fund vs index over 3yrs

 

Source: FE Analytics

According to FE Analytics, the fund’s largest positions are in Brazilian banks Itau Unibanco and Banco Bredesco, representing 8.22 per cent and 8.12 per cent of the portfolio. Indeed, the fund’s largest sector weighting is towards the financials sector, making up 35.52 per cent of the portfolio.

Located in the IA Specialist sector, the fund has an ongoing charge fee (OCF) of 2.00 per cent, as at 31 July 2015.


Aberdeen Latin America Equity

Also registering a strong return in 2016 was the Aberdeen Latin American Equity fund, which made 64.12 per cent in 2016. The four crown-rated, £203.7m fund is overseen by firm’s global emerging markets equity team.

Like the Scottish Widows fund, the Aberdeen strategy also registered a double-digit loss of 25.83 per cent in 2015. Yet, over three years the fund is ahead of its benchmark - MSCI Emerging Markets Latin America 10/40 index - with its 8.53 per cent gain outperforming the 6.23 per cent return for the index.

Performance of fund vs index over 3yrs

   
Source: FE Analytics

The fund aims to provide a combination of income and growth through investment mostly in Latin American companies.

The fund has a 60.8 per cent weighting towards the region’s largest economy Brazil and has a further 20.3 per cent invested in Mexico.

The largest sector weighting is in financial stocks, representing 28.7 per cent, while consumer staples make up 22.9 per cent of the portfolio. As with the Scottish Widows fund, the Aberdeen fund’s largest holdings are Brazilian banks Itau Unibanco and Banco Bradesco.

“Latin American equities rose in December, outperforming the broader emerging markets, as the oil price rebounded after major producers agreed to curb output,” the fund’s management team noted.

“Gains were capped after the US Federal Reserve indicated that it could tighten three more times in 2017 following a hike of 25 basis points, which was more hawkish than anticipated.”

The fund, which also sits in the IA Specialist sector, has an OCF of 1.27 per cent.


Stewart Investors Latin America

During a great year for Latin American strategies, a number of funds returned around 50 per cent last year. Indeed, the five crown-rated Stewart Investors Latin America fund was up by 51.21 per cent last year, just shy of the 56.31 per cent return made by the MSCI Emerging Markets Latin America index.

However, it is over three years that this fund has performed strongest.

The fund has returned 22.43 per cent over three years, the best return over three years for the custom peer group.

Performance of fund over 3yrs

  

Source: FE Analytics

The £170.5m fund is co-managed by FE Alpha Manager Tom Prew and Dominic St George. The fund has straightforward investment objective; it “aims to grow your investment”.

Unlike the previous funds, the largest sector position for the Stewart Investors fund is consumer products, making up 25.3 per cent of the portfolio.

The fund’s biggest country weighting is towards Brazil, representing 42.4 per cent of the fund. Its second largest country weighting is Chile and its largest holding is Chilean industrial and financial investment firm Quiñenco.

It has an OCF of 1.19 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.