This article is part of the Morningstar's Guide to Emerging Market Investing. Click here to find out just what an emerging market is and which regions hold the potential to boost your investment portfolio.
Aberdeen Latin American Equity
This fund remains a compelling choice within its sector, managed by a team we regard highly. One of this fund’s strengths lies in the team approach and the depth of the analytical resource of Aberdeen’s 18-strong global emerging-markets team, which is headed by seasoned investor Devan Kaloo.
Within the global emerging markets team, head of Brazilian equities Peter Taylor shares lead management responsibilities with senior investment manager Fiona Manning, although the approach is collegial and any decision must be approved by the whole team before being implemented within the portfolio.
The process has been applied consistently since the fund’s inception. It reflects the team’s strong emphasis on quality, growing companies with management that is able to facilitate this growth. They consider quality companies to have sustainable, competitive business models; strong balance sheets; high returns on assets and capital; and good corporate governance. This quality focus is paired with a valuation discipline which ensures that they do not overpay for growth.
The team invests for the long term and pays little attention to the benchmark when constructing the portfolio. They are also firm believers that returns should be considered on an absolute, rather than relative, basis. This philosophy, combined with the focus on quality and longer-term investing, can lead to periods of relative underperformance such as 2013 and 2014, but the fund has tended to bounce back.
The fund’s long-term track record remains strong, as evidenced by the consistent outperformance of the team’s GIPS-compliant composite since its launch in 2009.
The fund continues to benefit from the consistent and sensible approach undertaken by a stable and experienced team which has resulted in a strong long-term track record. The fund retains our Morningstar Analyst Rating of Bronze.
JP Morgan Latin America Equity
JPM Latin America Equity is a strong choice within its Morningstar Category. Luis Carrillo's track record as lead manager for this fund stretches back to January 2003, although he started covering the Latin America region years before taking the helm of this product. Since November 2012, he has had the support of Sophie Bosch de Hood as co-portfolio manager.
She had been working alongside Carrillo as an analyst for more than a decade. Both professionals are supported by a team of six analysts covering the region, with sector responsibilities.
The portfolio managers aim to invest in high-quality businesses that can compound their growth faster than the market, with a long-term mentality. The process is mainly bottom-up, and stocks are assessed using a two-part analysis. First, a stock's return potential is evaluated through four sources of return; earnings growth, dividends, change in valuation, and currency, resulting in a five-year expected return for the stock.
Second, analysts assess the business dynamics, management quality, growth prospects, the sustainability of its competitive position, and corporate governance. Investors should note that resulting country and sector exposures are largely explained by the individual stock decisions. The fund usually displays a bias toward sectors such as financials, industrials, or consumer-related companies and gives an underweighting to commodity cyclical companies.
Carrillo has achieved solid returns over his tenure, with the fund outperforming its category average over three, five, and 10 years in risk-adjusted terms. The fund is also more volatile than the typical fund in its category, but on a calendar-year basis, it has managed to outperform most years with the exception of 2008, 2015, and year-to-date 2016, which showcases the consistency of the process.
In terms of price, the ongoing charges of the fund are below the retail category median, which, coupled with an experienced team and a proven strategy, earn the fund a Morningstar Analyst Rating of Bronze.
