This article is part of Your Guide to Emerging Markets. All this week, we are focusing on emerging markets, sharing their potential pitfalls – and where you can make a pretty penny.
JP Morgan Latin America Equity
This Bronze Rated fund is run by a pair of managers who Morningstar analyst Lena Tsymbaluk holds in high regard. Luis Carrillo’s track record as the fund manager for JPM Latin America Equity fund stretches back to January 2003. Since November 2012, Carrillo has had the support of Sophie Bosch de Hood as co-portfolio manager.
The 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.
The portfolio managers are the ultimate decision-makers when it comes to constructing the portfolio, using their best bottom-up ideas. The high-conviction approach can lead to deviations from the sector and country weightings of the fund's index, MSCI EM Latin America. The typical portfolio usually has between 50 and 70 stocks and usually features a turnover less than 60% per year on average.
Aberdeen Latin American Equity
This Bronze Rated fund has a three year annualised return of 9%, but has suffered year to date, down 14%.
Tsymbaluk says the fund remains a compelling choice within its sector, managed by a team Morningstar fund analysts regard highly. The process has been applied consistently since the fund’s inception. It reflects the investment 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. This philosophy, combined with the focus on quality and longer-term investing, can lead to periods of relative underperformance, but the fund has tended to bounce back.
Janus Henderson Latin American
This fund earns a five-star performance rating, meaning it has outperformed peers – gaining an average of 11% a year for the past three years, although it is also down over 2018 so far, losing 8.9%.
Run by Glen Finegan and Nicholas Cowley, the portfolio is 41% invested in Brazilian stocks, and 29% in Chilean stocks, with Mexico at 12% allocation and Colombia at 4.7%. This is a significant overweight towards Chile compared to the benchmark, which allocates 57% to Brazil and just 10.6% to Chile.
The sector allocation also deviates from the benchmark – taking active bets on consumer staples stocks, and underweight financials. The largest sector allocation is beverages companies, followed by commercial banks and then food products – the latter is a 10.6% allocation, compared to the benchmark which allocates just 2%.
Stewart Investors Latin America
This five-star fund has returned on average 12.8% a year for the past three years, but has lost 7.9% year to date. Run by Dominic St George and Tom Prew, it is 39% invested in Brazil stocks, 30% invested in Chile and 25% in Mexico.
The largest sectorial allocation is beverages, in line with the Janus Henderson fund, but the second biggest sector is water utilities, at 8.7%, compared to benchmark weighting of just 0.7%. Energy makes up just 2.3%, compared to the benchmark of 9.6%, and materials makes up 9.7% compared to the benchmark weighting of 19%.
The largest holding is the water company Inversiones Aguas Metropolitanas SA, and the second largest stock holding in the portfolio is the Mexican listing of consumer staples business Kimberly-Clark.
Neptune Latin America
Thomas Smith has run this five-star performance rated fund since 2011. It has a three-year annualised return of 12.7%, and has lost the least year to date of the funds listed here at down 7.1%. It is benchmark aware, with similar regional weightings, deviating slightly to underweight Chile, in favour of Brazil.
It has a greater number of holdings than its competitors, with 53 stocks in the portfolio, and has an annual portfolio turnover of 79% compared to the category average of 51%. The largest sector allocation is to commercial banks at 26%, followed by metals and mining stocks with 10.6% of the portfolio, and oil and gas companies allocated 6%.
The largest holding in the portfolio is international mining company Vale at 6%, followed by Petrobras with 5.2%.
