ASI Latin American Equity - oil & gas on the rise
Kate Marshall | Thu 29 August 2019
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- Latin America is an exciting place to invest for more adventurous portfolios
- We think the team at Aberdeen is one of the best for investing in this specialist area
- We caught up with them recently and are encouraged by some of the changes they're making
Our view
We think Aberdeen is home to a high-calibre team of emerging markets investors. They have a good long-term track record of investing across this part of the world, including Latin America.
Aberdeen merged with Standard Life two years ago, and the team took this as an opportunity to reassess their investment process and see if there's any room for improvement. They've since made a few changes. For example, fund managers and analysts now mainly focus on specific sectors, rather than trying to cover the entire market or broader geographies. It provides each analyst with specialist knowledge of a particular area.
The core of their process remains the same and we view this as a good thing. But we think these recent, incremental changes have helped to reinvigorate the team and sharpen their focus. We'll continue to monitor any further changes and the impact they may have on the team or fund.
Our research shows ASI Latin American Equity is one of few funds that has performed better than the broader Latin American stock market over the long run. It's currently our favourite for exposure to the region, and it features on the Wealth 50 list of our favourite funds.
Latin America is a specialist area and an emerging market, meaning it’s a higher-risk place to invest. We think it has lots of potential, but an investment here should only make up a small part of an investment portfolio. The flexibility to invest in smaller companies also adds risk.
Latin America takes the lead
The Latin American stock market delivered an impressive return over the past year – it grew 17.9%* compared with 7.7% for the broader emerging stock market.
But investing in Latin America can be a rocky ride. Its markets can experience big setbacks, especially over shorter periods, and be susceptible to economic and political news.
Currently, Brazil is undergoing ambitious economic reform, including overhauling a pension system that's been a drag on government finances for many years, Mexico is dealing with the threat of trade tariffs from the US, while Argentina is caught up in presidential election fever.
There are lots of great companies across the region though, with superior growth potential. The team at Aberdeen has proven adept at finding some of the best. Over the past year the fund's grown 21.1%*, though this isn't a guide to how the fund, or the market, will perform in future.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Jul 14 -
Jul 15 |
Jul 15 -
Jul 16 |
Jul 16 -
Jul 17 |
Jul 17 -
Jul 18 |
Jul 18 -
Jul 19 |
|
| ASI Latin American Equity | -27.2% | 34.9% | 22.2% | -1.9% | 21.1% |
| FTSE Emerging Latin America | -25.3% | 25.2% | 18.6% | 0.7% | 17.9% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2019
Investments in the technology and basic materials sectors have been some of the best performers so far this year. Software development companies Globant (Argentina) and TOTVS (Brazil), along with metals and mining company Vale, have recently contributed the most to returns.
Portfolio changes: oil & gas on the rise
Exposure to the oil & gas sector has increased over the past year and now accounts for 11% of the fund. An investment in Petrobras was added towards the end of 2018, and has been topped up throughout this year. The team is encouraged by the company's drive to reduce debt, and address environmental and social risks. Geopark was also added more recently as the team thinks it has a great track record of oil exploration and production.
Rumo, Brazil's leading railway company, is another recent addition. Its management team has been successfully delivering on a financial turnaround plan and reducing debt, which could support earnings growth over the long run. It could also benefit from the planned expansion of railways, to help transport agriculture products, according to the team.