ASI Latin American Equity: May 2020 fund update

Kate Marshall | Tue 02 June 2020

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• This fund is run by a team with one of the longest records of investing in a dedicated Latin American fund
• We like their long-term focus, but willingness to be flexible in the hunt for the best opportunities
• Increased wealth and domestic consumption could drive longer-term growth across this region – the fund is invested in a way that could benefit
• This fund is on the Wealth 50 list of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This specialist fund focuses on the main markets of Latin America, including Brazil, Mexico, Chile and Peru. We think it could provide a way to diversify a portfolio invested in broader global or emerging markets funds. Higher volatility and risk should be expected from a fund like this, given it focuses on a small group of emerging economies. It should therefore only be considered to form a small part of a wider investment portfolio, focused on long-term growth.

Manager

Aberdeen Standard Investments is home to one of the most experienced teams investing in emerging markets companies. The Global Emerging Markets Equities team has invested in the region for more than three decades and is currently headed by Devan Kaloo, who joined the group in 2000. A strong team of analysts and portfolio managers has been built over the years, and they're based across eight global locations, including London, Singapore and Kuala Lumpur. This provides them excellent access to companies, and insight into what's going on across these markets.

The whole team provide vital support on this fund, and contribute research and stock ideas. We think their overall experience counts for a lot when it comes to investing across this diverse range of economies. A group of five analysts mainly focus on Latin American markets and are based in Sao Paulo in Brazil. They have key input into the final construction of this fund.

Process

The team's investment philosophy is based on 'long-term quality'. They believe most investors underestimate the sustainability of returns that many high-quality companies can make. They aim to find those that can generate fairly steady rates of growth, which have been overlooked by others, and hold onto them for many years.

Companies in good financial health, run by robust and trustworthy management teams are favoured by the team. They often look for a change that could help boost profits in future, such as a new product or change in technology. They sometimes invest in out-of-favour companies because they're often undervalued and can be bought at a more attractive share price.

The fund has a bias towards consumer-related businesses that could benefit from rising wealth and consumer spending, but the team aims to have at least some exposure to most major sectors. The team recently reduced exposure to consumer businesses, due to the potential negative impact from the coronavirus, though it's still a key area for the fund. Top investments currently include Brazilian banks Banco Bradesco and Itau Unibanco, and retailer Walmart de Mexico.

Meeting company management is important to the team, and they can do this regularly as they’re based throughout the emerging markets, including Latin America. They also like to engage with companies on environmental, social and governance issues, which could lead to better outcomes for both investors and society over the long run.

Culture

Aberdeen was one of the UK's first asset managers to build a range of Asian and emerging markets funds. The group has remained committed to investing in these markets, including Latin America, ever since and we think this dedication is admirable.

Aberdeen merged with Standard Life in 2017 to become Aberdeen Standard Investments. The team subsequently made some incremental changes to their investment process, though the core of their philosophy remains intact. We're pleased to see the team has settled since the merger and encouraged they're willing to learn and keep improving what they do. We'll continue to keep an eye on the impact on performance and the team.

The broader team is responsible for a range of Asian and emerging markets funds. Each member provides input to the wider franchise, and they're willing to share their knowledge and experience to ensure their best ideas make it into the portfolios.

Cost

This fund is available at an annual ongoing charge of 0.65%, after a 0.54% discount available for HL clients. The usual charge is 1.19%. We think this is a great price for a fund that invests in a specialist area of the market, particularly in a specific region, where costs can be higher. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The Global Emerging Markets Equity team has managed this fund since launch in 2011, and also run other portfolios focused on Latin American markets since 2004. Over this time, and since launch of the ASI Latin American Equity Fund, the team has performed better than the broader Latin American stock market. We think this is impressive as few dedicated Latin American funds have been able to outperform over such long periods of time. As always past performance isn't a guide to how the fund will perform in future.

There have been periods of weaker performance as well though, and performance will be volatile at times, especially compared with funds that focus on a broader range of emerging economies or developed markets. We think this should be expected from economies that continue to evolve and experience more political and economic uncertainty than developed markets.

The team's focus on quality companies could sometimes help the fund hold up a bit better when the market falls. But this won't always be the case, given the higher-risk nature of these markets and the fund's focus on companies that typically benefit from greater consumer spending when the economy is in good health.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

More about ASI Latin American Equity, including charges

ASI Latin American Equity Key Investor Information