ASI Latin American Equity: April 2021 fund update

Kate Marshall | Fri 23 April 2021

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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
• 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 Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

ASI Latin American Equity is a specialist fund that focuses on the main markets of Latin America, including Brazil, Mexico, Chile and Peru. Long-term growth is the main aim, and we think the fund 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 (ASI) 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 seven global locations, including London, Singapore and Sao Paulo. This provides them excellent access to companies, and insight into what's going on across these markets.

The team looks for ideas across the emerging markets, including Latin America, and each team member has responsibility for certain sectors. This means the whole team provides vital support on this fund and contributes 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 six investment managers and analysts also form ASI’s Latin American Equity ‘pod’, led by Eduardo Figueiredo, Head of Brazilian Equities. Most members of the pod are based in Sao Paulo, Brazil and, in addition to carrying out research, they are responsible for ensuring the wider team’s best ideas make it into this fund. This means they have key input into its final construction.

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 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.

Meeting company management is important, and the team 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 (ESG) issues, which could lead to better outcomes for both investors and society over the long run.

ASI’s emerging markets funds typically have a bias towards businesses that could benefit from rising wealth and domestic consumer spending, though the team aims to have at least some exposure to most major sectors. The fund has less in areas such as utilities and telecoms than the broader Latin American market.

Two main changes were made to the fund last year. Within the consumer-related part of the fund, the team reduced investments in traditional retail companies, which could be impacted by the associated affects of coronavirus, such as lockdowns. In their place, exposure to ecommerce, and other businesses that could benefit from their use of tech, was increased. New investments include Arco Platform, which provides software solutions for the education industry

Investments in the basic materials sector were also increased. The team’s focused on those they believe have good long-term prospects and could benefit from trends such as rising commodities prices, including Vale, a Brazilian metals and mining company.

In all sectors, even areas like materials, the team takes quality and ESG issues seriously. They only invest in what they believe to be ‘best-in-class’ companies and, if there are any ESG concerns, the company must be aware of these and be willing to engage with the team to work on improving its ESG credentials.

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 Global Emerging Markets Equity 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 like the collaborative culture at ASI. 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.

They also take stewardship and ESG issues seriously. These factors are considered as part of company analysis, and the team engages with companies to encourage best practice.

Cost

This fund is available through Hargreaves Lansdown at an annual net ongoing charge of 0.65%, after a 0.54% discount. The standard ongoing charge is 1.19%. We think this is a great price for a fund that invests in a specialist area of the market, particularly 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 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. 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 when investing in a specialist area, and from economies that continue to evolve and experience more political and economic uncertainty than developed markets.

Latin American markets faced a tough time over the past year, and during the worst of the coronavirus crisis last February and March. At the start of last year, they were hit particularly hard, and have taken longer to recover than some other markets. Latin America has suffered some of the highest death tolls, while countries like Brazil and Mexico have come under pressure due to their perceived mishandling of the crisis.

Latin America continues to face uncertainties, especially against the backdrop of Covid-19 and fragile politics. We recently spoke with fund manager Figueiredo and he continues to believe there are attractive investment opportunities in the region, and companies that can do well regardless of economic uncertainties and over the longer term.

The manager thinks Latin America could be a beneficiary of environmental reforms, especially from the US and China. This is because it can provide the green materials, such as copper, that the world needs. The team has therefore increased exposure to a copper miner and more broadly to Chile and Peru, which are expected to benefit from demand for these materials.

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2021.

More on ASI Latin American Equity, including charges

ASI Latin American Equity Key Investor Information