The EP Latin America A Fund (EPLAX) fell by 8.4% in August 2015, from July 2015—the second smallest decline among the eight Latin America-focused funds we’re analyzing in this series. In the trailing three-month period ending August 31, the fund was down by 11.9%, the lowest among lur pack of eight funds, while in the trailing six-month period, EPLAX was down 15.8%, again the lowest among its peers. In the YTD (year-to-date) period, EPLAX was down by 17.2%, thus making it the fund declining least among the eight funds we’re reviewing.
Now let’s look at what helped the fund avoid big losses in the periods under review.
Portfolio composition and contribution to returns
The EPLAX’s portfolio is focused on the consumer staples, financials, and industrials sectors, with exposures of 25.2%, 23.0%, and 18.4%, respectively. The consumer discretionary sector followed these three core sectors, with an exposure of 15.7%.
Financials, consumer staples, and industrials were the top three negative sectoral contributors to returns. But its financial stocks have been beaten down in the recent past, and so all funds that do not have financials as their largest sectoral holding have been able to avoid further losses than have already incurred.
Among financials stocks held by the fund, Mexico-based consumer finance company Credito Real (CREAL) was the biggest negative contributor to returns. This company was closely followed by Brazil-based BB Seguridade Participações and Itaú Unibanco Holding (ITUB). Bancolombia SA (CIB) also negatively contributed to returns.
Marginally positive contribution to returns by Argentina’s Banco Macro (BMA) were not enough to substantially reduce the negative returns that financials contributed to this fund.
The consumer staples sector was pulled down by the Brazilian wheat food products manufacturer M Dias Branco. A distant second was the Mexican canned food products manufacturer Grupo Herdez.
Industrials were pulled down by Brazil’s WEG and Mexican airport operator Grupo Aeroportuario del Centro Norte (OMAB).
How the fund reduced underperformance
EPLAX did have a substantial exposure to financials, but these were not the fund’s biggest holdings. More exposure to financials would have further hurt the fund’s performance, but so far, the fund’s stock picks seem to have benefitted from its performance through 2015. Most of its top underperformers were not the top picks of their respective sectors for August, which helped EPLAX evade further losses.
Among individual stocks, the Brazilian textile and retail clothing company Cia Hering was the biggest positive contributor to returns, helping the fund reduce some losses from the consumer discretionary sector.
In the next part of this series, we’ll look at the Fidelity Advisor Latin America Fund Class A (FLFAX).