How Financials Affected the JPMorgan Latin America Fund in September

Performance evaluation

The JPMorgan Latin America Fund Class A (JLTAX) fell by 6.2% in September 2015 from the previous month. In the three- and six-month periods that ended on September 30, the fund fell by 22.2% and 21.7%, respectively. In the YTD (year-to-date) period, the fund was down by 29.8%. However, from the end of September until October 28, the fund rose by 5.2%.

The fund’s performance in the one-month period made it the third-least decliner among the nine Latin American-focused funds we’re evaluating in this series. But for all other periods, JLTAX posted below average performance. Let’s look at what contributed to this fund’s performance as of September 2015.

How Financials Affected the JPMorgan Latin America Fund in September

Portfolio composition and contributions to returns

JLTAX was launched in February 2007—before the global financial crisis took hold. It has thus seen at least one complete market cycle. According to its latest geographical disclosure, Brazil, Mexico, and Peru are the top three invested geographies, in that order, making up ~87% of the fund’s assets.

Since the latest complete portfolio of the fund available as of October 2015 is based on August 2015, we’ll consider this as our base. For September, we’ll consider valuation changes for our analysis. All portfolio percentages mentioned from here on refer to weights according to changes in valuation from August to September.

Here’s a breakdown of the sectoral contributions to JLTAX as of September 2015:

  • JLTAX’s exposure to financials was highly detrimental to the fund’s returns. Not only did the sector emerge as the biggest negative contributor to returns, its quantum was quite substantial, contributing over a third of the fund’s overall decline. High exposure to the ADR (American depository receipt) of Banco Bradesco SA (BBDO) was really hurtful to the fund as well, and BB Seguridade Participações SA, an insurance and brokerage holding company, also contributed substantially to the fund’s negative returns.
  • Industrials followed financials as the second-biggest negative contributor to returns. Brazil’s WEG SA led the negative contributors, followed by Copa Holdings SA (CPA). But a positive contribution by Grupo Aeroportuario del Sureste (ASR), among others, reduced some of the negative drag.
  • Even though consumer discretionary stocks formed less than 10% of the portfolio, they emerged as the third-biggest negative contributor to returns. The sector was led down by Brazilian department stores clothing company Lojas Renner SA.
  • The energy sector fell, too, as both its holdings contributed negatively. The Argentine energy company YPF SA (YPF) contributed the lion’s share of negative returns, followed by Ultrapar Holdings (UGP).

Factors driving performance

Among the nine Latin America-focused funds we’re analyzing in this series, JLTAX was the third-least decliner as of September 2015. Negative returns from consumer staples, which had a bigger share, were outdone by negative returns from the consumer discretionary sector. This helped the fund avoid further losses in September.

However, over longer periods, JLTAX’s performance was hurt by stock picks, the larger picks having been among the biggest negative contributors, thus driving the overall returns of the fund down.

Now let’s move on to the BlackRock Latin America Investor A Fund (MDLTX) in the next part of this series.