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Latin America-Focused Mutual Funds: Outlook after September 2015

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Latin America-focused mutual funds

In this series, we’ve reviewed nine Latin America-focused mutual funds in terms of their sectoral compositions and changes over the past year. We also analyzed the possible factors driving their respective performances. But how does the overall portfolio position of these funds look for the rest of 2015?

We’ve used the latest complete portfolios available to us as of October 2015 to prepare the graph below.

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Portfolio composition

The graph above provides a bird’s-eye view of what you’re in for if you’re investing in any of these nine Latin America-focused mutual funds. Below is a breakdown:

  • Financials are at the heart of all funds’ portfolios except one (UBPIX), while consumer staples stocks come a close second, or in some cases, first, to financials.
  • One fund has quite a low exposure to consumer staples compared to its peers (JLTAX), while another has a lot of exposure to the sector (SLANX). The high exposure to this sector shows an increase in defensive bets that have been taken by fund managers over the last year ending September 2015.
  • Though healthcare is also a defensive sector, exposure to it has been muted, because there no mega players in the sector. In fact, four of our nine funds have no exposure to the healthcare sector.

In terms of asset size, the Aberdeen Latin American Equity Fund Class A (ALEAX) is the smallest ($2.73 million), whereas the Fidelity Advisor Latin America Fund Class A (FLFAX) is the largest ($489.67 million). As far as total portfolio holdings are concerned, FLFAX has the most at 87, while the UBPIX has the least at 35.

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Observations

The impact of the economic turmoil in Brazil, which has engulfed its financial markets as well, is visible in the performance of those funds that have the largest segment of their assets invested in companies domiciled in the country.

Two major assessments can be made:

  1. The funds that have the lion’s share of their assets invested in companies from Mexico (ELAAX) (EPLAX) have done better than those invested in Brazilian companies.
  2. The newer funds in this review have done better than the ones with a longer track record. This could possibly be because the newer funds got a better picture of where Brazil was headed, and even if companies from Mexico were not their biggest holdings, they at least reduced their exposure to Brazil and invested in other geographies.

We can also interpret that financials (BBD) (ITUB) have had a bad month and that consumer staples are not far off (FMX) (CNCO). Industrials (ERJ) and materials (CX) (VALE) (FBR) have done poorly as well. This across-the-board fall has ensured an utterly forgettable 2015 for Latin America-focused mutual funds—so far.

What’s in it for investors?

What investors need to know is that for Latin America-focused mutual funds, September was not as bad as August was. Furthermore, October has been quite good for all these funds. Though this is far from a trend reversal—Brazil has several issues it needs to deal with before true recovery sets in—it does indicate that there’s some inherent strength in the market, and these funds are resistant to further falls.

Though investing in the region at this time is not for the weak of heart, it may seem like an opportunity for risk-lovers. And although the attraction seems lost for now, this is not to say that it’s lost forever.

We’ve done a similar analysis of Europe-focused mutual funds in another series, in case you’re interested. For more analysis on mutual funds, visit Market Realist’s mutual funds page.

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