ALEAX: Good Things in a Small Package?

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ALEAX overview

In this article, we’ll be analyzing the Aberdeen Latin American Equity Fund Class A (ALEAX). The Aberdeen Latin American Equity Fund is the smallest fund in this review, with assets under management worth $2.5 million as of January 2016.

As of December 2015, its assets were spread across 39 holdings and included companies such as Embotelladora Andina (AKO.A), Banco Santander Chile (BSAC), Tenaris (TS), Bancolombia (CIB), and Grupo Financiero Santander Mexico (BSMX), which make up a combined 12.1% of the fund’s portfolio.

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ALEAX’s performance

From a purely net asset value return standpoint, ALEAX performed well in both the one-year period until February 17, 2016, and in 2015. It placed third among its peer group for both periods. When we refer to the peer group, we mean the group of nine funds chosen for this review.

For return comparison, we have chosen two ETFs: The iShares Latin America 40 ETF (ILF) and the iShares MSCI Emerging Markets Latin America ETF (EEML).

Other metrics

The ALEAX’s standard deviation, or the volatility of its returns, in the one-year period until February 17 is 24.1%. This is lower than the MSCI EM Latin America Gross Return USD Index’s 25.7% but higher than the peer group’s average of 23.6%.

The fund’s risk-adjusted returns, calculated via the Sharpe Ratio, were negative for both the one-year period ended February 17 and for 2015. Evaluating a negative Sharpe Ratio may be misleading, so we’ll avoid that.

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The information ratio, calculated with the MSCI EM Latin America Gross Return USD Index as the benchmark, was 1.05 for the one year period ended February 17—the third best among the funds in this review.[2. The information ratio shows the consistency of a fund manager along with the measure of his ability to generate excess returns over a benchmark. The higher the reading, the better the consistency.] For 2015, the fund’s information ratio was the second best among its peers.

A note to investors

Apart from the consistency of returns, ALEAX’s alpha placed it as the third best among its peers for the one-year period ended February 17. For 2015, its alpha was the second best.

These quantitative metrics make ALEAX look like a compelling choice for your shortlist of funds that invest in Latin America. However, volatility is a bit of a concern, along with the shaky state of Latin America. Whenever you wish to enter the region, you may look at ALEAX as an indicator that sometimes, good things come in small packages.

In the next article, we’ll look at the Bradesco Latin American Equity Fund Retail Class (BDERX).

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