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Quantitative Metrics Are Firmly on the Side of PRLAX

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Updated

PRLAX overview

We’ll be analyzing the T. Rowe Price Latin America Fund (PRLAX) in this article. PRLAX is the largest fund in this review. It was managing assets worth $427.9 million as of January 2016.

As of December 2015, its assets were spread across 49 holdings and included companies such as Grupo Financiero Santander Mexico (BSMX), Banco Santander Chile (BSAC), Mercadolibre (MELI), Grupo Aval Acciones Y Valores (AVAL), and Grupo Financiero Galicia (GGAL). The fund is quite top-heavy, with its top ten holdings forming 52.1% of its December assets.

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PRLAX’s performance

From a purely net asset value return standpoint, PRLAX has been a strong performer for both the one-year period until February 17, 2016, and for 2015. It ranked second for both these periods among its peer group.[1. 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 PRLAX’s standard deviation, or its volatility of returns, in the one-year period until February 17 is 24.3%. 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 as well as for 2015. Evaluating a negative Sharpe Ratio may be misleading, so we’ll avoid it.

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PRLAX’s information ratio, calculated with the MSCI EM Latin America Gross Return USD Index as the benchmark, was 1.3 for the one-year period ended February 17, the highest in its peer group.[2. The information ratio shows the consistency of a fund manager along with the measurement of his ability to generate excess returns over a benchmark. The higher the reading, the better the consistency.] For 2015 as well, the fund’s information ratio was the best among its peers.

A note to investors

PRLAX was one of only three funds to have positive alphas for both the one-year period ended February 17 and 2015. For both periods, PRLAX generated the most alpha in its peer group. Quantitatively, the only factor of concern is its volatility, which is on the higher side, and may not suit all investors.

However, in the aforementioned periods, PRLAX has rewarded its investors handsomely for undertaking the risk of higher volatility. Numbers are in favor of the fund, and it’s worth a look whenever you decide to invest in Latin American equities.

In the next article, we’ll look at the Deutsche Latin America Equity Fund Class A (SLANX).

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