T. Rowe Price Latin America Fund overview
In this part, we’ll look at the T. Rowe Price Latin America Fund (PRLAX). PRLAX is the largest fund in this review. It was managing assets worth $440.3 million as of February 2016. As of December 2015, its assets were spread across 49 holdings and included stocks of 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 the fund’s December assets.
From a purely NAV (net asset value) return standpoint, PRLAX has had an excellent one-year period until March 24, 2016. It ranked first for the period among its peer group. 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).
PRLAX’s standard deviation, or the volatility of returns, in the one-year period until March 24, 2016, was 25.9%. This is lower than the MSCI EM Latin America Gross Return USD Index’s 27.7% but higher than the peer group’s average of 25.2%.
The fund’s risk-adjusted returns, calculated by the Sharpe Ratio, were negative for the one-year period ended March 24. Evaluating a negative Sharpe Ratio may be misleading, so we’ll avoid that. For 2016 YTD (year-to-date), the ratio was positive and placed PRLAX second among its peer group. Its risk-adjusted returns were much higher than that generated by the MSCI EM Latin America Gross Return USD Index.
The information ratio, calculated with the MSCI EM Latin America Gross Return USD Index as the benchmark, was 1.2 for the one-year period ended March 24, ranking it the best among all the funds in this review. The information ratio shows the consistency of a fund manager along with measuring his or her ability to generate excess returns over a benchmark. The higher the reading, the better the consistency. For 2016 YTD, the fund’s information ratio was the best among its peers.
RALX has shown that it can consistently generate returns as well as generate alpha. It has emerged as the best fund in this regard for the one-year period ended March 24 and the second best for 2016 YTD. Although this is a short period, it does show the ability of the fund to do well in challenging as well as good times. Many investors are staying invested unless they’ve recovered most of their losses and are choosing to exit Latin American equities altogether.
In the next article, we’ll look at the Deutsche Latin America Equity Fund – Class A (SLANX).