What’s behind Deutsche’s Latin America Equity Fund’s Performance?



Performance evaluation of the Deutsche Latin America Equity Fund

August 2016 has been quite rough for the Deutsche Latin America Equity Fund Class A (SLANX). However, for all other periods, the fund has been in the top two of the seven funds chosen for this review. In the one-year period, the fund has been the best performer among its peers.

We’ve graphed SLANX’s performance against the iShares Latin America 40 ETF (ILF) to see how it compares to a passive fund. Let’s look at what’s contributed to its stellar performance so far in 2016.

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Contribution to returns

The financials sector has been the fund’s dominant performer year-to-date, justifying the fund managers’ decision to invest nearly 40% of the fund’s assets in the sector. Preference shares of Banco Bradesco (BBD) have been money spinners for the sector, with important contributions coming from the preference shares of Itaú Unibanco Holding (ITUB), Itaú Corpbanca (ITCB), and Grupo Supervielle (SUPV), among several others.

The fund’s consumer staples picks have surprised with their strong performances. Raia Drogasil has done most of the heavy lifting for the sector. Cencosud (CNCO), Embotelladora Andina (AKO.B), and common shares of Ambev (ABEV) have also contributed sizably to the sector. The sector could have done even better if it hadn’t been for negative contributions from Corporativo Fragua and Grupo Herdez, among a few others.

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Industrials have had help from Prosegur Compañía de Seguridad, Grupo Aeroportuario del Pacífico (PAC), and Grupo Aeroportuario del Centro Norte (OMAB). Meanwhile, utilities have been propped up by AES Tietê Energia, Companhia Energética de Minas Gerais (CIG), and the sponsored ADR (American depositary receipt) of Enersis Américas (ENI). However, Empresa Nacional de Electricidad (EOCC) has weighed on the sector.

Telecommunications services is the only sector to have contributed negatively to the fund so far this year. Both America Movil (AMX) and Telefônica Brasil (VIV) have contributed negatively, though their combined contribution isn’t too high.

Investor takeaway

SLANX has had an excellent run so far in 2016. It has far outperformed the passively managed ILF, making it one of only three funds to do so. Fund managers’ picks from the financials and consumer staples sectors have worked wonders for the fund.

However, the fund’s high concentration in just two sectors is a bit of a concern. The strategy has worked for now, but it could prove detrimental if Brazil’s economy struggles to find its feet. Another thing to consider is the fund’s astonishingly high portfolio turnover. For now, its performance has justified its high turnover, but this nearly constant shifting isn’t for moderate or slightly aggressive investors.

We’ll look at the last fund in our review, the UltraLatin America ProFund Class A (UBPIX), in the next article.


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