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Mark Dampier: Aberdeen’s steady approach to Latin America

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A global emerging markets fund is often a good first port of call for investors seeking exposure to less developed economies. This makes perfect sense if your portfolio is relatively small or you prefer leaving the decisions over country and sector allocation to an expert fund manager. A fund diversified across a wide range of emerging markets can also be less volatile than one concentrating on a specific region or single country. 

Looking at the Aberdeen Latin American fund, the latter is a trap investors are currently unlikely to fall into. Latin American stock- markets have been through a tough period of performance over the past couple of years.

The approach used by Aberdeen across all its equity funds tends to mean they usually hold up relatively well in tougher market conditions. The company focuses primarily on quality and companies they believe can survive through thick and thin. This usually results in a more defensive portfolio which might look relatively dull in strongly rising markets but perf-orms better during tougher times.

This is not what has happened over the past year or so. Fiona Manning, the fund’s manager, and her team have tended to have a bias towards companies benefiting from increasing consumption but these stocks have fallen out of favour.

A speech by Ben Bernanke, former chairman of the US Federal Reserve, last May flagged concerns over how emerging market companies would fund themselves in an environment where foreign investors were pulling money out of the market.

Brazil was hit particularly badly and, given the fund has almost 70 per cent of its assets invested there, this had a knock-on effect. The Brazilian economy was seen as weaker than counterparts in the region and consumer spending has been subdued by rising interest rates and inflation.

Smaller retailers were seen as particularly vulnerable and the fund’s exposure to some of these companies was also detrimental. Overall, though, Manning believes the concerns were overblown and she has used the weakness in share prices to top up favoured holdings.

Rising interest rates have also affected the financial sector as consumers have less appetite for loans, credit cards and mortgages. The silver lining though is there has been no increase in the amount of people unable to repay their loans.

Within the financial sector Manning has a preference for private rather than state-owned  banks and shopping mall operators such as Multiplan, which she describes as a consumer-linked real estate play. Overall, Manning and her team see long-term value among consumer-related companies. She notes some are growing revenues at a healthy 10 per cent a year, with scope for this to grow. It is a similar story in other countries too, with the manager citing Parque Arauco, a Chilean mall operator, as a company they have high hopes for.

Timing investments is notoriously difficult so for those who see long-term potential in Latin America, dripfeeding an investment into a fund such as this over the coming months could be a sensible approach.

Mark Dampier is head of research at Hargreaves Lansdown

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