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First State Latin America Fund research update

Kate Marshall | Thu 09 April 2015

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

It has been a tumultuous few years for Latin American investors. The region's stock markets have suffered from currency weakness, falling oil and commodity prices, and moderating demand from China for Latin America's store of natural resources. Investor sentiment has also dampened amid concerns over the impact of the first interest rate rise in the US.

Against this backdrop, the team at First State maintain their focus on high-quality franchises with strong management and robust balance sheets, trading on reasonable valuations. They operate a concentrated portfolio which allows each holding to make a significant impact on returns, although this is a higher-risk strategy. A focus on quality companies, combined with the team's conservative approach to investing, means the fund has tended to hold up particularly well in weaker markets. This characteristic has served the fund well over the long term, though it also means the fund has tended to lag a rapidly rising market.

Latin American markets generally performed well in the first half of 2014, though the fund underperformed its benchmark in this environment. It also struggled due to a few stock specific issues. Food company Grupo Herdez, a current holding, hurt performance as investors grew concerned over subdued domestic consumption in Mexico as well as a lack of demand in the US, an importer of the company’s products. Demand in the US has, however, since recovered.

Since mid-2014 our analysis suggests stock selection has improved, benefiting performance. The share price of industrial engineering company, Weg, advanced on the back of strong results, while its strong franchise has seen it withstand headwinds facing domestic Brazilian companies, according to the team at First State. Elsewhere, following a strong run for Wilson Sons, a Brazilian logistics and port operator, the stock was sold from the portfolio last year.

The team's long-term approach means portfolio turnover (how frequently holdings are bought and sold) tends to be low; however, there have been two major purchases over the past year: Endesa Chile, a power-generation utility company bought on the back of its attractive valuation, and Ultrapar, a Brazilian energy firm which distributes fuel.

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Our view on this fund

The team at First State has one of the strongest track records in managing Latin American equities. Since the fund's launch in April 2009, the fund has grown by 77.9%* compared with 22.0% for its benchmark, the MSCI EM Latin America Index. Although please remember past performance is no guide to future returns.

Annual percentage growth
Apr 10 -
Apr 11
Apr 11 -
Apr 12
Apr 12 -
Apr 13
Apr 13 -
Apr 14
Apr 14 -
Apr 15
First State Latin America 21.7% 3.0% 20.3% -26.0% -3.9%
MSCI EM Latin America 8.5% -8.3% -0.8% -20.5% -8.4%

Past performance is not a guide to future returns. Source: Lipper IM* to 01/04/2015

In what has been a difficult few years for Latin American stock markets, we favour the managers' focus on high-quality businesses they believe should provide some resilience throughout a variety of market conditions. While we continue to rate the fund, First State is no longer seeking new investment as they feel further significant inflows would make the fund more difficult to manage and would affect existing investors. As such, the fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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