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Investment Times

Latin American dream

| 6 April 2015 | A A A
Latin American dream

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Latin America is evolving into a global powerhouse, which could be central to the next phase of international economic expansion. In our view investors in this high risk area could be well rewarded over the long term.

2014 proved another rollercoaster ride for investors in Latin America. The region's stock markets made significant headway in the first eight months of the year. They subsequently fell sharply owing to a combination of falling oil prices and moderating Chinese demand for the area's vast store of resources. Concerns over the impact of a looming US interest rate hike also dampened investor sentiment.

In our view, these shorter-term struggles have overshadowed Latin America's longer-term investment case. Its economy centred on the export of natural resources in the past, but it is evolving. Industrialisation, urbanisation and an expanding middle class is driving growth in domestic demand, while its youthful and burgeoning workforce could enjoy greater earnings and spending power.

Furthermore, debt levels across Latin America are far more manageable than the heavily-indebted Western world - see chart below. This means their economies could be better-placed to withstand any future economic turmoil.

Debt levels as % of GDP

Source: Santander, Jan 2015

While the long-term prospects look promising in our view, short-term volatility is inevitable. We believe a conservative, flexible strategy is sensible and the Aberdeen emerging markets team is well known for taking such an approach. They try to focus on well-run companies with competitive and sustainable business models, solid finances and regard for minority shareholders.

The team's expertise can be accessed through the Aberdeen Latin American Equity Fund. Overall we believe the fund remains poised to benefit from rising consumerism across Latin America, with exposure to companies set to benefit from increased spending, such as banks and retail businesses.

It has been a testing year for the fund - with around 60% invested in Brazil, and over 22% invested in Mexico, it has suffered as a consequence of these countries' falling stock markets. According to our research, however, the region looks good value at current levels, although it may fall further.

Find out more about the Aberdeen Latin American Equity Fund

Our verdict

Our analysis suggests the long-term prospects for the region are compelling. Corporate earnings are expected to recover this year, and while political issues remain, progress continues to be made on reforms across the region. That said, further setbacks should not be ruled out and these markets could get cheaper still.

We favour the Aberdeen team's relatively prudent long-term focus and we view the fund as a superior choice for investing in this exciting, but higher-risk sector. Investors via Hargreaves Lansdown benefit from an exclusive reduction in the Ongoing Charge to just 0.89% annually, in addition to the 0.45% annual Vantage administration charge. Investors have the choice of either investing in this fund directly, or gaining access to this and an array of other leading emerging markets funds through our new Hargreaves Lansdown Multi-Manager Asia & Emerging Markets Fund.

Find out more about the new Hargreaves Lansdown Multi-Manager Asia & Emerging Markets Fund

Aberdeen Latin American Equity

Net initial charge 0.00%
Ongoing charge (OCF/TER) 1.29%
Saving 0.4%
Net ongoing charge 0.89%
Performance fee No
Yield variable and not guaranteed 2.00%

The charge to hold funds in the Vantage Service is 0.45%. Where savings are paid as loyalty bonus, they may be subject to tax in the Fund & Share Account.

View our charges

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.