Funds with five Morningstar Globes and great returns

The Morningstar Sustainability Rating for funds helps investors measure portfolio-level risk from environmental, social, and governance, or ESG, factors. 

The process Morningstar follows to give the globes is based on the ratings from their partner Sustainalytics which measures a company's material ESG risk. After that, they roll up the company-level scores on an asset-weighted basis to get a portfolio score. The funds with high ESG risk relative to its Morningstar Global Category would receive 1 globe. The funds with low ESG risk would receive 5 globes.

With this in mind, we wanted to analyse what funds with five Morningstar globes, have currently better annual returns, and their categories, the funds are:

Source: Morningstar 12/04/2022

MS INVF Latin American Equity Fund

Paul Psaila and Eric Carlson, Portfolio Managers

In the past 12 months, the strategy has outperformed peers as our holdings in Brazilian energy and aluminum companies and in Mexican low cost carrier along with zero weight in second tier e-commerce operator has helped drive performance.  Our top 10 holdings are weighted towards consumers, energy, financial services and tech. We believe our secular names have the resilience to weather the market volatility and emerge stronger.

Comgest Growth Latin America

Juliette Alves and Abla Bellakhdar Porfolio Managers

These factors in turn have led to appreciating exchange rates, adding to hard currency returns. Latin America has also provided some geopolitical risk diversification from the Ukrainian war, expect for the impact of higher commodity prices on inflation. The Comgest Growth Latin America portfolio is concentrated with 29 holdings and maintains a high active share of over 78%, and therefore is not constructed based off a benchmark, focused on quality growth businesses with mid-teens 5-year CAGR earnings growth.  

However, the portfolio is mostly invested in companies that have a degree of immunity from economic cycles as they are gaining market shares, expanding their addressable markets (for example Localiza, the Brazilian car rental company) or companies that are disruptive, creating new markets and consumption patterns (for example Mercado Libre, the trans-Latin e-commerce and payments solution company). Localiza, has been building its strong competitive advantages for many years (scale coupled with flawless execution and consistent IT investments, leading to higher bargaining power, greater profitability, and better financing costs) and has consequently continuously increased its market share. This has been aided by adding new products such as shared mobility or individual leasing, as well as partnering with Uber in Brazil.

Mercado Libre is the largest ecommerce platform in Latin America with a large payment ecosystem for merchants and customers. Brazil contributes 2/3rds of the company’s revenues. Despite challenging macro environments, Mercado Libre has benefitted from the ongoing shift to e-commerce, encouraged by Covid. In addition to benefitting from higher ecommerce penetration within retail, Mercado Libre has built up an excellent logistics network and has a strong technology DNA which leads to high service levels and consistent ecosystem enhancement. This in turn helps retain client loyalty and frequency of usage of Mercado Libre’s platform.   The portfolio trades at 18.6x NTM PER. It should deliver a growth of 11% NTM and a compounded annual growth of +14% over the next 5 years.