Latin American equities are considered as part of the broad spectrum of emerging markets, but focus on companies that are based only in the area of Latin America. Some of the countries where the allocations are made are Brazil, Peru, Mexico o Colombia.
We wanted to have a look at the funds with best returns 5 years annualised, based on data available on Morningstar UK, and in order to offer even more insights we have asked the fund managers of the DWS Invest Latin American Equities LC and Schroder International Selection Fund Latin American, to take us through their strategies, and allocations, so we can have a better idea of the situation of the Latin American Equities.
Returns 5 years annualised as per Morningstar UK data:
Source: Morningstar UK, 03/11/2021
DWS Invest Latin American Equities LC
Scott Pieper, fund manager of the DWS Invest Latin American Equities
Included within the equity funds that focus on emerging markets, the DWS Invest Latin American Equities LC is a sub-fund that invests primarily in equities of issuers domiciled in Latin America, or of issuers domiciled abroad but which conduct the majority of their business in Latin America.
Its investment philosophy is a concentrated and flexible Latin American equity strategy. It combines high quality fundamental analysis with a strong valuation discipline. Furthermore, it follows a bottom-up selection process. In this sense, the resulting portfolio is an actively managed high conviction portfolio; managed by a team with many years of experience in Latin American equities and a local presence.
Strategy of the DWS Invest Latin American Equities
DWS’ Latin America Equity strategy is managed by a highly experienced team with a local presence as secular growth opportunities can be better identified by regional players given the high fragmentation of Latin American markets.The strategy aims to achieve competitive long-term risk-adjusted returns by investing in companies in Latin America exposed to secular growth themes with a quality bias. It therefore combines a top down-overlay with a bottom-up analysis, having attractive valuations, strong free cash flows and experienced management teams with strong corporate governance at its core.
In Brazil (65.4% as per 31 August 2021) the speed of vaccination is high. As a result, the economic re-opening process is in place. We have (once again) increased our estimates for GDP growth for 2021, from 4.0% to 5.3%. Economic activity is also improving in Mexico (19.5%), but valuation is not as attractive as it is in Brazil. Another source of concern about the Mexican market is the federal government´s populist agenda. Similar rationale prevents us from having higher exposure to Chile (3.6%) and Peru (1.5%). Biggest sector allocations are Financials (22.7%), Materials (19.8%) and Consumer Staples (12.6%).
Schroder International Selection Fund Latin American
Tom Wilson and Pablo Riveroll, co-managers of the Schroder International Selection Fund Latin American
In order to achieve this, we emphasize active stock selection, as the last decade has been a difficult one for emerging markets. Their equity markets have persistently underperformed developed markets and have lost most of the excess returns of the early 2000s.
The Schroder International Selection Fund Latin American aims to achieve capital and income growth by investing around the Latin American market. In turn, it seeks to outperform the MSCI Emerging Markets Latin America 10/40 (Net TR) index by investing in the equities of leading Latin American companies.
The main reason lies in the inability to accumulate sufficient savings. Particularly, in the Latin American region, countries such as Brazil and Mexico have had savings rates well below what is needed to finance investments in their economies.
However, the support provided by the maintenance of flexible policies at the global level and the benefit of ongoing normalization should pay off in 2022. In addition, there has been a notable acceleration in the vaccine distribution in Latin America, which should continue to improve. All this can contribute to an acceleration of economic growth, which is expected to remain robust.
Therefore, within emerging markets, we believe that exposure to Latin America is increasingly important, as there are opportunities for these economies to develop stronger.
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