Invest in Aberdeen Latin American?
|Investment | Unit Trusts
Asked by wilbo, submitted
31 July 2010.
Is the Aberdeen Latin American Fund worth investing in?
Answered by Justin on 03 August 2010
Aberdeen has two Latin America funds: Aberdeen Global Latin American Equity, an offshore fund based in Luxembourg, and Aberdeen Latin American Income Fund, an investment trust due to list on the London Stock Exchange on 16 August 2010.
It also has a Latin America closed end fund listed on the New York Stock Exchange. While not very practical for UK investors, it has a long term track record which is useful as the offshore Luxembourg fund, launched in July this year, appears to be run by the same management team.
I’m afraid I know very little about the offshore fund as Aberdeen has yet to publish investor factsheets or information, but the management team has a good track record running the US-based fund. And, if the Luxembourg fund is run similarly then expect a high weighting to Brazil followed by Mexico, with the financial, commodity and consumer sectors dominating.
If this is the fund you’re referring to I’d suggest also looking at the First State Latin America fund and the iShares MSCI EM Latin America ETF as alternatives.
The investment trust, Aberdeen Latin American Income Fund, intends to tap into the rich vein of dividend income currently on offer in Latin America. Aberdeen anticipates an initial target yield of 4.25% with income paid quarterly. Around 60% of the fund will be invested in shares with the balance in government bonds (i.e. the equivalent of gilts).
The fund will be run by Aberdeen’s Global Emerging Markets team which, as mentioned above, has a decent track record in the region. Their management fee will be 1% with other costs expected to be between 0.5% - 0.9% depending on how much money the launch raises, so the overall cost could end up being fairly expensive.
Is the Latin American Income Fund a good idea?
I think there’s a strong argument for having long term exposure to the Latin America region. Despite high(ish) shorter term volatility the longer term prospects look encouraging. In simple terms the region has made a mint from selling commodities to the rest of the world, which has fed through to growing domestic demand for financial services, shops, telecommunications and, of course, commodities.
The income target, coupled with Aberdeen’s fairly cautious management style, should help reduce volatility, which is no bad thing for most investors. However, dividends are a far less established concept in Latin America compared to the UK, so if the region goes through a difficult patch you may find dividend payments shrink.
The usual investment trust risks apply, i.e. the share price may fall to a discount of the net asset value, although gearing is likely to be a modest 10%.
All in all, the fund is an interesting idea that appears to offer a way to get Latin American exposure without excessive risk. Nevertheless, the risks are still quite high and you could lose money, so I’d only suggest only risking a small proportion of your overall portfolio in the region.