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From Aberdeen to Brasilia: three reasons to invest in Latin America
The prospectus for the soon-to-be-launched Aberdeen Latin American Income fund explains why investors are taking the region seriously.
Markets
by Gavin Lumsden on Jul 22, 2010 at 13:58
Should I invest in Aberdeen Latin American Income?
The investment trust will aim to pay 4.25%, a good level of income. It will be run by Aberdeen, which has an excellent reputation in emerging markets through the record of Hugh Young in Asia. This fund is designed as a sister to the Aberdeen Asian Income trust he runs. The equity (shares) portion of this new fund will be run by Devan Kaloo, AA-rated by Citywire for his performance on the Aberdeen Emerging Markets fund. The remainder (initially around 40%) will be invested by fund manager Brett Diment in bonds issued by Latin American countries.
This is just the kind of high risk fund to invest in for the long term in order to stand the best chance of making the sort of returns we see in the first chart.
Fly in the ointment
However, investment trust shares have a nasty habit of falling to a discount after launch. This means the value of the shares adds up to less than the net asset value of the investment portfolio it owns.
Also, Aberdeen is launching the fund after a strong run in Latin American stock markets in order to ensure it gets investor support. That does run the risk that if you subscribe for shares you are investing at the top of a short-term spike. This is not a problem if you are investing for more than five years as the fund will have time to recover from any setback. Nevertheless, I'd wait for the fund to launch and, if you are still interested, see if you can buy the shares at a discount, ie less than the 100p for which they are available today.
Our preferred way for investing in Latin America is the iShares MSCI Brazil exchange traded fund, which is a cheap way of tracking the Brazilian stock market. You can read about this on Citywire Selection.
If you are interested in investing make sure you read the prospectus. The deadline to buy shares before the investment company is launched is 5pm on 30 July. The shares can be held within an ISA (individual savings account) or Sipp (self-invested personal pensions).
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1 comment so far. Why not have your say?
Pulpos
Jul 24, 2010 at 20:39
The jargon used by Aberdeen as summarised in this article was expected as they want to promote and SELL their shares!. There is too much optimism on the LA market. Having spent my childhood in S America, I know the situation in LA quite well.
I do not believe "they have learnt their lesson after living in austerity". The people are unpredictable, lacking unity especially in Mexico. The present surge in growth is thanks to a stable government and sensible president, but the next leader in Brazil or Mexico is unlikely to be of the same caliber. Politicians in LA tend to be corrupted.
In short, investing in LA is OK in the short term, but anyone's guess in the long term.
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