SICAV

Latin American Equity Fund

Investing in expanding local companies with quality management and sustainable above-market earnings.

ISIN LU0347065905 Bloomberg TRPLAMI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-6.76%
$6.6m

1YR Return
(View Total Returns)

Manager Tenure

-28.07%
6yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.49
5.55%

Inception Date 24-Apr-2008

Performance figures calculated in USD

Other Literature

31-May-2020 - Verena Wachnitz, Portfolio Manager,
While Latin American markets have been hit hard by the coronavirus crisis, periods like this can offer long-run growth opportunities for patient investors. We believe our in-depth research and analysis will help us to identify such investment potential. We have been using the insights gained to slowly take advantage of the sell-off and add to high-conviction companies that we believe may be able to weather this uncertain environment and succeed over the longer term.
Verena Wachnitz
Verena Wachnitz, Portfolio Manager

Verena Wachnitz is the portfolio manager for the Latin America Equity Strategy. Prior to this, she was an analyst in the Equity Research team, covering the telecom, financials, materials and real estate sectors in Latin America. Ms. Wachnitz is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Our investment process relies on the bottom-up assessment of an individual company's prospects, rather than on an attempt to exploit broad shifts between markets and sectors based on political or economic developments. That said, a deep understanding of top-down considerations is vital to our analysis, and while we believe the region has made tangible economic progress over the past few years, undoubtedly more challenges lie ahead.

Amid the global coronavirus pandemic and the widespread lockdowns as governments attempt to contain the spread of the virus, the outlook for markets has become much harder to predict, in our view. Within the Latin America region, the response to rising infections has been varied, as have government attempts to support businesses and economies.

In Brazil, President Jair Bolsonaro has been reluctant to take action to stem the spread of the virus, causing his popularity to decline within the Senate and among the public and, in our view, increasing the risk of political issues and social unrest. However, for the time being, we think the political situation remains relatively stable. While a recession is now expected, we are hopeful that the government's reform agenda may resume on the other side of this crisis. Following the pension reform that was passed late last year, additional reforms on the agenda include an overhaul of the tax system and a privatization program. We think that continued structural reform may be vital to Brazil's evolution and the creation of better growth prospects and more favorable investment conditions going forward.

Similarly to his counterpart in Brazil, we think Mexican President Andres Manuel Lopez Obrador was slow to grasp the gravity of the coronavirus situation, although he eventually moved the country into full lockdown. Prior to this crisis, the Mexican economy had been stagnating following weak levels of investment. Growth had already stalled, and business confidence was low. The current situation and measures taken to contain the spread of the virus are likely to add a further blow to the economy, in our view. However, we are able to find value in select pockets of the market and are keeping a close watch on developments from here.

Given the political situation and the 2019 change of government in Argentina, we remain cautious on the prospects for this market. The new government inherited high indebtedness, an economy in recession, and a delicate fiscal situation. A default on government debt now seems inevitable, in our view, although restructuring talks have been extended due to the coronavirus outbreak. Much uncertainty remains, and we are taking a highly selective approach, focusing on companies with less domestic exposure.

Meanwhile, the economies of the Andean region are generally well managed, in our view. We are finding opportunities here, particularly among well-run financial companies, given the consolidated banking system and capacity for increased penetration. We believe that Peru, in particular, is relatively well cushioned from a macroeconomic standpoint to withstand a slowdown. In Chile, investor sentiment and economic growth had already been affected by ongoing civil unrest. Our base case is that Chile is set to remain a well-run economy, so we maintain select investments in high-conviction names.

Our focus continues to be on adding to quality growth stocks and underpriced value stocks that we think are well placed to survive the downturn. We believe the long-term outlook for Latin America remains attractive. In our view, the growing middle classes and political reform are creating opportunities for competent management teams that are nimble enough to seize them. We continue to devote substantial effort to meeting with and assessing company managers (at present through virtual meetings in light of the current situation). We are confident that these regular contacts and careful fundamental analysis will enable us to identify companies with high returns and sustainable above-market earnings growth rates.

Investment Objective

To increase the value of its shares, over the long term, through growth in the value of its investments. The fund invests mainly in a widely diversified portfolio of stocks of companies in Latin America.

Investment Approach

  • Employ fundamental analysis to identify companies with sustainable above-market earnings growth rates.
  • Focus on franchise strength, management team quality, free cash flow, and financing/balance sheet structure.
  • Verify relative valuation appeal versus both local market and region.
  • Apply negative screening for macroeconomic and political factors to temper bottom-up enthusiasm for specific securities.

Portfolio Construction

  • Typically 30-60 stock portfolio.
  • Individual positions typically range from 0.5% to 20.0% — average position size of 2.0% to 3.0%.
  • Sector ranges typically +/- 10.0% absolute deviation to the benchmark.
  • Country ranges typically +/- 10.0% absolute deviation to the benchmark.
  • Reserves typically range from 0.0% to 5.0%.
  • Expected Turnover 20.0% to 50.0%.

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Since Manager Inception
Annualised
Fund % -28.07% -6.76% -1.28% -3.13% -3.04%
Indicative Benchmark % -31.88% -8.53% -3.98% -4.32% -5.71%
Excess Return % 3.81% 1.77% 2.70% 1.19% 2.67%

Inception Date 24-Apr-2008

Manager Inception Date 25-Mar-2014

Indicative Benchmark: MSCI Emerging Markets Latin America 10-40 Index Net

Data as of  31-May-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Fund % -35.75% -10.02% -2.85% -5.09%
Indicative Benchmark % -40.77% -12.93% -5.87% -6.29%
Excess Return % 5.02% 2.91% 3.02% 1.20%

Inception Date 24-Apr-2008

Indicative Benchmark: MSCI Emerging Markets Latin America 10-40 Index Net

Data as of  31-Mar-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 07-Jul-2020 Quarter to DateData as of 07-Jul-2020 Year to DateData as of 07-Jul-2020 1 MonthData as of 31-May-2020 3 MonthsData as of 31-May-2020
Fund % 5.99% 5.99% -26.67% 4.98% -22.71%
Indicative Benchmark % 5.50% 5.50% -31.67% 6.45% -25.87%
Excess Return % 0.49% 0.49% 5.00% -1.47% 3.16%

Inception Date 24-Apr-2008

Indicative Benchmark: MSCI Emerging Markets Latin America 10-40 Index Net

Indicative Benchmark: MSCI Emerging Markets Latin America 10-40 Index Net

Performance figures calculated in USD

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Index returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 July 2018, the "net" version of the indicative benchmark replaced the "gross" version of the indicative benchmark. The "net" version of the indicative benchmark assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Historical benchmark performance has been restated accordingly. 

31-May-2020 - Verena Wachnitz, Portfolio Manager,
Latin American equities rose in U.S. dollar terms in May, outperforming the MSCI Emerging Markets Index and developed world peers. The rally in global equities that began in late March continued, helped by highly accommodative fiscal and monetary policy in a number of major economies and a gradual easing of lockdown measures, particularly in Europe. Brazilian equities outperformed. While data was released showing a contraction in GDP, the country’s central bank announced a sizeable reduction in interest rates. The Mexican market rose, with U.S. dollar returns boosted by the appreciation of the peso. The country’s central bank reduced interest rates. Argentine equities outperformed in spite of a debt default; the government remains in negotiations with creditors. At the portfolio level, stock selection in Brazil held back relative returns, particularly our avoidance of mining stock Vale, which rose on the back of a rally in the price of iron ore. Our overweight to Argentina added value, as did stock selection, particularly our position in e-commerce platform MercadoLibre. The shares rose sharply on the release of results that showed strong growth in volumes; the company is benefitting from an acceleration in digital retail in light of the lockdowns implemented across the region.

Holdings

Total
Holdings
51
Largest Holding Itau Unibanco Holding 9.20% Was (31-Dec-2019) 9.76%
Other View Full Holdings Quarterly data as of 31-Mar-2020
Top 10 Holdings 50.65% View Top 10 Holdings Monthly data as of 31-May-2020

Largest Top Contributor^

Fresnillo
By 0.22%
% of fund 0.68%

Largest Top Detractor^

Itau Unibanco Holding
By -0.23%
% of fund 9.12%

^Absolute

Quarterly Data as of 31-Mar-2020

Top Purchase

Petrobras (N)
1.71%
Was (31-Dec-2019) 0.00%

Top Sale

Banco Santander Brasil
1.75%
Was (31-Dec-2019) 3.51%

Quarterly Data as of 31-Mar-2020

31-Mar-2020 - Verena Wachnitz, Portfolio Manager,

While Latin American markets have been hit hard by the coronavirus crisis and it is unclear how long market turbulence will persist, periods like this can offer long-run opportunities. We believe our in-depth research and analysis will help us to identify such investment potential, and we have been using the insights gained to slowly take advantage of the sell-off and add to high-conviction names that we believe may be able to weather this uncertain environment and succeed over the longer term. Brazil remains our largest country position in absolute terms, and we have a small underweight here; during the period we reduced the size of this underweight. We reduced our exposure to Mexico and have a large underweight to this market; we are also underweight to Chile. We increased our overweight to Peru and Argentina.

Brazil

Brazil is set to be significantly impacted by the coronavirus crisis, with a recession likely, in our view, although the country's central bank and federal government have unveiled measures aimed at supporting the economy. Overall, our base case is that this is a setback but not a structural change for Brazil and that reform momentum and growth may resume in time. While we continue to view Brazil as the most attractive market in the region, the portfolio has a small underweight as we have a relatively low exposure to some of the more commodity-focused index heavyweights. We reduced the size of this underweight during the quarter as we have slowly been taking advantage of stock-specific opportunities that have opened up.

  • We initiated a position in Petrobras, Brazil's largest integrated oil company. Over the past couple of years, we think that asset sales, deleveraging, cost-cutting, and improvements in governance have improved the outlook for the company. The risk of government intervention appears to have reduced, in our view, and the stock price reached what we saw as an attractive level amid the broader market sell-off.
  • We reduced our position in Ambev, a beer and soft drinks producer and distributor. We have concerns that the company may struggle to turn around profitability in the near term. In our view, the company faces modest disposable income growth, a tough competitive environment, and limited pricing power.

Mexico

Mexico faces considerable challenges, and we believe it is likely to fall into recession this year. It is a relatively open economy and vulnerable to a downturn in the U.S.; business confidence has fallen sharply, and we think consumer confidence is likely to fall. On the positive side, the country's central bank has reduced interest rates, and we think there may be further cuts. We reduced our exposure during the quarter, in part for stock-specific reasons; the portfolio has a large underweight to this market.

  • We sold out of PINFRA, the largest transport infrastructure operator in Mexico. The company is looking to expand internationally. We think this could be perceived negatively by the market as a sign of a lack of opportunities domestically, particularly amid weak traffic dynamics and low visibility on new infrastructure projects.
  • We reduced our position in retailer Walmex, which operates supermarkets, discounters, membership clubs, supercenters, and apparel stores. The stock has been a relative outperformer amid the spread of the coronavirus. We trimmed our position in order to add to higher-beta names.

Peru

In our view, Peru appears to have the strongest macroeconomic buffers in the region with high foreign exchange reserves, low government debt, and a low current account deficit. The government has announced a sizable fiscal package aimed at containing the outbreak and supporting the economy. The country's central bank has also reduced interest rates. However, Peru is a relatively open economy, and we would also expect it to suffer a shock on the external side. Our main holding here is in financial services group Credicorp, which has a large domestic market share; we think the stock is trading at a highly attractive valuation on a long-term view. We increased our overweight to Peru over the quarter, as we purchased another banking name.

  • We initiated a position in Intercorp Financial Services, which has a sizable market share in loans and a market-leading position in credit cards. We see significant scope for growth in consumer loans, and in our view, the bank is successfully gaining share of retail deposits. Overall, we believe the competitive environment is rational. While we think expenses may remain elevated due to information technology (IT) investments and variable costs related to credit card growth, expense growth is set to slow, in our view.

Argentina

While we increased our overweight to Argentina, we are pursuing a highly selective investment approach. Macroeconomic conditions present considerable challenges both in terms of the impact of the coronavirus and the risk of sovereign debt default, and we continue to have concerns about the direction of government policy. Our approach is to focus on names with limited exposure to the domestic economy, and we added some positions during the quarter.

  • We purchased IT services company Globant. We believe the firm combines engineering skill and creative design to deliver digital services that primarily aim to help clients increase revenue, as opposed to traditional IT services firms that have generally been more focused on cost-efficiency initiatives. In our view, Globant has delivered robust fourth quarter 2019 results and 2020 guidance. The company has a strong balance sheet, and we expect the theme of investing in digital technology to continue beyond the current crisis.
  • We built a position in Despegar, Latin America's leading online travel agency. In our view, fourth-quarter results were much stronger than anticipated due to a rebound in Argentina ahead of travel tax increases. Given the coronavirus crisis, forward-looking guidance is not looking good, in our view, with bookings set to decline at a mid-teens pace, a weaker currency, and demand contraction in Argentina. We believe It is hard to gauge how long the impact on travel demand may persist, although as normalization occurs we think there may be a potential catalyst for the stock from the integration of a recent acquisition, Mexican travel agency Best Day, in the second half of this year.

Chile

Chile entered the crisis with an economy that was already contracting due to social unrest last year. While the country still has solid macroeconomic fundamentals, in our view, and the government has recently announced a considerable fiscal package aimed at containing the negative effects of the coronavirus, we think the fiscal deficit for this year is likely to be significantly higher than the current target. The country's central bank has also reduced interest rates. Chile is a relatively open economy, and copper (which has seen sharp price falls) is its main export; however, as an oil importer, Chile is a beneficiary of lower oil prices. Overall, the portfolio is underweight, and we eliminated our position in a retail name during the quarter.

  • We sold out of our position in omnichannel retailer Falabella, which operates department and home improvement stores, supermarkets, consumer credit finance, retail banking, and shopping malls. The company's profitability has come under intense pressure over recent quarters from a combination of cyclical and secular factors. Falabella has made several strategic decisions to accelerate its digital migration and thus strengthen its offering versus peers, but, in our view, these measures come amid a general slowdown in sales and may take time to bear fruit.

Sectors

Total
Sectors
10
Largest Sector Financials 35.94% Was (30-Apr-2020) 37.12%
Other View complete Sector Diversification

Monthly Data as of 31-May-2020

Indicative Benchmark: MSCI Emerging Markets Latin America 10/40 Index

Top Contributor^

Energy
Net Contribution 1.86%
Sector
1.79%
Selection 0.07%

Top Detractor^

Communication Services
Net Contribution -1.38%
Sector
-1.16%
Selection
-0.23%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Financials
By8.94%
Fund 35.94%
Indicative Benchmark 27.00%

Largest Underweight

Materials
By-8.67%
Fund 6.95%
Indicative Benchmark 15.61%

Monthly Data as of 31-May-2020

31-May-2020 - Verena Wachnitz, Portfolio Manager,
The portfolio has a longstanding underweight to the energy sector, an area of the market that was hit hard by the precipitous fall in the oil price earlier this year. While we generally do not see many companies here that have the growth potential we look for, given the magnitude of the correction we have reduced our underweight as we think the balance between risk and potential reward is looking more compelling.

Countries

Total
Countries
8
Largest Country Brazil 60.77% Was (30-Apr-2020) 60.13%
Other View complete Country Diversification

Monthly Data as of 31-May-2020

Indicative Benchmark: MSCI Emerging Markets Latin America 10/40 Index

Top Contributor^

Peru
Net Contribution 0.98%
Country
0.55%
Selection 0.43%

Top Detractor^

Chile
Net Contribution -0.66%
Country
-0.50%
Selection
-0.16%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Argentina
By7.91%
Fund 7.91%
Indicative Benchmark 0.00%

Largest Underweight

Mexico
By-10.08%
Fund 13.58%
Indicative Benchmark 23.67%

Monthly Data as of 31-May-2020

31-May-2020 - Verena Wachnitz, Portfolio Manager,
While we are overweight to Argentina, we are taking a highly selective approach. Macroeconomic conditions present considerable challenges, and our focus is on names with limited domestic exposure. For example, we hold information technology services company Globant. In our view, it combines engineering skill and creative design to deliver digital services that aim to help clients increase revenue. Globant has a strong balance sheet, while much of its revenue comes from North America and is denominated in U.S. dollars. We expect the theme of investing in digital technology to continue beyond the current crisis.

Team (As of 02-Jul-2020)

Verena Wachnitz

Verena Wachnitz is the portfolio manager for the Latin America Equity Strategy. Prior to this, she was an analyst in the Equity Research team, covering the telecom, financials, materials and real estate sectors in Latin America. Ms. Wachnitz is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Ms. Wachnitz has 14 years of investment experience, all of which have been with T. Rowe Price. Prior to joining the firm in 2003, she was an investment analyst with Centro de Estudios de Transporte e Infraestructura.

Ms. Wachnitz earned a B.A. in economics and a master's degree in finance from Universidad de San Andres. She also has earned the Chartered Financial Analyst designation. She is fluent in Spanish, German, Portuguese and English.

  • Fund manager
    since
    2014
  • Years at
    T. Rowe Price
    16
  • Years investment
    experience
    16
Todd  J.  Henry

Todd Henry is the global head of portfolio specialists and portfolio analysts. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Mr. Henry has 28 years of industry experience, all of which have been at T. Rowe Price. Prior to leading the portfolio specialist and portfolio analyst team, Mr. Henry was a portfolio specialist covering our broad suite of international equity and emerging markets equity strategies. He has traveled around the world extensively and spent over two years in the firm's London office working alongside the emerging markets equity team and other investment professionals. 

Mr. Henry earned a B.A. in economics from the University of Delaware and an M.B.A. in international business from Johns Hopkins University. He also has earned the Chartered Financial Analyst designation and is a Series 7 registered representative.

  • Years at
    T. Rowe Price
    28
  • Years investment
    experience
    28
Nick Beecroft

Nicholas Beecroft is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Beecroft has 18 years of investment experience, 14 of which have been with T. Rowe Price. He joined the firm in London in 2005 and spent many years working with our emerging markets equity team. Mr. Beecroft has been based in Hong Kong since 2011. Prior to joining T. Rowe Price, he was an investment analyst at Mercer Investment Consulting.

Mr. Beecroft earned a B.A, with honours, in contemporary European studies from the University of Southampton. He also has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    15
  • Years investment
    experience
    19
Kanwal Masood

Kanwal Masood is a portfolio specialist in the Equity Division at T. Rowe Price, covering the Middle East and Africa Equity and Emerging Europe Equity Strategies. She is an associate vice president of T. Rowe Price International Ltd.

Ms. Masood has 10 years of investment experience, all of which have been with T. Rowe Price. She joined the firm in 2007, covering the global and regional emerging market equity strategies as a portfolio analyst. Prior to joining T. Rowe Price, she was a product specialist at the London Stock Exchange.

Ms. Masood earned a B.Sc. with honours in mathematics and computer science from King's College London.

  • Years at
    T. Rowe Price
    13
  • Years investment
    experience
    13

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (USD) Minimum Subsequent Investment (USD) Minimum Redemption Amount (USD) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $1,000 $100 $100 5.00% 190 basis points 2.07%
Class I $2,500,000 $100,000 $0 0.00% 100 basis points 1.10%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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