Fund Expert Eyes Latin America

10/13/2016 10:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

We favored Latin American stocks instead of a broader-based emerging markets fund, because Latin American economies tend to be commodity-based, explains Bob Carlson, editor of Retirement Watch.

After markets declined sharply at the start of 2016, we added emerging market stocks to the portfolios through T. Rowe Price Latin America (PRLAX).

The fund follows Price’s long-time strategy of buying stocks of growing companies that are selling at reasonable prices

The bear market in commodities that began in 2013 appeared to be ending in early 2016, and we wanted to take advantage of the recovery.

Commodities have a long-established cycle. As prices increase, companies invest more in production and increase supply. Eventually supply far exceeds demand, and prices decline.

Companies then slash investment and production until supply is less than demand. But it takes a while for production to ramp up again, so prices rise until supply catches up with demand.

As long as the global economy continues to grow, we are in that last phase. The fund owns 48 stocks and has 52% of its assets in its 10 largest positions.

Annual turnover is about 23%. The rate of growth the fund likes is found in only a few market sectors. Recently the fund was 34% in financial services, 24% in consumer defensive stocks and 16% in cyclical companies.

The fund invested about 55% in Brazil, 26% in Mexico, 5% in Chile, 5% in Peru and 3.7% in Argentina.

The fund took a dip when Brazil’s president was impeached in August, but bounced back quickly. It is down 4.58% in the last four weeks and has a 35.99% return for 2016.

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By Bob Carlson, Editor of Retirement Watch

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