Disappointing performances in 2011 to date for most Latin American securities don’t obscure the fact that investments in the region have generally excelled handsomely over the past decade, says Rudy Martin of Latin Stock Investing.
An investor who put $10,000 in the closed-end Aberdeen Latin America Equity Fund (LAQ) on Oct. 31, 2001 would have seen the value grow to $79,712 by the end of last month, assuming reinvestment of distributions but not considering transaction costs.
A similar investment in the S&P 500 would have been worth $14,326 (a 3.66% average annual return, including reinvested distributions). So the investor’s profit of $69,712 in LAQ would have been more than 16 times the $4,326 that what would have been made from the S&P.
Latin America’s lackluster investment returns so far this year shouldn’t be ignored in light of those lucrative ten-year performances. And taken together, they should underscore the standard securities-industry disclaimer that past performance is not necessarily indicative of future returns.
But then it should also be remembered that LAQ’s remarkable appreciation in value was achieved despite a hammering during the 2008-2009 maelstrom and poundings this year that put most Latin American indices into bear-market territory.
And LAQ’s 23.07% compound annual growth for the ten years ended Oct. 31 isn’t a distant outlier for long-term Latin American portfolios…
- The closed-end Latin American Discovery Fund (LDF) sustained average annual growth of 22.96% for the period, sufficient to grow holdings of $10,000 to $79,002 over ten years with distributions reinvested.
- The BlackRock Latin America Fund (MDLTX) gained an average of 22.26% annually over the period, enough to boost a $10,000 position to $74,618.
- The 21.32% annualized ten-year return of the T. Rowe Price Latin America Fund (PRLAX) would have turned $10,000 into $69,075.
- The average annual performance of 20.26% by Fidelity Latin America (FLATX) would have lifted the $10,000 investment of ten years ago to $63,272 by the end of last month.
- And, with a largely passive portfolio, the 21.11% compound ten-year return of the iShares S&P Latin America 40 Index ETF (ILF) was sufficient to elevate the value of $10,000 to $67,889 over the past decade.
While Latin American securities are virtually certain to experience more volatility than investments in the more developed markets, I feel strongly that they will continue to provide better returns than most investments in the “mature” economies over the long term—just as they have done over the past decade.
One of many reasons for my enthusiasm for Latin America is that, in a population approaching 600 million and some of the larger economies growing at double or more the pace of the United States, rapidly expanding middle classes of consumers will be adding brisk internal consumption growth to the already lively export economies.
“Let me tell you where the growth is,” Citigroup (C) CEO Vikram Pandit recently told Fortune. “It’s coming from the emerging-market consumer, which is going to be the new driver of global economic growth.”
And with firms such as Carlos Slim’s America Movil SAB de CV (AMX) and its affiliates and competitors spreading data and voice communications capabilities throughout the region—and the likes of e-commerce wizard MercadoLibre, Inc. (MELI) providing online access to consumers—internal consumption will provide a big boost to Latin America’s GDP growth.
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