Report Release Date: 10 June 2010
Analyst: Oliver Kettlewell
Morningstar Opinion
Two of the fund’s former managers returned to manage this fund in 2010 and we think they can repeat their previous outperformance here.
Eric Anderson and Eric Conrads managed this fund consecutively from 1997 to 2004 and outperformed the category during their tenure, albeit with notable blips during the final years. Both men have more than 15 years' investment experience, mostly directed at the Latin American market, and both have occupied positions within the ING IM Latin America setup during their period away from the fund.
Lead manager Anderson and comanager Conrads took over from former managers Roberto Lampl, who left the firm to pursue another opportunity, and Ricardo Meij, who remains at ING and now heads a team of six analysts in Brazil. Eight more analysts are spread out across South America. Fund management has moved from The Hague to Mexico City and will move again to New York as part of a restructuring program. Despite the changes in domicile and managers, we think the continuing presence of Meij in Brazil alongside ING’s sizeable analyst footprint in the region makes this a strong team lineup relative to the category.
The managers' communication with the Latin America based analysts remains the driving force behind stock valuation. The team looks for companies showing strong earnings growth that are trading cheaply relatively to their peers. While the investment process is bottom-up driven, top-down modeling tilts portfolio construction toward preferred countries or sectors. The new managers are aiming for more diversification in the portfolio compared with their predecessor who tended to have large commodity bets. Consequently, positions in mining and energy stocks in Chile, Colombia, and Brazil have been trimmed back and money has been reinvested in banking and construction stocks in Mexico. While this improves diversification, Latin America is still a commodity-driven region and is pushed and pulled more than most other emerging-markets regions by demand for oil, copper, coffee beans, and so on. As a result, the energy and industrial materials sectors have historically taken up 40% of this fund’s portfolio.
This fiery mix of commodity stocks from an emerging market region results in volatile returns. This fund lost half its value in 2008 and then nearly doubled its returns in 2009. We think Anderson and Conrads have a good chance of outperforming the peer group average going forward, but absolute returns are likely to remain volatile, so this fund is best suited to a small role in a diversified portfolio.
Our main disappointment with this fund is that its price has increased for the third year in a row in 2009, but costs remain below average and good value for money given the resources that are devoted to the strategy. We therefore feel confident reinstating our Superior rating on ING Latin America.
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