Aberdeen to launch UK-listed Latin American income fund
Aberdeen is to launch the first UK-listed Latin American closed-end fund with an income bias - the Aberdeen Latin American Income Fund.
A sister to the successful Aberdeen Asian Income Fund Limited, the new Fund has a simple capital structure and offers a unique opportunity to investors looking overseas to diversify their sources of income and capital exposure. The initial target for the dividend yield is 4.25%, with the aim of growing dividends over time. Dividends will be paid quarterly.
The Fund will be jointly managed by Aberdeen's highly regarded emerging market equity and debt teams led by Devan Kaloo and Brett Diment respectively, based in Aberdeen's London office. Initially the portfolio blend will be approximately 60% invested in listed equities and the balance invested in sovereign bonds. The equities will be focused on growth-orientated stocks, with the bonds expected to provide much of the income. The blended portfolio approach will allow the asset allocation to be modified in response to changing economic circumstances.
Over the past 10 years, Latin America has made huge strides to become an important current and future contributor to global growth. A commitment to orthodox fiscal and monetary policies from governments and central banks has seen inflation fall significantly in countries such as Brazil, Chile and Mexico, creating an environment conducive to domestic growth and investment. Demand for commodities has led to trade surpluses. Tax reforms and prudent government spending policies have led to current account surpluses in many countries, and economies are now more stable and less dependent on foreign inflows of capital. Indeed, fiscal deficits (% of GDP) are lower in most cases among the region's countries than in the Eurozone,
Japan, UK and US. At the same time companies located in the region have worked hard to restructure balance sheets, reduce debt and focus on core skills, resulting in improved profitability and earnings.
While Latin America has certainly blossomed due to being the world's leading supplier of commodities, it would be wrong to view the region purely as a play on the world's thirst for raw materials. Of more interest to Aberdeen is the rise of domestic consumption. Growing, youthful populations with burgeoning workforces are enhancing earning and spending power in the region, and this in turn is driving domestic growth. Consequently, local retailers, banks and drinks companies are of particular appeal. Many of these businesses are often ignored by investors unwilling to undertake on-the-ground research and analysis.
However, risks remain in the region, at economic, political and company levels; but an actively managed investment approach focused on fundamental analysis should help to identify both the risks and opportunities available.
Devan Kaloo, head of global emerging markets at Aberdeen, comments: "These uncertain times serve to highlight the need to avoid highly indebted entities, whether countries or companies, and focus instead on those with strong balance sheets, sound businesses and proven management. In this regard, the outlook for Latin America is compelling. The region's improved economic fundamentals, vast natural resources, pool of consumers and financially strong companies means it should not be overlooked in a well-diversified global portfolio.
"By employing Aberdeen's rigorous, bottom-up investment process, we aim to identify those companies in the region that meet our strict quality criteria, are attractively valued and offer the prospect for long-term share price and dividend growth."
Brett Diment, head of emerging market debt at Aberdeen, adds: "A blended portfolio of Latin American equity and fixed income securities offers investors the opportunity to gain exposure to one of the fastest growing regions in the world, while receiving a regular income.
"From a fixed income perspective, LatAm economies have weathered the global financial crisis well and are not burdened by the huge debt levels and imbalances of their so-called developed world peers. Yet the yields available in the region's fixed income markets remain at a premium to those offered by fundamentally weaker G-7 nation bonds."
The Fund will be domiciled in Jersey and traded on the London Stock Exchange's main market for listed securities. The launch will consist of a placing and a public offer.
The public offer and prospectus is expected to be available from early July 2010. UK private investors interested in pre-registering for a prospectus should telephone Aberdeen's Prospectus Line on 0500 00 40 00 or e-mail aam[at]lit-request.com. The Fund is expected to be managed so as to be eligible for ISAs, SIPPs and SSASs.
Canaccord Genuity is acting as sponsor and placing agent in connection with the launch.