3 Top Latin American Funds to Brave Concerns – Best of Funds

At the beginning of this year, United Nations Economic Commission for Latin America (ECLAC) had forecasted a 3.2% economic growth in Latin America, up from 2.6% registered in 2013. The growth was expected to be driven by Mexico and Brazil. Recovery in the U.S. economy would bolster exports of the Latin American nations and thus benefit the region.ECLAC's projection then included a 3.5% growth for Mexico's economy, 2.6% for Brazil's as well as Argentina's and 1% for Venezuela's economy.

Four months into the year, we have seen new forecasts from World Bank and International Monetary Fund. While the World Bank projects an expansion by 2.3%, IMF believes the Latin America economy will grow by 2.5%. Inter-American Development Bank had projected economic growth in Latin America at 3% in 2014 and 3.3% in 2015. Acceleration in the U.S. Federal Reserve's quantitative easing plan may however change this best-case scenario by IDB.

True, there are certain concerns prevailing in the Latin American market. Subdued growth estimate is a worrying factor along with surging inflation rate. Possible decline in commodity prices also is a key concern.

In fact, though the latest economic forecasts are short of what was projected at the beginning of the year by ECLAC, all of them do suggest an expansion. So, there is enough opportunity to invest in the Latin American market and earn. If investors are looking for betting their bucks in the Latin American mutual funds, we will suggest 3 top ranked funds that are most likely to see decent gains.

IMF Economic Forecast in Details
According to IMF's Regional Economic Outlook for the Western Hemisphere, released last week, Latin America's economy is expected to grow at 2.5% this year.
Key Highlights from the report:

The financially integrated economies such as Brazil, Chile, Colombia, Mexico, Peru, and Uruguay are expected to grow at 3.5% in 2014. The key policy priorities for these nations are 'careful calibration of macroeconomic policies, a clear focus on reducing financial vulnerabilities, and stepped-up structural reforms to remove obstacles to growth'.
Separately, recovery in the U.S. and stable domestic issues will help Mexico's economy to rebound to 3%.
Economic growth for the commodity exporters, Argentina, Bolivia, Ecuador, Paraguay, and Venezuela, are expected to drop to 2.8% in 2014 from about 6.0% in 2013. The IMF believes that Venezuela needs fundamental policy adjustments.
Also, Argentina needs policy adjustments to restore economic stability. Reduced potential for global commodity prices has further aggravated this need for adjustments. IMF said the other economies should also control public spending.

Let us take a look at the chart, showing IMF's 2014 and 2015 growth forecasts for some Latin American economies:

Source: IMF staff Calculations and Projections

Venezuela is thus projected to suffer the most. A key reason for this is the nation's booming inflation rate. The nation recorded an inflation rate of 56% last year and IMF believes it may move up to 75% this year. "Typically, when countries reach inflation rates of 50 or 55 per cent, they either adopt adjustment programmes to put a break on it, or inflation keeps growing progressively," said IMF Western Hemisphere director Alejandro Werner.
Separately, IMF believes Brazil's economy may continue to face headwinds from a "loss of competitiveness and low business confidence".

Growth in Sight: 2015 A Year for Rebound

Both IMF and World Bank are hopeful of situations turning better in 2015. They expect a rebound next year propelled by improved global economy. Weaker Latin American currencies will also boost the exports. Moreover, economic reforms in Brazil and Mexico are expected to attract huge investments.

Positive Factors

There are certain positives too. The Russia-West standoff may trigger more dollar inflows into the Latin American markets. As investors grow cautious over their investments in Russia, the money can be invested in Brazil or Mexico. Mauro Leos, Moody's senior analyst for Latin America, commented: "There are indications based on what we have heard from our European analysts that some of that money that is flowing out of Russia may be coming to the region". However, this will be a short-term phenomenon.

Recently, Chinese Foreign Minister Wang Yi completed a week-long tour to Latin America and offered promise of i mproved economic and trade cooperation among China and Latin American nations.China may be looking forward to invest infrastructure projects. In fact, Minister Wang Yi hinted at China's intention to build a fund that would boost investments in 'infrastructure-lacked Latin America'.

Venezuela is expected to become biggest oil seller to China . Venezuela President Nicolas Maduro said the nation may export 1 million barrels of oil every day to China. Argentina and China have also agreed to boost their trade cooperation on projects including agriculture, science and technology, infrastructure construction, energy, and finance.
Mexico offers hope in the form of lower-than-expected unemployment numbers in February and controlled inflation rate. Also, the revival in US economy will benefit Mexico significantl y as it is an export oriented economy. The US is Mexico's largest trading partner.

As for Brazil, there may be several negatives in the short term. Nonetheless, Brazil remains an important investment destination . Endowed with large natural resources and a skilled workforce it has the potential to grow its exports significantly. More importantly, Brazilian stocks are still trading at low prices and offer great value to investors.

3 Latin American Funds to Buy
Below are 3 Latin American mutual funds that are most likely to outperform. These carry Zacks Mutual Fund Rank #1 (Strong Buy), have low expense ratio, and have provided decent returns year-to-date.

T. Rowe Price Latin America (PRLAX) seeks capital appreciation over the long term by investing in companies that are either located or have primary operation in Latin America. The fund invests a lion's share of its assets in these economies and its portfolio will generally include four countries.

The fund's top holdings include Itau Unibanco Holding SA (Brazil-based holding active in the banking sector), Banco Bradesco SA (Brazil-based bank), Petroleo Brasileiro Petrobras SA (ADR) (Brazil-based integrated oil and gas company), Ambev SA (ADR) (Brazil-based company engaged in the brewers sector) and America Movil SAB de CV (ADR) (Mexico-based company engaged in the provision of wireless communications services in Latin America). The fund carries a Zacks Rank #1 and has returned 2.6% year to date. The fund has an expense ratio of 1.25% as compared to category average of 1.77%.

Fidelity Advisor Latin America A (FLFAX) invests majority of its assets in Latin American securities and other financial instruments economically connected to Latin America. Investments are allocated across Latin American nations. A maximum of 35% of its assets are invested in an industry that reflect over 20% of the Latin American market.

The fund's top holdings include America Movil SAB de CV (ADR) , Ambev SA (ADR) , Itau Unibanco Holding SA , Petroleo Brasileiro Petrobras SA and Fomento Economico Mexicano SAB (ADR) (Mexico-based holding company involved in the beverages industry).The fund carries a Zacks Rank #1 and has returned 1.5% year to date. The fund has an expense ratio of 1.35% as compared to category average of 1.77%.

BlackRock Latin America Investor A (MDLTX) invests most of its assets in securities from Latin American economies. The fund does not invest in a large number of nations. It invests in securities that are denominated in Latin American currencies.
The fund's top holdings include Itau Unibanco Holding SA (ADR), Vale SA (ADR) (Brazil-based metals and mining company), Ambev SA (ADR), Banco Bradesco SA (ADR) and Petroleo Brasileiro Petrobras SA (ADR). The fund carries a Zacks Rank #1 and has returned 4.08% year to date.The fund has an expense ratio of 1.53% as compared to category average of 1.77%.
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