Edinburgh, Aegon and Old Mutual funds closed down as redemptions outweigh investments
Three fund management groups have closed or are in the process of closing their Latin American portfolios as redemptions into the sector outweigh incoming investments.
Edinburgh Fund Managers (EFM) has already closed its Latin American fund, Aegon is expected to complete its closure by the end of January and Old Mutual is looking at merging its fund into its International Managed Pep Trust, creating the Old Mutual Worldwide Select Equity fund.
Just five years ago, there were 10 funds in the sector with combined assets of £305m.
Today, taking away the assets of the Aegon, Edinburgh Fund Managers and Old Mutual portfolios, the remaining seven funds total £332m. Considering that the largest fund in the sector, Threadneedle Latin American Growth, is some £268.5m in size, the six funds combined have just over £63m in assets.
Gross sales in the Latin American sector in October 2002 totalled £10.3m, according to the IMA. However, net sales of -£3.45m show that for the £10m that came in, roughly £13m was redeemed. Old Mutual's decision to merge its two funds comes as part of its rationalisation, for which it needs unitholder approval, as reported in Investment Week earlier this month.
David Morrison, head of client servicing at Old Mutual, said the group wants to widen the remit of the funds to lower risk.
The Latin American fund experiences a large degree of correlation among countries, he said, so when one country does badly, all tend to suffer, making investment more difficult. Morrison said the group is also planning to close the £4m Old Mutual Fairburn Emerging Markets fund, in which around 90% of the assets are institutional.
These will be switched into the group's Asian fund, he said.
This leaves the retail fund with a small amount of assets, he added, so Old Mutual is also offering these unitholders a free switch into the Asian fund, after which it will be closed.
The Edinburgh Latin America fund had been seeing far more redemptions than fund inflows and as such the group decided the time had come to close its fund, according to Nigel Whittingham, group business development director at EFM.
He said: 'The costs of investing in the Latin American region are now much higher than any other. The fund was launched in 1993 and investor interest in the region is far less than at that time.'
The fund was closed with assets of around £5m but, at its peak between 1993 and 1994, had more than £20m in assets, Whittingham said.
Aidan Kearney, investment director of the Premier Funds Service at Artemis, said on a risk/reward basis, the Latin American region does not give enough reward for the risk being taken.
He said the region is still suffering from the rollover of the third-world crisis, which, he believes the Asian regions have been able to leave behind.
Countries like Brazil and Argentina are still decidedly risky areas in which to invest, Kearney added, and he looks for more balanced and sustainable financial systems for emerging markets exposure.
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