Some fund managers are saying that 1998 was the worst year they have experienced in all their years of investing in Latin America. That’s perhaps not surprising considering the dramatic widening of spreads and the pathetic performances of the local bolsas over that period as the tidal waves caused by the financial fallout in Asia and Russia began to sink boats in Latin America.
To account for this extraordinary volatility, Standard&Poor’s-which provides LatinFinance with fund performance data-has made some adjustments to its methodology this year. Instead of selecting winners based purely on total return, it has judged performance through the Sharpe Ratio, which takes volatility into consideration when looking at returns, and thus creates a more even playing field between those funds with rollercoaster performances and those funds that provide investors with smoother sailing.
Essentially, the Sharpe Ratio is the return for a certain time period minus the risk-free rate, with risk being the standard deviation for that same time period. This method has only been applied in the case of longer periods-in other words over a year-since it is difficult to account for volatility over only 12 months.
Apart from the usual three categories-one-, three- and five-year winners for the period ending December 31, 1998-we have also added a seven-year period, simply because there are now more funds that have been in the market that long. Within those periods, we have broken down funds into regional and country categories.
And as usual, any fund that failed to respond to requests for information from Standard&Poor’s within the required time period has not been included. We have also excluded funds that are alone in their categories since there is no way to judge their performance against their peers.