Aberdeen Asset Management is to launch a UK-listed Latin American closed-end fund with an income bias.

The fund, which is described by the firm as a sister to its Asian Income Fund, is initially targeting an annual dividend yield of 4.25 per cent, with the aim of growing it over time. Jointly managing the fund will be Aberdeen’s emerging market equity and debt teams, which are led by Devan Kaloo and Brett Diment respectively, the firm said in a statement.

At its launch, 60 per cent if the fund’s portfolio will be invested in listed equities and the remainder in sovereign bonds. The equities selected will be growth-orientated, with the bonds component of the portfolio expected to provide the lion’s share of the income. By taking this blended approach the fund’s asset allocation can be altered in response to economic circumstances as they change, the firm said in a statement.

Aberdeen thinks that over the last decade Latin America has made “huge strides to become an important current and future contributor to global growth”, not least Latin American countries’ moves to rein in inflation.

Additionally, strong demand for commodities has led to trade surpluses and tax and prudent government spending policies have led to current account surpluses in a number of countries and it is evident that they are now more stable and more independent of foreign capital inflows, the firm said.

Aberdeen also said the fiscal deficits of most Latin American countries are lower than those in the eurozone, Japan, the US and the UK.

At a company level, Aberdeen notes that Latin American firms have improved their profitability by moving to restructure their balance sheets, reduce their debt and focus on their core skills. While global demand for commodities is of course a factor, the firm does not however view the continent as simply a play on the world’s appetite for raw materials. Aberdeen is rather interested in the rise of domestic consumption in the continent, which is being driven by young and growing populations and burgeoning workforces enhancing the earning and spending power of the region.

Local retailers, banks and drinks companies will be a particular focus for the Aberdeen, but the firm cautions that the region does present some risks at the economic, political and company levels and therefore fundamental analysis and a bottom-up investment process will be a priority for the fund’s managers.

“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,” Kaloo said.

The fund which will be domiciled in Jersey and traded on the London Stock Exchange, is set to launch early in July.