LatinFinance - May/June 2014 - 33

at domestic-orientated firms.
nick Robinson, head of Brazilian equities
at aberdeen asset management, says his
fund has tended to avoid natural resources
firms, unless the stocks are cheap and the
firm enjoys low operating costs. instead,
he points to banks, retailers, and shopping
malls. "export-orientated stocks in latin
america tend to be more volatile, driven
by commodity prices and global economic
demand," says Robinson.
"consumption remains our main bet;
we've moved a bit to manufacturing, but
consumption is still the largest component
of our fund," says another portfolio manager focused on latin america.
Robinson gives the example of multiplan, a developer of shopping malls in
which the fund has invested for around
seven years. He says the firm has been good
at spotting the right locations - and delivering on time. one of the fund's most recent
additions is Parque arauco, a shopping
mall developer in chile: the firm's valuation
became more attractive after the sell-off in
chile's stock market.
aberdeen likes how Parque arauco is
using cash generated from established
projects in chile to grow in less developed
markets: colombia, and Peru. Robinson
says it can be difficult to find companies in
which to invest in Peru, though the fund's
other recent addition is Peruvian construction and engineering firm Graña y montero.
Robinson says Graña y montero will
benefit from state-led development of infrastructure in Peru. more generally, investors
seem to be warming to the infrastructure
theme, as governments (including Brazil)
try to attract more private investment in
public works. "We've been investing more
in infrastructure companies," says Robinson.

How the funds are ranked
LatinFinance's 2014 equity asset manager
survey is compiled from annualized gross
returns data supplied by Lipper. The survey
considers equity funds with over $100 million
of assets under management. Funds are ranked
according to their performance over the past
three years. Where a manager has two funds
in the top ten, the lower performing one(s) are
stripped out. Only actively managed funds are
included. ETFs, for example, are excluded.

Continued on page 34

SCORECARD
BRAZIL
INVESTOR

Fund managers have had to stay on the right side of
volatility after a sell-off in emerging markets and a turn
in local monetary policy. By Dominic O'Neill

Up and down

G

etting on the right side of
price movements is essential to the art of
successful fund management - and over
the past year in Brazil there have been
plenty of such movements. effective fund
managers in this market were those who
were able to manage that volatility better
than the rest of the industry.
the period of this survey - the year to
march 3 - began with a dramatic turn in
the local rates cycle, as the Brazilian central bank began to tighten policy as inflation started picking up after two years of
monetary easing to a record low of 7.25%.
investors in credit and macro funds had to
manage that effectively.
Volatility looks like it is here to stay. By
april this year, rates stood at 11% after nine
months of consecutive hikes. But analysts
says rates could go higher still, possibly
after october's presidential election and
adjustments in government controlledprices expected by a new administration.
"When the cycle began, no one expected the base rate would go to 11%," says João
Scandiuzzi, chief strategist at BtG Pactual
asset management.
in early 2014, price swings in rates,
credit and equity followed new opinion
polls showing President Dilma Rousseff's
approval rating had faltered more than
expected. that sparked more speculation
that a more market-friendly opposition
candidate could win the election.
cue an appreciation of the real, a decline
at the long-end of the yield curve, as well as
a return by investors to debt and equity of
state-owned firms like oil firm Petrobras,
on hopes that those firms could enjoy a
better business environment under a different government. "Previously everyone

thought that Dilma would be reelected; now
there is more uncertainty about the elections," says Scandiuzzi.
in this climate, he says, local market
corporate credit has stood up relatively well,
despite a higher interbank rate. that is largely a factor of the much higher local rates in
Brazil compared to dollar rates, he says, so
issuance in the domestic market tends to be
more conservative than in the international
bond market.
"the kinds of companies that can issue
domestically tend to have very strong cash
flow," says Scandiuzzi.
Brazil was one of the main targets for the
sell-off from emerging stock markets over
the past year, with the poor perceptions
of growth prospects in Brazil - the biggest
market in the region - helping bring down
the rest of latin america. the ibovespa fell
10% in the period. By the end of march, it
was 25% down from its 2012 high.
Pedro andrade, equity portfolio manager
at investidor Profissional, says his fund recognized that valuations had become excessive and were at risk of a capitulation back in
2012, after the sharp rebound in stock prices
that followed the global crisis of 2008. the
fund began to increase its cash position as
well as its allocation to foreign stocks.
"By the end of 2012, 25% of the fund was
in foreign stocks. in 2013 that number rose
to 35% so in 2013 the biggest contributor to
the fund was foreign stocks like Wells fargo,
Google, apple, and microsoft." andrade
says he invests in those names both on the
US and local exchange in the form of Brazilian Depositary Receipts.
one way to tackle the challenges to equity
investing that result from weak domestic
growth, says José Zitelmann, head of equities at BtG Pactual asset management, is to
focus on firms in less crowded sectors, with
better management teams and good track
records of delivering growth.
"Given the less positive macroeconomic
May/June 2014 - l atinfina nce.com 33
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