Latin Finance - May/June 2012 - 14

equity investor survey

Keeping the Faith
by Ben Miller

atin American stocks have continued to suffer from the developed world’s risk-off attitude during the last year. Though there has been something of a rebound so far in 2012, volatility is expected to continue. Investors, however, are still optimistic. As with previous instances of risk aversion, they used the dip in the second half of last year to add to their positions in the region. Despite recent noise about inflation, currency wars, and other macroprudential measures, many are still bullish about the domestic trends in Brazil, the market accounting for the great majority of the equity investment opportunity in the region. “The domestic growth story is still very much intact,” says Will Landers, senior portfolio manager at BlackRock, which has $1.56 trillion in equities under management. BlackRock’s BSF Latin American Opportunities Fund returned 58.86% in the three-year period to March 31, the most among LatAm equity funds tracked by Lipper. Lipper’s average of LatAm funds returned 30.95% in the three-year period to March 31, edging out returns for Mexico’s IPC index (30.36%), and topping the Bovespa (25.74%) and MSCI LatAm index (27.49%). Landers sees Brazil trading at levels of around 11.5 times 2012 earnings, and 10.0 times 2013 earnings. He says he doesn’t find the country too expensive, based on the growth seen in many of its companies. He expects GDP growth to be stronger in the second half of year. Retailers selectively continue to look good, with some expensive and others justifying their valuations. Many of the small caps are attractive, says Landers, who is restricted from discussing specific stocks not in the portfolio’s top 10. Retailer Hering and brewer AmBev

Volatility has complicated life for the equity buyside and dented market performance in the past year. Long-term investors are still sticking to the consumer demand story.
sticking to fundamentals and making judgments on core beliefs. “The global backdrop has been tough, and the volatile markets should continue,” says Dean Newman, portfolio manager at Invesco Perpetual. “LatAm markets can still end the year in positive territory, but the route by which we navigate to that conclusion could be quite wild.” Invesco’s $728 million Latin American Equity fund returned 34.00% in the three years to March 31. A large part of its portfolio is in mid-cap stocks within the theme of the emerging middle class, such as logistics, transport, retail and health. Like other managers, Newman is confident that rising incomes and expanding consumer purchasing power are long-term trends in Brazil and the other regional markets. “Even though we’ve had a great run on the consumer stories in Brazil, on a selective basis there’s still a lot of room to run,” says Stacy Steimel, LatAm equity portfolio manager at PineBridge Investments. The PineBridge’s $282 million Latin America Small and Mid Cap Equities fund returned 41.33% in the last three years, coming in second during that time to BlackRocks’ BSF fund, according to Lipper. Steimel notes that PineBridge is overweight consumer stocks and industrials, and highlights retailer Le Lis Blanc as a stock that has performed particularly well for her fund. The Brazilian industrial sector is benefitting from government investment. In particular, oil services is something on

Domestic growth still intact: Landers are two important consumer-focused holdings. “The market hasn’t really done much for two years now, and on a price-toearnings basis, most countries are trading in line with or at a small discount to their historical averages,” says Ian Simmons, portfolio manager at Charlemagne Capital. “It’s a reasonable entry point. It’s always difficult to time the turnaround, but if you take a medium-term view it seems to make sense to be building a position.” Charlemagne’s $146 million Magna Latin American Fund returned 33.11% in the three years to March 31, according to Lipper. Simmons explains that the strategy amid the volatility is to choose and hold on to stocks with growth prospects over a four to five-year horizon,

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May/June 2012

Latin Finance - May/June 2012

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