Interview Series

WIOF Latin American Performance Fund

Investment Manager: INCA Investments, LLC

(October 2011)

How has the Fund performed recently compared to its peers and are there any particular stocks or areas where the Fund is performing well?

In the past month we have seen a clear divergence in the positive performance of some Latin American stocks, especially those tied to the Latin American domestic consumer, compared to the mostly negative performance of other indexes around the world which have succumbed to intense selling pressure recently. Some of the best performing stocks in the portfolio are Brazilian credit and debit card processors Cielo and Redecard. Both of these companies are benefitting from the increase in credit card transactions as the Brazilian middle class expands and increases its purchasing power and also as more and more consumers use credit cards for transactions instead of cash and checks.

The Fund covers a number of markets within the region. What criteria do you use in deciding the country allocations for the Fund?

We don’t make allocations by country per se, although there are countries with governments that follow more supportive policies for companies and investors and therefore Inca Investments tends to prefer equities in these countries. The Fund emphasis though is on a bottom-up, fundamental based investment strategy and our prime belief is that the economic development of the region and the rise of its consumer class will drive consumption-oriented companies and industries, and we seek to be a part of this growth. When we select stocks, we look for companies that are well managed, are not overleveraged and that operate in markets where they can benefit from the presence of a vibrant consumer.

What does the Latin American region offer investors which other emerging markets do not?

Compared to other emerging markets, especially in Asia, Latin America’s economies are closed economies and are therefore dominated by domestic consumption. Most Asian economies are very export oriented, but this is much less the case in Latin America which is fairly independent of the rest of the world. What this means is that exposure to Latin American equities is direct exposure to the very attractive economic growth of the Latin American region, not the external global factors which drive most global markets. Other unique facets of the Latin American equity sphere are that domestic consumption is underdeveloped and there is ample room for continued credit growth. These two factors, along with strong sustained economic growth across the region, are some of the reasons we believe Latin America has one of the best outlooks in the world.

Brazil is seen as one of the world’s upcoming economic powers. Are there any specific areas which investors can take advantage of as Brazil’s economy and market continues to grow?

Brazil is the most well-known Latin American market outside of the region, due to its rapid economic growth and because it is the region’s largest economy. We view Brazil as a good long term investment story although we are concerned about the country’s high inflation rate and what in our view is an overvalued local currency. We believe both of these factors have undermined Brazilian manufacturers and they could also slow the growth of the Brazilian economy, potentially triggering a credit deleveraging cycle. For these reasons, we see opportunities in Brazil, but not across the entire equity sphere. Where we do see opportunities and have centred our holdings are on companies that have dominant market shares, strong branding and pricing power or that sell primary or discount goods which are more appealing to consumers during uncertain economic times. We have found companies that match some or all of these criteria in the financial services sector (credit card processors Cielo and Redecard), in the industrials sector (car rental company Localiza) and in the consumer staples sector (discounted consumer goods company Hypermarcas and the beverage-maker Ambev).

Brazil has recently seen rising inflation and rates have been raised to combat it. Is inflation a serious concern for the Brazilian market?

Inflation is indeed a serious concern for the Brazilian market. Until September, the Brazilian central bank had been on a path of steadily increasing interest rates in a bid to reduce inflation, but reversed course last month, cutting the country’s benchmark interest rate from 12.5% to 12.25%. The move surprised the market and in our view is a message the Brazilian government is willing to accept high inflation in order to maintain strong economic growth as the global economic outlook in the developed world worsens. As we have commented previously, we believe the high inflation environment in Brazil adds a level of risk to the country’s economic outlook and for this reason we reduced our holdings in companies with direct exposure to Brazilian consumer credit some months ago.

Some experts on the region say that Chile is the best-run Latin American economy and have described its recent development as Latin America’s economic miracle. Would you agree and if so how can investors take advantage of this?

We believe that Chile, along with all of the countries in Latin America where we invest, has an excellent long term growth outlook. Chile has a great, and well-deserved, reputation due to its early adoption of pragmatic economic policies which helped attract foreign investment and brought long term economic prosperity and stability to the country. In the 1990’s almost all Latin American countries adopted these responsible fiscal and economic policies and the result has been the region’s most significant economic boom in history. Chile has continued down this path: today the country has a positive fiscal surplus and operates a rainy day sovereign wealth fund, built up with proceeds from the country’s copper industry. We believe the best way for investors to harness the growth in Chile and the rest of the region is by seeking out investments that are directly exposed to Latin America’s consumer-oriented companies which are benefitting directly from the region’s long-term growth trend.

Demographic developments in the region show a growing young workforce with rising spending power. How does this phenomenon translate into investment opportunities?

Latin America had a baby boom during the 1990s that has set the region on track for sustained growth in consumption as this bulge age group, mostly still in their teens, enters adulthood in the next ten years. The increase of this key age bracket – which accounts for most of the spending power - will also swell the ranks of the workforce, creating additional wealth for the region. We believe the region’s unique demographics will be a boon for consumption in general across the region. A clear example of where we see the benefits of this trend are for companies in the Mexican homebuilding sector: we expect demand for new homes to continue to increase as more and more young families form new households.

Recent reports have suggested Latin America is attracting more and more private equity investments. What has prompted the rise in these investments and how will this new investment feed through to the region‘s markets and economy?

The private equity sphere has honed in on Latin America in recent months due to the region’s extremely attractive economic growth rates and the above-average growth expectations of its companies. Foreign investment in general has been one of the key drivers behind Latin America’s economic transformation in the past two decades and we believe the increased activity of private equity investment in the region will only contribute to further dynamize and internationalize the region’s businesses and overall economic environment.

The performance of the Peruvian market was affected for months this year by investor concern over the election of left-leaning Ollanta Humala to the presidency. Is there any reason for investors to continue to be concerned over his policies?

During the months leading up to the election in July, the Peruvian market came under intense selling pressure due to investor concerns about the impact of a victory of Ollanta Humala. Humala did end up winning the presidential elections in a second round but since he took office the Peruvian index has recovered all of the lost ground as investors realized Humala’s policies would not be especially onerous for investors. Inca Investments believes Humala is striking a successful balance between increased social spending and policies which are more inclusive of the country’s poorest inhabitants while maintaining the responsible fiscal and economic policies which have attracted foreign investors and spurred Peru’s longest period of economic growth in recent memory. So far, the only companies which have been affected by a change in policy have been the country’s mining companies which are now required to pay a new tax. However, Humala has chosen a formula that follows the tested model its neighbour Chile has levied on its own mining companies and has since said there will not be additional levies on the industry. Although Inca Investments cannot completely predict the policy swings of any administration, we are confident, based upon the actions of Humala’s presidency so far, that he will not employ policies which undermine foreign investment or the country’s strong economic growth.

Political instability and a range of democratically flawed and autocratic regimes plagued economic development in the region in the past. Is this all now in the past or are there any justified investor concerns over politics in any of the markets the Fund is exposed to?

In the 1970s and 1980s, Latin America was a region plagued with political and financial instability and went through periods dominated by autocratic and undemocratic regimes. However, during the 1990s a reform period took hold and Latin America strengthened and stabilized its economies while consolidating its democratic institutions. The outcome has been the biggest economic boom in the region’s history. In spite of the recent weakening in the global outlook, most economists believe the region will grow at a rate of between 4.5% and 5.5% this year. Proof of Latin America’s strong position vis a vis the rest of the world is how it emerged from the 2008-2009 crisis: the crisis dragged on the region’s growth cycle but the impact was subdued compared to its effects on the U.S. and Europe. This divergence was due to the region’s strict adherence to responsible fiscal and economic policies in the years before. When the crisis hit, Latin America was not overextended fiscally and did not suffer a banking, housing or debt crisis. With the prospects of recession in the developed world looming, we have been monitoring closely its potential impacts on the region and it is our view that Latin America is again in a much better position to weather a global crisis than its first world counterparts.

What do you see as the prospects for the Latin American region’s economy and markets for the rest of the year?

We believe, along with most economists, that Latin America will continue to enjoy above average growth rates this year and the region’s domestic economies will continue to fuel economic growth in the region. It has been a turbulent year for the world’s markets, and Latin America hasn’t been an exception, but the region’s economies are still growing and we believe they will continue this positive trajectory in coming months. We also believe the region has many more tools at its disposal if the developed world entered a recession and triggered a slowdown in global economic growth. In addition to being in better economic and fiscal shape than most developed countries, Latin American central bankers and policymakers have a lot more options than their overstretched counterparts in the developed world. Latin America has plenty of room to ease interest rates to stimulate economic activity; the region‘s governments are not saddled with hefty public debts, dealing with delicate financial systems nor are they facing troublesome fiscal accounts. The region’s fiscal deficits, in fact, are considerably lower than in the U.S., Japan and the Eurozone. For these reasons, we remain confident about the long-term performance of the economies of Latin America and the companies we have chosen in our portfolio holdings.

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 20th December 2002 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.