14.03.2012

Fernando X. Donayre

Portfolio Manager

INCA Investments, LLC

With regional markets set for continued outperformance and local economies proving resilient in the face of global economic headwinds, Latin America is ripe with investment opportunity. Investing in Latin American equity and bond markets, the WIOF Latin American Performance Fund offers investors access to a region where demographics, economic strength and a burgeoning middle class are combining to produce rapid consumer growth and an attractive investment environment.

 

GROWTH AND OPPORTUNITY

Latin America’s attractiveness for investors has grown enormously in recent years. Political stability and orthodox economic policies have ushered in a boom that is creating new opportunities for regional companies and increasing the size and affluence of the middle class. More than 50% of the population in major Latin American countries is middle class and consumption-oriented companies are set to be among the biggest beneficiaries as per capita incomes and middle income groups’ purchasing power continues to rise.

The increased buying power of Latin Americans has also boosted domestic consumer demand and expanded demand for credit, creating expansion and investment opportunities in financial services. Another advantage for investors is the region’s resilience compared to other more export-driven economies which are suffering in the global turndown.

It is not dependent on Europe to absorb its exports - Latin American exports are diversified geographically – and its main economies are also more domestic market-driven than export-driven. This means that the health of the region’s economies is relatively protected from external factors. But it also presents the opportunity to add value as investments can be made focusing on what are actually the largest portions of countries’ economies i.e. their domestic markets, rather than simply following Latin American indices dominated by commodity companies whose movements are influenced mainly by external, rather than regional, factors.

 

Latin America is also an attractive investment proposition because of its relative economic strength compared to the developed world:

  • It has considerably lower public and private debt levels, a highly-capitalized banking sector which holds very little European debt, and, most importantly, regional growth rates which are considerably stronger than the developed world.
  • GDP growth rates in the EU and the US are estimated at 1.5% and 1.1%, respectively, this year, while those of Latin America’s main economies are expected to be two to three times larger, according to the International Monetary Fund (IMF).
  • Favourable demographics are also set to keep driving the region’s economic growth story forward. A regional baby boom during the 1990’s also guarantees that in the coming decades a high percentage of its population will be working-age consumers with above-average spending power.

 

Latin American Population Breakdown

Source: CEPAL

 

POSITIVE FUNDAMENTALS

Individually, all the Fund’s key investment countries also have good fundamentals and investment potential:

  • Brazil recently became the world’s sixth largest economy.
  • Mexico has an improving economy and the most undervalued currency in Latin America. Its proximity and close economic ties to the US are a long term competitive advantage for Mexico. Its companies are attractive for their favourable long term outlooks and reasonable valuations.
  • Peru’s projected economic growth rates of more than 5% to 2015 make it one of the most promising economies in Latin America.
  • Chile is expected to be the best managed economy in Latin America for some time to come.

 

TAKING ADVANTAGE

The Fund is managed to take maximum advantage of the opportunities on offer in the region. The Fund manager’s investment decisions are based on bottom-up, fundamental research with a focus on companies rather than countries. Stocks are picked from companies with strong business franchises while a long-term investment horizon is used to gain an advantage over short-term oriented investors, who are prevalent in the Latin American investment sphere. Companies with below average and reasonable valuations are favoured to give the optimum probability of positive risk/reward scenarios.

 

OUTLOOK

In the early part of this year, Latin American indices have outperformed as investors refocus their attention on the good fundamentals and promising outlooks of Latin America’s economies and companies. Investors now realise that many Latin American equities were last year oversold to the point that there was a significant mismatch between share prices and valuations. This also happened during the last global crisis: investors sold Latin American stocks at a greater rate than those in the developed world, but once the recovery came in 2009, regional stocks soared. The situation is similar today. This, combined with regional economies’ fundamental strength and resilience, as outlined above, means that Latin American equities are very well positioned to continue outperforming, especially if global investor confidence continues to be as strong as it has been so far this year. The Fund’s focus on value investing will also be particularly favourable during this period as investors take a closer look at company fundamentals and the strong growth outlook of the region.

 

INVESTMENT MANAGER

The Fund is managed by Latin American investment specialists INCA Investments LLC. INCA’s local knowledge and experience allows it to find value in companies that are overlooked by others and uncover investment value in countries which non-specialised managers often do not pay sufficient attention to, including Peru, Colombia and Panama.

 

 

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.