28.07.2014

LATIN AMERICAN PERFORMANCE FUND

 

Investing in Latin American equity 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.

 

RELATIVE PROTECTION

The region’s economies also have a relative lack of reliance on exports, specifically of commodities, unlike some other emerging market regions. Some investors have been concerned that a slowing Chinese economy will continue to exert a negative effect on commodity prices. While strong commodity prices certainly provide a positive boost to Latin American economies, investors tend to overestimate the dependency of Latin America to commodities. Latin America is not an export-driven region of the world, unlike Asia. As of late, Latin American economies have been driven more by the stabilization of their economies, which have allowed the lower and middle income sectors of society to improve their lot and drive the growth in domestic consumption. It is also important to note that Latin American indexes, with approximately one third of their exposure to commodity companies, also overplay the importance of commodities to the Latin American economy.

 

GEOGRAPHICAL BREAKDOWN

 

And major Latin American economies are now transforming themselves to be more dependent on internal consumption than on commodity exporting. 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.

 

ATTRACTIVE PROPOSITION

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

 

Better growth - For the five year period from 2013 – 2017, the International Monetary Fund (IMF) has projected that the US, for example, will grow at 2.9% per year versus  4.5% for major Latin American countries.

 

Sound fundamentals - Latin America remains a region with low public and private debt.

 

Favourable demographics – These are also set to keep driving the region’s economic growth story forward. A regional baby boom during the 1990’s 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

 

POSITIVE FUNDAMENTALS

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

 

  • Mexico: Despite some recent figures showing a weakening, the Mexican economy should begin to increase its growth as its highly efficient manufacturing sector increases its exporting and the Mexican government begins to implement its proposed economic plans, which include an aggressive dose of reforms intended to strengthen the economy. There is also strong optimism among investors that the country’s economy is very well positioned to withstand any further weakness in the global economy.

 

  • Chile and Peru: Both countries possess very good economic fundamentals despite the fact that their stocks continue to be sold off due to investor concern that they are commodity dependent countries which will be negatively affected by a further decline in commodity prices as a result of a continuing slowdown from Chinese demand. While the commodity sector is important to these countries, and other Latin American economies, the commodity dependence of the region has been generally exaggerated in the mind of investors. However, the lower valuations which this situation has led to leave some attractive buying opportunities in stocks of non-commodity names with strong business franchises and which have historically weathered the ups and downs of economic growth.

 

  • Brazil: The country has one of the largest consumer markets in the world, poverty rates have plunged and the middle class is expanding by millions of people per year. And despite economic inefficiencies which have recently limited economic growth, defensive companies with strong business franchises continue to offer sound opportunities.

 

As the Fund’s portfolio manager, Fernando X. Donayre, says: “Over the long-term, Latin American economies’ strong underpinnings bode well for the region’s investment prospects.”

 

OUTLOOK

The Chilean marketplace currently has one of the most interesting pools of undervalued assets in the Latin American sphere while the economic prospects for Colombia and Peru remain very promising with consumer based, franchise companies at good prices providing attractive long-term investment opportunities.  Despite some concerns about the situation in Brazil, the country’s economy is stronger than a decade ago and should get back on a growth track over the long term while Mexico also continues to provide specific attractive investment opportunities. Although there has been a degree of relative underperformance in Latin American markets compared to developed and emerging market peers, this has created buying opportunities in specific regional stocks which not only trade at lower valuations, but are often accompanied by higher growth rates. Some volatility has also created price dislocations which subsequently have offered an increased opportunity to upgrade the investment potential of the portfolio.

 

INVESTMENT ADVISER


The Fund’s investment adviser is Latin American investment specialist INCA Investments. INCA is comprised of a group of dedicated regional investment professionals including senior investment staff who have been investing in Latin American markets since the early 1990’s as well as a team of seasoned analysts who are specialists in the region’s most important sectors.

 

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 17 December 2010 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.