15.06.2015

Investing in Latin American equity markets, the WIOF Latin American Performance Fund offers investors access to a region of strong growth, solid fundamentals and burgeoning investment opportunities.

 

WHY LATIN AMERICA?

Latin American economies have grown faster than their developed peers when considering the growth for much of the Fund’s investable universe – Brazil, Mexico, Chile, Colombia, and Peru— Brazil, Mexico, Chile, Colombia, and Peru—which had an average GDP CAGR of 3.3% between 2012-2014, compared to flattish to negative growth for economies like the US, UK, and Japan. And yet, the long-term, structural growth outlook for the region remains more robust than that of its developed peers. While each individual Latin American economy still has its own challenges to overcome, overall much has been done to right the wrongs of past decades. One bright spot to highlight is the significant reduction in public debt levels, with the Fund’s target countries now meaningfully under-leveraged compared to their developed peers. Based on 2013 data, Brazil has the highest public debt to GDP level in the region, but still well below the levels in the US, UK and Japan. Peru and Chile have the lowest debt levels, both with less than 20% of GDP. The region is even more under-leveraged than developed peers when looking at total debt levels to GDP (i.e. including private debt). Additionally, economic growth is not expected to be commodities-driven as was the case in the 2000s. Rather, the key investable countries in the region have strengthened the overall foundation of their economies, making them less sensitive to the effect of commodity price drops. These countries have increased the role domestic consumption plays in their economies and this theme continues to gain momentum.

 

As the Fund’s portfolio manager, Fernando X. Donayre, says: “Historically, Latin America has been growing faster than the developed world and is expected to continue doing so. We believe Latin American future growth will be driven by an increase in consumption.”

Expected GDP Growth

 

2015

2016

2017

3-Year Growth

 

Annualized

Brazil

-0.8%

1.2%

1.9%

0.8%

Chile

2.8%

3.5%

3.8%

3.4%

Colombia

3.5%

3.7%

4.5%

3.9%

Mexico

3.0%

3.5%

3.8%

3.4%

Peru

4.1%

4.7%

6.0%

4.9%

LatAm Simple Average

2.5%

3.3%

4.0%

3.3%

United States

2.9%

2.9%

2.7%

2.8%

Euro Area

1.3%

1.6%

1.6%

1.5%

Source: Bloomberg/IMF

COUNTRY BY COUNTRY

Brazil: The Brazilian economy has suffered in recent years due to the state interventionist policies of the last two presidential administrations. The continued weakening of the economy has forced the authorities to begin implementing more orthodox economic policies, including the raising of interest rates to lower inflation and the lowering of government expenditures to improve the fiscal deficit.

 

Mexico: The country has an improving economy, largely driven by one of the most competitive manufacturing sectors in the world.  After many years of losing US import market share to China, Mexico’s imports to the US are rapidly growing due to their competitive advantages over Chinese imports. These include: lower manufacturing wages, lower cost of transportation, and lower time to get goods to market/clients. Drug-related domestic violence is a diminishing issue and not a driving economic factor. The Peña-Nieto administration has undertaken important reforms which will further catalyze the country’s economic growth.

 

Colombia: Under an improved security outlook, the Colombian economy is experiencing solid growth. However, the recent drop in oil prices will create a short term fall in the country’s economic growth.  The market decline so far has brought down asset prices, providing the portfolio with an opportunity to find attractively priced investment opportunities.

 

Peru: The resilient Peruvian economy continues to grow at an above average pace due to its decreasing reliance on commodity exports.  The political environment has improved as left leaning President Humala has been a pragmatic manager of the economy.

 

Panama: One of the fastest-growing economies in the region with, according to IMF estimates, 2014-15 GDP CAGR of 7%, it is a growing regional headquarters base for multinational companies and offers opportunities in companies that are attractively valued and with healthy fundamental outlooks.

 

Argentina: Often overlooked by investors amid concerns over the country’s economy and political regime, presidential elections in October may finally bring regime change. Some companies are already trading at very low valuations, particularly if a shift in economic/political direction for the country is factored in and the risk:reward ratio is compelling on a multi-year outlook.

 

Chile: The Chilean economy has slowed due to falling copper prices and the un-orthodox policies of President Bachelet. However, the market is improving.

 

GEOGRAPHIC BREAKDOWN

 

OUTLOOK

While the early part of this year has been a more difficult one for Latin American markets, in spite of falling prices of local stocks, corporate earnings have not dropped. As such, the combination of falling prices with rising earnings have resulted in lower valuations and increased opportunities for Latin American equities. Meanwhile, although individual countries in the region are facing some economic problems, overall, regional economies have been outpacing those of the developed world in the past three years and are expected to continue outgrowing them for the next three years. Of the major markets, although there has been a significant fall in the Brazilian market in the recent past, the portfolio manager is actively seeking to invest in Brazilian companies with strong business franchises that can be bought at bargain prices while Mexico remains promising and the portfolio manager continues to seek attractively priced consumption oriented companies.

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. Its AUM as of March 2015 stood at USD 620 million.

 

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.