Top funds 2003: Latin America's investors rode the Lula wave. Now they watch and wait.No one owns market wisdom, but the best investment funds Noun 1. investment funds - money that is invested with an expectation of profit investment assets - anything of material value or usefulness that is owned by a person or company in Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. agree at least on what to watch: a recovering Brazil and the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , in that order. Net inflows of private financing by way of equities--that's mostly investors looking to directly buy shares of Latin American companies--should rise to US$32.2 billion in 2004, a return to 2002 figures after bottoming out during 2003 (although just half of 2001's dotcom-inflated stock markets, when inflows hit nearly $60 billion), according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the International Institute of Finance (IIF IIF Institute of International Finance IIF Irish Insurance Federation IIF Immediate IF IIF Innovation Investment Fund (investment supporting R&D new technology/science ventures) IIF Intuit Interchange Format ). Nonbank non·bank adj. Of, relating to, or done by a business or an institution that is not a bank but performs similar services. private creditor inflows--mostly in the form of corporate bonds--will hit $13 billion in the year ahead, up from $8 billion in 2003 and far outpacing 2002's $4 billion net outflow of private credit. That incoming cash should help as economies across the region recover from the global slowdown, now well into its second year. The IIF, a global association of financial institutions, forecasts Latin American gross domestic product (GDP GDP (guanosine diphosphate): see guanine. ) growth at 3.3%, ranging from 2.7% to 4.5% for 2004. Fully one-third of equities money will go to the region's largest economy, Brazil, the group reports. Much of it will end up in the hands of banking and utilities companies eager to pick up market share as the Brazilian economy
In a certain sense, betting big on Brazil was the inverse strategy of the best fund in that country during 2003. Call it the "Lula factor" if you will. The campaign of left-wing candidate and former union leader Luiz Inacio Lula da Silva sil·va also syl·va n. pl. sil·vas or sil·vae 1. The trees or forests of a region. 2. A written work on the trees or forests of a region. , now president of Brazil The President of Brazil is both the head of state and head of government of the Federative Republic of Brazil. The presidential system was established in 1889, upon the proclamation of the republic in a military coup d'etât against the Emperor Dom Pedro II. , created a fog of doubt among most investors. Some fund managers figured the negative talk would hold down share prices for a while, so they loaded up. Once the election was over, equities rebounded. Roseli Machado, manager for Fator Administradora de Recursos, took the Lula-hysteria bet. By the time the election had shaken out, she had piled up a 128% nine-month return on the year, in part she says by steering clear of industries beset be·set tr.v. be·set, be·set·ting, be·sets 1. To attack from all sides. 2. To trouble persistently; harass. See Synonyms at attack. 3. by structural problems and instead pouring money into heavy industry blue-chips held down by low expectations of Lula. "We avoided regulated sectors, such as telecom and electricity, because inflation was high and we were afraid that, at that moment, the government could begin regulating rates," says Machado. "Those sectors were more influenced by politics, so we stayed out." Feng Ding, manager of Barclays Global Investors Barclays Global Investors is a subsidiary of British-based Barclays Bank which is in the investment management industry. It is the largest corporate money manager in the world, with over £936 billion (US$1.77 trillion) under management as of March 2006[1]. iShares Brazil, says her index fund--which tracks the Morgan Stanley Capital International Morgan Stanley Capital International (MSCI) This firm publishes a number of well known benchmarks, such as the MSCI World Index. (MSCI) index for Brazil--saw Investors flee the country to avoid taking a bath on Lula's election, a fear that soon became a self-fulfilling prophecy self-fulfilling prophecy, a concept developed by Robert K. Merton to explain how a belief or expectation, whether correct or not, affects the outcome of a situation or the way a person (or group) will behave. : So many reduced their Brazil holdings that, as a result, shares fell. Once it was clear that Lula would follow the economic game plan that kept Brazil rolling through the 1990s, investors eagerly bought back in. Mechado sees interest in Brazilian stocks returning, even a big bump-up early in the year, but November presidential elections in the United States The United States has a federal government, with elected officials at federal (national), state and local level. On a national level, the head of state, the President, is elected indirectly by the people, through electors of an electoral college. could put an end to the party. Since iShares tries to match the entire market, Ding doesn't recommend individual stocks. Nevertheless, she says, watching equities is high on her list in the months ahead. "Going forward we need to see some real corporate profits growth, "says Ding, "We need fiscal policy to be seen in corporate growth." Argentine growth is a given, if only because the economic disaster of late 2001--and a virtual burning at the stake of Argentina's financial system--has finally pushed the country into a competitive position. Exports are suddenly hot, and resurging growth after so many black months means the construction sector should provide some economic juice, fund experts say. Finally, too, this likely will be the year Argentina and the world's creditors come eye-to-eye on fixing its broken-down banks. "We are still optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the financial system in 2004," says Gabriel Ruiz, manager for Santander Investments Argentina, the asset management company of Banco Rio. Probably the least questionable economies in Latin America are those of Chile and Mexico. A newly inked trade deal for Chile with the United States, on top of a pact with Europe, means exports will begin to get even more traction than before. A side effect of more trade, however, is that incoming dollars could sidetrack companies that export because their foreign earnings will be deflated de·flate v. de·flat·ed, de·flat·ing, de·flates v.tr. 1. a. To release contained air or gas from. b. To collapse by releasing contained air or gas. 2. by a declining local currency. Elias Egnem, equities manager for Celfin Acciones Chilenas, says he's looking instead to reforms in Argentina's utilities sector to help Chilean electricity stocks, a heavy component of the Chilean stock market, as well as increased sales for Chilean companies This is a list of Chilean companies by field of operation. Media
Mexico's performance, meanwhile, is geared almost directly to a U.S. recovery, with all the doubt that comes in the second half as U.S. President George W. Bush tries to hold on to the White House. The top Mexican fund, Accival, made its money by balancing a prudent position in bonds with blue-chip equities such as Telefonos de Mexico and Bancomer--much like any run-of the-mill U.S. pension fund. So predictable, now, is the U.S-Mexico relationship that the IIF's investment forecast glosses over Mexico almost completely. Ah, to be predictable in an unpredictable world. BRAZIL As investors braced for what was billed to be drastic change in the political scene with the possible election of Partido do Trabalhadores candidate Luiz Inacio Lula da Silva, fund manager Roseli Machado bet against the market. Her fund took the view that the left-wing candidate would stay the course on his predecessor's orthodox economics, taking positions in highly leveraged companies that were in trouble during the campaign. Machado bought into heavy industry--steel stocks such as Usiminas and CSN CSN Crosby, Stills, and Nash (band) CSN Centrala studiestödsnämnden (Swedish: state education grant and loan program) CSN Confédération des Syndicats Nationaux (French) and petrochemical giant Braskem. Machado says she thinks the Bovespa will top 25,000 points in 2004, a healthy 20% rise, but only until April or May, when uncertainty surrounding U.S. elections will begin to dampen enthusiasm for risk. As the U.S. economy recovers, too, interest rates could rise from historic lows in the second half or sooner. If the U.S. recovery falters, the impact will be felt worldwide. STEEL. Steel is still a good bet, says Machado. If the sector can arrive at a clear operating model--one centered on the market--steel companies will recover well. INTEREST RATES. Currently high Brazilian interest rates could decline. If so, companies highly burdened with debt will refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. , improving their outlook. BANKS. Assuming the banks can pick up the 25% increase in business and personal lending they forecast, bank stocks will recover well, too, and outperform Outperform An analyst recommendation meaning a stock is expected to do slightly better than the market return. Notes: Exact definitions vary by brokerage, but in general this rating is better than neutral and worse than buy or strong buy. the market, Machado says.
BRAZIL
TOTAL RETURNS IN US$
ENDING SEPT. 30, 2003
NET ASSETS
US$ millions Since 12/31 1 Year 3 Years
1 Coinvalores Fator FIA 0.5 127.8% 231.4% 11.4%
2 Banrisul Performance 1.0 106.5 209.1 -33.7
3 Fator Plural Jaguar FIA 0.8 116.0 203.6 0.1
4 BBM Brady FIF 4.1 91.4 196.5 25.8
5 Banrisul Infra 0.9 90.1 191.2 -20.2
MANAGEMENT
COMPANY WEB SITE
1 Coinvalores Fator FIA Coinvalores www.coinvalores.com.br
2 Banrisul Performance Banrisul www.banrisul.com.br
3 Fator Plural Jaguar FIA Banco Fator www.bancofator.com.
4 BBM Brady FIF Banco BBM www.bbmassets.com.br
5 Banrisul Infra Banrisul www.banrisul.com.br
SOURCE: THOMSON INVEST TRACKER
ARGENTINA Argentina went into recovery mode during 2003 after a dismal economic performance during the previous year. Bank deposits increased strongly and financial institutions benefited from lower interest rates after the Central Bank acted to inject liquidity into the market. Banco Rio's Superfondo Acciones focused on the banking sector, which made up more than 33% of the fund's portfolio, helping it post a 220% 12-month return. Gabriel Ruiz, manager for Santander Investments Argentina, the asset management company of Banco Rio, says economic recovery is expected to continue through 2004, albeit at a slower rate. "Perhaps the returns, or market performance, may be slower keeping in mind that the financial adjustment has occurred in large part during 2003," says Ruiz. BANKS. Banks are expected to stem losses during 2004 following a US $12.5 billion agreement between the Central Bank and the International Monetary Fund to stabilize the banking system. UTILITIES. Public services Public services is a term usually used to mean services provided by government to its citizens, either directly (through the public sector) or by financing private provision of services. , such as gas, electricity and telephone, are also looking good this year as the administration of President Nestor Kirchner aims to restructure rates. CONSTRUCTION. Strong growth is expected in this sector given the low cost of construction in dollars. Ruiz advises, "We understand it will be one of the sectors that people will invest in during 2004."
ARGENTINA
TOTAL RETURNS IN US$
ENDING SEPT. 30, 2003
NET ASSETS
US$ millions Since 12/31 1 Year 3 Years
1 SuperFondo Acciones 5.5 88.5% 220% -22.6%
2 Litoral 0.4 102.4 203.1 -22.7
3 1784 Acciones 9.3 95.7 198.4 -47.2
4 Tavelli Plus 1.3 78.2 184.8 -6.3
5 Rembrandt Acciones 2.5 76.5 171.2 -38.6
Argentines
MANAGEMENT
COMPANY WEB SITE
1 SuperFondo Acciones Santander www.bancorio.com.ar
Investment
2 Litoral Chercofomi N/A
3 1784 Acciones 1784 S.A. www.bankboston.com.ar
4 Tavelli Plus Tavelli y www.tavelli.com.ar
Cia.
5 Rembrandt Acciones ABN AMRO www.fondosrembrandt.com
Argentines Asset Mgmt
SOURCE: THOMSON INVEST TRACKER
N/A: Not available
INTERNATIONAL An index fund. Barclays Global Investors iShares Brazil tracks the Morgan Stanley Capital International (MSCI) index for Brazil. Investor interest in the country plummeted in the run-up to the presidential elections last year but have since surged, says iShares Brazil manager Feng Ding. iShares quadrupled in size to US$311 million, not counting appreciation, making it the fastest-growing of 34 international iShares funds managed by Barclays Global Investors. "That's a huge inflow in·flow n. 1. The act or process of flowing in or into: an inflow of water; an inflow of information. 2. into the fund." says Ding. It's a recovery of sorts, since similar inflows were apparent in the first half of 2002, followed by a crash as the campaign got under way and investors looked for ways to avoid Brazil. But Ding sees more than simple politics in the cards for the year ahead. Inflation and monetary policy are taking a positive turn under leftist left·ism also Left·ism n. 1. The ideology of the political left. 2. Belief in or support of the tenets of the political left. left President Luiz Inacio Lula da Silva. "There's not only good talk, but positive things happening as well," says Ding. "People are using the fund to get some exposure in Brazil." INTEREST RATES. Cuts from the monetary authority four months in a row, to a two-year low, means more corporate borrowing and subsequent growth. LESS GOVERNMENT. Lula has cut spending on public pensions and is deregulating de·reg·u·late tr.v. de·reg·u·lat·ed, de·reg·u·lat·ing, de·reg·u·lates To free from regulation, especially to remove government regulations from: deregulate the airline industry. electricity, good signs for the months ahead. BLUE CHIPS. Ding expects fiscal policy could translate into corporate profits growth, although how much remains to be seen. Domestic demand must rise accordingly, she says.
INTERNATIONAL
TOTAL RETURNS IN US$
ENDING SEPT. 30, 2003
NET ASSETS
US$ millions Since 12/31 1 Year 3 Years
1 iShares: Brazil 165.7 55% 117.7% -10.8%
2 Merrill Lynch Latin 23.4 38.3 62.5 -1.8
America I
3 Fidelity Advisor Latin 0.2 36.6 63.4 -3.9
America lnst.
4 Fidelity Latin America 206.0 35.8 63.0 -2.8
5 iShares:S&P Latin 29.5 35.4 56.8 N/A
America 40
MANAGEMENT
COMPANY WEB SITE
1 iShares: Brazil Barclays www.barclaysglobal.com
Global
Fund
Advisors
2 Merrill Lynch Latin Merrill www.mliminternational.com
America I Lynch Inv.
Managers
3 Fidelity Advisor Latin Fidelity www.fidelity.com
America lnst. Mgmt &
Research
Co.
4 Fidelity Latin America Fidelity www.fidelity.com
Mgmt &
Research
Co.
5 iShares:S&P Latin Barclays www.barclaysglobal.com
America 40 Global
Fund
Advisors
CHILE While Celfin Acciones Chilenas focused on the export sector during the first half of 2003, it is now changing its strategy. Almost a quarter of Celfin Acciones' portfolio is in the energy sector, mainly because it is a sector that has high exposure to Chile's stock market. "We've reduced exposure to funds that have a high component of export in their sales, due to the appreciation of the peso relative to other currencies," says Elias Egnem, equities portfolio manager for variable income. Egnem says they are just now starting to take a more defensive position with cyclical stocks Cyclical Stock A stock that rises quickly when economic growth is strong, and falls rapidly when growth is slowing down. Notes: An example is the automobile market, because as growth slows in the economy consumers have less money to spend on new cars. that should improve, now that the Chilean economy is expected to grow more than it did in 2002. ENERSIS ENERSIS Energy Systems and Infrastructure . The energy company will benefit from a rate increase on distribution of electricity in Argentina from its local affiliate Edesur The energy sector as a whole has improved liquidity following an increase in capital from debt restructuring Debt Restructuring A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage. Notes: . EMBOTELLADORA ANDINA. The Chilean bottling company A bottling company is a commercial enterprise whose output is the bottling of beverages for distribution. Many bottling companies are franchisees of corporations such as Coca-Cola and PepsiCo who distribute the beverage in a specific geographic region. is expected to perform well given economic recovery in Chile, Argentina and Brazil. According to Egnem, Andina is positioned to take advantage of the consolidation of The Coca Cola Noun 1. Coca Cola - Coca Cola is a trademarked cola Coke cola, dope - carbonated drink flavored with extract from kola nuts (`dope' is a southernism in the United States) Company in Latin America. COMPANIA SUDAMERICANA DE VAPORES. Latin America's largest maritime transportation company will benefit from high global prices for shipping as a result of increased demand from a developing China.
CHILE
TOTAL RETURNS IN US$
ENDING SEPT. 30, 2003
NET ASSETS
US$ millions Since 12/31 1 Year 3 Years
1 Celfin Acciones 0.2 55.3% 78.7% N/A
Chilenas
2 BICE-Dreyfus 7.8 54.0 77.2 10.5
Vanguardia
3 Security Acciones 2.0 54.7 77.0 N/A
4 Principal Tanner 0.5 52.9 73.7 N/A
Capitales
5 Santander Acciones 4.0 52.4 73.2 19.4
Chilenas
MANAGEMENT
COMPANY WEB SITE
1 Celfin Acciones Celfin www.fondosmutuoscelfin.cl
Chilenas Capital
Administradora
2 BICE-Dreyfus BICE-Dreyfus www.bice.cl
Vanguardia Administradora
3 Security Acciones Administradora www.security.cl
Security
4 Principal Tanner Principal Tanner www.principaltanner.cl
Capitales Administradora
5 Santander Acciones Santander www.santandersantiago.cl
Chilenas Administradora
SOURCE: THOMSON INVEST TRACKER
N/A: Not applicable; fund is too new.
MEXICO Part of global banking giant Citigroup under Mexican partner Banamex, Accival is a blue-chip fund. It invests mainly in shares that trade heavily and lead in their sector. The fund looks for long-term investment opportunities and targets pension funds and insurance companies as well as individual investors that can withstand market ups and downs ups and downs pl.n. Alternating periods of good and bad fortune or spirits. ups and downs Noun, pl alternating periods of good and bad luck or high and low spirits . The fund's prospectus says it puts at least 40% of its assets into the 25 Mexican stocks of highest market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. . (The fund's managers did not participate when asked by LATIN TRADE Latin Trade is a monthly magazine covering global business in Latin America and the Caribbean. Similar to Forbes and Fortune Magazine in coverage, the magazine was founded in 1993 and now publishes 87,000 copies 1 each month in Spanish, Portuguese, and English. for their outlook on Mexican markets.) Accival's roll call. accordingly, reads like a who's who Who’s Who biographical dictionary of notable living people. [Am. Hist.: Hart, 922] See : Fame of Mexican worthies. As of October 2003. nearly 10% of its holdings, for example, were in Telefonos de Mexico (Telmex); more than 9% in beer company Grupo Modelo Grupo Modelo is a large brewery in Mexico. It maintains a large part of the Mexican beer export market and produces top-selling imported beer in the United Kingdom, United States and Canada. ; and more than 8% was in Grupo Financiero BBVA Bancomer BBVA Bancomer is the largest financial institution in Mexico, dominating about 20% of the market. History Founded in 1932 in Mexico City as Banco de Comercio (English: Commerce Bank) (Bancomer). . Besides Telmex, Accival Det again on Mexican billionaire Carlos Slim by holding more than 7% of its investments in Carso Global Telecom Carso Global Telecom is a conglomerate of companies formed in 1996 after separating all telecommunication-related companies from Grupo Carso. This company does not have any employees as it is only a holder of stocks of companies such as Telmex, Telcel and América Móvil. and almost 5% in holding company Grupo Carso Grupo Carso is a conglomerate of companies owned by the Mexican tycoon Carlos Slim. It was formed in 1990 after the merge of Corporación Industrial Carso and Grupo Inbursa. The name Carso stands for Carlos Slim and Soumaya Domit de Slim †, wife of Slim. . It also bought into bottler FEMSA FEMSA Fomento Económico Mexicano, SA FEMSA Fire and Emergency Manufacturers and Services Association Inc. FEMSA Female Education in Maths and Science in Africa . Grupo Financiero Banorte, paper-products company Kimberly-Clark de Mexico, Banamex's U.5, partner Citigroup and retailer Wal-Mart de Mexico. Risk has it limits, though. The fund on that date held more than 28% of its money in fixed income instruments Fixed income instruments Assets that pay a fixed dollar amount, such as bonds and preferred stock. , close to its stated limit of at least 70% investment in equities. Its mix of equities and fixed-income instruments in the future will depend on much. but up to 95% of the fund can be held in stocks.
MEXICO
TOTAL RETURNS IN US$
ENDING SEPT. 30, 2003
NET ASSETS
US$ millions Since 12/31 1 Year 3 Years
1 Accivalmex 2,376.2 28.2% 47.5% -5.5%
Patrimonial
2 GBM Fondo de 6.5 41.8 47.4 33.7
Crecimiento
3 Interfondo de 3.4 10.3 42.1 -7.0
Capitales
4 Vector Fondo de 5.5 29.3 33.9 7.1
Crecimiento
5 Actipatrimonial 9.5 26.8 29.3 10.9
MANAGEMENT
COMPANY WEB SITE
1 Accivalmex Impulsora de www.accitrade.com
Patrimonial Rondos
Banamex
2 GBM Fondo de Operadoro GBM www.gbm.cam.mx
Crecimiento
3 Interfondo de Banco www.gfinter.com
Capitales Interacciones
4 Vector Fondo de Operadora www.sigenera.com.mx
Crecimiento S.I. Genera
5 Actipatrimonial Actinver Fondos www.actinver.com.mx
de Inversion
SOURCE: THOMSON INVEST TRACKER
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