Regional Equity, Open End
Regis Global Equity. Five-Year Risk Adj. Return: 28.56%. Manager: Alejandro Silveyra
Alejandro Silveyra, who has been managing the Regis Global Equity fund since June 1993, is heavily weighted in his country of origin, Argentina, where he has 76.36% of his portfolio. The remainder is in Brazil (14.27%) and Mexico (9.37%).
In terms of sectors, the fund strongly favors the gas&electricity sector (48.23%), followed by telecommunications (14.84%), steel (13.50%), construction (8.86%) and oil (8.57%). The fund has only 1% allocated in cash. And in regards to favorite picks, Silveyra loves Central Costanera in the Argentine electricity sector, Telebras Holdings in Brazil and two Argentine oil&gas companies: Metrogas and YPF. He also likes small caps since he believes he can find good value there.
According to Silveyra, the fund’s strategy hasn’t changed during its five years in existence and has a low turnover because of his long-term investment approach. Silveyra also attributes the fund’s success to good dividends, consistent earnings performance and low price volatility. Benchmarks include: the Merval and the MSCI EM Latin America.
While Silveyra feels that the first eight months of this year will be disappointing, he expects conditions to improve after that period. “I expect a rally in the Latin markets at the end of the year,” said Silveyra, adding that he expects a complete rebound in Latin America in the year 2000.
Regional Equity, Closed End
Latin American Discovery Fund. Five-Year Adj. Return: 34.87%. Managers: Andy Skov, Michael Perl
The Latin America Discovery Fund again tops the list of regional closed-end equity funds for the one-year, three-year and five-year categories. It has dominated the closed-end class in all return categories for as long as LatinFinance has published the Latin fund rankings.
And even last year, a bad year for all funds, it did not perform as poorly as did others in its class. For the year ended 1998, it fell by -33%. For the three-year and five-year periods, the risk adjusted return was 35.39% and 34.87%, respectively. “Nineteen ninety-eight was the most difficult year I’ve ever seen in my six years or seven years of managing Latin money,” said the fund’s co-manager, Michael Perl. “You couldn’t really hide anywhere. Anything that was remotely liquid got trashed.”
Last July, Perl joined Skov from Bankers Trust, where he had managed the Latin American funds since 1992, replacing Robert Meyer who had been Skov’s team partner. Still, say those who run the fund, the traditional strategy employed at Latin American Discovery guaranteed continuity through the change and ensured a less wicked loss compared to some of the other funds. “(The strategy) is a combination of both top down and bottom up approaches,” Skov told LatinFinance last year.
The goal is to outperform through both country allocation and stock selection.
Specifically, the fund began the year overweight in Brazilian telcos and utilities as growth opportunities were fueled by privatizations, new management and pent-up consumer demand. “Also, given that utilities generally trade as interest rate proxies, we knew that interest rates in Brazil would go back up,” said Perl.
Still, by the end of the third quarter about 20% of the fund was in cash. Going forward, say the fund managers, the cash component will be reduced, although investments in the region’s equities will continue to be cautious.
Toronto Trust Argentina. Five-Year Risk Adj. Return: 25.63%. Manager: Albert Friedberg
The Toronto Trust Argentina Fund, managed by Friedberg Capital Mercantile Group, is at the top of the equities category for the three-year and five-year returns partly because it avoided equities for much of that time.
While the fund is listed as an equities fund, it is not a dedicated equities fund, which means that fund manager Albert Friedberg has a host of options in terms of where he may put the money-stocks, bonds, money markets or simply hold on to the cash.
In 1997, the fund was 80% to 90% dedicated to longer-term debt instruments, but by the time of the Asian crisis, those long-term positions had been reduced to about 15% of the portfolio. In 1998, Friedberg invested in short-term paper exclusively, trading off between dollar-denominated and peso-denominated debt instruments. In fact, since he does constantly exchange between equity, debt and cash, he doesn’t bother tracking a benchmark. “Which one would you use?” he asks.
The problem with Argentina, he says, is the lack of liquidity in the equity market.
Additionally, with the large conglomerates holding so many varied stakes, there are relatively few pure plays.
His view going forward? Maintain cautious investments in short-term debt and be ready to hold cash. In general, the fund does not try to outsmart the market or actively trade the market. With reports coming out that the Argentine economy is slowing down big time, his strategy of avoiding equities and long-term debt seems a smart one. Raised in Uruguay and having graduated from Johns Hopkins in economics and from Columbia with an MBA, Friedberg founded a commodity brokerage firm in 1971 before forming the Friedberg Mercantile Group in 1978.
Opportunity Brazil Value. Five-Year Risk Adj. Return: 49.22%. Managers: Carlos Eduardo Ramos, Dorio Ferman
With the Brazil Value fund, Rio de Janeiro-based investment bank Opportunity decided to break away from its tried and true strategy of investing primarily in state-run enterprises in the telecommunications, petroleum and electricity sectors. And judging by the performance of the fund over the past five years, the move has been a success.
Manager Carlos Eduardo Ramos said that the key to the fund’s performance has been in finding private companies that are undergoing changes in management and capitalizing on improved results. Since the fund’s universe is limited to private companies, Ramos said that Brazil Value did not perform as well as it could have last year, given that the best local picks were state-run.
“But now that Telebras has been privatized, and Eletrobras is on its way, the Brazil Value fund is taking on more of the profile of the rest of the Opportunity funds,” said Ramos. “We are starting to have more options.”
Ramos said that despite recent rockiness, Opportunity is optimistic about a recovery in the value of the Brazilian market in the coming months. “Brazil is taking hard, unpopular measures in order to strengthen the economy,” he said. “Combine that with the fact that most foreign investors are seriously underweight in Brazil and it creates an atmosphere that is pretty positive. We think that the level of recovery could be very high.”
Genesis Chile. Five-Year Risk Adj. Return: 26.65%. Manager: Mark Lightbown, Richard Carss
(See winner for Chile equity for the seven-year category).
Mexico Fund Inc. Five-year Risk Adj. Return: 41.17%. Manager: Jose Luiz Gomez Pimienta
The Mexico Fund, Inc. has managed to beat out its competition and outperform the market by almost 20% over the five-year period.
Investing in companies with low levels of debt and high levels of cash has been key to the fund’s top performance, a strategy which will continue through 1999, said Eduardo Solano, economic analyst of Impulsora del Fondo’s closed-end equity fund. “We do this as a defensive measure,” he added. “However, this didn’t stop the fund’s NAV from falling.”
As of year-end 1998, the total net assets of the fund were $791 million. But as of mid-March, that figure had already jumped to $960 million, a factor Solano attributes to the growth of the Mexican stock market. He said he plans to take advantage of this increasing trend by shifting the funds 93/7 ratio of equity to cash to 97/3.
In addition to investing heavily in construction and consumer goods, last year the Mexico Fund ventured into the agrobiotech and insurance/financial sectors by buying into Empresas la Moderna, Inbursa and Seguros Comercial America.
The largest equity holdings among the fund’s 40 stocks include the Grupo Modelo brewery (9%), baking good company Bimbo (7%), Kimberly Clark de Mexico (8%), retail chain Cifra (9%) and Telmex (6.5%).
Though the Mexican economy is expected to decelerate this year, Solano believes that the manufacturing, construction (housing) and retail industries will still offer attractive rates of growth. However, he said the fund will not invest in new securities but rather increase its current position in stocks.
“We believe there are winning companies that belong to losing sectors,” he added.
The fund relies on in-house research and uses the bolsa index as its benchmark.
Regional Debt, Open End
Regis Global Asset Financing Fund. Five-Year Risk Adj.Return: 0.72%. Manager: Alejandro Silveyra
This year’s regional debt winner in the five-year time period, Regis Global Asset Financing, has 85% of its portfolio dedicated to Argentina with the remainder in Mexican debt. A large majority of that, says fund manager Alejandro Silveyra, is in consumer credits, factoring and leasing sectors.
Because of that unusual investment mix, Silveyra says that he doesn’t use a benchmark.
Still, it is a clear that the Regis Global Asset Financing Fund stands ahead of its peers. It has taken first place in the regional debt category for the one-, three- and five-year time periods, with double-digit returns in all three cases.
“We dodged a bullet last year because of the type of credits,” said Silveyra.
Silveyra has been managing the Regis Asset Financing Fund for the past seven years now.
He started his investment career after he obtained his degree in industrial engineering from the University of Buenos Aires, after which he became a senior consultant at Arthur Andersen. Today, the soccer loving Silveyra is married with four children.
Regional Debt, Closed End
Latin American Extra Yield. Five-Year Risk Adj. Return: 22.18%. Manager: Helene Williamson
(See winner for regional debt, closed end, for the seven-year category).
CCF Premium Class A. Five-Year Risk Adj. Return: 4.39%. Managers: Octavio Ferreira, Gilberto Kfouri Jr.
Gilberto Kfouri Jr., head of fixed income asset management at CCF, says that the reason for the success of the Premium A fund is obvious.
“There is no big secret why the fund is doing so well,” said Kfouri. “The interest rates in Brazil are extremely high.” But the fund’s solid returns over the past five years also has a lot to do with steady, conservative management. Avoiding leverage has also paid off over the long term.
The Class A is one of eight Premium funds that were established in May 1993 with clear investment policies and benchmarks. The fund, which now controls about $40 million, is denominated in local currency, benchmarked to Libor, and allowed to take only small positions in dollars. The portfolio consists mostly of short- term federal debt.
“It is more of a money market fund than anything else,” said Kfouri.
“Our objective for the fund is to eventually to take some positions in dollars or reais.
But only a small margin, maybe 10% or 15%,” he added.
Kfouri said that if the government’s prediction of a fall in interest rates materializes over the following months, the bank would welcome the renewed investor confidence in the country, despite the fact that returns would not be as easy to come by.
CCF has 90 fixed income funds divided between a team of six fund managers. Octavio Ferreira manages the day to day operations of the Class A fund.
Coutts Mexican Liquidity. Five-Year Risk Adj. Return: 2.99%. Manager: Henry Smyth
It’s not hard to believe that Henry Smyth’s Coutts Mexican Liquidity fund topped the list of one-year, three-year and five-year returns in the Mexico Debt category. After all, Smyth’s track record includes a 25-year tenure working in Latin America, including during the 1980s LDC debt restructuring process.
“That knowledge base was critical to any success I’ve had in terms of getting experience and starting a career in what was a very down market, a depressed market,” explained Smyth, who has managed the Coutts&Co. open-end fund since 1984.
And last year, the Mexican market-and emerging markets in general-was everything but buoyant.
This is why Smyth took a conservative approach. “We don’t swing for the fences,” he said. “We aim to provide returns in risk free deposits for our clients.”
Historically, an average of 25% of the fund is invested in local currency, a strategy designed to keep duration, and thus volatility, low, said Smyth. “That’s been the case consistently,” he said. “Providing good returns while bringing out volatility that is inherent in the market has been a deliberate strategy.”
Investing in short-term money market instruments and keeping a fair amount of cash on hand has also been an important approach.
Although their cash position varies widely, the fund always holds a minimum of 10%, said Smyth. At year-end 1998, however, their cash position was up to 64%. Total net assets were at $11 million.
For the past three years, the fund, which uses Mexican 90-day treasury bills plus 100 basis points as its benchmark, has employed a peso model developed by BCP Securities, a model “that has helped us manage our peso risk very well. It has kept us out of trouble a number of times,” said Smyth. In both bull and bear markets, the fund has managed to make money in the peso.
The fact that the fund doesn’t have to be fully invested is another major plus, added Smyth. “Last year, with the peso volatility coming out of Asia, we were able to get on the sidelines and then get back in,” he explained. “We can stand on the sideline and go to cash.”
And what will 1999 bring? “We think that Mexico is the first country out of Latin America to bottom out and start coming back,” he said. ” We think there will be short-term opportunities in our US dollar and peso portfolio.”
See, One-Year Performance: The Sprint, for Standard&Poor’s methodology