Regional Equity, Open End
MK Panamerika. One-Year Return: -15.13%. Advisor: Michael Keppler
MK Panamerika’s rather unique approach to investing in Latin America avoided it from losing far less than its peers did last year.
While the mean among regional equity funds for the one-year return period was -37.43%, MK Panamerika’s return was -15.13%. According to Michael Keppler, the investment advisor of the Panamerika fund and president of Keppler Asset Management in New York, the fund was heavily weighted in US companies with large exposures to Latin America, especially financial services companies such as American Express, State Street Corporation, Citigroup and Merrill Lynch.
This fund is sponsored and managed by Munchner Kapitalanlage AG of Munich, Germany, a group which manages 17 mutual funds with total assets of $3.2 billion. Although Panamerika’s manager is Elmar Wagner of MK, it is Keppler who advises the fund and sets the investment strategy.
“We focused on two areas which helped us deliver superior returns,” said Keppler. “First, we were overweight in non-cyclical large cap companies. Second, we increased our holdings in companies that were expanding into the region and in US companies that derive a significant part of their earnings from Latin America.” What’s his favorite regional stock? Telebras Holdings.
At year end, the net asset value of the fund was $25 million. Its cash position had decreased from about 10% at the end of May to about 5.8% at year-end.
As for the immediate future, Keppler is playing it defensively and is waiting for the real to stabilize and interest rates to decline in Brazil before increasing his weightings in the region. Since 1994, six funds advised by Keppler have won Standard&Poor’s Micropal performance awards.
While Standard&Poor’s listed the Toronto Latin American Series fund at the top of this category with a return of -5.87%, that fund was not invested in equities during 1998 and was therefore disqualified in this category by LatinFinance editors.
Regional Equity, Closed End
Latin America Discovery. One-Year Return: -33.53%. Manager: Andy Skov, Michael Perl
(See winner for regional equity, closed end, for the five-year category).
Argentina Fund. One-Year Return: -19.12%. Manager: Paul Rogers
In a year in which all funds suffered, those that didn’t suffer as much as their peers were the winners. In the class of open-end Argentine equity funds, LatinFinance chose Scudder, Kemper’s Argentina Fund, managed by Paul Rogers, as the top performer in the one-year return category. Rogers was able to finish the year with only a 19.12% loss, compared to a mean of almost -30% among all like equity funds and to the Merval’s year-ending performance of -37.41%. The worst-performing fund for one-year returns finished with a 52.88% loss.
The NAV at year-end was $102 million. Even though the general strategy emphasizes low turnover of stock held, Rogers did reduce the fund’s holdings in electric utilities and increased its share in large, liquid companies like YPF and Telefonica. Other favorites were Telecom, Perez Companc and Loma Negra.
Oil/energy companies accounted for 27% of the fund’s holdings.
According to S&P figures, the top fund in this category is the Toronto Trust Argentina fund managed by Albert Friedberg of Friedberg Capital Mercantile Group. But because Friedberg avoided equity investments during the entire year, LatinFinance chose not to make Toronto Trust the winner in the equity category. The year-ending return of this fund was 2.79%, but in order to get a positive number Friedberg invested in Argentine debt, switching back and forth between dollar-denominated and peso-denominated short-term paper. Even though this fund is categorized as a dedicated equity fund, Friedberg may move the money into debt at any time he pleases.
Patrimonio Consumer. One-Year Return: 38.22%. Manager: Rogerio Penalva
Fund manager Rogerio Penalva had the home-field advantage when he was asked by what was then Banco Patrimonio to launch an equity fund limited to the Brazilian retail sector. As luck would have it, he had just come off a stint as retail analyst at Banco Votorantim.
“The companies that I picked for the portfolio I had been following for more than four years,” said Penalva. “I knew the companies well. I’d met and talked to the CFOs.”
Penalva used his intimate knowledge of each company’s potential to select a winning portfolio for the fund, which also benefited from having a small asset base of between $150,000 and $300,000.
“The fact that the fund was small gave us a lot of agility to take advantage of any distortions in the market,” said Penalva.
Within a universe of retail banks, chain stores, and the food, beverage and textiles sectors, Penalva gave the most weight to São Paulo state bank Banespa, which posted record results last year after being cleansed and recapitalized by the federal government in the run-up to its privatization this year. Penalva also made winning bets on supermarket chain Pao de Açucar, retailer Lojas Americanas and Banco Bradesco.
After Patrimonio’s merger with Chase was announced at the beginning of March, the Consumer fund was closed and is being folded into other existing funds. Penalva also recently left Chase’s asset management area to join a newly-formed consulting department that specializes in analyzing third-party funds.
Pionero. One-Year Return: -22.85%. Manager: Pablo Echevarria
(Pionero was unavailable for comment before press time.).
Profin SA de CV. One-Year Return: -1.67%. Manager: Enrique Camilli
(See winner for Mexico equity for the three-year category).
Regional Debt, Open End
Regis Global Asset Financing Fund.One-Year Return: 13.48%. Manager: Alejandro Silveyra
(See winner for regional debt, open end, for the five-year category).
Regional Debt, Closed End
Latin American Corporate. One-Year Return: -11.64%. Manager: Peter Harvey
Peter Harvey, the fund manager for Foreign&Colonial’s Latin American Corporate regional debt fund since December 1995, says that strong credit analysis helped him outperform his peers in the closed-end category during last year’s rocky market conditions.
Harvey says that the fund essentially takes a long-term approach to corporate debt, investing in undervalued, less popular Latin companies-many of which are ignored by brokerage firms.
The difference between Latin American Corporate and other funds, says Harvey, is management’s emphasis on both numbers and frequent visits to companies. On top of that, added Harvey, investing in corporate debt simply provides a “limited downside” during volatile times such as these.
Prior to joining the Latin American Corporate fund, Harvey led the corporate bond team at Foreign&Colonial. When Harvey is away from Latin corporate debt, his passion is sailing-something he did recently during his honeymoon in the British Virgin Islands.
Opportunity Arbitrage Fund. One-Year Return: 23.31%. Fund Manager: Felipe Badua
Fund manager Felipe Badua says that the secret to Opportunity’s success is the belief that volatility is not necessarily a sign of risk.
“Opportunity is different from other fund managers in that we are not willing to have a low volatility fund, because that doesn’t mean low risk,” said Badua.
The strategy was obviously successful; last year the fund topped its goal of a 15% return by a full 5%.
The fund, which is allowed to move freely between the foreign exchange, equity and debt markets, is market neutral and without leverage. In the first half of last year, Badua said that the fund concentrated on fixed income plays such as Bovespa swaps offshore against Bovespa futures in Brazil and relative value plays on the Bovespa against Bovespa futures.
By June, he said that the fund moved away from fixed income after foreign exchange risk started to shoot through the roof, and concentrated on small volumes of equity arbitrage. Some of Badua’s favorite plays involved distortions in Telebras receipts after the July privatization of the phone company.
The fund last year controlled $6 million in capital, although that has been cut in half since the investment bank starting encouraging its clients to return to the equity markets.
Badua, who is in charge of six different funds at Opportunity, has managed the Arbitrage fund since the middle of 1997. Before his move to fund management, he spent time on Opportunity’s Brady bond desk and in risk management.
Coutts Mexican Liquidity. One-Year Return: 6.59%. Manager: Henry Smyth
(See winner for Mexico debt for the five-year category).
Portfolio Mercantil en Renta Fija. One-Year Return: 26.4%. Manager: Gabriel Urdaneta
Gabriel Urdaneta’s forecast of an unstable currency, and thus his decision to stay 100% exposed in local currency and long-term bonds, is what he attributed to the Portfolio Mercantil en Renta Fija fund’s success last year.
“We didn’t feel a devaluation because we work in bolivares,” said Urdaneta, manager of Merinvest’s Venezuelan debt fund.
Close to 70% of the fund’s portfolio is invested in local TEMs, or short-term government debt similar to the Mexican Cetes.
The rest is invested in local treasury bills and commercial paper. However, Urdaneta says the portfolio’s TEM exposure may decrease to 50%, depending on the market’s performance.
About 80% of the fund’s $9 million it manages is actively traded. “We have an active portfolio that moves on interest rate trends,” said Urdaneta. The fund uses 90-day bonds as its benchmark, which it beat last year by almost 6%, according to Urdaneta.
Standard&Poor’s Methodology: For the one-year period, Standard&Poor’s used total return, which is the unitized absolute investment performance of a fund within a universe of funds for a specific time period. The funds were ranked by using US$ percentage returns, NAV to NAV with gross income reinvested.
Standard&Poor’s used the Sharpe Ratio to determine the best funds in each category for the three-, five-, and seven-year categories in both equity and debt. The Sharpe Ratio is the return of the fund for period x minus the risk free rate for the same time period which is the standard deviation. For the three-year performance Standard&Poor’s used a risk free rate of 4.97% which is the T-Bill annualized return for three years. For the five-year performance, the risk free rate was 4.94% or T-Bill annualized return for five years. And for the seven-year performance, the risk free rate was 4.45%. Note that fixed-term and equity click funds were excluded since they cannot be compared to ordinary mutual funds because of the nature of their investments.