Fund managers in the Latin American fixed income markets saw their investments in the region pay off last year as government and corporate bonds recovered mid-year from 1998’s doldrums. Two fund managers, Alejandro Silveyra of Regis Global Asset Management, and Aldo Roldán of Merrill Lynch were runaway winners in the debt category, sweeping eight of the 11 fixed income classifications.

Silveyra, who manages the Regis Global Asset Financing Fund which won in the regional three-, five- and seven-year categories, says he took the same approach with his $25 million fund as he has in the past: investing in regional sovereign bonds and loans, and putting a solid portion of the fund in factoring to smooth out volatility. Silveyra says that last year, between 30% and 40% of the fund was invested in factoring, in which vendors to companies such as YPF and IBM, finance their working capital by selling their invoices at a discount to the fund. Last year, the invoices yielded between 12% and 15%, but sometimes as much as 20% for the fund, he says. “The success of the fund lies in the fact that I have consistently invested in safe debt instruments with attractive rates of return, and due to the type of these instruments, the volatility has been low,” says Silveyra, who has managed the Regis fund for eight years.

Of the fund’s bond holdings, 90% is invested in Argentine and Brazilian sovereigns, most of which are Brady bonds. Local issues make up about 20% of the government portfolio and Eurobonds comprise about 10%. In the past, Silveyra has ventured into other emerging markets, such as Asia and Russia, where he did well, but most recently has stayed committed to Latin America. He says he is considering adding Venezuelan issues to the fund this year. Declining interest rates will boost the capital gains on the fund’s bonds, but will also affect its income on securitized invoices.

Silveyra is optimistic about the outlook for the region in 2000, particularly in Argentina, due to recent tax reform there. He says higher Argentine income taxes, though recessive, are a positive step toward addressing the government’s budget deficit. He expects that the tax changes will hold economic growth to about 3% this year. The bond markets have reacted favorably to the government’s reform efforts and country risk is declining.