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Best buys: LatAm fund selectors' top investment calls of 2017

Citywire Americas' Samantha Muratori asked Latin America’s selectors what bets best paid off for them in 2017.

In October, Citywire hosted its fourth annual fund selection retreat in Montevideo for Latin America’s top investors.

With so many gatekeepers under one roof, we had to take advantage and asked them about 2017’s  best performing funds and their biggest bets. Some selectors played political turmoil just right, while others jumped on tech trends.

Click through to see what opportunities investors across Latin America took advantage over this past year. 

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The bio play

My first encounter on my quest for answers was with Diego Iglesias from Uruguayan fund platform Aiva. He said a tactical position he made in biotech has turned out to be a ‘very, very good bet.’

‘It’s within the portfolios of the funds of funds we manage and so we’re still holding onto it. We are waiting for a good time to exit since it has been a really high returning bet, over 26%, and we are seeing a bit of volatility, especially around health care.’

He told me they had also benefited from their investments in this theme thanks to the pick-up in drug approvals over the past year and pharma companies’ solid earnings.

‘That was probably the most profitable play, but within a small tactical allocation. The Franklin Biotechnology Discovery Fund was our choice and it performed really well for us.

'‘Aside from that, we are also investing, like many others, in emerging equity. That has returned very well this year, but it wasn’t unexpected – we were waiting for it. We also received really good returns from the emerging market space by refocusing our attention globally and not in one specific region.’

He explained that his team seized upon the post-Trump election effect and the opportunities it created, as political tension in the emerging markets rose.

‘We didn’t expect that to hold, as the economic view was positive and it resulted in a good call. This specific bet was through the Templeton EM Smaller Companies fund and Henderson Gartmore Emerging Markets fund. They both have different philosophies but they have done their jobs in our portfolios and complement each other very well,’ he said. 

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Crypto Call

I roped in my colleague David Gutierrez to corner a couple of his Colombian contacts and get their views. He got the lowdown from Juan Carlos Velasquez of Bancolombia, who revealed which investment has made its mark in his portfolios. His answer certainly caught us off-guard.

‘Without a doubt an investment that paid off quite well this year is the investment fund that invests in bitcoins for the self-managed clients’ portfolios at (Bancolombia's Panamanian bank) Banistmo. This fund is simply off the charts compared with other investments,’ he said.

‘It is difficult to compare with traditional investments, and it is even difficult to compare it with alternative investments or with emerging markets equity, as while Peru has had a rally of over 30%, this fund has had a 300% return this year.

‘It was a tactical investment on the potential returns of the cryptocurrency and to complement high-risk-profile portfolios, but with an exposure no higher than 3% of the total portfolio, as the underlying asset is so volatile that it doesn’t make sense to expose a bigger chunk.

‘That was without a doubt a surprising investment that has given very high returns in a very short period of time,’ he said.

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Emerging surprise

Later in the day, David spoke to Juan Esteban Torres from Ultraserfinco who told him that the biggest surprise in his portfolios this year had been emerging markets equities.

‘We initially thought that given the current international environment, with so many geopolitical risks and things going on, the take-off in emerging markets would take longer.

'So we hadn’t counted on it for this year but we were wrong and it has been a positive surprise. In the performance attribution we did, emerging market equities were confirmed as the real winner this year. Alternatives are playing a big role in here, as infrastructure projects and private equity funds are the top performers,’ he said.

‘The increase in demand we have had is because we have increased our exposure to alternatives, mainly in foreign currencies, allowing greater diversification for our portfolios. That is the alpha generation component we have taken for our portfolios and we are seeing this type of investment as both a strategic long-run choice and where we will continue seeing the best results.’

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Viva Mexico

As we worked our way up the Latin American road map, taking advantage of all the different countries represented at our event, I sat down with Luis Cargiulo from Panamanian group Global Bank. He told me that the US election result had created the best opportunities for him this year.

‘When Trump won the election, we saw opportunities in Mexico and other Latin American countries, where prices dropped and spreads widened compared with historical levels.

As a general consensus, when Trump won the election in November, Mexico was a very good bet, with opportunities in quasi-government and corporate bonds.’

He said that his team also bought some emerging market corporate debt funds at the same time.

‘They started trading at interesting levels so we made a couple of trades for our clients that have paid off pretty well. Names like PEMEX are other bets that have also paid off for us thus far. These were tactical trades that clients are still primarily holding.’

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Euro Party

The view from US offshore came from Keith Lerner of Atlanta’s SunTrust Advisory, Unlike his Latin American counterparts, he found his bet on a developed region to be one of his best this year.

‘Among the biggest market surprises this yearhas been the outperformance of European equities and the euro, as political risks appear to have been overstated,’ he said.

‘Coming into the year, investors were broadly underweight European equities given uncertainties related to the major elections in 2017. Specifically, investors were fearful that the far-right candidate Marine Le Pen could win the French election, and that populist movements could topple other centrist governments in Europe. However, markets breathed a sigh of relief when independent centrist Emmanuel Macron won the French presidency.’

He said Macron’s victory allowed investors to focus more on the positive economic and earnings momentum in Europe, adding that Europe’s economy is on track for the best economic growth since 2010, with companies producing double-digit earnings growth.

‘Due to the geopolitical risks, investors came into the year very bearish on the euro. But as the political risks subsided and economic data accelerated, sentiment on the euro improved and the currency has risen more than 10% versus the US dollar.’

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While Europe was a key play, Lerner (pictured above) hasn’t ignored emerging markets (EM). He said the firm had upgraded its view of emerging markets at the end of 2016, having previously urged investors to underweight the asset class for several years – during which time emerging markets had severely underperformed.

‘EM is among the best performing asset classes this year, up more than 30% through mid-October. We upgraded EM both on a tactical and strategic basis. Our work suggests that an important inflection point in EM performance occurred last year,’ he said.

‘Our expectation is that EM will be among the best returning asset classes over the next 10 years. That said, investors should keep in mind that investments in these smaller developing markets tend to be more
volatile, less liquid and are subject to unique risks.’

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Events
  • Citywire Latin America 2017

    Citywire Latin America 2017

  • Citywire Miami 2017

    Citywire Miami 2017

  • Citywire Santiago 2017

    Citywire Santiago 2017

  • Citywire Mexico 2017

    Citywire Mexico 2017

  • Citywire Miami 2017

    Citywire Miami 2017

  • Citywire New York 2016

    Citywire New York 2016

  • Citywire New York 2016

    Citywire New York 2016

  • Citywire Mexico 2016

    Citywire Mexico 2016

  • Citywire Mexico 2016

    Citywire Mexico 2016

  • Citywire Panama 2016

    Citywire Panama 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Miami 2016

    Citywire Miami 2016

  • Citywire Miami 2016

    Citywire Miami 2016

  • Citywire Panama 2016

    Citywire Panama 2016

  • Citywire New York 2015

    Citywire New York 2015

  • Citywire New York 2015

    Citywire New York 2015

  • Citywire New York 2015

    Citywire New York 2015