Brandywine Global Investment Management’s fund manager Jack McIntyre is exiting the Canadian bond and currency markets because the loonie is overvalued and he sees better opportunities in Mexico.
McIntyre, who oversees $25 billion of debt at the unit of Legg Mason Inc., had about 4 percent of his holdings in Canadian dollars and bonds at the start of the year. He is allocating funds to Mexico instead, where he said a productive workforce is luring foreign companies and investment.
“We’ve exited our Canadian positions as of a few trading sessions ago,” McIntyre said in a phone interview yesterday from Philadelphia. “Canada has gotten to be an expensive place to live and, more importantly, do business. The Canadian dollar is overvalued. Companies are shifting production away from Canada to the U.S. and Mexico.”
McIntyre has lifted his allocation to Mexico to 9 percent from about 5 percent at the end of the third quarter, he said.
“Real yields are attractive, and the peso is undervalued,” he said. “That’s an ideal scenario for us.”
Mexico’s peso is the best performer against the U.S. dollar this year among the 16 most-traded counterparts tracked by Bloomberg, having rallied 7.8 percent while the Canadian dollar has appreciated 2.2 percent.
“When you move away from the headlines about the drug cartels, the underlying economic fundamentals in Mexico are very positive,” McIntyre said.
The extra yield investors get for holding Mexican bonds instead of Canadian securities fell today to 1.82 percentage points, almost the narrowest since November, according to Bank of America Merrill Lynch indexes.
“Mexico continues to be a beneficiary of direct foreign investment, has a low inflation rate and a young, increasingly productive workforce,” McIntyre said. “Mexico is becoming more competitive with China on a cost-of-production basis. Why not set up your manufacturing operations close to your end customer, the U.S. consumer? Mexico is a better place to set up factories than the U.S. or Canada.”