Best Chile Stock Picker Buys Cencosud, Shorts Falabella

Best Chile Stock Picker Buying Cencosud, Shorting Falabella
An artist's rendering of Cencosud SA's real estate development Costanera Center that sits next to the Mapocho River in Santiago, Chile. Source: Cencosud via Bloomberg

Chile’s top stock picker this year is buying Cencosud SA and selling its peer SACI Falabella on a bet the retailers’ valuations will converge.

Rodrigo Rojas, who manages the $10 million Chile Accion fund for Celfin Capital SA, is wagering that Cencosud, the country’s largest retailer by sales, is due to rally after dropping 8.1 percent this year and that Falabella’s 14 percent increase may be excessive. His fund has gained 10.5 percent in 2012, the most among Chile-based mutual funds that invest in local stocks, according to data compiled by Bloomberg.

“We shorted Falabella and that way financed a purchase of Cencosud shares,” Rojas said in a telephone interview yesterday from Santiago. “If the whole market gains, and in that case we think Cencosud should outperform, we stand to gain. If the whole market slumps, and Falabella underperforms, we win again.”

Chile’s benchmark Ipsa index has retreated 7.4 percent in the second quarter, after a 12 percent gain in the first three months of the year, as concern that Europe’s debt crisis would deepen stifled demand for emerging-market assets.

“Investing in the local equity market will remain complicated in the short and medium term because of Europe,” said Rojas, who helps manage about $500 million in several Chilean equity funds. “That’s the benefit of an actively managed fund in which we can do long and short investing.”

Stock Valuations

Cencosud is trading at 18 times its estimated earnings for the next 12 months, 17 percent below its four-year average of

21.8 times, according to data compiled by Bloomberg. Falabella, Chile’s largest retailer by market value, trades at 22.6 times estimated earnings, an 8.5 percent discount compared to its four-year average of 24.7 times.

Falabella slid 1 percent to 4,560 pesos at 11:58 a.m. in Santiago while Cencosud was little changed.

Rojas said his Chilean Accion fund has been overweight on electricity companies AES Gener SA and E-CL SA, which rely mostly on thermoelectric power and have projects in northern Chile. It doesn’t own Empresa Nacional de Electricidad SA or Colbun SA, which rely mostly on hydroelectricity.

“We see very little growth on Endesa and Colbun,” he said.

The Chile Accion fund is also betting on gains for winemaker Vina Concha & Toro SA because of valuations and as a hedge to a weakening peso. Concha & Toro has fallen 2.5 percent this year to 965 pesos.

“Its sales have been slowing and it has exposure to Europe, but it was cheap when it fell under 900 pesos and it stands to gain if the peso weakens,” he said.

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