Itau Unibanco Holding SA has found a winning strategy for the Itau Latam Pacific mutual fund: avoiding shares from the bank’s home country, Brazil.
The $45 million fund has beaten 96 percent of 860 funds that focus on Latin American equities, with a 20 percent return over the past year, according to data compiled by Bloomberg. Sao Paulo-based Itau, Latin America’s biggest bank by market value, set up the fund in 2011 with a mandate to invest in the region outside of Brazil.
The restriction helped the fund, run by Brian Chase from Santiago and Sylvia Bigio from New York, avoid a 16 percent decline in Brazil’s benchmark Bovespa index during the past 12 months as President Dilma Rousseff sought to boost growth by intervening in industries including energy, utilities and banking, crimping earnings. The fund’s top three holdings are in Mexico, where the benchmark index gained 8.3 percent as President Enrique Pena Nieto moves to open the state-controlled oil industry to private investment.
In Brazil “you have a lot of policy intervention which, although it looks to bring growth back, has taken a toll on specific sectors,” Chase, 35, said in an interview in his office in Santiago, where the fund is based. “Mexico is going through a series of reforms that are creating opportunities not only in the entire economy but also in certain sectors and segments that we are looking to gain access to.”
The fund’s biggest holding is America Movil SAB, the Mexico City-based mobile-phone company controlled by billionaire Carlos Slim, which also is the most heavily weighted stock on the MSCI Emerging Markets Latin America Index.
The fund’s allocation to America Movil was smaller than its index weight last year, when the stock fell 5.8 percent in Mexico City, Chase said. Since then, the fund has increased its America Movil weighting to neutral, he said.
“America Movil was an important underweight for our fund last year relative to the benchmark,” Chase said. “We still see risks there but it certainly has become more attractive.” The stock has fallen 18 percent this year.
The fund has an above-weight allocation to Mexican real estate investment trusts, known as Fibras, he said. They include Mexico City-based Fibra Uno Administracion SA, which has gained 71 percent in the past year.
Fibras are a bet on economic growth as the government reforms lead to higher employment, the start of infrastructure projects and greater consumption, Chase said.
Chase said he likes Peruvian stocks that stand to benefit from growing consumer demand in the country, including Lima-based Credicorp Ltd., owner of the country’s biggest lender, Banco de Credito del Peru. The economy may grow 6.2 percent this year, the most among major Latin American economies except for Panama, based on average estimates in Bloomberg surveys of analysts.
The fund also owns Lima-based builder Grana y Montero SA, which will benefit from infrastructure investments in the country, he said.
Chase targets Chilean companies that get revenue from outside the country, such as Santiago-based CFR Pharmaceuticals SA, which gets about 70 percent abroad, and Santiago-based information technology company Sonda SA, which gets more than 50 percent, he said.
Government-imposed interest-rate caps in Chile will inhibit the growth of retail-industry and bank earnings, while power companies have been stopped from new projects by environmental concerns, he said.