Set for Liquidation, Argentina Fund Here to Stay After 30% Gain

  • Moneda Patagonia fund is buying GDP warrants, corporate bonds
  • The fund's biggest holding was Argentina notes due in 2033

Chile’s Moneda Asset Management is extending the life of its Argentina fund after it generated a 30 percent windfall over the past year.

In December 2014, money manager Javier Montero set up the Moneda Patagonia fund to invest in cheap Argentina assets including bonds and stocks, and planned to liquidate it two years later. At the time, Montero expected Daniel Scioli, a member of then-President Cristina Fernandez de Kirchner’s political party, to win the election in October 2015 to succeed her. Instead, opposition candidate Mauricio Macri was the unexpected victor, triggering a rally in Argentina markets.

Moneda’s decision to keep the fund alive reflects investors’ increasing confidence in Argentina as Macri, who took office Dec. 10, ends a dispute with creditors, paving the way for the country to return to international debt markets for the first time since 2001. The Patagonia fund has trounced the average 2.3 percent return for emerging-market bonds. Latin America stocks have lost 12 percent for over the same span.

“The outcome of the elections was much better than expected,” Montero, who co-manages the $90 million fund, said in an interview in Santiago. “Argentina has been out of the markets for so long. It’s undervalued and totally under-researched. That creates a great opportunity.”

After profiting from a surge in Argentina’s euro-denominated notes and the American depository receipts of Nortel Inversora SA, the fund is looking to buy peso bonds sold by companies in Argentina as well as government securities tied to the nation’s economic growth, Montero said.

“Argentine companies are some of the least-leveraged corporates in the region, with very good corporate governance,” he said. “That is why we remain optimistic. The companies have great credit quality; they just happened to have the wrong zip code, and that is now changing.”

At the end of 2015, the Moneda Patagonia fund had less than 4 percent of its assets in Argentine pesos. Its biggest holding was Argentina’s bonds due in 2033, which accounted for 15 percent of the fund’s assets, according to data sent to Chile’s securities regulator. Those notes have returned 8.7 percent so far this year. The fund’s best performers are the ADRs of Nortel Inversora SA, the holding company that controls Telecom Argentina SA. They have returned 35 percent in 2016 alone.

Argentina stocks will provide some of the biggest gains once the country sheds its frontier-market status, Montero said.

Equity trading in South America’s second-largest economy has shriveled since the country was downgraded by global index company MSCI in 2009. Its market capitalization of $44.1 billion is one-ninth of Brazil’s and smaller than Mexico, Chile, Colombia and Peru.

“Until recently, Argentina was a bad word among asset managers,” said Montero, who has worked at Moneda’s offices in Santiago for the past seven years. “When it makes it back into the indexes, then it will be the major shift.”

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