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"It is always tough to try to forecast 40% to 50% annual returns, but I would say that given that investors are seeking earnings growth of about 25% this year, then a 25% annual return next year is not out of whack" Will Landers, BlackRock Investments |
Their three-year annual returns stand at an impressive 60.06%. In comparison, Pacific/Asia ex-Japan funds that tap into the booming economies of India and China were up 30.58% for the year, with a three-year average of 38.42%.
The strongly performing stocks in Latin America come from all sectors, with big players such as Brazilian minerals and energy companies CVRD and Petrobras, and Mexican telecom company América Móvil in particular providing healthy returns. The whole region’s domestic growth is also driving consumer-related sectors such as retail, construction and financial services. However, the engine of the region is Brazil, with more than 50 IPOs expected in the next 12 months, low valuations and a fast-growing middle class helping to push fund returns.
Many fund managers remain highly optimistic about Latin America: "I expect a continuation of the story we have seen here over the past few years," says Will Landers, who manages $6.5 billion of Latin American assets at BlackRock Investments. "We are in the fifth year of this cycle and earnings are still robust and growing. Compared with China, Latin America provides better information on stocks, has better regulations since the Novo Mercado [a section of the São Paulo stock exchange with stricter disclosure rules] was created and has better corporate governance levels. I think there is definitely room for growth to continue in the region."
In the first half of this year, Latin American funds have attracted $4.9 billion in new money, an increase of nearly $3.5 billion on last year, according to EPFR Global, a global fund flow tracker. One fund to reap the rewards of huge growth in the region is the top-performing offshore Latin American equity fund HSBC GIF Latin American Freestyle fund, which was launched in July 2006 and has gained 76.95% in its first year.
HSBC Bank is also bullish on Latin America. Last month it awarded Ashmore a $670 million pension fund mandate, with about 40% to be allocated to Latin America.
But there is also a sense of growing fatigue. Latin funds’ average performance this year will probably be 45%, according to Landers, but 20% to 25% next year despite the promising financial environment. "It is always tough to try to forecast 40% to 50% annual returns, but I would say that given that investors are seeking earnings growth of about 25% this year, then a 25% annual return next year is not out of whack," he says.