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Backing Brazil

Will Landers tells Maike Currie why the Latin American region will be the first to emerge from the current slowdown.
July 30, 2012

The crisis in the eurozone has not been kind to emerging markets. Amid uncertainty over what the solution to Europe's woes will be, investors have fled those asset classes perceived as more risky. The BlackRock Latin American Fund, which seeks to secure capital growth through investing in countries such as Brazil, Mexico and Chile, has not been immune to the pain caused by the persistent volatility plaguing markets over recent months.

Will Landers, manager of the fund, and his colleagues at BlackRock refer to this as the "nemesis scenario" and admit that it is making investing challenging to say the least. "We are caught in a very tough economic environment - plagued by uncertainty in Europe, single-digit growth in the US and a slowdown in China. You just don't know where the bottom will be."

But despite the dismal short-term outlook, Mr Landers remains bullish on Latin America, given the region's strong fundamentals. "Over the short term, the problems in the EU will leave a cloud over the markets," he says. "But while Latin America may be perceived as a risky area, the region boasts strong GDP growth, well-capitalised banks, favourable demographics and a growing consumer class."

Mr Landers expects Latin America to be one of the first markets to recover once the situation in Europe normalises and company-specific fundamentals begin to drive markets once again. As such, he is using the current slowdown to find companies on attractive valuations, positioning the fund for strong recovery, similar to the turnround witnessed in March 2009. In the long term, his goal is to deliver alpha on a cost-efficient basis and beat the fund's index, the MSCI EM Latin American, over time.

The fund's main competitor in the space is Aberdeen Latin American Income Trust, although analysts point out that the BlackRock fund is likely to provide a better return than Aberdeen in rising markets.

The BlackRock fund also has significantly more exposure to Brazil (more than 60 per cent) than its peer. However this does bring up the inevitable question about China and the slowdown there. Brazil is increasingly viewed as a proxy for China, exporting many of its natural resources to the so-called Beast of the East. But Mr Landers is unperturbed over talks of a slowdown in China. "China today is more of an opportunity than a risk. It is a different type of economy than we are used to in the West. There are vast amounts of reserves and mechanisms to control the economy. While the West takes a half year or quarter view, China takes a 15-year view which means they make very different decisions."

While Brazil is dependent on exports to China, along with Chile and Peru, which export vast amounts of copper to China, for other countries within the Latin American space the story is very different. Mr Landers points to Mexico, which makes up around 17 per cent of his fund’s portfolio. "This is very much a US story. In fact, China is seen as a competitor."

Will Landers' CV
William Landers CFA is a managing director at BlackRock and senior portfolio manager of the Latin American active equity funds at the company, with approximately $6bn under management. He graduated from Georgetown University cum laude with a BSBA degree in Finance and International Management. Mr Landers began his career as an investment banker working with Latin American clients at Bear Stearns. He then spent seven years as a Latin American research analyst at Lehman Brothers and CSFB, focusing initially on food and beverage stocks, and later on technology stocks. He joined BlackRock (formerly Merrill Lynch Investment Managers) in January 2002.

The fund is very much focused on bottom-up stock selection, which Mr Landers calls "the bread and butter" of the investment process. His team has recently swelled to five, following the recruitment of Andrea Weinburg, based in São Paulo, and who boasts extensive experience of Latin America commodities. The group looks for companies that are attractive on both a quantitative and qualitative basis. "We do regard the macro environment but if we are not comfortable with the company management, its valuations and competitive advantage, we won't hold the company regardless of how attractive the macro economic story may be."

Mr Landers has recently reduced the fund's exposure to Brazilian banks but continues to hold significant exposure to consumer stocks there. "Job growth has slowed down but is still positive, wages are up in real terms and interest rates are at half the level they were four years ago. This is a pretty decent backdrop for consumer domestic growth. We hold a varied basket of consumer staples ranging from cosmetics to food stocks."

He has also increased his weighting in Brazilian retailers which he expects will benefit from a weaker Brazilian real. Other additions include Petrobras, Brazilian credit card acquirer Cielo and fuel distributor, Ultrapar.

While the fund is focused on capital growth it does boast an attractive yield of just less than 4 per cent, testament to the growing income story in the emerging market space. But while the income is attractive, Mr Landers says this is not the primary focus. "We don't focus exclusively on income, but the yield on our portfolio is edging upwards. With valuations cheaper and cash flow still strong this is inevitable. We see it as an added bonus - we're not looking for income but we're also not shying away from it."