BlackRock LatAm star Landers eyes Brazilian large cap bounce
While his mid and small cap fund has thrived, Euro Stars A rated Will Lander's large cap Latin American fund has found the going tougher over the past few months.
by Matthew Goodburn on Jan 09, 2013 at 11:52
The fund lagged the index in 2012 with Landers’ overweight to large cap Brazilian stocks hurting numbers, but Landers is confident that many of Brazil’s largest companies will see positive re-ratings this year.
Landers is encouraged by the relative valuation of Brazil, which is trading at 10.5x earnings as opposed to Mexico’s 16x earnings.
Euro stars A rated Landers used weakness in the fourth quarter of 2012 to top up on largest holding, Brazilian mining giant Vale, on the view that its management had scope to improve margins further as well as the first quarter of the year being traditionally a good time to profit from strong iron ore prices.
Increasing Brazilian banks and infrastructure
He has also increased his exposure to Brazilian Banks Banco Bradesco and Banco Itau as well as to infrastructure through Brazil’s largest toll road operator CCR.
Landers has increased Vale to 9.5% of the portfolio, at the expense of Petrobras which has been trimmed back to a larger underweight position albeit still the fund’s fourth largest holding.
He told Citywire: ‘A lot of our large cap stocks in Brazil underperformed last year which hurt performance but we think they are due for better performance. Vale is a short term call based on our view that we expect the iron ore price to move up. The management team that came in one and a half years ago are also doing a good job selling some non-core mining and oil assets.’
Landers has been reducing his Petrobras stake on the view that the firm is some way behind Vale in terms of restructuring its business model to improve margins.
‘It is an underweight now but the management are taking the right steps so it should improve its margins and production growth by mid-2014, but it still has a lot of proving to do.’
As well as being underweight Petrobras, Landers is continuing to steer clear of steelmakers and telecom firms in Brazil preferring instead to increase his exposure to the boom in credit growth in Brazil.
While Landers is staying away from credit card firms, Brazil’s largest banks, Banco Bradesco and Banco Itau have been increased to over 6.2% and 5.4% of the fund respectively and Landers expects to see what he calls ‘a revitalisation of the domestic growth story’ in Brazil this year.
‘The asset quality of Brazil’s banks has been improving and we expect them to grow their loan books faster as interest rates continue to come down.
‘We have been overweight Banco Bradesco and Banco Itau for the past six months and particularly like Banco Bradesco as it has a better short term book and has less exposure to the autos industry.’
The biggest active overweight position is Brazilian infrastructure group CCR which Landers describes as having excellent capital discipline in terms of not over bidding for assets.
‘It has plenty of long term contracts and visible earnings growth and it has the balance sheet power to bid for assets in Mexico, Chile and recently Portugal.’
Landers sees infrastructure as a key growth area for Brazil and while he is awaiting better liquidity to trade in the growing sector, he is encouraged by the government’s dedication of a new department to oversee the growth in infrastructure projects which are much needed to keep Brazil competitive.
He is also playing the theme through a small Peruvian construction firm, as well as Mexican property reits.
Landers' large cap fund has lagged but his small and mid cap fund has thrived
Please visit our full site to view this interactive chart
Despite remaining overweight Brazil with 65% of the portfolio in the country compared to the benchmark’s 57.5%, Landers continues to avoid certain sectors with specific structural problems.
‘We are still staying away from steelmakers and are still not confident about telcos as they face a tough regulatory environment. We prefer to play this theme through [second largest holding in Mexico’s] American Movil.
He has been reducing the Mexican mobile phone group recently after a strong run, and is looking to increase his industrials exposure which he sees as more liquid.
Landers has a quarter of the fund in Mexico, just ahead of the index, and the country has outperformed Brazil over the last 12 months.
Nevertheless Landers is encouraged by the relative valuation of Brazil, which is trading at 10.5x earnings as opposed to Mexico’s 16x earnings.
‘Mexico is looking attractive after the president passed budget reforms in record time which bodes well for the whole reform process.’
The fund’s biggest underweight remains Chile, which Landers says has certain liquidity issues as well as high current valuations while Peru is his favourite market as he looks to gain access to its booming domestic and credit growth story.
Over five years to the end of December the BGF Latin American fund had returned -6.5% compared to a 0.6% gain for the MSCI EM Latin America TR USD benchmark.
Over the same period his mid and small cap focused BSF Latin American Opportunities fund has gained 44.14%.