Emerging Markets: three ways to profit from Brazilian flair

He explained: ‘After a strong outperformance by the consumer and retail sector, we believe that other sectors, like financials, should benefit from cheaper valuation and better risk-adjusted returns.

‘However, we still expect the government’s monetary tightening and reduced fiscal spending should result in weaker economic activity in the second half of 2010.’

JP Morgan Brazil investment trust

After raising £50 million before the listing, JPMorgan launched the Brazil investment trust three months ago, with experienced fund managers Sebastian Luparia and Luis Carrillo placed in charge.

After raising £50 million before the listing, JPMorgan launched the Brazil investment trust three months ago, with experienced fund managers Sebastian Luparia and Luis Carrillo placed in charge.

 

Luparia believes there is a social revolution taking place in Brazil, which is transforming the country in ways thought impossible only a decade ago.

Luparia said: ‘‘The C class – the lower to middle class that sits above the poverty line – is around 54%, but it used to be around 44%. That increase has come from the D class and these people are moving towards the top. In the past these people would have been thinking about nothing more than putting food on the table. Now they are thinking about college and opening bank accounts.’

He also cites the ambition – and long-term planning – of the Brazilian authorities as the reason to believe the country will be a force to be reckoned with in the 21st century, inevitably profiting committed investors along the way.

He said: ‘It is important that people do not see Brazil as a trend for the next five years. Over the years, the country’s road and rail networks have remained unchanged, there is a bottleneck and therefore huge potential for growth,’ he said.

‘The other important thing is the energy sector. In 2008 there was a big discovery in south east Brazil and this has big potential. Over the next five years [Brazilian oil producer] Petrobras is to invest $220 billion (£143.1 billion). This is a big positive and will have multiple effects across sectors.’

The core driver of the trust's portfolio is domestic growth stocks, with steel producer and exporter Gerdau is the portfolio’s biggest holding. Beer specialist Ambev is the second largest holding while food processor BRF – Brazil Foods is the third largest, continuing the play on domestic growth.

However, investors need to be aware that shares in investment trusts can trade above and below the value of their investment portfolios. At present, the trust is trading at a small premium (ie, above its asset value). It may be worth waiting to see if the shares fall to a discount (below the asset value), which would create a buying opportunity.