Investors Intrigued By Latin America
WHILE President Bush continues to advocate his proposed free-trade agreement with Mexico - which would eventually link the United States, Canada, and Mexico into a continent-wide trading market - Wall Street is rediscovering the Latin American investment community. The US corporate business community has traditionally had a strong presence in Latin America, in terms of multinational companies. But because of diverse US and Latin American laws regulating foreign investment over the years, individual investors in the US have maintained a relatively low exposure to equities or bonds from Latin America. In recent years that pattern has begun to change.
"Many experts consider Latin America a better [investment] opportunity now than Eastern Europe," says Hector Megy, chairman and founder of Megy Advisors Inc., a financial management firm based in Palm Beach, Fla. Megy Advisors will manage the Megy Income Fund, an open-end mutual fund investing in high-yield Latin American bonds ("junk bonds") and also Latin American securities. The fund was given the green light to operate last week by the US Securities and Exchange Commission. It is believed to be the o
nly fund of its type now operating in the US.
The Megy Income Fund will target institutional investors and well-to-do individuals. Minimum investment: $100,000. Over 90 percent of the fund's assets will be invested in high-yield external bonds of Argentina, Brazil, Chile, Mexico, and Venezuela, says Mr. Megy, an Argentine businessman, banker, and former journalist. About 5 percent of fund assets will be invested in equities.
Verge of a renaissance
Megy holds that Latin American external debt issues have been far more stable than most North Americans have realized, given press attention in recent years to various debt rescheduling agreements. Much of that rescheduling, he says, has involved commercial bank loans, not bonds. Further, he believes that Latin America is on the verge of an economic renaissance.
Megy is not alone. Forbes Magazine, in its June 10 issue, has an editorial comment by Malcolm Forbes Jr. on "Latin America - the next Pacific Rim." And, as Mr. Bush has noted in his advocacy of a free-trade agreement with Mexico, that nation's economy has been posting substantial growth in recent years.
Indeed, the relatively small Mexican stock market far outperformed the US stock market last year, with a total return of more than 80 percent, compared to slightly over 3 percent for the US market, according to Goldman Sachs.
"Latin America has serious economic problems," but there are also some investment opportunities, says Hakan Castegren, portfolio manager of Ivy International Fund, in Hingham, Mass. The Ivy International Fund, a no-load fund with $83 million in assets, is believed to be one of the few international funds with a substantial Latin American component. According to Mr. Castegren, Ivy now has a Latin exposure of about 11 percent of its total portfolio. Indeed, its 9 percent exposure to Mexico is the fourth-l a
rgest country representation behind Britain, Spain, and Singapore. This fund requires a $1,000 minimum investment.
Castegren says that while there are investment opportunities involving Latin America, prudence is still very much required, given the many economic problems in that region. Still, he is relatively enthusiastic about Mexico and Brazil.
Ivy's Mexican holdings include three companies: Cifra Sa De CV, a large consumer goods retailer; Cemex, the nation's dominant cement company; and Telephonos De Mexico ADR, a communications firm.
Ivy has bought into the Brazil Fund Inc., a closed-end investment fund. Castegren notes that Brazil is now the "eighth-largest industrial nation in the world."
Gordon O'Hara, vice president of marketing for Ivy, notes that while the international fund's Latin American exposure has increased slightly in the past few years, there has been somewhat of a de-emphasis on Japan. The largest exposure is in Europe.