Brazil and Latin America. Lipper: Waiting it out may pay off
cbs.marketwatch.com
By Craig Tolliver CBS MarketWatch
Last Update: 5:04 PM ET Jan 22, 1999
Mutual Understanding
NEW YORK (CBS.MW) -- Mutual funds focusing on Latin America
aren't off to a great start this year. Then again, Latin America-specific
mutual funds have had their share of woe since surfacing in 1991. AIM
Latin America Growth (GTLAX), the granddaddy of the bunch, is off 22
percent (2.6 percent annualized) since its 1991 inception, according to
Lipper Inc., the New York fund tracker.
To be sure, that fund did achieve a solid gain of 53 percent in 1992,
according to Morningstar. It also saw gains of 17 percent in 1996 and 15
percent in 1997. Every other year, however, witnessed losses, and 1998
was no exception with a tumble of 44 percent. Year-to-date, the fund is
already off 21 percent. Much of this is attributable to turmoil surrounding
Brazil. As of Sep. 30, nearly 40 percent of the portfolio was invested in
Brazil.
Mutual fund analyst A. Michael Lipper finds that while the Brazilian crisis
may have broader implications than some suspect, it could also be the
catalyst for some real value opportunities in the region. He could be right.
The Lipper Latin America Fund Index dropped nearly 22 percent for the
week ending Thursday, Jan. 14, following news of the devaluation of the
Brazilian real. A week later, the index is recovering -- up 8.1 percent as
of Thursday. CBS.MarketWatch.com asked Lipper to expand on his
observations and outlook for the Brazil, the leading economy in Latin
America.
Should we fear a Brazilian contagion?
Lipper: As usual with all headline crises, it's the secondary and tertiary
impacts that are more difficult to spot and can be more dangerous to
people's investments. Brazil is a major importer of U.S. goods and
services. Brazil is normally the largest country in Latin America for U.S.
multinationals with operations there. So, somebody may say, "Gee, I
don't have any Brazilian stocks." But (they may) forget they own General
Motors (GM) or GE (GE) or Johnson & Johnson (JNJ).
So this could have a much broader effect than people
realize.
Lipper: That's right.
People who have stayed away from Latin America-specific
mutual funds may not be as out of the water as they might have
assumed.
Lipper: And places like Citigroup (C) have substantial positions there.
See related story.
What about Latin America? Good place for bottom-fishing
right now?
Lipper: I think so. But when you fish in quiet pools, it sometimes takes
much longer to get results.
Well, longer is right. I'm looking at the Lipper database on
Latin American funds, and I'm noticing that for the three-year
period, there are only two funds that actually have a positive
return. One is Morgan Stanley Dean Witter Latin America
(MILAX), which has a 0.6 percent return for three years, and that's
an institutional fund.
Lipper: Right.
Then there's Van Kampen Latin America Class A shares
(MSLAX), which is a 0.1 percent return for three years -- and that
isn't even load-adjusted.
Lipper: That is correct.
So if you've been in Latin America specific funds for the
past three years, you're losing money.
Lipper: You're certainly losing opportunity and probably losing money.
However, that does not necessarily mean that you'll do that in the future.
If you look at the tremendous social, political, and economic progress
that's been made over the last three, five, and 10 years, and you look at
the relative youth of the population, I think you can make a very
interesting case. And the old image of Latin American lazies – which was
never correct – is far from the case. There's a lot of people down there
that want to work real hard.
Would you advise getting into Latin American funds right
now? Is there a signal that investors should be looking for?
Lipper: I would advise getting in now, but only a little.
What percentage of a portfolio do you think would be
wise?
Lipper: Well, it depends on the nature of the portfolio. A conservative
portfolio, maybe only 1 or 2 percent. A portfolio that is both aggressive
and long-term, somewhere between 5 and 10 percent.
So, what is your view on emerging markets in general at
this point?
Lipper: Much the same. I think you're seeing some signs of a turn in
Asia. May take a while to work out and this may be a false bottom, but
nevertheless I think it's quite attractive.
What about the "hot" Russia funds, like Lexington Troika
(LETRX), that have taken such an awful beating?
Lipper: I have had more difficulty with them, in part because I don't
know that the culture will support paying for absentee owners.
Any final thoughts on this subject?
Lipper: That in a period of high markets, you invest outside of those
markets on the presumption that the high market is at worst going to be
flat. If the high market goes down, particularly a U.S. market, it's going to
bring the others down with it. So, if you're investing outside, your
long-term point of view has got to be a long-term point of view.
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