LatinFinance - May/June 2015 - 17

SCORECARD

DEBT
INVESTOR

With macroeconomic factors leaving Latin America out of favor, bond
investors are turning to ever-more selective strategies.
By Eduardo García

A fine line

s credit markets adjusted to lower oil prices and potential US interest
rate changes last year, Latin American debt began to feel the effects of waning investor
interest.
"In the last 12 months, Latin America has been our biggest underweight in our emerging
market hard-currency fund, and that strategy has worked pretty well," says Steve Ellis, an
emerging markets portfolio manager at Fidelity Worldwide Investment. "There are some
pockets of value, but overall Latin America is not that attractive."
The fund managers that have been able to find those pockets of value are those that have
stood out.
Returns have not been devastating - but nor have they been as sparkling as some years
past. Fund managers in LatinFinance's 2015 Debt Investor Scorecard notched up returns
ranging from 3.4% to just over 7% in the 12 months to the end of March. The scorecard, based
on performance data from Lipper, measures debt funds with at least a 28% allocation to
LatAm at the cut-off date.
In recent months, many of the best-returning funds have piled into long-term paper from
Latin American issuers, which have outperformed.
"Latin American assets have the longest duration of the JPMorgan CEMBI index, so they
have the possibility to outperform the rest of the regions," says Gonzalo Borja, head of
emerging markets fixed income at Credit Suisse. The Swiss institution's emerging market
corporate bond fund ranked third in this year's scorecard, returning 3.49% over the 12
months, and 6.31% over three years.
A similar strategy on the sovereign side has worked for Barclays Wealth and Investment
Management, says Sabina Raza, a fund manager. The institution's emerging market debt fund
ranked second in the scorecard, after returning 6.3% over the 12 months to the end of March.
Latin American sovereigns with long-dated bonds, such as Panama, Peru and Uruguay, are
particular favorites for Raza.
"Preferred countries in the region are those where there are signs of major improvements
in economic data, strong fundamentals, fiscal discipline and so forth. Examples being
Jamaica, Honduras and Belize, as these countries continue to make progress on the economic
front," Raza tells LatinFinance.
Oil importers like the Dominican Republic, which sold a $1 billion 2025 bond yielding

5.5%, and a $1.5 billion 2045 yielding 6.85%
in January, is another pick for Raza. The
long-dated deal was "attractively priced".
Additionally, upside opportunity comes
from the fact that the B1/B+/B+ rated
country has potential to be upgraded.
Clear favorites
Among the region's larger sovereigns,
investors have two clear favorites:
Colombia and Mexico. They have high
hopes that structural reforms in both
countries will increase economic growth
over a medium-term horizon.
With its larger size, its proximity to
the United States and the efforts by the
government of Enrique Peña Nieto to
open the energy and telecommunications
sectors, Mexico is a particular favorite for
bond investors.
"Our positioning in Latin America
over the past year has generally been
underweight, except Mexico which has
started a process of reforms," says Sergio
Trigo Paz, BlackRock's head of emerging
market debt.
The manager's BGF emerging markets
bond fund returned an impressive 7.12%
over the year to the end of March.
Investors' appetite for Mexico has been
underscored by the sovereign's activity
in the debt markets this year. In January
it raised $2 billion in a bond deal that was
close to four-times subscribed. And in April,
it tapped ultra-long dated demand among
European investors when it sold a 4% €1.5
billion 100-year bond.
"Mexico will benefit in the medium to
long term from the reforms," says Borja.
"Growth is coming but not this year or next,
typically it takes a little bit of time. At the
same they are linked to the US so they will
benefit from growth there."
The enthusiasm on the country's
economic prospects has driven investors
into the country's top-rated corporate
bonds, sharply tightening spreads. Now

May/June 2015 - L ATINFINA NCE.COM 17

http://www.LATINFINANCE.COM

LatinFinance - May/June 2015

Table of Contents for the Digital Edition of LatinFinance - May/June 2015