LatinFinance - May/June 2017 - 17

which comes second on the Scorecard with a 7.7% three-year return.
"I'd say you have to look under the hood and you get some more
comfort."
A focus on short-dated paper issued by PDVSA, rather than the
sovereign, was where the fund found that comfort, he says. "We
have enough belief in the short-term ability to pay."
While much of the market looked to longer-dated, low-coupon,
low dollar-price bonds, Conelius says he is skeptical about the
potential recovery value of such paper after a default.
"The bottom line for us towards PDVSA is the lack of collective
action clauses on PDVSA securities," he says. "They would really
need to come to the table with bond holders with a palatable
restructuring if we ever get there. Lessons were learned in Argentina
that a lack of collective action clauses is definitely a benefit you want
to take advantage of as bondholders."
GMO, a consistent name on the Scorecard in recent years and
2017's third place finisher, with a 7.63% three-year return, has also
bet on the short-end in Venezuela. GMO's Emerging Country Debt
Fund, however, has found value away from the typical paper. Its

JARED LOU, NN INVESTMENT PARTNERS

"MEXICO JUST GOT HAMMERED,
BECAUSE OF ALL THE RHETORIC.
IN HINDSIGHT, IT WAS A SCREAMING
BUY IN NOVEMBER"

largest Venezuelan holding is the more obscure Electricidad de
Caracas, according to Morningstar data. The fund holds $84 million
worth of the company's 8.5% 2018 bond.
Pajama party
Piling into oil companies in the middle of a commodities prices
crash was another contrarian strategy that offered sparkling returns
for confident managers last year.
Pinpointing the nadir for oil prices early in 2016 fed into a
successful strategy over the year for BlackRock, says Trigo Paz. "Our
investment process allowed us to see that it was a turning point in
commodity prices, especially in oil," he says. "We made that call
in January when, for the first time, Russia decided to talk to Saudi
Arabia. That allowed us to see at least some discussion between
OPEC and non-OPEC members."
A similar strategy paid off for T. Rowe Price, says Conelius.
Mexican bonds, in particular Pemex's dollar-denominated debt, was
one of the biggest contributors to his fund's performance last year.
"It was sort of a windfall for us, but I think the ratings agencies
did a real disservice to investors," he says. "In the depths of the oil
sell-off, the conversation from the ratings agencies was about not
really wanting to rate through the cycle, so their ratings would be
as volatile as the commodity price." The resulting downgrades
of Pemex, "some for good reasons but in some cases not," meant
the bonds underperformed before sharply tightening back, says
Conelius.
Mexican debt offered another opportunity for gutsy investors.
Trigo Paz credits a 2% pickup in total return in November alone to
the quick action BlackRock took on the night of the US presidential
election. After analyzing strategies ahead of time, the firm was ready
to trade on the news of a victory by either Hillary Clinton or Donald
Trump. Staff pulled an all-nighter to monitor the results as they
came in.
"We called it a pajama party because we're based in London and
at 10 p.m. we were ready to take action," says Trigo Paz.
One play that BlackRock had planned for was what they dubbed
Mexit. "Like Brexit," says Trigo Paz. "That was the scenario where

Equity picks up
LatinFinance's 2017 Equity Investor Scorecard
Manager

Fund

LatAm allocation (%)

Assets ($m)

Gross returns (%)
1-year

3-year

5-year

10-year

1

T. Rowe Price

Latin America Fund

91.74

666.4

27.70

0.15

-3.45

1.85

2

Aberdeen

Latin American
Equity

94.26

282.3

32.28

-0.13

3

UBS (Lux)

Equity SICAV Brazil

96.82

108.1

42.44

-2.00

-7.24

4

Deutsche

Latin America Equity
Fund

92.31

279.8

24.98

-2.01

-2.17

1.10

5

BlackRock

Latin America Fund

92.03

179.0

26.76

-2.30

-4.53

1.78

6

Handelsbanken

Latinamerikafond

97.64

433.1

24.25

-2.34

-3.05

7

Fidelity

Latin America

90.95

846.5

21.32

-2.50

-4.24

2.95

8

Morgan Stanley

Latin American
Equity

94.12

489.4

20.29

-3.68

-4.79

0.49

9

Schroder

ISF Latin American

93.93

238.1

21.83

-3.68

-5.83

0.24

10

BNP

Brazil Fund (Equity)

91.47

105.0

47.97005492

-3.99807161

-9.96670813

Source: Lipper. Data to 31 March 2017

May/June 2017 - L ATINFINA NCE.COM 17
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Table of Contents for the Digital Edition of LatinFinance - May/June 2017
