Fund Focus - Allianz RCM Brazil
Get ready to hear alot more about Brazil in the years to come. With just a little over a decade to go until the country of nearly 200 million people celebrates its bicentenary as an independent nation, it will host two major international events along the way. In 2014 the FIFA World Cup is to be staged across the country, followed by the 2016 Summer Olympics held in Rio de Janeiro, the cultural heart of Brazil. If the last ten years have been about China, perhaps the next ten will be about the Latin American member of the BRIC economies (BRIC standing for Brazil, Russia, India and China).
UK investors are now being given an opportunity to access equity market returns in this exciting country with the launch of the Allianz RCM Brazil Fund. Launched on 7 October 2010, the Brazil Fund is managed by Michael Konstantinov, who has been managing the Allianz RCM BRIC Stars Fund since its launch in February 2006. He will continue to manage the BRIC Stars Fund, which currently has Brazil as its largest geographic weighting (Allianz RCM, 31 August 2010), but he now considers that the time is right for a fund dedicated to the world’s 8th largest economy*.
Brazil is a country blessed with abundant natural resources, in terms of agricultural commodities, mineral wealth, oil reserves and fresh water. It has a demographic sweet spot of a large young population and rising middle class, but without the run-away birth rate of India or the imminent population decline of China. In fact it is Brazil’s demographic qualities that make it an attractive investment story as much as the oft talked about commodity arguments.
While the energy, commodity and resources sectors make up a little over 50% of the Bovespa (the Brazilian stock market), the economy as a whole is considerably more diversified with sectors like financials, consumer cyclical and non-cyclicals increasingly making up a greater proportion of the index and coming more to prominence. Brazil has had bitter experience of financial miss-management, but it is testimony to their level of financial prudence that no Brazilian banks needed to be bailed out during the recent financial crisis and 4 Brazilian banks feature in the top 250 companies in the world**.
Michael Konstantinov and his team make regular trips to Brazil with the aim of identifying companies that can add performance over the fund’s benchmark of the MSCI Brazil 10/40, but he is not constrained by any index. Consequently potential investors into the fund need not be concerned by the large weighting Petrobras (the world’s second largest company by market capitalisation) has within the Brazilian stock market. Indeed with 71% of the MSCI Latin AmericaIndex made up of Brazilian companies and another 20% from US dependent Mexico,one may well ask what additional diversification is gained by holding a Latin America fund over a single country Brazil fund like this one.
Clearly an investment into any equity investment carries with it a level of volatility - and the equities of emerging market companies more than most. Therefore, a fund like the Allianz RCM Brazil Fund should be considered as a long term (10 years plus) investment strategy and like many emerging market countries Brazil is not without its additional risks. However, the country appears to have put political instability behind it and whichever candidate wins the upcoming Presidential election run-off is likely to continue the economic policies of President Lula.
One final thought. Very often it is not the country people think will come to dominate the world that eventually does. The reason’s can be varied and often down to events that at the time seem insignificant. History is full of nations and empires that squandered their opportunity at global hegemony, from Carthage who lost out to a pugnacious city called Rome, to the Dutch who lost their grip on global trade to the impoverished English who emerged from a century racked by religious violence and civil war. Today we talk about the Chinese century and it may well be so, but we live in a more multi-polar world than ever before and for a decade at least you may hear more about the home of samba than you’d imagine.
*Nominal GDP (Gross Domestic Product), CIA World Factbook 2010.
** Forbes Global 2000
Application forms to use if you wish to invest in this fund
The value of investments can go down as well as up meaning you may receive back less than you initially invested; they should not be regarded as short term solutions. Our research and commentary is not personal advice and should not be regarded as such, nor does it constitute a recommendation to deal. If you are unsure about the suitability of any investment then you should contact us for advice.