LarrainVial Asset Management has just launched the fund LarrainVial Spain, “which aims to provide local clients with exposure to Spanish recovery, through our fund, but in the hands of experts who provide fundamental analysis and a focus on the long-term opportunities, as well as ample knowledge of companies, managers and the dynamics of each of that country’s sectors,” explained Miguel Angel Suarez, manager of LarrainVial AM’s International Equities, and the fund’s portfolio manager to Funds Society.
As to why a fund on Spain, Suarez said it comes at a time when “the upward phase in the Spanish economy’s cycle is just beginning. We must remember we are beginning to emerge from a troubled period of almost seven years duration, thereby there are still opportunities for buying cheap businesses, when the cycle is normalized (in 2 or 3 years), they are going to cost a lot more ... So, as soon as domestic demand strengthens, credit ratingscontinue to improve, unemployment begins to decrease slowly, and credit begins to flow, the possibility of further repricing in that country is very high.”
The manager also added that the recovery has come earlier than was announced, and is being stronger than what everyone expected. “Exports to different destinations are growing at high rates, the labor market has eased, thanks to a positive and profound reform, and the financial sector has been almost completely sanitized. In addition, the tax reform announced some days ago lowers corporate taxes and creates a tax system which greatly favors entrepreneurs and investment and competitiveness, which has now improved greatly as compared to that of their European counterparts,” he said.
The new instrument, which was launched in June with daily liquidity, is aimed at institutional investors and high net worth individuals in Chile. In terms of strategy, Suarez explained that it is an actively managed, long-only fund, with high conviction that is agnostic to benchmark, and therefore has no major limitations in terms of sectors, market capitalizations or weight in the index. The portfolio turnover is low and is concentrated only in the best ideas (15 to 20) where the highest value is seen for its future appreciation potential.
Almost 25% is invested in the industrial sector, followed by banks with 23%. Media accounts for 19% and insurance and cyclical consumption weigh around 14% each. Finally, technology and telecommunications closes at 5%.
“The banking and insurance sector is the one which currently carries most weight in the portfolio, and we still see much upside there due to the recovery in domestic demand and lower bank’s funding costs. Especially in the case of the medium sized Banks, which are less covered by analysts outside Spain and more exposed to domestic recovery,” added the fund manager.
As for the expected return, although he added that they don’t have any expected returns, Suarez, said they are “very positive and we believe that given the timing of the business cycle in Spain, there is substantial potential of appreciation going forward.” In fact, he added, “We are firmly convinced that, in the coming years, the Iberian stock market should exhibit markedly higher returns than the European average, thereby strengthening the attractiveness and value currently available in equities, especially in medium sized companies, which are not as closely followed by analysts and where any increases in performance or valuations are sometimes very fast and difficult to anticipate,” he said.