Neptune’s Thomas Smith has boosted performance through his fund’s lowest-ever weighting in Brazil as he believes it is stuck in a high-inflation, low-growth environment.
Mr Smith, who manages the £40.2m Neptune Latin America fund, said the Brazilian market had suffered from slowing demand for commodities from China, Brazil’s biggest trading partner outside of Europe.
He added that inflation in the country had hovered at roughly 6.5 per cent since the start of the year in spite of a governmental target of 4 per cent. This had forced the Brazilian central bank to increase interest rates even as the nation is mired in low growth. In each of the past six quarters, the economy has grown by less than 2 per cent.
This has convinced Mr Smith to cut his exposure to Brazil to 32.9 per cent, the lowest in the five years since the fund was launched and almost half the average exposure held by other Latin American equity funds.
But Mr Smith said his weighting was unlikely to decrease further as “some opportunities still look interesting”.
The manager favours Mexico, which he said is closely aligned with the strengthening US economy and in June was the fund’s second largest country weighting, at 27.6 per cent
Mr Smith said: “Mexico got hit really hard in the crisis because of the recession in the US, but it’s doing better now because of the recovery.”
Mr Smith said he was looking to logistics, autoparts and aerospace companies to take advantage of renewed demand for Mexican services. He cited the example of Alfa, which supplies car manufacturers with aluminium engine heads, as an important holding.
The manager said he would be closely watching the governmental changes in Mexico following the election of Enrique Peña Nieto as president last year, as well as state elections which were scheduled to take place on July 7.