Author: Ashton Wenborn

For decades, Latin America has been the world’s quarry. Here you can find a diversified supply of agricultural and mineral products, from soybeans, meat and coffee to copper, silver and oil. However, this situation has made the region very sensitive to its prices. The region’s economic and financial performance dances to the rhythm of the evolution of commodity prices, with correlations of 0.57 with next year’s GDP, 0.52 with equity and 0.53 with foreign exchange. In the last year, this strong link has made this part of the world a high-return region in the eyes of financial markets.

These high correlations are consequences of structural issues regarding certain Mercado Integrado Latinoamericano (MILA) countries – traditionally made up of Mexico, Peru, Colombia and Chile. Peru’s share of mineral exports still hover above 50 percent (similar to the state of oil in Colombia and copper in Chile), while non-traditional exports are around 30 percent (and for Colombia this is decreasing).

What makes matters worse is the fact that the share of these products on fiscal revenue for each of these countries is even higher. Therefore, an abrupt reduction in commodity prices has a real impact on economic activity and fiscal position. This means that, in the short term, equity returns for these countries are expected to be slightly lower than their neutral return, in line with such a commodity downswing.

Consumption patterns
Nevertheless, there are promising signs that the dance might slow down in the next couple of years, especially for MILA countries. These countries have increased their reliance on domestic demand, which in our metaphor is equivalent to dancing to their own beat. Between the years 2000 and 2013, domestic demand relative to GDP increased its importance by 20.2, 8.3 and 10.4 percent for Chile, Peru and Colombia respectively. These countries also have a demographic bonus that, according to the UN, will keep their dependency ratios under 60 percent for the next few decades (see Fig. 1). This change will have an enormous impact over consumption patterns, market size and even national competitiveness.

Secondly, since the 1980s, these countries have implemented reforms that have reduced their vulnerability to external shocks and enhanced the competitiveness of their non-tradable sectors. While the average current account deficit in the 1980s was 4.5 percent of GDP for these countries, in the last 10 years this deficit has been just one percent of GDP. Furthermore, the average inflation for these countries in the 1980s was 200 percent, while in the last 10 years it has barely surpassed three percent. The average government net debt has reduced from 24.1 percent in 2000 to 7.6 percent in 2013 (the foreign currency denominated debt followed a similar pattern).

Better still, each of these three countries has reason to believe in a more diversified and solid growth path for the next few years. Although Colombia’s oil prices accounted for 53 percent of its exports for 2014, its bet on the 4G Road Infrastructure Programme (47 projects worth $25bn) will reduce its dependence on oil and increase the competitiveness of the rest of the economy.

In a similar way, in order to reduce its tango with metal prices, Peru has recently updated its national strategic plan based on improvements in education (increasing expenditure to six percent of GDP), a reduction of the infrastructure gap (through private public partnerships) and productive diversification through attachment to global value chains and regulatory simplification.

Finally, while Chile still relies on copper prices, its track record of sound macroeconomic policies, institutional strength and development of non-traditional exports (salmon and wine come to mind), foster opportunities for a reduced role of copper in its future growth.

A blessing in disguise
The current downswing in commodity prices may be a blessing in disguise because it has put these countries’ equity at a very attractive valuation relative to the past, with a price-earnings ratio of 13.7 compared to a five year median of 15.2. Meanwhile its peers, both in emerging Asia and EMEA, are slightly over this five-year median. However, selectivity is going to be key in order to identify the firms that will rebound faster and stronger from the current level.

This decoupling from the commodity dance has been even clearer for fixed income assets. On the one hand, funding through external debt for MILA and in general Latin American governments has been switching to local debt financing, which at the end of 2014 represented a stock of almost $2trn, only surpassed by Asia.

This change has substantial implications for the insulation of government finances from commodity shocks. A local market with better liquidity and depth has been created, since today local institutional investors (pension funds, insurance companies, mutual funds and banks) share a common platform with international investors to trade and improve the secondary market, and benchmarking to local corporate debt. In addition, governments may now match their funding in the same currency as they expend the resources and issue long-term bonds (even tenors longer than 30 years), which diminishes the currency and duration mismatch in fiscal accounts. Finally, it has created a ‘high-beta’ asset class to which international investors are increasingly adding exposure, in spite of the correlation with commodity prices.

On the corporate fixed income side, the participation of MILA and Latin American companies in global US dollars denominated REGS/144A corporate debt market has skyrocketed: over the last 10 years corporate annual issuance has increased more than 700 percent and the outstanding of corporate debt now exceeds $400bn, representing almost 35 percent of the asset class benchmark. Not so bad for a region with such correlation to commodities.

In fact, the truth is that today Latin American metals, mining and energy sectors represent less than 25 percent of the benchmark, with the remainder more fundamentally dependant on internal demand. This increasing importance of the internal demand driver is the main reason companies that achieve certain critical size and the ability to access international funding come to the primary market every year, regardless whether they have an investment grade rating or they want to issue 10 or 30-year bonds.

Equity space
As for equities, the impact of commodity prices across government debt, both external and local, and corporate debt, has brought an opportunity to gain exposure to a region where gradually, the fundamental dependence on commodities is expected to decrease with time.

In the equity space, the investment environment since the second half of 2014 has been characterised by extreme correlation, regardless of company fundamentals. For example, the main Colombian equities performed in a very narrow range, losing between 27 percent and 30 percent in US dollars, regardless of each company’s industry, as a result of the 50 percent drop in the oil price (the country’s principal export). This steep drop in value includes companies whose fundamentals are unrelated to the oil price (such as certain electric utilities), and even companies that actually benefit from the decrease in commodity prices.

A case in point is Avianca, the leading Andean regional airline, which fell 28 percent in the second half of 2014 despite facing a significant margin increase as a result of the collapse in the price of jet fuel. Avianca now trades at a 50 percent price-earnings discount compared to global airlines. This increase in correlation, and the accompanying disregard of country and company fundamentals, seems to be the result of foreign capital flows exiting the Latin American markets indiscriminately. This can be seen in the diminishing assets under management invested in regional exchange-traded funds, such as Colombia’s iColcap and Peru’s EPUs (iShares Peru).

In this environment, Credicorp has acted as the ‘liquidity provider’ in the Andean markets. Our fund managers have been buying selectively in the face of massive liquidations by foreign investors that, in our opinion, are unable to differentiate between the companies and sectors that will be affected by the commodity collapse and those that will not. We believe the current investment environment represents an opportunity for patient, long-term investors, who can weather the volatility related to market flows and wait for value to surface.

Finding the right stocks that offer the best return opportunities in the market is a challenging task. We believe that attractive valuations, improving profitability and balance sheet strength are clear signals of stocks with great return potential. However, achieving high information ratios for our clients’ portfolios requires not only the selection of great opportunities, but also the efficient management of risk.

Managing tracking errors and active weight is a key part of the process. At Sura Investment Management Mexico, value investing has a long-term approach that also requires the understanding of industry dynamics and an in-depth discussion of business prospects, with the help of company management to incorporate conservative and reliable assumptions in our models.

Our philosophy is focused on generating consistent superior risk adjusted performance, both against the market and our peers in medium to long-term horizons. We believe that active management generates attractive results, and in particular, in less efficient markets such as the Mexican equity market. To be able to extract consistent alphas, we have a dedicated team of portfolio managers, analysts and traders that focus on the local market, constantly in contact with companies and approaching valuations from a fundamental view.

Stock price allocation
There are plenty of opportunities in the local market, but there are also a lot of different risks. Capturing alpha requires a deep knowledge of both the companies and the market itself. Macroeconomic trends as well as individual microeconomic forces, changing regulations along with significant inflows and outflows all play their part in the setting of stock prices. Our aim is to provide our investors with the best vehicles for obtaining exposure to the Mexican markets, and our track record is a clear example of our focus.

Exchange rate behaviour is an important variable affecting business performance

Mexico has a market capitalisation of about $500bn, and remains a highly concentrated market – the 10 biggest firms represent more than 50 percent of the total market.

Our approach has been to marginally increase our performance based on valuation scrutiny and discipline, as well as to include some mid and small cap firms which offer more opportunities in mispricing as liquidity and efficiency are lower in those segments. In the last two years we have seen that the mid and small-caps index outperformed the main index. We believe this is due to the fact that the earnings growth in large caps has been low compared to the rest of the market.

In the last couple of years economic growth has gradually decreased as a consequence of lower disposable income that was affected by the fiscal reform, low productivity growth and the fact that fluctuating oil prices have also decreased the attractiveness of investments in the country (see Fig. 1). Of course, mid and small cap stocks also exposes the investor to wider risks, which is why being selective and limiting exposures is a key ingredient for being successful.

The Mexican market is quite expensive, and the IPC Index is trading at 20 times ahead of the P/E multiple based on consensus figures; which we believe have the relatively high weight of staples in the index at approximately 30 percent, and is one of the reasons for this high valuation. The implied growth of the IPC multiple based on the Gordon Growth Model stands around 8.1 percent – which is fair given that sales estimates are projected to grow at about 10 percent CAGR for the next five years.

In the last couple of years we have seen earnings revised down and the index multiple trading at the same level, the main reason bring that the performance of the IPC has been marginal. Going forward the multiple expansion seems challenging, and earnings per share (EPS) growth has not performed as expected. However, we have seen small and mid-cap companies that have over performed in the market because of multiple re-rating supported by continued fundamental improvement and better net results. Here is where the equities team at Sura strives to position its competitive advantage in the process of screening companies with high intrinsic value and sound fundamentals, always with a strong focus on risk management.

Investing in real estate
One sector that we have been looking closely at is real estate, as last year the FIBRAs (real estate investment trusts, known as REITs) index had an over performance of 16 percent against the IPC – where both local and international investors piled in this relatively new segment of the asset class and raised about $6.5bn in equity since the beginning of 2013. Currently there are nine FIBRAs in the market, and they are a growing asset class with still plenty of cash for deployment. We at Sura prefer holding FIBRAs that trade at levels near or below NAV in our estimates. Particularly, in FIBRAs we like the USD exposure given that some rents are USD denominated and the inflation protection we get as renters are mostly linked to increases in CPI. As a caution, FIBRAs have a high exposure to rising interest rates, as many investors see it as a substitute for bonds. This might become a vulnerable element for the segment going forward.

In general, our outlook for the Mexican equity market in 2015 is quite conservative, as we argue that EPS growth has been quite low in the last couple of years and although we expect a higher growth rate going forward – it will be at single-digit growth rate. Additionally, multiple re-rating seems difficult to assimilate, as no short-term catalysts are visible. In sectorial terms, we have higher conviction in firms with exposure to the US manufacturing industry (such as industrials), real estate and consumer discretionary that we expect will offer much better dynamics in EPS growth.

Weak economic growth in Mexico has also been due to lower public infrastructure spending as well as lower private construction activity, a remnant of the homebuilders collapse. Low construction activity has also impacted consumption and job loss, and despite better consumer data for food retailers with SSS increasing above inflation at the beginning of the year, we still believe valuations don’t reflect fundamentals and long- term EPS growth. So far the earnings momentum hasn’t crystallised, and the big question is how to be bullish in stocks with earnings growth at single digit rates trading above 25x forward P/Es. That’s the reason we prefer stocks with high cash generation and multiples adjusted for growth at relatively attractive levels.

One relevant issue for the equity market is the magnitude of the impact from the energy reform in potential GDP. Certainly, expectations have decreased because of the oil price collapse, but we still believe productivity gains from lower energy prices such as natural gas, gasoline and electricity will contribute in the medium-term to the improvement of gross margins of many firms. There is a lot of uncertainty in the timing of significantly higher investments in the energy sector – economists are estimating three to five years to see higher investment figures – however, we prefer to manage the expectations in a relatively moderate way.

Moving on, there are expectations of new firms coming to the market this year, with Mexican Stock Exchange officials mentioning around 10 deals between IPOs and follow-ons. New deals have been a source of alpha for Sura clients as we have found attractive opportunities in new issuances in the past. The equity that has been raised since the beginning of 2013 has amounted to nearly $22bn, which represents a significant amount of new flows given the size of the local equity market.

Exchange rate behaviour is an important variable affecting business performance. In general, companies that have a top line income in USD and COGS in MXN are always a good hedge against any sudden depreciations in the peso. Industrials, real estate and financials are generally our preferred sectors when we believe the peso will depreciate in the future, such as the current environment. On the other hand, if the peso is expected to appreciate, discretionary, staples, telecoms and materials are our favourite sectors.

Interest rates and inflation expectations also impact strongly in our investment decision process. For 2015 the 10-year inflation break-evens are at 280bps and our view is that inflation will end slightly above BANXICO’s target of 300bps, heading to 350bps. The monetary policy in Mexico will aggressively follow that of the US as the fixed income holdings from foreigners are at historical highs. This means FIBRAs could underperform if the FED liftoff takes place during 2015, which is our base case.

Even if the market looks expensive as a whole, there are still very good opportunities for extracting value in Mexican equities. Careful risk management, discipline and medium term horizon is a must, now more than ever since volatility is returning to global markets, but a focused team with a solid investment philosophy and process will make a big difference. Sura also has a presence in several markets across Latin America, reinforcing our competitive advantage in the region since we have teams of professionals based in each country. Synergies across Sura investment teams means there is a regional view that is more definite than any top-down alternative.

Against the backdrop of the financial crisis, which is still causing repercussions that are felt across Europe, Liechtenstein stands out as a rare beacon for investor confidence. High-performance banking, together with an AAA rating from S&P and the absence of government debt, make the country an ideal destination for financial services.

In Liechtenstein, comprehensive fiscal support and a wide spectrum of products are on offer in a setting of assurance and protection that is unmatched in the region. World Finance had the opportunity to speak with Alex Boss, Chairman of IFOS Executive Management since 2007, a wholly owned subsidiary of VP Bank, about what makes Liechtenstein so unique as a financial centre.

What, in your view, are Liechtenstein’s advantages as a financial centre?
Liechtenstein is characterised by high-quality products and services, coupled with state-of-the-art infrastructure. The low level of red tape makes it possible to set up companies and implement products quickly, while the stable Swiss franc, free market economic policies and consolidated privacy protection, are extremely advantageous.

Moreover, the country’s track record of political continuity and social stability, combined with high creditworthiness, add to the prosperity of the financial centre.

Liechtenstein is characterised by high-quality products and services, coupled with state-of-the-art infrastructure

What characterises Liechtenstein as an investment fund centre?
The Liechtenstein investment fund centre benefits from a stable high-performance banking system and moderate taxation. The state’s investment fund laws place particular importance upon investor protection, while state supervisory authorities and audit companies are in place to monitor compliance. Then there is Liechtenstein’s EEA membership and its implementation of EU investment fund directives, such as the undertakings for collective investment in transferable securities directive (UCITSD) and alternative investment fund managers directive (AIFMD), which enable simple and discrimination-free access to the European market. Furthermore, thanks to effective cooperation between public authorities and financial institutions, internationally compliant investment structures can be launched quickly and efficiently.

How does the VP Bank Group position itself in the Liechtenstein financial centre?
The VP Bank Group is an international bank that focuses on asset management for private individuals and intermediaries. It is one of the largest banks in Liechtenstein, with client assets that totalled CHF38.6bn ($42.4bn) at the end of 2014.

The VP Bank Group, which is listed on the SIX Swiss Exchange, also has representative offices in six countries around the world: Switzerland, Luxembourg, British Virgin Islands, Singapore, Hong Kong and Russia.

What is the position of Internationale Fonds Service (IFOS) within VP Fund Solutions and what services does it offer?
The VP Bank Group offers its range of investment fund services under the VP Fund Solutions label both in Liechtenstein and Luxembourg. Clients benefit from having a central interlocutor that can draw upon the services of experienced, multilingual specialists in order to objectively assess an investment fund project. IFOS is the investment fund competence centre within VP Fund Solutions that offers comprehensive support for establishing investment funds, which includes advice during concept development, drawing up legal documents and communicating with public authorities.

IFOS offers investment fund administration and management services, including licensing for public sales abroad, realising tax transparency and publicising investment fund prices. It also collects data, which it manages along with client websites, as well as providing accountancy services.

Additionally, IFOS is responsible for handling VP Bank’s range of investment funds and the selection of third-party funds for asset management purposes of the bank and its private clients. This means that we have a team of investment professionals at our disposal that truly understand client needs and can offer unique solutions. Finally, IFOS offers risk management for UCITS and AIF investment funds through an investment committee of experts.

There is also the Pricing Committee, which assesses private equity valuations and due diligence obligations in conjunction with illiquid assets – compliance and risk reports on each net asset value round off the range of services we offer.

What are the grounds for launching a private label investment fund?
The private label fund can be individually structured and licensed to include investment policy, asset management, fee structure, marketing, sales and labelling – all in accordance with statutory provisions. The product is transparent and supervised and can be licensed for sale within the EEA and Switzerland.

How will IFOS be positioned within the private label investment fund unit in future?
IFOS currently has approximately CHF3bn ($3.3bn) assets under management in around 90 sub-funds under Liechtenstein jurisdiction; we continue to view both professionally established and managed investment funds as markets for growth. As an expert partner, IFOS serves asset managers and companies in particular who wish to realise infrastructure and real estate projects in the form of investment fund solutions.

What is your view of current regulatory developments within the context of European financial and economic policy?
The repercussions of the financial and economic crisis continue to be felt deeply in the real European economy to this day. When it broke out, the EU identified inconsistent rules, regulatory loopholes and unregulated markets as the core problem facing financial market policy. As a consequence, the EU reinforced its efforts to standardise the conditions for financial and capital markets, while at the same time created more coherent regulatory criteria for member states.

One of the first far-reaching EU measures created was the AIFMD, which was new in that it aimed to regulate the managers of alternative investments – their managed products are only regulated indirectly. This directive represented the start of further regulatory measures aimed at strengthening the single European capital market. Within the Common Monetary Union, this also saw the creation of more coherent standards, such as European venture capital funds and European social entrepreneurship funds.

What impact are these regulatory developments having on your current and future field of business?
Through ManCo, we were one of the first management companies in Liechtenstein to acquire the AIFM licence in 2013. Our aim is to extend our relevant business fields, boost professionalism and widen the spectrum of services for current and future clients.

Following implementation of the EU passport in Liechtenstein, which we are expecting this year, it is essentially the case that all directives relevant for the EEA will need to be implemented in Liechtenstein also. One of the major benefits for us is that investment funds domiciled in Liechtenstein will become market-compliant for the entire EEA.

What is your view of the current market environment for investors?
In historic terms, stock market valuations are high – at the same time, commodities and interest rates are low. Due to pricey bonds and low to negative interest rates, investors cannot expect them to be risk-free; instead, they can only expect interest-free risks. In this environment, private investors are finding it difficult to judge markets correctly and consequently, they are hesitant about making new investments. Institutional and professional investors face the problem of having to generate risk-adjusted returns because they are no longer receiving the necessary yields on bond markets, while the allocation ratios of their portfolios are already saturated with traditional investment instruments. As pension funds and insurers need to generate long-term returns, currently, traditional investment forms are relatively unsuitable. There are some movements towards short-term investments, which can be difficult to square with the ultimate purpose of capital markets: financing growth in the real economy.

What is the situation in Europe, and how is the EU responding?
The economic and financial crisis affected the ability of the financial sector to direct resources to the real economy, especially in long-term investments. A heavy dependency on intermediation among banks, in conjunction with deleveraging and lower investor confidence, led to a decline in funding for all economic sectors. Within this environment the European Commission announced that job creation and boosting competitiveness were among its main priorities, resulting in a series of initiatives, such as Europe 2020, Connecting Europe, Innovation Union and 2030 Climate and Energy Package. Other programmes launched aim at promoting R&D, SMEs, a low-carbon economy and infrastructure development.

These programmes identify the investment measures required to restore growth and competitiveness and also highlight alternative channels of finance. However, investors with a longer-term horizon, for example pension funds and insurers, did not necessarily have access to coherent pooling mechanisms within EU member states at the time. In response to this, a uniform cross-border product framework was created, called European Long Term Investment Funds, which is designed to encourage demand from both institutional and small investors.

How are you preparing for these trends?
In our view, not least on account of the pronounced political determination of the EU, there is likely to be a greater trend towards long-term investments, in particular in infrastructure, private equity and real estate. To prepare, in addition to our services in the UCITS segment, we are expanding IT systems, resources and capacities in these fields.

We are also enhancing the professionalism of our services in the fields of risk management, investment management, taxes and administration. In this conjunction, we are focusing on the client segments of initiators and investment managers, as well as family offices, portfolio managers and ultra-high-net-worth individuals (UHNWIs). In the case of UHNWIs, we are developing innovative investment funds and configurations based upon the new regulatory framework.

Peru might be a fraction of the size of Brazil, but that has not stopped this resource-rich country becoming one of South America’s most consistent engines for growth. According to data from the World Bank, Peru’s economy is set to grow by 2.9 percent this year, which compared to the 1.7 percent forecast for the Latin American region as a whole, stands as testament to the impressive strides the country has taken.

Its strong performance over the last decade has led to Lima being chosen to host the upcoming annual meetings of the boards of governors of the World Bank Group (WBG) and the International Monetary Fund (IMF) in October this year.

The 2015 WBG/IMF annual meetings will give the country the chance to showcase its economic achievements and strengthen its increasingly relevant position on the global stage. Peru’s President of the Council of Ministers, Pedro Cateriano Bellido expressed his appreciation to the WBG/IMF for recognising the country’s economic performance by bringing the event to Lima this year. “Today Peru is acknowledged worldwide as an important emerging economy, capable of hosting an event of the magnitude of the annual meetings, which will take place in Latin America after 48 years”, he said in a statement.

He went on to add that Lima is preparing itself to receive over 12,000 participants during the 2015 annual meetings and that the country is in the process of developing infrastructure that will allow the capital to become a preferred destination for other international events. “The 2015 WBG/IMF meetings in Lima will be the largest event ever to take place in the country”, said Cateriano. “It will provide local business leaders, investors, the academic community, and local social organisations with the chance to establish links with world global business and financial leaders and with civil society representatives.”

Today Peru is acknowledged worldwide
as an important
emerging economy

WBG Secretary Mohieldin has said that Peru was selected for the growing international prestige the country has won over the last two decades , due to its economic and social performance. “This designation is a clear reflection of Peru’s achievements in recent years in terms of political and institutional stability, economic soundness, investor confidence, and integration with the world economy”, he said.

Peruvian equities
One sector that has helped Peru garner the respect of the international community is its dynamic and ever-evolving financial sector. The Peruvian equities market for example, although only a small, shallow market shows great potential in supporting the country’s long-term growth aspirations.

“However, it is significantly influenced by the perception that the national economy is highly dependent on mining”, says Rafael Buckley, CEO of SURA Mutual Fund. “As a result, this market has the habit of turning volatile, along with a propensity to vagaries of the global economy, and particularly dependent on the demand for minerals.

“Given the global market situation, the Peruvian stock market is slack due to the low global growth prospects for this year and to the fact that it is a pre-election year for Peru, which could generate political unrest affecting the preferences for our stock market.”

In the last five years, there has been a significant improvement in the stock market general regulations, as well as in the Mutual Funds (SMV) specific regulations and tax system. This has resulted in a more transparent and professional market, but it has mainly promoted the creation of new funds based on new types such as international, structured, secured, flexible funds, and funds of funds.

During the first years after 2008, fund management companies focused on completing the value proposition mainly by creating defensive funds, given the risk aversion following the 2008 and 2011 crises. Then the creation of new funds increased significantly – just in the last 12 months, 21 new funds (+26 percent) have appeared – taking into account more creative initiatives involving diversification and low correlation with the local market. “Without any doubt, the government and the private sector have promoted major advances, but there is still a long way to go”, says Buckley.

“The main challenge now consists in making the funds offer available to more people by using new distribution channels and promoting long-term investment benefits.”

According to a report by BNAmericas, the investment portfolio of Peru’s mutual funds grew 13.4 percent in 2014. One reason behind the growth of mutual funds is the decreasing trend in interest rates recorded since 2008, resulting in the search for more profitable alternatives by the investors. Meanwhile the fund management companies reported consistent returns, especially in very short- and short-term funds. This is why 71 percent of all the assets under management (AUM), approximately $6.1bn, is invested in these categories.

The average Peruvian investors are generally conservative and have a poor long-term savings culture; therefore, a big percentage of their savings is earmarked for short-term deposits. Another important reason behind the increase of AUM is the significant expansion of the product range, the structured and international funds being the most popular products among investors so far this year.

“Our main objective is to generate risk-adjusted returns above the reference indexes of our funds and to make higher returns compared to the average return of our competitors’ funds”, says Buckley.

“All of this lineout with solid policies and investment and risk practices that ensure the sustainability of our business over time. Another important topic is to continue fostering in our industry the application of good social responsibility and environmental practices when evaluating investments. We do not aim to be the most profitable company every year, but we do want to consistently generate value above the funds average.”

Diverse funds
In relation to the debt market, SURA Mutual Fund manages two money market funds, two short-term debt funds, and two fixed income funds. All of these funds make investments throughout the curve of the Peruvian sovereign debt, as well as in corporate debts issued by Peruvian companies, and in short-term debt instruments (mainly in the financial sector).

It also manages one equity fund, which invests in Peruvian companies stocks, and has an investment approach focused in mining (in line with its reference index), and one equity fund which invests in companies that are part of the Pacific Alliance (Chile, Colombia, Mexico and Peru).

“Furthermore, we manage three international funds, enabling our customers to invest in North American, European and emerging markets stocks and to expose them to these markets with a tax efficient and passive management”, says Buckley. “Finally, we also manage three balanced funds that incorporate our [tactical] views.”

Investor relations
In today’s hyper-connected world there is a demand for financial organisations to take strides to improve communication with their investors. SURA aims to create spaces where it can interact with investors through Q&A sessions in different social networks, along with bi-monthly videos that allow fund managers to share information about any changes in the market and strategies used to manage their funds.

In addition, there are quarterly meetings with the media, where the company attempts to clear up any doubt about the industry in general terms (pension fund administrators – AFP, mutual funds and insurance).

“For our internal operations, we carry out programmes to bring the customers closer to our administrative staff, which raise awareness about the sales process and help them identify how to improve the service”, says Buckley. “Aside from these activities, I think the best way to keep our customers close is to advise them objectively and manage their expectations, so they can achieve their goals.

“Instead of focusing our attention into selling old returns, we are interested in dedicating a large part of the process to explain the associated risks.”

Unlike its competitors, SURA’s products can be distributed in several banks, brokerage firms, securities intermediaries, and soon in other financial institutions. Additionally, for its distribution channel it has developed unique advising processes, which are based more on managing customers’ expectations than on selling specific products.

“Without doubt, we are an innovative fund management company. The fact that we are the only big fund management company not linked to a bank makes us different. We are more focused on providing excellent results for our investors and we are creative in the design and distribution of ours products”, says Buckley.

“It is worth mentioning that for the last years we have been a benchmark for creating new products. Indeed, we have created the first funds of funds with different share packages to make the offer available to more people, as well as the first flexible funds, regional international funds, and integrated market funds.”

Overall, the Peruvian market shows great growth potential, with investors now more experienced and asking for more sophisticated products. Not only that, but the penetration of mutual funds in the market is still relatively low compared to other countries in the region regarding term deposit volume or GDP percentage. Combine this with the fact that the country as a whole is attracting increased international attention and it is likely that we will see more capital finding its way to Peruvian markets in the coming years.