While the manager, who took over from Sebastian Luparia on 4 March, is not planning any significant changes to the portfolio – saying she continues to use the same stock selection tools as her predecessor and is backed by the same team of analysts – her short-term trades reflect market reaction rather than any shift in strategy.
The overall portfolio construction has evolved in line with the macro backdrop, with a bias towards domestic consumer stocks being replaced by a greater exposure to large cap names like Petrobras.
Small and mid caps hit disproportionately
“[These are] poised to benefit from political and energy policy change, but that should be temporary,” she said.
Brazil has suffered “significant” and “indiscriminate” outflows over 2013 and year to date, which had a disproportionate impact on less liquid, small-cap stocks, whose share prices were hit harder, she said.
“As a result of this, we’re seeing more investment opportunity in the small and mid-cap space, which is the tilt reflected in the investment trust.”
During 2013, JPM Brazil’s NAV fell 22.6%, compared with a 15.8% fall in the benchmark, reflecting its smaller company, domestic growth bias.
On the reduction in certain positions, such as aircraft manufacturer Embraer, Bosch de Hood said it was a factor of market and risk control rather than a reflection of her long-term fundamental view on the underlying holdings.
“In order to re-enter the positions at more attractive valuations if we got a capitulation trade, we reduced the positions that were disproportionately impacted by the outflows,” she added.
Having bottomed in March, Brazilian stocks have since rebounded, led by improved sentiment ahead of the forthcoming election.
Valuations not stretched
“Valuations on Brazilian equities do not look stretched relative to their historical averages, although in our view there is a growing discrepancy between sectors, in that consumer names are still trading higher whereas financials and state owned enterprises are trading lower,” she concluded.
The £34m trust continues to have a bias towards small/mid cap domestic growth plays, with a significant overweight in industrials.
Bosch de Hood is based in New York and works closely with Luis Carrillo, head of JPM’s Latin American equity team, who has been co-manager on JPM Brazil since its launch in April 2010.
