Where to invest in Latin America

Source: Finealternatives.com
Investing In Latin America: It’s Not Only About Brazil
Jan 21 2011 | 10:52am ET
Ask fixed-income specialist Ray Zucaro of SW Asset Management what interests him in Latin America and he’ll say “protein.”

Zucaro isn’t a dietitian, he’s interested in protein because as emerging markets emerge, citizens acquire more disposable income and “If you look at historical consumption patterns, typically two things happen: first they eat better, and then they buy a cell phone.”

Eating better means more protein, and when it comes to supplying that protein, Zucaro says Latin America is in the catbird seat:

“The region as a whole, Latin America from Mexico down, has been pretty much blessed with natural resources, everything from oil and iron ore [to], more importantly, water and growing cycles, which is very important for sugar cane, soy beans, beef, chicken, pork—the protein consumption.”

California-based SW Asset Management is a fixed-income specialist, so it gains exposure to the protein sector by “buy[ing] debt of companies that will benefit from increased production, increased pricing, better efficiencies...We focus on fixed income, and fixed income in emerging markets.”

Zucaro himself has focused on emerging markets for his entire career, from his beginnings as a corporate analyst at Americas Trust Bank to his current position as managing director and portfolio manager at SW. And among the emerging markets of Latin America, Zucaro has some favorites—and some concerns.

Take Brazil, for example. Says Zucaro, “Our concern ... is that everyone loves Brazil,” particularly in the fixed-income space:

“If you look at the BRICs, India doesn’t really have a fixed-income market; China, again, the state lending machine doesn’t really facilitate the needs of fixed-income capital; Russia still has the stigma holding over from the Soviet Union; so when the fixed-income investor wants exposure to the BRICs, Brazil is the easy trade. So, our concern is that [in] Brazil, from a relative perspective...compared even, perhaps, to other emerging markets in the region, valuations have gotten a little ahead of themselves.”

In response, SW is “playing the Latin American story through some of the peripheral countries—countries like Argentina, Venezuela, Mexico—where we see a lot of opportunity and frankly, we don’t see the same amount of focus from international investors as we see in Brazil right now.”

Elsewhere in the region, Zucaro says he likes Colombia and Peru “a lot.”

“If you look at the economic cycle, they’re definitely on the upswing, the problem for me as a fixed-income investor [is that] the investment selection is not as deep as I would like... I think the countries are poised politically. Economically, their fiscal houses are very solid. The political succession in Colombia is very good. It’s sort of the opposite of Mexico, they’re coming out of their violent period. But for me, I wish I could find more things to invest in.”

And speaking of the violence in Mexico, Zucaro says it’s the kind of macro factor investors looking at emerging markets must always consider:

“When you invest in emerging markets, especially on the corporate side or the equity side, it’s really a two-prong investment. You have to understand what’s going on in a country. [On] the macro side, you have to get that call correct, and then when you make an investment, from the fixed-income or equity side, you have to understand the company and the driver of that company. …So, are we concerned about Chavez being—what’s the diplomatic or politically correct way to say it?—a flamboyant leader? Sure. Are we concerned about violence in Mexico impacting GDP? Of course. Last week we were in Mexico and that was one of our biggest concerns, how was the economy in Mexico being affected by violence.”

The answer, he says, is to “do a lot of work...focus a lot, and try to position ourselves to benefit.”


Advertisement
Single and looking. Email me.

Zucaro speaks Spanish and Portuguese, which is an asset in doing the sort of work mentioned above. Although contracts are generally written in English and jurisdiction over them is usually in New York, it “certainly helps” to speak the language, he says.

There’s a “personal nature of doing business in Latin America or really, frankly, any emerging market, [so] being able to speak to the end investor, the end provider of capital in their own language is certainly helpful.”

Ray Zucaro will be speaking at The Search For Alpha In Latin America, which takes place on Feb. 16 in Miami.

The inside and out of GM's re-engineering

Source: Business Week
For Dan Akerson, a Magic Moment to Remake GM
Freed of contract and dealer franchise constraints, the CEO tries building cars that buyers want
By David Welch
For much of the past quarter-century, senior managers at General Motors (GM) spent a lot of their time worrying about almost everything but their customers. The automaker's cars were sometimes designed to fit the capabilities of its manufacturing plants, or simply to give its dealers something to sell. Its heavy debt load and rising health-care costs meant it had to be managed to maximize cash, rather than the long-term equity of its brands. And GM's labor contracts all but prohibited layoffs—even if car buyers didn't want the heavily discounted products those surplus workers churned out.

No longer. GM's 2009 bankruptcy and subsequent restructuring allowed it to shed many of the contractual and financial obligations that weighed it down. That's given new Chief Executive Officer Daniel F. Akerson a window to do something radical, at least by GM standards: focus on customers. The automaker is free to design cars that appeal to consumers. It can restrain production to get better pricing. And the slimmed-down company now has money to crank out new models faster and expand the advertising it puts behind them. Akerson "talks about this being a rare opportunity and the fact that we have momentum," says Joel Ewanick, GM's newly named global chief marketing officer, a position 102-year-old GM has never had. "Dan finds it very important that we become consumer-centric and make the company more of a marketing organization."

Akerson's first major change since finishing GM's initial public offering in November has been elevating marketing within management. Most significantly, he put Ewanick, who earlier in his career made a name for himself building Hyundai's brand in the U.S., on GM's executive committee with a new mandate: bring a consumer point of view into GM's product planning and strategic decisions.

"The importance of marketing is radically different within GM than it was under past leadership," says James N. Hall, principal of consulting firm 2953 Analytics. "Before, marketing was not involved in product decisions. It was 'here's your car, go and sell it.' "

Akerson's move was more than just another reshuffling at a company that has gone through four CEOs in less than two years. The former telecom executive and private equity partner is trying to get historically inward-looking GM to find more effective ways to talk to consumers and to accommodate their input before making decisions. Building cars people want to buy rather than what it needs to sell is a huge turnabout for GM. "We want to eliminate insularity," Akerson told analysts on Jan. 11. "We have to benchmark off the competition, not what we see from an internal perspective."

Akerson has been telling his staff that the time is particularly opportune for big change at GM because the automaker's profits are finally rising, and some new models, such as the Chevy Equinox and Cadillac SRX, have become hits. GM in 2010 logged its first profit in six years. The company's overall market share is down because the company hasn't recouped all of the customers it lost by shedding its Hummer, Pontiac, Saab, and Saturn lines. But its four remaining brands—Chevrolet, Buick, Cadillac, and GMC—grabbed 19 percent of the U.S. car market last year, up from a combined 17.2 percent in 2009.

GM still has a long way to go. Only 23 percent of U.S. car shoppers even considered the Chevrolet brand, which accounts for 70 percent of GM sales, according to a survey done in late 2010 by market researcher Strategic Vision. The brand has been stuck around that mark for five years. Despite being dogged by quality problems, Toyota (TM) gets nearly twice that level of consideration from shoppers. And Hyundai has tripled its consideration percentage to 17 percent since 2005, in part a result of Ewanick's work there.

Part of Ewanick's new job is to get consumer feedback from his staff and bring it to the product team. He had GM cars sent to events in 24 cities to collect direct consumer feedback. And Ewanick has been known to talk to customers in focus groups about GM's products. Using that feedback, he advised design chief Ed Welburn that some future models might need bolder styling to grab attention among today's buyers. In other models, especially Buicks, he wants to push GM upscale with more creature comforts in the vehicles' interiors.



Advertisement
Single and looking. Email me.

Ewanick prodded GM to declare Buick a luxury brand. Until he arrived, it was positioned as "near luxury" in the U.S., placing it beneath Cadillac in a hierarchy that was created by legendary Chairman Alfred P. Sloan in the 1930s. So now Buick is assigned the task of competing against Lexus with understated luxury, while Cadillac goes up against Audi and BMW with bolder design and more responsive handling. "Consumers don't want 'near'-anything," Ewanick says. "They don't want to buy a compromise."

Akerson, who ran long-distance company MCI when it introduced its trendsetting Friends & Family Plan marketing program, enjoys discussing the auto giant's marketing and meets with Ewanick to review ads. The GM chief, for example, vetoed some of the violent boxing footage in an early version of a commercial GM ran over the Thanksgiving holiday on concerns that some shots of a prizefighter being knocked down and then struggling up from the mat might be too intense for female viewers.

For a GM still struggling to gain its footing, the immediate challenge will be getting new products to market faster. The company in the past year has moved as many as 20 future models ahead of their original production schedules. It plans on fast-tracking even more, says Karl-Friedrich Stracke, GM's global vice-president of engineering. Still, the automaker has few new models scheduled for the next two years, while rival Ford (F) has several in the works. For a company seeking a second chance with consumers, a shortage of new cars could make for a tough revival.

The bottom line: General Motors' restructuring, which reduced labor and operating costs, has left it better able to concentrate on consumers and marketing.

Swiss ex-banker faces new probe over WikiLeaks data

By Jason Rhodes and Martin de Sa'Pinto | Reuters – January 20, 2011
ZURICH (Reuters) - Police will question former banker Rudolf Elmer on Thursday over possible fresh breaches of Swiss bank law for giving data to WikiLeaks this week, a day after he was found guilty of violating bank secrecy.

Authorities have 48 hours from Elmer's arrest to decide whether they have grounds to hold him in custody for longer, state prosecutor Peter Pellegrini said on Thursday.

"Mr Elmer was arrested yesterday and will be questioned by us today," Pellegrini said.

Elmer helped bring WikiLeaks to prominence three years ago when he used it to publish secret client details. On Monday he handed over new data to the website, which has annoyed U.S. authorities by releasing thousands of confidential State Department cables.

Elmer was taken into custody by police on Wednesday evening, hours after he was convicted of breaching strict banking secrecy by passing on private client data and of threatening employees at his former firm Julius Baer.

A decision on whether to detain Elmer further would depend on whether the state had a case against him and whether there was a risk of him taking flight, Pellegrini said.

Elmer was held for a month in 2005 when he was arrested on the charges that led to Wednesday's prosecution -- which did not concern WikiLeaks. His wife and daughter live near Zurich.

A source who spoke to Elmer's wife Heidi after his arrest said she reported that police arrived at their residence in a village outside Zurich with a search warrant and a warrant for Elmer's arrest.

Lucius Blattner, whose firm represented Elmer in Wednesday's proceedings, said his firm would again represent the former banker in the case of further legal action.

On Wednesday, the court sentenced Elmer to a fine of 7,200 Swiss francs ($7,505), suspended for two years, without giving reasons, which will be presented in a written judgment. The defense will decide whether to appeal within 10 days.

Switzerland's bank secrecy helped it build a $2-trillion wealth management industry but the laws have come under intense global attack in recent years, with neighboring Germany buying secret data from informants to track down tax evaders.

(Additional reporting by Mark Hosenball in London; Editing by Janet Lawrence)

American Express to trim its work force

Source: Wall Street Journal
Wednesday, January 19, 2011
American Express Warns on Earnings, Cuts Jobs
By LAUREN POLLOCK

American Express Co. said it will cut about 550 jobs as it consolidates some facilities as the card company projected fourth-quarter earnings that slightly missed Wall Street estimates.

The company, which issues charge cards that must be paid off each month, as well as credit cards that allow customers to carry a balance, said the moves reflect a decline in service volumes as more routine transactions have migrated to online and mobile channels.

As part of the restructuring, a facility will be closed in Greensboro, N.C., and the company will study whether to transfer work done at a Madrid service center. The moves will lead to total charges of $38 million to $51 million this year and annual cost savings of about $70 million, starting next year.

Excluding charges for restructuring, severance and other items, the company expects earnings of 94 cents a share for the fourth quarter. Analysts polled by Thomson Reuters were looking for 95 cents.

"Despite an uneven economic environment, credit-quality trends also continued to improve, with key indicators for the quarter now back to—or better than—historical levels," Chief Executive Kenneth I. Chenault said. "This improved credit quality translated into lower provision expenses for the quarter."

The consolidations are expected to be completed by the end of the year. The company has about 58,000 employees.

In October, American Express said its third-quarter profit surged 71%, beating analysts' expectations, as cardmember spending climbed 14% and loss provisions tumbled.

Fourth-quarter results will be released Monday.

China now world's No. 2 economy

Source: Money Watch
By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) — China has apparently overtaken Japan as the world’s second-largest economy, after data released Thursday showed double-digit growth for the full year. The growth effectively displaces its Asian neighbor from a global ranking it has held since 1968.

China’s nominal gross domestic product totaled 39.79 trillion yuan at end 2010, according to reports on Thursday.

China reportedly overtook Japan in terms of nominal gross domestic product in the April-to-June quarter of 2010, though the data had yet to be confirmed on full-year figures.

Official figures from Tokyo on its 2010 growth are due out Feb. 14.

The director of China’s National Bureau of Statistics, Ma Jiantang, told reporters in Beijing Thursday that the data comparing the sizes of the two economies involves purchasing-power-parity adjustments that can raise the apparent GDP of developing countries, according to a report by Dow Jones Newswires.

The figures can be misleading because the prices of certain goods and services are relatively low in developing countries, Ma said.

Ma reportedly declined to comment directly on the size of the economies of the two countries, but said China’s GDP per capita lags well behind Japan’s.

Per capita GDP in China was about $4,412, compared to $42,431 in Japan, according to calculations by the Nikkei newspaper based on data compiled by Daiwa Institute of Research and the International Monetary Fund.

Data released early Thursday in Beijing by the National Bureau of Statistics showed GDP was up 9.8% from in the December-ended quarter and 10.3% for all of 2010. See report on Chinese economic data.

Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.

Is it sensible to invest in natural gas ?

Source: USA Today
As energy demand rises, is investing in natural gas a good bet?
Q: What are some good exchange traded funds for investors interested in betting on natural gas?

A: Given the fact the economy appears to be on the mend, investors are betting that demand for energy will increase.

Prices for gasoline at the pump are already on the rise. And some hope natural gas, which has some industrial uses, might also enjoy an increase in value.

But natural gas has been a very different story and a bigger disappointment. The United States Natural Gas (UNG) exchange traded fund, which tracks the value of natural gas, has been a big loser the past two years. The value of the ETF has fallen 72% over the past two years.

BEST STOCKS IN 2011? Tips from our Investment Roundtable
VIDEO: Investment pros share their top stock picks
FUND REPORT: Returns are up, but investors have been pulling cash

Adding to the pain of natural gas investors is the fact that the United States Natural Gas ETF charges a 0.9% a year expense ratio. That's relatively high as far as ETFs go. The Vanguard ETF that invests in the Standard & Poor's 500 large-company stock index charges just 0.06%. You can look up the expense ratios of ETFs using USATODAY.com's ETF snapshot pages, such as the snapshot for United States Natural Gas fund.

The main reason the United States Natural Gas ETF is down is because the price of natural gas has been falling. All natural gas ETFs that mirror the value of natural gas would fall when the value of the underlying commodity declines.

But with that said, it's a good idea to periodically make sure you have the best ETF to meet an investment goal. One way to do this is by using an online ETF matching system. These matching systems examine an ETF and show you others that are comparable. Fidelity has a powerful ETF matching system.

The Fidelity tool will provide a comparable fund to the United States Natural Gas ETF, if you know where to look. First enter the UNG symbol into the symbol lookup box and choose Compare from the dropdown menu under the symbol box.

Next, click the Go button. And next, click on the Show Similar ETFs link in the text on the right-hand side of the page. This produces a comparison list of other funds.

Another technique is to enter search terms into stock lookup systems, including the Money section at USATODAY.com. If you enter natural gas as a search term in the get a quote box you will see some alternative funds, including the iPath Dow Jones-UBS Natural Gas Subindex (GAZ). This ETF has one advantage over the United States Natural Gas ETF, the expense ratio is lower at 0.75%.

But again, your success or failure as an investor in natural gas ETFs lies mostly on the rise or fall of natural gas prices. And that's the case no matter which natural gas ETF you choose.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz

You might also be interested in:

• Taxpayers get more deduction options (USATODAY.com in Money)
• ETFs can be attractive, but they're never a sure bet (USATODAY.com in Money)
• Investing in oil: Sure, there's an ETF for that (USATODAY.com in Money)
• 20 most stressed, 20 least stressed U.S. counties (USATODAY.com in Money)

The rush to invest in Germany

Source: Money Morning
January 20, 2011
Investing in Germany: The Closed-End Fund to Buy Now
[Editor's Note: When the U.S. government went into a deep-deficit-spending mode last year, global investing expert Martin Hutchinson told Money Morning readers to keep an eye on Germany. Because that country's government was eschewing problematic stimulus strategies, Hutchinson said there would be a big payoff. Now the former merchant banker shows us how to collect.]

By Martin Hutchinson, Contributing Editor, Money Morning

U.S. investors tend to regard the European Union as a region of low growth, an area of the world that has little to offer to non-EU investors.
For much of the EU, this is true (I've never found much of anything that's investment-worthy in Italy, for example).

Overall, however, this anti-EU sentiment is pretty unfair.

In fact, it's now becoming increasingly clear that even U.S. investors would be mad not to have some of their money in Germany.

A Mixed History

To maximize profits, you need to invest in the great manufacturing economies of Asia - not just China, but also Korea, Taiwan, Singapore, and even Japan. You need to have money in the major commodity-producing sectors, which take full advantage of the "funny money" monetary policies that are in force around the world - and that are causing commodity prices to swell in bubble-like fashion.

And to really maximize the profit potential of your portfolio, you need to have money in Germany - at least 5% to 10% of your overall portfolio.

Although Germany seems to occupy a kind of "show-me" status among investors today, it was once a favored investment destination for the investors who understood even then how important it was to diversify into international markets. That was especially true prior to the July 1990 reunification that saw the former East and West Germany merge into a single entity.

In the 1950s and 1960s, the former West Germany enjoyed truly stellar growth under wise Chancellor Konrad Adenauer as it recovered from World War II, and from the 100 years of rule by the economically illiterate governments that had guided it in the previous century.

If you're a free-marketeer, you probably prefer Bismarck to Kaiser Wilhelm II, "Kaiser Bill" to the socialists of the 1920s Weimar Republic, and the Weimar guys to the Third Reich (though your overall vote would go to "none of the above").

After the 1960s, Germany's growth rate slowed. But after 1971, the country's currency took off against the U.S. dollar. So if you were an investor in Germany, you still made out from both profit growth and from currency appreciation.

Then came reunification. The Berlin Wall fell in 1989 and the two Germanys were reunited the following July.

Germany's Economic Resurgence

Mistakes were made in setting up the union and for the next 15 years the combined German government poured subsidies into the former East Germany at a rate of about $100 billion annually - equal to about 3% of the entire country's gross domestic product (GDP).

The upshot: German growth slowed to a crawl, and impatient foreign investors invented the myth that Germany lacked entrepreneurship and was too socialist to do well in a free-market world.

Since 2005, however, Germany's growth has re-accelerated. This should not have surprised anybody; the costs of re-unifying the country were always likely to be finite and the dynamic West Germany was around four-fifths of the total in terms of population and even more in terms of GDP.

German labor costs per unit of output were the highest in the EU at the formation of the Eurozone. But they fell by more than 20% over the next 10 years, making Germany highly competitive internationally.

As the costs of East German unification began to decline, the government undertook tax reforms, reducing corporate taxes and high-rate individual taxes to internationally competitive levels. Then, unlike almost every other country when the 2008 crisis hit, the German government avoided the "stimulus" folly, with the finance minister - at that stage a Social Democrat - describing it as "crass Keynesianism."

As a result, the German economy has recovered much more strongly than most. Unemployment has remained limited, at 7.5% currently compared with a peak of greater than 10% in the United States. And Germany's GDP has begun advancing at a fairly healthy clip: The growth rate of 3.6% in 2010 far exceeds the expected level for the United States, Japan, or the rest of the EU. This is the highest growth since pan-German data began in 1991, and was accompanied by a 9.4% rise in corporate spending on equipment, again well ahead of Germany's competitors.

In other words, Germany appears to have reverted to its healthy-growth proclivities of the 1980s and before. And its relative strength is likely to continue.

Unlike the United States, Germany runs a healthy trade surplus, indicating that its industries are highly competitive in world markets. German companies outsource - but generally to Eastern Europe, rather than Asia. That represents sound strategic management, since the German skills of extremely high precision manufacturing, taut workforce discipline and tight process control cannot easily be applied in an unfamiliar culture far from home.

Then there's valuation. Germany's stock market is currently cheaper than its U.S. counterpart (15 times earnings, compared to 17 times for U.S. stocks, according to The Financial Times) - even though the German economy is growing at a faster pace.

The difficulty is how to invest.

How to Reap the Predicted Payoff

Relatively few German companies have full American Depository Receipt (ADR) listings in the United States. That's partly because the U.S. Sarbanes-Oxley Act requirements are expensive, making it prohibitive for German companies to list here. Plus, German companies have an excellent investor base, both domestically and through London and the rest of the EU.

I have found one tech company in my Merchant Banker's Alert advisory service that I think is pretty special. But German companies with ADRs are generally very large and operate in traditional sectors, without much growth. Germany's unique capabilities come to the fore best in medium-sized companies, generally with family management, which may be listed on their domestic market, but not in New York.

That leaves funds. And fortunately, there is one very good choice here.

There is an exchange-traded "country" fund (ETF) for Germany, the MSCI Germany Fund (NYSE: EWG), but that also has heavy exposure to the slow-growing behemoths.

Thus, my favorite right now is a closed-end fund, the New Germany Fund Inc. (NYSE: GF). This $300 million fund is run by Deutsche Bank AG (NYSE: DB) and has the additional advantage of trading currently at a 10% discount to net asset value (NAV) - so you get $100 of asset exposure for a $90 investment.

The fund specializes primarily in medium-sized and smaller German companies, which is just where we want to be: Those are the companies that have the biggest exposure to the fast-growing domestic economy; they're also the most innovative.