Fund manager Pedro Villani has been working in the SRI equity market in Brazil since 2001. He will look at companies in terms of their environmental, social, ethical and corporate governance policies and will select those fitting these social responsible criteria that are likely to benefit from long-term growth.
To assess growth potential Villani will assess a company’s financial strength, competitive position, profitability and quality of management. The portfolio will contain a broad range of industries and companies to reduce risk.
Concerns about the potential impact of a US slowdown on Brazil and lower corporate earnings have recently had a negative impact on Brazilian equities. However ABN Amro suggests that returns could be better in the last few months of the year because Brazil is one of the few large countries cutting interest rates – although at 14.25 per cent, it does have the highest in the world.
Low inflation and global demand for Brazilian exports are also positive, while the recent market correction has thrown up some interesting opportunities. The country has also improved in terms of investor relations and data transparency, which bode well for this fund’s socially responsible investment strategy.
According to the Institute of International Finance, Brazil is the best of out 32 emerging market countries in this respect.
However, Brazil’s growth rate needs to accelerate and this depends on reforms going ahead in a difficult political climate where allegations of corruption are not uncommon. Emerging markets have attracted a lot of interest and money on the back of themes such as commodities but this is likely to be a niche fund because of its focus on a single emerging market within a SRI framework, which intensifies risk.