The company believes the fixed-capital structure of an investment trust is the best way to access Brazilian stocks because investments can be made with a longer-term view. It feels an open-ended structure, with the need to maintain a sufficiently high level of liquidity, could constrain a portfolio.
The trust aims to produce growth and income by investing mainly in Brazilian companies, but can invest up to 10 per cent in other Latin American countries. It will have a bias towards small to mid caps because JPMorgan believes this is the best place to capture the returns from domestic investment and increased consumption. Performance will be measured against the MSCI Brazil 10/40 Index in sterling and there will be no gearing at launch. However, the trust can be geared on a tactical basis up to 30 per cent, but is unlikely to exceed 20 per cent.
JPMorgan says Brazilian stock valuations are attractive relative to other emerging economies. Low levels of corporate and consumer debt, a rapidly growing stockmarket and increasing domestic investment to support economic growth are also appealing. The firm says economic growth has gathered pace due to the country ‘s hosting of the 2014 World Cup and 2016 Summer Games, along with new oil discoveries.
Fund manager Sebastian Luparia says people assume growth in Brazil is revolves around exports of iron ore and oil to China, but these represent just 10.5 per cent of economic growth, while 60.6 per cent derives from domestic consumption. He will invest more broadly than the MSCI Brazil index.
Some investors may be interested in accessing Brazil through an investment trust for the first time, However, small and medium-sized emerging market companies are potentially illiquid and volatile, which could make the trust too risky for others.