When you think of Brazil, what immediately springs to mind? Carnivale in Rio? Beautiful people on beautiful beaches? Or maybe colorful investment opportunities? You read that right: investment opportunities. Turns out Brazil is just as interesting to investors as it is to tourists.
Brazil’s economy is grappling with some interesting challenges right now, such as shifts in monetary policy to cope with a possible economic slowdown and preparing to host two major events on the international stage— the 2014 FIFA World Cup Brazil™ and the Olympics in 2016. Marco Freire, Franklin Templeton’s CIO, Brazil Fixed Income for the Local Asset Management team based in Sao Paulo, isn’t sharing any locals-only secrets about either event, but he’s happy to share his insights on how Brazil is approaching these challenges, and to clear up some common misconceptions about Brazil’s markets.
Pinning down the origin of the saying, “don’t put all your eggs in one basket” is surprisingly difficult. Some say it’s an ancient Chinese proverb. Some attribute it to American author Mark Twain, or Spanish writer Miguel de Cervantes. It’s a simple saying, one you might expect to find cross-stitched onto a pillow, but don’t let its ubiquity fool you: there’s wisdom in those words.
The late Sir John Templeton was certainly a champion of diversifying one’s “basket” of investments. And so is Tucker Scott, portfolio manager for Templeton Global Equity Group. Diversification is at the core of his investment strategy. A summary of his recent remarks:
- We try to find stocks that we believe are undervalued, then build a portfolio that’s well-diversified by industry and by country
- We try to limit position sizes in an attempt to help limit potential stock-specific risk
- We don’t look to an index as a guide to desired weightings; we rely primarily on internal research
- The primary area where we’ve been purchasing stocks in Europe is the financial sector
- The core European countries appear to be in a healthy state; we think the European “project” should continue Read more…
There’s a certain Hollywood mystique around the image of the rogue investor with the fortitude to diverge from the crowd on the quest for The Next Great Investment. The un-glamorous truth, of course, is that unearthing hidden opportunities actually takes equal parts elbow grease and know-how. Par Rostom, portfolio manager and vice president of Franklin Equity Group®, is that
roll-up-the-sleeves kind of guy. He’s not looking to invest in companies just because they are household names with splashy advertising campaigns. The companies he hunts for are the ones he feels are “best in class” in their particular niche, but that you’ve probably never heard of. Surprisingly, he’s finding some of them in the eurozone, a place the crowd is largely avoiding today. Here’s a summary of his approach, in his words:
- We’re looking for companies that grow sustainably in terms of free cash flow over time.
- We look at the returns profile for a company historically, and we project that out three to five years.
- We also make sure that we would view the corporate governance as best in class.
- A concentrated portfolio allows our analysts to focus…it allows us to take advantage of transient dislocations.