Latin Americans have put a significant focus on ETFs when structuring their investment portfolios, BBVA Global Wealth Solutions (GWA) CIO in Miami, Victor Piña, told Funds Society.
“In terms of investor trends, especially among Latin Americans, we have seen a lot of inclination toward ETFs. In general, many ETFs in UCITS format,” Piña explained in an exclusive interview with Funds Society.
I believe that the growing divide between beta and alpha and the search for greater efficiency finds ETFs as a trend that “is here to stay” because they are products with a very low cost.
On the other hand, Piña added that within GWA’s wealth management business, especially in the Ultra High Net Worth segment, there is a particular interest in alternative products.
“In the higher segments we see an appetite for alternative instruments and they are also combining their portfolios between ETFs and alternatives.”
With regard to alternatives, BBVA GWA takes into account liquid alternatives with daily or bi-daily liquidity but deploys more complex strategies which are more difficult to structure through ETFs.
“These funds do have a niche because they can serve to diversify the portfolio and it is something that we at BBVA GWA want to offer,” explained the CIO.
On the other hand, illiquid alternative products are something that the investment team is working on and could enter in the coming months.
At BBVA GWA they agree with the analysis of most experts that inflation in the US is already beginning to ease and will ease a little more and that should bring a drop in rates in the short term, according to Morningstar. For this reason, Piña said that they remain positive on debt instruments with terms of one to three years.
“I think we believe that rates will go down, and to put it simply: we want to lock in rates to do the lock in based on the drop we expect,” he said.
Political context
In recent days, US politics has experienced episodes that altered the presidential race for November. The resignation of the current president Joe Biden and the possible replacement by his vice president, Kamala Harris, for the moment, strengthen the expectations of former president Donald Trump to return to the Oval Office.
When asked about the possibility of the expectations of the polls and bets being met, the CIO of BBVA WGA responded that some scenarios can be seen.
On the one hand, more protectionist policies are implemented and in that sense a tax reduction that could lead to a greater fiscal deficit. This scenario, according to Piña, could generate a contraction in the decline of the consumer price index.
In addition, Piña highlighted that there was a lot of differentiation between the returns of the technology sector, which as Trump’s chances increase, has been normalizing.
“The valuations in the US are very different in the technology sector than in the rest. Before, we had invested at the S&P 500* level and now we are evaluating the possibility of discriminating and concentrating more on the most attractive valuation companies that, generally, are not the mega caps,” described the executive.*
On the other hand, the types of infrastructure sectors are beginning to look attractive compared to technology, he added.
As for emerging countries, mainly in Latam, the region has had challenges recently that have generated volatility in the markets. To name an example, Piña commented that the election of the new president of Mexico, Claudia Sheinbaum, had caused some political uncertainty, however, since the messages she has sent, in the appointment of her economic team, for example, the markets have been stabilizing. The same is happening in Peru, “where we are beginning to see stabilization” and Argentina “which has had an impressive rally in its valuations.”
“So, in my opinion, this issue of noise or political volatility at the end of the road will be rewarded by the fundamentals of the countries, for example Mexico and nearshoring,” he commented.
Finally, he clarified that the valuations of emerging markets tend to be more attractive with a view to the medium and long term.
The portfolio creation process
The advisory process at BBVA GWA consists of three defined steps that for Piña “are fundamental to provide a service adapted to each client and strive to optimize investment opportunities.”
It begins with a profiling questionnaire that seeks to find out the goals and the level or tolerance to risk of investors. “The know your customer (KYC) client phase is very important to provide good advice,” he said.
Once this information is available, investment guides are prepared and these are a portfolio at the asset class level based on long-term models with a five-year horizon.
However, that does not mean that the strategic model is complemented by a tactical model where investment ideas for a period of no more than one year are also included.
After concentrating the ideas, they are processed in an optimizer “in which we indicate the level of risk that our clients tolerate, and what we aim to be an optimal portfolio is established.” Later, the best investment solutions or the best products are selected. “For each type of asset we select what we deem to be the most efficient for each one of them,” he emphasized.
Finally, our investment counselors “counselors support our financial advisors who in the creation of proposals” meet with clients, bringing them investment portfolios.
The interview was conducted prior to the massive stock market crash of the past “Black Monday” of August 5, 2024.
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