Portfolios

Latin America could be a stock picker's paradise in 2012 - especially for dividend and value investors. It could make a real difference in your retirement or investment plans.

Why do I say that?

For most investors, the year 2011 can best be described as generally a disaster for Latin American stock markets. The region’s major stock market indices collapsed into bear markets in the second half of the year and ended well short of their respective 2010 closing values. The indices ended the year with losses ranging from 3.8% for Mexico to a painful 30.1% for Argentina.

And poor equity market returns may not be the only issue keeping investors on the sidelines as I mentioned last week. So blind, unbridled optimism is not appropriate for the region or equities markets as the year 2012 makes its debut.

But take a longer term view.

Even the disastrous year that just ended wasn’t enough to erase prior gains that have rewarded longer-term investors in Latin America with compound annual percentage gains comfortably in the double digits over the past three years.

For example, our own LSI Growth portfolio surged 95% and the LSI Dividend portfolio doubled to $200,004 since inception in October of 2008. In the same period the S&P 500 gained 38% which means our stock portfolios grew 3 times faster than the U.S. market during the last three years. That's a real, documented difference!

And while the 2011 results were flat, the LSI stock model portfolios again insulated investors from the double-digit percentage setbacks suffered by the major Latin American stock market indices. The Growth portfolio ended the year with a total-return of 3.91%, beating a similarly computed return of 2.09% for the S&P 500. The Dividend portfolio stayed in positive territory for most of 2011 and then pulled back on profit-taking to end with 1.24% lower for the year.

But investing in general ETFs has not been so profitable. Our ETF model portfolio declined by 29%, only slightly better than the negative 30% market return of Argentina’s Merval index. Great trades on sugar (+29%) and Peru (+37%) were offset by poorly-timed trades on oil (-27%) and silver (-14%). The last two were aggravated by the use of the Ultra, leveraged fund versions which work well in a momentum market - but this is no longer a momentum market where you can ride the funds to great results.

I wish I could say just go slow and steady with your picks and avoid leverage to get the greatest returns. But, as I've been saying, don’t expect the new year to any less challenging than the one just (thankfully!!!) ended. So be sure to check regularly for changes in stocks selected and allocations of the model portfolios.

Read more in the attached weekly update and ...

Happy trading this week!

Rudy

Latin American securities markets last week responded to the emerging indications of global growth. It seems reports of the death of the U.S. economic recovery might be premature.

The average U.S.-listed Latin American stock tracked by this service has rebounded 18.8% from its bear market low as of Dec. 16, with half of them posting 15% or more increases in a short period.

My favorite turnaround stock, top rebounder Cemex SAB de CV (NYSE:CX) survived a perfect storm of negativity that included liquidity issues related to corporate debt and worries about a double dip in the U.S. economy. The Mexican-domiciled firm, which dominates the cement business in the Western Hemisphere, outlasted the worries and boomed back to a 121.59% recovery from an early-October trough of $2.27. But despite its initial bounce, I think there could still be a lot of profit potential left in Cemex shares. The price would have to more than double from its most recent close of $5.03 just to match its 2011 high of $10.72. And a return to the $40 level that it approached during more prosperous times in 2007 would mean an eight-fold price advance.

Read more about this stock in the attached weekly update and ...

other stock movers last week included : BVN, HXM, CRESY, KOF, and CCU.

• Compania de Minas Buenaventura S.A. (NYSE:BVN) +4.5%
• Desarrolladora Homex S.A. de C.V. (NYSE:HXM) +3.6%
• Cresud (NasdaqNM:CRESY) +3.3%
• Coca-Cola Femsa SAB de CV (NYSE:KOF) +2.8%
• Compania Cervecerias Unidas S.A. (NYSE:CCU) +2.0%
• Data date: 12/16/11

Enjoy this short pre-Holiday week!

Rudy

Colombia’s central bank on Nov. 25 mildly surprised observers by hiking its benchmark interest rate a quarter point to 4.75%.

The central bank’s rate increase followed a burst of optimism over the U.S.-Colombian free-trade agreement signed by President Obama on Oct. 21. It was also a response to a quickening of Colombia’s inflation rate to an annual pace of 4.02% in October, slightly north of the central bank’s target range of 2% to 4%. A rate hike to help dampen a potentially overheated economy was viewed by many as appropriate, as some forecasters were estimating GDP growth of as much as a brisk 6% for Colombia in 2011.

However, speculation now exists that Colombia will be switching gears to a posture of lower rates in order to battle reverberations from Europe’s troubles. Brazil, Chile and Mexico have already begun programs of frequent rate cuts.

Read more in the attached weekly update and ...

the best performing stocks this week included: CX,GOL,TS,ICA,ITUB

Happy trading this week!

Rudy

Disappointing performances in 2011 to date for most Latin American securities don’t obscure the fact that investments in the region have generally excelled handsomely over the past decade.

For example, an investor with $10,000 in the closed-end Aberdeen Latin America Equity Fund (NYSE:LAQ) on Oct. 31, 2001 would have seen the value grow to $79,712 by the end of last month, assuming reinvestment of distributions but not considering transactions costs. A similar investment in the S&P 500 would have been worth $14,326 (a 3.66% average annual return,including reinvested distributions). So the investor’s profit of $69,712 in LAQ would have been more than 16 times the $4,326 that what would have been made on the S&P.

Latin America’s lackluster investment returns so far this year shouldn’t be ignored in light of those lucrative 10-year performances.

And taken together, they should underscore the standard securities industry disclaimer that past performance is not necessarily indicative of future returns. But then it should also be remembered LAQ’s remarkable appreciation in value was achieved despite a hammering during the 2008-2009 maelstrom and poundings this year that put most Latin American indices into bear market territories.

And LAQ’s 23.07% compound annual growth for the 10 years ended Oct. 31 isn’t a distant outlier for long-term Latin American portfolios. The closed-end Latin American Discovery Fund (NYSE:LDF) sustained average annual growth of 22.96% for the period, sufficient to grow holdings of $10,000 to $79,002 over 10 years with distributions reinvested. The

BlackRock Latin America Fund (MDLTX) gained an average of 22.26% annually over the period, enough to boost a $10,000 position to $74,618. The 21.32% annualized 10-year return of the T. Rowe Price Latin America Fund (PRLAX) would have turned $10,000 into $69,075 and the average annual performance of 20.26% by Fidelity Latin America (FLATX) would have lifted the $10,000 investment of 10 years ago to $63,272 by the end of last month.

Read more in the attached weekly update and ...

Happy trading this week!

Rudy

It was a mildly positive for Latin American stocks with these five ranking as the best performers:

• Cresud (NasdaqNM:CRESY) +6.0%
• Banco de Chile (NYSE:BCH) +4.1%
• Petrobras Energia Participaciones S.A. (NYSE:PZE) +2.9%
• Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) +2.6%
• Arcos Dorados Holdings Inc. (NYSE:ARCO) +.6%
• Data date: 11/18/11