Tales from the Road: Latin America
18 June 2019
Industry dynamics can differ greatly from region to region in Latin America ... our research can take us off the beaten track in search of new opportunities.
Latin America has a lot to offer investors.
Emerging market portfolio managers Paul
Desoisa and Colin Dishington travelled
across Brazil and Peru to assess some of
the potentially overlooked investment
stories the region has to offer.
Casting the Net Wider
Industry dynamics can differ greatly from
region to region in Latin America, with sectors
often dominated at a local, not a national
level. With this in mind, our research can often
take us off the beaten track in search of new
For example, we were told relatively few investors make
the effort to visit Belo Horizonte – most likely because,
compared with São Paulo and Rio, there are fewer
investable companies based in the city. However,
leaving it off the itinerary also means missing the
chance to visit a company like MRV Engenharia (held in
the strategy) which is headquartered there.
As Brazil’s largest housebuilder, MRV has an important
role to play in the wider Brazilian economy. The sheer
scale of the country’s housing shortage was clear when
observing the favelas on the hillsides while travelling
between locations in Brazil. The country's housing gap
stands at around 8 million units and is growing by
500,000 homes per year.*
MRV’s solution is to develop a standardised building
process that allows it to speed up production, using
aluminium moulds which are filled with concrete, meaning
structures can be put up in days not weeks. With
assistance from this improved productivity, the net gain to
Brazilian society is around 50,000 homes per year.
There has also been significant investment in technology.
MRV estimates that technology on its construction sites
and sales office is saving around 4,000 hours a month in
workers’ time and is reducing the time taken to build new
housing units. Following changes in consumer behaviour,
60-65% of sales now originate online and MRV’s IT hub is
working on projects including chatbots and artificial
intelligence to engage with customers.* The company even
employs virtual reality headset technology, not only to
show customers their future homes, but also on the
construction site, allowing engineers to improve the speed
and accuracy of the construction process.
Chasing the Billion-Dollar Smile
Another trend which is seemingly unique to
Brazil is the importance of dental hygiene.
Consumption of toothpaste is approximate to
developed-market standards and the number of
dentists per head is higher than anywhere else in
There are, of course, other countries with high levels of
dental treatment, but where Brazil differs is that most
people pay out of pocket for their treatment (rather than
through a treatment plan or insurance). Dental care
services company OdontoPrev (held in the strategy) is
changing this by offering an insurance package cheaper
than the average out-of-pocket yearly payment. With an
oversupply of dentists in Brazil, OdontoPrev has been able
to spread its treatment among large numbers of dentists
that are under-utilised, rather than rely on a smaller few
who then charge higher fees.
We saw first-hand the reason OdontoPrev is able to
offer such good rates on a visit to its São Paulo
premises, as we observed a room full of qualified
dentists in lab coats approving and reviewing
treatments following electronic submissions from the
clinics. Every single insurance claim is qualified
manually, meaning audits of around 7,000 procedures a
year. With this level of oversight on dental work there is
no room for price gouging in the system and they can
avoid unnecessary and expensive procedures.*
The next stage for OdontoPrev is the use of artificial
intelligence (AI) technology to cut costs in its auditing
procedures. The firm has recently acquired another
company to help with the digitalisation process. This
would represent a major change for the company,
where 20% of its workforce are qualified dentists.*
Source: Company meetings
With an oversupply of dentists in Brazil, OdontoPrev has been able to spread its treatment among large numbers of dentists that are underutilised, rather than rely on a smaller few who then charge higher fees.
E-Commerce in Latin America
Retail across Latin America, as with almost
every other part of the globe, is being
transformed by the arrival of e-commerce.
The US, where Amazon continue to dominate, is often
taken as a reference point, but Brazil appears to be
following a more global path and as a consequence is
unlikely to see a winner-takes-all outcome.
One of the reasons for this is that Amazon, which
benefited from pre-existing infrastructure in the US and
was able to leverage off private logistics providers, has
struggled to make inroads in Latin America, where the
infrastructure is still developing. In Brazil for example, it
has had to rely on the domestic postal service, where
delivery times can be up to 10 days. This has led to a
number of local competitors showing real ingenuity as
they develop their own approach to logistics. One
retailer we spoke to, Magazine Luiza (not held) is
leveraging off its bricks & mortar network and has been
conversing with Chinese e-commerce giant Alibaba
(also a strategy holding) as it considers this approach.
Other companies, such as e-commerce specialist B2W
(not held), continue to develop their own full-scale
One aspect of our research in Latin America that
has had a lasting impact was the sense of
vibrancy in both Brazil and Peru. We were
pleased to see that the companies we visited all
had extremely young workforces which are
adopting new ideas – and new technology.
One financial sector company we spoke to has launched a
dedicated digital bank, as only around 4% of its
transactions depend on employees and branches. The
most prominent example, however, was in Peru, where
BCP, a subsidiary of financial group Credicorp (held in the
strategy) is undergoing a ‘transformation’ project. Its
InnovaCXión Center’ in Lima has grown from around 20
people in 2013, to more than 100 people today. Its purpose
is to develop disruptive technologies with the aim of
improving customers’ digital experiences. With 61% of
personal loans at BCP originating through digital means
last year, there is already a clear tangible impact from its
BCP is also embracing a culture change. As the company
celebrates its 130th birthday, it is focusing not just on
growing its well-respected brand in Latin America, but on
selling itself as a great place to work as well.
One aspect of our research in
Latin America that has had a
lasting impact was the sense of
vibrancy in both Brazil and Peru.
We were pleased to see that
the companies we visited all had
extremely young workforces which
are adopting new ideas – and new
Optimism Returning to the Region
A consistent theme throughout our research in
Brazil and Peru was the sense of optimism. In the
boardroom, we spoke to businesses which are
more confident about the future – due to the
potential for economic reforms (such as the
much-vaunted pension reforms in Brazil) and an
improving economic backdrop. It was also clear
from conversations elsewhere, from taxi drivers
to people on the street, that there are reasons to
feel more positive for the future.
In Brazil, despite the negative headlines associated with
the election of the right-wing president Bolsonaro –
there is a feeling that better times are ahead after
years of political mismanagement. This positivity was
echoed in Peru, where the economic backdrop has
been stronger in recent years.
From an investment perspective, our trip left us with
higher conviction in the strategy’s current holdings,
reinforced the vital role which technology will play and
introduced new ideas for further company research.
…there is a feeling that better times are ahead after years of political
mismanagement. This positivity was echoed in Peru, where the economic
backdrop has been stronger in recent years.
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Investment Management Limited (‘MCIM’). It does not
constitute investment advice.
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