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Economic, war worries drag Latin funds down

INVESTMENT REPORTER

Equity funds that invest in Latin America plunged in September as the world's investors feared a worsening of Brazil's deep financial morass.

Meanwhile, stock markets in Mexico and South America were dragged down by worries about a double-dip recession in the United States and a possible U.S. war with Iraq.

The group was the worst performing category in a brutal month for most equity funds.

Latin American stock funds dropped an average of 14.6 per cent last month, bringing their average one-year loss to 16.5 per cent.

Among the top performers, the $27.2-million CI Latin American Fund dropped 10.8 per cent, the $25.1-million Scotia Latin American Growth Fund tumbled 12.2 per cent and the $27.8-million Investors Latin American Growth Fund fell 14.6 per cent.

The $19.8-million TD Latin American Growth Fund declined 14.9 per cent, the $4-million BMO Latin American Fund fell 15.8 per cent and the $17-million Fidelity Latin America-A Fund decreased 15.9 per cent.

Wes Mills, vice-president of international equities at Scotia Cassel Investment Counsel Ltd. and portfolio manager of the Scotia fund, says investors are worried that Brazil, which is choosing a new president through elections that started this month, will not be able to fix its financial woes -- particularly if a left-leaning candidate wins. The current front-runner is former trade unionist Luiz Inacio Lula da Silva.

Meanwhile, a $30-billion (U.S.) International Monetary Fund rescue loan -- intended to reassure investors that the country's debts will be repaid and its currency will strengthen -- has done little to boost confidence.

Funds with a hefty weighting in Brazil were particularly hard-hit in September, notes Mr. Mills, who recently trimmed some positions in that country.

But Mexico, which Mr. Mills calls a "proxy for the U.S. economy," also suffered during the month as the economic picture in the United States darkened. Mr. Mills adds that the losses Canadian unitholders are seeing in their stock funds are worsened by deflating currencies.

Brazil's Bovespa stock index dropped 17 per cent in September in local currency and 33 per cent in U.S.-dollar terms.

Mexico's Bolsa index tumbled 7.9 per cent in local currency and 10.3 per cent in U.S. dollars.

Mr. Mills says Venezuela's market rose 5.8 per cent in U.S.-dollar terms during the month with the help of strong oil prices, but most funds do not have large weightings in that country.

Mr. Mills expects global investing to remain turbulent for some time as investors wait for signs of improvement in the juggernaut U.S. economy.

Science and technology funds also suffered steep declines in September, with an average drop of 12.9 per cent. The group's average one-year slide now stands at 33.9 per cent.

The $2.7-million (Canadian) Tera Capital Global Technology Fund slipped 1.4 per cent, the $8.2-million Tera Capital Venture Fund edged down 1.5 per cent and the $1.8-million Northwest Specialty Innovations Fund dropped 1.8 per cent.

September was also a rough month in Canadian stock markets as the benchmark S&P/TSX composite index tumbled 6.5 per cent.

Canadian large-cap equity funds posted an average loss of 6.3 per cent to bring their average one-year drop to 9.9 per cent.

The $600,000 Mavrix Sierra Equity Fund slipped 1.9 per cent, the $2.3-million RBC Advisor Blue Chip Canadian Equity Fund dropped 3 per cent and the $6-million Dynamic Power Canadian Growth Class fell 3 per cent.

Canadian equity funds lost an average 6.2 per cent in September. The category's one-year decline deepened to 6.9 per cent.

The $21-million Co-operators Canadian Conservative Focused Equity Fund slid 0.27 per cent, the $4.1-million Juniper Equity Growth Fund dipped 1.7 per cent and the $2.4-million Hirsch Performance Fund dropped 1.7 per cent.

Equity funds that invest in Europe were also big losers, with an average drop of 12.2 per cent. The average decline for one year reached 19.5 per cent.

The $2.2-million Mackenzie Ivy European Fund fell 1.5 per cent, and the $209.8-million Investors Euro Mid-Cap Growth Fund dropped 6.5 per cent.

© 2007 The Globe and Mail. All rights reserved.

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