Author: Charles Sizemore
Covestor models: Dividend Growth, Strategic Growth Allocation, Sizemore Investment Letter, Tactical ETF
Disclosure: Sizemore Capital is long ECON, HINKY and UL
The problem with taking a vacation is that, alas, you eventually have to come home.
And given the ubiquity of smart phones and wifi access, you’re never really “away” to begin with.
This is good and bad, of course. When you have capital at risk, you need to be able to trade in a hurry if events take an unexpected turn. This is particularly true if you manage money for others; clients have to know that their advisor is keeping an eye on their accounts even if he is desperately trying to relax in his beach side cabana with a cigar and a mojito.
Which is, incidentally, how I spent the better part of last week. The wife and I dropped off our two year old with the in-laws and made a quick getaway to a secluded resort on Peru’s northern coast near Mancora.
Or at least it used to be secluded. A short walk down the beach was a brand new (and much larger) resort, and business was booming.
If you’ve never heard of Mancora and have never considered Peru as a beach destination, there is a reason. As beautiful as it is, it’s not particularly easy (or cheap) to get to for Americans or Europeans, and Peru lacks the internationally recognized beach culture of, say, Brazil or Mexico.
There are plenty of gringos in Peru, of course. But most of them are backpacking around Machu Picchu or experimenting with Andean mysticism in a drug-induced haze. Outside of a few die-hard surfers and marlin fishermen, coastal Peru caters almost exclusively to Peruvians. (Though for the history buffs out there, I’ll point out that Ernest Hemingway was well aware of northern Peru’s charms and even filmed the movie version of The Old Man and the Sea from Cabo Blanco, a small fishing village about 20 miles from Mancora.)
All of this brings me to the point of this article. Unlike many resorts in the tropics, Peru’s beach resorts tend to attract the country’s native citizens. And as incomes rise in Peru and more and more middle- and upper-class Peruvians enjoy the disposable income for a beach holiday, coastal Peru is enjoying quite a boom.
Prices at the nicer resorts start at around $100 per person per night, which is no small sum of money in a developing country. And prices have continued to rise even as the number of beds available has exploded.
The same can be said of urban Lima. As demand for upscale apartments in the trendy Miraflores and San Isidro districts has far outstripped supply, construction has spilled over into neighboring districts. And in Trujillo, the northern city where my in-laws live, the rate of new construction is such that I hardly recognize the place each time I visit.
The rise of Peru’s middle classes—and of their contemporaries across the developing world—is real. The question is how we can profit from it as investors.
Most emerging market funds and ETFs tend to be heavily weighted in resource companies and banks that lend to resource companies—hardly the kind of exposure we are looking for. Emerging Global Advisors has taken a big step towards remedying this with its popular Emerging Market Consumer ETF (ECON) and Emerging Market Domestic Demand ETF (EMDD), both of which invest exclusively in emerging-market companies with exposure to domestic consumers.
I believe both ETFs are good candidates for the emerging-market allocation of your portfolio. Another approach I like is getting access to emerging-market consumers indirectly through the shares of attractively-priced American and European companies that get a large percentage of their sales from emerging markets. Companies like Dutch mega-brewer Heineken (HINKY) and Anglo-Dutch consumer products company Unilever (UL) would certainly fit the bill.
As I wrote in early August, emerging markets are attractively priced and, for the most part, out of favor. This would seem to me to be a fine time to “risk up” by adding a little more emerging market exposure to your portfolio.
Oh, and if you feel like doing a little primary research, northern Peru is pleasant this time of year.
