By Ben Bain July 3 (Bloomberg) -- Ben S. Bernanke is helping billionaire Carlos Slim lose the distinction of being Mexico’s worst pension-fund manager. The four funds controlled by Slim’s bank, Grupo Financiero Inbursa SAB, returned 5.63 percent on average in the year through May, helping each climb out of last place for the first time since at least October as they outperformed rivals by focusing on short-duration debt. While yields on Mexico’s benchmark peso bonds due 2024 surged 1.19 percentage points since the start of May on concern the Federal Reserve will curb the stimulus that pushed investors into emerging-market assets, those on one-month bills rose just 0.09 percentage point. Slim’s Afore Inbursa, with $7.5 billion in assets, has 33 percent of its fund for the nation’s youngest workers in bills due in a year or less, making it less vulnerable to the sell-off than rivals in the pension system which on average has just 1.3 percent in the notes for people under 36. Inbursa’s decision to stick with short-term debt bets while policy makers were suppressing interest rates had led them to saddle retirees with the worst average annual returns over the past five years, according to data compiled by regulator Consar. “Now they can justify it,” Araceli Espinosa, a fixed- income analyst at the Mexican unit of Bank of Nova Scotia, said in a telephone interview from Mexico City. “Thanks to the fact that they’re invested in short-term instruments they’ve been protected from the volatility that has been visible principally in the long part of the curves.” ‘Significant Risk’ Marco Antonio Slim, son of Carlos and chairman of the group that controls Afore Inbursa’s pension funds, said workers should leave rival funds and invest with the company. The market volatility means that “there’s much less risk in being with Inbursa,” he said in an e-mailed response to questions. In May, he told Bloomberg News that workers should switch to Inbursa to “avoid the significant risk of a drop in value when rates rise.” Mexican bonds have been battered since Fed Chairman Bernanke said May 22 the central bank may reduce the pace of asset purchases if there’s sustainable improvement in U.S. employment. Yields on benchmark bonds due in 2024 soared to a one-year high after Bernanke said June 19 that policy makers may start winding down the pace of so-called quantitative easing, or QE, in 2013 and end them by the middle of 2014. Fund Returns Slim’s pension for the country’s oldest workers returned 5.28 percent in the year through May, exceeding billionaire Agustin Coppel’s Afore Coppel and Afore Afirme Bajio, according to regulator data. Inbursa’s fund for workers aged 46 to 59 returned 5.24 percent in May, while the fund for those for 37-to 45-year-olds gained 5.77 percent. Its fund for workers 36 years old and younger returned 6.21 percent. Those three funds also beat the returns posted by Bajio’s. Officials with Afore Afirme Bajio and Afore Coppel didn’t respond to requests for comment on why their funds had underperformed and if they were changing investment strategies. Across the four age categories the nation’s 12 Afores had an average of 18.4 percent of assets in fixed-rate government debt known as Mbonos at the end of May. Inbursa’s funds had an average of 0.5 percent in Mbonos, according to data from regulator Consar. ’More Secure’ Most Afores, as local pension funds are known, “have suffered a lot” during the selloff because their holdings are concentrated in longer-term debt, according to Roberto Ivan Garcia Castellanos, a bond trader at Casa de Bolsa Finamex SAB. “Shorter-term investments are more secure,” Garcia Castellanos said in a telephone interview from Guadalajara, Mexico. “It gives you a very limited return, but it ends up being secure without being as exposed to global volatility.” Enrique Alvarez, the head of Latin America fixed income at IdeaGlobal in New York, says that while Inbursa’s strategy may have avoided some of the worst of the rout, Slim’s pension funds should now shift into debt with greater duration as interest rates in the U.S. will remain low. “As a pension fund, the focus should be on the long-end, especially since it’s weakened,” Alvarez said in a telephone interview. “You want to take the duration now.” The extra yield investors demand to own Mexican government dollar bonds instead of Treasuries widened one basis point, or 0.01 percentage point, to 211 basis points as of 1:52 p.m. in New York, according to JPMorgan Chase & Co. Default Swaps The cost to protect Mexican debt against non-payment for five years with credit-default swaps rose six basis points to 139 basis points, according to data compiled by Bloomberg. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements. The peso rose 0.3 percent to 13.0128 per U.S. dollar. Traders are betting the Mexican central bank policy makers next move will be to raise interest rates as soon as next April, according to the yields on interbank futures contracts known as TIIE. On May 21 before Bernanke spoke they were pricing in a cut as soon as September, according to data compiled by Bloomberg. The 30-day correlation coefficient between 10-year Mexican peso bonds and similar-maturity Treasuries rose to 0.57 on May 22, the highest since Oct. 3. A coefficient of one signals the securities move in lockstep. Its current reading of 0.38 compares with a negative reading as late as May 2. While the percentage of fixed-rated peso bonds due between this December and 2042 years or more that foreign investors own fell to 55 percent on June 21 from 57 percent at the beginning of May, the proportion of Cetes held by global investors increased to 58 percent from 53 percent April 30, according to data from the central bank. “It’s worked out well” for Slim, Scotia’s Espinosa said. “In the past month, the short part of the curve has been without significant sales from foreigners.” For Related News and Information: Billionaire TV Mogul Battles Slim With Peso Bonds: Mexico Credit NSN MMJJUV6S9733 Banamex Says It’s First Mexico Pension to Buy Gold and Silver NSN MLB4EF6KLVRF Mexico Pensions May Need Higher Caps to Invest Abroad: Regulator NSN MJBOZ46TTDSR Stories on emerging markets: NI EM Top stories on Latin America: TOPL Stories on emerging-market currencies: TNI EM FRX Most-read news on Mexico: MNI MEX
Posted on: Wed, 03 Jul 2013 20:53:18 +0000
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