Seeking a super move? Go to Rio

ASIA is most likely to come to mind when fund managers look to send some of Australia's $1.3 trillion in superannuation funds abroad.

ASIA is most likely to come to mind when fund managers look to send some of Australia's $1.3 trillion in superannuation funds abroad.

Yet with Australia's economy joined at the hip to Asia's growth, one Brazilian asset management group is talking up the benefit of Latin America's growth cycle for the local super-fund sector.

Itau Asset Management, owned by Itau-Unibanco, has been touring the offices of some of Australia's largest super funds touting the "mature" consumer-led developing economies of South America as an alternative to investment-fuelled growth in Asia.

Itau global head of institutional clients Roberto Nishikawa admits Latin America has a low profile as an investment destination in Australia. When Australians think of Latin America, they assume growth is wrapped up solely around the commodities sector, but the real potential for Latin America lies in its rising consumer activity, he says.

"There is a something very important going on in Latin America with this demographic of a huge middle class growing," Mr Nishikawa told BusinessDay.

The nation's swelling middle class has driven the growth of the consumer sector, as well. "In Brazil alone by 2014, we're going to have close to 150 million in high and middle-income people. Because of this, the local-related domestic demand sectors are growing much more than the GDP."

Of Brazil's population of nearly 200 million, the share of middle-class people rose from 79.2 million in 2003 to 114.8 million in 2009.

Brazil, home to BHP Billiton's mining rival Vale, derived only 12 per cent of its GDP from commodities in 2011 compared with 28 per cent for Australia in the same time.

Itau is doing the rounds of Australia's superannuation funds to win investments into its $US500 million Latin American equities fund, with a local version of the fund launched in November last year. Itau's Australia Latin America Fund has risen 10.5 per cent since January, outpacing the benchmark MSCI LatAm 10/40 Index's 3.3 per cent.

While the stocks held in the equities funds may not exactly be household names in Australia Chile's CFR Pharmaceuticals or Peru's grocery and pharmacy chain InRetail they are centred on the elusive domestic growth that has yet to emerge fully in China after years of investment-led expansion.

As Australia's reliance on Asia for growth brings with it the risk of a regional slowdown for Australian shares, more funds may see the value of linking some returns to a South American cycle. While analysts fear China's growth may not have reached the bottom of its cycle at 7.6 per cent in the year to June, it's expected that growth in Brazil one of five countries in the LatAm fund will rise next year driven by rate cuts and infrastructure building from 0.5 per cent in the year to June to 4 per cent next year.

About 32 per cent of super funds is now invested in Australian equities, and only 23 per cent is in international equities, according to SuperRatings.

There was no doubt the mandated growth of super funds had made them overreliant on Australia, said Superratings managing director Jeff Bresnahan. "By definition, that means we will have to look for a much more diversified approach," he said.

Funds tended to be conservative when moving into emerging markets, he said, which required substantial research on the part of the super fund.

"There was a real business risk for funds to go out on a limb and start making these investments in a large way," he said.

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