Brazilian bank has growth potential

Question: Is this a good time to buy a bank stock such as Banco Santander (Brasil)? The price has come down a lot, and I know Brazil has potential.

Answer: This Brazilian bank is expected to enjoy robust long-term growth in assets and loans as it focuses on that country’s middle and upper classes, which are gaining in numbers.

Brazil’s relatively low penetration rate of banking products and services enhances its growth potential.

But recently, the bank has had to cope with the battered Brazilian stock market, non-performing loan concerns and higher expenses. A potential investor would have to look beyond present uncertainties to determine whether its discounted stock price is attractive.

Although the bank is well-capitalized to handle anything that comes its way, it is in competition with government-controlled banks that are able to offer below-market rates. And despite Brazil’s growing economic power, that country has a difficult history of currency fluctuations and inflation.

Stock of Banco Santander (Brasil), whose ticker symbol is BSBR for its American depositary shares, is down 40% this year to $7.98 a share. The decline prompted the bank to announce a share-buyback plan in August.

It is majority-owned by Grupo Santander, Spain’s largest bank, a relationship helpful in attracting international business and structuring acquisitions. Its importance to the Spanish bank’s bottom line assures it of receiving full attention and professional assistance

The consensus analyst opinion of shares of Banco Santander (Brasil) is “buy,” according to Thomson Reuters, composed of one “strong buy,” two “buys” and four “holds.”

Banco Santander (Brasil), which derives the largest portion of its revenue from commercial banking, is also in global wholesale banking, asset management and insurance. It has locations across Brazil, with a concentration in the country’s South and Southeast, an area that accounts for nearly three-fourths of the nation’s gross domestic product. Its branch network is one of Brazil’s largest.

The bank’s stated strategy is to increase commercial banking products and distribution; provide multinational companies with financial products; and attract up-and-coming personal banking clients. It has made significant acquisitions, including Banco Real in 2008.

Scout International Fund has experienced manager

Question: I’d like your opinion, please, on Scout International Fund, which hasn’t done well.

Answer. With more than half of this fund’s assets in Britain and Western Europe markets, it is easy to see why it hasn’t prospered lately.

It is, however, well-diversified among more than 100 stocks, it has an experienced lead manager and its expenses are reasonable.

The Scout International Fund is down 7% from a recent 12-month period to rank at the midway point of the foreign large company growth category. It had had a three-year annualized return of 16% to rank in the lower half of its category. Its 15-year annualized return of 7% placed it in the top 12% of its peers.

“Scout International is a fund for an investor willing to go outside a stock index, though it really is not excessively adventurous or bold in doing so,” said Gregg Wolper, mutual fund analyst with Morningstar Inc. “It has low turnover, which cuts down on trading costs, and no one position is large enough to affect the entire portfolio too much.”

James Moffett, lead manager of the fund since 1993, is willing to go against the grain. He sticks with his choices. Economic trends in determining country weightings are considered, and companies with strong balance sheets and stable long-term growth are favored.

Top stock holdings were recently Canada’s Toronto-Dominion Bank, Japan’s Fanuc Corp., Spain’s Industria de Diseno Textil, Canada’s Enbridge Inc., Finland’s Sampo Oyj and Japan’s Komatsu Ltd.

This “no-load” (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 0.94%.

Short funds bet that market will fall

Question: What is a short fund? How does it operate and are these readily available?

Answer: Short mutual funds and short exchange-traded funds attract greater attention when the stock market is down, since they are an investment bet that the market will fall.

In a strategy often employed by sophisticated hedge funds, they use leverage, derivatives and short positions to maximize their total returns based on the inverse of an index or benchmark.

“Leverage always has risks, and if the price of a shorted stock in the fund goes up instead of down, the value of the fund takes a hit,” said Stacey Schreft, director of investment strategy for the Mutual Fund Store in Overland Park, Kan. “But that’s the risk of shorting.”

A bear-market fund bases its strategy on the stock market doing poorly, while an inverse ETF looks to profit from a decline in whatever index it tracks.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.