Stewardship spies opportunities in LatAm

F&C's Sophie Horsfall has taken two new positions in Brazilian company Natura Cosmeticos and Mexican Banco Compartamos.

According to Horsfall, both companies present a rare opportunity for investment in Latin America where ethical investment is usually restricted due to limited disclosure provided by companies on their social and environmental conduct.

"Most emerging market companies breach our screens in one way or another but Natura and Compartamos have succeeded in complimenting leading social and environmental policies with exceptional reporting in accordance with international standards of best practise," said Horsfall.

Natura Cosmeticos sells cosmetics, fragrances and toiletries based on natural products sourced from the Brazilian rainforest, operating through a direct sales model similar to Avon and the famous Avon Lady. Although currently unknown in the West, the company has started to market its brand in Europe and recently opened a store in Paris.

"The company was founded on the vision of enhancing the welfare of society. Through adopting the highest standards for employee welfare the company has developed a loyal employee base and improved productivity. In addition, the company's reputation for managing its environmental impacts responsibly has resulted in Natura being the first cosmetics company to be granted access to Brazil's biodiversity heritage. It also has a strict policy against animal testing.

"We currently hold 50 basis points in Natura in Stewardship International having bought in at BRL 23.44(£5.77) from where we see a potential upside to our price target of 47 per cent," said Horsfall.

More recently, Horsfall bought a stake in Banco Compartamos, Mexico's largest micro-lender which provides short term loans to very poor segments of the population, mainly women.

"Micro finance is a very positive social theme for ethical funds as it offers people the opportunity to become self sufficient by giving them loans to invest in agriculture or in the development of small scale businesses. The firm was originally a not-for-profit organisation but has since been converted into a finance company. This means they are no longer reliant on donors to raise money, creating a more sustainable business model. The firm also makes very high rates of return, annual rates on loans are about 82 per cent, but loans are only made over very short periods of time and paid back on a weekly basis.

"There are very few financials we can invest in since most banks and other finance houses will lend to or invest in things that breach our screens. Compartamos was expensive on a price to book basis but we believe it still has some way to go," concluded Horsfall.

The bank has recently announced plans to open new offices across the country to extend its area of coverage. Horsfall bought on the IPO last week at MXN 40 and it is now trading at MXN 52, an increase of 30 per cent.