In contrast to U.S. automakers, Brazil’s car manufacturers are thriving. In the U.S., we tend to think of the auto business as a mature industry that will grow only as fast as demographics allow, and domestically that may be true. But overseas is a completely different story. U.S. investors may be missing the boat by not figuring out how to selectively get international exposure into their portfolios.
Using relative strength in a systematic way allows the asset classes with the strongest performance to move to the forefront. I could not have told you anything about the Brazilian auto industry before reading this article, but, as an example, it turns out that our Systematic RS International portfolio currently has more than 30% exposure to Latin America. It’s not because we made a brilliant economic forecast that Latin America would bounce back faster than Europe—it’s simply because the markets in Latin America have been relatively stronger than those in Europe. By using relative strength to tactically allocate to the strongest markets, we often end up in the right place at the right time.
