Widening the net

Why is a Brazilian insurance company the latest holding in the fund?

Just as was the case with our last investment, an American industrial company, neither had much to do with our views on America, or Brazil. When it comes to insurance companies, some can be great, but in the past many have been bad. It is also unrelated to the most recent headlines many might have read about Brazil - that the U.S. just decided to impose 50% tariffs.

The boring truth is that this was the result of comparing many insurance companies from around the world over a long time. We use an approach similar to that for banks; seek out the characteristics that improve long-term dividend growth - and avoid the opposite. We look for a buffer above regulated capital, a record of managing underwriting and investing through difficult times and the ability to grow and distribute cash flow. In Porto Seguro, we believe we have found a best-in-class regional leader, and at too low a price.

Porto Seguro started life as a small property and casualty underwriter based out of São Paulo. In the 1970s it was acquired by an ambitious entrepreneur, who concentrated on auto insurance and built close relationships with local brokers. After several decades of careful growth, the company became the number one.

Overall insurance penetration remains low Latin America, and with growing GDP, increasing car ownership and more extreme weather, the need for protection is rising fast. While that sounds positive, it is no guarantee that insurers will do well. In fact the opposite usually happens, as the temptation to maintain market share results in taking on the wrong customers at the wrong time.

It is therefore promising to see that Porto Seguro have decided to grow slowly, at a low single digit rate in written auto premiums. But is that low growth the reason why its valuation is only 11 times this year’s earnings per share with a 4.4% dividend yield¹?

That would be strange. Profits are set to grow strongly². Several competitors have been consolidated into larger groups, supporting rational conditions. More importantly, auto insurance net income has fallen from 70%+ of the total group, to now below 40%².

This is thanks to success in other lines of business: dental and health insurance, specific banking products and homeowner services. The result is a quite special combination – a financial company that can increase its growth, improve its return on equity and grow its dividends, all while managing risk.

As some of our top contributors from the past few years demonstrate, the universe of companies with strong cash returns to shareholders is expanding. More choice and a wider net should lead to bigger fish. On our estimates, Porto Seguro will become the holding with the highest underlying dividend growth over the coming five years².

1 Source: Bloomberg, Aug. 2025

2 Source: River Global

 

KEY RISKS

The value of investments and any income generated may go down as well as up in response to general market conditions and the performance of the assets held, and is not guaranteed. An investor may not get back the amount originally invested.

Past performance is not a reliable guide to future results.

Changes in exchange rates may have an adverse effect on the value, price or income of investments.

There is no guarantee that the Fund will meet its stated objectives.

There is a risk that any company providing services such as safe keeping of assets or acting as counterparty to derivatives may become insolvent, which may cause losses to the Fund.

 

For professional investors only.

Capital at risk.

 

For more information about the fund and how the fund is positioned, please visit our fund centre below:

For professional investors only.

This document has been prepared and issued by River Global Investors LLP (“RGI”). RGI is authorised and regulated in the United Kingdom by the Financial Conduct Authority (Firm Reference No. 453087) and is registered in England (Company No. OC317647), with its registered office at 30 Coleman Street, London EC2R 5AL. It  does not constitute an investment recommendation or advice and should not be used as the basis for any investment decision. Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article.

The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a reliable guide to future results. Changes in exchange rates may have an adverse effect on the value, price or income of investments.

Please note that individual securities named in this article may be held by the Portfolio Manager or persons closely associated with them and/or other members of the Investment Team personally for their own accounts. The interests of clients are protected by operation of a conflicts of interest policy and associated systems and controls which prevent personal dealing in situations which would lead to any detriment to a client.

For further information on the RGI Global Income and Growth Fund  including specific risks and risk profiles please refer to the Prospectus and the Key Investor Information Document (KIID) (available on river.global).