The Compass portfolio holds 25% of its capital in Latin America: 17% in a broad Latin American fund (ILF, which tracks the 40 largest companies across Brazil, Mexico, Chile, and other major economies) and 8% in an Argentina-specific fund (ARGT). On a weekend when the rest of the market is focused on Iran and rising oil prices, it is worth stepping back and explaining why a quarter of our most conviction-heavy portfolio sits in a region most investors still associate with instability.
The thesis comes from Charles Gave, a French economist and investor who has spent fifty years studying what happens when countries change direction. His observation is deceptively simple: when a country stops running terrible economic policy and starts running merely average policy, the returns are enormous. Not because the country becomes perfect, but because markets price in catastrophe, and the removal of catastrophe is itself a massive positive surprise. Gave calls this the structural rate decline thesis. When a country's government stops printing money recklessly, stops running enormous budget deficits, and starts respecting property rights, interest rates begin a long, slow decline. And when interest rates decline from crisis levels (say, 15% or 20%) down to normal levels (say, 5% or 6%), every asset in that country rises in value. Bonds rally because their prices move opposite to rates. Stocks rally because companies can borrow more cheaply. Real estate rallies because mortgages become affordable. The entire economy re-prices upward.
This is exactly what is happening across Latin America right now, and Argentina is the most dramatic example. When Javier Milei took office in December 2023, inflation was running at 211% per year. The budget was deeply in deficit. Poverty was around 40%. Milei, who explicitly draws his economic philosophy from Friedrich Hayek (an Austrian economist who argued that government intervention destroys the information embedded in market prices), implemented what Gave describes as classical supply-side reform: slashing government spending, eliminating thousands of regulations, and refusing to print money to cover the shortfall. The pattern that followed is one Gave has seen before. In the first six months, poverty spiked above 50% and unemployment rose. The media declared the experiment a failure. Then, between months seven and twenty-four, the economy began recovering. Inflation dropped from 211% to around 31%. The government ran its first budget surplus in fourteen years. Private sector employment grew by 450,000 jobs. Unemployment fell to 5.4%. The pattern is identical to what happened in Britain under Margaret Thatcher in the early 1980s, in the United States under Ronald Reagan, and in Canada under Jean Chretien in the 1990s. Gave sees Milei as the beginning of what he calls a liberal-conservative revolution across the continent, comparable to the Reagan-Thatcher wave that reshaped the developed world forty years ago.
But Argentina alone does not make a continental thesis. What makes the Gave framework particularly compelling right now is the structural support system that exists across the region. Louis-Vincent Gave, Charles's son and co-founder of Gavekal Research, laid this out in a May 2026 interview. He identified three forces that make Latin America different from previous emerging market booms. First, real interest rates across the region are extraordinarily high. Brazil currently offers around 6.5% real yield on inflation-indexed bonds (that means 6.5% above whatever inflation turns out to be, a guaranteed return on purchasing power). In Gave's framework, this gives central banks a long runway to cut rates by 200 to 300 basis points (a basis point is one-hundredth of a percent) per year for the next three to four years. Last year, Latin American bonds returned roughly 30% as this rate-cutting cycle began. If the cycle continues, there is much more to come.
Second, and less well understood, is the pension fund structural bid. Chile, Mexico, Colombia, and Peru collectively manage around $1.7 trillion in compulsory private pension systems. Every month, by law, workers contribute a percentage of their salary into these funds, and the fund managers must deploy that capital. This creates a permanent, mechanical domestic buyer for Latin American stocks and bonds that did not exist a generation ago. The significance is subtle but powerful: in the past, Latin American markets were dominated by foreign investors in London and New York. When one country had a crisis, those foreign fund managers would sell everything across the region to raise cash, causing contagion. Now, the marginal buyer is local. A Brazilian pension fund does not sell Brazilian stocks because Argentina is having a bad week. This structural change makes the entire region more resilient to the kind of panics that historically destroyed returns for international investors.
Third, Louis-Vincent Gave points to what he calls the Monroe Doctrine backstop. The United States, for geopolitical reasons, will not allow Latin American countries to collapse and fall into China's orbit. When Argentina was running out of dollars, the US handed the country $20 billion in emergency support, twice, something that would have been unthinkable a decade ago. The fear in Washington is straightforward: if Latin American governments default on their debts, Chinese state-owned companies acquire the assets (mines, ports, energy infrastructure) at fire-sale prices. The US has decided that preventing this outcome is a strategic priority. The practical effect for investors is that the traditional "default risk" of Latin American sovereign debt has been quietly replaced by something much more manageable: US inflation risk. The US will print dollars to backstop Latin America before it lets China buy the continent.
None of this is without risk. The biggest question mark is Brazil's October 2026 presidential election. If the current left-leaning government is replaced by a market-friendly administration, Gave's framework suggests a massive capital flow into Brazilian equities as pension fund members mechanically shift their allocations from conservative bond plans to equity-heavy plans. If the left retains power, the thesis does not break, but it stalls. Argentina's recovery, while impressive in the numbers, still faces fragile currency confidence and a poverty rate around 30%. And external shocks (a global recession, a US-China trade war escalation, or sustained high energy prices from the Middle East) could delay the rate-cutting cycle that underpins the entire trade.
The Compass holds Latin America because the Gave framework says this is what the early innings of a multi-year structural opportunity looks like: terrible recent history, improving governance, high real rates with room to fall, and a domestic institutional buyer that makes the trade stickier than previous cycles. It is not a sure bet. But as Louis-Vincent Gave puts it, he looks for the easy bets and avoids the hard ones. A region with $1.7 trillion in pension capital, 6.5% real yields, and a generational political shift toward free markets is, in his assessment, one of the easier bets available today.