Report from Chile

Report from Chile
David R. Kotok
January 18, 2012


There are no shortcuts to reach the Alto Puelo Lodge on the Rio Puelo in Chile. You can travel from the Argentine side through Buenos Aires and Bariloche or from the Chilean side through Santiago and Puerto Montt. Either way, the journey is long, but well worth it.

Due to the volcanic activity in Chile interfering with Argentine air travel, this trip was routed from the Chilean side. That translated into four different flights: from Philadelphia to Miami, Miami to Santiago, Santiago to Puerto Montt, and the last leg, a charter flight across the Andes Mountains from Puerto Montt to Segundo Corral, a small village with an air strip located near the lodge.

This is my fifteenth visit to the Patagonian region. Arriving at the Rio Puelo, I drink in the marvelous scenery and wonder at the natural beauty that has come to be so near and dear to my heart.

Pristine water and majestic mountains frame the Alto Puelo Lodge, which at maximum capacity accommodates eight guests. The only lodge in the area, it is a family-owned and -operated business. You can find additional information via the following links:; e-mail

With the sun shining brightly over the clear water, we decided to take a boat out and trek to the head of the lake. There we encountered a large cloud of midges swarming and performing their summer ritual. Beautiful, hungry rainbow trout were standing on their tails, gulping the midges in midair. What a sight to behold.

In order to fish a midge hatch, you must pick a fly so small it is nearly impossible to see when it is on the water. Because these are wild Patagonian trout, you need a long leader and you need to cast at a fair distance, approximately 50 to 60 feet. The entire fly is 1/8”-1/4” long, including the eye, the shank of the hook, and the hook itself. In order to get through the eye, you need a very fine leader. In this case, I used a 7x tippet. It is extremely thin and hard to see with these old eyes, let alone to tie a strong enough knot.

After several casts, we were able to land the midge imitation in the midst of the cloud. A friendly rainbow trout, gulping his way through a feast of a thousand insects, happened to bite on the midge. With a small tug to set the hook, the fun begins. The water here is deep and clear, and with a fish like this one has to be extremely careful to not “horse” the fish in. When the fish wants to run, you must concede. With the very thin leader, any pressure can break it off. After twenty minutes of many runs and much activity, we were able to get the rainbow trout into the net, take the fly out of his lip, thank him for the exercise, and release him back into the water. These experiences on the Rio Puelo entirely vindicate my 36-hour journey.

The real powerhouse on the Rio Puelo is the brown trout. These large demons of the deep turquoise waters are the trophy fish sought by all fly fishermen.
I asked Eric, our guide and owner of the Alto Puelo Lodge, which fly to use. We discussed flies at length. For some reason, as I looked around on this warm, sunny, clear day, I suggested, “If I were in the west, I would use a grasshopper. Eric, have you seen any grasshoppers?” Eric replied, “Yes! Actually, that is a good idea! I had not thought about that.”

We tied on a hopper, our backs against some rock ledges on Lago Puelo, the headwaters of the Rio Puelo. On the third cast, a trout came to take a look. He did not like what he saw. Fifty yards down, against another rocky ledge, a second trout came and took it fast. Unfortunately, this old fly fisherman missed the hook set.

The next rock ledge had a notch in the water line. It was a dark, covered area underneath the ledge overhang. These wild fish are very alert to anything not consistent to their habitat. It was a perfect place for a wily, large brown to wait for its next meal. Three false casts and then I was able to flip the grasshopper right into the dark shadow in the notch between the rocks. It landed in the cleft that had taken four million years to form, and within seconds a brown took that fly and gulped it down. A fast hook set, and off he went. The first run out towards the deep part of the lake took me to the backing on the line. A monster, he was hungry and strong from swimming in currents, and ready for battle. The results are in the photo here: After a wonderful, invigorating fight, this fish is released to swim again in Lago Puelo — until my next visit.

This remote Chilean valley is a fly fisherman’s dream. There is such diversity of fishing here, from calm to windy lakes, to streams and deep rivers with flies rising and hatches. In the midst of this unspoiled landscape sits the Alto Puelo Lodge, a wonderful, welcoming retreat where one can delve into a book or research paper.

Let’s turn to the economics in Chile. Chile is a booming place, a South American success story. Evidence of their success can be seen in their economic growth and lower unemployment rate. When you look at Chile, no matter how you examine the data for flaws, you find a continually improving account.

The Chilean central bank has expressed concern over external events, which is why interest rates were surprisingly reduced during its last meeting. It even explained that its concern originates from the crises in Europe, not from a domestic, anti-inflation central bank policy.

We like Chile; we like it as a destination, we like it as an investment, and we like it even more with each return visit. I have asked my colleague Bill Witherell, Cumberland’s Chief Global Economist, to summarize our investment position. In our Emerging Markets Model, the overall weight is 4.65%, which is much higher than the 1.52% weight in the Emerging Markets benchmark. In the International model the weight is 2.025%, and in Global MAC it is 2.0%. These compare with the 0.5% weight of Chile in the Vanguard world ex-US ETF. It is important to note that Chile is not included in the EAFE benchmark index. Chile’s stock market underperformed in 2011, -20% compared with -18.2% for EEM. As of January 12, 2012, Chile is up 3.9% compared with 4.2% for EEM.

David R. Kotok, Chairman and Chief Investment Officer

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