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June 17, 2024
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Hedge Funds

Brazil Hedge Funds Face Reality Check After Best Month Since March 2022

(Bloomberg) — Brazilian hedge fund managers began the year increasing bullish bets on local assets, banking on an extension of the blockbuster rally in global markets that earned them their best month since early 2022 in December. 

Funds like Adam Capital and Absolute Investimentos have positions that benefit from a stronger Brazilian currency, while asset managers such as Bahia Asset and Ibiuna Investimentos are betting on lower rates and higher equities at home.

While the optimism paid off in December — an index of local hedge funds known as IHFA posted the biggest monthly gain since March 2022, well above the benchmark CDI rate — it’s since become a drag. Emerging markets have fallen in the first sessions of the year amid a strengthening dollar and a rise in yields as traders reprice the chances the Federal Reserve delivers an interest rate cut in March. 

“Markets are perhaps pricing in excessive rate cuts, and a certain exuberance in risk assets,” Verde Asset Management, which holds $5.1 billion (25 billion reais) in assets under management, said in a note to investors.

See what some of the country’s main independent fund managers said in their December investor letters:

Absolute Investimentos

Absolute keeps betting on falling interest rates in Brazil, Mexico and Chile. The fund said it maintains a high exposure to bullish bets on US stocks.

  • Absolute Vertex FIC +3.2% in December; CDI reference rate +0.9%

Adam Capital

Adam Capital has bets that gain from rising swap rates in Brazil and higher yields in the US. The fund also has a position that profits from lower domestic real rates, and is optimistic on US stocks.

  • Adam Macro II FIC +1.4%
  • Link to the letter

Bahia Asset Management

Bahia said it holds short positions in European currencies and the US dollar against the Mexican peso and the real.

  • Bahia AM Marau FIC +1.9%
  • Link to the letter

Genoa Capital

The fund cut positions in falling nominal rates and kept bullish wagers on the real against the dollar.

  • Genoa Capital Radar FIC FIM +1.6%
  • Link to the letter

Ibiuna Investimentos

Ibiuna has bets that profit from the fall of nominal and real interest rates in Brazil.

  • Ibiuna Hedge STH FIC +4.5%
  • Link to the letter

JGP Asset Management

Funds’ main gains came from bets on lower rates in the US, a bullish bet on the real against the dollar and long positions in individual Brazilian equities, JGP said.

  • JGP Strategy FIC +0.8%
  • Link to the letter

Kapitalo Investimentos

The fund cut bets that benefit from falling rates in Brazil and Mexico, and also pared positions that would profit from higher rates in Japan. It raised bullish bets on Brazilian real and on domestic stocks, while closing bearish wagers on global stocks it didn’t specify.

  • Kapitalo Kappa FIN +1.7%
  • Link to the letter

Legacy Capital 

Legacy Capital is betting on lower real and nominal interest rates in Brazil. It also maintains positions that gain from lower rates in Mexico, and more tactical ones in the US and Europe. It is shorting the Brazilian real against the Mexican peso.

  • Legacy Capital FIC +2.1%
  • Link to the letter

Verde Asset Management

Verde marginally reduced its exposure to shares in Brazil, and is again wagering on global equities as some of its hedges matured. The fund increased its position on the Mexican peso, with funding in the Euro and the Chinese currency.

  • Verde FIC FIM +3.3%
  • Link to the letter

Vinland Capital

Vinland continues to have a position that gains from lower short-term rates in Brazil. The fund also holds wagers in steeper rates curves in Europe and Czech Republic. It also holds a net long position on equities offshore, which it didn’t specify.

  • Vinland Macro Plus FIC FIM +1.9%

©2024 Bloomberg L.P.

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