Top Hedge Fund in Brazil Bolsters Local Stocks Bet on Rebound

One of the top performing hedge funds in Brazil has boosted its bet on local stocks, in a sign of growing confidence in the country’s post-pandemic rebound.

The CSHG Verde FIC FIM fund that returned an average 24% a year over the past two decades is wagering Latin America’s largest economy will start moving on from the virus downturn. The fund cut back on foreign holdings and now has over 25% of its portfolio allocated to Brazilian equities, one of the highest percentages over the past eight years, said Pedro Sales, a partner at Verde Asset Management who’s responsible for handling local stock investments.

The vaccination rollout and the easing of measures aimed at curbing the virus’s advance should pave the way for better growth prospects, according to Sales.

“As social distancing gets out of the way, you’ll have a very strong recovery,” he told Bloomberg News.

Top Hedge Fund in Brazil Bolsters Local Stocks Bet on Rebound

Verde is part of an increasing number of asset managers and banks getting more optimistic about Brazil’s growth. The nation was hit hard by the Covid-19 pandemic, with the second highest death toll in the world, and has struggled with vaccination -- only 9.6% of the population is fully inoculated so far versus about 38% in the U.S., according to Bloomberg data.

Even so, recent economic data have topped estimates and firms like UBS Group AG and Credit Suisse Group AG have increased forecasts for growth as states started lifting travel restrictions with new cases slowly receding from their peak.

Read More: Brazil Investors Look Past Virus and Buy Stocks: Market Espresso

“Returning to normalcy will not necessarily be a straight-line process, and we could still see some bumps ahead,” Sales said, adding that a third wave of Covid-19 infections is the biggest risk that could derail the optimism.

Verde is also concerned about government spending. In its monthly letters to clients, the asset manager has been vocal in flagging fiscal woes as the country spent more money than almost any other developing nation to cushion the virus hit. Brazil’s fiscal equilibrium will still require a lot of adjustments going forward, Sales said.

Verde Asset Management was created by fund manager Luis Stuhlberger in 2015, with the backing of Credit Suisse. The firm grew into the country’s biggest independent asset manager, overseeing about 54 billion reais ($10 billion). Its flagship fund, which was originally established by Stuhlberger when he was at brokerage Hedging Griffo -- later acquired by the Swiss bank -- has had a return of over 19,000% in local currency terms since its inception in 1997.

Top Hedge Fund in Brazil Bolsters Local Stocks Bet on Rebound

Other investors are also lining up to profit from a rebound in Brazil stocks, which are down slightly for the year in dollar terms, compared with an 11% advance for the S&P 500 Index. Earlier this month, the biggest U.S.-listed ETF focused on Brazilian stocks received the second-largest weekly inflow since the beginning of the pandemic, according to data compiled by Bloomberg. In addition, global investors have poured 8 billion reais into local stocks this month through May 18.

Verde’s main bets include power company Equatorial Energia SA, cosmetics maker Natura & Co., fuel distributor BR Distribuidora, health-care firms Intermedica and Hapvida, pulp maker Suzano SA and paper-packaging producer Klabin SA.

The firm recently added Lojas Renner SA, an apparel retailer that raised about 4 billion reais last month that may be used for potential acquisitions. Verde also participated in the initial public offering of GetNinjas SA, a Brazilian digital platform that connects professionals from psychologists to personal trainers with potential clients.

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