Brazil Fund Sees Assets Surge 10-Fold Thanks to Mom-and-Pop Boom

(Bloomberg) -- Hundreds of miles away from Brazil’s financial heartland, Cesar Paiva has turned into a money magnet for mom-and-pop investors.

The 37-year-old money manager’s Real Investor FIA BDR Nivel I fund has seen a 10-fold increase in assets under management over the past two years, dwarfing the average doubling of assets by his peers, according to data compiled by Bloomberg. Total assets increased to about 1.8 billion reais ($335.7 million) from 180 million reais, while shareholders more than doubled to near 39,000 since the beginning of year.

Based in the southern Brazil city of Londrina, where he was born, Paiva started Real Investor in late 2008 as an investment club that had three only shareholders: Paiva, his father and his mother. Far from Sao Paulo’s Faria Lima Ave. and Rio de Janeiro’s Leblon district, where most of the nation’s top investors are based, he previously worked at a local retail banking branch of Banco Bradesco SA before becoming an independent financial adviser.

“When the investment club was launched, I called some friends and acquaintances, inviting them to join,” Paiva said in a video interview. “My two promises were: To do my best and to basically put all my money in there too.”

Much of the rapid expansion can be traced to a seismic shift in Brazil’s local asset-management industry, as sky-high interest rates tumbled to record lows, prompting investors to move away from savings accounts and government bonds. Online brokers emerged by the handful to help newbie stock investors diversify their holdings, driving net inflows of 216 billion reais into domestic equity funds since the start of 2017, according to Anbima, the capital markets association. In the decade through 2016, net inflows totaled just 6.5 billion reais.

At the same time, Paiva also built up a solid track record. His equity fund posted a 371% return over the past five years, more than three times the benchmark’s performance. Year to date, the fund is down 6%, against a 13% drop for the benchmark.

‘Too cheap to ignore’

Banks, real-estate properties, utilities and iron ore giant Vale SA currently account for the bulk of the fund’s portfolio. State-controlled lender Banco do Brasil SA -- “too cheap to ignore,” Paiva says -- is the main holding, representing almost 10% of the portfolio. Banco do Brasil, which trades at 0.8 times its book value, is cutting costs and has a conservative loan portfolio, he said.

“Big banks have a lot of challenges ahead and fees are under heavy attack from fin-techs,” Paiva said. “But the drop was exaggerated.”

Among real-estate firms, Paiva likes Aliansce Sonae Shopping Centers SA and BR Properties SA, and he favors Cia. de Saneamento do Parana, EDP - Energias do Brasil SA and Neoenergia SA in the utilities sector. Tech names, which benefited the most amid lock-downs, aren’t a big hit for him because of their rich valuations.

About 6% of the fund is allocated in the Brazilian depositary receipts of Warren Buffett’s Berkshire Hathaway Inc.

Paiva now has his eye on how Brazil will tackle its fiscal woes. Concerns over the country’s debt trajectory have held the benchmark Ibovespa index back as global gauges have recouped losses.

“The domestic scenario is usually blurry,” Paiva said. “But that’s the kind of environment where opportunities and distortions end up being more appealing.”

©2020 Bloomberg L.P.