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Brazil’s Top Fund Sticks to Local Retailer Bet Amid Amazon Move

Brazil’s Top Fund Sticks to Local Retailer Bet Amid Amazon Move

(Bloomberg) -- Brazil’s best-performing equity fund is sticking with its bet on the retailer Magazine Luiza SA, saying its well poised to withstand Amazon.com Inc.’s expansion in the country.

“It’s much ado about nothing,” Alaska Asset Management partner Henrique Bredda wrote on his Twitter account. Magazine Luiza is the largest holding in the firm’s flagship Alaska Black Master FIA BDR Nivel I fund, which has topped all peers over the past five years.

Shares of the local retailer sold off this week after Amazon announced it’s bringing its popular Prime membership program to Brazil. Bredda says the reaction was over the top given that so many Brazilians prefer brick-and-mortar stores and shopping on retailers that offer loans and credit cards to help finance purchases, features he says are “extremely necessary.”

“Services such as Amazon Prime make sense for Brazil’s upper class, but this is only a small group of people compared to the large mass of consumers spread throughout the country,” Bredda said in an interview. “We don’t believe that Amazon will be relevant in the domestic market.”

Brazil’s Top Fund Sticks to Local Retailer Bet Amid Amazon Move

Alaska Asset Management made Magazine Luiza one of its biggest holdings in late 2015 as the family-owned appliances and electronics chain started a successfully transition into an e-commerce operation with physical stores. The stock has rallied more than 3,000% over the past five years as online sales grew to account for 41% of its revenue.

Bredda cautioned investors not to repeat the mistake some made two years ago, when Amazon announced an electronics and appliances marketplace as part of its expansion in Brazil, prompting Magazine Luiza shares to tumble 14% in October 2017. Since then, the stock has soared over 300%.

Alaska’s flagship fund had a total return of 384% in the past five years, the best performance among 159 equity funds in Brazil, according to data compiled by Bloomberg. The ranking doesn’t take fees into account.

Brazil’s Top Fund Sticks to Local Retailer Bet Amid Amazon Move

Bredda said that Magazine Luiza looks shielded even if Amazon succeeds in Brazil, adding that the retailer’s online and physical stores will give it an advantage over local rivals.

“Amazon’s Brazilian operation should be a niche one, unable to annoy competitors such as Magazine Luiza and MercadoLibre,” he said.

--With assistance from Felipe Marques and Fabiola Moura.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Brendan Walsh, Julia Leite

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