Brazil Hedge Funds Flock to Gold as Global Turmoil Rocks Markets
Brazil Hedge Funds Flock to Gold as Global Turmoil Rocks Markets
(Bloomberg) -- Brazil’s best-known independent hedge funds had to adjust their portfolios after Russia’s invasion of Ukraine rattled financial markets even as local assets are spared from most of the rout.
Legacy Capital said its flagship fund was planning on boosting a position in gold, as sanctions imposed by the U.S. and other countries on Russia are expected to have significant effects on asset allocation in the longer run. SPX Capital scooped up precious metals and Kapitalo Investimentos closed its bet against gold.
“Central banks will likely boost their purchases of real assets and, if possible, store them under their own custody, creating additional demand for gold,” said Ylan Adler, partner and head of commodities at SPX. Gold is up more than 7% this year to $1,961 per ounce, after reaching a record $2,050.76 earlier this month.
Brazilian markets have so far held up amid the turmoil. Since Russian President Vladimir Putin signed decrees recognizing Ukraine separatist republics, leading the U.S. and Europe to impose the first round of sanctions, Latin American currencies have fared better than developing market peers. The real is up 10% this year, the best performing among emerging market currencies. The Ibovespa stock gauge is up 16% in dollar terms in 2022, out-pacing most major indexes.
Ibiuna Investimentos, the asset manager created in 2010 by former central bank directors Mario Toros and Rodrigo Azevedo, said it made a tactical bet on the Brazilian real, which strengthened about 3% last month. The currency has been boosted by a surge in raw materials and higher interest rates at home. Policy makers, who have already delivered one of the most aggressive monetary tightening cycles in the world, will likely have to raise the benchmark Selic rate further to get consumer prices under control.
Brazil Inflation, Key Rate Forecasts Surge After Fuel Hike
“Inflation was already high ahead of the invasion, and it only got worse,” Luis Stuhlberger’s Verde Asset Management wrote in a note to clients. “At the same time, growth tends to suffer with tighter financial conditions due to the war, especially in Europe.”
Here’s what some of the main Brazil hedge funds said in their February monthly letters:
Adam Capital
The war in Ukraine is stoking inflation globally and central bankers are likely to adopt a more hawkish stance. Fund has long positions in commodities, Petrobras and Vale shares.
- Adam Macro II FIC fund +0.39%; benchmark CDI rate +0.75%
- Link to letter
Bahia Asset Management
The rally in commodities and foreign inflows have been cushioning the impact of the Ukraine war on Brazilian assets. Fund gained with short positions in U.S. stocks and long positions in health-care stocks. Brazil’s key rate should reach 12.75% at the end of the hiking cycle.
- Bahia AM Marau FIC fund +1.30%
- Link to letter
Ibiuna Investimentos
Greater resilience of local assets probably explained by factors including Brazil’s status as exporter of agricultural commodities, more intense inflows into emerging markets and its more advanced stage in the interest rate hiking process. Fund built a “tactical long position” on Brazil’s real.
- Ibiuna Hedge STH FIC fund +2.05%
- Link to letter
Kapitalo Investimentos
The aftermath of the Ukraine war is likely to boost Brazil’s external accounts, lead to a significant worsening of inflation and add an extra incentive to fiscal populism in the Latin American country. Fund scrapped short positions in gold, reduced long positions in global equities.
- Kapitalo Kappa FIN fund -0.17%
- Link to letter
Legacy Capital
The fund “significantly” trimmed its combined position of being short on the U.S. dollar against the Brazilian real while also betting on declines in the Ibovespa index. It has short positions in global stocks, long positions in gold and oil and is betting on higher rates globally.
- Legacy Capital FIC fund +4.09%
- Link to letter
SPX Capital
Firm built a long position in precious metals and scooped up defense stocks in Europe. The Ukraine war was the most relevant global geopolitical event since Sept. 11 2001 and central banks’ fight to tame inflation will be even tougher, it said.
- SPX Nimitz Feeder FIC fund +3.05%
- Link to letter
Verde Asset Management
The fund expects a global backdrop of even higher inflation and lower economic growth. It has gotten more cautious on its allocations in equities, especially in international markets.
- Verde FIC FIM +1.32%
- Link to letter
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