Bloomberg Línea — After a significant rise in long-term interest rates in the United States, which led to a repricing of the scenario and portfolio, Verde Asset, led by Luis Stuhlberger, decided to reduce risk in the Brazilian real and the Brazilian stock market while increasing exposure to interest rates.
“The fundamental scenario for Brazil has not changed, but global conditions are imposing stronger constraints,” the firm wrote in a letter to investors regarding the performance of the Verde FIC FIM fund in September.
The flagship multimarket fund of the asset manager now has reduced exposure to equities, after reducing the portfolio in Brazil and increasing hedging in the global market.
They also transformed a portion of their long position in implied inflation in Brazil into a short position in real interest rates, given the higher rates. “Looking ahead, it seems to us that current price levels (near or above 5% across the entire U.S. nominal yield curve, or above 2.50% in real interest rates) already incorporate much of a scenario that is simultaneously optimistic about growth and pessimistic about other factors. We see several small cracks in this picture,” Verde wrote.
As a result, the asset manager also chose to maintain a short position in real interest rates in the United States. “Violent periods of rising U.S. interest rates tend to be quite harmful to emerging markets, and September followed this pattern.”
Performance in September saw gains of 0.85% for the Verde Fund, driven by the position in implied inflation in Brazil, global equity hedges, oil investments, and currency positions. However, the performance was below the 0.97% variation of the CDI (Certificado de Depósito Interbancário), a widely used benchmark in Brazil.
The main losses came from gold, the local stock market, and positions in interest rates in developed markets. Year-to-date in 2023, the multimarket fund has risen by 8.17%, compared to a 9.93% variation in the benchmark.”
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