Brazilian hedge funds are repositioning portfolios to capitalise on falling domestic interest rates, as escalating trade tensions – triggered by Donald Trump’s tariff announcements – spark fears of a global economic slowdown, according to a report by Bloomberg.
Leading managers such as Legacy Capital and Verde Asset Management are shifting toward local rate-sensitive assets, expressing caution over the international macro backdrop and growing pessimism around global growth prospects.
Legacy Capital, which oversees BRL17bn ($2.9bn) in assets, is building positions to benefit from rate cuts across emerging markets, including Brazil.
In a recent client note, the firm said: “The confirmation of tariffs consolidates a very unfavourable outlook for global economic activity.”
Verde Asset meanwhile, with BRL16bn ($2.7bn) in AUM, boosted its exposure to inflation-linked local bonds, anticipating a decline in real rates, while Ibiuna Investimentos trimmed its positions benefiting from rising local swap rates, signalling a similar shift in conviction.
Following a bruising month for strategies with overseas exposure, many firms are reducing bets on US equities and the dollar. Adam Capital, one of Brazil’s largest macro funds, posted a 4.5% drop in April – the worst since 2022 – on the back of US market exposure.
Ace Capital, Legacy, and Vinland Capital are now shorting the US dollar versus a basket of currencies including the Brazilian real, euro, and Indian rupee, banking on broader dollar weakness amid slowing global growth.
Despite the cautious positioning, returns have been uneven. The IHFA index, which tracks a broad basket of Brazilian hedge funds, was flat in April, underperforming the CDI benchmark rate, which gained 1%.
