September brought a rare victory for Brazilian hedge funds as their cautious stance on domestic assets paid off, with funds including Legacy Capital and Ace Capital posting their strongest returns of the year, according to a report by Bloomberg.
The wins, which were driven largely by bets on rising local interest rates and falling yields abroad, came as many investors expressed doubts that the government’s new fiscal policies would effectively stabilise Brazil’s growing public debt in the long term.
Brazil’s medium- and long-term swap rates have risen by at least 40 basis points since September, fuelled by fiscal concerns that rattled the markets. This helped the country’s hedge fund index outperform its benchmark for only the third time this year.
Ibiuna Investimentos, managing $3.2bn (BRL18bn), emphasised that Brazil is ill-positioned to benefit from potential Federal Reserve rate cuts or China’s economic stimulus. The firm cited concerns about “waves of risk aversion” stemming from Brazil’s fiscal uncertainties. Legacy Capital echoed similar worries, stating that weaknesses in local economic policies are becoming “increasingly evident.”
In September, the IHFA index, which tracks Brazilian hedge funds, gained 1.1%, bringing its year-to-date return to 3.4%. This outperformed the benchmark CDI rate, which rose by 0.8% in September and is up 8.3% for the year.
