Emerging Markets Feature: Boom times in Brazil – Absolute Return, 05 de Março de 2018

Regime change

For some investors, the outcome of the October presidential elections will determine whether they choose to invest in Brazil, according to people who help introduce Brazilian funds to foreign investors. The Brazilian financial sector took comfort recently in the conviction of charismatic leftist Luiz Inácio Lula da Silva on bribery charges, which has effectively barred the former president from running again. The remaining candidates lean toward the center.

Alexander Gorra, a partner and investment strategist at TRUXT Investimentos, says the political turmoil around Rousseff’s impeachment helped inspire the firm to open in June last year. TRUXT, led by former ARX Investmentos executives José Tovar and Bruno Garcia, has grown to manage about $1.9 billion in equity and macro funds as of January.

“Brazil is like a big super tanker,” Gorra says in a phone interview. “It takes a lot of time to start to move, but when it does move it’s kind of hard to change. In our view, that was the big signal that things were going to change.”

Gorra says he has been encouraged by Brazilians “rejecting old populist measures” and calling for a scale back of the social security program, which represents a large chunk of the country’s budget.

“We think the pressure for whoever wins to do the necessary reforms will be there no matter what,” Gorra says. “…I think with that we’ll see the stock market begin to exert its function of being useful for financing and ideally getting back to where we were ten plus years ago.”

He says about Brazilian clients: “Investors are looking for experienced managers that have run money through different market cycles. Brazil is obviously a volatile market, and they look for managers that have been tested in difficult situations in the past.”

But like Appel, Gorra faces challenges gathering American assets even with a favorable election outcome. Because the Brazilian stock market contains just 440 listed companies, it can be difficult for equity investors to find enough short-selling ideas to balance long investments. Foreign investors can also be reluctant to give money to more than one Brazilian manager to avoid overlapping investments.

TRUXT’s long/short equity strategy available to American allocators invests in Brazilian countries of all sizes as well as companies in other Latin American countries. It can also trade interest rates, foreign exchange and commodities. The fund currently leans toward domestic cyclical companies – banks, consumer product companies and other financial service providers like the Brazilian stock exchange – that Gorra says will benefit from the economic recovery.

“People want to know who will be the winners and losers out of these tough recessionary times,” Gorra says. “The competition in different sectors has been shifted around quite a bit.”

Since beginning trading in June, TRUXT’s directional long/short equity fund has gained 26.1% through late February in Brazilian reals, and its macro fund has risen 10.3%. The macro fund managed by the TRUXT team at ARX averaged a return double that of Brazil’s benchmark interest rate at a volatility of 4% since 2005.

According to Gorra, the macro fund has shifted money from fixed income to stock investments and bought reals while betting other Latin American currencies will depreciate. The funds also keep money in cash for after the elections.

“I’ve been living down here for 22 years,” Gorra says. “It’s the most interesting moment in a long time.”