Hedge Funds That Won Big on Brazil Vote Bet on More Gains Barbara Nascimento, Vinícius Andrade and Leda Alvim Leia em português.Brazilian hedge-fund managers who outperformed by positioning for a strong showing by right-wing candidate Flávio Bolsonaro in the first round of the presidential election are fine-tuning derivatives bets that soared on Monday’s historic rally in local markets. At Ace Capital, Fabricio Taschetto pared stock options that ballooned into much larger exposures as assets jumped, while Vista Capital’s João Landau plans to do a similar move ahead of a runoff later this month. Felipe Guerra, co-founder and chief investment officer of Legacy Capital, said the fund sees gains across local assets extending after a blowout rally on Monday, only “marginally” trimming some of its positions. The trio, who unlike many of their peers went into Sunday’s vote with conviction that President Luiz Inácio Lula da Silva would trail Bolsonaro, sees room for more gains if the right-wing challenger prevails in the Oct. 25 vote. Polls had signaled a tight race, with a broad view that Lula would come in ahead — a scenario dreaded by markets eager for a more fiscally prudent administration that can cut spending and allow for lower interest rates in Brazil. Bolsonaro ultimately led Lula by two percentage points, setting off a sharp rally on Monday. The currency surged some 5%, stocks jumped the most since 2020 while swap rates plunged by more than 100 basis points as investors recalculated for lower borrowing costs ahead.
“The odds of Flávio becoming president stand at 90%, and the market has to price that in,” said Guerra, whose Alpha fund rose 9.2% after fees Monday, the best daily performance of the fund’s eight-year history. Landau’s Vista Multiestrategia, Guerra’s Legacy Capital Alpha and Taschetto’s Ace Capital funds were among the day’s best performers in a group of almost 200 hedge funds tracked by Bloomberg. Vista profited from bullish bets on Brazilian stocks, including call options on XP Inc. and Cosan SA, while derivatives tied to the largest exchange-traded fund tracking local equities propelled returns at Ace. Legacy went into the vote positioned for gains across asset classes. Many fund managers stayed away from outright bets ahead of a race widely seen as a coin toss. While Bolsonaro — the son of former President Jair Bolsonaro — had gained momentum in the weeks before the vote, conviction across the industry was low, said Guilherme Zaczac, who oversees allocations to external fund managers at UBS Global Wealth Management in Sao Paulo. A March selloff triggered by the war in Iran had left “everyone pretty battered,” he said. Taschetto, who helped found Ace, said piling into call options on the i Shares MSCI Brazil ET F was “probably the most asymmetric trade” he has ever put on. It was also the biggest contributor to the fund’s performance on Monday, when it rose 6.8%.
“We’ve since reduced our positions, including the options exposure, but remain positioned for further gains in Brazilian assets,” he said. “We’ll reassess on the eve of the runoff.”Brazilian hedge funds tracked by Bloomberg gained an average 1.7% on Monday, compared to a 0.1% advance for the benchmark interbank rate, CDI, and a 7.7% gain for the Ibovespa stock index. The list includes actively managed funds with at least 200 million reais ($40 million) in assets, a minimum of 100 investors and a track record of at least six months. A basket of local hedge funds tracked by the country’s capital markets association rose 2.1% on Monday, its best day in more than six years. There are still reasons to remain skeptical as the country heads to the runoff in less than three weeks. While much of the options action in the Brazil ET F has been around shifting profitable bets to higher levels, there are some signs that investors are hedging in case of a Lula recovery in the polls. There were large purchases of puts and put spreads early this week that expire before...
Source: Bloomberg Markets · Summarized by HeadlinesBriefing