Having historically positioned themselves against local markets, Brazilian hedge funds saw significant gains in November as fiscal concerns drove market turmoil, reports BNN Bloomberg, marking only their third month of outperformance in 2024.

According to the report, the government’s fiscal adjustment plan, presented by President Luiz Inácio Lula da Silva’s administration, disappointed traders, who deemed it insufficient to stabilise public accounts.

Resultingly, the Brazilian real sank to a record low, while medium-term interest rate futures spiked by 150 basis points, reflecting expectations of a steeper tightening cycle that could push the Selic benchmark rate beyond 15%.

Funds managed by Ibiuna Investimentos, Truxt Investimentos, and Verde Asset Management posted monthly returns exceeding 3% by shorting Brazil.

The central bank responded with a full percentage point rate hike and signaled two similar increases ahead, aiming to contain worsening economic expectations.

Policymakers acknowledged that recent fiscal announcements had significantly impacted local markets, the report says.

The IHFA hedge fund index climbed 1.4% in November, lifting year-to-date gains to 5.5%. Meanwhile, the CDI benchmark rate rose 0.8% during the month, with an annual increase of 10.3% in 2024.

Fund-Specific Highlights

Ace Capital FIC FIM: +2.3% (vs. CDI +0.8% in November) Adam Capital Maintained bullish positions in US equities and the dollar, with bearish bets in Europe and Asia. Cited Brazil’s fiscal policies as driving up the country’s neutral interest rate.

Adam Macro II FIC: +3.9% Bahia Asset Management Held positions for higher Brazilian rates and reduced long exposure to the real, while betting on a stronger US dollar against European and Asian currencies.

Bahia AM Marau FIC: +0.6% Genoa Capital Anticipated monetary tightening exceeding 400 basis points, with positions in Brazilian rates and inflation-related instruments.

Genoa Capital Radar FIC FIM: +1.8% Ibiuna Investimentos Criticised Finance Minister Fernando Haddad’s fiscal credibility, citing political interference. Maintained positions benefiting from rising nominal rates and implicit inflation.

Ibiuna Hedge STH FIC: +3% JGP Asset Management Profited from bets on rising rates in Brazil and shorting the real against the dollar.

JGP Strategy FIC: +1.8% Kapitalo Investimentos Increased positions favouring falling interest rates in the UK, Canada, and the US while betting on a weaker Brazilian real.

Kapitalo Kappa FIN: +1% Legacy Capital Trimmed long positions in the US dollar but maintained bullish exposure to US equities due to favourable economic conditions.

Legacy Capital FIC: +1.4% Truxt Investimentos Benefited from European rate receiver positions and domestic bearish trades, achieving its highest monthly return since inception in 2017.

Truxt I Macro FIC FIM: +3.3% Verde Asset Management Held bearish positions in Brazilian equities while maintaining bullish exposure to global stocks and breakeven inflation rates.

Verde FIC FIM: +3.3% Vinland Capital Focused on relative positions in Brazil’s banking sector and exited global equity bets.

Vinland Macro Plus FIC FIM: +1.4%