Luis Stuhlberger’s Verde FIC FIM management (top hedge fund in Brazil) report for the month ended August 31, 2016. Translated from Portuguese using Google Translate.
Verde made gains in its three major components: the fixed income, new surprise fruit on current inflation; to share positions in both global as part of Brazil; and also in the book of currencies, mainly in short positions in the Singapore dollar and the Chinese Renminbi.
The saga of impeachment seems to have come to an end. The war of reforms, necessary but not sufficient for the growth of Brazil, is still at the beginning. The first battle of the renegotiation of state debts, brought worrying signs that the new government gives ground at the first sign of difficulty. The next battles, especially Social Security, tend to be much tougher. The markets seem to reflect a view that (i) there is no structural fiscal problem, (ii) the return of growth will be as strong and fast as was the slowdown (in which country in the world was like after the crisis?), And ( iii) followed small tax losses do not charge price in the medium term. Our disagreement with these points has kept us on the sidelines of the recent euphoria.
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Summer in the Northern Hemisphere historically is a period of calm in the markets. This year, however, this lull is reaching epic proportions: the volatility of virtually all asset classes is at the lowest levels in decades. An example is the S & P 500, the main index of US stocks, which on the first day of September completed 39 consecutive days without moving more than 1%. This sequence is so rare that happened only once in the last twenty years or only five times in the last thirty years.
But why this observation is relevant? The combination of very low interest with low volatility (and falling) is a powerful stimulant to increased market risk levels. This has benefited countries with high interest rates (such as Brazil) and has also made the global stock markets rise. It is important to remember that most market participants use volatility as a synonym for risk. And therefore less volatile represent less risk, which allows larger and more aggressive positions. This is the current global context: a lull “eternal while it lasts” that is making asset prices rise without much hindrance. We are concerned about this environment and our bias is to have less risk than most. Any increase in volatility should force a withdrawal positions and offer interesting opportunities.
Verde FIC FIM – Breakdown – Fund Results
Multimarket strategy flagship launched in 1997, is one of the largest and oldest Brazilian hedge funds. It operates in the Brazilian and international stock market, fixed income and currencies under the management of Luis Stuhlberger.
Fund for the general public, subject to the minimum values of initial application, permanence and constant movement in the prospectus.