SAO PAULO (Reuters) – Credit Suisse Group AG’s asset management division in Brazil is adding local government inflation-indexed bonds with maturities between three and five years after they suffered an “exaggerated” correction, a senior money manager said on Wednesday.
A sharp decline in demand for inflation notes, known in Brazil as NTN-Bs, that drove yields for the three- and five-year maturities above 6 percent currently, from about 3 percent at the beginning of the year, makes the securities “interesting” in terms of return, Luis Stuhlberger, chief investment officer at Credit Suisse Hedging Griffo, said at an event in Sao Paulo.
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“I spent part of the year short NTN-Bs but with yields for this portion of the curve at these levels, it’s hard not to look at them. There’s a lot of yield being offered,” said Stuhlberger, who manages Fundo Verde, the largest Brazilian hedge fund. “The paper is dealing with exaggerated pessimism but it now looks interesting.”
CSHG, which oversees 46 billion reais ($19.4 billion) in assets, stepped up purchases of NTN-Bs recently, partly because the outlook for domestic equities looks uncertain. The Verde fund has about 9 percent of assets under management in local equities, he added. That is slightly above a record-low 8 percent earlier this year, but far below the one-third allocation in previous years.
The yield on the NTN-B bond due in 2018 fell to 6.21 percent on Wednesday from 6.22 percent on Tuesday. The yield on the NTN-B 2020 bond slipped 0.03 percentage point to 6.45 percent, following Stuhlberger’s comments, traders said.
His comments reflected the selective approach Stuhlberger and his team have applied to investing in Brazil. For years, CSHG posted annual returns above 30 percent, beating global and local rivals by a large margin.
The unit’s performance this year was “good, given the current circumstances,” he said. Financial markets in Brazil in 2013 were rattled by speculation over the withdrawal of monetary stimulus in the United States, heightening policy risk in Brazil as the government’s fiscal position eroded, and a mix of accelerating inflation and feeble economic growth in Latin America’s largest economy.
CURRENCY, ELECTION
Although he stopped short of offering a forecast for the Brazilian currency, the real, next year, Stuhlberger said a decline to about 2.60 reais to the dollar from about 2.37 reais currently could help ease the funding of the nation’s growing current account deficit. That level does not assume a deterioration of the government’s budget numbers, he added.
He reiterated the view that investors could do better by investing their money in shares of good-quality Brazilian companies that trade between two and three times book value.
Stuhlberger, like fellow executives at Credit Suisse’s investment-banking unit in the country, is not concerned over the impact that Brazil’s presidential election could have on asset prices.
In recent months, influential investors such as Arminio Fraga, a former central bank president who is now CIO at G ¡vea Investimentos Ltda, have warned that Brazil might face turbulent times during the election. G ¡vea is majority owned by JPMorgan Chase & Co and has private equity, asset and wealth management units.
“A money manager has to avoid being labeled as optimistic or pessimistic – he has to avoid labels,” Stuhlberger added. “We are looking for investment opportunities, always making sure that we protect our investors’ investment.”
($1 = 2.37 Brazilian reais)
(Reporting by Guillermo Parra-Bernal; Editing by Jeffrey Benkoe and Phil Berlowitz)