Fundo Verde shed 1.25 percent in February, on top of a 0.06 percent
in January, which were its first back-to-back monthly declines since
mid-2011, according to a letter to investors. The year-to-date 1.31
percent loss at Verde compares with a return of 1.63 percent in
Brazil's benchmark CDI interbank interest rate, the letter said.
February's loss stemmed from the fund's exposure to the Brazilian
currency, the real, and to fixed-income investments, the letter
said. Verde, led by renowned Brazilian money manager Luis
Stuhlberger, oversees more than 20 billion reais ($8.5 billion) in
In the letter, Stuhlberger and his team said the real's 2.9 percent
gain in February followed a central bank strategy to ease demand for
foreign currency and raise borrowing costs to head off inflation,
making returns in the country more attractive than in other emerging
The situation, however, may not prevail for long as investment and
portfolio inflows into Brazil lose steam, the letter suggested.
So far this month, the real is down 0.1 percent.
"This juggling act between fundamentals and market timing is a
classical dilemma in asset management, and I already went through
this thing many times in my long career," Stuhlberger said. "We
continue to believe in the thesis of a devaluation of the real."
The biggest argument behind Verde's bet against the real lies in its
questioning of the sustainability of Brazil's public finances, the
letter said. In the short run, however, concern about the issue
eased following a pledge by President Dilma Rousseff's
administration to slash 44 billion reais in spending and deliver a
primary budget surplus equivalent to 1.9 percent of gross domestic
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Rousseff's budget spending practices are undergoing close scrutiny
from investors after she promised to rein in public spending to
avoid a downgrade by credit ratings agency Standard & Poor's. The
primary surplus is a measure of the government's ability to generate
cash that will be used to pay down debt.
Shrinking primary surpluses have widened Brazil's overall budget
shortfall, which includes all expenses including debt-servicing, to
a three-year high of 3.28 percent of GDP. In 2012, the deficit was
2.48 percent of GDP.
Stuhlberger is the chief investment officer of Credit Suisse Hedging
Griffo, the Swiss bank's asset management division in Brazil.
($1 = 2.35 Brazilian reais)
(Reporting by Guillermo Parra-Bernal;
editing by Paul Simao)
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