LatinFinance - May/June 2015 - 23

dynamics we can understand. We want to
have access to management, and to be able
to talk to them."
A similar philosophy is followed by
the FC FIA BDR fund managed by IP
Participações. The fund returned 21.1% over
the past year and 48.5% over the past three,
although despite the strong performance
the fund closely missed reaching the top
five of the scorecard.
"From the beginning the fund has sought
solid and rentable companies that are
managed by very competent people and
whose interests are aligned with ours," says
Pedro Cezar de Andrade, a partner at IP
Capital Partners. "We also want the stocks
to have attractive valuations. It sounds
simple and even obvious, but in practice it is
hard to find this kind of stock."
In fact, IP Capital Partners has had to look
outside of Brazil to find the right stocks to
meet the demands of the fund. Around 40%
of the portfolio is made up of international
companies, either in stocks listed abroad or
those registered locally through Brazilian
Depositary Receipts, BDRs, issued in the
São Paulo stock exchange. In 2014, four
out of the five biggest contributors to the
performance of the fund - Berkshire
Hathaway, Wells Fargo, Oracle and Liberty
Global - were based outside Brazil.
The only native stock in the group was
Itaú, which in fact was the best performer of
all. In Andrade's view, some sectors remain
expensive in Brazil despite the sluggish
economy: a result of investors flocking
to good quality stocks as they become
spooked on others.
BTG Pactual has a smaller exposure to
non-Brazilian stocks, at around 10%. But
it also focuses on a thorough analysis of
individual stocks, rather than tracking
indexes or betting on particular sectors
of the economy. As a result, according
to Zitelmann, the fund has managed to
identify investment opportunities even in

segments where the general performance
of companies has been lackluster at best.
The fund looks for companies that
have a growth dynamic of their own, a
characteristic that makes them less exposed
to the economic malaise that has hit the
country, he says. One example is Lojas
Renner, a retailer, which has managed
to skip the consumption hangover of the
past few years. Zitelmann pointed out

PEDRO CEZAR DE ANDRADE
IP CAPITAL PARTNERS

"WE ALSO WANT THE
STOCKS TO HAVE
ATTRACTIVE VALUATIONS. IT SOUNDS
SIMPLE AND EVEN
OBVIOUS, BUT IN
PRACTICE IT IS HARD
TO FIND THIS KIND OF
STOCK"
that the company has a focused strategy,
implemented by a reliable management
team, which has enabled it to increase
market share. As a result, sales on a same
store basis, a common benchmark for the
retail sector, went up by 17% in the fourth
quarter of 2014.
"Renner has been growing significantly
faster than the retail sector as a whole
thanks to good execution of its strategies
and high quality management," Zitelmann
says. The fund also seeks opportunities
in areas in an early stage of development
in Brazil and whose penetration in the

economy looks set to swell in the near
future. For instance, BB Seguridade, an
insurer that makes use of its access to the
banking network of Banco do Brasil to grow
in Brazil's fast growing insurance market.
Or Cielo, a manager of credit cards, which
has benefited from the popularization of
plastic money as a means of payment.
Liquidity rules
By April, both equity funds had significant
allocations to cash-like investments, a
decision that is hardly a surprise in times
of economic uncertainty. But Andrade
argues that the cash allocation is a stockpicking decision, rather than a defensive
one. Finding good stocks is a laborious job
and the fund wants to have the capability to
jump at the right opportunities when they
are spotted in the market.
"We invest on what we know," he says.
"We can certainly miss some opportunities
because we do not know the stocks very
well. But we are also enhancing our
knowledge of companies on a daily basis to
take advantage of ever more opportunities.
"Our focus is to invest in equities. But not
at any price."
Zitelmann, for his part, says that one of
the difficulties for the management team
is to stick to the philosophy, even when
it does not allow for taking advantage of
apparently booming areas. But he notes
that caution and a focus on quality have
their rewards over a longer horizon. The
fund avoided diving into the oil and gas
sector, for example - even when it was the
place to be after huge hydrocarbon reserves
were discovered in the 2000s. The decision
looks wise today, although for a long time
some could have said it was a missed
opportunity. "It was difficult to ignore the
hype and all the talk about creation of value
and so forth," Zitelmann says. "It was a
challenge, but we had to keep faith on our
strategy, as it pays in the long run." LF

High returns
LatinFinance 2015 Brazilian Multimercado Investor Scorecard
Fund manager

Fund

Average assets ($m) 12
months to 15 April 2015

1-year return (%)

J Safra

Galileo

1,881.50

34.3

81.4

Verde

CSHG Verde

1,321.53

24

59.9

Itaú Dtvm

Investcenter Verde

157.23

24

59.7

Spx

Raptor Feeder

465.87

17.7

60.8

Patria Investimentos

Patria Credit

119.76

16.3

58.7

3-year return (%)

Source: Economatica. Data to April 15, 2015

May/June 2015 - L ATINFINA NCE.COM 23
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