Top fund bets everything on Brazil as election concerns sink market

One of Brazil’s best performing funds has an all-in bet at a time when most investors are dumping the country’s assets at an unprecedented pace.Alaska Investimentos Ltda, owned by billionaire Luiz Alves Paes de Barros, has deployed all of its capital in Brazil – going long equities, long the real currency and is navigating the volatility without any hedges. The fund’s reasoning for ignoring October elections, rising US interest rates and a global trade war is simple: commodities.“We’re in total risk-on position,” partner Henrique Bredda said in an interview in Sao Paulo on August 29. “Don’t look at the economy to try and predict Brazil stocks returns, it’s all about commodities. And we think commodities will go up a lot.”Alaska’s strategy is the opposite of what a lot of investors are doing ahead of Brazil’s most uncertain presidential election in decades. With the first round of voting just a month away, none of the candidates seen as market-friendly are gaining traction with voters, trailing more extremist options on the left and the right.As a result, investors have been pulling out of Brazil-focused exchange traded funds at the fastest pace among country-based ETFs in the world in the past month. The real is down more than 10% – a fraction of what investors say it could fall if the October vote ushers in an administration less concerned about fixing Brazil’s fiscal accounts. The rout has gained momentum amid the broad emerging market sell-off led by Turkey and Argentina.Alaska’s bullishness hasn’t worked out in the short-term. While the fund has trounced most peers in the past five years, it’s down 21% over the last month, and is posting a negative return for 2018. Their semi-annual letter to clients opens with a Mike Tyson quote, and goes on for pages of historical examples about sticking to the plans when things go awry. They cite First Eagle Investment Mgmt fund manager Jean-Marie Eveillard as another example of someone who was eventually vindicated after sticking with a contrarian call.“All we can see in Brazil is bearishness,” Bredda said. “It’s getting worse and we think it will still get worse, but it doesn’t matter. People start to get crazy close to the election.”But the volatility – which is at a record for stocks – doesn’t keep them awake at night, nor does fear investors will flee the fund. While Alaska has some 30,000 retail investors, most of the 6bn reais ($1.4bn) under management belongs to the partners, according to Bredda. Their flagship fund, which focuses on Brazilian stocks, has returned 333% over the past three years, beating all peers, according to data compiled by Bloomberg.