Quest Buys Brazil Consumer-Driven Stocks to Beat Small Cap Index

Quest Investimentos Ltd, whose small (SMLLBV) caps fund beat 99 percent of peers in the past year, is buying stocks that benefit from a rebound in local consumer demand, including Cia. Brasileira de Distribuicao Pao de Acucar, Klabin SA and Kroton Educacional SA, said Walter Maciel Neto, a managing-partner of the Sao Paulo asset manager.

Quest’s strategy is based on forecasts that wages will continue growing as the Brazilian economy expands 4.5 percent in 2013 and 3.5 percent on average through 2020, when the country’s per capita income will be at $18,000 for an estimated population of 215 million, Maciel Neto said.

Brazil’s consumer market will become so big that all global industries will be selling here,” said Maciel Neto, who helps manage 1.3 billion reais ($641 million) in assets, with partners Paulo Pereira Miguel and former Communications Minister Luiz Carlos Mendonca de Barros. “We are going through a change in habits of Brazilian consumers, who will demand more health, education, housing and insurance services.”

Quest Small Caps FIC FIA (QUESMCP) rose 56 percent in the 12 months through Oct. 5, compared with an average gain of 21 percent for its peers, according to data compiled by Bloomberg. The BM&FBovespa Small Cap index increased 32 percent in the period, while the benchmark Bovespa (IBOV) index gained 12 percent.

Brazil’s economic growth probably will slow to 1.6 percent this year, according to a central bank survey of about 100 economists published yesterday.

Other stocks that Quest has bought include Cosan SA Industria e Comercio and Even Construtora e Incorporadora SA, according to Maciel Neto.

The asset manager is underweight on basic materials companies and on defensive domestic stocks from utilities to non-durable consumer-goods, he said.

To contact the reporters on this story: Marisa Castellani in Sao Paulo at Mcastellani7@bloomberg.net; Adriana Arai in Sao Paulo at Aarai1@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net

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