Top Bond Manager in Emerging Markets Still Bullish on Brazil

  • Brazil accounts for 29% of Galloway’s top-performing fund
  • BlackRock has warned that Brazil may be ‘overplayed’

Nathan Shor, who manages the world’s best emerging-market bond fund, is betting the rally in Brazilian debt is far from over.

His Galloway Emerging Markets High Yield Bond Fund has returned 19 percent this year, the most among 148 funds with similar mandates. Brazil accounts for 29 percent of the fund’s assets, a threefold increase from a year earlier and greater than its 4.4 percent weighting in the Bloomberg Barclays Emerging Markets Hard Currency Aggregate Index.

Shor says state-controlled companies like Petrobras and Banco do Brasil SA will continue to deliver big gains, even as the likes of BlackRock Inc. contend it may be time to pare holdings amid concern President Michel Temer will struggle to revive Brazil’s economy. On Sept. 5, Sergio Trigo Paz, the head of emerging-market debt at BlackRock, said he may reduce his overweight position because the rally is “overplayed.”

“We still see great value in Brazil,” said Shor, who helps oversee $300 million of emerging-market assets. “Brazil’s state-owned companies are still paying a high spread over the rest of emerging markets.”

The 45-year-old native of Peru founded Galloway in 2003 in Sao Paulo. Six years later, he co-created the bonds fund with partner Ulisses de Oliveira. It has returned 64 percent since its inception in 2009, according to Galloway.

While Shor remains bullish on Brazil, he said investors need to be more discriminating. Galloway’s fund has been a big beneficiary of the surge in the state oil producer’s $3 billion of bonds due in 2026, which have soared 15 percent since they were issued in May. Brazilian corporate bonds have returned 23 percent this year, almost twice as much as the average for emerging markets, according to data compiled by Bloomberg.

“We made money on the back of the deleveraging of Petrobras and expect to continue doing so by being even more selective from now on,” he said. “As Brazil still has a long way to go, investors have to carefully monitor political support for the much-needed economic reforms.”

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