See What Brazil’s Top Stock Picker Is Betting on Now

Last year was rough for Brazilian stock pickers. Except Jose Zitelmann.

BTG Pactual Absoluto Master FI Acoes, the $3 billion fund that Zitelmann manages, posted the best return with the lowest volatility last year out of 19 local peers that focus on Brazilian equities, according to data compiled by Bloomberg. The Absoluto fund gained 16 percent in 2014, while eight others in the group lost money and the benchmark Ibovespa index fell 2.9 percent.

Zitelmann said he beat other Brazilian fund managers by digging deep into each company’s business model and management style to find those that perform well even when an industry or economy falters. When he finds one he likes, he bets big. The top five stocks make up as much as 60 percent of his portfolio and he holds them for an average of 18 to 24 months.

“Investing in stocks is investing in people,” Zitelmann, 39, who oversees equity management as a partner at Grupo BTG Pactual, said in a Feb. 2 interview at the bank’s headquarters in Sao Paulo. “The companies we look for -- the champions -- are those that are well managed, can attract and retain hard-working talent and that have great knowledge of the business and clear long-term goals.”

Zitelmann’s strategy can appear contradictory. He doesn’t like the Brazilian retail sector, but one of his favorite stocks is clothing-store chain Lojas Renner SA, which gained 33 percent in the past 12 months. He says banks are risky, yet he’s also betting on lender Itau Unibanco Holding SA. Rounding out his top five picks are processed-food maker BRF SA, insurance company BB Seguridade Participacoes SA and the controlling shareholder of brewer Ambev SA.

Petrobras Scandal

Itau has climbed 31 percent in the past year, while BRF rose 58 percent. BB Seguridade is up 38 percent and Ambev increased 12 percent. The Ibovespa gained 6.8 percent over the same period.

Well-managed companies are able to perform better than their industries or the economy as they grab market share from competitors, like Renner has been doing, or access a part of the market that wasn’t very explored before, which is the case for BB Seguridade with its monopoly to sell insurance for the clients of its controlling shareholder Banco do Brasil SA, Zitelmann said.

He steers clear of industries subject to government intervention, such as utilities and Petroleo Brasileiro SA, the state-run oil company whose shares plunged 41 percent last year amid accusations of a kickback scheme that led to the resignation of the company’s chief executive officer yesterday.

Petrobras, as the oil producer is known, fell 1.5 percent to 9.87 reais at 5:05 p.m. in Sao Paulo.

College Stocks

Absoluto also reduced its stake in for-profit college operators late last year after then-incoming Finance Minister Joaquim Levy signaled he would cut public spending. Brazil’s Education Ministry surprised markets and triggered a plunge in college stocks when in late December it published new rules limiting access to student loans and altering payment schedules.

Absoluto held about 29 million shares of Kroton Educacional SA as of the end of October, the latest public filings available. Zitelmann declined to comment on the fund’s current stake. Kroton’s press office declined to comment on the loan changes in an e-mailed response to questions.

Zitelmann, who leads a team of 12 people at BTG, describes himself as obsessive, rigorous, fair and passionate about the job. It’s those qualities, he said, that helped him succeed since starting at BTG Pactual in 1998, when he was a business management student at Fundacao Getulio Vargas in Sao Paulo.

Growth Outlook

“The approach of BTG Pactual is very hands-on,” Zitelmann said.

Still, with economic growth forecasts falling and inflation expectations rising, 2015 is set to be another tricky year for stock pickers. Economists in a central bank survey released Feb. 2 cut their GDP growth forecasts for a fifth straight week to just 0.03 percent in 2015. Inflation is expected to top 7 percent.

The 2013 Brazil stock champion, the Squadra Master Long Biased FI Acoes fund at Squadra Investimentos, posted the 10th-best return in 2014 with a 4.6 percent gain.

“Obviously, things are getting harder in the Brazilian stock market, but the challenge is interesting, too,” Zitelmann said. “Our universe of possible choices in the Brazilian market, according to our investment philosophy, is only about 30 stocks.”

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