U.S. Hedge Funds Took Profits Out of Brazil in the First Quarter

  • Reduced positions in the country’s stocks by $800 million
  • Itau Unibanco remains the most popular holding among funds

It looks like a smart move in retrospect.

U.S. hedge funds reduced equity holdings tied to Brazil by about a net total of $800 million from the start of the year to end of March, according to data compiled by Bloomberg. The profit taking came after a 69 percent surge in Brazil’s benchmark stock index last year.

The pullback from Brazil seemed well timed Thursday, as the Ibovespa gauge plunged 16 percent in dollar terms amid a rout in the country’s assets as a political crisis enveloped President Michel Temer and threatened to derail his push to shore up government finances. Oil producer Petroleo Brasileiro SA and lender Banco do Brasil SA plunged as much as 20 percent.

At the end of the first quarter, hedge funds had a total exposure through American depositary receipts and exchange-traded funds about $2.59 billion, 13F filings show. The data give a snapshot of the funds’ holdings of stocks at a point in time. They don’t include positions the funds aren’t required to report, don’t show holdings in overseas markets or derivatives and don’t include currency and debt exposure.

Arrowstreet Capital held the largest position at the end of March with about $467 million in Brazilian stocks, including $155 million of Itau Unibanco Holding SA shares. The holdings in the bank represented a more than 50 percent reduction from the previous quarter.

Itau Unibanco was the most popular company among the funds, also representing the largest position for Millennium Management, Oaktree Capital Management and D.E. Shaw & Co. In total, funds owned over $440 million of the company’s stock.

Bridgewater Associates, the fund founded by billionaire Ray Dalio, had the second-biggest holdings in Brazil. Dalio’s fund chose to invest through the iShares MSCI Brazil Capped ETF. Bridgewater’s filing shows that they added almost 600,000 shares of the ETF in the first quarter.

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