Brazil's hedge funds break through
 |
| Levi (left) and Alperowitch: focus is primarily on small caps, which are often mispriced |
Since its inception in 1993, Fama Investimentos has focused solely on Brazilian equities, primarily small-cap and mid-cap companies. A value investor, the firm relies entirely on fundamental analysis and places a lot of emphasis on equity research.
The firm runs both long only and absolute return funds for local and international investors. The offshore Brazil fund was originally established in October 2000 but it was only open to a couple of private investors for the first five years. Then last February it was opened to all accounts.
The fund is broken into three classes: valor class; equity value class and equity market neutral class. All are designed for international investors. The first two classes invest in Brazilian small-cap and mid-cap stocks, the difference being that the valor class is not hedged against devaluations of the Brazilian real, while the equity value class is. The equity market neutral class involves buying shares and shorting Bovespa index futures contracts, so neutralizing the Brazilian stock market risk. The fund does not leverage under any circumstances.
Fabio Alperowitch, who co-founded Fama with Mauricio Levi, says: “In Brazil there are lots of opportunities in small caps as companies tend to be mispriced.” He cites the example of fashion retailer Guararapes. Fama bought the stock in 1997 for R$2.90. At the time the market was bearish because of the company’s weak management and poor corporate governance. The company, though, turned its fortunes around and is now trading at R$56. “We are now divesting a small portion [of our shares],” says Alperowitch, “though our target price is R$100.”
Given that Fama focuses primarily on small caps, it’s relatively difficult for it to short stocks. “There are not many stocks available to short,” says Alperowitch, who adds that weak liquidity can also be an issue.
As well as the offshore fund, Fama runs two long only and two absolute return funds locally.
