Despite the 6% drop in the Ibovespa index in the first half of the year, investment funds dedicated to stocks known in market jargon as “long and short” managed to perform much better than the market average.
Funds in the category of asset managers such as Ibiuna Investimentos, XP Asset and Apex Capital accumulated positive returns between 6% and 10% in the first half of the year, with strategies in stocks that are independent of the performance of the Stock Exchange as a whole.
The “long and short” funds have the strategy of including two types of shares at the same time: those that managers understand are being traded at very low prices, and those that have the potential for appreciation after being bought by the fund, which are called positions bought or long. Shorts, on the other hand, are those with a high price and tend to depreciate, and therefore must be sold.
With this combination of positions in the funds’ portfolios, managers earn money from the difference in performance obtained between the stocks that they expect to rise in price, in relation to the fall of those that should lose value, regardless of the direction of the Exchange. in general.
In an illustrative example, if a certain stock in which the manager is long rises by 5%, and a second stock in which the manager is short falls by 5%, the return obtained from the operation will be 10%, even if the stock market sinks or jumps in the same range.
Even if the two stocks selected rise or fall, the manager will still obtain a positive result if the stock on the long end has a higher appreciation, or a smaller fall, in relation to the one on the short end.
And, in addition to stock pairs, it is also common for managers to operate in the segment with models that use broad indices, such as the Ibovespa and the S&P 500, and with long and short groups, but which do not have sectoral dynamics related to each other.
Bought on Petrobras, sold on oil
Despite the drop in the Ibovespa in the first half of the year, one of the funds in the “long and short” category with the best profitability from January to June, the Ibiuna Long Short recorded an accumulated gain of 10.24% in the period.
According to André Lion, partner, investment director and stock strategy manager at Ibiuna, a position that brought positive results for the fund’s portfolio in the first half was purchased in Petrobras shares, betting on the rise of shares, and, at the same time, , sold in contracts referenced to oil prices on the international market and the Ibovespa index.
He says he considers Petrobras the oil company with the cheapest shares among all global peers, and keeps the shares in the portfolio purchased for the second semester, even with the increase in electoral risk in view of the proximity of the dispute for the Planalto.
“Despite being a state-owned company, we really like the company, which has generated a lot of cash and is paying extraordinary dividends.”
In any case, if the share falls due to political noise, or due to a sharp correction in the price of oil, the short positions (which gain with the fall in asset prices) in the Ibovespa index and in the price of oil tend to counterbalance this movement.
“The fund’s intention is to be neutral in relation to the market. In other words, if the stock market goes up or down, theoretically, it is not influenced by this dynamic”, says Lion, adding that the fund manager’s fund always proposes to invest in pairs or triples of shares, in which a certain position within the portfolio acts as a kind of counterweight to the other bet.
The Ibiuna manager also cites the financial, car rental, health and technology sectors among those that added value to the fund’s portfolio in the first half of the year.
He points out, however, that he prefers not to identify with greater precision those who were on the long or short end, nor to go into specific names, especially in the group of stocks that he expects to have a negative performance.
Lion says that it is quite common for companies that learn that they are in the “short” group of a given fund to adopt an averse attitude towards the manager, avoiding responding to contacts and any attempt to approach.
Bet on efficiency gains with Eletrobras privatization
The XP Long Short fund, from XP Asset Management, recorded a positive return of 8.3% from January to June.
According to Marcos Peixoto, manager of XP Asset, Eletrobras shares are among the positions that most contributed to the fund’s return in the first half of the year. The company’s shares rose driven by investor expectations regarding the efficiency gains brought about by the privatization process.
“Eletrobras is a position that we have carried for more than two years and, even though it has already generated a good result, we still like it and the company remains the largest exposure within the portfolio.”
The portfolio purchased from the XP manager fund also includes names such as the meatpacking company Minerva, “less dependent on domestic dynamics”, BB, “a bank that should deliver the best result for 2022 in the sector”, and BB Seguridade, which after crossing a more difficult period with the increase in claims due to the pandemic, should see results improve from now on, points out Peixoto.
At the short end, instead of working with pairs for the respective long positions, the XP manager adopts a strategy to maintain a bet on the fall of the Ibovespa, in a model within the “long and short” segment known as the long portfolio against the index .
“In this way, we bet that our stock selection will perform better than the index”, says Peixoto, adding that the chosen model seeks to bring greater synergy to the management team’s analysis — the bets on the long end of the “long and short” of XP Asset, although with different weights, are the same that make up the portfolios of the most traditional equity funds of the house, of the “long only” type, in which there are only positions that managers expect to appreciate in the future .
Bet on the fall of the US stock market
In the case of the “long and short” fund Apex Equity Hedge, of the manager Apex Capital, which rose 6.21% in the first half, the founding partner and responsible for the management of investment funds, Fábio Spinola, says that one of the bets that brought relevant gains for the portfolio was sold on the S&P 500, on the American Stock Exchange. Pressured by the process of raising interest rates by the Federal Reserve (Fed, central bank of the United States), the stock index collapsed about 20% in the first half, the biggest drop for the period since 1970.
According to Spinola, shares from companies in the financial technology and e-commerce sectors of the local stock exchange also made up the group sold in the fund’s portfolio, in a scenario of rising interest rates on a global scale that compromised the profitability of these companies’ operations.
The long end was formed by securities from the commodity sectors (oil and steel and mining), food, health and large banks, in a “long and short” fund model in which the manager works with two large groups, long and short. , but that do not necessarily have any relationship with each other in terms of sectoral dynamics, other than the expectation that one of them will perform better than the other.
“We are always looking for companies that are going to have greater growth in profits, for the long end, against companies that are going to have a lower growth, or a decrease, in the short end”, says the Apex manager.
He adds that, after the positive performance of the portfolio and the adjustment that took place in the markets, he chose to reduce his positions at the end of May, pocketing the gains obtained, with the prospect of setting up new positions when he has greater clarity on the scenario ahead.
For Spinola, a greater dose of caution is needed at this time, given the deterioration of the fiscal framework in Brazil, and the continuity of interest rates in developed markets, with possible negative revisions to the results of companies with shares traded on global stock exchanges.
Learn more about funds that bet on the rise and fall of stocks
Background: Ibiuna Long Short STLS FIC FIM
Profitability in the 1st semester: 10.24%
Minimum investment: BRL 1,000
Target Audience: general investors
Administration fee: 2% per year
Performance fee: 20% on the return that exceeds the CDI
Background: XP Long Short FIC FIM
Profitability in the 1st semester: 8.28%
Minimum investment: BRL 10 thousand
Target Audience: general investors
Administration fee: 2% per year
Performance fee: 20% on the return that exceeds the CDI
Background: Apex Equity Hedge FIM
Profitability in the 1st semester: 6.21%
Minimum investment: BRL 500
Target Audience: general investors
Administration fee: 2% per year
Performance fee: 20% on the return that exceeds the CDI
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