Goodbye Commodities: Market Looks Back to Domestic Equities; What are managers buying?

The trend reversal on the Stock Exchange is taking shape as investors adapt their portfolios to the new perspectives of the market, which has once again embraced the scenario of proximity to a fall in the SelicThe basic interest rate from Brazil.

May gave a taste of what should be the dynamics of the Stock Exchange in the coming months: while shares exposed to commodities (mainly metallic) had a weaker performance, papers aimed at the local economy were the true champions of the month.

Within the Ibovespa, the Yduqs (YDUQ3) easily outperformed other stocks and consolidated as the index’s biggest gain in May, after jumping more than 70%. already the OK (VOUCH3) was part of the top 5 biggest drops of the month after accumulating losses of almost 12%.

In the expectation that interest rates will start to fall soon, local cyclical assets are entering the market’s radar. Managers and analysts are already preparing their portfolios to receive the change in mood that permeates the stock market.

It is the case of Tenax Capitalwhich has sought to increase exposure to domestic cyclical segments – retailfor example -, whose valuations they were quite wrinkled.

Variable income manager Rodrigo Mello thinks that, at some point, the market will start to leave short-term revisions aside and adopt a more elongated vision profile.

“I believe that the market will stop looking at short-term results and believe that the scenario can start to improve ahead”, he says.

Isabel Lemos, variable income manager at Resource Management Factor, explains that, as the market prices the drop in interest rates, the feeling of risk aversion to local sectors is being reduced. Today, the downside potential for these stocks looks smaller, he says.

What managers are buying

A movement that has been gaining strength on the Stock Exchange is the preference for shares of smaller capitalization companies. Tenax even bought many small capssays Mello.

Mello remembers that the Small Cap Index (SMLL) has shown a performance significantly below the Ibovespa. In May, the scenario changed, with the SMLL soaring by more than 10%, compared to an increase of approximately 4% in the reference index of the Brazilian Stock Exchange.

Lemos, from Fator, defends an exposure aimed at a group of selected stocks, aimed at quality companies, which came out of the last crises (coronavirus pandemic, high interest rate cycle, credit crisis) stronger.

The manager recognizes that local cyclical assets are attractive. Within the Fator Ações fund, there is a position in consumption (sum group [SOMA3] It is Renner stores [LREN3]) and the real estate sector (Directional [DIRR3] It is eztec [EZTC3]), for example. Lemos understands that these companies are the ones that have the most to benefit from the improvement in results and the prospect of falling interest rates.

Also part of the team of optimists when it comes to small cap, Fator sees random (RAPT4) as another paper that has a valuation attractive.

already the black capital opted for a more conservative position from the point of view of actions, putting the thesis of monetary easing on interest rates, and not on the stock exchange.

“Recently, we decided to allocate more resources to the pre-fixed strategy, because we understand that the macro movement will favor this asset class more than the Stock Exchange”, explains Bruno Di Giacomo, the manager’s CIO.

According to him, there is a closing of the interest curve coming both from the unfolding of the fiscal framework and from the reduction in the expectation of long-term inflation, coming from a more benign scenario in the coming months.

“So, you have a double effect of variables coming from fixed rates, while the Exchange will probably have a delay greater for the effects to materialize in the results of the companies”, he adds.

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Commodity exposure

Nero’s CIO doesn’t see falling commodity exposure as a reflection of market skepticism. For Giacomo, it is a choice of sector strategy.

“I think that the great champions are still horses widely considered by the market, but the proportion of allocation in them will be smaller”, he evaluates.

Tenax does not have a constructive view for oil prices. The manager has no position in Petrobras (PETR4), although this is linked more to internal issues, such as uncertainties surrounding the new pricing policy of the state-owned company, its capex (investments) and the future of the dividend policy.

With regard to the reopening of China, which came to fully benefit stocks linked to iron ore at the beginning of the year, the manager prefers to take advantage of the thesis through the ETF MSCI China Consumer Discretionary (CHIC) than by Vale – also with zero position.

Despite this, Tenax keeps an eye on some companies exposed to commodities. In proteins, the brokerage has an allocation in Minerva (BEEF3); in paper and cellulose, Suzano (SUZB3); in oil and gas, Prio (PRIO3); and, in mining and steel, he began to study Usiminas (USIM5).

“It’s a role that has a very big asymmetry”, comments Mello, about the last company. In the manager’s assessment, Usiminas is one of those that most benefit from “any improvement” in the automotive sector. It’s also an asset that has lagged behind in the last two or three years.

Meanwhile, Lemos, from Fator, says that the manager has practically zero exposure to stocks linked to oil and iron ore.