Cartica's Barger says firm looking for new investments in Brazil

NEW YORK - Cartica Management LLC is looking for investment opportunities among Brazilian companies, aiming to profit from the volatility in the run-up to the 2018 presidential election, founder and Chief Executive Teresa Barger said on Thursday.

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Barger expects volatility before the October 2018 vote to create good buying opportunities for the Washington-based activist hedge fund, which focuses on emerging markets.

“There is a cyclical recovery going on from recession…all sorts of companies, including consumer goods and industrial goods are going to benefit,” she said during the Reuters Global Investment 2018 Outlook Summit.

Reforms recently approved by President Michel Temer´s government, such as labor law changes, may reduce the cost of capital for firms in Brazil, and revenues may rise as the economy recovers from its harshest recession in a century, Barger added.

One of Cartica´s largest holdings is a 4.4 percent stake in railroad company Rumo SA RAIL3.SA. The hedge fund bought into a 2.6 billion reais ($794 million) share offering earlier this year.

Barger said the initial investment, in 2016, sought a reduced exposure to Brazil´s economy, as the traffic in railroads operated by Rumo depends on grain exports.

Part of the new investments in Brazil will be funded by trimming appreciating, well-performing positions in India, as the firm seeks to maintain its current level of exposure within that market.

“We’re going to be forced to rotate out of India because we’ve done well there,” she said. “We’re looking at a wide variety of Brazilian companies now.”

Overall, Barger said she is bullish on emerging markets going into the new year.

“When I look forward, it looks to me like a technicolor Hollywood movie with a happy ending. It looks – with some dramatic tension – it looks pretty good. I would say that the anchor for emerging markets is low volatility in growth and inflation. The star of the show is the lowering of the cost of capital in EMs (emerging markets) – and that has legs for years to come.”

Cartica, which manages $3.2 billion in assets, is up 24 percent in 2017 through June, according to the Wall Street Journal. Over the last seven years, the fund had annualized return of 9.3 percent, the WSJ said.

The iShares MSCI Emerging Markets Index EEM.P is up 33.7 percent this year through Thursday.

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