Handelsbanken Brasilien Tema (A1 EUR)

Fund performance was negative in Q2 and the SEK strengthened significantly against the Brazilian real. The period was marked by high volatility, driven by the political agenda and other macroeconomic factors. The fiscal policy is considered to be too expansive, which had a negative impact on the currency, while the fixed income market is currently pricing in rate hikes from the central bank. As a result, the Brazilian equity market continued to see outflows and high volatility that led to negative returns.

We believe that the market has overreacted and do not expect the central bank to hike rates, but rather that interest rates will remain stable, with the possibility of rate cuts in the future. This assessment is based on the fact that the real rates are high at the same time as the inflation expectations remain stable. Going forward we continue to expect a rebound of the Brazilian consumer and thereby good opportunities in consumer equities, which posted weak performance at the outset of the year. As a result of this, the education company Anima was one of the companies that had the most negative impact on the fund.

WEG was one of the strongest contributors to returns. The company produces a number of different electrical and electronic products, of which many benefit from the structural growth that is arising from the electrification trend. In addition, the expansion of data centers in the US has further increased the demand for WEG’s products. The fund added two new companies, one of which was Direcional within the demographics and growing population theme. The company develops homes for low income groups, which is currently a rapidly growing segment of the Brazilian economy. Brazil has a large deficit of housing, with many of those who do not own their home being forced to rent at exorbitant prices or live in slums under harsh conditions. The government has responded to this by expanding the housing program, which not only increases the incentives for developing housing within the program, but also improves the purchasing power of low income groups. The other addition to the fund within the environment and renewable energy theme is Serena, one of the country’s leading producers of renewable energy. The majority of the energy is produced using wind power, although the company also has a portion of solar and hydropower in the installed capacities. In addition to the planned expansion in Brazil over the coming years, the company has also expanded its operations internationally. The company currently has operations in the US and is expected to continue to develop this market. The fund has a thematic investment process with Demographics, Productivity, Environment and Lifestyles as the main themes.