Mutual Funds Get Crushed by Brazil

  • Templeton’s Hasenstab says short-term volatility will pass
  • ‘I have never seen anything like this,’ says another manager

Turmoil in Brazil is slamming U.S. mutual funds.

Funds with large holdings of Brazilian assets tumbled yesterday as allegations against the country’s president sparked a selloff.

“I have never seen anything like this,” said William Pruett, manager of the $599 million Fidelity Latin America Fund, which slid 12 percent on May 18. “It’s incredible that such a large emerging market could move so much in one day.” More than 60 percent of his fund is comprised of Brazilian stocks.

Brazil’s Ibovespa had the biggest plunge since October 2008 on May 18 on news that President Michel Temer approved hush money payments to a lawmaker who orchestrated the impeachment of his predecessor. While that benchmark stock index rebounded 5 percent Friday, it’s still leading losses among the world’s biggest equity markets this week on concern the crisis could derail an agenda designed to pull Latin America’s largest economy out of its deepest recession on record.

The $1.3 billion Pimco RAE Fundamental Plus EMG Fund fell 4.3 percent Thursday, the biggest drop among U.S. emerging market stock funds, according to data compiled by Bloomberg. The fund had a 20 percent allocation to Brazil as of April 30, compared with 7.4 percent in the MSCI Emerging Market Index, according to Pimco’s website. The fund also invests in fixed income securities.

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