Small Caps Thrash Brazil Index

Recent IPOs from Brazilian companies with small and medium-sized market caps are giving investors better returns than the Ibovespa by significant margins. The time period under consideration is short, and high beta Brazil has been whacked around by negative global trends. But the small-cap outperformance trend is backed by a belief among some market participants that companies with niche business lines serving the domestic economy are poised for strong growth in the coming year. “Some of these IPOs were priced well below the range, which is what you have to do with a small deal,” says Will Landers, portfolio manager at BlackRock, whose $8.2bn in LatAm-dedicated funds includes up to 35% exposure to mid and small caps. “You have to leave a little upside,” adds the investor, who also manages a $42m LatAm small cap fund. Among outperforming IPOs are Cetip, which through February 19 outperforms the Ibovespa by 16% since pricing late October, according to data from Dealogic and Economatica. Fleury meanwhile beats the index by 21% since a December launch. Aliansce, this year’s first IPO, is 8% higher than the benchmark stock index, and Direcional’s November IPO outpaces the Ibovespa by 8%. Lastly, Multiplus, which priced earlier this month, is beating the index by 14%. The data undermines prevailing conventional wisdom that says investors must stick to liquid, recognized names. “If you have the right story, you can get deals done, even if they’re smaller than $200m,” says a senior LatAm equity banker at a European underwriter.