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Sao Paulo • In Brazil, bigger isn't always better when it comes to stock investing.
While the nation's five biggest money managers — Banco do Brasil, Itau Unibanco Holding, Banco Bradesco, Caixa Economica Federal and Banco Santander Brasil — control more than 60 percent of all assets under management, just one of the group's Brazilian equity funds ranks among the 25 top-performing portfolios, according to data compiled by Bloomberg.
Instead, independent managers not associated with big retail banks are posting the best results.
The reason the smaller shops say they outperform their bigger peers is simple: They have to.
In Brazil, retail investors are still scarce and they almost always choose the managers affiliated with the bank where they keep their checking accounts, said Richard Ziliotto, a managing partner at Taler, a family office, and a director of capital-markets association Anbima.
"It's a matter of survival," he said from Sao Paulo. "Because of the convenience of being able to invest through their regular bank, the client that doesn't notice that the difference in returns can be gigantic over time because of compound interest just checks the products on the shelves and follows their branch manager's opinion. It's an almost automatic process."
Among the best-performing Brazil-focused equity funds adjusted for volatility in the past 12 months, only one Banco do Brasil portfolio appeared in the top 25, data compiled by Bloomberg show.
Of the 25 worst-performing funds, two belonged to the asset-management arms of Brazil's big managers: Itau and Santander Brasil. Bradesco and Caixa equity funds posted results somewhere in the middle.
Itau's fund that ranked among the worst performers is a passive dividend fund, while Santander's fund is a small-cap fund.
The Banco do Brasil fund that ranked among the best performers invests in exporters or companies that have relevant subsidiaries abroad, such as meatpackers and pulp producers that have benefited from a 30 percent depreciation in the real this year.
"The external scenario has been more favorable than the domestic," Jorge Ricca, executive manager for equity funds at Banco do Brasil, said from Rio de Janeiro.
"The companies in this fund have benefited a lot from the depreciation of the real lately, but we don't expect further declines for the currency at the same pace that we've seen."
The press offices for Itau, Bradesco and Santander Brasil declined to comment, while the office of Caixa didn't respond to multiple requests for comment.
Together, the five biggest managers oversee $470 billion in assets, including stocks and fixed income, according to Anbima. The remaining 1.05 trillion reais in assets in Brazil are split by 528 registered mid-sized and small managers, not all of whom have equity portfolios. Brazil's benchmark Ibovespa stock index is down 4.2 percent this year.
James Gulbrandsen, a partner at Rio de Janeiro-based NCH Capital, which manages $3.2 billion in assets, said in addition to having to post better results to lure clients, many independent managers have their own money on the line, too. He said he has 80 percent of his net worth tied up in his funds.
"That's why we're so competitive," he said. "Employees of a huge bank may not have the same level of personal commitment."