The Brazilian stock market started 2026 with a historic performance, driven by the entry of foreign investors. The Ibovespa, the main stock index, has risen 15% since the beginning of the year, reaching 190,000 points for the first time . In dollar terms, the index has accumulated a 21% increase.
But in this arena where foreigners have been calling the shots, little has been left for local funds. Up to February 12th, international funds accumulated a balance of R$ 34.67 billion in shares acquired on the Brazilian stock exchange in the spot market. Last year, the net inflow of foreign capital was R$ 23.87 billion.
In this zero-sum game, local funds were the biggest sellers of shares, withdrawing R$ 27.15 billion from the stock exchange. During the same period, individuals sold R$ 4.88 billion to foreign investors; financial institutions, R$ 1.8 billion; while other categories sold the remaining approximately R$ 900 million.
The result has been underperformance compared to the benchmark . In January, when the Ibovespa had its biggest monthly increase since 2020, rising 12.45%, free equity funds had a median performance of 6.98%. During that period, directional long and short funds, which allow both long and short positions, had returns below 3%.
Last year, institutional investors led the sales to honor the more than R$ 50 billion in redemption requests. But, with the stock market booming this year, only R$ 4.9 billion has left the funds.
With sales exceeding redemptions, a significant portion of this money has gone into the funds' cash reserves, earning CDI interest, while managers wait for a window of opportunity.
Christian Keleti , CEO of Alpha Key, says he has historically high cash levels in his funds, between 30% and 40%. " Valuations in some sectors, such as banking and low-income housing construction, are starting to hit historical levels," says Keleti.
In addition to prices not being as cheap as last year, the manager explains that some managers opted to realize profits after a strong 2025 and electoral uncertainties.
The increased caution regarding the elections, says the manager, stems from the announcement by Flávio Bolsonaro of his presidential candidacy, which thwarted expectations that Tarcísio de Freitas , the governor of São Paulo, would also run.
What the market did not expect was that Donald Trump's moves at the beginning of the year, threatening to annex Greenland and making incursions into Venezuela, would further increase the demand for investments outside the United States.
With foreign markets being one of the final destinations, the MSCI Emerging Markets index has risen 11% since the beginning of the year. In Brazil, the main entry point was the EWZ ETF, which replicates the MSCI Brazil.
Paulo Abreu, CEO and manager of Mantaro Capital, says that even while maintaining a significant portion of cash, he managed to obtain substantial results with EWZ call options.
The manager said the position was combined with selling dollars so that the fund would also profit from the devaluation of the US currency. "It was an EWZ on steroids," Abreu stated.
After the strong appreciation, the manager of Mantaro closed out the position and has maintained approximately 21% cash in his long-only equity fund. Within the fund, his main investments are concentrated in the financial sector. His largest position is in B3 (the Brazilian stock exchange), where he intends to benefit from the increased investment flow in the stock market and gain exposure to foreign investors.
“We are seeing this trend of marginal global reallocation moving out of the United States. These are movements that can be very strong and sometimes even prolonged for several years. If this happens, there could be boom years for the Brazilian stock market,” says Abreu.
Keleti, however, doesn't see much room for local funds to continue selling shares to foreign investors. "There always has to be a seller to buy. If this movement continues, it's likely that companies will start issuing more shares, with more follow-on offerings announced."
