SAO PAULO, April 9 (Reuters) - Verde Asset Management, Brazil's largest hedge fund with over 30 billion reais ($9.8 billion) under management, posted the highest return in six months in March as bets on a stronger U.S. dollar and rising borrowing costs in the country paid off.
In a letter to investors on Thursday, Verde money managers led by Luis Stuhlberger said that the fund's currency positions changed with volatility, selling dollars before the Brazilian real gained while adding more of the U.S. currency as the real strengthened.
"As we said in our prior letter, the process of asset pricing is seldom a linear one," the letter said.
São Paulo-based Verde booked a consolidated return of 5.09 percent in March, its strongest showing since September's 6.69 percent. So far this year, the fund accumulated gains of 12.64 percent, compared with the benchmark CDI interbank interest rate's 2.8 percent.
Stuhlberger reiterated his view that Brazil's currency will have to lose further value against the dollar to "be the escape valve" and accommodate the nation's growing budget and current account deficits as well as an ongoing economic downturn. Potential tax increases will only feed into the downturn unless the government somehow revives the economy's ability to generate savings and be more productive.
The currency advanced 0.4 percent to 3.0685 reais on Thursday. It has shed about 13 percent this year.
Verde's defensive approach comes after domestic markets have underperformed for the past three years as economic policy decisions weighed on confidence in state-owned companies. Last year, Brazil's current account gap was the highest in seven decades, while the government posted the biggest annual budget deficit since at least 2002.
According to the letter, Verde's so-called currency book netted a 4.58 percent return last month. Fixed-income investments gained 0.74 percent as Stuhlberger and his team did well on bets tied to the trend in local interest rates.
The equities book lost a meager 0.01 percent last month.
$1 = $3.0685 Brazilian reais Reporting by Guillermo Parra-Bernal and Paula Arend Laier