Brazil's star hedge fund manager is killing it this year - but his tone is dark

Brazilian hedge-fund manager Luis Stuhlberger, the founder of Verde Asset Management, is bearish on his home country.

"[W]e are positioned for a muddle through," Stuhlberger wrote in a November performance report to investors written in Portuguese and translated by Business Insider.

Stuhlberger is one of the closely-followed money managers in Brazil. Just last month, he was profiled by the New York Times.

His fund has also posted tremendous returns since its inception in 1997, posting average annual returns of 30%. The fund's only down year was in 2008 when it fell 6.44%.

This year, Verde's Brazil macro fund is up 27.35% year-to-date. The fund rose 2.48% in November.

While Verde has thrived, Brazil has gone through major economic and political turmoil. Corruption was discovered within the quasi-state oil firm Petrobras last year, and the scandal that ensued has reached the highest levels of business and government.

It has taken down one of the country's most powerful bankers, and is part of the reason why President Dilma Rousseff has an approval rating of 10%. Her opposition started impeachment proceedings against her earlier this month.

In the midst of all this chaos, Brazil's major exports - commodities - started to plummet in price. Now the country is dealing with an inflation rate that has hit 10%, growing unemployment, and a plunging currency, the real.

Stuhlberger takes swipes at Rousseff and her political opposition. Both Rousseff's party and the opposition party are involved in the corruption scandal.

Stuhlberger, like many Brazilians, sees the impeachment proceedings as a way for the President's opposition to take the focus off them, and thinks the process is wasting precious time that the country should be using to enact crucial tax reforms.

In the investor update, Stuhlberger notes that foreign investors continue to have "great confidence" and "hope" in Brazil, adding that capital flows are still fairly positive.

Conversely, his fund, is "very negative" on Brazil. However, the fund's portfolio is quite so pessimistic in its positioning for three reasons.

1. The market has correctly priced Brazilian assets at this point.
2. If Rousseff is impeached, there will likely be a bull market, though it won't be sustainable.
3. Foreigners are still interested in investing in Brazil.

Around 20% of the fund is in US dollars and invested in stock markets abroad. The fund also has a large allocation in NTN-Bs (Brazilian treasury bonds) with a duration between three and four years. The fund has a small position in Brazilian stocks. Stuhlberger's letter also noted that the fund has a "variety of disaster hedges."