Multimarket funds are still recovering from significant losses and facing tough competition from DI funds due to high interest rates in recent years. However, signs of improvement are emerging, restoring some public confidence in this sector.
Rescue operations continue to surpass fishing activities. During the first half of the year, the Anbima Hedge Funds Index (IHFA) saw an 8% increase, outperforming the CDI yield of 6.4% for the same period. This surge has provided much-needed relief for these investment products to regain traction among investors.
Investors are reminded of the importance of maintaining a variety of investments in their portfolio, as diversification proves beneficial during changing economic cycles.
In Brazil, interest rates have typically been high, but skilled managers have still managed to provide returns to shareholders, such as the 13% increase seen in the macro multimarkets management style over 12 months, compared to a 12% increase in the CDI during the same period.
The multimarket sector is vast and offers various strategies, including funds that have the flexibility to manage different types of assets like interest rates, currencies, stocks, and commodities. Among these options, the macro market stands out as particularly effective for diversification.
Some funds aim to take advantage of economic trends and market fluctuations. While some are focused on quick buying and selling of assets, others have a buy-and-hold approach with longer investment periods.
The timing is right as we are currently going through a period of transition. Consider a multi-market fund that focuses on investments in the Brazilian stock market and inflation securities (IPCA+).
The handbag is in good condition. Ibovespa has increased by 13.3% this year, outperforming the 8.3% rise of the CDI. Inflation-linked bonds are also performing well, with the IPCA+2040 rising by 12.2% this year, surpassing the CDI despite it being at its highest level since 2006.
To gain a deeper insight into the cycle shift, consider the example of IPCA+ bonds. Their value rises as expectations increase that the Selic rate will begin to decrease, signaling the end of a period of high interest rates.
Selic reached a peak, but the Central Bank indicated it is unlikely to rise further barring a disaster. The market has been reacting positively to this trend in recent months, with inflation bonds increasing in value. This is beneficial for investors who hold these assets, particularly in multimarket funds.
The bag movement is related to the return of foreign investors when the American market is pricier compared to emerging markets like ours. The end of the high cycle in Selic also affects variable income, prompting investors to buy while prices are low before they rise. This has been the trend this year, benefiting multimarket investments.
Success in different areas relied on unpredictable elements. For instance, in trading, those who speculated on the US dollar’s decline through derivatives emerged victorious. This year, the decline stood at 12.5%.
Multimarket funds invested in Ibovespa and IPCA+, and those betting on the real’s appreciation, are performing excellently, thanks to our example.
Competition and skill
Life had become increasingly challenging for funds due to the introduction of tax-exempt products like encouraged debentures and the market’s evolution enabling easier access to various assets.
The director of Anbima, Pedro Rudge, emphasizes that multimarkets have not become obsolete, but rather, the changing landscape demands higher professional skills for achieving reliable outcomes, prompting investors to be more discerning in their investment choices.
These funds frequently face criticism for their fees, typically amounting to a 2% annual administration fee and a 20% performance fee compared to a specified benchmark. The performance fee is the reward the manager receives for achieving returns surpassing that benchmark, which, for multimarket funds, is the CDI.
The investor may choose to create their own portfolio with ETFs instead of paying for financial advice, but there is a risk involved in trying to replicate the structure of a good multimarket portfolio without professional guidance.
The investor is encouraged to diversify their investments, including shares, ETFs, protective assets like gold or the dollar, and multimarket funds. Professional management is highlighted as valuable and worth the cost.
Fund selection
What does it require to select a suitable background, ultimately?
Diversification involves investing in products and assets that are not correlated with each other, meaning they do not move in the same direction as the market. To determine if a fund follows this strategy, check its performance across various time frames and compare it with benchmarks like Ibovespa or the dollar.
Analyzing historical profits does not ensure future earnings, but examining these figures can reveal a product’s reliability. You can assess each fund’s long-term performance on the websites of banks and brokerages that offer these funds.
If you can craft a compelling narrative based on a fund’s history, it’s advisable to hold off on investing in very new funds that have yet to establish a track record.
You can also depend on an investment advisor or financial planner for assistance in making improved decisions. A recent significant regulatory alteration has shifted the balance in favor of investors, providing more transparency regarding the true intentions behind product distribution.
Instructions 175 and 179 of the Securities Commission (CVM) have introduced new regulations regarding the disclosure of information on funds and other financial products in the market, including the commissions paid to distributors and advisors for their distribution, known as “rebates.” This fee was previously not clearly specified and is now considered part of the administration fee.
Knowing the amount received by your advisor for fund distribution makes it easier to detect potential conflicts of interest, making it advantageous for investors to heed advice from more reliable professionals.
When evaluating funds, it is valuable to consider the qualities of the fund manager rather than focusing solely on financial performance. The consistency of a fund’s performance is closely tied to the duration that the management team works together. High turnover in the team can lead to talent loss and negatively impact the fund’s performance.
Analysis firms and investment advisors act as intermediaries between individual investors and fund managers, helping them connect. It is crucial to conduct thorough research to assess the professional background and performance of those managing investments and the teams influencing decision-making.
The wallet’s dimensions
There is no fixed formula for determining the appropriate allocation of multimarket funds in an investment portfolio. However, conservative investors typically allocate up to 20% of their assets to these funds, while moderate investors allocate between 30% and 35%. Bold investors, who are more comfortable with market fluctuations, may allocate up to 40% of their assets.
During challenging times for investments, investors may feel tempted to withdraw from funds lacking profitability. However, rushing to make this decision is unwise. Multimarket investments require patience to yield returns, and entrusting money to skilled managers is key for long-term gains through compound interest.
Macro multimarket funds benefit from a three-year investment timeline. It is advisable to rebalance your portfolio every six or twelve months to adjust investments that have underperformed and those that have outperformed. This helps maintain the initial portfolio allocations set at the beginning of the investment period.
To recollect: creating a portfolio involves categorizing assets or products into different sections based on the investor’s risk tolerance and regularly assessing the performance of each component.
Taxation: the weak point
Tax implications work unfavorably for multimarket investments. While products like ETFs and stocks traded directly on the stock exchange benefit from tax collection at the source, multimarket funds face challenges due to the “come-coats” mechanism. This mechanism involves the anticipation of income tax collection on fund profits every six months, typically at a rate of 15%.
The come-coat, such as in multimarket funds or fixed income backgrounds, may appear insignificant every six months but can impact compound interest growth over time. Despite this, financial planners advise against avoiding fund investments.
The next significant obstacle for multimarket investments is the wide range of products available to only a select few, such as hybrid ETFs. While these are cheaper and simpler options, the most effective approach remains combining different products.
