Despite the cut in the Selic rate, investors still reduce risk – 09/08/2023 – From Grain to Grain

The Brazilian investor is disillusioned with the risky alternatives in Brazil. This is the conclusion drawn from the Anbima investment fund report released this past Tuesday. The question is whether investors are still responding to the disappointing past return or whether the disappointment is with the outlook.

The report on investment funds released by Anbima points out that the categories of equity and multimarket funds continue to show net redemptions.

In none of the months of 2023 were there positive net inflows for equity funds. The multimarket funds would have the same negative result if it weren’t for an insignificant net inflow in the month of May.

Even with the beginning of the Selic decline cycle on August 2nd, when the Selic rate fell to 13.25% per annum, investors continued to redeem from stock and multimarket funds in the month of August until last Friday, the 4th. of August.

I believe that the discouragement with exposure to risk can be explained by past results. Investors tend to be reactive to the results they observe.

Let’s first evaluate hedge funds. On average, represented by the Anbima multimarket fund index, the IHFA yields less than 70% of the CDI in the year. In the accumulated since the end of 2019, that is, in more than three years accumulated, the IHFA loses to the CDI.

With the stock category, the past was not favorable either. Since 2019, the Ibovespa has appreciated modestly by just 3.2%. In the year, the accumulated return until today is just equal to the CDI. Before you ask me, the index already considers dividend reinvestment. So this is the total capital gain and dividend return.

With redemptions in recent months, the total amount of investments allocated to equity funds dropped to R$551.4 billion in July. In December 2019, this volume was BRL 730.6 billion. Therefore, a loss of equity of 24.5%.

With these redemptions, the share of equity funds in the total fund industry is similar to what was observed at the end of 2018. The proportion of equity funds in the fund industry is just 6.9%.

Investors in the Private segment are those with greater exposure to the stock market. Of the total funds, they own 18% in equity funds. Retail investors, on the other hand, have only 4.3% of their funds allocated to stocks.

As investors are usually reactive, I believe that this trend of redemptions should only be reversed with the Selic falling below 10%, that is, from the second half of 2024 onwards.

However, if you are an investor with a greater appetite for risk, do not wait for others to apply for you to start your investments, or you may lose part of the movement that should occur as a result of the drop in interest rates. Also, don’t make the entire investment at once. Take advantage of the falls to make small contributions.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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