Discover the new way to earn passive income with less price volatility – 07/15/2023 – De Grão a Grão

Investors who want to benefit from passive income often face a dilemma. The decision is between having a lower income and investing in fixed income, or having a greater income potential, but taking the risk of variable income. However, in the last 12 months, a new option that mitigates this dilemma has emerged.

Usually, when you think about living on income, investments like stocks and real estate funds (FIIs) come to mind. However, they are assets known as variable income, i.e. risky.

The price volatility of variable income in recent years has led many to prefer the safer alternative of fixed income. Thus, the big problem with variable income is marking to market. It ends up scaring off investors.

To resolve this volatility problem, a change was made in the way FIIs are traded.

In January last year, XP launched the Cetipated Real Estate Investment Funds (FIICs) category.

Leandro Craveiro Bezerra, responsible for the distribution of real estate funds at XP, defines FIICs as a “fund that pays monthly income, exempt from income tax for individuals, aimed at more conservative investors who seek lower volatility than that observed on the Stock Exchange.”

The registration environment is the factor that distinguishes the characteristics of FIICs in relation to traditional FIIs. Traditional FIIs are listed and traded on B3. FIICs, on the other hand, are registered and have their quotas traded at Cetip.

The table below outlines the main differences resulting from the change in the trading environment.

There are two major advantages of FIICs that are associated with the fact that the shares are not traded on the stock exchange and are not subject to pressure from market fluctuations.

The first advantage is explained by Guilherme de Luca, partner at Mauá Capital and Jive Investments:
“Since they are not subject to price variations in the secondary market, cetiped real estate funds have an important countercyclical component. They are able to raise funding at times when listed funds are at a discount on their shares, which is when, generally speaking, there are good opportunities for new investments are available.”

The second advantage is the reduction in share volatility. As the value of the shares is given by the Equity Value, it does not suffer the strong fluctuation as the share traded on the market of FIIs.

Thus, the investor better understands the real return on investment in this asset class.

This form of quota marking is similar to that of traditional fixed income investment funds.

Therefore, FIICs combine the advantage of lower volatility of fixed income funds with the greater potential for earning risk assets.

This new category of Cetipated Real Estate Funds is still very recent and has a lot to evolve.

Despite being recent, this category is already showing itself to be a good investment alternative for those who wish to live on income and do not want to suffer a large price fluctuation.

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

Talk directly to me via email.

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