Multimarket funds disappoint in the semester; what to do? – 04/22/2023 – From Grain to Grain

We are currently experiencing the fourth worst six-month window for hedge funds in the last 15 years. The disappointing result, allied to the moment of high interest rates, caused this segment to lose funds. However, is withdrawing these funds the best course of action now?

Risk investments always lead us to frustrations. That’s right, always.

Either we are disappointed, because the result was not what we expected, or we regret not having been more aggressive, because the result was what we expected or even better.

With multimarket funds, it is no different. However, to really do a proper analysis, we need to consider two elements: term and investor profile.

As I mentioned above, any risky investment is going to have unfavorable moments. After all, if these moments did not exist, it would not be a risk application.

One of the biggest problems in assessing the performance of risky products is the analysis time frame.

The chart below shows the return for the IHFA, as a percentage of the CDI and in 6-month windows. The IHFA is Anbima’s multimarket fund index.

Each point on the chart represents what an investor would have earned as a percentage of the CDI in the previous semester. On average, since April 2008, an investor looking at his income over the last six months has seen a return of 131.22% on the CDI.

A yield of 131.22% of the CDI is quite interesting. However, only those who stayed in the long term obtained a similar return. For this, it is necessary to endure low periods such as the current ones.

See in the graph below that in observation windows of 24 months, the results are better. With this evaluation horizon, in 87.73% of the windows the IHFA return was above the CDI return. Also note that bad times tend to revert to positives quickly.

Remember that the return shown is already net of management and performance fees. Therefore, it is already the return for the investor. The only charge yet to be charged is the Income Tax, which is the same for any fixed income application. And it is about the IR that I will explain below.

Many investors, observing the worse result, redeem the fund, as they want to reduce this exposure. However, hedge fund managers do not hold losing positions for long. That means you don’t need to redeem to leave, because they’ve already done that themselves.

Multimarket funds, as the name implies, can operate in different markets: fixed income, currencies, commodities, stocks and others. The manager is always looking where there are opportunities.

In fact, if you chose a good manager, he will reverse the bad result. Therefore, the most appropriate thing is to remain, because over time, the IR rate drops to a minimum of 15% on the results. Changing the position means you go back to the maximum IR rate.

Thus, the crucial point is the selection of good teams of hedge fund managers. A good team tends to recover results as seen in the graph above.

In deciding on redemption, more important than assessing performance over the long-term horizon is understanding whether you really have the right investor profile to withstand the natural volatility of risky investments. As well as whether your risk exposure is adequate to the investor profile.

It’s no use changing a manager who did poorly now for another with the same profile, but who did well. The latter, as it is also at risk, will present a bad result at some point in the near future. Therefore, in the exchange, you run the risk of leaving a good manager who is about to improve the result and investing in another that may disappoint you. Finally, the only certainty is that the exchange will make you pay more IR in the future.

Therefore, be careful when only evaluating short-term performance to make the decision about redeeming your investment in hedge funds. Take the time to reflect on whether your exposure and investor profile are suitable for this risk investment class.

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

Talk directly to me via email.

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Book: The Journey to Financial Independence

summary

Introduction
Understand how you will achieve your financial independence
Living on an income is the last step on the journey to financial independence
These are the biggest questions about the journey to independence

Part 1 Construction of the plan
Chapter 1 The first step in building the blueprint for financial independence
Chapter 2 How do you define the rate of return in your plan for independence?
Chapter 3 Find out what equity you need to achieve your financial independence
Chapter 4 On your journey to independence, don’t overlook the importance of this factor
Chapter 5 Understand the two ways I applied to increase my saving capacity
Chapter 6 If You Double This Factor, Your Equity Can Multiply Much More
Chapter 7 Connecting the dots to build your plan

Part 2 Assembling the portfolio to lead you to financial independence
Chapter 8 Before making any investment, define these two factors
Chapter 9 For your investments to beat the CDI, you need to make two choices; understand
Fixed Income
Chapter 10 You should not build an income portfolio if you want to reach equity to live on income
Chapter 11 Avoid these two common fixed income investor mistakes
Chapter 12 In fixed income, does it pay to invest in private credit in relation to public credit?
Chapter 13 Discover how to win the private fixed income premium, but with low risk
Chapter 14 This is the simplest way to plan your financial independence with fixed income
Chapter 15 With our interest rates, find out if it pays to invest in dollars
Variable income
Chapter 16 Taking a risk can accelerate your journey to financial independence
Chapter 17 What is multimarket funds and how did they come about?
Chapter 18 Understand how to select hedge funds
Chapter 19 Is Real Estate an Appropriate Investment for Achieving Financial Independence?
Chapter 20 Real estate funds are better investments than real estate, but most prefer the worst; understand
Chapter 21 These real estate funds are more like fixed income funds
Chapter 22 When selecting Real Estate Funds, be careful with this indicator
Chapter 23 Discover the five indicators that you cannot disregard in paper real estate funds
…
Chapter 26 Actions
Chapter 27 Alternative Investments
Chapter 28 When Should I Trade a Risky Investment That Is Not Performing?
Investment funds and Private Pension
Chapter 29 Investment Funds x Private Pension
…
Chapter 33 Multimarket funds disappoint in the semester; what to do?

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