See where to invest today after falling interest rates – 09/24/2023 – Market

Last week, Brazil’s basic interest rate fell for the second month in a row, to 12.75% per year. At the time, the Central Bank indicated that the reduction should continue, taking it to 11.75% at the end of this year.

The average financial market forecast indicates that it should fall even further, to 9% by the end of 2024. This means that traditional fixed income will yield less and that the investor may need to adjust the portfolio.

The change, however, should not be that drastic. In the last cycle of falling interest rates, during the pandemic, the Selic fell to a historic low of 2% per year. This time, everything indicates that interest rates will fall much less and remain at levels that ensure a real gain (above inflation) from fixed income. This, given the expectation of 4.86% and 3.86% for the IPCA (Broad National Consumer Price Index) this year and next, respectively.

Therefore, analysts do not expect a stampede for variable income as in recent years. But they still recommend that investors diversify their portfolio and, depending on their profile, consider increasing their exposure to risk.

“Even with these cuts in the Selic, fixed income is still the largest class [de ativos] to be. Today we have a high real interest rate and are in the process of disinflation”, says Marcel Andrade, director of FoFs (Fund of Funds) at SulAmérica Investimentos.

Emergency reserve

First of all, you need to ensure you have an emergency fund. It must have at least the equivalent of six months of expenses and be invested in a fixed income instrument that can be redeemed at any time, arriving in the current account on the same day. Recommended are the Treasury Selic and CDBs (Bank Deposit Certificate) from large banks with daily liquidity. They are preferable to savings, according to managers, as they yield more even with the incidence of Income Tax (IR).

Investment	Annual gross profitability with Selic at 12.75%
Medium bank CDB at 105% of the CDI	13.39%
Selic Treasury up to R$10 thousand	12.76%
CDB from a large bank at 100% of the CDI	12.75%
Selic Treasury above R$10 thousand	12.65%
LCA/LCI at 92% of CDI	11.73%
Savings with TR estimated at 1.78%	8.06%
Source: Jayme Carvalho Jr, economist at SuperRico/Planejar

What to invest in?

According to experts, fixed income is the best option at the moment. With the base interest rate in double digits, it offers a good return with low risk. In this case, the tip is to opt for products with a yield starting at 100% of the CDI (equivalent to Selic).

One option is CBDs. The safest are those from large banks, but the ones that yield the most are those from small and medium-sized banks, reaching more than 120% of the CDI, that is, 15.30% per year. This is because the smaller the institution, the lower its capacity to pay off debts tends to be, which increases the risk of the CDB. However, as there is FGC (Credit Guarantee Fund) protection in these products, it is safe to invest up to R$250,000 per issuing institution, with a limit of R$1 million.

Another highly recommended instrument is the Treasury Direct bond linked to inflation, the Treasury IPCA+ (NTN-B). Because its profitability consists of a pre-defined interest rate plus the IPCA variation over the period, it is the guarantee that your purchasing power will not only be protected over the years, but will also increase. It works as a security mechanism that, according to analysts, every investor should have in their portfolio.

At the moment, all of these bonds available for investment have interest rates above 5% per year. The IPCA+ Treasury due in 2029 has a rate of 5.34%, while the 2035 offers 5.49% and the 2045, 5.75%.

But be careful: if it is necessary to recover the investment before these deadlines, there may be a loss of money, as the profitability contracted for the purchase is only valid if the security is held by the buyer until maturity. If traded beforehand, it will be subject to the market price, which fluctuates daily.

The same goes for LCIs (Real Estate Credit Letter) and LCAs (Agribusiness Credit Letter) that do not have daily liquidity. Although, in this case, this risk is less of a concern since they have shorter maturity dates than NTN-Bs. With maturity in 2025, for example, Banco ABC’s LCI yields 9.5% per year and BTG Pactual’s LCA yields 9.3% per year. The interest, in these cases, is lower than the Selic, as these investments are exempt from income tax. Another advantage: both are also covered by the FGC in the event of default.

Debentures are more risky precisely because they do not offer protection in the event of insolvency. It was precisely with the judicial recovery of two large broadcasters (Americanas and Light), that the private credit market ended up becoming more attractive, say analysts. After many withdrawals at the beginning of the year with the difficulties of both companies, the credit market had to increase the remuneration of debentures to attract buyers.

Today, some offer higher returns than the IPCA+ Treasury, such as the São Martinho sugar-energy group, whose debenture has an annual remuneration of IPCA plus 5.70% until 2032, and MetrôRio, which pays IPCA plus 7.70% per year until 2031 As they are infrastructure debentures, both are exempt from income tax.

“You need to be careful when entering into these roles. The right thing to do is to analyze the credit risk on a case-by-case basis, taking a good look at the company’s profile, its debt and its cash generation capacity. It’s not a simple analysis”, says Marcos Mollica, manager from Opportunity. He also states that investors with a more conservative profile, that is, risk averse, should not invest in debentures.

One way to reduce risk is to invest in private credit funds or multimarket funds, which combine different types of assets to try to achieve the highest possible profitability. In these cases, it is necessary to carefully analyze the manager and the costs involved, such as administration fees and performance fees.

“The main purpose of diversification is to reduce portfolio risk and not maximize gains”, says Claudia Yoshinaga, coordinator of the Center for Financial Studies at FGV.

ETFs (exchange-traded index funds) are a simpler and cheaper option to diversify. Today, B3 has ten fixed income ETFs, most linked to NTN-Bs, and 81 variable income ETFs. Among the latter, the most common are those that replicate the performance of Ibovespa, such as BOVA11 and BBOV11. They work in the same way as stocks, and follow the rise and fall of the country’s main stock thermometer.

At the moment, expectations for Ibovespa are positive. With the drop in interest rates, analysts expect the index to appreciate. Santander projects it to be at 140,000 points by the middle of next year. This equates to a potential gain of 21%. But, as nothing in variable income is guaranteed, analysts recommend exposure to the stock market only to investors with a greater appetite for risk and who already have good exposure to fixed income.

Another asset recommended by financial market professionals are Treasuries. They are United States government bonds and work in a similar way to Tesouro Direto.

As the country is in a monetary policy cycle opposite to that of Brazil, with rising interest rates, fixed income there is attractive. The Fed Funds, which is equivalent to our Selic, are in the range of 5.25% and 5.5%, the highest level since 2001. According to the financial market and signals from the American Central Bank, this should continue into next year .

Currently, it is possible to invest in the American fixed income portfolio via investment funds or BDRs (foreign securities receipts) of American ETFs, such as BGOV39. But it is important to pay attention to the exchange rate factor, which makes this investment more volatile. “If the BC cuts the Selic faster and the interest rate differential between Brazil and the USA decreases, the dollar will tend to strengthen”, says Andrade, from SulAmerica.

Speaking of volatility, a variable income class that offers good opportunities, according to experts, is small caps. They are shares of companies that are not listed on the Ibovespa because they are much smaller and less traded than the index’s giants, such as Petrobras and Vale. In other words, they are even riskier actions and, the greater the risk, the greater the potential return.

A study by Santander showed that, historically, small caps yield more than the Ibovespa in times of successive interest rate cuts. Analyzing nine cycles of monetary easing starting in March 1999, the bank found that the average appreciation of the Small Caps Index was 49.5% in 12 months and 66.5% in 24 months. On the same basis of comparison, Ibovespa advanced 26% and 33%, respectively.

Among small stocks, Arley Junior, investment strategist at Santander, draws attention to those that could benefit from a possible increase in consumer spending. This is because the drop in interest rates and Desenrola, which tends to reduce the debt rate in the country, can boost consumption and benefit retail and construction companies. But he warns: “we are talking about a medium to long-term investment and not months.