With high US interest rates, global fixed income attracts investors – 02/04/2023 – Market

It is not just Brazilian fixed income that has attracted interest from investors in recent months.

The increase in interest rates carried out by the Fed (Federal Reserve, US central bank), which took the basic rate of the American economy from 0.25% per year in March 2022 to the current band between 4.75% and 5% per year , begins to draw the attention of Brazilians to fixed income in the United States.

Although with a much lower demand compared to Brazilian government bonds, investment in securities issued by the US Treasury and in corporate bonds traded abroad has been gaining greater appeal in the local market, with managers working on launching products to meet the interest growing.

One of the largest asset managers in the market on a global scale, BlackRock, with approximately US$ 8.5 trillion (R$ 43.7 trillion) in assets under management, launched, in February last year, eight products that give the local investor access to the fixed income market abroad.

Known by the acronym BDRs (Brazilian Depositary Receipts) of ETFs (Exchange Traded Funds), this type of investment is a kind of passive strategy fund, which follows a predefined composition portfolio and is traded on the Stock Exchange like a stock.

Of the 8 products launched around a year ago, 6 track the yield on government bonds issued by the US government, called “treasuries”, with differences between the average duration of the bonds, and two track corporate debt papers.

According to Paula Salamonde, director of the institutional segment and iShares ETFs at BlackRock Brasil, demand for BDRs from global fixed income ETFs, which have initial investment values ​​of around R$50, began to gain traction at the end of last year, after that the Fed had already advanced in the monetary tightening process, with the interest rate above the 4% per annum level.

With a combined equity of approximately BRL 46 million in December 2022, index funds, as ETF BDRs are also known, reached a volume of BRL 87 million in February, practically doubling in size in two months. The average daily trading volume was BRL 8 million in February.

Although these are still relatively modest amounts, especially by BlackRock standards, the executive says that the rapid growth in a short period of time indicates the interest and potential of the asset class in the country.

“The flow is coming from both individual and institutional investors, because of the opportunity they are seeing. It is a very low risk asset, with a return above 4.5% per year”, says Paula, adding that, originally traded on the American market, ETF BDRs also follow the variation of the dollar against the real.

“Since last year’s elections, we have noticed Brazilian investors seeking more and more dollarized assets, given the uncertainties of the economy and politics in Brazil”, says Cauê Mançanares, CEO of Investo, a manager that launched in July 2022 two ETFs whose proposal it is also to monitor fixed income indices abroad that replicate a theoretical portfolio composed of thousands of debt securities.

USDB11 accompanies the US ETF BND (Vanguard Total Bond Market ETF) and focuses only on the US fixed income market, with around 70% of the portfolio invested in US Treasuries and 30% in debt securities. BNDX11’s performance is linked to BNDX (Vanguard Total International Bond ETF), which accesses the global fixed income market, focusing on assets in Europe, the Pacific and the United States.

With an average monthly volume of BRL 17,000 and BRL 6,200 in the month the strategies were launched, respectively, ETFs have been increasing their trading volume — in March, the average volume reached BRL 520,000 and BRL 150,000 each of funds.

The ETFs were launched with values ​​of R$ 100 and today are traded on the Exchange at around R$ 90. The devaluation, explains Mançanares, is due to the effect of mark-to-market, with the negative impact of the process of raising interest rates by the Fed for security prices replicated in ETF portfolios.

Paula, from BlackRock, says that the manager foresees the maintenance of American interest rates at the current level, with a possible reduction in rates in the middle of the second half. She says that the crisis in the global banking sector, with a reduction in the demand for credit, helps the Fed to interrupt the cycle of high interest rates.

Brokers offer direct investment in securities, but with higher entry values

Responsible for the fixed income research area at XP Investimentos, Camilla Dolle says that, despite the Selic rate of 13.75%, it makes sense for investors to consider allocating a portion of their portfolio to fixed income abroad.

In this way, he diversifies his portfolio in other geographies considered safer, exposes himself to a strong currency like the dollar and takes advantage of a moment in which the interest rate in the United States is at a historically high level for its standards, says the expert.

“Being allocated in US Treasury bonds is interesting because the yield has risen a lot in recent months, and the expectation is that this at some point in the next year should reverse, so it is a propitious moment to take advantage”, endorses Bruno Mori, economist and founding partner of the consulting firm Sarfin.

XP launched in May 2022 an international account service, in which the client has access to investments abroad through the brokerage application.

In March 2023, XP started to offer direct investment in “treasuries” through the international account, with a minimum contribution starting at US$ 5,000. In October, the brokerage had already made investment available in “bonds”, which are corporate bonds traded on the American market, also with amounts starting at US$ 5,000. To gain access to XP’s international account, the client must have a net worth greater than or equal to R$10,000 at the brokerage firm.

At Avenue, a brokerage that offers Brazilians to open accounts abroad, it is not necessary to have a minimum equity, but the amounts to invest in US government bonds or companies are higher, starting at US$ 10,000.

According to Guilherme Zanin, an analyst at Avenue, while US government bonds pay interest around 4.75% per year, in the case of corporate bonds, it is possible to find papers from names known to Brazilian investors, such as Google and Amazon, with fees ranging from 5% to 6%, always in dollars.

Zanin claims that a more accessible investment on the platform are fixed income ETFs abroad, with contributions starting at US$ 1. He says that there are more than 800 fixed income ETFs traded on the US market, with different strategies between securities public and corporate bonds with varying levels of risk.

The analyst adds that investors can also access active management fixed income investment funds through the platform, in which managers are constantly rotating their portfolios in search of the best opportunities in the market. In this case, the minimum ticket starts from US$ 2,000.

With the growth of digital investment platforms, investors can also find global fixed income funds from large managers, such as Oaktree and Man Group, with lower entry values, starting at R$ 500.

“We think that the individual investor hardly has a competitive advantage in trying to choose the best assets alone, compared to specialized managers with hundreds of analysts looking at the markets every day”, says Ian Caó, founding partner and director of investments da Gama, a company that distributes global funds through partnerships with major platforms.

However, due to local market legislation, most of the offer today is still restricted to qualified investors, who are those with more than R$ 1 million in investments.

The Avenue analyst says that, with the increase in risk aversion in the wake of the banking crisis, he has noticed a movement called “fly to quality”, or flight to quality, in translation into Portuguese, in which investors prioritize investments in the American market, as it is considered the safest among the main investment options available globally.

“In times of risk aversion, securities considered the safest in the world, with returns above 4.5%, end up attracting many investors.”