The losses observed last month in DI fixed income funds, considered one of the safest ports for liquidity reserves, continued in the first days of October. When you see conservative portfolios with negative results, the risk is an acceleration of redemptions, which would force managers to dispose of post-fixed public papers at an unfavorable market moment.
But with the joint action between Central Bank (BC) and Treasury, an offer more in line with market demand, shorter floating-rate securities (Letras Financeiras do Tesouro or Tesouro Selic) and a limit on the rollover of repos, the expectation is that the losses will be gradually diluted.
Survey made by the economist and columnist of Valor Investe, Marcelo d’Agosto, based on data from Morningstar, shows that, of a set of 180 retail funds, with equity of R $ 398 billion and a quota disclosed in the first days of October, 166 (92%) were in the red. In September, there were 99 portfolios (55%) in this situation and, in the previous month, only three.
From the end of August until now, withdrawals were of the order of R $ 24.3 billion in this set of funds, being R $ 16.5 billion between September 28 and October 9. According to Anbima consolidated, in the first week of October, fixed income funds had redemptions of almost R $ 20 billion.
Selic Treasury securities are being traded at a discount, as investors have shown little willingness to take government bonds at such low rates in Treasury auctions. The Selic at 2% per year is now considered a return incompatible with fiscal risk. To finance the government with some fat, asset managers and treasuries only agree to buy the papers at a discount in the price – which increases the future return.
On Friday, however, the Treasury announced that it would start offering post-redemption bonds in 2022, and no longer in 2023. At the same time, the Central Bank said it would limit the rollover of repo that expires on the 29th at R $ 600 billion. On Tuesday, the BC announced a reduction in the term of operations.
A cut made by Itaú Asset Management with large long-term fixed income funds – from Itaú, Banco do Brasil, Santander, BTG Pactual, Bradesco, Caixa and XP – brings the variation in relation to the CDI of this block in September was -53% of the benchmark to + 55%, that is to say none stuck to the already stunted CDI. These portfolios totaled around R $ 76 billion and showed withdrawals of R $ 10.9 billion last month, according to Morningstar.
In a report to clients, the manager explains that “if the Treasury started to issue LFTs with the premium demanded by the market, the adjustment in mark to market [a atualização dos preços nas carteiras com o valor do secundário] it would be strong and fast, hurting the conservative fund industry even more, which in turn could further decrease the demand for these papers ”. On the other hand, the manager’s analysis continues, this movement would open space for the Treasury to finance itself with post-fixed bonds, removing the risk from the system as a whole.
In the report, which was prepared before the last Treasury and BC shares, Itaú Asset said that it had already shifted its focus to shorter maturity LFTs, and left as much percentage as possible in committed companies, in order to minimize negative impacts devaluation of government bonds in their funds. This means acquire papers from the Central Bank (BC) portfolio, with resale date and rates already agreed. There is no secondary shake.
“Instead of the compromised one, many managers bought LFT to meet the average term [tributário] and went bad, there was a lot of redemption in retail and platform funds”Says d’Agosto. “Investors went out to bank CDB, LCI and LCA [letras de crédito imobiliário e do agronegócio] and the managers had to sell even more to pay the ransoms.”
With very low interest rates, there was already a tendency for the investor to migrate from conservative fixed income funds to riskier assets, says Samuel Oliveira, who is responsible for the fund analysis area at XP Investimentos. “It is difficult to purge what is movement because of the recent loss and what is more structural, with the reallocation of resources to something with better profitability”, he says.
Although falls in quotas are undesirable, Oliveira says that oscillations are unmatched by private credit, equity and multimarket funds at the start of the pandemic, between March and April. An acceleration of withdrawals would put pressure on managers, but for now he does not see the market as dysfunctional.
As illustrated, in a sample of 25 funds classified as Simple Fixed Income by Anbima, with assets above R $ 50 million, losses from September 1 to October 8 fluctuated from 0.13% to 0.61%. On average, the performance of this block was negative by 0.24%. Roughly speaking, if in a given period an investor with R $ 10,000 in a fund with LFTs observed a 0.50% devaluation in their shares, the impact would be in the order of R $ 50. “There was no major damage.”
With the poor performance of the funds in September, Cal Constantino, manager of Santander Asset Management, feared that the investor would intensify the withdrawals, forcing the sale of assets. “We have been monitoring, but I was skeptical about this because there is still a lot of liquidity, a lot of short-term cash in the funds. I think the fear of a wave of sales is exaggerated”, He says.
At a given price level, fees begin to attract purchases, says the manager. “LFT with such a high premium hasn’t been seen in over a decade.” For Constantino, the change in strategy for Treasury and BC brought some relief, but he attributes the reaction to the higher return on assets.
Recent movements refer to 2002, the year in which regulators instituted the marking to market of assets, that is, updating the value of the papers at the current price, and no longer by the daily appropriation of interest (known as marking by the curve). At the time, even those with ultraconservative portfolios suffered major thuds.
Bank treasurer at the time, the current manager of Trópico Latin America Investments Sérgio Machado says he was scared by what he saw last month. “I lived 2002 in the worst way, it was the biggest loss I took in my life and I was right, loaded with LFT to face the turmoil that would come in an election year.”
In the current situation, he thinks that the economic area was close to losing control. “Last second [dia 5] there was a seller at 135% of the Selic rate, a huge adjustment in the quotas in the marking. It came very close to BC and Treasury to be unaware of what was happening. ” The signal given on Friday, although it does not bring any exceptional measure, in his view, sent the message that, if necessary, other similar operations can come out of the hat.
He mentions that, with the commitments backed by long LFTs, the BC was giving ammunition to the enemy. “The title was free to ‘shorten’ [apostar na desvalorização] over the BC ”, says Machado. For the manager, what is wrong is the level of interest, which caused this lack of interest in LFTs. “Month by month, demand has been falling and increasing medium and long-term commitments, from 90 to 180 days, with the same profitability as LFT and without risk of variation.”
In your assessment, a more suitable rate, which would help to rebalance not only the interest market, but also the exchange rate, it would be a Selic at around 4% per year. The current 2% ended up making the Treasury’s own financing cost more expensive as the entire interest curve was under pressure.
“To take long money, the government already pays more. If you analyze it, it is not only the inflation rate that is embedded, you start to have risk beyond the fiscal, the risk of breakdown. ” A sign of this, continues the Trópico manager, is that the market started to demand rates around 7% for the FRA of exchange coupon (derivative that synthesizes the interest in dollars) for 2025.
Another argument that would demand higher interest rates, says Machado, is that the latest IPCA figure, 0.64%, if annualized, would project inflation of around 7%. For the manager, the market has been lenient because the current reading does not consider the damming of adjustments, such as food outside the home, school fees or health plans that had prices frozen in the pandemic. “The service sector numbers are totally distorted.”