Opinion – Marcos de Vasconcellos: Fund traps hinder those who want to surf on fixed income

Fixed income came back with everything. At this point in the championship, no one can have any more doubts. Issuing private credit with interesting rates, companies like JBS, Vale and even Havan stores have confirmed this wave and are reaching the pockets of investors.

The movement seems far from over. The Central Bank estimates that the basic interest rate (Selic) will leave 11.75% and reach its maximum point at 12.75% before falling again. The Credit Suisse team believes that the BC has miscalculated the impact of inflation and is already betting on a Selic rate of 14%. Brazil is renewing its unfortunate vocation of “exporting Selic”, that is: bringing in foreign money simply to buy government bonds, which, with high interest rates, starts to compete for money with the private sector.

With the increase in public and private fixed-income securities offerings at good rates, the question remains (always better doubt than debt): how to choose your fixed-income investments

Let’s face it, the list of strategies to choose the best stocks is vast. Graphical analysis, fundamental analysis, quantitative analysis… But when it comes to choosing fixed income assets, the band plays differently.

The first thing when faced with an offer is to look carefully at the company’s sector and its exposure to possible market changes. There are those least impacted by crises (such as infrastructure and energy) and those most exposed (retail and aviation).

The second point to be noted is the reason that led the company to seek money in the market. Are you looking to expand the operation or are you going to take on a new debt to cover a hole in your accounts?

After that, it’s time to look at cash, the level of indebtedness and profit. Always comparing with other competitors in the same sector (you can’t compare the numbers of a supermarket chain with those of an oil company).

In general, this is information that must be included in the publicity materials that companies disclose when going to the market to seek money from investors.

There are also risks that are usually not very explicit in these promotional materials for the offers. Taking into account the three companies already mentioned at the beginning of the text, it is possible to point out as risk factors of the past the involvement of Vale in the tragedies of Brumadinho and Mariana; the famous recordings of conversations between one of the owners of JBS, Joesley Batista, with the then President of the Republic, Michel Temer; and the active involvement of the owner of Havan, Luciano Hang, with the campaign of current president Jair Bolsonaro.

The weight assigned to each piece of information in the decision-making process about whether or not to buy an asset is what takes work. For this, investment offices have teams of so-called “fixed income tables”, which guide advisors and answer questions from investors, and fixed income funds, in turn, have the figure of managers.

Fund managers are paid professionals to know when to sell and buy without consulting investors about whether they accept this or that change. It’s carte blanche, really.

And their remuneration is based on two fees: the administration fee (fixed) and the performance fee (variable). Now comes the surprise: the fixed income and pension funds that charge the highest management fees tend to give the worst result over time.

No, you didn’t read that wrong: Most of the time, you pay more to get a worse return. This was the conclusion of a study carried out by fintech Onze, released by the Market Monitor website.

The survey considered all fixed income and social security investment funds with more than five years of history and divided them into four groups, according to the management fee charged: up to 0.61%; between 0.61% and 0.96%; between 0.96% and 1.5%; and above 1.5%.

The conclusion is that, looking at the time windows of 24, 36, 48 and 60 months, the average profitability of funds with a lower management fee was better than that of those that charged their investors the most.

Considering the longest period of the analysis, of five years, the average of the returns of the funds of the first group was 61% higher than that of the funds of the last group.

Looking in detail, there are even funds from the same institution, which buy the same securities, but are offered to different customers, with different management fees.

The time is great to choose good fixed income investments. But you have to be alert, so that it doesn’t just serve as the bank manager’s speech to make you pay more for investments that will give you less money.

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