Multimarket funds gain from high global interest rates

In a year marked by a series of uncertainties with the war in Ukraine and the elections in Brazil, one of the few consensuses among market experts seems to be that interest rates in the United States will have to rise to contain the strong inflationary pressure in the region. .

In March, the Federal Reserve (Fed, the US central bank) raised interest rates for the first time since 2018, by 0.25 percentage point, to a range between 0.25% and 0.50% per year.

The movement, however, is far from enough. This Wednesday, the US monetary authority meets, and most analysts are betting on a 0.5 percentage point hike in interest rates. Fed officials are advocating an increase in the pace of hikes to bring the rate to around 3.5% by December, in order to try to contain high inflation by the country’s standards – the US consumer price index has reached mark of 8.5% in March, the highest since 1981.

Multimarket funds have been able to take good advantage of the expected global macroeconomic scenario ahead.

In the first quarter of the year, investment funds of this type recorded an average return of 6.12%, according to the IHFA (Anbima’s Hedge Funds Index), well above the gains of 2.42% for the CDI in the same range. .

The result is much better than the one presented throughout last year, when the IHFA multimarkets had an average return of 2.04%, against 4.4% for the CDI.

The positive performance this year is largely due to managers’ bet on the need for higher interest rates in developed countries.

Traditional investment houses in the country such as SPX Capital, Verde Asset and Adam Capital have positioned their portfolios and delivered high returns to shareholders with the increase in interest rates and the continuity of the monetary tightening process in the United States.

For this, these funds use strategies known in the jargon as “takes” in the US interest rate market, a position made through derivative contracts that tends to appreciate in value with each movement of higher rates by the Fed.

Vinland Capital, Asset 1, Kinea, XP Asset, Ibiuna, Gap Asset and Kapitalo are some other managers with positions that gain from the rise in US interest rates, one of the most recurrent bets in portfolios of multimarkets at the moment.

The individual investor is still not able directly through B3 to adopt positions “taken” in interest rates in the United States, with the option for funds being the main available alternative, says Carolina Oliveira, an analyst at XP.

“Multimercados hit the thesis of global inflation very well, pressured by all the stimuli made in the pandemic and the war in Ukraine, leading to the need to raise interest rates”, says the expert.

record performance

The multi-market fund Nimitz, owned by SPX Capital, had a return of 7.34% in March, the highest monthly gain since it began operations in 2010. In the first quarter alone, the gains of the multi-market by the manager of Rogério Xavier reach 13.15%.

“In the current inflationary situation, central banks may be forced to tighten their monetary policy more than desired, in order to prevent inflation expectations from becoming unmoored”, point out the managers in the management letter for the month of March.

They say that the persistence of current inflationary dynamics requires higher global interest rates than currently projected, in a world that is heading towards a process of deglobalization and higher inflation in the wake of the pandemic and the war in Ukraine.

The manager maintains favorable positions for interest rate hikes in countries where it believes there is still a “great imbalance” between economic conditions and market prices. “We see an intensification of the global inflationary situation.”

SPX also has bets on the dollar, the Chinese stock exchange and metallic commodities, as well as “short” positions, which gain from the fall of Brazilian technology and financial stocks.

Surprise at market reaction

With a similar view on the need for a more aggressive monetary tightening in developed countries, the multimercado Verde, owned by Luis Stuhlberger, manager Verde Asset, advanced 4.19% in March. In the first quarter, the return is 7.13%.

“Our conviction that inflationary pressures would remain acute and would pressure central banks, led by the Federal Reserve, to tighten their monetary policies strongly, has materialized in an important way,” note the managers of Verde in last month’s performance letter.

The fund indicates in the document that follows with positions taken in interest rates in the United States, and, to a lesser extent, in Europe. Oil contracts and Brazilian shares also make up the portfolio of the multimarket.

“For now, we are surprised at how well the global stock market has absorbed this sharp rise in discount rates, and we wonder how long this will last.”

War times

The Adam Macro fund, from Adam Capital, had gains in the order of 2.01% in March, bringing the accumulated profitability in the first quarter to 3.76%.

Once again, the increase in interest rates in the United States appears as a relevant contribution to the performance presented.

The managers of Adam, founded by Márcio Appel and André Salgado, point out that, just over a month after the Ukrainian war, and even in the face of so many uncertainties ahead, economic activity continues to expand in developed countries with the reversal of measures isolation due to the pandemic, especially in the United States.

“The US economy remains strong. The job market is heated, retail sales have risen, maintaining the upward trend and, despite the indicators of new orders for durable goods and capital having dropped, these indicators are at very high levels for the historical pattern”, say the managers of Adam.

They see strong inflationary pressure in the United States as the “big challenge” for the Fed this year, as the US monetary authority will have to balance rising interest rates with the negative impact it has had on the pace of recovery in the country’s economic activity. .

In addition to positions taken in US interest rates, Adam’s multimarket carries positions in Vale and Petrobras shares on the local stock exchange.

“In times of war, events can suddenly reverse convictions. On our side, we are especially attentive to opportunities.”