Migration to fixed income linked to interest rates, not customer profile

According to association of securities firms, class accounts for 61.3% of investments volume in first half


Investments by individuals in retail, high income, and private banking reached R$4.65tn in the first half of the year, Anbima says — Foto: Silvia Zamboni/Valor

Investments by individuals in retail, high income, and private banking reached R$4.65tn in the first half of the year, Anbima says — Foto: Silvia Zamboni/Valor

The giant flow of individuals into fixed income is more related to the rising interest rates than to the inadequate supply of riskier options during the era of ultra-low interest rates in Brazil, says Ademir Correa, head of the distribution forum of the Brazilian Financial and Capital Markets Association (Anbima).

“What we actually see is that even clients with a bold profile are scared with the movement, with the prolongation of this scenario that has affected even the seasoned ones. It doesn’t have much to do with whether the profile is right or if [funds] are correctly allocated,” said Mr. Correa, during the virtual press conference with the presentation of the individual investments data for the first half of the year.

Investment funds lost 3.5% of their stock in the first half, to R$1.42 trillion. Hedge funds had a decrease of 5.1%, or R$35.2 billion, despite the good performance of asset managers in the period. Stocks portfolios have also shrunk, with a loss of R$38.6 billion from January to June, a decline of 18%. In the same period, fixed-income portfolios grew R$20.3 billion, up 4.5% year-over-year.

Overall, fixed income now accounts for 61.3% of the investment volume of the traditional retail, high-income, and private-banking audiences combined, compared to 57.1% in December.

Savings accounts are still the main retail product, with a 32.9% share, followed by certificates of bank deposit (CDBs), with 19.9%.

Mr. Correa, also an executive with Bradesco, said he sees great demand from clients for fixed-income products as a safer haven. “The scenario for variable income is still very troubled worldwide with the inflationary environment and stock markets down. We don’t see a recovery yet, it’s a moment of great mistrust of investors with the market. They are waiting for the next steps.”

A potential recession amid rising interest rates in developed countries, the Russia-Ukraine war, and the elections in Brazil are all ingredients of this uncertainty.

For Mr. Correa, the movement towards diversification is not exhausted, however, with rising interest rates and the Selic back to double-digit levels, at 13.25% per year. “The falling interest rates [in the past] has forced people to explore new investment opportunities with higher returns and this has brought a greater knowledge of the customer of this market,” he says. “What we notice is that high-income investors generate more demand for diversification, which is a healthy movement.”

Anbima has been working on an agenda to improve suitability, or the correct fitting of the offer to the risk tolerance profile. “With falling interest rates, we have seen a strong movement of clients looking for options with higher volatility and financial firms placing more and more products available for smaller ticket sizes.”

Within Anbima, the idea is to update self-regulation, standardizing the financial firms’ policies and establishing minimum risk levels for the products.

Another work that the distribution forum is expected to develop this year is to establish some regulation for financial firms that hire digital influencers. These professionals would be subject to the same requirements as those who serve the customer directly when recommending investments.

In the first half of the year, investments by individuals in retail, high income, and private banking reached R$4.65 trillion, up 2.8% year-over-year.

In the more affluent customer segment, more exposed to the international classes and to higher risk alternatives, assets shrank 1.7%, to R$1.75 trillion, while high income retail had an increase of 5.4%, with R$1.29 trillion. In the base, the traditional retail totaled R$1.61 trillion, with a high of 5.9% in the first half.

Mr. Correa avoided qualifying the low growth of 2.8% in the volumes of the individuals, but with Brazil’s benchmark inflation index IPCA at 5.49% until June, portfolios failed to grow above the official inflation rate. “It shows the volume drop in private banking. It has to do with the drop in the stock market, a product that has a higher concentration of this type of investor.”

In periods of greater uncertainty such as the electoral period, he said, there may still be a migration of wealthier audience for investments abroad. Anbima’s data do not include, however, the positions of private-banking clients in international accounts.

*By Adriana Cotias — São Paulo

Source: Valor International