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Asset managers see foreign flow to B3 losing steam

Asset Management: o que é e como utilizar nos ativos

After receiving R$73 billion in foreign funds this year to March 16, more than any full year since official records began in 1994, the secondary market of B3 may see the flow slowdown in the coming months as the global landscape for stocks undergoes adjustments, asset managers told Valor.

To be sure, global investors continue to see support for commodity-linked stocks, which account for 40% of benchmark stock index Ibovespa, but a shift in focus to assets more reliant on the local economy seems increasingly less likely, as inflationary pressures intensify and the Federal Reserve has already started its monetary tightening cycle.

The Ibovespa is up 9.8% this year, while S&P 500 is down 6.3%, Nasdaq lost 11.6% and Stoxx 600 fell 6.8%. The positive performance, however, is strongly concentrated in the blue-chip companies, those with the greatest weight in the local index, and in the mining, steel, financial and oil and gas industries, the favorites of global investors because of their liquidity.

Before the beginning of the Russia-Ukraine war, in February, analysts saw a potential migration of international capital to assets more linked to the local economy, expecting a slowdown in inflation and a reversal of the Central Bank’s monetary policy after the presidential election, scheduled for October. This scenario seems distant now.

“Central banks in Latin America had been preparing for months for this monetary tightening cycle, trying to stay ahead of the curve, but the impact of the war is essentially inflationary, with high food and energy prices. It’s not catastrophic, but it makes the landscape more challenging and delays expectations of a turnaround,” said Alejo Czerwonko, chief investment officer for emerging markets and Americas at UBS, which has a neutral recommendation for Brazilian assets.

UBS BB, the arm of the Swiss bank in Brazil, believed that the Selic could reach 13.75%. But after the local policymakers’ decision on Wednesday to raise Brazil’s benchmark interest rate to 11.75% and signal another 100-basis points hike, UBS revised its projection for the final rate to 12.75%. The difference, however, is that the bank’s analysts now predict that the rate will remain at this level by March 2023.

As a result, the environment is less favorable for the recovery of assets linked to the domestic scenario, Mr. Czerwonko said. He cites the Federal Reserve’s monetary policy decision, unveiled on the same day, as a potential watershed for the stock markets.

“Fed’s statement was tough, indicating several hikes and showing concern with inflation, which is likely to mean less liquidity and funds for emerging markets. In addition, investors have left some sectors of the U.S. stock market, such as technology, to protect themselves from interest rate hikes, but now this seems to be more priced in, so we may start to see the move lose steam.”

Along these lines, Marko Kolanovic and Bram Kaplan, with J.P. Morgan, wrote in a report that they no longer believe that U.S. growth assets have much correction ahead. “Markets can anticipate turning points, so we believe it is time to start adding risk in many fields that have experienced too strong a correction,” they argued.

Mr. Czerwonko, with UBS, also points out that Brazil’s historical problems, such as the lack of a growth rate more compatible with emerging economies, help explain why the local market took a back seat in recent years and its use only as a “tactical refuge” during commodity boom cycles.

“Besides markets such as China, India and Southeast Asia presenting consistently better activity figures, the elections, which were pushed to the back burner in recent months, are likely to gain prominence throughout 2022,” he said.

Mauro Oliveira, head of Latin America equities at Credit Suisse, said that the Brazilian central bank and the Fed released tough statements, which shows discomfort with inflation that may impact assets more dependent on local activity. However, the flow will continue, even at a slower pace, with the help of commodities, he said.

“Foreign investors are likely to tap the local market at a slower pace, with profit-taking moves in some days or even leaving some stocks. In some sectors, like construction, is very hard to invest now because of poor results and labor cost inflation. But the Brazilian stock exchange is a commodities exchange, there is no way to escape this, and this segment is likely to draw money throughout the year.”

Alexandre Reitz, head of equities at Julius Baer Family Office, follows the same path. He points out that, in communication with clients, local equities have started to carry more risk than they did at the beginning of the year due to the factors added in recent weeks.

“We could already see a recovery in domestic assets at the beginning of 2022, and this has been extended a bit further ahead. But the constructive view about commodities remains. The profitability level last year had been high and was telegraphing a correction, but the war has changed this landscape,” he said, pointing out that he has started to look for positions in more resilient domestic assets, such as the clothing sector.

Credit Suisse estimates that Brent oil, the benchmark for Petrobras, is likely to remain at the level of $100 by the end of 2022 due to persistent supply problems. Iron ore is likely to stay above $120 throughout the second half, even as discussions of control in steel production remain in China.

As for the Asian powerhouse, Messrs. Oliveira and Czerwonko saw favorably recent remarks of vice premier Liu He. He said the government will stimulate the country’s economy again and work to organize its stock market. Besides commodities, the analysts say the changes can impact Chinese assets, which trade at a discount level in some sectors compared with the Brazilian market.

As for the Brazilian real, which has appreciated firmly this year, the three financial firms see resilience at current levels, given local interest rates and high commodity prices. Mr. Oliveira, with Credit Suisse, points out that there may even be a correction in case of occasional risks, to between R$5.25 and R $5.30, but that foreigners would soon return to set up positions in the local currency.

Source: Valor International

https://valorinternational.globo.com

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Asset managers increase criticism of the Bolsonaro administration

Asset Management: o que é e como utilizar nos ativos

The Jair Bolsonaro administration reached its last year resorting to “cheap electoral populism”, “totally irresponsible” and reminiscent of the “worst practices of the PT [Workers Party] government”. This is the assessment of the monthly letter to clients of Verde Asset Management, headed by Luis Stuhlberger. In the report entitled “Economic Flat Earth Theory”, chief economist Daniel Leichsenring states that, in virtually all areas of activity, “what was seen was a disaster.”

He cites the “deliberate attitude of postponing the immunization and insistently acted against it”. In the economic sphere, he says, “we saw a Ministry of Economy working on a forced march to destroy the spending cap, in partnership with the president” and other allies. The economist recalls the “meteor” of the so-called “precatórios” (court-ordered payments, postponed by a new law to avoid breaking the spending cap), the “complete destruction” of the credibility of the cap and the Fiscal Responsibility Law (LRF), amended to accommodate spending on electoral funds and congressional earmarks, “under the lame excuse of serving the poorest with the [new cash-transfer program] Auxílio Brasil”.

From 2021 to 2022, there could be “some scope to imagine that the worst was behind us,” says the economist. “Great mistake. In an effort to try to reverse the absolute unpopularity of his government, behold, the president reveals an infallible plan: to reduce taxation on fuel and electricity.”

In his assessment, the idea of eliminating fuel taxes “is a complete madness” and “can’t resist a minute of considerations about its quality”. Mr. Leichsenring also notes that the idea is based on the “shocking justification” that there is excess revenue. Verde estimates a nominal deficit close to R$730 billion in 2022, and could reach R$800 billion, at least, with the exemption. Debt would rise to 85% in 2022 from 80.3% of GDP in 2021. “Of course, given this dynamic, the interest rate will end up snowballing,” he stated.

With the return of high interest rates and foreigner investors to the Brazilian stock market, the market’s natural reaction, however, is not taking place, according to Mr. Leichsenring. He says he hopes that people will realize that the path traced by the government “will be as disastrous for the economy as the one implemented in the PT government.” For him, there is still time “to find a viable political alternative for Brazil”.

The Verde Asset team’s explicit disappointment is increasingly finding resonance among asset managers. As they take care of third-party money, political developments in the macroeconomic scenario are followed up with diligence, as they are part of the fiduciary duty of these professionals and worth a result in the quota.

The perception is that Mr. Leishsenrig translated a feeling that is becoming increasingly widespread in the asset management segment. “Today, a new Bolsonaro government means the continuity of this fiscal mess and with a chance of getting worse because the government is clinging to power,” says the CEO of a specialized asset management. Economy Minister Paulo Guedes, who took over a ministry with superpowers in 2019, is today evaluated as good at rhetoric, but bad at work, always blaming a third party, continues the manager. “He gave himself totally, showed that he is there for power”.

Although the cards of the electoral game are not all on the table because the candidacies have not been defined, there are those who believe that a “remake” of the Bolsonaro government would mean the depreciation of the so-called “Brazil kit”– with devaluation of shares, the real and high interest rates. term, a thermometer for country risk – more than any other candidate that proves to be capable of being elected.

The approach of former president Lula da Silva to the ex-governor of São Paulo Geraldo Alckmin, if materialized, would make impossible the ascension of a third name, so desired by the market, but would bring a more central hue to the left wing of the Workers Party. The flow of foreign capital into Brazilian stocks in the first month of the year is a sign that foreign investors are more willing to see Mr. Lula da Silva return than to face a second Bolsonaro term, as Rogério Xavier, founding partner of SPX, said in a recent presentation.

In Brazil, investors are usually net bought in local assets because the government is the big issuer of fixed income, and companies, of stocks, says Sylvio Castro, founding partner of Grimper. At the beginning of Mr. Bolsonaro’s term, there was a perception that the overhaul agenda initiated by the team of former president Michel Temer would continue and that it would be a fiscalist government, he says.

He sees the inflow of foreign capital at the beginning of the year as a punctual rebalancing of investors’ portfolios, but believes that this flow tends to lose pace, returning to the menu of low GDP, high interest rates and strengthening of the dollar prices, with companies and families paying the bill.

Source: Valor International

https://valorinternational.globo.com

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Asset managers that grow faster in Brazil unveil their strategies

Asset Management: o que é e como utilizar nos ativos

The five asset managers that gained the most clients in 2021 together attracted almost 1.6 million new shareholders to their investment funds. Three of them are “independent” and two are linked to large banks.

XP Allocation Asset Management, linked to XP, was the one that gained the most clients, with 478,700 new members. Then comes the asset management of Nubank, Nu Asset Management, with the arrival of 430,000 investors. The asset managers of Caixa Econômica Federal and Bradesco appear in third and fourth places, but in fifth place comes again an independent company of the big banks: Vitreo Gestão de Recursos, linked to Empiricus (currently of BTG), with 174,000 new investors.

Some factors explain the growth of these independent firms. The launching of alternative products, such as foreign-oriented funds or less talked-about assets like cannabis, water and uranium; low initial minimum contributions; and marketing strategies to draw individual investors.

The survey also shows that the asset management companies linked to the five main retail banks in the country (Banco do Brasil, Bradesco, Caixa, Itaú and Santander) closed last year with 15.63 million members, compared to 15.10 million in 2020 – a 3.5% growth. The other asset managers had a 30% growth in 2021, reaching 8.29 million members.

Valor talked to the five firms that attracted the most clients last year to understand what strategies were adopted and what to expect for 2022.

XP Allocation Asset

The success of XP’s management company, for example, is due to different factors, according to CEO Bruno Castro. The main ones are the launching of products with differentiated strategies and the low initial investment amounts, which brings the company closer to the individual investor, considered by Mr. Castro as “the heart” of the company. “We focus on bringing products that were previously available only to institutional or qualified investors to the other XP clients,” he said.

Some of the main highlights of the year, according to him, were real estate funds and also the launching of exchange-traded funds (ETFs), like XINA11, which follows Chinese stocks. There is also an ETF that replicates the average price of gold.

By being connected to the largest investment platform in the country, the XP manager also has the advantage of the broad base of the broker, which counts on independent agents and investment advisors to help in the distribution of its products. Mr. Castro, however, emphasizes that XP Asset practices “the same rebate rules of the market.” The rebate is a kind of commission paid by the managers to these professionals who resell the funds.

For 2022, the manager says that it will continue to keep an eye on the so-called “thematic funds.” “Our international grid tends to become more robust, with more sophisticated products. We have recently launched water, carbon and internet funds, and we will continue to keep an eye on this,” Mr. Castro said.

Caixa DTVM

The wide distribution network was an asset for Caixa’s growth last year, while higher interest rates helped boost fixed income products.

The bank serves a less coveted slice of the market: the lower income bracket. “We are present in 99.83% of Brazilian municipalities, and the growing number of customers are the main levers of new shareholders,” the state-owned bank’s asset manager said in a statement. “Caixa Asset has structured and positioned itself to meet the needs of the lower income bracket. The products and the way to invest are simple and give returns.”

According to Caixa’s firm, fixed income products were the ones that attracted the most new shareholders throughout 2021. One reason was the increase in the Selic, Brazil’s benchmark interest rate. This contributed to increase the yield of this class of assets, since many fixed income products have their variation tied to the Selic. Another possible reason was the debut of Caixa’s insurance unit Caixa Seguridade on the stock exchange. According to the bank, “new investors came to the customer base through the initial public offering.”

Fixed income and credit strategies are the focus of Caixa’s asset manager for this year, the bank said.

Bram

Bradesco links the growth of its asset management business to two main reasons: the wide range of products, including those coming from partnerships with other assets, and the distribution on different platforms.

Ricardo Eleutério, the asset manager’s director, explains that the firm’s funds are currently available on 16 platforms, which have attracted 64,000 shareholders. “This accelerated a lot in 2021, when we sought partnership with independent distributors and attracted more investors,” he said.

The presence of house funds on partner shelves, however, is not the only reason for the result. According to Mr. Eleutério, Bram’s own shelf also justifies the arrival of new shareholders. He says that the firm has a very diverse menu of funds and, therefore, is able to meet the most diverse types of profiles in different scenarios.

“In 2020, we saw a lower interest rate, which made investors look for multimarket and equity funds. And we had many options of these products. Last year, with higher interest rates, the demand started to be for fixed income funds and even with a certain risk, such as private credit funds, for example. And we also had funds,” he said.

According to the executive, in the last two years the management company greatly accelerated its offer, as was the demand from the public. One path for this was partnerships with other firms, including international ones.

“We accelerated the offer with new products, alternative strategies and increased the product grid locally and also abroad,” he said. “We made many exclusive partnerships abroad. Where we didn’t have a presence, we started to have one. We were not in Asia, for example, so we made partnerships with managers bringing funds from Asia. For 2022, we believe this trend will continue and we will continue to do more partnerships.”

Nu Asset

Nubank’s fund manager links its growth to the ease of use of its digital platforms, through which investors can invest simply and on their own. According to Andrés Kikuchi, leader of Nu Asset, the company makes every effort to present the available products in a clear way to investors to facilitate their understanding and decision making.

“With simple language and investments starting at R$1, the process is 100% guided through an application to define profile, amount to be invested, monitoring and redemption request,” says the executive.

Currently, the company has five funds available in the Nubank app or on the NuInvest platform. The product Nu Seleção, for example, is made up of multimarket funds composed, in different proportions, of assets such as fixed-income securities, stocks in Brazil and the United States, gold and dollars.

The funds with the largest number of shareholders are Nu Seleção Cautela, with 236,000 shareholders, followed by Nu Seleção Equilíbrio and Nu Seleção Potencial, with about 86,000 and 85,000 shareholders, respectively.

The accumulated profitability from March last year until December for Nu Seleção Cautela was 3.34%, while that of Nu Seleção Potencial was 2.19%, and that of Nu Seleção Equilíbrio, 2.51%. As a reference, the interbank deposit rate (CDI) in 2021 was 4.42%, while Ibovespa fell almost 12%.

Vitreo

The other successful asset manager is Vitreo. The rise in the number of shareholders in its funds was explained especially by the launch of different thematic products that were pioneers in the market, according to George Wachsmann, founding partner of the firm. “Since the beginning of Vitreo we have had this idea of bringing the best investment opportunities. Many of them sometimes are not available to clients in general, or even to anyone in Brazil, and this was accentuated last year,” he said.

The executive says that the last launch of the firm was a metaverse investment fund, which invests exclusively in companies that have the so-called metaverse as a business. “This fund alone attracted 10,000 shareholders,” he said.

Another example was the launch of a fund that invests in uranium, which already gathers 9,000 investors and had a 50% increase last year.

In order to hasten and make launches that are appealing to the public, with the potential to appreciate in the market, Vitreo relies on the partnership with the analysis company Empiricus, which, just like the asset manager, now belongs to BTG Pactual.

Source: Valor international

https://valorinternational.globo.com/

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