After investors migrated en masse from riskier strategies to fixed income as interest rates rose, they may now feel they have left money on the table. Those who left the macro hedge funds, funds in which managers base their positions according to the several economic scenarios, will look in the rearview mirror and see average returns of 7.3% in the first quarter, or 304% of the interbank deposit rate (CDI), according to Anbima, the association of securities firms.
With the increased volatility seen in the markets throughout 2021, especially in the second half, many people started this year settling for more conservative strategies, which signaled double-digit-level returns – and, in fact, the Selic, Brazil’s benchmark interest rate, is at 11.75% and may reach 13% with a new adjustment by the Central Bank’s Monetary Policy Committee (Copom). But the CDI, the starting point for most mixed and fixed income portfolios, yielded 2.4% from January to March.
Based on Quantum Axis’s sample, there are at least three dozen portfolios with returns of more than 6% in the first three months of the year, almost half of the current basic rate. On the top end, Vista (27.8%), SPX (25.3%), XP (16%), Capstone (14.6%) and Vinland (14%) funds stand out. Gap, Legacy and Novus had returns above 10%, while Kairós, Ibiuna, Kapitalo, Sparta, Neo and Garde were in the 8% to 9% range. The Verde fund, which had disputed openings during the pandemic, saw gains of 7.13% in the first quarter, after a rare negative year in 2021 (-1.13%).
Looking at short-term performance is not the best math for funds that are recommended for horizons of at least three years. But it is educational to realize that aborting an investment plan and just going with the flow can come at a cost.
“I’m very critical of that move, it was ignorant. They withdrew a big lot, migrated to fixed income, and now they are chasing their tails,” said Felipe Arslan, the partner in charge of investor relations at Vinland Capital. “The question I hear most from investment advisors, after congratulating us for the 2021 performance, is whether the fund will continue to perform well.”
Since the portfolios have performed well over the past three years, Vinland did not feel the R$41 billion outflow from multimarket funds in the first quarter. “We got right the rise in interest rates and will try to the same as it falls. Hedge funds are designed to yield the CDI plus something, and the environment in which it operates is much better when interest rates are at 11%, 12% than when they were at 2%,” he said.
The job of hedge funds is to find out what is or isn’t in the asset prices, not to get the “final details” right, said Caio Santos, the partner in charge of investor relations at Ibiuna. And as the monetary policy rarely stands still, it is at the turning points that most money is made. “If the manager understands interest rates and knows how to operate [according to] inflation, currencies and the stock markets, this translates into other positions,” he said.
Mr. Santos points out that the funds will have worse phases, no manager will get it right all the time, but “there is no point in the investor leaving his ‘asset allocation’ and flying to the 1% [a month of fixed income].” When the Selic was lowered to 2% a year, many risk-averse people revised their portfolios and went to more volatile products. Then the game turned and there was a movement back, the investor may have taken a risk for which he was not prepared. “But it’s medium and long term, there’s no point in looking at the shorter windows.”
Carlos Woelz, founding partner of Kapitalo, recalled that hedge funds are “CDI+” strategies, “for better or worse,” and that there is still a work of financial education to be done with investors and with those who serve the client. “It is not reasonable to look at the returns of past years as a reference and expect the same return when interest rates are at 15% and when they are at 2%,” he said. He rejects the thesis that it is harder to outperform the CDI when the rate is high. “The manager invests the cash in CDI, it makes no difference.” Investing in macro hedge funds because of boom or bust cycles is the wrong motivation, he said. “You have to invest because you believe in the management team.”
Mr. Woelz puts his thesis into Excel and shows that the main hedge funds saw in 2021 average returns of 5.23% (118% of the CDI). In 12 months, the percentage rises to 11.29% (175%). In the first quarter it was 6.61%, or 272% of the rate.
Source: Valor International