As explained by this stockbroker, basically, it was the combination of the fall of the BCRA interest rates and the beginning of a New era of Treasury bill issuance -under Caputo’s management, and within the framework of changes in monetary policy-, which drove the emergence of this segment.
But what are its characteristics, what advantages do they have and what are their risks? That is why, from PPI has put together a quick and easy guide to understanding what they offer and how they operate.
What is the objective of these FCIs?
Toast an option to the traditional Money Marketoffering a higher return to these funds, but without losing (as a benefit) daily liquidity. Thus, an alternative for conservative profilesand recommended for transactional pesos with an investment horizon of between 15/40 days.
What average returns do they offer?
They move in an APR of around 42% to 45%, compared to the 34% offered by T+0 MMs todayfor portfolio durations between 0.05/0.2. As a reference, the Badlar Private Banks is at 38%.
Its performance so far this month is around 2.4%, a few points above the Money Markets and similar to that of short-term Fixed Income (T+1). While The spread between the best and worst fund is around 40 basis points, responding to the fact that even when included in the same category, there may be differences in composition – more specifically, in duration.
What is its composition?
Between 85/95% of its assets are Lecaps at different terms (and hence the name with which they are identified), while the rest is usually liquidity in MM FCIs.
Although, it can also add in some proportion -according to the strategy defined by the SG- other short-term fixed-income instruments. However, It is important to understand that this will determine the potential risk of these funds.
What is the difference compared to MM?
Precisely, and related to the previous point, the market risk of your portfolio due to the assets it comprises and, therefore, its potential for greater volatility.
T+0 Money Market funds remember that they invest in remunerated accounts, fixed terms and guarantees, mainly. They do not include in their portfolio assets with market risk, such as Treasury bills and/or sovereign bonds, provincial bonds, checks, etc.
What are Lecaps and how do they work?
They are financial instruments issued by the government (Treasury) at a fixed rate and, as their name indicates, they are capitalizable. In other words, they compound at a monthly rate and pay out the invested principal plus interest at maturity. They are generally short-term (the theoretical definition of a bill is that its term does not exceed one year).
They are traded on the market, so their price may vary, depending, like any asset, on multiple variables of the situation.; and hence, unlike MM, the funds that add them together may have greater volatility and negative variations in their share value. Therefore, the duration (that is, the average life of the portfolio that will depend on the bonds that compose it) will be a key to minimizing this point.
Even incorporating market assets into your portfolio explains, specifically, why The VCP of these funds is known after 5 p.m. (and its settlement takes place after that time).
How many options and what interest do these funds concentrate?
Refugees (as we mentioned) seeking to maximize the return on liquidity, this segment that was born about two months ago – due to the increase in the issuance of bills and their higher rate compared to BCRA risk assets – has been adding funds.
But it is important to note that Some are new, and others are a conversion of T+1 Fixed Income funds (today, and after the change in market settlement, called Short-Term Fixed Income). In fact, this last category also includes funds with portfolios mainly in Lecapsalthough they maintain their settlement period at 24 hours.
However, the movement of flows shows the clear interest and appetite for these strategies. Specifically, Fixed Income Lecaps total around $56 billion so far this month – at a daily average of $4.1 billion –and have accumulated more than $270 billion since the end of May.
A movement opposite, partly for the reasons explained, to that of short-term Fixed Income, which lost around $99 billion in June and have net redemptions of around $32 billion so far in July.
What place does this new segment occupy?
In terms of assets, they are not yet relevant, representing 1% of the total. Far from the Money Markets with 60%, and from the Fixed Income of CP which are today 8%.
In particular, due to its volatility, They are an option that is located between the traditional Money Markets and the CP Fixed Income mentioned. They have the same structure as the latter basically, although with daily liquidity and on average a shorter duration, which seeks to minimize their risk.
Now, The life of this segment (like the concentration of its flow) will depend on how the Lecaps curve is built. -in terms of rates and terms-. Administrators agree that, if they are forced to extend the duration, they could rotate or reconvert again to T+1. A scenario of this type is not expected in the short term.
Source: Ambito
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