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Wednesday, March 29, 2023

The value of the FCIs for short-term pesos

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Now, if our investment horizon is somewhat longer, the range of options expands. If we are didactic, the difference is found -to a greater or lesser extent- in the incorporation into the portfolio of instruments with market risk. Understanding that, with this, not only the investor is exposed to the possibility of generating higher returns, but also to the implicit volatility of these instruments. Here we are targeting, specifically, the T+1 Fixed Income funds. The latter referring to the 24 hours that run from the redemption to the availability of the funds, and which is clearly not immediate as in the T+0, but neither does it require a 30-day immobilization as the one generally implied by fixed terms traditional.

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In broad terms, apart from the liquidity in the portfolio (which is usually invested in fixed terms, sureties, FCIs or remunerated accounts), these funds may include short-term sovereign and/or corporate risk assets. Among the first, we can find Municipal, Provincial or National Treasury Letters, or even short-term Sovereign Bonds. If we talk about corporate, we can mention Negotiable Obligations or SME Instruments -Financial Trusts, mainly-. The basic objective: to achieve a rate equal to or greater than a fixed term, with a short-duration portfolio (which should contain volatility), prioritizing short-term instruments, and the necessary liquidity required by a fund with availability the next day.

Currently, the industry already has more than 80 options of this type -out of a total of almost 700 funds-. But let’s go back to front. Specifically, the Fixed Income funds add up to around 350 funds (50% of the total), but if we double-click and analyze only the Fixed Income funds in pesos, the analysis is restricted to around 270. Therefore, within this number , the 80 RF T+1 alternatives explain around 30% of this total. By far, the category with the greatest weight within Fixed Income in pesos.

In that sense, As for equity, the segment exceeds $670 billion -or 9.5% of the total managed by the industry-. Similar weighting to the one it presented at the end of 2021, with an AUM of $343 billion, which implies that its growth remained in line with the industry (94% vs. 92%).

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However, if we analyze its evolution month by month in the last year, this segment was not exempt from the volatility that the industry suffered at times. In fact, in June of last year, this category accounted for 11% of the total. What happened? The local debt crisis that led them to lose more than $150,000 million in a very short time -a strong movement that we did not see STEP in 2019-, and to close the year at less than 9%.

Now, why does this trend seem to reverse in these weeks? In principle, due to the need to improve returns without assuming much greater volatility than a T+0.

The movement of the flows clearly shows this greater appetite, and even makes them the segment with the highest net subscriptions in the month. Specifically, the T+1 accumulate about $59,000 million – at a daily average rate of $3,000 million -, far from the MM with a positive flow of 12,000 million (but practically explained only by the income from the last rounds) or those identified as those of coverage that reflect rescues for more than $38,000 million.

A trend that we understand, in particular, will continue in a scenario where uncertainty will continue and strengthen hand in hand with the electoral process; and, consequently, the appetite for quick liquidity as well.

What do the T+1 invest in?

But beyond the renewed appetite and the variables that can argue in favor of these funds, the reality is that -as it happens in many categories- it is a segment of the industry that can be armed with different strategies. Now, what determines these strategies? The economic-financial situation as the possible options on the table (and also, with some logic, the regulations).

So much so that, if we look at the evolution of the general composition of the portfolios in the last 12 months, it is reflected how the uncertainty triggered by the debt -especially, in pesos and short-term- in the middle of last year, weighed heavily about the strategies of these funds.

It is even relevant to double-click on that set of movements, and analyze how the type of letters that explain that participation was modified. Today, basically that 50% is made up in practically equal parts of Ledes and Leceres. A different photo from the beginning of last year, when the highest weighting was from Ledes, and from the middle of the year (before the crisis) when the Leceres were the ones who won the fight.

Now, in any portfolio and before changes in the participation of the main instrument (Bills, specifically, in the case of T+1), there must be one or more adjustment variables. Here the most important was liquidity. This gained prominence during the local debt crisis (to a maximum of 33% if we include the Lelites), and fell in recent months to 23%.

A component that is key to highlight and that we hope will remain in this line -between 20/30% or even more as the uncertainty is greater-. Where the framework of the current situation pushes to keep the duration of these funds short, and with limited volatility. Even the recent rate hike plays in their favor.

Lastly, we must also emphasize the role of private instruments in these funds, which today weigh around 20% in general -due to a share of SME assets that doubled and a growth of NOs of around 5 percentage points year against year-. Here again the reasons are explained, to a large extent, by the doubts that weighed (and still weigh) on the sovereign risk.

However, it is worth clarifying that -given the context of high uncertainty- the management of the strategies by the Portfolios Managers of each fund is increasingly active; therefore, the configuration of these funds is likely to vary (even in limited times).

For this reason it is very important to double-click on the composition of the portfolio when choosing. Understanding this will allow us to find, more easily and efficiently, the fund that best suits the investment objectives of each profile.

The author is Team Leader of FCIs of ppies

Source: Ambito

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