Record wave of redemptions: funds lose 162.9 billion reais with withdrawals in 2022, the highest value in 20 years

The end of 2022 has left a bitter aftertaste with the hemorrhage affecting the local investment fund industry. The reason is that net redemptions (deposits minus withdrawals) reached BRL 162.9 billion in 2022, the highest amount since the beginning of the Brazilian Association of Financial and Capital Market Entities (Anbima) historical series. , which dates back to 2002.

Withdrawals followed a positive record year: in 2021 net inflows from investment funds reached 412.5 billion reais.

According to Pedro Rudge, vice president of Anbima, some factors may have contributed to this hemorrhage of funds. Competition with exempt fixed-income securities, the context of higher inflation, the decline in disposable income and possible year-end expenses are some of the points mentioned by the expert.

“To maintain my standard of living, I have to spend more. I have less left to save,” warns Rudge.

For the Anbima vice president, it is difficult to say when this outflow of funds should stop, but he believes that more predictability of what the solution will be is needed to seek fiscal balance so that this flow improves.

“By having a clearer horizon and more certain visibility, the investor could have a different movement than he has been having in recent months”, underlines the executive.

Multi-market funds lead bailouts

Last year, the largest volume of net withdrawals occurred in multimarket funds, which closed 2022 with a negative inflow of 87.6 billion reais, a record for the category.

Not even high yields could keep the flow positive for multi-markets. Survey conducted by Money info based on the data from the Economic platform, it can be seen that the maximum gain achieved by multimarket funds reached 42.87% in 2022. This profitability was offered by Exploritas Alpha América Latina FIC FIM, by Exploritas, classified as a free multimarket by Anbima . This was the best annual result ever delivered by the fund since its inception in 2014.

The survey took into consideration non-exclusive vehicles, with active management, average shareholders’ equity exceeding R$100 million in 12 months and more than 99 shareholders at the end of December. Private credit funds were excluded.

Not even those who took advantage of it had a chance

Even macro-type funds, which allocate interest, stock exchanges and foreign exchange, and which closed the year with the second best average return, 16.99%, did not escape the wave of withdrawals.

In 2022, net redemptions of macro multi-market funds amounted to R$7.0 billion, the third largest sub-category in terms of outflows, losing out only to open-ended and multi-market specific strategy multi-market funds.

However, it should be considered that macro multimarkets can be registered in the Anbima database as free multimarkets (which adopt varied strategies).

In a report, XP’s Nathália de Sá, Clara Sodré and Rodrigo Sgavioli say investor pullback behavior is a reflection of the uncertainties surrounding risk assets, which has been driven by the central bank’s monetary tightening.

The expectation of keeping interest rates high makes fixed income more attractive. Economists consulted by the Central Bank in the Focus Report predict that the Selic will close this year at 12.25%, drop to 9.00% in 2024 and close 2025 at 8.00%.

Despite a bitter year for the multi-market industry in terms of fundraising, the three XP professionals stress that they continue to believe in active management for building an efficient portfolio and that these funds can now shine again.

“We believe that to navigate the high volatility environment, the flexibility of operations and decorrelation of multi-market funds can continue to add a positive contribution to the portfolio,” they added.

In this sense, the suggestion of professionals consulted by Money info has been mixing strategies with positions in macro and quantitative multi-market funds, as well as long and short – in which the manager opens positions by buying an asset (long) and selling another (shorts), to profit from the relative performance between them.

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• What is the best investment for 2023? Post-fixed and multimarket should be in portfolios this year

Losses in equity and fixed income funds

The scenario was also delicate for equity and even fixed-income funds, which recorded the second and third largest net withdrawals of 2022.

In the first case, inflows were negative by R$70.5 billion, while fixed-income funds recorded net outflows of R$48.9 billion. Equity fund redemptions are also the highest in a year since the beginning of Anbima’s historical series.

Among equity funds, the average returns of the most varied classes were mostly negative. The greatest decline was recorded by sector products, which suffered losses of 27.46% last year.

For XP specialists, 2022 has been a challenging year for active management within the equity market. “Some managers who have growth theses in their portfolios had one of the worst performances in history in 2022”.

Western Asset FIA BDR Level I, which closed last year with a loss of 37.33%, for example. This was the worst return ever offered by the fund since its creation in May 2014. The decline in profitability was accompanied by the loss of shareholders. At the end of December 2022, there were 85.6 thousand unit holders, a decidedly lower number than the 151.3 thousand registered at the end of 2021.

Survey conducted by Money info based on data from Economatica, it shows that the product ranks fourth in the list of equity funds with the largest number of shareholders, behind only the Bradesco FIC FIA fund and two equity funds from Itaú Asset Management.

The study took into consideration non-exclusive vehicles, with active management, average shareholders’ equity exceeding R$100 million in 12 months and more than 99 shareholders at the end of December. Sector funds and single shares were excluded.

One explanation for the poor performance of equity funds in 2022 may be that growth stocks tend to be more sensitive to rising interest rates, as an increase in the discount rate negatively impacts stock prices. In the case of the Western Asset fund, 40% of the fund was allocated to technology stocks, considered growth stocks, in December 2022, according to the product factsheet.

Last year, according to XP experts, positions in education, healthcare and retail stocks were the worst performers. Conversely, they said stocks related to oil and gas, government concessions and the financial sector were among the best-performing stocks over the period.

Commenting on the move away from fixed-income funds, Anbima’s Rudge points out that the association believes some of the money will go towards exempt fixed-income securities, such as Agribusiness Letters of Credit (LCAs). “These bonds also gain in attractiveness with the high interest rate,” she says.

According to data from the association, the stock of LCAs, for example, rose from R$202.5 million in January 2022 to R$328.0 million in November 2022. Such stocks drove inventory volume with respect to other businesses exempted in 2022, such as Real Estate Letters of Credit (LCI), Real Estate Credit Certificates (CRI), and Agribusiness Credit Certificates (CRA).

Exchange funds, ETFs and pensions escape bailouts

In contrast to products focused on equities and fixed income, foreign exchange funds, ETFs (index funds) and pension products managed to close 2022 with positive inflows.

In the first case, net deposits amount to R$ 178.5 million. ETFs and pension funds recorded net inflows of R$366.3 million and R$13.0 billion, respectively.

Equity investment funds (FIPs) and products that allocate rights to credit (FIDCs) also escaped the wave of withdrawals and ended the year with net inflows of R$ 17.8 billion and R$ 12.7 billions, in order.

According to Anbima, the successful financing of the FIDCs was greatly aided by a concentrated movement of R$27.9 billion into an agro-industrial and commercial type fund.

Given the recent possibility that retail investors will be able to allocate in FIDCs, analysts expect funding to continue at a strong pace in 2023.

The assignment will be possible because, at the end of 2022, the Brazilian Securities Commission (CVM) announced changes to the general rule for investment funds with the arrival of Instruction 175 CVM – which will come into force on April 3, 2023 .

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• CVM announces new fund rules with direct effect for investors; what will change in practice?

In practice, the rule will concern – more generally – investment funds and will transform CVM’s Instruction 555, which deals with investment funds in general, and CVM’s Instruction 356, which specifically addresses funds that invest in law, in credit attachments (FIDC).

In the case of the latter, the big change is that retail investors will be able to allocate in FIDCs. Currently, exposure to funds of this type is only permitted for qualified investors, in most cases, and for professionals (with financial investments exceeding R$ 10 million), in the case of non-standardized FIDCs.

Anbima’s agenda in 2023

With an eye to the changes proposed by the CVM in December, Rudge, of Anbima, points out that the change should not have an impact so much in the short term, but rather in the medium and long term.

The executive says the new rule will help improve quality and also offer greater flexibility to funds. As an example, he cites the passage dealing with the responsibility of shareholders.

According to the new rule, if the fund’s assets, by chance, turn out to be negative, the investor will no longer be obliged to pay additional contributions, as is the case today. That is, the concept would be similar to investing in companies, where the investor’s exposure is, as a general rule, limited to the subscribed capital.

In this sense, Rudge believes that more aggressive and more specialized funds could achieve greater attractiveness and demand than today.

Also as part of this year’s agenda, the association said it is monitoring discussions about the impacts of central bank digital currencies, or CBDCs. Brazil has preceded the major world powers in this segment.

When asked about the mark to market of more fixed income assets, which went into effect last Monday (2), Rudge stressed that the measure is beneficial in bringing a “better understanding” of the assets.

Read more:
• Mark-to-market: what changes and how it affects fixed income

“The investor will understand how his investment is changing,” he says. “If he needs to dispose of it, he can see the market price,” defends the Anbima executive.

In practice, the mark to market will allow individual investors to monitor, day by day, how much capital they have acquired is worth. This is because this process is nothing more than updating the value of these securities according to the prices at which they are trading in the market.

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