With the extra push from interest rates, commodities and portfolio rotations focusing more on valuable stocks, the dollar has lost ground against the riyal. This year, the US currency has accumulated a negative yield of 14.4% as of yesterday’s trading session (28).
This drop was not only felt in the pockets of those who bought actual dollars at exchange offices, who saw the currency become cheaper. Investors who have investments in foreign exchange funds and in funds with international investments and without hedge or collar The exchange (protection) – that is, those who are exposed to changes in the US currency – were also affected. And this time, unlike during the past year, when the exchange rate was rising, the effect was negative.
Data from Anbima (Brazilian Association of Financial Entities and Capital Markets) indicates that the profitability of exchange funds this year, as of last Friday (25), was negative by almost 12%. In March alone, the drop was about 5%.
A similar movement has occurred with funds investing in BDRs (Brazilian Depository Receipts), receipts for shares of foreign companies traded in B3. Survey conducted by “Econometrica” at the request of Infomoney It indicates that the return on these funds is negative 16.66% per year, considering the midpoint of a list of 65 portfolios. The data runs through March 24 and includes funds investing at least 50% of their portfolio in BDRs providing return data this year. Exclusive funds were excluded from the survey.
Although the situation is difficult for those who have invested in these types of funds, the general recommendation of experts is for the investor to keep the demand. The reason, according to them, is that the downward movement of the dollar could reverse in the second half of the year, and there is a strong tendency for the US currency to trade above 5 riyals again at the end of the year.
Will the dollar rise or continue to decline?
Roberto Padovani, chief economist at BV, is one of those arguing that the downward movement of the dollar against the riyal seen since the beginning of the year is not sustainable. For him, there are a series of factors which should help reverse the flow of capital into the stock market and adjust the exchange rate.
• Dollar at two-year lows: What explains the strong rise in the real price and what to expect in the future?
Low global liquidity is one of the points that Padovani is drawing attention to. This, along with the indication from the Federal Reserve (Fed), the US central bank, that it should accelerate the pace of monetary tightening, promises to affect the flow of capital to emerging markets.
Domestic factors remain a concern, such as the fiscal agenda and economic debate in this administration and in the next, the economist notes. “When we combine the scenario of change in global liquidity conditions with the domestic debate over the economic agenda, it should lead to an increase in sovereign risk and a reversal of the intensity of the flows,” he wonders.
In the house forecast, the reversal of the flow should begin in the second half of this year. The chief economist argues that it will take some time for the market to understand the true effects of the Ukraine war on Europe’s growth, as well as analyze the economies’ reaction to the more hawkish stance adopted by central banks in developed countries. Not to mention the pricing effects closures In the Chinese economy and in this year’s global growth outlook, Padovani highlights.
“I think over the course of the third and fourth quarters, we will see that the global growth outlook will be lower. We will also see more stable commodity prices, given lower demand, and tighter monetary policy in countries,” says the chief economist, who expects the dollar to end this year at 5.50 Brazilian reals. advanced.
Ermenio Lucchi, CEO of BGC Liquidez, believes that the flow of capital to the exchange can be maintained even as progress is made on peace agreements between Russia and Ukraine.
According to him, the interest rate differential in Brazil is high and should continue to attract capital to the stock exchange. Otherwise, some emerging countries, such as Russia and Turkey, may continue to be less attractive to investors, which tends to benefit Brazil, the executive says.
However, the CEO is of the opinion that the US currency could fluctuate above 5 Brazilian Real, depending on the post-election narrative. “If the rhetoric that there will be more fiscal responsibility, continuity of reforms and a return to development policy is consistent, we may again see the exchange rate above R$5,” says Lucci.
Double effect: In addition to the exchange rate, a decline in global stock markets
Bearing in mind that volatility should remain high, it is necessary to keep in mind that money returns with exposure to the US currency should also fluctuate this year.
A survey on the performance of multi-market mutual funds and stocks with international strategies, conducted by XP upon request Infomoneybrings an indication of this, by proving that exchange rate appreciation and portfolio return (throughout 2022 and only in March) went together most of the time.
The survey analyzed 165 funds available on the platform. The data is from Quantum Axis and runs through March 25th.
According to the study, the midpoint of the return of multi-market funds with international strategy and There is no currency protection It was negative at 7.1% in March alone. In this period, the trading dollar fell 7.7%.
So far, the situation has been worse: the average return on funds is -17.6%, even higher than the US currency’s deflation of 14.8%.
A similar move was seen with international equity funds as well. There is no currency protection. The average returns in the accumulation this month were -9%. In the year it was -25.4%.
Davi Fontenelle, fund analyst at XP, says the dollar’s decline combined with a correction in global stock markets at the beginning of the year led to a drop in returns in the short-term windows of these funds, which also affected longer tenures. “These three worst months ended up polluting backlogs of up to 18 months,” he notes.
However, he explains that looking into 2021 and 2020, the scenario is completely changing. Although noting that the sample was much smaller, Fontenelle says that funds without exchange rate protection benefited at the time from the appreciation of the dollar against the riyal, as well as the more positive performance of stock markets in developed countries in that period.
On the other hand, the study also showed that multi-market international funds With currency protection They were less affected this month and accumulated in 2022. In March, the midpoint of returns in this category were positive at 0.9%. For the year, profitability was also less affected, down 1.7%.
The situation is repeated among international equity funds With currency protection. In the month, the average return increased by 1%. In the year, there is a decrease of 9.3%.
“From the table, you can see that it makes sense for a portion of the allocation to be exposed to the dollar. Regardless of the short-term trend of the dollar, we know that there is a protective effect of exposure to that exposure at times when the local economy is underperforming,” says the XP analyst .
However, the brokerage specialist offers one caveat: the analyzed funds in the sample have been available in Brazil for at least two years. In order to better analyze the history of the box, an ideal example would be to extend the windows to periods of three to five years, which is not possible because the products are younger, Fontenelle notes.
Are international funds still worth it?
Although returns on funds with exposure to the US currency have suffered from the negative effects of the dollar’s decline, Rodrigo Franchini, partner at Monte Bravo Investimentos, says he continues to recommend this type of allocation with a focus on foreign exchange funds of different types, such as income Fixed, or more focused on BDRs, with a preference for products with active management and more focused on value stocks (banks and commodities).
Funds that have experienced this volatility will resume their normal contributions. It is inevitable not to see this volatility,” he says. “Barely, the dollar will drop further. I see a greater disparity in risk regarding the dollar’s appreciation against the riyal.”
In this case, says Franchini, the ideal would be exposure to international finance without it hedge or collar Exchange any funds in which the investor is exposed to the change of the dollar.
For partner Monte Bravo, funds that provide currency protection can be interesting for those who do not want to increase the volatility of their portfolio.
“Because we are in an election year, sometimes the client wants exposure to the outside, but they don’t want to have such high volatility. They want to remain unrelated to the local scenario, but they don’t want to have currency variance. In this case, it might be Best customization for a chest with hedge or collar [proteção]’ defends Franchini.
It also does not rule out maintaining a position in a foreign exchange fund, or application, if the investor does not already have it. “Forex exposure is done with a long-term focus. The idea is that exchange funds provide safety in times of high stress. He points out that in two or three years, having a portion of the dollar provisions will make a difference.”
What do XP experts recommend to you? Click here for a free investment simulation without bots
“Music fanatic. Very humble explorer. Analyst. Travel fanatic. Extreme television teacher. Gamer.”
Do you use a Petrobras CNG truck? Understand the picture that became a meme
New strategy to get rid of telemarketing calls; Learn it!
Itaú will launch receivable tokens in 2022