With the economy’s benchmark interest rate at a historic low of 2.25% per year, investors are seeking more profitable and risky investments. This is because more conservative fixed-income investments are yielding less, as they are tied to the Selic rate or the CDI (a rate close to the Selic rate). In this scenario, multi-market funds are an option for those who want to move away from fixed income but don’t yet feel comfortable investing solely in variable income.
What is a multi-market fund?
An investment fund is a type of collective investment that pools money from various investors, who hold shares in the fund. The total amount invested by the shareholders is applied to different types of assets with the goal of generating interest over time. These assets are chosen based on the fund’s category and profile.
The manager is responsible for allocating the money and receives a management fee for this service. When an investor wants to redeem their investment, they receive the appreciation proportional to their shares during the period the money was invested.
Among the categories available on the market, the multi-market fund is the most flexible and suitable for both moderate and more aggressive investors. Learn more about this type of fund.
What does a multi-market fund invest in?
Multi-market fund strategies include both fixed-income and variable-income assets. These include stocks, currencies, and public and private bonds. Furthermore, they can use derivatives both to protect the portfolio and to leverage it. A derivative is an investment whose value varies according to the underlying asset (stocks, dollar, etc.), although it registers its own price. Someone who buys a dollar derivative, for example, does not buy the currency itself, but the right to its fluctuation.
A multi-market fund has no obligation to invest a percentage of its portfolio in a specific asset, unlike fixed-income funds (which must have 80% of their portfolio invested in bonds) and equities (which must have at least 67% of their portfolio invested in equities).
Generally, a multi-market fund’s strategy aims to outperform the CDI, a rate close to the Selic rate that serves as a benchmark for fixed-income investments. It can also be benchmarked against a price index, usually the IPCA (Broad Consumer Price Index).
Due to all these characteristics, multi-market funds are riskier than fixed-income funds. When investing in variable-income assets, their shares fluctuate more and generally have a longer redemption period, which can reach up to 30 days after the request. Because of this, these funds are recommended for investors with medium- to long-term investment goals.
What are the categories of multi-market funds?
Due to their freedom to invest, multi-market funds can be quite different from each other. The market offers options that resemble fixed-income funds as well as alternatives that are similar to equity funds.
The type of strategy and classification of each fund is usually described in its name and explained in more detail in the prospectus, a document that presents the most relevant information about the investment for the investor.
But before being divided into subcategories, multi-market funds can be part of two larger groups: Allocation and Strategy. These are the classifications of indexed and actively managed funds adapted for the multi-market category, respectively.
An actively managed fund aims to outperform a benchmark index. To achieve higher returns, the manager creates their own strategies and has the flexibility to change the asset portfolio when deemed appropriate. Indexed funds, on the other hand, do not have the same strategic flexibility as actively managed funds, as they must track the performance of a specific indicator.
Fund allocation
These funds seek long-term returns by investing in diverse asset classes. They include two types: Dynamic and Balanced.
- Balanced
They seek long-term returns through the purchase of diverse assets. Their portfolio is pre-determined. That is, it does not change over time: it is always necessary to have a percentage of the shares invested in fixed income and another in variable income. If the assets depreciate, it is necessary to rebalance the portfolio to return to the determined proportion. They do not allow riskier operations, such as leverage (exposure greater than the fund’s net worth).
- Dynamic
They are similar to balanced funds and invest in various types of assets. However, they do not need to have a predetermined portfolio proportion and are riskier, as they allow for riskier operations, such as leverage.
Strategy Funds
They classify the rest of the category (with the exception of multi-market funds that invest abroad, which receive their own classification). These are active funds that follow a specific strategy and objective, with the support of the manager. For this reason, they allow leverage. In other words, they permit a higher level of risk.
- Macro
Their investment strategies are based on medium- and long-term macroeconomic scenarios. To achieve their objectives, they conduct transactions with different types of assets (fixed income, equities, foreign exchange, among others).
- Trading
They explore profit opportunities from short-term movements in asset prices. Like macro funds, they can include various asset classes (fixed income, equities, foreign exchange, etc.).
- Long and Short
They seek to profit from buying and selling related assets in the same transaction. Also called arbitrage, the theory is that both assets have similar, but not identical, market movements. Therefore, the asset purchased is expected to outperform the one sold.
- Interest Rates and Currencies
They seek long-term returns through investments in fixed-income assets, including strategies involving interest rates, price indices, and foreign currency.
- Free
There is no commitment to focusing on any specific strategy.
- Protected Capital
They seek returns in risky markets while trying to protect, partially or fully, the principal invested.
- Specific Strategy
They adopt an investment strategy that involves specific risks, such as commodities or index futures.
How to choose the best multi-market fund
There are some key points to consider when choosing an investment fund, in order to avoid future losses. See the main ones below:
Check the historical return data and perform the management analysis.
Past returns are no guarantee of future profitability, but investors should always check the fund’s historical returns, which are available in the fund’s listing on the brokerage platform (if you can’t find it, simply ask the financial institution). This is one of the most effective ways to verify the consistency of the results delivered by the fund manager.
It is recommended to analyze the fund’s profitability over at least the last three years, and if possible, the last decade, and compare it to benchmark indices to determine if it is delivering on its promises. For example, an actively managed fund that aims to outperform a benchmark index but underperforms the Selic rate over long periods may not be a worthwhile investment.
Don’t forget to include in your analysis the fund’s performance during times of crisis, and compare how it reacted to the category average. You can find data by category on the Anbima website .
In addition, check the track record of returns provided by the investment management firm and the fund manager. Is the firm reputable? Is it specialized? Does the manager have extensive experience? These are questions investors should be seeking answers to.
Beware of high fees.
Each fund must compensate its manager for their work by charging an administration fee. However, this amount, charged on the total resources invested per year, varies between financial institutions.
It is necessary to verify whether the returns obtained over time compensate for the cost. After all, higher fees should be paid to managers who do a good job, superior to that of competitors and the market average.
Depending on the fund’s strategy, a performance fee may also be charged , generally equivalent to 20% of the amount exceeding the fund’s benchmark index.
Some funds may also charge an exit fee if the investor wants to redeem their shares before the minimum investment period. This fee is often considered excessive and can be a significant burden on the investor’s budget – although it is possible to find many funds that do not charge it.
Look for references.
The Association of Fund Managers and Banks (Anbima) publishes daily rankings with the average performance by fund class and type for the day, month, year, and the last twelve months. This data can give a good indication of whether your fund is performing above or below the category average.
More important than investing in a renowned fund that has been showing high returns is knowing whether it is suitable for your risk profile and investment needs. Therefore, rankings should only be a source of information, not the deciding factor.
Diversify your portfolio.
An investment portfolio should not consist solely of funds of a single type. The more resources invested, the greater the diversification should be. This is an efficient way to make your portfolio more profitable without taking on too much risk and making it unsuitable for your investment profile.
In addition to multi-market funds, a diversified investment portfolio can also include fixed income, equity, real estate, and private pension funds.