The search for coverage against the constant increase in prices is a daily task in Argentina. Staying with pesos in hand is a certainty of losing money. In this context, One of the strategies that has become most popular in recent years to protect yourself from this scenario was subscribing to Mutual funds (FCI) Money Market in pesos.
These are savings instruments that invest in super-liquid assets, such as sureties, Central Bank repos, fixed terms or Treasury Liquidity Bills (Lelites), which pay a fixed rate and a term of a few days. This allows those who invest in them to redeem the investment in less than 24 hours, if they wanted to, and make sure they never lose money, even if their profitability is low.
Although the largest volume of operations in these instruments is in the hands of companies, the main promoter among retail investors were fintechs such as Market Payment either oula, who have enabled in their applications the option to pay money into account in FCI Money Market. According to its latest public data, Mercado Pago has more than 5 million users investing money in its common fund while Ualá had more than 1.8 million accounts open in its FCI. Until last week, the interest rate paid by these funds was around 62% TNA, which is lower than that paid by a retail fixed term (75% TNA) but which allows the money to be available immediately and not immobilized. at least for 30 days. However, that performance is changing these days.
What measures did the Government adopt and how do they affect the performance of the FCIs?
The Government went back and forth – after the banks’ complaint – with a series of measures to improve the performance of very short-term assets this week. The objective? Tempt savers to stay in pesos and thus not run to the dollar. For this, the Central Bank (BCRA) raised on Monday from 75% to 95% the coefficient at which the FCI can subscribe Passive Passes to 1 day. In other words, it increased the margin of exposure that the Funds can have to the shortest duration debt held by the Central Bank from 75% of its portfolio to 95%.
This was added to the fact that the previous week the rate paid by 1-day passive repos had risen from 70% to 72% per year (101.24% to 105.3% of TEA, the rate that includes the capitalization of interest) .
The combination of both made the FCI Money Market could place debt to central bank -the only public entity that never defaulted on its debt in Argentina- from a TNA of 54% TNA (71.53% TEA) to a rate of 68.4% (TEA 98.05%).
Millions of Argentines invest in Mutual Funds through apps such as Mercado Pago or Ualá.
“In less than a week, the FCI went from placing in the BCRA from a TNA of 52.5% (TEA 68.98%) to the aforementioned 68.4%, which implies an improvement of 1,590 basic points (bps ) or 2,907 bps in effective rate (if interest is capitalized)”, indicated a report by Personal Investment Portfolio (PPI).
However, on Thursday afternoon the Central Bank issued a new regulation with which it again changed the FCI’s exposure margin to repos from 95% of its total portfolio to 85%.”Thus, the remaining TNA to the Money Market is now 61.2%,” Javier Casabal, fixed income strategist at Adcap Grupo Financiero, explained to iProfessional.
Mercado Pago and Ualá: how much can the performance of investment funds improve?
Since Monday, the impact of the measure on the performance of the Money Market began to be seen, which went from yielding 61.6% TNA, on average, to 64.2% on Tuesday and 64.4% on Wednesday. Nevertheless, the policy change applied by the Central Thursday will affect the performance of the funds and it is certain that they will drop some point.
“The yield should be above the 61.6% TNA that they had at the beginning of the week, but it will depend a bit on what the banks end up doing. In order to compete, they had decided to raise the rate they paid for remunerated accounts of 64 these days % to 69%. But after the last announcement by the Central they already lowered it to a range of between 66% and 67%,” added Casabal.
Even so, the performance reflected in applications such as Market Payment, oula and other fintechs is typically the average of the past 30 days, so it may take time to reflect current fund performance. In addition, the final magnitude of the yield will depend on the portion of fixed terms, remunerated accounts and passes with the Central that the funds have.
“The rise in repo rates has generated, in recent days, a movement in market rates. The main instruments of the t+0 funds, remunerated accounts in banking entities and fixed terms registered average increases of +4.5 pp and +4 pp, respectively. It should be noted that not all banks were willing to take fixed terms at these higher rates, so the impact is not generalized. In this context, our money market experienced an increase in expected returns, which translated into an increase of +3 pp Currently, the daily TNA stands at 64.15%,” Andrés Rodríguez Ledermann, director of Wealth Management at Ualá, told iProfessional.
Rates: the BCRA seeks to keep investments in pesos attractive.
Common funds: why did the BCRA change the rate?
The behind the scenes of this last measure responds to a banks complaintwhich saw their profit margin severely punished, since many funds were choosing to leave deposits in banks to move their subscriptions directly to BCRA debt, by taking away the attractiveness of the rates offered by banks through remunerated checking accounts (63.6%) and wholesale fixed terms (66.5%) that they had until last week.
“The financial sector plays a key role when it comes to refinancing the debt in pesos, which is why we believed that the measure would be reanalyzed“, said PPI, in a report in which he highlighted that, despite the twists and turns, “the BCRA is seeking to maintain very short-term remuneration in pesos at high levels to mitigate the rise in financial dollars.”
To understand the relevance of the FCI Money Market in the Argentine market: in December last year the assets managed by all the mutual investment funds in pesos reached $6,823,604 million, of which $3,621,918 million (53% ) are from Money Market.
This occurs because large companies and insurance funds want to have immediate availability of money, either to obtain a return on cash deposits from those who pay operating costs or to flee to the dollar in the event of a skyrocketing price, without losing so much money in between. That is to say, they prefer to lose profitability rather than risk investing in longer-term securities and losing a lot of money in the face of a devaluation.
