Fynsa
As you have surely heard and noticed, after the pandemic we had a global environment that was conducive to historically high levels of inflation in the world. For example, in 2022 inflation in the U.S. reached levels of 9.1% in the month of June, while, in the case of Chile, local inflation reached levels of 14.1% in the month of August.
This prompted central banks in much of the world to implement tight monetary policies. But for what? What does this mean? One of the reasons that generated post-Covid inflation, in addition to the problems in global supply chains problems in global supply chains (lower supply of goods), was the high levels of consumption and demand generated by the low interest rates of central banks, economic stimulus provided by governments to subsidize and make up for the lack of economic activity.
In this context of low supply and high demand, central banks had to implement measures to "cool" the economies in order to prevent prices from continuing to rise. In other words, they had to reduce the amount of money circulating in the economy, or increase interest rates, so that there would be less incentive to take on debt to consume, since the cost of credit would increase; and a greater incentive to save/invest because, in addition, the rates offered by some investment instruments, such as Time Deposits (DAP), increase.
In this sense, between October 2022 and June 2023, the Central Bank of Chile maintained its Monetary Policy Rate (TPM) at 11.25% (see Chart), driving DAP rates to similar levels. Thus, during 2023, DAPs took on a very important role and weighting in local investment portfolios, since from a risk-return point of view, they were very attractive with respect to other asset classes, offering a high level of return with a high level of risk-return.offering a high level of return with a low (and almost zero) level of risk.
The situation today is different from a few months ago. Inflation levels have been falling almost steadily. Locally, in January, inflation in Chile reached 3.8% during the last 12 months, which is far from the 14.1% levels it had reached in August 2022. This has given room for the Central Bank of Chile to cut its interest rate, which today stands at 7.25%, also far from the peak of 11.25% reached between 2022 and 2023, and expectations are for further cuts in the coming months.
As a result, time deposits have been showing lower rates, losing part of their attractiveness with respect to other investment instruments.
Thus, in search of achieving higher levels of returns in their portfolios, investors are opting to invest in riskier alternatives (the higher the risk, the higher the required rate of return), investors are opting to invest in riskier alternatives (the higher the risk, the higher the required rate of return).
If we are looking for assets with a higher risk profile and higher return, we cannot fail to mention equities. equitiesor the shares. In a context of falling interest rates, lower yield opportunities in fixed income and an economic dynamism that is slowly beginning to improve, this asset class could be favored to take a greater role in investment portfolios.
In this regard, one action that has been highlighted in the media in recent days is the action of US company Nvidia, a stock that has stood out in the media in recent days is the action of the US company Nvidia. The chip manufacturer reported its corporate results for the last quarter of 2023, which surprised the market on the upside, after benefiting from new market trends regarding the development of Artificial Intelligence (AI). This has caused the company's shares to accumulate a This has caused the company's stock to accumulate an increase of close to 60% during 2024 and a 235% increase if we look at the last 12 months, making it the third company with the highest market capitalization in the US, after Microsoft and Apple.
At the local level, there are also alternatives with favorable prospects. The main shares of the national stock market continue to trade at a significant discount with respect to their history and their peers, This could be reversed if some of the political and legislative uncertainty that has prevailed in recent years continues to dissipate. An attractive investment vehicle for investing in this asset class is the Fynsa Total Return Mutual Fund. Fynsa Total Return Mutual Fund.
Another investment alternative Another more conservative investment alternative, but with attractive expected return levels, is private debt. private debt.
This asset class is a debt investment for small and medium-sized companies, which for various reasons are unable to access bank financing or the public debt market.. The rate and return of this type of financing is not necessarily related to the movement of public fixed income rates or the central bank interest rate, which also mitigates part of the market risk.
An attractive local vehicle for investing in this asset class is the FYNSA Deuda Inmobiliaria II Investment Fund. FYNSA Real Estate Debt II Investment Fund.. This fund grants different types of financing to domestic companies linked to the real estate industry, taking solid guarantees, such as insurance policies and/or real assets such as land or stock of apartments that have not yet been sold in real estate projects, among others.
In addition to a good alternative for exposure to the UF and hedging against inflation, this fund continues to offer attractive return levels (UF + 7.0% p.a.) in a context of falling local rates, This is explained by the greater restrictions that real estate companies are facing when it comes to accessing bank credit.
José Pablo González
Portfolio Manager Private Debt
