Chile is facing historically high inflation rates—a scenario that seemed like a thing of the past and that poses new challenges for investors. FYNSA organized a webinar to analyze the inflationary context and its projections, and to present three investment alternatives centered on the UF.

Nathan Pincheira, chief economist at FYNSA, provided context with projections regarding inflation trends in the coming months.

First of all, Nathan pointed out, we must understand that the inflation we’re experiencing is a global phenomenon, caused by supply shocks—rising oil and gas prices, disruptions in the supply chain, Covid-related restrictions in China, among others— which have combined with the expansionary monetary and fiscal policies implemented by governments to recover from the economic crises caused by the pandemic.

Unlike other recent episodes of inflation, such as the one in 2008, we are now facing a more persistent phenomenon. In Chile’s case, although price increases are concentrated in the most volatile segments—food and transportation— we cannot ignore the persistent rise in service prices.

What do we see for inflation in the medium term? FYNSA’s projections point to year-over-year inflation of 13.5% in August, 12.3% by December, 7.3% in twelve months, and 3.8% by the end of 2023. “Let’s not be fooled by the numbers,” Nathan said. “The 3.8% by the end of 2023 is based on the 12.3% we project for 2022—it’s inflation on top of inflation. Inflation will be high in 2023; we remain exposed to factors beyond our control.”

In this scenario, investments in UF take on greater importance. FYNSA has three strategies, which are embodied in three products that were explained in the webinar.

The first is FYNSA Chilean Debt. What is it? It is a redeemable fund that invests in debt instruments, primarily in Chile (primarily in bank bonds and time deposits), said Gabriel Méndez, Local Fixed Income Portfolio Manager. It has a 16-year duration and offers an attractive risk-return profile, with the instruments in the portfolio carrying an average rating of AA+. 98% of the portfolio is invested in UF-denominated instruments and 2% in pesos. One of its key features is its flexible exposure to the UF, as the portfolio includes derivatives that provide flexibility and allow for quick action if it becomes necessary to reduce exposure to the UF. The yield to maturity (YTM), or annual yield to maturity per year of duration is 6.4%, a higher return than that of the money market funds used as benchmarks.

The second product is the Private Fixed-Income Fund II, which focuses on a private debt strategy through real estate assets (primarily mortgage-backed securities) and credit insurance policies, explains Cristián Rodríguez, FYNSA’s Private Debt Manager. What are its characteristics? It is a diversified fund, with more than 80 holdings, an average holding value of nearly 20,000 UF, and a highly diversified portfolio, which reduces risk, notes Rodriguez. It has a low correlation with market fluctuations and offers a fixed rate throughout the entire coupon duration. The coupon duration of 0.88 allows for diversification, mitigates the effects of rate fluctuations, and has little correlation with other economic fluctuations. The fund has delivered a yield to maturity (YTM) of 13.58%, with more than 67% of the bonds currently trading at par.

The third product is the Real Estate Debt Fund I, a non-redeemable UF-denominated fund with a 30-month term, explains Martín León, deputy manager of International Funds. It consists of instruments comprised of real estate collateral or backed by real estate assets. It has solid collateral, as it focuses on preferred equity or lease-back transactions. It has 14 transactions in its portfolio, geographically diversified across different regions of Chile. The portfolio is selected following analysis by a specialized team consisting of appraisers, attorneys, and other.

You can watch the full webinar HERE