The rise in interest rates has rescued traditional investment products such as monetary funds from the drawer. Considered an alternative to deposits, the banking sector has given them a preferential place within its investment product offering, with favorable results. This type of vehicles have experienced a resurrection during 2023 with an increase in assets that reaches 92%, up to 10,046 million, according to data published by Inverco. It thus becomes the category of funds that has grown the most in the last few months with net money inflows exceeding 4.6 billion since the beginning of the year.
The takeoff in the profitability of Treasury Bills and investors hungry to replenish their portfolio after the ‘horribilis’ of 2022 have led to a favorable scenario for monetary funds, which already showed signs last year of the dazzling rebound that they could experience. The difference with a few months ago, when they recorded losses of 0.7%, is that they are on track to close a positive year with a cumulative profitability of 2.1%. In order to fine-tune the investment strategy before entering 2024, analysts anticipate that this ‘boom’ may have come to pass.
The market expectation that both the Federal Reserve (Fed) and the European Central Bank (ECB) will begin to lower rates in 2024 despite the fact that the US organization has called this idea “premature”, leads some experts to predict a possible transfer of demand to other funds with the aim of optimizing profitability. The latest inflation data from the eurozone after the CPI closed November at 2.4%, its lowest level since July 2021, in line with the United States, where the PCE – the variable most followed by the Fed to make decisions of monetary policy – moderated in October to 3%, feed the forecast that the bullish monetary cycle has come to an end.
“Monetary (funds) have been very interesting while interest rates have risen, but once rates hit their ceiling what needs to be done is to ensure high rates and this is done with medium and long-term fixed income funds or by investing directly in medium and long-term bonds. Preferably medium-term, to avoid risk in case inflation had a temporary rebound,” says Víctor Alvargonzález, founder and CEO of the independent firm Nextep Finance.
In the midst of the dilemma of whether it is time to extend durations, mixed funds, which invest in both fixed and variable income, also emerge as another of the possible beneficiaries of this transfer of money, a change that according to Alvargonzález will begin to be made evident “when we begin to talk seriously about the reduction” of official rates. He agrees in this position with that of Santander AM, from which they believe that the time has come to “go beyond” monetary companies, which invest in very short-term products. Although this is the dominant perspective, some analysis houses support this premise with nuances.
In this sense, David Ardura, investment director of Finaccess Value, defends that although logic invites us to think about this change in trend, this behavior is already occurring at the hands of institutional investors, but not by retailers. . who tend to be conservative. “It is difficult for the monetary client to take risks and even more so considering that the fall in rates is not going to be drastic,” he argues, while ruling out “aggressive movements that imply taking greater risks, especially now that the stock markets are at maximum levels.” “, at least from a retail point of view.
From a more cautious view, Mar Barrero, director of analysis at Arquia Banca, emphasizes that the outlook for monetary currencies remains “attractive” and therefore believes that investors will keep them in their portfolio while rates are at high levels. “When profitability is reduced we will have to start considering other options and lengthen the terms, but I would wait for the message from the central banks to be clear,” he adds, to highlight that although the decreases will begin next year, these products will to continue providing returns in the midst of fears of economic slowdown and in the face of an unstable geopolitical panorama.
