Fixed income, target return and ‘buy and hold’ funds are under scrutiny. The National Securities Market Commission (CNMV) has opened a public consultation to review the technical guide on its transparency, so that it is clarified that they are products that can generate losses. These are families of funds that are experiencing a boom, given the increase in the profitability of the debt and the unwillingness of the large banks to transfer the rise in interest rates to deposits.
In an interview with La Información, Ángel Martinez-Aldama breaks a spear in favor of these products. The expert makes a defense of fixed-income funds, pointing out that I wish the rest of the savings products had the same transparency. According to the president of Inverco, the brochures include simulations and there are comparisons with inflation. And this transparency that exists and that affects these types of products has been improving, in his opinion, especially with the introduction of Mifid II, “which meant an important change in customer profiling through suitability tests.”
The first sword of Inverco, the group that brings together collective investment associations and pension funds in Spain, explains that “if your objective is two years, with a portfolio composed of two years, at the end of that period you will have this 2%, especially in buy and hold funds”, he explains. However, he also admits that “last year investors had a bad experience in fixed-income funds, although good conclusions can be drawn, to be aware that income fixed, the one with the longest duration and the lowest rating of the issuer is more volatile”.
The president of Inverco, Ángel Martínez-Aldama José González
As for the target return funds and the buy and hold category, Aldama recalls that what the CNMV has released is a draft of a technical guide, so the final wording will still have to be seen. But, in any case, this roadmap would complement the document that was presented in 2017 for the target return funds. “What has been done is to transfer these warnings to the ‘buy and hold’ funds, explains the president of the employers’ association of the Spanish management companies. For Aldama, it is a positive step because what it implies is to give more legal certainty to these funds that are seeing their sales increase, without this implying that they were doing it wrong.
In fact, the president of the CNMV himself, Rodrigo Buenaventura, explained last week that the consultation had been launched to “close a circle” with the recommendations that the supervisor had already been giving throughout 2022, not because he was detecting bad sales practice.
The effect of the delay of employment aircraft
During the interview, the president of Aldama has been very critical of the delay in the implementation of employment plans, while individual pension plans were discouraged. In his opinion, they should not have been separated because “they are not incompatible.” This initiative, which started in 2020, has arrived at the beginning of 2023 without fully developing. “With an optimistic vision at the end of the year, managers and depositaries should be awarded.” But Aldama believes that this could have been done more quickly with amendments to the existing regulations, promoting tax incentives for companies that have joined (which are lower than those they had in 2012 and 2016).
Regarding the incentives that have been approved, there have been two, but they imply a certain regression with the past. On the one hand, the 10% corporate tax deduction for workers with salaries up to 27,000 euros, but which would have had to be raised to 37,500 euros if the inflation effect was taken into account. And, on the other hand, the partial redemption of the reduction in the contribution base of Social Security contributions, which were 100% in 1987. “Objectively, there are far fewer tax incentives for companies than there were in 2012 or 2005”.
Non-fiscal incentives could also have been approved, such as boosting public administration employment plans, which continue to be limited, and “would allow an example to be set,” Aldama insists. fiscal, so that in collective negotiations the obligation to negotiate a pension plan is introduced, although not to approve it, as well as to give a higher score in public competitions to those companies that will have them.
The positive effects of saving on the economy
“The first wish we have is that long-term savings work, of course what has not worked so far is savings in a single pillar” which is why he explained that he has been calling for reforms for a long time. Aldama recalled that to “implement an employment plan there must be a prior agreement, a negotiation between companies and unions and all this takes time, something that was already known”, he criticized. But once progress has been made in this sense, “it would be necessary to see if it is implemented or not, if there are sufficient incentives for the parties to give in, because it implies a higher labor cost and because they lose a present salary with a future reward.”
“We have 4,400 million euros less in individual savings compared to 0 in company employment plans.”
Aldama believes that it will take a long time to make progress on these products because “there are 3,600 sectoral agreements in Spain, 700 are negotiated each year because they are valid for periods of 3 or 4 years. The reality is that last year 700 were negotiated and only 1, which is for construction, for which a sectoral employment plan has been collected, which is pending development.” For the president of Inverco, this delay, for whatever reasons, has meant a historic loss. Although for Aldama not everything is negative: “At least this debate has been opened”, but once he opens it; First, it is necessary to ensure that the third pillar is not penalized, which is individual savings, which in his opinion has shown that it is the only one that works, eliminating this option without having put in place the mechanisms that are not only regulatory, but also necessary to that the second pillar began to walk. This, he has lamented, has had negative consequences such as the loss of 4,400 million euros in savings in the individual pension system in two years.
This money that has stopped being saved, for Aldama, will also have many positive effects for the economy. “It is money that is not consumed and therefore does not generate inflation, it is money that complements a public pension that will see the level it is and it is money that is dedicated to investing in Spanish debt, which is becoming more expensive” . Aldama has asked to stimulate and reward savings more, something that the last governments, of whatever color they are, have gone the other way.
The lack of regulations hinders the funds of article 9
Despite the commitment to sustainability, the fact that companies are not required to provide all the information makes it difficult for managers to bet on sustainable companies. Here Aldama regrets that it has started with “legislation that is not complete, with rules that are not yet clear.” However, looking to the future he is optimistic. We hope that in the coming years they will be resolved. Above all, to avoid many problems such as the so-called greenwashing. This lack of regulation also means that there are fewer ‘dark green’ funds, classified as article 9 based on the Disclosure Regulation, that invest in companies that do not promote sustainability, but that aim at it. “There is no offer from companies to build Article 9 funds, but it is a matter of time,” he confidently advances.
If sustainability will be decisive when investing, Aldama explains that it is investors who decide what to invest in and recalls that “last year, the most profitable funds came from energy sectors”, but he also hopes that “if companies are increasingly more sustainable, the funds could pick up more sustainable companies.”
