Exposition to Factors of the Investment Funds Market in Brazil

Cláudia Olímpia Neves Mamede Maestri,Rodrigo Fernandes Malaquias

doi:10.1590/1808-057x201702940

Cláudia Olímpia Neves Mamede Maestri, Rodrigo Fernandes Malaquias

Open Access

https://doi.org/10.1590/1808-057x201702940

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Abstract

ABSTRACT The growth of the investment funds industry in Brazil and its international representativeness indicate the relevance of analyzing this sector. Literature has shown the effects that market factors can have on the performance of investment funds. One way of evaluating the relation between funds' returns and market factors' variations is the return-based style analysis. In this context, this research aimed to investigate, through the style analysis, the exposition to various market factors in two modalities of investment funds. With this analysis, we may infer differences between the allocations and the composition of portfolios, constructing a panorama of sensitivity of funds' returns to the market factors addressed in the study. The database consisted of daily returns of 508 funds, out of which 385 are fixed income funds and 123 are Neutral Long & Short multimarket funds, within the period from January 3, 2005, to July 11, 2014. Through the style analysis, with 6 market factors, we found a difference between the composition of portfolios of multimarket funds and portfolios of fixed income funds. Regarding the evolution of the composition of portfolios in these funds, we observed that the investment style of funds does not seem to be constant over time, something which may be a positive evidence concerning the changes that managers promote in their portfolios, seeking to achieve better profitability indicators.

Highlights

Mutual funds, either fixed income or variable income, offer management services to individual and institutional investors, providing greater liquidity for financial investments made in them and lower transaction costs (Varga & Wengert, 2011)
Since Brazil is one of the greatest representatives of the funds industry among emerging countries (Varga & Wengert, 2011; Vicente & Tabak, 2008) and considering the possibility that some factors interact in the financial market - political events, economic conditions, and the very market expectation (Oliveira, Nobre & Zárate, 2013) - this study aimed to investigate, through the style analysis, the exposure to various market factors in two modalities of investment funds
This study took as its sample the fixed income investment funds and the variable income Neutral Long & Short funds selected in the database SI-ANBIMA

Summary

Introduction

Either fixed income or variable income, offer management services to individual and institutional investors, providing greater liquidity for financial investments made in them and lower transaction costs (Varga & Wengert, 2011). In Brazil, this expansion took place with the implementation of the Real Plan, since July 1994. This fact led to the breakdown of factors that hindered the advancement of investment funds, such as unstable economic conditions, poor regulation, and high inflation rates (Almenara Andaku & Pinto, 2003; Berggrun & Lizarzaburu, 2015; Fonseca, Bressan, Iquiapaza & Guerra, 2007; Laes & da Silva, 2014; Saad & Ribeiro, 2006). In the second half of 2015, Brazil emerged as the fourth largest market for investment funds, according to the ranking European Fund and Asset Management Association (EFAMA, 2015)

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