Abstract
ABSTRACT The aim of this article was to evaluate the effectiveness of investment fund selection techniques from the perspective of Brazilian pension funds. Asset liability management (ALM) and liability driven investment (LDI) strategies are usually adopted to guide pension fund managers in relation to strategic allocation in asset classes that should compose their investment portfolios and to the liquidity needed in each period, but not specifying in which assets to allocate resources from among the infinity of assets available in the financial market. This article contributes to tactical management in the fixed income and stock segments outsourced via funds and demonstrates that adopting simple indicators can increase investment performance. The article broadens the knowledge on pension fund investment decisions and creates confidence in the adoption of the Sharpe ratio as a technique for choosing investment funds. We analyzed the returns obtained by hypothetical portfolios built using the following techniques: (i) the Sharpe ratio; (ii) the alpha of a multifactor model; (iii) data envelopment analysis (DEA) efficiency; and (iv) the different combinations of these techniques. We considered information on 369 funds from 2013 to 2018, adopting 12 temporal windows for choosing and re-evaluating the portfolios. The returns obtained were compared with the mean actuarial goal of the benefits plans administered by the pension funds, by means of the unplanned divergence (UD). When outsourcing pension fund investments in fixed income and stock investment funds it was verified that the Sharpe ratio contributes significantly to pension fund performance, compared with other indicators and techniques or a combination of them.
Highlights
An investment fund is a type of financial application that combines the resources of various investors, with the aim of obtaining financial gains based on collective investments in an asset portfolio
According to data from the Brazilian Association of Financial and Capital Market Entities (ANBIMA, 2019), the investment fund industry reached more than R$ 8.5 trillion in net assets under management, 64% of which was in investment funds and 36% was in investment funds with shares, or “quotas,” in investment funds
Over time, the returns obtained by the fixed income investment funds using the various techniques analyzed were more volatile in 2013 and as of 2017, approximately, coinciding with the period in which the basic interest rates of the economy were lower, as demonstrated by ANBIMA (2018)
Summary
An investment fund is a type of financial application that combines the resources of various investors, with the aim of obtaining financial gains based on collective investments in an asset portfolio. Within the context of pension funds, which account for R$ 949.9 billion in the financial market, 67% of the resources are invested through investment funds, this being the predominant investment modality in this area, according to the Brazilian Association of Closed Complementary Pension Entities (Abrapp, 2019). The representativeness of investment funds in the pension fund portfolio has become increasingly greater over the years, as well as assets classified in the fixed income segment This has occurred because, with the increase in the remuneration of government bonds in the period from 2010 to 2014, pension fund investment in these assets intensified, leading to 73% of their consolidated portfolio being predominantly allocated in the fixed income segment, 54.3% of which was through investment funds (Abrapp, 2019)
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