Investment funds are one of the best tools to channel the savings of individuals. In the year just concluded, the profitability achieved by Spanish funds touched 7%, the best in the history of these vehicles. Of course, the previous year investors lost an average of 4.8%: 2018 was the worst year since there are records. After this pendular swing, what can small customers expect for the next year? What products should they opt for?
“With my clients I have it very clear, the most important thing when planning an investment is to sit down with them to analyze their expectations and their needs. From there, you can start building a portfolio, ”explains Ana Fernández, founder of the financial advisory firm AFS Financial Advisors.
To start, you have to analyze the fixed income. In recent decades, investment in bonds has been very profitable. In many cases almost more than the investment in the stock market. However, monetary policies promoted by central banks, especially the European Central Bank, have brought the price of money close to 0%, which makes it very difficult to obtain good returns on this asset.
Given this situation, the investor who seeks to obtain a return that beats inflation at two or three points will need to assume higher levels of risk or seek alternative strategies within fixed income. “We see that most of the bonds are very expensive. This has meant that we are looking for value in assets such as subordinated bank debt, which has given us excellent results, ”explains Alfonso de Benito, investment director of Dunas Capital. Its fixed income fund Dunas Valor Prudente, with 52 million equity, managed to close the year 2019 with almost 2% return, assuming very controlled levels of risk.
Experts recommend avoiding European sovereign debt funds
In the management they have an investment process based on the use of risk budgets, and they are modulating it with hedges to avoid strong oscillations in the portfolios. “We want our clients to earn money, but the main objective is not to lose it,” reflects David Angulo, founder and president of the firm.
Another good conservative option may be the B&H Fixed Income, a fund that has the highest rating of the Morningstar (five stars) analysis firm. In 2019, the fund managed by Rafael Valera closed with a return of more than 11%, which makes it the best in its category in all of Europe. Its average annual return in the last three years is close to 5%.
Doubts about the potential that traditional fixed-income assets can have are extended in almost all the management companies. With half of the European public debt quoting at maximum prices it seems difficult that they can be revalued much more, no matter how much the ECB has said that it will prolong the debt purchase programs.
“Our institute of macroeconomic analysis considers that 2020 will not be a good time to invest in German bonds or in debt from countries such as France or Spain. They already have very demanding prices and it seems more likely that they will lose value at revaluation. We think the same about the debt issued by companies with the highest credit rating, ”argues Manuel Gutiérrez-Mellado, director of business development at BlackRock in Spain.
The B&H Renta Fija fund has managed to revalue more than 11% in 2019
From the US giant, they recommend holding a fund that invests in public debt of emerging countries. Its BlackRock Emerging Bond fund, with more than 2,000 million euros of equity, has achieved a return of 14% in 2019 and an average of 8.95% in the last 10 years.
“We believe that emerging sovereign bonds issued in local currency can do especially well if Federal Reserve forecasts of not moving rates in the United States are maintained, and some currencies can be revalued against the dollar,” says Gutierrez-Mellado.
Among the mixed funds, a product that has stood out especially in 2019 has been the Millennial Fund. This vehicle advised by Munesh Melwani has rented more than 15%, with very controlled levels of volatility. In fact, it has been the best fund of the 150 that are classified as mixed defense within Morningstar.
Dividends and coupons
A strategy that worked very well in 2019 is the commitment by companies that have a very generous dividend policy. Given the zero rates, there have been many investors who have considered that this was the best way to approach the stock market. They have also worked well as a refuge during times of stock market volatility. “Now, you have to be careful with which companies are in the portfolio, it is not only worth choosing them because they have a very high dividend. That is a mistake that I see in many clients, ”says Ana Fernández, of AFS.
When analyzing which Spanish funds have achieved better results when investing in the European Stock Exchange, more than half have a dividend approach. The Bankinter Dividendo Europa, for example, has rented an annual average of 6.5% during the last years. In most of them it has beaten the European index MSCI Europe Net Total Return.
This phenomenon has its opposite face with the favorite companies of the managers who invest looking for value. “Companies with the highest growth profile have enjoyed the approval of investors, even though they are quoting higher valuations than the market average. However, value-style companies and sectors continue to suffer. One of the keys to the future will be to see when this dividend rotation occurs at value, that we are sure that, at some point, it will occur, ”explains César Ozaeta, fund manager at Abante Asesores.
For now, pure funds value investingLike those of Azvalor or Cobas, they have registered a much worse evolution than that of other stock exchange managers, although many private bankers continue to be confident that when the long bullish cycle ends, these managers will demonstrate their ability to generate value.
By 2020, and after many years in which the US Stock Exchange has revalued much more than the European, experts recommend betting on more global funds. “We see that the equities of emerging countries and Japan can behave especially well in this situation of moderate macroeconomic recovery,” explains Gutierrez-Mellado, of BlackRock.
Funds such as CaixaBank Global Invest (which was revalued by 27% in 2019) or Bankinter Sustainability (with 8.8% average annual return in the last five years) may be a good option for those clients who want to bet on the International stock exchange
Achieving some profitability in the era of interest rates below zero may seem impossible mission. More than half of the sovereign debt in the eurozone offers negative returns, and also many corporate debt issues. Even so, experts believe that opportunities can be found in the bonds of some emerging companies that do not have the highest credit rating and in the sovereign debt of these countries.
Vontobel TwentyFour Strategic Income. It is one of the favorite funds of the Abante Asesores analysis team for its most conservative clients. It is a global fixed income fund that seeks opportunities among very varied fixed income assets. The fund invests in public debt, corporate debt, securitizations … At this time it maintains an important commitment in financial subordinated debt (mainly from the United Kingdom). “In portfolios that invest globally it is an excellent diversifier,” he explains. The fund has rented an average of 3.4% in the last three years.
Aberdeen Standard SICAV I-Emerging Markets Corporate Bond. The corporate debt of emerging countries is usually one of the biggest neglected in fixed income funds but, according to most analysts, in 2020 it can offer very good returns. “We especially like this Aberdeen vehicle. Its managers have achieved good consistency in obtaining returns, ”explains Carlos Aguado, Andbank fund analyst. Its average annual performance in the last five years has been 4.74%
DIP Conservative Multiasset. It is a multi-asset fund managed through a quantitative model with great flexibility in the management of your portfolio. “Its managers focus on minimizing losses and the maximum that can be assumed in the stock market and raw materials is 25% of the assets,” explains Francisco Julve, of the fund selection team of A&G Private Banking.
u Arcano Low Volatility European Income. It is a high performance corporate credit fund of euro issuers with a short-term approach. “The team has a great experience selecting this type of bonds focusing on free cash flow and leverage measures,” says Ozaeta, of Abante. The fund achieved a yield of 5.65% in 2019.
Spanish investors are increasingly betting on mixed and flexible funds. Funds that combine an exposure to highly diversified fixed income assets, with a certain exposure to the stock market. A correct asset allocation can be the difference between a mediocre fund and a bright one.
FVS Multi Asset Balanced. The German manager Flossbach von Storch is a benchmark in investment in corporate debt. Its multi-asset fund invests in equities in a range of between 30% and 60%. “At the moment it is at 45% and the managers maintain a positive vision on the asset in a world in which interest rates will remain low,” says César Ozaeta, manager of Abante Asesores. In bonds, they maintain a fairly low exposure and, on the other hand, they do bet on gold. Its average annual yield in the last three years has been 5.48%.
Merchbanc Flexible Fixed Income. It is one of the favorite funds for the Andbank analyst team. It is a fixed income product, both public and private and issued by issuers from OECD countries, denominated mostly in euros. It carries out a very flexible management. The vehicle has achieved an average performance of 2.71% in the last three years.
B&H Fixed Income. This is the best flexible fixed income fund in Europe in 2019, with a return of almost 12%. Its manager, Rafael Varela, is including corporate debt from emerging countries (such as Pemex bonds) and sovereign debt from Turkey and Romania. Its average annual yield in the last three years has been 5%.
Adriza Neutral. This flexible mixed fund invests primarily in stock and fixed-income markets (governments and credit) in Europe and the United States. To a lesser extent, it invests in exchanges and fixed income in emerging countries (with a maximum of 20%) as well as in raw materials, always through quoted liquid instruments. Its investment strategy is based on the global macroeconomic analysis. It is one of the preferred funds for the A&G Private Banking team. Its average annual yield in five years has been 5%.
Acatis Gagné Value Event. For those who want to take some more risk, they can opt for this global mixed equity fund, which combines investment in quality companies with those that live a corporate event (merger, change of managers …) capable of driving the action. It is one of the funds chosen by Abante. Earn 8.4% annually in the last 10 years.
Spanish equities have not been the most profitable assets in recent years. Even so, a handful of fund managers have achieved very interesting returns. Renta 4, Fidelity, Santalucía Espabolsa are some of the firms that appear among the best funds in recent years. On the other hand, the most specialized managers in value investment have lagged somewhat behind.
Rent 4 Bag. This Spanish Stock Exchange fund has five Morningstar stars, the highest recognition of this fund analysis firm. In the last five years it has achieved an average annual return of 8%. The main positions they have in their portfolio are Repsol, Viscofan, Applus and Grifols. In 2019, the fund has achieved a return of more than 14%. Its manager, Javier Galán, has achieved for several years the highest distinction of the Citywire firm.
Santander Small Caps. Lola Solana, the fund manager of small and medium capitalization companies of Santander Asset Management, has become in recent years one of the most recognized professionals in the sector. The fund that manages, with 700 million euros of equity, has achieved an average return of close to 8% in the last five years. Its current portfolio has a strong presence of companies with a healthcare and pharmaceutical profile, such as Almirall, Faes Farma or Grifols. It also has a relevant participation in MásMóvil. In 2019, it rented 6.3%.
Fidelity Iberia Funds. Fabio Ricelli manages investment funds for the US giant Fidelity from his hometown, São Paulo. Being thousands of kilometers away from the companies under investment has not prevented it from achieving very good returns during the last years. Its Iberian fund has obtained a return in 2019 of about 20% and achieves an average return of 7.24% in the last five years. “I do not expect that the result of the elections will translate into measures contrary to companies,” he explained recently in an interview with CincoDías.
Bestinver Bag. It is one of the most independent management companies. Beltrán de la Lastra and his team lead one of the few value investment firms that have managed to maintain good returns over the past two years. Its Spanish and Portuguese Stock Exchange fund has achieved an average annual return of 6.21% in the last five years, and last year it closed with a revaluation close to 11%. Its main positions are in paper mills (Semapa) and oil companies (Galp).
The Stock Exchange achieved in 2019 one of its best results in many years. Equities in the United States and Europe obtained returns of more than 25%. Now, the big question is whether this strong stock market pull can keep up this exercise. Experts recommend betting on global investment funds, with the ability to identify opportunities in various markets.
MFS Global Equity. It is a global equity fund focused on large capitalization companies. The manager performs a fundamental analysis to identify those companies with constant returns and a potential for sustainable and long-term growth. “The fund’s behavior has historically been very positive and is a clear example of the importance of being patient when it comes to staying invested, both in very bearish markets and in very bullish markets,” says César Ozaeta, of Abante. The fund has achieved an average annual return of 12% in the last 10 years.
CPR Invest-Global Disruptive Opportunities. It is a multi-thematic equity fund that seeks to invest in companies that benefit and / or participate in the global transformation and innovation processes that will lead the different industries in future global trends. “The growth style and technological, industrial sectors, together with exposure to emerging and environmental approach have special relevance in the fund”, explains Francisco Julve, of the fund selection team of A&G Private Banking. In 2019, it rented about 40%.
Sigma Global Sustainable Impact. This is one of the favorite stock funds for Carlos Aguado, Andbank fund analyst. It is a product that invests through the active management of a diversified portfolio of securities, bonds, ETFs, as well as other asset classes, always applying environmental, social and corporate governance selection criteria
Abante Biotech. It has been one of the revelation products in 2019, accumulating a profitability of more than 40%. “We believe it has great potential for long-term revaluation,” says Ozaeta. The fund invests in companies in the health and biotechnology sector, sectors that are already demonstrating their growth potential regardless of the movements that occur in the market.