At the end of December 2023, the Financial Market Commission (CMF) reported that the balances in this type of instrument grew 15.1% year-on-year, exceeding US$38 billion. But the drop in interest rates should tip the balance towards other investment instruments in the immediate future, according to a study by the financial planning startup .
Chileans' interest in financial education has shown an increase since the pandemic. And likewise your inclination to invest.
Little by little, the democratization of fintech and the awareness that they have raised regarding financial inclusion has encouraged more people to want to invest in the instruments they have at their disposal. This is shown by the success of platforms and general fund managers (AGFs) such as Fintual and Racional, two of the most famous local agencies.
In this context, the local financial planning startup Patrimore released this Tuesday its study “Behavior of Chilean Investors”, where it analyzed the sector's high costs for savings and investment and also identified the preferred instruments for investing.
“The profile of the Chilean investor saver is very conservative,” says Fernando Slebe, co-founder of Patrimore and investment manager.
This finding was made based on the data available in the market, both with the Commission for the Financial Market (CMF) and with the Superintendency of Pensions (SP) and Association of Mutual Funds (AAFM). For the report, they also included systematized information from their financial education and investment platform, which already has fifteen thousand users.
“The money of the saving investor is mostly in time deposits and time deposit funds, or money market , and checking account,” details Slebe. “And then it goes to, not even something very sophisticated, but to debt with a little longer term. And what is that debt with a little longer term? More than a year. And there they move between one and two years,” he adds.
INVESTMENTS IN FIGURES
Despite the efforts made by regulatory institutions, at Patrimore – formerly Rubix – they believe that the little importance that people give to the topic of investments is due, in part, to the fact that it is an unfriendly terrain for many due to the complex terminology used. as well as the evident lack of financial education of the population.
“This is why we believe you should be careful to explain, in as much detail as possible, the costs involved in the issues related to different financial products, specifically in the issues related to savings and investment, what we can expect from them in terms of profitability and risk, to finally try to discover what are the reasons for the decisions that people make in these matters, taking into consideration all the public information provided by different institutions,” says Sergio Tricio, general manager of Patrimore.
To provide context, the planning entity adds that, in the Mutual Fund market, 42.44% of the capital is allocated to the so-called money market – or MMA for its acronym in English – a mutual fund that invests mainly in investment instruments. short-term debt, whose profitability basically depends on the Central Bank rate, the deposit rate of commercial banks, the variation of the Unidad de Fomento in the case of Chile, and market expectations.
“All this reinforces that Chilean investors are very concentrated in ultra-conservative instruments,” adds Tricio.
Thus, during February 2024, effective assets in mutual funds in Chile averaged US$64,993 million, with more than three million investors, which represents a variation of 10% compared to the same period in the previous year. Meanwhile, the number of available alternatives was 2,821 instruments.
On the other hand, equity mutual funds represent less than 7% of the total, despite the strong rebound in recent months in global markets and in the United States in particular.
With these data, Patrimore concluded that, considering the variations in the last three months, the total managed assets grew by 11.5% in pesos and 2.6% in dollars, a significant growth that would be largely explained by the increase in flows towards the Debt category less than 90 days (MMA) and the increase in the price of the dollar, which in the first two months of the year amounted to 9.4%.
Meanwhile, the growth of debt of less than 90 days in pesos amounted to 10.7%, marked by an increase of 94,501 participants, which is equivalent to an increase of 3%.
In the case of time deposits, meanwhile, according to the latest data published by the CMF, at the end of December 2023, the balances grew by 15.1% year-on-year, reaching more than US$38,863 million.
However, “a drop in short-term flows is beginning to be observed in the months of January and February, associated with the drop in interest rates and consequently it could be explaining a transfer from term deposits to funds. mutual short-term debt less than 90 days,” indicates Patrimore's analysis of Chilean investments.
TRADITIONAL INVESTOR
Chileans' preference for time deposits continues among those subscribed to the Patrimore investment recommendations platform.
“Of a total of 597 users of our platform who entered their personal and investment information in the last 3 months, we observed an evident preference for time deposits, which represents 22% of the sample. They are followed by stocks, with 14.9% and mutual funds with 13.1%, respectively,” said Sergio Tricio.
In its study, the fintech affirms that, although a significant decrease has begun to be observed in the interest rate delivered by term deposits, a slight decrease in deposits has also been observed, which has not yet been of the same magnitude. .
“We could be observing greater attractiveness and certain transfers from the world of time deposits to money market mutual funds. The current good scenario for the markets and the increase in the dollar have allowed the addition of nearly 94,500 new participants in the period November 2023 – February 2024,” the study indicates.
Looking at the behavior by month, time deposits went from representing 27% in December to 21% in January and February.
“The problem with term deposits is that if they earn 0.6% monthly like today, that is 7% annualized. And if [Chilean] inflation is 3.5%, although it is still a business, the real return is 3.5% above inflation. That is, the party is over. And when the investor realizes that the party is over, it is already too late,” explains Tricio.
Hence, a slight increase in investment in mutual funds is observed in the first two months of 2024, compared to what was seen in December.
“Both in the clients of our free platform and in the industry average, the lack of diversification and asset allocation is noticeable,” states the Patrimore report.
Where there is an Achilles heel for investors is in cost management.
“In most areas of life, you get what you pay for. If you pay more, you get more. But in the world of investing, you get what you don't pay for. When you think about it, it makes sense: costs matter, because every peso you pay on this item affects future returns. An independent financial advisor can reduce costs by giving access to institutional investments or ETFs with lower prices,” indicates the entity.
THE RISK FACTOR
When reviewing the market, Patrimore highlights the good time to make investments that denotes the performance of the international stock markets: The S&P 500 has made 17 all-time highs so far this year, with an advance of more than 7% in the first quarter of the year. This has had a favorable impact on the rest of the stock markets worldwide.
Along the same lines, the global ACWI index has risen more than 6% in the same period.
In the local stock market, the IPSA has risen a little more than 4% so far this year, but if you look at the behavior of Chile's main ETF, the ECH (measured in dollars), there is a drop of -3, 8%, explained by the strong depreciation of the Chilean peso. While looking at the relationship between dollars and Chilean peso, the US currency is rising 6.5%, largely explained by the change in rate expectations both in the US, where they are maintained, and in Chile, where they are They look downward.
“In recent days, the strong depreciation of the Chilean peso has calmed down due to the increase in inflation and the strong recovery of copper,” indicates Sergio Tricio.
“Chileans are very conservative, they don't like risk, but the big problem is because they don't associate it with the correct times,” says Slebe about the study's conclusions.
“It's time to take more risks,” the report states... But what does that mean?
In simple words, when Patrimore recommends an instrument, it is done with a financial objective and is classified in a time frame that can range from five to twenty years, where it escalates from low risk to medium and high risk.
“And what do those risk levels mean? The thing is that I need to know the oscillation of my investments: if I am investing for one year, and with that money later I am going to go on vacation, in that year, my oscillation - my probability of not having more money than today - has to be zero . And if not, well, why am I going to invest? Better leave it in the checking account. But if I invest for twenty years, it doesn't matter if next year has a lot of fluctuations, because my goal is for two decades. So, the time frame is very important,” concludes Fernando Slebe.
