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Multimarket Funds

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1. What is it?

Multimarket funds, as the name suggests, are funds that can diversify their portfolios, providing more alternatives to investors. Such funds may be investing in DI rates, Selic rates, interest rates, indexes in general, currencies, shares, etc. Also, they can allocate up to 20% of net assets to invest abroad.

Multimarket funds need to cover all risk profiles with policies that are not focused in any particular asset or type of investment. That means, for instance, they can heavily invest in shares and not much later sell them all. For this reason, multimarket funds are considered a high risk option. These funds expect long term results, reached after several ‘rounds’ of strategic moves and investments. Remember that these funds can use derivatives as a hedge instrument or for leveraging, and not rarely charge a performance fee from investors.

The great differential of multimarket funds is their flexibility, as they can allocate resources in many different available investments and assets. Because of that, there are a number of styles and strategies that can be adopted, and the main are:

Trading

Multimarket funds following this strategy pursue the right time for selling and buying assets. They take positions with shorter terms and more liquidity, exploiting opportunities of making profits from quick moves based on market prices. Also, they can change strategies quickly, avoiding undesirable moves in the market.

Macro

These funds try to anticipate macroeconomic trends that can affect assets in the future, based on market fundamentals and current and forward pricing for the targeted assets. Positions taken use to be very focused and for long periods of time.

Long & Short – Neutral

Also known as Equity Hedge, funds following the Long & Short – Neutral strategy focus on assets and derivatives of variable income, taking over longs and shorts in different assets, looking for reaching a ‘neutral’ position in the market and for an ideal ‘zero-risk’ position. For instance, a fund like this might be buying an assets at cash prices, and at the same time selling Ibovespa futures, neutralizing risks on Ibovespa’s index changes.

Long e Short – Directional

This kind of strategy takes Long & Short positions, or ‘selling’ and ‘buying’ positions in the stock markets, and results shall come from the difference between both positions. For instance, a fund that uses this strategy may purchase shares from undervalued companies, and at the same time sell some well valued shares from companies at the same sector. So those undervalued assets tend to be hiking up while the most valued assets should softening their prices. A good manager can both make profits from undervalued and overvalued assets with this strategy.

Multistrategy

As the name suggests, such multimarket funds chase several strategies at a time, with no particular focus in any of them. Priorities involve analyzing risks and opportunities overall, macroeconomics and assets behavior. Commonly, derivatives are used by these funds for leveraging assets.

Multimanager

The strategy comprises investing in more than one fund, managed by different managers. Selected managers need to have a good history on results, providing more profitability opportunities to the new fund. Managers are thoroughly chosen to form a solid portfolio. These funds’ assets are disposed in quotas of differents funds, according to their management and profile, providing the best relationship of risk and return.

Interests and currencies

As the name suggests, these funds invest in fixed income assets tied to interest rates, price indexes and exchange rates. They look for long term results and deal with stock very seldom.

Specific strategy

Look for specific risks and opportunities, like commodities, indexes, currencies, etc.

Balanced

This strategy looks for diversifying investments and moves, and clearly chase short term results. They compare results to a serie of assets, deciding the percentage to invest in each one of them.

Hedge

The strategy looks for getting profits from risky markets, but always looking for hedging the invested capital. They can invest almost in anything, having a directional strategy or not, but more importantly, is doing operations where the main investors’ capital is protected.


2. Taxation

Taxes on multimarket funds may change according to the fund’s policy and prospects.

Long term funds must have the expression “long term” included in their names and follow all conditions determined by regulators. Long term funds keep an average portfolio for a period longer than 365 days. For them, taxation follows the same rules as fixed income investments – the longer is the period, the lower shall be the tax rates:

  • Investments for up to 180 days: 22.5% (only over profits)
  • Investments between 181 and 360 days: 20% (only over profits)
  • Investments between 361 and 720 days: 17.5% (only over profits)
  • Investments over 720 days: 15% (only over profits)

For that type of multimarket funds, quota-eatings apply at a 15% rate, to be paid every six months (May and November).

Contrariwise, multimarket funds labelled as “short term” (in fact, they bring that in their own names), are those which keep assets with average deadlines shorter than 365 days. For this situation, taxes incide as follows:

  • Investments for up to 180 days: 22.5% (only over profits)
  • Investments between 181 and 360 days: 20% (only over profits)

Quota-eating rate for this second type of multimarket fund reaches 20%.

Those funds whose policy determine at least 67% of their portfolio to be tied up to stock markets, taxes are charged just as stock or equity funds’ – or income tax of 15% no matter how long the investment can be. Quota-eating not applies to them.


3. Advantages

  • Professional management. Some are managed by highly qualified people, which increases probabilities of gains, although there is not guarantee of profits from funds;
  • Diversification – the top advantages, or the possibility of investing in any assets available in the market;
  • Some multimarket funds use assets as hedging tools, to protect the invested amount;
  • Some funds may have strategy completely in line with investors, which makes them the perfect choice for some of them.

4. Disadvantages

  • Multimarket funds are not backed by the guaranty fund;
  • Administration fees may affect profits;
  • High risk, as some funds concentrate their portfolio on riskier alternatives of investment, widely using derivatives and leveraging strategies;
  • Income tax is charged even if the total invested amount is lower than BRL20,000.00 (if it invested directly in stocks, a smaller sale than R$ 20,000,00 there is no incidence of income tax).

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