Thursday, 02 July, 2020

10 year challenge in the market financial


Financial sector executives

Let discuss the 10 year challenge in the market financial . Look how interesting it is: this year, which was that year of recovery from the crisis of the subprime. In the financial markets, was won by variable income, index small caps first, Ibovespa second, real estate funds third and assets with longer maturities just ahead. Bad years for the market financial, such as 2013 and 14, which were years in which suffered a lot, Ibovespa plummeted, confidence plummeted. We were seeing the PT’s riots and robberies, were years when most assets had a negative return.

10 year challenge in the market financial

So, the real estate fund fell 11%, “small caps” shares 15%, Ibovespa almost 16% or 16% IMA-B 5+, NTN-B’s, public assets, from the federal government fell 17% and thereafter. Some of these assets are correlated with each other, good years like 2017, most assets are doing very well. All the assets that we measured here had positive performance. There was nothing that fell in those years and bad years, like 2013, and most of the assets, just under half, had a negative performance.

There are some legal analyzes to do on chart and the first one is about the unpredictability of returns. You can see here that in 2013, 14 and 15, in a investment in the S&P 500 (R $) was the best investment. The best asset class of these here, that we mapped. We often have that tendency to think “look, which was very good this year, it shouldn’t be doing well next year. Look, what went well this year, it shouldn’t go very well next year “. So, the guy who looked at the performance of this asset class in 2011, which was good, 2012, which was good, 13 and 14 and makes a random decision, like “no, it went really well in years. So, I’m not going to buy “or” I’m going to sell “, left a high more than 50% in 2015.

The basis for legal analysis here do. The 2012, one of the winners was IMA-B 5+, those IPCA + Treasury assets with longer maturity in 2013. It was the worst asset class. So, on the one hand, we have an asset class that won three years in a row. On the other, we also have some cases where the big winner of the year, or one of the big winners, is the big loser the following year. What does this show? Total unpredictability of returns futures of each asset class. What should we do based on that knowledge, based on that humility to understand that the future is completely unpredictable. The nobody knows who will be the big winner of the next year or big winner of the decade.

There comes the concept of allocation of assets, the concept of diversification. When assembling a wallet that contains in your position, some of these asset classes, each with its specific percentage, with a very clear investment policy, that says more or less the following: “look, ‘x%’ of my career will be like this S & P500 (R $), ‘X%’ of my portfolio is going to be the “small caps” index, ‘X%’ of my portfolio is going to be IMA-B 5+ “and so on, you can spray the portfolio into multiple assets, gradually reducing risk is an issue statistic.

When you place assets with correlation zero or low together in the wallet, it reduces the volatility, standard deviation. In other words, the portfolio’s “zig-zag” without reduce both the return or sometimes even increasing the return. This is what I show in the white paper that we have here, which is a study that shows the benefits of diversification between our country shares and North American shares.

Well, last considerations here. Ibovespa, variable income, are shares of  companies. The tendency is that in the long run, it will give a gain higher than fixed income, even for have a greater risk, was one of the losers of the decade, stayed there ago. It only beat the IPCA and the dollar in this analysis here. There are two reasons for explain this. First term, only 10 years for a lifetime on the market financial is little and, second, is the composition of the Bovespa index, until the end of 2013. They gave a lot of weight, the liquidity of assets and, consequently, assets popular, assets that were being traded. They were, in the vein, suffering the effects of the “herd effect”, such as OGX, LRX, all “X” group companies, which have become very popular with investors, especially individuals. There, in 2011, 12 and 13, performed horribly. You can see that Ibovespa was the big loser in 2011, one of the losers in 2012, one of the losers in 2013, one of the losers in 2014 and pulled a lot of the index down.

This form of composition has changed since 2014, giving more weight to market value, which is correct, is more aligned with most of the world’s exchanges. Another legal analysis: there are times, when the investor in income variable will simply have to endure years of poor performance in a row. I just showed on the Ibovespa, it went up just 1% in 2010, fell 18% in 2011, it went up just 7% in 2012, fell 15% in 2013, tied, “0x0” in 2014, lost 13% in 2015. They were followed that the investor had to endure the poor performance, ended up being, in a way, who kept the exposure, who followed the asset allocation strategy, ended up being rewarded in 2016, 17, and 18.

He was one of the big winners and to close. Here are the winners of the decade: S & P500 (R $), 1470% that decade, IMA-B 5+, assets, government bonds with more maturity long, rose 300%, securities funds, almost 300%, “small caps” shares, which is an index without those Ibovespa problems, 260%, fixed-rate assets, with lower maturities, greater than a year, 240% and the list goes on to the big loser of decade that, oddly enough, was the dollar. We have the impression that the dollar soared during this period, in these the past ten years, but in fact, it tracks inflation. You can see that inflation rose 76%, the average asset price did not increase 76% in this decade and the dollar of 73%, more or less.  So,it’s the “10 year challenge in the market financial “.

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