Guaranteed funds, a good option for the conservative investor
There were sharp declines recorded in the financial markets during 2022, primarily caused by the war in Ukraine, high inflation, rising interest rates, and uncertainty about economic growth.
Although analysts are expressing more optimistic views for 2023, they are also recommending caution when making investment decisions, with a need to select assets that can function well in this context.
On February 20th, at the inauguration of the new MAPFRE Gestión Patrimonial office in Palma, investment manager José Luis Jiménez explained that investors should look for assets with “guaranteed or protected” returns, as a way to preserve their purchasing power as much as possible in the current environment.
“We have to search for returns, and in most cases, it will be better to have a guarantee or some form of protection, because high inflation is looking like a reality, and that will be having a negative effect on our purchasing power. This should make protecting our financial assets a prioritized objective,” he said.
Also, in a recent interview with Expansión, Mr. Jiménez said that at MAPFRE, “we have always been very active in the area of savings and investment, and in the current scenario, we have some ability to exceed the yields of treasury bonds.” “We have plans to launch numerous guaranteed products, in a variety of formats, because this is what most investors are looking for, regardless of whether or not they have a conservative profile,” he emphasized.
There are already various products on the market that have been attracting attention lately, although not all of them offer the same level of protection. Two examples of these are guaranteed funds and target return funds, which according to data released by the association Inverco, recorded a combined net subscription figure of over €1.35 billion in January alone. In an interview with Finect, Eduardo Ripollés, manager of institutional sales at MAPFRE AM, explained that “recently, after a period of seeing interest rates rise so sharply, entry into guaranteed funds has been very rapid.”
According to information appearing on the website of Spain’s National Securities and Exchange Commission (CNMV), guaranteed funds are products that, as a minimum, guarantee that all or some part of the initial investment made will still be maintained on a specific future date. The website also points out that these products do not guarantee a specific return at all times, only on their maturity date.
The main assets in which these funds invest are primarily treasury bills and sovereign bonds, although their portfolios may also include some corporate bonds and even index-linked bonds. The gives them a profile that may represent an ideal option for more conservative savers.
The difference compared to other savings or investment products is that there is a guarantee, so that “no matter what happens,” the initial investment plus a certain percentage is guaranteed. “For this to occur, the guarantee has to be validated, by demonstrating that the guarantor is financially sound, and the product has to be approved by the CNMV. What this means is that these guarantees can only be put on the market by solid entities with particular liquidity levels and solvency ratios,” Mr. Ripollés adds.
The products known as target return funds have also been taking on a starring role in recent months. These are fixed-income products that also offer a specific return at their time of maturity, although unlike guaranteed funds, there is no formal guarantee. This is a characteristic that can make them less attractive than guaranteed funds, because investors must assume more risk, in exchange for returns that may still be lower than those offered by other assets. In this case, the portfolios may also include investments in equities, although they tend to invest primarily in fixed-income securities. The CNMV is proposing new obligations for funds of this type, so that they will provide more transparency for investors.
MAPFRE has always opted for guaranteed funds, and for the more conservative versions of them, whether in the fund format or as pension plans. In other words, this means those with a guarantee that covers 100% of the capital invested.