What are guaranteed mutual funds?
Volatility is still very present in investors’ decision-making. One of the most effective indicators to measure the degree of market volatility is the VIX, which analyzes the U.S. S&P 500, which is currently above 20 points. In the same territory is the VSTOXX (Euro STOXX Volatility Index), which is at levels of a year and a half ago (above 30 points). Both data show that, for the time being, uncertainty will remain anchored to the stock markets.
Faced with this unstable situation, investors are looking to protect themselves and opt for safer, more prudent options that will allow them to minimize the impact of the swings of recent weeks. As a savings option, guaranteed mutual funds have emerged as one of the most interesting products at this time. But what do we know about them?
According to the National Securities Market Commission (CNMV), these are “mutual funds that ensure that, at least at a certain future date, all or part of the initial investment will be retained.” Specifically, this maturity date corresponds to the date on which it is assured that the shares in the product will have a certain value.
That said, guaranteed funds were created to insure all or a large part of the investor’s investment. Due to their low risk, they tend to generate low returns and are suitable for investors with a more cautious approach.
In addition to being an alternative to fixed-term deposits, MAPFRE AM, MAPFRE’s fund manager, describes these funds as “a defensive product for conservative investors at a time of high uncertainty,” both for individuals and institutional investors.
What types of guaranteed funds are there?
Depending on the amount of the guaranteed investment and its yields, there are three types of guaranteed funds:
- Guaranteed Fixed Yield (GFY). This type of fund ensures the preservation of the initial capital at the maturity date of the guarantee and a fixed and predetermined return.
- Guaranteed Variable Yield (GVY). In this case, they only insure the initial investment on the maturity date of the guarantee. However, they make it possible to obtain a return linked to the performance of various financial assets or indices. It is important to know that these underlying assets may not perform as anticipated by investors. In this regard, MAPFRE AM explains that they are asymmetric in nature. “If the situation worsens,” they protect the initial capital, while if the current risks in Europe (Ukraine, Covid, energy prices, among others) begin to subside and the outlook improves, the fund itself “can participate in the recovery of the European stock market.”
- Guaranteed Partial Yield. For this third type, they do not usually guarantee the entire investment but cover around 90% of the total. These, however, tend to generate a higher return because the investor assumes more risk.
Although a guarantee period is established for all these classes, there are so-called “liquidity windows,” a series of dates on which the investor can redeem part or all of the contribution without paying a fee. However, the amount reimbursed will correspond to the net asset value on the date of the request and will therefore not benefit from the guarantee initially offered.
Following the market trend, where uncertainty is still present in analysts’ estimates, and taking advantage of the recovery of the European stock market, MAPFRE AM is making progress in creating a guaranteed fund that covers 100% of the capital at maturity. At the same time, a return can be obtained depending on the performance of the European market, specifically the Euro STOXX 50.