International fund/types/working/advantages/risks/Currency protection

Investing in an international fund is one of the best ways to diversify a portfolio these days.

Increasingly, the domestic financial market offers fund options with exposure to global indices and assets.

In this way, investors in general can now access products from foreign markets to escape the national crisis and reduce their risks.

In the following topics, you will understand what an international fund is, what are the types and why it is worth investing money.

What Is An International Fund? How It Works?

An international fund is an investment fund that invests part or all of its assets in foreign assets .

In this case, these assets can be shares of foreign companies, indices, derivatives, private debt securities, shares of other funds, foreign currencies, etc.

Just remembering: an investment fund works like an investor’s condominium , in which each participant acquires a share and a professional manager manages the wealth.

Thus, everyone has their share of the fund’s results (which can be positive or negative) in proportion to the amount invested.

In addition to Brazilian funds that invest abroad, qualified investors (who have more than R$ 1 million invested) can also invest money in funds managed abroad.

In this way, investors are able to diversify their investments and ensure international exposure in their portfolio, in addition to the assets available in the domestic financial market.

What Are The Types Of International Fund?

There are several types of international funds that can compose an investment portfolio.

See some examples:

Fixed Income

International fixed income funds are those that invest most of their equity in investments whose profitability is known at the time of application.

The most common assets in this category are private debt securities, which are issued by foreign banks and companies.

In Brazil, some examples of these assets are CDBs (Certificados de Depósito Bancário), LCAs/LCIs (Letters of Real Estate and Agribusiness Credit ) and debentures (credit securities issued by companies).

In addition, international funds can also invest their capital in foreign public bonds , which, in the domestic market, correspond to Treasury Direct bonds.

Variable Income

Equity funds are those that invest their equity in assets exposed to volatility , whose profitability is not known at the time of application.

The most common in this category are equity funds, hedge funds and foreign exchange funds.

Exchange Fund

Exchange funds are those that invest at least 80% of their portfolio in assets related to a foreign currency , such as the dollar or euro.

They are recommended for investors who want to protect themselves from exchange rate variations or take advantage of moments when the dollar is up against the real, for example.

Why Are Investors Looking For International Funds?

The search for international funds has gained strength due to the political and economic crisis that Brazil has faced in recent years and the need for diversification that arises with the growth of the financial market.

When the country faces uncertainties regarding fiscal risk and inflation , for example, it is safer for investors to have part of their portfolio invested in assets abroad.

In this way, it is possible to dilute risk and protect against crises in the domestic market, while taking advantage of opportunities for greater profitability in the foreign market.

Another essential point is the protection of purchasing power , which tends to be eroded by high inflation and the devaluation of the real.

Furthermore, as diversification is essential in any investment strategy, international funds are ideal for gaining exposure in different markets, in addition to domestic assets.

Can Anyone Invest In International Funds?

In the case of funds that invest more than 20% of their equity in international assets, access is restricted to so-called qualified investors or professional investors .

See the conditions for joining one of these groups:

Qualified investors professional investors
Professional investors Natural persons who have passed technical qualification exams or hold certifications approved by the Securities and Exchange Commission as requirements for the registration of autonomous investment agents, portfolio managers, analysts and securities consultants, in relation to their own resources investment, provided that their portfolio is managed by one or more shareholders, that they are qualified investors, natural or legal persons that hold financial investments in an amount greater than R$1 million and that, in addition, certify in writing their status as a qualified investor by means of their own term. Financial institutions and other institutions authorized to operate by the Central Bank of BrazilInsurance companies and capitalization companiesOpen and closed-end private pension entitiesInvestment fundsInvestment clubs, provided that their portfolio is managed by a securities portfolio manager authorized by CVMAutonomous investment agents, administrators portfolio managers, analysts and securities consultants authorized by the CVM, in relation to their own resourcesNon-resident investors Natural or legal persons who hold financial investments in an amount greater than R$10 million and who, in addition, certify in writing their status as a professional investor by means of own term.

However, there are also international fund options for general investors who are not qualified or professional.

The rule established by the CVM is that these funds can only invest up to 20% of their assets in foreign assets.

In addition, ordinary investors can trade international assets such as ETFs (Exchange Traded Funds) and BDRs (Brazilian Depositary Receipts) on the stock exchange.

What Are The Advantages Of Investing In An International Fund?

There are several advantages of investing in international funds to diversify your portfolio .

It Is An Opportunity To Be In Front Of The Biggest Companies In The Market

One of the main reasons to invest in international funds is the possibility of acquiring shares in the largest companies in the world .

This is possible for qualified investors who invest in equity funds or by acquiring BDRs, for example.

These bonds are receipts representing shares in companies listed on foreign exchanges .

In this case, the depositary institution buys the shares abroad and deposits them in a financial institution that acts as a custodian and issues the BDRs in Brazil, through the Brazilian stock exchange (B3) .

In this way, investors can buy shares in global companies such as Apple, Amazon, Netflix and Mercado Livre without having to open an account abroad and pay high remittance costs.

And, obviously, being a shareholder in successful multinationals is a great opportunity to earn long-term returns.

Allows You To Access Exclusive Strategies From The Foreign Market

The Brazilian financial market is in full growth, and the CVM has been increasingly modernizing regulations to diversify investment options.

Even so, there are markets abroad that are more diversified and offer different options of assets to include in the portfolio.

Therefore, investing in international funds is a way of accessing these foreign markets to explore new potential for profitability .

It’s A Great Way To Diversify Your Portfolio.

You can already see that diversification is the watchword of investments, right?

Although it is possible to have a diversified portfolio with assets from the domestic market, nothing compares to the possibilities offered on exchanges around the world.

The more diverse the portfolio, the easier it will be to offset any losses and earn above-average long-term returns.

It Is Practical For The Investor

Investing in international funds is also a way to escape the bureaucracy of investing abroad.

Just buy a share of a fund online, using your national brokerage account, without having to send money abroad, do currency conversion or pay high fees to custodians.

In addition, it is easier to comply with tax requirements , since the investment is located in Brazil and follows Income Tax rules.

What Are The Risks Of International Funds?

The risks of international funds vary according to the asset class used in the strategy and the macroeconomic scenario of the target market.

Naturally, equity funds present greater risks than fixed income funds, as their assets are exposed to high volatility.

The exchange rate, for example, has a risk factor inherent to the variation of currencies and their market prices.

Stocks, in the same way, suffer intense fluctuations in their prices on exchanges around the world.

The fact that they are investing in assets on the international market adds to the risk of the investor not knowing about the assets being traded.

Other than that point, the risks are the same as those involved in domestic financial products.

How To Invest In International Funds?

Currently, investing in international funds is very simple.

All you need to do is open an account with a stockbroker authorized by the CVM and start investing in the funds you want.

The account opening process is done 100% online , with documents sent by application, in most institutions.

Once your account is created, you gain access to the broker’s investment portfolio and can choose from national and international funds, equities, public and private bonds, debentures, private pension , derivatives and much more.

When investing money in the fund, it is important to be aware of the following points:

  • Deadline for application: this is the time it takes for the purchase of your share to settle and the money to enter the fund’s capital, expressed in “D + number of business days” (usually D+1)
  • Minimum initial investment: this is the minimum amount required for the initial investment in the fund
  • Redemption (quotation): it is the period until the withdrawal of your quota from the fund after the redemption request, expressed in “D + number of business days”
  • Redemption (financial settlement): is the period for settlement of the money redeemed in your account, expressed in “D + number of business days”
  • Minimum movement: it is the minimum amount that you can move in your contributions
  • Application and redemption time: is the time when it is possible to make applications and redemptions
  • Taxation: details the fund’s taxation rules, depending on its class.

Points To Consider Before Investing In An International Fund

Before investing in an international fund, you should assess whether this product is suitable for your investor profile .

In the suitability tests applied by brokers, the investor is classified as conservative, moderate or bold, depending on criteria such as expected return, risk tolerance and financial reality.

Identifying this profile ensures that you choose suitable investments for your portfolio and avoid taking greater risks than you would otherwise be willing to take.

Meet each of the profiles:

  • Conservative: is risk averse and seeks to preserve capital, opting for safer assets such as fixed income securities. Its strategy is to have more modest gains in the long term to build equity and protect itself from economic fluctuations.
  • Moderate: seeks the best risk-return ratio, combining a greater share of low-risk assets (fixed income) with a smaller share of riskier assets (equities)
  • Bold: has the greatest risk appetite and seeks above-average gains, giving up liquidity, but is also concerned with preserving a part of the equity in fixed income.

In addition, it is important to evaluate the fund ‘s profitability history to understand its performance – remembering that past profitability is no guarantee of future profitability.

Finally, don’t forget to check the fund’s liquidity, as the redemption period may be longer than you think.

What Are The Fees Charged By International Funds?

Management fees charged by international funds vary depending on the complexity of the assets .

In general, equity funds charge higher fees, as asset management in high-risk markets is more complicated.

A stock fund, for example, usually has a management fee of 2% pa (considered the maximum amount in most cases).

Fixed income funds can have rates between 1% and 1.5% per year.

In addition to the amount charged by management, international funds also usually charge a performance fee .

This is a percentage charged on the value that exceeds the index used as a reference in the fund.

For example, if an investment fund aims to surpass the Ibovespa (stock exchange index) and it manages to exceed this index by 20%, it is allowed to charge a performance fee on this extra amount of income.

Generally, the performance fee is between 10% and 20% of what exceeds the benchmark used in the international fund.

Also, it is important to check for taxation issues .

In equity funds, for example, a 15% income tax is charged on earnings at the time of redemption.

Fixed income funds have the so-called come-quotas : a semi-annual collection of income tax on income that reduces the value of their quotas.

Currency Protection In International Funds

Many investors seek international funds to protect themselves from exchange rate fluctuations , especially in times of high dollar.

This strategy is called hedging and consists of protecting purchasing power against exchange rate fluctuations.

Basically, a “hedged” fund is set up to protect investors’ capital against the fluctuation of currencies – in particular, the dollar.

This operation consists of balancing dollar purchase and sale operations using futures and derivatives contracts, so that it is possible to act in scenarios of high and low foreign currency.

In a scenario of devaluation of the real, many investors seek foreign exchange funds to preserve their equity against the rise of the dollar.

What Is The Best International Investment Fund?

There is no way to classify the “best international investment fund”, as each investor will have to select the funds that fit their profile, strategy and objectives .

However, if you want a fundraising benchmark, here are the top performing products in this category in February 2022, according to XP :

  • AXA WF US High Yield Bonds Advisory FIC FIM IE CP: international fixed income hedged fund with a minimum investment of R$500
  • Goldman Sachs Emerging Market Corporate Bonds Advisory FIC FIM CP IE: international fixed income hedged fund with a minimum investment of R$500
  • Morgan Stanley Global Fixed Income Advisory FIC FIM IE: international fixed income hedged fund with a minimum investment of BRL 500
  • Oaktree Global Credit FIC FIM IE: international fixed income hedged fund with a minimum investment of BRL 500
  • Oaktree Global Credit USD Advisory FIC FIM IE: unhedged international fixed income fund with a minimum investment of BRL 500
  • PIMCO Income Dollar FIC FIM IE: unhedged international fixed income fund with a minimum investment of BRL 5 thousand
  • Aberdeen Multi Asset Growth Advisory FIM IE : international multi-market hedged fund with a minimum investment of BRL 500
  • BlackRock Global Event Driven FIC FIM IE: international hedged multimarket fund with a minimum investment of R$ 10 thousand
  • Bridgewater Core Global Macro Advisory FIC FIM IE: international hedge fund with a minimum investment of BRL 500.

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