RIO DE JANEIRO, BRAZIL – The debut of a real estate fund on the stock exchange in 2020 suggests that the market continues to grow, even after the best year in its class. Ifix, which measures the performance of the sector, rose 36 percent in 2019, surpassing the previous record from 2012.
The Santander Rental Income Fund closed with a 12 percent rise in its first trading session last Friday, January 10th. The fund raised a volume of almost R$360 (US$90) million, fully invested by individuals, in December.
The funds are part of a successful wave. In December alone, five primary issues of real estate funds placed R$1.2 billion in the market, according to data from the B3 stock exchange. All of them made their debuts and, on average, closed their first trading session up 9.3 percent.
The greatest example of this is the Luggo fund, focused on residential apartments, which offered R$90 million on December 10th, with each share at R$100.
On the first trading session, on December 30th, the fund closed at R$120.97 per share. In the highest price reached during a trading session, the LUGG11 reached R$148, on January 2nd.
From 2019 to the end of November, Real Estate Funds (FIIs) offerings on the Exchange totaled R$19.6 billion, breaking the previous 2012 record (R$14 billion).
Another factor that draws attention is the speed with which the funds are reaching the market. XP Properties took only four days after its issuance to open trading on the Exchange. All five funds with primary offerings in December can now be bought on the Exchange.
Rafaela Vitória, the chief economist at Banco Inter, which manages Luggo, notes that the migration of fixed income investments to funds has boosted demand and the price of FIIs, which is reflected in the good results in the early sessions.
She notes that FIIs end up being the first test of equity investors, as they have historically been less volatile than the stock market.
However, one must be prepared for price fluctuations. Proof of this was the correction trend seen in the market last week, when the Ifix saw its worst trading session since May 2017.
However, the analysts consulted believe that the trend was nothing more than a price adjustment, even considered to be healthy, with no grounds that would justify a change in perspective for the sector.
Of the total of R$1.2 billion that the five funds raised in December, almost 90 percent came from subscriptions by individuals. This type of investor had already reached more than 570,000 in the FII market in November.
Marcelo Hannud, a real estate specialist at XP Asset, adds that ownership in real estate attracts Brazilians, who have a “patrimonialism” investment culture.
“It is an example of market maturity and shows the opportunity that FIIs represent in the portfolio of investors. It is another demonstration of the strength and acceptance of this product,” says Hannud.
Leveraging on the good moment, three funds managed by Banco Inter recently debuted on the stock market (in addition to Luggo, one in real estate securities and another in logistics), and a group of funds is about to be launched, says Rafaela. She states, however, that this is not a bullish window, but rather an expansion trend in this class, which should persist.
But the economist ponders that the class’s returns from now on should not be as impressive. “The size of the capital gain last year should not be repeated in 2020; the premiums should be lower, because we do not expect interest to drop below [the current level of] 4.5 percent,” she explains.
Otávio Vieira, a partner at Taler, has a positive view for the class but agrees that large quota valuations should not be common in 2020.
However, he points out that with dividend yields hovering around six percent per annum, the funds remain attractive in a low-interest rate environment. “They will carry well, because the SELIC should remain low for a long time. But people have to be aware that return should not be the same”, he says.
Vieira states that Taler recommends that its clients should invest between five and ten percent of their portfolio in FIIs. “What is being done is recycling the portfolio, exchanging funds that have gone up a lot and have a lower potential for others with the prospect of a better performance”, he explains. “There are still opportunities for capital gains, but now it is a game that requires professional selection of funds”.
Risk diversification
José Raymundo de Faria Júnior, a CFP-certified financial planner, notes that FIIs are still a good way to diversify investments if the risk profile and investment horizon are appropriate.
For those who wish to start investing in these products now, in a scenario of strong growth, he advises entering this market little by little. “There will always be some kind of correction, but it is difficult to know when the drop will come. The ideal is to make a periodic contribution, not a moment to make a single purchase”.
Those who leveraged from the 2019 earnings may be at an appropriate time to rebalance their portfolio. “Those who had five percent of their portfolio in FIIs and now, after the increase, are hypothetically at eight percent, may be more exposed to risk than they would like. It may be a good time to sell high and adjust.”
Source: Infomoney