With Selic at 11.25%, where are good investment alternatives?

This Wednesday, the 31st, the Monetary Policy Committee (Copom) of the Central Bank of Brazil (BC) made a new cut in the basic interest rate, the Selic. This is the fifth consecutive reduction in the index and analysts predict further cuts in the next meetings. But, after all, with the current rate at 11.25% per year, where are good investment alternatives?

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For financial market experts, even with the progressive cut in the Selic rate, Brazil continues to pay investors well. According to the CEO of Multiplike, Volney Eyng, the country is still the second best paying country compared to other emerging countries, second only to Mexico.

He explains that with the Selic rate at 11.25%, fixed income investments accumulated a 37% loss in profitability in the last year. Still, there are many opportunities to the detriment of variable income.

“Brazil has the second highest real interest rate in the world, second only to Mexico, with 6.49%. Ours is at 5.95%. Historically, emerging countries and BRICS countries need to pay a higher rate, as they are less developed economies. This outlook is good for the investor and forces fixed income to pay well. The real interest rate is the Selic rate discounted for inflation, and this is literally what the investor ends up earning net, without losing consumption power”, says Eyng.

For the economist, fixed income is still preferred by investors, although it has lost profitability, due to the protection it offers.

“With interest rates being reduced, variable income tends to gain scale, but, for now, investors have been looking for protection and this leads them to fixed income. Government debt securities are a good asset,” he comments.

Also according to Eyng, investors should resort to assets guaranteed by the Credit Guarantee Fund (FGC) or invest in public bonds. “The more sophisticated can look for Credit Rights Investment Funds (FIDC)”, he highlights.

Investment alternatives

In the opinion of the partner at the resource management company Equus Capital, Felipe Vasconcellos, for more conservative investors, fixed income securities, especially pre-fixed ones, can be a good alternative, especially if we consider the scenario that the Selic will continue in its downward trajectory, reaching a floor of 9% or, in a more optimistic scenario, 8.5% to 8%.

“However, based on the same premise, this drop in interest rates could boost the return of assets considered more risky, such as shares and illiquid assets, with private equity or venture capital funds. An investor with a long-term vision, with a slightly higher risk tolerance, should take advantage of this moment to set up positions in this type of asset”, he analyzes.

According to the economist and CEO of Corano Capital, Bruno Corano, it is not because interest rates have fallen, for now, a little, that the real interest rate that the Selic offers is no longer interesting. Still, he recommends some alternatives.

“Firstly, it is worth working on the long interest curve through Treasury bonds and, secondly, paying close attention to variable income assets, which have more volatility and continue to have a window of opportunity. The question is having the ability to select. We are talking about shares, FIIs and several other absolutely variable income securities with mark-to-market”, he indicates.

When asked whether risk assets could gain greater attractiveness with the fall in the Selic, Corano confirms and adds that the scenario could become even more advantageous if the United States' basic interest rate falls in the coming months.

“What Brazilians like to call a rally has already begun, a very strong warming in December, which was demonstrated by several assets, particularly on the Brazilian stock exchange. This movement should continue as interest rates move. Especially when American interest rates show their first drop,” he says.

Differences between Fixed Income and Variable Income

Fixed income and variable income are two categories of investments that differ mainly in relation to the predictability of income.

Firstly, investments are known to offer more predictable returns, as investors generally know in advance how returns will be calculated. It offers a fixed or variable interest rate, generally defined at the time of application. Fixed income securities include CDBs, Tesouro Direto, Letters of Credit, among others. In general, fixed income is considered less risky than variable income, but returns can also be more moderate.

Variable income has as its main characteristic investments subject to market changes, with non-predictable returns. The value of assets can vary significantly over time. Unlike fixed income, there is no guarantee of return. Variable income investments include shares, real estate funds, options, commodities, among others.

However, variable income can offer more significant returns, but this is associated with a greater risk of loss, as asset prices can be influenced by several factors, including economic, political and market conditions.