Multimarket Funds: a complete guide for beginners

Do you know what multimarket funds are? They are a great investment option for those who want to diversify their portfolio or for those who don't want to worry about managing their own assets. Come and learn more about this type of investment!

Multimarket funds are the solution for those looking to diversify their investments in a practical way. This class of investments is made up of funds that have investments and assets from different segments of the financial market, combining different strategies.

In a multimarket fund we can find everything from fixed income, foreign exchange, and even shares.

The CVM (Securities and Exchange Commission) determines that multimarket investment funds must include, within their range of investments, several risk factors, without commitment to any particular factor.

Therefore, the funds may not be as well-regarded by investors who are more risk-averse, as they include investments that are riskier in their structure.

In fact, the application depends on a manager, who would be the person responsible for allocating the invested amounts and determining the best strategies to obtain the best return.

Therefore, it is very important to be aware of who will be the manager of the multimarket funds before investing. Knowing who will be in charge of the investments and planning the best strategy is a fundamental part.

On the other hand, it is an excellent method for those who want to invest, but do not want to be directly involved in choosing the assets, the ease and greater security of having a specialized and knowledgeable third party take care of this part.

Stay up to date with multimarket funds here, we have put together a guide explaining everything, continue reading and check it out:

• What are multimarket funds?
• How does the structure of multimarket funds work?
• What are the strategies?
• What are the fees and taxes?
• What are the advantages and risks of investing in multimarket funds?
• How to invest?

What are multimarket funds?

Basically, multimarket funds are a type of investment fund that follow a more open and comprehensive application policy than other funds.

 This eliminates the need to focus on any specific factor. The difference is the possibility of be able to invest in any asset class that is most suitable for the multimarket fund and the investor.

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No matter what the investment is, it can be applications in Selic, CDB, in coins, derivatives, actions, quotas, etc.; we can already get an idea.

This flexibility allows the fund manager to prepare the best strategy for the current financial and economic scenario when creating the multimarket fund. And for this, there are several strategies implemented.

What are the strategies?

Strategies can vary greatly depending on what you want to do with the investment. Depending on the investor profile, the multimarket fund manager can take a more conservative attitude and seek to invest in fixed income funds, or perhaps with a more aggressive investor who wants to invest in an equity fund.

All of them make up multimarket funds, so knowing the different strategies to put together the best one with what is available on the market for each client is essential. Check out the most important strategies below:

Specific Strategy of Multimarket Funds

In advance, this strategy consists of focusing on a specific target for the investment fund. Where the asset is chosen beforehand and is basically the bet of the multimarket fund.

Macro Strategy

This strategy takes into account the macroeconomic scenario of the economy in a given period, and thus chooses different asset classes based on this scenario.

It is usually a medium to long-term strategy, and they invest in fixed income, variable income, exchange rates and others, depending on the macroeconomic plan developed for this multimarket fund.

Interest and Currency Funds

Initially, managers who use this strategy seek long-term return, and to do so they invest in fixed income assets. The risks associated with this strategy are exchange rate risk, interest rate risk and price index risk. These funds do not include variable income assets, such as shares.

Long and Short

From the outset, this is a strategy that uses assets and derivatives linked to the variable income market, and is divided into two types:

• Directional: they operate with the financial market in order to create positions between purchased (long) and sold (short) shares – the difference between them is that it is possible to receive profits with the fund;
• Neutral: The idea here is the same as the previous Long and Short strategy, operating in the variable income market, but keeping the net financial exposure limited to just 5%. The goal of doing this is to ensure a neutral position in the market – hence its name – and consequently being more cautious by exposing oneself to less risk.

Trading

First of all, the idea of this strategy is make profits from opportunities in asset price movements. This fund aims to be a short-term investment, so what it looks for are fluctuations in the price of these assets.

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Free Strategy

In these multimarket funds, the manager bets on whichever strategies he finds most intelligent, which can vary over time and reformulate the strategy following the movements of the financial market.

How does the structure of multimarket funds work?

There are several types of multimarket funds, which differ in their structure and resource allocation. These classes were defined according to the Brazilian Association of Financial and Capital Market Entities (ANBIMA). Check it out below.

Balanced Multimarket Funds

The first name on our list are the funds that follow a pre-defined capital allocation strategy and a rebalancing policy also chosen in advance.

However, they do not allow leverage, in other words, they do not allow investments greater than the equity of the multimarket fund itself.

Dynamic Multimarket Funds

These are different from the first model precisely when it comes to defining the allocation of the fund’s resources.

Instead of pre-defining this allocation, dynamic funds operate in ranges (for example, between 15% and 35% in shares) and the manager can determine how much of the fund will be in shares and how much in other securities, and review these decisions over time.

In other words, they do not need to commit to a pre-determined combination of assets. They also allow leverage with financial exposure of more than 100% of the fund's net equity.

What are the fees and taxes?

Income from multimarket funds is always taxed at the time of redemption.

The rules for taxation of multimarket funds depend on the term of the investment and the assets that make up the fund.

Therefore, when the redemption is for a period of less than 30 days, the IOF (Tax on Financial Transactions) is charged, plus the tax at the time of redemption. When the portfolio has a term of less than or exactly 365 days, the so-called short-term funds, the taxes are as follows:

• 22.5% for redemption within 180 days;
• 20% for redemptions between 181 and 360 days.

For long-term funds, or those with a term of more than 365 days, the taxes are as follows:

• 22.5% for redemption within 180 days;
• 20% for redemptions between 181 and 360 days;
• 17.5% for redemptions between 361 days and 720 days;
• 15% for redemptions over 720 days.

Multimarket funds are also subject to advance payment of Income Tax, better known as come-cotas, and is collected in May and November.

For long-term funds, the rate is 15%, and for the short term, 20%. Therefore, after the quota-eating tax, when the investor pays the tax upon redeeming his shares, he will only pay what has not yet been collected in Income Tax.

But in addition to paying taxes, multimarket funds require the payment of two fees: the administration and the performance.

The management fee is paid so that the manager of the multimarket fund and all professionals involved in the fund are remunerated for their work. The amount of this fee may vary from fund to fund, but is generally 2% per year.

Another fee that may sometimes be charged in multimarket funds is the performance fee. The performance fee is charged according to the fund's performance: if the fund exceeds the expectations of a reference index, the fee is used to compensate the manager for the extra profitability.

What are the advantages and risks of investing in multimarket funds?

Now that we know how multimarket funds work, let's talk about the advantages and risks of investing in this type of fund.

Advantages of investing in Multimarket Funds

Management by trained and specialized professionals

As for the advantages, the main one is that multimarket funds are managed by trained and specialized professionals, capable of creating elaborate strategies and understanding complex market analyses. Something that beginner investors and even some veterans would not be able to do alone.

Flexibility

Another great advantage is that multimarket funds are very flexible, and it is possible to adapt to market dynamics in real time more easily. This way, the investor does not need to worry about constantly studying the market and understanding a new situation that affects the multimarket fund: he simply sells assets within the fund and buys new ones.

Portfolio diversification

Furthermore, there is the practicality of investing in multimarket funds: you invest in several different assets that are part of the multimarket fund when you contribute money to the fund.

And this brings us to the last advantage of multimarket funds: diversification. With multimarket funds, you are able to diversify your portfolio significantly, both when choosing which fund you want and when choosing which assets the funds will invest in.

Risks of investing in Multimarket Funds

As for risks, we can say that each fund has a peculiarity that is distinct from the others, so each multimarket fund can vary in terms of risk. While some funds may present a higher risk associated with the stock market, others may have a reduced risk because they are associated with fixed income investments.

Let's be more specific about the risks that multimarket funds can face:

• Market risk: when there is a chance that the assets that make up the funds will depreciate or appreciate.
• Leverage risk: This risk arises from the practice of leverage in the multimarket fund. As we said above, to mitigate this risk there is the balanced fund, but the dynamic fund may suffer risk when leverage does not produce good results.
• Liquidity risk: is the risk of there being no liquidity when investors need to quickly convert their investments into cash. If this occurs, investors may end up having to trade their shares for values below what would be considered “fair”, and sometimes resulting in significant losses.
• Credit risk: is the risk associated with non-payment of securities by issuing entities. For example, if one of these entities goes bankrupt and cannot pay, there is credit risk.

How to invest?

Investing in multimarket funds is very easy and is a widely available investment. Practically all major banks that we are used to dealing with have some type of multimarket fund offering for their account holders.

But since we are dealing with large banks, the administration fees are usually high and the results leave something to be desired.

Another way to invest in multimarket funds is by opening an account with a stockbroker, where you can have access to independent funds that can bring more profitability.

However, we must always emphasize that researching and studying the fund's history very carefully is crucial to avoid taking unnecessary risks. As is knowing whether the strategy used in a given fund is in line with your objectives, your investor profile and your expectations.

Conclusion

In short, this type of investment in multimarket funds is highly recommended for those who want to diversify, do not want to worry about studying the market in full, and want the practicality of a more dynamic investment.

There is certainly a multimarket fund out there with your name written on it, that fits your profile, has the conditions that you find most suitable, and the return that you find sufficient. It is a great option for those who want to start and for those who want to diversify!

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