After the triumph of Donald Trump, financial markets show in the last 30 days: an upward shift in the US Treasury bond yield curve that reflects increases of up to 50 basis points (bp) along the curve. In the case of the Mexican bond curve, there is an increase that is between 50 and 107 bp between November 8th and December 8th. For example the Mexican bond that matures in 2024 (m24), that is in eight years, its effect is equivalent to a reduction in its price of 6%. The m24 raised 106 bp in that period.
In contrast, in the same period, there has been a rise in the international stock markets not only because of the movement in the exchange rate (Mexican peso/dollar), which moved in the last month 11%, but also driven by the expectations generated for Trump’s triumph. The Dow Jones industrial average rose 18% in pesos (11% explained by the movement in the exchange rate and 7% by the movement of the stock index). Other indices such as the Russell bring a 27% direct yield in pesos in the last month; while the ETF of financials in the United States (XLF) registers a 31% increase in pesos.
When reviewing the yields of the Siefore Basic 2 that are the Siefores that concentrates the largest number of resources (36%) of the 5 Siefore, you can see how different the results have been. Sb2 assets are worth $49 billion USD and in the last 30 days they had a mark to market loses of 1.7%, that means $ 826 million USD: 4 Siefores perform above average (Inbursa, Profuturo, Coppel and Azteca); two are in the average (Principal and MetLife); while 5 Siefores bring a performance below (XXI-Banorte, Banamex, Invercap, Sura and PensiónISSSTE), where the benefit or impact is different in each case.
Given these results we can see that the Afores that were diversified not only between fixed income, equities and other assets; had less investments (duration) in long bonds and had a diversification between local and foreign securities.
If 100% of the portfolio had been invested in the m24 bond, the result for the month would have been -6.3% in pesos; If 100% had been in the Mexican Stock Exchange index, the result would have been -4.4% in pesos; If 100% had been in dollars the yield would have been 11% in pesos; If it had been in the Dow Jones industrial index the yield would have been 18.4 in pesos and if it had been invested with foreign exchange coverage would have been only 7% in pesos.
These examples considered non-diversified investments where everything is invested in one asset class. This exercise is complicated by incorporating the regulatory limits where in the case of SB2 it is allowed to invest 25% in equity, where only 20% may be foreign securities; only 30% is allowed in foreign currency and the most important thing is that all investments can not exceed a Value at Risk (VaR) of 1.1%.
Due to the characteristics of the portfolios and the investment regime it seems that it is difficult to avoid negative returns without incurring the concentration in an asset class in periods such as that experienced in November, where there is a negative perception of the market and investments in Mexico.
When looking at these results, what emerges is the need to increase the percentage of equity, increase the limit of foreign securities and it is necessary to raise the limit of Value at Risk (VaR), because any increase in these
Column by Arturo Hanono