Investors have become more willing to buy riskier mutual funds of bonds and shares

Since the beginning of 2024, there has been a significant drop in private investor demand for money market mutual funds. Expectations at the beginning of the year that the Central Bank would begin easing monetary policy in the second quarter had an impact. As a result, investors began to be more willing to buy riskier mutual funds of bonds and shares in anticipation of a stronger increase in the value of their shares. However, in February, the Central Bank raised its forecast for the average key rate for the year, which prolongs the period of high rates in the money market.

Brave investors

Russian investors began to switch from conservative collective investment instruments (money market funds) to more aggressive financial products. According to Kommersant’s estimates, based on Investfunds data, in February the inflow of funds into such mutual funds amounted to only 3.5 billion rubles, which is almost two and a half times less than the attractions a month earlier and the worst result since June last year.

In total, since the beginning of the year, shareholders have invested a little more than 12.6 billion rubles in them, five times less than in December 2023.

The decline in funds flowing into the funds is largely due to the high base effect in December last year. At that time, private investors invested a net RUB 67.5 billion in money market funds alone, almost a quarter of the total amount was invested on the last business day of 2023. The reason for such a rush at the end of the year is due to the fact that such shares of such funds rise in price on holidays and weekends, as they make money on reverse repo transactions with auto-rollover.

Cautious Central Bank

However, investor interest in such funds could also decline due to expectations that the Central Bank may soon switch to a looser monetary policy. At the beginning of the year, analysts interviewed by Kommersant did not exclude the possibility that the first reduction in the key rate would take place in the second quarter, and by the end of the year it would return to 10–12%. During such periods, money market rates decline, which means money market funds would begin to generate less income. Therefore, in February private investors started look with great interest at investments in mutual funds of bonds and shares.

However, inflation that has accelerated since the beginning of the year has led to increased expectations of a later-than-expected key rate cut. According to Rosstat, inflation in the week ending March 5 reached 7.6% on an annualized basis. “Many market participants have not realized that the main drivers of inflation now are a significant labor shortage, an unusually high increase in budget expenditures and rising import prices due to sanctions barriers. In the coming months, inflation may accelerate due to the end of the period of discounts on cars and an increase in tariffs for housing and communal services from July,” notes Alexander Golovtsov, head of investment research at Era Investment Management Company.

Retained Potential

In addition to this, at the February meeting of the board of directors of the Central Bank He was promoted forecast for the average key rate for the current year – by 100 bp. p., up to 13.5–15.5%. Moreover, at the meeting itself, the option of increasing the key rate by 100 bps was even considered. p., up to 17%. However, according to the chief analyst of Sovcombank, Mikhail Vasiliev, at the meeting on March 22, the Central Bank will maintain a neutral signal for the next meetings (April, June) and will continue to prepare the market for a possible reduction in the key rate later this year. The first reduction, according to his estimates, will occur in July, when inflation will steadily slow down. “In the base scenario, by the end of the year we expect inflation to slow down to 6% and the key rate to be reduced to 12%,” notes Mr. Vasiliev.

Therefore, in the coming months, investments in money market funds remain attractive. Alfa Capital portfolio manager Alexey Kornev points out that currently such mutual funds generate returns of 15.7–15.8%, which is close to the RUONIA rate (interbank lending rate) and RUSFAR (fair value of money).

“The longer the key and, accordingly, short-term rates remain at a high level, the longer the period of high returns in such funds will last,” the expert notes.

If the investment horizon is longer-term, then investors should take a closer look at long-term bond funds. Such instruments, according to Alexander Golovtsov, over the horizon of 12–18 months will bring an income of about 20% per annum, subject to a significant reduction in the key rate by the Bank of Russia.

Vitaly Gaidaev