Investment Policy
The main features of the Economic and Social Stabilization Fund (ESSF)’s investment policy are described in this section. In addition, the Ministry of Finance has decided to make the investment guidelines available to the public since they provide information on the objectives, limits and risk parameters used by the Central Bank for fund management. The guidelines are prepared by the Ministry of Finance in coordination with the Financial Committee and are used by the Central Bank of Chile and external managers for managing the funds.
The ESSF’s current investment policy, based on the recommendations from the Financial Committee, came into force in August 2013, in order to improve the capacity to hedge fiscal revenues. However, in April 2020, this investment policy was modified by reducing the percentage of equities in the portfolio, and as of October 1, 2021, taking into account the recommendations of the Finance Committee, the percentage of equities and time deposits was completely eliminated.
Investment objectives: In keeping with the ESSF’s objectives, the main aim of its investment policy is to maximize the fund’s accumulated value in order to partially cover cyclical reductions in fiscal revenues while maintaining a low level of risk. Its risk aversion is reflected by the choice of an investment portfolio with a high level of liquidity and low credit risk and volatility, thereby ensuring the availability of the resources to cover fiscal deficits and preventing significant losses in the fund’s value.
Strategic asset allocation: The current ESSF’s investment policy has the following strategic asset allocation: 96.3% in Sovereign Bills and Bonds and 3.7% in Inflation-linked Sovereign Bonds. The currency makeup of the portfolio is: 43.1% USD, 27.1% Euro, 21.6% Japanese Yen and 8.2% Swiss Franc.
Benchmarks: A benchmark has been defined for each asset class:
| Benchmark | Percentage of Total Portfolio |
|---|---|
| Sovereign bonds | 59.4% |
| Bloomberg Barclays Global Aggregate - Treasury: U.S. 7-10 Yrs | 28.6% |
| Bloomberg Barclays Global Aggregate - Treasury: Germany 7-10 Yrs | 11.8% |
| Bloomberg Barclays Global Aggregate - Treasury: Japan 7-10 Yrs | 10.8% |
| Bloomberg Barclays Global Aggregate - Treasury: Switzerland 5-10 Yrs | 8.2% |
| Treasury bills | 36.9% |
| ICE BofA US Treasury Bill Index | 11.9% |
| ICE BofA Germany Treasury Bill Index | 14.2% |
| ICE BofA Japan Treasury Bill Index | 10.8% |
| Inflation-Indexed Sovereign Bonds | 3.7% |
| Barclays Capital Global Inflation-Linked: US TIPS 1-10 yrs. | 2.6% |
| Barclays Capital Global Inflation-Linked: Germany 1-10 yrs. | 1.1% |
| Total portfolio | 100.0% |
It is important to highlight that the fund has been invested with a passive strategy since May 2011. As a result, only minor deviations are allowed with respect to strategic asset allocation.
Management: The Economic and Social Stabilization Fund is managed by the Central Bank of Chile, in the capacity of Fiscal Agent.
Tracking error ex-ante: The ex-ante tracking error limit for the portfolio is 50 basis points.
Eligible currencies and issuers: The only eligible currencies are those from the corresponding benchmark and the only eligible issuers are those from the countries included in the corresponding benchmark. In addition, eligible supranational institutions, agencies and entities with explicit state guarantee are those that are eligible for investment in the portfolio of International Reserves invested by the Central Bank of Chile.
Eligible investments: Investment guidelines provide a detailed description of eligible investments for the Economic and Social Stabilization Fund.
Leverage and derivatives: Leverage is not allowed in the fund. Regarding the use of derivatives, forwards and swaps are allowed only for currency hedging purposes. The notional amount of the derivatives cannot exceed 4% of the portfolio.
Investment guidelines: The investment guidelines, which are available in this section, provide additional information about the investment policy of the Economic and Social Stabilization Fund.
Ministry of Finance 