First, it is important to clarify that, for investors, there is no practical difference between receiving income distributions or a return of capital from BODI. In both cases, the fund pays money to unitholders, without changing the economic effect of the investment.

BODI’s monthly distributions may be classified as either income distributions or a return of capital. This classification depends directly on the fund’s net asset value per unit relative to a capital threshold. The distinction is purely an accounting treatment under the rules for infrastructure investment funds (FI-Infra). In either case, the amount distributed corresponds to the CDI equivalent for the reference month plus the fund’s accrued spread.

In simple terms:

• When the net asset value per unit is above the capital threshold, the distribution tends to be classified as income.

• When it is below the threshold, the distribution tends to be classified as a return of capital.

The classification changes, but the amount received by the investor remains the same.

In hedged infrastructure funds such as BODI, net asset value per unit fluctuates daily as assets are marked to market, reflecting credit spreads. As a result, the fund’s net assets may temporarily move above or below the capital threshold without any change in the portfolio, simply because of market conditions. Such fluctuations are a natural part of the product’s dynamics.

Changes in BODI’s (Bocaina Infra CDI) net assets differ from those of BODB11. BODB11 does not use the same hedging strategy and therefore has greater net asset value volatility, reflecting daily movements in NTN-B government bonds as well as the mark-to-market valuation of credit spreads.

BODI11 and BODB11 behave differently from Brazilian real estate investment funds (FIIs). Many FII assets, such as real estate receivables certificates (CRIs), are less liquid and therefore are not subject to precise daily mark-to-market valuation. This results in a more stable net asset value per unit, which does not reflect market fluctuations.

In addition to more accurate mark-to-market valuation, FI-Infra funds offer a broader Brazilian income tax exemption for individual investors, covering both income and capital gains, and are not required to distribute a minimum percentage of their earnings. Concepts common among FIIs, such as accumulated earnings or retaining income for the following month, therefore do not apply in the same way.

In summary:

For BODI, the classification as income or a return of capital is simply an accounting reflection of mark-to-market valuation and the unit’s position relative to the capital threshold. A distribution classified as a return of capital does not represent a loss in value for the unitholder; it is the way the payment is recorded at that time.

Most tax-incentivized debentures pay a return linked to IPCA plus a fixed rate. Their prices therefore fluctuate daily with movements in the real interest rate curve, generally reflected in NTN-B government bonds with similar maturities.

When interest rates rise, these securities’ prices tend to fall; when rates fall, their prices tend to rise. This creates volatility in the fund’s net asset value per unit, even when the debentures’ payment cash flows remain unchanged.

To reduce sensitivity to interest rate curve movements, BODI uses DAP contracts (IPCA coupon futures) as a hedging instrument.

In simple terms, these contracts offset part of the fluctuations caused by movements in NTN-B bonds. The fund’s net assets are therefore less affected by interest rate curve movements and track more closely the movement of CDI plus the assets’ credit spread.

For this reason, BODI tends to have lower net asset value volatility than unhedged funds such as BODB, which remain more exposed to changes in the real interest rate curve.

Want to learn more about DAP contracts (IPCA coupon futures)? Further information is available at:
B3 — IPCA Coupon Futures (in Portuguese)

Mark-to-market (MTM) valuation of debentures can initially be confusing, particularly because custodians have tended not to show it in individual investors’ portfolios. In simple terms, tax-incentivized debentures are issued at a rate of IPCA plus a coupon, such as IPCA + 8%.

As debentures trade in the secondary market, their prices may change, resulting in a higher or lower yield. For example, if a debenture issued at R$1,000.00 with a yield of IPCA + 8% is purchased for R$900.00, the buyer’s yield will be higher than IPCA + 8%. The extent of the increase depends on the security’s duration.

Even when no trades take place, movements in the reference NTN-B government bond — the one with the duration closest to that of the debenture — affect the debenture’s valuation, reflecting changes in the real interest rate curve. For example, if a debenture references the 2030 NTN-B, a 0.10 percentage point increase in that bond’s yield will imply a similar increase in the debenture’s yield.

For BODI, hedging through DAP contracts changes the effect of movements in the reference NTN-B: IPCA-linked fluctuations are converted into CDI-linked exposure, which has significantly lower volatility.

In January 2023, debentures held directly by individual investors through brokerage firms began to be shown at market value, as in investment funds, instead of the historical accrual-based valuation. What does this mean?

Under accrual-based valuation, the price of the debenture is updated using the yield at which it was purchased.

Under mark-to-market valuation, the price changes according to its fair market value. Many assets have an ANBIMA reference price, which takes into account benchmark government bonds and market transactions.

For example, R$1,000 invested one year ago in a debenture with a five-year duration at IPCA + 3%, now trading at IPCA + 4%, would be valued at approximately R$1,090 using accrual-based valuation (5.8% IPCA plus a 3% yield) and approximately R$1,040 using mark-to-market valuation (a negative 5% impact from a one percentage point increase in yield over a five-year duration).

We view this change positively because it provides investors with more accurate pricing information.

An investment fund’s market price per unit may differ from its net asset value per unit. It is important to distinguish these concepts to understand the factors that affect each value.

For a listed infrastructure fund such as BODI11, the market price reflects the price at which units trade in the secondary market. This is the amount an investor pays to acquire one unit of the fund. The price is influenced by purchases and sales of units: greater demand tends to increase the market price without directly changing the fund’s net assets.

Net asset value per unit represents the portion of the fund’s net assets attributable to each outstanding unit. For example, a fund with net assets of R$100,000,000.00 and 1,000,000 units has a net asset value of R$100.00 per unit. This value is affected mainly by the income and valuation of the portfolio’s assets, as well as distributions to unitholders. Changes in net asset value per unit, particularly when adjusted for income distributions, are used to assess the fund’s performance.

Our understanding is that amounts received as a return of capital should be used to adjust the investor’s average cost basis. Investors should consult their accountant to determine the most appropriate treatment for their circumstances. For individual investors, gains from FI-Infra funds such as BODB11 are exempt from Brazilian income tax, including capital gains realized upon the sale of units.