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Pictet Asset Management: Positive Signs But Red Flags Flutter

Luca Paolini, Pictet Asset Management. Luca Paolini, Pictet Asset Management

The global economy appears to be on the road to a V-shape recovery from the COVID-induced recession. Economic activity has been picking up in US and Europe but most rapidly in China, where our real-time indicators show output levels are back at pre-pandemic levels (1). At the same time, although monetary stimulus from central banks may be easing, it remains sufficient to support demand for now. This is not to say all is rosy.

Investors have no shortage of risks to contend with in the coming months – a resurgence of COVID cases, fears of a new round of lockdowns in Europe and the potential for a disputed US presidential election next month.

Taking all this into account, we have retained a neutral weighting in equities and bonds. Within stocks, we like emerging market and euro zone equities yet, due to the uncertainty regarding COVID-19 and the US election, we have sought some insurance by retaining an overweight on the safe-haven Swiss franc and gold.

Our business cycle indicators show global industrial activity is nearly back to pre-Covid levels, while spending on services is lagging.

In the US, the recovery is being fuelled by a strong housing market, where record low interest rates have helped push existing home sales to their highest levels in nearly 14 years.

We now expect a smaller contraction in output this year than our previous forecast, which was for a for -4.6 per cent drop. We see GDP growth recovering to 5.5 per cent next year – which is just under the 2019 trend projections.

There are concerns that the forthcoming lapse in US pandemic relief benefits and grants – or what has become known as the “fiscal cliff” – could stall the recovery. But we think the high level of savings among US households, which, as a proportion of net disposable income, hit a record 33 per cent earlier this year, should cushion any shock to the economy.

Recoveries in the euro zone and Japan are modest by comparison. In the euro zone, new restrictions to halt the resurgence in virus infections threaten to derail a recovery in the services industry while retail sales in Japan also remain weak.

Emerging market (EM) economies, led by China, are recovering strongly, thanks to improving global trade – which stands at just 10 per cent below pre-Covid levels. Our leading indicator for EM economic activity has turned positive on a three month basis for the first time this year, outperforming its developed world counterpart which is still in negative territory.

Our liquidity signals are positive for risky assets, with the volume of public and private money supply remaining at a record high of 28 per cent of GDP (2).

However, this is likely to represent the peak. Central banks are unlikely to boost monetary stimulus significantly from this point, which should squeeze stocks’ price-to-earnings multiples in the coming months.

What is more, bank lending standards have tightened to levels not seen since the global financial crisis. In the US, for example, a net 71 per cent of banks surveyed by the US Federal Reserve have tightened their lending standards, the highest percentage since 2008. This could spell trouble for financial markets at a time when the coordination between central banks and governments is weakening.

Our valuation gauges continue to show equity prices are stretched, even after the recent fall in stock markets.

The expansion of equity multiples – responsible for almost all of the total return of equities this year – appears to be over.

Historically, price-earnings (PE) ratios have had a close relationship with real yields (see chart), where the PE tends to rise when real yields fall. However, real yields, using inflation-linked bond yields as a proxy, seem to have bottomed out at a record low of -1 per cent in the US. What is more, the US Federal Reserve is unlikely to turn much more dovish than it is now.

Investors therefore are unlikely to enjoy the same level of equity gains from the multiple expansion in the coming months. Our models point to an underperformance of stocks to bonds of 5-7 per cent over the next 12 months.

Our technical and sentiment indicators have turned positive for risky assets, partly thanks to seasonality – the tendency for equities to rally towards the end of the year. Although mutual fund data show investors bought USD26 billion of equities last week, the highest weekly amount this year, investor positioning in stocks is not excessively high.

That said, we are mindful of growing political risks surrounding the November US presidential election. Judging from Wall Street’s volatility options pricing, investors are beginning to factor in the possibility of a contested election in November and political turmoil early next year.

Equities regions and sectors: sticking with the emerging world

Equities suffered a turbulent start to the autumn. The enormous rally that followed the pandemic lows left some expensive stocks vulnerable to correction. But even after selloffs in some formerly high-flying sectors, not least tech, valuations remain expensive. Which is why we stick to our defensive tilt on sectors and remain neutral on the pricey US stock market and IT sector.

The huge expansion of price-to-earnings ratios since March has come to an end as real bond yields have stabilised and as PEs have risen far beyond the levels usually seen at this stage of the investment cycle – 50 per cent above on a 12-month forward basis for the S&P 500 and 25 per cent for global equities.

US equities look particularly expensive. Current valuations – stocks are trading at 23 times future earnings – can only be sustained if trend growth is unchanged, profit margins remain stable at current high levels and bond yields stay at 1 per cent forever. Some long-term valuation metrics – such as market capitalisation to GDP and price to sales ratios – for the US equities are above or close to all-time highs.

Some of that rich valuation of US stocks is reflected in the extreme rating of cyclicals relative to defensive stocks. This has been supported by positive economic surprises, but this improvement appears to be levelling off (see Fig. 3).

How the coming months pan out will boil down to two key factors – the outcome of the US election and how much fresh stimulus governments and central banks are willing and able to provide. Complicating matters is whether the recovery is self-sustaining. There are plenty of indications that economies are in relatively robust good shape. industrial production has been strengthening, trade is largely back to where it was and in many corners of the world. What’s more, strength in retail sales in the US and China belies some of the gloom of sentiment surveys.

All of which is to say that central bankers will be watching closely for how much or, indeed, whether any more stimulus will be needed for fear of overegging the recovery if the coming wave of Covid proves to be less damaging than feared.

Equities have so far been supported by falling real bond yields and an acceleration of growth momentum – but with this sweet spot slowly disappearing, we stick to a neutral approach to risk taking a barbell strategy of quality defensives like Swiss equities, staples and pharma and attractive cyclicals like euro zone and emerging market equities and materials, while avoiding low-growth markets and sectors like the UK, financials and utilities.

Please click here for more information on Pictet AM’s Investment Outlook.

Notes:

(1) Daily average of coal consumption, traffic congestion & property sales
(2) Total Liquidity flow in the US, China, euro zone, Japan and the UK calculated as Policy plus Private Liquidity flows, as % of nominal GDP, using current-USD GDP weights

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).

In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.

Swetha Ramachandran (GAM): “The Pandemic Has Triggered a More Sustainable Behavior; Consumers Are Looking to Buy Less, But with Better Quality”

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GAMWomen_0 — Swetha Ramachandran, Investment Manager in the European Equities team and Head of the GAM Global Luxury Brands strategy. Swetha Ramachandran, Investment Manager in the European Equities team and Head of the GAM Global Luxury Brands strategy

The virtual forum “The Power of Diversity: Women at GAM,” held by GAM Investments from the 28^th September to the 2^nd October, was attended by Swetha Ramachandran, Investment Manager in the European Equities team and Head of the GAM Global Luxury Brands strategy, as well as responsible for research in the consumer goods sector, both in commodities and discretionary.

As Swetha Ramachandran explained during her presentation, there are three factors why the consumption of luxury goods has persisted during the pandemic. The first is that, during times of uncertainty, consumers revert to trusted brands that provide a sense of confidence and security. Secondly, the luxury sector continues to attract new consumers, with the Baby Boomer generation embracing online spending, and with growing Chinese consumerism beyond its Tier 1 and 2 cities. Thirdly, the pandemic has triggered a trend for more sustainable behavior, with consumers looking to buy less, but with better quality.

Intersecting Trends

In addition to the sustainability factor and the circular economy, the luxury sector is supported by a growing middle class looking for aspirational consumption in emerging economies, particularly in the Asian region. As well as the demographic and lifestyle changes happening among the Millennial and Z generation, and among the older generations, who can devote a greater part of their income to luxury spending.

The attractiveness of these stocks lies in their ability to have exposure to the rapid growth of emerging economies and in particular to the consumer sector, a sector that has a much higher growth rate than the rest of the components of GDP. In addition, most of the stocks in which GAM Global Luxury Brands invests are listed on both European and US stock exchanges, so their capital costs are at developed economy levels, thus benefiting from very low capital costs.

The growth of the emergent consumer

Globally, the middle class spends about $35 billion and by the year 2030 could be spending an additional $29 billion to reach $64 billion, representing about a third of the global economy.

While this middle class grows at a rate of 0.5% in developed economies such as Japan, the United States or the Eurozone, in countries like China and India it shows a growth rate of 6%. If the current rate of growth continues, it is estimated that by 2030 Asia will represent two thirds of the global middle class. As such, the population of China and India will represent about 43% of the middle class by that time.

Currently, China accounts for 35% of global luxury consumption and is responsible for 90% of its growth; while Japan and other Asian countries account for 21% of the global luxury market share and 20% of its growth.

Based on age, the so-called Generation Y (Millennials) and Generation Z are the two generations that are most inclined to spend in the luxury goods sector. Particularly in regard to the Asian and Southeast Asian generations, as the average age of the Asian consumer is 28, while the European or American luxury goods consumer is 40 and 45, respectively.

It is particularly the Chinese Millennial generation consumer who is the biggest spender on luxury brands. This is mainly explained by the rapid generational change that has taken place in the country over the last 40 years. The birth control program of one child per couple, implemented in 1979 in China, makes the Chinese Millennial the only beneficiary of the wealth accumulated by previous generations. As a result, 70% of the millennial generation in China owns their own home, as opposed to 35% in the United States and Europe. This means that once they start working, most of their income is disposable income, and a large part of this is for luxury consumption.

Another reason for their increased propensity to consume is consumer sentiment. In the last 30 years, China has experienced a growth in GDP per capita from the standpoint of purchasing power growth of about 17 times, a figure that compares with less than 5 times in the United States and Europe. This represents that the attitude of Chinese Millennials towards spending is that the future is going to be better than that of their parents’ generation, which fuels their appetite for living well and for consuming premium brands. This is one of the characteristics that differentiate them from past generations that grew up in a China where there was much more economic adversity and more frugal consumption patterns.

Beyond China

While within the next 5 to 10 years China will be the major consumption driver in the luxury goods sector, it doesn’t mean that it will be the only growth factor. If we take into account the combined population aged under 30 of India, Southeast Asia (Thailand, Vietnam, Indonesia and the Philippines), Brazil, Russia, the Arab Emirates and Saudi Arabia, it is 2.3 times more than the population of the same age in China. The only difference is the lower purchasing power of these countries compared to the Asian giant.

However, strong growth in consumer purchasing power is expected in these countries, especially in the Asian region, so that in the long term they could become very attractive consumers for the luxury goods sector. Consumers in the “mass affluent” sector, defined as those consumers with both the income and the intention to greatly increase their consumption of luxury products, will grow to 20% of the population by 2030.

Meanwhile, India is a long-term scenario. Historically, despite having a similar population size to China in absolute terms, China accounts for one-third of global luxury consumption while India barely approaches 3% or 4%. The main reason is that household income is distributed in a pyramidal fashion with a ridiculously small upper class at the apex and a broad base with lower incomes. But this income based population pyramid is being transformed; in fact, a significant increase is expected in the upper and upper-middle class income segments, which at present represents 1 in 4 households, and by 2030 is expected to represent 1 in 2, with some 70 million fewer households in the lower income segment.

Credit Suisse AM and Equilibrium Capital Group Launch a Platform for Sustainable Real Assets

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solution-860229_1920 — Pixabay CC0 Public Domain. Schroders se une a la iniciativa Global Impact Investing Network (GIIN)

Credit Suisse Asset Management and Equilibrium Capital Group, sustainability infrastructure and resource management leader, have joined forces to launch a platform of sustainable real assets that will allow them to expand the resources and capital available to industries and businesses that share their commitment to sustainability.

Credit Suisse revealed in a press release that this partnership follows its establishment in July of an executive board-level function Sustainability, Research & Investment Solutions (SRI). SRI has a commitment to provide at least 300 billion Swiss francs of sustainable financing over the next decade in fulfillment of the bank’s and its clients’ desire to deploy capital sustainably.

In support of this global initiative, Credit Suisse AM and Equilibrium will jointly develop and manage a sustainable infrastructure and resource management platform. The collaboration will allow them to combine Credit Suisse’s global reach and expertise in sustainability with Equilibrium’s industry leadership “in building pioneering, institutional, sustainability-driven real asset and resource management capabilities”, they explained.

Climate change mitigation

“Equilibrium is an ideal partner for our franchise given our shared history in sustainability, alternatives and real assets. This partnership marks another landmark in Credit Suisse’s sustainability strategy to help address pressing environmental challenges”, commented Eric Varvel, Global Head of Credit Suisse AM.

Marisa Drew, Chief Sustainability Officer and Global Head of Sustainability, Strategy, Advisory and Finance at Credit Suisse, said that they are “delighted” to support this collaboration in pursuit of their shared mission to mobilize capital for good. The announcement “builds on Credit Suisse’s long history of ground-breaking sustainability strategies, from co-founding one of the early leaders in microfinance and impact credit, to integrating sustainability into real estate portfolios, and innovating in the fields of conservation and energy transition finance.”

Meanwhile, Dave Chen, CEO of Equilibrium Capital, pointed out that they are excited to partner with Credit Suisse on this mandate to address the changing resource infrastructure landscape. “While we cannot reverse climate change completely, we can mitigate its impact by creating more sustainable infrastructure. By managing the environmental risks around food production, waste, water and energy, we can foster greater stability and security in those areas”, he added.

Allfunds Obtains the Fed’s Approval to Open a Representative Office in Miami

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miami-1409763_1920 — Pixabay CC0 Public Domain. La FED aprueba la solicitud de Allfunds Bank para abrir su oficina de representación en Miami

Allfunds Bank continues its international expansion process. Yesterday, the Federal Reserve Board approved their application to establish a representative office in Miami (Florida). The new office will be led by Laura González and will serve as Allfunds hub for US offshore activity.

The statement released by the Board says that the office will act as a liaison with U.S. clients and prospective clients of the firm. Also it will “market and solicit new business for banking products and technological services provided by Allfunds”.

The Board thinks that the firm appears to have the experience and capacity to support the Miami Representative Office. “Taking into consideration Allfunds’ record of operations in its home country, its overall financial resources, and its standing with its home country supervisors, it has been determined that financial and managerial factors are consistent with approval of Allfunds’ application to establish the office”, they pointed out.

In a press release, Allfunds informed that González joined the firm in 2011 and has a wealth of knowledge on US offshore after working several years with the Latam market. Currently she serves as Allfunds Global Head of Wealth Management and prior to that she was appointed Head of Iberia and Americas at Allfunds covering both the strategic direction and the firm´s expansion model across the region. She also successfully led the opening of the Allfunds´ Brazilian office.

“We continue to fulfill our expansion plan. The opening of this office is a very important step for the company as it is the first office in the United States. This milestone reinforces our leadership as the world’s leading wealthtech and fund distribution platform and our commitment to the North American market”, said Juan Alcaraz, CEO of Allfunds.

Allfunds has several representative offices in South America and the Middle East and operates branches and subsidiaries in six countries. Its foreign operations include subsidiary companies in Brazil, Luxembourg, and Switzerland; branches in Italy, Singapore, and the United Kingdom; and other representative offices in Brazil, Chile, Colombia, and the United Arab Emirates.

With total assets of approximately $2.5 billion, Allfunds is a Spanish bank providing clearing, settlement, and administration services through a platform offered to financial services firms, including banks, wealth managers, broker-dealers, insurance companies, fund managers, and pensions. It is the largest investment fund administration platform in Europe based on assets under administration, with over $615 billion.

GAM Hires Jill Barber as New Global Head of Institutional Solutions

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GAM announced the appointment of Jill Barber for the newly-created role of as Global Head of Institutional Solutions. In its quarterly results, the firm revealed that she will join them on 2 November 2020 and will partner with Jeremy Roberts, Global Head of Distribution, to lead sales and distribution.

Hiring Barber has to do with GAM’s intention to focus on growth and cross-selling opportunities between investment management and private labelling. The firm pointed out that further simplification of the business will also bring additional opportunities for efficiency gains in 2021 and 2022.

“The growth pillar of our strategy is progressing well with high levels of client interaction and a strong pipeline of growth opportunities. To support these efforts, we have hired Jill Barber to partner with Jeremy Roberts and lead sales and distribution, focusing on institutional and wholesale clients respectively. We are also seeing encouraging signs of success from collaboration between private labelling and investment management using capabilities from across the firm”, said GAM in its statement.

Before her appointment, Barber was global head of institutional at Jupiter AM for three years, prior to which she worked at Franklin Templeton Investments. Peter Sanderson, group chief executive at GAM, pointed out that she has “an excellent reputation across the industry, in-depth knowledge of the institutional market and demonstrable success in delivering solutions for clients”.

The asset manager also revealed that they will announce shortly a new appointment of the Global Head of Sustainable and Impact Investment, who will lead the sustainable investment strategy and strengthen their client ESG proposition.

Jupiter Opens its First Office in the United States for its New Subsidiary

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denver-767050_1920 — Pixabay CC0 Public Domain. Jupiter AM ubica en Denver su primera sede en Estados Unidos

Jupiter Asset Management announced the opening of its first office in the United States, for its recently created US subsidiary – Jupiter Asset Management US LLC (“JAM US”). Three Jupiter employees, including two newly appointed team members, will be based in the office in Denver (Colorado) as the firm initiates its expansion within the onshore US institutional market.

In a press release, the asset manager pointed out that Taylor Carrington has joined the firm as head of US distribution and managing director for JAM US. Reporting to Warren Tonkinson, managing director, distribution, he will lead the firm’s sales efforts in the onshore US institutional market. With 19 years’ experience in asset management, Carrington joins from Allianz Global Investors, where his most recent position was head of North America, institutional client team. “His appointment marks Jupiter’s first step into this client segment, and an important expansion of its international distribution profile”, said the firm.

Initially, he will spearhead the US onshore distribution of NZS Capital’s global growth strategies, following the agreement of the strategic partnership in late 2019, under which Jupiter is the exclusive global distributor of its products. Teh asset manager revealed that Carrington has known the NZS investment team and its client base for many years, having previously worked with NZS co-founders Brad Slingerlend and Brinton Johns at Janus Capital Group.

Following receipt of the appropriate regulatory approvals, he will also lead the distribution of Jupiter’s investment strategies to the onshore US institutional market.

As part of the initiative to build out the US infrastructure, the firm has also hired Tracy Pike as head of investment oversight at JAM US. As stated in the press release, subject to regulatory approval, her primary responsibility is to oversee the delegation of investment activities to NZS Capital in relation to the NZS strategies, or Jupiter Asset Management Limited in the UK.

Pike brings over 24 years’ industry experience and was previously head of sub-advisor oversight at Charles Schwab Investment Management. Prior to this, she was a senior product manager at Janus Capital Group, where she worked closely with Carrington and the NZS investment team. Pike will report to Katharine Dryer, Jupiter’s deputy CIO.

A credit research hub

Joining them in the Denver office will be Joel Ojdana, a US credit research analyst on the fixed income strategy. He has worked at Jupiter since July 2018 and has over twelve years’ experience in investments. Previously based in London, he has made “a meaningful contribution to the firm’s US credit research – an important pillar of Jupiter’s £12.7 billion unconstrained bond offering”, pointed out the asset manager. Ojdana will be Jupiter’s first research analyst based in the US and he will continue to report to Luca Evangelisti, head of credit research, remaining an integral member of Jupiter’s fixed income team.

Jupiter revealed that during 2021, they will be actively exploring the opportunity to establish a local US credit research hub and potentially expanding the team based there, with Ojdana leading this initiative.

A “vital” local presence

“The US institutional market is incredibly significant, and I’m thrilled that we’ve been able to open our office in Denver. Under Taylor and Tracy’s experienced leadership, there is a brilliant opportunity to expand meaningfully, offering both NZS and in time, Jupiter strategies to US institutional investors”, said Tonkinson.

In his view, establishing a local presence is vital to achieving success in this market and ensures their new US clients will receive the highest level of customer service. “The office opening also represents a key milestone in Jupiter’s international growth”, he added.

Meanwhile, Carrington commented that, having worked in the US institutional market for many years, he is confident that Jupiter’s “broad, high-conviction and genuinely active” fund range will appeal to a wide number of sophisticated investors looking to navigate global markets. “The opportunity to initiate Jupiter’s expansion in the region, as well as to work with the NZS team again, is incredibly exciting and I look forward to helping Jupiter becoming a significant participant in this market”, he said.

PIMCO and GE Capital Aviation Services Create an Aviation Leasing Investment Platform

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model-planes-1566822_1920 — Pixabay CC0 Public Domain. PIMCO y GE Capital Aviation Services crean una plataforma de inversión en el sector de arrendamiento de aeronaves

PIMCO and GE Capital Aviation Services (GECAS), a business unit of GE, have reached a preliminary agreement to develop an aviation leasing platform to support up to $3 billion in aircraft asset financings. The firms announced in a press release that the transaction is subject to customary closing conditions and receipt of required regulatory approvals.

This strategic investment platform will enable GECAS and PIMCO-advised accounts to acquire “new and young fuel-efficient aircraft to meet the needs of a diverse set of global airlines over many years”, they explained. The platform looks to provide “much-needed financing” for airlines which are looking to upgrade their fleets.

The portfolio will initially focus on narrowbody aircraft while allowing flexibility to invest in attractive opportunities in the widebody market. PIMCO and GECAS will consider a range of investment criteria including an airline’s assets and credit quality and also geographic factors.

PIMCO is already one of the world’s largest investors in aviation-backed debt. Both firms think that its presence in aviation financing markets combined with GECAS’ leadership role in the aircraft-leasing segment will provide “enormous flexibility” to fund the global airline industry. GECAS will source transactions, act as servicer and provide asset management services for the platform.

Essential liquidity for a critical industry

“As the airline industry struggles with the effects of the COVID-19 pandemic, the PIMCO-GECAS platform will inject essential liquidity into this critical industry by providing financing solutions at a time when there are fewer traditional financing options for airlines,” said Dan Ivascyn, PIMCO’s Group Chief Investment Officer.

In his view, aircraft remain an attractive asset class in a critical infrastructure sector supported by solid long-term growth drivers. He also pointed out that GECAS’ expertise as a world class aircraft lessor aligns with PIMCO’s “longstanding investment strategy” in aviation finance.

Meanwhile, Greg Conlon, president and CEO of GECAS, claimed to be “delighted” to team up with a premier institutional investor such as PIMCO in this strategic relationship which he thinks will enable “opportunistic plays” to support airline customers around the globe.

“While GECAS maintains an industry-leading position, this platform will ensure we can continue providing our airline customers with the aircraft needed to sustain their franchises”, he added.

The AMCS Group Launches US Offshore Effort for Jupiter Asset Management

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rocket-1245696_1920 — Pixabay CC0 Public Domain. Credit Suisse AM lanza un fondo para invertir en bonos corporativos de corta duración de mercados emergentes

The AMCS Group, a third-party distribution agency, announced in a press release that “effective immediately” it will represent the Jupiter Group, as introducer for its combined UCITS offering across both Jupiter and Merian branded funds. This follows Jupiter’s acquisition of Merian Global Investors on July 1st.

Central to the strategy will be several of Jupiter’s flagship products, including Jupiter Dynamic Bond ($16.9 billion assets under management), managed by Ariel Bezalel and Harry Richards; Jupiter European Growth ($9.2 billion AUM), managed by Mark Nichols and Mark Heslop; and the Merian Gold and Silver Fund ($945 million AUM), managed by Ned Naylor-Leyland.

“AMCS will be focusing its efforts for Jupiter exclusively in the US Offshore market, targeting global private banks, US wirehouses, regional broker dealers and independent advisory firms”, said the firm. It will be partnering closely with William Lopez, Jupiter’s Head of Latin America and US Offshore, in its effort to expand the reach of Jupiter Group funds across its targeted segments and clients.

AMCS pointed out that they were closely involved with Merian Global Investors prior to its acquisition by Jupiter. Its partners developed Merian’s footprint in the Americas region from 2013 to 2018 as employees of the Old Mutual Group. When Merian, formerly Old Mutual Global Investors’ Single Strategy business, was spun out of its UK parent in a 2018 management buyout, Andres Munho and Chris Stapleton formed the AMCS Group to serve as introducer for its UCITS funds in the Americas.

Chris Stapleton, co-founder and managing partner at the AMCS Group said that they are “delighted” to have the opportunity to partner with Lopez and the wider Jupiter team to further solidify the firm’s position in the US Offshore market. “We believe there is an opportunity to leverage some of the existing relationships and framework we have developed with Merian to fast track Jupiter’s growth in this important market segment”, he added.

Meanwhile, Andres Munho, co-founder and managing partner at the AMCS Group, commented: “We are very pleased with the breadth of high-quality investment capability our partnership with Jupiter will enable us to deliver to our clients. Jupiter’s excellence in a number of fixed income sectors, including its flagship Dynamic Bond, provide an excellent addition to what we have historically offered through Merian.”

The AMCS Group’s Miami based team focused on the Jupiter effort

Stapleton will be overseeing global key account relationships across the region, as well as advisory and private banking relationships in the Northeast; and Munho will be overseeing all advisory and private banking relationships in Florida. Meanwhile, Francisco Rubio, regional vice president at AMCS, will be responsible for the Southwest and West Coast regions of the US, as well as private banks and independent advisory firms in Miami.

The team will be supported by Alvaro Palenga, sales associate and Virginia Gabilondo, client services manager.

Alantra AM Acquires 49% of Indigo Capital, a Pan-European Private Debt Asset Manager

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parisdeMorton1905 — Foto: Morgon1905, Flickr, Creative Commons. paris

Alantra AM has announced in a press release the acquisition of a 49% stake in Indigo Capital SAS, a pan-European private debt asset manager.

Based in Paris, Indigo is an independent, established player in the alternative finance market specializing in the financing of small and medium-sized European businesses worth between €20-300 million through a combination of private bonds and preferred equity. Since inception, the firm’s 7 investment professionals have completed over 50 investments for a total value of more than €800 million across France, Italy, the Netherlands, Switzerland, and the UK.

“The investment in Indigo Capital represents yet another step in the growth plan of Alantra AM, and follows the incorporation of Grupo Mutua as its strategic partner to support the firm’s ambition of building a diversified pan-European asset management business”, said the firm in the press release.

Through its existing teams and the strategic stake in Indigo Capital, Alantra and its affiliates will have over €1 billion of assets under management covering different private debt strategies, including senior debt, unitranche and private bond solutions to corporates and long-term flexible financing for real estate companies.

The different teams actively cover 7 European markets.

The State of Inflation-Linked Bonds in a Post-COVID-19 Environment

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Jana Vukomanovic Water Unsplash — Pixabay CC0 Public DomainJana Vukomanovic. Jana Vukomanovic

As global markets attempt to recover their poise in the relentless shadow of COVID-19, one hot topic has perhaps challenged economists more than any other: What will be the pandemic’s effect on inflation? We believe the inflation rate will be between zero and 1%, and this is already priced in the market. But the picture for 2021 is only now starting to clear, presenting a new landscape of opportunities for investors in the inflation-linked bond market.

Many experts predicted the global coronavirus lockdown would be disinflationary – and they were right. The fall in activity did have a clear effect on prices for a variety of reasons. At AXA IM, we now forecast 2020 inflation to average 0.4% in the Eurozone, 1.0% in the US and 0.7% (1) in the UK – rising to 0.7%, 1.4% and 1.5% respectively for 2021. The impact, however, has not been a one-way street – we are already starting to see signs of higher pricing in some sectors which could suggest market expectations are too low.

One factor that has served to depress core inflation has been the inclusion of more online pricing into the data, an understandable measure given the impact of the lockdown on consumer behavior. However, we believe several other factors are having the opposite effect. Food prices, for example, have tended to climb during this period, as have telecoms prices after a long period of decline.

Hidden effects

In some areas we are still assessing the longer-term trend, although there does appear to be some evidence that education and health prices could continue to rise, alongside some localized trends in leisure and tourism services where consumers are no longer travelling to cheaper destinations. Inflation surveys could have a difficult job adapting to new realities in consumption patterns.

More fundamentally, there is evidence that the post-lockdown response from consumers has pushed some economies towards a more aggressive rebound than had been feared, accompanied by a parallel rise in prices. Figure 1 below shows that recent inflation numbers in the US have been the most solid seen in years, and that the rebound has been broad-based. In addition, as we move into 2021, inflation numbers worldwide will reflect a negative base effect from oil prices, which slumped as the pandemic spread.

AXA IM

From a more macro perspective, we see a medium-term risk that the COVID-19 outbreak could exacerbate tensions in the current model of globalization. Pre-pandemic – alongside US President Donald Trump’s ‘America First’ approach to trade – there had already been a shift towards a more protectionist tone in global markets. Now the virus has forced countries and businesses to re-assess the flow of goods, services and people across borders.

Hedging into view

These observations mean we believe there is a general risk to the upside for inflation as we move into 2021. And it is a risk that we believe has not been adequately reflected in market expectations.

One way to gauge how markets expect inflation trends to evolve is to look at inflation swaps. The chart below (Figure 2) shows that realized inflation since June is consistent with the top-end outlooks for inflation. The inflation swap market, however, is still pricing in the lower end, particularly in Europe but also to some extent in the US. Our expectation is for a potential aggressive rebound of inflation at the beginning of 2021, and we believe investors should consider preparing for that eventuality.

AXA IM

Naturally, these factors to the upside are encouraging more investors to explore ways they can hedge inflation risk and is having a tangible impact on the inflation bonds market, already underpinned by active monetary policy and supportive fiscal policy. Consumer behavior, the rise of protectionism and the possibility of regulatory price effects (for example through green policies) will be central to the potential uptick in prices – but central banks will also do what they can to push inflation higher from this point.

Column written by Jonathan Baltora, Head of Sovereign, Inflation and FX – Core at AXA IM.

To learn more about this topic, please contact Rafael Tovar, Director of Wholesale/US Offshore Distribution, AXA IM at Rafael.Tovar@axa-im.com.

Notes:

[1] AXA IM estimates as of September 2020

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