Investec AM Brought Together Over 130 Professionals from the United States and LatAm in Washington

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At the 10th annual Investec Global Insights held in Washington, Investec Asset Management brought together over 130 professionals from the investment industry, mostly from the United States and Latin America, at the Four Seasons Hotel. The event, which took place on the 19th and 20th of October, was attended by the firm’s leading managers and strategists, who shared with attendees their perspectives and positions in the portfolios.
Richard Garland, Managing Director of the Global Advisor division and Hendrik du Toit, CEO of Investec AM, were responsible for the welcoming to the event. Following them, Philip Saunders, Co-Head of the Multi-Asset Growth strategies, explained how to navigate mature bull markets, where both fixed income and equities are at maximum price levels.

Then came the turn to disclose where the opportunities in fixed income and currencies may be found, John Stopford Head of Multi-Asset Income, reminded the audience that despite the low interest rate environment in developed markets, emerging markets continue to offer a decent real profitability. In addition, a selected basket of emerging currencies shows relatively attractive levels.
Then, in a discussion moderated by Stopford himself, Jeff Boswell, Strategy Leader of Developed Markets Credit, Matthew Claeson, Latin American Debt Portfolio Manager, Peter Eerdmans, Co-Head for Emerging Market Fixed Income, and Abrie Pretorious, Quality Capability Portfolio Manager, discussed where to find sustainable sources of income for investors.

To concludethe morning presentations, strategist Michael Power explained the implications of the improvement in solar and wind energy efficiency on the fourth industrial revolution. During the afternoon meetings the attendees had the opportunity to meet with the management teams. Once these meetings were over, they enjoyed a gala dinner at the Warner Theater.

On the second day of the conference, Robert J O’Neill, the Navy Seal who shot Bin Laden, opened with a motivational talk on how to persevere in achieving goals. Following him, Aniket Shah, Program Leader of the Financing for Sustainable Development Initiative at the UNexplained the paradigm shift in an economy that shifts from focusing on theWest to looking to the East and where China takes the lead in global prominence

Emerging markets were the subject of the conferences’ third discussion. Participating in the discussion panel were Chris Freund, Head of SA Equity & Multi-Asset, Carina Güerisoli, Portfolio Manager for Latin America, Victoria Harling, Strategy Leader for Emerging Market Corporate Debt, and Asian Equity Portfolio Manager, Greg Kuhnert.

Lastly, Richard Garland moderated a fourth discussion which addressed the trends of the financial advisory business, participating in this panel were Shane Balkhan, CIO of Beaufort Investments in the UK, Gonzalo Cordova, CEO for LarrainVial in Latin America, Joshua Heimann, Head of WMA International Sales and Business Development for UBS International in the US, and Erich Lang, Executive Director, Head Fund Provider Management for Julius Baer in Switzerland.

How to navigate mature bull markets

In a bullish market environment which seems unstoppable, and with most assets at levels above their historical averages, Philip Saunders remarked that valuations by themselves are rarely the trigger for a sharp drop in the market, revealing that the trigger is usually, in 93% of cases, a significant increase in the cost of capital.

Although fundamentals are favorable and the leading indicators still show no signs of going into recession, Saunders advised taking a somewhat more cautious position, suggesting an increase in liquidity in the portfolios, greater structural diversification, and wider exposure to different sources of return beyond traditional asset classes.

Carrying out a structural diversification requires focusing on the behavior of the assets rather than on their classification. According to Saunders, each asset class can be attributed a growth characteristic if it reacts positively to an increase in risk appetite, a defensive characteristic if its returns are positive when expectations of economic growth decline, and a decorrelation characteristic if returns are not related to economic growth or corporate profits. “Mixing these three characteristics is when you get superior diversification and more consistent results. Selection is important in this type of diversification, we do not have exposure to all assets all the time,” said Saunders.

Regarding the positioning of their portfolio, within growth assets they have a preference for a selective exposure in equities, where, due to the corporate benefits and alpha potential, exposure to global equity markets is favored, with the exception of the US, and they balance the risk with a selection of defensive assets.

A Paradigm Shift: China’s global prominence

Beginning with an allusion to a recent cover of The Economist, which showed Xi Jinping as the most powerful man in the world, Aniket Shah, explained the main themes that are developing in China and how we should think about the side-effects that its development has on Asia and on the rest of the emergent economies. China continues to grow, at a lower rate of growth, but on a higher growth basis. Assuming that China continues to grow at an average rate of 6.5% and the US at an average rate of 2.5%, China’s gross domestic product will reach 22.8 trillion as of 2026, while the US would not reach that figure until 2030.

Although China often has a rather negative narrative, with an excess of debt and production capacity, its prominence is an issue which goes beyond the construction of large infrastructures. “A frequent error in analyzing China’s economy is to believe that its growth depends on the accumulation of physical capital that began in the 1990s, without realizing the importance of human capital; an investment that began in the late 50’s and 60’s, and which is now much more productive. In a recent analysis of the growth of the scientific research which is published in different parts of the world, it can be seen that, from 2003 to 2013, the US has gone from 26% to 18.2% of publications, while China has gone from 6% to 18%, reaching parity with the United States. “

China has set out to stop being a technological copy-cat country by investing heavily in R&D. “One of the most interesting initiatives being carried out by the Chinese government is the “Made in 2025” initiative. The idea, inspired by the German initiative “Industry 4.0”, is that China wants more prominence in the country’s production chains, and the figures are quite impressive, specifically, it seeks to make domestic content of the main components of production chains grow from 40% in 2020 to 70% in 2025 “.

The program aims to position itself as a pioneering country in the generation of new information technologies, in high-end machines and robots, in maritime equipment and highly technological ships, in rail transport, in new sources of energy and in energy saving vehicles, in new agricultural machinery, new materials, and in biopharmacy; all of which are critical industries for development within the next 30 years.

Another growth dimension in China that must be taken into account is geographical expansion. China has stepped up its efforts to expand its economic growth across the country, specifically in the western regions. The “one belt, one road” initiative, an attempt to rebuild the old silk route and the creation of a parallel maritime route, created in 2013 by the Chinese authorities, benefits from the enormous low-cost capital capacity of the Chinese economy.

In terms of renewable energy investment, China’s investment is above that of the US, the UK and France combined. In addition, it considers it a key industry when it comes to positioning its global prominence. Most importantly, China is making the necessary efforts to build an economy and society that can meet most of the challenges of the future.

In terms of world trade, China is the largest trading partner of 124 countries, while the US is the main trading partner of only 56 countries. Equity and debt financial markets are growing and gaining in depth. China has already outgrown the Japanese stock market, although it still lags behind the US and European markets, while its bond market is behind that of both the US and Japan.

Shah is therefore convinced that China’s role in the Asian region, and in the world, will only grow, despite the many challenges it faces: “China is becoming the leader in global innovation, in economy, in politics, in international diplomacy and in innovation,” he concluded.

MFS Investment Management: “It’s a Very Complex World for the Fixed Income Investor; a Passive Approach Doesn’t Make Sense”

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During the 2017 MFS European Investment Forum in London, Bill Adams, Global Fixed Income CIO for MFS Investment Management, explained the different structural reasons why the Boston-based global investment management firm argues that the low interest rate environment will persist for some time, mainly because of a series of structural factors that are persistent headwinds, such as the level of global indebtedness, the disruption of technology which fundamentally affects the lack of inflation in wages, and demographic trends.

Examining structural trends

From a cyclical perspective, global growth has improved, but inflation expectations, both from the point of view of market participants, and from the point of view of central banks, have been persistently wrong.

“It is mainly in developed markets where inflation projections in economies are not being met. This is due to the lack of inflation in wages, money is not being put into workers’ hands and they have less money to return to the economy. And it is precisely this discontent with wages that has provoked the resurgence of populist movements. The disruption of technology has affected workers from both the middle and working classes, who’ve had to return to the labor market with lower wages. The economy’s inability to create inflation is an important issue,” said Bill Adams.

Another issue affecting wage inflation is demographic trends. In developed countries, birthrates have fallen below the level needed to sustain population growth (i.e., more deaths than births). According to MFS ‘research, this has very clear implications for economic growth, inflation and the demand for fixed income products. When older, more experienced workers retire, they do so with higher wages than those workers entering the labor market who may have lower productivity, less experience, and lower wage expectations. “We are seeing an economy that is constantly being challenged by lower growth and inflation in wages.” Adams noted that as more people approach retirement, their needs for income are greater than their needs for growth, the natural movement of these people is to seek greater exposure to fixed income than to equity. “This movement creates a persistent demand in the market for high quality debt.”

Incidentally, the leverage level of the global economies has increased considerably. “Any economy whose debt-to-GDP ratio exceeds 100, is impeding future growth by bringing it into the present. We know that the central banks responded to a challenging macroeconomic situation during the Global Financial Crisis, increasing the level of debt on their balance sheets, which caused higher leverage in the economy. There has certainly been an improvement in the metrics on the corporate side, but on public balance sheets, we are reaching the future that we have leveraged, and therefore, we are now struggling to achieve greater growth.”

The performance of central banks

Following Janet Yellen’s announcement at the Federal Reserve’s last meeting in September, the Fed’s balance sheet assets will decline from $ 4.5 trillion to $ 3.5 trillion. This will gradually remove liquidity from the market. But when you look at the central banks as a whole, they continue to provide greater liquidity. But, in global terms, the market continues to pursue an accommodative policy as long as central banks continue to maintain a large number of assets in their balance sheets. This is a trend that MFS does not expect to be reversed until the second half of 2018.

“The Fed’s performance has been very transparent and patient, revealing its plans very prudently. The plan that has been put in place to gradually reduce the size of its balance sheet reflects that they have spent a lot of time, energy, and trillions of dollars in getting the economy out of the stagnation of the financial crisis. I doubt they’d want to risk that progress because of a miscalculation in monetary policy, so the withdrawal will be very slow. Reducing that balance will put interest rates on a positive trajectory, but as long as it runs smoothly, it will ensure that interest rates rise gradually.”

Although similar growth trends are being observed in Europe, there is still no impact on the interest rate environment. European growth has lagged behind the US for years and is now closing that gap with the help of the European Central Bank. “Inflation in Europe starts from a smaller base, and is not yet at a US level.” explained the asset manager.

Where are the opportunities in global fixed income?

Adams argued for the importance of talking to investors about preserving capital, but believes that it is equally critical to expand the opportunities presented in fixed income beyond the country in which the investor resides, seeking global alternatives, and ultimately seeking an active process, with a strong credit selection process, rather than a passive investment or exposure to ETFs.

“At MFS we are increasingly comfortable with the duration of the United States, rather than with the duration of developed Europe or Japan. We are comfortable in choosing portfolio duration, but we are overweighting US duration over developed Europe and Japan. This is an example of how global duration is diversified.”

Since mid-2016, it has been a wonderful environment for risky assets, both high-yield fixed income and emerging fixed income experienced a rally, but at MFS they are beginning to question those good tidings, wondering whether it’s time to ‘take the foot off the accelerator’ and emphasize the preservation of capital.

“Investors should continue to invest in fixed income. There are still opportunities in the market for adding value, but instead of being in an environment where all you had to do was to buy the market, this environment requires higher levels of selection. You need to understand the companies and know what they are offering their investors.”

Adams compared the dispersion in the spreads of the lower part of the high-yield debt spectrum (with CCC rating) against the higher part (BB rating).  A collapse in the levels of spreads has been observed and risk has positioned itself aggressively as compared to its lower risk alternative. “High-yield debt with a CCC rating has a default rate of approximately 35% historically, so if you try to get returns by investing in this type of debt, your losses could be greater than what you expect to earn. We are not convinced investors are being adequately compensated for the level of risk in the CCC part of the market.”

Finally, the MFS global debt specialist points out that emerging sovereign debt has responded less aggressively than the high-yield market, so that relative value bets can still be positioned in emerging markets.

“We live in a very complex world, with many challenges for bond investors. We are promoting among our investors the benefits of expanding their investment horizon, with an active selection of securities in that type of environment. When the spreads are compressed and the markets lack dispersion, a passive focus on investments doesn’t make sense to us,” he concludes.

Banorte Buys Interacciones Becoming Second Biggest Bank in Mexico

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Banorte compra a Interacciones convirtiéndose en el segundo grupo financiero de México
Pixabay CC0 Public DomainMarcos Ramírez Miguel, courtesy photo. Banorte Buys Interacciones Becoming Second Biggest Bank in Mexico

Grupo Financiero Banorte (GFNorte) has agreed to buy Grupo Financiero Interacciones (GFInter) in a cash-and-share deal. The merger would position Banorte as the largest infrastructure lender in Mexico and the second largest bank in the country.

Banorte would pay 13.7 billion pesos ($719.39 million) in cash and 109.7 million of its shares. In order to do so, the Mexican bank would issue about 4% of new shares. The advisors are BofA Merril Lynch, Morgan Stanle,  White & Case, and FTI Consulting.

The operation is expected to close in the second quarter of next year, pending regulatory and compliance authorizations.

“With this deal, Banorte positions itself as a leader in the financing of the enormous infrastructure necessities of our country, which represents a unique opportunity to propel competitiveness, attract investment and improve quality of life for Mexican families,” said Marcos Ramirez Miguel, chief executive officer of Banorte.

The merged entity will become second in assets, loans and deposits:

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Banorte has had many succesful M&A operations thus far:

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International Wealth Protection Expands Their Presence across the Atlantic

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International Wealth Protection abre oficina en Suiza, desde donde atenderá a clientes europeos
Foto cedidaMalcolm Dermit, courtesy photo. International Wealth Protection Expands Their Presence across the Atlantic

A highly recognized leader in servicing the insurance needs of Latin America’s most affluent, International Wealth Protection announced the expansion of their unique offering as they establish presence in Zurich, Switzerland.

Leading the Zurich based office, as shareholder and Managing Director of International Wealth Protection Switzerland AG, is Malcolm Dermit, a highly respected veteran within the banking and insurance industry. Dermit contributes over 40 years of experience servicing the high net worth segment at a global scale to the brand. As a resident of Switzerland and Spain, and fluent in over five languages, he will continue to service clients in the Latin American region with a connection to Switzerland and expanding the services to the European region.

“While most high net worth clients around the world are facing unforeseen taxation issues, European clients are subject to a heavy inheritance tax burden and are not aware of simple and straightforward solutions that can mitigate the issue. International Wealth Protection Switzerland is qualified and positioned to offer them alternatives via insurance that can minimize the impact of taxation on their estate. Our wealth protection and transfer strategies are reinforced by offshore and U.S. based highly rated, competitively priced insurance products designed to meet the tax related needs of our European clients. After many years of serving my worldwide clientele with life insurance structures, I am delighted to partner with International Wealth Protection and have the opportunity to bring this unique offering to Switzerland,” said Dermit.

“Establishing a footprint in Zurich is a result of the high demand from Swiss based referral resources that seek out our unique concierge style offering, jumbo case placement and ample product platform, all which differentiate us from the competition. I am honored to make this vision a reality with my longstanding and esteemed colleague, Malcolm Dermit and his exceptional team which grants International Wealth Protection outreach beyond Latin America and unparalleled success in the international insurance marketplace. As the established and well regarded International Wealth Protection brand crosses the Atlantic into Switzerland, the global high net worth client segment will finally benefit from unparalleled service standards and objective advice. Trusted advisors should consider partnering with International Wealth Protection as they guide their clientele through today’s challenging tax and regulatory landscape,” concluded Mary Oliva, founder of International Wealth Protection.

 

The Case For Fixed Income In The Core Of A Portfolio, Despite Low Rates

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Cómo situar la renta fija en el centro de una cartera a pesar de las bajas tasas de interés
Pixabay CC0 Public DomainPhoto: stevepb. The Case For Fixed Income In The Core Of A Portfolio, Despite Low Rates

Bonds have long played an essential role as a foundational holding at the core of investors’ portfolios. Bonds and bond ETFs have the potential to offer income and stable returns that can offset volatility from a portfolio’s stocks.

But, in recent years, investors have struggled to achieve their investment goals amid low bond yields, especially from government bonds. The main cause? In response to the 2008 financial crisis, the U.S. Federal Reserve (and other central banks around the world) slashed interest rates to encourage economic growth.

While the Fed has since started to raise interest rates, they are still below historical averages. A low yield environment could be with us for some time because of several factors, including demographics (aging baby boomers have greater demand for bonds, potentially keeping interest rates low).

Beyond providing income potential it is important to emphasize that bonds and bond ETFs can play multiple roles in a portfolio.

These roles may include:

Recurring Income Stream
No matter if an investor is looking to grow wealth or save for retirement, generating income in a portfolio can help get an individual closer to reaching an investment goal. Investors can receive interest payments at a regular cadence, typically monthly, quarterly or annually, potentially providing stable income and strengthening total return in their portfolio.

Stability of Principal
In addition to receiving an income stream, bond investors receive the bond’s principal at maturity, assuming the bond is held to maturity and does not default. Repayment of the bond’s principal (a fixed amount) at a fixed time helps provide an investor with stability in their portfolio.

Potential hedge against risk
Bonds and bond ETFs can offer a potential hedge against increased equity market volatility. Historically, bonds have been more likely to move in the opposite direction to stocks. For example, fixed income investors have increased their allocations to U.S. Treasuries during equity market sell-offs as a potential safe haven investment.1

Enlarge

Despite challenges that bond and bond ETF investors may face with yield and income in the short term, it is important to remember that fixed income investments can play a vital role as a foundational, long term holding, at the core of a portfolio.

While there are similarities between bonds and bond ETFs, there are also differences between the two investments. Investors should be diligent when researching the best investment vehicles for their portfolios. For example, individual bonds have set maturity dates while traditional bond ETFs do not. Bonds and bond ETFs may have different distribution schedules, despite tracking the same asset class, this may result in different income streams for investors. Individual bonds trade over-the-counter while bond ETFs trade on an exchange. Additionally, bonds and bond ETFs may create different tax liabilities and therefore investors may be subject to a variety of federal, local and/or capital gains taxes. Cost of ownership is another area where individual bonds and bond ETFs differ, bond investors may face a transaction and brokerage cost at the time of purchase whereas a bond ETF investor will likely pay both an expense ratio and transaction cost.

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In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds have not been registered with the securities regulators of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.
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OMGI: “Blockchain is paving the way for gold to rebound as global currency”

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OMGI: “Blockchain está allanando el camino para que el oro resurja como divisa global”
Foto cedidaPhoto: Ned Naylor-Leyland, portfolio manager Old Mutual Gold and Silver fund . OMGI: “Blockchain is paving the way for gold to rebound as global currency”

What does the present moment in this cycle have in common with the 70’s? For Ned Naylor-Leyland, fund manager for Old Mutual Gold and Silver fund, there are several factors in the current economic situation that bear strong similarities to what happened at the end of that decade: rising inflation, a disenchanted working class, new tensions in the Middle East and the extinction of a monetary system.

Beginning with inflation, the asset manager comments on two terms which must be taken into account: ‘stagflation’ and the inflation camouflaged under the same price, but with less product in supermarket products, known as ‘shrinkflation’. “In the United Kingdom, especially in the last two weeks, the word stagflation has reappeared in the press, referring to a situation where there is lower growth in the economy, but there is inflation, which is the best possible environment for investing in gold. The main reason is that gold is a natural hedge for the loss of consumer purchasing power. There is a curious controversy on this issue. As the monetary authorities continue to say that we need more inflation, the Bank of England’s own workers are threatening to call a strike because their wages are not growing at the same rate as the cost of life”.

Another issue to keep in mind is when manufacturing companies maintain the prices of their products, but reduce quantity, quality, or both, to hide the increase in spending and inflation, something that is known as shrinkflation. “In the United Kingdom, the Toblerone chocolate is quite popular, its size was reduced leaving the same price and consumers wondering what had happened. This has not only happened with food and is something important to keep in mind, as statistics do not reflect actual inflation. This phenomenon is also experienced in jobs, which are categorized in ways very different to those previously used to categorize them, affecting the results of employment statistics. So I recommend being skeptical and keeping abreast of what is really happening in the real world.”

 

Something else they have in common is the disenchantment of the working class, which obviously manifests itself in the strikes, but which has also had repercussions on politics. “In the late 1970s, a B-series actor arrives at the White House without a previous political career, with the support of the middle and lower-middle working class of the United States, using a direct campaign directed at the male electorate at a time in which people were much more outraged than at present. Very similar motivations are what lead Trump to the presidency of the United States.”
In addition, the new tensions in the Middle East coupled with the extinction of the current monetary system are themes that were already lived more than four decades ago, with the OPEC crisis and the collapse of the system adopted in Bretton Woods which meant the unilateral cancellation of direct international convertibility of the dollar to gold.

“The two moments of greatest monetary easing in our recent history are the quantitative easing program known as QE and the ‘Nixon shock’, when President Nixon reported on television that the convertibility of the dollar to gold was suspended, thus ceasing its exchanges of $ 35 per ounce and abandoning the gold standard established after World War II for international transactions. The direct reaction of the investors in both cases was to think that there would be a strong loss in the purchasing power of the money and went in to buy gold. Although the answer was correct, monetary transmission mechanisms are not immediate. Both with the beginning of QE and in 1971, the price of gold increased very fast for about two or three years, and then corrected by about 50%. Between 1974 and 76, consumers perceived that they were losing a lot of purchasing power, gold spiked 700% to 800%. Returning to the current situation with the arrival of the QE, we can see that so far gold has repeated the same behavior as in the 70’s, with an initial rise and a new correction of 50%, being able to be in the ante-room of a strong climb “.

The Return of Gold

To put the current situation into context, Ned Naylor pointed out that after abandoning the gold standard, Nixon visited the king of Saudi Arabia and agreed to provide military protection in exchange for the dollar becoming the sole currency in oil trading and that profits would be reinvested in Treasury bonds. “Two years later, the entire oil market operated in US currency, and this created a system that operated on a petrodollars basis, which has been in place since the 1970s. That’s currently threatened, however, particularly by China’s performance, circumventing the system. All that has been seen in terms of geopolitics is related to this point, the loss of control of the petrodollars system. Until just 3 years ago, the world was still only using the dollar as a trading mechanism for crude oil and gas sales globally, but this has begun to change and will not return to the previous point. There are three possible outcomes to this changing environment in which they all involve gold, the Eastern solution, the Western solution and the global solution.”

To explain the Eastern solution, the asset manager focused on the Shanghai International Gold Exchange to explain how the gold standard system is returning to China and the role that Russia, Iran, Qatar and Saudi Arabia are playing as crude producers. These countries are selling part of their oil in renminbis to later convert this currency into physical gold in the Shanghai International Gold Exchange. “It is something that is happening now rather substantially way and represents a huge change with respect to the global monetary system. Do not expect to see news in the big newspapers about it because it is a very important strategic turn on the question of power and it is a return to a point in history where we have been before. It’s not something new; it’s the same pattern that was agreed upon after World War II.”

The Western solution consists of having more than 25% of the central banks’ total reserves in gold, being the second largest asset on its balance sheet, being supported by gold, although not explicitly backed by gold. “Gold is the only asset that does not represent an obligation for the counterpart. The euro has a huge amount of gold backing its assets, as it was designed about 15-20 years ago by central bankers in a context where only paper was used as a monetary instrument. In particular, Germany, Italy, France and Greece have more than 60% gold reserves.”

Lastly, the overall solution will most likely take into account gold. Last year, the International Monetary Fund admitted the renminbi as an accepted currency within Special Drawing Units (SDR), generating more global money, which reduces friction and transaction costs, improving the surveillance capacity of countries. Again, Naylor explains the importance of gold in this model: “This model would not work if gold were not acting as arbiter in the middle of this contest, establishing discipline and making the model work properly. This inclination for gold is happening mostly in Asia and Europe it is also going in that direction. It’s possible that the period from 1971 to today is only an exception.”

The arrival of cryptocurrencies

On the front cover of the January 1988 issue of “The Economist”, the magazine predicted the arrival of a global currency, illustrated by a phoenix with a gold coin hanging from its neck, resurfacing from the ashes of paper money, forecasting that the issue date would be 2018, and with a cryptographic symbol, frequently used in hacker culture, in the center of the coin.
According to Ned Naylor, those people who don’t believe that the arrival of cryptocurrencies is not a revolution do not fully understand what’s happening. “Bitcoin and Blockchain are changing the entire payment system, promoting a huge disintermediation in the financial system, particularly in Asia, where the application of Blockchain and Bitcoin technology has accelerated, which is likely to have disinflationary consequences.”

To conclude, the Old Mutual expert speaks about the positive part of Bitcoin’s irruption and of Blockchain’s block chain, reminding people of what money should be: a value depositor, a unit of account and a method of value exchange. “Before 1971, gold performed the three functions, but was replaced by paper money, which is not a deposit of value, because it is not an asset in itself. At the same time, Blockchain solves part of the problems of gold, its portability, its visibility and the facility with which it allows transactions, which is why Blockchain is paving the way so that gold resurfaces in the financial system formally as global currency. The next monetary system will be gold powered by cryptography. Changing to this type of currencies provides a huge reward for the system, with total supervision of the payments”.

Who Are the European Rising Stars of Asset Management 2017?

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Who Are the European Rising Stars of Asset Management 2017?
Foto cedidaFelipe Villarroel, portfolio manager en TwentyFour Asset Management . ¿Quiénes son las promesas del sector de gestión de activos en Europa?

The 25 men and women under the age of 40 standing out in the European investment industry, according to Financial News, includes a list of “talented individuals that are also the asset managers, consultants, strategists and client relationship specialists who have the opportunity to change the way the industry generates and distributes wealth in the years to come”.

The winners of this year’s award were voted by a panel of Financial News editors and industry judges who assessed entrants on four criteria: investment criteria, strength, new developments and ‘better than the rest’, and are:

  • Maya Bhandari, portfolio manager, multi-asset, Columbia Threadneedle Investments (38)
  • Olivier Blin, head of systematic strategies, Unigestion (36)
  • Emma Cameron, partner and senior investment consultant, Hymans Robertson (37)  
  • Gunjan Chauhan, head of cash, Emea, State Street Global Advisors (35)
  • Joanna Crompton, portfolio manager, JPMorgan Asset Management (33)
  • Daniel Danon and Tobias Knecht, portfolio managers, Assenagon (35)
  • Gaetan Delculee, global head of ETF, indexing and smart beta sales, Amundi (32)
  • Louise Dudley, portfolio manager, Hermes Investment Management (32)
  • Dana Harlan, senior client strategist, transition management, BlackRock (32)
  • Joubeen Hurren, portfolio manager, Aviva Investors (28)
  • Christopher Inman, principal consultant and head of UK DC investment advisory, Aon Hewitt (34) 
  • Amy Jupe, executive director, alternative investments and manager selection group, Goldman Sachs Asset Management (34)
  • Wesley Lebeau, portfolio manager, CPR Asset Management (35) 
  • Howie Li, chief executive, Canvas — part of ETF Securities — (34) 
  • Garvan McCarthy, CIO for alternatives, Europe, Mercer (35)
  • Tom Morris, fund manager, Majedie Asset Management (30)
  • Joseph Mouawad, emerging markets analyst, Carmignac (33)
  • Andrew Mulliner, portfolio manager, Janus Henderson Investors (34)
  • Henning Potstada, portfolio manager and deputy head of the multi-asset total return unconstrained team, Deutsche Asset Management (37)  
  • Jean Sayegh, head of fixed income, Lyxor Asset Management (35)
  • Simon Smiles, chief investment officer for ultra high net worth, UBS Wealth Management (39)
  • Nicolas Trindade, senior portfolio manager, AXA Investment Management (34) 
  • Felipe Villarroel, portfolio manager, TwentyFour Asset Management (33)
  • Naomi Waistell, portfolio manager, emerging markets equities, Newton Investment Management (32)
  • Matthew Yeates, quantitative investment manager, Seven Investment Management (27)

According to the publication, “this year’s crop reflects the efforts of their firms to produce strong performance in order to attract investors and grow assets during a time of low yields and low interest rates.”

M&G: “The Valuation Gap Currently Between Value and Growth Stocks is Almost as Wide as it Has Ever Been”

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M&G: "La brecha de valoración que vemos actualmente entre las acciones value y growth es prácticamente más amplia que nunca"
Foto cedidaRichard Halle, courtesy photo. M&G: "The Valuation Gap Currently Between Value and Growth Stocks is Almost as Wide as it Has Ever Been"

Richard Halle, portfolio manager of the M&G European Strategic Value Fund believes that the context is favorable for value investing in equities. In his interview with Funds Society, he explains that the economic recovery environment in Europe, together with the reduction of political and macroeconomic uncertainty and the increase in interest rates, should turn the situation and prove beneficial to this style of investment.

What are the main arguments in favour of investing in European equities?

European equities look attractively valued, in our view, both in absolute and relative terms, particularly compared to US stocks. In addition, European companies should benefit from the region’s economic recovery which should support earnings growth. Economic growth has picked up, unemployment rates have fallen across the eurozone and inflation has started to rise. The European Central Bank has arguably provided the necessary support to revive the eurozone and investors are now focusing on how the stimulus measures will be withdrawn.

You apply a value investing approach…how easy (or hard) is it to find undervalued companies in Europe?

While the overall market has risen this year, we think there are still plenty of opportunities for selective value investors. In our view, value stocks are attractively valued on both a relative and absolute basis.

Value as a style has been out of favour for several years as investors have favoured growth stocks with reliable earnings and ‘bond proxies’ offering steady income payments. The value recovery in 2016 proved to be short-lived and investors have preferred growth stocks this year. As a result of this prolonged underperformance, the valuation gap currently between value and growth stocks is almost as wide as it has ever been. If this gap were to narrow we think the potential rewards could be significant.

More recently, we have been finding value opportunities right across the market, rather than concentrated in particular sectors.

Is it necessary to hold cash in case better opportunities arise?

As value investors who are looking for mispriced opportunities to arise we tend to have a slightly elevated level of cash in the portfolio. This is so we are able to take advantage of short-term volatility and mispriced stocks.

What is the potential upside of your current portfolio? With the recent stock market rally…has this figure decreased?

We think there are plenty of stocks in the portfolio whose prospects are being significantly undervalued. While a number of our cyclical holdings have performed well recently as investors have become more optimistic about the outlook for the European economy, we continue to believe that the portfolio still has several cheap stocks that are being mispriced. In terms of valuation, the fund is trading at a significant discount to the MSCI Europe Index (on both price to book and price to earnings metrics).

Are you expecting a market correction in the medium or long term that could benefit your strategy?

In recent years, value has underperformed as investors have sought defensive ‘bond proxies’ amid uncertainty, volatility and ultra-low rates. Looking ahead, we believe the continued recovery in Europe, a reduction in uncertainty (both political and macro) and rising interest rates should be beneficial for a value approach.

How do you harness volatility episodes in your management strategy, such as the recent French elections of the future elections in Germany?

As long-term investors, we see uncertainty and the volatility it can generate as a source of opportunity rather than something to be feared. When sentiment rather than fundamentals drives markets, stocks can often become mispriced. As long-term bottom-up stockpickers we would try to take advantage of any valuation opportunities that present themselves in these situations.

Sectors and names: how are you positioning your fund now? Which sectors are you overweighting and why?

The fund’s sector allocation is an outcome of our bottom-up stock selection process rather than top-down views. Nor do we take high-conviction positions in individual stocks. The fund is limited to a 3% weight in stocks relative to the MSCI Europe Index. As a value fund, the value style is expected to be the main driver of fund performance rather than bets on particular stocks or sectors.

Having said that, we have been focusing lately on finding attractively valued opportunities that could benefit from the European recovery. We have been adding to a number of our more cyclical holdings, including Bilfinger, a German engineering and construction company, and Randstad, a Dutch recruitment firm. We have also invested in Wereldhave, a Dutch real estate company that invests in shopping centres.

At the sector level we have overweights in consumer discretionary, industrials and energy. In contrast, we have underweights in consumer staples (an area that we believe is expensive as investors have sought the perceived safety of defensives in recent years), financials and materials.

Even though we have a below-index position in materials, we have been adding to our holdings in stainless steel makers Aperam and Outokumpu, which we believe have attractive prospects given potential demand for steel.

Banking sector: many fund managers are staying on the sidelines. Are you following the same strategy or not? Why?

We have an underweight in financials which is due to an underweight in insurers – we think the current environment is difficult for them to grow their earnings.

However, we have been investing in individual banking stocks lately. For instance we have a holding in Bank of Ireland, which we believe is well positioned to benefit from the improving economic situation in Ireland. Another recent purchase holding is Erste Bank, Austria’s largest bank by market value. In our view, Erste Bank has strengthened its balance sheet recently and is arguably now well placed to benefit from stronger economic growth in Europe.

Mexican Pension Plans Can Now Invest in 11 First Trust ETFs

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First Trust consigue que las afores mexicanas puedan invertir en once de sus ETFs
Foto cedidaPhoto: Anthony Creek. Mexican Pension Plans Can Now Invest in 11 First Trust ETFs

The Mexican pension funds investment regulator, la Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR), has approved four additional First Trust ETFs for sale to Mexican funded pensions, known as AFORES, they are:

  • First Trust Health Care AlphaDEX® Fund (Ticker: FXH)
  • First Trust NYSE Arca Biotechnology Index Fund (Ticker: FBT)
  • First Trust US Equity Opportunities ETF (Ticker: FPX)
  • First Trust Rising Dividend Achievers ETF (Ticker: RDVY)

“The evolution of the Mexico pension system has been remarkable to watch: it seems not so long ago when the AFORES first started to incorporate ETFs to diversify their stock positions,” said Codie Sanchez, Head of First Trust Latin America Investment Distribution. “We are excited to add four additional ETFs approved for use by the Mexican AFORES due to client demand. As always, we’re incredibly thankful to our clients in Mexico, the CONSAR and the AMAFORE who continue to allow us to grow right alongside them. As we say in Spanish, Adelante! Or, forward together.”

Back in NOvember, 2014 two First Trust ETFs received such approval, they were the First Trust Large Cap Value AlphaDEX Fund  with ticker FTA and the First Trust Large Cap Core AlphaDEX Fund, with ticker FEX. Since then, other five vehicles had been approved, totalling 11 First Trust ETFs in which the AFORES can invest. The other five are:

  • First Trust STOXX® European Select Dividend Index Fund (Ticker: FDD)
  • First Trust Dow Jones Internet Index Fund (Ticker: FDN)
  • First Trust Financials AlphaDEX® Fund (Ticker: FXO)
  • First Trust Morningstar Dividend Leaders Index Fund (Ticker: FDL)
  • First Trust Chindia ETF (Ticker: FNI)
     

Nordea: “We Still Believe That the Risk Aversion Towards Emerging Markets is Too High”

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Nordea: "Seguimos pensando que la aversión al riesgo en los mercados emergentes es demasiado elevada"
Foto cedidaEmily Leveille, courtesy photo. Nordea: "We Still Believe That the Risk Aversion Towards Emerging Markets is Too High"

The current economic fundamentals in many emerging countries, along with the perception that they involve too much risk, generate interesting opportunities for investors with a medium to long-term investment horizon according to Nordea‘s Emily Leveille. In this interview with funds society she discusses Emerging market opportunities.

Apart from valuations, which other attractions do the Emerging Markets investments currently have?

We still believe that the risk aversion towards emerging markets is too high; this is partly based on concerns over the impact on these markets of the Federal Reserve raising interest rates. In our view, however, the current economic fundamentals in many emerging markets, combined with this perception that they are too risky, creates an attractive investment opportunity for investors with a medium to longer term horizon. We acknowledge that EM in general have been performing well recently – particular in 2017 – but because of valuations, which are still at a discount to developed markets, growth rates which are higher than in developed markets, and the great companies that we can find in emerging markets, we still see an attractive long-term opportunity here.

Are all the regions cheap, or are there some cheaper than others?

We are bottom-up investors, so we don’t have strong views about the valuations of particular markets, but what I can say is that we find a lot of opportunities across regions in companies exposed to domestic development. These could be companies focused on urban consumers in India, healthcare companies in China, or education businesses in Brazil. We also find lots of innovative companies in the technology space in emerging markets, where we see that there is a lot of potential for earnings growth that is not being priced by the market.

Which are the main challenges that the emerging countries are facing? Would they be affected by FED’s monetary normalization? Mainly in Latin America? 

We believe there is already a sufficiently large valuation buffer that exists between emerging markets and developed markets due to the expectation of monetary tightening in United States, such that emerging markets are able to stomach future increases in the Fed’s benchmark rate.  When we look at the underlying medium to long-term economic drivers of a large number of EM countries relative to a group of DM countries – and here of course as the key benchmark the USA – and look at the 10 year yield, we see a significant risk premium already priced into EM. In particular when we look at the underlying growth and debt dynamics of EM vs DM, and how EM has improved since 2013. Of course, we cannot rule out some short-term volatility in EM, particularly if the Fed increases rates at a faster pace than the market expects, but we would argue that this would be a an opportunity for adding to the asset class.

In order to look for opportunities in the Nordea 1 – Emerging Stars Equity Fund…which are the most important criteria for you? And, following these criteria, in which region do you see more opportunities?

When we look for new investments for the Emerging Stars Fund, we look for high quality businesses that can grow their earnings sustainably for many years to come, and then we make sure that we buy them at a discount to their intrinsic value. We can find companies like this all around the world, but as an example, right now we find a lot of interesting companies in India, where you will see we have a big overweight positon. Many of the reforms implemented by the current administration have created a more favourable business environment and lowered the cost of investing, creating many new opportunities for good businesses to take advantage of. 

Focusing in Latin America (where we have a lot of audience), which are the opportunities, divided by sectors or type of company, that you see? Could you give any example? Is it key to have a fundamental bottom-up focus or is the macro view important for you as well?

We see a lot of opportunities in industries like healthcare and education, particularly in Brazil, where an ageing population and rising middle class provide a tailwind for higher spending in these areas. We also still see that banking penetration is very low in many countries across the region, and the competitive environment for banks is very favourable, so we also have a positive view on banks like Banorte and Itau, for example.

With regards to the importance of macroeconomics- for us, the most important thing is to find good businesses that generate returns above their cost of capital for many years. We often find however, that there are many more investable companies in countries with stable macroeconomic environments, because it is difficult to grow a company and invest in a market which experiences a lot of economic volatility. Furthermore, when we make projections as part of our valuation work, we of course take into account projections of inflation, GDP growth, and interest rates and we can have a higher degree of confidence in these projections if there is a stable macroeconomic backdrop.

By countries, in Latin America, where do you see a more promising economic situation that can lead to the creation of investment opportunities in these markets and why?

We have been very impressed by the reforms being implemented in Argentina since the change in administration. The equity market is still very small, but with reforms in monetary and fiscal policy, we are already seeing a lot of businesses coming to the market that want to grow because the economy is growing and the political environment is more stable. In Brazil as well we are encouraged by the economic recovery, very low inflation, a consumer with less leverage, and recent reforms in the labour market and long term interest rates, though we still need to see reform to the pension system in order for us to feel comfortable with debt dynamics longer-term. Finally in Mexico we see a government and central bank committed to prudent fiscal and monetary policy and the ongoing adjustment to government spending due to falling oil production. We believe that the energy reform will be transformational to many sectors of the economy and is already creating many new investment opportunities.

In which Latin American markets is Nordea 1 – Emerging Stars Equity fund overweight?

We currently have no overweight positions in any markets in Latin America, but that is not because we do not find interesting companies in which to invest. Our process is a bottom-up, company by company analysis, and our under- and overweight positions are a result of individual companies that we find to invest in at the right price. We are invested in a concentrated group of companies that we like very much in the region, but we happen to have more investments at the moment in Asia and India primarily.

Does the region face a wave of positive changes and reforms for its equities?

Every country is so different in Latin America, from their size to the components of their economy and their politics. Though we have seen some positive and market-friendly reforms in recent years in places like Brazil, Argentina, and Mexico, I do not necessarily see these as related to some sort of general consensus in the region about a move to the right or to the left of the political or economic spectrum. Each case has been very much related to specific domestic situations.

The weakness of the dollar … how is it helping the region? Do you consider currencies when investing or covering them?

We do consider currencies in our fundamental analysis as we think about the impact of currency movements to the operating profits of our investments, but we do not try to predict currency movements and we do not cover our currency exposures from being invested in local markets. The weakness of the dollar helps certain industries and hurts others- in general, because commodity exports are a big portion of many Latin American economies, they tend to benefit from the inverse correlation between the dollar and commodity prices; furthermore, the weak dollar makes imported goods in local currency more affordable. However, a dollar that is too weak can also overly inflate the value of Latin American currencies and reduce their relative competitiveness in manufactured exports, as we saw during the financial crisis in 2008-2009, but we are not seeing these types of movements at this point.