Foto: Ludovic Bertron
. Franklin Templeton lanza el primer ETF de renta variable internacional gestionado activamente en LibertyShares
Franklin Templeton Investments has introduced a new actively managed international equity ETF to its Franklin LibertyShares platform. Franklin Liberty International Opportunities ETF (FLIO) provides investors with broad and diversified access to international equity markets outside the U.S., spanning developed, developing and frontier markets, and across sectors and market capitalizations. FLIO is being listed on NYSE Arca on January 27, 2017.
“The launch of Franklin Liberty International Opportunities ETF marks our first actively managed international ETF and continuing expansion of our LibertyShares offerings,” said Patrick O’Connor, the firm´s Global Head of ETFs. “With over 75 percent of the world’s GDP coming from countries outside the U.S., investing internationally can provide portfolio diversification, which can reduce overall risk. As we believe successful international investing can benefit from combining a global investment perspective with local presence and insights, we are leveraging fundamental research from our local asset management and emerging markets teams around the world in managing this new ETF.”
The ETF is co-managed by Stephen Dover, CFA, CIO for Franklin Templeton Local Asset Management and Templeton Emerging Markets Group, and Purav Jhaveri, CFA, managing director of investment strategy for the Local Asset Management group. They draw upon the research and perspectives of over 80 investment professionals comprising the firm’s 14 local asset management teams globally, who provide on-the-ground insights on local market conditions, dynamics and valuations and timely perspective on market events, risks and opportunities. The fund’s managers also leverage the expertise of Templeton Emerging Markets Group’s more than 50 investment professionals for further insight into emerging countries, an area of the market that they believe is critical to international equity portfolios, given its importance to future growth potential.
In constructing a diversified portfolio of companies, the fund’s managers focus on key attributes that foster their high conviction, including:
Focus on quality
Superior earnings growth
Low financial leverage
Strong management track record
Franklin LibertyShares’ actively managed ETFs strive to outperform their benchmarks. Portfolio managers have the flexibility to respond, with discretion, to market events and operate outside the confines of traditional benchmark indices.
“Investors who have embraced the ETF wrapper for its benefits—which may include liquidity, tax efficiency and transparency—want the opportunity to seek better risk-adjusted returns over the long term,” said David Mann, Head of Capital Markets, Global ETFs. “Franklin LibertyShares provides investors with simple and efficient options to help them address their desired outcomes. Our actively managed ETFs, which now include Franklin Liberty International Opportunities ETF, can help investors meet their investment needs by serving as a core or complementary portfolio holding.”
Franklin LibertyShares has more than $545 million in assets under management as of January 24, 2017.
State Street Corporation has announced that John Plansky will be named global head of State Street Global Exchange. In this role, Plansky will be responsible for global strategy, new product development and developing solutions for clients that help them manage increasingly complex data, search for better performance, focus on attracting assets and meet heightened risk challenges.
Plansky will report to Executive Vice President Lou Maiuri.
Plansky joins from PricewaterhouseCoopers (PwC) where he led the US Strategy business and US Global Platforms business and was a member of the Advisory Financial Services Leadership team. Prior to the acquisition of Booz & Co. by PwC, Plansky was a senior partner at Booz & Co. leading the Technology practice and serving as a senior advisor to global financial institutions such as State Street. Prior to joining Booz & Co., he was CEO of NerveWire and led its sale to Wipro where he subsequently led their global capital markets business. John has a degree in Biophysics, BS from Brown University.
“John has partnered with State Street in various roles over the past 16 years,” said Maiuri. “He has seen our evolution first hand and brings significant experience leading global teams, growing revenue, and integrating dozens of capabilities and skill sets to produce better client outcomes. As we continue to digitize our company, John will help State Street and our clients meet the data challenge.”
Pixabay CC0 Public DomainFoto: sasint. Harvard University's Endowment to Lay Off Over 100 People
Harvard Management Company (HMC), in charge of Harvard University’s endowment and related financial assets since 1974, announced on Wednesday the addition of Rick Slocum as chief investment officer, effective in March 2017, and three managing directors to its investment team. Each will report to chief executive officer N.P. Narvekar, who was appointed president and chief executive officer of HMC back in September and assumed his role on December 5, 2016.
“I am pleased to welcome four senior investors to HMC who bring substantial investment expertise and deep insight into building and working in a generalist investment model and partnership culture. I have known these individuals both personally and professionally for the majority of my career and I value their insights and perspectives,” said Narvekar. “I am confident they will be a great addition to the talented and experienced investment team here at HMC.”
The new hires will play a key role in helping HMC transition from an asset class-specialization approach to a generalist investment model and help support a strategy of further deepening HMC’s relationships with a select group of external managers, which will translate into an overhaul of HMC that could include the lay off of roughly half of their 230 employees.
Harvard University’s endowment is the largest academic endowment in the world.
CC-BY-SA-2.0, FlickrFoto: frankieleon
. Financière de la Cité Launched a Brexit Themed Fund
French boutique Financière de la Cité has launched the FDC Brexit fund, with the aim of benefiting from the new market environment created by the imminent departure of the United Kingdom from the European Union.
The fund managed by Bruno Demontrond, which was launched on December 30th, 2016 and invests primarily in British, Swiss and Scandinavian stocks, is quoted in euros and aims to outperform the Euro Stoxx 600 index for at least the next five years. BNP Paribas acts as custodian.
The management team believes that the devaluation of the pound will facilitate a rebalancing in the UK economy that will offer new flexibility to Britain, at a time when the euro zone economy is vulnerable to deflationary policies, as well as disagreements over the management of the single currency. FDC Brexit intends to take advantage of this environment with a selection of industrial companies essentially focused on the United Kingdom and Switzerland, European countries in which economic policy and monetary policy are in the same hands.
According to Financière de la Cité, FDC Brexit will offer, in addition to exposure to Europe, through a diversified portfolio of solid companies, a theme of renationalisation of economies and trade, as well as ordinary dividends in popular currencies.
One week from the inauguration of the 45th president and the market’s high expectations for policymaking, what is realistic for investors to expect from Washington in 2017?
Accordig to Libby Cantrill, PIMCO’s Head of Public Policy, and her team, the bottom line is that governing is harder than campaigning. They believe, any of the items that President Trump and congressional Republicans are looking to tackle in 2017 – a healthcare overhaul, tax reform, infrastructure – are inherently complex and time-consuming, even with Republican majorities in both chambers of Congress. So, while they expect policymakers to focus on advancing the Trump agenda, there is a good chance that some of these agenda items slip into 2018 given the realities of Washington.
Key policy initiatives
Obamacare: Repeal and replace? One of the primary issues of overlap between President Trump’s policy agenda and that of congressional Republicans is the repeal of Obamacare. However, there is less agreement about what comes after repeal – with Trump and some Republicans advocating for a “repeal and replace” approach, while other Republicans supporting “repeal and delay.”
If Trump’s approach is pursued – which seems more likely – it could have implications for the timing of the rest of his agenda. Healthcare policymaking is notoriously complex and time-consuming; it took Congress 14 months to pass Obamacare after holding more than 100 hearings in the Senate and 80 in the House, and Obamacare still managed to pass only on a party-line vote. Also, the committees in Congress that would be tasked to write at least part of the replacement bill will also be in charge of the tax reform bill, another complicated and formidable undertaking. Lastly, Trump has promised that a replacement bill will provide “insurance to everybody.” While Trump may walk back from these comments, the pressure for congressional Republicans to deliver a comprehensive, Trump-endorsed healthcare overhaul has increased, which might take longer (most of 2017?) than many expect.
Tax reform or tax cuts? Another area of agreement between Trump and congressional Republicans is the issue of addressing the country’s tax code to make it more competitive. However, there is less agreement about how to actually do this. House Republicans want to proceed with tax reform on the individual and corporate side, while Trump has put forth a plan that focuses on tax cuts. Tax reform – simplifying the tax code, lowering rates and broadening the base – is notoriously more difficult and time-consuming than tax cuts, since it necessarily results in winners and losers. Yet, many would argue that only tax reform – not tax cuts – at this point in the economic cycle would lead to real improvements in productivity and therefore sustainable economic growth. For this reason, they expect House Republicans to try to advance a tax reform package, at least initially.
“But there is a long way to go from here to there. No bill has yet been written, and it is not clear whether Senate Republicans are on the same page as House Republicans, especially when it comes to more controversial topics such as the “border adjustment tax,” which would tax imports and exempt exports. Assuming tax reform is pursued (not just tax cuts), it will likely take longer than most expect given its complexity and may be a smaller package (e.g., rates not lowered as much) depending on where Republicans fall out on different controversial issues (e.g., the border adjustment tax). While the market appears to be pricing tax reform to be completed in 2017, there is a real possibility we don’t see a bill passed and signed by President Trump until 2018.” Cantrill says.
Infrastructure: While this is a topic that President Trump discussed often on the campaign trail and one where there is generally bipartisan support, Trump has provided few policy specifics, and this is yet another issue where the devil is in the details. Given the ambivalence many Republicans have for increases in non-defense spending, Trump may need Democrats to help pass an infrastructure bill. It is not clear what the appetite for that would be among congressional Democrats. So this also could slip to 2018.
Trade: Unlike the aforementioned issues, which need congressional approval, the White House has significant discretion around trade. Indeed, one of the first actions President Trump was to withdraw the U.S. from the Trans-Pacific Partnership. While this move was expected, “Trump’s approach to trade broadly is unknown: Does he follow the advice of his U.S. Trade Representative Robert Lighthizer, who worked under President Reagan and will likely use a more carrot-and-stick approach with trading partners like China? Or will he follow the more extreme and protectionist advice of Peter Navarro, the head of the newly formed National Trade Council? At this point, we don’t know, and as such, trade remains the primary area for a more “left tail” (downside) outcome.” She concludes.
ETFGI, the leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, reported assets invested in ETFs/ETPs listed globally reached a new record high of US$3.546 trillion at the end of 2016 passing the prior record of US$3.444 trillion set at the end of November 2016.
In December, ETFs/ETPs gathered a record level of net inflows US$65.25 billion for December, marking the 35th consecutive month of net inflows. During 2016, ETFs/ETPs listed globally gathered a record amount of net inflows US$389.34 Bn surpassing the prior record of US$372.27 Bn gathered in 2015, according to preliminary data from ETFGI’s Year-end 2016 global ETF and ETP industry insights report.
Record levels of assets under management were reached at the end of 2016 for ETFs/ETPs listed in the United States at US$2.543 trillion, in Europe at US$571 billion. In Asia Pacific ex-Japan at US$135 billion, in Canada at US$84 billion and globally.
At the end of December 2016, the Global ETF/ETP industry had 6,625 ETFs/ETPs, with 12,526 listings, assets of US$3.546 trillion, from 290 providers listed on 65 exchanges in 53 countries.
“2016 was an eventful year with a number of unexpected outcomes – the UK vote for Brexit to leave the European Union and the election of Trump as the US President. The S&P 500 gained 12.0% while the DJIA increased 16.5% for the year. All US sectors performed positively for the year, with the exception of Health Care. The VIX declined by a dramatic 22.9%. European equities ended the year up 3.44% Canadian equities ended the year strongly with the S&P/TSX Composite and the S&P/TSX 60 were up 21.1% and 21.4%” according to Deborah Fuhr, co-founder and managing partner at ETFGI.
Asset gathering in December 2016 was very strong with ETFs/ETPs listed globally gathering net inflows of US$65.25 Bn setting a December monthly record. Equity ETFs/ETPs gathered the largest net inflows with US$63.28 Bn, followed by fixed income ETFs/ETPs with US$6.72 Bn, and active ETFs/ETPs with US$1.50 Bn, while commodity ETFs/ETPs experienced net outflows of US$4.24 Bn.
ETFs/ETPs listed globally gathered a record amount of net inflows US$389.34 Bn during 2016 surpassing the prior record of US$372.27 Bn gathered in 2015. Equity ETFs/ETPs gathered the largest net inflows during 2016 with US$231.91 Bn but less than the record US$258.21 gathered in 2015, followed by fixed income ETFs/ETPs which gathered a record level US$111.58 Bn passing the prior record of US$81.65 set in 2014, and commodity ETFs/ETPs which gathered a record level of US$30.85 Bn passing the prior record of US$23.44 Bn set in 2012.
iShares gathered the largest net ETF/ETP inflows in December with US$23.73 Bn, followed by SPDR ETFs with US$18.45 Bn and Vanguard with US$13.34 Bn net inflows.
In 2016, iShares gathered the largest net ETF/ETP inflows with US$138.40 Bn, followed by Vanguard with US$96.79 Bn and SPDR ETFs with US$62.47 Bn net inflows.
CC-BY-SA-2.0, FlickrPhoto: Chris Dlugosz. The Market Is Underpricing Inflation Risks
The actions of central banks and the search for yield were once again dominant themes for investors during 2016. Says Barry Gill, Head of Active Equities at UBS AM. He believes that the wider market’s strongly consensual views about ’lower for much longer’ have been evident in a host of crowded trades across asset classes that only began to demonstrate the first signs of vulnerability in the wake of the US election.
“Within equity markets, these crowded trades include bond proxies and structured vehicles targeting isolated risk premia factors, including lower volatility. However, we believe the quantum of capital now focused on such factors presents an asymmetric risk to investors: despite recent underperformance, low volatility stocks in the US are almost as expensive as they have ever been.” Explains Gill.
In his view, this strongly suggests any change in the ’lower for longer’ narrative could see both the realized return and realized volatility of these factor exposures differ significantly from the recent history that attracted investors in the first place.
Inflation risks underpriced
With a surprise Trump presidency focusing attention on the US, what and where are the disruptive forces which could further shake investors in US equities from their consensual thinking in the coming months? “When we look at the macroeconomic assumptions discounted in markets, the one key area where we see widespread complacency is inflation. A Trump presidency likely exacerbates those risks. ’Lower for much longer’ has become accepted wisdom – and a broad investor base is positioned aggressively in the expectation that inflationary forces have been slain.”
But, according to Gill, this view flies in the face of several data points and emerging trends. Notwithstanding the sharp move higher in oil from its February lows, with the US economy close to full employment, they see potential for a tight labor market to squeeze wages higher still.
“And while wage growth in the official US average hourly earnings statistics currently looks modest, we do not believe this is representative of cost pressures experienced by listed companies. The Atlanta Federal Reserve Bank has created a more representative wage growth gauge which is currently running at 3.3% YoY. These higher costs are highly likely to be passed on to consumers. If they are not, margins and profitability will have to bear the brunt. Neither outcome is reflected in equity prices at the time of writing.” He concludes.
Pixabay CC0 Public DomainFoto: Unsplash. Schroders Launches First High Yield Fund Using the “Value Approach”
Schroders launched the Schroder ISF Global Credit Value. The fund is one of the first of its kind and will use a value investment style to invest in the global credit universe. According to a press release, the value approach will enable the team to identify opportunities in out of favour market segments with the aim of providing investors with a high total return.
The fund will not be constrained by a benchmark, allowing the investment team the flexibility to maintain their contrarian approach and exploit opportunities in the global credit universe, consisting of bonds of corporate and financial issuers (including developed and emerging markets), convertibles and other securities.
The fund will be run by the credit team based in London, as part of Schroders’ well established global credit franchise and managed by Konstantin Leidman, Fixed Income Fund Manager, with the support of over 40 analysts around the globe.
Leidman said: “We will focus on sectors and regions that have been hit hard by negative investor sentiment and aim to identify issuers in these groups that have been undeservingly punished. They may be unloved due to some political or other bias, or simply unfashionable; overlooked or under-researched where investors are absent and valuations are very cheap. Our philosophy is based on minimising the risk of permanent capital loss and applying a large margin of safety – or discount – which means we aim to buy bonds for significantly below their intrinsic value to maximise returns and minimise losses.”
John Troiano, Global Head of Distribution at Schroders, said: “We’re delighted to be able to offer investors this innovative investment strategy. The new fund will be suitable for long-term investors seeking superior total returns and to diversify their portfolios. The value approach in global high yield corporate bonds has so far been under-utilised by the investment community, we are one of the few managers to offer such a strategy.”
The proposed merger between Rothschild & Co and Compagnie Financière Martin Maurel to create one of France’s leading independent private banks announced last June is now successfully complete. The merger will build upon the relationship that has existed between the Rothschild and the Maurel families for three generations. The operational integration of the two private banks Rothschild Patrimoine and Banque Martin Maurel should be finalized in the second half of 2017 so as to create a combined group operating under the name Rothschild Martin Maurel.
Rothschild Martin Maurel will be a leading independent family controlled private banking group operating in France, Belgium and Monaco, with a distinctive market positioning targeted notably at entrepreneurs. The group will have combined AUM of €34 billion, offer a particularly broad wealth management, asset management, financing and corporate finance advisory service and enjoy a greater geographic footprint in France.
Prior to this transaction, Rothschild & Co held 2.3% of Compagnie Financière Martin Maurel while the latter held 0.90% in Rothschild & Co. In accordance with the terms of the protocol signed in May 2016, the majority of the transaction was in the form of an exchange of shares on the basis of a parity of 126 Rothschild & Co shares per Compagnie Financière Martin Maurel share. The Maurel family received shares and reinforced its presence in the extended family concert of Rothschild & Co, of which it was already a member. The transaction was financed 62% by issuing 6.1 million new shares and 38% by external bank facilities of €88.3 million. The significant non-family shareholders of Compagnie Financière Martin Maurel had already agreed to tender their shares to the cash offer in accordance with the terms of the initial protocol.
David de Rothschild, Chairman of Rothschild & Co, said, “The combination of two family controlled businesses that share the same history, the same culture and the same vision of their industry, creates an outstanding company and we are delighted to celebrate this merger today. The transaction is in line with our strategy to accelerate our growth in private wealth and of focusing on annuity style revenues. I am pleased that the Maurel family will maintain its involvement alongside the Rothschild family in the new group.”
“Our two groups embody a family model that distinguish and strengthen us when compared to our competitors. This combination allows us to broaden the range of our offerings to all our clients, especially entrepreneurs, thanks to a strengthened and broader range of asset and wealth management products and services,”underlined Bernard Maurel.
Lucie Maurel Aubert said, “We will be able to develop these offers in Paris and also, thanks to our strong regional presence, in Lyon, Marseille, Aix en Provence, Grenoble and Monaco, while adding the skills of Rothschild and Co in financial advisory and merchant banking. This alliance will enrich our expertise benefitting our customers and our teams and enabling us to meet the challenges of the future with confidence”.
The listing of Compagnie Financière Martin Maurel’s shares has been suspended. With effect from 4 January 2017, the new shares of Rothschild & Co are admitted to trading on compartment A of Euronext Paris and the shares of Compagnie Financière Martin Maurel is delisted from the Marché libre of Euronext Paris.
CC-BY-SA-2.0, FlickrPhoto: Robert Vanden Assem, managing director at PineBridge. Stay Flexible in Investment Grade Credit as the Hunt For Yield Continues
In recent years, demand for US dollar investment grade credit has grown worldwide. Many investors have been drawn to this market by the attractive yield differential, large and diverse opportunity set, and absence of foreign exchange volatility. The outlook for the US economy, with anticipated progrowth fiscal and regulatory policy, should support US dollar strength and higher yield differentials, which we expect will continue to fuel demand for US dollar investment grade credit.
Here, Robert Vanden Assem, managing director and head of developed markets investment-grade fixed income at PineBridge, discusses frequently asked questions about investing in US dollar investment grade credit, the most liquid credit market in the world.
What do you think the US election results mean for fixed income markets?
On the whole, we are expecting mostly positive consequences of a Donald Trump presidency on US dollar denominated spread products. Tax cuts, possible infrastructure spending, repatriation of overseas cash, and a reduction in regulation are bullish for corporate markets.
The election result has also made certain sectors more attractive. Financials have been buffeted this year by the possibility of negative rates, and now they’re looking to be one of the more attractive sectors in fixed income with the likelihood of higher interest rates and relaxation of regulation. The aerospace and defense sector seem poised to benefit from a global increase in military spending, the metals and mining sector should benefit from an increase in infrastructure spending, and both energy and communications sectors should benefit from a more business friendly approach from their respective regulatory agencies. Finally, we see possible positive outcomes for corporates in the form of tax cuts, less regulation, and the possible repatriation of cash held overseas.
The election also gave a boost to the US dollar, which had been range-bound since last December. We think, going forward, a strong and stable dollar will contribute to performance of US dollar denominated fixed income.
From an interest rate volatility side, the prospect of fiscal stimulus and less regulation has already impacted our markets. We’re still expecting a decent amount of interest rate volatility, but the recent back-up in rates has provided an opportunity to invest at more attractive yield levels.
What risks do you see ahead?
I think a key risk at this point could be too much bullishness in markets. Beyond the obvious positives of more fiscal spending and less regulation, what the Federal Reserve does in response is something to keep an eye on.
Our view for a long time has been that the Fed cannot normalize policy unless there is an adequate correction in terms of the fiscal policy and regulatory policy within the economy. Of course, we now have hope that we might see that, but it’s still uncertain in terms of what the exact programs will be and their likelihood of success. Importantly, the US is still burdened by tremendous debt levels that continue to rise.
While the Fed finally raised rates this year, over the longer term it has been cutting its forecast, or its terminal rate of interest going forward. The market has continually underpriced the Fed, and it has been successful in doing that so far. More recently, however, Fed and market forecasts are coming together.
Inflation and labor markets are also not robust enough to warrant significant tightening in US monetary policy. While the longer term view of inflation (the five-year, five-year forward inflation rate) has ticked up a bit, it hasn’t moved enough to warrant concern at this point. And the job market is not as robust as you would normally see in a typical recovery. What is missing is investment, less regulation, and better fiscal policy.
Although our view is that the Fed will remain accommodative, central bank policy continues to be a big risk as we look into 2017. If markets get too bullish with any possible fiscal legislation or less regulation, the Fed could end up moving too aggressively, and that would negatively impact the economy. I think this is a major risk in 2017 and beyond.
Is there an area of fixed income that you favor currently?
Financials have been one of our more favored sectors, but they suffered in the past year due to fear of negative rates and low interest rates. Since the Global Financial Crisis, from a fixed income perspective, financials have been a great balance sheet story as they raised capital levels and improved liquidity. This year, however, they became more of an equity story, where earnings were a concern given the low and negative rate environment.
Going forward, we are positive on financials for two reasons. First, they have underperformed the rest of the market on this bounce back and appear attractive on a relative value basis. Second, with the prospect of less regulation and higher rates, there should be more opportunity for banks to increase profitability going forward. More recently, with the advent of Additional Tier 1 preferreds and Contingent Convertible securities, we have seen added interest in financials.
What is your outlook going forward?
Despite pro-growth changes we will likely see in fiscal and regulatory policy, we think that the big-picture rate environment is not going to change significantly. Moreover, we expect the global search for yield to continue. While the US is seeing positive developments, many advanced economies are still dealing with low growth, low inflation, and an increase in geopolitical risk. Therefore, we think that the market is not poised for the breakout growth that many investors seem to be anticipating at this point.
Looking ahead, we expect robust performance on a relative basis within the credit markets supported by a constructive environment for corporate fundamentals, strong global demand for US dollar investment-grade credit and relatively easy monetary policy. However, investors should focus on being nimble since liquidity dynamics are not what they used to be. The investor base is strong, as is demand, but the transmission mechanism for sales and purchases from investor to investor has changed. The dealer community is still inhibited by regulation, so they must maintain low levels of inventory. Therefore investors need to be mindful of liquidity and how they can maneuver within the market.
