CC-BY-SA-2.0, FlickrFoto: Christos Tsoumplekas, Flickr, Creative Commons. Muzinich & Co. ficha a cuatro profesionales para ampliar sus capacidades en préstamos sindicados europeos
Corporate credit specialist Muzinich & Co. has announced that Torben Ronberg, Stuart Fuller, Sam McGairl and Alex Woolrich will be joining the firm.
These very talented investment professionals will focus on syndicated loans in Europe. “Their long-standing expertise complements our current activities in European publicly traded corporate bonds and European private debt”, says the firm in a comunication.
“This expansion of our team forms part of our global effort to invest across the capital structure and provide compelling investment opportunities for our investors”.
They will join from ECM Asset Management, a subsidiary of Wells Fargo.
CC-BY-SA-2.0, FlickrPhoto: d26b73. What We Have Learned from the 2Q Earnings Season?
According to the US National Bureau of Economic Research – the arbiter of US recession dating – the economic recession associated with the great financial crisis ended in June 2009. Since then, trailing 12-month S&P 500 operating earnings per share (EPS) have more than doubled, up 115% from under USD 54 to USD 116. Proportional to the US earnings recovery, the S&P 500 price index increased by nearly 130% in the seven-year period ending 30 June, dwarfing the market gains in non-US developed and emerging markets.
Ultimately, equity markets in the Eurozone, the UK, Japan, and emerging markets have lagged the US over the past several years, since earnings in these regions failed to keep up with the V-shaped US profit recovery.
But as UBS AM experts say, after three consecutive quarters of year-over-year earnings declines, it is reasonable for investors to question whether the profit cycle – and the US bull market – has run its course.
Mark Haefele, Global Chief Investment Officer Wealth Management, and Jeremy Zirin, Head of Investment Strategy Wealth Management Americas, say their research “suggests that the recent profit slump is nearing its end. Rebounding corporate profits should drive further US equity market gains again. The second-quarter earnings season has supported this view.” They we note the following:
“Less worse” is a good start. S&P 500 EPS fell by 6% in the first quarter, the worst year-over-year decline since 3Q09. The second quarter looks better. Aggregate EPS is on track to be flat to down 2%. We expect this sequential earnings improvement to continue in the second half of the year as earnings start to grow again as early as this quarter.
Excluding energy, there was no profit “recession.” Most of the damage to US corporate profits in recent quarters occurred due to the collapse in energy sector earnings, which fell by over 80% in 2Q to mark the sixth straight quarter of year-over-year declines of 50% or more. The silver lining is that: 1) energy earnings now make up just 2% of S&P 500 profits compared to 11% at the end of 2014; and 2) excluding energy, S&P 500 profits have actually only declined in a single quarter (1Q16, by just 1%). Ex-energy, US earnings were up 2–3% in the second quarter.
Big-cap technology, big earnings beats: Overall, 73% of S&P 500 companies by market cap beat consensus estimates by an aggregate 3.5%. Some 83% of tech stocks exceeded consensus by an average of 7.4%. Accelerating revenue growth for mega-cap internet software companies has been propelling technology (the largest S&P 500 sector) shares into the third quarter.
“The corporate profit cycle in the US has stalled over the past few quarters, largely due to collapsing energy prices. The combination of a reasonably healthy US economy and easier quarterly comparisons in the energy sector should cause US earnings to grow again in the quarters ahead.” They conclude.
CC-BY-SA-2.0, FlickrPhoto: Dying Regime. Desjardins Global Asset Management chooses Mirova for Delegated Management of a Green Bond Fund
Mirova, an asset management company dedicated to responsible investment, got selected by Desjardins Global Asset Management to provide delegated management of an international green bond fund, the Desjardins SocieTerra Environmental Bond Fund, for a total of 100 million Canadian dollars.
The Desjardins SocieTerra Environmental Bond Fund puts the Global Green Bond strategy managed by Mirova into action. This fund will receive the recognized expertise of Mirova’s bond specialist teams, which are leaders in the area of green bonds.
Like Mirova’s Global Green Bond strategy, the Desjardins SocieTerra Environmental Bond Fund will be steered with active management and conviction management. The fund’s main performance driver will be investment in debt securities that support the environmental and energy transition, described as green bonds by Mirova’s responsible investment research team. As such, the management approach will combine financial and non-financial tactics: specific analysis of each project financed, Environmental Social Governance (ESG) analysis of the issuer, and fundamental analysis to determine the bond’s financial attractiveness. The fund will try to benefit from different international economic cycles by diversifying in terms of geography, economic sector, and credit rating.
The Desjardins SocieTerra Environmental Bond fund will be managed by Christopher Wigley, with Marc Briand, co-manager and head of fixed-Income at Mirova who will particularly rely on Mirova’s responsible investment research team of 12 analysts.
Philippe Zaouati, CEO of Mirova, commented on the announcement: “We are proud to have received this management mandate from Desjardins Global Asset Management. It is proof that our expertise in green-bond management is recognized on the market. Additionally, this mandate is part of our international growth strategy at Mirova, a strategy that is clearly beginning to pay off.”
Michel Lessard, Vice President of Desjardins Global Asset Management added: “By financing tangible assets, green bonds fill direct, concrete needs: they enable issuers to diversify their investor base and investors to actively participate in financing the energy transition. We are delighted, alongside Mirova, to commit to this energy transition by launching the Desjardins SocieTerra Environmental Bond Fund, the first green bond fund on the Canadian market.”
CC-BY-SA-2.0, FlickrPhoto: TreyRaatcliff, Flickr, Creative Commons. China Allows for Mutual Stock Market Access Between Shenzhen and Hong Kong
The China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission (SFC) have approved the establishment of mutual stock market access between Shenzhen and Hong Kong (Shenzhen-Hong Kong Stock Connect) in order to promote the development of capital markets in both the Mainland China and Hong Kong. The organisms have also agreed to abolish the aggregate quota under Shanghai-Hong Kong Stock Connect.
The key features of Shenzhen-Hong Kong Stock Connect, including the shares eligible to be traded under the scheme, eligible investors and daily quotas, are set out in the joint announcement. HKEX expects it should take approximately four months from today to complete the preparations for the launch of the Shenzhen-Hong Kong Stock Connect.
“We are excited about Shenzhen-Hong Kong Stock Connect, which will open up another Mainland market for international investors and strengthen the Mainland’s links with Hong Kong,” said HKEX Chairman C K Chow.
“Under ‘One Country, Two Systems’, Hong Kong is in a unique position to build important connectivity with the Mainland markets and to facilitate the gradual opening of China’s capital account,” Mr Chow said. “This will further enhance Hong Kong as an international financial centre.”
“We look forward to launching Shenzhen-Hong Kong Stock Connect, which will be an extension of our successful mutual market access programme with Shanghai, so investors in our market and the Mainland market will have an additional secure, reliable channel for investment in the other market in an environment that they’re familiar with,” said HKEX Chief Executive Charles Li. “We also look forward to enhancing Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect with additional products in the future.
“We aim to build Hong Kong into a mature, comprehensive financial centre that can serve as an offshore wealth management centre for Mainland investors, an offshore pricing centre for the Renminbi and global asset classes for the Mainland, and an offshore comprehensive risk management centre for Mainland investors.”
Rating agencies, advisors, and asset managers are set to play a greater role in the world of environmental, social, and governance (ESG) investing, according to the latest issue of The Cerulli Edge – Global Edition.
While Cerulli Associates, a global analytics firm, regards ESG ratings for funds as a creditable step toward improving the asset management industry’s ESG transparency and awareness, it also warns of the need for caution.
“Independent ratings will likely force managers to reveal more detail on the implementation of their ESG policies–those that fail to comply may suffer low ESG ratings, which may well result in outflows,” says Barbara Wall, Europe managing director at Cerulli. “However, these ratings may contain size or industry biases, therefore asset managers and asset owners should not unreservedly trust the accuracy or comparability of an ESG score.”
Cerulli expects that retail investors and private banks will be the main market for ESG funds ratings. “Although institutional investors are the primary drivers of demand for sustainable investment, they prefer mandates and bespoke solutions–thus generic ESG scores will be of little value to them,” says Wall.
Justina Deveikyte, a senior analyst at Cerulli, adds that rating agencies can produce very different ESG ratings for the same companies or funds. “It is therefore crucial that users understand the differences in the methodologies used by the agencies, and not blindly count on one ESG score,” she says.
Cerulli points out that a number of asset managers are launching sustainable funds across a broad range of asset classes, while ratings agencies are eyeing opportunities to provide ESG ratings for funds as well as for individual companies. “Rating agencies may well start partnering with data providers,” says Deveikyte, noting that Morningstar and MSCI recently introduced sustainability ratings for mutual funds and for ETFs.
Domestic consumption continues to be favourable but corporate investment is particularly weak, jeopardising the potential for economic growth in the US over the medium term. This is the view of Guy Wagner, Chief Investment Officer at Banque de Luxembourg, and his team, in their monthly analysis, ‘Highlights’.
US GDP data for the second quarter confirmed the continuation of stable, moderate growth despite economic activity being increasingly fragile. Domestic consumption continues to be favourable but “corporate investment is particularly weak, jeopardising the potential for economic growth in the US over the medium term,” indicates Wagner, and continues: “In Europe, political uncertainties have not so far led to an economic slowdown and growth is weak but positive.” In Japan, the government announced a new public spending programme to stimulate economic growth. In China, the short-term economic goals are reached on the back of public stimulus measures.
After the Brexit: Bank of England cuts interest rates At the Federal Reserve’s monetary policy committee (FOMC) meeting in July, the monetary authorities left interest rates unchanged despite the recent improvement in economic statistics and the stock market rebound since the British referendum. “There is still uncertainty over a second hike in key interest rates – following that in December 2015 – due to the weakness of economic growth. The flattening of the US yield curve since the start of the year could continue”, thinks the Luxembourgish economist. The European Central Bank is continuing to execute its planned programme of buying up debt securities from corporate and public issuers in the eurozone. The Bank of England cut the interest rates to 0.25% to offset the unfavourable economic and financial impact of ‘Brexit’.
Equity markets have fully recovered from Brexit decision In July, the main stock markets posted gains. Guy Wagner: “Paradoxically, the British decision to leave the European Union has had a positive impact on share prices due to the central banks declaring that they would introduce support measures in the event of unfavourable economic and financial repercussions from Brexit.” The recent improvement in US economic statistics also boosted risk assets. The S&P 500 in the United States, the Stoxx 600 in Europe, the Topix in Japan and the MSCI Emerging Markets (in USD) gained during the month. Given the central banks’ strategies to support equity markets and the lack of alternatives, share prices are continuing to rise despite less than encouraging economic prospects and a proliferation of political risks.
Euro appreciated slightly against the dollar In July, the euro appreciated slightly against the dollar. The recent improvement in US economic statistics helped the dollar strengthen slightly at the beginning of the month. But the Federal Reserve’s decision to leave interest rates unchanged subsequently put pressure on the US currency.
The Brexit lesson has been learned: political risk is here to stay, and should be treated with caution. The good news for the coming quarter, according to Gaël Combes, Equities Fundamental Analyst, and Florian Ielpo, Head of Macro Research in Cross Asset Solutions at Unigestion, is that growth across developed economies should be slightly better, as consumption should remain supportive.
Emerging economiesare still set on an improving trend and the combination of improvements in both sets of countries is an encouraging sign for financial assets correlated to growth. However, politics is not the only risk: China’s gigantic level of debt is a natural source of concern as well. Risks are not off the table, but the outlook for the quarter to come is slightly better than for the previous one. That will be contingent on central banks’ planning – but that is business as usual.
Growth in GPD per capita (left) and country shares in global GDP (right). Source: IMF and Unigestion
For now, the first of the potential market stress triggers is, naturally, political risk. There is a rise in anti-establishment votes across developed economies, reflecting the perceived failure of liberal capitalist economies to keep their promises of a better tomorrow. Globalization fears and a slower rate of improvement in standards of living have been two salient features of the past three years. Increasing wealth and income inequality or the migration scare are also factors in this new political situation.
The good old left and right parties’ political system is struggling to adjust to this new political map as populism no longer belongs specifically to one of the two sides. A similar situation has occurred over the past 20 years – the Greek Syriza party is probably the best example of all – but never did one of the 10 biggest countries show such an endorsement for an anti-establishment electoral proposal. Indeed, the Brexit vote shows two things: first, what has long remained a minority of unhappy voters using political extremes to show their disgruntlement may now become an actual governing force.
Second, it is also a demonstration to other countries – especially in Europe – that the vox populi can turn institutions upside down: “if they did it, so can we”, a message of hope for other dissident political parties. After the Brexit vote, the next political event to watch will be the Italian referendum in October and then the US elections in November.
The success of the Italian referendum is a condition for the current Italian Prime Minister Matteo Renzi not to step down from his current position: the vote will offer leverage against the political establishment, creating the temptation to express frustrations. It is not an event on the scale of Brexit, but it could be another hint of what is happening across Europe: Eurosceptics are on the rise.
The US election could be a more significant step in this process, and the battle stands a good chance to be close: wealth and income inequality are particularly strong in the US, and the social unrest that it creates is supportive of Donald Trump. This list of events will extend itself next year, with the French, Dutch and German elections. The Netherlands is a country particularly at risk, with the PVV party enjoying strong success: an eventful political perspective for the quarters ahead.
CC-BY-SA-2.0, FlickrPhoto: John Rudoff. What is the Millennials’ Impact on the Economy?
Most of us follow the same life cycle. We start out as children, then we become young single adults. We pass from student to working life, form couples, become parents, grands-parents and then retirees. At each of these stages, our financial behaviour evolves and adjusts to our needs of the moment. And when a large group of individuals undergoes these same shifts at the same time, the economy is affected. This is the case of certain generations that have brought about major changes in the global economy.
Generally speaking, says Fabien Benchetrit, senior portfolio manager at BNP Paribas, a generation is a sub-population whose members are more or less the same age or who have lived at the same time, and who thereby have had many common experiences. However, some experts take another approach to this and extend the baby-boom generation to persons born in the United States between 1935 and 1961, as seen in the graph below from the trough to peak.
Exhibit 1: This highlights the evolution of US births in millons
The baby-boom generation of 105 million individuals (not counting immigrants) according to the Census Bureau, had a major impact on the United States, which was unable to adjust supply to demand. For example, the job market was sluggish, with unemployment rising from 3.50% at end-1969 to 8.2% at end-1975. Likewise, the real-estate market underwent a boom until the 2000s, driven by all of those baby-boomers simultaneously buying property.
American families’ expenditures peak when the parents are on average 46 years old. In general, couples have their first child between 28 and 33. When their first child goes to university at age 18, parents’ expenses often spike, with tuition, room, board and related expenses. “The impact of baby-boomers’ heavier spending is visible in various economic indicators. The graph below highlights a close correlation between US equity market capitalisation (adjusted for the expansion in the Fed’s balance sheet) and baby-boomers that are 46 years old.” The expert writes in the company’s blog.
Exhibit 2: This graph shows how US births shifted and US market capitalisation occured
While demographics clearly affect the economy, there are other major factors involved, such as legislation, government policy, monetary policy, wars and geographical tensions, etc.
And, now, another generation that is just as important is emerging – millennials. Based on the same broad definition of a generation, millennials are individuals born in the US between 1976 and 2010 – a period of 34 years. So this generation of 136 million individuals (excluding immigrants) is actually larger than the baby-boom generation. This is also the first “digital” generation, i.e., born with the Internet. They trust social media more (e.g. Facebook, Tweeter, Instagram etc.) than they do companies. Their lives, in fact, revolve around social media.” Says Benchetrit.
“However, millennials’ impact on the economy is different from that seen with the baby-boomers. For one thing, they are a smaller portion of the population. While baby-boomers accounted for up to 57% of the US population US (in 1960), millennials made up 43% in 2014. In addition, they were born over a longer period than the baby-boomers were.” Says Benchetrit.
Millennials born before the first peak of births in 1990 have now completed their studies and started working. They are now numerous enough to affect the economy but conditions have not been in their favour. They arrived on the job market, carrying debt, in the midst of the subprime crisis in 2008. The US economy was resilient enough for them to find jobs, but those jobs were less well-paid and delayed their financial autonomy. In 2015, for the first time since 1960, 31.6% of young people aged 18 to 34 still lived with their parents.
Exhibit 3: This demonstrates the number of young adults (18-34 years of age) living with their parents
The behaviour of baby-boomers and millennials is having a clear impact on the economy. Nevertheless, financial markets are currently trading in a “demographic dip” between the baby-boomers, who are reducing their expenditure, and the millennials, who are not numerous enough to have reached their prime spending years.
“A better understanding of each of these generations’ behaviour will allow asset managers to create value, for example, by focusing on healthcare and pharmaceuticals as US baby-boomers get older.” He explains.
According to the blog, the managers could also try to identify new countries that have the same features as the United States at the start of the 1960s, i.e., those undergoing urbanisation and lightly indebted countries with economic growth similar to what the baby-boomers experienced and a population consisting of a high proportion of young, skilled workers who have put some money aside.
CC-BY-SA-2.0, FlickrPhoto: _TC Photography_
. Hedge Fund Managers See Opportunities in Europe
Preqin’s Q2 update on the hedge fund industry finds that economic uncertainty following the UK vote to leave the EU has created potential opportunities for hedge fund managers and, as a result, many more funds have launched focused on the region. Europe-focused hedge funds saw a large increase in the proportion of overall fund launches, rising from 1% of funds launched in Q1 to 16% of those incepted in Q2.
At the same time, UCITS-compliant funds accounted for 18% of overall fund inceptions through Q2, the highest quarterly proportion tracked by Preqin since the directive came into force. Given that UCITS funds are a key way for non-European firms to raise capital from Europe-based investors, it is a further sign of the growing interest that industry participants are taking in the region.
While long/short equity hedge funds remain the most common hedge fund vehicles in terms of both investor searches and new fund launches, CTA funds are being increasingly sought-after by investors. The proportion of fund searches issued in Q2 that specified CTA or managed futures funds was 22%, twice the proportion of fund searches issued in Q1. Despite this growing appetite among investors for the fund type, just 3% of new hedge fund launches through the quarter were for CTA vehicles, less than the proportion seen for UCITS vehicles (18%) or funds of hedge funds (7%).
Other Key Q2 Hedge Fund Launches and Searches Facts:
Launches by Strategy: Equity strategies remained the most common approach among new funds launched in Q2, representing 53%. The proportion of funds using a credit strategy rose from 10% of Q1 launches to 18% in Q2, while multi-strategy launches fell from 19% to 6% in the same period.
Fund Manager Location: North America-based fund managers launched two-thirds of all new hedge funds in Q2. There was also an increase in the proportion of vehicles launched by Europe-based firms, representing 28% of all launches, while Asia-Pacific-based managers represented 3% of fund launches.
Investor Type: Fund of hedge fund managers issued the largest proportion (18%) of fund searches in Q2, while wealth managers (17%) and private sector pension funds (12%) also accounted for notable proportions. After some high-profile redemptions, public pension funds comprised 6% of fund searches in Q2.
Searches by Region: Geographically, the proportion of fund searches has remained similar to Q1. Investors in the more developed markets of North America (40%) and Europe (45%) represented the majority of fund searches, while Asia-Pacific based investors comprised 7% of searches.
According to Amy Bensted, Head of Hedge Fund Products at Preqin, “the run-up to and aftermath of the UK’s decision to leave the EU caused volatility across several markets within Europe and beyond. Hedge fund managers have seen increased opportunities to capitalise on this turbulence, and more Europe-focused hedge funds have been launched by managers both in and outside the region. Although Europe-focused funds did not make the same gains as North America-or Asia-Pacific-focused vehicles in Q2, the ongoing volatility arising out of the uncertainty within Europe may provide opportunities for hedge funds focusing on the region to deliver some upside gains. More broadly, the appetite among investors for managed futures continues to grow, as investors seek products which can diversify their portfolio and add some downside protection over the coming months. Although these funds have seen some volatility in their returns over recent months, CTAs have performed more consistently in Q2 2016, and fund managers will be keen to show investors that they can offer uncorrelated returns and capital protection.”
CC-BY-SA-2.0, FlickrPhoto: Ainhoa Sanchez . Hedge Funds and Private Equity Managers Show a Growing Interest in ESG
Unigestion, a boutique asset manager with scale that focuses on guiding its clients with risk-managed investment solutions, has again surveyed the hedge fund and private equity managers it invests in to track their attitudes to ESG.
The survey showed that more hedge funds are considering the value of ESG, as last year 60% of hedge fund managers were ‘reluctant’ to consider ESG as part of their strategies, whilst this year only 53% of hedge fund managers were in the ‘no interest’ category1. 30% of hedge funds managers surveyed were actively incorporating ESG into their strategies.
Whilst there were a number of strategies represented in this sample, the clear leaders in ESG adoption were Arbitrage managers – 67% of which had an active ESG strategy. Tactical traders (including commodities, managed futures and global macro strategies) find it the most difficult to implement ESG into their investment processes because of the nature of the strategy
One of the managers surveyed, Winton Capital, explained that its approach to ESG encompasses broad initiatives such as sponsoring research prizes. In addition, its headquarters are a certified Low Carbon Workplace, one of only 8 in the UK.
Small and large firms also diverged in their approach to ESG. Whilst the survey showed that large firms are more likely to have in place a formal ESG policy than smaller firms, there are again exceptions. Arrowgrass Capital Partners has USD 5.9bn under management and has a strong ESG policy having partnered with an ESG data provider and a responsible investment consultant, and having its CEO and other members of the senior executive sitting on its ESG committee.
The survey also showed more hedge funds are becoming signatories to the PRI. Last year only 13% of hedge funds surveyed were signed up to the principles, whilst this year 20% had signed up.
As the practicalities of incorporating ESG into investment strategies is still a stumbling block for many managers, the PRI is spearheading a working group to create a standard ESG due diligence questionnaire for hedge funds.
Private equity managers are on the whole more advanced than their hedge fund counterparts in ESG adoption, and Unigestion has also seen a larger year on year improvement in this asset class. This year, 42% of private equity managers achieved ‘advanced’ or ‘leader’ status (up from 29% last year) and the proportion of ‘reluctant’ managers fell from 27% to 21%.
Eric Cockshutt, Responsible Investment Coordinator at Unigestion, said: “We are still seeing too many hedge fund and private equity managers dismissing ESG as a cost burden, incompatible with their strategies, or a mere marketing exercise. The experience of many managers however is that ESG adoption is both feasible and beneficial to clients and the company’s overall reputation for taking seriously its environmental and social responsibilities.
