CC-BY-SA-2.0, FlickrPhoto: Roman Lashkin
. Why Investors Overreact to Market Corrections?
The short answer for Bernie Scozzafava, Diversified Fixed Income Portfolio Manager, and Dan Codreanu, Senior Diversified Fixed Income Quantitative Analyst at Eaton Vance, is that it’s human nature, irrational though it may be in many cases:
Loss aversion: Behavioral finance tells us that fear trumps greed. In other words, most investors dread losses more than they desire gains.
Recency bias: Recent events trigger hasty decisions, even when such events contradict longer-term trends or investment objectives.
Overreaction bias: Most investors place too much emphasis on negative, sensational news headlines, leading to indiscriminate selling.
Herd behavior: Investors take an “everyone is selling” mentality and follow suit because they fear being the last one to sell.
According to Eaton Vance experts, these all-too human tendencies were exacerbated by the 2008 credit crisis, which left many investors permanently scarred. This debacle, caused by massive losses on subprime loans, sparked the worst market collapse in more than 75 years. Although nearly eight years have passed since then, the carnage still remains fresh in investors’ minds, with many fearing that the next recession and market downturn will be just as bad.
“More often than not, such fears are unfounded. For example, there is growing concern (and press coverage) these days that bank loans to the energy sector could pose a serious threat to the economy and financial system – even though banks generally do not have excessive E&P exposure, are better capitalized and adhere to stricter counterparty risk measures than they did prior to the 2008 crisis”, point out Scozzafava and Codreanu.
Investors with long time horizons are best positioned to tolerate market volatility and earn attractive returns over time, but instead, many behave irrationally and sell during corrections to limit their short-term losses.
“Market volatility and corrections are many investors’ biggest fear. However, we believe a bigger fear should be missing out on the market recoveries that typically follow the corrections. Our research shows that when disciplined, data-driven investing gives way to biased, emotion-driven investing, portfolio performance suffers”, conclude.
“In the end, it happened and Europe will no longer be the same! Contrary to recent market expectations, the “Leave” camp won, leading to increased uncertainty over the future of Europe.” Matteo Germano, Global Head of Multi-Asset Investments at Pioneer Investments writes on his company’s blog.
After the unexpected “Leave” outcome of the U.K. referendum, they see conditions for a risk-off environment in the near-term. However, they believe that Central Banks are ready to act and their immediate focus will be to stabilize the markets and provide liquidity if needed.
Over the medium-term, uncertainties over the future of Europe and Central Banks’ reaction will dominate financial markets. Ultimately, Pioneer believes that the political and monetary policy response will be the major variables to manage an orderly Brexit.
The British vote has a massive impact on the geopolitical equilibrium, as it creates a precedent in the European Union (EU). Britain’s exit could trigger a surge of initiatives similar to the UK referendum. The elections in Spain and the constitutional referendum in Italy will be the next political events to follow to evaluate the strength of these centrifugal forces within Europe.
From a macro perspective, PIoneer believes that the victory of the “Leave” camp could increase the probability of the developed world being trapped in a low growth/low inflation scenario. “Fears and prolonged uncertainty in Europe following the vote could, in fact, hurt confidence and limit economic activity. A smooth management of the transition, which will take years to materialize, will be a key factor to avoid a deeper crisis that could hit the global economy.”
From a market perspective, the short-term impact of the “Leave” vote will result in increased market volatility and a further flight to quality. While over the medium-term, the focus will be on the political and monetary response.
Ken Taubes, Head of U.S. Investment Management, anticipates a rally in US Treasuries, while there may be a sell off of US high yield assets as well as emerging market assets, particularly driven by a perception that the demand outlook for oil will deteriorate in a risk averse environment. From a macro perspective, the negative economic impact of Brexit on the U.S. should be more limited compared to its impact on the UK and Europe. However, Ken Taubes expects reduced global demand due to a higher level of uncertainty and risk aversion. In his view, while the spillover effects on the US economy are unclear, it is possible that in the event of a significant negative economic impact, the Federal Reserve Board might consider other monetary policy options.
Moving to Europe, Germano and his team believe that the central banks’ immediate focus will be on stabilizing the markets, and to be ready to provide them with liquidity. According to Tanguy Le Saout, Head of European Fixed Income at Pioneer Investments, Brexit will cause a rally in German Bonds, accompanied by an under-performance of other markets, but especially peripheral markets such as Italy and Spain.
A sharp “risk-off” environment, accompanied by widening spreads in peripheral and credit markets could cause Central Banks to intervene. In Tanguy’s view, the monetary policy adjustments will be made, initially through measures of credit easing and broadening of the asset buyback program, but ultimately rate cuts may be implemented. On the currency front, the US dollar (USD) and the Japanese yen could benefit from the “risk-off” environment.
Equity markets are also likely to suffer a period of extreme volatility as investors digest the potential impact of the event. However, the presumed downward pressure on the sterling is likely to be positive for the earnings prospects for certain UK companies, given the predominantly international nature of their businesses. The view of Pioneer’s European Equity team, headed by Diego Franzin, is that the risk-off mode could be mirrored, with domestically focused Eurozone business models (financials for example) most impacted given the unknown ramifications of the decision on the Eurozone economy. In this instance, they suggest that investors consider keeping a cautious stance on the market, focusing on companies with a solid business model, while also being cautious on more domestically focused UK business models.
“From a multi-asset perspective, we prefer to keep a risk-off attitude, favoring “safe haven” assets such as US Treasuries. We believe that holding gold could be a natural hedge should the probability of a secular stagnation rise. We also continue to believe the Swiss franc should be favored versus the sterling, as it tends to behave as a safe haven currency, and we believe the USD could outperform the euro.” Germano concludes.
Hamish Forsyth, CEO at Capital Group for Europe. . "We Look Forward to A World Where It Is Clear The Investor Is Paying for Advice and It Is Not Being Bundled into Our Investment Management Fee"
The heart of what Capital Group has done for 85 years in the US is mutual fund distribution through financial advisors to individual investors and they want to do that in Europe and Asia as well. Hamish Forsyth, Capital Group’s CEO for Europe, explains in this interview with Funds Society his plans for the continent. Always, with a long-term view and being aware of the regulatory and political challenges: “If Brexit was to materialize, with modifications, the management company in Luxembourg could take on the role currently played by London”, he says. But he believes there are opportunities in Europe and Spain, specially for companies stable and conservative as Capital Group.
How do you assess the development of Capital Group in Europe in the last years?
We have been in Europe since 1962 and we have built, particularly through the 1990’s, a meaningful size institutional business; historically our focus has stayed on the institutional market. Since the financial crisis we have been working hard on a plan to develop a mutual fund distribution business. The heart of what Capital Group has done for 85 years in the US is mutual fund distribution through financial advisors to individual investors and we want to do that in Europe and Asia as well. We are physically present now in support to that mutual fund distribution business in London, Zurich, Geneva, Frankfurt, Luxembourg, Milan, Madrid, Hong Kong, Singapore, New York and Miami.
In which markets will Capital Group focus on in 2016 and which are the favorite ones for boosting its business?
This is like with my children, I have no favorite one.
The uncertainty because of elections in Europe and geopolitical risks (Brexit, elections in Spain, rise of populism in Austria): How could it affect to your business development strategy in Europe?
Let´s distinguish between portfolio impact and business planning impact. So, there are lots of things that could affect stock markets, bond prices, and I´m not worried about that so much, I am not a portfolio manager; I leave that to the portfolio managers. For me, as CEO, my focus remains on the factors that could impact our business development strategy. Obviously, Brexit is one of them. We have a strategy throughout the EU that it is based on our UK company and our ability to passport our services from the UK. And if the UK leaves, we presumably will have to find another way of doing that. We have a small management company in Luxembourg today that takes care about our funds (domiciled in Luxembourg) and if Brexit was to materialize, with modifications, that management company could take on the role currently played by London.
Political uncertainty mostly is not affecting our business planning but regulatory uncertainty certainly does. We are in an era of significant regulatory changes and we spend a lot of time thinking about that.
In the case of Spain-Iberia: How are your goals working since the office was opened?
We came to Spain in 2014 to stay. Our goals and measurements of success therefore go beyond AUM and sales objectives. Our initial objective was twofold: firstly, to get to know the local market and distributors needs better and secondly, for us to start introducing CG investment process and capabilities. We trust this approach will help us building a solid, balanced long term business in Spain which is our ultimate goal. 2015 was our first full year in Spain and we feel we have progressed well in our efforts to introduce CG in the local market.
How do you see the positioning of international asset managers in Spain? Are there opportunities?
We had a faster than expected progress last year, which was our first full year with the team in Madrid. Since then, we have also hired a dedicated marketing manager for Spain, so the team has grown. Like everybody this year has been harder; it has been a hard year for mutual fund sales across the board in Europe and our challenge continues to be to find really first class organisations we can do long term business with.
Another important thing to stress, is that now Capital Group is known for the right reasons. We are not only just one of the biggest asset managers in the world. Apart from that, we are very different compared to other big asset managers. In this sense, the feedback we are receiving from clients is very good. We received a very warm welcome from Spanish investors. We trust our investment philosophy and our conservative and long term approach fits well with Spanish investors.
We could say we are a slightly old fashioned, rather conservative asset manager. What we have seen over our 85 years is that people who come to know us well appreciate us greatly. We are not a firm which is necessarily going to dazzle you with star products, a star manager or an outstanding short term investment result because this is not what we are looking for. What we are looking for is long term sustainability of good investment results. This is something that people have to come to learn about us and part of Mario and Álvaro’s jobs in the ground. In this context, and given our way of managing money, it’s important that we present the firm and our investment process before we sell our products.
In the last years, many asset managers have entered Spain; do you think that the Spanish market is crowded now? Where is the market niche for Capital Group?
Yes, we think it´s a crowded market. In the short term, inflows in the Spanish market have attracted a lot of new asset managers chasing short term inflows. Our view is more long term oriented. We think there is a long term opportunity for asset managers in the Spanish market and, in particular, for stable, conservative international asset managers like us.
How many products are currently registered in Spain and which are your latest news? And which products will you bring in the near future?
All of our Luxembourg funds, which are about 20 products now, are registered for distribution in Spain. Spain is an important market for us. We are on the process at the moment of bringing to Europe a number of our long standing American mutual funds. This is the heart of our firm, the family funds called American Funds. In October last year we brought a global equity portfolio, the New Perspective Fund launched in 1964. This month we are bringing our oldest mutual fund, The Investment Company of America, a US equity fund with an 82 year track record which launched in 1934. And later this year we are bringing New World Fund, an all country fund looking to get exposure to emerging markets through multinational companies.
We will continue to bring American funds to Europe and they can be an important manifestation of what we were saying earlier about the long term sustainable nature of what we aim to do.
Are you planning to expand your Iberian team in the mid-short term?
As we mentioned early, we have hired recently a new country marketing manager, Teresa García. One of the goals of our local presence is to provide the best service and support we can to our clients and distributors. That´s what drives the size of the team and currently we are happy with the current size of the team.
Many people argue that the environment will become more complicated for asset managers in the forthcoming future, due to the margin compression, the increase in costs, new regulation, and competition from passive products… Which are in your opinion the most important challenges for the AM industry, especially for Europe, in the next years?
The first thing I would say is that I remain rather positive. Regulatory change has often been very helpful for asset managers, and for us as a firm; and the creation of the single European market for mutual funds, the UCITS directive has given international players like us the ability to distribute one fund cross border in many countries, this is an incredible privilege and one we have taken advantage of.
Regulatory changes have resulted on margin compression and lower fees. As a firm, we believe very strongly in the importance of good advice. We think investors have better financial outcomes when they have worked with a good financial advisor but as I said, in a way, we look forward to a world where it is clear the investor is paying for that advice and it is not being bundled into our investment management fee. A world eventually where it is clear who is doing what for what fee is positive for us as a firm.
The most important challenge for us as an active asset manager has to be results. Linking back with something I´ve said earlier, if fees come down, in the end, it makes it easier for us to do a good job of producing investment results after fees.
Some American and Canadian asset managers are coming to Europe and expanding their product ranges with UCITS products, is this a long-lasting trend? Why?
I think it probably is. If you want to expand as an asset manager and you’re based outside the EU, I think expanding in the EU is always going to be an obvious move because of what we said earlier about the size of the client field, and because of the ability to distribute one set of funds across multiple markets in the EU and beyond. The UCITS magnet as a place for people to start is pretty good. We are not part of the UCITS magnet. We arrived to Europe in 1962 and launched our first fund in Luxembourg in 1969, so our commitment to cross boarder distribution of mutual funds in Europe predates UCITS by a couple of decades. However I think this is an explanation for why so many fund managers are arriving now.
You recently hired a new sales person to cover NRC Markets. How are you positioning yourselves?
Regarding NRC regions, indeed we now have a team of two front line sales people, one based in New York and another based in Miami, covering the main NRC territories in the USA. So, we feel now we are one step closer to the market.
Foto: Eureka Hyman. Los inversores institucionales están creciendo sus exposiciones a alternativos
Institutional investors are seeking to allocate more of their capital to alternative strategies in a quest for strong returns in the low-interest-rate environment, according to a new study from BNY Mellon.
The report, Split Decisions: Institutional investment in alternative assets, produced by BNY Mellon in association with FT Remark, found that among the various alternative asset classes, private equity is most favored by institutional clients, accounting for 37% of their exposure, followed by infrastructure (25%), real estate (24%), and hedge funds (14%).
According to the study nearly two-thirds of investor respondents said that alternatives had delivered returns of at least 12% last year, while more than a quarter said the strategies had earned 15% or more.
“Alternatives continue to gain share in portfolios, but institutional investors are becoming more selective about where and how they deploy their capital,” said Frank La Salla, CEO of Alternative Investment Services and Structured Products at BNY Mellon. “As a result, they are demanding greater transparency from their alternative fund managers. This survey reinforces the notion that investors and fund managers alike will need growing levels of support, insight and data to make informed decisions.”
Key findings from the report include:
Thirty-nine percent of respondents say they will increase their allocations to alternative investment types, while just 6% say they will moderately decrease it.
When it comes to private equity investments, 62% of respondents say they will look for lower management fees and 55% say they will request more transparency as they seek to optimize value.
Distressed strategies are the most attractive when it comes to hedge fund allocations, with 68% of investors currently having exposure to them and 58% ranking them as one of the three most attractive strategies for the coming 12 months.
Fee pressure from investors is leading 78% of hedge fund respondents to say that they will consider reducing their management fees over the next 12 months.
Emerging markets, on average, now make up 31% of institutional investors’ alternative allocations. APAC-based investors account for the highest EM share at 54% of their alternative portfolios, followed by investors in EMEA at 29% and the Americas at only 16%.
“The continued growth in alternative allocations will be supported by a steady stream of new products and strategies as fund managers cater to increasing amounts of capital headed toward alternative assets,” said Jamie Lewin, head of product strategy and performance management at BNY Mellon Investment Management. “Innovation and adaptability will be two key differentiators that determine which firms succeed in capturing what’s become an integral part of institutional portfolios.”
In a historic turn of events, the UK voted LEAVE in this Thursday’s referendum. After the result, the pound traded at minimums of over 30 years, and markets worldwide experience a selloff, but that doesn’t mean there are no opportunities to make money in asset management.
“Markets had been expecting a Remain vote, which means that this comes as a nasty surprise,” says Lukas Daalder, Chief Investment Officer of Robeco Asset Allocation. “This will lead to a lot of volatility and uncertainty in the days and weeks ahead, with risk-off pressures at first taking the upper hand.” But more than this short term volatility, once the smoke lifts Robeco expects a medium-term correction of 10% in European stocks and a decline of the pound against the dollar in the order of 15%. For their Asset Allocation team the mandate is to reduce risk and manage volatility looking for stock-specific opportunities.
Which is in line with what Eusebio Diaz Morera from Spanish EDM, whose signature fund has a 27% exposure to British stocks, told Fund Society in Mexico “Brexit volatility is in the markets not in the companies, the conversation in the companies is short and they are not as affected. As long as you stock pick robust companies with high ROE and growth perspectives with a strong leadership, you should be ok.” In the Forex arena, Nestor Quiroz, founder of FFSignal liked the opportunities presented by the Japanese yen which parity saw a 16.6% movement in the first 7 hours.
According to AXA IM “Central banks are ready to inject liquidity – as much as needed in order to prevent any liquidity squeeze in any important market, starting with equities… to some extent, financial markets’ reaction may influence political reactions, in case of acute tensions, on periphery debt, or some key sectors of the economy, such as banks.” They believe that in the short term, economic growth and jobs are unlikely to be affected: “real economies are like super tankers – they are slow to react to political and financial changes. Yet, market and political developments will be critical. As for the former, if well targeted, they will reduce financial market volatility and limit the extent of contagion across countries and thus mitigate the impact on real economies.”
Prime Minister David Cameron has announced he will resign once a new leader is chosen. The next PM will have to ‘deliver the instruction’ given by the popular vote and activate Article 50 of the EU Treaty in order to initiate the two year exit negotiations and deal with a probably “LEAVE the UK” vote from the Scottish, which voted to STAY in the EU. However Amundi believes that “a large chunk of this chapter remains to be written. Neither the governments nor the central banks are helpless during the transition phase. Within the EU, the political response will come through close cooperation to align governments’ positions and obtain an “orderly exit” of the UK from the EU. Until now, EU countries have always managed to benefit from periods of stress to consolidate their institutions.”
For Marcus Brookes, Head of Multi-Manager at Schroders, Japanese equities, Emerging Market equities and gold look like interesting bets, while he expects to stay away from high quality bonds.
Interest rates are at record lows in the euro area, as a result of which investors can feel a great deal of pressure to achieve acceptable yields. This situation shifts their focus back to the countries of Central and Eastern Europe (CEE). “Central and Eastern Europe currently comes with more positive aspects than one might think. There are factors at play that might drive investor attention to this region in the foreseeable future,” says Robert Senz, head of fixed income fund management at Erste Asset Management. The risks are largely of a political nature, as the tensions with Western Europe with respect to migration, the possible Brexit, the Ukraine conflict, and the re-emergence of nationalistic economic policies suggest.
“In the coming years, the gross domestic product in the region is going to experience strong growth at rates significantly above the growth perspectives of the core EU states.” For 2016 analysts expect GDP growth of +3% and above for countries such as Poland, Romania, and Turkey. Hungary and the Czech Republic will be growing at more than +2% this year and in 2017 (source: Bloomberg consensus estimates). Even Greece, after years of crisis, is starting to recover and might show a significant sign of life at +1.6% next year.
On the bond markets investors can expect a yield of 3.5 to 4.5% against a stable political backdrop. With its purchase programme, the ECB contributes to a run on euro government bonds and corporate bonds. But as far as ESPA BOND DANUBIA is concerned, the central bank can only buy 4% of the bond universe. The risk is therefore manageable and is largely restricted to the geopolitical level. The low exchange rates of the local currencies support exports. “The increase in purchase power acts as driving force for domestic consumption”, explains Anton Hauser, senior fund manager of the East European fixed income flagship fund ESPA BOND DANUBIA. The level of debt of the East European countries and companies also support the case for the investment region. In contrast to earlier crises, for example in 1998 and 2008, the debt ratios are now not excessive. Current account and budget deficits in the region are low. Competitiveness is up. In the most recent location ranking by the World Bank, 10 out of 20 East European countries had improved, among them Poland, Russia, and Slovenia.
After the CEE equity markets lost more than 40% of their value post-Lehman in the past five years (in euro terms), a trend reversal has recently become more probable. The stock exchanges benefit from the recovery of the commodity prices, especially the oil price, which has almost doubled since its February low.
Russia: potential in spite of oil and sanctions Russia was most affected by the falling commodity prices, which came on top of the sanctions imposed by the EU and the USA. The GDP of the, surface-area-wise, largest country decreased by 3.7% last year. Even if the Russian economy will not be able to grow yet in 2016, the first indicators have started suggesting a recovery: inflation has fallen from its high of 16.9% (2015) to most recently 7.3%. We expect the central bank in Moscow, which reduced its key-lending rates only last week to 10.5%, to continue cutting rates in the coming months and thus to support economic growth.
Stock exchanges benefit from the comeback of the convergence story The stock exchanges in the area command comparatively attractive valuations. At a price/earnings ratio of 11.3x, the CEE equity markets offer a valuation discount of 25% vis-à-vis the stock exchanges of core Europe. “And although the estimated earnings growth in Eastern Europe is still not convincing, the potential is intact for equity investors”, explains Peter Szopo, head of equity fund management of Erste Asset Management in Vienna. While the indices are dominated by the energy and banking sectors, it is the strong influence of commodities that may have positive repercussions on the market if the commodity markets were to stabilise further and gradually recover. Some of the biggest and most profitable energy and commodity producers in the world are based in Russia. They have benefited a great deal from the depreciation of the country’s currency, i.e. the rouble.
Turkey: young population, young economy At a joint total of 74%, Russia and Turkey command the biggest weighting in the East European equity fund ESPA STOCK EUROPE-EMERGING. The Turkish equity market offers access to a rapidly growing, young economy with one of the best demographic developments in the world. The P/E is currently a low 7x.
Dividend yield clearly above European stock exchanges The relative attractiveness of the East European stock exchanges is also reflected in the dividend yield. East European companies are currently traded at an average dividend yield of more than 4% p.a., i.e. clearly higher than the yields in Europe (3.8%) or on the global emerging markets (2.8%).
Political risks remain in place The stock exchanges in Eastern Europe have not managed to de-couple from the global markets. There are still risks with regard to global growth, the interest rate policy from here on in (especially as far as the rate hikes in the USA are concerned), and the development of the local currencies. Investors will be monitoring the political development in Russia and Ukraine closely. At the end of the year, Russia will be holding parliamentary elections. Turkey and its constitutional amendments will draw a lot of attention. Lastly, there is Greece, where the debt crisis has not been fully overcome and no agreement with the IMF and the EU has been ratified yet. While the possible, albeit not likely, exit of the UK from the Eurozone (Brexit) would not have the same kind of significant effects on the CEE countries that it would have on Ireland, the Netherlands, and Germany, one would have to brace oneself for price spikes and volatility as well as for widening spreads in line with other financial centres, as Szopo points out.
As in the previous six years, XP Investimentos will hold its annual event for Latin American professionals working in the investment, asset management, and insurance industry. This year, the Expert event will be attended once again by Bernardo Amaral, Chief Executive Officer at XP Securities, the US subsidiary of the firm, which is the largest independent broker-dealer in Brazil, with more than 600 hundred employees and more than BRL 40 billion in assets under management.
Amaral joined XP Investimentos in Brazil, in 2007, as Legal and Compliance Manager. After seven years in the firm, he changed his residence to the United States, where he took charge of the business, becoming the Chief Executive Officer of XP Securities. In an interview with Funds Society, Bernardo Amaral talks about the contributions of the Brazilian firm to the US market, their growth strategies in the institutional business, asset management, and wealth management for HNWI and the company’s expansion plans in Latin America. Hereunder, his answers:
XP Investimentos developed a new concept of investment firm in Brazil, what can XP Securities bring to the US investment market?
XP Investimentos has a very strong company-wide business model that has proven to be extremely successful in Brazil. We are looking to replicate this business model with XP Securities in the United States. XP Investimentos brought to Brazil the concept of the one-stop-shop financial institution, where products are offered through a network of independent investment advisors. Until 5 years ago this concept was practically unheard of in Brazil. Through combining quality products and unbiased distribution, we have been able to attain impressive numbers. We can confidently say that we know what advisors need in order to be successful. The fact that XP Investimentos has 70% of all independent financial advisors in Brazil is proof that XP offers the tools and structure necessary to allow independent advisors to be successful. We are looking to bring these same concepts to the US. Despite the fact that US financial markets are mature in this aspect, we feel that there is room for new approaches and development. In the US there are still extensive opportunities in terms of our usage of available technology so that advisors can scale service. In Brazil, for example, XP created an intelligent CRM system that combines efficiency and intelligence, which allows advisors to service a large number of clients. On the operational side, another significant innovation was the creation of a tool in Brazil that allows XP to send messages directly to clients’ cellular phones, which is used to provide clients with investment opportunities and, with a simple response via text message, clients can take advantage of the opportunity being offered. We are evaluating the possibility of replicating these practices here. This is the challenge.
The first XP Securities office was opened in New York back in 2012, two years later the Miami office was opened, is there any difference in terms of business focus between the two offices? How big are the teams in each office?
We have approximately 25 people in each office for a total of 50. We just moved our NY office to a large space and we are doing the same in Miami. The main focus of the Miami office is the servicing of retail clients (mainly high net worth). On the other hand, the New York office services institutional clients, which includes both US clients trading in Brazil or throughout other parts of Latin America, or Latin American clients trading in the US or any other part of the world.
XP Securities has a focus on institutional investors in the US willing to enter Latin American markets, what capabilities are offered to this type of investor?
In relation to Brazil, we are able to bring American investors a flavor of what is going on in local markets through XP Investimentos and its team of economists and political analysts, as well as through corporate access (which allows us to connect non-listed companies and experts to international investors). Furthermore, we have excellent capacity for trade execution, as XP Investimentos is the largest broker dealer in Brazil in terms of shares and options traded on the BOVESPA.
In terms of Latin America, we have a team led by Alberto Bernal, one of the most respected strategists in the region, covering the various LatAm markets, which gives us an inside look at what is really happening in these countries. For 2017, we are looking at opening offices in different countries throughout Latin America which will effectively increase our capacity to absorb local information which is of high interest for our US investors.
What services are in highest demand by the US institutional clients?
In our view, clients are in search of fresh, up to date and objective information, the type of information that cannot be found in traditional research reports. We have been able to deliver this through corporate access meetings (XP Investimentos organized over 1,000 meetings in Brazil and 400 meetings in the US in 2016) and recently, through information specifically focused on the political world. XP Investimentos has recently opened an office in Brazil’s capital, Brasilia, and has hired a team of political analysts that offer minute by minute coverage, giving clients live updates and insights on what’s going on in the executive and legislative branches of government. At a time like this, when politics is the main driver of financial markets in Brazil, providing up to date political analysis adds significant value to our clients when making investment decisions.
Our clients covering Brazil and Latin America are also requesting a lot of two/three days bespoke trips where we assist them meeting with experts on different sectors of the economy, providing them with an opportunity to get a real local flavor on what is going on in the country. We have had trips to Brazil, Argentina etc.
You are also developing the wealth management division for Latin American clients in the US, which Latin American countries are you servicing?
XP Securities is servicing practically all of Latin America. In addition to receiving client referrals from XP Investimentos (which has approximately 150,000 active clients), we are taking advantage of a gap that we have identified in private wealth management segment in the US. In fact, over the past several years, American banks and broker dealers have been increasing their investment minimums in order to hedge their risk in Latin American clients as a result of problems experienced in Latin American countries. As a result, there is a significant number of clients that do not have an option of where to house their investments in the US. Additionally, there are many investment advisors/bankers that were let go as a result of the fact that a portion of their clientele had assets of US$ 250.000 to US$ 1 million, despite the fact that they also had a meaningful client base with assets from US$ 1 million to US$ 5 million. We are positioning ourselves to bring these bankers and investment advisors to XP and service their clients. We have exactly what it takes to service them: price, product and service.
What services are you offering to your wealth management clients?
In terms of products, we offer the industry standard such as equities, options, bonds, mutual funds, ETFs, structured notes and futures. Furthermore, we offer many non-traditional products such as hedge funds and private equity funds. For example, we were authorized to refer clients to 3G Capital, which offers highly sought-after and exclusive investment funds.
Another differentiating factor is what we call “Product Teams”. We currently have two main teams: one focused on equities and the other on fixed income. Each team is responsible for generating efficiency in their respective product in order to maximize profitability for clients. This structure is different than the industry standard where the trade execution desk assists advisors when a complicated client question arises. These teams work closely with our advisors, providing them information on flow, issuances issuers, etc., which facilitates advisors with clients.
Foto: 401(K) 2012
. Jim Lowe sucede a Tom Fritzlen en Oppenheimer Private Client Division
Oppenheimer recently announced the retirement of Senior Vice President Tom Fritzlen after more than three decades at the firm and the appointment of Jim Lowe as Fritzlen’s successor.
Jim Lowe,who will assume Fritzlen’s responsibilities as part of the senior management team for Oppenheimer’s private client division, has held executive positions at multiple wealth management firms. Most recently, Lowe served as a branch manager at Oppenheimer’s lower Manhattan branch, all while managing a successful investment advisory practice. He was also an executive director for Josephthal & Co. Inc., where he oversaw operations at 14 branch offices.
In addition to these changes, Mark Traffordand Todd Wiggins have been named branch managers of Oppenheimer’s Seattle and Atlanta branches, respectively.
CC-BY-SA-2.0, FlickrKen Nicholson, courtesy photo. Mirabaud AM: “Good Small Caps Can Provide Resiliency And Durablility Even In Difficult Times”
Ken Nicholson, PM for the European Small Caps Fund at Mirabaud Asset Management talks about the performance European small caps have had this year. “The market value of the companies in our portfolio is usually between €500m and €4bn. We find opportunities not just classic growth stories but also some restructuring and value ideas,” he points out in this interview.
What is the fund’s investment philosophy? To invest in 40-50 European small and mid-sized companies that will provide a strong investor return. The market value is usually between €500m and €4bn.
How has been the performance of European small caps this year? On average, the performance has been average but the better names would have provided a strong return. So your returns depends on good stockpicking. Our performance has been as well average, as the major trend in the market is.
How can the slow growth and deflation in Europe affect European small caps? Of course it is better to have a good economic development as this provides a strong tail-wind for all businesses. But our strong view is that good small companies can provide resilient and durable even in more difficult times.
Do small-caps look attractive versus large-caps? Not especially on valuation but forecasts are for a little higher growth for small companies. However it is important to be very careful in picking only the best stocks. Smaller companies often operate under less market scrutiny than their larger rivals and have lower liquidity.
Are riskier assets than large-caps? Smaller companies are usually considered more risky but this is the mentality of an asset allocator. There are many stock specific risks in every case. Just because the Banks were big and oil companies too didn’t save them from disastrous performance. You can find risky small caps but you also can find very safe and stable ones. Our job is simple …to pick the good small companies!
What are the reasons why investors should consider investing in the European small and mid strategy? In a low-growth world where there are few other good investment opportunities, we still find many great small cap names that offer good return potential.
Where are you finding opportunities? We find good names in most sectors and in most countries. Not just classic growth stories but also some restructuring and value ideas. The economic environment is not especially supportive but then it has also been a lot worse!
What do you expect for the next months? We seem to be in a low growth environment with the remnants of the financial crisis still not finally eradicated. Political risks are uppermost in investor minds, of course in Spain and also with the Brexit vote which could impact on the whole of Europe, not just the UK. Investor uncertainty is intense and this leads to market volatility. All this can provide opportunities to time a good entry point for investing in good small and mid cap companies.
Foto: Kecko
. Suiza se mantiene como principal destino de riqueza offshore en 2015
Global private wealthgrew sluggishly in 2015, with some markets seeing significant slowdowns, leaving wealth managers searching for innovative ways to meet the shifting needs of diverse client segments, according to a new report by The Boston Consulting Group (BCG). The report, Global Wealth 2016: Navigating the New client Landscape was released recently.
A Slowdown in Growth
Global private financial wealth grew by 5.2% in 2015 to a total of $168 trillion, according to the report. The rise was less than a year earlier, when global wealth rose by more than 7%. All regions except Japan experienced slower growth than in 2014.
Unlike in recent years, the bulk of global wealth growth in 2015 was driven by the creation of new wealth (such as rising household income) rather than by the performance of existing assets, as many equity and bond markets stayed flat or even fell. Assuming that equity markets regain momentum, private wealth globally is expected to rise at a compound annual growth rate of 6% over the next five years to reach $224 trillion in 2020. The number of global millionaire households grew by 6% in 2015, with several countries, particularly China and India, seeing large increases.
Offshore Wealth Management
The report says that private wealth booked in offshore centers grew by a modest 3% in 2015 to almost $10 trillion. A key factor was the repatriation of offshore assets by investors in developed markets. Offshore wealth held by investors in North America, Western Europe, and Japan declined by more than 3% in 2015. The annual growth of offshore wealth globally is expected to pick up through 2020, although at a lower rate than onshore wealth (5% versus 6%).
Among offshore centers, Hong Kong and Singapore saw the strongest growth (around 10%) in 2015. Offshore wealth booked in these domiciles is projected to grow at roughly 10% annually through 2020, increasing their combined share of the world’s offshore assets from roughly 18% in 2015 to 23% in 2020. Switzerland remained the largest destination for offshore wealth in 2015, holding nearly one-quarter of all offshore assets globally.
According to a global BCG benchmarking survey, an annual feature of the report, average revenue and profit margins declined for wealth managers from 2012 to 2015. This development underlines the need for wealth managers to seize the opportunities stemming from three major trends that have altered—and will continue to alter—the industry: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments.
Nontraditional Client Segments
The report says that two nontraditional client groups whose investment needs and size (population-wise) merit special attention are female investors—whose success as corporate executives and entrepreneurs (in addition to being the beneficiaries of inheritances and legal settlements) have raised their wealth levels significantly—and millennials (people born between 1980 and 2000), whose overall wealth accumulation is rising steadily. In 2015, women held an estimated 30% of global private wealth, with the share slightly higher in developed markets than in emerging ones. Yet just 2% of wealth managers surveyed by BCG said they considered women a specific client segment—fully investigating their investment needs and how they wish to be served—and had adjusted their service models accordingly. Similarly, 50% of wealth managers surveyed said they did not possess a clear view on how to address millennials in terms of service model, products, and overall approach.
