CC-BY-SA-2.0, Flickr. KKR celebra su 40 aniversario
KKR celebrates its forty year anniversary with the launch of a new employee volunteer program called “KKR 40 for 40.”
Henry Kravis and George Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR, stated: “When we started this firm 40 years ago with three people and $120,000, our vision was to create a firm with a culture that rewarded collaboration and teamwork. Today that $120,000 is over $120 billion. We are more than 1,200 people strong and, with the support of our employees, we have been successful in creating that culture. We are proud of our evolution from a boutique U.S.-focused private equity firm to a global investment firm. Today we have multiple types of capital, allowing us to invest behind any idea, anywhere in the world. We have investors who trust us to find those ideas, and we are investing in themes that are solving some of the world’s most pressing challenges. And, most importantly, our work is supporting the goals of our many investors and their beneficiaries.”
KKR 40 for 40, or #KKR40for40, is a new employee benefit where KKR employees receive 40 hours of paid time to volunteer and give back to the organizations in their communities. Time is flexible and designed to allow employees to engage in meaningful ways for them and the nonprofits they care about.
“Because so much has been given to us over the years, we have decided that the best way to commemorate our entry into our fifth decade is to give back. Over the years, KKR employees have devoted thousands of hours of private time to non-profits and community causes. This work is just as important as the other kinds of work we do. During this year of our anniversary celebration, we hope our employees will take the time to give back to others in the same spirit of partnership, teamwork and excellence that has built this firm,” Kravis and Roberts said.
In honor of the firm’s anniversary, KKR also launched a letter, a video, and other related materials. In the letter, the firm notes that as of December 31, 2015, “we and our employees and other personnel have approximately $12.3 billion invested in or committed to our own funds and portfolio companies, and every single employee also owns our public equity. In short, we invest like owners… because we are owners.” Both Kravis and Roberts remain optimistic about the future.
You can read the letter and watch the video in the following link.
Photo: KayGaensler, Flickr, Creative Commons. The Miami Selectors Event is Brought to a Close with Debates on Equities, Flexible Strategies, and High Yield
The second edition of the Funds Selector Summit held in Miami, organized by Funds Society and Open Door Media, offered in its second and final day, investment ideas focused on equities with different perspectives (European Equities with long-only and long-short strategies, US Small Caps, European and Emerging Equities with a value investment approach), global High Yield and flexible strategies (in equities, fixed income and emerging market debt) of fund management companies Allianz Global Investors, Legg Mason Global AM, Schroders, Brandes, Edmond de Rothschild AM, and Aberdeen AM.
European equities are still the trend, both with long-only and long-short strategies. In the first area, Matthias Born, Senior Portfolio Manager of European Equities at Allianz Global Investors, presented a high conviction strategy focused on new ideas of structural long-term growth (with features such as structural growth, cost leadership, technology leadership, or a superior business model). The strategy (currently with 70 billion Euros in assets) is managed very actively and stock picking is a key factor because, in the long term, the growth style does not necessarily have to beat the market.
Allianz Europe Equity Growth Select is designed specifically to take advantage of the main strength of its investment team: the selection of securities with a bottom-up approach. The fund has the potential to evolve well in both bull and bear markets, where it shows resistance “due to stock picking and to the companies in the portfolio,” explains the fund manager. He normally invests in about 30-35 names, with a maximum position of 6% and a focus on the universe of European large and midcaps. As investment examples, Born spoke of companies such as Infineon, Inditex, Reckitt Benckiser, or Coloplast. The names he most overweighs in his portfolio are Infineon, Reckitt Benckiser, SAP, Hexagon, Prudential, Novo Nordisk, Ingenio, DSV, Legrand, and Richemont; by sectors, he favors information or industrial technology, while he has no exposure to utilities or telecommunications. By country, he is overweight in Germany, Denmark, and Sweden. The fund’s turnover is usually below 20%.
He explained that growth is the main catalyst for the performance of the portfolio, as it is what determines the long-term evolution of the shares. “In Europe, which will continue to experience an environment of low growth and inflation for years, it’s even more important to have such a long term strategy,” he said. The individual weight of each company is based on the level of conviction which reflects growth criteria, quality and valuation: “We seek high profits and price setting power,” says the fund manager. He looks to not being influenced by the benchmark and being agnostic as to countries and sectors; and also giving importance to SRI criteria. Normally, the companies in his portfolio do not pay high dividends because they use their capital for new investments.
One can also capitalize on the European stock market with long-short strategies. Mike Gibb, Product Specialist at Legg Mason Global Asset Management, spoke about a way to invest with a long-short strategy in the European market. He also showed how the Legg Mason Martin Currie European Absolute Alpha fund investment process, managed by Michael Browne and Steve Frost, is flexible enough to weather this market environment, while offering an attractive risk-return profile. It is a high-conviction directional strategy (not market neutral), which aims to capture two-thirds of the market upturns and only part of the downturns. The net exposure may vary between -30% and 100% and typically invests in between 40 and 70 companies (about 35 in the long portfolio− focusing on companies with great products and balance sheets, margin growth and innovation− and about 35 in the short− companies with declining margins and market share, poor balance sheets, poor management, low entry barriers…) all selected from a universe of 600 companies), and focusing on the mid-cap universe with a purely bottom-up approach.
The process includes quantitative and qualitative analysis, visits to companies (about 300 each year) and a thorough evaluation. “Fund managers try to identify changes at the company level and how these can affect their business and their stock price,” explains the expert. They also apply a macro-level filter with a system of traffic lights. Currently, he has a neutral vision of the asset, being neither too optimistic nor pessimistic.
“Volatility reigns in the markets and we try to capture returns while controlling risk and potential downfalls. The challenge is to capture the growth of companies in the region: Europe is a place with big companies but also with companies with problems and pressures on margins… and so the long-short concept works very well and helps to avoid problems and protect capital.” In his opinion, this strategy fits well into the portfolios.
Value style…
Meanwhile, Gerardo Zamorano, Emerging Markets’ Fund Manager at Brandes Investment Partners, also offered his perspectives on Equities, which his company manages from a value perspective and with strategies for the global stock market as well as emerging, European, or American markets. The investment process consists of three phases: analysis (by investment teams), valuations (investment committees make the final decisions), and portfolio construction (also the responsibility of the investment committees). With the conviction that in the long-term value outweighs markets and that with the current environment− after years of the style’s worst performance due to the financial crisis− there is great opportunity in this investment style.
In emerging markets, valuations are close to the levels seen on previous crises but, since then, there have been strong improvements in fundamentals. “The situation is much healthier than in the late 90s,” says the expert. Value had performed better than growth but since 2014, it has performed worse. Therefore, securities with this bias are cheaper than in the past. The Brandes Emerging Markets Value Fund invests in companies of all capitalizations, leverages overreaction to macro factors and negative feelings (e.g. political events) leverages the lack of understanding or coverage of individual firms ( “we explore all corners of the market “) and build concentrated portfolios that manage risk with conviction. They also include into their investment universe, companies from border markets and companies from developed markets with characteristics which are more similar to those from emerging markets. In total, they usually have between 60 and 80 names. Currently, some key overweights are in the consumer discretionary sector, Brazil, Russia and Hong Kong, and underweights in Taiwan, South Africa, China, or the information technology sector. They also like Panama.
In Europe, Zamorano also points out the attractiveness of valuations and opportunity in the Brandes European Value fund. Overweight in the oil and gas sector, food, and countries like Italy and Russia, while underweight in banks, health, and countries such as Switzerland and Germany. The fund includes investment in emerging European markets, currently at around 10%. Companies such as GlaxoSmithKline, Engie, Sanofi, BP and ENI are among its top 10 positions.
US Equities
There are also opportunities in US equities. Jason Kotik, Senior Investment Manager of US equities at Aberdeen Asset Management, spoke about investment in small caps companies. “Overall, the US economy grows at a slow pace, but good quality companies can be found. Two thirds of the economy is consumption and is in good shape.” Overall, companies are in good financial health and valuations are not too aggressive, says the expert. “We are not investing on the economy, but on the companies,” he reminds us.
Regarding equity flows, investors are wary after the rally experienced, but in that rally the small caps lagged behind the large caps. So valuations in the small caps are now more attractive. “Historically, small caps do better than large ones, and also usually perform well even in scenarios of interest rate hikes,” the fund manager pointed out. The reason: when rates climb it’s due to an improvement in the economy (higher growth and inflation) and the small caps usually have greater exposure to the US domestic economy. In addition, they can be protagonists in processes of M&A, usually with significant premiums, and have less coverage by analysts, giving advantage to active managers.
In the company, they believe that corporate fundamentals support this investment, they speak of a modest but positive macro scenario and believe valuations are fair. In a more volatile scenario, the dispersion has also increased and makes stock selection more important. For the expert, the markets will remain volatile given the upcoming elections in the US, the uncertainty about monetary policy and macro doubts, which can lead to some correction but can also benefit asset management companies like Aberdeen. “We like boring names in which the others aren’t interested,” says the expert, who expects returns around the mid-single-digit. With its strategy (Aberdeen Global-North American Smaller Companies Fund, which also invests a small part in Canada) is able to offer a better return than the market, he explains, both in bull and bear markets. Currently overweight in sectors such as materials, consumer staples, industrial, and communications services, he has a strong underweight position in finance and utilities.
In Fixed Income…
In fixed income, Wes Sparks, Head of Credit Strategies and Fixed Income at Schroders in the United States, explained the opportunity which credit, investment grade and high yield, represent globally. “We are optimistic in IG and HY but we must be aware that there has been a big rally in a very short period of time: the global high yield has risen more than 12% since February,” he reminds us. For this reason, and as far as fundamental and technical factors are concerned, the management company remains optimistic on the asset, but is somewhat concerned about its valuations. “The fundamental and technical factors of high yield are more positive than in investment grade debt, but valuations are less attractive than in February. It is even a faster recovery than the sell-off and usually it does not work that way,” says Sparks; hence his caution in the asset. “It’s not expensive, but there is no safety margin,” he adds.
But he insists that the fundamentals are positive: “The risk of default is not a widespread threat.” In the United States, he speaks of many fallen angels during the first quarter, which he sees as very attractive opportunities. In terms of flows, the management company uses extreme flows in funds as a contrarian indicator: if there is output, it coincides with strong sales and falling prices, which is followed by recovery. And there is support from long term investors: “In an environment of low interest rates, investors continue to seek profitability and high yield is one of the assets in fixed income with the highest potential. We are seeing demand for long-term investors, such as pension funds,” he adds.
The fund manager denies that there may be a strong sell-off in high yield from now on, but believes that investment grade debt, by presenting better valuations, can be a better place to be in the medium term, because it has not experienced such a strong rally in recent months. “Valuations are more positive, and the asset has a more diversified buyer base which supports the market,” he says, although he clarifies that he is confident that high yield will beat IG over a twelve month period. “We have confidence in both assets, the returns will be positive in twelve months,” he adds.
In his global HY fund (Schroder ISF Global High Yield), he is committed to companies with cash, good margins and profits, pricing power, and manageable leverage, and regarding the US, he speaks about domestic-market-oriented defensive sectors (not impacted by the dollar and commodities at low levels) such as health or gambling, or companies that benefit from low gas prices (restaurants, automotive industry….). The fund is underweight in sectors related to raw materials (energy, basic industries…) and sees more value in other sectors such as communications.
Regarding central banks, Sparks believes the Fed will not be very aggressive in its rate hike because it will take into account international problems, while central banks in Japan and Europe will remain accommodative. Treasury bonds will rise in the coming months, but not too much, he says. Regarding the risks, he acknowledges that the interest rate is higher in IG than in HY, denies a cycle of widespread defaults (it will be reduced to the metals, mining, and energy sectors, he believes) and believes the next cycle of defaults will be in two years, in 2018. Regarding illiquidity he says that markets must compensate for it.
Flexible Strategies…
Kevin Thozet, Product Specialist in the Asset Allocation team and Sovereign Debt at Edmond de Rothschild Asset Management, shared the company’s positioning of flexible and dynamic funds in Global Fixed Income, Emerging Fixed Income, and European Equities. “Flexibility is part of our DNA and we define it as active management and investment without restrictions. We seek opportunities wherever they are, and we are flexible to invest in different market segments and vehicles.” The company believes that with the return of volatility, liquidity shortages, and greater market movements, this philosophy is more necessary than ever to create value. Because, regardless of vision on markets, the key is to be able to adapt quickly to whatever happens, the company comments.
His global fixed income fund tries to beat the market and obtain absolute returns, and it can invest across the fixed income universe. As some examples of that activity and how they try to capture the opportunities, he explains that when tapering started in 2013, they invested on assets that suffered, such as emerging debt, because they had conviction; during the Chinese crisis last year, they built positions in convertibles to benefit from the rebound in November 2015; this year, with strong volatility and widening spreads on the government debt of Greece and Portugal, they saw it as an opportunity and increased exposure to Portugal. With regard to profitability, credit and public debt have been the largest contributors on an annual basis, but so have emerging debt and convertible bonds.
As for the company’s emerging market strategy− in UCITS format and domiciled in Luxembourg−, in the management company they have a contrarian and opportunistic approach without restrictions, are agnostic regarding benchmark, and are also able to invest in the entire universe (public and private debt). The largest position in the portfolio today is Ukraine (they see opportunities particularly in the corporate segment). Another conviction of the portfolio is Venezuela (with positions in both public and private debt): it’s not a commitment to its economy, but it does offer a very asymmetric profile between risk and return, says the fund manager. Also, an opportunistic coverage, although they are positive on emerging market debt, is investment in CDS in China. In 2013, emerging markets suffered heavy falls but the fund achieved positive returns.
The fund manager also spoke about the company’s flexible strategy in European stock market, which has some core, 60%, concentrated in equities with conviction, and above it, a hedge with derivatives to generate returns and reduce volatility and protect markets in case of falls.
CC-BY-SA-2.0, FlickrPhoto: masaru minoya. Can Japanese Stocks Rise Again?
With Japan now one of the worst performing equity markets this year, BlackRock’s Global Chief Investment Strategist Richard Turnill provides an updated outlook for stocks in the Land of the Rising Sun.
According to the specialist, Japanese companies’ inflation expectations have been steadily declining in recent quarters, amid an appreciating yen. Bank of Japan (BoJ) stimulus efforts this year – including an expanded quantitative easing (QE) program and a shift into negative interest rate territory– have failed to stem the yen’s rise and boost inflation expectations.
In his opinion, deflationary pressures have weakened market confidence in the central bank, and hurt Japanese stocks. Japanese equities experienced record outflows in April, according to BlackRock research based on exchange traded fund (ETF) flows, and Japan is now among the worst-performing equity markets this year in local currency terms, with the TOPIX index down more than 13% year to date, according to Bloomberg data.
Turnill believes that there are reasons to like Japan over the longer term, even as a strong yen contributes to Japanese corporate earnings downgrades. The “short Japan” trade looks increasingly crowded, Japanese stocks appear cheap (around 13x forward earnings) relative to their own history and to other markets, and Japanese corporate balance sheets in aggregate have low financing risk, BlackRock analysis suggests.
“We still hold a neutral view of the market, however. We believe monetary policy, the first arrow of Prime Minister Shinzo Abe’s “three-arrow” economic plan, isn’t enough to boost the local economy and market. The BoJ still has ammunition left to raise inflation expectations, including increased equity purchases, despite last week’s inaction. But we would need to see additional easing coupled with advances toward achieving Abe’s second and third arrows, for us to adopt a more bullish view of Japan. In the near term, we are awaiting credible fiscal stimulus aimed at paving the way for structural reforms. Over the longer term, we want to see tangible progress in labor reform and in cutting red tape for local businesses.” He concludes.
CC-BY-SA-2.0, FlickrPhoto: James Halliday. Roboadvisors Present Concerns when it Comes to Mis-Selling and Data Protection
Of the growing number of fintech innovations, robo-advisors will have the greatest impact on the financial services industry in the short- (one year) and medium-term (five years), according to a member survey by CFA Institute, the global association of investment professionals. An overwhelming majority of respondents, 70 per cent, consider that mass affluent investors will be positively affected by automated financial advice tools in the form of reduced costs, improved access to advice, and improved product choices.
The Fintech Survey, which measured the opinions of CFA Institute members globally, found it unlikely that automated financial tools will replace engagement with human advisors for institutional investors and ultra-high net worth individuals. The implication is that the tailored nature of financial advice to these market segments is not as easily amenable to standardized automation tools typically provided by robo-advisors. These groups of investors, with large portfolios and potentially diverse and complex investment needs, are likely to continue to favour personalised, human advice.
Respondents are most divided about the impact of financial advice tools on market fraud/miss selling and on the quality of service, with a roughly even split between respondents who believe that the growing prevalence of financial advice tools will exacerbate or diminish market fraud and miss selling. However, investment professionals made it clear that flaws in automated financial advice algorithms could be the biggest risk introduced by robo-advisors (46 percent of respondents, a plurality), followed by mis-selling (30 percent) and data protection concerns (12 percent).
Blockchain Technology
Additionally, the survey addressed the impact of blockchain technology, the distributed ledger that underpins virtual currencies, and which is being explored by financial services firms. The survey revealed that members thought that clearing and settlement, alternative currencies, and commercial banking are the top three areas which will likely be impacted the most by blockchain technology.
Commenting on the survey, Svi Rosov, CFA, analyst at CFA Institute, said: “FinTech is attracting increasing attention from consumers, investors, the investment management industry and regulators across the globe. Our survey confirms the intuition that rapid technological innovation has the potential to shape and even disrupt the asset management industry, but also reveals that investment professionals are not yet convinced that investors will be made unambiguously better-off.”
. The 'Funds Society Fund Selector Summit' Won Silver in the British Media Awards
The ‘Funds Society Fund Selector Summit’, produced by Open Door Media Publishing Ltd, picked up the Silver Award in the ‘Event of the Year’ category in the British Media Awards which took place in London on May 4th.
The event serves fund selectors in the US offshore market and is a joint-venture between Funds Society, the Miami-based publisher of the eponymous website and publication, and Open Door Media Publishing Ltd, the award-winning publisher of ‘Investment Europe’ and ‘International Investment’.
Nick Rapley, CEO of Open Door Media Publishing Ltd, commented: ‘We are extremely proud to receive this recognition for one of our premier events. The ‘Funds Society Fund Selector Summit’ is a fantastic event and the result of a unique collaboration between two leading financial media companies. We look forward to building on this success and to producing more conferences with Funds Society in the future.’
Alicia Jimenez, partner and founder of Funds Society, added: ‘.This event is the result of a joint effort between Open Door Media’s fantastic expertise as an event organizer for the asset management business and Funds Society’s deep knowledge of the Americas region. A combination that will hopefuly bear more fruits in the future. We are extremely greatful for this recognition’.
The latest ‘Funds Society Fund Selector Summit’ took place at the Ritz Carlton, Key Biscayne, Miami, on the 28th & 29th April 2016. Coverage of the event can be found at both www.investmenteurope.net and www.fundssociety.com
Barbara Freedman Wand, partner at Day Pitney has been selected as the recipient of the 2016 Boston Estate Planning Council Excellence Award. The Boston Estate Planning Council (BEPC) is a multi-disciplinary community of over 700 estate and wealth planning professionals. The award recognizes Freedman Wand’s significant contributions to the estate planning profession, and is the highest honor that BEPC can bestow upon a member of the estate planning community. The award will be presented at the BEPC Annual Gala on May 26, 2016 at the Fairmont Copley Plaza in Boston.
“I am honored to receive this award from my peers and proud to have been recognized for my professional accomplishments and service to the community,” said Freedman Wand.
Freedman Wand advises clients on sophisticated estate planning and the development and implementation of philanthropic goals. She also counsels private foundations and public charities on governance, compliance and planned giving programs. She is certified as an Accredited Estate Planner (AEP) by the National Association of Estate Planners & Councils, and she is a Fellow of the American College of Trust and Estate Counsel. Freedman Wand is a sought-after speaker, mentor, well-regarded author and she has served in numerous professional leadership positions. Freedman Wand also has substantial involvement in community betterment and philanthropic organizations. She is Chair of the Professional Advisors Committee at The Boston Foundation, which counsels the Foundation as it establishes, develops and maintains strong working relationships with the members of Greater Boston’s advisor community. Recently, she was elected to the seven-member Executive Board of Day Pitney.
Freedman Wand has been very active in the larger legal community, with a particular interest in fostering attorney development. She served as a member of the Massachusetts Women’s Bar Association’s Employment Issues Committee, which issued a significant report, “More Than Part-Time: The Effects of Reduced Hours Arrangements on the Retention, Recruitment and Success of Women Attorneys in Law Firms.” This report garnered national and international attention and has been used as a guide for improving attorney advancement.
Freedman Wand has also been selected as a Top Woman of Law by the Massachusetts Lawyers Weekly for her accomplishments in the legal field as a pioneer, trailblazer and role model.
MUFG Investor Services, the global asset servicing group of Mitsubishi UFJ Financial Group, has gained all regulatory approvals for its acquisition of Capital Analytics, the private equity administration business of Neuberger Berman Group, and the acquisition has closed.
The deal is part of MUFG Investor Services’ strategy to become a global industry-leading fund administrator and brings its private equity and real estate assets under administration (AUA) to $145 billion, and total AUA to $384 billion.
Junichi Okamoto, Group Head of Integrated Trust Assets Business Group, Deputy President, Mitsubishi UFJ Trust and Banking Corporation said: “The acquisition of Capital Analytics is another indication of our ambition and commitment to the fund administration industry and enhances our comprehensive offering in the alternative investment space. We look forward to leveraging the capabilities of Capital Analytics and providing a full market offering for both new and existing clients.”
John Sergides, Managing Director, Global Head, Business Development and Marketing, MUFG Investor Services, added: “The asset servicing and specifically fund administration landscape is changing significantly under the pressure of increased demands from regulators, investment managers and investors. This acquisition enhances our comprehensive private equity and real estate offering, for both general and limited partners, ensuring MUFG Investor Services is the ideal partner to support clients throughout the investment lifecycle. We will be making further announcements regarding our enhanced client proposition over the coming months.”
Anthony Tutrone, Global Head of Alternatives at Neuberger Berman, commented: “Our partnership with MUFG will continue to allow our clients to benefit from Capital Analytics’ best-in-class services that they and Neuberger Berman have come to rely upon.”
MUFG Investor Services has acquired all of Capital Analytics’ business and will provide a seamless transition for its employees and clients. Neuberger Berman funds will continue to receive administrative services from Capital Analytics; however, no funds or investment professionals will transfer as part ofthe acquisition.
CC-BY-SA-2.0, FlickrFoto cedida - Schroders. Schroders lanza el Total Return Commodity Fund
Schroders has announced the launch of Schroder Alternative Solutions Commodity Total Return. The new fund will offer commodities exposure with a flexible approach, allowing the team to take advantage of a wide range of opportunities, as well as limit downside risk.
The fund will invest in energy, agriculture and metals sectors worldwide and will adopt a highly flexible strategy which includes the ability to take short positions and the use of leverage.
The fund will be managed by Schroders’ commodities team, led by Geoff Blanning. Schroders has strengthened its investment resources in commodities in the past two years with the hiring of a Metals Fund Manager, a dedicated Commodity Quantitative Analyst and the inclusion of two highly experienced Global Energy Fund Managers from the broader investment group.
Geoff Blanning, Head of Commodities at Schroders said:
“Schroder Alternative Solutions Commodity Total Return will provide a flexible and low risk option to those investors who wish to re-establish their commodity market exposure following nearly 5 years of relentless price declines, as well as to those investors looking to participate in commodity markets for the first time. The fund will also appeal to those investors seeking liquid alternative investments run by an experienced and specialist investment team.“
John Troiano, Global Head of Institutional, said:
“Commodities as an asset class has had a difficult few years; however, there are encouraging signs that the fundamentals are now turning positive. The new fund is designed for investors who wish to participate in commodity markets to protect against the risk of inflation and invest in a potentially high return strategy, but who also wish to avoid the high downside risk inherent in a fully-invested approach.”
Schroders has a strong reputation as an active commodity manager, with a 10 year track record in actively managing a broad range of commodity funds for clients across the world.”
The fund is not yet registered for distribution in any jurisdictions. Subject to regulatory approval, Schroders plans to make it available to professional investors in Austria, Denmark, Finland, Germany, Greece, Norway, Spain, Sweden and the UK; for public distribution in Luxembourg, the Netherlands, Portugal, Hong Kong, Macau and Singapore; and to qualified investors in Switzerland.
CC-BY-SA-2.0, FlickrPhoto: Mohmed Althani. Emerging Markets, Japan and Fixed Income: The Favorites on the First Day of the Miami Fund Selector Summit
Current markets present significant challenges, but investment professionals are convinced that there are many opportunities to be exploited: Emerging Markets (both fixed income and equities), Japanese Stock Market, High Yield, Global Fixed Income from a flexible perspective, and Convertible Bonds were some of the strategies presented by the fund management companies M&G Investments, Matthews Asia, RWC, Carmignac, Henderson Global Investors, and NN Investment Partners during the first day of the 2016 Fund Selector Summit, organized by Funds Society and Open Door Media, and held in Miami on April 28th and 29th .
The opportunity which emerging markets currently represent became apparent during the event. Regarding equities, John M. Malloy, Fund Manager at RWC, spoke of a positive environment due to attractive valuations, the strong growth in some markets, and some other matters which represent a great investment opportunity in certain securities. “Valuations are not like those of the late 90s or the year 2000, but markets are cheap. And the most interesting thing is that when profit begins to recover, they’ll become even more attractive,” said the fund manager. Growth will also support this statement: “We see emerging markets as a growth opportunity: although this has been questioned in recent years, countries like India, Pakistan, the Philippines and some Latin American markets will offer higher growth than in many parts of the developed world, and at some point, the markets will recognize it,” he added. He believes that these markets are in good shape overall, and there are positive signs such as export growth, which had been declining for some time but have since stabilized and begun to recover; and the expert is convinced that the figures will increasingly improve.
In addition, some of the factors which play in favor of some companies are automotive industry technology, the growth of infrastructure (strong in countries like India, Indonesia, and Brazil) or media and advertising (with companies that are not expensive, unlike in the developed markets). The team is currently optimistic, especially with Asia, which has very strong fundamentals and higher growth rates, but also speaks of turning points in Russia and Brazil: “Brazil faces major problems and a great recession but everything can change and the market may rebound faster than you can think… as was the case with Argentina: one year ago no one spoke of the country and in six months the markets’ mentality had totally changed,” he explains. Regarding interest rate hikes in the US, he believes there will be one or two more this year but will not be a big risk in an environment where the dollar is stable and will perhaps weaken (does not cover currency); and he is also more optimistic with data coming from China, because “the pressure has dropped.”
His emerging stock market strategy (which includes up to 20% in frontier markets and in the most liquid part, now 12%), combines a top-down and bottom-up approach. It is index-agnostic, and has a very high active share, over 90%, and materializes in 50-60 names, in a diversified portfolio which is very focused on growth (their companies have the potential to see their profits grow by more than 20%). It is also biased towards large and mid-caps. And they can boast of beating the market in difficult years. The company launched the fund in UCITS format in December and he thinks it can now generate much interest, and they also recently opened an office in Miami. In frontier markets, he points out Pakistan’s potential, for its demographics, its reforms, its political stability and Chinese and IMF investments, and also points out the existing opportunities within the banking sector.
But before investing in emerging market equities, many investors are beginning to increase their positions in emerging market fixed income, both in hard and local currency. Claudia Calich, Fund Manager of Emerging Markets Bond at M&G Investments, pointed out the opportunity presented by that asset and its good current entry point: currencies have depreciated a lot and are stabilizing, although still the levels are low and exporters will benefit; low raw material prices have stopped their collapse, although importers and consumers continue to benefit (also, beyond the winners and losers of cheap oil prices, she is positive in countries that have adapted to current levels of oil, such as Russia. She is not positive about Nigeria). She also believes that there are opportunities in the currency area, leading her to increase its exposure in the portfolio. In her opinion, Central America and the Caribbean are the most attractive markets in which to invest to benefit from the recovery in the US…. Moreover, growth is more visible and that can change the negative perception people have of emerging markets versus developed ones.
When it comes to risks, she believes these have diminished: and so, she is now less cautious with Brazil than she was a year ago. On oil prices, the situation has also changed in respect to early in the year; China’s rebalancing has improved, although there are still challenges ahead…With regard to countries that are suffering from exposure to China via exports, she points out the adjustments carried out in many of them, mainly from Latin America, for example with adjustments to their currencies. Regarding the Fed, there have also been changes from the initial perception of four rate hikes this year. She believes that there will be one or two rate hikes during the remainder of the year (in June or July, and at the end of the year): If the Fed is forced to make more rate increases, the losers would be countries with large financing needs, such as Brazil, Turkey, and South Africa, and the winners would be those exposed to its economy-because the Fed would raise rates for a good reason, such as Mexico, Central America and the Caribbean, or Eastern Europe. Due to that exposure to the US and its recovery, she is comfortable with countries like Honduras, Dominican Republic, El Salvador, or Guatemala. In general, by countries, the fund is heavily overweight in Bulgaria, Azerbaijan, Paraguay, Guatemala, and Romania versus underweight in Malaysia, Poland, Turkey, South Africa, or Colombia, with less attractive valuations which do not compensate for risk.
On valuations, she believes these to be similar to those faced in the debt crisis in Europe, far from the highs, and which, in some cases, compensate for the risk taken. The fund manager has reduced exposure to credit− the chances of defaults have increased and compensate less for the risks taken, while she believes that if the correct names are chosen, it is still interesting− and has increased investment in the area of government debt in the fund, which can invest in both corporate debt and public debt, in both hard currency or local currency −local currency exposure has risen recently−. The fund manager is positive with the attractive valuations overall, but is cautious with some, such as some Asian ones, and the fund’s exposure to currency is currently around 25% in aggregate terms. In relation to flows in emerging markets, she believes that we will not see as many outflows as in the past.
As regards fund management, she considers it essential to adopt a flexible and active style, which is capable of seizing opportunities wherever they may be found (in credit or public debt), and to find the best ideas, using both interest rates and currency exchange, as well as credit, as profit drivers.
Japanese equities
Matthews Asia focused its presentation on Japanese equities: the management company has been investing in these assets since the mid 90s. The company tries to look at Japan as part of Asia, and they explain that Japanese companies are experiencing a lot of growth from other parts of Asia (e.g. the consumer and tourism sectors): with a long-term and growth approach, they try to find the best ideas in Japan, ranging from 50 to 70. “The economy presents many challenges in terms of growth, it’s not an attractive investment destination from that point of view, but there is great opportunity in Japanese companies,” says Kenichi Amaki, Fund Manager. “There are high quality growth companies and that’s why I invest there.”
The fund’s portfolio is focused on the best opportunities in the country: the fund manager looks for growth companies, understanding this concept in three ways: leading global companies such as Toyota; the “Asia growers” that capture the productivity growth and wealth in the rest of Asia −a game that, unlike in the past, can now be played and which has great potential−; and companies which are able to grow in the domestic Japanese market, capturing niches. The company focuses on growth companies in the country, all of them of great quality.
The expert also pointed out the onset of the country’s improved corporate governance, and the trend of returning cash to shareholders: “Changing corporate culture will take time, but it will improve; most companies already have payout ratios… and that’s one of the reasons to invest in the country,” he says.
Regarding the recent disappointment in the Bank of Japan’s monetary policy, the fund manager believes that the authority will wait to push its monetary policy to announce those measures together with other tax measures, “combining both will be a more powerful combination.” Market expectations have also risen and, he believes, the central bank awaits its opportunity when expectations are lower than they are now, in order to positively surprise the markets.
With regard to valuations, the fund manager stressed that Japan is the cheapest developed equity market. By sectors, he points out opportunities in healthcare and industrial, while he is underweight in consumer discretionary, materials, utilities and financial institutions (“there is much competition for loans, banks have no power to set prices,” says the fund manager, whose consumer discretionary underweight is due to the fact that the benchmark weight in the sector is concentrated in auto companies).
Fixed income opportunities
Keith Ney, Fixed Income Fund Manager at Carmignac Risk Managers and Fund Manager of the Carmignac Sécurité fund (which has never had a negative result in 27 years) spoke about the fixed income opportunity. During his presentation, he focused on the strategy of the Carmignac Global Bond fund, managed by Charles Zerah since February 2010. The fund has a flexible and opportunistic style with a focus on total return, seeking to beat the market with a strong focus on risk management and capital preservation. The asset manager has greatly increased its holdings of fixed income, which accounted for 23% of the portfolio in 2007, and now account for 60%. “The structure is very flexible and very quick to adapt to changing markets,” said the expert. Another of the fund’s key factors is a global universe, both as regards to geographies, as well as assets, which can take long and short positions (in duration, credit, currency… but the latter in a purely tactical way and for hedging purposes, as the fund is not a long-short). The fund’s duration can range from 4 to 10, so that they can benefit from rate increases. The idea is to exploit market inefficiencies to add value. The volatility is limited to 10%, and the fund has a negative correlation with other similar funds of its competitors.
Currently, in duration he has exposure to the US, Germany, Australia, and Switzerland and European peripheral debt in countries like Italy, Portugal, Bulgaria and Greece. However, he has slightly reduced his position in the United States because he advises that the market has perhaps underestimated future rate hikes in the country, but explains that the Fed is now more dependent on markets and global financial conditions than on economic data. In Europe, the activity of the ECB could be positive, although he believes that the corporate debt repurchase program will fail, to the extent that there are not enough debt securities to buy and the ECB will have to extend its purchases to the public debt of peripheral countries: hence its exposure to markets such as Italy.
In credit, positions are focused on sectors with very low prices, with an opportunistic view: the distressed raw materials segment− with many fallen angels− or CLOs. But the star position is on European banks, “still cheap and in deleveraging phase” and he points out the opportunity available in subordinated debt and CoCos, “a poorly understood asset which is a great opportunity from an opportunistic point of view.” In currencies, they currently have no great convictions: “We no longer hold the positive vision of the dollar which we had a few years ago,” says the manager. Carmignac will soon open an office with five people in Miami.
Henderson Global Investors also pointed out the opportunity in fixed income which High Yield credit represents from a global perspective: Kevin Loome, Head of US Credit, pointed out that High Yield spreads in the US do not signal a recession and that problems in the energy sector have been “contained”. “I do not think we’re close to the situation in 2008”, so the fundamentals are intact: “High Yield has been placed in a position which now represents an opportunity” in an environment of negative rates in many assets which increases appetite for this debt segment. “There may be a strong technical advantage in the coming years,” he adds. Finance companies have performed badly, he points out, and are disadvantaged by the policies of the Fed, but they don’t represent a large part of the high yield universe, he says.
On the asset side, he points out its higher returns overall, its shorter duration, and exposure to the upward rate cycle, low levels of default, a growing market in Europe and opportunities for stock pickers: “In my career I have never seen such great dispersion,” he explains, hence a good selection of credit can provide much value, which he applies to the Henderson Global High Yield Bond fund. In his opinion, the greatest opportunities are in High Yield and bank loans.
The fund manager also points out the importance of having a global High Yield strategy, and not just in the US, although it represents most of the market, and the management company has a bigger team in Europe and emerging markets than other companies. In fact, he sees opportunities in Europe for its better quality, less exposure to energy, and because the asset will benefit from the ECB’s policies in relation to the US market, where he is cautious. “We are now less US-centric because we see more opportunities in Europe,” he says.
With regard to defaults, they are low but they tend to rise especially in the US energy sector, in which Henderson is underweight.
Convertible bonds
Convertible bonds were also discussed at the event: Pierre Lepicard, of NN Investment Partners, brought the asset’s current status to the 2016 Fund Selector Summit. “The drought in Africa has consequences except for lions and crocodiles… that is what is currently happening in the markets: we live in a world with few returns and those who seek them have to leave their comfort zone, where they used to invest, and that is associated with risks.” For the expert, markets go through some fundamental changes: including that last year interest rates hit rock bottom, and that had consequences for investors.
“Convertibles are a way to take risk intelligently”, although it is important to choose a good fund manager. NN IP has the NN (L) Global Convertible fund to play the asset and obtain hedging in the bear markets while at the same time participating in bullish markets, focusing on selection from a thematic perspective approach, avoiding names which do not offer convexity, and the preservation of capital. Currently 95% of the portfolio is invested in 16 investment themes (especially “cloud computing”, health spending and the rebound in Europe) and 30 convertible bonds; the portfolio is neutral in credit risk and duration, and is slightly overweight to equity exposure (especially in the US and Europe).
The fund manager pointed out the benefits of convertible bonds from the point of view of diversification and talked about how well they have performed long term, both in markets where equities have had good results, and in those where they don’t. “These bonds will provide convexity, downside hedging, and diversification for both secure and risk assets,” he said.
Lepicard used a low profitability environment like Japan as a laboratory to see if this asset would work in a global environment of zero interest rates, like the current one … and it does work. In fact, in Japan, stocks are very volatile, bonds offer very low returns, and convertibles shine with good returns. And if rates rise, he says, the asset can provide good protection that can help both in a deflationary scenario as well as in another with rising interest rates.
“There are few assets that can work like that, offering profitability and diversification, reducing portfolio risk, while also providing hedging in an environment of rising rates”, he defended, and showed the advantages of portfolios which include convertible bonds versus those that do not.
Foto: Martin de Lusenet
. Dynasty Financial Partners contrata a un ex directivo de Google como director de Marketing
Dynasty Financial Partners recently announced that it has hired industry marketing veteran Gordon Abel as Senior Vice President, Director of Marketing. Based in New York and reporting directly to Dynasty CEO Shirl Penney, Mr. Abel will build on the firm’s success as one of the leading wealth management platforms for independent advisors. In addition, he will work with Dynasty’s Network firms on developing and growing their brands and marketing strategies.
Gordon Abel has had an extensive career working in financial services marketing at the highest level. Most recently, he worked at Google as Head of Industry, Financial Services overseeing the enterprise relationships for MasterCard and JPMorgan Chase. Prior to this role, he was Executive Director at JPMorgan Chase leading agency and strategic marketing partnerships as well as digital marketing across the firm.
Prior to joining JPMorgan Chase, Gordon spent five years as Director in various executive marketing roles for BlackRock/iShares and spent eleven years in agency management and marketing at Carat, Euro RSCG and SF Interactive as well as others.
According to Mr. Penney, “Dynasty recently passed the five year milestone and we are now ready for the next chapter in telling the Dynasty story. And, as the firms in the Dynasty Network grow, they also want to expand the visibility of their brands in their respective markets. Gordy has the vision, marketing expertise and leadership skills to take the Dynasty brand — and our Network teams’ brands — to a whole new level. We’re very excited to have him join the Dynasty family. We will continue to add high quality intellectual capital to help our clients enhance their experience with end clients and to grow their businesses.”
In this role, Mr. Abel will be responsible for all strategic brand architecture and marketing development for Dynasty Financial Partners. He will focus on leveraging new marketing platforms, technology and data to build awareness and heighten customer value across relevant channels. This will include driving engagement across the growing social media landscape, developing valuable thought leadership content for distribution, expanding efforts in mobile and video as well as optimizing website and search engine best practices. In addition, he will be the point person for all external marketing resource partners.
Mr. Abel said, “I’m honored and enthusiastic about joining fast-growing Dynasty Financial Partners and creating and executing a focused marketing strategy to expand our brand and grow the business. I saw this as a unique opportunity to help tell the story of the future of wealth management and to partner with some of the brightest entrepreneurial minds in finance in our community.”
