Asset managers offering China-focused funds to European investors will need patience in abundance as they await a recovery in flows after growth in the world’s second-biggest economy slowed and its stock market plunged, but the rewards will justify the pain in most cases, according to the latest issue of The Cerulli Edge – European Monthly Product Trends Edition.
The global analytics firm, accepts that some asset managers may have to axe certain products, while others will withdraw completely from China. However, it maintains that the recent turmoil should be seen as a cyclical blip.
“China, like the rest of Asia, continues to offer huge opportunities,” says Barbara Wall, Europe research director at Cerulli. “Granted, a 30% fall in three months in total assets under management of funds focused on the greater China region is unnerving but a long view is needed. China’s economy is on course to overtake the United States, while its population of 1.35 billion includes around 100 million retail investors, according to some estimates.”
The company notes that China’s unusually high concentration of retail investors is one of the factors behind the panic reaction to what is a slowing of economic growth, rather than a recession. Also, the Chinese government still has much to learn about how best to intervene in the market when things go wrong.
“China is uncharted territory, which means there are no easy answers. However, the fundamentals remain attractive. AUM data, along with share prices, looks much better when compared with five years ago than with three months ago,” says Wall.
The firm notes that despite suffering some setbacks in China, Deutsche Asset & Wealth Management, one of the biggest European investors in Asia, describes its stance on the country as “strategically overweight“. It is among those who view the situation as a “buying opportunity”.
Fidelity, one of the longest established players in Asia, has also run into glitches in China, but Cerulli believes the firm will be rewarded in the longer term. “With sizeable teams of analysts looking specifically at China, companies such as Fidelity are better equipped than most to pick the stocks that will bounce the highest from the recent fall,” says Brian Gorman, an analyst at Cerulli.
“Volatility is likely to linger, but the rewards will be high for those willing to play the long game. For some, this will mean closing certain products and returning to the drawing board, to come up with a better offering,” adds Gorman.
Funds Society joins the world showing its support for France after the terrorist attacks suffered in Paris on November 13th. Our thoughts are with the French people, and specially with the families and friends of the victims of the attacks.
Foto: Sheri
. Prudential IM pasará a llamarse PGIM y lanzará una plataforma UCITS en Reino Unido y Europa
Prudential Investment Management, the $947 billion investment management business of Prudential Financial, announced plans to change its name to “PGIM,” reflecting its position as one of the world’s largest asset managers and its deep expertise across a broad set of asset classes. The new name, effective Jan. 4, 2016, coincides with the expansion of Prudential Investment Management’s businesses around the world.
The company is also expanding its range of solutions and productsto address growing demand, especially among global clients, for strategies that help them balance long-term risk and return objectives across diversified portfolios. In this direction, it is establishing PGIM Funds plc, a UCITS platform serving the U.K. and Europe (Undertakings for Collective Investments in Transferable Securities). The platform enables its businesses to build beyond existing fixed income UCITS to include a range of funds across asset classes offered to both institutional and individual investors.
Its businesses operate in 16 countries on five continents and offer a range of products across asset classes, including public and private fixed income, real estate debt and equity, and fundamental and quantitative public equities. The business operates through a unique multi-manager model, with each asset class managed by a dedicated leadership team, responsible for investment and business performance, while adhering to the same global standards for controls, risk management and compliance. Several businesses will adopt the new name:
Prudential Fixed Income will use PGIM in markets outside of the United States where it currently uses the Pramerica name, beginning in January.
Prudential Mortgage Capital Company will be renamed PGIM Real Estate Finance globally in mid-2016.
Prudential Real Estate Investors will be renamed PGIM Real Estate globally in mid-2016.
Looking to meet continental European investors’ demand for focused exposure within the European equity market, Invesco launched two new funds. The new additions to their European investment platform are the Invesco Euro Structured Equity Fund and the Invesco Euro Equity Fund. Both funds are registered for sale in most of the countries in Continental Europe and offer investors two distinct approaches to tapping the potential of the Eurozone equity market.
The two funds follow the established investment process and philosophy of the Invesco Pan European Structured Equity Fund and the Invesco Pan European Equity Fund within a more focused investment universe, and can thus leverage on the success of these funds.
Commenting on the dual fund launch, Carsten Majer, Chief Marketing Officer Continental Europe, said: “The launch of these two funds continues to broaden and diversify our European investment capability. Given the current low-interest rate environment and with low and falling yields on fixed income products, we think that equity funds are likely to see continued strong demand, with Eurozone equities poised to profit from the continuing European economic recovery.”
The Invesco Euro Structured Equity Fund is managed by Alexander Uhlmann and Thorsten Paarmann. They can draw on the support of the Invesco Quantitative Strategies Team in Frankfurt whose investment philosophy is based on translating fundamental and behavioural finance insights into portfolios, through a systematic and structured process that combines these insights with rigorous control based on its proprietary risk model. The fund aims to offer investors the full long-term performance potential of Euro equities while aiming to control the volatility normally associated with equities.
Thorsten Paarmann commented: “In the current market environment, we believe that the case for low-volatility investing remains strong. The fund’s defensive approach to the market and intended low correlation with the benchmark and its competitors aims to offer an efficient risk/return profile and to help preserve wealth particularly during periods of economic stress.”
The Invesco Euro Equity Fund is managed by Jeff Taylor and the Invesco European Equities Team in Henley-on-Thames. The team’s long-term investment approach seeks to capitalise on valuation anomalies in the market, with the benchmark considered to be more of a point of reference as opposed to a determinant of investment decisions. By not favouring any one particular investment style, the fund can take advantage of what we believe is the best mix of individual risk/reward opportunities in the market, at any point in time in whatever stock, sector or country they are to be found.
Jeff Taylor commented: “While the fund can potentially offer attractive alpha in strong equity markets, its flexible approach and valuation focus aim to deliver attractive performance under most market conditions.”
Kenneth Akintewe is a portfolio manager on the fixed income Asia Pacific team at Aberdeen, responsible for the local currency interest rate strategy. The team is one of the largest dedicated Asian fixed income teams, managing approximately US$4.5 billion in assets. The team of 27 professionals, who are based throughout the region, has been managing Asian fixed income portfolios since 1997 and first got a Foreign Institutional Investor licence specifically for the Indian bond market in 2007. In this interview Akintewe goes over the progress on reforms in India.
Are you happy with the pace of reform in India?
We would like to see reforms move forward as quickly as possible – new land acquisition legislation is crucial – but we’re also aware of the magnitude of the task that faces Prime Minister Narendra Modi and his team. While there have been setbacks (such as a defeat in local elections earlier this year) we’re encouraged by progress that’s best described as “slow and steady.” Sure, some of the more ambitious reform legislation hasn’t been approved yet, but since Modi became premier last year, some 47 bills have been passed into law by Parliament and the administration’s commitment to reform remains unshaken. Not all of those bills would have been linked to the reform agenda, but this statistic shows that things are getting done despite political opposition in the upper house of Parliament. Beyond the headlines, quiet progress has been made on the devolution of economic power to state governments and on improving policy coordination between the capital and the regions. That’s in addition to measures to boost government efficiency and streamlining the approval process for infrastructure projects.
Can we see the benefits of reform in the economy?
The economy is in much better shape than it was even a couple of years ago – inflation is down, as are interest rates, and fiscal consolidation remains on track. Foreign exchange reserves of more than US$350 billion are at record levels and the rupee has seen better performance versus the majority of G104 and emerging market currencies. While the country has been a key beneficiary of the windfall gains from cheaper oil, policymakers have also taken the initiative to reduce fuel subsidies (subsidies for diesel and petrol were abolished, although those for liquefied petroleum gas and kerosene remain). The number of stalled investment projects has been declining as the government continues to try and clear the backlog that built up, while the value of new projects has been increasing. Foreign direct investment has also been on the rise. There are, of course, good reasons for caution. For example, corporate earnings have disappointed and many companies aren’t yet confident enough to invest in their businesses.
Why is infrastructure so important?
Decades of under-investment means India has appalling infrastructure. This is a major obstacle to the nation’s growth ambitions, especially if the country wants to become a manufacturing hub like China. Even a casual visitor will quickly realize that there is a desperate need for more of everything – better roads, modern railways, efficient ports. Power outages are a regular feature of daily life. Therefore, some of the most ambitious elements of the reform agenda are linked to infrastructure development. However, making this happen will mean changes to the law that have run into political opposition. From a fixed income investor’s perspective we think there are opportunities in the energy, power utilities/transmission and railways sectors. To start with, public spending will do the heavy lifting as private sector investment remains weak. If the government can harness the savings from lower oil prices (plus scale back fuel subsidies) and invest that money into public works, this could spur more investment from the corporate world.
Isn’t red tape still a problem?
Excessive, incompetent and/or corrupt bureaucracy is notorious in India. But this government is well aware of this and has been quick to address the problem. For example, Modi quickly clamped down on chronic absenteeism in the civil service and ordered the country’s so-called “babus”5 to tackle the backlog of work that was gathering dust in many government offices. There have been other administrative measures to improve government efficiency.
Why do local currency bonds look attractive?
In an unprecedented move, the Reserve Bank of India has started to target inflation as a key component of monetary policy. If reforms are successful, this could lead to a structural decline in inflation over the long term, which will likely drive down local currency bond yields. We believe Indian bonds pay an attractive yield even as the country’s economic prospects improve. Credit rating agency Moody’s Investors Service revised India’s sovereign outlook to “positive” from “stable” in April. Despite a year-long rally, 10-year sovereign bonds yield around 7.7%, while corporate bonds can yield some 60 to 140 basis points (bps) more than the government benchmark. Another attraction is the low degree of correlation with other bond markets. That’s because quotas and other market restrictions mean foreign participation is minimal and therefore this market is largely insulated from changes in foreign investor sentiment. The rupee, a currency that we think is undervalued, should continue to exhibit better stability and deliver better performance than a large number of other global and emerging market currencies. Meanwhile, central bank governor Raghuram Rajan has plenty of room to cut interest rates once there is greater clarity on issues such as the timing and impact of U.S. Federal Reserve (Fed) interest rate normalization, the direction of global commodity prices and the monsoon rains in India.
What are the key risks for investors?
Investor sentiment may be damaged if the reform program loses momentum in the face of stubborn political opposition, while lingering uncertainties over the tax liabilities of foreign investors are also unhelpful. After years of unproductive investment, state-owned banks and other companies have limited capacity to support Modi’s reforms. Inflation (which is largely driven by factors outside the control of Indian policymakers) could bounce back, particularly if there are unfavorable monsoon conditions that negatively impact agriculture. Meanwhile, investors need to be more careful when selecting so-called “quasi-sovereign” government-linked credits. A rush to find proxies for sovereign debt means some investors may have overlooked important differences in government-ownership levels and/or company fundamentals.
Foto de Asian Development Bank
. ¿Cuál es el impacto del calentamiento global en los portafolios de inversión?
Less than one month before the United Nations Climate Change Conference in Paris, Cop 21, climate change is a topic gaining traction as a global policy initiative, a key risk factor and an emerging investment theme.
Cop 21’s goal is to achieve a legally binding agreement to keep global warming below the threshold of 2 degrees Celsius, the level that most scientists say is a critical one. This may pave the way for policy shifts that could ripple across multiple industries. The resulting regulatory risks are becoming key drivers of investment returns. In addition, more and more clients are expressing their interest in assessing climate risk in portfolios in order to reflect their values and deliver a long- term positive impact on the world.
Thus far, most countries globally have pledged to reduce emissions after 2020. China has committed to lower from 60% to 65% of its emissions intensity by the year 2030, and in Latin America, México and Brazil expect to lower their emissions by 22% and 37% respectively by the same time.
Things are changing for corporations and markets too. Today, some international financial regulators appear to be moving towards ultimately incorporating an assessment of climate risk into accounting standards. Securities markets also evolving to include emissions trading and green bonds, enabling investors to limit carbon exposures in portfolios and direct capital to projects that reduce emissions. In the corporate world, environmental, social and governance (ESG) factors, which are a way to promote sustainability, are also becoming a mark of operational and managerial quality.
What are investors doing to adapt portfolios?
Across the world, institutional investors managing $24 trillion in assets signed the Global Investor Statement on Climate Change in 2014. In it, they committed to manage climate change risk as part of their fiduciary duty to clients. Impact on sustainability can be achieved in three ways:
Prevent: Screen out securities that do not align with their values, such as those of issuers in the fossil fuels, tobacco or arms industries. Norway’s parliament, for example, has voted to divest coal assets from its sovereign wealth fund.
Promote: Focus on companies with strong environmental, social and governance (ESG) track records and integrate ESG factors into the investment process. Sustainable investment portfolios are an example.
Advance: Target outcomes that have a measurable impact on the environment. Examples include direct investments in renewable or energy-efficient projects and green bonds.
The rise of the importance of climate change considerations is impacting the way investors think about their investments and portfolios. And, as regulatory frameworks harden and/or the impact of climate change on the environment becomes more apparent, asset prices will be likely impacted.
Yet, many of these potential outcomes (think for example, of the long term effects of greenhouse gas emissions) are harder to predict and therefore to price in. Insurance companies have been at the forefront of climate risk pricing given their exposure for example to natural disasters, but many equity and credit investors still ignore this risk when building portfolios.
Admittedly, this has not been historically necessary. When looking at monthly returns over the last 20 years in the MSCI World Index there has been no climate change risk premium for equities. But the future might be different from the past in this case, and as client’s requests evolve and the regulatory burden increases, impact considerations may become more important in investment decisions. This is not only about ‘doing good’, it’s also about investing in companies that evolve with market trends, are able to adapt their businesses to future challenges and often have more engaged and productive employees.
This material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator in any Latin American and Iberian country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.
. Fund Society's "Fund Selector Summit Miami 2015" Event, Nominated for “Launch of the Year” at the PPA Connect Awards
PPA Connect Awards has shortlisted the Fund Selector Summit Miami 2015, held at the Ritz Carlton hotel in Key Biscayne and organized by Funds Society in collaboration with Open Door Media, for the “launch of the year” award The presentation of the awards to the winning finalists will take place on December 7th in London, where the community of professional events’ organizers granting the awards, have their headquarters.
Funds Society’s Fund Selector Summit was the first event organized jointly by Funds Society, an online reference publication for the US Offshore market’s professional investors and Spanish language magazine distributed quarterly in the United States, and Open Door Media, publisher of a magazine for professional investors in the UK and an experienced organizer of events for financial professionals, in several European countries.
The union of the two parties has shown itself to be a perfect tandem as 11 international fund management companies sponsored an event which was attended by more than 50 fund selectors in May 2015. Throughout the two days, meetings were held between small groups of buyside professionals and a fund manager from each of the sponsoring institutions. There was time for presentations, questions, coffees, talks, exchanging business cards, cookouts in the hotel grounds, and to enjoy an excellent presentation by Javier Santiso.
The celebration of Funds Society’s Fund Selector Summit 2016 has been announced for the 28th and 29th of April at the same venue, and organizers hope to repeat last year’s success.
Thanks to all the sponsors who supported the event for making this possible: Amundi, Carmignac, Goldman Sachs Asset Management, Henderson Global Investors, NN Investment Partners, Lord Abbett, M & G Investments, Matthews Asia, Old Mutual Global Investors, Schroders and Robeco.
Photos of the first day of last year’s event are available through this link and those of the second day through this other link.
CC-BY-SA-2.0, FlickrPhoto: James Jordan
. Credit Suisse: “The US Federal Reserve May be Able to Hike Rates in December 2015”
In his monthly Investment outlook, titled “Global economic stabilization more likelythan a further slowdown,” Björn Eberhardt, Head of Global Macro Research at Credit Suisse, states that the US FED may be able to hike rates in December 2015, while other central banks, such as the European and Japanese ones, may still announce further easing.
Eberhardt points that “The global economic outlook remains very uncertain. However, recent activity data on a wide range of economies has supported our expectation that the global economy is unlikely to slow further.”
Adding that the latest US data has also been relatively stable overall despite some signs of softening. Q3 GDP data is likely to show weaker growth compared to Q2, mainly due to weakness in trade. “Looking ahead, although business surveys have been weakening, consumer confidence remains very high, indicating that private consumption is likely to continue to be the main growth driver. And while payroll growth weakened in August and September, other labor market measures point to still very good conditions,” he says.
Based on solid domestic conditions – Eberhardt explains,the US Federal Reserve has good arguments for a first rate hike in December, “but the timing remains very uncertain. In our view, financial market pricing that virtually rules out a December hike has gone too far.”
Despite the fact that economic momentum in the Eurozone has, if anything, been somewhat more robust than in the USA Credit Suisse believes that the European Central Bank (ECB) may nevertheless have to announce further easing, “mainly because the outlook for Eurozone inflation remains very subdued and inflation expectations have weakened again.” As is the case in Japan. Eberhard believes further easing from both Central Banks might come as soon as this year.
Lastly, the expert states that when it comes to emerging markets and despite weak data, “the situation in major emerging markets has shown some signs of stabilization.”
Pioneer Global Asset Management and Santander Asset Management will be combined later in 2016. The Asset Management units of Italian UniCredit and Spanish Santander have signed a binding master agreement to create a leading global asset manager that will have around 370 billion euros (alomost $400 billion) in assets under management.
According to a UniCredit statement filed at the Borsa Italiana, the binding agreement to combine Pioneer Global Asset Management and Santander Asset Management follows the conditions announced on April 23rd, in which it was stated that the resulting company would be called Pioneer Investments, and have an estimated valuation of 5.4 billion euros ($5.8 billion).
Juan Alcaraz, CEO of Santander Asset Management, would be in charge of the new entity, while Pioneer’s current CEO and CIO, Giordano Lombardo, will become the company’s new Global CIO.
The new manager will be owned by UniCredit, Santander and the private-equity funds Warburg Pincus and General Atlantic, which already own half of Santander’s asset-management business.
As the next step, the parties will be seeking the necessary regulatory and other approvals in many of the markets where the two firms have a presence.
Photo: Piergaetano Iaccarino is the Head of Thematic and Disciplined Equity at Pioneer Investments since January, 2012. Pioneer Investments’ Iaccarino: Growth Exists, Although it’s "Hidden"
Even if Pioneer Investments is more positive about China than the consensus, the firm believes growth must be found in other markets. Piergaetano Iaccarino, Head of Thematic Equity for Pioneer Investments, shared his thoughts at the investment forum “Embrace New Sources of Return” held recently in Miami: “China is shutting down one of its economic engines, and starting another.” This transition from fixed investment, exports, and government control, to an economy oriented to domestic consumption, services, and the private sector, will take time, but in China “there are still available instruments” claims Iaccarino referring to the forex exchange controls.
Debt and Deflation
Iaccarino determines that in the coming years, growth will be higher in developed economies, “where we are seeing a better growth outlook than for the 2007-2014 period. In emerging markets, the situation is reversed.”
Economies operate in an environment ruled by two major trends: financial leverage and deflation. “Nations do not only face the repayment of outstanding debt, but also their obligations to pay pensions and health costs of a population which is ageing quickly.” Japan is not the only country with this problem, the United States has a similar debt level once these future obligations are incorporated, “and the emerging markets are not immune to this problem because they have doubled their debt in recent years, with half of that debt issued in hard currencies (euro and dollar).
The other major trend mentioned by the expert is deflation, which represents an added problem for the most indebted countries. “Central banks of developed countries do not have the rate cutting tool readily available; They can print money (QE) or manipulate the exchange rate,” although the effectiveness of these measures is questionable.
So, Where is Growth to be Found?
“Growth is ‘hidden’. It exists but it’s hidden,” claims Iaccarino. The United States, with the strength of its labor market, represents an opportunity. Employment generates consumption, to which a favorable demographic picture must be added. “Perhaps the only negative point in the US is political, with the uncertainty arising from the elections next year.” Even the exposure to exports towards China is correct, as they are not as relevant, representing 1% of GDP, but the trend is growing, however “and the Fed knows it, so that the evolution of the Chinese economy weighs increasingly in monetary policy decisions in the United States.”
According to the expert, Japan represents the eternal promise. “Fixing Japan always takes longer than expected. Culturally, the process of reaching a consensus is painfully slow, but once matters have been clarified, action is usually rapid. “The reforms presented by Shinzo Abe are now in full debate in Congress. The TPP (Trans-Pacific Partnership) is very important for Japan, which will have to introduce certain reforms touching on immigration and corporate governance. “In this regard, it has already achieved a lot, with a penetration of 50% of independent board members in listed companies, compared with 16% a few years ago. Valuation and momentum support investment in Japan. “
Should Emerging Markets be Avoided Entirely?
While it’s true that emerging markets will see less growth, they should not be avoided entirely. “Some countries are more vulnerable than others to external shocks. We must find countries with good foreign exchange reserves and a healthy current account balance. You need to be very selective, “claims Iaccarino.
Another factor to consider is the credibility of reforms and the stability of the institutional framework. “India and China are in a much better position than Russia and Brazil.”
What to do?
Perhaps the key to medium-term positioning is to manage volatility. “Volatility is increasing, especially the volatility of volatility, creating stress in the market. Volatility becomes a risk if you are forced to sell in times of high volatility; however, if you do not have that time pressure to sell, it becomes an opportunity”.
Volatility feeds on a number of factors: the debt deleveraging process, an environment of below potential growth, in both developed and emerging markets, also coupled to the central banks’ lack of tools. In turn, there is the problem of liquidity in the market, directly derived from increased regulation of the financial sector.
All this creates opportunities, although “potential is limited, both in equities and in fixed income; the important thing is to hedge tail risks well.”
In credit, the expert mentions very selective opportunities in securities overly affected by the crisis in the energy sector. Pioneer Investments’ Head of Thematic Equity, has a more favorable opinion of equities, since there is a component of positive growth in developed markets, which is feeding into corporate earnings. “In Europe, the cycle lags behind the United States, but it’s improving. Valuation of the stock markets may be more questionable, but some things are attractive. The biggest risk is volatility, or risk perception, which punishes stock markets every time there is an episode of illiquidity.”
Iaccarino adds that technical factors particularly support the Japanese market, which is seeing a lot more domestic money in their stock markets, both by pension funds and by individuals, a group which now enjoys tax benefits for investing in stock markets.
