Photo by Gerald Lau. Canadian BMO Global AM Launches Nine ETFs Aimed at European and British Investors
Canadian manager BMO Global Asset Management has launched nine ETFs targeting UK and European investors. The ETFs, all UCTIS compliant, are listed on the London Stock Exchange and registered in Ireland. Three of them are global corporate bond ETFs, one is global high yield and five are equity ETFs. Amongst the equity ETFs BMO offers exposure to the US, Europe ex-UK and the UK.
Richard Wilson, CEO, BMO Global Asset Management (EMEA), told InvestmentEurope “Establishing our ETF offering in Europe is a key strategic milestone for us as we continue to expand across the region.”
According to BMO, their fixed income offer will allow investors to more precisely position their fixed income exposure at a time when the world is preparing for the Federal Reserve to raise rates.
In regards to their equity offer, which follows MSCI indices, the Canadian bank reminds investors that their Income Leaders ETFs come in hedged and unhedged versions, allowing investors to implement active positions on currency.
In the monthly Latin America Investment Strategy report from Credit Suisse, Philipp E Lisibach, director of Credit Suisse in the private banking and wealth management division, discusses on how the Fed´s decision to postpone hikes on interest rates has given a break to Latin American economies. However, economic indicators such as production rate or inflation, are not showing values close to the economic recovery path.
“The decision of the Federal Open Market Committee (FOMC) on 17 September to postpone the initial US Fed funds rate hike has triggered concerns about the health of global economic growth and led to a significant cool-down of investors’ risk appetite and a spike in volatility in the capital markets. Emerging market (EM) equities typically behave rather poorly in this type of environment, as their sensitivity to global economic growth is high. While the initial reaction was similar this time, the decision to delay US interest rate hikes has led to cautious optimism for EM investors as the negative side effects of a potential hike (including a likely strengthening of the US dollar, a potential withdrawal of liquidity, and local central banks forced to follow suit and hike interest rates) have been delayed and so the results have been marginally beneficial”, said Lisibach.
Oversold sentiment corrected
After seeing value appearing in emerging markets equities and sentiment seeming to be oversold shortly after the FOMC decision, the Credit Suisse Investment Committee changed its previous underperform view for emerging market equities to neutral on 23 September. In a sharp recovery, emerging markets equities have outperformed developed market equities from 23 September through 21 October. However, Latin America is by far the lagging region, underperforming both global EM and developed market equities by 2.7% and 0.6%, respectively, in local currency terms. The laggard within the region has been Mexico, which continues to be one of the better-performing markets in Latin America on a year-to-date basis, although it has lost some of its momentum recently.
Mexico’s high valuation meets with slowing momentum
Mexico’s manufacturing activityhas cooled down considerably and, with a September manufacturing index reading of 50.1, it is just about at the inflection point between expansion and contraction, which stands at 50 (see chart).
Mexican leading indicator signals lower manufacturing activity
Earnings momentum, measured by the 1-month and 3-month change in consensus expectations for the MSCI Mexico index, has turned negative again, yet Mexico’s lofty earnings growth estimates remain the highest in the region at almost 21% for the next 12 months. “We think the pressure may persist to further adjust already high expectations and the rich valuation downward, thus leading to headwinds for prices. As a result, we maintain our underperform view versus global EM equity”, adds Lisibach (see Table 1 for a full overview).
Mexican leading indicator signals lower manufacturing activity
The MSCI Mexico Index is designed to measure the performance of the large and mid-cap segments of the Mexican market. With 28 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Mexico.
Inflation in Brazil not expected to converge to target before 2017
In Brazil, the central bank surprised investors when it announced on 21 October that it does not expect to meet its inflation target of 4.5% in 2016. The weak economy limits the central bank’s ability to fight against the stubbornly elevated level of inflation with higher interest rates, delaying the normalization process. The good news is that inflation seems to have peaked, see chart.
Nonetheless, Credit Suisse sees thatBrazil’s growth inflation mix has weakened further and their economists cut Brazil’s GDP growth forecasts to –3.2/–1.2% for 2015/16, and expect a slightly higher average inflation rate in 2016, now at 6.4%.
“While higher interest rates may be a headwind for Brazilian bonds, the generous level of yields should allow bond investors to absorb some of these losses, which is why we maintain our neutral view on Brazilian local currency bonds (see Table 2 for a full overview). We confirm our negative view on Brazilian hard currency bonds and the equity market. The political environment remains very difficult, and corruption investigations and attempts to push out President Rousseff are leaving the government paralyzed, making it unlikely that much-needed policy developments will be implemented in the near term”.
Acceleration of inflation in Colombia due to food and the weak peso
The economy that continues to struggle with accelerating inflation is Colombia, where the consumer price index has increased to 5.4% year-over-year, exceeding expectations and reaching a level not seen in over six years. A pick-up in food prices due to unfavorable weather and the weaker Colombian peso is partially to blame for inflation, as the peso has lost over 29% against the US dollar over the past one year (as of 22 October). The Columbian central bank raised its policy rate by 0.25% and has released a modestly hawkish statement, leading us to believe that further modest rate hikes to tame inflation cannot be ruled out. Consequently, Credit Suisse is changing their view on Columbian local currency bondsfrom neutral to underperform.
According to Azad Zangana, Senior European Economist & Strategistat Schroders, the fact that the UK economy slowed more than expected, presents challenges for policy makers.
The preliminary estimate of UK GDP for the third quarter showed economic growth slowing to 0.5% quarter-on-quarter compared to 0.7% in the previous quarter. Consensus expectations were for a small slowdown to 0.6%, “but the latest figures disappointed as the manufacturing sector struggles with a strong pound and subdued external environment,” says Zangana.
Adding that, within the details of the GDP report, the recession in the manufacturing sector continues with activity contracting by 0.3%. The wider measure of industrial production did however grow by 0.3% thanks to a pick-up in mining and quarrying activity. The services sector grew by 0.7%, as strong retail sales maintained solid growth in distribution, hotels and restaurants. Business services also posted strong growth of 1%. Finally, the construction sector contracted by 2.2%, taking the level of activity back to levels not seen since the second quarter of 2014.
The economist considers that “the slowdown in UK growth is by no means a disaster, but it will put pressure on the Bank of England to delay the first rate hike, especially as inflation remains in negative territory”. With this in mind, Schroders continues to forecast no change in interest rates until May 2016. “The slowdown in growth presents an even bigger challenge for the Chancellor as he prepares to find a way to implement substantial fiscal tightening over the course of the next few years. Moreover, the success of the introduction of the new living wage hinges on the strength of the economy to absorb the increase in labour costs. If the economy slows further, the government’s policy may cause unemployment to rise once again, making cuts to tax credits even more painful”, Zangana concludes.
Invesco PowerShares Capital Management, LLC, a leading global provider of exchange-traded funds (ETFs), announced the launch of two new ETFs; the PowerShares Russell 1000® Low Beta Equal Weight Portfolio (USLB) and PowerShares FTSE International Low Beta Equal Weight Portfolio (IDLB).
Both USLB and IDLB offer multi-factor concepts, which combine individual factors that may offer excess or differentiated returns. Multi-factor investing centered around low beta may potentially enhance returns while reducing risk and ultimately provide for better risk-adjusted returns.
The new USLB strategy is based on the Russell 1000® Low Beta Equal Weight Index, offering risk-adjusted exposure to domestic equity. USLB’s factor selection focuses on risk management, which centers on low beta, earnings and equal weighting.
The new IDLB strategy also offers risk-adjusted exposure, but is focused on international equity based on the FTSE Developed ex US Low Beta Equal Weight Index.
“We’re excited to be rolling out two new low beta strategies,” said Dan Draper, managing director, global head, Invesco PowerShares. “Both ETFs have potential to reduce risk for investors by following disciplined index methodologies while offering exposure to risk-management factors.”
“We are happy to be able to offer innovative new methodologies on our flagship US domestic and global indexes for investors who seek exposure through exchange-traded funds,” said Ron Bundy, CEO of North America benchmarks for FTSE Russell. “In addition, we are excited to expand on our growing relationship with Invesco PowerShares to provide indexes to underlie their family of exchange-traded funds.”
Photo by Blatant World
. Bill Gross: Central Banks are "Stubborn, And Reluctant To Adapt To A Significantly Changed Finance Based Economy"
In its latest monthly report, the so-called bond king, Bill Gross, warns of the risks that the Zero Bound Yield Curve brings to credit markets.
Gross, who has urged the Federal Reserve to raise rates several times this year, says that the near-zero levels are hurting the real economy and affecting the balance sheets of institutional investors such as pension funds and insurance sector companies because “profit growth is stunted, if short term and long term yields near the zero bound are low and the yield curve inappropriately flat”.
In his opinion, the US government should sell part of its more than $2 trillion in long-term bonds and buy short-term paper to improve the slope of the curve. But he doubts that the Fed will take that route because he believes that “central bank historical models fail to recognize is that over the past 25 years, capitalism has increasingly morphed into a finance dominated as opposed to a goods and service producing system”.
Another recommendation the bond guru makes to central banks is to raise their inflation targets, to say 3%, as the president of the San Francisco Fed, John Williams recently said. However, Gross considered unlikely that central banks of major economies would change their ways because they are “stubborn, and reluctant to adapt to a significantly changed finance based economy.”
Foto: Rudolf Vlček
. ¿A qué se debe el éxito de los ETPs?
The SEC published this year a myriad questions about the listing, trading, and marketing, especially to retail investors, of “new, novel, or complex” exchange-traded products (ETPs).
An ETP is a derivatively priced security, meaning that it fluctuates with the price of the underlying securities, which trades on a national stock exchange stock exchange. Such ETPs include exchange-traded funds (ETFs), pooled investment vehicles (FlexETPs), and exchange-traded notes (ETNs). ETPs are typically benchmarked to indices, stocks, commodities, or may be actively managed, explains Mario Rivero, Director at ETP providor FlexFunds.
ETPs have grown and evolved enormously since 1992, when the SEC approved the first ETP, the SPDR S&P 500 ETF. Not surprisingly, the SEC also has received more—and more sophisticated—requests by ETP issuers for relief to allow ETPs to be listed on securities exchanges and requests by securities exchanges to establish listing standards for new types of ETPs.
“ETPs have experienced exponential growth since they were introduced. A recently published report by PwC in January 2015 supports this. It states that by 2020, there is likelihood that the global market for exchange traded fund (ETF) would double up to reach around US$5 trillion.” Says Rivero. While the developed markets of US and Europe are likely to witness majority of this increase, the developing nations (especially Latin America) are likely to represent the fastest growing market over the next five years.
Why the tremendous growth?
The most popular ETP is the ETF. These are securities that track an index, commodity or basket of assets. ETFs are used by investors to access emerging markets in a diversified manner. “Although 2015 has had an overall negative impact on the stock market in Latin America, the ETFs of Brazil, Mexico and Chile are expected to continue to increase; possibly not in value, but rather in terms of assets.”
In Latin America there are numerous indexed ETFs and it is becoming increasingly difficult to create new funds that are attractive to local and international investors. Other regulated fund options would include SICAVs and UCITs. However, these options have proven to be costly and lengthy to create, and serve the purpose for conservative investors looking for a highly regulated and restricted investment vehicle. Therefore, the growth in number of available funds should come from another source.
Here the opportunity arises for ETPs that are pooled investment vehicles. These ETPs take the best of both worlds by managing the underlying assets like a fund while trading like a note, and allow a vast variety of underlying assets to be securitized quickly and economically.
Pooled and listed investment vehicles, including FlexETPs, are offering the right alternative for the small and medium size fund market that is expected to yield most of the future ETP market growth. Fund sizes from $20m to $200m are too small for the larger global banks and too large for smaller local banks. Granted, the ETP solution must keep the cost structure in check for these smaller funds.
What is most important is that ETPs provide flexibility within asset management for a vast, and fast, product creation. This will provide institutional and private investors with access to niche or customized investment products. As most developed industries have proven, it is targeted products and services what drives significant growth. It is only to be expected that the same will happen in the ETP global market.
CC-BY-SA-2.0, FlickrFooto: Jorge Franganillo. Para vender fondos a los grandes RIAs hay que hacerlo como a los clientes institucionales
The latest research from global analytics firm Cerulli Associates finds that selling to large, sophisticated registered investment advisors (RIAs) requires an institutional-like sales process compared to traditional retail-focused sales, which are often more relationship-oriented.
“With an institutional-oriented sale, a wholesaler needs to take a more consultative selling approach,” states Kenton Shirk, associate director at Cerulli. “As advisory practices grow in size, their investment decision-making begins to formalize. They begin to adopt a more rigorous and formalized screening, due diligence, and ongoing monitoring. A larger number of individuals are often involved in the process, including research analysts who hold varying degrees of influence on initial sales and holding periods.”
“It is imperative that asset managers consider these influencers in their distribution strategy,” Shirk explains. “Research analysts and chief investment officers (CIOs) can have a substantial influence on an RIA’s investment decisions. Their roles often function as micro-gatekeepers and they are an important center of influence when considering distribution to the independent RIA and dually registered channels.”
“As investment decision-making in practices becomes more formalized and sophisticated, there is a growing need for wholesalers to be technically proficient to support the sales process,” Shirk continues. “Through training and attainment of advanced designations, such as the CIMA or CFA, wholesalers are better equipped to face-off with technically-oriented analysts.”
Cerulli explains that asset managers need to ensure that they are not only training their wholesalers on the technical aspects of the business, but also offering consultative sales training.
CC-BY-SA-2.0, FlickrFoto: atlexplorer
. GenSpring nombra a Carlos Carreño director de la región "Florida Este"
GenSpring Family Offices has named Carlos Carreño managing director of its Florida East Region. Based in Miami, he will serve families throughout eastern and southeast Florida, including Jupiter, Palm Beach and Miami.
The firm “was founded in Florida more than 25 years ago to serve the diverse needs of ultra-high net worth families,” said Willem Hattink, CEO of GenSpring. “By concentrating on families in their respective regions, our teams will form even stronger relationships with those we serve.”Recently, Jim Brennan was named managing director of the Florida West Region, overseeing Orlando, Tampa Bay and Sarasota family offices.
Prior to joining the firm, Carreño led International Wealth Management for SunTrust Private Wealth Management. In this role, he managed the teams focused on serving the needs of clients and families maintaining a second residency in the United States. Carreño has expertise in domestic and international wealth management, and is proficient in the cross-border regulatory environment, as well as issues impacting non-resident aliens. He has more than 20 years of experience in senior management positions within SunTrust Banks, Kroll and Barclays.
Carreño is a Certified Professional in AML and an active member of the Florida International Bankers Association. He is a graduate of the University of Central Florida.
Foto: Aedopulitrone, Flickr, Creative Commons. Robeco, Fidelity o Henderson: entre las mejores gestoras del año 2015/16 premiadas por InvestmentEurope
Winners of InvestmentEurope’s Fund Manager of the Year Awards 2015/16 have been announced during a ceremony that formed part of the Fund Selector Forum Italy in Milan that took place on 5 November.
The Awards winners were selected through a quantitative and qualitative process, which also involved from some 10 fund selectors across the region.
The winners are:
Umbrella Category – Equities
Category – Europe
Highly commended – JPM Europe Equity Plus A
Winner – Henderson Gartmore Pan European R EUR Acc
Category – North America
Highly commended – Dodge & Cox Worldwide US Stock Fund EUR
InvestmentEurope also announced its inaugural Personality of the Year Awards, which are to highlight fund selectors identified by their peers as having contributed significantly to the industry.
Ashish Kochar is a co-fund manager of Threadneedle Global Extended Alpha Fund. Courtesy photo.. "Extended Alpha Fund Allows to Compete in A Race with Other Long Only Funds but with a 60% Bigger Engine"
Ashish Kochar and Neil Robson, co-fund managers of the Threadneedle Global Extended Alpha Fund, explain in this interview with Funds Society the benefits from a 130/30 strategy and the need to generate alfa in a more volatile world.
The ‘Extended Alpha’ concept that names the strategy: In what does it consist exactly?
The easiest way to think about an Extended Alpha fund vs. a typical Long only fund is the analogy of competing in a race with other Long only Funds but with a 60% bigger engine (in this case the 60% extra Gross; upto 30% each from both the Long book and the Short book.)
Extended Alpha Funds or the 130/30 funds take short positions in stocks that are expected to fare badly, while taking long positions in stocks that are expected to outperform the market. The ultimate aim is to create a positive spread between the longs and the shorts. It might sound odd but even if the shorts outperform the market (benchmark) but underperforms the long stock – it still works in creating a positive spread ie alpha creation. They are called 130/30 because approximately 130% of the portfolio is invested in long positions, and 30% in short positions. (Investment managers can short a higher or smaller proportion of the portfolio). These funds have an overall net exposure to the market of approximately 100% and a beta near one, the same as a long-only fund.
How do holding short positions help raising the portfolio’s value?
Shorts positions help the portfolio value in two ways. First, positive alpha creation: You short something and it goes down and you create alpha. This is the bit that is easy to understand. Second, risk management for long book: This is the more interesting bit in that it allows one to own more of what they like in the long book and hedge out part of the risk by shorting a less good company.
In the current market: Is it more important to capture the ‘beta’ or obtaining the ‘alpha’? Why?
Over the past few years strong market performance has provided attractive market (beta) returns to investors. Going forward, we expect lower returns from beta, and therefore the relative contribution and importance of alpha is quite important. In the case of Global Extended Alpha we have been able to generate excess return compounded over the last five years. The more important bit is that these returns have been generated by taking minimal incremental risk.
Do you consider that volatility in the markets will rise?
Yes. We live in an interconnected world so monetary policy changes around the world, particularly the dynamic of potential US rates rising; against slowing emerging market growth presents a major risk. We are concerned about the second-order effects of shifts in currency and commodity prices. Another risk factor is China. The economy is undergoing a long and a difficult transition. This creates new risks and volatility as we saw in the recent Chinese stock market correction.
Which is the current net exposure of the fund and why? Is it time to be cautious or aggressive in the markets?
The Net exposure of the fund is in the middle of the range with beta near one. Equity markets are finely balanced at present and as long as one is confident about growth they look remain attractive relative to bonds. (This is illustrated by the gap between Earnings vs. Bond yields in the chart below.)
Do you believe that there are ‘bubbles’ in some equity markets?
Generally speaking no, we don’t see bubbles within major equity market regions. Some subsectors of the market (and indeed valuations in some private markets (venture capital technology for instance), do look frothy.
Is there value in the global markets? Where would you identify better values for your long and short positions (in sectorial terms, by countries)?
At the present time we believe the global market is relatively fully valued. From a long perspective we favour the US, technology, and consumer sectors.
In your fund’s particular case, you hold conviction bets. How is conviction better than diversification? Is it possible to obtain a diversified portfolio while holding position in few names?
We have a large team, regional team resources, and central research analysts available to us, which means we generate a large number of high conviction ideas within our global opportunity set. Through our investment process we can achieve reasonable diversification by sector and region while only owning stocks that we have strong conviction in. We never own stocks just because they are in our benchmark.
