Foto: Intana, Flickr, Creative Commons. El repunte de los hedge funds en octubre revela optimismo en el mercado
October saw hedge funds delivering returns close to 2% on the back of a renewed sense of market optimism. Event-Driven and Global Macro strategies outperformed, up 2.5 and 3% respectively. CTAs, which were up 2.7% last week, underperformed for the full month of October as they failed to capture the market rebound.
The widening gap between the monetary stance in the US (hawkish bias) and in Europe (dovish) has fuelled the USD and dragged down commodity prices. This is supportive for CTAs and Macro managers on which we remain overweight. According to Lyxor proprietary data, both strategies are long USD vs major currencies and short commodities. There are nonetheless nuances: CTAs are relatively more aggressive on energy (net short) than Macro. In the wake of the ECB’s dovish words, long duration positions of CTAs are benefitting from the fall in bond yields in Europe.
Event Driven managers were up 2.4% in October, partially recouping some of the losses experienced during the summer. The S&P Health Care index was up 8.4% this month, supporting elevated exposures to the sector in their portfolios. Meanwhile, the announcement last week that Pfizer is considering a merger with Allergan has fuelled the stock price of the latter company by 20% in a week. Some managers have a long exposure to this stock in the range of 5-10% of net assets. This will support the performance of the strategy in the short term and will help to offset any negative developments from Valeant which has suffered allegations of fraud.
Finally, Lyxor is upgrading the European L/S Credit strategy to slight overweight. “We believe it is likely that European credit will be supported by both fundamentals and technicals. European corporate default rates are low and are projected to remain this way in H1-16 by Moody’s. On top of that, European companies are deleveraging which is supportive for credit risk. On the technical front, issuance is low and the ECB is likely to expand its asset purchase programme to include corporate debt, thus creating new sources of demand. In this environment, European L/S Credit funds are expected to benefit from supportive beta conditions on top of their ability to generate alpha (see chart below). An extension of the QE programme by the ECB involving corporate bonds is likely to support the high yield segment as a result of the portfolio rebalancing effect. It is also likely to fuel peripheral issuers and cyclical sectors in relative terms”.
Foto: Jonathan, Flickr, Creative Commons. Julius Baer: aún hay muchas razones para mirar a Asia como "el mayor jardín de crecimiento de millonarios"
Julius Baer has released its fifth annual Wealth Report: Asia, which monitors the cost of living in luxury and wealth creation in Asia. It finds that in Asia, Julius Baer’s second home market, the pool of investable assets held by High Net Worth Individuals (HNWI) could reach USD 14.5 trillion by 2020, or a growth of 160% in the current decade.
In addition to the Julius Baer Lifestyle Index, which was launched in 2011 tracking the costs of goods and services for HNWI in 11 Asian cities, this year’s report includes forecasts of HNWI wealth creation trends in ten Asian markets for the next five years until 2020. Despite its maturing economy, China’s HNWI wealth is expected to increase to USD 8,249.6 billion in 2020, trebling the 2010 figure and making it one of the biggest wealth creation engines in the region. The Philippines and India are also ranked in the top three in terms of HNWI wealth creation.
Boris F.J. Collardi, Chief Executive Officer of Bank Julius Baer, said: “For the first time since 2011, we revisit the growth of millionaires in Asia. Whilst we have tempered our optimism as to the rate of growth, there is still much reason to look to Asia as the greatest garden to grow millionaires. These findings also support our belief that wealth management is clearly a growth industry, with wealth set to continue its upward trajectory in Asia.”
China and India, in good shape
HNWI wealth is projected at USD 5.1 trillion in 2016, rising to USD 8.25 trillion billion by 2020. The projections of HNWI wealth are based on the assumptions of nominal GDP growth of around 10% between 2017 and 2020, boosted by expected appreciation of the Chinese currency versus the USD throughout the forecasting horizon. While the Renminbi (RMB) declines in 2015, the longer term outlook points to an appreciation trend.
Hong Kong’s HNWI wealth is expected to rise steadily to USD 1 trillion by the end of the decade. In recent years, Hong Kong’s stock index performance has been considerably better than that of Singapore’s stock market index. Further, Hong Kong benefits from strong trade and economic linkages with China. Hence, it comes as no surprise that, even as its nominal GDP rises 42% from USD 228.6 billion in 2010 to USD 325.3 billion by 2016, the HNWI wealth rises 56% from USD 484 billion to USD 756.3 billion in the same period.
About India, HNWI wealth is forecasted at USD 1.425 trillion in 2016, rising to USD 2.3 trillion by 2020. India’s nominal GDP growth is projected to rise only by 3.2% this year due to the depreciation of the local currency versus the USD. However, the Indian economy has now found its footing and is in a period of positive development. Thus, India’s HNWI wealth in USD is projected to rise by 94% between 2014 and 2020 (versus 74% for China). If this trend persists for a decade or more, India will narrow the wealth and economic gap with China.
Thomas R. Meier, Region Head Asia Pacific of Julius Baer, said: “Notwithstanding slowing global conditions, we remain positive on the trajectory of Asian HNWI wealth led by China where we estimate a tripling of HNWI wealth this decade to more than USD 8 trillion. Our forecasts reflect the belief and confidence that China has ample room to ease monetary and fiscal policy to both stabilize and boost the economy. We also see great catch-up potential in India where we expect economic expansion to strengthen from next year. India has the potential to narrow the wealth and economic gap with China over the next decade.”
Julius Baer Lifestyle Index 2015
The Julius Baer Lifestyle Index compares 20 goods and services items in 11 cities, covering Hong Kong, Singapore, Shanghai, Mumbai, Taipei, Jakarta, Manila, Seoul, Kuala Lumpur, Bangkok and Tokyo. In 2015, the most expensive and best bargain cities as determined by the index are identified clearly for the first time.Shanghai is the overall most expensive city in the 2015 study, topping the tables for services and goods and the overall category. Shanghai was within the top four most expensive cities in 13 out of the 17 compared categories (excluding wine, university and boarding school). With possible devaluation of the RMB, interest rates cut to stimulate the market after a volatile summer in 2015, we expect some strong price movements next year.
Hong Kong and Singapore take a respectable second and third overall. Hong Kong’s expensive cost for services and Singapore’s relatively expensive pricing for all goods and services, firmly establish these three cities as the most expensive cities to purchase the items in the Julius Baer Lifestyle Index.
This year’s report also features dedicated sections on India and Japan. A positive outlook for HNWI wealth is projected in India in the years ahead, in contrast to the relative stagnation in HNWI wealth between 2011 and 2013. Therefore, it retains promise and attractiveness for wealth management institutions over the next half decade, if not longer.
A positive evaluation is held of Japan’s economy and outlook – despite the fact that the overall growth of the market should not be expected to increase much beyond 1.5% per year anymore. Overall growth will be slowed down by demographic decline and underperformance of entire regions outside the city centres. Within its urban growth centres, however, new services are thriving, already strong social infrastructure is being upgraded and restructured corporations have returned to profitability. This will also be the basis for Japan claiming a greater economic role in Asia again.
Photo: Victor Camilo, Flickr, Creative Commons. Finance, Insurance & Real Estate Sectors: The Most Targeted in September for Cyber Attacks
The Finance, Insurance, & Real Estate sector was the most targeted sector during September, comprising 27 percent of all targeted attacks, accorging the new study by Symantec.
Large enterprises were the target of 45.7 percent of spear-phishing attacks in September, up from 11.7 percent in August.
Foto: ElanasPantry, Flickr, Creative Commons. Blended Debt: An Increasingly Popular Strategy, but What Can Investors Expect?
Over the past decade, blended emerging market debt (EMD) strategies have grown from nowhere to around a US$100 billion asset class (see Figure 1). In the last few years, in particular, they have become the favoured way for investors to access EMD, receiving positive net flows whilst dedicated local and hard currency EMD universes have seen net outflows.
But what exactly constitutes a ‘blended’ emerging market debt strategy? And how should investors expect these strategies to behave? Indeed, what is the optimal long-term strategic asset allocation and what should investors expect from their managers in terms of asset allocation and risk management? In this month’s topic piece Investec looks to answer some of these fundamental questions in an attempt to offer a better understanding of this new and, attractive, entry point to emerging market debt.
Defining ‘blended’ EMD
Defining what makes a strategy blended should be easy: namely any strategy that combines both local currency and hard currency denominated debt. However, the difficulty is that most ‘pure’ local currency debt funds will at times include some form of dollar (hard currency) denominated debt. Similarly, many ‘pure’ hard currency debt funds include some allocation to local debt.
Thus, as well as having a meaningful allocation to both local and hard currency debt, one of the key attributes of a blended EM debt strategy should be the ability to dynamically allocate between asset classes with the view of outperforming a mixed local currency/hard currency benchmark. Yet many blended strategies make little or no attempt to allocate between asset classes or outperform a mixed benchmark. To illustrate this point, Investec AM examines the ‘eVestment Emerging Markets Fixed Income – Blended Currency’ universe which consists of 50 strategies described by their managers as ‘blended’. However, as Figure 2 shows, only 19 of these strategies have identified themselves with a benchmark made up of both local and hard currency emerging market debt (be this sovereign or corporate debt).
Even if we filter out strategies that do not meet our basic definition, its research shows that not all blended strategies offer a truly blended approach. “We find that most blended strategies tend to have a strong bias towards hard currency debt and also to generally being overweight risk (i.e. being long beta)”.
“We believe that the bias towards hard currency debt exposure, both within benchmarks and relative to benchmarks, is due to a number of factors. First and foremost, some managers may be inexperienced in managing local currency debt, especially with regards to managing the currency exposure itself and treating it as an opportunity rather than a risk. Secondly, not all managers have the experience and capacity to open local currency accounts, manage settlement and custody, as well as taxes, for the various local markets. Finally, we envisage that some managers are adapting what were once pure hard currency EMD strategies into more typical blended approaches, a process that will take time to fully evolve”.
As the asset class and blended strategies continue to evolve, along with client preferences and demands, Investec expects that the universe of blended strategies will tend to become more focused, with a similar range of benchmarks and more balanced asset allocation.
Not surprisingly, it is a difficult task trying to determine what the optimal long-term allocation to the various emerging market debt asset classes should be, not least because ultimately this will also depend on each individual or institutional investor’s risk preferences. “What we are able to do, however, is consider a range of factors which should at least inform our decision on the strategic asset allocation and, hopefully, give us a better understanding of what to expect from this allocation in terms of a range of likely outcomes”.
“Using simulation of historical data (please see the longer white paper for more details) in combination with evaluating the size and accessibility of each component of the EMD universe, we believe that an approximately equal allocation between local and hard, which some blended strategies offer, is reasonable. While this may mean that returns are dampened by the local currency hedged bond component, historically (although not recently) this has somewhat been made up for by the currency component. Meanwhile, including corporate debt in the hard currency debt allocation should serve to dampen the overall volatility over time, although drawdowns might be expected to be slightly worse”.
One could argue that we should bias the exposure to hard currency debt (as many strategies have done) given that the currency component of local debt increases the volatility and, at least recently, has not contributed much to returns. “However, we believe that this argument may be relying too much on the recent historical data and ignores the important fact that local debt is a much larger asset class than hard currency debt, yet with far less money dedicated to it. One thing we would favour is increasing the exposure to hard currency corporate debt from the 10% suggested by our simulations. This is because, once again, it is a much larger asset class than hard currency sovereign debt. Furthermore, we also believe that the hard currency corporate debt asset class will continue to grow and present investors with attractive, diversified access to new countries and sectors. Ultimately, each investor’s risk profile will be different and would thus demand different allocations. Furthermore, we have only considered this allocation from the point of view of a dollar-based investor. The analysis could be quite different for investors with other base currencies. However, a 50/50 allocation between local and hard currency debt, with a reasonable (at least 20%) allocation to corporate debt seems to us to be a good way of balancing the need to optimise risk-adjusted returns while still not chasing the crowd and investing into already well- owned asset classes”, according to Investec.
Photo: Kevin Dooley
. Schroders Launches ‘incomeIQ’, a Tool to Help Avoid ‘Mental Traps’ When Investing for Income
With today’s low yields and interest rates at historic lows, traditional sources of income such as bonds and bank account savings have failed to meet investors’ income goals. Investors continue to look for other sources of income — whether to supplement pensions or paying for a child’s education — but are they equipped with enough knowledge when choosing?
Schroders has launched incomeIQ, a new online tool designed in partnership with University of Cambridge behavioral scientist and PhD researcher, Joe Gladstone, to help investors determine their unique behavioral biases when making income investment decisions, and improve their income intelligence or ‘incomeIQ’.
Gonzalo Binello, Head of US Intermediary Offshore for Schroders commented:
“Our clients have had a tendency to invest in direct fixed income securities and real estate in order to generate income within their portfolios. This strategy creates a concentration risk and can make the portfolio returns vulnerable to the global interest rate cycle. That is why we stress the importance of a more diversified income oriented strategy going forward. We see continued need and demand for income and at Schroders, we want to ensure that investors are equipped with the knowledge to achieve their goals. The incomeIQ tool and knowledge center offers a hub for investors to explore their unique profile, along with guides, tips and products to help them make more informed decisions to build their income oriented portfolios”.
Is the tendency to look on the bright side always a good thing? Do you buy more when you go to the supermarket hungry? As humans we don’t always make logical or rational decisions. IncomeIQ, which is supported by in depth research on behavioral finance, can help investors understand their individual profile in order to make more informed investment decisions.
Our recent research shows that 88% of investors say they are on average or better than average at making investment decisions. People generally overestimate their investment ability and this ‘over confidence bias’ can cause errors in judgment.
Joe Gladstone, behavioral scientist and PhD researcher, University of Cambridge, England said:
“It is far more common for people to see themselves as above-average investors (41%) than as below average (12%). Psychologists have long found that people are biased to be overconfident about their abilities, resulting in unrealistic perceptions of risk. This overconfidence spills over into investment behavior too. The result is impoverished returns as investors take bad bets because they fail to realize that they are at an informational disadvantage.”
Foto: Simon Cunningham
. Seedrs, líder europeo en "equity crowdfunding", aterrizará en Estados Unidos en 2016
Seedrs announced that it will commence a beta test of its platform in the United States within weeks, following Friday’s vote by the U.S. Securities and Exchange Commission (SEC) to implement Title III of the JOBS Act.
The beta test will offer US accredited investors the opportunity to invest in selected campaigns listed on the platform, with an official launch expected in early 2016.
In late 2014, the largest crowdfunding platform in Europe to focus solely on equity investments acquired California-based crowdfunding platform Junction Investments in preparation for its push into the United States. It has been working tirelessly in 2015 developing the right approach to commence operation in the United States, as compliance with applicable law has always been a non-negotiable element of the company´s approach to business.
The firm has been active in supporting the JOBS Act equity crowdfunding regime with Jeff Lynn, Seedrs CEO, having provided expert testimony to subcommittees of the U.S. House Oversight & Government Reform Committee in September 2011 and the U.S. House Financial Services Committee in May 2014.
The firm believes Friday’s SEC vote on Title III of the JOBS Act represents a significant step forward for early-stage and growth-focused businesses that wish to use equity crowdfunding as a platform to raise capital for their businesses.
Jeff Lynn, CEO, said:“I have had the privilege of being involved in the lawmaking process for U.S. crowdfunding ever since the JOBS Act was introduced in 2011, and I am very pleased to see that the SEC has finally adopted rules implementing Title III. We believe this heralds the emergence of equity crowdfunding as a vibrant form of finance in the United States – just as it has become in the UK and Europe – and Seedrs is perfectly positioned to take advantage of the sector’s growth. The beta testing will be the first foray into the market, and we look forward to growing our presence there significantly in 2016.”
Foto: David
. Lloyd Jones Capital adquiere dos comunidades de viviendas en Texas
Lloyd Jones Capital, a Miami-based multifamily investment firm, has acquired the Carol Oaks and the Villa Oaks apartment communities in Fort Worth and Houston, respectively. Both are considered exceptional value -add opportunities which the company anticipates improving and rebranding in order to enhance the asset value.
Says Chris Finlay, Chairman/CEO, “These properties are a great fit for our value-add portfolio. They are both currently producing cash flow, and with selective renovations and exciting rebranding they will prove to be fabulous opportunities for our investors.”
The Carol Oaks is a gated community consisting of 224 units on 18 acres. It is undergoing rebranding to the company’s proprietary ‘Vibe” concept that offers high tech opportunities for its residents with Wi-Fi and collaborative work areas. It is now called The Vibe at Landry Way.
The Houston property, Villa Oaks, with 212 units of affordable housing will be rebranded as TownParc at Sherwood. This townhouse community offers large units with numerous floor plans.
According to Finlay, two additional properties – in St. Petersburg, FL and Houston – are scheduled for closing in the next few weeks. These will add an additional 610 units to the company’s growing investment portfolio. Finlay says “One of the things that gives us great confidence in the ability to turn these C and B properties into C+ and B+ assets is Finlay Management, Inc., our property management arm.” He explains that the company is an Accredited Management Organization (AMO) In fact the company was named “AMO of the Year” of North FL for 2013 by IREM (Institute of Real Estate Management.)
The company specializes in multifamily investment in FL, TX and the Southeast. The company acquires well located, cash-flowing assets with value-add potential. It was founded by real estate veteran, Chris Finlay, who has over 35 years in the multifamily industry.
Insight Investment, a BNY Mellon Investment Management boutique—announced that its global fixed income coverage now includes domestic US credit and loans expertise. The addition of a domestic US fixed income business, a deal completed at the start of the year, has enhanced Insight’s research resources and increased capacity in the strategies most widely owned by our international clients: Absolute Return Bonds, Global Active Credit and Buy and Maintain.
The global fixed income team at Insight now includes 97 investment professionals and the team manages $208 billion. The investment teams based in the US and the UK now share the same global investment process and research methodology. This is deployed within one investment-systems architecture and governance framework.
Adrian Grey, Head of Fixed Income at Insight, said: “The integration of a strong US domestic investment team has deepened our research capability. This means that our globally-focused portfolios can now better reflect the opportunities available in the world’s biggest and most diverse credit market. By aligning our research resources, processes and systems across London and New York we believe we have made a material step forward that should enhance the quality and foundations of our portfolios, and support us in seeking superior investment results.”
The 29-member strong US domestic fixed income investment team has an average of 11 years’ tenure and 18 years’ total investment experience. Key strategies managed include core, core plus, US credit and long duration bonds. They are part of a team of more than 80 staff now located at Insight’s expanded offices at 200 Park Avenue, New York. The North American business has been operating locally as Insight Investment since July 1.
Cliff Corso, Chief Executive Officer at Insight in North America, said: “We now have the structure to grow and fulfil our ambitions, operating from within an autonomous investment boutique that provides a supportive philosophy and culture. US investors have historically prioritized domestic strategies and the team in New York has a long and competitive track record. The influence of global investment markets on the US market continues to increase, so the fact that our North American investment professionals are now part of a formidable 100-member strong global fixed income team ultimately strengthens our proposition.”
According to Craig Botham, Emerging Markets Economist at Schroders, “The end of the one child policy is an announcement with great political significance but little immediate effect.” Given the high cost of raising children in China, his team does not see a demographic boom resulting from the end of the government’s one child policy.
By the year 2030, the UN expects to see a 3% decline in China’s working age and a very small impact on growth, detracting between 0.1 and 0.3 percentage points per annum from growth over that period. With that, there will be a very important fiscal cost for China, “as its dependency ratio worsens to developed market levels even as incomes remain in emerging market territory. This will result in a painful fiscal burden for China, and it is not clear how it will be tackled,” says Botham.
He believes that boosting the fertility rate would help, but it is not certain that ending the one child policy will be effective. For example in 2014, 11 million couples were eligible for a second child, but only 1 million applied to do so. Adding that, “it may be that after so long, the one child norm will take time to reverse. In addition, anecdotally, many young Chinese cite the cost of children, particularly education, as a major barrier to considering large families.”
And thus, “the cost of raising children needs to be reduced. Task that will require the provision of high quality and affordable – preferably free – education and childcare, and likely also an overhaul of the welfare system altogether.” Nowadays the “hukou” registration system limits people’s ability to claim social welfare outside of their registered area. This means many migrants to the cities have to go home to access education, healthcare, and so on. “Which adds immensely to the cost of raising children and settling down, and will be a contributing factor in delaying household formation. Until these issues are addressed, we do not see a demographic boom resulting from this policy change,” Botham concludes.
Prior to the referendum on EU membership due in 2016 or 2017, the UK government will pursue negotiations to redefine its relationship with the Union. David Page and Maxime Alimi from Axa IM review the themes that are likely to form the basis of these negotiations and assess the margin for compromise between the UK and its European partners. On balance, they expect such negotiations to be constructive enough for the UK government to campaign in favour of the “Yes” at the subsequent referendum.
In their opinion, the UK has yet to define, specifically, what it desires from such negotiations. This month, the UK is supposed to offer more information on what they are looking for, as promised by David Cameron at the EU leaders’ Summit, but the Axa experts believe the main topics will include:
Trade and promotion of the Single Market– Where, according to the analysts, there is no clear disagreement between the UK and the EU
Competitiveness and over-regulatory burden– With no clear disagreement between the UK and the EU
Decision-making and institutional fairness– Where they believe exists much room for agreement between the UK and the EU
Progressing towards an ever closer union– Which needs clarifying since according to them constructive ambiguity has reached its limits
EU budget control– where, given their large deficit, the UK looks set to drive for greater cost control across the EU, while it seems like there is little room to further expand special treatment of the UK given many euro-area countries having experienced significant austerity in recent years.
Migration, social rights and access to benefits– The most contentious issues given the UK looks for immigration restrictions while for the EU free movement of people and labor is a fundamental principle
According to Alimi and Page, “overall, many of the areas where the UK is likely to pursue change are not contrary to EU ambition. This suggests significant room for agreement between the UK and its partners on most issues.” What will happen given the few, but key, areas the UK and the EU do not agree upon? Only time will tell…
You can read the full report in the following link
