It seems European investors followed this old market adage in May 2015, since equity funds faced outflows of €3.1 bn. But, even more noteworthy, the European mutual fund industry faced a slowdown in flows into long-term mutual funds. Those are two of the conclusions of Lipper’s latest monthly snapshot of European fund flow trends (data as at end May 2015).
“That said, the European mutual funds industry still enjoyed net inflows of €16.3 bn into these kinds of products for May, but the flow numbers stood far behind the numbers of the former months of the year. Opposite to April, the majority of the flows went into mixed-asset funds (+€18.9 bn), followed by bond funds (+€1.1 bn), property funds (+€0.6 bn), and commodity funds (+€0.4 bn). On the other side of the table, equity funds faced the highest outflows (-€3.1 bn) from long-term mutual funds, followed by alternative/hedge products (-€1.4 bn) and “other” products (-€0.4 bn)”, point out Detlef Glow, Head of EMEA research, who wrote this report.
Key highlights below:
The European funds industry enjoyed net inflows of €16.3 bn into long-term mutual funds for May. Mixed-asset funds (+€18.9 bn) were the best selling asset class overall, followed by bond funds (+€1.1 bn). Meanwhile, equity funds faced net outflows (-€3.1 bn).
Money market products faced overall net outflows of €12.8 bn for May, split into inflows of €1.0 bn into enhanced money market funds and outflows of €13.7 bn from money market funds.
The single market with the highest net inflows for May was once again Italy (+€4.9 bn), followed by Switzerland (+€2.1 bn) and Germany (+€1.5 bn). Meanwhile, Spain (-€1.5 bn), Austria (-€0.4 bn), and Finland (-€.0.2 bn) stood on the other side.
Intesa SanPaolo, with net sales of €2.5 bn, was the best selling group of long-term funds for May, slightly ahead of BlackRock (+€2.5 bn) and Pioneer (+€2.0 bn).
The ten best selling funds gathered inflows of €6.3 bn, 38.98% of the overall inflows for May, showing that fund flows in Europe are highly concentrated.
“For bond funds inflows were driven by funds domiciled in Switzerland (+€1.8 bn), followed by funds domiciled in the international fund hubs (+€0.8 bn), Sweden (+€0.6 bn), France (+€0.5 bn), and Denmark (+€0.4 bn). On the other side Spain (-€1.8 bn) was once again the domicile with the highest net outflows from bond funds, bettered somewhat by funds domiciled in Germany (-€1.1 bn) and Austria (-€0.5 bn)”, explained Glow.
Bob Doll / www.youtube.com. Así va la quiniela de Bob Doll para 2015: cuatro aciertos, cuatro interrogantes y dos predicciones incorrectas
At the beginning of this year Bob Doll, Senior Portfolio manager and Chief Equity Strategist at Nuveen Asset Management described 2015 as the year when investors transition from disbelief to belief, or from skepticism to optimism. Sir John Templeton coined the phrase, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Nuveen believes we are entering the “optimism” phase. As Doll points out, 2015 is on track to be another decent year for U.S. equities as we experience:
Solid momentum in U.S. economic growth with low inflation,
A pickup in consumer spending based on job growth, confidence and a positive wealth effect,
Solid earnings growth,
Stimulus from low commodity prices and financing costs and
A still-good liquidity environment aided by stimulus from non-U.S. central banks.
Midway through the year, these statements largely hold true. These are the predictions Bob Doll made at the beginning of the year, and how they are faring:
U.S. GDP grows 3% for the first time since 2005 (X) Although Bob Doll believes the U.S. will grow 3% for the rest of the year, the weak first quarter will make it difficult for the year as a whole to average 3%.
Core inflation remains contained, but wage growth begins to increase (✔)U.S. inflation appears to be bottoming as it moves from very low to low levels
The Federal Reserve raises interest rates, as short-term rates rise more than long- term rates (?) Both short- and long-term U.S. bond yields have started to rise in anticipation of Fed rate hikes,1 which Nuveen expects will begin in September.
The European Central Bank institutes a large-scale quantitative easing program (✔) This happened in January, and the effects are being felt in Europe, where growth is improving to some degree.
The U.S. contributes more to global GDP growth than China for the first time since 2006 (✔)As a result of U.S. growth improving and China’s growth slowing, this one is heading in the right direction.
U.S. equities enjoy another good yet volatile year, as corporate earnings and the U.S. dollar rise (?) This is the seventh year of the bull market in the United States. The S&P 500 Index has never risen for seven consecutive calendar years,yet Doll highlights this is a distinct possibility in 2015, even if only by a modest amount.
The technology, health care and telecom sectors outperform utilities, energy and materials (✔) If we were scoring these predictions in degree of correctness, this would be at the top of the list. As of last week’s market close, these favored sectors in the U.S. are up an average of 6.6% for the year while the other three are down 3.7%.
Oil prices fall further before ending the year higher than where they began (?) Oil fell earlier in the year before experiencing a recovery. If the year ended today, this one would be proven correct
U.S. equity mutual funds show their first significant inflows since 2004 (x) Equity mutual fund flows have actually been negative so far this year as investors have been moving out of U.S. stocks.Nuveen expects investor confidence will pick up and that flows will increase, but they acknowledge they will likely be on the wrong side of this prediction
The Republican and Democratic presidential nominations remain wide open (?)The list of Republican candidates is longer than virtually anyone predicted. While Hillary Clinton remains the Democratic front runner, her candidacy is not without its difficulties.
Looking Ahead
While U.S. equities are no longer table-poundingly cheap, Doll beleives that they offer better value than other financial assets and should outperform cash, bonds, inflation and commodities. Even though equities are likely to advance further, the pace of gains is likely to be slower than what investors experienced during the first six years of this bull market. Nuveen believes U.S. equities are likely to produce average annual returns somewhere in the mid-to-high single digit range. Within the U.S. equity market, they prefer mid-cycle cyclicals, companies that can generate positive free cash flow and those with higher levels of domestic earnings.
All market prices are as on 6/26/15 according to Morningstar Direct, Bloomberg and FactSet
UBS has confirmed that William Kennedy will succeed to Andreas Schlatter as global head of Distribution for its global asset management business after Reuters has revealed a UBS internal memo.
Kennedy will take up his new duties in mid-September and will be based in Zürich. He will report to Ulrich Koerner, president of UBS Global Asset Management.
“With his strong client focus, his thorough knowledge of products and his wide network across units, William Kennedy is the ideal candidate to lead the further transformation of our global distribution organisation,” said the memo which was reported by Reuters and signed by Koerner and UBS Wealth Management president Juerg Zeltner.
Prior to this, Kennedy was head of Investment Products and Services at UBS AG.
UBS Global Asset Management had €616bn in assets under management as at 31 March 2015.
CC-BY-SA-2.0, FlickrFoto: José María Silveira Neto. El S&P 500 en 2.250 puntos, la apuesta de Fidelity para los próximos 12 meses
Bloomberg has introduced the first tool in the marketplace to help banks and other financial institutions identify covered funds under the provisions of the Volcker Rule. More than a dozen banks are using Bloomberg’s Covered Funds Identification (CFID) tool to automate the process of detecting and tagging covered funds ahead of an upcoming compliance deadline.
Beginning on July 21 of this year, most U.S. banks and foreign banks with U.S. operations must divest ownership interest in, and sponsorship of, covered funds, which include CLOs, CDOs, CMBS and other securitizations. Classifying which third-party instruments are considered covered funds is a challenging and often manual process. While the overarching rule is straightforward, there are many nuances and exceptions that must be considered. In most cases, making the right determination involves a review of prospectuses and deal documents, many of which are not readily available to individual institutions.
CFID uses nearly 30 data fields to automatically extract relevant details from offering documents to classify securities against the requirements of the Volcker Rule covered funds regulations. CFID also provides details about ownership structure, deal type, tranche type, and collateral, as well as an industry-defined decision tree that addresses the Volcker Rule covered fund requirements. When one of more than 200,000 securities incorporated in the tool is viewed on the Bloomberg Professional service, a tag appears indicating whether the security “is a covered fund,” “is not a covered fund” or “legal review required.”
The tool can also help buy-side firms discover market liquidity and price discrepancies for covered funds.
“Banks and other financial institutions are still struggling with the requirements to identify and monitor instruments affected by the Volcker Rule,” said Ilaria Vigano, Head of Regulatory and Accounting Products at Bloomberg. “Working directly with industry stakeholders, Bloomberg developed a way for traders and back office teams to eliminate the need to conduct lengthy manual reviews of portfolios. Now, more than a dozen banks are using our tool to verify which investments are covered and build a compliance program that helps ensure covered funds are not reacquired.”
. Allianz Global Investors Names Global Head of Fixed Income
Allianz Global Investors has recently promoted Franck Dixmier as global head of Fixed Income. He has also joined the global executive committee.
In addition to his new duties, Dixmier remains chief investment officer Fixed Income Europe and CEO of Allianz Global Investors France. Dixmier joined Allianz Group in 1995 as fixed income portfolio manager.
He became head of Fixed Income at AGF Asset Management (former AllianzGI France) in 1998. In 2008, Dixmier became a member of the executive committee and chief investment officer of Allianz Global Investors France.
He started his career at MACSF as fixed income manager.
Allianz Gl has €454bn of assets under management as at 31 March 2015.
The lack of hedge funds’ excess returns since the financial crisis put the industry under rising pressure. The 12th edition of the White Paper by Lyxor Research issued this month, “A New Era for Hedge Funds?”, reviews the causes and identifies the key hedge fund performance drivers. Lyxor puts to test these drivers under 3 long-term macro-economic scenarios. It is reasonable, in their view, to expect hedge funds to deliver an annual excess returns in the 5-6% range above the Libor 3M, with low volatility.
Criticism against the lack of hedge funds outperformance climaxed in 2014. Hedge funds have underperformed traditional asset classes since the financial crisis. Despite its outstanding track record over recent decades, the industry has come under rising pressure.
The collapse in volatility and yield might be the main culprits. Volatility neared the mid-90’s all time lows in 2014 as a result of a combination of factors. According to the White Paper the unprecedented global monetary reflation was undoubtedly the most powerful one. Subject to growing risks constraints and a positive correlation between equity and bonds, hedge funds only partially benefitted from the asset reflation which unfolded since the financial crisis. Meanwhile the plunge in volatility and asset dispersion shrunk the potential for alpha generation. Lyxor emphasizes that the Volatility / Correlation / Dispersion regimes are key hedge fund return factors. For instance, a low volatility environment is negative for alpha generation and this has hurt hedge fund performance during the time the Fed has tamed volatility with its QE programme. One response of the hedge fund industry was to significantly lower both management and performance fees.
A sustainable inflection in market regimes unfolded since mid-2014. Reflation policies, as highlighted by the study, have indeed inflated DM financial assets. Valuations are stretched in most classes. The economic cycle is maturing, and the Fed policy is about to normalize. As a result, the alpha environment has improved, while that of the traditional asset management is getting more challenging. As of end-May, the Lyxor Hedge Fund Index is up 4% year to date, while the S&P 500 in total return is up 3.2% and 10y sovereign bond prices are in negative territory both in Europe and in the US. It is no coincidence that hedge fund assets keep on breaking their highs, going north of $3tn.
In this white paper, Lyxor evaluates the drivers of hedge fund returns. It tests their structural exposures under 3 macro-economic scenarios over the next 5 years. Using conservative assumptions, the study estimates that hedge funds could deliver annual excess returns in the 5-6% range over the Libor 3M, with lower volatility than that of risky assets. In order to reach these expected returns, hedge funds would have to deliver alpha in the range of 3-4% per year, the rest being market beta. The research sets several scenarios for market developments and their influence on hedge fund return, finding that a scenario in which the Fed tightens faster than expected by the market would boost hedge fund returns. Meanwhile a scenario in which the US economy would face secular stagnation, leading to continued monetary easing would be the less supportive.
LyxorAM believes that diversifying portfolios with an increased allocation to alternatives is particularly attractive at this stage of the cycle. According to the firm, hedge funds have demonstrated their ability to protect portfolios against wide market fluctuations, a scenario that cannot be excluded when the Fed turns the screw.
CC-BY-SA-2.0, FlickrPhoto: Paul Falardeau. BofA Merrill Lynch Fund Manager Survey Finds Investors Hiking Cash Holdings in the Face of Lowered Confidence in China
Global investors have raised their holdings of cash significantly in response to a weaker global economic outlook, particularly in China, according to the BofA Merrill Lynch Fund Manager Survey for July. Overall, equity allocations are unaffected by the higher risk aversion, however.
Main findings:
Confidence in the global economy falls sharply: 42 percent of investors expect strengthening over next year, down from 55 percent a month ago.
China heads concerns: net 62 percent expect economy to weaken in next 12 months; eight out of 10 see GDP below 6 percent by 2018.
Cash levels soar to highest level since 2008 crisis – 5.5 percent of portfolios; gold judged undervalued for first time in five years.
Increased pessimism on China led further weakness in assets linked to China: Commodity allocation drops to six-month low, and Global Emerging Market equities stays as most unloved region with allocations at 16-month low.
Bonds still seen as much more overvalued than equities and more at risk of volatility-driven crash; equity overweights rise to net 42 percent.
U.S. dollar bullishness strengthens despite postponing of expected U.S. rate rise to Q4 2015 or later, replacing June consensus of Q3.
Appetite to overweight European stocks rises, although potential eurozone breakdown now biggest “tail risk.”
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Despite the Greek newsflow, intention to own European assets is high and rising, though global growth remains vitally important for European stocks,” said Manish Kabra, European equity strategist.
Dagong Europe has published a commentary entitled Luxury Industry: Grow Big or Stay Niche – Upcoming Season Trends. The commentary gives an overview of the main trends and developments in the luxury industry, examining the drivers in its future development. It also considers the comparative positioning, strategies and market approaches of the main luxury players, focusing on the strengths and weaknesses of the changing Chinese market.
“The global luxury market grew +3.3% in 2014, the lowest since 2009, underpinned by the subdued European economy, the recent US recovery and changing consumer habits in the Asia-Pacific region”, says Richard Miratsky, Head of the Corporates Analytical Team.
“While the luxury sector is dominated, in terms of revenues, by the three major European brand-aggregators, the niche approach of smaller players has proven successful in the super-premium segment. Although very different, both strategies are effective in the current market conditions, if strong brand identity is supported by extraordinary customer experience, excellent service, effective media communication and wise geographic store location – the key drivers of success in luxury”, concludes Mr Miratsky.
“Future developments in China’s rapidly slowing luxury market are a major concern for the main players. In 2014 luxury market revenues in China reached EUR 16.8Bn, up by 4.3% year-on-year” adds Marta Bevilacqua, Director of the Corporates Analytical Team. “European players will have to manage the Euro depreciation that is encouraging the Chinese habit of travel-for-luxury shopping and undermining the sector’s margins; and the anti-bribery campaign which has constrained the historically high volumes of absolute-luxury gift-giving”, concludes Ms Bevilacqua.
Dagong Europe expects the European majors to employ new strategies to refocus on personal luxury, relying not only on brands but on quality, and implementing new value propositions to encompass the affordable luxury segment.
Main findings:
Luxury sector to sustain mild growth in the medium term, despite the subdued world economy. Emerging markets, led by China, should support industry growth at lower-than-before averages, but volatile macro patterns and political interference poses significant uncertainties.
Although size carries weight in the luxury industry, smaller players can defend their niches. Large groups can build on their extensive knowledge and experience in creating and maintaining a strong multi-brand environment. Significant synergies and economies of scale in logistics, marketing, sales channel development and back-office functions can also be achieved. For smaller players, niche strategy has been effective only where product quality and brand perception have justified extra-premium prices.
Two crucial attributes emerging behind success in the luxury sector: the combining of history and innovation. Successful brands are able to blend the past, evoking the brand attributes and distinctive style, with new technologies, enhanced services, alternative retail channels and new customer experiences.
Although the mega-mergers of the past are unlikely to re-occur, we expect a substantial number of smaller deals in the coming years. The luxury sector is quite fertile ground in terms of deals and M&A transactions, with the majority of deals closed in Europe. 202 acquisitions took place globally in 2000-14.
SMEs operating in the luxury sector have been historically reluctant to tap the financial markets. The root causes are historical family ownership of luxury companies that have grown on brand recognition, linked to iconic founders and a view that long-established brand unicity is compromised by ownership dilution. Instead, bank debt, equity injections and strong cash flows have historically been the standard funding sources for investment.
Considering the qualitative and quantitative factors, our peer group of European major companies is generally well-positioned within the mid-to-low investment grade range. Although intrinsically different, LVMH and Hermès both position strongly among luxury peers due to their strong financial profiles and successful, divergent strategies. We see Prada as the weaker peer due to its need to streamline the business model and strategy.
. Aviva Investors Continues to Grow Global Equities Team
Aviva Investors, the global asset management business of Aviva plc (‘Aviva’) announces the appointment of Giles Parkinson as Global Equities Fund Manager. He is based in London and reports to Chris Murphy, Head of Global Income, Equities.
In this new role, Giles will work closely with Richard Saldanha on Aviva Investors’ Global Equity Income Fund and across global equity portfolios.
Giles has 10 years’ investment management experience. He joins from Artemis where he was Analyst and Fund Manager on the £1 billion Strategic Assets Fund which he worked on from launch in 2010. Prior to this, he was Global Research Analyst, Oil & Gas at Newton Investment Management.
Chris Murphy, Head of Global Income, Equities, said: “I am delighted to welcome Giles to Aviva Investors. He brings with him a strong pedigree in managing global equity mandates and a deep level of analytical skill across sectors. Giles’s experience will stand us in good stead as we continue to develop our equity proposition in response to changing client requirements.”
CC-BY-SA-2.0, FlickrFoto: Jason Bachman. Demasiado pronto para proclamar la defunción del mercado alcista
Global asset management industry assets under management (AUM) will reach US$106 trillion by 2019, with the non-US percentage share exceeding 50% at the close of 2015, according to the 14th iteration of Cerulli Associate’s flagship report–Global Markets 2015: Key Insights into a Dynamic Landscape. However, managers need to be realistic about the efforts required to win business in high-growth markets.
2015 could be a good year for managers wishing to target Brazil. Positive regulatory changes and the establishment of a truly independent distribution network will further open the market to cross-border managers and fuel demand for global products. Managers should not be deceived by seemingly sparse opportunities elsewhere in Latin America. Chile’s retail segment may look unappetizing because of its tiny asset base but it has great growth potential, while the fast-growing pension market in Mexico is looking increasingly attractive for cross-border managers.
As managers continue their distribution push into Europe, they would do well to keep the growth potential of some markets in perspective. In a Cerulli survey, Spain was cited by firms as a key target in 2015. “Cerulli believes that the market will continue to grow at a healthy pace, yet slower than the one seen over the past couple of years,” said Barbara Wall, Europe research director at Cerulli. “Fund-of-funds vehicles are the cross-border asset managers’ favorite point of entry and this segment is booming–total assets in 2014 grew more than 100% from €15 billion (US$18.2 billion) to €30.6 billion. What is also important is that the majority of these vehicles, 96%, are ex-house–they invest primarily in non-proprietary funds.”
“China may be the jewel in the crown from a growth perspective, but regulation continues to favor local managers,” said Ken F. Yap, director of global analytics at Cerulli. “With the local market firing on all cylinders appetite to invest overseas is minimal. There is also a wealth of private banking and insurance products that offer both liquidity and attractive returns. China is a long-term proposition, but one that cannot be ignored.”
Taiwan has long been held as the most accessible market in the region with offshore assets increasingly overshadowing those onshore. Last year, offshore fund AUM grew by 21.8% led by bond funds. But there is a fly in the ointment. Managers may soon find their distribution costs rising. The Taiwanese authorities plan to make it mandatory for foreign managers to boost onshore business to obtain fund approvals.
