BlackRock has announced that its iShares business led the global industry by capturing $102.8bn in new flows in 2014, 31% of the record-breaking $330.7bn global exchange traded fund (ETF) market flows.
Growth was driven by the iShares U.S. and European product lines, which continue to be adopted by investors across the globe. The iShares U.S. product line led the way with a record $82.8bn of new assets in 2014, surpassing the previous record for U.S. iShares ETFs of $62.0bn in 2012. In Europe, the business captured $20.3bn in net new flows.
Mark Wiedman, Global Head of iShares at BlackRock commented: “iShares growth this year was driven by two global product lines. Clients from Asia and Latin America continue to use both our U.S. and European ETF suite in record numbers, contributing $19.8bn in net new assets through November 30th.”
“We’re seeing ETFs truly come of age, as more investors around the world recognize and embrace the versatility of these vehicles – whether it’s for their strategic buy-and-hold investments or precision exposures to express a view on virtually any market.
“ETFs have also been discovered by capital market participants, who are using them as efficient substitutes for futures and swaps.”
“Fixed income was a key driver of flows globally, as investors of all kinds increasingly adopt ETFs as an essential instrument for accessing the bond markets. iShares captured $40.3bn globally or 48% of all new flows into fixed income ETFs.”
iShares global AUM exceeded $1 trillion as of December 31, 2014.
Bob Doll desvela sus tradicionales 10 predicciones para el año. 2015 según Bob Doll: Del escepticismo al optimismo
Robert C. Doll, Senior Portfolio Manager, Chief Equity Strategist at Nuveen Asset Management, has released his popular Ten Predictions for the year ahead.
2014 was a year of transition and (mostly) positive surprises: U.S. equities and bonds performed better than most predicted in 2014. The job market surged, consumer and business confidence improved and corporations aggressively put cash to work. Equities experienced double-digit returns, but also endured periods of setbacks, including the first 10% decline in three years. The biggest surprises for 2014 included a further drop in interest rates, a sharp decline in the price of oil and a significantly stronger U.S. dollar. Global economic growth experienced a notable divergence. Europe’s struggles could be tied to still-tentative central bank actions and the impact of Russian sanctions, while emerging economies were hit by falling commodity prices, slow global trade, and selective inflation, credit and liquidity pressures.
“We also believe last year saw several important transitions emerge: U.S. GDP growth from around 2% to the 3% range, core inflation from approximately 1% to 2%, the Federal Reserve becoming slightly less market-friendly and wage gains moving from flat to moderately positive. It also appears to us that we’re moving from an environment where equities and bonds did well to a period in which stocks are likely to advance while areas of the bond market struggle, and from a period of very low to more normal volatility. The phase of the rising tide lifting all boats appears to be ending and investing is becoming more challenging. As such, the importance of security selection will likely increase”, says Doll.
10 Predictions for 2015
1. U.S. GDP grows 3% for the first time since 2005.
2. Core inflation remains contained, but wage growth begins to increase.
3. The Federal Reserve raises interest rates, as short-term rates rise more than long-term rates.
4. The European Central Bank institutes a large-scale quantitative easing program.
5. The U.S. contributes more to global GDP growth than China for the first time since 2006.
6. U.S. equities enjoy another good yet volatile year, as corporate earnings and the U.S. dollar rise.
7. The technology, health care and telecom sectors outperform utilities, energy and materials.
8. Oil prices fall further before ending the year higher than where they began.
9. U.S. equity mutual funds show their first significant inflows since 2004
10. The Republican and Democratic presidential nominations remain wide open.
2015 Outlook
In his view, 2015 is likely to be the year 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,” and we believe we are entering the “optimism” phase. This means 2015 should result in another decent year for U.S. equities as we experience (1) solid momentum in U.S. economic growth with low inflation, (2) a pickup in consumer spending, (3) solid earnings growth, (4) a boost from low commodity prices and financing costs and (5) a relatively solid liquidity environment aided by stimulus from non-U.S. central Banks”.
The United States is likely to experience a surprisingly resilient economy in the coming year, Doll says. The consumer sector should strengthen due to better jobs growth, some improvement in real wage gains and a noticeable pickup in confidence. Investment spending is likely to rise, while the government sector should move from a modest economic drag to a net contributor to growth. Halting recoveries in much of the rest of the world will dampen U.S. export growth but keep commodity and interest costs low. Deflation threats in Europe and Japan should start to ease, while China’s economic growth is likely to slow.
Although equities are no longer a bargain, they offer better value than other financial assets and should outperform cash, bonds, inflation and commodities, says Doll.“Core inflation should remain contained, but wage gains will likely increase. The benefits from the decline in oil prices should outweigh the negatives, although the swiftness of the price decline could cause dislocations and credit issues. Other risks include occasional deflation threats, unease associated with monetary tightening and unknown consequences of the significant decoupling in growth between the U.S. and the rest of the world. Even though equities are likely to advance further, the pace of gains that occurred during the massive run-up since the 2009 market low is likely to falter. We are expecting to see average annual returns somewhere in the mid-to-high single digit range. Within the equity market, we prefer mid-cycle cyclicals, companies that can generate positive free cash flow and those with higher levels of domestic earnings”.
Photo: Peter Eerdmans Co-Head of Emerging Markets Fixed Income . Investec's Peter Eerdmans Sees More Room for Positive EMD Returns this Year
As he reflects on events in 2014 and looks forward to the coming months, Peter Eerdmans, Co-Head of Emerging Market Fixed Income at Investec AM, sees more room for positive EMD returns this year.
How did EMD perform in 2014?
2014 was an eventful year for emerging markets, characterised by geopolitical risk and volatility. 2014 was, however, better than 2013, when there was a lot of negativity about emerging markets. Since then people have started to re-engage with emerging markets. They rallied through the spring and summer, but when the dollar started strengthening the markets ran into resistance again. Nevertheless, emerging market bonds have continued to post positive returns on the year, as many emerging markets have reached a level of economic maturity that allows them to benefit from low global inflation. EM currencies have been more mixed, as some economies require further adjustment to cope with tightening US monetary policy. Also, geopolitics has had a major impact on specific countries, notably the Russia/Ukraine conflict, the Argentinian default, and Iraq/ISIS. These themes have impacted local markets but not global emerging markets as a whole, allowing currency selection between countries to offer some protection to investors.
Should we be concerned about rising interest rates and a stronger dollar in the emerging economies in 2015?
The markets will have to work with rising interest rates from here and with that probably a slightly stronger dollar. We will have to navigate the portfolios through those times. But we do not think that there will be either excessive interest rate rises in the US or excessive dollar strength. The US also has its issues. Trend growth is lower, which means we are unlikely to see a strong US dollar bull market, as in the 1980s and the late 1990s.
The asset class has re-priced: we think emerging markets are a lot cheaper and a lot more is priced in. Emerging markets have implemented reforms and now have flexible exchange rates, their current accounts look better, external debt is lower, and FX reserves are healthier. To re-cap, many key factors in emerging markets are stronger today than in previous crises, so we think emerging markets will perform better in future crises. Of course, there will be times when we have to adjust the portfolio more tactically to protect it, but there will be other times when emerging markets will perform well.
What are the biggest risks to these views?
One of the key risks is monetary policy withdrawal, i.e. less easing and more tightening over the next year or so. But as outlined above, we think that emerging markets are well placed for that. We also think that they will react with more positive reforms. Emerging markets have had an easy decade. Quantitative easing made it very easy, as a lot of money flowed into emerging markets.
Another risk is China. A key question is: Will we see a hard landing that will impact Asian markets and commodity prices further? We think that the Chinese have all the levers to navigate their growth gently slower as they rebalance their economy. Notwithstanding this, we believe there is going to be a moderate slowdown in China, which we think emerging markets will be able to withstand. There will be winners and losers from slower growth in China — countries such as Turkey and India which compete with China for commodity imports will benefit as the price of those commodities fall.
How are you positioning your different strategies?
We run a lot of different strategies. Broadly speaking, we prefer markets that are weighted towards manufacturing. Asia is a region that we like, especially as regards to currencies. We are more cautious about rates. Latin America will be slightly more challenging, in terms of growth, because of the predominance of commodities in that region. Overall, we like bonds better than currencies because our inflation outlook sees moderating inflation and lower inflation should help bonds. We are more neutral on currencies, as although they offer value they are faced with a dollar headwind. We focus on relative plays, on picking the right countries to be overweight and picking the right countries to avoid.
Photo: Valentijn van Nieuwenhuijzen, head of Strategy Multi-Asset at ING IM . Investors Expect Deflation in Europe and QE by the ECB in 2015, ING IM Survey Reveals
According to the latest Risk Rotation survey released by ING Investment Management (ING IM), 64% of institutional investors expect the ECB to introduce quantitative easing (QE) measures this year, almost one third (27%) sees first measures to take place in the third quarter of 2015.
The research, which is based on a survey among 152 institutional investors, also revealed that half of all respondents consider a deflationary Japan-style scenario in the eurozone to be ‘moderately likely’, while 13% see it as very likely. Only 23% of investors believe that the eurozone will not enter deflation.
Valentijn van Nieuwenhuijzen, head of Strategy Multi-Asset at ING IM says: It is clear that there are very real concerns of a prolonged period of deflation which could – if investors are correct – twist Draghi’s arm when it comes to implementing a Sovereign QE programme in early 2015.
Other than a potential Eurozone crisis, investors cited interest rate rises (50%), Chinese hard landing (47%) and a fiscal shock (37%) as the most significant risks posed to investment portfolios.
With regard to asset allocation, 40% of institutional investors surveyed say they have maintained their positions in terms of risk over the past six months. European investors appear to be the most bullish when it comes to risk, with 32% having increased their appetite in recent months, compared to 29% for all investors.
Wikimedia CommonsIan Warmerdam, Manager of the Henderson Global Growth Fund and the Henderson Gartmore Global Growth Fund. Henderson: “There Are New Themes Emerging with The Potential to Become A Fruitful Source of Long-Term Growth Ideas”
Ian Warmerdam, Manager of the Henderson Global Growth Fund and the Henderson Gartmore Global Growth Fund, shares his outlook for 2015.
What lessons have you learned from 2014?
Market sentiment can turn very quickly and it is vital to possess strong conviction in your investment ideas. Strong conviction can only be attained via a thorough understanding of the risks and opportunities associated with each individual investment in the portfolio. In this respect, our two-stage process of fundamental analysis is key to gaining this comfort with the underlying thesis. During 2014, indiscriminate market ‘sell-offs’, not uncommon five years into a market recovery, provided both attractive entry points for new stocks and also the chance to add to our existing holdings with highest conviction.
Where do you see the most attractive opportunities within your asset class in 2015?
As we look to 2015, we continue to see compelling investment opportunities within our five existing themes, namely; Health Care Innovation, Internet Disruption, Paperless Payment, Energy Efficiency and Global Brands. We are also seeing some new themes emerging with the potential to become a fruitful source of long-term secular growth ideas, one of which is Factory Automation.
What are the biggest risks?
One of the biggest risks for the global growth strategy would be a period of sustained underperformance for the US stock market versus the wider universe. The fund’s overweight position in this market is almost solely a function of where we see the most undervalued areas of secular growth at this particular point in time.
Are you more positive or negative now than you were 12 months ago on the economic and investment outlook, and why?
We claim no ability to predict the short-term direction of the markets. However, through positioning our fund towards securities that we believe are undervalued and that are exposed to strong secular tailwinds of growth, we remain confident in our ability to generate strong absolute and relative returns over the long term.
. Are Valuation Divergences in Equities Justified?
As always, the question for equity investors is whether the risk/reward trade off is compelling enough.
Beginning 2015, investors have been ascribing an ever wider price-to- earnings multiple for developed markets relative to emerging markets. This divergence made sense as the United States, in particular, has delivered earnings growth and improving returns on equity (ROE), whereas emerging markets have not, explains a recent research by MFS.
Developed market valuations
Only in the US equity market has the forward P/E been trending higher, said the firm, reinforcing the importance of continued US corporate earnings and sales growth. Apprehensive that US margins might be stretched, investors are worried whether the momentum can continue. Yet with wages rising slower than revenues, energy prices falling and interest rates remaining low, we are not as concerned. Nevertheless the prospect of Fed rate hikes in 2015 has the potential to cap further upside in P/E multiple expansion, suggest the team of MFS. Historically, market indices have tended to peak no sooner than four months before the first rate increase and edge lower after a series of rate hikes, so there is precedent for caution.
Presuming forecast earnings can be delivered, many other DM regions look relatively inexpensive on valuation. In both Japan and Europe, the report card for 2014 will likely show that unprecedented policy support is simply not transmitting into growth in the broader economy. While Prime Minister Abe’s “three arrows” and ECB President Draghi’s pledge to do “whatever it takes” were initially well received by markets and generally regarded as defining moments for policy, both economies showed minimal evidence of cooperation with their central bankers.
Japan takes action again
In what was arguably one of November’s biggest macro developments, Japan’s policymakers surprised the markets by announcing a fresh round of stimulus. A few weeks later, data confirmed that the economy slipped into recession in the second quarter, prompting Abe to call an early election to reaffirm his support. Such action could be positive for the Japanese equity market in the short term but may be unsustainable without real structural change to drive durable ROE improvements. While corporate profitability may pick up next year thanks to the weakening yen, our long-term time horizon makes us cautious.
Similarly, the reform and growth picture in Europe is not much brighter, which is why the ECB may eventually be forced to resort to aggressive quantitative easing along the lines of the Fed and Bank of Japan programs. Over the course of next year, however, we do expect financial conditions to ease, with less fiscal drag and a weaker euro also helping to provide some support for eurozone earnings.
China and emerging markets
Not to be outdone on stimulus, the PBOC also announced an unexpected policy easing, which was widely interpreted to provide some near-term stability and limit the danger of a hard landing for China’s economy. This surprise move was yet another example of a central bank’s willingness to do more to minimize downside risk.
Even though MFS recognizes the flaws of considering EM countries homogenous, they generally face a subdued growth outlook. Just a few years ago the bullish EM story seemed so compelling, but now the common denominator across these economies is the difficulty in transitioning from fixed-asset investment to consumption-led growth. Sectors exposed to the theme of a rising middle class — for example, consumer staples and health care — are quite expensive relative to their DM counterparts, creating a dilemma for investors in EM equities, remarks MFS.
Focus on fundamentals
Equity markets are clearly at an inflection point. Outside the US market, which has regained its footing, other regions are still suffering from low consumer confidence, limited capital spending and deflationary pressures, leading to negative earnings revisions and equity market underperformance. Japan has been the only exception, primarily because of the weak yen.
Environments like these are often characterized by far greater stock price volatility than the changes in underlying earnings and dividends warrant. Without a doubt, the global economy remains weak — but it is not deteriorating. With central bankers still willing to provide support until job creation broadens and growth becomes self-sustaining, we believe the case for equities remains reasonable even though valuation support is weaker. We repeat our mantra that there are still opportunities among higher-quality companies with strong balance sheets and earnings visibility, concludes MFS.
JPMorgan Chase & Co. has released “How We Do Business – The Report,” which describes the company’s business practices and standards and reviews how it has addressed recent challenges. The report was initiated in response to a request by a shareholder group led by The Sisters of Charity of Saint Elizabeth.
Specifically, the report highlights efforts the company has been making to re-articulate and re-emphasize its cultural values and corporate standards – with the aim of ensuring that employees internalize these standards and live by them every day. It details many large-scale efforts and investments the company has made to strengthen its control environment through improved infrastructure, technology, operating standards and governance. And it describes the company’s commitment to its customers and to its relationships with regulators, shareholders and communities.
JPMorgan Chase & Co. is a leading global financial services firm with assets of $2.5 trillion and operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands.
Photo: John Stratford. New Year's Resolutions: The Four Ps
“If you’re like many of the people I meet, you just made a New Year’s resolution. And your resolution was most likely about something you want to do more of, less of, or differently. Now, if your resolution has to do with your body, I encourage you to share it — right away — with a friend or mentor, to increase the odds that you will act on it and succeed”, explains Vicky Schroebel, Director of Business Development at MFS.
However, if the resolution is a financial one (spend less, save more, etc.), Schroebel recommends to work with the financial advisor. “There are many financial New Year’s resolutions that I hope you might make over time, but let’s start with the most important one”.
Take control of the four Ps for a successful financial future:
Progress: At least annually it is necessary to review the progress towards retirement savings (or retirement income) goal. This means define or confirm the goal(s).
Protect: “At least annually I will ask my advisor to review what we are doing to protect against the greatest risks to my retirement income, which include taxes and inflation, among other risks”, says the MFS´expert.
Plan: Review annually the plan for the year, focusing on how maximize what you are setting aside for your future needs.
Portfolio changes: It is key make changes to the portfolio/plan based on the above three resolutions, rather than emotionally responding to short-term market swings.
“Take control of your resolutions by seeking support!”, concludes.
Foto: Doug8888, Flickr, Creative Commons. Smart beta, mercados emergentes y bolsa japonesa: estrategias a considerar en ETFs para 2015
BlackRock has released its ETP Landscape 2014 Year in Review. According to the company, the Global ETP industry AUM has grown 15% to over $2.7 trillion, driven by record inflows and increased adoption of ETFs among investors.
“The global ETP industry continues to grow at a double digit pace as ETPs attract a broader base of global investors than ever before. ETPs are being used by capital market participants looking for deep liquidity, to investors seeking precision exposures, to a growing segment of the market using ETFs as buy and hold investment vehicles,” says Amy Belew, Global Head of ETP Research at BlackRock.
“We are forecasting global ETP assets to double to $6 trillion over the next five years”. The secular trends of increased ETP adoption and market expansion contributed to record flows in 2014 and will be the driving forces behind future growth, according to BlackRock.
“The industry will continue to evolve to encompass new users and new uses. This will include, among others, an expanding retail segment in Europe and greater utilization of fixed income ETPs by banks and insurance companies. The breadth of strategies and exposures offered by ETPs, as well as more extensive cross-border investment brought by the globalization of the industry, should enable further market penetration. Regardless of the investment climate, ETPs are increasingly becoming viable alternatives to individual stocks and bonds, derivatives and mutual funds”.
Themes for 2015
Themes to watch in 2015 include smart beta, emerging markets and Japan equity, all of which remain compelling following notable contributions to 2014 flows.
Assets for smart beta equity have quadrupled since 2008. Investor appetite for tailored exposures not available via traditional market cap-weighted funds has accelerated in the past two years. Flows remained robust in 2014 after surging in 2013. Organic growth for smart beta is 18%, twice that of market-cap weighted equity ETPs.
Improved sentiment for emerging markets equity led to inflows of $4.3bn after redemptions reached ($10.3bn) in 2013. Valuations and economic growth levels remain attractive relative to developed markets. Flows into Japanese equity have reached $13.4bn. Still- attractive valuations and aggressive government stimulus makes this an important investment theme for 2015.
The sector, in 2014
According to the report, global ETP flows have reached $267.9bn through November, surpassing the previous full-year record set in 2012.
Increased adoption among institutions, intermediaries and individuals aided unprecedented expansion in the European and US markets. ETPs in Europe gathered $60.8bn, triple the amount last year, as market penetration increased and ECB bond purchases boosted fixed income flows. Accelerating US GDP growth propelled US-listed ETP flows to a record $193.5bn as demand for US equities and fixed income proved resilient.
Fixed income ETPs set a new record, gathering $78.6bn as appetite for yield and slower than expected global economic growth helped assets swell 21% to $430bn.
Two of Europe’s leading pension markets are about to undergo a dramatic shake-up in the new year with the introduction of ground-breaking reforms. In Italy, Cerulli is expecting an imminent change in the law regulating pension fund investments, and from April 2015, retirees in the United Kingdom will no longer be forced to buy an annuity with their pension funds.
The fourth quarter issue of The Cerulli Edge-Europe Edition takes a close look at these developments, and suggests why they represent an ideal opportunity for asset and hedge fund managers to step in and satisfy an expected increase in demand for strategies and products.
“Law ‘703/96’, which has been in force in Italy for the past eight years, is expected to give way to a new regime, sometimes referred to as ‘new 703’ where risk assessment and management will be at the core of asset allocation,” notes Barbara Wall, Europe research director at Cerulli Associates. “It will impact both ‘open’ and ‘closed’ pension funds, worth a combined €46.5 billion (US$57.9 billion)–or just more than 40% of the total Italian pensions industry–by allowing exposure to asset classes that have hitherto remained ‘out of bounds’, including hedge funds, emerging markets, and commodities. We describe the change as nothing short of an ‘investment revolution’.”
Cerulli associate director David Walker says, “The pension landscape in the United Kingdom is also about to see a profound change as pension savers will soon be at liberty to manage their own finances and seek alternative ways of generating an income in their retirement. Retirees will be looking to insurers to manage their longevity risk and asset managers to deal with their investment risk. As a result, we are anticipating greater demand for multi-asset funds, target-date funds, and an increase in the use of drawdown, which will soon become the mainstream option and not just the preserve of the affluent.”
