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DeAWM Hires Carolyn Patton as Head of Consultant Relations for the Americas

Deutsche Asset & Wealth Management (DeAWM) has announced that Carolyn Patton will join as a Managing Director and Head of Consultant Relations, Americas.

Based in New York, Carolyn will report to Mark Bolton, Global Head of Consultant Relations. Regionally, she will report to J.J. Wilczewski, the newly appointed Co-Head of the Global Client Group, Americas, who is responsible for serving institutional investors.

In this newly-created position, Patton will be responsible for cultivating relationships with investment consultants based in the Americas. She will play a key role in helping the region’s leading consultancies access the firm’s global investment capabilities on behalf of their clients.

“I am delighted to welcome Carolyn to the firm, as we are committed to broadening our reach and strengthening our position in the institutional marketplace,” said Mark Bolton. “Carolyn’s connections and depth of experience will be a significant factor in helping consultants and their clients appreciate the full scope of our investment capabilities.”

Patton is the latest high-profile strategic senior hire by DeAWM as it pushes to enhance outreach to institutional investors, expand its institutional product offerings, and continue to build its overall market share in the Americas. In July, the firm announced that J.J. Wilczewski was hired to lead the institutional investor effort, overseeing client coverage and distribution in the Americas region. Over the last six months, DeAWM has added more than a dozen leading asset and wealth management executives to its Americas team while investing in new technology and launching innovative fund offerings.

“Investment consultants are a critical element of our institutional growth initiative in the Americas,” said Jerry Miller, Head of DeAWM in the Americas. “With a full suite of solutions across multiple asset categories and investment disciplines, we believe we have a compelling and differentiated offering for institutional clients in the region.”

Patton brings over twenty years of experience to the DeAWM. Most recently, she was an Executive Managing Director and Principal at Turner Investments, an employee-owned investment manager based in Pennsylvania. From 2005 to 2011 she worked for Janus Capital Group, where she was Global Head of Consultant Relations. Before that, she worked at Morgan Stanley Investment Management both in the Americas and Europe.

Stronger Global Economic Growth Expected Geopolitical Turmoil

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Despite geopolitical turmoil and global economic uncertainties, both the global and U.S. economy appear to be at an inflection point in mid-2014 to a somewhat stronger growth rate despite risks, according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update.

“After an initial global growth surge early in the expansion reflecting an easing financial crisis and aggressive Chinese stimulus, global growth has been running at a sustained but sluggish pace for several years,” said Hoey. “This has extended through the first half of 2014 since two major countries (the U.S. and Japan) were roughly flat in the first half of 2014 while the initial phase of the fragile European recovery from its double-dip recession was quite tentative.”

“There has been a clear improvement in the U.S. labor market in recent months,” Hoey continued. “We expect mid-2015 to represent the transition from five years of U.S. economic growth slightly above 2% to three years of three percent growth in a ‘three-for-three’ pattern. The expected acceleration does not reflect major new sources of strength but rather the fading of several drags, including the fiscal tightening and private sector deleveraging. Thus we continue to expect an ‘eight-year economic expansion’ (2009 to 2017) in the U.S.”

“Geopolitical turmoil has been occurring in a number of locations and appears to have worsened recently. We are hopeful that a major disruption in the flow of oil from Iraq can be avoided, given the location of the Iraqi oil fields. We do expect that there will be continued worry about the flow of natural gas from Russia to Europe this winter. Those worries could hold back confidence in Europe over the next several months even if a major disruption of natural gas supplies to major European countries this winter can be avoided, which is our expectation,” Hoey concluded.

Other report highlights include:

China Sustained Expansion Expected – Contrary to a talked about “Chinese financial meltdown scenario,” Hoey expects a sustained expansion and a gradual downshift in Chinese trend growth over the coming years.
Japanese Expansion Resuming – Japanese real GDP growth should be reported to be roughly flat in the first half of 2014 in a very volatile pattern, according to Hoey.
European Recovery Sluggish but Sustained – While the Ukraine conflict and associated sanctions should weaken Russian demand for imports from Europe and raise uncertainties about the outlook for the European economy, the most likely case for Europe is sustained economic recovery at a sluggish pace over the next several years according to Hoey.

Not All Argentinean Government Bonds Affected by Default

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Not all holders of Argentinean government bonds are affected by the partial default of the country. “Argentina is not facing national bankruptcy, but is only subject to a moratorium, which affects only a part of the Argentinean government bonds”, as Felix Dornaus, Senior Fund Manager for Global EM Hard Currency with Erste Asset Management explains. Only those bonds are affected that have been issued within the framework of the restructuring programme since 2001 and under US jurisdiction. It s still up to legal clarification whether bonds issued under British law are also affected. “All other bonds, both government and corporate bonds, should basically remain serviceable without restrictions”, he points out.

The rating agency S&P had declared a partial default (“technical default”) for the South American country in the previous week. Prior to that a 30-day period had lapsed within which coupon payments on certain restructured government bonds should have been made. While Argentina had deposited the amount required by the due date, the actual payment by Bank of New York, which acts as paying agent for Argentina, was prevented by the arbitral verdict of a New York district judge. According to the verdict, the claims by those creditors that had not participated in the restructuring since 2001 would have also had to be honoured. These so-called holdouts accounted for about seven percent of all creditors at the time.

The negotiations between the Argentinean government and the holdouts are ongoing. It is now crucial to clarify complex legal circumstances and interests. According to Dornaus, the results of these negotiations defy prediction. In the worst-case scenario, the terms of the contract would allow even those creditors to sue for a full servicing of debt that have already given their consent to the restructuring. This group makes up 93% of all creditors of the government bonds that were up for restructuring at the time. “If this were to happen, which from the current perspective is unlikely, and should this lawsuit be successful, Argentina would probably be facing a shortage in foreign currency”, says Dornaus. An agreement is not foreseeable at this point. “We expect months worth of negotiations rather than weeks.”

No risk of contagion for other emerging markets bonds

Until a solution has been found, the fund manager expects elevated levels of volatility, and that includes Argentinean corporate bonds. At the same time, Dornaus does not envisage any risk of contagion for emerging market bonds overall. “Argentina is an isolated case, which is why the development should not come with any significant form of impact on the bonds of other countries.” That being said, the history of conflict between Argentina and the suing hedge funds should be taken into consideration in any future restructuring. In the future the question will not only be how to deal with investors that do not wish to take part in restructuring programmes. Debtors would also have to consider whether they wanted their issue to be based on US jurisdiction again, which would enable district courts to interfere with the sovereign rights of states.

“Even for professional investors in emerging bond markets it is hard to project the future development, given that in the past 35 years there has been no comparable case to this one”, as Felix Dornaus explains. But in any case, Erste Asset Management is only marginally affected by this situation. EAM is basically underweighted in Argentinean government bonds. At EUR 1.6mn vis-à-vis total assets under management of EUR 50.5bn, its exposure in the Argentinean government bonds that are affected by the New York verdict is very limited indeed.

Gold, Inflation and a Higher Oil Price

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As we enter the second half of the year, Bradley George and Scott Winship, Portfolio Managers of the Investec Global Gold Funds, provide their review of 2014 and key drivers of gold market sentiment going forward, in particular the linkage with the higher oil price and higher inflation.

Gold in the year to date

The first half of 2014 saw the gold price up 10%, as weak US economic data raised concerns about the economic recovery and hence implications for the longevity of the Federal Reserve’s quantitative easing (QE), which is currently being tapered.

More recently there has been renewed investor interest in gold. Investec’s Gold Team thinks the following three factors are influencing investors’ appetite for gold.

Is inflation potentially entering the system?

Inflation has long been suggested as a potential consequence of unprecedented money creation by the world’s central banks over the last few years. There are signs that it may slowly be emerging in 2014. Year-to- date US consumer prices have risen at a 2.6% annualized rate. Some of this can be attributed to fuel and food, but examining core inflation shows an acceleration to 2.3% for the first five months of the year versus 1.6% at the end of 2013.

Gold has historically proven to be an excellent hedge against inflation. Goldman Sachs recently produced research which suggests that there is a 91% correlation between US CPI and the USD gold price over the past decade1. The correlation remains strong at 73% when the time period is extended and run from 1970 to today.

Increased geo-political risk

The second factor affecting the gold price is linked to the first. Geo-political tension surrounding the Russia and Ukraine situation tested investors’ risk appetite in the first half of the year and continues to do so. The market has also focused on escalating violence in the Middle East, with particular attention on Iraq. The Investec Asset Management Energy team published the following thoughts on the situation:

“Iraq today produces 3.3m barrels/day, making it the second-largest producer in OPEC, after Saudi Arabia. Over 2.5m barrels/day of this (75%) come from the giant structures in the Southern Mesopotamian Basin, approximately 150km southeast of Baghdad .In our view, these oil fields are not under threat from ISIS at this stage, nor is the key export facility at Basra. If Baghdad falls to the insurgents, which we feel looks unlikely, then these oil installations become vulnerable.

We are forecasting $115 Brent for the second half of 2014. If exports from Southern Iraq are threatened, we believe the move up in international oil prices will be at least $5-$10 from here. If they are physically disrupted for any length of time we expect to see Brent above $130. At such levels we would expect demand rationing.”

The relationship between the gold and oil price exists as oil is a significant input of the world’s activity and hence inflation baskets. If Investec’s Energy team’s view of a stronger for longer oil price is correct it would keep inflation statistics elevated. Over the long term, the gold price has traded at approximately 16x the oil price. Today that relationship is just shy of 12x and arguably represents value for gold if oil remains at these levels.

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Gold price seasonality

The final point is that of seasonality, which has historically led to higher gold demand in the second half of the calendar year and hence better price performance. This is because the Indian monsoon/harvest season boosts incomes and the timing of the Indian wedding season, around Diwali, sees significant quantities of gold purchased as gifts.

Investec believes that the factors discussed above will generate further interest in gold and gold ETF inflows driving the gold price higher.

Deutsche Asset & Wealth Management Renames Retail Product Suite in the Americas

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Deutsche Asset & Wealth Management (DeAWM) has announced that it has renamed all retail products in the Americas, effective on Monday. This change will affect all open-end funds, closed-end funds, the Variable Insurance Portfolios (VIPs) currently named “DWS,” and the db X-trackers exchange-traded funds (ETFs).

“Renaming our products to reflect our integrated platform is the natural next step for our business, as we continue to expand our footprint and leverage Deutsche Bank’s global reach,” said Jerry Miller, Head of Deutsche Asset & Wealth Management, Americas.

“The Deutsche brand better reflects our platform’s global capabilities and our ability to deliver unique, holistic solutions to our growing client base in the Americas.”

As part of the rebranding, Deutsche Asset & Wealth Management’s suite of retail products and ETFs will be renamed as follows:

Current Brand Name				New Brand Name
DWS and DWS RREEF funds				Deutsche funds
DWS variable insurance portfolios (VIPs)				Deutsche VIPs
DWS-branded closed-end funds				Deutsche-branded closed-end funds
db X-trackers exchange-traded funds				Deutsche X-trackers exchange-traded funds

Additionally, the names of three key service providers will be renamed as follows:

Current Entity Name				New Entity Name
DWS Investments Distributors, Inc.				DeAWM Distributors, Inc.
DWS Trust Company				DeAWM Trust Company
DWS Investments Service Company				DeAWM Service Company

DST fund numbers, ticker symbols, and fund objectives will remain unchanged.

Discretionary Programs Growing 50% Faster Than Nondiscretionary

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According to global analytics firm Cerulli Associates, discretionary managed account programs are growing 50% faster than nondiscretionary programs.

“Discretionary advisory platform growth has far outpaced nondiscretionary programs and separate accounts over the last two years,” states Frederick Pickering, analyst at Cerulli. “Nondiscretionary unified managed account programs have grown faster than discretionary programs overall, but their small asset base had little effect on overall weighted growth rates.”

As of year-end 2013, total managed account assets reached nearly $3.5 trillion, representing more than 25% growth over year-end 2012. Cerulli projects the managed account market will exceed $5 trillion in assets under management by the end of 2016.

Strong market returns paired with substantial inflows pushed each program type, except separate accounts, to record asset levels. Though differences exist between sponsors and advisors regarding how to best implement the programs, the recurring revenues and process-driven portfolio management aspects of fee-based relationships have been roundly embraced as the industry’s preferred option for the delivery of wealth management services.

Overall, Cerulli anticipates continued growth of the segment as more advisors adopt the programs, and advisors who already use the platforms transition more clients out of commission relationships.

In their Managed Accounts 2014: Confronting Threats report, Cerulli analyzes the fee-based managed account marketplace, which has been a core research focus since the firm’s inception in the early 1990s. This report, in its twelfth iteration, is the result of ongoing research and quarterly surveys of asset managers, broker/dealers, and third-party vendors, which captures more than 95% of industry assets.

“Advisors have largely accepted that discretionary account management simplifies their business model and allows for greater trading efficiency,” Pickering explains. “Having already chosen to place their faith in their advisors by initiating their relationships, few investors feel the need to be consulted before any possible trades are executed.”

Cutting Trading Costs in Emerging Markets

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Rising wealth in emerging markets is making the companies listed on their stock markets increasingly attractive. Growing disposable incomes from a middle class that adds millions to its ranks every year means higher profits and better returns for investors.

However, buying and selling stocks in emerging markets can incur high trading costs. When these are deducted from gross returns, profits made on equity markets are reduced. It can also be difficult to buy and sell shares in the first place due to relatively lower numbers of investors in emerging markets than the developed world, which makes many equities illiquid.

To counteract the problem and make trading emerging market equity stocks both more affordable and accessible to investors, Robeco has developed a model that estimates stock-specific trading costs.

“Trading costs are disproportionately high in emerging markets,” says Wilma de Groot, portfolio manager for quantitative emerging markets equity for the past year and a quant researcher at Robeco since 2001.

Thought leadership for peers

De Groot’s research has been blended with that of her quant colleague Weili Zhou, who developed the trading costs model, and Joop Huij, who is also a quant researcher. The three authored a 2011 report, ‘Another Look at Trading Costs and Short-Term Reversal Profits’, which has formed significant thought leadership for the asset management industry.

“Our quant products have a relatively low turnover, so we are already cost-aware, but trading costs will become more important as the funds grow,” she says. “We developed a proprietary trading costs model, for our own Robeco trades, so these costs are visible in our tools when we do a trade.”

These cost estimates are reliable predictions for the actual costs that would be incurred when the trade is executed. “The next step is the integration of this trading costs model into our investment process and we have several ideas,” De Groot says.

“The first is that we want to use it to determine our active positions, so if a stock is very attractive, but has very high trading costs, then we will not take our full overweight position.

“The second is to make a connection between the expected alpha of a stock, and the trading cost of acquiring it. Although a stock might be expensive to trade, if it has an attractive alpha, it might still be worthwhile buying that stock.”

Market impacts important

Direct trading costs are fairly straightforward to quantify, but a bigger problem is the impact that a sizeable trade in the shares of an illiquid stock can have on the overall market. If an investor buys or sells a large tranche in one hit, the act of trading can itself move the share price upwards of downwards.

“Trading costs consist of multiple components: there are the fixed trading costs such as commissions and fees, and taxes, which can also be relatively high in emerging markets,” she says.

“But then we have market impact, because the trading volumes are much lower in emerging markets than in developed markets. And we continuously look at how we can further refine our market impact estimates. This is something on our research agenda.”

Relationship with anomalies

New research by the quant team includes a large-scale investigation into the relationship between investment anomalies and trading costs. These include market phenomena such as the momentum effect which has been proven to show that stocks which demonstrate high momentum outperform those with low momentum, contrary to standard investment theory.

“There is a stream of academic literature that argues that profits of well-known anomalies disappear once correcting for trading costs,” De Groot says. “We observed that the strategies used in these articles are, however, very simplistic and include many small- and micro-stocks which are very expensive to trade”.

Indeed, research by De Groot, Zhou and Huij shows that by implementing investment strategies using smart trade rules is a better option. It results in much lower turnover compared to naïve trading algorithms without the loss of gross performance, thus increasing net profits.

More Than 14,000 Investment Professionals Pass Level III CFA Exam, Take Final Steps to Becoming Charterholders

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CFA Institute announced that of 26,882 candidates that sat for the Level III CFA exam in June 2014, 54 percent passed the third and final exam. Pending experience and membership requirements, these successful candidates will become CFA charterholders starting in early October, bringing the number of charterholders worldwide to more than 125,000.

In addition, of 44,796 candidates who took the Level II exam, 46 percent were successful and of 47,005 candidates who took the Level I exam, the pass rate was 42 percent. Globally 54,768 candidates passed Levels I, II, and III, with the overall pass rate for all three levels at 46 percent. (View historical pass rates).

“The candidates that sit for the CFA exam each year are fine examples of those in finance who are committed to putting investors first and building a culture of trust in the industry,” said Steve Horan, CFA, CIPM, managing director and co-lead of Education. “Successful candidates have shown a significant commitment to professional knowledge, education and ethics, and are part of the CFA Institute effort to build a more trustworthy financial industry that better serves society. We congratulate these successful candidates on their hard work and dedication.”

Journey from candidate to charterholder takes commitment

To earn the CFA charter, candidates must sequentially pass three six-hour exams that are widely considered to be the most rigorous in the investment profession. The CFA curriculum includes ethical and professional standards; financial reporting and analysis; corporate finance; economics; quantitative methods; equity, fixed income, alternative investments; derivatives; portfolio management; and wealth planning. CFA Institute has administered well over a million exams since the inauguration of the CFA program in 1963.

The Level I exam is offered twice per year, and the Level II and Level III exams are offered once each year. The Level I exam consists of multiple-choice questions. Level II is composed of item sets (i.e., mini cases with detailed vignettes), and the Level III questions are 50 percent item set and 50 percent short answer and essay. On average, candidates report spending in excess of 300 hours of study to prepare for each level. CFA candidates typically take four years to pass the three required exams. When asked what their primary motivation for registering for the CFA exam is candidates cite career advancement, a higher level of knowledge and improved chances of obtaining a job as the top three reasons.

The 2014 exams were given at 255 test centers in 196 cities, across 91 countries worldwide. Examples of markets with the largest number of candidates that took the CFA exam are the United States (29,625), China (19,395), India (9,516), Canada (10,161), the United Kingdom (8,134), Hong Kong (5,422), and Singapore (2,983).

Last year CFA Institute launched its Future of Finance project, a long-term global effort to shape a trustworthy, forward-thinking financial industry that better serves society. The project aims to provide the tools to motivate and empower the world of finance to commit to fairness, improved understanding, and personal integrity. Recently, as part of the Future of Finance initiative, CFA Institute recognized Putting Investors First Month through a series of events, which spanned the month of May. The initiative united financial professionals throughout the world in a commitment to place investor interests above all others. Putting Investors First Month activities took place in more than 60 cities throughout the world, with participation from many of the 125,000 CFA Institute members.

BlackRock Launches Multi-Manager Alternative Strategies Fund

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Foto: Alanas Pantry, Flickr, Creative Commons. Ventajas que aportan al inversor los fondos perfilados

BlackRock launched the BlackRock Multi-Manager Alternative Strategies Fund, designed to offer individual investors the opportunity to access multiple alternative investment strategies in a single open-end mutual fund. The investment objective of the Fund is to seek total return. The fund was launched in the United States.

BMMAX extends BlackRock’s alternative mutual fund platform to seven funds, further establishing the firm as one of the preeminent providers of alternative investment solutions globally, with more than $115 billion in assets under management (at 6/30/14).

“Following the market volatility of recent years, it is critical for investors to understand that exposure to a wider range of investments is necessary as part of a core investment strategy,” said Ken Barbuscio, head of product and platform development for BlackRock’s U.S. Wealth Advisory Division. “BMMAX provides individual investors with a way to diversify across alternative investment managers and strategies in a single portfolio solution.”

BlackRock is responsible for identifying and retaining Sub-Advisers for the Fund’s selected strategies and for monitoring the services provided by the Sub-Advisers. Mark Everitt, CFA, Albert Matriotti, David Matter, CFA and Edward Rzeszowski are jointly responsible for setting the overall investment strategy and overseeing the management of the Fund.

The Fund allocates fund assets among alternative strategies managed by BlackRock and external sub-advisers including:

Benefit Street Partners, LLC – Fundamental Long/Short
Independence Capital Asset Partners, LLC – Fundamental Long/Short
LibreMax Capital, LLC – Fundamental Long/Short
Loeb King Capital management – Event Driven
MeehanCombs LP – Fundamental Long/Short
PEAK6 Advisors LLC – Relative Value
QMS Capital Management LP – Directional Trading

Pioneer Investments Appoints Lisa M. Jones Head of the U.S.

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Pioneer Investments incorpora a Lisa M. Jones como responsable del negocio en EE.UU. — CC-BY-SA-2.0, FlickrLisa replaces Daniel K. Kingsbury. Pioneer Investments Appoints Lisa M. Jones Head of the U.S.

Pioneer Investments, a global asset management firm, has announced that Lisa M. Jones has been named Head of the U.S. In this role, she will serve as President and Chief Executive Officer of Pioneer Investment Management USA Inc., the U.S. Division of Pioneer Investments. Lisa will be a member of Pioneer’s global leadership team and will report to Sandro Pierri, Chief Executive Officer of Pioneer Investments. She will start on August 11, 2014 and be based in Boston.

Lisa has over 25 years of experience in financial services, including multiple leadership roles in which she was responsible for developing and building asset management businesses. She joins Pioneer Investments from Morgan Stanley Investment Management (MSIM), where she was Global Head of Distribution and President of MSIM Distribution Inc., a position she left in 2013. Prior to MSIM, she was Head of the Global Institutional Division at Eaton Vance Management and spent more than 16 years at MFS Investment Management where she held leadership roles in both the retail and institutional divisions. She has been an active member on a number of boards, including the Foreign Policy Association in New York, the Board of Fellows at Trinity College, Hartford, Ct., and the Advisory Board of the Institutional Investor Institute. She earned a B.A. in Economics from Trinity College.

“Pioneer Investments’ U.S. Division is a critical and integral component of our global strategy, and Lisa’s hiring is an important step forward in accelerating the growth of our already strong U.S. business,” said Pierri. “Lisa is a proven performer in distribution and overall product and business strategy, and is an energetic, results-driven leader. Her experience and leadership skills will be significant assets in helping us achieve our growth objectives in the U.S.”

Pioneer’s U.S. Division, based in Boston, has approximately $72 billion in assets under management and 560 employees, including 79 investment professionals and a sales and marketing staff of more than 150. The division manages a wide range of equity, fixed-income, multi-asset, and alternatives strategies for retail and institutional investors in the U.S. and international markets. Boston is one of Pioneer’s three major investment hubs, with others located in Dublin and London.

Lisa replaces Daniel K. Kingsbury, who will remain at Pioneer until September 5, 2014 to assist with the transition. His departure follows a successful 15-year career at Pioneer, including the last seven as Head of the U.S. “Dan’s extensive experience as a global manager played an essential role in driving the expansion of the U.S. and its integration with Pioneer’s global capabilities. We greatly appreciate his dedication and service,” Pierri said.