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Rediscovering Japan

Historically, Japan has been a difficult market for many overseas investors to fully comprehend, with several misconceptions about the Japanese corporate sector likely weighing on decisions to initiate or increase allocations. “Why should I invest in a market with little to no economic growth?” is still one of the most frequently asked questions about Japan, even though the Japanese equity market has become a healthy one driven by corporate fundamentals and earnings since valuations normalized post Global Financial Crisis (Chart 1), and a sizable gap between corporate and economic performance has grown over the last 30 years. In fact, recurring profits have nearly tripled since the 1990’s, while Japan’s nominal and real GDPs have essentially been flat (Chart 2).

Chart 1: Historical TOPIX Performance vs EPS

Source: Bloomberg March 2022.

Chart 2: Japan’s GDP vs Corporate Earnings

Source: Datastream, March 2022.

A low Return on Equity for the market overall has been another common reason given by investors for not being able to fully buy into Japan. While it is true that a large percentage of the Japanese companies listed on the TOPIX index have low ROEs, that doesn’t mean there isn’t an abundance of investment opportunities in the Japanese equity market. Only 21% of TOPIX constituents have an ROE above 15% compared to 58% of stocks listed on the S&P 500, but because the TOPIX is a much broader index, there are actually 378 companies with an ROE above 15% listed on the TOPIX compared to 275 issues for the S&P 500 (Chart 3). Additionally, the companies with high ROEs in Japan are trading at much more attractive valuations than those in the US (Chart 4), providing investors with a sizable universe of cheap quality stocks.

Chart 3: Stocks with ROE of 15% or higher

Chart 4: Valuations of stocks with ROE of >15%

Source chart 3 y 4: Nomura Asset Management based on FactSet data as of March 2022.

More importantly, perhaps, Japan’s capital markets are modernizing, and even companies with lower ROEs may present attractive investment opportunities as corporate governance reforms and increased engagement activity continue to facilitate positive changes in corporate attitudes and improved capital efficiencies. Shareholder returns, which we believe is a key indicator of this change, have already doubled from 10 trillion JPY to over 20 trillion JPY since 2013, but there is still plenty of room for further growth. Nomura Asset Management will look to help accelerate these changes and shareholder return trends through active engagement that leverages our position as a leading presence in the Japanese equity market.

In addition to the above, there are many shorter term reasons to take a closer look at Japanese equities now. The Japanese market is trading at its most attractive valuations relative to global equities in 50 years, and the real effective exchange rate shows the Japanese yen is even cheaper than in 1985 before the Plaza Accord.

Inflation in Japan is also still in the managable 2% range, putting the BOJ in a unique position amongst central banks of developed markets where monetary policy will likely remain accomadative until at least next spring. A potential global economic slowdown will obviously impact Japanese equities, but the expected recovery in domestic consumption and the full fledged re-opening of Japan are expected to help offset any expected downturns in the global macro environment. In the end, we believe there are many Japanese companies that are underappreciated global market leaders in key industries of the future. It is our hope that Nomura Asset Management will be able to aid investors rediscover Japan and take advantage of the compelling opportunities being provided by the market.

Disclaimer
This report was prepared by Nomura Asset Management Co., Ltd. (“NAM”) for information purposes only. Although this report is based upon sources we believe to be reliable, we do not guarantee its accuracy or completeness. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions, and each investor should evaluate their ability to invest for the long term. Unless otherwise stated, all statements, figures, graphs and other information included in this report are as of the date of this report and are subject to change without notice. This material should not be considered investment advice and is not intended in any way to indicate or guarantee future investment results. Further, this report is not intended as a solicitation or recommendation with respect to the purchase or sale of any particular investment. This report may not be copied, re-distributed or reproduced in whole or in part without the prior written approval of Nomura Asset Management Co., Ltd.

Certain information discussed in this material may constitute forward-looking statements within the meaning of the U.S. federal securities laws. Although NAM believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected.

Long Term Investing – Secular Growth Explained

| For Cecilia Prieto | 0 Comentarios

Why do we invest in equities? A key reason is that equity investments compound over time. By investing $100 in a company that grows 10-15% per year for 20 years, that $100 turns into $673 at a 10% compound rate, or $1637 at a 15% compound rate. In comparison, a 3% bond would return $181 for the same period.

These 10-15% “compounders” are not as difficult to find as one might think, with many being household names: Google, Mastercard, and Louis Vuitton. We call them “secular growers” – high quality companies with favourable secular trends (digital advertising, cashless payment, and luxury democratisation respectively).

This strategy has served many investors well over the decades. However, as “growth” stocks have underperformed the broader equity market more recently, one question emerges: is it the end of secular growth investing?

To answer this question, we examine the two main causes for the recent “growth” stocks’ underperformance:

1. Secular growth: paused or broken?

The Covid-19 pandemic accelerated some secular growth trends. One example is e-commerce. Before the pandemic, US e-commerce sales had been growing at over 9% per annum between 2009 and 2019. E-commerce penetrations (as a percentage of the total US retail sales) rose from 12.2% in 2009 to 20.8% by 2019, or roughly 0.9% increase per year. In 2020, e-commerce penetrations soared due to lockdowns: from 20.9% in December 2019 to 26.8% in April 2020 – pulling forward four years of e-commerce growth in just four months (Figure 2).

Some of the pull-forward effect will stick – for example an octogenarian who learnt how to shop online in 2020 might continue to shop online in future. But in 2022 there is some normalisation between online and off-line shopping, as the world reopens.

This “pull-forward and pause” effect was evident in Amazon’s financial results. Amazon’s online stores sales year-on-year growth rate jumped from 24.3% in Q1 2020 to 47.8% in Q2 2020. The growth rate stayed around 40% for four quarters, before starting to moderate in 2021. Since Q3 2021, Amazon’s online sales have barely been growing at all.

We try to look through the Covid boost, by examining the 3-year period between 2019 and 2022. The annualised growth rate between 2019 and 2022 is around 20% – suggesting that secular growth remains healthy (Figure 3, red line). Indeed, Amazon’s year-on-year growth rate should recover to 15% by late 2022, according to FactSet consensus estimates, in-line with the long-term secular growth trend.

Similar patterns also occurred in connected TV (Netflix and Roku), social media (Facebook and Snapchat) and some software applications (Adobe and Asana). Almost anything with a screen attached.

2. Rising bond yields compress equity valuations

Not all secular growth stocks experienced the same Covid impact. For example, we look at Adyen, a modern merchant payment service provider.

Adyen’s revenue grew 28% in 2020. Despite a strong 2021 when its revenue grew 46%, Adyen is still expected to grow 39% in 2022. Further, consensus 2022 expectations, for revenue and profits (EBITDA), had not changed in the last six months between November 2021 and April 2022. Yet, Adyen’s share price dropped over -40% over the same period (Figure 4).

What happened? Valuation. Adyen’s valuation, in terms of the EV/EBITDA ratio, shrunk -46%, driving down the share price despite no changes to business fundamentals (Figure 5).

Inflation concern is the main reason for the valuation compression. Higher than expected inflation triggered fears that central banks would have to raise rates more aggressively than previously anticipated.

Higher rates hurt “growth” stocks more than “value” stocks. This is because when we value equities using Discount Cashflows, “growth” stocks’ cashflows are further in the future and therefore more sensitive to changes in discount rates. As illustrated in Figure 6, as the 30-year Treasury yield rose from 2.0% in November 2021 to 3.0% in April 2022, a “growth” stock’s valuation drops -30%, while a “value” stock’s valuation drops -15%.

In short, the combination of secular growth trends taking a pause and the valuation compression from rising rates, both occurred in late 2021, caused “growth” stocks to underperform.

Now, is this the end of secular growth investing? It is down to two factors:

1. Is the secular growth trend broken?

We must assess each individual secular trend carefully. Some growth trends could sustain (digital cloud adoption), some are taking a pause (e-commerce and connected TV), while some might revert back to 2019 (in-house fitness?).

Staying with our e-commerce example, the US e-commerce penetration was 24.5% in February 2022. In comparison, the Chinese e-commence penetration already reached 34.1% in 2019 and jumped to 52% in 2021, according to eMarketer. The US e-commerce penetration had been rising by 0.9% per year in 2009-2019. If a similar adoption trend continues from 2022, the US e-commerce could continue to grow for at least 10 more years, before reaching China’s 2019 levels (Figure 7).

2. Is valuation sensible?

It’s difficult to be definitive in absolute terms, but relative valuations are certainly becoming interesting.

Which of the following companies would you prefer to own for 5 years: A or B, and C or D?

Solely looking at the numbers, most would prefer Company A to Company B, and Company C to Company D. A and C have far superior financial metrics, despite trading at similar valuations to B and D.

Company A is Google, B is Duke Energy (electric utilities), Company C is Microsoft and Company D is General Mills (food staples). In a volatile environment, “value” stocks, such as Duke Energy and General Mills, are in favour due to safe-haven status. These stocks may deserve some capital allocation currently. But over a longer time-horizon, it’s secular growers like Google and Microsoft that deliver strong returns to patient investors.

To conclude, the underperformance of secular growth stocks since November 2021 can be attributed to a combination of 1) secular growth taking a pause to digest covid gains; and 2) rising bond yields compressing equity valuations. Now, the questions for secular growth investors to figure out are: 1) are long-term secular growth trends intact or broken; and 2) is the valuation reasonable? If both answers are yes, then secular growth investing should continue to deliver long-term gains.

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Reasons To Take A Look At The Convertible Bonds Market

| For Cecilia Prieto | 0 Comentarios

U.S. equities were almost unchanged in May despite the heightened volatility seen throughout most of the month. April’s sell-off continued well into the month, as the S&P 500 dropped below the bear-market threshold on May 20th. While the market has rallied since that point, investors are skeptical whether that rebound represented a real move off the bottom or a bear-market rally. As Q1 earnings season came to a close, companies highlighted the impacts of higher inflation, a challenging labor market, rising interest rates and ongoing supply chain woes.

The Russia-Ukraine war, which now has lasted over three months, has sent economic shockwaves through Europe and the rest of the world. Supply chain disruptions and surging commodity prices, caused by the war in the Ukraine-Russia region, have greatly increased the prices of energy and food costs worldwide. Unfortunately, it does not look like the conflict will be resolved any time soon, and it is difficult to see how a Putin-led Russia would be re-integrated back into the global economy.

M&A activity remained robust in May with more than $453 billion in announced deals in the month. This was only 3% lower than May 2021, and a sequential increase compared to the $421 billion announced in April of this year. Through the end of May, deal volume totals $1.9 trillion, a decline of about 10% compared to the record breaking activity in 2021. The combination of market volatility, and the expectation for continued Fed rate hikes to combat persistent inflation, contributed to spreads widening on pending deals.

In the face of wider spreads, deals continued to receive regulatory and shareholder approvals, and to close including Zynga’s (ZNGA-NASDAQ) $12 billion acquisition by Take-Two, Mimecast’s (MIME-NASDAQ) $5 billion acquisition by Permira, US Ecology’s (ECOL-NASDAQ) $2.5 billion acquisition by Republic Services, Inc., and Bottomline Technologies’ (EPAY-NASDAQ) $3 billion acquisition by Thoma Bravo. In early June, Oracle completed its $29 billion acquisition of medical records company Cerner (CERN-NASDAQ), and we expect Chevron will complete its $3 billion acquisition of Renewable Energy Group (REGI-NASDAQ) in the coming days.

Convertibles had another down month as underlying equities lagged and credit spreads continued to widen. With equity markets declining, we have seen premiums expand substantially in some convertibles. Convertible Issuance has been a hot topic over the last few years with record issuance levels in 2020 and 2021. The primary market has slowed significantly in 2022 but we have seen a number of companies test the waters with potential deals only to pull them given the market conditions. These companies and many more will still need capital to operate, and the convertible market remains one of the least expensive ways for them to raise that capital. We saw a few new issues in May, and we are optimistic that issuance will pick up through the second half of the year. In past downturns, the convertible market has been one of the first markets to rebound both from an issuance and performance perspective. This is because convertibles can be issued quickly and less expensively than traditional bonds or equity. The equity optionality allows investors in these issues to participate in the upside as the market recovers.

______________________________________

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Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.

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GAMCO CONVERTIBLE SECURITIES

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Class R EUR LU2264533261

Class F USD LU2264533691

Class F EUR LU2264533428

Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to ﬁnd out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

The Role of Private Equity In Meeting the Climate Target

| For Marcelo Soba | 0 Comentarios

Captura de Pantalla 2022-06-08 a la(s) 14

The race to net zero has begun and the world as we know it has started to change. Countries, cities and companies have committed to reducing their greenhouse gas (GHG) emission footprints, which shows that climate change is no longer the mere concern of environmentalists and NGOs.

From companies meeting the demands of shareholders through to consumers opting to buy organic products and switching to a more sustainable lifestyle, increased awareness of climate change has created a new market environment. The role of financial services to provide capital has thus become more important than ever to drive this transition to a net zero economy and reduce pressure on natural resources. In particular, private equity will play an exceptional part in this transition, a responsibility that we welcome at Unigestion.

The Climate Change Tailwind

As a longstanding private equity specialist, Unigestion recognises not only its responsibility to address climate change as a risk but to seek interesting financing opportunities in the climate impact sector. Climate Impact Finance refers to transactions that address climate change, shifting society and business activities to a low-carbon and climate-resilient economy – in line with the 1.5°C target. To achieve this goal, business-as-usual models that are largely dependent on the unsustainable consumption of resources, pollution of our environment and use of fossil fuels such as coal and oil must change. Critically, the private sector will play a crucial role in achieving this goal. While governments provide the political frameworks to implement changes, innovative business models will originate from the private sector.

Unigestion has identified three significant areas which highlight the role of private equity when addressing climate change and environmental concerns in the market:

1. Entrepreneurship: Structural change across industries and technological innovation in the sustainability space is driven by entrepreneurial growth typically rooted in private companies.

2. Flexibility: Private companies have high control over decision processes and are more agile in implementing change.

3. Innovation: Developing solutions to replace “brown” technologies or environmentally harmful products requires innovative thinking and private companies are equipped to drive innovation in business models/services.

Unigestion’s private equity team leverages 12 years of the firm’s dedicated experience in climate impact sectors (i.e. energy transition, green mobility, green construction, low-carbon manufacturing, circular material, forestry and land management) to identify opportunities and invest in companies providing important solutions to the climate challenge, ensuring that returns and quantifiable impact will be achieved hand in hand.

To give some examples:

The Energy Transition sector plays a crucial role in order to pivot away from our dependency on fossil fuels. The capacity of renewables needs to expand further, for which an estimated USD 3.4 trillion of investment is required in order to reach a 55% share by 2030. Thus we target players that will provide solutions to significantly reduce the energy industry’s carbon footprint.

Many of the world’s largest automobile makers have begun to shift their business models towards electric vehicles with the global sales of electric cars rising by 43% in 2020. Unigestion’s private equity team has been aware of the changing landscape for several years and has already built a track record in the EV-charging sector, serving as a base to drive the Green Mobility market.

Can returns and impact go hand in hand?

Unigestion’s private equity team has long recognised the importance of environmental responsibility within its investment strategy, launching its first environment-focused fund in 2010 and an ESG-focused mandate for a large client in 2014. To date, we have generated a 2.7x TVPI and 24% net IRR on realised climate impact deals. We believe the following “green drivers” will lead to outperformance in climate impact investments:

High demand for low carbon solutions: Sustainable products/services are in high demand and have been widely adopted as a substitute for incumbent products over time.
Pricing power: “Green” products/services can command higher pricing power and margins.
Lower financing costs: “Green financing” is available at a lower cost for companies with environmental products or services.
Strategic premium: For all the reasons mentioned above, private companies with sustainable products or services will ultimately be in high demand by investors and/or larger companies wanting to increase exposure to climate impact strategies.

Time To Invest Is Now

There is no doubt that the time to invest is now. As with many innovations in the past – such as the Internet, cellular network or GPS – state support has been instrumental to drive early growth. However, the current investment landscape has matured along with changing consumer behaviour as demand for solutions in the climate sector is only expected to grow. Today, we see a market with more innovation and sustainable business models being launched than ever before and it is our mission to unlock access to these golden opportunities for our investors.

Opinion column by Joana Castro, Head of Primary Investments and Climate Impact at Unigestion.

The opportunity in convertibles in the current context

| For Héctor Chamizo | 0 Comentarios

U.S. equities fell sharply in April, with the S&P 500 recording its worst monthly decline since March 2020, as rising interest rates, high inflation and Russia’s ongoing invasion of Ukraine continue to be key headline risks. The Nasdaq Composite finished at a new low for 2022 and notched its worst month since 2008. Technology stocks have been the epicenter of the sell-off caused by higher interest rates dampening company growth estimates and lowering stock valuations. Furthermore, larger concerns surrounding supply chain issues are expected to persist for the rest of the year.

The Russia-Ukraine war, which now has lasted over two months, is happening at a sensitive time for the world economy. The implications of the war have greatly impacted financial markets, as economic sanctions and supply chain disruptions have significantly increased commodity prices, resulting in higher input costs for companies. For now, it does not look like the conflict will be resolved any time soon, and it is difficult to see how a Putin-led Russia would be re-integrated back into the global economy.

The Federal Reserve remains hawkish and expects to fight inflation with aggressive rate hikes throughout the remainder of the year. During April, Fed Chairman Jerome Powell noted that a 50 bps hike will be on the table for the May meeting. While further hikes should help restore price stability, higher rates are likely to significantly slow economic and employment growth.

While China has deployed its “zero-Covid” strategy in an effort to block further outbreaks of the virus, it is tempting to suggest that much of life for Americans is getting back to normal. To date, ~220 million Americans are fully vaccinated, representing ~66% of the population. In addition, data released by the U.S. Centers for Disease Control and Prevention estimates that ~60% of the population has now been infected with the coronavirus, almost double the infection rate before omicron.

Confusion around Federal Reserve policy and the economy seeped into the merger arbitrage space as well, resulting in increased market volatility. Most risk assets sold off in April early May, and spreads on deals widened in sympathy. Specifically, Rogers’ acquisition of Shaw Communications saw its spread widen extensively after the Canadian Competition Bureau declared its concerns with the deal on May 9.

The spread on Twitter’s deal to be acquired by Elon Musk for $54.20 cash per share also widened as a result of Elon Musk’s public criticism of the amount of bots on the platform – a problem Musk declared he sought to fix once he acquired Twitter. It appears Musk is looking to take advantage of the weakness in technology stocks to extract a lower price, and make financing the transaction simpler for him.

Convertibles had their worst month since March 2020 and the lowest level of issuance dating back to September 2011. Growth multiples continue to contract over fears of how far the U.S. Federal Reserve may have to raise rates to fight inflation. Widening credit spreads have weighed on the more interest rate sensitive convertibles. This double whammy has led to the first decline in convertibles while interest rates have moved higher in nearly 30 years. In difficult environments such as this we have always found it important to rely on past experience and look for the opportunities that the market is giving us. As we look forward there are some reasons to be optimistic about convertibles over the long term.

With equity markets declining, we have seen premiums expand substantially in some convertibles. This is a sign that the issues we own have done their job, outperforming their underlying equities as they have moved lower. Generally we prefer not to invest in convertibles with excessive premiums, but some of these have very attractive yields to maturity, in businesses with positive cash flows and solid balance sheets. As these convertibles are well below par, in the event that the company is acquired, we would receive par for our bonds. We continue to look for attractive opportunities in this growing area of the convertible market.

______________________________________

To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:

GAMCO MERGER ARBITRAGE

GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.

Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.

Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.

Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.

Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476

GAMCO ALL CAP VALUE

The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.

GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.

Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155

GAMCO CONVERTIBLE SECURITIES

GAMCO Convertible Securities’ objective is to seek to provide current income as well as long term capital appreciation through a total return strategy by investing in a diversified portfolio of global convertible securities.

The Fund leverages the firm’s history of investing in dedicated convertible security portfolios since 1979.

The fund invests in convertible securities, as well as other instruments that have economic characteristics similar to such securities, across global markets (but the fund will not invest in contingent convertible notes). The fund may invest in securities of any market capitalization or credit quality, including up to 100% in below investment grade or unrated securities, and may from time to time invest a significant amount of its assets in securities of smaller companies. Convertible securities may include any suitable convertible instruments such as convertible bonds, convertible notes or convertible preference shares.

By actively managing the fund and investing in convertible securities, the investment manager seeks the opportunity to participate in the capital appreciation of underlying stocks, while at the same time relying on the fixed income aspect of the convertible securities to provide current income and reduced price volatility, which can limit the risk of loss in a down equity market.

Class I USD LU2264533006

Class I EUR LU2264532966

Class A USD LU2264532701

Class A EUR LU2264532610

Class R USD LU2264533345

Class R EUR LU2264533261

Class F USD LU2264533691

Class F EUR LU2264533428

Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to ﬁnd out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

ESG in Practice series: Gabriel Micheli on Environmental Investing

| For Meritxell Sedo | 0 Comentarios

A deep appreciation for nature runs in the family for senior investment manager Gabriel Micheli, who has been shaping environmental portfolios for the past 15 years.

How long have you worked in environmental investing?

I joined Pictet in 2006, precisely as Water was becoming a multi-billion strategy. I was thrilled to be involved in the launch of a new environmental fund, Clean Energy, in 2007, because I wanted to apply my knowledge of economics and finance to have a positive impact on the environment. I strongly believe that as a shareholder you are in a very good position to do that. Quickly thereafter, in the middle of the crisis in 2008, I participated in the launch of Timber with the aim of investing in sustainable forestry. We then progressed to a concept that would combine all our environmental strategies – Water, Clean Energy and Timber – into one. We had secured a few institutional mandates by 2010 but it took a while to come up with a coherent concept, because many companies that were linked to our themes sometimes solved an environmental issue, but at the same time caused damage on other dimension.

At the time, climate change was talked about, but pollution, biodiversity, or plastics were not necessarily perceived as problems. My conviction was that by focusing on one environmental dimension you ran the risk of creating problems elsewhere. With the help of the highly creative Christoph Butz, who as a trained forest engineer has a deep understanding of earth systems, we created an investment methodology based on the Planetary Boundaries.

Pictet AM

It is a scientific framework that presents a holistic view of all environmental issues, and that recognises that each dimension has a limit that we should not exceed. The investment methodology we came up with was very innovative at the time. We’re still improving it but now it’s becoming more mainstream, and you see many books or documentaries featuring the planetary boundaries; it’s becoming a common language. We have been calculating the impact of companies based on this methodology for years.

The European taxonomy that is being implemented now uses our methodology almost exactly: in addition to climate change adaptation and mitigation, there are four other dimensions that really correspond to our planetary limits. With the double approach of “do no harm”, so stay within planetary limits, and “do good”, or improve the situation on at least one of the dimensions.

We want to remain on the cutting edge and to develop today the strategies that clients will be asking for in five years’ time.

What do you make of the trend towards net zero?

It’s a step in the right direction, but sadly so far it does not yet change the long-term trajectory. Today we have an economy that’s degenerative for the environment: everything we do partly destroys the planet. Large brands going green are essentially aiming to do a little better than before, but this is still degenerative on the whole.

We need to go beyond net zero – it is becoming increasingly clear we have to restore what we’ve destroyed. We have to put carbon back into the earth with regenerative agriculture or by planting trees; we have to find new technologies. What we need above all is a level of structural organisation where we move towards an economy that is regenerative, that is circular, but in addition, brings something positive for biodiversity or nature. This would be modelled on systems in nature which perpetually regenerate themselves. Destroy a forest and it will eventually regenerate itself. We should have an economy that is based on that structure. As shareholders we can be partners to companies that embark on that path. My conviction is that for a company to survive, to deliver superior growth, to be innovative, to hire the brightest talent, it will have to adopt that new structure.

Do you find it easier to get your environmental views across today?

It’s impressive how much has changed in the last few years. When I started, there wasn’t a consensus on why fertilisers, plastics, air conditioning, nuclear energy, or even pesticides did not belong in an environmental investment strategy. We did not hear much about biodiversity until a few years ago. Plastic pollution has only really been talked about since the BBC documentary Blue Planet featured the damage to the oceans, but it’s always been an issue! Today, a much larger share of the population feels concerned, and surprisingly it’s accelerated with the Covid crisis. The younger generation seems to have these issues at heart; for most people we hire today it’s a no-brainer.

Ten years ago, I wouldn’t have bet on such a sudden change in this direction. Sustainable investing was still a niche because of the prevailing thought that imposing ethical considerations on investments would result in underperformance since it would constrain the investment universe. We no longer need to have that debate now, the track record of our environmental strategies speaks for itself.

Corporate engagement was seen as negative by investors who worried that it might strain relations with company management. Today companies come to us to for advice because they realise that capital flows towards those with the best ESG scores. In the Timber fund which I used to manage with Christoph, we have always had discussions with companies on the best silvicultural practices and maintaining a good level of biodiversity while producing valuable timber. We’ve always pushed companies to adhere to high standards in sustainable forest management since the value of our investee companies is determined in large part by the sustainability of their forestry assets.

We need to go beyond net zero. We have to restore what we’ve destroyed.

Have you always had an interest in responsible investment?

My family always had a strong connection to nature that was passed down to me. In Geneva there was a very strong environmental impulse in the twentieth century. I think it’s in line with the legacy of three major historical figures – Jean Calvin, Jean-Jacques Rousseau and Henri Dunant, who imbued Geneva with a sense of openness towards the world, a sense of justice and compassion which we call the “Geneva spirit”. This did extend to the environment with figures like Robert Hainard, a naturalist painter who was a friend of my father’s, who inspired a whole generation to appreciate nature in its wild and free state. My father himself is an ornithologist who has spent his whole life with binoculars around his neck. We lived close to nature and that’s still part of everyday life for me.

I travel by electric bike, I have a wood pellet heater, I’ve been a vegetarian for about fifteen years, and recently started a permaculture food-forest in my garden. I try to limit the impact I can have on the environment in everything I do. I adhere to the systemic thinking that everything in nature has a place and a purpose, and every time you take away a component of the system, it might affect the whole system. My wife used to be a lobbyist in Brussels, fighting pesticides in agriculture. We try to transmit our love for nature to our three children.

To read more about investing sustainably at Pictet Asset Management, click here to access the Responsible investment report.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation.

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

Pictet Asset Management: A Cruel April Could Mark the Trough

| For Meritxell Sedo | 0 Comentarios

The investment climate appears to be getting harsher. Global economic growth is slowing, inflation is rising, no resolution appears in sight for Russia’s invasion of Ukraine and new Covid-related lockdowns are sweeping through China, impeding growth.

Faced with these challenges, investors could be forgiven for adopting a defensive stance.

Yet we prefer to remain neutral rather than underweight equities. And that is largely because investor positioning has become excessively bearish, reducing the scope for further market declines in the near term.

Indeed, the picture emerging from our technical indicators shows that both positioning and sentiment among investors is unusually pessimistic, discounting a significant loss of economic momentum in the months ahead. Yet history tells us that shorting equities in a bull market, even during the later phase of the cycle, when sentiment is very depressed is always very dangerous.

That said, we have tweaked our positions to adopt a slightly more cautious stance, but – for now – have decided to keep an overall neutral weighting on both global equities and global bonds.

While government bonds are looking increasingly good value after steep sell offs, we would prefer to wait until US inflation and inflation expectations have peaked before upgrading them.

Our business cycle indicators support our broad asset allocation stance. Although we have, yet again, reduced our economic growth forecast for 2022 to 3.4 per cent – from 3.5 per cent a month ago and 4.8 per cent at the start of the year – our estimate remains above both the long-term trend and the market consensus.

The US economy, in particular, continues to look solid: US real GDP contracted in the first quarter but final demand continues to gather strength thanks to an exceptionally strong labour market and positive trends in investment spending. Our US leading indicator is rising at a stable pace and remains in line with its historical average. In Asia, meanwhile, Japan and some of the region’s emerging economies are seeing improvements in activity and in consumer confidence.

Things look more problematic in the euro zone – not least due to its closer economic and geographic ties to Russia and Ukraine. A technical recession is a real risk, especially in Germany where consumer confidence has fallen to all-time lows.

The Chinese economy is also struggling. Purchasing manager indices are falling below 50, while exports are peaking. Authorities are offering some stimulus, but, so far, not aggressively enough to offset the weakness in the property sector and the consequences of the strict Covid lockdown in some major cities.

Our liquidity indicators show that China is easing policy much more slowly than US is tightening. Yield differentials between US and Chinese government securities suggest that the renminbi could fall to around 7 per dollar over the coming months.

Valuations look particularly concerning for euro zone investment grade bonds; US investment grade bonds appear more attractively priced by comparison.

For equities, valuations are generally looking more attractive, with the 12-month price-to-earnings ratio on MSCI All Country World Index having dropped to 15.5 times – roughly in line with the average of the past 20 years.

However, this looks less attractive when considered in the context of rising bond yields and a deteriorating outlook for corporate earnings. Globally, analyst earning downgrades now outnumber upgrades for the first time since August 2020. This reflects economic reality, as the trend mirrors a decline in the ISM New Orders Index (see Fig. 2).

Technical indicators, by contrast, paint a positive picture for risky asset classes. The equity put/call ratio – a measure of bearish equity positions relative to bullish ones – has risen to near top of historical range, signalling that positioning on stocks is exceptionally negative. This is also reflected in sentiment indicators, with the American Association of Individual Investors investor sentiment survey’s bull share near 30-year lows. In such an environment, any market gains could provoke a wave of position adjustments, further fuelling the rally.

Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.

Discover Pictet Asset Management’s macro and asset allocation views.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation.

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management (Europe) SA, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

Pictet Asset Management (USA) Corp (“Pictet AM USA Corp”) is responsible for effecting solicitation in the United States to promote the portfolio management services of Pictet Asset Management Limited (“Pictet AM Ltd”), Pictet Asset Management (Singapore) Pte Ltd (“PAM S”) and Pictet Asset Management SA (“Pictet AM SA”). Pictet AM (USA) Corp is registered as an SEC Investment Adviser and its activities are conducted in full compliance with SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref.17CFR275.206(4)-3.

Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in Canada to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).

In Canada Pictet AM Inc is registered as Portfolio Manager authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA.

Water’s Emerging Potential

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LECAMP-Cedric-IMG-0405 — Cédric Lecamp, Pictet Asset Management. Cédric Lecamp, Pictet Asset Management

Water scarcity is becoming an ever more urgent problem. Resources are dwindling, while demand for clean water and sanitation continues to increase. According to the UN, only one third of countries in the world will have sustainably managed water resources by 2030 (1). The need for investment is urgent.

Although the developed world is far from immune, the problem is clearly most acute in developing countries. In North America and Europe 96 per cent of the population have access to safe drinking water, but this drops down to 75 per cent in Latin America and the Caribbean, 62 per cent in Central and Southern Asia and just 30 percent in Sub-Saharan Africa (2).

The good news, according to members of the Pictet-Water Advisory Board, is that private investment in water resources is growing across emerging markets

Research by the Advisory Board shows that private sector participation (PSP) in the water sector now covers 21 per cent of the world population, up from 8 per cent two decades ago. Such activity is vital as governments are increasingly unable to provide necessary investment due to tight budgets and ageing infrastructure. The private sector can help breach that funding gap, as well as bring expertise.

Some of the strongest growth has come from within emerging markets in Asia. In India, for example, the private sector had almost no involvement in water and sewage 20 years ago. Today, it covers the water needs of approximately 150 million people – a testament to coordinated efforts by the government and multilateral financial institutions. China has seen also seen private investment grow very strongly, while outside Asia, Brazil and Columbia stand out.

Investment growth has been particularly high in sewage – an area that is politically less sensitive than drinking water, yet still crucial to our well-being and to the achievement of UN’s Sustainable Development Goals (SDG). SDG 6 calls for universal access to both water and sanitation, as well as seeking to halve the discharge of untreated water and improve water use efficiency.

Local players

Common to many of these private initiatives is the fact they involve regional and local water companies – a remarkable shift in an industry that has historically been dominated by behemoths like Veolia and Suez. While in 1991-2000 half of all the private water treatment contracts went to international players, in the last decade that proportion dropped to just 14 per cent.

One potential for growth for local water firms is international expansion. Our Advisory Board members point out this is already occurring in South East Asia, with many Singapore-based water firms expanding into China and Malaysian companies into Indonesia.

Populations are growing, urbanisation is increasing and people are becoming increasingly wealthy – all of which leads to more demand for water and sanitation, and more need for investment. By 2030, the Advisory Board’s analysis suggests that an additional 400-500 million people will be covered by PSP across water and sewage.

Opinion written by Cédric Lecamp, Senior Investment Manager in the Thematic Equities team at Pictet Asset Management.

Discover more about Pictet Asset Management’s expertise in thematic investing.

Notes:

(1) https://unstats.un.org/sdgs/report/2021/

(2) Our World in Data, WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation, data for 2020.