Northern Trust expects most investments to generate single-digit positive returns over the next five years, predominantly due to slow economic growth and persistent low interest rates.
This Slow Growth Angst – one of six key themes profiled in Northern Trust’s annual five year market outlook – is a key driver behind the company’s return forecasts for global investors of 5.8 percent for global equities and 2.1 percent for investment-grade bonds.
“While we expect markets may be volatile at times, we remain convinced the global economy is in a narrow and slow growth channel,” said Northern Trust Chief Investment Strategist Jim McDonald. “Current regulatory and fiscal policies have greatly restricted the boom-bust cycles and, although the risk of a recession increases, if one does materialize it should be shallow due to a lack of economic excesses and financial system stability.”
Despite these subdued, yet positive, projections, Northern Trust believes the three-month German Bunds and Japanese Government Bonds will turn in negative returns during the next five years.
“Developed economies overall will continue their slow pace, expecting annual real economic growth of 1.4 percent over the next five years, and the outlook for emerging economies remains similarly subdued,” said Wayne Bowers, chief investment officer for Northern Trust Asset Management in Europe, Middle East and Africa and Asia-Pacific. “Ultimately, while concerns over slow growth are further impeding global growth, investors need to resist becoming bearish during market weakness or bullish when the economy appears strong and instead scrutinize any future dramatic swings – positive or negative.”
In addition to the theme of “slow growth angst”, Northern Trust has identified five more themes expected to shape the global markets over the next five years including:
CC-BY-SA-2.0, FlickrFoto: Chris Dlugosz. Por qué el euro ya no llegará a la paridad con el dólar
Over the recent weeks, the Federal Reserve has signaled its willingness to move ahead with a second rate hike. Such a move would follow the December 2015 decision to raise policy rates. Statements from Yellen and Fisher left opened the possibility of a rate hike as soon as September 21st, when the FOMC will meet next.
However, and according to Lyxor AM’s latest weekly brief, “the decision is not straightforward considering the disappointing US GDP growth figures in H1-16 and the associated falling labor productivity. Financial markets remain somewhat unconvinced but at the same time they cannot ignore the Fed guidance. As a result, short dated Treasury yields moved higher and the USD appreciated against major currencies.” Says a team headed by Jean-Baptiste Berthon, Senior Strategist and Jeanne Asseraf-Bitton, Global Head of Cross Asset Research.
Market movements related to the new Fed guidance had a differentiated impact on hedge fund strategies. CTAs underperformed last week as a result of their long fixed income and short USD positions. Meanwhile, Global Macro managers outperformed. They benefitted from their long USD positions, a stance they have maintained for some time on the back of the growth divergence thesis between the US and the rest of the world.
Contrasted views
Interestingly, most funds within each strategy share the same stance on the USD (i.e. most CTAs in our sample are short USD and most Global Macro are long USD). But there is a much wider disagreement across Global Macro managers on US fixed income. “The aggregate exposure of Macro managers on the asset class is close to zero, but at the fund level we see approximately half of the managers being long US bonds and another half being short. That reflects the conflicting signals on the US economy. A vibrant job market has fuelled household consumption but this is not reflected in GDP numbers.” They write.
Economic expansion was actually pulled back in H1-16 by declining capex as companies are not investing to expand production capacities. “All in all, we tend to be rather in favor of the CTA stance. We believe that the Fed is unlikely to move as soon as September. There are simply too many uncertainties regarding the strength of the US economy to act now. The Fed will probably err on the side of caution in our view and the USD upward pressure may abate, a support for CTAs over Macro funds.” Lyxor AM concludes.
CC-BY-SA-2.0, FlickrPhoto: Doug8888, Flickr, Creative Commons. Liquid Alternatives and Private Debt Likely to Benefit Most from Brexit
According to investment consultant bfinance, the list of asset classes benefitting through the Brexit is long with gold and govies being seen as safe havens. In their study “Brexit, One Month On-Working Through the Investment Implications” they stress that the US equity market also benefitted “to a certain extent” from a flight to quality from equity investors.
Overall, they believe that Brexit will probably have “a relatively mild impact on global equities and bonds, but to have a more direct impact on those asset classes within the UK,” the consultant estimates.
bfinance highlights that liquid alternatives and private debt are two asset classes which are likely to perform well in a Brexit landscape.
“Liquid alternatives will benefit from the increased dispersion associated with the greater uncertainty at both stock and sector level. Private debt, which includes corporate, real estate and infrastructure debt, is set to benefit from the relatively high yield, the reduced competition from banks and the resilience to a downturn in values and cashflows,” bfinance argues.
It specifies that this is particularly the case for more senior debt and less so for higher yield or mezzanine debt that has less of a cushion to protect loans from value declines.
Morningstar announced that its board of directors has appointed Kunal Kapoor, CFA, chief executive officer, effective Jan. 1, 2017. Kapoor, 41, who currently serves as president for Morningstar, has also been appointed to Morningstar’s board of directors.
Company founder Joe Mansueto will become executive chairman effective Jan. 1, 2017 and will continue to serve as chairman of the board. To limit the number of inside directors, Don Phillips has voluntarily opted to step down from the board, effective Dec. 31, 2016.
Joe Mansueto, chairman and chief executive officer of Morningstar, said, “I can’t think of a better person than Kunal to lead Morningstar as we head into the next stage of our company’s innovation and growth. He’s a Morningstar veteran who lives and breathes our mission of creating great products that help investors reach their financial goals.”
Kapoor originally joined Morningstar as a data analyst in 1997 and has been president of the company since October 2015. In his current role, he is responsible for product development and innovation, sales and marketing, and driving execution and accountability across the company. He previously served as head of global products and client solutions and has served in a variety of other leadership roles for Morningstar, including director of mutual fund analysis, director of business strategy for international operations, president and chief investment officer of Morningstar Investment Services, and head of Morningstar.com and the company’s data business.
As mentioned above, Don Phillips will step down from the board of directors, effective Dec. 31, 2016, and will be succeeded by Kapoor. He will continue in his role as a managing director for Morningstar, focusing on research innovation. Mansueto added, “Don has been an outstanding board member since we first formed a board in 1999, and his perspective on the industry is second to none. Don is a beloved leader in the Morningstar community, and I am grateful for his commitment to Morningstar’s success.”
CC-BY-SA-2.0, FlickrPhoto: Susanita, Flickr, Creative Commons. Brexit will Fuel Fund Launches in Europe
According to Detlef Glow—Lipper’s Head of EMEA Research, and Christoph Karg—Content Management Funds EMEA at Thomson Reuters Lipper, at the end of Q2 2016, equity funds dominated the scene with a market share of 37% of the funds available for sale in Europe, followed by mixed-asset funds (28%), bond funds (21%), and money market funds (3%). The remaining 11% of “other” funds were real estate funds, commodity funds, guaranteed funds, and funds of hedge funds.
At the end of June 2016 there were 31,815 mutual funds registered for sale in Europe. For Q2 2016 a total of 689 funds (437 liquidations and 252 mergers) were withdrawn from the market, while only 463 new products were launched. However, the Thomson Reuters’ professionals expect that following the “Brexit” vote and its possible implications for fund distribution in Europe, “the number of products to rise over the course of the next two years. Investment managers based in the United Kingdom will ensure their access to the continental European market with the launch of products that are domiciled in the EU, while EU-based asset managers may start to launch funds that are domiciled in the U.K. The first scenario is expected to lead to an even higher dominance of Luxembourg and Ireland as international fund hubs in Europe, while the latter may drive up the number of products domiciled in the U.K.”
Additionally, they believe that market and fund-flow trends will impact the activity of the European fund promoters in one or another direction, “since these trends normally lead to the launch of new products or, contrarily, to the closure of existing products that have fallen out of favor with investors. With the increasing pressure on profitability, at least for bank-or insurance-owned asset managers, fund promoters will also further clean up their product ranges to become more efficient in an environment of increasing costs from the permanently increasing regulatory demands.”
For Q2, Luxembourg continued to dominate the fund market in Europe, hosting 9,109 funds, followed by France, where 4,452 funds were domiciled.
You can read the full report on the following link.
CC-BY-SA-2.0, FlickrPhoto: Minwoo, Flickr, Creative Commons. Santander Will Also Pass Negative Interest Rates to its Institutional Clients
Banco Santander is supposedly joining other European lenders, like Deutsche Bank or BBVA in passing on the region’s negative interest rates to some of its financial institutional clients. According to Bloomberg, Spain’s biggest bank notified clients of its securities services unit that it will introduce a fee on their deposits.
At a time when the European Central Bank is charging banks on overnight deposits to encourage spending, the rate, is of -0.4%.
Spain’s second-largest bank, Banco Bilbao Vizcaya Argentaria, is charging between 0.15 and 0.25% since July.
Santander Securities Services has about 700 billion euros ($782 billion) in assets, according to its website.
Ludovic Colin . Ludovic Colin New Head of Global Flexible Investment at Vontobel AM's Fixed Income Boutique
As of 1 September, Ludovic Colin has been appointed Head of Global Flexible Investment team at Vontobel Asset Management’s Fixed Income boutique. The newly created team will be responsible for the management of the Vontobel Fund – Bond Global Aggregate and Vontobel Fund – Absolute Return Bond.
Ludovic Colin will take over as lead Portfolio Manager of the Absolute Return Bond strategies, with Jack Loudoun as deputy Portfolio Manager. Ludovic Colin joined Vontobel Asset Management in 2015 as senior Portfolio Manager. Prior to that, he was a Cross Asset Macro Specialist at Goldman Sachs and Portfolio Manager at Amundi in London. Jack Loudoun, who joined Vontobel Asset Management in 2015 as Portfolio Manager for the Absolute Return Bond strategies, has a long track record in managing absolute return bond strategies going back to 2002, mainly working for Invesco and Deutsche Asset & Wealth Management. Throughout his career, Jack has been responsible for global rates, credit and macro strategies.
“The new team will further broaden our well established flexible fixed-income capabilities, providing our clients with both total and absolute return offering”, said Hervé Hanoune, Head of Fixed Income at Vontobel Asset Management.
Vontobel’s Zurich-based Fixed Income boutique was established in 1988 and focuses on four actively managed product lines: Global & Swiss Bonds, Corporate Bonds, Emerging Markets Bonds and Global Flexible Bonds. The boutique is comprised of 24 investment professionals with an average of 15 years of investment experience. Vontobel’s bond experts share the belief that fundamental research, independent thinking and active portfolio management are the key to consistent outperformance.
During recent years, Vontobel has seen the assets under management of its fixed-income offering grow to CHF 25 billion. Besides the acquisition of TwentyFour Asset Management, one of the key drivers of this growth has been the inflows into the Flexible Bond funds of Vontobel Asset Management’s Zurich based Fixed Income boutique.
CC-BY-SA-2.0, FlickrPhoto: Roberto Trombetta. Multi-Asset Funds Fail to Keep Volatility-Busting Promise: Should They Consider Cutting Fees?
Multi-asset funds in Europe have not lived up to the sales pitch of providing a buffer against unsettled markets, according to the latest The Cerulli Edge – Global Edition, which advises managers of poorly performing funds within the asset class to consider cutting fees.
While Cerulli Associates, a global analytics firm, acknowledges that some multi-asset sectors are faring better than others, its evaluation of the overall performance of the asset class over the 12 months prior to July 2016 shows that, on average, returns have been negative.
In terms of asset-weighted average returns, none of the multi-asset sectors, as defined by Morningstar, were in positive territory during the review period. Cerulli notes that a number of the funds are highly correlated to the stock market, some by up to 90%, which, given market conditions, defeats the funds’ key objective of providing stability.
“The past 12 months have been tough for multi-asset managers. Overall, the asset class has failed its first real test–and investors are beginning to take note. While a single year is not enough to truly judge performance, it does serve as an indicator,” says Barbara Wall, Europe managing director at Cerulli.
Average multi-asset fund fees (ongoing charges) in the UK have dropped 16 basis points in the past two years. Cerulli believes that charges will continue to fall in both the UK and mainland Europe. “More managers may be forced to sacrifice part of their fees,” says Angelos Gousios, an associate director at Cerulli Associates.
He says the case for liquid alternative multi-asset funds sticking with existing charges on the basis that special skills are required no longer holds water. “Fund buyers will not hesitate to switch to less expensive alternatives if performance and risk targets are not met,” says Gousios.
Noting that cheaper, more innovative strategies such as smart beta multi-asset funds are on the increase, Gousios warns that managers “charging unjustifiable performance fees in both rising and falling markets are at risk of being marginalized.”
Despite Cerulli’s damning assessment, the firm is optimistic with regard to the longer term prospects for multiasset funds. “Tailwinds that will increase their exposure include defined contribution pension schemes in the UK. However, inflows are likely to be more concentrated from now on, with managers that fail to deliver falling by the wayside,” says Gousios.
CC-BY-SA-2.0, FlickrJames Ross . James Ross gets Promoted to Co-Manager of the Henderson Horizon Pan European Equity Fund
Henderson Global Investors has strengthened the European equities team by promoting James Ross to co-manager of the €3.9bn Henderson Horizon Pan European Equity Fund. The fund has been managed by Tim Stevenson since its inception in 2001 and over this period Tim has delivered top-decile performance returning 162.0% against an index return of 88.3%.
The Fund’s investment objective is to seek long term capital appreciation by investing at least 75% of its total assets in equity securities. The fund may invest in shares of European (including UK) companies in any industry.
James has been with Henderson since joining the graduate scheme in 2007 and has been co-manager on the Henderson UK Alpha Fund since January 2013. Since taking over management of the fund, alongside his co-manager Neil Hermon, James has delivered top-quartile performance with the fund delivering 48.0% against an index return of 28.2%.
Commenting on the appointment, Stevenson said, “Having worked with James for the past 10 years, I am very pleased to bring him on to the fund to work alongside me. James and I share a common investment philosophy and with his help I feel confident we can continue our successful track record of finding good quality growth companies in an increasingly tough market.”
Neil Hermon will assume lead management of the Henderson UK Alpha Fund with immediate effect and has appointed Indriatti van Hien as deputy fund manager on the fund. Indriatti has worked alongside Neil and James for the last four years and has played an increasingly important role on the fund.
CC-BY-SA-2.0, FlickrEGA´s team in the NYSE. Columbia Threadneedle Investments Completes Acquisition of Emerging Global Advisors
Columbia Threadneedle Investments announced that Columbia Management Investment Advisers, LLC has completed its acquisition of Emerging Global Advisors, LLC (EGA), a New York-based registered investment adviser and a leading provider of strategic beta emerging market portfolios. Terms of the acquisition were not disclosed.
The acquisition adds over $900 million in assets across a suite of nine emerging markets equity exchange- traded funds (ETFs) and significantly expands the firm’s capabilities in the development, management and deployment of innovative strategic beta products. The product line includes strategic and thematic index-based investment strategies, highlighted by the $671 million EGShares Emerging Markets Consumer ETF (ECON).
“We believe that our combined strategic beta offerings enhance and complement our actively managed investment capabilities and bring our expertise to a broader set of investors,” said Ted Truscott, chief executive officer of Columbia Threadneedle Investments. “We are pleased to welcome our new EGA colleagues to Columbia Threadneedle and to offer our clients and partners a strong platform of strategic beta portfolios.”
Marc Zeitoun, formerly EGA chief product and marketing officer, now leads Columbia Threadneedle’s strategic beta platform as head of strategic beta, reporting to Mr. Truscott. Edward Kerschner now serves as chief portfolio strategist for strategic beta, reporting to Colin Moore, global chief investment officer, and Mr. Zeitoun.
EGA’s website (www.emergingglobaladvisors.com) has been rebranded to Columbia Threadneedle Investments. Product information and market commentary related to the EGShares suite of ETFs can be found by visiting www.columbiathreadneedleetf.com and accessing the emerging market ETF section.
