CC-BY-SA-2.0, FlickrPhoto: RIccardo Cambiassi. Claudia Ripley, Ingrid Tharasook and Fabrizio Palmucci Join Jupiter
Jupiter has appointed three product specialists to support its UK equity, Asia and GEM equity and Fixed Income and Multi-Asset teams. Reporting to Katharine Dryer, who heads the product specialist team at Jupiter, these new hires will provide additional support to some of our growing investment strategies and bring the recently-established product specialist team to full capacity. All three will have taken up their positions at Jupiter by the beginning of the fourth quarter of 2016.
Claudia Ripley joins Jupiter to work across all our UK equity funds, with a particular focus on those managed by Steve Davies and Ben Whitmore. She has nine years’ UK equity product experience, seven of which were spent as the Lead Retail Product Strategist on the BlackRock UK Active Equity Team.
Ingrid Tharasook joins from Coutts & Co.’s investment strategy team to cover Jupiter’s range of global emerging market equity funds. Her previous experience as a sector specialist in emerging market fixed income and Asian (and Japanese) equities will complement the management styles of Jason Pidcock and Ross Teverson as they build on recent momentum. A fluent Brazilian Portuguese and Thai speaker who has lived across four continents and has nine years’ investment experience, Ingrid brings a truly global perspective to her new role.
Fabrizio Palmucci joins the Fixed Income and Multi-Asset team to support recent growth in this area. Fabrizio spent five years developing the Pimco Source partnership as the Head of Fixed Income Product Management team at Source. Fluent in Italian, Spanish and French, Fabrizio will have a particularly strategic role to play in supporting our distribution teams as we increase our European footprint. His 14 years’ experience encompasses product management credit analysis and bond trading.
Katharine Dryer commented: “We are delighted to have attracted three talented professionals to these new roles. They will help us develop our communications with clients and enable our fund managers to stay focused on generating performance. The work of Alastair Irvine with the Jupiter Independent Funds team and Tommy Kristoffersen on Cedric de Fonclare’s team has demonstrated the value the product specialist role can provide as a key link between the investment and distribution teams. My congratulations go to all of the new recruits.”
CC-BY-SA-2.0, FlickrPhoto: JosepMonter / Pixabay. Building a Case for Increased Infrastructure Spending
The U.S. presidential election is entering the homestretch and investors are gauging the potential investment implications of the candidates’ proposed plans. As I noted in my last blog, amid a bitterly fought campaign, one topic is drawing a fair amount of attention: increased infrastructure spending.
It has been a particular area of focus for both parties and even the Federal Reserve. It is a rare area of agreement between the two presidential candidates, suggesting that whoever wins the election will likely emphasize it in the next administration. Moreover, the phenomenon is not only in the United States, but in other developed countries. Are the stars aligning for significant increased infrastructure projects, and does this have implications for investors? Among the reasons that suggest they may be:
Monetary policy
Central bank actions have been one of the most influential forces in shaping global markets in recent years. Yet we remain in a low growth environment, which raises the question: “Has monetary policy run its course in the current cycle?” The lack of growth momentum and weakened fundamentals around the globe suggest so.
Economic need
Given low economic growth, as well as the weak state of the nation’s infrastructure, using federal aid to repair bridges and roads and other projects could be a means of increasing productivity and fostering economic growth. See the chart below. In addition, infrastructure spending could help lift labor participation rates thus narrowing the gap between labor mismatch and labor productivity.
Depending on the type of project, infrastructure has the potential to create a positive multiplier effect on markets from an economic perspective. In the short term, infrastructure projects could provide private sector growth and jobs, thus potentially leading to increased tax revenues and a boost in consumer confidence and consumption. As a recent report from the BlackRock Investment Institute suggests, an increase in government spending can add up to 2% to gross domestic product (GDP), depending on where in the economic cycle the spending occurs. (Not surprisingly, it is likely more effective when it comes in a recession.)
Low funding costs
Large scale central bank bond purchase programs have pushed yields to all-time low (Source: Bloomberg), and in many cases, negative. While this has created challenges for investors, particularly those who require income, the low interest rate environment means the cost to finance infrastructure projects through government debt is far less than in years past.
This renewed focus on longer-term fiscal policy measures like infrastructure is not unique to the United States. In July, Japan announced a new ¥28 trillion stimulus package, of which ¥13.5 trillion is earmarked for a variety of fiscal policy initiatives centering on public infrastructure projects such as upgrading port facilities and building new food-processing plants that help boost food exports.
Similarly, the UK, facing the possibility of an economic slowdown—or even its first recession since the financial crisis—appears ready to incorporate aggressive stimulus beyond monetary measures. Like the U.S., minimal public resources have been allocated to infrastructure over the past decade. Private sector infrastructure spending in the UK is also drying up as a result of uncertainty around Brexit. The number of contracts aimed toward infrastructure-like initiatives is down by 23% over the past year (Source: Office for National Statistics, UK, June 2016).
In short, a combination of factors have created a compelling case for infrastructure investment. Should these scenarios unfold, equity sectors and industries related to infrastructure activities like industrials or transportation in the U.S. specifically, may stand to benefit. However, the timing and level of impact remain to be seen. It is important to recognize that how infrastructure projects are funded can mitigate some of the multiplier effect. For the U.S. in particular, it is also important to recognize that whoever wins the election could still face a divided government, raising questions about how quickly a bill could get passed, and how large a bill it would be.
To gain exposure to global infrastructure companies, investors may want to consider the iShares Global Infrastructure ETF (IGF). For U.S. exposures, investors may consider the iShares Transportation Average ETF (IYT) or the iShares U.S. Industrials ETF (IYJ).
Build on insight, by BlackRock written by Heidi Richardson
Andrew Formica, Chief Executive at Henderson. Henderson and Janus Capital will be Merging
A new giant will join the global asset management industry. The businesses of Henderson and Janus will be combined under Henderson, which will be renamed Janus Henderson Global Investors and will continue to be a Jersey incorporated company and tax resident in the UK. The combined group will be a leading global active asset manager with AUM of more than $320 billion dollars and a combined market capitalisation of approximately $6 billion dollars.
The merger will take place via a share exchange, with each share of Janus common stock exchanged for 4.7190 Henderson ordinary shares. Henderson and Janus shareholders are expected to own approximately 57% and 43% respectively of Janus Henderson Global Investors’ shares on closing, based on the current number of shares outstanding. The merger is currently expected to close in the second quarter of 2017, subject to requisite shareholder and regulatory approvals.
Henderson and Janus CEOs will lead Janus Henderson Global Investors together.
Andrew Formica, Chief Executive of Henderson, said “Henderson and Janus are well-aligned in terms of strategy, business mix and most importantly a culture of serving our clients by focusing on independent, active asset management. I look forward to working side-by-side with Dick, as we create a company with the scale to serve more clients globally, as well as the strength to meet their future needs and the growing demands of our industry.”
Dick Weil, Chief Executive Officer of Janus, said “This is a transformational combination for both organizations. Janus brings a strong platform in the US and Japanese markets, which is complemented by Henderson’s strength in the UK and European markets. The complementary nature of the two firms will facilitate a smooth integration and create an organization with an expanded client-facing team and product suite, greater financial strength, and enhanced talent, benefiting clients, shareholders and employees.”
According to a press release, the merger promises increased distribution strength and coverage in key markets, including the US, Europe, Australia, Japan and the UK, as well as a growing presence in the Asia-Pacific region, the Middle East and Latin America. The company will have approximately 2,300 employees, based in 29 locations around the world.
Henderson shares currently trade on the LSE and ASX, while Janus shares currently trade on the NYSE, after the merger the new company plans to have the NYSE as its primary listing.
Janus’ subsidiaries, INTECH and Perkins will be unaffected by the merger. INTECH CEO, Adrian Banner, will continue to report to the INTECH Board of Directors and Perkins CEO, Tom Perkins, will continue to report to the Perkins Board of Directors.
CC-BY-SA-2.0, FlickrPhoto: 401 K. Have Quality Companies Become Too Expensive?
We often stress the fact that our investment methodology leads us to focus on high-quality companies. We define these as companies with a very sound balance sheet and specific competitive advantages that enable them to stand out from the competition and generate a higher profitability. In turn, this higher profitability translates into the generation of substantial free cash flow and consequently a strong self-financing capacity and a low debt ratio.
Among such quality companies, those which operate in low-cyclical sectors have been particularly popular with investors in recent months, even years. The time has now come to question whether these quality defensive companies (Nestlé, Reckitt Benckiser, Unilever, for example) may have become too expensive.
First the comment. The level of interest rates plays a significant role in any valuation model. The answer to the question of whether quality defensives have become too expensive will depend to a large extent on the assumptions used, especially with regard to the rate used to discount future earnings/dividends and the cost of equity. Clearly, with a very low discount rate (on the basis that interest rates are very low), practically any price can be justified. This is why equity valuation models – like the one used by the Federal Reserve which compares the earnings yield of equities (through the earnings/price ratio, the inverse of the price/earnings ratio) to the yield on 10-year government bonds – always reach the conclusion that equities are undervalued compared to bonds. This is not surprising when the yield on the US 10-year Treasury note is around 1.5%. The comparison between equities and bonds is even more favourable for European equities, which offer a higher earnings yield (are trading at a lower price/earnings ratio) and face even less competition from bonds which have near-zero yields. But obviously, the lower the interest rate used in the valuation model, the smaller the margin of safety will be and the more the investment will be at risk in the event of interest rates rising.
Now the observations.
1.- Using a discount rate that would have been considered appropriate in the past, before the central banks started to manipulate interest rates, e.g. a rate of around 9%, you come to the conclusion that defensive companies are in fact relatively expensive, although their valuation cannot be described as exorbitant. But more importantly, compared to the rest of the market, they are not more expensive than in the past. The outperformance of their share price reflects the outperformance of their earnings, in other words much better earnings growth (note that this is the case for quality defensive stocks as a whole. Some of these stocks have certainly seen an increase in their premium over the market. For others, their earnings growth is largely due to buying back their own shares, purchases often financed through debt). The following graph shows the price/earnings ratio of these stocks in relation to the market. It can be seen that the premium these companies are enjoying (in terms of the P/E ratio) remains in a range similar to that of the past. And it could be argued that in the current context, dogged by numerous economic and financial uncertainties, these companies should trade at a higher premium given that they are the main beneficiaries of low interest rates.
2. However, let us suppose that an investor who holds these companies in the portfolio decides to sell them because they are expensive. Then comes the question of redeploying the newly released funds. Currently the return on fixed-income investments (cash and bonds) does not compensatethe risk incurred. The investor could obviously decide to stay in cash and wait for a sharp price correction in these quality names. However, experience shows that this is a very chancy approach. Alternatively, our investor could buy shares whose valuation seems more attractive. But where to find that kind of share? In recent years, equities have generally become more expensive (at least in the developed countries). Although quality stocks are more expensive than the market as a whole (and quite rightly so), we have already noted that their premium over the market has not increased. And companies whose valuation at first sight seems more attractive are often in sectors that are seriously at risk in the current context, examples being banking or highly cyclical stocks. To invest in these sectors you need to have a confidence in the global economic outlook and the financial system that wedo not currently have.
3. As already noted, the current valuation of quality defensive stocks is high but not yet exorbitant. The corollary of this is that their expected return is lower than in the past but still reasonable, especially in a low-interest-rate context. As the price paid determines the return, it would be naive to think that when you are paying more for these companies than in the past, you could get the same return as in the past. So we need to lower our return expectations on quality companies. If their valuation goes on rising, there will even come a moment when the expected return becomes so low that investing in them no longer makes sense. But that moment has not yet come.
Guy Wagner is Chief Economist and Managing Director at Banque de Luxembourg Investments.
Andrea Di Nisio, photo: LinkedIn. Andrea Di Nisio Joins Unigestion as Head of Southern Europe Intermediaries
Unigestion, the boutique asset manager with scale announces three senior hires to its newly formed intermediary team. The team will initially have five members and Unigestion plans to grow this further as the firm increases its presence in intermediary markets. Their initial focus will be making Unigestion’s institutional investment expertise available to intermediaries in the Southern Europe, UK, Nordics, Switzerland and the US.
Simone Gallo joins Unigestion as Head of Intermediary Distribution. Simone will have responsibility for building the global intermediary channels focusing on wealth managers, multi-managers and sub-advisory mandates. Simone joins from Pictet Asset Management where spent six years as Senior Vice President in the Global Clients Group. Before this he was Executive Director at Goldman Sachs Asset Management in charge of the sales relationships across global accounts in EMEA. He started his career with Schroders Investment Management in 2001.
Andrea Di Nisio joins as Head of Southern Europe Intermediaries. Andrea’s main focus will be to build Unigestion’s presence in intermediary channels in Spain, Italy and Portugal. Andrea joins Unigestion from Dalton Strategic Partnership where from 2009 to 2016 he was the Partner responsible for promoting the firm and its funds to intermediaries across Southern Europe. Andrea started his career in 1998 at Schroders Italia in Milan and in 2001 joined the international team of Schroder & Co in London. He then moved to Cazenove Capital Management as a Fund Director responsible for wealth management and fund distribution in Southern Europe.
Lloyd Reynolds joins Unigestion as Head of Nordic and UK Intermediaries. Lloyd will lead the expansion in these markets, leveraging Unigestion’s institutional presence. Lloyd brings over 20 years of experience in distribution across Europe and Asia. Most recently he was with North Hill Capital. Prior to this Lloyd has held various international leadership roles for Goldman Sachs Asset Management, JP Morgan, Schroders Private Bank and Flemings.
Tom Leavitt, Managing Director at Unigestion commented: “It is exciting to have Simone, Andrea and Lloyd on board bringing their collective knowledge of the international intermediary markets. They will help us extend access to our strategies through these markets, sharing the benefits of our institutional quality strategies to fund selectors looking to grow and protect the assets of their clients through multi assets, liquid alternative and equity solutions. We welcome them all very warmly to the team.”
CC-BY-SA-2.0, FlickrPhoto: Juan Antonio F. Segal
. JP Morgan Creates a New Wealth Management and Investment Solutions Unit
JP Morgan Chase has created a new unit that combines the firm’s wealth management business across Asset Management and Consumer & Community Banking. The Wealth Management & Investment Solutions unit will be lead by Barry Sommers and Brian Carlin, who will report to Asset Management CEO Mary Callahan Erdoes.
According to a memo by Erdoes, that Funds Society had access to, Sommers will become CEO of Wealth Management, responsible for JP Morgan’s client business: Chase Wealth Management, the Private Bank and J.P. Morgan Securities. While Carlin will become CEO of Investment and Banking Solutions, responsible for all wealth management products, services and platforms, including investments, lending, banking, technology and operations. In addition, he will oversee the Digital Wealth Management and Institutional Wealth Management Business.
“Barry and Brian bring a tremendous amount of experience and horsepower to our business and are ideal leaders to partner. They’ve worked together for years, and bring complementary experiences and backgrounds.” Erdoes wrote of the appointment.
Of Sommers she said: “Barry has worked in both Consumer & Community banking and Asset Management, and knows our investment business and branch network as well as any leader in the firm. As Consumer Bank CEO, Barry delivered record investments and outpaced the industry in deposit growth for four straight years.”
While for Carlin, she stated: “Brian has worked in Asset Management for 15 years, including the past three years as our Chief Financial Officer. Prior to that, he ran Products and Investments in the Private Bank, where he led the development of Private Bank and Chase Wealth Management investment solutions. He also built the Private Bank’s mortages, deposits & custody, and trusts & estates offerings.”
“Beyond their capabilities, Barry and Brian represent the best of our values and leadership. They think client first, are culture carriers and excel at running business end-to-end. We have complete confidence that they will continue our track record of success.” Erdoes concluded.
CC-BY-SA-2.0, FlickrPhoto: Michael Gil
. Luxembourg Launches First Green Exchange in the World
The Luxembourg Stock Exchange (LuxSE) becomes the first stock exchange globally to introduce a platform for green financial instruments: Branded Luxembourg Green Exchange (LGX). Access is limited to issuers who comply with stringent eligibility criteria. The platform aims to set a new benchmark for the rapidly evolving green securities market.
Commenting on the launch of LGX, Robert Scharfe, CEO of LuxSE, said: “New issuance of green securities has taken off since COP21. There is a real desire for change. The green market has enormous potential but this needs to be matched by interest from investors. By setting strict standards for green securities, LGX aims to create an environment where the market can prosper. The upcoming COP22 event will focus on preparations for the Paris Agreement to enter into force. With LGX, a dedicated platform for both issuers and investors, we are granting the solution for financing green projects.”
Only 100% green
LGX gathers issuers that dedicate 100% of the raised funding to green investments. It is home to the majority of the 114 green bonds listed on LuxSE, worth over $45 billion. LGX marks the first time that a stock exchange requires green securities to adhere to strict eligibility criteria, including:
Self-labelling as green or equivalent (e.g. climate-aligned). The issuer has to clearly state, during the application process, the intended green nature of the security.
Use of proceeds. Need of a clear disclosure that the proceeds are exclusively used for financing or refinancing projects that are 100% green, according to the GBP or CBI eligibility taxonomy.
Ex-ante review and ex-post reporting. Issuer’s commitment to provide both independent external review and ex-post reporting – a requirement unprecedented on the market.
“Ex-post reporting is far from being the market standard. The bold decision to introduce it as an entry requirement stems from our ambition to be able to guarantee that securities on LGX are genuinely green. Such reassurance is what investors seek as they increasingly expect issuers to be crystal clear about the use of proceeds,” the CEO added. Access to LGX is banned for securities on the excluded categories list comprising of, but not limited to: nuclear power production; trade in CITES; animal testing for cosmetics and other non-medical products; medical testing on endangered species; fossil fuels. The LGX concept has been developed in line with best practices set out by Climate Bonds Initiative, International Capital Market Association (ICMA) and World Wildlife Fund (WWF). LGX has its own logo – a colour variation of the standard LuxSE trademark. “An issuer who does not meet LGX eligibility criteria can still list on our markets, but the ‘bar is higher’ for entry to LGX. Having said that, we encourage issuers to go further than the minimum requirements and really leverage this platform to create new standards on the quality of communication with investors,” Robert Scharfe added.
Green market is our duty
With over $42 billion in new issuances globally, 2015 was another record year for labelled green bonds. As estimated by the Climate Bonds Initiative, in 2016, the green bonds issuance will reach $100 billion. The already thriving green bonds sector received an additional boost after the COP21 conference in Paris last year during which 195 countries agreed on keeping the rise of global temperature below 2 degrees Celsius. The International Energy Agency estimates that the world needs $1 trillion a year until 2050 to finance a low-emissions transition. The market for green finance is growing fast, and yet it represents an almost invisible fraction of overall capital market funding.
CC-BY-SA-2.0, FlickrPhoto: Jaime Silva. Amundi Creates Dedicated Platform for Real and Alternative Assets
Amundi is launching a single platform bringing together its capabilities in real and alternative assets (AI) in order to become one of the leading alternative asset managers in Europe.
Real estate, private debt, private equity, infrastructure and alternative multi-management are now all part of an integrated business, bringing together 200 investment professionals in origination, structuring and management, responsible for EUR 34bn in assets (as at 30th June 2016). Amundi aims to double its funds under management in real and alternative assets by 2020.
Amundi’s track record in alternative assets includes 40 years’ experience in real estate, a leading position in credit management and a pioneering approach in infrastructure, where it has partnered with EDF. The new business grouping will help Amundi develop these areas of expertise to serve investors’ needs for performance and diversification.
According to a press release, Amundi believes that with low correlation to traditional assets, AI strategies have an illiquidity premium which is attractive as we face long- term low interest rates and sustained equity volatility. 38% of institutional investors envisage reallocating part of their portfolio to private debt, 44% to infrastructure, and 51% to private equity.
Pedro Antonio Arias, Amundi’s Global Head of Real and Alternative Assets, said: “We have been meticulously building our capabilities over recent years by attracting skilled teams from diverse backgrounds. Our aim is to further develop our capabilities based on the EUR 34bn we already manage in this area, and to be a leading European player in real and alternative assets.”
Through this new platform, Amundi will offer institutional and individual investors the opportunity to invest directly in real assets with dedicated solutions or via collective solutions with co- investment or multi-management funds.
Eric Wohleber, Amundi’s Head of Real & Alternative Assets Sales, added: “Amundi’s power, infrastructure and financial strength are all major advantages allowing us to give European and Asian investors transparent, institutional-quality investment solutions in real and alternative assets.”
CC-BY-SA-2.0, FlickrPhoto: Thiago A.. A Matter of Time
Of all the arrows in an investor’s quiver, among the most powerful is time. Yet many asset managers and owners don’t fully grasp how powerful an impact time can have on investment decision-making and outcomes.
As a society, we’re moving at an ever faster pace – in business and in life – taking less time to do things that perhaps should take more. The need for immediacy can be all consuming. And technology certainly feeds that appetite, with its invaluable contribution to speed and efficiency. But technology can distort an investor’s sense of the time needed to allow skill and discipline to play out or manage risk when they have to take more of it. Many believe they are being efficient with their time by measuring numerous data points and reacting to them more quickly. But are they really? With so much information at their fingertips, investors and asset owners need to start distinguishing between check points and decision points.As an industry, we need to think carefully about why time matters to investors. We believe time allows skill, expertise and discipline to have the greatest impact on investment outcomes. It offers a meticulously researched investment thesis a chance to bear fruit. It favors thoughtful decision-making over reactive trading or chasing the latest fleeting trend. If investors are not taking the time to do good research – to identify value, good governance and a sustainable business, they are not investing responsibly.
Perhaps most importantly, time may allow investors to take risks more intentionally and manage them more effectively. In an environment such as we see today — in which investors must take three times the risk they did 20 years ago to earn the same returns — patience is essential. That’s true despite the angst investors might feel when taking on more risk. They need to curb the urge to micro-measure performance and make changes, which offers only a false sense of control at best.
It’s time to step back and help investors understand why, when used properly, time can be a valuable asset in getting to their desired outcome. Ultimately, the conversation isn’t about managing time. It’s about using time to manage wisely.
Carol W. Geremia is President of MFS Institutional Advisors, Inc. Co-Head of Global Distribution.
Photo: MIth, Flickr, Creative Commons. In Spain, A Third Election Could Result in a Fiscal Cliff
Spain has been without a government for almost a year. Moreover, given the current political impasse, there is a rising risk that it might not have one before the end of the year. So far, the economic performance has not been obviously affected, but, according to Fabio Balboni, european economist at HSBC, the fiscal performance has been.
Despite strong growth, the deficit has been broadly in line with the previous year, which at 5.1% of GDP was worryingly high.
“Low inflation and temporary job creation are all behind the disappointing revenue growth and difficulties cutting spending in real terms, but there have also been some tax giveaways. In total, we estimate the fiscal stimulus is adding about 1% to GDP growth this year.”
But the lack of a government might have more serious economic consequences from here. If the 2017 budget cannot be approved by the end of the year, all of the main spending items will be frozen at current levels, including wages and pensions. That would be equal to spending cuts of about 1% of GDP. This might help to reduce the deficit, but it would also have negative consequences for growth. This risk should also provide a strong incentive for the political parties to avoid a third election.
In October, Spain also faces a new round of negotiations with Brussels. The biggest risk is the suspension of the EU’s structural funds, worth about 1% of GDP. But given the anti-austerity mood prevailing in Europe at the moment, and the political situation, we don’t think the European Commission will be too tough. However, once a government is in place, Brussels will want to see more progress made on the deficit reduction.
