CC-BY-SA-2.0, Flickr. Schroders Enters into Strategic Relationship with Hartford Funds to Accelerate Growth Plans in US
Schroders has entered into a strategic relationship with Hartford Funds, a leading US based asset management company that offers a broad range of actively managed strategies to US financial advisors and their clients.
The relationship will involve Hartford Funds adopting 10 of Schroders’ existing US mutual funds, with potential for the partnership to expand over time. The adopted funds will be advised by Hartford Funds, sub-advised by Schroders, and renamed ‘Hartford Schroders Funds’. The funds, which include equity, fixed income and multi-asset strategies, collectively have $2.2 billion in assets under management.
Peter Harrison, Group Chief Executive at Schroders explained that “Hartford Funds is a high-quality company whose reach and scale makes them an ideal strategic partner for Schroders. The addition of funds sub-advised by Schroders to Hartford Funds’ investment platform will give investors in the US access to our diverse investment management expertise. This relationship will enable us to build scale in our US intermediary business and accelerate our growth plans in the US market.”
“This relationship allows us to expand the breadth of our investment capabilities and continue to deliver quality solutions to US investors, both now and in the future. Schroders’ history of product innovation and disciplined investment processes reflect our belief in differentiated, long-term thinking that helps investors meet their financial goals,” said Jim Davey, President at Hartford Funds.
Hartford Funds has $73.6 billion assets under management and offers more than 45 funds in a variety of styles and asset classes.
The fund adoptions are expected to be complete by the end of the third quarter of 2016, subject to shareholder approval.
CC-BY-SA-2.0, FlickrPhoto: Alex Crooke, responsable del equipo de Global Equity Income de Henderson . Global Equity Income: Value Opportunities Emerging
In this video update, Alex Crooke, Head of Global Equity Income at Henderson, reveals where his team are finding the best opportunities for equity income and capital growth. He also explains the long-term regional and sector findings from the Henderson Global Dividend Index, a research report into global dividend trends.
Where are the best opportunities?
We are finding interesting opportunities within the financials sector. A number of central banks have started new policies, such as negative interest rates, which have been affecting sentiment and profits in the short term for a number of financial companies. Longer term, we believe this will create value so we are looking to selectively increase our bank exposure in Europe by investing in good-quality recovery companies such as ING, the Dutch multinational banking and financial services company. Insurance is another area that was negatively affected earlier this year but offers the potential for very good dividend growth. The pharmaceuticals sector has been impacted by market rotation this year after a strong 2015 but we believe it remains attractive and recent underperformance is providing an opportunity to invest in quality companies at more attractive valuation levels.
Which are the regional dividend trends?
Key findings from the Henderson Global Dividend Index (HGDI) reveal that Japan and North America have exhibited the best dividend growth during the last two years. We are also seeing some interesting opportunities arise in Europe, where companies are returning to the dividend payment list, particularly in the financials and consumer-related sectors.
Which are the sector dividend trends?
HGDI shows that the technology sector is continuing to provide good dividend growth. A number of companies are increasing their payout ratios (the proportion of profits paid out as dividends) as well as earnings and profits, which is feeding dividends. Pharmaceuticals and financials were the largest sectors in terms of dividend payments in Q1 16, although growth has been moderating. Consumer-based sectors are demonstrating good dividend growth and we expect this to continue through the rest of the year.
Dividend growth outlook
We are seeing a slower environment for dividend growth overall. This reflects slower economic growth from many countries around the world and the fact that payout ratios have reached higher levels than in previous cycles. With earnings, cashflow and ultimately dividends from commodity-based sectors still under pressure from recent price falls, markets with a high percentage of oil or mining companies, such as the UK and Australia, are experiencing dividend cuts. Despite this, many businesses outside of these sectors are delivering sustainable dividend growth.
Why global equity income?
In the current environment the benefits of a global approach to equity income are based on opportunity and value.
In opportunity terms, we can position the strategy away from difficult areas, such as concerns about growth from China and worries about a potential Brexit vote, while accessing growth in other parts of the world.
In terms of value, we are still finding some very good opportunities, with the dividend yield available on equities looking good value relative to bond yields and interest rates. We believe that by maintaining a good-quality bias and searching for opportunities in international markets and sectors we are able to provide an attractive long-term strategy for investors.
CC-BY-SA-2.0, FlickrAndrea Mossetto, Investment Specialist of Parvest Diversified Dynamic Fund (BNP Paribas IP). Courtesy photo.. "In Markets, We Can Be More Confident That “Bad Will Be Bad” and “Good Will Be Good” When It Comes to News or Data”
Andrea Mossetto, Investment Specialist of Parvest Diversified Dynamic Fund (BNP Paribas IP), explains in this interview with Funds Society the secret of this strategy and the importance of flexibility in the current environment, as well as where the best opportunities.
According to the PDD dynamic multi asset strategy, which asset class do you currently think has more value?
In current financial markets, characterised by a declining influence of external stimulus, we can be more confident that “bad will be bad” and “good will be good” when it comes to news or data. This is a welcome development seeing how in the past “bad appeared good” given the uncertain environment brought about by central banks’ unconventional monetary policy.
In a “winner takes all” market, at first glance, performance will be the only parameter that investors take note of, with no distinction between the thousands of management styles populating this type of multi-asset investments still sustained by strong inflows across Europe.
Since the end of 2014, we at THEAM believe asset allocation flexibility has become paramount to limit drawdowns and turn market challenges into opportunities. Investment performance can come from the asset manager’s ability to efficiently capture market risk premiums. To accomplish this, six years ago THEAM built a strategy where the weightings allocated to the various asset classes are not set in stone and there are no guidelines favouring one asset class over another. At no time do these strategies hold just one asset class or focus, say, 60%, of the portfolio exposure on a single investment theme. Instead, funds are always invested in a range of assets and the mix is adjusted according to the realized volatility of each asset held in the portfolio.
Is it the right moment to invest in more risky assets within equities or should we be more cautious?
Our approach can meet the needs of investors who, in an environment that has become structurally more volatile, are looking for a strategy that seeks to provide a stable risk profile without sacrificing the potential return. Our ‘Isovol’ risk-based strategic asset allocation is designed to offer risk stability and exposure reactiveness in bull and bear markets. We are able to align a flexible asset allocation with market dynamics according to the realized volatility of each asset held in the portfolio.
With our approach, investors can still have exposure to asset classes that they perceive as risky, while relying on the fund managers to scrutinize those risks by using a range of monitoring tools and their knowhow. At the same time, they are invested in asset classes that are typically less volatile, less cyclical, etc. and that can act as a counterweight.
As a result of such a multi-pronged strategy, investors can expect the portfolio to be shifted into higher-yielding assets in rising markets to maximize returns, while in a downturn, an adjustment to a more risk-averse portfolio should ensure that losses are minimised. Such an approach should appeal to investors intuitively.
Is it necessary to include other type of asset classes in the portfolio to look for such a decorrelation and reach a truly diversified portfolio?
On top of the Risk-based Strategic Asset Allocation, our Medium-term opportunistic ‘diversification assets’ aim to contextualize the portfolio within a dynamically changing world. The aim of such opportunistic trades could be to hedge the portfolio against a growth slowdown, e.g. in China (by being long Australian 10-year government bond), and an unstable market environment (by being long gold). Being long the US dollar index should allow the strategy to benefit from gains in the dollar against G4 currencies.
Tactically, the fund manager may put in place hedging strategies to manage the market inflection points he identifies, even before a rebalancing signal has been activated.
Will investors’ demand for balanced funds continue to grow?
Flexible multi-asset funds can be a good way for investors to diversify their portfolio investments. Current economic conditions, with still low interest rates, a hesitant global economic recovery and geopolitics-related risk aversion, have reinforced the perception of many investors that their usual investments can no longer ensure the looked-for returns. In many financial markets, the heightened degree of uncertainty and the potential for volatility spikes remain a challenge.
We believe such a transparent approach helps investors understand the reasons for changes in the asset allocation and the risks they could incur. The EUR 2.3 bln AUMs progression we experienced since beginning 2014 is the investors answer to this these funds, well-suited for this environment, willing to invest over medium-term horizon.
What is the fund’s investment philosophy?
A key objective and benefit of this approach is to minimize losses in a downturn and maximize returns when markets are rising. By combining the strengths of our asset managers and calculation models, the strategy has outperformed the market peer group since the end of 2009. It is simple and intuitive on top of being well suited for client searching for a transparent and straightforward approach to be exposed to financial markets.
CC-BY-SA-2.0, FlickrPhoto: OnCall team. Investor Demand For Real Assets Will Surge By 2020
Private equity, real estate and infrastructure managers anticipate strong growth in assets in the next five years, according to new research Building for the future: How alternative investment managers are rising the demographic challenge from BNY Mellon, prepared in collaboration with Preqin. the study surveyed 340 private equity, real estate and infrastructure fund managers globally.
Global macro-economic, social and environmental shifts are fuelling a need for investments in real assets, property and infrastructure worldwide. The report forecasts that appetite for these assets among retail and institutional investors will continue to grow. Sixty percent of infrastructure managers, 44% of real estate managers and 39% of private equity managers surveyed expect their assets under management to grow by at least 50% in the next five years.
“Deep-rooted demographic and macro forces are driving an unprecedented need for investment in real assets such as transport facilities, communications networks, housing and hospitals. These demands far outstrip the reach of government and public finances, and this creates huge opportunities for private capital to play a part in people’s everyday lives,” said Alan Flanagan, global head of Private Equity and Real Estate Fund Services at BNY Mellon.
While institutional investors, most notably pension funds and family offices, currently demonstrate the biggest appetite for real investments, almost half of the private equity and real estate fund managers surveyed believe that retail investors will account for a higher level of capital inflows by 2020 than they do today. Investment will come from mass affluent and high net worth individuals in developing markets, the continued expansion of sovereign wealth funds, and increasing numbers of defined contribution schemes.
“Investors are turning more and more to real assets to find yield, diversify their portfolios, and steer through volatile markets,” said Flanagan. “The growth in real asset investments has been impressive and there is no sign of it slowing down. As a result, the marketplace has become increasingly competitive on deal sourcing, presenting challenges for managers to successfully deploy the capital they have raised.”
The majority of alternative investment managers surveyed have seen institutional investor appetite for real assets climb over the last 12 months. A third of real estate and 41% of infrastructure managers are seeing the most demand coming from public pension funds, followed by private sector pension funds. Private equity managers see the greatest interest coming from family offices, followed by public pension funds (26% and 25% respectively). The survey also revealed that more than a third of infrastructure and real estate fund managers had altered their investment approach, either by diversifying their assets or exploring different geographies and niche strategies.
The need for transparency, driven by clients and regulators, is prompting a growing number of managers to consider outsourcing certain functions. Overall, two-thirds of fund managers across all asset classes feel regulation might lead to outsourcing in the future. Cost was the most commonly stated reason to outsource, in addition to having access to enriched data and analytics from an outsourcing provider and access to the expertise of external staff.
“Investment managers’ business models must have flexibility to thrive in such a fast-evolving environment and also be able to meet growing regulatory reporting as well as institutional investor demands for transparency,” added Flanagan. “To maintain strong allocations and achieve sustainable growth, it’s vital that managers of assets are invested in their infrastructure and supported by the right operating models.”
CC-BY-SA-2.0, FlickrPhoto: Tim Evanson. Air Of Mystery
In courtship, it is often advisable to cultivate an air of mystery. Reveal everything (figuratively) to a potential suitor, and you are no longer in control of the conversation. The Federal Reserve long ago abandoned their own air of mystery, and decided to reveal everything to the market by publishing their rate projections. But the only problem is that the market does not believe the Fed’s “dot plots”. The Fed insist they are likely to hike rates several times, but the market found that as believable as a blind date claiming they are actually a secret agent.
In an effort to rekindle the romantic mystique, the Fed has been trying to generate a bit more uncertainty. First the minutes to the last meeting stressed that June was a ‘live’ meeting. So, despite the market’s scepticism, the Fed would likely vote on whether to hike rates next month. Then Bill Dudley, the influential President of the Federal Reserve Bank of New York, commented that the market was now more appropriately pricing in the probability of a June rate hike. Before the minutes the market had only priced in a 4% chance of a rate hike in June; that has jumped to almost 30% (Chart 1). And the probability of two rate hikes this year doubled from about 30% to 60%.
The pricing of rate hikes has been on a bit of a roller-coaster ride. When fears for the US economy were at their peak back in February, the market decided rates were on hold. Then right before the March meeting the probabilities rose once more, only to plummet again when Fed Chair Janet Yellen came across as more dovish. Despite the improvement in the probability of a June rate hike, the likelihood is still priced below where it was in March.
And it is not just this year’s rate hikes. The market has even less faith in the Fed further out. The path of rates set out by the fifth most dovish dot in the dot plots (which is probably closest to Chair Yellen) still implies yield curves well above the actual market yield curve. The disconnect can be divided into beliefs about the speed of rate hikes, and also the terminal rate at which yields peak (see Economist Insights, On the Dot, for more details). This divergence widened significantly compared to last year, despite the most recent rise in bond yields (chart 2).
Last year, the divergence between the Fed and the 3y US Treasury (UST) was all about the timing of hikes. But this year yields moved so low that the difference between the two is increasingly driven by divergences in the long-run rate (the rate at which interest rates get close to their natural rate). The divergence in the 10y UST demonstrates that the market is as doubtful as ever about the Fed’s timing of rate hikes, but even more doubtful about where rates will peak.
Trendy
The market is telling the Fed that growth is going to be lower and that inflation is not going to warrant rate increases. Some commentators argue that rates should stay low for longer because trend growth is lower. Unfortunately, this does not make any sense from the Fed’s view of how monetary policy works
If you believe that trend growth is now lower, then economic theory will tell you that you will need to hike sooner but the rate hiking cycle will stop at a lower rate than in the past. This is because a lower growth in trend, or potential, output means that the gap with actual output is smaller. The smaller this output gap is, the more likely that you will get inflation. But in any case the Fed’s objective is not actually high growth. The Fed’s dual mandate is maximum employment and stable price. So the metric for the the Fed is how tight the labour market is. The logic is similar to the output gap: what is the difference between the current unemployment rate and the neutral rate.
The Fed is kind enough to tell us what their estimate of the neutral rate is, so we can get an idea of their forecast for the unemployment gap. Every year the Fed has been forecasting that the unemployment gap was gradually closing, and it is one indicator where they have routinely been too pessimistic rather than optimistic (chart 3). They forecast the gap to have closed in 2015 and moved into being outright tight from 2016.
When the unemployment gap closes, the Fed expects wages to start rising and inflation pressures to rise. Economic theory also tells us that when the gap is closed interest rates should not be loose – they should be neutral. The Fed’s median estimate of the neutral rate is 3.25%. The current rate is just 0.375%.
Not every Fed member would agree with this logic. Chair Yellen herself has in the past talk about ‘optimal control’, the idea that you might want to keep monetary policy looser than you normally would but hike faster later on to compensate (and possibly hike beyond neutral). But nonetheless the
Fed was rightly concerned that the market had completely disregarded the possibility of rate hikes. If markets were not even entertaining the possibility of hikes, there could be a lot of disruption if the Fed surprises them.
Then again, if the Fed really wants to change market behaviour, maybe they should have just surprised them. After all, an air of mystery loses a lot of its impact if you go around telling people that you have an air of mystery.
Joshua McCallum is Head of Fixed Income Economics UBS Asset Management.
CC-BY-SA-2.0, FlickrPhoto: Atli Hardarson. Do You Need Inflation Protection?
“We believe inflation risks are underappreciated and underpriced. Now may be an opportune time for forward-thinking investors to add inflation risk management to their portfolios,” says Stewart Taylor, Diversified Fixed Income Portfolio Manager at Eaton Vance on the company’s blog.
According to Taylor, it’s easy to understand the lack of investor demand for this asset class. The CITI Inflation Surprise Index has been negative 52 of the last 53 months. With the exception of the financial crisis, year-over-year (YOY) headline CPI has been lower than at any point since the late 1960s.
“What many investors don’t appreciate is how persistent weakness in energy and food prices has hidden the underlying growth in services inflation. While energy and food represent only 21% of the CPI, they explain about 80% of its change,” he says while highlighting:
Spot WTI crude is down 55% from June 2014, while the S&P Goldman Sachs Food Index is down roughly 50% from its 2011 high.
Over this same period, the YOY run rate for services inflation has averaged 2.5% and has climbed above 3% over the past few months.
Because of this, Eaton Vance believes that the bear market in food is over and that the energy bear market is either over or in its very late stages. “Strength in energy and food should quickly translate to higher goods CPI, which, in turn, should help boost the already elevated services CPI. There is also evidence of increasing wage pressures. The 3.4% YOY growth in the Atlanta Fed Wage Growth Tracker in April is the strongest growth since February 2009. Historically, wage pressures have been associated with periods of higher inflation” Taylor writes.
The April CPI highlighted the changing inflation dynamic: The month-over-month change in headline CPI (0.4%) was the biggest monthly gain since February 2013. Also, at 2.1%, YOY Core CPI is now above the Fed’s 2% target; at 1.6%, YOY Core Personal Consumption Expenditures (PCE) (the Fed’s desired metric) is approaching its 2% target.
The trend in year-over-year Core CPI bottomed in early 2015 and has since been moving higher. Several alternate CPI measures that attempt to remove the most volatile index components to better ascertain the underlying trend also confirm this.
Taylor and his team think that investors are beginning to realize that the bear markets in energy and food are near an end. After roughly a year of outflows, net flows into TIPS funds and ETFs have turned positive over the past two months (ended April 2016), while break-even inflation rates on 5-year TIPS have begun to price in higher expected inflation. “We think these trends are still in their early innings.” And that “inflation assets are inexpensive relative to growing inflation risks.”
CC-BY-SA-2.0, Flickr. AXA to Sell Its Investment, Pensions and Direct Protection Businesses in the UK to Phoenix Group Holdings
AXA announced today that it had entered into an agreement with Phoenix Group Holdings to sell its (non-platform) investment and pensions business and its direct protection business (Sunlife) in the UK. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals, and is expected to occur in the second semester 2016.
The overall consideration for the sale of the UK Life & Savings businesses, including the transaction announced today, the sale of the offshore investment bonds business based in the Isle of Man announced on April 28th, and the sale of the wrap platform Elevate announced on May 4th would amount to ca. GBP 632 million (or ca. Euro 832 million). These transactions would generate an exceptional negative P&L impact of ca. Euro 0.4 billion accounted for in net income.
The operations affected by these transactions will be treated as discontinued operations in AXA’s 2016 consolidated financial statements. As a consequence, their earnings will be accounted for in Net Income until the closing date.
Photo: Ennor. Alvaro Morales Appointed New Head of the Santander Global Private Banking Team
Santander is currently experiencing an overhaul of its Private Banking division. Amongst the most important changes is Alvaro Morales’ promotion to Head of Santader’s Global Private Banking team. He will continue to be based out of Miami, where up until now, he served as Head of Santander International Private Banking.
According to an internal memo by Angel Rivera, Head of Retail and Commercial Banking for Banco Santander, to which Funds Society had access, “The Retail and Commercial Banking division will also play a central role in the development of the Group’s Private Banking business, in the direct management of International Private Banking and in the support given to domestic private banks in the various geographies, taking greater advantage of the synergies of our international platform and all of the countries.”
The aim, according to the memo, is to continue improving the specialization of Santander Private Banking’s advisory service model with a segmented offer and a personalized specialist service model that provides each customer tailored solutions.
Morales has been working close to Santander since 1999 when he joined the group as Regional Director for Banco Banif. In 2007 he moved to London to run the UK’s Private Banking business of the bank. By 2009 he became Head of Santander International Private Banking and moved to Miami.
Carlos Díaz will remain in charge of products and market intelligence and will work with Álvaro in managing this unit. Blanca Vilallonga will now will be responsible for coordinating the division’s activities, implementing new ways of working, monitoring projects, ensuring compliance with work plans and measuring the impact they have on the organization.
Through the same internal memo Rivera signaled the following appointments:
Angel Rivera will directly assume leadership of Digital Transformation coordinating with the area of Innovation and with each country. It is a shared responsibility throughout the Group. Alberto Fernández Tomé will lead the Digital Solutions team, and Julián Colombo will continue to head the CRM and Business Intelligence team.
Fernando Lardies will be in charge of the new Network Banking project, wheras Javier Castrillo will be in charge of the Commercial Strategy and Best Practices team which includes:
Ignacio Narvarte who will be in charge of Means of Payment (issuing and acquiring).
Francisco del Cura who will remain in charge of Insurance
Frederico Bastos who will remain in charge of Businesses
Ignacio Gomez-Llano who will remain in charge of Quality and Customer Satisfaction
The memo also included Rivera’s appreciation to Gonzalo Algorri, former group director of Global Private Banking Santander, “for his contribution to the development of the Private Banking business and to all our colleagues who have left the Bank in recent weeks, for their contributions.”
CC-BY-SA-2.0, FlickrPhoto: Carlescs79, Flickr, Creative Commons. Santander AM Expands Selection to Passive Strategies
The Research and Selection team of Santander Asset Management (SAM) has started covering passive vehicles, on the back of demand for these strategies.
The move will see the Spanish firm’s recommended list or “manager matrix” increase from about 300 to almost 400 strategies, of which about 80 names will come from the passive sphere.
“This move [including the passive sphere] makes sense, it’s something that we have been discussing for a while, and finally we decided to merge both, passive and active within the same research team. I think it makes total sense,” José Maria Martinez-Sanjuán, head of Manager Research and Selection at Santander Asset Management told InvestmentEurope. “The fact is that there’s more demand, so we have to respond from a research point of view,” he said.
The growth in the ETFs segment illustrates investors’ bullish demand for passive strategies. According to ETFGI, assets invested in ETFs/ETPs listed globally reached a record high of $3.1trn (€2.7trn) at the end of April 2016.
This compares to $2.9trn in 2015, and $1.5trn in 2011 — a growth of 106% over the last five years. “If you see the flows of the industry, you will see that ETFs are only growing. There’s also a new wave of smart beta coming now to the market, so we need to be aware of this and understand the market evolution,” he said.
Martinez-Sanjuán said fee reduction plays a key role on the growth for passive vehicles, along with the ability to implement more easily strategic allocations through a core-satellite portfolio. Following this trend, the team led by Martinez-Sanjuán has developed a research process for passives, and it has just started to cover these strategies. “The coverage of passive vehicles is not as time consuming as the active world, but I guess that covering both gives you the global picture of what is going on in the industry and it is a value added piece of information for the investors,” Martinez-Sanjuán said.
“This is to help our various clients, so we can have a global view of any strategy, active or passive,” he said. Early this month, it emerged that SAM made two new appointments within its selection team. Last month, Wee-Tsen Lee joined Santander from Barclays Wealth to be responsible for manager selection global & US equities. In addition, Pryesh Emrith was promoted within Santander in March, to be in charge of US & global fixed income and multi-asset.
The two new appointments are based in the group’s London headquarters and work for the Research and Selection team, which works within SAM’s Global Multi-Asset Solutions team and alongside Santander Bank.
SAM manages around €20bn as an asset manager, and a further €20bn are assets under advice. The firm advised a further €8bn for institutional clients.
. Pinebridge Investments Wins Key Industry Award From Institutional Investor Magazine
PineBridge Investments has been named Floating-Rate Bank Loan Fixed Income Manager of the Year at the Institutional Investor US Investment Management Awards. PineBridge received the award at a gala event on 19 May 2016 at the Mandarin Oriental Hotel in New York City.
Steven Oh, Global Head of Credit and Fixed Income said, “We are honored to receive this recognition from Institutional Investor, and proud of the value we have been able to deliver to our clients, through an experienced and stable team that has navigated market challenges through multiple economic cycles. ”
The Institutional Investor US Investment Management Awards, now in their seventh year, recognizes US institutional investors for their innovative strategies, fiduciary savvy, and impressive short and long-term returns, as well as US money managers in 39 asset classes and strategies that stood out in the eyes of the investor community for their exceptional performance, risk management, and service.
According to Institutional Investor, the winners were chosen from a short list of top-performing managers across a range of investment strategies identified by the magazine’s editorial and research teams in consultation with eVestment, a leading provider of institutional investment data analytics. Investment strategies were evaluated on such factors as one-, three-, and five-year performance, Sharpe ratio, information ratio, standard deviation and upside market capture. More than 1,000 leading US pension plans, foundations, endowments and other institutional investors were also surveyed and voted for the top-performing managers in each strategy over the past year.
PineBridge received the Global Balanced/Tactical Asset Allocation Manager of the Year Award in 2015.
