Foto cedida. Telecommunications, Healthcare, Consumer Products or Services: Sectors in which Muzinich sees Value in High Yield
The high yield debt market is worth $ 1.3 trillion in the US alone, that of European high yield is about 500 billion, and the corporate debt market of emerging countries is growing. Erick Muller – Head of Markets and Products Strategy at Muzinich, who recently visited Miami- thus explained the scope of the huge , corporate credit industry, in which his company has focused since its foundation in 1988. The strategies managed by the management company are neither limited to high yield, since it also invests in investment grade securities, nor to a fixed term.
Time to invest in energy…
Muller believes that the price of the oil barrel will remain low and volatile, and avoids investing in the US energy sector, except in those companies not sensitive to the price of crude oil. “Now is not the time to invest: with the barrel price remaining at around US$ 40, 30% of companies could fail in the next 12 months. There are sectors that represent better opportunities, such as telecommunications, cable television, healthcare, and consumer products or services, to name a few,” he said in an interview with Funds Society.
Equities or corporate debt ?
According to Muller, there is starting to be some competition between equities and high yield corporate debt, and there seems to be a greater flow towards the latter. “Now is the time to enter the corporate debt market, but staying within securities rated BB or B, and away from emission with a C rating,” says Muller, explaining that the crisis will continue, and lower quality debt can suffer.
Now is also the time to be tactical, because the correlations are very large; and flexible, in order to afford seizing opportunities and exiting at the appropriate time, without being tied down. Another one of this strategist’s keys for investment in the current market environment is diversification, more sophisticated diversification which dilutes risks within each asset class, while allowing him to remain loyal to his convictions.
The US high yield market, which is very domestic economy oriented, is attractive for its fundamentals (except for some activities such as oil or mining), The European is attractive for its lower volatility, while the emerging markets could be attractive for their valuation.
“We are very cautious about global growth. The Fed raised rates for reasons of financial stability and not to relax overheating in the US economy,” said the strategist, who does not believe that the conditions for more than one rate hike in 2016 are given, but also warns that we will have to wait until June to be clearer as to how the year will end.
In his opinion, the most appropriate strategies for this environmentare the short-term US high yield debt strategy, absolute return (global, tactical, and long-short), and those focused on long-term US high yield debt.
CC-BY-SA-2.0, FlickrPhoto: Claudia Calich, fund manager at M&G Investments. M&G’s Claudia Calich to attend Miami Summit
Claudia Calich, fund manager at M&G Investments will outline her view on where to find pockets of value in emerging markets debt assets, when she takes part in the Funds Society Fund Selector Summit Miami 2016.
Currently, emerging market investors face uncertainty from factors such as slower economic growth in China, volatile oil prices and geopolitical risk. Calich suggests flexibility in strategies such as the M&G Emerging Markets Bond fund facilitate taking high conviction positions without being constrained by local or hard currency, or differences between government and corporate bonds.
Outlining the opportunities, Calish will also explain her currency and interest rate positioning.
Calich joined M&G in October 2013 as a specialist in emerging markets debt and was appointed fund manager of the M&G Emerging Markets Bond fund in December 2013. She was also appointed acting fund manager of the M&G Global Government Bond fund and acting deputy fund manager of the M&G Global Macro Bond fund in July 2015. Claudia has over 20 years of experience in emerging markets, most recently as a senior portfolio manager at Invesco in New York, with previous positions at Oppenheimer Funds, Fuji Bank, Standard & Poor’s and Reuters. Claudia graduated with a BA honours in economics from Susquehanna University in 1989 and holds an MA in international economics from the International University of Japan in Niigata.
Photo: Enrique Chang. Janus Capital Names President, Head Of Investments
Janus Capital has promoted Enrique Chang to the position of president, head of Investments.
Chang took up his new duties on 1 April, overseeing Janus’ fundamental and macro fixed income teams, in addition to his existing leadership responsibilities of the Janus equity and asset allocation investment teams.
“The decision to promote Enrique to president, head of Investments, is reflective of his increased responsibility in now overseeing the majority of our Janus investment teams, as well as his significant contributions to the firm over the past two and a half years,” said Dick Weil, CEO of Janus Capital Group.
Chang will partner with CEO Dick Weil and president Bruce Koepfgen.
Janus Capital specified that Perkins Investment Management and Intech Investment Management will continue to report into their respective leadership teams and relevant boards.
Chang was previously CIO Equities and Asset Allocation. He joined Janus in September 2013 and was previously executive vice president and chief investment officer for American Century Investments, where he was responsible for the firm’s fixed income, quantitative equity, asset allocation, US value equity, US growth equity and global and non-US equity disciplines.
At end December 2015, Janus Capital’s AUM reached around $192.3bn (€169.2bn).
CC-BY-SA-2.0, FlickrPhoto: Harold Navarro. Boring Can Be Beautiful
While it’s easy to get caught up in campaign season — whether in the United States, where raucous primaries are underway, or in the United Kingdom, where the Brexit campaign is in full swing — that probably won’t help you make investment decisions. It’s probably better to see what’s going on inside some of the world’s biggest economies.
The US economy ebbs and flows, but the real average growth rate for this business cycle —after adjusting for inflation—has been about 2%. And we’re slogging along at about that pace as we begin the second quarter despite repeated, and so far unfounded, concerns that the economy is headed for a recession.
Here’s a look at the US economic scorecard for March:
Looking around the world, China remains weak, but economic data is no longer worsening. There is still a lot of excess capacity, but fears of a deep recession have faded somewhat.
We have seen manufacturing weakness in the eurozone amid headwinds from slowing exports to emerging markets. Inflation has remained scant, prompting the European Central Bank to push interest rates deeper into negative territory and adopt additional unconventional monetary policy tools. Consumption is a bright spot, boosting companies that cater to consumers. We expect a real economic growth rate of slightly better than 1% in 2016.
Japanese growth continues to hover near zero. Despite negative interest rates, fiscal stimulus and structural reforms, Abenomics has not proven sufficient to rekindle growth.
Few signs of excess
We follow a number of business cycle indicators for signs that the present US expansion may be continuing, or conversely, coming to an end. Of these indicators, half are flashing signs that excesses may be creeping into the economy while the other half are showing no signs of stress. Several areas of concern have shown modest improvement of late. For instance, there have been tentative signs of improvement in the Chinese manufacturing sector, and oil prices, which until recently had wreaked havoc with corporate profits, have stabilized to some degree.
While US growth may seem boring, there are some intriguing phenomena going on in other parts of the world. Perhaps the most interesting — some would say crazy — phenomenon is the adoption of a negative interest rate policy (NIRP) by the European Central Bank, Bank of Japan and other central banks. About 40% of the sovereign debt issued by eurozone governments today trades with a negative yield. Not only are investors paying to lend governments money, but they retain all the credit and interest rate risk with no compensation. That’s anything but boring.
Where to turn in a world of NIRP?
Logically, investors are seeking more rational alternatives. Dividend stocks have proven alluring against a backdrop of negative yields. US dividend stocks are particularly attractive. Positive real yields and a steadily growing US economy will likely help companies generate the free cash flow necessary to pay out, and eventually grow, dividends. The US private sector has been producing strong, if not record, free cash flow since the end of the global financial crisis. And dividend-paying stocks outside the US have proven attractive in many developed markets as well. The key is not to chase the ones with the highest yields — they can be dangerous — but to look for sustainable cash flow growers.
Absent a recession, which is often fueled by excessive credit growth, investment-grade credit markets look like an attractive alternative to government securities. They are relatively cheap by historic standards and offer the potential to outperform Treasuries in a mildly rising interest rate environment. It is our belief that against the present backdrop moderate additions to risk assets may be appropriate for some investors. Moving out the risk spectrum, cheap high-yield bonds also look compelling in this environment. And large-cap stocks are another area of opportunity, given their moderate valuations.
This economy may not be as exciting as the latest accusations on the campaign trail, but boring can be a good thing. Especially for long-term portfolios.
James Swanson is the chief investment strategist of MFS Investment Management.
Photo: David Leo Veksler. RBS Sells ETF Business To Chinese Asset Manager
Hong Kong based asset manager China Post has acquired the ETF offering of Royal Bank of Scotland, which consists of ten funds with combined assets of €360m.
China Post is the international asset management arm of China Post & Capital Fund Management. As a result of the acquisition, China Post will become the promoter and global distributor of the ETFs, formerly RBS’s ETFs listed in Frankfurt and Zurich.
Morover, the ETF’s will be seeded with additional capital to make them more attractive to institutional investors, they will also be cross-listed in Hong Kong.
The current fund range offers investors access to commodities, emerging market and frontier market equities, China Post aims to expand the offering with a new smart beta strategy offering investors access to Chinese equities.
Danny Dolan, managing director of China Post Global (UK), comments: “This acquisition demonstrates China Post Global’s long term commitment to the European region. Our aim is to differentiate ourselves through innovation. For example, while ETFs giving exposure to China and smart beta strategies already exist, no-one in Europe has yet combined the two.”
“Other differentiators for us include our access quotas to mainland Chinese securities, the strength of our parent companies and their distribution networks, and the strong financial engineering background of our team, which will help with product construction” he adds.
The 7th Annual All-Star Charity Tennis Event took place on Tuesday, March 22nd, 2016 at the Ritz-Carlton Key Biscayne, Miami. The event was hosted by Grand Slam legend and Hall of Famer Cliff Drysdale, while headlined by Serena Williams, currently ranked number one single’s women player in the world and 21 time Grand Slam winner. Wimbledon finalist and former World No. 5 (2014) Eugenie Bouchard, World No. 8 Japanese standout Kei Nishikori, World No. 9 and French No. 1 Richard Gasquet also all participated to support the cause.
In part sponsored by Pioneer Investments, the gathering gave 24 amateur players the opportunity to test their skills in a qualifying tournament in which the winners earned a chance to play alongside the top professionals.
Proceeds from the 7th Annual All-Star Charity Tennis Event supported First Serve Miami. First Serve Miami is a 501(c)3 organization established in 1974, dedicated to developing, organizing, and conducting life skills or academic development programs with tennis, to youth from economically and socially challenged communities of Miami-Dade.
Photo: Jürgen Mossack, co-founder of Mossack Fonseca/The International Consortium of Investigative Journalists. The Panama Papers, Another Reason Why The Offshore Industry Should be More Transparent
Yesterday’s leak from the International Consortium of Investigative Journalists (ICIJ) lays bare the extent to which corruption, tax evasion, and other criminality is made possible by the global offshore industry. Over 60 media outlets collaborating with the ICIJ are publishing a series of stories based on documents leaked from the prominent Panama-based law firm Mossack Fonseca.
This firm is one of the world’s top creators of shell companies, corporate structures that can be used to hide ownership of assets. The law firm’s leaked internal files contain information on 214,000 offshore companies connected to people in 200 countries and territories. The data include emails, financial spreadsheets, passports and corporate records revealing the secret owners of bank accounts and companies in 21 offshore jurisdictions, from Nevada to Hong Kong to the British Virgin Islands.
While the creation of these companies does not constitute any crime, using them to evade taxes or launder money, does. That is why organizations like Global Witness are calling for tax havens to end the secrecy that enables this abuse. “This investigation shows how secretly owned companies, many of them based in the UK’s tax havens, can act as getaway cars for terrorists, dictators, money launderers and tax evaders all over the world. The time has clearly come to take away the keys, by requiring the collection and publication of information on who really owns and controls these companies. This would make it much harder to launder dirty money and leave the rest of us safer as a result,” said Robert Palmer, campaign leader at Global Witness.
Meanwhile, Verdict Financial says that the Offshore Wealth Management will endure this latest crisis. Andrew Haslip, Verdict Financial’s Head of Content in Asia-Pacific for Private Wealth Management, comments that “The data leak from offshore law firm Mossack Fonseca has made headlines around the world. But it will have little direct impact on the amount of wealth offshored as High Net Worth (HNW) clients no longer book assets abroad to shelter wealth from tax or prying eyes.” Indeed the Panama Papers leak is, by all accounts, the largest to date and appears to have snagged a number of high-profile clients, including celebrities, politicians and businessmen. No doubt another round of investigations by tax authorities will be forthcoming, followed by hefty fines and, in a few rare instances, criminal charges. “However, the leak is not likely to significantly impact the offshore wealth management sector. Offshore wealth managers have been dealing with the decline in client anonymity for quite some time, and the Panama Papers are simply the biggest leak to date. Ever since automatic disclosure became the standard in the wake of the financial crisis, the industry has been transitioning away from client anonymity as an impetus for investing offshore.”
According to the most recent Global Wealth Managers Survey from Verdict Financial, in 2015 the top two reasons for investing offshore globally were HNW clients expecting both better returns offshore and access to a better range of investment options. Client anonymity barely registered, way down in eighth place.
“As long as HNW clients remain focused on the search for yield and superior investments, they will be attracted to the more freewheeling offshore sector. Offshore financial centres such as Singapore, Hong Kong, the UK, and the US (and even perennial whipping boy Switzerland) that can offer the sophisticated investments prohibited in more tightly regulated onshore retail investment markets will continue to see strong inflows.” Haslip concludes.
Amongst the leak the ICIJ includes a list of the Banks involved:
CC-BY-SA-2.0, FlickrPhoto: Lucas Hayas. Fading Fears, Growing Risk Appetite?
For months, the marketplace has feared a US recession, driven by a sluggish global economy, the collapse in energy prices causing a marked decline in capital spending in several key market sectors and tightening financial conditions. Those concerns have begun to ease in recent weeks. We’ve seen a modicum of stability return to oil prices, pressure on high-yield credit markets has lessened and volatility has declined. While US economic growth is far from robust, it has held onto its post-crisis average of about 2%.
Given how much fear has become imbedded in market expectations in recent months, these modest signs of improvement could help rejuvenate the market’s appetite for riskier assets going forward. Even with sluggish growth late in 2015 and a plunging oil price, once you strip out the energy sector, profit margins actually expanded in the fourth quarter. As input costs such as the price of energy and other raw materials fall and if interest rates stay low, profit margins for many businesses will likely expand. It won’t take much to move the dial on profits for companies in the consumer discretionary staples sector, as well as those in tech and telecom, assuming they get a little bit of a lift to the top line. The consensus this year is for profit growth of 2%–3%. A modest uptick in sales could see that expand up to 6%, in my view.
Buying power being unleashed?
Where will that uptick in sales come from? The buying power of the US consumer, boosted by a moderate increase in wages as well as falling gasoline prices, lower home heating and cooling costs and declining apparel prices. For some months now, those savings have been stashed away. But history tells us that when consumers feel confident that price declines (e.g., energy) are here to stay, they tend to spend more. We’re seeing glimmers of hope that consumers are beginning to reallocate some of these savings to more consumption, which is likely to modestly spur manufacturing and the service side of economy.
We’re also seeing other signs of a turnaround. Container shipments and truck shipments are up. Some air freight indicators are beginning to rise. Spending in the technology and telecom sectors of the S&P 500 have begun to improve. Taken together, all of these developments point to a potential improvement in final demand.
It looks as though the US economy won’t disintegrate into recession any time soon but will more likely maintain the slow-growth pattern of the past several years. Against this backdrop, the Federal Reserve will probably see little danger of falling behind the inflation curve, so interest rate hikes should be gradual. It’s an environment where investors, depending on their age and risk tolerance, may want to consider adding to their portfolios some of the riskier assets on offer in the marketplace.
James Swanson is the chief investment strategist of MFS Investment Management.
Photo: Proclos . Bill Gross: "Investors Cannot Make Money When Money Yields Nothing"
In his latest monthly outlook, Bill Gross mentions that negative interest rates are real but investors seem to think that they have a Zeno like quality that will allow them to make money, otherwise why would a private investor buy a security at minus basis points and lock in a guaranteed loss? The bond guru states that “zero and negative interest rates break down capitalistic business models related to banking, insurance, pension funds, and ultimately small savers. And although under current conditions “they can’t earn anything! … many of them are using a bit of Zeno’s paradox to convince themselves that they will never reach the loss-certain finish line at maturity.” But as Gross mentions, some investor has to cross the finish/maturity line even if yields are suppressed perpetually, which means that the “market” will actually lose money.
And this applies to high yield bonds and even stocks. “All financial assets are ultimately priced based upon the short term interest rate, which means that if an OBL investor loses money, then a stock investor will earn much, much less than historically assumed or perhaps might even lose money herself.” The reality, according to Gross, is that Central banks are running out of time. Their polices consisting of QE’s and negative/artificially low interest rates must successfully reflate global economies or else markets, and the capitalistic business models based upon them and priced for them, will begin to go south.
According to him, during 2017, the U.S. needs to grow 4-5%, the Euroland 2-3%, Japan 1-2%, and China 5-6% so that central banks can normalize rates or “capital gains and the expectations for future gains will become Giant Pandas – very rare and sort of inefficient at reproduction… Investors cannot make money when money yields nothing.” He concludes.
You can read the full letter in the following link.
Robert Hackney, Senior MD, First Eagle Investment Management, which advises the First Eagle Amundi International Fund - Courtesy photo. Making More, by Losing Less: Amundi First Eagle’s Pure Value Strategy
Robert Hackney is Senior Managing Director for First Eagle Investment Management, which advises the First Eagle Amundi International Fund, a fund that has been in operation for the past 20 years, and boasts a volume of assets under management of 6,45 billion dollars. We have had the opportunity to talk to him about the fund and its investment philosophy.
This fund is presented with the slogan “Making more, by losing less”, but what is really the philosophy of your strategy?
The manager explains that at First Eagle they follow Ben Graham’s – the father of Value Investing- investment philosophy, as set out in his book “The Intelligent Investor”. He believes that “Investors should look for opportunities to grow their wealth, but above all to preserve it. If an investor is comfortable investing in a company whose intrinsic value is higher than its stock market listing, you can be sure he is minimizing the risk of capital loss. “
Quoting Ben Graham, Hackney refers to the “margin of safety” concept: “there must be a difference between the intrinsic value of a stock and its market price, and when there is a significant discount in relation to the intrinsic value, it’s the time to buy.” Hackney believes that “investment should be approached by analyzing the fundamental value of a company, its ability to generate cash flow, so we can get to identify companies that are overvalued in order to move away from them,” this is when the motto “making more, by losing less” acquires its full meaning: “When the bubbles of overvalued stock burst is when our fund earns more“, because it loses less than the indices, in which the items with more weight tend to belong to overvalued popular companies.
“The only way to buy at a cheap price is by investing in companies which are not very popular.” Graham believes we can find value in undesired and unwanted companies, as could currently be the case with the energy industry, unattractive to most managers, “but which are, nevertheless, the ones we have added to our portfolio during the last six months”.
In short, the philosophy of the fund is to select companies for their intrinsic value and fundamentals, thus avoiding large unrecoverable losses.
What is the current level of cash in the strategy? And six months ago? What has changed? And gold?
“We use liquidity as a residual item while waiting to find good opportunities, preserving purchasing power, in order to have the opportunity to buy when we really think we should do it. When the market is cheap, we have little liquidity in the portfolios, and vice versa. We currently have 15% in cash, this item has historically been 10%, and the time it has been at its highest, during the second quarter in 2014, it reached 27%”
“With respect to gold, we have been buying for a year and a half, and the idea is to always maintain a 10% weight in our portfolio, which is what we have now, and we use it as a potential hedge against market decline and possible financial hardship and policies. During the period 2008-2011 the value of gold increased much faster than the value of shares, and as a result had to sell gold so as not to exceed 10%. In 2012 the value of gold began to fall and that of shares began to rise, therefore, we had to start buying to maintain that percentage.”
As Hackney points out, gold plays no role in the global economy. It has no industrial use and is either intrinsically worthless or intrinsically priceless, depending upon the state of affairs in the world. Humans have used it as currency and throughout history it has been the mirror of the world of finance and the barometer of investor confidence. In 1999, with an almost perfect global economic situation, gold traded at $ 300 an ounce, in 2016 it trades at $ 1,200, reaching $ 1,800 an ounce during the most tumultuous time globally.
The portfolio is constructed searching for balance and protection among the various items in the portfolios, thus minimizing risk exposure.
Are there good buying opportunities during a market correction? Where? Which sectors?
“Yes, there are good opportunities to be found within the energy sector and oil companies, some examples are Suncor Energy and Imperial Oil, Ltd., both Canadian companies, or Phillips 66. These are companies with healthy balance sheets that have little debt and which will survive. We need energy and oil, and if our investment horizon is long term, we can safely keep these companies in the portfolio,” says Hackney.
The expert finds other opportunities in markets such as Hong Kong, in which “real estate companies have great potential, as a result of fears and the collapse of the Chinese market are shifting activity and development to the Hong Kong market.” Finally, Hackney adds that the strategy is very interested in holding companies such as Jardine Matheson, Investor AB or Pargesa. “Generally they tend to be family-controlled companies that have a philosophy that fits perfectly with ours.”
One of the sectors which is not usual for this strategy is the banking sector. “We don’t have any European banks, since they are heavily indebted and it’s difficult to independently assess their assets. We do have a couple of U.S. banks in the portfolio, one is U.S. Bancorp and the other is BB&T. “
We have probably gone through a long period in which the “growth” stocks have behaved better than the “value” stocks. What has to happen for the market to be based on the fundamentals again?
“When the market is bullish and growing rapidly, we think it’s time to take positions in cash and gold, thus being below market. But we know that those periods are not eternal and that they often end up falling sharply, and that’s when we’ll return to buy,” said Hackney. “Humans react to fear and markets are a great school of the irrational, and can remain irrational for longer than we can remain solvent. For example, one may think Amazon is overvalued but you never know when, or if, the correction will come. For that reason we do not put ourselves short.”
How do you see current valuations?
“Currently in certain parts of the market there are companies with very attractive valuations such as in some parts of the global real estate sector; or companies with some exposure to the oil industry but which are not producers of the commodity, but have very attractive prices and they are what we are looking to buy,” says the manager. “The valuations we don’t like very much are in the social media or new tech sectors, because they are no longer adjusted in price and do not interest us.”
Do you think the proliferation of generic and factor based ETFs affect your investment style?
“In the short term, the proliferation of ETFs that replicate indices have dramatically increased market volatility, the spread is wider and the prices do not conform to reality, but the long-term effect is positive for selective managers who know what to buy, allowing them to acquire companies with artificially low values.” Hackney points out that they are really two completely opposite styles. “Our philosophy is that if you want to beat the market, it is impossible to achieve it by following the index, you must stop staring at the screen and look for the intrinsic value of the companies.”
