CC-BY-SA-2.0, FlickrPhoto: Russ Oxley. Old Mutual Global Investors Strengthens Absolute Return Government Bond Team With New Hires
Old Mutual Global Investors, part of Old Mutual Wealth, announces that, as a consequence of a difference in opinion regarding future strategic direction, Russ Oxley will leave the business with immediate effect. Old Mutual Global Investors would like to thank Russ for his valuable contribution in supporting the launch of the ARGB capability.
Adam Purzitsky and Paul Shanta have been appointed Co-Heads of the Absolute Return Government Bond team, reporting to Paul Simpson, Investment Director.
Adam and Paul joined Old Mutual Global Investors in early 2015 along with the other members of the ARGB team. They have been instrumental in the management and development of the Absolute Return Government Bond strategy over the last seven and eight years, respectively.
Old Mutual Global Investors also announces the enhancement of the ARGB portfolio management team with the appointment of two highly experienced investment professionals, Mark Greenwood and Peter Meiklejohn. Both Mark and Peter have already made valuable contributions to the ARGB team during the time they have been working alongside the team as consultants. These appointments bring the total number of portfolio management professionals working on the ARGB strategy to six, supported by two additional specialist investment professionals.
Supported by the rest of the team, Adam and Paul will continue to co-manage the Old Mutual Absolute Return Government Bond strategy. Their focus will remain on meeting clients’ expectations and delivering the outcomes and investment journey clients expect. Adam and Paul were among the first members of the team to join Old Mutual Global Investors, and were instrumental in the pre-launch preparation, as well as actively managing the strategy since launch in October 2015. The managers will continue to employ exactly the same investment process and philosophy that they have been at the heart of developing over many years.
CC-BY-SA-2.0, FlickrPhoto: Scott Beal. Least-Loved Cycle Looks Less Lovely
We are now more than six years into one of the longest-lived — though least-loved — business cycles in history. Markets have shown a much greater ability than the public to shake off the effects of the global financial crisis. Why is this? If you listened to the pundits, you’d think they have been held aloft by nothing but a combination of hot air and central bank liquidity. But that couldn’t be further from the truth. It has been profits, not punditry, that have driven markets to new highs. Since the market bottom in early 2009, the value of the S&P 500 has tripled. Not coincidently, S&P 500 company profits have tripled as well.
Earnings of large multinational corporations — like those in the S&P — have been propelled by the productive use of labor and capital, rapid asset turnover, low energy costs and, yes, the historically low cost of capital, thanks to accommodative central bank policies.
In recent months, however, profits have begun to flag, and with them my confidence in the market’s upward trajectory. The drag on profits and earnings seems to be coming from two sources. The first is excess global manufacturing capacity, particularly in China. In the developed markets, production is quick to respond to changes in demand. Demand in China does not respond as quickly, given the political realities there. This leaves excess capacity in the global economy, which tends to depress pricing power, not just for Chinese companies but worldwide.
A second factor that has weakened profits is tepid consumer demand. I had expected the “energy dividend” from spending less on gas and home heating to translate into greater demand from consumers in developed markets. But we’ve actually seen a significant percentage of that energy dividend going into savings rather than back into the economy. At the same time, energy costs have begun to rise, suggesting more downward pressure on consumer demand down the road. That could further crimp topline growth for many companies.
That lack of topline growth has translated into weak capital expenditures at big global companies. That’s a worrisome sign, since in my view, capex is the main driver of jobs and profits.
Here are the conditions I’d need to see before venturing back into riskier assets:
While we wait to see if these occur, I’d advise investors to be cautious with new money. My concern is not that recession is imminent in 2016, but that we’re facing a prolonged profits drought which could disrupt margins and returns. This could become the new theme for the final years of a market cycle that, while remarkable, could become even less loved.
James Swanson is Chief Investment Strategist at MFS Investment Management.
CC-BY-SA-2.0, FlickrPhoto: Wajahat Mahmood. Frontier Markets: Kenya and Their Overcoming of the Infrastructure Deficit
Before the team lead by Stephen Bailey-Smith with Kenyan policy makers at the African Development Bank Annual meetings, Global Evolution was positioned long duration in the local bond curve, and overweight in the Eurobonds. However, after their meeting, they reinforced “our constructive sentiment towards the country’s longer-term prospects and happy with our investment positions.”
The key message from Kenya’s policy makers is that the high twin deficits are a necessary short-term evil in order to overcome the country’s infrastructure deficit. The strategy is being broadly practiced across the African continent. “But Kenya is one of the few countries where we believe it will proceed without jeopardizing macroeconomic stability.” Says Bailey-Smith.
“Our view is not uniformly held by the market and/or the rating agencies, who are concerned by the rate of debt accumulation, especially ahead of the elections in August 17.Certainly, the plan to spend KES45bn (USD450m) on elections discussed during our meetings does seem a tad excessive and reiterates for us one of the key negatives for the credit: the deeply ingrained ethnic fault lines in the political system, which raise governance costs and have arguably been exaggerated under the shift towards more local government.” He explains.
For the strategist, it is important to note that Cabinet Secretary Rotich will deliver the final budget to parliament In June and we suspect it will be more constrained than the April draft, which proposed a budget deficit of 9.3% of GDP. Moreover, the outcome for FY15/16 looks more like a deficit of 6.9% of GDP rather than the planned 7.9% of GDP reflecting the ongoing struggle to deliver on spending pledges. “We remain reasonably confident that the government will not allow their debt financing positon to become disorderly. Crucially, there appears to be a couple of prudent guidelines including recurrent spending being met by revenue and debt in NPV terms not exceeding 50.0% of GDP.”
Since the provisional budget was released there also appears to have been a change in the plans for deficit financing with more coming from concessional and less from commercial sources. Some 40.0% will come from domestic borrowing. Of the 60.0% external borrowing, some 46.0% will have a concessional element. “It is also important to take into account the huge investment spending going into the Single Gauge Railway which has a budget of around KES180bn or 2.6% of GDP. We remain reasonably constructive on the combination of the revamped rail and port facilities, plus the marked progress in energy generation and distribution to deliver significant productivity growth to the economy.”
Certainly this was the view of the relatively new CBK Governor Njoroge, who took up his position after nearly 20 years working at the IMF as a macroeconomist. Well known for his strict religious lifestyle and tough stance on corruption, “his appointment is positive not least because it demonstrates the President’s priorities” says Bailey-Smith.
Interestingly, the Governor feels the recent decline in the C/A deficit to 6.8% of GDP in 2015 from 9.8% of GDP in 2014 will continue despite the large fiscal deficit. He expects the C/A deficit to be around 5.5% in 2016 and 5.8% in 2017.
The improvement comes from a combination of lower imports (especially fuel), higher service and remittance inflows, albeit the improvement is partly due to better measurement. Interestingly, there have also been upward revisions to the FDI numbers suggesting the country now runs a much smaller basic balance deficit. He also suggested foreign holdings of local debt were a very minor 7.0% of total, suggesting limited currency vulnerability from global market risk.
“The reasonably contained BOP suggests continued currency stability, which should allow inflation to fall further and allow the CBK to continue easing monetary policy in coming months.” Bailey-Smith concludes.
CC-BY-SA-2.0, FlickrPhoto: Rakib Hasan Sumon. Meeting the Challenge of Feeding the Planet
When you think about it, the expansion of agricultural output since the Second World War has been nothing short of miraculous. However, the system underlying that expansion is highly vulnerable to factors that are now staring us in the face. These include a dependence on relatively stable climatic conditions, the consequences of single-crop practices, excessive use of antibiotics, fertilisers and pesticides, and fast and efficient transport explains Alexandre Jeanblanc, SRI investment specialist in Paris at BNP Paribas Investment Partners.
The Food and Agriculture Organisation (FAO) now estimates that to feed humanity in 2050 agricultural output will have to expand by 70%. As this target will have to be achieved without placing additional burdens on the global environment, it will doubtless require many simultaneous initiatives such as:
supporting broader-based efforts to limit climate change, including better energy usage
restricting farmland expansion while increasing yields and reducing agricultural pollution to preserve ecosystems
reducing water usage to ease pressure on water tables
preserving topsoil quantity and health, in part by enhancing fertiliser efficiency
moderating the use of livestock antibiotics
halting the ecological impoverishment of the oceans and regulating fish-farming
“To meet these enormous challenges, agricultural production systems will have to evolve and adapt, not least by expanding research into “sustainable” farming. Some solutions already exist, as a number of successful developments have already demonstrated” writes Jeanblanc in his company blog. These include:
the domestication of water in Israel,
drip irrigation, which is increasingly common in California,
recycling containers in the Nordic countries,
the replacement of chemical fertilisers with organic ones,
permaculture (high yields but labour intensive),
the development of more efficient systems for food preservation,
precise systems for dosing inputs.
These solutions will have to be rolled out on a large scale to safeguard the environment against the impact of higher agricultural output. “New forms of decentralised and smaller-scale agriculture may equally be worth exploring. There is no single solution, but multiple strategies – from the way land is used, to new ways of thinking, making financing available and developing accessible technologies. Public education is also vital – both to reduce food wastage (one third of food currently produced is thrown away) and change dietary habits (eating less meat would help to optimise grain consumption). But none of these alone holds the key to meeting future challenges” says the expert.
“We are probably just at the start of a vast transformation in farming methods. Farming tomorrow will have to be efficient, economical and environmentally friendly. Technologies continue to improve and offer prospects for progress that would have been unimaginable just 10 years ago. But they will require heavy capital outlays. Will governments be able to rise to these challenges and thus support their farmers? Will they be able to choose unconventional environmental solutions (such as permaculture, for example)? Will consumers agree to pay more for food? The portion of GDP from agriculture has shrunk constantly over the past 50 years to less than 2% in 2014 in many developed countries. Has the time come to change our ways of thinking and our development models?” He wonders.
It is in companies that are firmly committed to meeting these challenges that BNP Paribas Investment Partners’ environmental funds invest.
CC-BY-SA-2.0, FlickrPhoto: Jennie O. How Lyxor’s Enhanced Architecture Program Can Boost European Pension Funds’ Performance
Europe’s pension funds face significant challenges as a result of low interest rates, volatile markets and regulatory constraints. Lyxor’s Enhanced Architecture Program (LEAP) helps institutional investors address these challenges.
The program offers its participants significant cost reduction, reporting, risk management, governance and return benefits. Amber Kizilbash, Global Head of Sales and Client Strategy at Lyxor Asset Management, explains how LEAP works and why operational effectiveness is such a hot topic.
“Pension funds face increasingly urgent demands to improve their overall performance. Lyxor’s Enhanced Architecture Program (LEAP) empowers them to achieve a step change in their infrastructure and investment effectiveness, via a collaborative, top- down approach. It is a modular, open architecture program from which investors can choose either a comprehensive duciary management solution or individual modules”, explains Kizilbash.
Lyxor experts offer clients a range of specialist skills, such as the design of the legal and infrastructure framework, the negotiation of service provider agreements, risk management, fund selection and management.
A successful LEAP implementation can result in significant eficiency gains, offering better value for money for the pension funds’ ultimate clients saving for retirement.
LEAP benefits pension funds in two ways.
The first is by enhancing funds’ infrastructure, thereby increasing operational effectiveness. Many pension funds suffer from a duplication of roles amongst service providers, both across schemes and across countries. This duplication of efforts leads to a sub-optimal cost structure and a challenge in ensuring effective governance.
The second way in which LEAP helps investors is by providing access to state-of-the-art investment solutions. Many large pension funds have access to sophisticated in-house investment resources as a matter of course. LEAP puts these capabilities at the disposal of small and medium-sized pension funds, which may lack the scale to run such investment programs on their own. Via LEAP, Lyxor accompanies clients in implementing advanced tailored solutions along the full investment value chain, from liability-driven investment (LDI) and strategic asset allocation up to fund selection and management.
CC-BY-SA-2.0, FlickrPhoto: Hernán Piñera. Investec Asset Management’s Top Performing Global Equity Income Strategy Launches in the UK
Investec Asset Management launches the Investec Global Quality Equity Income Fund for UK based clients. A replica of the existing SICAV, which has outperformed the market and delivered top decile performance since inception, the Fund is the latest addition to the UK fund range managed by Investec’s Quality Investment Team.
Aiming to generate sustainable dividend growth and attractive total returns over the long term, the Investec Global Quality Equity Income Fund is designed to provide UK investors with a dividend yield in excess of the MSCI All Country World Index. Since launching to global investors in March 2007, the existing fund has a top decile performance track-record and delivered 5.9 percent annually to global investors for the nine years since inception, versus 2.7 percent the index. Additionally, existing investors have benefited from 8.9 percent annual dividend growth since
The Investec Global Quality Equity Income strategy is managed by an experienced and global team, led by co- managers Blake Hutchins, Clyde Rossouw and Abrie Pretorius. A high conviction portfolio of 30-50 stocks, and cautiously positioned compared to the market, the co-managers take a differentiated approach by selecting world-leading Quality companies which are highly cash-generative, invest for future growth and have a proven track-record of paying growing dividends to investors, whilst avoiding more capital intensive sectors, often favoured by a number of competitor funds.
David Aird, Managing Director, UK Client Group, commented: “Given the challenges facing investors in the current climate of low rates and stagnant economic growth, coupled with the financial realities that face an aging population, investors are increasingly focused on sourcing attractive income streams from their assets whilst minimising risk to the underlying capital. We are excited to bring to the UK market the Investec Global Quality Equity Income Fund. A global fund with a proven nine year track record, it aims to deliver a smooth and steady investment journey over the long term, irrespective of market conditions.
“By investing in Quality companies with an ability to grow cash flows, whilst avoiding capital intensive sectors such as utilities and natural resources, which are often favoured by other equity income products, the Fund looks to provide lower volatility returns over the long term – something close to the hearts of our clients in today’s uncertain world.”
CC-BY-SA-2.0, FlickrPhoto: Richard Wilson, new CEO-CIO at BMO Global Asset Management. BMO Names Richard Wilson as New CEO-CIO
Richard Wilson has been appointed Chief Executive Officer & Chief Investment Officer, BMO Global Asset Management, effective immediately.
Richard was previously CEO of BMO Global Asset Management (EMEA). He was appointed as CEO of F&C on January 1, 2013, prior to its acquisition by BMO Financial Group. Before becoming CEO, Richard held several senior positions at F&C including Head of Equities and Head of Investment & Institutional.
He began his asset management career in 1988 as a UK equity manager with HSBC Asset Management (formerly Midland Montagu). In 1993 he moved to Deutsche Asset Management (formerly Morgan Grenfell) where he was latterly Managing Director, Global Equities. From Deutsche, Richard joined Gartmore Investment Management in 2003 as head of international equity investments, prior to joining the Group in 2004. He holds a BA (Hons) in Economics and Statistics from the University of Exeter.
BMO Global Asset Management is a critical part of our overall Wealth Management business. It is well positioned to accelerate global growth. Over the past seven years, BMO Global Asset Management has transformed into a truly global asset manager with presence in 16 countries and AUM of more than £160-€200 billion (31 March 2016).
This change in our structure and leadership will help our business as we work toward achieving our global aspirations.We are confident we will deliver strong growth, outstanding client solutions, and market leading performance.
Gilles Ouellette, Group Head – Wealth Management, BMO Financial Group: “We’re pleased to appoint Richard Wilson as CEO & CIO of BMO Global Asset Management. His 30 years of experience in asset management and track record of developing innovative products, building high performance teams and delivering outstanding client service has been a tremendous asset for BMO. BMO Global Asset Management continues to be a critical part of our overall Wealth Management business and by leveraging our strong investment capabilities and broad distributionnetwork, we’re confident in our growth strategy.”
CC-BY-SA-2.0, FlickrFoto: Danny Nicholson
. ¿Y Reino Unido?: Después de usted, Sra. Yellen
Allianz Global Investors announced yesterday that it has completed its acquisition of Rogge Global Partners (RGP), the London- based global fixed income specialist.
The combination further strengthens AllianzGI’s fixed income capability and provides greater global distribution potential for RGP’s strategies.
Consistent with AllianzGI’s previous integrations, the distinct dynamics and processes of RGP’s 30 year- old investment philosophy will be maintained within AllianzGI’s global investment platform. Consequently, Malie Conway will continue to lead the RGP team and in the role of CIO Global Fixed Income report to Franck Dixmier. At the same time, RGP’s Emerging Market expertise will be combined with that of AllianzGI’s Emerging Markets Debt team, led by Greg Saichin. The portfolio managers in the newly combined EM Debt team will continue to report to Greg Saichin, as part of the RGP setup.
AllianzGI has acquired 100 per cent of the issued share capital in RGP from Old Mutual and RGP management for an undisclosed sum.
Andreas Utermann, CEO and Global CIO of AllianzGI, said: “The successful completion of this transaction marks a significant milestone in the evolution of AllianzGI, giving our clients access to a suite of proven and distinct global fixed income strategies. As well as augmenting our expertise in global fundamental fixed income – an asset class where we continue to see very strong client demand – the acquisition of RGP substantially increases our footprint in the UK, a strategically important market for AllianzGI.
George McKay, Co-Head, Global head of Distribution and Global COO of AllianzGI, said: “We are delighted to welcome our new RGP colleagues to the AllianzGI family. With our joint commitment to active management, similar investment culture and values, we are sure they will find AllianzGI a natural home.”
Franck Dixmier, AllianzGI’s Global Head of Fixed Income and a member of its Global Executive Committee, said: “Adding RGP’s fundamental global fixed income expertise to our investment platform fills an important gap in our product range for clients. It strengthens our fixed income knowledge base and client book beyond our traditional European centres and will, over time, present us with exciting new opportunities to create further additional products.”
Malie Conway, commented: “Increased interaction between colleagues from AllianzGI and Rogge since the announcement of this transaction has enhanced our confidence that this combination marks an exciting new chapter in RGP’s development, with our clients able to rely on a continuity of investment team and an unchanged investment process and philosophy. We look forward to working together closely with our new AllianzGI colleagues in the best interests of our clients.”
Photo: DanNguyen, Flickr, Creative Commons. NewAlpha Announces a Strategic Partnership with New York Based Naqvi-Van Ness Asset Management
NewAlpha Asset Management, the Paris-based global fund incubation and acceleration specialist, has announced a strategic investment with Naqvi-Van Ness Asset Management. As Europe’s leading incubator, NewAlpha is continuously seeking talented investment managers that are in their early stage of development or are looking for strategic partnerships to accelerate their growth… and now is Naqvi-Van Ness AM.
Naqvi-Van Ness’ investment approach combines a core quantitative driven long-short strategy on US equities with uncorrelated opportunistic directional strategies that seek to detect and exploit potential changes in market behavior.
The investment objective is to generate alpha and deliver absolute returns in all market environments. The strategy has been ranked by Bloomberg in the top 6% amongst their peer group over the past 5 years, and in the top 10% YTD (30/05/2016)*. Naqvi-Van Ness’ flagship strategy has $90 million dollars in AUM.
Commenting on the strategic deal, Ali Naqvi co-Founder of Naqvi-Van Ness said, “I am glad that our R&D efforts to apply our investment expertise in a highly liquid format succeeded in the successful development of our approach. This strategy is an innovative addition to the existing offering of classical hedge fund strategies and we view having on board an experienced investor like NewAlpha as an independent seal of approval regarding the thoroughness of our investment process and operations.”
Albert Van Ness, co-Founder of Naqvi-Van Ness, added “Furthermore, the NewAlpha investment will accelerate the growth and increase the attractiveness of the strategy. Having a strategic investment gives us an institutional level of credibility. Along with our differentiating strategy to Long/Short equity, this should be a positive combination for clients that have us on their radar.”
Antoine Rolland, CEO of NewAlpha, stated: “We are very enthusiastic to enter this strategic partnership with Naqvi-Van Ness. During their career, Ali, Albert and Charles have consistently shown dedication and drive to deliver the highest quality in terms of investment research, market insights and portfolio management. Their investment strategy offers many benefits, including diversification and performance, even more so given recent market volatility. In addition, Naqvi-Van Ness and NewAlpha share common values and both organizations have an entrepreneurial corporate culture..”
In 2001, Ali Naqvi and Albert Van Ness founded Naqvi–Van Ness Asset Management (NVAM) with founders’ capital to develop a systematic investment approach. This effort resulted in a research-intensive firm with proprietary models that utilize factors and insights underpinned by investor behavior and persistent biases. Prior to founding NVAM, Ali Naqvi gained extensive investment experience during 18 years at Citibank Global Asset Management, during which he was responsible for managing portfolios for large institutional clients. The portfolios under his supervision totaled nearly US $8 billion.
Co-founder of the Firm, Albert Van Ness was also a portfolio manager at Citibank Investment Management from 1994 to 2000. In 1994, he joined Ali Naqvi, managing portfolios for high net worth clients, pension plan sponsors, and sovereign investors totaling over $1.2 billion in AUMs.
In 2010, Charles DuBois joined NVAM as Director of Investment Strategies and Research. He is now responsible for developing models and strategies and researching new investment ideas. Previously, Mr. DuBois was a Global Partner and Head of U.S. Asset Allocation Strategies for the Global Structured Products Group of Invesco.
CC-BY-SA-2.0, FlickrPhoto: Woodley Wonder Works. European Equities: Politics Versus Progress
European equity markets have had a torrid 12 months. It was all meant to be so different. Quantitative Easing (QE), launched in March 2015, would accelerate the recovery – I used the expression “QE on steroids” a few times last year – given the strong starting point for growth at that point. Growth would be better across the world, and earnings would start to pick up.
The reality has been rather different. The US dollar has been weakening when it should have been strengthening, given the assumption that the US Federal Reserve (Fed) would be tightening rates, while the euro was meant to have remained at low and highly competitive levels for exporters. Politics was also not expected to feature until 2017, but not even the prospect of Trump leading the Republican charge in the US has diverted attention away from Europe’s political uncertainties. Of more immediate political concern, the referendum in the UK over membership of the EU is likely to be much closer than many had ever thought.
Given these uncertainties, it is little wonder that the equity market has found it difficult to trade at what some felt was a high rating. After five years of little or no earnings growth at an aggregate level, 2016 estimates have steadily been revised down (yet again) from a starting point of around 8% to a more recent level of nearer 1%.
Progress behind the bluster
All that may be a reason to look at the glass as half empty. So here are a few reasons to consider that it is still actually half full: gross domestic product (GDP) growth in Europe this year is expected to be somewhere in the region of 1.5%. Inflation is expected to start to pick up albeit slowly, which is perhaps why German 10 year government bond yields have risen from 0.09% at their recent low on 7 April to 0.15% on 13 May – admittedly the tiny numbers helping to exaggerate the scale of the move. Unemployment is declining, consumer demand is improving and government finances are no longer deteriorating. This may not sound all that exciting, but equally it is not actually the disaster area that anyone listening to the claptrap from (now) ex-London mayor Boris Johnson might like to believe.
In the “real” world of company results, the first quarter has been generally in line with expectations. One or two firms have pointed out that the tailwind of a weaker euro has ended, but this is simply a translational impact in most cases. Many companies have reminded anyone who might have been sound asleep for the last six months that growth globally is quite subdued and pricing pressure remains intense. Those quality companies which we expected to grow in the portfolio, such as ARM, Fresenius Medical Care, Essilor, Infineon Technologies and Valeo, have indeed done so. But, so far in 2016, so-called “fast money” has been playing a rotational game – buy the laggards, sell the winners. As the chart here shows, the weakest sectors from 2015 – energy and materials – have rebounded strongly, at the cost of previously strong areas, such as IT and healthcare:
I can understand much of this – the fears about China were certainly exaggerated – but so is the hope that China is now recovering rapidly and returning to high growth. The probable reality is that we are in a slow growth world, where achieving anywhere between 5% and 10% earnings growth sustainably is a good achievement. That is not a bad environment for equities – but it might be a bit dull for some.
“Brexit” – unlikely but unsettling
At the time of writing, the UK referendum is only a few weeks away. Current betting patterns imply that the UK will stay part of Europe, but the general polls remain very close. It may sound extraordinary to some, from the US President to the Head of the IMF, but there is a large body of UK residents – particularly older voters – that believe the UK would be better off out of Europe. While I do not doubt that the UK will survive given either outcome, if the vote was to leave the EU, it would force us to reassess our reasonably optimistic view for European equities. Among the potential shorter-term risks, I would anticipate a sharp fall in sterling, a decline in GDP (leading to a potential recession), losses on the FTSE and a major increase in uncertainty across Europe. While we still believe that a vote for ‘Brexit’ remains unlikely, politics may overshadow Europe’s otherwise solid fundamentals for a few more weeks.
Tim Stevenson is Director of European Equities as Henderson.
