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.”
CC-BY-SA-2.0, FlickrPhoto: Matthew Grange. Standard Life Wealth Strengthens Investment Team
Standard Life Wealth, the discretionary fund manager, has announced the recent appointment of Matthew Grange and Matthew Burrows as Senior Portfolio Managers based in London. Both are working with UK and International clients and report to Charles Insley, Head of International for Standard Life Wealth.
“We are delighted that Matthew Grange and Matthew Burrows have joined Standard Life Wealth. They both have very strong investment backgrounds and have joined us to work with UK and International clients. As long term investors we offer clients investment strategies across the full risk spectrum and have an investment process that focuses on gaining exposure to secular growth drivers, which we believe will out-perform the broader market over the long term. Both Matthew Grange and Matthew Burrows are excellent additions to the team and bring valuable insight and institutional expertise to our investment process,” said Charles Insley, Head of International, Standard Life Wealth.
Matthew Grange has over 18 years of private client and institutional investment management experience. He spent over twelve years managing institutional UK equity portfolios for ABN Amro Asset Management and the corporate pension schemes for Lafarge and Reed Elsevier. In addition to his experience managing substantial UK equity portfolios, Matthew has experience of many other asset classes, particularly commercial property and private equity.
Matthew Burrows has five years of experience in the management of discretionary portfolios for charities, trusts, pensions and both institutional and private clients’ portfolios. He has managed portfolios for both UK and international clients at Falcon Private Wealth and Sarasin & Partners LLP, covering the full spectrum of traditional asset classes, as well alternatives and derivatives.
Standard Life Wealth, with offices in London, Edinburgh, Birmingham, Bristol and Leeds, and an offshore presence in the Channel Islands, provides both target return and conventional investment strategies private clients, trust companies and charities.
CC-BY-SA-2.0, FlickrPhoto: David Evers. Banque de Luxembourg Investments Expands Its Equity Fund Team
Banque de Luxembourg Investments S.A., the fund management company of Banque de Luxembourg, has hired Jérémie Fastnacht as a portfolio manager. The 30-year-old Frenchman’s main task will be to support Guy Wagner, BLI’s Managing Director, in managing the BL-Equities Dividend fund. Jérémie comes from Banque de Luxembourg, where he served for one and a half years as an analyst and equity portfolio manager in the Private Banking Investments department.
“Quality research is even more important in today’s market environment. We are therefore staying on our chosen path and – as we have done successfully with our BL-Equities Europe and BL-Equities America funds – have provided our fund manager with a co-manager,” said Guy Wagner. “With Jérémie we have selected an in-house candidate, especially as he knows the Bank, our investment philosophy, and shares our values.”
Jérémie Fastnacht added: “I am pleased to take on this new role on the equity fund team of Banque de Luxembourg Investments. Alongside Guy I will share responsibility for the Bank’s flagship funds, which is highly motivating.” Jérémie holds a master’s degree in Finance from Université Paris-Dauphine and completed a post-graduate program in Financial markets from SKEMA Business School / North Carolina State University. Jérémie began his career as an equity fund manager at BCEE Asset Management in Luxembourg in August 2012.
Photo: Dennisikeller. Fidentiis Gestión Launched the Fidentiis Tordesillas Iberia Long‐Short
Last March 9th, 2016 was the 9th anniversary of Siitnedif Tordesillas FIL one of the first Hedge Funds set in Spain under the Fondo de Inversion Libre format.
Managed by Fidentiis Gestión, Siitnedif Tordesillas FIL is one of the Hedge Funds with longest track‐ record within the Spanish hedge fund industry, and it is one of the three funds with the largest AUM. With a Long‐Short Equity Iberia strategy, long biased, it has as main feature the common feature offered by Fidentiis Gestion in its strategies: risk management.
considering their former vehicle structure limited access to a number of investors, Fidentiis Gestion decided to launch he UCITS version of Siitnedif Tordesillas FIL, named Fidentiis Tordesillas Iberia Long‐Short, which will be available to all. This new vehicle began its path on Thursday March 17th and is part of their UCITS IV vehicle domiciled in Luxembourg Siitnedif Tordesillas Sicav.
With daily liquidity and different classes of shares, the strategy will have similar characteristics to the original fund, keeping its features and constraints in force, and as mentioned above will be available for all type of investors through the different fund distribution platforms.
. CTA & Merger Hegde Funds Insulated From Rotations
The Lyxor Hedge Fund Index was down -0.9% in February. 3 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+2.2%), the Lyxor Merger Arbitrage Index (+0.5%), and the Lyxor LS Equity Long Bias Index (+0.4%) were the best performers.
“In a make-or-break environment, we recommend keeping some directionality through tactical styles. We would remain put on relative-value strategies, but focusing in areas least correlated to current themes.” says Jean-Baptiste Berthon, senior cross asset strategist at Lyxor AM.
Brexit risk helped Global Macro funds recoup some of the losses endured early February. It was a hill-start for the strategy, which suffered on their short bond and long European equities exposures (we note that positioning divergence among managers remained elevated). The collapse of the pound below $1.39 then allowed Global Macro funds to regain some of the lost ground. Indeed, London mayor Boris Johnson throwing support to the exit cause led markets to implement stronger protection against a risk of Brexit. The relative economic and monetary pulses between the UK and the US also played out. Funds remain slightly long in European equities. In bonds, they are long US and short EU bonds. Their top plays remain on their long dollar crosses.
The rally by mid-February triggered multiple macro and sector rotations. The selling pressure exhausted by mid-month. The rally in risky assets unfolded in poor trading volumes as most market players were initially reluctant to join in. An unstable market tectonic and multiple downside fundamental risks kept investors – hedge funds included – on the cautious side. In that context, CTAs outperformed, hoarding returns in the early part of the month, while remaining resilient thereafter thanks to stubbornly low yields. Besides, the longest bias strategies enjoyed a V-shape recovery. By contrast, those exposed to the rotations suffered the most.
L/S Equity: volatile and dispersed returns, skepticism prevails. Long bias funds enjoyed a V-shape recovery over the month and ended up slightly positive. They continued to generate strong alpha. Variable bias funds pared losses on the way down thanks to their cautious stance, but they underperformed on the way up. The rotation out of defensive back into value stocks proved costly. Market Neutral funds were the worst performers. They were hit by multiple sector and quant factor rotations, amid high equity correlation, while keeping their leverage steady. They endured a double whammy through untimely portfolio shifts.
Overall Lyxor L/S Equity funds slightly raised their market beta mainly through short covering. But skepticism prevails as to the sustainability of the rally. Interestingly, a number of funds are increasingly tactical in their stock and sector positioning.
Merger Arbitrage continued to defy risk aversion. The performance of Special Situation funds mirrored that of broader markets. They suffered in the early part of the month – especially in their healthcare and telecom positions – before recouping most of their losses. The returns of Merger Arbitrage funds were less volatile. Deal spreads initially factored higher macro risks, before settling down. Short duration operations with small P&L to lock in continued to lure managers. They maintained their elevated long exposures, reflecting their confidence in the current merger opportunity set.
The underperformance of European credit hurt L/S Credit strategies. The pressure mounting on global banks, and in particular European institutions, hurt some funds. Underperforming junior debt in Europe, and concerns about coupons suspension in contingent convertibles took a dent in some funds (as a reminder, “cocos” convert into shares if a pre-set trigger is breached – the level of solvency ratios for example. These securities were designed to enhance capital levels and provide investors with greater safety). BoJ venturing into negative yield regime also hurt Japanese and Asian issues.
Perfect conditions for CTAs, which continued to outperform. Continued de-risking in the early part of the month was beneficial to most CTAs. They kept on making strong gains in their long bond positions, their equity and energy shorts. In the second part of the month, most of the gains were made in EU long bonds and on GBP. The recovery in risk appetite led their models to shave off their most aggressive bearish positions. They reduced their short on energy and brought their equity allocation up to neutral. Their main vulnerability lies with their long bond exposure.
