Photo by Christopher Bowns
. The A's that Acccording to Henderson, Move the Tech World
According to Alison Porter, portfolio manager with Henderson’s Global Technology Team, Apple, Alphabet (previously Google) and Amazon are three three key holdings “in a ‘winner takes most’ world.”
Following the release of the companies’ latest quarterly earnings results, Porter states that after the first quarter for Google as Alphabet, the company offers exposure to a number of powerful internet themes, including online video, programmatic advertising, paperless payments, mobile internet and several ‘other bets’ that could drive significant value in the future, including Nest (smart home appliances), its leading position in self-driving cars, Calico (life sciences) and Google Ventures (venture capital arm, which includes stakes in companies such as Uber). “In our view, the strength of Google’s position in mobile is underappreciated… We think investors will place a value on the company’s other ventures despite them currently being loss makers, and also award the core Google business a higher valuation.”
In regards to Apple, one of their main holdings, Henderson considers that the company “is currently valued as a ‘one product cyclical company’, which we believe undervalues the Apple eco-system.” Henderson expects sales growth of the iPhone 6 to slow from 28% in 2015 to around 6% in 2016. Nevertheless, they trust Apple will be able to take advantage of new markets.
When it comes to Amazon, better tan expected revenue and operating profit guidance consolidate Amazon’s dominance in its core businesses of ecommerce and cloud services − which are both large and rapidly growing markets where Amazon still has low market share. Henderson highlights Amazon Prime as an área of opportunity along with Amazon Web Services (AWS) is taking market share from traditional hardware companies such as IBM and EMC but now also increasingly from software companies such as Oracle.
“Technology tends to be a sector where the winner takes most market share and companies with the strongest barriers to entry such as Apple, Alphabet and Amazon are the most likely to benefit. The team is confident these three companies are well positioned in a low growth environment to grow profitably and reward investors.” concludes Porter.
You can read the full report in the following link.
Andrew Feltus, Director of High Yield and Bank Loans, is Portfolio Manager of Pioneer Funds – Global High Yield, Pioneer Funds - U.S. High Yield, and Pioneer Funds – Strategic Income. Courtesy Photo. Andrew Feltus, Pioneer Investments: The Fed Wants to Increase Rates, but is Afraid to Kill the Cycle
Despite having very limited public spending, the United States is the fastest growing developed economy. What has changed during the past year in the U.S. economy? Andrew Feltus, Director of High Yield and Bank Loans, is Portfolio Manager of Pioneer Funds – Global High Yield, Pioneer Funds – U.S. High Yield, and Pioneer Funds – Strategic Income. With extensive experience managing a wide range of debt securities globally, including emerging markets and foreign exchange, Feltus narrows in his focus to review the situation for the U.S. credit markets at the InvestmentSeminar “Embrace New Sources of Return” which was recently held in Miami by the fund management company.
“In the past year, the fall in energy prices has led to a change in consumer behavior. The ordinary citizen has used the money from gas savings to pay down their debts and increase their savings” says Feltus. Right now, the U.S. consumer has much more flexibility and a bigger cushion than in 2008. “Banks are also much more robust.”
On the other hand, employment and wage inflation are doing relatively well, positively influencing consumption and services, “which make up the bulk of the U.S. economy.”
Energy and Liquidity the Black-Spots of the Credit Market
The companies which have suffered are almost exclusively in the energy sector. “In this industry, there are defaults, job losses, and reduced earnings per share. This doesn’t only affect the companies directly related to the energy industry, but all of those which service it indirectly, especially those related to shale gas.” The plight of this sector has infected the whole high yield credit market in the U.S., which with its 600 bp spreads are discounting a default rate of 7.5%, when in fact the default rate is at 2.5% (ex-energy data, end of September).
“This really seems too much,” says Feltus. Although he also adds that, until it is clear where the oil price points to, they are not looking to increase their exposure to the energy sector, because “the valuation is very attractive, but the fundamentals are very uncertain.”
An additional problem, which affects the whole credit market, is liquidity. “Liquidity is trash these days,” points out Feltus. “The lack of liquidity is what is causing credit spreads outside the energy sector, but if the problem is solved, there is now an opportunity to enter.”
Is this Enough to Curb the Fed?
Feltus explains how, historically, the worst time for the credit markets is from 3 to 6 months before the Fed begins to raise rates, “but the trouble this time is that we have been postponing the expectations of the first rate rise for almost a year. The Fed wants to raise interest rates, but does not want to kill the cycle, which is pretty nice.” Feltus, like many other voices in the industry, believes that probably at this point the market would react well to the first hike as long as the message continues to be one of gentle rises.
He also points out that the QE program ended a year ago, and the Fed’s balance sheet has been contracting since, “so, on that side, there has been some ‘tightening’ of monetary policy.” Meanwhile, general inflation is under control, but it is true that as you break down the index, energy prices have a big effect. In fact, inflation in the service sector is slightly above 2% -the Fed’s target-. In any case, “the reality is that rarely in the Fed’s history -only twice- it has raised rates with the GDP growing below 4%, which is the current situation.”
Barbell Strategy to Extend Duration
Due to the economic slowdown seen outside of the United States, and inflation expectations falling to lows since 2008, the Strategic Income Fund team has decided to be less short in duration than previously, but through the purchase of TIPS –long-term bonds linked to inflation-, which should benefit from a normalization in inflation expectations. “There is no value in buying Treasuries right now, unless you’re considering a scenario of recession, something we do not see at this time,” says Feltus.
An effect that is repeated in the history of the Fed’s upward cycles is the flattening of the curve, with a much greater effect on the shorter half of the curve. Faced with these prospects, the team is using a Barbell strategy in the portfolio, with very short-term bonds on one side, and TIPS on the other, to lengthen the portfolio’s duration and neutralize this effect.
Finally, Feltus declares himself to be a great fan of the dollar. “We have less exposure to currencies other than the dollar than what we have had in our history.”
Photo: Ana Patricia Botín.. UBS (Italia) S.p.A. to Acquire a Business Concern from Santander Private Banking Italia, which Includes €2.7bn AUM
UBS Group AG announced today that its Italian Wealth Management entity UBS (Italia) S.p.A. has entered into an agreement to acquire a business concern from Santander Private Banking S.p.A. (SPB Italia), which includes €2.7bn assets under management, all of its private bankers and branch support staff. The transaction is expected to close in the first quarter of 2016, subject to regulatory approvals and other customary closing conditions.
Based in Milan, SPB Italia provides financial advice and investment solutions to high net worth individuals and family groups. In addition to its wealth management services, SPB Italia’s offering includes banking products and services, loan products, and mortgages. As of 30 September 2015, SPB Italia operates through 6 branch offices located in Milan, Varese, Brescia, Roma Napoli and Salerno.
SPB Italia’s business will be integrated into UBS Italia and will enhance UBS Wealth Management’s presence in the country.
“SPB Italia has a distinguished positioning in our country as a provider of world-class Private Banking services. This transaction is a natural fit with our current wealth management offering in Italy in terms of both business and culture,” said Fabio Innocenzi, CEO UBS Italia. “It also represents a perfect opportunity to grow UBS’s business and to further expand our market share in Italy. SPB Italia’s clients and Private Bankers will gain access to one of the world’s leading wealth management platforms with an excellent reputation in the marketplace. UBS’s clients will benefit from a wider range of banking products and financial solutions.”
UBS is one of the largest wealth managers in the world, giving access to a global banking platform while providing excellent local advice. UBS offers a global scale, world-class investment capabilities and a compelling value proposition for its clients.
UBS (Italia) S.p.A. is an Italian registered bank, subsidiary of UBS AG, running wealth management activities for private investors in Italy. UBS (Italia) S.p.A. is the parent company of Gruppo UBS Italia, comprising also UBS Fiduciaria S.p.A, operating in the country since 1996 and employing about 480 staff serving from nine branches located in Bologna, Brescia, Florence, Milan, Modena, Padua, Rome, Treviso and Turin. UBS (Italia) S.p.A. is ranked 6th and has a market share of 4% in the Italian Wealth Management market (source: Magstat).
Funds Society joins the world showing its support for France after the terrorist attacks suffered in Paris on November 13th. Our thoughts are with the French people, and specially with the families and friends of the victims of the attacks.
. Fund Society's "Fund Selector Summit Miami 2015" Event, Nominated for “Launch of the Year” at the PPA Connect Awards
PPA Connect Awards has shortlisted the Fund Selector Summit Miami 2015, held at the Ritz Carlton hotel in Key Biscayne and organized by Funds Society in collaboration with Open Door Media, for the “launch of the year” award The presentation of the awards to the winning finalists will take place on December 7th in London, where the community of professional events’ organizers granting the awards, have their headquarters.
Funds Society’s Fund Selector Summit was the first event organized jointly by Funds Society, an online reference publication for the US Offshore market’s professional investors and Spanish language magazine distributed quarterly in the United States, and Open Door Media, publisher of a magazine for professional investors in the UK and an experienced organizer of events for financial professionals, in several European countries.
The union of the two parties has shown itself to be a perfect tandem as 11 international fund management companies sponsored an event which was attended by more than 50 fund selectors in May 2015. Throughout the two days, meetings were held between small groups of buyside professionals and a fund manager from each of the sponsoring institutions. There was time for presentations, questions, coffees, talks, exchanging business cards, cookouts in the hotel grounds, and to enjoy an excellent presentation by Javier Santiso.
The celebration of Funds Society’s Fund Selector Summit 2016 has been announced for the 28th and 29th of April at the same venue, and organizers hope to repeat last year’s success.
Thanks to all the sponsors who supported the event for making this possible: Amundi, Carmignac, Goldman Sachs Asset Management, Henderson Global Investors, NN Investment Partners, Lord Abbett, M & G Investments, Matthews Asia, Old Mutual Global Investors, Schroders and Robeco.
Photos of the first day of last year’s event are available through this link and those of the second day through this other link.
CC-BY-SA-2.0, FlickrPhoto: James Jordan
. Credit Suisse: “The US Federal Reserve May be Able to Hike Rates in December 2015”
In his monthly Investment outlook, titled “Global economic stabilization more likelythan a further slowdown,” Björn Eberhardt, Head of Global Macro Research at Credit Suisse, states that the US FED may be able to hike rates in December 2015, while other central banks, such as the European and Japanese ones, may still announce further easing.
Eberhardt points that “The global economic outlook remains very uncertain. However, recent activity data on a wide range of economies has supported our expectation that the global economy is unlikely to slow further.”
Adding that the latest US data has also been relatively stable overall despite some signs of softening. Q3 GDP data is likely to show weaker growth compared to Q2, mainly due to weakness in trade. “Looking ahead, although business surveys have been weakening, consumer confidence remains very high, indicating that private consumption is likely to continue to be the main growth driver. And while payroll growth weakened in August and September, other labor market measures point to still very good conditions,” he says.
Based on solid domestic conditions – Eberhardt explains,the US Federal Reserve has good arguments for a first rate hike in December, “but the timing remains very uncertain. In our view, financial market pricing that virtually rules out a December hike has gone too far.”
Despite the fact that economic momentum in the Eurozone has, if anything, been somewhat more robust than in the USA Credit Suisse believes that the European Central Bank (ECB) may nevertheless have to announce further easing, “mainly because the outlook for Eurozone inflation remains very subdued and inflation expectations have weakened again.” As is the case in Japan. Eberhard believes further easing from both Central Banks might come as soon as this year.
Lastly, the expert states that when it comes to emerging markets and despite weak data, “the situation in major emerging markets has shown some signs of stabilization.”
Photo: Piergaetano Iaccarino is the Head of Thematic and Disciplined Equity at Pioneer Investments since January, 2012. Pioneer Investments’ Iaccarino: Growth Exists, Although it’s "Hidden"
Even if Pioneer Investments is more positive about China than the consensus, the firm believes growth must be found in other markets. Piergaetano Iaccarino, Head of Thematic Equity for Pioneer Investments, shared his thoughts at the investment forum “Embrace New Sources of Return” held recently in Miami: “China is shutting down one of its economic engines, and starting another.” This transition from fixed investment, exports, and government control, to an economy oriented to domestic consumption, services, and the private sector, will take time, but in China “there are still available instruments” claims Iaccarino referring to the forex exchange controls.
Debt and Deflation
Iaccarino determines that in the coming years, growth will be higher in developed economies, “where we are seeing a better growth outlook than for the 2007-2014 period. In emerging markets, the situation is reversed.”
Economies operate in an environment ruled by two major trends: financial leverage and deflation. “Nations do not only face the repayment of outstanding debt, but also their obligations to pay pensions and health costs of a population which is ageing quickly.” Japan is not the only country with this problem, the United States has a similar debt level once these future obligations are incorporated, “and the emerging markets are not immune to this problem because they have doubled their debt in recent years, with half of that debt issued in hard currencies (euro and dollar).
The other major trend mentioned by the expert is deflation, which represents an added problem for the most indebted countries. “Central banks of developed countries do not have the rate cutting tool readily available; They can print money (QE) or manipulate the exchange rate,” although the effectiveness of these measures is questionable.
So, Where is Growth to be Found?
“Growth is ‘hidden’. It exists but it’s hidden,” claims Iaccarino. The United States, with the strength of its labor market, represents an opportunity. Employment generates consumption, to which a favorable demographic picture must be added. “Perhaps the only negative point in the US is political, with the uncertainty arising from the elections next year.” Even the exposure to exports towards China is correct, as they are not as relevant, representing 1% of GDP, but the trend is growing, however “and the Fed knows it, so that the evolution of the Chinese economy weighs increasingly in monetary policy decisions in the United States.”
According to the expert, Japan represents the eternal promise. “Fixing Japan always takes longer than expected. Culturally, the process of reaching a consensus is painfully slow, but once matters have been clarified, action is usually rapid. “The reforms presented by Shinzo Abe are now in full debate in Congress. The TPP (Trans-Pacific Partnership) is very important for Japan, which will have to introduce certain reforms touching on immigration and corporate governance. “In this regard, it has already achieved a lot, with a penetration of 50% of independent board members in listed companies, compared with 16% a few years ago. Valuation and momentum support investment in Japan. “
Should Emerging Markets be Avoided Entirely?
While it’s true that emerging markets will see less growth, they should not be avoided entirely. “Some countries are more vulnerable than others to external shocks. We must find countries with good foreign exchange reserves and a healthy current account balance. You need to be very selective, “claims Iaccarino.
Another factor to consider is the credibility of reforms and the stability of the institutional framework. “India and China are in a much better position than Russia and Brazil.”
What to do?
Perhaps the key to medium-term positioning is to manage volatility. “Volatility is increasing, especially the volatility of volatility, creating stress in the market. Volatility becomes a risk if you are forced to sell in times of high volatility; however, if you do not have that time pressure to sell, it becomes an opportunity”.
Volatility feeds on a number of factors: the debt deleveraging process, an environment of below potential growth, in both developed and emerging markets, also coupled to the central banks’ lack of tools. In turn, there is the problem of liquidity in the market, directly derived from increased regulation of the financial sector.
All this creates opportunities, although “potential is limited, both in equities and in fixed income; the important thing is to hedge tail risks well.”
In credit, the expert mentions very selective opportunities in securities overly affected by the crisis in the energy sector. Pioneer Investments’ Head of Thematic Equity, has a more favorable opinion of equities, since there is a component of positive growth in developed markets, which is feeding into corporate earnings. “In Europe, the cycle lags behind the United States, but it’s improving. Valuation of the stock markets may be more questionable, but some things are attractive. The biggest risk is volatility, or risk perception, which punishes stock markets every time there is an episode of illiquidity.”
Iaccarino adds that technical factors particularly support the Japanese market, which is seeing a lot more domestic money in their stock markets, both by pension funds and by individuals, a group which now enjoys tax benefits for investing in stock markets.
Photo by Gerald Lau. Canadian BMO Global AM Launches Nine ETFs Aimed at European and British Investors
Canadian manager BMO Global Asset Management has launched nine ETFs targeting UK and European investors. The ETFs, all UCTIS compliant, are listed on the London Stock Exchange and registered in Ireland. Three of them are global corporate bond ETFs, one is global high yield and five are equity ETFs. Amongst the equity ETFs BMO offers exposure to the US, Europe ex-UK and the UK.
Richard Wilson, CEO, BMO Global Asset Management (EMEA), told InvestmentEurope “Establishing our ETF offering in Europe is a key strategic milestone for us as we continue to expand across the region.”
According to BMO, their fixed income offer will allow investors to more precisely position their fixed income exposure at a time when the world is preparing for the Federal Reserve to raise rates.
In regards to their equity offer, which follows MSCI indices, the Canadian bank reminds investors that their Income Leaders ETFs come in hedged and unhedged versions, allowing investors to implement active positions on currency.
Photo by Blatant World
. Bill Gross: Central Banks are "Stubborn, And Reluctant To Adapt To A Significantly Changed Finance Based Economy"
In its latest monthly report, the so-called bond king, Bill Gross, warns of the risks that the Zero Bound Yield Curve brings to credit markets.
Gross, who has urged the Federal Reserve to raise rates several times this year, says that the near-zero levels are hurting the real economy and affecting the balance sheets of institutional investors such as pension funds and insurance sector companies because “profit growth is stunted, if short term and long term yields near the zero bound are low and the yield curve inappropriately flat”.
In his opinion, the US government should sell part of its more than $2 trillion in long-term bonds and buy short-term paper to improve the slope of the curve. But he doubts that the Fed will take that route because he believes that “central bank historical models fail to recognize is that over the past 25 years, capitalism has increasingly morphed into a finance dominated as opposed to a goods and service producing system”.
Another recommendation the bond guru makes to central banks is to raise their inflation targets, to say 3%, as the president of the San Francisco Fed, John Williams recently said. However, Gross considered unlikely that central banks of major economies would change their ways because they are “stubborn, and reluctant to adapt to a significantly changed finance based economy.”
Ashish Kochar is a co-fund manager of Threadneedle Global Extended Alpha Fund. Courtesy photo.. "Extended Alpha Fund Allows to Compete in A Race with Other Long Only Funds but with a 60% Bigger Engine"
Ashish Kochar and Neil Robson, co-fund managers of the Threadneedle Global Extended Alpha Fund, explain in this interview with Funds Society the benefits from a 130/30 strategy and the need to generate alfa in a more volatile world.
The ‘Extended Alpha’ concept that names the strategy: In what does it consist exactly?
The easiest way to think about an Extended Alpha fund vs. a typical Long only fund is the analogy of competing in a race with other Long only Funds but with a 60% bigger engine (in this case the 60% extra Gross; upto 30% each from both the Long book and the Short book.)
Extended Alpha Funds or the 130/30 funds take short positions in stocks that are expected to fare badly, while taking long positions in stocks that are expected to outperform the market. The ultimate aim is to create a positive spread between the longs and the shorts. It might sound odd but even if the shorts outperform the market (benchmark) but underperforms the long stock – it still works in creating a positive spread ie alpha creation. They are called 130/30 because approximately 130% of the portfolio is invested in long positions, and 30% in short positions. (Investment managers can short a higher or smaller proportion of the portfolio). These funds have an overall net exposure to the market of approximately 100% and a beta near one, the same as a long-only fund.
How do holding short positions help raising the portfolio’s value?
Shorts positions help the portfolio value in two ways. First, positive alpha creation: You short something and it goes down and you create alpha. This is the bit that is easy to understand. Second, risk management for long book: This is the more interesting bit in that it allows one to own more of what they like in the long book and hedge out part of the risk by shorting a less good company.
In the current market: Is it more important to capture the ‘beta’ or obtaining the ‘alpha’? Why?
Over the past few years strong market performance has provided attractive market (beta) returns to investors. Going forward, we expect lower returns from beta, and therefore the relative contribution and importance of alpha is quite important. In the case of Global Extended Alpha we have been able to generate excess return compounded over the last five years. The more important bit is that these returns have been generated by taking minimal incremental risk.
Do you consider that volatility in the markets will rise?
Yes. We live in an interconnected world so monetary policy changes around the world, particularly the dynamic of potential US rates rising; against slowing emerging market growth presents a major risk. We are concerned about the second-order effects of shifts in currency and commodity prices. Another risk factor is China. The economy is undergoing a long and a difficult transition. This creates new risks and volatility as we saw in the recent Chinese stock market correction.
Which is the current net exposure of the fund and why? Is it time to be cautious or aggressive in the markets?
The Net exposure of the fund is in the middle of the range with beta near one. Equity markets are finely balanced at present and as long as one is confident about growth they look remain attractive relative to bonds. (This is illustrated by the gap between Earnings vs. Bond yields in the chart below.)
Do you believe that there are ‘bubbles’ in some equity markets?
Generally speaking no, we don’t see bubbles within major equity market regions. Some subsectors of the market (and indeed valuations in some private markets (venture capital technology for instance), do look frothy.
Is there value in the global markets? Where would you identify better values for your long and short positions (in sectorial terms, by countries)?
At the present time we believe the global market is relatively fully valued. From a long perspective we favour the US, technology, and consumer sectors.
In your fund’s particular case, you hold conviction bets. How is conviction better than diversification? Is it possible to obtain a diversified portfolio while holding position in few names?
We have a large team, regional team resources, and central research analysts available to us, which means we generate a large number of high conviction ideas within our global opportunity set. Through our investment process we can achieve reasonable diversification by sector and region while only owning stocks that we have strong conviction in. We never own stocks just because they are in our benchmark.
