CC-BY-SA-2.0, FlickrFoto: Oliver Schnücker. Reacciones exageradas del mercado: el enfoque ‘Episode’ de M&G para encontrar oportunidades
Amundi ETF announces the launch of the first ETF in Europe leveraging the theme of European share buybacks, by tracking the MSCI Europe Equal Weighted Buyback Yield strategy index. The launch represents another innovative expansion of Amundi ETF’s European equity Smart Beta range.
The ETF is designed for investors seeking to capture yield from the European equity market via a return-oriented Smart Beta approach, by providing exposure to companies performing share buybacks, a method of distributing income to shareholders which is likely to grow in Europe.
Share buyback programs allow cash-rich companies to repurchase their own stocks. Already widely used in the US, they should become more popular for European companies as they represent a more efficient use of cash in a low rate environment and give companies more flexibility than dividend programs. Moreover, buyback programs are compelling for investors as they can provide higher returns in a low rate environment.
The MSCI Europe Equal Weighted Buyback Yield strategy index reflects the performance of MSCI Europe securities that have performed buybacks in the previous 12 months . Moreover, this strategy index applies an equal weight methodology, thus increasing diversification and providing a purer exposure to the share buyback theme with a reduced bias.
Amundi ETF is launching this new product in response to client demand, following the launch of its US buyback ETF earlier this year, which prompted interest in a European version based on the same theme. The ETF has a TER of 0,30% and will be made available in Paris and subsequently the major European exchanges.
Valerie Baudson, CEO at Amundi ETF, Indexing and Smart Beta, said: “This innovative ETF adds to our broad mono and multi Smart Beta range and reinforces the positioning of Amundi as a leading innovative player in the European ETF market.”
Photo: Mark Mobius, Guru of emerging market equities at Franklin Templeton. Star Manager: Hero or Villain?
Each asset management firm has a star portfolio manager or at least a manager who’s held as the role model. This is typically a PM with years of experience, a track record to die for, and a renowned reputation within the industry. If at Franklin Templeton we have Mark Mobius and Michael Hasenstab, or at Matthews Asia Andy Rothman, we must not forget Russ Koesterich when speaking of BlackRock, or Greg Saichin of Allianz GI.
They lead teams with good results and are in major mutual fund firms. For years, their management attracts clients, and therefore increase the flow of capital. The problem comes when they want to start new projects, change companies, or retire without further ado.
What for years was a sweet dream for any company suddenly becomes its nightmare overnight. The most recent example is Bill Gross, who after years as a star manager at PIMCO, a company which he helped to establish, he decided on a change of scenery and joined Janus Capital.
The Allianz subsidiary then experienced capital outflows amounting to $176 billion worldwide in 2014, i.e. 26% of the assets it managed in 2013. The losses of the PIMCO Total Return, Gross strategy, amounted to over $96 billion dollars in just five months. A genuine catastrophe.
Something similar happened in Spain with Francisco Garcia Paramés’ departure from Acciona Group’s Bestinver, after 25 years of service to the company. Known as “Europe’s Warren Buffett”, he achieved a placing for the company’s funds at the top of the rankings within their class. When he decided to start a new project, however, the outflow of funds began. Assets under management fell by about 30%, especially with the exit of institutional clients.
The capital outflow requires companies to react quickly in searching for the most suitable replacement, but, even so, prefer to choose other managers with similar reputation. The damage to the company is twofold. Not only do they leave, they also do so to join the competition.
Recently, Morningstar left the door open to hope by giving an example of an orderly transition with low impact for the company when placing Jupiter UK Growth in the hands of Steve Davies, who replaced Ian McVeigh after his departure. Among the lessons to be learnt from this is that the longer the star manager and the manager who shall replace him work together, the less impact on the firm.
Photo: Lee. Why High Yield? Low Interest Rate Sensitivity and Default Rates
The high yield market typically has a lower duration than other fixed income markets due to a combination of higher coupons and shorter maturities. This helps to insulate it from movements in interest rates – a characteristic that is becoming increasingly valuable as the market anticipates a rise in US interest rates. The chart below shows how US high yield has historically provided better excess returns in periods where 10-year Treasury yields increase by more than 100 basis points (bps).
High yield tends to exhibit a higher level of idiosyncratic risk than other areas of fixed income, with individual company factors proving a bigger determinant of the bond price than is the case for investment grade bonds. As the correlation table below demonstrates, high yield also has a stronger correlation with equity markets, making it a useful diversifier within a fixed income portfolio.
For a long-term investor, the heightened risk of default is the key driver of spread premia for high yield bonds. We expect default rates to remain low for an extended period given sensible leverage, lack of capex and historically-low interest rates – the exception to this being the energy sector which is troubled by over-investment meeting a collapse in oil prices.
In a recent study, Deutsche Bank remarked that 2010-2014 is the lowest five-year period for high yield defaults in modern history (quality adjusted). To protect for default risk in BB and B-rated bonds over this period, investors would have required spreads of 27bp and 94bp respectively. To put this in context, current European/US BB spreads are 314/346 bp and B spreads are 528/518 bp2, suggesting high yield bonds in aggregate are more than compensating for a moderate pick up in defaults.
Although we are seeing evidence of late cycle activity in some sectors in the US, at a more broad level and globally companies are still using the proceeds of their high yield bond issues for non-aggressive activities such as refinancing. Bondholder unfriendly activities (issuing bonds to pay for leveraged buyouts or to pay dividends to equity holders) remain well below the worrying levels of 2005-07.
Photo: Caio Bruno. Brazil’s Slumping Economy Likely To Decline Further
Hurt by the global slump in commodities and mismanagement by government officials, Brazil’s economy has been battered both internally and externally. Given the current domestic political crises in Brazil over the alleged Petrobras payments to politicians, and the country’s current budget crisis, I believe it is unreasonable to expect any near-term recovery.
Gross domestic product (GDP) and industrial production have dropped
Over the past year, Brazil’s real GDP and industrial production have declined sharply, continuing a trend that began with the collapse of output and production following the Global Financial Crisis of 2008 and 2009. Since peaking in the first quarter of 2014, Brazil’s real GDP has fallen by a cumulative 3.5%, while industrial production has declined by 6.8% (on a 12-month moving average basis).1
The Brazilian economy is laboring under “twin deficits.”
The first is an external current account deficit that implies that the economy has lost some competiveness and/or that there’s a build-up of overseas debt.
The second is a growing fiscal deficit that the government appears very unwilling to bring under control.
The worrying aspect of Brazil’s macroeconomics is that both deficits are currently widening, suggesting a marked lack of discipline with respect to spending. Normally a government faced with this kind of situation would attempt to rein in fiscal expenditures by reducing the fiscal deficit or private expenditures, leading to an improvement in the current account balance. However, the fact that Brazil is not doing either of these two things is a major reason to expect the currency to weaken further.
With the government’s unwillingness to bring the country’s fiscal deficit under control, most of the burden of adjustment rests on the central bank’s interest rates, which are very high at 14.25%,2 and the currency, which has depreciated sharply despite high domestic interest rates.
Recession extension likely
Brazil’s economy is in a protracted slump. Given the weakness of demand abroad for Brazil’s key commodities, and the inability to revive the economy at home, it seems likely that the recession will be extended.
Key indicators of domestic spending show a gloomy picture:
New car sales were down 13.2% year-on-year in June
Industrial production was down 6.6% year-on-year in July
The latest comprehensive figures for retail sales show they were down by 3.0% in June.
Outlook
With high inflation eroding purchasing power and high interest rates curtailing credit growth, it is hard to envision any near-term upswing in the domestic economy for Brazil.
Going forward, I believe Brazil’s currency is likely to depreciate further, and interest rates will like stay high until the twin deficits are properly addressed.
Article by John Greenwood, Chief Economist of Invesco Ltd
CC-BY-SA-2.0, FlickrPhoto: 一元 马 . Aberdeen Granted WFOE Licence, Signals Long-Term Ambition in China
China has granted Aberdeen Asset Management, the UK-based asset manager, a Wholly Foreign-Owned Enterprise (WFOE) business licence.
The announcement comes as UK Chancellor of the Exchequer, George Osborne, leads a trade delegation to China.
The licence, issued to a newly-created Aberdeen subsidiary by the Shanghai Administration for Industry & Commerce, Pilot Free Trade Zone Branch, will enable the company to set up an office there under the pilot Free Trade Zone.
Aberdeen has long wanted to expand its activities in China. The chief constraints have been access, control and manpower. The company has taken a gradual approach, having opened a representative office in 2007. That office has mainly performed liaison work.
Under the new venture, the plan is to add analysts to research local equities and business development staff. At present, Aberdeen does such research mainly from Hong Kong, preferring to do this in-house, and this will continue.
In the first stage asset-raising will focus on local institutions. The WFOE is based in the Free Trade Zone which brings further advantages.
Aberdeen stresses the importance of patience, however. It is not seeking quick returns but looking to build its presence step by step, mindful that, while liberalisation is good for the industry, opportunities are evolving fast.
That view is informed by the raft of new investment initiatives, which have included the likes of ‘Stock Connect’, the Hong Kong-China mutual recognition scheme for funds as well as the WFOE regime itself.
Photo: Arek Olek. Navigating The Storm: In Risk Budgeting and Alpha We Trust
The Lyxor Hedge Fund Index was down -2.7% in August. 1 out of 12 Lyxor Indices ended the month in positive territory. The Lyxor Convertible Arbitrage Index (+3.3%), the Lyxor L/S Equity Variable Bias Index (-0.7%), and the Lyxor L/S Equity Market Neutral Index (-1.1%) were the best performers.
The deflation and growth scares, which built up over the summer, accelerated following the CNY devaluation. They morphed into a vicious cycle in the last week of August. With volatility reaching 55 and equities plunging by the hour, Monday 24 will from now on count among the major stress episodes used as reference. The bulk of the Lyxor Hedge Fund index was endured during that week. Event Driven funds were the main losers. Return dispersion was elevated. Losses in some heavy-weight funds hid decent performances among macro traders (CTAs and Global Macro). A milder pressure on credit and govies supported credit and fixed income arbitrage strategies. The L/S Equity space proved resilient apart from Asian and US long bias managers.
“Beyond a possible near-term rally, we expect moderate and riskier returns from traditional assets. Thus, we continue to strengthen our focus on hedge funds’ relative value approaches.” says Jean-Marc Stenger, Chief Investment Officer for Alternative Investments at Lyxor AM.
To the notable exception of Asian and US long bias funds, the L/S Equity strategy was remarkably resilient. Most funds had steadily reduced their net exposures over the summer, cautiously positioned ahead of the sudden end-of-August debacle. In Europe, Variable bias managers implemented efficient hedging strategies, with an increased number of single shorts. European managers, which generally missed the reflation trade early this year, regained all the lost ground over the summer. They even outperformed market neutral strategies. In contrast, Lyxor Asian managers suffered in August, down -2% in aggregate. Their dramatic cut in net exposure since June (-10%) limited the damages. US Long Bias also took a major hit, losing most of their beta.
Event Driven funds were the main losers, with a severe plunge across the board. The aggregate Event Driven performance was close to flat before the last week of the month. Until then, some losses were recorded in China and Resources related exposures. They were offset by positive earnings releases in few large corporate situations and by the favorable closing of several M&A deals. The last week of August unsettled both merger spreads and the pricing of corporate situations, including activist positions. Special Situation underperformed Merger Arbitrage funds, even adjusted from their market beta. The sudden widening of deal spreads and the depressed valuation levels of corporate situations will probably open a phase of recovery going forward.
The Lyxor L/S Credit Arbitrage index was only down -1.5%. The market turmoil infected credit markets but less than equities. Spreads had already meaningfully widened over the recent months. This kept managers on a very cautious footing, positioned on high quality and high grade issues, with increased diversification. As dispersion returned in the space, short opportunities also emerged – and not only in the energy segment. In particular weakening cross credit correlations provided fixed income arbitrage funds with greater relative value opportunities. The alpha produced by Credit strategies alleviated the adverse beta contribution.
High dispersion among CTAs in August. CTAs were up nearly +1% before the last week of August. With their long bond and USD positions along with their short commodities exposures, they were well hedged against the various risks being priced in. In particular: a slower global growth, a slower Fed normalization and the Chinese ripple effects on EM countries and resources. During the last week, a majority of funds remained reasonably resilient. However some heavy weight funds were substantially hurt on their remaining long equity holdings and on some of their long USD crosses. ST models outperformed thanks to a faster portfolio repositioning. We observe that, in aggregate, LT models cut their about 30% net equity exposure down to less than 10% over that week.
Heterogeneous returns among Global Macro, with losses in heavy weights. Until the last week of August the strategy remained resilient, with a slightly positive MTD return. While cautiously exposed to risky assets, their hedges had little efficiency in the sell- off. They were essentially hit in their equity and long USD positions, with limited cushion from bonds or safe havens. However, losses in large macro funds actually hide a more heterogeneous and favorable picture. After the sell-off, Lyxor Global Macro funds were on average 10% net long on equities (from 15% early August), with more than half of their equity positions in Europe. They continue to play commodities mostly in relative value. Overall they remain long USD, especially against EUR and GBP.
Courtesy photo.. Hartwig Kos Joins SYZ Asset Management as Co-Head of the Multi-Asset Team
SYZ Asset Management, the institutional asset management division of the SYZ Group, has announced the appointment of Hartwig Kos as Co-Head of the Multi-Asset team. Hartwig Kos will co-manage the team with Fabrizio Quirighetti and also serve as Vice-CIO of SYZ Asset Management. He will take up his position on 15 October 2015.
Based in London, Hartwig Kos will contribute with his specific skills and experience in active allocation strategies to the team of 7 people in place and will take over the management of the OYSTER Multi-Asset Diversified fund as lead manager. For their part, Fabrizio Quirighetti and his team in Geneva will manage the OYSTER Multi-Asset Absolute Return EUR and OYSTER Absolute Return GBP and Fixed Income strategies.
Before joining SYZ Asset Management, Hartwig was a Director in the Global Multi Asset Group at Baring Asset Management, where he was responsible for managing the Baring Euro Dynamic Asset Allocation Fund. He was also the Co-Manager of the Baring Dynamic Emerging Market Fund. Moreover, Hartwig was a member of the Strategic Policy Group at Barings, the firm’s asset allocation committee. Hartwig holds a Ph.D. in Finance from Cass Business School in London and a degree in Economics and Business Administration from the University of Basel, Switzerland. Hartwig is also a CFA® charterholder.
The London office is one of SYZ Asset Management’s clusters of excellence and notably houses the European equities fund management and research team. An office was opened in Edinburgh in November 2014 to include additional European fund management and research capabilities and an expanded sales team.
Commenting on the appointment, Katia Coudray, CEO of SYZ Asset Management, said: “I am pleased to have hired Hartwig Kos. He is an investment professional who is highly respected by his peers and his renowned experience in active allocation management adds value to our fund management team.”
Hartwig Kos added: “SYZ Asset Management has an excellent reputation and a convincing track record in the competitive field of multi-asset management. I am delighted to be a part of this team and join a Group with a strong investment culture and a human dimension.”
Foto cedidaPhoto: geographie, Flickr, Creative Commons. Sareb Senior Executive Joins DebtX in Europe
DebtX, the largest marketplace for loans, has announced that Luis Martin, a Spanish banking executive with more than 25 years of financial services experience, has joined DebtX as a Senior Advisor in Europe.
Martin, a recognized leader in the Spanish banking and real estate community, will work with institutions to reposition their balance sheet and reduce non-performing loans. Most recently, Martin was a Member of the Board and the Head of Transactions at SAREB, Spain’s national bad bank. In that role, he had direct responsibility for over $30 billion of loan sales and executed most of the largest loan sales in Spain over the past two years.
“Luis Martin is a highly respected banking and real estate executive who brings extensive knowledge of the Spanish market, its key players, and the loan sale process,”said DebtX Managing Director Gifford West, head of DebtX’s international operations. “Luis deepens the DebtX team and expands its ability to serve financial institutions throughout Europe, where DebtX has been valuing and executing loan sales for the past eleven years.”
Previous to joining Sareb, Martin was Chairman and CEO of BNP Paribas’s real estate consulting firm in Spain. In this role, he had direct responsibilities on the servicing and property management of more than 7,000 residential units and 500,000 square meters of commercial properties. He participated in many real estate investment transactions exceeding more than €500 million and asset management responsibilities over more than €400 million through BNPP Real Estate Investment Management.
“As we enter the next phase of bank restructuring, Spanish banks will examine all of their non-performing and non-core positions with the goal of maximizing proceeds,” Martin said. “DebtX is best positioned to establish an efficient market for these loans and create liquidity and transparency for Spanish banks. Once these banks have removed these assets from their balance sheets, they will be positioned to originate more loans and drive the Spanish economy.”
DebtX is the largest secondary commercial and residential loan trading platform in Europe and the United States. DebtX works with banks and governments to create liquid markets for commercial and residential loans. Buyers of loans sold at DebtX include institutional investors around the world.
CC-BY-SA-2.0, FlickrPhoto: Chris Bullock, credit analyst at Henderson and co-manager on the Euro Corporate Bond Fund and Euro High Yield Bond Funds. . The High Yield Bond Market Has Trebled in Size in The Last 10 Years
High yield bonds have been a staple of US portfolios for more than thirty years, and the trends that have led to a large and well-developed US market are beginning to establish themselves elsewhere as companies increasingly turn to high yield bonds as a source of funding.
This growing global supply creates greater choice for investors at a time when demand for high yield bonds is also increasing because of the favourable risk/return and yield characteristics of the asset class.
High yield bonds are corporate bonds that carry a subinvestment grade credit rating. They are typically issued by companies with a higher risk of default, hence the higher yields. Henderson believe the following factors combine to make high yield bonds an attractive investment:
Growing and globalising market
High income in a low yield world
Low sensitivity to the interest rate cycle
Default rates expected to remain low
Significant opportunities for credit selection
A growing and globalising market
As the table shows, the high yield bond market has trebled in size in the last 10 years and, geographically, is becoming more diverse. “In part, this reflects a more confident and established market, as well as companies increasingly turning to the high yield bond market after banks cut back on lending following the financial crisis”, points out Chris Bullock, credit analyst at Henderson and co-manager on the Euro Corporate Bond Fund and Euro High Yield Bond Funds.
Today, the high yield market comprises a vast range of companies from household giants such as Tesco, Heinz and Telecom Italia through to small and medium-sized companies that are raising funding through bond markets for the first time. This creates an attractive and expanding mix of issuers that can reward strong credit analysis.
High income in a low yield world
High yield bonds continue to offer an attractive income pick-up.
Yields in many fixed income sub-asset classes are still close to historical lows despite recent rates market volatility. Yields have been driven by low global central bank rates combined with quantitative easing (QE). In the first half of 2015 alone, 33 central banks cut interest rates, while the ECB embarked on its €60bn-a-month quantitative easing programme.
From a risk-return perspective, high yield bonds are typically seen as occupying the space between investment grade bonds and equities. As the chart shows, over the last 15 years, high yield bonds have outperformed investment grade corporate bonds, government bonds and even equities, with less volatility than equities. The high income element in high yield bonds has been a valuable component of total return.
CC-BY-SA-2.0, Flickr. David Steyn Appointed as CEO and Chairman of the Management Board of Robeco
Robeco today announces the appointment of Mr. David Steyn (1959) as Chief Executive Officer and Chairman of the Management Board of Robeco Groep N.V. (‘Robeco’) as of 1 November 2015.
David Steyn has over 35 years of international experience in asset management, in management,distribution and investment roles. Previously David Steyn was in charge of strategy at Aberdeen Asset Management plc and chief operating officer and head of distribution at AllianceBernstein LP, based in London and New York. He studied law at the University of Aberdeen.
David Steyn, said: “I am honored to be given the opportunity to become part of an asset manager with such a strong heritage and reputation. I am looking forward to building Robeco further on a continuing path of excellence, meeting the evolving needs of clients around the world.”
Dick Verbeek, Chairman of the Supervisory Board, said: “The Supervisory Board has given positive advice to the shareholders, because we believe that David is an excellent candidate for CEO of Robeco to continue the growth path. I’m confident that we can count on David’s long and proven track record in asset management to lead Robeco and benefit from the opportunities that will arise in the global asset management market in the years to come. On behalf of the entire company, I would like to extend him a warm welcome.”
Makoto Inoue, President and Chief Executive Officer of ORIX Corporation and member of Robeco’s Supervisory Board, said: “I am delighted to welcome David Steyn to Robeco. I am convinced that together with the members of the Management Board and staff at Robeco he will be able to accelerate Robeco’s growth ambitions globally while continuing to deliver great results for clients.”
The appointment of David Steyn is subject to formal approval by the relevant Dutch authorities. Once the regulatory approval has been obtained, David Steyn will work closely together with Roderick Munsters, whose departure was announced earlier this month, to ensure a smooth transition.
