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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.”

Standard Life Wealth Strengthens Investment Team

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Standard Life Wealth refuerza su equipo de inversión con el fichaje de Matthew Grange y Matthew Burrows — 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.

Banque de Luxembourg Investments Expands Its Equity Fund Team

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Banque de Luxembourg Investments amplía su equipo de renta variable con Jérémie Fastnacht — 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.

Fidentiis Gestión Launched the Fidentiis Tordesillas Iberia Long‐Short

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Fidentiis Gestión lanza la versión UCITS del FIL Siitnedif Tordesillas, que cumple nueve años — 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

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Los hedge funds aumentan su protección contra el riesgo de ‘Brexit’ — . 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.

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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.

M&G Investments Appoints Tristan Hanson To Its Multi-Asset Team

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M&G Investments ficha a Tristan Hanson para su equipo de multiactivos — Photo: Tristan Hanson . M&G Investments Appoints Tristan Hanson To Its Multi-Asset Team

M&G Investments, a leading international asset manager, today announces the appointment of Tristan Hanson as Fund Manager to its Multi-Asset team, starting on 21st March. Tristan will be responsible for developing the team’s absolute return proposition and will report to Dave Fishwick, Head of Multi-Asset.

Tristan has 15 years’ experience in asset management and joins M&G from Ashburton Investments, where he was Head of Asset Allocation with responsibility for global multi-asset funds. Prior to this, Tristan worked as a Strategist at JP Morgan Cazenove covering equities, fixed income and currencies.

Graham Mason, Chief Investment Officer at M&G Investments, says: “We are very pleased to welcome Tristan to our team. He has extensive experience across multi-asset strategies and will play a key role in broadening our capabilities around absolute return products. This will strengthen our Multi-Asset team and meet increasing demand from our clients.”

Over the past 15 years, M&G’s 16-strong Multi-Asset team has successfully developed a robust investment approach by combining valuation analysis and behavioural finance.

Matthieu Duncan Becomes Natixis Asset Management CEO

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El grupo Natixis Global Asset Management nombra a Matthieu Duncan nuevo CEO de su gestora Natixis AM — CC-BY-SA-2.0, FlickrPhoto: Matthieu Duncan, new CEO of Natixis Asset Management. Matthieu Duncan Becomes Natixis Asset Management CEO

The Natixis Asset Management Board of Directors met today, chaired by Pierre Servant, to appoint Matthieu Duncan as Chief Executive Officer (CEO) of Natixis Asset Management following the resignation of Pascal Voisin. This new appointment will take effect on April 4, 2016. Until that date, Jean François Baralon, Natixis Asset Management’s Deputy CEO, will serve as interim CEO of Natixis Asset Management.

Matthieu Duncan will be looking to accelerate the international growth of Natixis Asset Management and to continue to integrate Natixis Asset Management within Natixis Global Asset Management’s global multi-affiliate business model.

The Board of Directors would like to thank Pascal Voisin for his role over the past eleven years leading Natixis Asset Management’s operational management. He brought new life to the company internationally and successfully contributed to the development of Natixis Global Asset Management’s multi-affiliate model by taking majority equity interests in H2O Asset Management and Dorval Asset Management and by using Natixis Asset Management’s expertise to create Seeyond and Mirova.

A dual French and US citizen, Matthieu Duncan completed his studies at the University of Texas (Austin) and the University of California (Santa Barbara). He began his career in the financial industry at Goldman Sachs, where he held various positions in the capital markets sector in Paris and London between 1990 and 2003. Since 2004, he has held various positions in the asset management area in London: Chief Investment Officer (CIO) Equities at Cambridge Place IM, Head of Business Strategy and member of the Board of Directors of Newton IM (a Bank of New York Mellon company), and Chief Operating Officer (COO) and member of the Board of Directors of Quilter Cheviot IM.

Global Equity Income: Where Are The Current Dividend Opportunities?

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CC-BY-SA-2.0, FlickrFoto: Thomas Leth-Olsen. Claves para entender el ciclo de crédito

Consistent dividend growth is generally a sign that a business is doing well and should provide investors with a degree of confidence. If dividends are rising steadily over time, said Alex Crooke, Head of Global Equity Income at Henderson, then a firm’s earnings, cashflow and capital should also be growing.

An indicator of sustainability

Payout ratios identify the percentage of corporate earnings that are paid as dividends and can be an indicator as to whether a company has the scope to maintain or increase dividends. The payout ratio, explains Crooke, can be influenced by a number of factors, such as the sector the company operates in and where the company is within its growth cycle. As the chart below shows, the level of current payout ratios varies considerably between countries and regions both at an absolute level and when compared to historical averages.

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“Although the payout ratio chart shows that opportunities exist for dividend increases in the emerging markets, the outlook for earnings and dividends remains uncertain and at present we are finding the most attractive stock opportunities for both capital and income growth in developed markets. Within the developed world, Japan and the US have the greatest potential to increase payout ratios, although from a relatively low base with both markets currently yielding just over 2%” points out the Head of Global Equity Income at Henderson.

An active approach is important

Conversely, payout ratios from certain markets, such as Australia and the UK, are above their long-term median. “Companies from these countries are distributing a greater percentage of corporate earnings to shareholders in the form of dividends than they have done historically. This leaves the potential for dividend cuts if a company is struggling to grow its earnings. One area of concern for income investors with exposure to UK and Australia is the number of large resource-related companies listed within these market indices”, said Crooke. Henderson believes that earnings, cashflow and ultimately dividends from these types of firms are likely to be impacted by recent commodity price falls.

Nevertheless, explains Crooke, the UK in particular has a deep-rooted dividend culture and outside of the challenging environment for the energy and resources sectors is home to a number of businesses that are delivering sustainable dividend growth. Our approach is to invest on a company-by-company basis using an actively-managed process that considers risks to both capital and income.

Seeking dividend growth

Recent market volatility has affected share prices globally. Despite this, Henderson believes attractive businesses with strong fundamentals and the potential for capital and dividend growth over the long term can be found across nearly all regions and countries.

“Within our 12-strong Global Equity Income Team we continue to seek companies with good dividend growth, and payout ratios that are moderate or low, which provides the potential for dividend increases. Typically, we avoid the highest-yielding stocks and focus on a diversified list of global companies that offer a sustainable dividend policy with yields between 2% and 6%”, concludes.

Invesco Hires Deutsche AM Head of EMEA Marketing

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Invesco nombra a Henning Stein responsable de marketing institucional para la región de EMEA — CC-BY-SA-2.0, FlickrPhoto: Investment Europe. Invesco Hires Deutsche AM Head of EMEA Marketing

Invesco announce the appointment of Henning Stein as Head of Institutional Marketing for the EMEA region. Based in Zurich, Stein will report to will report to David Bower, head of Marketing at Invesco and will be part of the distribution leadership team led by Colin Fitzgerald, head of Invesco’s EMEA Institutional Business.

Henning joins from Deutsche Asset Management where he led EMEA Institutional and Retail Marketing. One of his core focus areas has been the development of research-based marketing programmes for institutional investors. As Chair of the firm’s academic foundation, he established and developed a thought leadership programme to provide clients with a wide range of perspectives and research. This helped clients develop ideas and solutions to address wider financial requirements beyond their immediate manager selection activities. In so doing, he has established a broad academic network of finance professors from institutions such as the University of Cambridge, the University of Zurich and MIT; a network that we believe will complement our ongoing activities in the institutional market. Henning holds a PhD from the University of Cambridge (Darwin College) in Business and Economics.

“I would also like to take this opportunity to thank Carsten Majer who since 2013 has been responsible for EMEA Institutional Marketing. Under his leadership we have consolidated our institutional marketing efforts in the region and progressed our marketing activities particularly in the UK, CH, DE, AT and the Middle East. With the near doubling in size of the Cross Border retail channel over the period and corresponding growth in complexity and depth of marketing activities, I’m delighted that Carsten will have more time to focus on this critical activity”, points out Bower.

Investors Want Transparency, Ethics, and Performance, CFA Institute Survey Reveals

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Los inversores esperan algo más que rendimientos: información, asesoramiento, transparencia y ética destacan entre sus demandas — CC-BY-SA-2.0, FlickrPhoto: Arturo Sánchez . Investors Want Transparency, Ethics, and Performance, CFA Institute Survey Reveals

Investors are expecting higher levels of transparency than ever before, holding their investment managers to the highest ethical standards, and are laser-focused on returns, according to a newly released study “From Trust to Loyalty: A Global Survey of What Investors Want,” by CFA Institute, the global association of investment professionals, that measures the opinions of both retail and institutional investors globally.

The findings reveal that investors want regular, clear communications about fees and upfront conversations about conflicts of interest. The biggest gaps between investor expectations and what they receive relate to fees and performance. Clients want fees that are structured to align their interests, are well disclosed and fairly reflect the value they are getting from their investment firms.

“The bar for investment management professionals has never been higher. Retail and institutional investors, as always, crave strong performance, however both groups also demand enhanced communication and guidance from their money managers. Building trust requires truly demonstrating your commitment to clients’ well-being, not empty performance promises or tick-the-box compliance exercises. Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance.” said Paul Smith, president and CEO of CFA Institute.

“While an increase in overall trust in the financial services industry is a net positive for financial professionals,” continued Smith, “performance is no longer the only ‘deal breaker’ for investors. They are continuing to demand more clarity and service from financial professionals and, with the rise of robo-advisors, they have more alternatives than ever before. Further, if investment professionals don’t provide this clarity, then regulators may force them to, for better or worse.”

The study also shows that investors are anxious about global markets, and do not believe their investment firms are prepared. Investors revealed a growing anxiety about the state of global finance. Almost one-third of investors feel that another financial crisis is likely within the next three years (33 percent of retail investors/29 percent of institutional investors), with significantly more in India (59 percent) and France (46 percent). In addition, only half of all investors believe their investment firms are “very well prepared” or “well prepared” (52 percent retail investors/49 percent institutional investors) to manage their portfolio through a crisis.