CC-BY-SA-2.0, FlickrPhoto: Paul Falardeau. BofA Merrill Lynch Fund Manager Survey Finds Investors Hiking Cash Holdings in the Face of Lowered Confidence in China
Global investors have raised their holdings of cash significantly in response to a weaker global economic outlook, particularly in China, according to the BofA Merrill Lynch Fund Manager Survey for July. Overall, equity allocations are unaffected by the higher risk aversion, however.
Main findings:
Confidence in the global economy falls sharply: 42 percent of investors expect strengthening over next year, down from 55 percent a month ago.
China heads concerns: net 62 percent expect economy to weaken in next 12 months; eight out of 10 see GDP below 6 percent by 2018.
Cash levels soar to highest level since 2008 crisis – 5.5 percent of portfolios; gold judged undervalued for first time in five years.
Increased pessimism on China led further weakness in assets linked to China: Commodity allocation drops to six-month low, and Global Emerging Market equities stays as most unloved region with allocations at 16-month low.
Bonds still seen as much more overvalued than equities and more at risk of volatility-driven crash; equity overweights rise to net 42 percent.
U.S. dollar bullishness strengthens despite postponing of expected U.S. rate rise to Q4 2015 or later, replacing June consensus of Q3.
Appetite to overweight European stocks rises, although potential eurozone breakdown now biggest “tail risk.”
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Despite the Greek newsflow, intention to own European assets is high and rising, though global growth remains vitally important for European stocks,” said Manish Kabra, European equity strategist.
. Aviva Investors Continues to Grow Global Equities Team
Aviva Investors, the global asset management business of Aviva plc (‘Aviva’) announces the appointment of Giles Parkinson as Global Equities Fund Manager. He is based in London and reports to Chris Murphy, Head of Global Income, Equities.
In this new role, Giles will work closely with Richard Saldanha on Aviva Investors’ Global Equity Income Fund and across global equity portfolios.
Giles has 10 years’ investment management experience. He joins from Artemis where he was Analyst and Fund Manager on the £1 billion Strategic Assets Fund which he worked on from launch in 2010. Prior to this, he was Global Research Analyst, Oil & Gas at Newton Investment Management.
Chris Murphy, Head of Global Income, Equities, said: “I am delighted to welcome Giles to Aviva Investors. He brings with him a strong pedigree in managing global equity mandates and a deep level of analytical skill across sectors. Giles’s experience will stand us in good stead as we continue to develop our equity proposition in response to changing client requirements.”
CC-BY-SA-2.0, FlickrFoto: Jason Bachman. Demasiado pronto para proclamar la defunción del mercado alcista
Global asset management industry assets under management (AUM) will reach US$106 trillion by 2019, with the non-US percentage share exceeding 50% at the close of 2015, according to the 14th iteration of Cerulli Associate’s flagship report–Global Markets 2015: Key Insights into a Dynamic Landscape. However, managers need to be realistic about the efforts required to win business in high-growth markets.
2015 could be a good year for managers wishing to target Brazil. Positive regulatory changes and the establishment of a truly independent distribution network will further open the market to cross-border managers and fuel demand for global products. Managers should not be deceived by seemingly sparse opportunities elsewhere in Latin America. Chile’s retail segment may look unappetizing because of its tiny asset base but it has great growth potential, while the fast-growing pension market in Mexico is looking increasingly attractive for cross-border managers.
As managers continue their distribution push into Europe, they would do well to keep the growth potential of some markets in perspective. In a Cerulli survey, Spain was cited by firms as a key target in 2015. “Cerulli believes that the market will continue to grow at a healthy pace, yet slower than the one seen over the past couple of years,” said Barbara Wall, Europe research director at Cerulli. “Fund-of-funds vehicles are the cross-border asset managers’ favorite point of entry and this segment is booming–total assets in 2014 grew more than 100% from €15 billion (US$18.2 billion) to €30.6 billion. What is also important is that the majority of these vehicles, 96%, are ex-house–they invest primarily in non-proprietary funds.”
“China may be the jewel in the crown from a growth perspective, but regulation continues to favor local managers,” said Ken F. Yap, director of global analytics at Cerulli. “With the local market firing on all cylinders appetite to invest overseas is minimal. There is also a wealth of private banking and insurance products that offer both liquidity and attractive returns. China is a long-term proposition, but one that cannot be ignored.”
Taiwan has long been held as the most accessible market in the region with offshore assets increasingly overshadowing those onshore. Last year, offshore fund AUM grew by 21.8% led by bond funds. But there is a fly in the ointment. Managers may soon find their distribution costs rising. The Taiwanese authorities plan to make it mandatory for foreign managers to boost onshore business to obtain fund approvals.
Photo: Eduardo Marquetti. Fitch: Europe Credit Investors See EM Risk Contagion via Brazil
European credit investors see more possibility of contagion from emerging market risks via Brazil than other major emerging markets (EMs), according to Fitch Ratings’ latest senior investor survey.
Seventy-six percent of respondents to the survey, which closed on 2 July, selected Brazil when asked to choose two countries from a list of five where they felt the wider contagion threat of EMs facing imbalances, political challenges, and rising US rates was most acute. This was twice as many as Russia (38%). Thirty-six percent selected China and 30% Turkey. Just 7% identified an acute risk of contagion via India.
EMs face various challenges heading into 2H15. Commodity prices have fallen, an approaching Fed rate rise points to a less favourable external financing environment, and some EMs face structural growth challenges.
Brazil (BBB/Negative) and India’s (BBB-/Stable) sovereign credit profiles are cushioned from external shocks by robust international reserves, and the authorities in both countries have taken policy measures aimed at reducing imbalances. Reliance on portfolio inflows to finance the current account deficit is not significant in either country.
The front-loaded macroeconomic adjustment programme adopted by Brazil’s Rousseff administration in its second term could gradually help improve policy credibility, confidence, and investment prospects. But weak political and economic backdrops (we forecast a GDP contraction of 1.5% this year) may hinder implementation.
Meanwhile, Latin American non-financial corporates, led by those in Brazil, have significantly increased their dollar borrowing while US rates have been low, increasing their exposure to a rising dollar. As the Central Bank of Brazil has tightened policy and allowed the real to depreciate, Brazilian issuers face rising internal and external interest rates during a recession.
Forty-six percent of our 2Q15 survey respondents think EM corporates will face the greatest refinancing challenge over the next 12 months – more than twice the next-highest category (EM sovereigns, with 20%).
“We think India has made more tangible progress in reducing its exposure to Fed-driven market volatility since the ‘Taper Tantrum’ two years ago. Foreign-exchange reserves have grown and are high in terms of current exchange payments relative to peers. The current account remains in deficit, but has narrowed, initially helped by temporary gold import curbs, but also due to the fall in international oil prices and lower inflation reducing investment demand for gold”, point out Fitch.
Structural reforms and the resulting pick-up in investment support India’s growth outlook, and we forecast growth to accelerate to 8.1% in FY17. But Fed tightening will not be risk-free for India, due to the possibility of large foreign outflows from its debt and equity markets
Fitch’s 2Q15 survey represents the views of managers of an estimated EUR7.8trn of fixed-income assets. We will publish the full results later in July.
Giordano Lombardo, CIO de Pioneer Investments. ¿La muerte de la renta fija? No tan rápido...
Pioneer Investments has announced that it has been recognized as the Fixed Income Manager of the Year at the “Global Investor 2015 Awards for Investment Excellence.” This is the second year in a row that Pioneer Investments has won this award while in 2011, Pioneer Investments was declared the best US Fixed Income house.
In winning the award, Pioneer Investments faced strong competition from many of the world’s premier asset managers. This year’s awards were judged by an independent panel, comprised of senior managers from the institutional investment consultant and pension communities, among others. According to Global Investor, some of the comments provided by the panel on Pioneer Investments were, ‘global footprint’, ‘wide range of products’, and ‘still innovating’.
Giordano Lombardo, CEO and Group CIO said, “This award further recognizes Pioneer Investments’ best-in-class fixed income proposition across US, Europe and Emerging Markets. We are extremely pleased to win this award and that the performance of our fixed income range has been awarded for the second consecutive year. Our priority is to continue to strive to produce strong investment performance and innovative solutions for our clients in the future.”
The Global Investor Investment Excellence Awards, now in their fifteenth year, celebrate the greatest achievements of asset managers and associated firms such as investment consultants and fund administrators. The awards ceremony was held on 2nd of July in London.
Photo: Cheezepie, Flickr, Creative Commons. S&P Dow Jones Indices Launches First of Its Kind Index Tracking the Debt of the S&P 500® Companies
S&P Dow Jones Indices (“S&P DJI”), one of the world’s leading index providers, has launched the market’s first ever index that tracks the debt of the S&P 500 companies. S&P 500 Bond Index is priced in real-time throughout the day and directly corresponds to movement in the U.S. bond market. The Index offers previously unavailable intraday transparency to the pricing of debt on America’s most influential companies.
S&P DJI has contracted with Thomson Reuters to provide end-of-day prices, as well as terms and conditions data.
The introduction of the S&P 500 Bond Index allows for side-by-side analysis of the performance differential between U.S. equity and bond markets, a direct comparison that was unavailable until this launch. Weighted by the market value of the bonds and with a maturity requirement of greater than one month, the S&P 500 Bond Index is liquid enough to also serve as the basis for potential exchange traded products and structured products.
“S&P Dow Jones Indices is introducing the S&P 500 Bond Index at a critical juncture as two major trends converge,” says J.R. Rieger, Head of Fixed Income, for S&P Dow Jones Indices. “First, global markets are grappling with the potential end of a six-year bond rally, the end of which could have significant ramifications for portfolio debt holdings. Second, regulatory changes resulting from Dodd Frank, the post-Libor landscape, and Basel III for example, have many concerned about diminished liquidity in the bond markets. As a result, the market is begging for an intra-day measure that can provide broad transparency into company debt and that is liquid enough to potentially trade throughout the day via exchange traded and structured products.”
“We are delighted that S&P Dow Jones Indices will use our fixed income end-of-day pricing in conjunction with our comprehensive and high quality bond terms and conditions data for their new S&P 500 Bond Index,” says Marion Leslie, Managing Director, Pricing & Reference Services at Thomson Reuters. “Thomson Reuters is committed to partnering with the market’s leading service providers, ensuring market participants are able to benefit from our award winning content via multiple partners, platforms and applications.”
The S&P 500 Bond Index currently tracks the debt of 430 S&P 500 companies reflecting over $3 trillion in debt outstanding and $3.8 trillion in market value. S&P DJI is publishing over 20 years of daily historical data on the S&P 500 Bond Index on its website, www.spdji.com. The complete methodology for the Index is also posted to this site.
CC-BY-SA-2.0, FlickrPhoto: European Parliament
. Three Elements Key to Watch After the Greek Population Voted "NO"
The Greek population voted “NO” by a comfortable margin (61%- 39%) and handed the Syriza government another political victory. This will probably energize Prime Minister Tsipras and his team, but will also create huge uncertainty over the future of Greece in the Eurozone and lead to intensifying immediate economic hardship in Greece. At this time it remains unclear if and when banks will be able to re-open. Also, it might well be that deposit and savings haircuts (of those people the Syriza government claims to protect) will be on the table to prevent complete banking sector meltdown.
Without a deal in the near-term between Greece and its creditors, a renewed and sharp recession in Greece seem likely. Both length and depth of such a contraction are still very uncertain and will depend on the evolution of domestic politics within Greece, the ability to get some kind of a deal that will allow for Greece to stay within the Eurozone or the social and political stability in the aftermath of Grexit.
Three elements now key to watch
NN Investment Partners thinks there are three elements will be key to watch in the ECB’s policy response to this political crisis. The way the Emergency Liquidity Assistance (ELA) is managed (to what extent will it remain open for Greek banks), the application of haircuts to the collateral that Greek banks need to post at the ECB and new measures to tackle liquidity issues in other parts of European financial markets. The balance between these three potential ECB measures will be crucial for the sentiment in financial markets and, thereby, the degree of damage to the European economy.
“In the end, however, we have a high conviction that the ECB is willing and able to limit lasting damage from short-term contagion into other European markets. Especially since it is now operating against backdrop of a more unified political front in all of the other member states of the Eurozone that will allow for effective political support for creative policy action, if needed”, point out the firm.
This basically means that significant declines in some market segments (peripheral equities/bonds, European equities, the euro) over the next couple of days cannot be excluded, but also that Eurozone break-up risk remains very small. The latter is a completely different situation than 2-3 years ago and therefore leads to different investment conclusions. As long as the global cycle remains on track, the upcoming period of market volatility might provide an entry point for investors once visibility on the future direction for Greece increases and the accompanying policy response is clear.
“In the short-term, it keeps us cautiously positioned and more focused on reducing rather that adding risk. However, we’ll keep our asset allocation stance “close to the middle” and would only move more defensive once we see significant contagion in combination with disappointing policy response. For now, the latter is not our base case. As soon as more visibility on politics, policy and the impact on the global cycle is there, it could well be that we move back towards a more risk-on stance later in the summer. Obviously the situation remains very uncertain and we will be monitoring very closely if additional changes in our allocation stance are needed once the facts change in an unexpected way”, concluded.
. Standard Life Investments Expands Multi Asset Team
Standard Life Investments, the global fund manager, is pleased to announce that Gerry Fowler has been appointed as Investment Director, Idea Generation, within the Multi Asset Investment (MAI) Team.
Gerry, who was previously Global Head of Equity and Derivatives Strategy with BNP Paribas, will be part of the 57 strong team providing idea generation, investment recommendations and detailed implementation strategies for the range of MAI funds. Gerry will report directly to Guy Stern, Executive Director of Multi-Asset and Macro Investing at Standard Life Investments.
Commenting on the appointment, Guy Stern said: “Gerry is a highly skilled strategic analyst with a wealth of experience in equities and equity derivatives and will add to the already impressive range of knowledge and experience within the MAI team. Our Absolute Return and Multi Asset mandates draw on a range of sophisticated investment strategies investing across all asset classes. I’ve no doubt that Gerry’s depth of knowledge will add to our research capability and idea generation for our whole offering.
“Over the last 18 months we have launched four new Multi Asset products, the team is well resourced and we have excellent collaboration across all the fund management teams globally supporting the long term performance of our funds. We constantly strive to provide investors with the best possible solutions and that means having the right people in place to help understand and meet investor’s needs and expectations.”
CC-BY-SA-2.0, FlickrPhoto: Susanne Nilsson. Get Used to Periods of Higher Volatility
At the recent market peak, in late April, holders of 30-year German bunds were enjoying year-to-date returns of 23%. The dramatic reversal since then has entirely wiped out these gains: this is hardly the sort of behaviour one would expect from Europe’s premier ‘risk-free’ asset.
In our view, this phenomenon was caused by a crowd-surge into eurozone deflation/ quantitative easing (QE) trades and then a ‘rush for the exit’, when investors realised just how overpopulated and overvalued these trades had become. Overshooting markets do not always need a fundamental trigger to spark a reversal, but the rise in eurozone inflation in May, when core CPI rebounded to a 1-year high, certainly added some urgency to the unwind.
Morality check
We wonder whether today’s bund investors could learn some lessons from the Japanese government bond (JGB) market of the early 2000s. Having trended lower for more than a decade, 10-year JGBs troughed at 0.4% in June 2003. Even though Japan endured a grim eight-year decline in gross domestic product from that point, anyone who bought JGBs at the yield low in 2003 made just 1% per annum over those eight years and was in loss for the first four years of the trade. The moral of the story is: once economic stagnation is priced in, bond returns can be low and volatile, even if the economy continues to disappoint.
Furthermore, when we look at the eurozone today, we see an economy that is recovering, not stagnating. Consensus forecasts for 2015 growth have been rising for six months and inflation forecasts have been rising since February. Looking ahead, we expect more of the same as the impact of euro weakness, lower oil prices, easier credit conditions, and diminishing fiscal austerity kick in. Even though European Central Bank QE will continue to exert downward pressure on eurozone bond yields well into 2016, economic recovery is now emerging as a force that will act in the opposite direction.
Growing pains
Although bunds have seen the biggest swings this year, all the major government bond markets have followed the same pattern, with Q2 shaping up to be the worst quarter for sovereign bonds in almost 30 years. As is the case with eurozone bonds, the recent sell-off began as an unwinding of Q1’s euphoria, but more recently, has begun to reflect improving economic data, particularly in the US.
Following a disappointing start to 2015, US data have significantly improved over the last few weeks. A number of key series – retail sales, payrolls, job openings, consumer confidence, and homebuilder surveys – have surprised to the upside, suggesting the economy is regaining momentum and pulling away from Q1’s soft patch. We think this trend will continue in coming months, prompting the US Federal Reserve to raise interest rates before the year is through and keeping upwards pressure on US bond yields.
We see the recent sell-off in government bonds as largely correcting Q1’s overshoot. If our base case scenario of continued global recovery is realised, we do not expect to see Q1’s yield lows again during this cycle and think yields will grind higher in H2. Higher yields will not necessarily undermine risk assets if they reflect improving economic conditions. However, investors would do well to take note of Mario Draghi’s recent comment: “Get used to periods of higher volatility”.
Paul O’Connor is Co-Head of Multi Asset within the Henderson Multi-Asset team.
CC-BY-SA-2.0, FlickrPhoto: Giuseppe Milo
. Old Mutual Global Investors will Launch an Offshore Global Equity Income Fund
Old Mutual Global Investors announces its intention to launch the Old Mutual Global Equity Income Fund during the summer of 2015, subject to regulatory approval. The Fund, which will be managed by Ian Heslop, Amadeo Alentorn and Mike Servent will be a sub-fund of the Dublin domiciled Old Mutual Global Investors Series plc umbrella fund. This product will be core to Old Mutual Global Investors’ UK and offshore client base.
The Fund’s objective will be to achieve a total return through a combination of income and capital growth. The Fund will be designed to deliver a total return by targeting dividend yield and capital growth through a highly diversified global equity portfolio. The Fund will aim to provide monthly income above the benchmark (MSCI All Countries World Index). The investment team pursue a dynamic investment process, focused on stock selection through analysis of fundamental company data, but taking account of the macro environment and investor sentiment. The unique approach will generally provide significant diversification from concentrated, style-biased global equity income funds.
Ian Heslop, Head of Global Equities, comments: “We are really excited about the forthcoming launch of our Global Equity Income Fund. We believe that our unique approach to stock selection realises the appeal of being invested in a truly diversified fund. Unlike some of our peers who remain heavily weighted towards certain sectors, we are able to seek out compelling investment opportunities wherever these exist globally, irrespective of sector, country or region. We are also flexible so that the prevailing conditions and outlook can be incorporated in our process to ensure we have the greatest scope to deliver sustained outperformance. We believe our investment approach should therefore deliver an above industry level of monthly income whilst continuing to deliver capital growth”
The Fund benefits from the investment team’s strong, proven performance-driven culture which leverages a dynamic process, including continuous monitoring of the whole market in order to capture value across the broadest spectrum of larger-capitalisation stocks. The investment team will offer a significantly different source of alpha in global equity markets, run from the same platform as the multiple award winning Old Mutual Global Equity Fund, Old Mutual Global Equity Absolute Return Fund and the Old Mutual North American Equity Fund.
Warren Tonkinson, Head of Global Distribution, adds: “This is another important development for Old Mutual Global Investors, one that focuses on meeting the needs of our clients. From talking to investors it is very apparent that income generating strategies continue to be in demand and we have received a number of client requests for our highly respected, award-winning global equities team to launch a global equity income strategy. The investment performance track record this team, which consists of Ian, Amadeo and Mike, has delivered for investors in their current funds is outstanding. We are confident that the new fund will be equally successful.”
Old Mutual Global Investors is currently reviewing the UK Domiciled Old Mutual Global Equity Income Fund which is sub-advised by O’Shaughnessy Asset Management, LLC.
