CC-BY-SA-2.0, FlickrPhoto: Jeckman, Flickr, Creative Commons. Edmond de Rothschild Group Opens a Branch in Zurich
Present in Switzerland since 1965, Edmond de Rothschild has further expanded its operations by opening an office in Zurich on 1 July this year. The Group is thus strengthening its offering of private banking and asset management services for German-speaking and international clients.
The Zurich agency marks the Group’s fifth location in Switzerland in addition to Geneva, Lausanne, Lugano and Fribourg.
“Switzerland is our foremost market in terms of assets under management and client numbers. While traditionally we have concentrated on the French-speaking area and Ticino, we are now determined to grow in the German region where we perceive real market demand,” said Emmanuel Fievet, CEO of Edmond de Rothschild (Suisse) SA.
The Zurich agency activities
Edmond de Rothschild boasts a full private banking offering that ranges from investment solutions, portfolio management and risk analysis and control to wealth engineering, corporate finance and access to exclusive opportunities. The Group provides each client with tailored services. “Our approach is based on catering to clients’ individual needs and taking account of their individual risk profiles. What makes us stand out is the power of our brand, the experience of our teams and the quality of our management,” Fievet emphasised.
In asset management the Edmond de Rothschild Group aims to grow its institutional business, mainly with pension funds, vested benefits institutions and insurance companies. It also wants to expand the external distribution of its investment funds. “We have a broad range of products and solutions that can be accessed by all Swiss investors and are capable of meeting their expectations and requirements. In addition we have a line of real estate funds that features the Swiss market and that clients in Zurich have owned shares in since 2012,” said Christian Lorenz, Chairman of the Executive Committee of Edmond de Rothschild Asset Management (Suisse) SA.
Photo: Day Donaldson. Rate Hike in the US: the Arguments and the Effect
There are clear indications that the Federal Reserve is going to raise interest rates for the first time in more than nine years this September. Kommer van Trigt, manager of the Rorento Total Return Bond Fund, looks at the arguments for and the likely effects of a rate hike.
The Fed is on course to raise rates in the autumn. In mid-June, Fed chair Janet Yellen stated that thanks to the strengthening economy there is room to raise the federal funds rate. This official interbank rate currently stands at an all-time low of 0.125%. She also made it known that in future rates would rise less rapidly than the Fed had originally anticipated.
In a normal cycle, rising inflation and the threat of an overheated economy resulting from too high a growth rate often trigger an interest rate hike. At the moment this is certainly not the case. In the last three years, core inflation in the US has fluctuated between the one and two percent level and since 2010, economic growth has moved in a bandwidth of one to three percent.
In previous cycles, economic growth was around four percent at the point when the Fed implemented a first rate hike. On the basis of those figures, a rate hike seems by no means a necessity. That makes you wonder why Yellen alludes with such certainty to a rate hike after the next Fed meeting in mid-September.
Building up weapon reserves
“One important reason for a rate hike is that the central bank want to build up its weapon reserves for the future”, explains Van Trigt. “If the US economy falls into recession, there is currently no room whatsoever for a further rate cut. The Fed wants to ensure that it does not have to rely on taking a whole range of unorthodox steps in such a scenario.
What Yellen also wants to prevent is a repeat of the so-called ‘Taper Tantrum’ of 2013, when a wave of selling engulfed the bond market after former Fed chair Ben Bernanke alluded to higher rates. “There is a much better chance that financial market stability will remain intact if the increase in interest rates takes place gradually, and if the market is made aware of the Fed’s plans”, explains Van Trigt to clarify this second argument for raising rates without it being economically necessary to do so.
In such a scenario, fixed income markets at least have plenty of time to come to terms with the idea of a rate hike and up to now the central bank has been pretty successful in managing market expectations. According to Van Trigt, this scenario is not without its dangers, however: “A rate hike is approaching, but the market is only pricing in a minimal rise of 12.5 basis points in September and 25 basis points in the months that follow. If these rate hike steps occur earlier than planned this could have a major impact on the prices of short-dated paper.”
Vulnerable market segments
The approaching rate hike in the US is the reason why we have reduced Rorento’s exposure to those segments of the bond market where this can hit hardest. “The fund is still invested in US bonds, but its interest rate sensitivity (duration) for bonds with a maturity of seven years or less has been brought back to zero”, says Van Trigt. Another part of the bond market that is vulnerable to rising US rates is emerging market debt.
There are better prospects for short-dated Australian bonds, given that the central bank there is still busy cutting rates. “By cutting back the duration for short-dated US paper and overweighting Australian bonds, we have ensured that Rorento is as well-positioned as it can be to cope with any negative effects of rising rates in the US”, summarizes Van Trigt.
CC-BY-SA-2.0, Flickr. Adrien Pichoud Appointed New Chief Economist at SYZ Asset Management
SYZ Asset Management has announced the appointment of Adrien Pichoud as Chief Economist. Adrien Pichoud is also a member of the Strategy Committee, which defines the Group’s investment policy. Under the direction of Fabrizio Quirighetti, Chief Investment Officer of SYZ Asset Management, Adrien Pichoud also assumes the function of co-manager of the OYSTER European Fixed Income and OYSTER USD Bonds funds.
Adrien Pichoud joined the SYZ Group in 2010 as an economist. Prior to that, he spent seven years as an economist in a brokerage firm in Paris. He holds a master’s degree in finance from the University of Grenoble (France) and a BA in Economics from the University of Sussex (UK). Adrien Pichoud is a well-known commentator in the Swiss investment media to which he frequently contributes.
“Adrien Pichoud’s skills as an economist greatly contribute to the quality of our investment strategy and the performance of our bond and multi-asset funds. This promotion demonstrates a strong internal progression confirmed by results,” commented Katia Coudray, CEO of SYZ Asset Management.
In addition, Adrien Pichoud is a member of the management team of the OYSTER Multi-Asset Absolute Return EUR and OYSTER Absolute Return GBP funds as well as other multi-asset funds and institutional mandates in absolute return strategies.
Ken Hsia, Manager of European Equity Strategy at Investec. Great Britain and the Franco-German Axis make up the Bulk of European Equity Strategy at Investec
Ken Hsia, manager of European Equity Strategy at Investec recently visited Miami. His strategy invests in companies listed on the European stock exchanges, including the UK, as well as in those that, while trading in other markets, carry out most of their operations on the continent.
It is precisely the British market which Hsia mostly favors, concentrating more than one third of the positions of the strategy which he manages. France, Switzerland, Germany, and Norway, complete the group of the five markets which he perceives most positive, whilst Spain is in sixth position. This strategy has a class which hedges all currencies in the portfolio – not only the Euro – ,ensuring a real exposure to the behavior of the underlying companies.
“Overall, there have been very few changes since November, but there has been a recovery of corporate earnings, often due to a reduction in costs through corporate reforms,” says the manager. “In the past nine months, both the Euro, in respect to the dollar, as well as oil prices, since June, have weakened, favoring a continent which, on the one hand, is almost twice as sensitive as the United States to exports, because much of its production is exported all over the world, and, on the other hand, is a net consumer of oil, which, with the low prices, the value is transferred from the producers to the consumers. Eight of the 10 Star ideas have exposure to Europe, “he says.
Hsia supports his positive view of the consumer, industrial, and technological sectors stating that “money is in the hands of consumers.” According to him, the relative value of European markets to the United States is unbalanced downward. “The European stock market is still down and there is a 45% gap between the European and US stock markets, which has to close,” he adds. “Indeed, my job is to find companies that have less than 10x EPS, with further growth in profits,” he says.
The average tenure of companies in the portfolio is two years, “despite market speculation, I have not had to change my portfolio more than normally,” says Hsia. It is an actively managed fund which concentrates its positions on three ideas: global winners, the assets with European exposure but which benefit from reduced competition, and a third group in sectors which are in question, but which are beginning to turnaround.
Among the first, which from about a year ago, account for between 50% and 60% of the portfolio, are Bayer, Novartis or Teleperfomance. The weight of shares of companies in the second group, TUI, DS Smith or Dixons Carphone, is growing as a result of improved profits, which are based on achieving better contracts due to reduced competition. A couple of examples: in TUI’s case, it’s margin has risen from 4% to 6% by negotiating major global contracts, and benefits are expected to grow in the coming years, resulting in a positive impact on the distribution of dividends; and with regard to Dixons Carphone, it will clearly benefit from the disappearance of its biggest competitor because the private equity which bought it out loaded it with debt.
The third group, the one in sectors in question, is composed of companies which, within the telecom and utilities sectors, for example, are expected to perform better than their competitors, and in the future become part of one of the other two groups. This could be the case withEndesa, which will benefit from the sale of its Latin American operations, with greater exposure to the Spanish recovery and therefore higher dividends predicted.
By sector, the manager is positive in discretionary consumer and technology (software and hardware) and negative in utilities and energy, as the fall in energy prices will decrease the sector’s corporate profits, and especially in banks, due to the efficiency problems they suffer. “There are not many cheap banks according to their results. In the UK, banks which are too-big-to-fail are being penalized. It currently makes no sense to have large banks,” although he admits havingKBC (Belgium) and ING (Netherlands).
CC-BY-SA-2.0, FlickrBBVA chairman, Francisco González . BBVA is Now the Leading Shareholder in Turkey's Garanti Bank
Spanish bank BBVA is now the leading shareholder in Garanti, Turkey’s largest bank in terms of market capitalization. After completing the transaction announced last November to acquire an additional 14.89% holding, the BBVA Group now owns to 39.90% of Garanti. Francisco González is in Istanbul due to the closing of the transaction and the appointment of the new Garanti CEO.
The total price paid by BBVA of the 14.89% stake amounts to 8.765 Turkish liras per share, amounting to approximately 5.481 billion Turkish liras (€1.854 billion). The sellers have already received the dividend disclosed by Garanti Bank on April 9, 2015 amounting to 0.135 Turkish liras per share. Therefore, as disclosed to the markets on November 19th, 2014, the total consideration received by the sellers amounts to 8.90 Turkish liras per share.
BBVA chairman Francisco González said, “This is an important day in BBVA’s history. After four years of excellent relations between the partners BBVA has become the leading shareholder in Garanti, Turkey’s best bank.”
“During our collaboration, we have closely witnessed the enthusiasm of a world banking giant like BBVA for Garanti , as well as its trust in our values, our corporate culture and our team who is passionately committed to its work,” added Ferit Sahenk, chairman of Garanti and the Dogus Group. This operation confirms the excellent relationship between the partners as well as the commitment of Dogus, which is one of the main Turkish business groups and the founder of Garanti. Dogus will retain the chairmanship of Garanti’s board of directors and still owns a 10 percent stake in Garanti.
Francisco González is in Istanbul due to the closing of the transaction and the appointment of the new Garanti CEO, Fuat Erbil. His appointment, which was ratified today by Garanti’s board, confirms the continuity of the company’s management and support for local talent. Until now Mr. Erbil was part of Garanti’s management team.
The new CEO is one of the seven directors to be appointed by BBVA in a board of ten members. Dogus remains as a shareholder and a principal partner – as established in last November’s agreement. Ergun Özen, chief executive officer until now, will continue as board director. The change of chief executive officer will be effective from September.
Closing of the operation
In accordance with the applicable accounting rules and as a consequence of the agreements reached, the BBVA Group shall measure at fair value its previously acquired stake in Garanti Bank (which amounts to 25.01% of its share capital). Such accounting impact does not translate into any additional cash outflow from BBVA. It will result in a one-off negative impact on the net attributable profit of the BBVA Group in the third quarter of 2015 of about €1.8 billion. Most of this impact is generated by the exchange rate differences due to the depreciation of the Turkish lira against the euro since the initial acquisition by BBVA of the 25.01% stake in Garanti Bank in 2011. These exchange rate differences are already registered as Other Comprehensive Income, deducting the stock shareholder’s equity of the BBVA Group.
In terms of capital, the acquisition will mean an estimated reduction of approximately 50 basis points in the Common Equity Tier 1 (fully loaded) ratio.
From here on BBVA will fully consolidate Garanti Bank in the financial statements of the Group. So far it has accounted for this business using the equity method.
Garanti is the top bank in Turkey by market capitalization (€11.1 billion) with about $100.9 billion in assets at the end of March. With consolidated data, it serves more than 13 million customers through an extensive retail network of more than 1,100 branches and over 4,400 ATMs. It is the top institution among private banks in Turkey in terms of mortgages, consumer finance, vehicle finance and credit card customers. Staff number over 22,700.
Leadership in technology is part of Garanti’s competitive edge. Its investment in technology, in-house developments, personalized customer solutions and the management’s driving emphasis on innovation have made it a pioneer in digital banking. At Garanti 91% of transactions are handled through digital channels. Garanti is the Turkish leader in mobile banking with a 30% market share and it holds a solid position in online banking with a 23% market share by volume of transactions.
Turkey’s population is more than 75 million and over half are less than 30 years old. BBVA Research puts the average annual growth of Turkey’s GDP at 4% for 2014-2024.
Russian equities are among the cheapest in the world amid political and economic controversy. Yet investors might be surprised to discover that the rapidly developing retail industry offers undervalued opportunities with attractive return potential, said AB experts.
Russian equities are trading at an average P/E ratio of 6.5x versus the emerging-market average of 12.5x. There are good reasons for the discount: Russia’s economy is under severe pressure because of a weaker oil price and international sanctions as a result of its role in the conflict in Ukraine. The ruble has plunged versus the US dollar, inflation has shot up and Russia’s GDP is shrinking. Ordinary Russians are feeling the pinch in the form of declining real incomes.
“So, even the most contrarian investor needs to tread very cautiously before venturing into Russian stocks. That said, we believe selected large Russian food retailers represent a compelling structural opportunity for investors given the long-term modernization and consolidation of the country’s food retail industry”, points out Henry S. D’Auria, Chief Investment Officer, Emerging Markets Value Equities at AB, and Justin Moreau, research associate in the team.
Room to Grow?
In size terms, the industry is potentially massive; Russia’s population is as large as Germany and France combined. However, modern supermarkets remain relatively few and far between and the industry is still highly fragmented. The biggest retail chains have been expanding rapidly. Together, they’ve rolled out more than 2,000 new stores in each of the last five years. But they still have lots of room to grow and to win greater market share.
This growth potential doesn’t seem to be priced into the big Russian food retailers’ valuations, which look cheap compared with many of their emerging-market peers, opine both AB experts.
This is particularly surprising since they’re highly profitable. In other countries, intense competitive pressures have resulted in price wars, driving down industry-wide profitability. In Russia, these pressures are kept in check because the country’s vast geography and harsh climate represent significant logistical barriers to entry. Western food retailers have largely decided to stay away. The challenging business environment, economic sanctions and their unfamiliarity with the local market have persuaded them not to target Russia.
Riding out a Spending Squeeze
“Clearly, declining wages and soaring prices could curb Russian spending on food. Retailers are also pressured by government food import restrictions. Imports of fruit, vegetables, meat, fish and dairy products are banned from countries that imposed sanctions in protest at Russia’s role in Ukraine. The resulting shortages are making some items still more expensive. In this challenging environment, we think the big players are much better positioned to thrive than smaller chains and stand-alone stores” said D’Auria and Moreau.
The biggest modern chains are relatively young companies, having emerged in the 1990s and become publicly listed in the last 10 years. But they’ve fast gained the size and reach that we regard as key ingredients for success in today’s food retailing market.
Russia’s economic woes have driven down both labor and real estate costs—the big players’ two largest operating expenses. This should make it cheaper for them to open more stores in future—providing yet another boost to their consolidation prospects.
“Russia isn’t an obvious investment target in these difficult times. But because many investors are steering clear of the region, it’s an opportune moment to take a strategic look at the market. In our view, the retail sector is a good place for investors to shop for bargains that should benefit from structural change during current economic and political uncertainties, as well as—in the long run—when the conflict is ultimately resolved”.
CC-BY-SA-2.0, FlickrPhoto: Guillermo Viciano
. The Summer Months Seem Prone to Market Setbacks
The old investment adage, ‘Sell in May and go away, come back again on St Leger’s Day’ seems more pertinent than usual this year. The summer months seem prone to market setbacks in thin trading conditions. This time around not only are there some clear event risks on the horizon, but also market liquidity is likely to be even worse than usual, explained John Stopford, co-Head of Multi-asset at Investec.
The key risks are probably the threat of Greek default and of higher interest rates in the US. “To some extent, these possible events must already be partly in the price, because they are known. It is unlikely, however, that they are fully priced in as their likelihood remains uncertain and their market impact is unclear”, said Stopford.
In the case of Greece, investors appear to still put a high probability on a default being avoided. This assumes that fear of the consequences of default will force an 11th hour compromise between the institutions and Greece. The rhetoric of late, unfortunately, suggests that the risk of an accident is rising. Even if a deal is struck it may only to buy a little time for further negotiations, and would need to be passed by unpredictable parliaments and possibly electorates.
Greece is too small to have major direct economic ramifications for the global economy, and now that the ECB is buying government bonds, there is more support for peripheral markets. “At some level, however, Greek default and possible Euro exit would mark a failure of European monetary union. This should leave investors feeling less comfortable about holding other Southern European debt, at least without a higher yield premium”, point out Investec expert.
A near-term tightening of US monetary policy is seen, more so than Greek default, as quite likely. Despite this, the bond market continues to price the balance of risks towards a more dovish outcome. Investors are conditioned by post crisis experience, perhaps, to expect the FOMC to err on the side of caution. Labour market data, however, suggest that spare capacity is being used up quickly and the Fed board is in danger of falling behind the curve. Historically, said Investec the bond market has been slow to price in possible interest rate increases until they are imminent, and then the market has tended to over react.
“So the potential for a negative market reaction this summer to either event seems reasonably high, with a likely spill over into broader market volatility. The fear is that any sell-off will be exaggerated by poor liquidity, especially in bond markets. Trading volumes have been negatively impacted by market regulation which has reduced the ability and willingness of investment banks to make markets. Liquidity is likely be further diminished over the next few months, by the absence of many risk takers from their desks over the summer holiday season”, argued Stopford.
As a consequence, it seems prudent to take some risk off the table, or to buy protection. Any weakness, however, will probably be a buying opportunity as risks become more fully priced in. This is especially true for equity markets, where volatility tends to cause corrections rather than marking the end of bull markets.
Photo: Steven S.. Family Firms, an Opportunity for Minority Investors?
Family-owned firms are not just key drivers of economic growth, but also key employers. But do they generate returns comparable to benchmarks, and what type of specific risks do they pose for external shareholders?
To find out whether family firms generate returns comparable to non-family-owned peers, the Credit Suisse Research Institute analyzed financial data from the CS Global Family 900 universe, a proprietary basket composed of 920 family-owned businesses located across the globe.
From an investment point of view, sector-adjusted share price returns show that since 2006 family-owned companies have delivered superior performance: The CS Global Family 900 universe has generated a 47 percent outperformance compared to the benchmark MSCI ACWI index. This equates to an annual excess return of 4.5 percent over the nine-year period to the end of April 2015, according to the Research Institute’s study “The Family Business Model.”
Considering profitability in terms of return on equity (RoE), superior RoEs were seen in family-owned companies both in Asia and EMEA (Europe, Middle East and Africa), while US- and European-based family firms posted lower returns on equity (RoE) than benchmark. “Lower RoEs in more developed markets are indicative of more conservative strategies as well as broader priorities for family ownership beyond simply financial returns,” explained Richard Kersley, Head of Global Equity Research Product for Credit Suisse’s Investment Banking division.
But looking beyond a simple RoE analysis, data showed that the family firms in the CS Family 900 universe, excluding banks and regulated utilities, generated annual cash flow return on investment (CFROI) averaging 130 basis points higher than companies in MSCI ACWI. Over the longer term, family firms have generated twice the economic profit (earnings in excess of the opportunity cost of using assets or capital) than the benchmark.
US- and European-based family firms use less leverage than their non-family-owned peers and showed faster deleveraging following the recent financial crisis compared to benchmarks. Asian family companies, however, operate with higher leverage than the benchmark. Globally, family-owned businesses delivered smoother and more stable business cycles than the benchmark. “Sales growth is less volatile through the cycle with lower peaks and less pronounced troughs,” said Julia Dawson, an equity analyst at the bank’s Investment Banking division.
Annual sales growth has also been higher in family-owned firms – 10 percent compared to 7.3 percent for MSCI ACWI companies since 1995 – and less volatile during both the Internet bubble and the financial crisis. “A longer term corporate strategy is fundamental to the structural nature of this higher and less volatile (sales) growth,” Dawson said. “The importance of product or service quality, the development of long-term client relationships and brand loyalty, along with the focus on core products and innovation in these products rather than diversifying are all elements explaining this outperformance,” she underlined.
A founder’s premium was established when analyzing the CS Global Family 900 universe. Over the past nine years, first generation companies have delivered a share price compound annual growth rate (CAGR) of 9 percent. Share price returns are indeed the highest in the first generation, when investing alongside the founder, and then decline as family ownership passes down successive generations and the companies mature. “It pays to invest alongside the company founder, in the early years of a company’s existence that is likely to correspond to a period of high growth,” Dawson concluded.
Photo: Pedro Ribeiro. Nikko Asset Management Expands UCITS Range
EMEA (Europe, Middle East and Africa) investors’ strong appetite for gaining exposure to specialist investment strategies is driving Nikko Asset Management to expand its range of UCITS funds.
“UCITS funds are an excellent way for clients in EMEA and other regions to access global investments in an easily accessible and efficient manner,” said Takuya Koyama, executive vice president and global head of sales at Nikko Asset Management. “The launch of more UCITS funds is central to our strategic effort to significantly expand our business in EMEA.”
Nikko Asset Management is launching two new UCITS funds this month that invest in global equities and multi-asset. These institutional quality strategies will allow sophisticated global investors access to a broad range of exposures across developed and emerging markets.
“As we position ourselves as Asia’s premier global asset manager, we are eager to leverage our expanded investment capabilities and expertise,” said Yu-Ming Wang, global head of investment at Nikko Asset Management. “We have a first-rate team of investment professionals, and now we are making their skills available to an even broader range of global clients.”
Over the past two years, Nikko Asset Management has been expanding its existing investment capabilities. The most recent addition was the highly experienced UK-based global active equity team led by William Low in August 2014. The global multi-asset team headed by Al Clark joined the company in March 2014 and the Asia ex-Japan equity team headed by Peter Sartori joined in October 2013.
The Tokyo-based asset manager has plans to launch more UCITS funds in the coming months in order to meet global investors’ evolving demand for exposure to more markets and strategies.
Photo: A Guy Taking Pictures. Aberdeen Launches Multi-Asset Fund
Aberdeen Asset Management has launched the Aberdeen Global – Multi-Asset Income Fund to be managed by its Edinburgh-based Multi-Asset Income Team. Share classes of the Luxembourg-domiciled UCITS fund are registered for public distribution to investors in Belgium, Czech Republic, Hungary, Luxembourg, Netherlands, Switzerland and Singapore (restricted to Qualified Investors).
The Fund is designed to address the increased demand for multi-asset investment products and the challenges that investors are facing when they seek income in the current low rate environment. It combines a broad range of high quality income-generating assets with the aim of producing a high, but sustainable, annual yield while maintaining the real value of capital over the medium term.
The eight-strong Multi-Asset Income team will manage the fund. The team will also draw on knowledge and research from the broader 60-strong Investments Solutions division.
The Fund’s strategic asset allocation is determined by the yield expectations of a range of assets and reviewed on a regular basis. Throughout this process, the focus is on creating a diversified portfolio of high quality income-generating assets.
Mike Turner, Head of Multi-Asset at Aberdeen Asset Management, comments: “In the post-financial crisis world, income is harder to come by. Using our team’s extensive experience in multi-asset investment, we aim to provide a product which can deliver a sustainable annual yield while maintaining the real value of investors’ capital over the medium term.”
Aberdeen’s Investment Solutions division currently manages over €129 billion in multi-asset portfolios on behalf of clients around the world.
