CC-BY-SA-2.0, FlickrPhoto: Loremo
. Energy Efficiency: Global Growth Opportunities
The Henderson Global Growth strategy, which reached its 5-year anniversary in May 2015, seeks to identify key themes driving world change. One of these is greater energy efficiency. This has been a key theme within the portfolio of the Henderson Gartmore Global Growth Fund for a number of years with holdings well placed to benefit from further government initiatives and technological advances.
The quest for greater energy efficiency is being driven by a combination of factors. Firstly, from an environmental perspective, global temperatures are rising and energy related CO2 emissions are a material contributor to this change. Warmer temperatures are linked to higher incidence of extreme weather, which in turn has a disruptive effect on global food production and water supply.
Energy independence
Secondly, carbon fuels are ultimately a finite reserve and intensity of consumption must be curbed while alternative energy sources are developed for mass use. Additionally, energy independence has become a key topic for governments wishing to insulate their economies from fluctuating commodity prices and supply restraints. Confronting these issues, governments in countries covering 80% of global passenger vehicle sales have set stringent targets for fuel economy or emissions.
Increasing fuel efficiency
In the US, for example, the National Highway Traffic Safety Administration (NHTSA) has mandated that the average passenger car’s fuel economy must increase from around 35 miles per gallon (mpg) today to 56mpg by 2025, and other regions and countries are following suit as shown in the chart below.
We believe that in order to meet these government mandated standards, improving the efficiency of the internal combustion engine will be a key consideration for automotive manufacturers for at least the next 10 years.
Smarter engineering
The US Department of Energy estimates that only 18-25% of the energy in gasoline is converted to powering the wheels in the average internal combustion engine powered car, so there is clearly room for gains to be made through smarter engineering.
We invest in companies that manufacture parts and sell technologies which increase the efficiency of the internal combustion engine, and are growing the value of their parts within the car. Stocks currently held related to this theme include Continental, a Germany-based automotive supplier, Valeo, a multinational automotive supplier based in France, along with US auto component manufacturers Delphi and BorgWarner.
Many of the improvements being made by these companies are typically based on proprietary technology, generated through superior engineering and provide the companies with a long-term competitive advantage, which protects their high market shares. The table below shows the positive effects from using various types of car technology on fuel consumption and carbon dioxide emissions.
We believe the market has undervalued the pace and sustainability of the growth which these auto component companies possess, creating an attractive investment proposition today for our funds.
For example, Continental, which the fund has a weighting in of approximately 1.7%, has strong market positions across its powertrain division with a broad portfolio of engine parts from turbochargers to start-stop technology, geared towards increasing fuel efficiency and reducing emissions. Based on our investment criteria, Continental is attractive on a number of measures:
Continental also has one of the market-leading tyre brands and currently trades on 14 times 2016 estimated earnings*. With a rapidly improving balance sheet and strong cash flow generation, investors in Continental have benefited from recent capital growth, as shown in the chart below, as well as a healthy return of cash. We see further upside based on the company’s high exposure to the secular growth areas of carbon dioxide reduction, active safety and in-vehicle infotainment (systems in automobiles that deliver entertainment and information content).
Photo: Conservatives. Good news for Osborne Ahead of Summer Budget
Improving public finance figures in U.K. today gave Chancellor George Osborne a fair wind ahead of his summer Budget on July 8, said Investec´experts. Public sector net borrowing (PSNB) in May, excluding the cost of bank bailouts, was £10.1 billion, a fall of £2.2 billion compared with May last year.
Lower government investment spending, higher VAT receipts and fines levied on banks all helped to generate the improved fiscal outlook.
Alongside May’s figures, the data showed the PSNB figure, again excluding the cost of bank bailouts, for the financial year from April 2014 to March 2015 had been £89.2 billion, down by £9.3 billion on the previous year.
Room to manoeuvre
July 8 will see Mr Osborne deliver his first “Conservative”, as opposed to Coalition, Budget and these figures widen his room for manoeuvre. The justification for having a second Budget after that of March 19 is to start to implement the policies on which it won the May 7 General Election, point out Investec.
Announcing the summer Budget, the Chancellor said: “I don’t want to wait to deliver on the commitments we have made to working people.
“It [the summer Budget] will continue with the balanced plan we have to deal with our debts, invest in our health service and reform welfare to make work pay.”
Welfare savings
The Conservative Government is pledged to axe £12 billion a year in welfare spending but it is not yet clear how most of this will be achieved, explained the firm in its last analysis.
Announcing this second Budget, Mr Osborne said: “We will always protect the most vulnerable, but we also need a welfare system that’s fair to the people who pay for it.”
The best-known welfare pledge is that of reducing the “benefit cap” per household from £26,000 a year to £23,000. But the independent think tank, the Institute for Fiscal Studies (IFS), has noted: “Because in total fewer than 100,000 families would be affected… the policy reduces spending by only £0.1bn.”
Similarly, the pledge to remove housing benefit from 18-21-year-olds would save, again, just £0.1 billion, said the IFS. Overall, it said, the public is still in the dark as to £10.5 billion of annual welfare cuts.
Campaign commitments
On the other side of the equation – spending – critics suggest the Chancellor needs this second Budget to raise the money to pay for uncosted commitments made on the campaign trail when the polls were running neck and neck.
These included a commuter rail fare freeze, a huge increase in free child-care for working parents, an increase in the tax threshold and subsidies for home purchase.
Focus on productivity
Mr Osborne said: “There will be a laser-like focus on making our economy more productive so we raise living standards across our country.”
Britain’s productivity performance has been dire in recent years and output per hour, on the latest figures, is actually slightly lower than it was in 2007. But some fear that poor productivity is the price to be paid for record levels of employment.
The Chancellor himself, speaking to the business lobby group the CBI on May 20, said: “I would much rather have the productivity challenge than the challenge of mass unemployment.”
Photo: FrancPallares, Flickr, Creative Commons. Natixis Global Asset Management Launches New Singapore-Based Expertise Dedicated to Emerging Markets
Natixis Global Asset Management has launched Emerise, a new stock picker Singapore-based expertise dedicated to emerging markets. The firm manages a range of emerging markets equity funds to offer investment solutions that combine long-term growth and portfolio diversification.
The potential of emerging markets remains underestimated by investors: emerging economies represent more than 50% of global GDP, while their market capitalization only accounts for 10%. Furthermore, positive long-term prospects make these markets particularly attractive, both in terms of growth potential and portfolio diversification.
“To meet investors’ long-term expectations, we believe it’s crucial to focus on the original principles of emerging markets investing: growth and diversification,” said Stéphane Mauppin-Higashino, Managing Director of Emerise.
Identifying emerging small & mid cap companies with high growth potential
Based in Singapore and Paris, Emerise relies on local teams and research. Its offering covers all emerging regions – Europe, Asia and Latin America – as well as all market capitalisations, from large caps to small & mid caps. The firm employs an innovative and original index: the MSCI Emerging Markets Investable Market Index – IMI.
Convinced that small & mid cap stocks with strong growth prospects can provide superior returns to other corporate categories, Emerise aims to include such high value-added stocks in all of its portfolios, with the conviction that small & mid cap companies represent the true emerging corporate world.
Offering the upside potential of growth stocks over the long term
As a stock picker, Emerise selects growth stocks combining three key fundamentals: stable earnings growth, solid economic fundamentals and clear competitive edge with high value-added. On-the-ground research and in-depth knowledge of companies’ management teams form the core of its investment philosophy.
Emerise’s fund managers make almost 1,500 company visits every year, analyse approximately 300 companies in depth, and constantly monitor close to 100 of these companies. With an approach combining bottom-up research and a rigorous selection of growth companies, the funds managed by Emerise hold 50 to 70 stocks on average. The portfolios are concentrated to provide investors with the best of the emerging world over the long term. Emerise has four areas of equity expertise: Global emerging, Asia, Emerging Europe, and Latin America.
Emerise’s fund range is distributed via Natixis Global Asset Management’s global distribution platform and is designed for all types of investors, both professional (institutional investors, companies, multimanagers, private banks, IFA5 and banking networks) and non-professional.
. MUFG Investor Services to Acquire UBS Global Asset Management's Alternative Fund Services Business
MUFG Investor Services, the global asset servicing group of Mitsubishi UFJ Financial Group, has reached an agreement with UBS Global Asset Management to acquire its Alternative Fund Services (AFS) business. The transaction is expected to close in fourth quarter 2015, subject to regulatory approvals and customary closing conditions.
“This transaction is part of our strategy to build MUFG Investor Services into an industry-leading administrator, both organically and through acquisitions,” said Junichi Okamoto, Group Head of Integrated Trust Assets Business Group, Deputy President, Mitsubishi UFJ Trust and Banking Corporation.
“AFS’ strong client franchise, global footprint, and notably its strong presence in Asia, are an excellent strategic fit,” he continued. “We are confident that our clients will benefit from the depth of combined resources and capabilities and from our commitment to innovation coupled with AFS’ market-leading technology platform. We welcome AFS to our growing business and look forward to continuing to provide our clients with best-in-class service.”
Ulrich Koerner, President of UBS Global Asset Management, said: “We have a sharp focus on executing our strategy, with a clear goal of delivering best-in-class investment management capabilities to our clients. With this in mind, and in light of the increasing drive towards scale in fund administration, we concluded that the future development of AFS in servicing its clients would be best ensured as part of an organization with a strategic focus on asset servicing.”
“MUFG’s commitment to invest in the client franchise and the people, together with their strong focus on ensuring a seamless transition, were important factors in our decision-making,” Koerner added.
Photo: José Francisco del Valle Mojica. AXA IM Boosts EM Portfolio Management Team
AXA Investment Manager (AXA IM) has announced the appointment of Alex Khosla as equities analyst and the promotion of Ian Smith and Paul Birchenough as co-managers of the AXA Framlington Emerging Markets fund.
Both will work with Julian Thompson, head of the Emerging Markets Team, as part of a core emerging markets portfolio management team.
Mark Beveridge, global head of AXA Framlington, comments: “We believe in recognising and rewarding talent coming through the ranks. We already adopt a team approach to portfolio management and Paul and Ian have been part of our EM team since 2011 and 2012 respectively. They both have extensive experience in emerging markets and we are confident that they will continue to successfully manage the fund.”
Alex Khosla joins the team as an Emerging Markets equities analyst from UBS Investment Bank. He will be responsible for covering the energy, beverages and tobacco sectors as well as monitoring macroeconomic issues in India, Chile, Peru and Colombia.
Commenting on the hire of Alex Khosla, Julian Thompson, head of Emerging Market Equities at AXA Framlington, said: “Alex is a strong addition to our growing emerging markets team and we are very pleased that he has chosen to join us. Alex knows the team well from his previous role in Latin American equity sales at UBS and brings with him considerable experience in Latin American equity markets.”
. Lazard Asset Management Hires Léopold Arminjon as European Long/Short Equity Portfolio Manager
Lazard Asset Management announced that Léopold Arminjon has joined the Firm as a portfolio manager/analyst. Based in London, Mr Arminjon will be responsible for running a new European long/short equity strategy to be launched later this year.
“Léopold brings with him over 18 years of investment experience in European equities, which will benefit both our clients and our investment platform,” said Bill Smith, CEO of Lazard Asset Management London. “This new strategy will complement our strong European equity capabilities and will broaden our already robust expertise in long/short equities, a core focus of our investment offerings for clients.”
As of 31 March 2015, LAM has $180 billion of assets under management, including $7.6 billion globally across a number of alternative investment strategies, investing in global long/short equity, emerging market debt and hedged credit strategies.
Prior to joining LAM, Mr Arminjon was a lead portfolio manager at Henderson Global Investors for both the Henderson Horizon Pan-European Alpha Fund and the Alphagen Tucana Fund. Previously, he was a senior analyst at Gartmore as well as being one of the five members of the Continental Europe equities team running both long-only and long/short funds.
LAM offers a range of equity, fixed-income, and alternative investment products worldwide. As of 31 March 2015, LAM and affiliated asset management companies in the Lazard Group manage $199 billion of client assets.
CC-BY-SA-2.0, FlickrPhoto: Dennis Jarvis. UK Treasury Planning for ‘Grexit’ Turbulence
Downing Street and the Treasury have been drawing up measures to control the “serious economic risks” to Britain should Greece default on its debts, or exit the eurozone – or both.
The Prime Minister’s official spokeswoman told reporters at Westminster that the Government was taking “all steps to prepare” for such eventualities.
Treasury officials declined to give details of the plans, but confirmed that Chancellor George Osborne regards a “Grexit” as “a very serious risk” to the economy of both Britain and the wider world.
Central bank warning
The comments came as Greece’s central bank warned for the first time that the country could be on a “painful course” to a debt default and an exit from both the eurozone and the European Union.
According to the most recent figures from the Bank of England, British banks are exposed to Greece to the tune of $12.2 billion (£7.7 billion) on an “ultimate risk basis”. In other words, this is the sum they would lose were the country to go bust completely.
The figure is not large by comparison with UK banks’ exposures to other eurozone countries that have experienced recent difficulties such as Italy, at $40 billion (£25.2 billion) or Spain at $50 billion (£31.5 billion).
But the knock-on effects from a Greek collapse could hammer confidence across the eurozone and beyond.
The British Chambers of Commerce warned that market upheavals caused by “a messy Grexit” could hit many UK businesses and called on central banks and governments to take action to limit disruption “through all means possible”.
Bailout talks continue
Talks continue between the Athens government and its international creditors over an economic reform deal which has held up more than £5 billion in bailout payments needed to allow Greece to continue servicing its debts.
Eurozone finance ministers are meeting in Luxembourg today to try to find a way forward, and the crisis is expected to dominate a European Council summit of EU leaders – including David Cameron – in Brussels next week.
Meanwhile, it has emerged that the Republic of Ireland is making its own plans in the event that the UK votes in an in/out referendum to leave the EU.
Irish foreign minister Dara Murphy told BBC Radio 4’s World At One: “It would be remiss of us [not to], given the possibility that our largest trading partner may be exiting the European Union. That is something we, of course, are looking at.”
Foto cedidaAndreas Wosol, gestor del Amundi Funds European Equity Value. Andreas Wosol: "Es el mejor momento para participar en una inversión value en años"
Crédit Agricole and Société Générale are announcing their decision to launch a project for the initial public offering of their joint subsidiary Amundi, created in 2010, with a view to obtaining a listing before the end of the year, subject to market conditions.
With EUR 954bn of assets under management as of the end of March 2015, Amundi is the leading asset manager in Europe and ranks among the ten largest players in the world.
Amundi is 80% owned by Crédit Agricole Group and 20% by Société Générale.
The purpose of the flotation is to underpin the continuing development of Amundi and provide liquidity to Société Générale, which could sell up to its entire stake, as set out in the shareholder pact that was agreed at the creation of Amundi1.
Amundi and Société Générale will continue their industrial partnership following the initial public offering. Amundi will remain the provider of reference for savings and investment solutions for Société Générale’s retail and insurance networks for a period of five years, renewable.
Crédit Agricole S.A. intends to retain a majority stake in Amundi, which plays a key role in its development strategy. This project will be submitted to the employee representative bodies.
As an indication, Société Générale specifies that the sale of its entire stake would have a positive impact of around 20bps on the CET1 ratio of Société Générale group at the end of 2015.
This project will be submitted to the employee representative bodies.
CC-BY-SA-2.0, FlickrPhoto: Dennis Jarvis. Are Dividends from Emerging Markets Worth The Risk?
Lyxor has been recently awarded by S&P Dow Jones Indices a license on the S&P China Sovereign Bond 1-10 Year Spread Adjusted Index, that will allow the manager to launch and list a China government bond ETF in Europe.
The S&P index includes Chinese government bonds with a maturity of one to ten years traded on the Shanghai or Shenzen stock exchanges as well as on the Chinese Interbank Market.
It currently represents a yield to maturity of 3.2% in renminbi for an average duration of 4.2 years, according to Bloomberg figures as of 29 May 2015.
Heather McArdle, Director of Fixed Income Indices at S&P Dow Jones Indices, commented : “The progressive liberalisation of China’s financial market has offered greater accessibility and flexibility to international investors looking to invest in the world’s second largest economy.
“As European investors increasingly look for China exposure beyond equities, we are excited to license the S&P China Sovereign Bond 1-10 Year Spread Adjusted Index to Lyxor to help bring China government bonds into their toolkit and facilitate portfolio diversification for investors.”
Lyxor’s ETF will be sub-managed by the Hong-Kong arm of the firm’s Chinese joint-venture Fortune SG.
Lyxor has €113.7bn in assets under management and advisory as of 30 April 2015.
CC-BY-SA-2.0, FlickrPhoto: Kcalculator. Threadneedle Remains Bullish on the Dollar Given the Likelihood of Superior US Economic Performance
Columbia Threadneedle Investments has held a bullish view of the outlook for the dollar for some time. This is supported by its belief that the US economy will outperform other advanced economies because:
it has fewer structural rigidities than, for example, the eurozone
it will enjoy greater long-term productivity gains than comparable economies
it will become less vulnerable to external energy shocks as its oil production potential increases following the shale energy revolution. Increasing oil output will also reduce the structural current account deficit.
But earlier this year the firm became concerned that the currency was strengthening beyond what was warranted by the United States’ fundamentals and it positioned itself accordingly with a tactical short position against a range of currencies. “A raft of weaker than- predicted US data dimmed speculation the Federal Reserve (the Fed) was about to raise interest rates. At the same time, the launch of QE in Europe caused investors to revise their expectations of deflation in Europe”, explains Matt Cobon, Head of Government and FX at Columbia Threadneedle Investments.
Dollar correction creates opportunity
The markets have now seen a sizeable fall in the dollar and the currency is now much more fairly valued. “The size of the correction is similar to that experienced in comparable structural dollar bull cycles and we do not believe that it should be a matter of concern or indeed a surprise. However, we continue to believe that the upward trajectory of the dollar will resume over the longer term, reflecting the country’s aforementioned economic advantages. Consequently, we remain dollar bulls, believing that the recent weakness in the US economy will prove temporary in part because we anticipate that consumers will start spending some of the windfall gains reaped from low energy prices”, says Cobon.
The likelihood that monetary policy in the US and the rest of the world will begin to diverge reinforces Threadneedle´s positive view that the dollar should strengthen. “We anticipate that while the eurozone delivers its massive QE programme and Japan continues to inject liquidity into its economy, the Federal Reserve (the Fed) will start to increase rates as the economy regains momentum. We are certainly more sceptical than the market that we will see such a reflationary bounce in the eurozone or that it will outperform in the longer term given the structural rigidities within the euro area” points out the expert.
Investors with long dollar positions are being squeezed at the moment and Threadneedle is using this opportunity to start to build back into its dollar risk position. “We certainly believe that the dollar is now trading at levels, which, particularly against the euro, appear compelling again from a long-term perspective – we still believe that the euro will reach parity with the dollar”, says the Head of Government and FX.
The main risk to this strategy is that the US economy is unable to gain further momentum and that as a result expectations of when the Fed begins to hike interest rates are pushed out to 2016. However, monetary policy in the US and the rest of the world would only converge if markets began to anticipate that the US was entering a prolonged downturn. “We do not think this is likely. Indeed, we believe that we are approaching a point in the US labour cycle where wage pressures are beginning to build and that this factor will start to influence monetary policy. There is little slack left in terms of unemployment and the output gap. Certainly, both have reached levels that in previous cycles were accompanied by a tightening of monetary policy”, concludes Cobon.
