. Amundi Names Vincent Mortier as Deputy CIO and Member of Executive Committee
Amundi announces the appointment of Vincent Mortier as Deputy Chief Investment Officer (Deputy CIO). He will also become a member of the Executive Committee.
Mortier joins Amundi from Société Générale Group, where he started his career in 1996. He has occupied a number of senior roles at the Group during his career, culiminating in the position of Chief Financial Officer of the Global Banking and Investor Solutions (GBIS) division in 2013.
He was previously CFO of Société Générale Corporate and Investment Banking, Co-Head of Equity Finance, Deputy Head of Equity Finance and Head of Strategy and Development – Global Equities and Derivatives Solutions. Mr Mortier also sits on the SG GBIS Executive Committee.
New board of directors at ALFI. The Association of the Luxembourg Fund Industry Appoints Denise Voss as Chairman
The Association of the Luxembourg Fund Industry (ALFI) today announced the appointment of Denise Voss as chairman of ALFI. Ms Voss takes up the position, which will initially run for two years, with immediate effect.
“I am very excited about this appointment,” said Ms Voss. “The asset management industry in Europe has gone through dramatic change over the past few years, with extensive regulation that has been put in place following the crisis, and ALFI has played a key role in working through the implementation of this regulation.”
”Going forward, we face different challenges, for instance, from the greying of the population and more and more individuals being responsible for funding their own retirement, to the growth of digital technology, which means that buying habits are changing dramatically. My role is to inspire the industry to focus on these issues and to ensure that the Luxembourg Fund Industry continues to play a key role in driving the development of the industry worldwide, encouraging economic growth and providing long-term financial security for individuals.”
Denise Voss has played a key role in ALFI for many years. She has been Vice Chairman for International Affairs of ALFI since 2011 and has been a member of the ALFI board of directors since 2007. She is also Chairman of the European Fund and Asset Management Association (EFAMA) Investor Education working group.
Denise is Conducting Officer of Franklin Templeton Investments and has worked in the financial industry in Luxembourg since 1990.
CC-BY-SA-2.0, FlickrPhoto: Dave Kellam. Euroland Dividends: a Cornerstone of Returns
The real return that investors see ultimately depends on the starting price paid. In other words, buying equities when they are out of favour improves the prospects for better returns, said Henderson. Timing is always difficult, so it is important to have a reliable set of screening tools to identify stocks that are incorrectly priced, and which offer value in the market. There are many metrics investors can use to assess this: earnings; net asset value; value of growth and dividends to name just a few.
The firm place a high level of importance on dividends as a measure of a company’s health. Any increase in sales and revenues increase should be reflected in a rise in the common share dividend. A good dividend strategy can indicate a strong, cash-generative business, as well as a management team that understands the importance of prioritising shareholders’ needs. From a performance perspective, an attractive well-covered yield also increases the certainty of an investor’s return.
Higher dividends or a new factory?
While yield is an important source of performance for investors, it is important to avoid companies that chase yield at the expense of long-term capital return, affirm Henderson´s experts. Management teams need to properly allocate capital in a way that balances the needs of shareholders, while providing sufficient capital for reinvestment to help generate future growth.
Outlook for dividends
There currently seems little reason to suggest that dividends cannot move forward from existing levels, with the opportunity to see some special dividends in isolated cases. Eurozone companies have spent the past few years rebuilding their balance sheets and dividends are growing nicely, reflecting confidence in future revenue streams.
Significant levels of cash have been redirected towards share buybacks, supported by the European Central Bank (ECB)’s accommodative monetary policy. While these can provide a strong signal about a firm’s future profitability, not all buybacks are equal. The fund’s investment process factors in the need to be careful that a company, when it is doing a share buyback, is doing so at the right valuation level, without funding through additional debt, and for the right reasons.
“As always, stock selection is driven by the identification of value – even the best dividend stock is not worth holding at any price. Among the stocks we like at present, although this is no recommendation to buy, are Anglo-Dutch publisher Reed Elsevier, and France-listed global automobile company Renault and luxury goods firm Christian Dior”, point out Henderson.
Reed Elsevier generates healthy profits and sees a good return on its spending, and holds a leading position in an industry where it is difficult for new companies to thrive. The company has demonstrated long-term commitment to returning cash to shareholders via dividends and buybacks, reflecting the company’s strong underlying revenues.
Renault has a stable market share and has taken steps to rein in spending. The car-maker is entering a strong phase for model updates, suggesting that consensus estimates for future earnings may be too low. The company now has a five-year track record of providing dividends for investors.
Christian Dior looks priced at a significant discount, given the value of its stake in LVMH. The company is run by an experienced management team that has delivered consistent revenue growth in Christian Dior Couture operations over the past five years, which has been reflected in annualised dividend increases.
Nothing in this article should be construed as investment advice, or a recommendation. Past performance is not a guide to future performance. The value of your investment can go down as well and you may not get back the amount originally invested. The information in this article is not intended to be a forecast of future events or a guarantee of future results and does not qualify as an investment recommendation of any individual security.
CC-BY-SA-2.0, FlickrPhoto: George Laoutaris. Down to the Wire in Greece
Until this month, the base case for Grecce of many analysts and strategists was for an eventual agreement, even though no one had offered a clear road map on how to get there. In MFS´ view, such optimism suggested that these observers were overlooking the facts on the ground.
Virtually no progress toward an agreement has been made since the Syriza government took office in January. Pilar Gomez-Bravo, Fixed Income Portfolio Manager, Lior Jassur, Fixed Income Research Analyst, and Erik Weisman, Chief Economist & Fixed Income Portfolio Manager at MFS would argue that by rejecting existing agreements, sending conflicting messages and failing to provide detailed alternative proposals, Syriza has damaged Greece’s relationships with creditors. Now the country has little money left and has made no reforms or even commitments to reforms — and nearly all eurozone goodwill and solidarity has evaporated in the process.
Higher risk of default
June promised to be a milestone in the Greek debt saga, with the month’s first debt service installment payable to the IMF on 5 June and the second bailout program expiring at the end of the month. On 4 June, however, Greece took advantage of a rarely used IMF procedure to bundle together its 5, 12, 16 and 19 June installments totaling 1.5 billion euros and delay payment until 30 June.
Running out of cash and credit, Greece may be facing a political crisis, as the Syriza government’s adherence to its anti-austerity election platform could be putting the country’s economic future at risk. The three experts at MFS suspect that holding a referendum on extending austerity measures or launching a snap election now would be unlikely to solve much at this stage. “Even if another party could win an overall majority, it would take weeks to organize a budget and put forward an actionable plan for further reforms that would be acceptable to the creditor countries. Regaining the confidence and goodwill of its creditors could take Greece years”, said.
“We thought Greece might miss a payment, though without that leading to a declaration of default by the IMF. After last events, we are raising the probability we assign to default. And with large debt repayments due to the ECB by 20 July, political uncertainty further increases the chances that the default process could become disorderly”, point out from MFS.
Terms of agreement
From the perspective of creditors such as Germany, said the experts, the main point is that a framework for the second bailout package had been agreed upon with the government of a sovereign country. By the terms of this 2012 bailout, tangible reforms were supposed to be implemented in exchange for funding. Then another government under Prime Minister Tsipras came into power by promising to renegotiate the terms of this bailout — especially its onerous conditions for reform.
“Now creditors wonder whether this or any successor government will honor any existing agreements. That is why the creditors have been so inflexible. Politicians in the creditor countries need to see far more compromises on structural reforms before extending additional funding to Greece”, argued.
The firm thinks that there is an increasing acceptance that Greece could default on its sovereign debt or other state obligations and still remain within the eurozone. After all, a country cannot be expelled from the common currency zone; it has to choose to leave. If Greece chooses to leave the eurozone, it would also need to leave the European Union under current treaties, and the Greek population clearly does not want that to happen.
Nonetheless, the markets are facing a significant amount of market uncertainty and potential dislocation “if we enter the uncharted territory of a default within the eurozone or a country leaving the European Union. Based on the relative stability of periphery bond spreads and equity markets, it seems that investors may be underestimating such risks”.
Admittedly, the likely intervention of the ECB — as well as the implementation of the relatively new EFSF, Outright Monetary Transactions and banking union reforms — should help to provide financial stability and support asset prices in the near term. At the very least, however, we would likely see increased volatility — particularly on the currency side — and a migration toward “safer haven” assets. “Given the uncertainty that surrounds such a default or “Grexit,” we would warn against assigning too low a probability on a negative market event”, conclude.
CC-BY-SA-2.0, Flickr. BlackRock Appoints Dr. Andrew Ang to Lead Factor Investing Platform
BlackRock announces the appointment of Andrew Ang, PhD, as a Managing Director and Head of the Factor-Based Strategies Group. In this role, Dr. Ang will lead BlackRock’s expansion in the emerging field of active investing via exposure to different risk premiums. BlackRock currently manages over $125 billion in client assets across a variety of factor-based products and strategies.
Dr. Ang joins BlackRock from Columbia Business School, where he has focused on understanding the nature of risk and return in asset prices, in particular the behavior of factor risk premiums within and across asset classes, over the past 15 years. His research spans bond markets, equities, asset management and portfolio allocation, and alternative investments. Most recently, Dr. Ang was Chair of the Finance and Economics Division and the Ann F. Kaplan Professor of Business at Columbia. Dr. Ang’s recent book “Asset Management: A Systematic Approach to Factor Investing” published by Oxford University Press in 2014 has been lauded by the investment community.
In addition to his academic work, Dr. Ang has consulted for Canada Pension Plan Investment Board, Norges Bank and the Norwegian Ministry of Finance, the UAW Retiree Medical Benefits Trust and other large institutional managers on factor investing strategies.
“Markets are constantly evolving. Historic sources of outperformance are so widely understood and incorporated by investors that their impact has diminished. To generate sustainable investment results, investors will need to use data and technology in factor-aware investment processes,” said Ken Kroner, Global Head of Multi-Asset Strategies for BlackRock. “Andrew Ang is a leading light in this arena, having applied his knowledge to some of the largest portfolios in the world. His combination of knowledge and experience make him ideal person to drive BlackRock’s development in factor-based strategies.”
“With BlackRock’s established systematic investment platform, along with its data analytics capabilities and superior talent, this is the perfect opportunity for factor investing to truly transform asset management,” said Dr. Ang. “BlackRock is a trusted advisor to some of the most sophisticated asset owners in the world. Having that credibility supporting the next generation of factor-based strategies will be critical in educating investors and clients about these important developments in portfolio construction and active asset management.”
CC-BY-SA-2.0, FlickrPhoto: Philip Taylor. Henderson: “We Expect the Dollar’s Trajectory to Be More Volatile Going Forward”
In the US, in the short term, a strong dollar is positive for interest rates markets given low commodity prices, low inflation, and the falling cost of imports. However, the strong dollar may be undermining price insensitive buyers of government bonds as currency reserve growth slows. We have long argued that there are now fewer long-term buyers of US bonds.
Credit markets: fundamental analysis required
As the dollar rises, corporate earnings in the US could come under pressure. However, a strong dollar also means oil (priced in dollars) becomes cheaper and corporates should benefit from the stronger economy. Obviously, some sectors, such as energy, will suffer from the lower oil price. However, others, including retail, autos and industrials, will benefit from better demand and cheaper input costs.
In EM, a strong dollar should benefit corporations that sell products in dollars but pay costs, such as wages and rents, in local currency. However, regional exchange rate differences versus local competitors, such as Japan versus Asia, are a more important driver for these companies. Given the scale of EM credit growth in recent years, with many borrowing in US dollars, the true scale of dollar-denominated emerging market debt exposure is difficult to gauge. This necessitates greater discrimination as issuers with US dollar liabilities may find it harder to service their debt from local currency revenues if the dollar continues to strengthen.
Currency markets: prepare for volatility
So far the moves in currency (FX) markets, while large, have been relatively orderly. However, as we move further into Phase 3 with forced unwinding of carry trades to reduce risk and the potential for devaluations, events may become more disorderly and FX volatility rise.
Conclusion: risks and opportunities
With economic divergence fading as a driver of US dollar strength, the combination of central bank policy divergence, less currency reserve growth, and the unwinding of carry trades should continue to propel the US dollar higher. However, we expect the dollar’s trajectory to be more volatile going forward; while the majority of the dollar’s recent rise has been at the expense of the euro and the yen, the next phase may see Asia moving into the firing line. The third phase of the dollar’s strength may begin in earnest later this year, with the start of a US hiking cycle a possible catalyst. The environment this will create is certain to be a challenging one but as volatility rises it will also throw up opportunities for investors willing to examine the risks more closely.
James McAlevey is Portfolio Manager of Henderson Horizon Total Return Bond.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
CC-BY-SA-2.0, FlickrCourtesy photo. Union Bancaire Privée Strengthens Its Global Emerging Markets Equities Expertise With The Appointment of Mathieu Nègre
Union Bancaire Privée (UBP) announced today it has appointed Mathieu Nègre as Head of Emerging Market Equities. With this appointment, UBP is further reinforcing its expertise in the emerging market space while also ensuring continued cooperation between its regionally-focused EM equities teams.
Having previously worked at UBP as an emerging European equities fund manager, Mathieu worked at Aviva Global Investors from 2011, and then at Royal Bank of Canada Global Asset Management, where he was a global emerging markets portfolio manager. Mathieu returns to manage UBP’s new Global EM Equities strategy and will remain based in London.
Eftychia (La) Fischer, UBP’s Investment Management CEO, said of the appointment: “We have significant regional resources and expertise, as well as a wide range of strategies in EM equities, with investment teams based in London, Shanghai, Hong Kong, Taiwan and Istanbul. Mathieu’s arrival will add significant expertise at global level, while also ensuring optimal cooperation between different regional teams for the ultimate benefit of investors.”
Mathieu Nègre added: “Emerging market equities have gone through a period of weakness but we believe they have great potential over the long term. An improving macro picture, low valuations, and greater appetite for reforms in China, India and a number of other emerging countries, are all combining to make this asset class an attractive investment opportunity. I am looking forward to re-joining UBP and working with the EM equities team during these exciting times for our asset class.”
CC-BY-SA-2.0, FlickrPhoto: David Blaikie. Lyxor Partners with Corsair for Alternative UCITS Fund
Lyxor has announced a partnership with Corsair Capital Management LP (Corsair) to launch the Lyxor/Corsair Capital Fund.
This fund, which is UCITS-compliant, runs a US long/short equity strategy. It is the first fund with daily liquidity Lyxor introduces within its alternative Ucits offering.
The Lyxor/Corsair Capital Fund aims to capture the performance of US equities with less risk, by preserving capital in down markets and using no leverage.
The product is mainly invested in US mid-cap companies going through strategic and/or structural change, as those companies have little analyst coverage and a complicated financial story.
This information gap between market consensus and Corsair’s proprietary research creates opportunities and generates alpha.
Corsair is managed by Jay Petschek and Steve Major, who lead an experienced team of twelve. Lyxor highlighted that the strategy deployed by the firm in 1991 has outperformed the US equity markets over multiple market cycles with less risk.
The fund is available on Lyxor’s alternative Ucits platform in EUR, USD, JPY, CHF, GBP, SEK, and NOK.
With Corsair, Lyxor welcomes its sixth alternative manager on its UCITS platform.
CC-BY-SA-2.0, FlickrPhoto: Atli Hardarson. In High Yield, Expect Volatility, Not Crisis
We’ve been hearing a lot lately from people who fear that rising interest rates may cause a crisis in US high yield. In our view, the logic doesn’t add up.
Don’t get us wrong: we understand why some investors are anxious. After all, it’s been almost a decade since the Federal Reserve last raised rates, and these many years of cheap credit conditions have left high yield looking a bit pricey. As we’ve written before, that’s certainly a reason to be selective. But it’s no reason to retreat from high yield altogether.
So what exactly are people worried about?
The hypothetical scenario goes something like this: Over the next year or two, rising rates will make it hard for high-yield companies to roll over their debt when their bonds mature, causing many to default. That could provoke a sell-off, and the less liquid conditions that make it harder to buy and sell bonds could turn into a full-fledged crisis.
Standing Tall as Rates Rise
There’s a lot to unpack there. First, let’s address default risk. This is something investors must always keep an eye on, and nobody should disregard it because current default rates remain low.
But here’s the thing: Rising interest rates don’t necessarily mean defaults will spike. In fact, high yield has weathered rising rate environments well. Since 1998 there have been four calendar years in which the Fed lifted policy rates, and high yield posted a positive return in all of them (Display).
That’s largely because rising rates go hand in hand with an improving economy. And in a growing economy, companies’ business prospects and credit standing improve, causing the extra yield offered by high-yield bonds versus US Treasuries—the yield spread—to shrink. This scenario works in favor of high-yield prices.
Different Bonds, Different Risks
Will the default rate rise as rates move higher? Of course. That’s inevitable when the credit cycle moves from expansion to contraction. Over the next few years, we expect the default rate to drift back toward its long-term average—about 3.8%, according to J.P. Morgan—from a bit less than 2.0% last year.
Moreover, not every high-yield company faces the same risk. We worry about issuers with fragile balance sheets and high debt levels. Many CCC-rated junk bonds fall into this category.
For companies with sound finances—including many BB- and B-rated high-yield issuers—rising rates are less of a concern. And remember—Fed policymakers have been pretty clear about their intention to push up rates slowly. Some market participants now say they don’t expect the first hike until 2016. That doesn’t strike us as a frightening scenario for high yield.
We think it’s also helpful to keep in mind that high-yield bonds, like most other bonds, have a known ending value. As long as the issuer doesn’t go bankrupt, investors get their money back when the bond matures. A period of rising rates may sometimes make total return lower than it would otherwise have been. But it doesn’t mean bond investors have to lose money. They may even come out ahead.
Liquidity Risk Can Be Managed
What about liquidity? There’s no doubt there’s less of it in today’s fixed-income markets. But this isn’t a new phenomenon. Corporate bond markets in general—and high yield in particular—were never as liquid as US Treasuries. And new bank regulations that have been draining even more liquidity from the market have been on our radar for years.
But as we’ve pointed out before, illiquid markets can offer attractive opportunities. When liquidity dries up in one sector, it can be plentiful in another. If managed properly, it can be an additional source of return.
US high-yield companies are by and large in the later stages of the credit cycle. But we don’t think investors should be winding down their high-yield allocations. Interest rates overall will remain low even after the Fed starts tightening policy. At average yields of nearly 6%, high-yield bonds offer investors who do their credit analysis a reasonable opportunity to potentially boost returns.
Should you expect periodic bouts of volatility in the coming year or two as Fed rate hikes become a reality? Absolutely.But a crisis? We don’t think so.
Opinion column by Gershon M. Distenfeld, CFA, Head of High-Yield Debt Securities across dedicated and multisector fixed-income portfolios for AllianceBernstein.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
CC-BY-SA-2.0, FlickrBill Gross. Bill Gross Takes Over Old Mutual GI’s Total Return USD Bond Fund, Currently Sub-Advised by PIMCO
Old Mutual Global Investors has today announced that the investment adviser of its US$272 million Old Mutual Total Return USD Bond Fund will be changed to Janus Capital, with Bill Gross returning as fund manager.
The Old Mutual Total Return USD Bond Fund is a sub fund of the Dublin domiciled Old Mutual Global Investors Series plc and is currently sub-advised by PIMCO. Janus is set to take over as investment adviser on 6 July 2015.
Bill Gross managed the fund in PIMCO for over 12 years since its launch in April 2002. Old Mutual Global Investors believes that the change of fund manager is in the best interest of clients who originally chose to be invested with Bill.
The fund’s investment objective, to maximize total return consistent with preservation of capital and prudent investment management, will not change.
Warren Tonkinson, Global Head of Distribution at Old Mutual Global Investors comments:
“We have a long standing relationship with Bill Gross and believe that clients who chose to be invested with him in the Old Mutual Total Return USD Bond Fund will benefit from this change. Bill has a vast amount of experience and an outstanding track record and we look forward to working with him and the team at Janus.
“I would also like to take the opportunity to thank PIMCO for its support in managing the fund until now.”
Bill Gross comments: “Old Mutual is an ‘old friend’ that always had faith in me at PIMCO and now has expressed confidence in me at Janus. They will get our best efforts and sincere thanks for the opportunity,”
