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"En 2015 el feminismo se ha transformado en un asunto de negocios" — Barbara Stewa. "In 2015 Feminism Is A Business Issue"

The future looks very bright for women in finance, says Barbara Stewart, CFA. Author of the Book “Rich Thinking 2015: Future of Women& Finance”, and guest speaker at CFA Spain “Future of women and Finance” Forum. Stewart, portfolio manager at Cumberland Private Wealth Management Inc. Toronto. Canada, explains in this interview with Funds Society that the financially confident woman is the number one target market and technology has levelled the playing field for women.

How do you see the future of women in finance, and in the asset management industry in particular?

The future looks very bright for women in finance! Many studies now show that more women = more money and this is a very compelling equation for a still quite traditional investment industry. My research findings are clear that a) feminism makes good business sense, b) the financially confident woman is the number one target market, and c) technology has levelled the playing field for women. Women are huge users of social media and with respect to the asset management industry, – this is beginning to radically change the way we inform our clients about stocks and bonds, the way we find our clients, as well as the way we communicate with our clients.

Women presence is still poor in the investment industry … do you think it will grow over time? Will women take on positions of greater responsibility?

Because of the fact that we will have more and more financially confident women as clients, we will need more sophisticated advisors to work with them. My research has shown that women like to communicate in a language that makes them comfortable and they prefer to invest in causes and concerns that matter to them. The best advisor moving forward? A highly competent male or female advisor who uses a holistic approach and integrates the so-called feminine values of empathy and open communication. Many firms are attempting to attract female advisors because they are a natural fit for this role.

How these developments can benefit the financial and asset management industry?

These developments are great for the industry because once again, it has been proven that more women equals more money. Simply put, women are making more money, they are controlling more money and they are making most of the financial decisions in their families. Our industry needs to do a good job marketing to these financially confident woman – she is the future. If we market to these women properly (using their preferred method of communication and accurately reflecting their values when we suggest various investment alternatives) – we can capitalize on this opportunity to attract significant assets from this critical demographic.

What the advantages of diversity are for companies in the finance and the investment industry?

According to Dr. Ann Cavoukian, one of the ‘smart’ women that I interviewed for my white paper this year (Executive Director, Privacy and Big Data Institute, Ryerson University, Toronto, Canada) – “Feminism is not about saying no to makeup. It is about saying yes to academic, economic and social freedom for both men and women.” In 2015 feminism is a business issue. This type of open communication (through diversity) leads to a better functioning marketplace and a better functioning workplace. Progressive firms that embrace diversity currently have a competitive edge. Firms that “get it” have a But this won’t be the case for much longer. Soon ‘business feminism’ will be normal – just like using computers or using electricity.

How the role of women is as a customer of the financial industry? Is it an important target group? Are women needs different to those of men?

My research has shown that women prefer to learn about and/or hear about financial matters through either informal instruction (via social media/gamification/sharing platforms) or through real-life stories. This means that we need to be ultra-precise when communicating with or marketing to financially confident women. They prefer to invest in causes and concerns that matter to them so our job as advisors is to help them align investment ideas with their values. Most importantly, realize that women aren’t risk averse, they are risk aware. They may take longer to make an investment decision but they will do their homework and take calculated risks. Success with this number one target group will be all about better communication – in the way that they prefer to communicate. And if you make it meaningful to women, they will invest in your product or service, and they will do so with loyalty.

Every time there are more women in major positions: Mrs. Janet Yellen in the FED, Mrs. Christine Lagarde at the IMF… How do you think people perceive them because their women role? Do you think they are judged differently than men?

Actually no. I think there was a time when female role models were being judged differently than men but I don’t think that is still happening. Of course there will always be “unconscious bias” but ultimately it is results that count in the business world and as long as these highly visible women are producing results, well … it is becoming more and more accepted that they are truly top performers and we need them. The beauty of seeing more and more female role models is that it is self-perpetuating – it is becoming more mainstream to view women as effective leaders.

What is the role that women are called to play in the future of the financial industry in Spain, and worldwide?

We need women to act as excellent communicators and to enable the transformation of the industry. We need to restore trust and the best way to do this is through the integration of social media and marketing. One of my interviewees – a behavioural economist, Dr. Gemma Calvert (Founder of Neurosense, Singapore) said – “women may not trust the investment industry but they will trust each other”. The way forward is for smart women to share their positive stories about success in work and life … and inspire other girls and women to think “I can do that too!”

How the investment industry may become a better place for women?

The investment industry is the best place for a woman to work in my opinion. Why? Because you get rewarded for your results. So if you learn how to make money you will have not only financial independence but also the freedom to come and go as you please. And technology has changed everything. Women want to work from anywhere and now they are able to do just that. The role of an investment advisor can accommodate this need for flexibility so that women can continue to live their lives and structure their work schedules around their lives and competing responsibilities/interests.

Equity Income: Why Big Is Not Necessarily Best When it Comes to Dividend Yield

¿Existen indicios de que están repuntando los beneficios europeos? — Photo: KMR Photography. Equity Income: Why Big Is Not Necessarily Best When it Comes to Dividend Yield

In the current low interest rate, low growth environment investors are increasingly looking to equities for an attractive level of income. There are still lots of interesting investment opportunities around the world, but I believe investors should be wary about simply looking for the highest yields on offer.

Diversification

History shows that dividends from the highest-yielding stocks can often be unsustainable (as illustrated in the chart below). This is one of the reasons we believe that investing across a diversified list of moderate-paying companies that have the potential to offer both dividend and capital growth over the medium to long term is the best approach.

Sustainability

The chart below looks at the sustainability of dividend yields across developed markets between 1995 and August 2015 and highlights the risk of chasing high yields without considering the underlying strength of the company. It shows that, in general, an estimated yield above 6% is less likely to be realised, as seen by the difference between the red and grey bars, than a forecast yield of 6% or below.

Avoid value traps

We believe in avoiding value traps. This is because high-yielding equities can be more risky than their lower-yielding counterparts, particularly after a period of strong market performance (equity price rises push yields down). The high-yielding companies that are left are often structurally-challenged businesses or companies with high payout ratios (distributing a high percentage of their earnings as dividends) that may not be sustainable. An investor simply focusing on yields, or gaining exposure to this area of the market through a passive product, such as a high-yield index tracker fund, may end up owning a disproportionate percentage of these companies, which are often known as ‘value traps’.

We believe that an active, stock-picking approach is essential to equity income investing because it allows fund managers to analyse and understand which higher-yielding companies may have been undervalued by the market. To establish whether there is a real value opportunity we analyse a company’s earnings, strategy and the industry fundamentals to determine whether it is structurally at risk or whether it is just temporarily unloved, undervalued, or its earnings power underappreciated by the market.

Growing cash generation

Investors utilising a barbell investment approach, holding very high yield stocks to deliver income and very low dividend payers with more growth potential, may end up facing a greater than average number of dividend cuts than they appreciate. We prefer to spread risk by having a diversified portfolio of moderate dividend payers. Our focus is on investing in companies with strong and growing cash generation with the aim of finding attractive capital and dividend growth.

There are still plenty of opportunities for income investors with a global universe of more than 1,300 stocks in the MSCI All Country World Index that currently yield 2% or more. We focus on dividend paying companies that are generally yielding between 2% and 6%. This helps to ensure the yields we deliver to investors are at a healthy level and are suitably diversified with no reliance on any one sector or stock. This is in line with our philosophy of avoiding overvalued areas of the market.

Ben Lofthouse is a fund manager in a range of Equity Income mandates at Henderson.

Santander Private Banking Named “Best Private Bank 2015” in Latin America and Portugal, According to The Banker

Santander Private Banking, elegido 'Mejor Banco Privado 2015' en Latinoamérica y Portugal por la revista The Banker — Ángel Rivera, Senior Executive Vice-President and head of the Retail & Commercial Banking Division at Banco Santander.. Santander Private Banking Named "Best Private Bank 2015" in Latin America and Portugal, According to The Banker

The Banker magazine named Santander Private Banking the “Best Private Bank” in Latin America for the third consecutive year and in Portugal, for the first time. These awards acknowledge its specialized advisory service model for private banking customers.

Ángel Rivera, Senior Executive Vice-President and head of the Retail & Commercial Banking Division at Banco Santander, states, “One of the main focuses in the transformation process under way at Santander is specialization, with a unique offering and a personalized customer-care model, which provides solutions tailored to each customer. The Santander Private Banking model draws from the Group’s strengths and expertise. The private banker is the main point of contact for the customer and is backed by the Group´s commercial networks, multidisciplinary specialists and technological tools. Together, they help customers take investment decisions based on their unique profile and needs, consolidating a long-lasting relationship of trust.”

In addition to this recognition, Global Finance magazine named Santander Private Banking’s units in Portugal, Mexico and Spain as the “Best Private Bank 2015”.

Santander Private Banking offers services to local clients in Brazil, Chile, Spain, Italy, Mexico and Portugal, , and also offers services to international clients through its presence in the United States, Switzerland and the Bahamas.

Santander Private Banking ended 2014 with assets under management of USD 218.3 billion (up 11%) and a 3% increase in the customer base. Net funds raised amounted to USD 11.414 billion, up 57% on 2013. In Latin America, assets under management increased by 14% and the customer base was up 23%. In Portugal, assets under management rose by 8% and the number of customers grew by 10%.

Finance, Insurance & Real Estate Sectors: The Most Targeted in September for Cyber Attacks

Los sectores financiero e inmobiliario: los preferidos a la hora de diseñar ciberataques — Photo: Victor Camilo, Flickr, Creative Commons. Finance, Insurance & Real Estate Sectors: The Most Targeted in September for Cyber Attacks

The Finance, Insurance, & Real Estate sector was the most targeted sector during September, comprising 27 percent of all targeted attacks, accorging the new study by Symantec.

Large enterprises were the target of 45.7 percent of spear-phishing attacks in September, up from 11.7 percent in August.

China Explained

¿Qué le pasa a China? — CC-BY-SA-2.0, FlickrPhoto: Skyseeker. China Explained

The Chinese economy is in a transition phase as it works through the competing needs of growth, reform and deleveraging. Many of the country’s engines of growth are not firing as strongly; the export sector has been losing competitiveness for a number of years under the influence of rising wages and a strong currency. Meanwhile, investment expenditure is being held back by growing local government debt burdens and Communist Party officials scared to act because of the anti-corruption crackdown.

As a consequence, economic growth is being dragged southward. Concerned that growth is too weak, the government has announced that it will increase fiscal expenditure to boost activity levels.

Economy and policy driven by competing needs

But none of this is new to us − what is new are signs of change in the reform agenda. In 2013, the relatively new President Xi embraced market forces with welcomed initiatives such as the Hong Kong-Shanghai Stock Connect, which facilitates cross-border share trading, and promoting development of a bond market to reduce the reliance on banks for financing.

However, weakness over recent months in the stock and foreign exchange markets have been met by government intervention, aimed at supporting markets with measures including compelling brokers to buy stocks and prohibiting major shareholders from reducing their holdings. There has also been indirect intervention, for example imposing additional reserve requirements for banks when hedging renminbi for clients, with the aim of reducing speculation in the currency−essentially a mild form of capital control.

Policy pro-reform, action anti-reform

In theory, the reform agenda continues, but in practice the government’s actions are reflecting the Communist Party’s unwillingness to give up control, by exercising considerable financial muscle to influence the market forces it should be embracing. This is an important change and warrants close monitoring as it impacts the attractiveness of China to foreign investors.

Currency weakness is a new phenomenon

The liberalisation of the foreign exchange mechanism in China, with the aim getting the renminbi accepted into the International Monetary Fund’s Special Drawing Rights (reserve currencies basket) is subjecting the currency to market forces. Early indications are that the government will utilise its vast foreign currency reserves to support the renminbi. However, as a consequence, this will cause a contraction in domestic money supply, which may undermine efforts to boost the economy with fiscal stimulus. It may also provide a window that encourages rich Chinese to take money out of China. These reasons strengthen the argument for a weaker renminbi.

Foreign investors have been used to a relatively strong Chinese currency. The renminbi was pegged to the US dollar from 1994 to 2005 and has appreciated in recent years − so currency weakness is a new headwind for overseas investors.

Summary

These developments mean it will be imperative to monitor government actions as much as policy rhetoric, while investors will be dealing with a new dynamic of a weaker Chinese currency. In the meantime, as China’s economy muddles along we believe the best approach is to continue investing in the strongest, best managed, cash generative businesses that stand to benefit as China’s economy transforms. One positive from this point of view is that owing to the macroeconomic pessimism, many of these companies are currently trading on attractive valuations and we will continue to seek to take advantage of this on behalf of investors.

Charlie Awdry is China portfolio manager at Henderson.

“We Definitely See More Opportunities in European Equities and Particularly in Small and Mid Caps than Three Months Ago”

UBS Global AM: “Vemos muchas más oportunidades en bolsa europea que hace tres meses, especialmente en small y midcaps” — Thomas Angermann. Courtesy photo. "We Definitely See More Opportunities in European Equities and Particularly in Small and Mid Caps than Three Months Ago"

Thomas Angermann is a member of the Specialist Equities Team at UBS Global AM, based in Zurich. Specifically he is responsible for the management of a number of Pan European small and midcap mandates. In this interview with Funds Society, he explains why the growth potential currently offered by Small Caps is higher than the one that can be found for Large Caps.

Do you think the current momentum is good for European Equities? Has the equity valuation improved after the market correction in August?

After the recent market correction the valuation for European equities looks interesting now. We definitely see more opportunities in European equities and particularly in Small and Mid caps than three months ago. We think the current correction is healthy as the market is pricing out the too high growth expectations.

Which will be the key factors for the revaluation? Which factor will have a greater importance: Profits, QE support or other macro factors?

Three main drivers should be mentioned. First, the potential earnings growth for the next year as well as the current expectations about this growth potential. Second factor, the Chinese economy, it seems we see first signs of stabilization, however we are still waiting for robust evidence on this. The adjustment from the pure investment driven economy of the past to a more balanced consumer driven economy of the future will take years. That will also create a lot of opportunities. The third factor is monetary policy by the central banks. We think they will stay accommodative but we do not count on any additional measures yet.

In general, what are the risks of short/medium tern correction in European stocks markets? In particular for Small Caps?

As before, three main risk drivers should be highlighted. The first risk we face are Emerging market turbulences. Specifically how the Emerging markets growth pattern will behave in the upcoming months and the level of volatility of EM currencies. We should keep an eye on how this will impact European export driven economies. The second driver is the behavior of the European consumer and to what extent it will remain supportive. A third risk factor would be given by central banks. However, as previously mentioned, we do not expect any upcoming change in their policies and it seems a first interest rate hike by the Fed is desired by the markets.

What extra value are Small Caps going to add vs. Large/Midcaps? Can Small Caps offer greater potential opportunities?

First of all the growth potential currently offered by Small Caps are higher than the one that can be found for Large Caps. Additionally Small Caps offer M&A opportunities, as in the current low growth environment larger companies might add growth by buying smaller companies. We expect that the M&A activity will increase, founding its main targets in the Small Caps universe rather than in the Large Cap world. A second factor is the daily volatility. Surprisingly during last months the volatility registered for Small Caps has often been lower than the one for Large Caps. However we will need further evidence of this pattern.

Is the SC sector affected anyway by general elections (such as the Spanish ones)?

Regarding elections, Small Caps sector is as much affected as the Large Caps sector is. We do not expect any remarkable long term impact coming from the Spanish political situation. However there might be short term effects.

Do you think that volatility will increase in the upcoming months? In this sense, which would be the consequences of a volatility increase regarding your investment style?

Since volatility has already been increased since end of last year with additional acceleration during August and September we do not expect further significant increases under current market conditions. However, in the case of a “Black-Swan-Event” (occurrence of something important which was not expected) we will see an further increase. Nevertheless we would not change our investment style and we would stick to our stock picking approach but would have an even closer look at our risk systems.

Signs That European Earnings Are Picking Up?

The Henderson Horizon Euroland Fund utilises a proprietary analytical screening tool to identify stocks that are being incorrectly priced and offer value in the market. This is a model that fund manager Nick Sheridan has been developing since he first started running money in the late 1980s. The model is based around four key metrics: ‘Dividends; Earnings; Net Asset Value; and Value of Growth’, with the portfolio constructed from those stocks that offer the most overall value. This article looks at the ‘Earnings’ pillar in more detail.

“Higher corporate earnings has been the missing piece of the puzzle for European equities, but this seems to have finally started to come through, with most companies at least in line with estimates during the latest earnings season. Loose monetary policy and quantitative easing (QE) have helped, as has the currency advantage provided by a weaker euro” points out Sheridan.

Furthermore, while the negative effects of falling energy costs are well known, for many companies (and particularly those involved in travel, transportation and retail, plus energy-intensive industries) lower energy costs provide a significant boost to net earnings, freeing up money to spend on expansion and employment. Indirectly, with consumers benefiting from what is effectively a tax cut, companies can also profit from a consequent boost to consumer spending, explain the portfolio manager.

But Sheridan warns that any assessment of earnings should be viewed with an element of caution, and as just one metric to assess the investment potential of a stock. While a company may offer a sustained level of earnings, this may already be reflected in its price, with the risk being that an investor may be forced to pay a premium for the stock.

Companies in the portfolio are likely to be durable, well-established names with experience of trading through varied economic and business conditions. This should help to make the fund’s earnings profile more robust. RELX, Bayer and ASM International are a few examples from the current portfolio.

Hedge Funds Bleeding Slowly versus Market Hemorrhage

Los hedge funds aguantan el tipo en septiembre — Photo: Michael Kooiman. Hedge Funds Bleeding Slowly versus Market Hemorrhage

The Lyxor Hedge Fund Index was down -1.4% in September. 3 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+4.0%), the Lyxor CTA ShortTerm Index (+2.3%), and the Lyxor L/S Equity Market Neutral Index (+0.4%) were the best performers.

In contrast with the sell-off by last fall, the current recovery process is proving more laborious. Continued soft macro releases, several micro turbulences (VW, GLEN, the US Healthcare) and signs that the Fed might be more concerned about global growth, drove markets to re-test the end-of-August lows. L/S Equity Long bias funds and Event Driven funds were yet again the main victims. Conversely, CTAs, Global Macro and L/S Equity funds with lower or variable bias, successfully navigated these challenging times.

“Quantitative easing combined with tighter regulation is growingly questioned. The former is boosting re-leveraging, the latter is trapping liquidity within banks. Both are increasing market risks. With few obvious growth gears in sight, we expect moderate and riskier asset returns.” says Jean-Baptiste Berthon, senior cross asset strategist at Lyxor AM.

Pressure remained on the L/S Equity Long bias funds. They continued to underperform, with broad markets bleeding back to the end-of-August lows. Their drawback accelerated by month-end on the healthcare sector’s debacle. They held their largest allocation in the non-cyclical consumers sectors (which includes healthcare stocks). The H. Clinton’s tweet, tackling drug prices hikes at one specialty-drug company, resulted in a sudden re-assessment of the whole sector’s revenues and M&A prospects. Indeed, these drug pricing anomalies reflect a broader transformation of the healthcare space since 2014. Since then, waves of Biotech and Generic companies’ acquisitions granted Pharma with much greater pricing power. The current correction might be bringing back M&A premiums and fundamental forecasts to a more sustainable profitability regime.

In contrast, Variable bias funds continued to successfully navigate a challenging space, in Europe especially. They finished the month only slightly down. They adequately not re-weighted yet their net exposure. Instead they actively traded around positions.

Market Neutral funds managed to weather the mid-month Fed sector repositioning. They also benefitted from wider quantitative factors differentiation, with Momentum outperforming Value. The short-term backdrop for the strategy remains riskier, less likely to profit from a potential rebound, and threatened by higher rotation risk, in the healthcare sector in particular.

Event Driven funds were again and by far, the main losers. Bargain hunting in the most beaten down securities allowed Event Driven to start the month on the right foot. However the valuation recovery didn’t last, caught up by the post-FOMC uncertainty. The losses accelerated in the last two weeks. In tandem with L/S Equity funds, they got hit by the healthcare meltdown. Strongly allocated through Merger arbitrage and special situation, the sector severely hit the whole Event Driven space. Valleant, Baxter, Allegan, Perrigo were amongst the largest return detractors.

L/S Credit Arbitrage funds’ returns were in line with the global index. The perception of risk remained elevated, factored in widening HY spreads, in the US especially. Lyxor L/S Credit funds remained reasonably conservative. There was volatility in cross credit Fixed-income arbitrage ahead of the Fed FOMC: this sub-strategy slightly underperformed.

CTAs, stars of the month. After being initially hit on their short energy exposures, CTAs then hoarded gains from their long bond exposures. With limited or negative exposures to equities, they dodged most of the market turmoil. They recorded small losses in FX and agricultural.

The sell-off since the end of August combined fundamental and technical drivers. CTAs’ involvement in the debacle was recently debated. Lyxor observes that Long term models cut their equity allocation to a conservative net exposure of 25% before the sell-off. During the sell-off, they further cut their equity exposure to around 5-10%: not a key factor in the selling pressure. During the sell-off, most Short term models further cut their about-zero net exposure down to -25%. The ST models move was more aggressive. But they manage a tiny portion of total CTAs’ AuM (less than 15% of the around $300bn CTAs’ total assets). The firm therefore see little evidence that CTAs were a substantial culprit for the equity sell-off.

By focusing on FX and rates, Global Macro dodged most of the September equity volatility. With limited exposure to commodities and shrinking allocation to equities (from 15 to less than 10% in net exposure), Global Macro dodged most of the September volatility. The bulk of their directional exposure was in the FX space. Their long in USD vs. EUR, GBP and CAD, produced marginally positive returns. Their market timing on rates added gains. They rapidly rotated their bond exposures back to the US, as it became probable that the Fed’s normalization process would be postponed.

Reflections on Market Volatility