Mirabaud Asset Management has announced the appointment of Emilio Barberá, who joins the firm as senior portfolio manager and analyst for Spanish equities.
Barberá joins Mirabaud Asset Management from Inverseguros in Madrid where he was responsible, for a Spanish equity fund, and actively involved in the management of various European funds. Both firms employ a bottom-up approach to stock picking.
Within Mirabaud Asset Management, Emilio Barberá will act as the deputy portfolio manager for the Equities Spain fund and analyst on Spanish equities while Gemma Hurtado San Leandro will remain the lead portfolio manager and team leader.
Lionel Aeschlimann, CEO of Mirabaud Asset Management, said: “We are delighted to welcome such a talented stock picker as Emilio whose experience and professionalism will allow us to reach new heights for our Spanish equities franchise. We firmly believe that we have one of the best teams operating in this asset class and we are geared for growth.”
CC-BY-SA-2.0, FlickrPhoto: Caroline. UK Elections: The Dog That Didn't Bark
What a night for the Conservative party. They out-polled all the predictions and will be staying in Downing Street to govern on their own, thanks to the small majority they look likely to achieve. Comparisons with 1992 seem valid: David Cameron is the New John Major, the man who confounded the pollsters!
For the markets, the election was the dog that didn’t bark. Short-term uncertainty has been avoided and growth headwinds caused by electoral uncertainty have abated. Equities have rallied somewhat, and the pound has bounced. Looking further ahead, the markets seem unlikely to push these moves too much further. The likelihood of a fresh round of austerity probably means less growth and a different policy mix than seemed likely only yesterday. Slower growth may dampen equity market enthusiasm, while less upwards pressure on interest rates could keep a lid on sterling.
Renewed challenges
Politically, there remains the possibility of renewed challenges in the weeks and months ahead. The failure of the Conservatives to win more convincingly means the government will have its work cut out. After the 2010 election the coalition government held 364 seats. The Conservative government will be lucky if it has 329, when technically 326 seats is a majority (BBC data/projections). The weakness of Labour may help the Tories, but the guile of the Scottish Nationalist Party (SNP) will not. More importantly, problems arising within the Tory party may be a challenge to effective government.
John Major had a much more stable platform than Cameron after the 1992 poll, yet struggled to govern convincingly. “In government but not in power” was the view of Norman Lamont, one of Major’s own MPs. Major struggled to deal with the rebels and backstabbers in his own party, and the Conservatives may reprise that experience in the years ahead, especially when the current generation of euro-sceptics seek to achieve their primary aim of leaving the European Union (EU). The fact that David Cameron has already announced he will stand down during the life of the next parliament likely diminishes his authority and raises the probability of fractious behaviour from his own side.
The last Prime Minister?
The second challenge that faces the government and the country post-election is what to do about Scotland. The disaster suffered by Labour north of the border means that Labour – like the Conservatives – is no longer a national party. The nationalists are the big winners in terms of seats, but because of Labour’s failure to do better in England they have no platform to influence what happens in government. This is a receipt for anger and frustration in Scotland. Whether that visceral response is harassed by the nationalists or defused by the Conservatives could be immensely important for the stability of the government and the country. Looking at the form books, you would fancy the nationalists to make the most of the opportunity they have won for themselves. The Scottish schism is real. Could David Cameron be the last Prime Minister of the United Kingdom?
The third and possibly most important challenge for the new government is Europe. Business leaders have voiced their concerns about the dangers of ‘Brexit’, and under different circumstances you would expect the Conservatives – the party of business – to listen to their cries. But these are not ‘normal’ times, and Cameron is obliged to lead the country down the road to an In-Out referendum and, possibly, an exit from the EU. The clock won’t start ticking today, but it will at some point: if it looks like Cameron could fail to deliver a vote for staying ‘in’, the markets will take fright.
The smiles fade
Through the prism of party politics it was a good night for the Conservatives. But the challenges of delivering effective government, keeping Scotland in the Union, and dealing with a European issue that has split the Conservative party for the last 30 years may soon see the smiles fade. If that isn’t enough to worry about, demands for electoral reform will come thick and fast once the opposition parties have dusted themselves down. Today Cameron looks like John Major. He must be hoping people aren’t saying the same thing in five years’ time.
Together will Paul O’Connor, Bill heads up Henderson’s Multi-Asset team.
One of the five concurrent sessions which brought together 45 investors with five asset managers on the first day of the 2015 Fund Selector Summit in Key Biscayne, Miami. Five Attractive Investment Solutions on the First Day of the Fund Selector Summit
The Fund Selector Summit, which was held in Miami on the 7th and 8th of May and organized by Funds Society and Open Door Media, started its first day with the participation of five asset management companies, whose professionals offered interesting solutions to deal with a challenging backdrop of uncertainty in the markets.
MariaMunicchi, Investment Specialist in Multi Asset and Convertibles Strategies at M&G Investments, explained the different perspective they apply to the M&G Dynamic Allocation Fund when investing in multi-assets, which is based on a strategic perspective (valuations and fundamentals), tactics (understanding the reasons for the volatility, whether it is due to fundamentals or to investor behavior, and taking advantage of it), and the construction of portfolios analyzing and contextualizing the current correlations in the markets. While remaining aware at all times that making predictions about the markets “may lead to dangerous ground, because the opposite may occur.”
M&G is currently positive with equities, especially European and Japanese, and with the dollar (although they’ve reduced exposure) and they advocate for flexibility on fixed income to adopt relative value positions. Convertibles and real estate also bring diversification to the portfolio. The expert pointed out the recent launch of a similar but more prudent fund, M&G Prudent Allocation.
Sunil Asnani, Senior Manager of the Indian equities fund at Mathews Asia, focused on rejecting arguments which recently explained the great interest in the asset class, and advocated for getting into the country’s equity for the good reasons rather than for the bad. In his opinion, investing for the expectations that the asset will generate diversification (when in fact it is closely related to other markets), for the desire for a short-term gamble (with all the associated risks); for the good macro situation which the country is currently experiencing (even though it’s very difficult to predict what will happen in the future), or trying to invest in firms which grow faster or are thematic investments (when they aren’t necessarily the best options) is an erroneous perspective.
“The potential for economic growth and market accessibility are good reasons to invest in India,” he said, and he defended bottom-up active management focused on company analysis and fundamentals, and always with a long-term horizon. “The problem with India is that investors are either too optimistic or too pessimistic with the asset class,” he complained.
Also on the subject of equities, Sam Shapiro, Client Portfolio Manager and member of the Quantitative Investment Strategies team at Goldman Sachs Asset Management, explained the company’s vision on the technological transformations in recent years, focusing his presentation on how to apply Big Data to the asset management industry. With three distinct ideas: Big Data and technology are transforming the world and determining the winners and losers in each sector; data itself does not provide solutions and requires the application of skills and work; and that this data can be applied not only in analyzing trends and market sentiment, but also in understanding the company better from a fundamental perspective. Therefore, he defended the good use of data by fund managers in order to improve their work, applying it to the management of equities.
Fixed Income
Opportunities are also available in fixed income. Laurent Crosnier,CIO at Amundi London, defended flexible and dynamic global asset management (across the entire spectrum of fixed income and geographies), which the management company applies to its Amundi Global Aggregate Fund. And of utmost importance in the current environment: “The worst thing for a fixed income investor is yet to come: the worst is to invest and pay a negative return,” he said, pointing out that much of the public debt universe, especially in the developed world, offers negative returns or returns of less than 1%.
This is why he advocated for solutions to avoid “paying to invest”, which their company is trying to achieve with very active and flexible investment strategies. Within the current environment, he is positive with credit (preferably European and with an overweighting in the financial sector), negative with the duration due to the next interest rate hike (although preferring European government debt over German, so as “not to fight the ECB”), positive with the dollar and the pound against other currencies like the yen and the euro, and also possitive in some emerging markets, such as Mexico and Brazil, versus the commodity currencies. Regarding emerging debt, he defends the need to be selective, with some commitments in countries like Brazil, Mexico, or South Africa.
Also within fixed income, Jeff Bakalar, Managing Director and Senior Loan Group Head at Voya Investment Management (formerly ING US Investment Management), focused on the opportunity offered by senior loans in an environment of rising interest rates. “In an environment of rising interest rates, even if these are minor or gradual, having this asset in the portfolio is a good idea,” he defended. Partly due to the stability offered in returns but also due to its attractive profitability when compared to other assets such as high yield debt and noting that it can offer a competitive reward-to-risk ratio.
The event was held at the Ritz Carlton in Key Biscayne, Miami. Fresh Insights for Investment in Equities, Credit, and Hedge Funds on the Last Day of the Fund Selector Summit in Miami
On Friday, the Fund Selector Summit, organized by Funds Society and Open DoorMedia, saw its second and final day, in which six managers explained their different perspectives of investment in equities and fixed income: Henderson, Carmignac, Robeco, Old Mutual, Lord Abbett, and Schroders analyzed different strategies with which they seek to generate returns in the current environment.
The day’s events were preceded by a conference by Javier Santiso, Vicepresident of ESADE’s International Centre for Economics and Geopolitics, in which he explained how a new world is emerging, with two background forces: the technology and digitization wave, and the growing importance of emerging markets. “The change in the wealth of nations is also related to digitization and technology, an issue which is also linked to the emerging world and its growing strength, and which has the potential to change the world and create disruptions in all sectors, including asset management,” Santiso explained.
For this expert, digitization is essential as an element which shall determine the future wealth of nations and he advised asset management professionals that they must not only take into account macroeconomic and microeconomic indicators when selecting their investments, but also the progress in digitization of the different markets. And he warned: management companies’ biggest competitors may be in companies like Facebook or Google rather than in other management companies. Santiso concluded his presentation with his vision of how Latin America is positioned in this environment.
The investment solutions presented at the conference covered various assets. In fixed income, Brian Arsenault, Leveraged Credit Investment Strategist at Lord Abbett, explained how in a world “starving for yield” it’s still possible to obtain returns on fixed income. The key? Flexibility, which they apply to negative duration funds in preparation for a rising interest rates environment, or high yield products, an asset which he still considers attractive in the US, even though he admits that spreads have fallen as compared to the past, and valuations are somewhat tighter.
The expert also spoke of his multi-asset fund with income prospects which may have up to 20% in equities: although it is focused on high yield, which occupies more than half of the portfolio, and in investment grade credit (over 20%), equities currently weigh almost 15% (the maximum is 20%), especially in mid-cap firms. Stock market investments, rather than seeking dividends, focus on shares which have a short-term appreciation catalyst, for example, US energy companies, with preference for natural gas over oil, which he doubts has a sustainable rally due to increasing supply. Some companies in the technology and healthcare sectors may also be interesting, because they have corporate movements as catalyst and can be bought. “When we like a company very much we study it from the point of view of bonds, loans, and equity, and can enter any of them, several, or all. We will go where we see value,” he added.
Regarding the last sell off in European public fixed income, he claims it’s normal because “growth is coming”. In his opinion, most of the market is focused on what the Fed does, but “we must also look to the European Central Bank.”
In equities, Justin Wells, Investment Director at Old Mutual Global Investors, explained their different investment style, which is focused on exploiting market inefficiencies: “We use the stocks as commodities to extract alpha over a period of time,” he explained, “in order to achieve uncorrelated returns.” Because, in his opinion, diversification and decorrelation are no longer achieved by investing in global stock markets or in a portfolio of stocks and bonds … at least in the short term, or at certain times. Their investment process is committed to a diversified portfolio in which stock selection is based on five criteria, or sources of alpha: valuation, sustainable growth, management of the company, as well as on sentiment analysis and market dynamics (momentum): “The trend is your friend, we are not a private equity, we want to extract alpha from the market”. According to these five criteria, they allocate scores to each stock, on the basis of which they construct the portfolio. They are currently more positive with the US stock market than with the European or Japanese, where the general feeling is more positive.
Meanwhile, Robeco focused on its factors investment strategy applied to its emerging market fund, Robeco Emerging Conservative Equities. “Factor investing is here to stay; assigning depending on factors rather than assets is generating increasing interest,” said Michael McCune, Client Portfolio Manager at Robeco. The expert stressed value, momentum, and low volatility, especially the latter, as key factors. “Factor investment works very well in emerging markets.” Nevertheless, the company uses the same strategy in global US, and European stock funds. The management company has launched the European stock market version (Robeco European Conservative Equities) with hedged currency.
Nick Sheridan, Manager of Henderson Euroland Fund, stressed that the Euro zone is currently one of two developed markets with greater discount, and it is clear that “if you buy in cheaper markets, your chances of obtaining returns will be greater”. Remaining true to their investment style, Sheridan explained that the European stock market without financials “is still extremely cheap.” Among the reasons is the poor appetite for assets: “Everyone is disappointed with Europe and does not believe in growth because the continent has disappointed in the past. In addition, investors have favored growth stocks rather than value,” he says; something which favors current market valuations. But he believes there will be more growth in Europe than that which has been anticipated. “Europe is very cheap and the reasons why the market has been cheap will change,” he added. The greatest risk: Greece’s default.
Muhammed Yesilhark, Head of European Equities at Carmignac, explained their investment philosophy which sets them apart from the competition and with which they manage products of either large caps (Carmignac Portfolio Grande Europe), medium and small caps (Carmignac Euro-Entrepreneurs), or diversified strategy (Carmignac Euro-Patrimoine). “We are pure stock pickers, which is somewhat different from the management company’s top-down strategy.” Their strategy is based on bottom-up analysis, fundamental, value-based, and focused on turning points. They also believe in discipline and simplicity and all their investments are made from an absolute rather than from a relative point. Finally, it has limited downside risks.
To build the portfolio, with 40 to 60 securities, and a minimum 30% upside potential, they follows three steps: generate ideas; build portfolio (which is based on four sections based on their belief in the securities: core longs, trading longs, relative value and special situations, and alpha shorts), and risk management. “The portfolio tells me that we are in a late phase of the expansion cycle, even though the press talks of recovery. I do not have enough core longs in the portfolio” he said.
Schroders provided the vision of alternative management, with its liquid hedge fund platform, GAIA, a segment in which they see increasing potential. Andrew Dreaneen, Head of Schroder GAIA Product & Business Development, pointed out three liquid alternative strategies for this year which may offer protection and which are within the platform: “Investors are concerned about the situation in equities and fixed income, they seek diversification and want downside protection,” he said. So he highlighted three funds that even in the market’s worst moments are able to offer protection, including positive net exposure.
The products are Schroder GAIA Sirios US Equity (a long short US equity fund which provides protection against falls); Schroder GAIA Paulson Merger Arbitrage (offering adjusted returns at higher risk, decorrelated with the markets and in 50 of the 51 S&P bear months they have managed to beat the index) and Schroder GAIA KKR Credit (a fund of absolute return focused on credit and long short perspective which invests primarily in Europe and in the high yield market. Normally with very little net exposure, neutral market). In total, Schroders GAIA has 6 strategies (4 external, adding Egerton to the three aforementioned), and two of the management company.
Photo: Davide D´Amico. EFGAM Adds to its Growth-Oriented Equity Strategies with the Launch of the New Capital Global Equity Conviction Fund
EFG Asset Management (EFGAM), an international provider of actively managed investment products and services, has launched the New Capital Global Equity Conviction Fund, an open-ended equity fund that will typically invest in 40 to 60 global stocks across all market capitalisations.
The Fund will be managed by Robin Milway, a highly experienced London-based equity fund manager who joined EFGAM in 2012. Robin will combine his expertise in bottom-up stock selection with EFGAM’s top-down geographic and sector analysis, without the constraints of a benchmark or specific investment style. Prior to joining EFGAM, Robin spent nine years at Cooper Investors in Melbourne Australia where he managed the CI Global Equities Fund. During his tenure at the firm, the fund returned 8.5% annualised over seven years, outperforming the MSCI by 5.6% annualised. (Source: CI).
The New Capital Global Equity Conviction Fund is based on EFGAM’s Global Equity Conviction Strategy which Robin has been running as part of discretionary mandates since joining the firm. The Fund will mirror the investment approach of its top-performing European counterpart, the New Capital Dynamic European Equity Fund, which is also co-managed by Robin Milway and Bibiana Carretero. The new Fund will be available to retail investors pending local registration and is the tenth sub-fund in the New Capital UCITS family – a range of high-conviction funds designed to produce long-term outperformance for clients.
Moz Afzal, Chief Investment Officer, EFGAM: “We are very excited to launch this long-awaited product for our clients. Many investors are increasingly looking for exposure to global investment opportunities and the launch of the New Capital Global Equity Conviction Fund caters for this demand. Robin has an outstanding proven track record of managing global equities and we are pleased to add to our specialist equity offering.”
Robin Milway, Portfolio Manager, New Capital Global Equity Conviction Fund, EFGAM: “The name of the fund underlines the philosophy of this fund – only stocks we have the highest conviction in make the cut. Our proprietary analytic framework allows us to identify companies that can sustainably grow their cash flows over time and importantly know what to do with the profits. This tried and tested investment methodology, which we’ve developed over the last decade, has resulted in long-term, sustainable outperformance for clients.”
CC-BY-SA-2.0, Flickr. The UK Economy and Financial Markets after the Election
The British election has delivered a stunning set of results, mostly unpredicted by the pre-election polls. Whatever the explanation for these forecasting errors (e.g. “shy Tories” not disclosing their true feelings to pollsters), the recovering economy and the lack of trust in the Labour programme must have played a large role in returning David Cameron and his Conservative party to Downing Street. Gains of over two million jobs in the past five years combined with low inflation and the start of real wage gains for the first time since the recession of 2008-09 will all have played a role in shaping voters´preferences for a party that has put economic credibility and the restoration of sound public finances at the top of its priorities. In addition, economic surveys show that consumer confidence is at a three-year high while the consensus forecast of economists for UK real GDP growth is 2.6% in 2015, a rate far ahead of most of the Eurozone. All these factors will have contributed to Camerons unexpected victory.
The fact that the Tories have won an outright majority of seats in Parliament (330 out of a total 650 seats) automatically means that the near-term uncertainties that threatened to dominate financial markets in the immediate weeks ahead can be dismissed. Now there will be no slide in the currency during a fractious process of coalition-forming, and no jitters in the stock market about a possible rejection of the Queen´s speech (which outlines the government´s legislative programme) by the House of Commons. Already sterling (+1.6% against the US dollar at midday on Friday, May 8th) and the FTSE100 (+1.87% also at midday) have bounced back from recent losses, while sterling bonds have rallied.
Moreover, the continuity of the Tory-led Coalition´s economic programme fiscal discipline in the public sector with a preference for allowing the private sector to promote economic growth and prosperity rather than widespread intervention in the markets (such as Ed Miliband´s plans to impose a freeze on electricity and gas prices or to re-write hundreds of thousands of “zero hours” employment contracts) will be a relief to business and the financial markets. Although the Coalition government failed in its aim to reduce the structural budget deficit to zero within a single parliament -in part due to the ring- fencing of expenditures on health and overseas aid, as well as numerous tax reductions on personal incomes especially at the lower end of the income scale – there can be little doubt that the Tories will seek to resume this programme, restraining public expenditure on both current and capital account until tax revenues have been restored to stronger growth.
On the monetary policy front there is no reason to expect any change in the mandate given to the Bank of England to maintain a 2% inflation target. The Monetary Policy Committee of the Bank is due to meet and report next week (May 11) on a meeting held on May 7 and 8. With CPI inflation in March well below target at 0% year‐on‐year (headline) and 1.0% (core) it is likely that the MPC will vote to keep rates unchanged at 0.5% and to leave the amount of asset purchases outstanding also unchanged at £375 billion. As the UK economy continues to recover it is probable that investors will start to anticipate a gradual series of rate rises later in the year, starting, in my view, after the US Federal Reserve starts to hike US rates.
In contrast to the resolution of these short-term uncertainties, the Conservative victory in the election brings one major, longer term uncertainty, the prospects of Britain´s future in Europe. David Cameron has promised the British electorate the opportunity to vote in an “in‐out” referendum on Britain´s membership of the European Union by 2017, a commitment that he will find impossible to avoid. Opinions in the country are very divided.
One side views Europe -with its heavy- handed regulations on everything from labour markets to the names of cheeses, its slow-growing economy, and its demand for large annual payments from Britain to the common budget, and its over bearing judiciary which is constantly expanding the areas of its remit -as an economic sinkhole that the country urgently needs to escape from before it suffers a Japanese- style fate of one or more “lost decades” of growth.
The other side views Europe as integral to Britain’s place in the world and the key to its ability to play a meaningful role in any international strategic, diplomatic or economic dialogue with other major powers such as the US, China or Russia. This side also claims that, with the EU being Britain’s largest trading partner, as many as three million domestic jobs are essentially dependent on British membership of the EU, and if Britain left the EU it would soon suffer debilitating trade or financial discrimination that would damage inward investment into Britain and hurt the country’s long term growth prospects.
Of major importance to the UK when considering its EU membership is the City’s position as Europe’s financial centre. The financial services industry accounted for around 8% of UK GDP and 12% of tax receipts in 2012. In addition, London is home to the European headquarters of many of world´s largest financial institutions. Major uncertainty would arise in the event of a UK exit from the EU, specifically concerning whether the UK would be excluded from the common market in financial services and passporting rules. It is legislation from Brussels that enables the City to carry out these activities and guarantees unrestricted access under pan-European regulations across every member state. For all these reasons the longer term uncertainties will remain, at least until 2017.
While the Conservative party is traditionally divided in its views on Europe (and at times in the past 30 years the issue has threatened to tear the party apart), the newly resurgent Scottish Nationalists are ardent Europeans, while Labour is generally pro‐European. The business world is by no means united in favour of EU membership. These divisions and the Prime Minister´s agenda for an “in-out” referendum will pose a major challenge to the new government.
In summary, although the election has resolved some short-term unknowns, longer term unknowns still remain.
Opinion Column by John Greenwood, Chief Economist Invesco
CC-BY-SA-2.0, FlickrPhoto: Eduardo Marquetti. Brazil: Seeing Through the Scandal
Paulo Roberto Costa, a former senior executive at Petrobras, the Brazilian state energy company, was arrested on charges of money laundering early last year. At first it seemed like any another corruption case. But then Mr Costa began to talk. The evidence he gave began to lift the veil on the largest corruption scandal in Brazilian history. In twelve months it has snowballed: nearly 50 politicians have been implicated, including the Treasurer of the governing Workers’ Party and the speakers of both houses of Congress. The scandal has overshadowed more positive political developments, hurting investor sentiment and casting a shadow over an already beleaguered economy.
The prospect of class action by institutional investors darkens an already grim outlook for the state-controlled company, although Investec feels one of the big outstanding risks, that the company fails to issue audited accounts, is an unlikely outcome. Petrobras issuing audited accounts, and the sentencing of those found guilty, should go some way to drawing a line under the scandal. The lack of evidence implicating President Dilma Rousseff would suggest her impeachment being unlikely.
Overall, experts at Investec feel the political impact of the scandal will recede and market sentiment should begin to recover in the months ahead, although given the important role that Petrobras plays in the economy – it accounts for around 10% of capital investment and 6% of GDP – the headwinds to growth will be significant, especially given the knock on impact on a number of other large companies linked to the scandal. The growth outlook is further hampered by the prospect of additional water rationing as well as the increasing likelihood of energy rationing. The country is suffering its worst drought in 80 years, which has particularly hit the economically vital Sao Paulo region. While recent heavy rain has helped alleviate the situation, water rationing may continue for some time yet while some energy rationing cannot be ruled out sometime in the year which would further weigh on the industrial sector.
These two exogenous shocks have come at a time of acute weakness in the Brazilian economy, point out the analisys by Investec. GDP growth has collapsed since the heady days of the 2000s. Brazil’s external and fiscal positions have weakened significantly, inflation is at a 9-year high and the real has halved in value since 20103. Robust growth during the 2000-10 period was largely the result of strong commodity exports and with the commodities supercycle seemingly over, the lack of diversity in the economy has become all too apparent. This dynamic is also at the heart of the weakening external position. The current account deficit has been on a worsening trend for the last eight years, partly driven by the trade balance, and in particular the lower value of commodities.
Brazil’s fiscal position has also deteriorated markedly. In 2014 the country recorded its first primary budget deficit (i.e a government budget deficit before interest payments) of the century. However, the new finance minister, Joaquin Levy, is seen as a credible technocrat and he has pledged to restore fiscal sustainability and transparency, commented the firm. The methods by which primary surplus targets were met have been in question in the past few years. To this end, the government’s target this year is for a primary budget surplus of 1.2% and pledged fiscal tightening measures such as reduction in unemployment benefits and cuts in discretionary spending. The political outlook is also supported by a number of small reforms in the pipeline, which on aggregate should underpin growth over the medium to longer term.
Of particular note, the lower house has approved legislation that will improve labour market flexibility. Notably this bill was opposed by Dilma’s Workers’ Party, but with the legislation containing significant changes from Mr Levy, this should ensure the bill passes both the Senate and gets signed into law by the President. So while the reform agenda may not be on the same scale as India, the outlook is much more positive than Dilma’s first term and a lot more positive than investors were envisaging even just a few months ago. The central bank is also trying to regain some of its credibility, with Governor Tombini vowing to bring inflation back towards the official target of 4.5%. He has subsequently restarted the rate hiking cycle. Brazil’s benchmark rate now stands at a six-year high of 12.75% after a cumulative 175 basis point increase since September, up 5.5% since the beginning of the tightening cycle in 2013.
Currency risks remain to the downside, particularly through further deterioration in the country’s terms of trade. We have generally held an underweight exposure to the Brazilian real over the last few months which has added to relative performance. For now, however, we are neutrally positioned. While the risks to the currency remain to the downside, with reference rates at 12.75%, it is an expensive currency to remain underweight and given the sell-off in recent months we are unconvinced about the scope for further weakness.
“We have maintained an overweight position in local duration as we are positive on the long term fundamentals. The headwinds from the Petrobras scandal and the weakening real have ensured this position has hurt relative performance over the last few months. However, we have favoured longer-dated bonds which have held up relatively well as the increased credibility of the new economics team has helped underpin the long-end of the Brazilian yield curve. While it is unlikely that the ambitious primary surplus target will be met, it has at least encouraged the ratings agencies, and we expect them to give Mr Levy time to implement fiscal adjustments and so we believe the sovereign credit rating will remain investment grade. We feel the sell-off in yields has been excessive, given the long term fundamentals, but we felt it prudent to reduce our position from a risk perspective. In hard currency bonds, we moved to an overweight position in February after spreads widened to levels we viewed as oversold. As the crisis receded in March/April spreads have compressed from a peak of 375 to around 290 at the time of writing”, concluded Investec.
The next few months will require careful monitoring, but over the longer term Investec is still optimistic about the ability of the government’s new economics team to make the appropriate adjustments to help repair the Brazilian economy.
It is likely to be a year of difficult adjustment in Brazil and it will likely remain one of the more vulnerable large markets in the GBI-EM universe. However, over the longer term we are encouraged that the government is taking the first steps to regain market credibility and make the necessary reforms the country so desperately needs.
The Lyxor Hedge Fund Index was up +0.1% in April. 3 out of 12 Lyxor Indices ended the month in positive territory, led by the Lyxor LS Equity Long Bias Index (+4.5%), the Lyxor LS Equity Market Neutral Index (+2.4%), and the Lyxor Merger Arbitrage Index (+0.7%), explained “The Alternative Investment Industry Barometer” published by Lyxor AM.
“A complex asset rotation is unwinding the key year-to-date trades. Powerful flows and technical dynamics are at play, but it’s not the end of the reflation story” says Jeanne Asseraf-Bitton, Global Head of Cross Asset Research at Lyxor AM.
Oil prices rallied through the month from improved EIA forecasts and US stocks accumulation starting to slow down. The Greece-Troika negotiations paced markets headlines on roller- coaster mode. In the second half of the month, EMU markets got seized in the cross currents of profit taking and QE trades unwinding. Eurozone equities netted a 1% gain while Germany’s 10Y yields bounced back 10bps from lows, followed by UST. Despite weaker US data, equity markets benefitted from a decent earning season. In EM, stocks got lifted by Chinese markets reflecting monetary easing efforts and driven by market liberalization, commented the firm.
L/S Equity funds were by far the outperformers in April with the long bias up +4.5%. Within the space, Asian managers stood out, boosted by rocketing Chinese markets. The rally surprised by its amplitude and unfolded amid a structural Chinese deleveraging with multiple signs of a gradual economic slowdown. It was driven by monetary easing. PBOC has already cut rates and RRR twice while adding about RMB 1tn of liquidity through various channels, and it is expected to ease furthermore. The market liberalization was also a powerful driver to the rally, according with the Barometer.
The authorization to open multiple accounts at different broking firms, an easier access to foreign investors through the Hong Kong-Shanghai Stock Connect, and an easier access for mainland investors into the Hong Kong exchange all contributed to unleash massive buying flows. Domestic flows were particularly strong. Importantly, adjusted from their net exposure, our Asian managers generated excess return. Meanwhile US managers continued to extract decent alpha, helped by the Fed remaining on the dovish side and by a better earning season than initially anticipated. European managers also performed decently, especially the market neutral styles as the YTD momentum started to dry out.
Event driven funds took a pause in April after several months of strong returns, courtesy of rising risk appetite and recovering illiquid premiums. Merger arbitrage funds have decently navigated the rising volatility in deal spreads. In particular they limited the damages from the TWC-Comcast deal termination. They also took positions in several healthcare freshly announced deals. Volatility also rose for Special Situation funds. After a positive start of the month, they gave up some of the gains thereafter. Continued signs of a slowdown in the US and rich valuations contributed to stall the momentum in event positions, including activist holdings
The Lyxor L/S Credit Arbitrage index was flat over the month. Funds’ return dispersion was however elevated. Developments in Eurozone and Asia were the main movers. The Greek saga had been largely shrugged off so far by global markets. In April, a risk premium started to be priced in on stalling negotiations and nearing debt repayment deadlines. The turn in periphery spreads went against QE forces and caught some managers off guards. In Asia, credit markets weren’t as strong as equities, in cross currents between monetary easing and a structural deleveraging, in the Chinese housing sector in particular. Gains were recorded in the US market where credit benefitted from further signs of oil prices stabilization and postponed concerns about the Fed normalization pace.
Convertible funds underperformed their L/S Credit peers in April, just like year to date. Their equity and rates hedges proved costly. The mixed gamma trading environment brought little contribution. Issuance volumes also remained below par.
The environment for CTAs proved more challenging in the second part of the month, especially for the long term models, point out the Barometer. The turn in yields, FX and energy was the main performance detractor. In contrast, short term models rotated their allocation much faster. They ended the month only marginally negative. While the overall CTAs’ exposure was shaved off in response to a more unstable trend following backdrop, the net exposures were little changed. On average by month end, CTAs remained long USD (especially against EUR, but slightly long JPY), short commodities – both on energy and precious metals – long equity and bonds, in the US and Eurozone in particular. We note that by mid-month CTAs have started to build substantial futures positions on Asian equities.
The Lyxor Global Macro Index was flat over the month. Funds displayed high resiliency to a number of cross asset reversals emerging in the second part of the month. The turn in periphery spreads, rallying US yields, and the USD weakness detracted performance. It was offset by the managers’ short European bond exposure, their positions in EM markets and in commodities to some extent. In aggregate, Lyxor Global Macro funds ended April with long USD positions – mainly against EUR and GBP – a long bias on base and precious metals, a neutral exposure to energy, a long US bond vs. a short European bond exposures. The bulk of their equity holdings were in Europe and Japan.
Photo: Rakib Hasan Sumon. Robeco Launches a New High Conviction Emerging Markets Equities Fund
Robeco announced the launch a new fund for EM equity that it will be managed by Jaap van der Hart, lead manager on the Robeco Emerging Stars Equities fund.
Robeco Emerging Opportunities Equities is the latest high conviction fund to be added to the fundamental Emerging Markets Equities capability of the firm.
The fund has been launched as a result of growing demand for products with a high active share. This is because many clients now combine low-cost index-tracking products with high-active share strategies to enhance performance.
Robeco Emerging Opportunities Equities invests worldwide in stocks of the most promising emerging and frontier economies. The fund aims to achieve higher returns by investing in the most promising countries irrespective of their weight in the reference index, while maintaining a well-diversified portfolio of 70 to 100 stocks. It will invest up to 25% of the portfolio in attractive opportunities within the smaller companies’ universe. The fund manager combines a top-down country allocation process with bottom-up stock selection, where stock selection is based on a unique blend of fundamental and quantitative proprietary research.
The fund will be managed within Robeco’s Emerging Markets Equity Team, and the fund manager will be Jaap van der Hart.
CC-BY-SA-2.0, FlickrPhoto: William J. Stromberg. T. Rowe Price CEO and President James A.C. Kennedy to Retire in 2016
The Board of Directors of T. Rowe Price Group today announced that James A.C. Kennedy, CEO and president and chair of the firm’s Management Committee, has decided to step down from those roles, effective December 31, 2015. He will retire from the firm at the company’s Annual Meeting on April 27, 2016, following a highly successful 38-year career with the firm, the last nine as CEO and president.
William J. Stromberg, a 28-year veteran of the company who is currently head of Global Equity and Global Equity Research and a member of the firm’s Management Committee, will succeed Jim. Bill will become president and CEO and chair of the Management Committee, effective January 1, 2016. He will also join the Board of Directors at that time.
As part of the transition, Eric L. Veiel, a director of Equity Research–North America and a member of the U.S. Equity Steering Committee, will become head of U.S. Equity and chair of the U.S. Equity Steering Committee, effective January 1, 2016. He will also join the Management Committee at that time.
Brian C. Rogers, Chairman and Chief Investment Officer said: “The Board of Directors has tremendous confidence in Bill. His appointment as president and CEO will be the culmination of a thoughtful and planned transition of leadership at T. Rowe Price, and testament to Bill’s career success and proven leadership abilities. Bill has the respect of everyone in the organization.”
William J. Stromberg, Head of Global Equity and Global Equity Research, commented: “Jim’s career contributions to our clients, associates, and shareholders have been truly extraordinary. He has been a role model and mentor to me for many years and I will be honored to succeed him and serve as president and CEO. I am very proud of our talented associates and look forward to continuing to work with them to deliver excellent investment performance and client service while we expand our business globally.”
