Photo: El coleccionista de instantes. Central Banks Have Distorted Reality in the Volatility Market
The major impact of Central Banks actions all over the world has been a massive decrease of interest rates. This rates move has led to very good performances for bond investors, but reduced their potential of future returns. As a consequence, investors started to look for alternative yields, for example by allocating more risk to Equities, but also by selling volatility to extract the volatility risk premium and generate yield.
This is where Central Banks have distorted reality in the volatility market: volatility has become abnormally low and abnormally stable compared to the uncertainty over global recovery.
The consequence for the volatility market is that is at some point there is uncertainty regarding Central Banks (Tapering talks in June 2013 or more recently Fed Rates hike talks, or ECB QE), volatility can spike quite sharply, like we experienced in October 2014.
As Central Banks in general around the world will stay very accommodative in 2015, we at Seeyond expect volatility to stay artificially low in average, ie lower than where it would be otherwise, but with some key periods ahead (Fed rates hike, ECB QE effects, etc) we expect to see volatility short lived spikes few times in the coming year.
Simon Aninat, portfolio manager at Seeyond, subsidiary of Natixis Global AM.
CC-BY-SA-2.0, FlickrPhoto: Mark Moz. China for Sale?
Over the past few years, there have been questions about whether the “smart money” is leaving China. For example, high-profile, Hong Kong businessman Li Kashing has been reorganizing his empire to lighten the amount of Chinese property assets he owns, and refocusing on other parts of the world, principally Europe. So, is the smart money leaving? Well, in this case, it is hard to know, as it can be very difficult to separate personal issues from hard-nosed investment decisions or tactical shifts in allocations between regions.
In any case, mainland property assets are still a very significant part of Li’s wealth and in some cases, even though he has been shedding some property, associated companies still retain an interest in the management of those properties. More recently, too, other businesses with at least as strong a pedigree in China have been making significant acquisitions in their core businesses there, particularly in consumer-facing sectors. So, not all the “smart money” is necessarily moving in the same direction. There have definitely been some recent retrenchments from China by multinational companies. As American businessman Jeffrey Immelt has said, “China is big, but it is hard. Other places are equally big, but not quite as hard.” Sometimes it is easier for home-grown companies, focused primarily on their domestic market, to succeed.
Perhaps more significant are the recent sales by some Hong Kong banks of banking assets held on the mainland. Is this a way of taking some of the risk out of the balance sheets of Hong Kong banks? There has been some concern in recent years over the growth in loans to the corporate sector, and potentially in exposure to rising nonperforming loans on the mainland. Since last year, the Hong Kong Monetary Authority (HKMA) has been far more public about lending details of Hong Kong bank loans to Chinese corporates. Mainland assets at the end of 2013 had grown to 17% of Hong Kong bank assets. Hong Kong remains eager to grow its role as a financial center for China over the long term. But it seems apparent that the HKMA is at least somewhat concerned over the pace of growth of the mainland market and its ability to regulate such activity. In addition, some regional banks with mainland loans have been reassessing the risk of these assets, particularly among state-owned enterprises. But even here, though the near-term concern is over rising non-performing loans, this reassessment may be in part a symptom of the belief that these companies will become gradually slightly more commercial and lose some of the implicit backing of the state. Apart from the implications for banks’ risk, would that be such a bad thing?
Then there is the long term—who are the buyers of China’s assets. Well, I would argue—we are. U.S. investment in Chinese securities is at very low levels. According to Treasury data, less than 3% of U.S. residents’ holdings of foreign equities are in China and Hong Kong combined. Although the absolute level has grown throughout the 2000s, it is now little changed since 2010. And it makes sense from the point of view of diversification for the U.S. to be buying more Chinese assets and the Chinese to be buying more U.S. assets.
Let’s not forget that every sell is a buy – greater foreign ownership of China is likely to go hand in hand with greater China ownership of foreign assets– witness China’s investment abroad climbing from 2% of the world’s total (as of 2006) to nearly 6% as estimated at the end of 2013. Indeed, we have seen some Chinese insurance companies starting to buy real estate and other assets since China’s regulators made this easier in 2012. (New York’s Waldorf Astoria is now Chinese-owned.) Programs such as the development of the corporate bond market in China, the development of an over-the-counter market, the mutual fund industry, better regulation of and capital allocation by the Chinese banking industry and capital markets all has a dual purpose: not only to raise the efficiency and attractiveness of investing for domestic investors, but also to reassure and attract foreign investors. For it is only by achieving long-term demand for Chinese assets (alongside the significant demand for Chinese goods) that China is likely able to achieve international status for its currency.
So, is China for sale? Most assuredly yes. This partly reflects the decisions of some high profile businessmen, which grab headlines but which are an imperfect guide to the real trends. It partly reflects, one suspects, an attempt by regulators and banks to get a handle on growing mainland risk exposure. But it also reflects a natural trend of greater cross-border holdings of assets between China and the rest of the world. Over the long term, China will likely continue to be “for sale,” in my opinion, as demand for Chinese assets from foreign investors and central banks continues to grow. As always, it only really matters what price you pay.
Robert Horrocks, PhD, is Chief Investment Officer at Matthews Asia.
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
CC-BY-SA-2.0, FlickrPhoto: Antonio Zugaldia. Move To a Tactical Neutral on Equities
The European equity rally is both impressive and entirely warranted. Investors had been very sceptical on Europe at the beginning of 2015 but they are now seeing the ECB’s bigger-than- expected Quantitative Easing in action as well as encouraging signs of an economic recovery.
The pace of European growth is now much stronger, mainly due to household spending which had previously been rather soft. And countries like Italy are also seeing an incipient recovery after a long period of stagnation. Economic activity is gaining traction and the most obvious signs of deflation are on the wane:
Bank lending has been stabilizing over the last two months after a long period of contraction;
After a spectacular collapse, Spanish property prices rose by 1.8% YOY in the fourth quarter of 2014.
We are confident in the outlook for earnings growth especially as we believe European company margins have genuine upside if the economy continues to grow at a reasonable pace.
Consequently, we are still overweight Eurozone equities despite the impressiverise. But our overweight is still likely to be adjusted from time to time to reflect mounting political risk in Greece. We continue to believe talks between European institutions and the new Greek government will end up succeeding but, in the meantime, the process is proving chaotic with Athens resorting increasingly to political provocation and not much European enthusiasm over reform proposals from Alexis Tsipras. All this suggests we should be more cautious. Nobody really knows how long Greece can continue to honour its commitments but the risk of a payment accident is rising all the time and that would obviously trigger market volatility.
Based on this scenario, we have moved to a tactical neutral on equities due to:
1. Less buoyant conditions in the US.
The US economy has lost some steam. Statistics have been hard to read due to another exceptionally severe winter but the question now is how the US economy will perform with a strong dollar, an energy sector forced to adapt to much lower prices and the failure so far of household spending to stage a strong recovery. Against all the odds, retail sales have not yet benefited from low oil prices. Consumers have chosen instead to save more over the short term.
Tame inflation and lacklustre economic conditions may push back the launch date for a rate hike but it is still on the agenda judging from comments from Fed committee members.
We are still optimistic on the US economy but we are moving out of a period when US growth was underpinned by very laxist monetary policy and into more uncertain territory with the likelihood of more orthodox monetary policy.
2. Uncertainties over the UK elections.
May’s parliamentary elections and the risk that a Conservative minority government will end up organizing a referendum on membership of the European Union can only introduce a local risk premium. We have accordingly reduced exposure to UK equities.
Regarding the bond market, we continue to prefer high yield bonds and Eurozone convertibles due to the ECB’s move on QE. This is encouraginginvestors to take on more risk to avoid negative returns. We remain cautious on US bonds. As Janet Yellen recently said, investors remain very sceptical on the Fed’s intentions and/or scenario.
Given today’s very low bond yields, investors will probably wait for clearer indications that inflation is returning, before selling the US bond market. Wages will be in focus. At the moment, the US yield curve is the steepest and therefore the most profitable among industrialized countries. We believe that the risk of wage inflation will be high in coming months and drive volatility in the US. Hence our decision to remain underweight US bonds.
Benjamin Melman is Head of Asset Allocation and Sovereign Debt in Edmond de Rothschild Asset Management (France).
. EXAN Capital Receives the Mandate to Sell Espirito Santo Plaza in Bankruptcy Process
Miami’s landmark Espirito Santo Plaza has been mandated to be sold in the bankruptcy process tied to the collapse of Banco Espirito Santo (BES). The mandate shall be carried out by Miami-based EXAN Capital.
Rio Forte Investments, the controlling entity of Estoril, Inc, (the asset’s owning entity), sought protection from creditors in Luxembourg in July of 2014, hoping to avoid a fire sale of its assets.
Banco Espirito Santo had to be rescued due to the debt exposure of firms related to the Espirito Santo family.
On August 3, 2014, Banco de Portugal, Portugal’s central bank, announced a €4.4 billion bailout of BES which heralded the end of BES as a private bank. The bailout was funded by the Portuguese Resolution Fund. The bank was split in two: a healthy bank known as Novo Banco, and the existing bank, where the toxic assets remained. Most of these toxic assets are held in Luxembourg by two holding companies: Espirito Santo Financial Group (ESFG) and its subsidiary Espirito Santo Financiere SA, where RIOFORTE and the associated Espirito Santo Plaza are held.
Immediately prior to seeking such protection, the mixed-use tower (offices, retail, and parking garage) had been all but sold to an investor identified by Miami-based EXAN Capital, a boutique Real Estate Investment Firm. That process came to a halt when the bankruptcy process began.
This week the court-appointed trustees in Luxembourg announced that EXAN Capital will lead the sale process, as they did once before, because of their deep familiarity with the building and the transaction. EXAN believes that with a court-mandated marketing process open to new bidders, in a strictly transparent and public process, creditors of Rio Forte will find the outcome more favorable than in the prior process.
The Plaza (at 1395 Brickell Avenue) is an iconic 36-story mixed-use tower that in 2012 was awarded the American Institute of Architecture’s highest honor for a commercial building in the state of Florida, being recognized as Commercial Building of the Year. Located in Miami’s thriving financial district (Brickell), the building’s designers (Kohn Pederson Fox) built the glass- curtain wall to contain its trademark arch, symbolizing both the building and the neighborhood being “Miami’s Gateway to Latin America.” With nearly 660,000 square feet of offices,retail, hotel, and 121 luxury condos, the Plaza will command a market premium as the irreplaceable asset that it is.
“The sale of the Espirito Santo Plaza will no doubt draw attention from both local investors and those from around the globe, as both recognize the rarely seen opportunity for what it is,” notes Adam Wolfson, SVP at EXAN Capital, who will be managing the sale process. EXAN reiterates the open and transparent process and encourages qualified bidders to contact them in their Miami offices for more information.
. Investec’s Strategist: “Pension Plans Face a Ticking Time Bomb in a Surreal Interest Rate Environment”
Fund managers face the enormous challenge of obtaining returns in financial markets with behaviors previously unheard of, a situation which Michael Power, Investec’s strategist, defines as “surreal”. Who’s to blame for turning the global stage on its head, and what is the solution? According to Power, who considers this situation to be a ticking time bomb for pension funds, the answer to every question lies in Asia, either directly, or indirectly.
If the managers’ job is “not to lose money,” in the first place, and “to earn money” in the second, a task which is relatively easy with some inflation, in today’s economic climate, with countries such as Denmark with negative interest rates, deposits with financial institutions entailing an expense rather than a return, and investors paying governments when they lend them money (as was recently the case with Switzerland’s 10-year bond), that task is not so simple. In the long term, this could pose many problems for pension funds, especially when politicians are consistently set only in the short term (the duration of their term in office), and central banks have not wanted to stop to analyze the problems which are threatening these funds: it’s a ticking time bomb, says Power.
China’s opening to the outside world has changed the configuration of the international trade system in just a few years. When two worlds meet, it’s only logical to meet halfway, explains the Strategist. China has integrated 3 billion people earning less than a dollar a day into an increasingly globalized labor and trade market. Other countries have been faced with competing against that, and as a result, the minimum wage in the United States, for example, has not increased in real terms since the seventies. Western countries have tried everything to avoid stagnation of their economies: central banks have lowered interest rates, they have flooded the cash market by issuing currency, they have financed with debt; but in the end, when support to maintain prices is no longer possible, prices drop and deflation occurs.
Another significant cause for deflation has been the technological advance which has allowed tremendous growth of electronic commerce. Consumers who used to buy in shops, which needed staff, now buy on sites like Alibaba, from anywhere in the world. Alibaba is just an example, but there are other distribution giants that have flooded the world with bargains, causing layoffs and aiding the advent of deflation.
But China is not just the main source of deflation, according to the expert; it’s also the solution. Despite its current economic deceleration, China has been the country to benefit most of the clash of two worlds, as the effect has been the opposite. In China, wages have increased and consumers have more purchasing power. Prices in China are rising. Now, and over the next 12 to 18 months, is the time for investors from the rest of the world to increase the percentage of their portfolios in Asia-Pacific, looking also at Malaysia, Korea, the Philippines, and India, countries where demographics aid inflation and growth. Japan is the exception in the area: cooling is due to lack of domestic demand, caused by an aging population which spends less. A similar situation is occurring in Europe.
Power, who devoted much of his professional career to the Africa and Middle Eastern region, and has lived in Bahrain 12 years, presents his take on what’s going on there. According to the expert, the Middle East is experiencing its most difficult situation since the 70s, trapped by deflation, which in its case was caused by the sharp drop in oil prices, its main export, by 50%. This drastic reduction in income in their trade balances is resurfacing some latent social problems in a region of great political instability and strong disputes, until now buried under thousands of barrels of oil. Not all the countries in the region face this crisis from the same starting point. Gulf countries are rich enough to resist, however, Yemen, Syria, and Libya have no resources with which to replace the missing flow of capital, and their economies are being most affected, even causing internal divisions, as is the case in Syria.
As a conclusion, Power insists on focusing on Asia when seeking yield for long-term investment portfolios, as well as for creative solutions, which may include investments in real estate, looking for niche assets such as rental properties for students in university towns, an idea that can generate interesting revenues for long-term portfolios.
CC-BY-SA-2.0, FlickrRuss Oxley, Head of Fixed Income Absolute Return. Russ Oxley Arrives at Old Mutual Global Investors
Old Mutual Global Investors is delighted to announce that Russ Oxley has joined the company as Head of Fixed Income Absolute Return.
Reporting to Julian Ide, CEO, Russ will manage a team which consists of Huw Davies, Joshua Heming, Adam Purzitsky, Paul Shanta and Jin Wong. A core focus will be preparing for the autumn 2015 launch and future management of a new suite of Absolute Return Government Bond products (subject to regulatory approval). Old Mutual Global Investors will also open an office in Edinburgh to continue the team’s existing dual location arrangement.
Russ Oxley comments: “I am delighted to join a business that offers an opportunity to deliver innovative and creative products. I am also excited to re-connect with my team. Together, we have an exciting future ahead of us as we execute our ambitious plans and launch a series of products that we believe will meet the needs of our global client base in absolute return and Liability Driven Investment (LDI).”
The Fixed Income Absolute Return team joins Old Mutual Global Investors from Standard Life Investment, having previously worked for Ignis Asset Management. They are highly regarded as being one of the leading Absolute Return Teams in the UK investment management industry.
Old Mutual Global Investors believes that the team’s proven capabilities greatly complement those currently available within its existing nine-strong Fixed Income team. By adding the team’s expertise across interest rates and relative/absolute return investing to the existing highly regarded team, Old Mutual Global Investors has created one of the asset management industry’s most powerful fixed income operations.
Julian Ide, CEO of Old Mutual Global Investors, comments: “This is a very exciting development for Old Mutual Global Investors. Russ and his team are an excellent strategic and cultural fit and an exciting and dynamic addition to Old Mutual Global Investors. The team has generated strong alpha, which has resulted in strong asset growth. In addition to the over £4bn assets in the Ignis Absolute Return Government Bond fund*, the team managed substantial assets in a combination of LDI and other rates mandates.
“The synergies of both of our fixed income teams working together will be powerful. The enhanced Fixed Income team structure now provides opportunities for us to harness the wealth of experience that currently exists in this combined team. This appointment also signifies ambitious plans to expand our share of the absolute return market and develop LDI solutions for our client base.”
Old Mutual Global Investors remains focused on developing an investment-centric business model centred upon delivering positive outcomes for its global client base. The business now has strength and depth across all of its investment teams and a global platform to support customers in key parts of the world.
Foto cedidaBen Wallace & Luke Newman de Henderson. Viendo el mundo en términos absolutos
The second annual collaboration between BBVA and El Celler de Can Roca will bring the trio of brothers who own the famed Spanish restaurant to three countries on three continents — Buenos Airesin Argentina; Miami, Houston and Birmingham, Ala., in the U.S.; and Istanbul in Turkey. The Roca brothers and 40 of their staff members will embark this summer on the five-week journey to recreate the experience from their Girona, Spain-based restaurant, preparing meals exclusively for bank clients at each stop.
The 2015 tour begins Aug. 1 in Buenos Aires and will come to a close the first week in September in Istanbul, the cosmopolitan city that joins Europe with Asia. Josep Roca, sommelier and head maitre of El Celler de Can Roca, has already departed for Buenos Aires to formally kick off the preparations for the tour. He plans to explore local Argentine products and ingredients and find inspiration for the summer tour. In the coming weeks, Joan and Jordi Roca will make stops in Turkey and the United States to do the same.
By the end of the 2015 summer tour, 100,000 plates of food will have been served in six countries and more than 74,500 miles covered over the two years of the tour, the equivalent of circumnavigating the world three times.
“We want to do more each year, and for this second edition of the tour, together with BBVA, our goal is really ambitious. We are excited and aware of the huge responsibility of this challenge, which my brothers and I came up with as a sincere tribute to extraordinary and different kinds of cuisine,” said Joan Roca today in San Sebastian, Spain, where he shared the first details about the new tour and where he will be receiving a “Genius” innovation award from Spanish media group CMVocento tonight during a conference that recognizes innovation in gastronomy.
BBVA Brand & Communication Director Ignacio Moliner said, “This tour is a tribute to the gastronomy of the countries we visit and we are doing it with respect and humility. It’s a passionate adventure, something that’s never been done before and which is made possible thanks to the pure harmony between BBVA and the Roca brothers. Their spirit of excellence, their non-conformity and their ability to innovate are values and attitudes that bring us together on this new tour, which is truly going global this year, and which will take us to several continents.”
El Celler de Can Roca muscled its way to the top of the high-end restaurant world through the Rocas’ wondrous techniques that honor tradition and push culinary boundaries. It has claimed one of the top two spots on Restaurant magazine’s influential World’s 50 Best Restaurants List for the past four years.
Joan Rocais considered a pioneer in sous-vide, a cooking process where food is vacuum-packed and cooked in water. He developed the Roner, a professional sous-vide cooking device. Josep Roca, the sommelier, meanwhile, has won over critics with his unorthodox wine pairings and techniques. And Jordi Roca, the pastry chef, won the World’s Best Pastry Chef Award 2014. The judges called him “part chef, part architect, part magician” and an “eccentric but modest genius,” citing his work recreating famous perfumes in edible form.
50,000 plates of food served at the first BBVA-El Celler de Can Roca Tour in 2014
In 2014, the BBVA El Celler de Can Roca tour turned into the gastronomic event of the year, traveling to Houston and Dallas in the U.S.; Monterrey and Mexico City in Mexico; Bogota; and Lima, Peru. The Roca brothers and their team prepared nearly 50,000 dishes for 2,700 diners.
The tour also served as the setting for the documentary film “Cooking up a Tribute,” which premiered at the Berlin International Film Festival, and which is currently being shown at other festivals worldwide.
Photo: Glenn Beltz. Oil & Gas: The Cashflow Conundrum
With the oil price declining steeply during the fourth quarter of 2014, the prospects for dividends from oil companies are worth special attention. Though they rose 5.8% in 2014 to $134.1bn, according to the Henderson Global Dividend Index (HGDI), making this the second largest dividend-paying industry, there are question marks over the sustainability of their dividends going forward, as lower prices feed into lower profits.
We believe the oil and gas sector is likely to be challenged in terms of growing dividends for the next few years. Oil service companies such as Seadrill and Fugro have already cut their dividends and with further cuts to capital expenditure likely from oil majors, more of their peers may also cut.
The big oil producers themselves, which account for around three quarters of the sector’s dividend payments, should be able to hold dividends for a while as their balance sheets are strong. However, if the oil price does not meaningfully recover over the next couple of years then cashflow will not be strong enough to allow for required investment and dividends.
In the shorter term the oil majors are likely to prefer to allow dividend cover (the ratio of a company’s earnings over the dividend paid) to fall by paying out a larger percentage of their profits rather cutting the dividend they pay. Royal Dutch Shell is commonly the largest dividend payer in the world (though it was beaten in 2014 by Vodafone). Royal Dutch Shell has not cut its dividend since World War II, despite wide swings in the price of oil since then. French multinational oil and gas company, Total (ranking 17th in terms of top dividend-paying companies in 2014) has not cut its dividend for 40 years.
Emerging market cuts
Companies in Emerging Markets are more likely to cut given fewer opportunities to cut capital expenditure and weaker balance sheets. The fall in the price of oil is a key factor influencing our decision to reduce our expectations for overall dividend growth from Emerging Markets, where dividends from oil companies account for 26% of the region’s total, around twice their share in global markets overall.
Fund exposure
The fund’s exposure to the oil & gas sector is currently low at 2.9%, versus 6.7% of the index. This is due to concerns over cashflow growth and the ability to grow dividends. With the significant fall in the oil price over the last six months this position has aided performance on a relative basis.
Andrew Jones is member of the Henderson Global Equity Income Team
CC-BY-SA-2.0, FlickrPhoto: Cabeza de Turco. Thumbs Up for Equities, Avoiding the US and Emerging Markets
Global equity markets remained in an ebullient mood in February, with the MSCI World index producing a US dollar total return of 5.9%. In the US, the S&P 500 broke through a series of record highs (although it has subsequently given up a little ground in March) while in the UK the FTSE 100 finally eclipsed its previous all-time closing high of 6930 (set in late 1999), finishing the month at 6946.7. European, Japanese, Asian and emerging market (EM) equities also made strong progress in local currency terms.
In contrast to the strength seen in equity markets, US and UK government bonds had a difficult month, with the yield on the benchmark US 10-year treasury climbing from 1.64% at the end of January to 1.99% at the end of February. The broad UK gilt market registered a sterling total return loss of -4.2%, with long gilts (-7.6%) performing particularly poorly. European core bond markets were largely insulated from these moves, with the 10-year bund yield finishing the month at 0.3%. At the time of writing, yields on a number of short-dated European government bonds are negative, and Swiss government bonds offer negative yields out to 10 years.
In equity markets, we are positive on all the major regions except the US, where we have a neutral weighting in our asset allocation model, and emerging markets, which we continue to underweight. In our view, the US is undoubtedly the strongest of the developed world economies and is home to a range of world leaders across a range of sectors, and we continue to find interesting long-term stock-level opportunities in areas with exciting growth potential, such as immunology. For the broader market, however, valuations are less compelling and we continue to believe that a strengthening dollar is likely to provide a headwind for US multinationals.
EM equities trade at a significant discount to developed markets and there are good opportunities in the countries that are beneficiaries of lower oil prices and where the respective governments have committed to business-friendly reforms. Unfortunately, commodity-exporting EMs, such as Brazil, remain under pressure, and similarly the low oil price is a headache for a range of EM oil exporters with knock-on adverse effects for their currencies.
In Asia ex Japan, valuations are attractive versus other markets and in Japan itself we expect a weaker yen to provide a significant tailwind for corporate earnings this year. UK equities have been the focus of some of our asset allocation meetings over the past month, and despite the broader re-rating of the market, our UK team continues tofind companies that are committed to boosting shareholder returns. The UK also remains an M&A target, due to the relative ease of the takeover process, and the market’s high dividend yield is still attractive in a global context.
In bond markets, we see an increasing disconnect between the US and UK, where yields should move higher, and Europe, where the ECB began intervening in secondary markets on 9 March. Previous episodes of QE have been a case of ‘buy the rumour, sell the fact’ when it came to rates markets, but for Europe we think that the sheer scale of the ECB purchases will be positive for markets from here. This appears to be borne out by price action; as I write, 10-year bund yields have declined further to just 0.2%. A second-order effect of the ECB’s policy is that many non-euro corporate issuers are tapping European bond markets due to the very cheap financing that is available; one estimate suggests that of the €37.8 billion of investment grade non-financial issuance that was seen in February, some €30.8 billion of this was from companies that are incorporated outside the eurozone!
For bond markets more broadly, the next major catalyst could come in the form of the Fed; any change in its language is likely to be seen as laying the ground for a rate rise, although the strong dollar and low oil prices suggest that the broad CPI readings are likely to remain subdued, meaning there is no obvious rush to raise rates. The recent strength in labour markets will provide food for thought for the Fed however, and we will be watching developments closely in the coming weeks.
Column by Mark Burgess, CIO at Threadneedle Investments
Foto: Petar Milošević (Own work). Santander AM Reaches €12.4 Billion in Assets in its Range of Profiled Funds
Santander Asset Management (SAM), a global company dedicated to managing assets internationally and 50% owned by Banco Santander and 50% by Warburg Pincus and General Atlantic, has attracted a total of 6.169 billion euros to its range of profiled funds, which are aimed at customers in the Banco Santander Select and private banking segments, representing 99% growth, in the last twelve months. As such, assets managed in these products were around 12.388 billion euros by the end of February while the number of Bank customers holding exceeded 220,000.
Profiled funds include Select, which combines the bulk of assets in this range of funds, along with private banking profiled funds in Spain (Santander PB Portfolio), Portugal (Santander Private), Chile (Santander Private Banking) and Mexico (Santander Elite). The Select range of funds, which has already been exported to eight countries, is a global investment solution aimed at adapting to both different market environments and each local customer’s risk profile. Select profiled funds invest in a very broad universe of assets, selected through suitable asset allocation, providing access to the best domestic and international asset managers and allowing for dynamic investment management and rapid adjustment of positions based on each scenario.
The Spanish market has seen the greatest growth in this period, after increasing assets under management of 4.355 billion euros and reaching 7.213 billion euros, representing a 152% increase compared to March 2014. The Santander Select Prudent fund is notable, with assets reaching 3.449 billion euros, as is the Santander Select Moderate fund with 2.546billion euros. In Mexico, the Santander Asset Management profiled funds together total 1.073 million euros (the Santander Select Conservative fund has been the most popular offering, making up 350 million euros) after growing 92%, while 459 million euros have been reached in Chile (84% growth) with Santander Select Prudent being the largest at 226 million euros. Germany has recorded a 558 million euro volume (+80%) and Brazil 82 million euros (+91%). Assets are around 2.262 billion euros in the United Kingdom.
The Select fund range was launched in Spain at the end of 2010. The range was launched in Chile and Mexico in 2011 and 2012 respectively while they have been sold in Brazil and Germany since 2013. The most recent launches took place in 2014 in Portugal and Poland, with great commercial success in both countries with assets of 537 million euros and 206 million euros, respectively.
The three risk profiles on which the Select range relies (Prudent, Moderate and Determined/Dynamic) each investor the profile choice that best suits their needs and risk tolerance levels. The Prudent fund, aimed at more conservative investors, represents 42% of the total Select range assets. The Moderate fund, which have a greater weight in equity, represents 39% while the Determined/Dynamic fund, which has a more risk tolerant profile, represents 19%.
