Is a New Golden Age for Fixed Income Approaching?

  |   For  |  0 Comentarios

According to the team at Insight Investment (BNY Investment), as markets reach a mid-point in 2024, now is an ideal time to increase allocations to fixed income.

“With bond yields returning to pre-financial crisis levels, investors no longer need to take on the equity-like risks or sacrifice liquidity to meet their investment goals. Simply put, yields are back, and they’re here to stay,” the firm argues.

Their analysis suggests that despite some signs of inflation stabilization and easing rate hikes by mid-year (both the European Central Bank and the Bank of Canada cut rates in June), central banks are expected to operate in higher interest rate ranges over the coming years, which should keep bond yields elevated.

“It’s likely that market participants will take some time to adjust to the idea that extremely low interest rates aren’t coming back. After all, some investors have only known an era dominated by central bank easing and quantitative easing policies. However, we believe that optimism around rate cuts will be tempered by the persistence of inflationary pressures. Globalization, which had exerted significant downward pressure on goods prices, is now giving way to increasingly protectionist rhetoric, and we think this will be one of the factors making it harder for central banks to control inflation sustainably,” Insight Investment adds.

At the longer end of the yield curves, high government debt issuance and the reduced proportion of debt held on central bank balance sheets should keep yields elevated. Over time, this is expected to slowly become ingrained in market psychology, keeping bond yields at levels similar to those seen before the global financial crisis.

In this context, Insight Investment believes that long-term return objectives can be achieved with fixed income alone. Many segments of fixed income markets currently offer yields comparable or even higher than the long-term returns of the MSCI World Index.

“We believe this creates the opportunity to lock in long-term returns similar to equities but in fixed income markets and sectors like global high yield,” they add.

Volatility Check

Insight Investment points out that fixed income markets, largely income-driven, tend to be less volatile and more predictable than other asset classes like equities. In many cases, this can lead to more reliable returns, lower downside risk, and diversification benefits. “An active management strategy can allow a manager to add value above market yields. With low interest rates and quantitative easing behind us, volatility may be structurally higher in the coming years, providing market disruptions that managers can exploit. The more flexibility a manager has, the broader the range of potential opportunities they can explore,” they argue.

Corporate Health

From a corporate perspective, Insight Investment notes that many companies are well-positioned at this stage of the cycle. Corporate balance sheets look healthy, as do debt profiles. Many treasurers took advantage of low interest rates during the pandemic to lock in favorable funding levels for an extended period. This has insulated many companies from rising rates, giving them time to plan for higher financing costs.

“As global investors, we believe an increasingly asymmetric equity world makes a fixed income allocation even more appealing. While the rise of the so-called ‘Magnificent Seven’ reflects a period of exceptional profit growth, their dominance means that many equity investors are now more concentrated than they realize,” Insight Investment experts comment.

Risk Considerations 

Finally, Insight Investment highlights risk as a key consideration. “All markets carry some degree of risk. However, while fixed income markets experience periodic declines, they tend to be shallow and brief. For instance, the long-term returns of global high yield have been similar to those of global equity markets. Overall, this asset class has experienced less severe downturns and has recovered more quickly than equities.”

Income Generation

Lastly, they note that as income generated in fixed income markets offsets price declines, this creates natural protection against losses, provided that yields are high enough and the time horizon is long enough.

They also point out that government debt, and to some extent high-grade credit markets, offer another useful attribute. Economic recessions, when equity markets typically fall and economies contract, tend to be some of the best periods for fixed income returns.

“When central banks ease policy to stimulate growth, longer-term bond yields typically fall, and this drop in yields results in capital appreciation in fixed income markets. The negative correlation between fixed income and equities during severe equity market declines means that high-quality fixed income investments can complement holdings in higher-risk assets like equities,” Insight Investment states.

In this regard, the firm’s experts pose the question: What path should fixed income investors take? Their answer is straightforward: “For the remainder of the year, we believe that rising yields have created an opportunity to secure attractive long-term income streams. With yields returning to pre-crisis levels, income should once again dominate fixed income returns. In this context, more customized and sophisticated fixed income portfolios can be built to meet the specific risk/return objectives of a wide range of investors,” Insight Investment concludes.

The Return to the Office Begins: A Step Back in Workplace Flexibility?

  |   For  |  0 Comentarios

Over the past 12 months, there has been a significant shift towards in-office work: currently, 47% of companies follow a work model focused on in-person attendance, compared to 36% last year, while 45% follow a hybrid model (down from 53% last year). According to a study by Grant Thornton, if companies push too hard for a return to the office, they may inadvertently undermine gains in female representation in key positions that have been made possible through flexible work practices. The study’s main conclusion is that it is essential to ensure that at least one senior female executive is involved in decision-making on diversity, equity, and inclusion.

“This shift appears to be driven by male CEOs: 50% of companies led by a man follow a predominantly in-person model, compared to 40% of companies led by a woman,” states Grant Thornton’s Women in Business (WiB) study, based on a survey of around 10,000 business leaders from 28 countries. To foster and retain female talent in the workplace, companies must carefully evaluate the work practices they offer. The research suggests that following certain decisions made by male executives, it is necessary to ensure that a senior female executive is involved in diversity, equity, and inclusion decisions. Pushing too hard for a return to the office could unintentionally undo some of the progress made in promoting women to leadership roles, which was achieved through the adoption of flexible work practices.

Regional differences are also notable. In North America, 39% of companies have adopted a primarily in-office work model, compared to 53% in the European Union. Many large companies have begun implementing guidelines and incentives to encourage employees to return to offices, such as Goldman Sachs’ “office-first” approach, which required employees to attend the office five days a week. Amazon, Disney, and Boeing have also enacted return-to-office policies in recent months, according to a report by *Inc.*

Companies where employees predominantly work in offices are the only ones where the percentage of women in senior leadership positions falls below the global benchmark.

The ability to choose where to work offers substantial benefits to women in companies, not just at the leadership level but also for the talent pipeline. “A work model that combines in-person and remote modalities is great for both men and women, as it allows for a much better work-life balance. On the other hand, it’s also important that younger employees don’t feel neglected, so being available in person when needed is crucial,” says Grant Thornton Chile.

Finally, the study emphasizes, “When female employees have taken maternity leave and are ready to return to work, offering a hybrid model is essential to retaining them and helping them advance in their careers.”

The Fed Raises the Stakes and Cuts by 50 Basis Points

  |   For  |  0 Comentarios

The FOMC concluded its September meeting this Wednesday with the announcement of a 50 basis point interest rate cut.

The monetary authority announced the half-percentage-point cut, thus beginning an easing policy it hadn’t implemented since the early days of the pandemic.

“In light of progress on inflation and the balance of risks, the Committee decided to reduce the target range for the federal funds rate by half a percentage point, bringing it to between 4.75% and 5%,” said the Fed’s statement.

Additionally, FOMC members said that when considering further adjustments to the target range for the federal funds rate, “the Committee will carefully assess incoming data, the evolution of the outlook, and the balance of risks.”

However, the FOMC “will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities.”

The Fed’s Monetary Policy Committee members remain “firmly” committed to “supporting maximum employment and bringing inflation back to its 2% target.”

Fed Chairman Jerome Powell announced in August, during his final conference at the Jackson Hole symposium, that the time for monetary policy adjustment had arrived. However, he clarified at the time that the pace would depend on macroeconomic data.

“The time has come to adjust monetary policy. The direction is clear, and the timing and pace of rate cuts will depend on new data, the evolution of the outlook, and the balance of risks,” Powell said, according to the speech published by the Fed.

However, August employment data solidified expectations of a possible cut this Wednesday. The question was whether the cut would be 25 or 50 basis points.

Most analysts expected a minimum cut of 25 basis points, with the prospect of a more gradual monetary policy easing. However, the Fed has been bolder than analysts expected, deciding on a 50 basis point cut.

With this move, the Fed ends the policy it had been following since June 2022, when inflation peaked at 7.1%, forcing the monetary authority into a series of rate hikes throughout 2023 and part of this year.

eToro Reaches an Agreement With the SEC and Will Focus Its Trading Activity on a Limited Set of Crypto Assets

  |   For  |  0 Comentarios

The U.S. Securities and Exchange Commission (SEC) has announced that eToro USA LLC has agreed to pay $1.5 million to settle charges related to its online trading platform for operating as an unregistered broker and clearing agency. “eToro has agreed to cease and desist from violating applicable federal securities laws and will limit the crypto assets available for trading,” the U.S. authority stated in its release.

The SEC’s order states that, since at least 2020, eToro operated as a broker and clearing agency by providing U.S. customers with the ability, through its online trading platform, to trade crypto assets that were offered and sold as securities. However, “eToro did not comply with the registration provisions of federal securities laws.”

“By removing tokens offered as investment contracts from its platform, eToro has chosen to comply and operate within our established regulatory framework. This resolution not only enhances investor protection but also provides a path forward for other crypto intermediaries. The $1.5 million penalty reflects eToro’s agreement to cease violations of applicable federal securities laws while continuing its operations in the U.S.,” explained Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

As a result, eToro announced that, from now on and subject to the provisions of the SEC’s order, the only crypto assets U.S. customers will be able to trade on the company’s platform are Bitcoin, Bitcoin Cash, and Ether. eToro publicly stated that it will provide its customers the ability to sell all other crypto assets only for 180 days following the issuance of the SEC’s order.

“This agreement allows us to move forward and focus on delivering innovative and relevant products across our diversified U.S. business. U.S. users can continue trading and investing in stocks, ETFs, options, and the three largest crypto assets,” said Yoni Assia, co-founder and CEO of eToro.

According to the firm’s CEO, the terms of the agreement will have minimal impact on their global business: “Outside of the U.S., eToro users will continue to have access to over 100 crypto assets. As a global, multi-asset trading and investment platform, we continue to see strong growth and remain committed to becoming a public company in the future.”

Assia emphasized that complying with regulations is important for the company, and they work closely with regulators worldwide. “We understand the importance of regulation to protect consumers. We now have a clear regulatory framework for crypto assets in key markets like the UK and Europe, and we believe something similar will soon be established in the U.S. Once that is in place, we will seek to enable the trading of crypto assets that comply with that framework,” the CEO concluded.

BlackRock Expands Its Product Range With a European High Yield Fixed Maturity Fund Maturing in 2027

  |   For  |  0 Comentarios

BlackRock has announced the launch of the BGF Euro High Yield Fixed Maturity Bond Fund 2027, a fixed maturity bond fund. According to the asset manager, the fund is designed to take advantage of currently elevated yield levels, offering investors a combination of income distribution and capital appreciation. “In the current macroeconomic environment, fixed maturity bond funds can be an option for investors seeking some level of cash flow predictability or looking to stagger their interest rate exposure,” they explain.

The BGF Euro High Yield Fixed Maturity Bond Fund 2027 offers a carefully selected portfolio aimed at providing income and preserving capital until the strategy’s maturity date, which is three years from now. It primarily invests in two types of bonds: high-yield bonds, which the investment team believes will generate income, and high-quality government bonds for risk management. The fund aims to provide income through the European high-yield market, avoiding credit risks over a three-year investment horizon. Its strategy seeks to deliver income and preserve capital for investors holding their units until the Fund’s maturity date.

The asset manager explains that the investment process follows a barbell structure, incorporating high-quality government bonds and carefully selected high-yield bonds (at least 50%). The investment team believes this approach offers the best risk/reward trade-offs within the European sub-investment-grade bond universe. The bond mix is built to optimize yield while minimizing defaults, leveraging the team’s fundamental high-yield research. This investment process seeks to maintain an aggregate BB+ rating and optimize the tax efficiency of any coupon or capital gain, while aiming to sustain a high level of income for investors.

The fund, managed by José Aguilar, Head of European High Yield and Long Short Credit Strategies, is part of BlackRock’s active fixed income platform, which includes $1.1 trillion in assets under management. “As yields remain elevated, the opportunity cost of staying in cash is increasing. In this scenario, fixed maturity bond funds not only offer some visibility in income distribution but also provide investors with the chance to lock in attractive current yields. Moreover, the rise in dispersion in the high-yield bond market may create more opportunities for investors to generate alpha,” noted James Turner, Co-Head of European Fundamental Fixed Income at BlackRock.

Adela Martín Appointed New Head of Business Globalization for WM&I at Grupo Santander

  |   For  |  0 Comentarios

Banco Santander has internally announced the appointment of Adela Martín as the new Head of Business Globalization for Wealth Management & Insurance (WM&I) at Grupo Santander, as confirmed by *Funds Society*. Martín will work closely with country teams and report directly to Javier García Carranza, Head of Asset Management, Private Banking, and Insurance.

Previously, Martín led Private Banking in Spain and was most recently in charge of the Wealth division in Spain. Her extensive knowledge of the three business areas will enable her to drive the global division by leveraging her deep understanding of how the business operates at a local level. The group’s new model aims to further globalize and coordinate its businesses, according to sources from the bank.

In light of this change, the bank has also confirmed the appointment of Víctor Allende as the new Head of Santander Private Banking Spain. Allende will report to Alfonso Castillo, Global Head of Santander Private Banking, and to the CEO of Santander Spain. His role will take effect at the end of September, and he will play a key role in transforming Spain into a leading private banking hub in Europe.

With nearly 25 years of experience in private banking, Allende brings extensive knowledge of the Spanish market. He spent the last 12 years at Caixabank, where he led a major transformation of the business, focusing on customer-centric strategies. Before that, he held various positions at Morgan Stanley and AB Asesores. Allende holds a degree in Economics and Business from the University of Navarra and an MBA from IESE.

Following these appointments, Nicolás Barquero and Francisco Bosch will report to their global business leaders and the CEO of Santander Spain. Additionally, the bank has made another key appointment: Monika Vivanco will take over as Head of People and Culture, replacing Patricia Álvarez de Ron, who is leaving the company.

Grupo Dunas Capital Appoints Natividad Sierra as Managing Director and Chief of Investor Relations for Alternative Assets

  |   For  |  0 Comentarios

Grupo Dunas Capital has announced the appointment of Natividad Sierra as Managing Director and Chief of Investor Relations for the firm’s alternative assets division. In her new role, she will be responsible for leading the fundraising processes for the firm’s alternative asset vehicles and managing investor relations. Additionally, she will join the Group’s Executive Committee.

With this appointment, Grupo Dunas Capital is once again focusing on the development and consolidation of its real assets business line. The firm advises several alternative asset vehicles that invest long-term in transport assets, as well as in impact projects, renewable energy, and energy efficiency. “It is an honor to join the team at Grupo Dunas Capital, a company built on strong values that has experienced exceptional growth since its creation, thanks to its unique business model, philosophy, products, and a highly professional team. In this new phase, I will continue to develop strategic, long-term relationships with investors, who will find in our product catalog a unique value offering in Spain,” said Natividad Sierra, the newly appointed Managing Director and Chief of Investor Relations (Alternatives).

Natividad Sierra brings 30 years of experience in the financial sector, primarily in private equity, as well as in mergers and acquisitions and corporate banking. Prior to joining Grupo Dunas Capital, she was Head of Investor Relations & ESG at Corpfin Capital, one of the leading private equity firms in Spain, where she successfully led the fundraising efforts for several funds and oversaw the ESG function. She was a partner at the firm, Director of Investments, and a member of the Board of Directors of several companies. She began her career in corporate banking in the Structured Finance division at BNP Paribas and later worked as an Associate at Apax Partners, executing mergers and acquisitions.

Regarding her education, she holds a degree in Business Administration from Universidad Pontificia de Comillas ICADE and a degree in Law from UNED. Her executive education includes the General Management Program at IESE and the Executive Program in Senior Management, Promociona, at ESADE. Additionally, she is co-President of Level 20 in Spain, a non-profit organization that promotes gender diversity in the European private equity sector.

Anta Asset Management Appoints Eduardo García-Oliveros as Director of Private Equity

  |   For  |  0 Comentarios

Anta Asset Management, an independent firm belonging to Corporación Financiera Azuaga, has appointed Eduardo García-Oliveros as its new Director of Private Equity.

García-Oliveros brings over 10 years of experience in alternative markets, having worked at organizations such as Gala Capital, Nomura, and most recently, Alter Capital, where he served as Director of Investments and led the Madrid office.

Throughout his career, García-Oliveros has gained extensive expertise in alternative markets, with a particular focus on direct private equity investments and advising on mergers and acquisitions.

He holds a degree in Business Administration with International Honors Cum Laude from ICADE and Northeastern University (Boston).

Jacobo Anes, CEO of Anta Asset Management, emphasized the significance of this appointment. “Eduardo’s experience will help us strengthen our alternative investments line to tackle the upcoming projects. We aim to stand out in the industry as a manager offering unique and high-quality products,” he stated.

Where to Find Value Opportunities Within Emerging Markets

  |   For  |  0 Comentarios

India has consistently been one of the most expensive countries in our emerging markets universe, boasting a larger number of high-quality companies with strong structural growth. However, over the past year, it has become even more expensive. In our view, India deserves to trade at a premium, but the high valuations and elevated expectations remind us to be particularly vigilant and disciplined regarding valuation levels.

The most overvalued areas are the small- and mid-cap segments of the Indian equity market, as well as companies in sectors more sensitive to government actions. However, it is still possible to find reasonably valued companies. Additionally, we see significant differences in valuation depending on the sector, and even among specific companies. In particular, we find relative value opportunities in the financial, technology services, and pharmaceutical sectors, all of which exhibit high-quality operations and management.

In Southeast Asia, Vietnam has faced challenges in recent years due to a deteriorating real estate market and a sudden liquidity shortage caused by anti-corruption measures and regulatory reforms in the corporate bond market. The market is volatile and has been revalued, requiring caution from foreign investors. However, from a valuation perspective, Vietnam is appealing. In the first half of 2024, Vietnam recorded a year-on-year GDP growth of 6.4%, demonstrating solid economic performance. The country serves as an important outsourcing hub for the Asian region, benefiting from recent supply chain shifts. Vietnam is becoming a new manufacturing center, attracting increasing foreign investment from international companies like Apple, Samsung, and Intel. The shift in supply chains from China to Vietnam is still focused on low-value-added production, such as final assembly, where Vietnam holds a competitive edge due to lower labor costs.

In our opinion, Indonesia also offers solid investment potential as one of the strongest and fastest-growing economies, not only in Southeast Asia but across the entire emerging markets region. It boasts a diversified economy and substantial wealth in natural resources such as coal, nickel, and copper. Both domestic consumption (53% of GDP) and exports of commodity-related products are contributing to a robust current account balance. At the same time, Indonesia is undergoing a political transition, raising some fiscal concerns, which has led to widespread sell-offs, making the market more attractive to value investors like us.

Finally, one of the markets that has lost favor with investors in recent years is South Africa. However, following surprising results in recent elections, which have led to the formation of a new national unity government, the country’s fundamentals are improving. Investor positioning is also low, which could present opportunities for value investors. As the country overcomes its energy problems and the quality of its companies improves, South Africa is becoming an interesting market once again.

As long-term equity investors, we understand the need to be selective and recognize that the world is constantly changing. Our analysis highlights that the quality of management can make a significant difference in company outcomes and their ability to navigate challenging market environments. Therefore, evaluating the management teams of the companies in our investment universe is a crucial part of our investment process, alongside our focus on companies with sustainable business practices that can generate long-term returns.

 

Opinion piece by Laurence Bensafi, portfolio manager and deputy head of the emerging markets equity team at RBC BlueBay Asset Management.

The Five Ideas From Efama to Mobilize Private Savings Toward the EU Economy

  |   For  |  0 Comentarios

The European Fund and Asset Management Association (Efama) highlights in its document “The EU Must Adopt a New Deal to Mobilize EU Savings” that, according to the European Commission, more than €600 billion must be invested annually to achieve a successful green transition, as well as additional billions to support the digital transition. In light of this reality, Efama calls for the creation of the necessary investment conditions to address these challenges.

What exactly do these measures to create the “necessary investment conditions” entail? According to Bernard Delbecque, Senior Director at Efama, “a decisive shift in EU policies is needed, particularly in competition and industrial policies, to improve investment opportunities, boost the valuation of Europe-based companies in global stock indices, and increase investments from asset owners into EU companies. Once asset owners see more promising prospects in the EU, they will increase their investments in the region, thereby supporting the financing of the green and digital transitions.”

The report prepared by Efama states that to unlock private investment and finance the EU’s capital needs, it is crucial to leverage the potential of the Single Market and develop an effective Capital Markets Union (CMU) that offers more opportunities and better outcomes for European companies and savers. Additionally, it is imperative to redirect the European Commission’s Retail Investment Strategy to encourage EU citizens to invest more in capital market instruments and promote retirement savings, thereby increasing the pool of available savings to support the EU’s ambitions.

Impact on UCITS Funds

Efama sees addressing these challenges as urgent, as its report demonstrates that this situation is impacting the growing allocation of UCITS assets to U.S. equities, attributing this trend to the superior performance of U.S. stock markets. “By the end of 2023, 44.6% of UCITS equity portfolios were invested in U.S. assets, compared to 19.2% in 2012. The high exposure of European UCITS equity funds to foreign assets is specific to Europe, according to the study. In 2023, equity funds domiciled in the EU and the UK had 27% and 29% of their portfolios invested in local stocks, respectively, compared to 78% and 84% for equity funds in the U.S. and the Asia-Pacific region,” the report argues.

The document outlines several factors that may explain the lower domestic bias among European investors, such as the benefits of cross-border investments, the role of financial advisors, the development of fund platforms facilitating investments in funds tracking global indices, the relatively small size of EU stock markets, and the enthusiasm for leading U.S. tech companies.

“The strong performance of U.S. markets, which led to an increased allocation of equity assets to U.S. stocks, reflects a combination of factors and policies, including robust population growth, higher spending on research and development, substantial fiscal stimulus, and lower energy prices,” the report explains.

A Matter of Competitiveness

Efama’s main conclusion is that, to compete effectively on the global stage and foster the emergence of industrial leaders based in Europe, the EU must embark on a transformative path to boost economic growth, improve investment opportunities, generate higher investment returns, and increase the market capitalization of European companies. In their view, these are necessary conditions to attract more investment capital to the EU and ensure that European companies have access to financing throughout their development.

“This, in turn, could initiate a virtuous circle where higher economic growth strengthens asset owners’ confidence in the EU economy, thereby bolstering the ability of asset managers to provide a critical source of stable, long-term financing for European governments, companies, and infrastructure projects,” Efama concludes.