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Asian Equities Remain Very Attractive… The Structural Growth Stories Are Still There

Rahul Chadha, CIO at Mirae Asset Global Investments.. mirae

Growth around the world is slowing down, but in Asia we can still find many stories of structural growth that make a case for equity investments in the region. This is explained by Rahul Chadha, CIO of Mirae Asset Global Investments in this interview with Funds Society. He acknowledges that the trade war between China and the US can cause some pain, but he believes that the measures that some countries are taking can alleviate the situation and even benefit some markets.

The world is slowing its growth… what are the perspectives for the Asian region?

Indeed global growth momentum is slowing; however, we believe that policymakers have the necessary tools at their disposal to support growth should downside risks arise. Our current base case is that we will see a gradual growth recovery as policy support filters through to the real economy. Along with stimulus measures including further infrastructure spending boosts, monetary easing and fiscal stimulus, we expect China to push forward with further opening-up of domestic industries (in particular financial sectors) and capital markets and implement more structural reforms. In India, the government has recently made a major move to boost growth and sentiment by announcing a substantial cut in corporate tax rates. Corporate income tax rates will reduce from 34.3% to 25.17%, effective this current financial year. Furthermore, for new manufacturing companies setting up after 1 October 2019, the corporate income tax rate is further reduced to 17%, which should help attract more Foreign Direct Investment (FDI)

What macro consequences will the U.S.-China trade war bring to the region? Which countries will be the most affected or which ones will be benefited from substituting China instead of the U.S. as a trading partner?

Increased tariffs will likely negatively affect growth; however, we believe that further easing policies will be able to mitigate some of these effects. In terms of the medium to longer term opportunities that these trade shifts could create, a number of Asian countries including India, Vietnam and other parts of Southeast Asia will be key beneficiaries. Multinational companies have already begun to explore shifting production facilities outside of China. These economies will benefit if their governments can build up the capacity to capture export share, which would attract higher foreign direct investments and create jobs. As mentioned earlier, the Indian government has lowered its corporate income tax rate to 17% for new manufacturing companies, which is a rate lowest among peers.

What will be the consequences in the markets? Do you fear a shock if the situation worsens?

US-China trade remains a key area to watch for markets and a meaningful escalation is a tail risk. Despite trade talks resuming, a near-term resolution for US-China trade appears unlikely at this stage, we expect the current dynamic to remain until one or both sides begins to feel the full impact of additional tariffs. Having said that, we believe both parties will continue to work towards an eventual trade deal.

In general, in Asian markets, what are the main risks for the coming months?

We expect that in the near term, markets will probably continue to see periods of higher volatility as investors grapple with the current key issues – temporary US-China trade truce, slowing global growth and synchronized central bank easing. Amidst some market volatility, we continue to focus on strong business models, which are more resilient from the impact of disruption and uncertainty, and prefer names that have reasonable, not high, implied growth expectations.

Even so, does investment in Asian equities represent a good opportunity? What returns can be expected for 2020?

We believe Asian equities remain very attractive. Despite some slowdown and macro uncertainty, the structural growth stories are still there. Importantly, Asia ex-Japan valuations are currently at an attractive level, and we see potential compelling risk-reward opportunities. Our base case for 2020 is that we see a gradual recovery on the back of policy support measures and if there is a resolution of trade tensions, then we could see a stronger recovery as it removes the overhang of uncertainty and boost corporate confidence.

Which markets have the best prospects? The big ones or the peripheral ones and why?

China remains an attractive structural story, despite the headline risks. While policy support is set to continue as trade uncertainties persist, the Chinese government still has many levers it can utilize to stimulate the economy, particularly given that the stimulus, thus far, has been very measured. A-share inclusion factor increasing on MSCI indices is also another positive. Since the initial inclusion of A-shares in June 2018, foreign investors have been increasing their exposure to China’s onshore market. At the end of 2018, foreign investors accounted for approximately 6.7% of the free-float market cap of the onshore equity market. This level is still low compared to other major markets in the region such as Taiwan, South Korea and Japan, where foreign ownership is in the 20%–35% range. We have been researching opportunities in the China A-share market since the Stock Connect program was first launched in November 2014, and we seek to further deepen and expand our capabilities in this space going forward.

In India, Prime Minister Modi’s re-election win gives him another five year term, which should be positive for the Indian equity market, as it provides stability and continuity for his development agenda. The recent corporate tax cuts will provide a boost to the economy. Near term growth is likely to remain softer as policy support measures will take some time to filter to the real economy. However, the fact remains that over the medium term, India is a very powerful story and the economy is at a cyclical bottom.

By sectors, do you have any preferences?

Our portfolios’ sector/country allocations are the end-result of bottom up stock selection. Irrespective of sector, we prefer companies with strong business models and leaders in technology/digitization, utilizing big data, as we believe they will be the stronger performers over the long run. Healthcare is an overweight position in the portfolio, we prefer leading private hospitals and innovative pharma companies, particularly those developing treatment for chronic diseases such as diabetes, cancer. Insurance is another area where we see very attractive opportunities as penetration remains very low across most Asian countries. We like industry leaders with strong brand, solid agency force/distribution.

How can central banks help Asian markets? How are central banks behaving in Asia?

Amid a more dovish stance from the US Fed, most central banks in Asia have embarke on easing of some sort and more is likely to come. For example, the Reserve Bank of India has been on a rate cutting cycle this year, the repo rate is now at a 9-year low. Additionally, Asian policy rates and currencies have normalized to a greater degree since 2013. This provides Asian central banks and policymakers with some room to confront potential downside risks to growth.

FE Fundinfo Launches As A Global Fund Data and Technology Service

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This Monday, over a year after the merger of FE, Fundinfo and F2C, UK-based FE Fundinfo has officially unveiled itself as a global fund data and technology service, which it says is “holistic” and connects fund managers, fund distributors and financial advisers across the world.

The combined entity benefits from the three companies’ investment expertise, technology, software and services. The company will now focus on further developing its products through its fundinfo.cloud information marketplace, it said.

FE Fundinfo will allow fund managers and fund distributors to connect and share information, given that information published on fundinfo.cloud will allow fund distributors, fund managers and financial advisers to research and select funds with the latest data.

Peter Little, Chairman of FE fundinfo, says: “It is an exciting time in the global investment industry. Like many others, it is undergoing some rapid and fundamental changes which present both opportunities and challenges for those working within it. As such, there is an intrinsic need for forward-thinking and innovative organisations to service the industry’s stakeholders and to help them navigate between the challenges and opportunities. FE fundinfo will play a crucial role in providing new solutions and supporting the investment industry at every stage. In an industry where success is determined by the accuracy and timeliness of its data, FE fundinfo’s commitment to trust, connectivity and innovation will ensure investment professionals have the technology, data and network they need to support their clients and drive better investment decisions.”

With roots stretching back to 1996, FE fundinfo has offices in the UK, Switzerland, Luxembourg, India, Czech Republic, Singapore, Australia, Hong Kong, Germany, Spain, France and Italy. With more than 650 members of staff across these offices, the organisation is truly global in outlook and capability.

The company also enjoys significant market coverage in the investment industry, working with more than 3.500 advisers, paraplanning companies and compliance consultants; 1,100 asset managers; 100 banks and brokers; 15 platforms and 70 international insurance companies across the globe.

130 Banks Holding USD 47 Trillion in Assets Commit to Climate Action and Sustainability

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In a massive boost for climate action and sustainability, leading banks and the United Nations launched on September 22nd, the Principles for Responsible Banking, with 130 banks collectively holding USD 47 trillion in assets, or one third of the global banking sector, signed up.

In the Principles, launched one day ahead of the UN Climate Action Summit in New York, banks commit to strategically align their business with the goals of the Paris Agreement on Climate Change and the Sustainable Development Goals, and massively scale up their contribution to the achievement of both.

By signing up to the Principles, banks said they believe that “only in an inclusive society founded on human dignity, equality and the sustainable use of natural resources” can their clients, customers and businesses thrive.

With global leaders coming together to share the actions they are taking to attain the Sustainable Development Goals and address climate change this week in New York, UN Secretary-General António Guterres said at the launch event, attended by the 130 Founding Signatories and over 45 of their CEOs, that “the UN Principles for Responsible Banking are a guide for the global banking industry to respond to, drive and benefit from a sustainable development economy. The Principles create the accountability that can realize responsibility, and the ambition that can drive action.”

The Principles are supported by a strong implementation framework that defines clear accountabilities and requires each bank to set, publish and work towards ambitious targets. By creating a common framework that guides banks in growing their business and reducing risks through supporting the economic and social transformation required for a sustainable future, the Principles pave the way for the transformation to a sustainable banking industry.

“A banking industry that plans for the risks associated with climate change and other environmental challenges can not only drive the transition to low-carbon and climate-resilient economies, it can benefit from it,” said Inger Andersen, Executive Director of the United Nations Environment Programme (UNEP). “When the financial system shifts its capital away from resource-hungry, brown investments to those that back nature as solution, everybody wins in the long-term.”

While action on climate change is growing, it is still far short of what is needed to meet the 1.5°C target of the Paris Agreement. Meanwhile, biodiversity continues to decline at alarming rates and pollution claims millions of lives each year.

More ambition, backed by a step change in investment from the private sector, is needed to tackle these challenges and ensure that humanity lives in a way that ensures an equitable share of resources within planetary boundaries.

The banking and private sectors can benefit from the investment they put into backing this transition. It is estimated that addressing the SDGs could unlock USD 12 trillion in business savings and revenue annually and create 380 million more jobs by 2030.

“To transit to low-carbon and climate-resilient economies that support the goals of the Paris Agreement requires an additional investment of at least USD 60 trillion from now until 2050,” said Christiana Figueres, Convener, Mission 2020, who is credited as the architect of the Paris Agreement in her role formerly as Executive Secretary of the UN Framework Convention on Climate Change. “As the banking sector provides over 90 per cent of the financing in developing countries and over two thirds worldwide, the Principles are a crucial step towards meeting the world’s sustainable development financing requirements.”

To coincide with the UN Secretary-General’s Climate Action Summit, one day after the launch of the UN Principles for Responsible Banking, 31 of their Signatories with over $13 trillion in assets announced a Collective Commitment to Climate Action. With this groundbreaking pledge, Founding Signatories of the Principles are taking tangible steps towards putting their commitment to align their business with international climate goals into practice. The commitment was announced during a full-day event on the implementation of the Principles for Responsible Banking, hosted by the thirty banks that led their development.

The Collective Commitment to Climate Action sets out concrete and time-bound actions the banks will take to scale up their contribution to and align their lending with the objectives of the Paris Agreement on Climate, including:

aligning their portfolios to reflect and finance the low-carbon, climate-resilient economy required to limit global warming to well-below 2, striving for 1.5 degrees Celsius;
taking concrete action, within a year of joining, and use their products, services and client relationships to facilitate the economic transition required to achieve climate neutrality;
being publicly accountable for their climate impact and progress on these commitments.

Carlos Hank González, Chairman of the Board of Directors, Grupo Financiero Banorte, said: “Banks have to assume a true social commitment and align ourselves with people’s priorities. Signing the Principles for Responsible Banking commits us to continue contributing to the sustainable development of our country and to face together Mexico’s greatest challenges”

Banco Santander Executive Chairman, Ana Botin, said “Every business has a responsibility to tackle today’s global challenges. At Santander we’ve worked together to deliver profit with purpose – ensuring that our day to day operations help more people and businesses prosper in a sustainable way. We have ambitious targets for areas like financial empowerment, green finance, and gender diversity among others. And now we need to do more by collaborating, sharing best practice, and encouraging more businesses and individuals to act in a responsible way to the benefit of all.”

For a complete list of all banks that have become the Founding Signatories of the Principles for Responsible Banking today and quotes from CEOs please click here.

“The Main Risk Right Now for Equities is High Valuations, Supported by Narratives Around Sustainably Record-Low Interest Rates”

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Louis d’Arvieu, courtesy photo. Louis d’Arvieu, gestor coordinador del Sextant Grand Large

In an environment that nears the end of the cycle, it is worth reducing exposure to equities, or at least that is what Admiral Gestion believes, according to Louis d’Arvieu, fund manager of the Sextant Grand Large, one of the entity’s most representative funds. In an interview with Funds Society, d’Arvieu confesses that, at this time, they prefer to invest in Asia rather than in the United States.

We are in the final part of the cycle … is it still a good time for equities? Should we increase exposure or reduce it at this time?

In the final part of the cycle it makes sense to reduce exposure compared to normal times as equities are very sensitive to any turn in the economic cycle. In our flexible fund Sextant Grand large, which is supposed to have a 50% exposure to equities on average we thus have only a 28% weighting currently.

How you value the new impulse of the central banks to the markets and his artificial extension of the cycle? Will it remain a favorable factor, for fixed income and equities?

We do not use nor do any macroeconomic scenario. For us the main point to consider for long-term performance is the valuation at the starting point. So we have not any strong views on central banks interventions.

And what are the main risks right now for equities? Is the next slowdown / recession? Are the geopolitical events and why?

For us the main risk right now for equities is high valuations, supported by narratives around sustainably record-low interest rates and thus sustainably record-high levels of debt, maximal central banks efficiency, and so on. Otherwise, equities are much more sensitive to recessions than to most of geopolitical events.

In this scenario, and despite the macroeconomic and geopolitical risks, how do you see the fundamentals of the companies in which you invest? are they sanitized? What growth and benefits are expected for the next twelve months?

We invest when valuations are cheap compared to the quality of the company. So there is a mix in our funds of high quality and recession-proof companies at reasonable prices, of mildly cyclical companies at cheap prices or of highly cyclical companies at deep value prices. We do not trust our or any 12-month forecast! But we spend much time forecasting what the earning power of a company would be on a mid-cycle 5-year + basis.

It is also a scenario in which the value seems not to give very good results, why? Will this situation change in the near future?

Value in the sense of deep-value and statistically cheap companies has not given very good results since the last GFC, but it had done uniquely well between 2000 and 2007. In the last 2 years, it is true that value in the larger meaning of fundamental investing, including some GARP ideas for instance, has also begun not to do well. The stock market performance has been increasingly polarized between expensive visible growth stocks which have recently become even more expensive and any kind of value stocks which have become even cheaper. Unfortunately I have no idea how long this can last and it can last for long as we saw in 1969 or 1999… But reversals come and are brutal.

Is it easier or harder to find value opportunities than in the past, due to the artificial prices created by central banks?

In that environment, it is easier to find value opportunities but the trick is that you have to be patient as it might still underperform for some more time! But if you look at cyclical sectors, at small caps, at Asian and European stocks, you will find a lot of value opportunities.

You have a French equity portfolio… which are the sectors where you see more opportunities? and because? Are you afraid of France’s macroeconomic data or not?

We do pure stockpicking and a very diverse portfolio of companies in terms of sectors in France, from Groupe Guillin which is the european leader in packaging for the food industry to Jacquet Metals in steel distribution or Groupe Crit in temporary staffing. We´re not negative with the macroeconomic data in France´s economy but our approach to investing is pure bottom-up so we don´t get influenced by macro in terms of portfolio construction, although we will avoid companies with too much debt when the macro picture deteriorates.

In international equities, in what areas or sectors are you now finding better options, for the fundamentals of companies?

Internationally, we find many opportunities in Japan, South Korea and Hong Kong, especially on the small cap segment, which we believe is more inefficient. We also work increasingly on cyclical sectors like commodities and banks. The most contrarian view we have is our underweight of US equities. We follow closely Shiller´s PE and valuations are close to 100% higher than the historical average, so a reversion to the mean seems reasonable. Thanks to our geographical flexibility, we prefer to invest in Asia rather than the US.

Joseph Pinco and Philippe Setbon Join Natixis

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Natixia nombramiento — . Natixis IM refuerza su equipo con dos nuevos fichajes

Natixis appoints Joseph Pinto as Chief Operating Officer of Natixis Investment Managers and Philippe Setbon as Chief Executive Officer of Ostrum Asset Management.

Joseph and Philippe will both be members of the Natixis Executive Committee and of the Natixis Investment Managers Management Committee.The creation of the COO role for Natixis Investment Managers and the appointment of Joseph Pinto–who will take up his role in the coming months –reinforce Natixis Investment Managers’management team and enhance its operational efficiency.

Joseph Pinto will report to Jean Raby, CEO of Natixis Investment Managers, member of the Senior Management Committee of Natixis in charge of Asset and Wealth Management.

Philippe will replace Matthieu Duncan who has resigned from his role as Chief Executive Officer of Ostrum Asset Management in order to pursue other interests. Philippe will take up his role at the end of November, until which time Matthieu will remain in his role.

François Riahi, Chief Executive Officer of Natixis said: “With Philippe Setbon and Joseph Pinto, we welcome to the Natixis Executive Committee two leading asset management professionals. Joseph Pinto, whose international background perfectly fits with our setup, will bring significant added–value to our multi–affiliate business model at a truly transformative moment for the industry. Philippe Setbon will lead one of our key strategic initiatives; the creation and development with La Banque Postale Asset Management of a European leader focused on insurance–related euro fixed income.”

Jean Raby said: “Joseph and Philippe’s recognized experience and expertise will bolster Natixis IM and Ostrum AM’s growth and operational efficiency and will contribute to further power the continued developmentof our business. I thank Matthieu Duncan for his contribution to the successful transformation and repositioning of Ostrum AM that he has overseen over the past three years.”

Joseph Pintobegan his career in 1992 with Crédit Lyonnais, working in the securitization business in New York before moving to Lehman Brothers in London in the Corporate Finance division. From 1998 to 2001, Joseph was Project Manager at McKinsey & Cie in Paris. From 2001 to 2006, he was Deputy CEO and member of the Board of Directors of Banque Privée Fideuram Wargny. He joined AXA IM in January 2007 as Head of Business Development for France, South Europe and Middle East. He then took the leadership of the Markets and Investment Strategy Department in 2011 and became Chief Operating Officer in 2014, also serving as a member of AXA IM’s Management Board.

Philippe Setbonbegan his career in 1990 as a financial analyst at Barclays Bank in Paris. Between 1993 and 2003, Philippe was with Groupe AZUR–GMF, first as a portfolio manager for European stocks, then as Head of Asset Management. He then moved to Rothschild & Cie Gestion as Head of Equity portfolio management before joining Generali Group in 2004 where he held a succession of senior roles including CEO of Generali Investments France,CEO of Generali Investments Europe Sgr and CIO of Generali Group. He joined Groupama in 2013 as CEO of Groupama Asset Management.Philippe serves as vice president of the French Asset Management Association (AFG).

Equities in September Closed on a High Note, but Long-Term Rates are Still Low…

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Screen Shot 2019-10-03 at 8 — Photo: PxHere CC0. Equities in September Closed on a High Note, but Long-Term Rates are Still Low...

In a notable display of resiliency, U.S. stocks closed September near all-time highs against a very uncertain investment backdrop and finished the month and the third quarter with a gain and with a double-digit return for the nine months. Stock prices gyrated as they interfaced with diverse news headlines and world events. A partial list of topics includes the China/U.S. trade war, Brexit, Saudi oil field drone attack, central bank easing, yield curve inversion, negative interest rates, U.S. recession concerns, and relatively slow growth in China and Europe.

Top trade negotiators for the U.S. and China are set to square off on October 10-11 in Washington, as both sides seem more willing to resolve some issues. The U.S. economy, though starting to show some trade war related stress in the industrial sector, is still expected to grow about two percent in the third quarter. Employment, housing and a record $113.5 trillion household net worth are key.

During the post FOMC Statement Press Conference Q&A on September 18, Chairman Powell asked a timely rhetorical question: “But why are long-term rates low? There can be a signal about expectations about growth there for sure, but there can also just be low term premiums. For example, it can just be that there’s this large quantity of negative yielding and very low yielding sovereign debt around the world, and inevitably that’s exerting downward pressure on U.S. sovereign rates without really necessarily having an independent signal.”

Corporate earnings, as measured by the S&P 500, are currently projected to rise 4.1 percent in Q4 2019 and be up 11.2 percent in 2020 based on IBES data. Though global M&A activity declined in the third quarter due to trade war fears, a September 30 NIKKEI Asian Review headline – Japan eyes tax breaks to steer idle cash into M&A deals – Companies hoarding profits miss out on innovation, ruling party tax chief says – sets up new deals for merger arbitrage.

GAMCO continues to research new investment opportunities in the North American equipment rental market for infrastructure replacement and new structures for highways, bridges, buildings, energy and water. Public drinking water systems are projected to need about a trillion dollars in upgrades and new systems over the next 25 years.

Column by Gabelli Funds, written by Michael Gabelli

__________________________________

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Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.

Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.

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GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.

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Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to ﬁnd out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

Artemio Hernández Joins AIS Financial Group

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AIS Financial Group has hired Artemio Hernández Salort as Head of its Fund Solutions Division. He will report directly to Samir Lakkis, founding partner of the company.

AIS currently distributes over 1billion dollars a year in structured products and is currently looking to expand in order to diversify its business offering. Artemio will focus on third party fund distribution, a new business line which will be offered to clients of AIS and he will be responsible for.

Artemio has a degree in Business Administration from CUNEF and he joins AIS with over 10 years of experience in the sector. He had previously worked in the Private Banking division at Credit Suisse in Madrid, Zurich and Panama where he focused on fund selection for the Iberian and Latinamaerican markets. His most recent position was as a private banker for the Iberian market at UBS, Geneva.

With offices in Madrid, Geneva, Bahamas and currently opening a fourth office in Panama, AIS will look to partner with those managers who want to outsource their sales force and benefit from the knowledge and experience that the company has in the region.

Goldman Sachs AM Launches its European ETF Business

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Goldman Sachs Asset Management (GSAM) has launched its European ETF business on Thursday. Its debut product, is the Goldman Sachs ActiveBeta U.S. Large Cap Equity UCITS ETF, a European version of their $6.5 billion flagship U.S. product, the largest milti-factor equity ETF in the world.

To complement the product that launched today on the London Stock Exchange and will be cross listed in various other European stock exchanges, the company plans to launch a range of ETFs providing access to a number of markets, asset classes and investment styles over the next six months.

The ETFs are designed to be complementary to GSAM’s active fund range and used as part of broader, diversified portfolios.

GSAM started offering ETFs in 2015 in the U.S. and currently has 19 products with $14 billion in assets under management.

Global Financial Assets Fell in 2018 for the First Time Since the Financial Crisis

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Allianz estudio — Pixabay CC0 Public Domain. Los activos financieros globales caen en 2018 por primera vez desde la crisis financiera

The tenth edition of Allianz‘ “Global Wealth Report”, which puts the asset and debt situation of households in more than 50 countries under the microscope, presents a sad premiere: in 2018, financial assets in industrial and emerging countries declined simultaneously for the first time; even in 2008, at the height of the financial crisis, this was not the case. Worldwide, savers were in a bind: On the one hand, the escalating trade conflict between the US and China, the endless “Brexit saga” and increasing geopolitical tensions, on the other hand, the tightening of monetary conditions and the (announced) normalization of monetary policy.

The stock markets reacted accordingly: Global equity prices fell by around 12% in 2018. This had a direct impact on asset growth. Global gross financial assets of households1 fell by 0.1% and remained more or less flat at EUR 172.5 trillion. “The increasing uncertainty takes its toll”, said Michael Heise, chief economist of Allianz. “The dismantling of the rule-based global economic order is poisonous for wealth accumulation. The numbers for asset growth also make it evident: Trade is no zero-sum game. Either all are on the win- ning side – as in the past – or on the losing side – as happened last year. Aggressive protec- tionism knows no winners.”

Convergence between poorer and richer countries comes to a halt

In 2018, gross financial assets in emerging markets not only declined for the first time, but the decline of -0.4% was also more pronounced than in the industrialized countries (-0.1%). The weak development in China, where assets fell by 3.4%, played a key role in this. However, other important emerging markets such as Mexico and South Africa also had to absorb significant losses in 2018.

This is a remarkable trend reversal. Over the last two decades, the growth gap between poorer and richer regions of the world still stands at an impressive 11.2 percentage points on average. It seems that the trade disputes have set an abrupt stop sign for the catching-up process of the poorer countries. Industrialized countries, however, did not benefit either. Both Japan (-1.2%), Western Europe (-0.2%) and North America (-0.3%) had to cope with nega- tive asset growth.

The price of low yields

At the same time, fresh savings set a new record. They increased by 22% to more than EUR 2,700 billion. The increase in the flow of funds, however, was solely driven by US households, who – thanks to the US tax reform – upped their fresh savings by a whopping 46%; two thirds of all savings in industrialized countries thus originated in the US.

But the analysis of fresh savings in 2018 reveals another peculiarity: Savers seemed to turn their backs on the asset class of insurance and pensions. Its share in total fresh savings has fallen from more than 50% before and immediately after the crisis to a mere 25% in 2018. And while US households increased in return their demand for securities, all other households preferred bank deposits (and sold securities): In Western Europe, for example, two thirds of fresh sav- ings ended up in bank coffers; worldwide, bank deposits remained the most popular destina- tion for fresh savings, for the eighth year in a row. This penchant for liquid and supposedly safe assets costs savers dearly, however: Losses suffered by households as a result of inflation are expected to have risen to almost EUR 600 billion in 2018.

“It is a paradox savings behavior”, said Michaela Grimm, co-author of the report. “Many people save more because they expect a longer and more active life in retirement. At the same time, they shun exactly those products that offer effective old-age protection, namely life insurances and annuities. Seemingly, the low yield environment undermines the willingness for long-term saving. But the world needs nothing more than long-term savers and investors to deal with all the upcoming challenges.”

Growth in liabilities stabilize at high level

Worldwide household liabilities rose by 5.7% in 2018, a tad below the previous year’s level of 6.0%, but also well above the long-term average annual growth rate of 3.6%. The global debt ratio (liabilities as a percentage of GDP), however, remained stable at 65.1%, thanks to still robust economic growth. Most regions saw a similar development in that respect. Asia (excluding Japan) is a different story. In the last three years alone, the debt ratio jumped by al- most ten percentage points, driven mainly by China (+15 percentage points).

“Debt dynamics in Asia and particularly in China are, at least, concerning”, commented Patri- cia Pelayo Romero, co-author of the report. “With a debt ratio of 54%, Chinese households are already relatively as indebted as, say, German or Italian ones. The last time, we had to witness such a rapid increase in private indebtedness was in the USA, Spain and Ireland shortly before the financial crisis. Compared to most industrialized countries, debt levels in China are still markedly lower. Supervisory agencies, however, should no longer stand by and watch. Debt-fueled growth is not sustainable – even China is not immune against a debt crisis.”

Because of the strong growth in liabilities, net financial assets i.e. the difference between gross financial assets and debt fell by 1.9% to EUR 129.8 trillion at the close of 2018. Emerg- ing countries in particular suffered a drastic decline, net financial assets shrank by 5.7% (in- dustrialized countries: -1.1%).

Just a bump in the road?

For the first time in over a decade, the global wealth middle class did not grow: At the end of 2018, roughly 1,040 million people belonged to the global wealth middle class – which is more or less the same number of people as one year before. Against the backdrop of shrink- ing assets in China, this does not come as a big surprise. Because up to now the emergence of the new global middle class was mainly a Chinese affair: Almost half of their members speak Chinese as well as 25% of the wealth upper class. “There are still plenty of opportuni- ties for global prosperity”, said Arne Holzhausen, co-author of the report. “If other heavily populated countries such as Brazil, Russia, Indonesia and in particular India would have had a level and distribution of wealth comparable to China, the global wealth middle class would be boosted by around 350 million people and the global wealth upper class by around 200 million people. And the global distribution of wealth would be a little more equal: at the end of 2018, the richest 10% of the population worldwide owned roughly 82% of total net financial assets. Questioning globalization and free trade now deprives millions of people around the world of their opportunities for advancement.”

When analyzing the movements between the wealth classes, the scars of the financial and euro crisis become visible again. Whereas emerging countries – particularly in Asia – can look back on two decades of mostly social rise, the picture for Western Europeans and Americans is bleaker. In fact, it’s only in these two regions that the ranks of the low wealth class have increased since 2000 – by 4% of the population in Western Europe – and those of the high wealth class have decreased – by 6% and 9% of the population in Western Europe and North America, respectively –, when adjusted for population growth. In Germany, on the other hand, the situation remained relatively stable.

Florian Komac Joins GAM

| For Beatriz Zúñiga | 0 Comentarios

GAM Investments appointed Florian Komac as investment manager on the Global Credit Team.

He joined the team on 16 September 2019. Komac is based in Zurich and works closely with Christof Stegmann and Dorthe Nielsen. The team reports to Jack Flaherty in New York.

Komac comes from AXA XL (formerly XL Catlin) in New York, where he focused on corporate bonds as a portfolio manager. Previously, he was a portfolio manager at Swiss Re in Zurich and London and a buy-side credit analyst at Activest (now Amundi) in Munich.

“According to Matthew Beesley, the incorporation of Florian highlights GAM’s commitment to have a global organization within its investment team, which positions the Global Credit to increase GAM’s fixed income experience in Zurich, New York and London. This offer complements GAM’s Global Strategic Bond team.