Photo: Shenandoah National Park. 201 Global Asset Managers Can Now Try to Woo Mexican Pension Funds
It is official, Afores can now invest in international mutual funds. The meeting and authorization of the Risk Analysis Committee (CAR) that international managers, afores and the regulator have been waiting for since 2017, has already taken place and, as a result, the guidelines by which afores can invest in mutual funds with active strategies can be consulted in only 12 pages.
In summary, in order to be elegible the manager should have at least 10 years of experience managing investment vehicles or investment mandates, as well as at least 50 billion dollars in assets under management. The same amount that applies to managers looking for an investment mandate. According to the CAR document, this requirement, which is fulfilled by the 201 largest asset managers in the world, can be modified by the Investment Committees of the Pension Funds by “considering criteria such as the experience of the administrator in the management of assets in the international markets of the strategy object of investment, the performance of the Fund, as well as additional criteria determined by their own Investment Committees.”
The fund in particular must have at least 2 years of operation since its inception and more than 100 million dollars in assets. In addition to being open funds of an Eligible Country for Investments and having a benchmark.
Although the guidelines do not indicate that the daily composition of the funds should be known, a condition with which several players were not comfortable, they do mention that the net value of the assets of the fund should be known daily.
The fund itself may use derivatives to reduce costs, manage liquidity, marginally facilitate the replication of the index or sub-index or for risk management but not to increase returns, leverage or synthetically replicate the benchmark.
In addition, to preserve the active nature of the strategy, investment in other funds or ETFs will not be allowed.
This resolution marks a milestone in the way Afores can invest and has been in the process for several years, as well as the increase of the 20% limit on investment in foreign securities, which the CONSAR confirms that they are still working to achieve. For this to change, there needs to be change to the law, which is now underway, but without a doubt, the approval of the investment in international funds will change the market in Mexico and the way of investing the afores, for the benefit of the workers.
Wikimedia CommonsCourtesy photo. Over Seven Million Delinquencies
A decade ago, during the financial crisis of 2008-2009, more than 5.5 million Americans were unable to pay their car loan instalments and were more than 90 days late with their payments. Now there are more than seven million people in the United States who can’t pay their car loans, seemingly illogical in the current situation of economic growth and very low unemployment (4% compared to 10% in 2009).
Around 86% of Americans use a private car to get to work. This gives you an idea of how important it is to have a car in most parts of the United States and why most people prioritise payment of their car loans over their mortgage.
As a result, some economists warn that these loan default figures published by the New York Federal Reserve Bank could be just the tip of the iceberg when it comes to problems in the economy and that we could find ourselves in a situation similar to that of the subprime mortgage crisis.
Some significant data: 90% of the value of new vehicle sales is paid through a financial instrument (a loan or a lease); The total outstanding car loans in the USA is more than a trillion; the number of new loans for vehicle purchases in 2018 was $584 billion (the highest nominal figure in 19 years); according to sector reports, the average price of a new car is approaching $36,000, while the average family income in 2018 was $62,000; the average length of a vehicle purchase loan has grown to 64 months.
At first sight, all these figures can sound alarming and reminiscent of the 2008-2009 financial crisis. However, as with any statistical data, we need to put them in the appropriate context and look at the whole picture. To do this, it is important to emphasise that, despite the fact that the absolute number of defaults has increased, the non-performing loan ratio ended 2018 at 4.5%, below the 5.3% peak reached in 2009. Another key factor in evaluating the situation of vehicle loan debt is the quality of the creditors: new loans were mainly granted to people with a higher credit score, which means that 30% of outstanding car purchase loans were given to borrowers with the highest credit score.
Neither should we ignore the fact that the increase in the absolute number of loans is due to the good health of the economy and has gone hand-in-hand with an increase in car sales, meaning that the percentage of financed purchases has remained relatively stable. Finally, we need to put into the context the size of the vehicle purchase loan market (just over a trillion dollars) by comparing it to the mortgage debt market ($12 trillion).
It is undeniable that, by analysing all the figures in-depth, we can reach conclusions on the unequal access to economic growth for certain population sectors (for example, the increase in non-performing loans in the population under 30, a sector also overburdened by student loans) or on the need for infrastructure to facilitate public transportation. However, it seems unreasonable to assert that an increase in non-performing vehicle loans is leading us to the threshold of a global financial crisis such as that of 2008-2009 caused by the selling of subprime mortgages.
Pixabay CC0 Public DomainPamjpat. Asian Countries Dominate When It Comes to Passport Power in 2019
Japan goes into the new year holding 1st place on the Henley Passport Index, with citizens enjoying visa-free/visa-on-arrival access to 190 destinations. In a further display of Asian passport power, Singapore and South Korea now sit in joint 2nd place, with access to 189 destinations around the globe. This marks a new high for South Korea, which moved up the ranking following a recent visa-on-arrival agreement with India. Germany and France remain in 3rd place going into 2019, with a visa-free/visa-on-arrival score of 188.
The US and the UK continue to drop down the Henley Passport Index — which is based on authoritative data from the International Air Transport Association (IATA) — and now sit in joint 6th place, with access to 185 destinations. This is a significant fall from the 1st place position that these countries held in 2015. Denmark, Finland, Italy, and Sweden now hold joint 4th place, while Spain and Luxembourg are in 5th. As they have done for much of the index’s 14-year history, Iraq and Afghanistan remain at the bottom of the ranking, with access to just 30 visa-free destinations.
Turkey’s recent introduction of an online e-Visa service has resulted in some interesting changes to the overall rankings. As of October 2018, citizens of over 100 countries (including Canada, the UK, Norway, and the US) must apply for an e-Visa before they travel to Turkey, instead of being able to do so on arrival. While this specific change means that a number of countries have dropped slightly in the rankings, it does not alter the overwhelmingly positive effect of the wider global tendency towards visa-openness and mutually beneficial agreements. Historical data from the Henley Passport Index shows that in 2006, a citizen, on average, could travel to 58 destinations without needing a visa from the host nation; by the end of 2018, this number had nearly doubled to 107.
Dr. Christian H. Kälin, Group Chairman of Henley & Partners and the inventor of the Passport Index concept, says this latest ranking shows that despite rising isolationist sentiment in some parts of the world, many countries remain committed to collaboration. “The general spread of open-door policies has the potential to contribute billions to the global economy, as well as create significant employment opportunities around the world. South Korea and the United Arab Emirates’ recent ascent in the rankings are further examples of what happens when countries take a proactive foreign affairs approach, an attitude which significantly benefits their citizens as well as the international community.”
Citizenship-by-investment countries consolidate their respective positions
As in 2018, countries with citizenship-by-investment (CBI) programs continue to hold their strong positions. Malta, for instance, sits in 9th spot, with access to 182 destinations around the world. St. Kitts and Nevis and Antigua and Barbuda hold 27th and 28th spot respectively, while Moldova remains in a strong position at 46th place, with citizens able to access 122 countries. A recent agreement signed between St. Kitts and Nevis and Belarus, due to come into effect in the coming months, will further strengthen the St. Kitts and Nevis passport, and enhance the travel freedom of its citizens.
Dr. Juerg Steffen, the CEO of Henley & Partners, says: “The enduring appeal of investment migration programs shows that more and more people are embracing alternative citizenship as the best way to access previously unimagined opportunities and improve their passport power. Additionally, it is no surprise that countries are increasingly looking to launch CBI programs, which attract talented individuals and bring enormous economic and societal benefits.”
You can consult your country’s position in the following link.
Photo: Onsen. Multi-Asset Funds did Not Work in 2018 because they Largely Replicated what Advisers Were Doing Themselves
Multi-asset funds failed to protect investors from the impact of volatile equity markets in 2018, according to the Natixis IM Global Portfolio Barometer.
Adviser portfolios delivered negative returns across all regions, driven by falls in equity markets. But the analysis of investor portfolios in seven markets, conducted by the Natixis Portfolio Research & Consulting Group, found that multi-asset funds did not provide diversification as expected, and instead had very high correlations to adviser portfolios. This suggests multi-asset funds largely replicated what advisers were doing themselves.
Equities were the largest contributor to negative returns in all regions, costing around 3-5% on average – except in Italy, where advisers had much lower equity allocations. However, multi-asset funds were the second largest detractor, costing 0.5-2% on average, and particularly affecting France, where these funds have traditionally been very popular.
Alternative investments, like real estate and managed futures, were more resilient to volatility than traditional asset classes, but still contributed marginally to portfolio performance at best, due to lacklustre performance and low allocations. Real assets contributed little except in the UK, where property funds were a positive contributor to portfolios.
Matthew Riley, Head of Research in the Portfolio Research and Consulting Group at Natixis IM, commented: “It’s natural for investors to seek shelter from volatile markets by diversifying portfolios, but it is clear from our analysis that, in 2018, the majority of multi-asset funds fell short and largely failed to diversify, which only added to portfolio losses”.
“Our findings show that investors really need to look more closely when selecting a multi-asset fund, ensuring that the fund is aligned with their investment objective. This due diligence should include checking the fund’s correlation to their existing portfolios, as well as to bonds and equities, to make sure it will improve the risk-return profile of the portfolio.”
Italy showing most resilience to volatile markets
In stark contrast to 2017, advisers in all regions suffered negative portfolio performance in 2018 with the impact of falling equity markets and muted fixed income returns taking their toll. Italy was the most resilient market, with estimated losses of 3.2% for the average adviser portfolio, due to a much lower allocation to equities. Advisers in Italy had an average equity exposure of just 20%, while the UK and the US had a more bullish stance, with equity weightings of over 50% in moderate risk portfolios.
Currency risk continues to weigh on portfolios
In 2017, the Global Portfolio Barometer revealed the impact of currency risk on performance. And, while slightly reduced, it remained an important factor in 2018, benefitting European investors compared to their US counterparts. Currency moves remain an often overlooked area of risk, but when considering a more internationally exposed portfolio, not paying attention to it can have a significant impact on overall returns. For instance, in 2018 a European investor allocating to US equities would have experienced a small positive return of 0.3% in euro terms – a US investor would have lost 5%.
The quest for true diversification continues…
In short, the findings of the Global Portfolio Barometer highlight the impact that the return of volatility had on markets and investor portfolios, with portfolio risks potentially rising from the extraordinarily low levels seen in 2017. Multi-asset funds simply failed to provide diversification, which should be food for thought when considering the relationship between diversification, risk and returns in adviser portfolios.
En 2018 el patrimonio de las IICs en España se situó en 454.761 millones de euros, una 2% menos que en 2017. Además, el número de partícipes y de accionistas ha continuado incrementándose en el año y se situó a finales de 2018 en 13,9 millones, un 6,8% más que el año anterior.
La renta fija ha continuado reduciendo su peso en la cartera y ya supone menos de la mitad (47,8%). Por su parte, la posición en renta variable en cartera ha continuado incrementándose en el periodo y supone el 15,6% frente al 14,3% de 2017. “Vamos hacia una normalización desde la asignación a renta fija corto plazo a la renta variable, pero todavía estamos lejos de países como Reino Unido donde el 50% está en acciones”, ha argumentado Lázaro de Lázaro, presidente de la agrupación de IIC de Inverco, durante un encuentro con periodistas.
En cuanto a rentabilidades, la elevada volatilidad presente en los mercados financieros durante 2018 ha llevado a los fondos de inversión a registrar rendimientos negativos en el año, siendo la rentabilidad interanual para el conjunto de fondos del -4,81%.
Perspectivas para 2019
Inverco pronostica que la rentabilidad de las IIC (Instituciones de Inversión Colectiva) en 2019 se sitúe entre el 2% y el 2,5% y las suscripciones netas continúen con la tendencia positiva de los últimos años. La patronal espera, además, que los fondos de inversión incrementen su patrimonio en torno a 13.500 millones de euros, un 5,2% más, alcanzando a finales de este año los 271.000 millones de euros. Por su parte, las IIC extranjeras incrementarían su patrimonio hasta los 176.000 millones de euros, lo que supone un incremento del 4,8%.
En cuanto al volumen de los fondos de pensiones podría aumentar en 2019 en casi 3.000 millones de euros (un crecimiento del 2,8%), cerrando el año en un patrimonio de 110.000 millones de euros. Además, se espera que la rotación hacia activos de más riesgo se traduzca también en rentabilidades más altas en el medio y largo plazo. “Los fondos de pensiones mixtos han pasado de representar el 29% al 58% y esto en el largo plazo va a producir mayores rentabilidades. Hay un poquito más de apetito por el riesgo y eso se ve en los planes de pensiones”, explica Juan José Cotorruelo, director de Vida y Pensiones de Caser.
Una tendencia que también se observa en fondos de inversión. Mientras que en 2007 casi el 64% del patrimonio de los fondos de inversión pertenecía a vocaciones conservadoras (39% monetarios y renta fija a corto plazo y 25% garantizados), en diciembre de 2018 apenas el 31% del ahorro en fondos se canaliza a través de este tipo de instrumentos.
¿Quién invierte en fondos de inversión en España?
Como novedad este año Inverco ha analizado el tipo de inversor que adquiere fondos de inversión entre los distintos países europeos. Así, por ejemplo, mientras que en España el 62% del volumen de activos total de los fondos pertenece a los hogares, en países como Francia o Alemania este porcentaje es del 26%, donde la mayor parte del patrimonio de los fondos está en manos de inversores institucionales.
Pixabay CC0 Public Domainpadrinan. What Can Investors Expect From China in Year of the Pig?
This month China started the year of the pig. In the Asian tradition, this is an animal directly related to fortune because of its nobility and fertility. Will this lunar new year bring fortune to investors or succulent returns to the Chinese stock market?
In the opinion of Michael Bourke, manager of the M&G (Lux) Global Emerging Markets fund, after a difficult year for stocks in 2018, “investors expect the new lunar year to generate better prospects for the Chinese stock market. The new year may typically be a time for optimism, but there remains a great uncertainty about the outlook for China. The country’s trade dispute with the United States dominates the headlines and the fear that US tariffs on Chinese products will begin to have a negative impact on the world’s second largest economy are worrying investors. Recent economic data has been weak, factory activity and exports are slowing, and last year the economy grew at 6.4%, its slowest pace since 1990.”
Hernando Lacave, manager at DIF Broker has the same concern: “In the year of the pig we will continue to talk about deceleration in China, where growth for 2019 is expected to fall to 6%. However, this is still much better than the 2.5% expected for the United States or 1.6% of the EMU, so bad macro data should not blind us since China will continue to be the engine of growth of the world economy.”
Investment experts warn that the commercial war is beginning to weigh on China, and although the slowdown started years ago, there are signs that this war is not only affecting the foreign sector but increasingly its internal economy. “Given the size of China, it is logical that it should no longer be treated as an emerging economy and be required to play with the same intellectual property rules than the rest of developed countries. In addition to the positives that an agreement would bring, bad macro data could be the catalyst needed for the Chinese Central Bank to launch incentives to keep growth for a long time, and they have margin to do so,” clarifies Lacave.
For managers, the important thing is that China continues to reorient its economic model from one based on investment in fixed assets to one driven by the growth of consumption, especially in the services sector. This transformation is being led by private companies that aim to generate profits and tend to be less capital intensive, unlike what happened during the boom of fixed assets, when state banks granted huge amounts of credit to other state entities and Real estate developers financed by the State. At Newton, part of BNY Mellon, when investing, they prefer to avoid those sectors. “Now that fixed assets have less weight in the Chinese economy, it is very likely that GDP growth will suffer. However, the growth registered will be of higher quality. We can expect the GDP to grow more slowly during this period of rebalancing, a change that, in our opinion, should not be detrimental to the more consumer-oriented areas of the economy, since the employment component of GDP will increase. The latest measures by the Chinese authorities have been aimed at making the lending more flexible and at supporting the middle classes through tax cuts,” explains Rob Marshall-Lee, Head of Asian and Emerging Equity at Newton.
Finally, Neil Dwane, global strategist at Allianz Global Investors, notes that “China’s high levels of debt and slower growth are likely to last beyond the New Year celebrations, but we believe that the Chinese government has the right tools to solve them. With China’s economy set to become the world’s largest, we believe that investors should think of China as an asset class.”
Pixabay CC0 Public Domain. China to Join Bloomberg Barclays' Global Aggregate Index
Bloomberg has confirmed that Chinese RMB-denominated government and policy bank securities will be added to the Bloomberg Barclays Global Aggregate Index starting April 2019 and phased in over a 20 month period. The inclusion is a result of the completion of several planned operational enhancements that were implemented by the People’s Bank of China (PBoC), Ministry of Finance and State Taxation Administration.
When fully accounted for in the Global Aggregate Index, local currency Chinese bonds will be the fourth largest currency component following the US dollar, euro and Japanese yen. Using data as of January 24, 2019 the index would include 363 Chinese securities and represent 6.03% of a $54.07 trillion index upon completion of the phase-in.
“Today’s announcement represents an important milestone on China’s path towards more open and transparent capital markets, and underscores Bloomberg’s long-term commitment to connecting investors to China,” said Bloomberg Chairman Peter T. Grauer. “With the upcoming inclusion of China in the Global Aggregate Index, China’s bond market presents a growing opportunity for global investors.”
The PBoC, Ministry of Finance and State Taxation Administration have completed a number of enhancements that were required for inclusion in the Global Aggregate Index in order to increase investor confidence and improve market accessibility. These include the implementation of delivery v. payment settlement, ability to allocate block trades across portfolios, and clarification on tax collection policies.
“It’s a pivotal time in the development of China’s markets and inclusion in our Global Aggregate Index is significant for facilitating Chinese market access for global investors,” said Steve Berkley, Global Head of Bloomberg Indices. “Our phased approach to inclusion is designed to give investors ample time to prepare for what we believe will be a positive impact on the investment community.”
In addition to the Global Aggregate Index, Chinese RMB-denominated debt will be eligible for inclusion in the Global Treasury and EM Local Currency Government Indices starting April 2019.
Bloomberg will create ex-China versions of the Global Aggregate, Global Treasury and EM Local Currency Government Indices for index users who wish to track benchmarks that exclude China. Bloomberg can also create customized versions of the indices as requested by investors.
Pixabay CC0 Public DomainCourtesy photo. Return of the Fed Put
Birth of the Fed Put A put, is an option that increases in value when the underlying security’s price falls below a certain level. One of its most common usages is to protect a portfolio against a market decline.
The famous “Fed put” refers to the notion that the Federal Reserve will take action to support the equity market in times of increased risk and volatility. Since Alan Greenspan became chairman of the Fed during the 1980s, there has been a definitive pattern of the central bank increasing liquidity during times of crisis. This includes taking action to inject liquidity during major downturns in an effort to “fix” the stock market. Each successive time that the Fed does this, investors have become further reliant on this free put option. Eventually, the Fed put became priced in, pushing equity valuations higher and encouraging investors to take excessive risk. This has led to many criticisms of the Fed put for creating “moral hazard.”
Originally, the Fed put was known as the “Greenspan put.” When Mr. Greenspan finally retired in 2006 after leading the Fed for almost 2 decades, Ben Bernanke and then Janet Yellen both continued his policy of taking action to support the markets during times of crisis. This led to the Greenspan put morphing into what we now know as the Fed put.
When President Trump appointed Jerome Powell as the 16th Chairman of the Federal Reserve in early 2018, investors assumed he would continue the tradition of the Fed put. Investors were even willing to tolerate (albeit grudgingly) further interest rate increases by the Fed as long as they knew that the Fed put remained in place. With this understanding in place, Jerome Powell was able to increase the Fed’s target rate every quarter, which was a much faster pace than his predecessor Janet Yellen had done.
Death of the Fed Put
As the Fed raised rates throughout 2018 while imposing quantitative tightening through the reduction of its $4.5 trillion balance sheet, President Trump openly criticized both Powell and the Fed. The President warned that the higher rates were going to choke off economic growth. Of course, these criticisms went mainly unheeded by the Fed as it maintained its independence from the President and steadfastly kept on its course to raise rates.
In October of 2018, Jerome Powell shocked the markets with the “we’re a long way from neutral” interest rates comment. The market was already dealing with the lingering trade war with China, the threat of a global economic slowdown, and the waning economic tailwind of the tax cuts in the US. Powell’s comments shook many investors faith in the Fed put as many feared the Fed was not acknowledging the many issues while continuing on its path to raise rates. In December, Powell doubled down on his comments from October saying that the Fed would stay the course on increasing rates and would continue to shrink its balance sheet at the same pace. This sent an already struggling market into another tail-spin that culminated in the Christmas Eve decline that saw the Dow Jones plunge more than 650 points.
This prompted David Tepper, who manages $14 billion at Appaloosa Management, to say, “Powell basically told you the Fed put is dead.” The market agreed with this sentiment, as it appeared the Fed was prepared to let the market fall without even attempting to intervene.
Return of the Fed Put
“Feel the market, don’t just go by meaningless numbers.” President Donald Trump’s tweet to the Fed
However, the market had not been completely forsaken by Powell. In early January, Powell abruptly changed his tune (maybe he was finally convinced by Trump’s tweets to feel the market) and acknowledged that the Fed will be closely watching market signals and will be patient with its monetary policy approach.
Powell also indicated that the Fed would be willing to adjust its balance sheet reduction efforts if needed, which sounded a lot like he was willing to inject liquidity in the system if the markets took another downturn. Investors that had feared the Fed was being to hawkish and was going to kill the economy, shouted a collective hallelujah as the market rallied strongly on the recognition that the Fed put was back!
Wikimedia CommonsCourtesy photo. Juan San Pío Joins Amundi as ETF, Indexing & Smart Beta Sales Director
Amundi has appointed Juan San Pío as sales director of the firm’s ETF, Indexing & Smart Beta unit for Iberia and Latin America in an effort to strengthen the region.
San Pío will report to Marta Marín Romano, Amundi Iberia general director, and to Gaëtan Delculée, responsible for global sales of Amundi ETF, Indexing & Smart Beta.
Amundi’s latest appointment joins from Lyxor, where he was responsible for the ETFs and Indexed Funds unit in the same areas for which he has been now appointed. Previously, in 2008, he started working for Société Genérale responsible for Spain’s institutional sales. Prior to that, San Pío served at Santander Asset Management, where he was director of the firm’s external networks and institutional business.
Former roles include that of financial adviser at the private banking division of Morgan Stanley and head of the private banking unit at the Spanish Banco Guipuzcoano based in Madrid.
Foto cedidaEdouard Carmignac. Edouard Carmignac Leaves his Company's Day-to-Day Operations
Carmignac’s President and Founder, Edouard Carmignac, has decided to leave its Patrimoine fund management team as well as his company’s day-to-day operations. In a press conference in Paris today, he mentioned that the transition will be gradual and that he will try to work more efficiently but leaving the day-to-day to a very competent team. He will remain on the firm he founded as CIO and member of the Board.
Earlier this week, he announced that after almost 30 years running it, he has decided to pass on the stewardship of the 16 billion dollar fund to Rose Ouahba, Head of Fixed Income, and David Older, Head of Equities.
Accourding to the company: “30 years after the creation of Carmignac, the investment philosophy of Carmignac Patrimoine remains the same. David and Rose, as sole Fund Managers, have fully embraced their partnership and are focused on reinforcing alpha generation with specific attention to risk management in this challenging global environment.”
Last month he gave David Older the leadership of his 3 billion dollar Investissement fund.
David Older joined Carmignac in 2015 as Fund Manager and was later appointed Head of Equities in 2017. “Expert on global technology, telecoms and media, his considerable experience in alpha generation and long-short management is key in a challenging environment.”
Before joining Carmignac, David Older spent 2003-2015 at SAC Capital/Point72 Advisors in New York, as co-Sector Head of the Communications, Media, Internet and Technology team. Prior to this, David was an Investment Banking Associate in the Communications and Media group at Morgan Stanley. David received a Bachelor of Arts at McGill University and holds a MBA from Columbia University.
Rose Ouahba joined Carmignac in 2007 as Fund Manager to take over the bond component of Carmignac Patrimoine. She was appointed as Head of Fixed Income in 2011. “Rose has been reinforcing and reorganizing the team to strengthen our unique “unconstrained” investment philosophy.”
She started her career as Bond Fund Manager at Ecureuil Gestion in 1996 and joined IXIS Asset Management 3 years later, as Head of the “Bond diversification” team and, subsequently, Head of Structured Credit Allocation. Rose holds a Postgraduate DESS in Financial Engineering from the University of Paris XII.
Carmignac Patrimoine is the original fund of the Patrimoine strategy. In 2013, they launched Carmignac Portfolio Patrimoine, a sub-fund of the Luxembourg Carmignac Portfolio SICAV. Carmignac Patrimoine and Carmignac Portfolio Patrimoine share the same investment strategy, portfolio construction and the same management process.
