Europe Still Has Upside

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Investec considera que Europa todavía tiene potencial
Photo: Nasa. Europe Still Has Upside

As we approach the middle of the year, with sluggish stockmarket returns so far in 2018, Investec believes that it makes sense to assess where we are with regard to the investment case for European equities. In their opinion, a volatile year so far for European equities hasn’t put a stop to the region’s fundamental equity drivers and each of the 4Factors on which they analyze stocks are showing encouraging signs for the region: earnings growth, fundamentally sound profitability, attractive valuation and technical momentum.

“Despite this recent moderation, we believe the current environment still offers plenty of scope to continue the strategy that has served our investors so well in recent years: finding areas of the market where earnings recovery is evidenced but not yet priced in.” Says Ken Hsia, Portfolio Manager, Investec European Equity Fund.

Looking at their 4Factors, Investec continues to see plenty of attractive opportunities in Europe. “Our experience on the ground shows that Europe’s earnings recovery is still very much under way. Analyst consensus still expects 8% EPS growth for 2018 and 2019 in Europe. Return on equity continues to improve with several drivers playing their part –revenue growth, margin expansion, financial deleveraging/share buybacks and some tax cuts. As some parts of the world are already seeing margins peak, this would indicate that Europe’s current business cycle still has room to run.”

Besides, they believe that Europe’s monetary policy will deliver a similar situation to the US, where the pace of recovery has been more gradual over a longer period of time than previous cycles. “As we are less than two years into the most recent uptrend– compared with over four years for the US – we believe there is room for European corporate revenues to recover further.”

In their opinion, the key risks are around global geopolitics. The Brexit negotiations continue to drive uncertainty for UK businesses and individuals – but that hasn’t stopped UK companies from investing for growth. 

The ongoing talk of a global trade war also loomed large over the market, especially in the commodities sector. “However, as bottom-up stock-pickers, we will approach this on a company-by-company basis. This holds true for both the direct impact of the trade tensions, as well as indirect effects, such as decreases in commodity or metal prices if tariffs tilt supplies towards Europe”. 

Their process is also showing positive improvements on the strategy front, where they focus in on companies that can generate shareholder wealth above and beyond the cost of invested capital. “As it currently stands, European companies have been delivering improving returns on equity, due in part to the improving revenue trends and the resulting operational leverage. All the while, improved capital discipline and cost cutting exercises undertaken during the previous earnings downturn are also starting to bear fruit.” 

Looking at sectors, they believe the materials one is benefiting from higher commodities prices, as well as a newfound capital discipline. Meanwhile in financials – more specifically banks – they currently see good opportunities to invest “in a sector that is starting to recover from a decade of structural regulatory and economic headwinds. With the uncertainty around Basel IV regulation now resolved, banks have the possibility to use the excess capital sitting on their balance sheets to lend, creating additional revenues that can further fuel returns.” They also like the recent Strategy improvement in the UK food retail and are currently seeing some weakness in telecoms,healthcare and retail, which Investec believes are all at the low end of their historical profitability ranges. 

As ever with equities, positive earnings momentum and solid profitability don’t necessarily guarantee returns as this often increases the risk of overpaying. However, Investec believes that although we have seen European equities trade more richly over the last 18 months, European equities do not look overvalued and technicals are showing no cause for concern.

“In summary, we continue to be constructive on European equities due to our investment thesis: that earnings and returns are benefiting from the economic recovery and the recent round of self-help measures undertaken by companies. Meanwhile, valuations do not reflect the full extent of the earnings recovery. Downside risks are common to equities, but we remain focused on the upside potential, especially if European banks are able to show lending growth.” Hsia concludes.

The Time for Global Desynchronization in Monetary Policy, Taxation and Growth has Arrived

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Llegó la hora de la desincronización global en la política monetaria, la fiscalidad y el crecimiento
Erick Muller, Head of Strategy at Muzinich. The Time for Global Desynchronization in Monetary Policy, Taxation and Growth has Arrived

Much has been said about the unique phenomenon of global synchronized growth, the unanimity of a lax monetary policy, and the objective of having common fiscal policies by geographical regions. But what if all this had come to an end?

According to Erick Muller, Head of Strategy at Muzinich, an asset management company specializing in corporate fixed-income or credit, this may be the next market reality. Muller believes that a new macroeconomic environment is emerging in which the European and North American economy begin to take different paths. “2017 marked a new turning point since the great financial crisis as it brought about a scenario characterized by synchronized growth between emerging and developed countries, a stronger banking sector, very positive and growing corporate results, and a lower unemployment rate. Since then three things have changed: monetary policies, fiscal policies and the pace of global growth,” says Muller.

In Muller’s opinion, these three trends are the ones that are breaking the great synchronization that we had until now. Analyzing each one of them, Muller firstly points out the fiscal policy undertaken by the US and its announcement of tax cuts. In this regard, he stressed that these measures are not succeeding in making the US economy any more efficient; however, it could cause an increase in the budget instead.

“Donald Trump’s decision to redesign trade policy in order to benefit the US, could produce a certain shock in the market or short-term uncertainty in the business sector,” Muller points out, and points to protectionist policies as the clear difference with other economies. In this regard, he acknowledges that growth has slowed down, especially in developed countries, but it isn’t alarming because global and fundamental indicators are positive.

Finally, Muller refers to the fact that this desynchronization is more evident when it comes to talking about the monetary policies of central banks. “Inflation is not rising at the rate expected by central banks, which has a clear effect on the rate hikes they plan to make. The Fed has already started more firmly along this rate hike path, while the ECB is delaying the rate hike and lengthening the cuts to its asset purchasing program,” explained Muller.

Opportunities on the horizon

In this context of “desynchronization”, he sees investment opportunities in corporate bonds, mainly denominated in Euros. “We are convinced that the focus is on short duration and on being very selective, we believe that floating bonds, syndicated loans and private debt are interesting, although the latter has less liquidity,” says Muller, who explains that they have seen a growing interest in private debt by institutional investors.

When talking about geographical areas, Muller admits that they prefer Europe over the US. “It’s true that US high-yield can offer somewhat higher interest, but the currency exchange hurts it,” he concludes. In terms of emerging markets, he points out their attractive yields, especially in short durations.

Finally, Muller points to flexible strategies as the type of strategy that best adapts to an environment like the current one; In this regard, he also acknowledges that strategies of short durations and absolute return are among the most demanded, especially by conservative profiles. Instead, institutional investors have become more sophisticated, he added.
 

Record Number of Aspiring CFA Charterholders Sit for Exams as Program Marks 55th Anniversary

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Récord de aspirantes al examen CFA Charterholder en el 55 aniversario del programa
Pixabay CC0 Public DomainPhoto: Jarmoluk . Record Number of Aspiring CFA Charterholders Sit for Exams as Program Marks 55th Anniversary

CFA Institute, the global association of investment management professionals, announced that a record 227,031 candidates registered for Level I, II, and III CFA exams at 286 test centers in 91 countries and territories. The exams, administered on June 23, mark the 55th anniversary of the first CFA exam, which was held in June 1963. Since then, the CFA Program has seen steady annual growth, with a notable 20% increase in exam registrations in the past year alone.

“From our humble beginning in 1963 when we administered the exam to 284 candidates, CFA Institute has grown dramatically around the world in pursuit of its mission,” said Paul Smith, CFA, president and CEO, CFA Institute. “We fervently believe that charterholders raise the standards of the investment management industry and contribute to making finance a noble profession, and we are gratified and humbled that so many candidates share that belief. The examination is the first step to a professional life dedicated to client service, continuing education, and engagement with regulators to protect investors and clients.”

The Asia Pacific region continues to generate the highest number of candidates, with 120,436 registered for the June 2018 exam, accounting for 53 percent of the total. Registered candidates numbered  63,368 in the Americas, 28 percent of the total, and 43,227 candidates registered in Europe, Middle East, and Africa (EMEA), accounting for 19 percent of the total. The exam was administered at 286 test centers around the world, including new test center locations in Barcelona, Spain; Dalian and Hangzhou, China; Hyderabad, India; Ulaanbaatar, Mongolia; Rio de Janeiro, Brazil; and Lagos, Nigeria.

CFA Institute has more than 154,000 charterholders who work in some of the industry’s most prominent firms. In 1959, the Financial Analysts Federation (FAF) formed the Institute of Chartered Financial Analysts (ICFA) to establish standards of ethics and competence for security analysts, develop the exam, and bestow the title of Chartered Financial Analyst® (CFA) on those who passed. The FAF and ICFA eventually merged to form what is now known as CFA Institute. On June 15, 1963, the inaugural exam was administered at 27 test centers in the United States, Canada, and London to 284 candidates, six of whom were women. Today, over 84,000 (37%) candidates are women.

“A Stronger Dollar Should Benefit the Emerging Markets Export Engine and Their Liquidity Should Be Less Vulnerable Than in the Past”

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"Un dólar más fuerte debería beneficiar al motor de exportación de los emergentes, y su liquidez debería ser menos vulnerable que en el pasado”
Nick Timberlake, courtesy photo. "A Stronger Dollar Should Benefit the Emerging Markets Export Engine and Their Liquidity Should Be Less Vulnerable Than in the Past"

Despite the challenges in the form of monetary tightening in the United States or geopolitical factors, emerging market equities this year have everything to gain. The reason? Levers such as valuations, earnings growth expectations and the confidence of investors. This is what Nick Timberlake, responsible for Global Emerging Equities of HSBC Global Asset Management, states in this interview with Funds Society.

Is the global synchronized growth scenario in danger? If this is the case, how could this impact the emerging world?

Global growth remains strong, though there has been a slight loss in momentum recently. Emerging Markets continue to be the key driver of global growth, and we expect them to contribute about 70% to total GDP growth in 2018. Many Emerging Markets remain in a “Goldilocks” environment of strong growth and low inflation. Some countries have scope for monetary easing, while some countries are taking advantage of growth acceleration to implement long-term economic reforms. Different inflation levels across countries is leading to policy divergence. This can affect relative interest rates and currency strength, particularly resulting in higher US interest rates and a stronger USD.

What will be the impact in emerging markets of a higher inflation, a cycle of rate hikes in the developed world, and a potential greater strength of the dollar?

Inflation remains relatively low in most Emerging countries, despite cyclical inflation in the US. A stronger USD should benefit the Emerging Markets export engine. Emerging country liquidity should be less vulnerable to a stronger USD than in the past, given that governments have reduced the proportion of short-term USD debt and improved their current account deficits. This makes the country’s liquidity position less sensitive to foreign exchange movements. Many emerging countries have improved their fiscal positions, and increased macro credibility provides them a degree of monetary policy flexibility if needed.  Certainly countries with a twin deficit are likely to be more sensitive than others.

Nonetheless, many experts are positive regarding emerging countries fundamentals, do you agree and why?

We are also positive on the fundamentals of Emerging countries. Fiscal budgets are better managed. For example, Russia has reduced the “oil breakeven” of its budget to reduce its sensitivity to fluctuations in oil prices. Monetary policy is more credible. A lower inflation environment in Brazil has allowed its Central Bank to implement aggressive monetary easing. Government reforms continue to strengthen the foundations for long-term economic growth. For example, Brazil is reducing its fiscal deficit through economic and anti-corruption reforms, while Mexico has a broad, long-term reform programme including energy, labour, and education. China is reducing capacity at state-owned enterprises and deleveraging.

Do the stock markets of emerging countries have potential to grow in 2018? At what pace or at what levels?

It is difficult to specify how the equity market will move, but, from my experience, this is the type of environment that should be positive for Emerging Markets equities and for active managers specifically.

Earnings drive equity markets. What is important for investors is that strong economic growth is translating into corporate earnings growth. Earnings growth expectations remain in double digits for 2018 and 2019, across most sectors and a majority of countries, though earnings revisions have moderated from a high level.

Valuations look attractive relative to profitability, though valuations are not as cheap as they were at the beginning of last year given the strong equity market returns. Emerging Markets equities offer a similar return on equity compared to Developed Markets equities while trading at a lower price-to-book valuation.

Investor sentiment has been positive. We have seen strong flows into the asset class over the past two years, yet global equity investors remain underweight Emerging Markets.

What is the biggest strength of emerging markets equities this year? The attractive valuations, corporate results outlook ….?

The biggest strength for Emerging Markets equities this year is that all the drivers we just discussed are present at the same time. We believe this combination of factors creates a positive and attractive environment for Emerging Markets equities.

What could be the impact of Fed’s rate hikes on the equities of the emerging world?

Investors should expect cyclical inflation at this point in the economic cycle. The current pace of Fed rate hikes has been well-flagged and has been priced in by the market. We are monitoring how high capacity utilisation, potential trade tariffs, and deficit spending could lead to higher prices and could cause the Fed to raise rates faster than expected. A much faster pace of rate hikes could lead to more volatility in equity markets in general, not specifically to Emerging Markets.

Currently, the volatility is stronger… Is this going to be the case in the stock markets of emerging countries.  Which are the potential consequences?

Volatility in Emerging Market equities reached the lowest point in a decade in January 2018 and has been near pre-financial crisis levels, so a pick-up in volatility was expected and has not come as a surprise to us. There are any number of reasons why uncertainty increases or investors begin to have differing views of the future. Inflation, trade tariffs, and geopolitical tensions are the first examples that come to mind. As active managers, we need to monitor these issues and incorporate our perspective into our stock selection and portfolio construction. I should note that higher volatility can be advantageous, as it can create investment opportunities where we see our fundamental outlook has been mispriced by the market.

Which are the more attractive markets? (Africa, Latin America, Eastern Europe, Asia …)

Our region and country positioning is driven by our stock selection. This allows our portfolio positioning to be guided towards the areas of the market with greater opportunity. On a regional basis, we are overweight Eastern Europe and underweight Asia and Latin America.

On a country basis, we are most overweight Russia, given a stable macroeconomic backdrop, accelerating growth, and attractive valuations.

Regarding Latin America: with which markets are you more positive and why?

We are less positive on Latin America relative to other parts of Emerging Markets. On a country basis, we are somewhat neutral in Brazil, and we are underweight Mexico, Chile, and Peru. Mexico valuations are high relative to other Emerging Markets, and there is election uncertainty. Chile has fundamentally attractive companies but valuations are again high. Peru has a limited universe, and valuations are not attractive.

The situation in Argentina is complex following the support requested to the IMF … are you positive on that country?

Our Frontier Markets has exposure to Argentina. The country has been implementing structural reforms that we feel should support long-term growth. Any IMF support would help to reinforce that path. Our Global Emerging Markets fund currently does not have a position in Argentina.

Aitor Jauregui (BlackRock): “Growing Demand in Europe and Sustainable Investment will Make the ETF Market Grow Over the Next Few Years”

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Aitor Jauregui (BlackRock): “La creciente demanda en Europa y la inversión sostenible harán crecer el mercado de ETFs durante los próximos años”
Aitor Jauregui, courtesy photo. Aitor Jauregui (BlackRock): "Growing Demand in Europe and Sustainable Investment will Make the ETF Market Grow Over the Next Few Years"

The ETF business continues to increase after three years of record growth figures. For Aitor Jauregui, Head of Business Development for BlackRock in Iberia, the outlook is much better in the long term: “With an average annual growth of 19% over the past few years, at BlackRock, we expect that in 2023 the ETF industry will reach 12 trillion dollars and 25 trillion dollars by 2030.”

These positive forecasts are also positive for the ETFs market in Europe which, according to Jauregui, will be “one of the main drivers of the investment fund business during the coming years”. According to this executive, and as shown by the Greenwich Associates European ETF Study commissioned by BlackRock, European institutional investors will have a prominent role in this growth, as the average of their allocation to exchange-traded funds increased by 10.3% of its total assets in 2017, from 7.7% in 2016.

“European institutional investors are adjusting their portfolios to a more volatile environment, given the return of volatility to the market and the end of stimuli from central banks. In this context, European institutional investors have found in the ETFs an investment vehicle that adapts to their needs,” says Jauregui before delving into this survey’s data, which was compiled from the responses of 125 investors, mainly pension funds, asset management companies, and insurance companies.

The survey shows the trends that make the ETF business set a positive trend in Europe. First of all, there has been an increase in the use of smart beta ETFs, which, at present 50% of respondents admit to using. Secondly, there is a greater demand for ETFs by multi-asset funds: In fact, 79% of asset managers admit to using them, as well as their intention to increase their use during the next year.

Finally, the survey shows two further trends: The use of fixed-income ETFs is a source of growth in the ETFs universe, and socially responsible investment (SRI) has a leverage effect on this business. Regarding the latter, it is worth noting that 50% of the respondents admit having invested part of their assets following sustainable investment criteria.

The attractiveness of ETFs

For Jauregui, these four trends are, “sources of forward ETFs market growth.” And they will be a driver because European institutional investors appreciate the value that this vehicle brings to their portfolio. For example, according to the aforementioned survey, ETFs are used to substitute direct investments, such as bonds, shares or derivatives. The survey shows that 50% of respondents say they use ETFs to substitute derivatives, compared to the 30% who acknowledged doing so last year.

In this regard, Jauregui points out that, regardless of the economic environment, investors value the characteristics they offer positively. “In Europe, in particular, I believe that the implementation of MiFID II makes institutional investors appreciate transparency, cost, and operational simplicity more. This is also going to be an argument that will sustain its growth in the coming years,” he says.

Speaking in terms of strategies, the ETFs that arouse most interest among European institutional investors are those of minimum volatility, dividends, factors and, finally, multifactor strategies.

Finally, should we carry out this same analytic exercise by asset allocation, the survey would show that fixed income is the type of asset where ETFs are most likely to grow. “In the case of equity ETFs, 86% of respondents admit to using them and 43% expect to increase their use throughout 2018. In fixed income, 65% expect to invest in this type of ETF as compared to the 48%registered last survey. Once again, the main criteria of European institutional investors when deciding on their use are: their liquidity, their cost, their performance and, finally, the choice and composition of the index they follow.

Debates within the Sector

In the midst of the strong development that this market is experiencing, the sector faces two debates: Possible overheating in the ETFs market and the argument between active management and passive management. In both cases, Jauregui has a solid position that he defends coherently. “It‘s clear that the weight of the ETFs in the market as a whole, and the assets that are there, is too small a part for their behavior to affect the progress of the underlying markets,” he said in relation to the first debate.

Regarding the second debate, Jauregui argues that the approach of two different types of confronting management does not make any sense. “I think that every investment decision is an active decision, even when a manager chooses to use an indexed vehicle in his portfolio. At BlackRock we believe that we have to think about indexed management as one more element when managing our clients’ capital and offering investment solutions,” he points out.

And while the sector continues debating this, BlackRock has advanced over all its competitors and has become the leading provider of the European market in terms of ETFs. According to the survey, 91% indicates iShares as its main provider.

In this regard, the asset manager believes they are on the right track. “We will continue working on new launches, while always being very selective about the solutions we provide in the market and betting on the indexes without leverage and without using derivatives. Likewise, we will focus on smart beta and factors ETFs. There is a general interest on the investors‘part, but we believe that managers of multi-active strategies are very interesting potential investors. In the long term, we will also focus on the trends we see, such as fixed-income ETFs and socially responsible investment,” concludes Jauregui

Robeco Appoints Bart Oldenkamp as Head of Investment Solutions

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Bart Oldenkamp, nuevo jefe de soluciones de inversión de Robeco
Pixabay CC0 Public DomainRobeco, courtesy photo . Robeco Appoints Bart Oldenkamp as Head of Investment Solutions

Robeco has hired Bart Oldenkamp as Head of Investment Solutions, effective July 1st, 2018. In this role, he will be responsible for further expanding Robeco’s Investment Solutions business, which includes services such as fiduciary management and multi-asset solution products.

He will succeed Martin Mlyná, who currently holds this role, while also serving as Managing Director at Corestone, Robeco’s manager selection platform. As from 1 July 2018 he will focus fully on his position at Corestone to further increase its added value for clients and to further grow Corestone’s multi-manager business.

Gilbert Van Hassel, CEO of Robeco, said: “I welcome Bart to Robeco; in him we have found a highly experienced professional to fulfil this crucial role for our clients with a strong network and reputation in the area of fiduciary management and investment solutions. This appointment underlines our commitment and ambition to grow our fiduciary business, which is a key element of our strategy for 2017-2021.”

Oldenkamp said: “I am excited to join Robeco and I am looking forward to working together with clients to achieve their financial objectives. I am confident that based on Robeco’s strong academic and research driven approach we will be able to further strengthen our solutions for clients and achieve sustainable growth of our business.”

He previously worked at NN Investment Partners, where he was Managing Director Integrated Client Solutions. Before that, he headed the Dutch office of Cardano, a consultancy firm specialized in fiduciary management, risk management and investment advisory services, after having held various positions at ABN Asset Management, including Global Head of LDI & Structuring and Product Specialist Structured Asset Management in the US. He is the academic director of the Pension Executive program at the Erasmus School of Accounting & Assurance, and a non-executive board member at the pension fund for the Dutch railway transport sector. He holds a PhD in Econometrics from Erasmus University Rotterdam.

Above 3%. Is the Party Over?

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Superado el 3%, ¿se terminó la fiesta?
Wikimedia CommonsCourtesy photo. Above 3%. Is the Party Over?

It has been a long time coming but we have finally been given a wake-up call: the 10-year US Treasury bond yield has gone above 3%. So, now what? Should we prepare our fixed income portfolios to hedge interest rates in case of further hikes? Or should we increase the duration to take advantage of potential corrections below 3%?

In a time before Central Banks routinely employed cash injections and mass bond purchasing, textbooks on macroeconomics traditionally taught that 10-year yields responded to a simple formula: expected growth + inflation expectations. So, if we consider just these two factors and we believe the consensus forecasts for the coming years are valid, we could conclude that we will soon be grazing the 5% mark for the 10-year US Treasury bond. The reality is not all that simple and recent years have served to cast doubt on some of the principles we learnt during our studies, as they reflect a new reality in the interrelationships among economic variables. For instance, after several years of unlimited liquidity, inflation is only now beginning to rise slightly or even though the Federal Reserve increased official rates and four hikes are expected for this year, the dollar has weakened.

Some official projections for US economy growth include: IMF: 2.9% for 2018 and 2.7% for 2019; and OECD: 2.9% for 2018 and 2.7% for 2019. Yes, the figures look good. No doubt about it. But they do not point to accelerated growth that could justify inflationary pressures and aggressive rate hikes and we cannot rule out the possibility that these forecasts will fall in the coming quarters. After 35 straight quarters of economic expansion in the US, we may beat the record of 39 quarters set in the 90s, which culminated in the technology bubble (“dotcom”). Let’s face it, until Trump’s fiscal stimulus peters out, the tailwind will continue to blow for consumption, investment expenditure and the real estate sector. However, we are not looking at an abrupt rally, but an ongoing slow and steady pace for growth. In other words, even if we stick to the traditional factors that we mentioned, which determine the 10-year yield, we are not anticipating an environment that justifies much higher rates than now. We might also add other “non-traditional” factors into the equation, such as the impact of the behaviour of some very influential players in the sovereign debt market like China (largest foreign holder of US Treasury bonds), insurance companies and sovereign wealth funds.

Nor are we convinced by those who predict an imminent recession and a return to yields below 2% for the 10-year US bond. One of the arguments that has become popular among proponents of this position relates to the yield curve inversion. That is to say, a lower interest rate for the 10-year than the 2-year bonds. Historically, the inverted yield curve has been one of the best indicators of recessions. In fact, all the recessions suffered by the US since the 1960s have been preceded by yield curve inversions. Recently, the slope has reduced, but there is still a 50-basis point spread between the 10-year and the 2-year bonds. And we believe that this reduction is due more to the non-traditional dynamics that we have mentioned, which are sustaining the 10-year yield level, than to signs of an imminent recession.

And what about the voices warning us of another consumer delinquency crisis caused by official rate hikes? The market is discounting a total of four rate hikes by the Federal Reserve for this year. Despite the rise in the short rates, which brings an increase in consumer credit costs, we are still not seeing alarming increases in the delinquency rate among the various classes of consumer loans. If rates continue to increase more aggressively, we could indeed see this but, for now, it is not our base case.

Even if we think that the rate hikes will not be sufficiently aggressive to rain on our parade, we do need to be prepared for unexpected summer downpours. We choose not to fully hedge interest rate risk, but we are carefully looking at the relative value and potential risks. With a spread of just 15 basis points between the 5 and 10-year US Treasury bond yields, can we justify assuming an additional 4 years of duration risk? We do not think so.

Column by Meritxell Pons, director of Asset Management at Beta Capital Wealth Management, Crèdit Andorrà Financial Group Research.

Funds Society Launches a Charity Campaign

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Funds Society convierte su sección Rincón Solidario en un motor para el cambio
Funds Society's Charitable logo. Funds Society Launches a Charity Campaign

Since Funds Society began the publication of the three editions of its magazine, in Spain, the offshore market and, since this year, for the Latin American region, it has told the stories of numerous NGOs that, in some way, are linked or supported by the firms and professionals in the investment fund sector.

Now, our publication goes a step further and has decided to support the NGOs that go through this section with an online advertising campaign. The objective of this campaign is to grow the NGO’s visibility in our readership with a banner under the slogan ‘Solidarity Corner: Together we will make it possible’.

Funds Society will be donating 10% of its publicity impressions of the MPU format during eight weeks to the foundation that was featured in the Rincón Solidario or Solidarity Corner section in the magazine. As is logical, these banners will direct the reader to the official website of the NGOs so that they can learn more about their activity and the groups they serve; as well as collaborate with them, if they wish to do so.

This quarter, the protagonist in Spain is the Association of Relatives and Friends of Children with Cancer (Afanic), an entity that aims to cover the diverse needs that hospitalized children present at both medical and psychological, educational and recreational levels. The organization interprets that these are basic needs to enable their expected recovery and give adequate attention to their families. José Miguel Maté, CEO of Tressis, has run numerous marathons to raise funds for his cause, and collaborates with them closely.

In the case of the offshore market, this space is assigned to the Adam J. Lewis School (AJLP), a non-profit institution created in 2013 in tribute to Adam Lewis, who died on September 11. In this school, 18 children between three, four and five years of age study under a model that mixes Montessori, Piaget and Reggio Emilia techniques. By 2018, their goal is to double the size of the school and for that, they are looking to grow their donations considerably. Supporting them in this effort, is Richard Garland, director of Investec, who is running seven marathons in seven continents to raise 100,000 dollars, contributions he is planning to match.

Finally, in the Latin American region the featured NGO is Los Tréboles, an educational center, located in Montevideo. This center is winning the battle against school dropouts, one of the biggest educational problems in Uruguay. The NGO, which is financed in 40% by private donations (45% contributed by the State) serves 120 children and 40 teenagers from the Flor de Maroñas neighborhood. They have been  20 years in the area and in 2017 they managed to get only 1.5% of those attending the place to repeat the course.
 

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Which Asset Management Companies in Spain had the Highest Average Salaries in 2017?

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¿Cuáles fueron las gestoras con mayores sueldos medios en España el año pasado?
CC-BY-SA-2.0, FlickrPhoto: Albarcam, FLickr, Creative Commons. Which Asset Management Companies in Spain had the Highest Average Salaries in 2017?

The largest Spanish asset management companies last year offered their employees fixed average salaries between 35,000 and 72,000 Euros, according to a Funds Society study prepared from figures that the 20 largest national asset management companies sent to the National Securities Market Commission (CNMV).

According to 2017 year-end figures, the management company that best pays its employees is Bestinver Gestión, 12th largest in assets, but the most generous in terms of fixed salary. According to CNMV figures, and taking only fixed salary into account, each employee had an average salary of 72,373 Euros (figure obtained by dividing the expenses in fixed salaries among the total number of staff). It was the only management company with average salaries exceeding 70,000 Euros last year.

Bankinter Gestión de Activos, Caja Laboral Gestión, Santander AM, GIIC Fineco y Mutuactivos also stand out for the salaries they offer, in excess of 60,000 Euros. The first company, 67,632 Euros on average last year, although it is the ninth largest in terms of assets. The second company, which ranks 19th in the asset ranking, 67,400 Euros, while Santander AM, the second in the asset ranking, showed fixed average salaries in 2017 of 66,480 Euros.

The other two large asset management companies in Spain, BBVA AM and CaixaBank AM, as well as Mapfre AM, Bankia Fondos, Sabadell AM and Imantia Capital pay average salaries above 50,000 Euros.

Among the management companies with lower salaries in terms of fixed salary are Trea AM, Kutxabank Gestión, Ibercaja Gestión, Allianz Popular AM and Renta 4 Gestora.

We must remember, however,  that the figures refer only to fixed salary, excluding the variable part or bonus, which is common in the sector.

 

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According to Experts, Argentina’s Request for Help from the IMF is a Precautionary Measure and, as yet, There is no Risk of Default

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La petición de ayuda de Argentina al FMI es una medida de precaución y aún no hay peligro de default, dicen los expertos
Wikimedia CommonsPhoto: JoseTellez, Flickr, Creative Commons. According to Experts, Argentina's Request for Help from the IMF is a Precautionary Measure and, as yet, There is no Risk of Default

Mauricio Macri, President of Argentina, announced on Tuesday that he has begun talks with the International Monetary Fund (IMF) to receive a “financial support line” for the situation which has been generated in that country due to the strong depreciation of the peso against the dollar in a difficult global context, marked by the rise in US interest rates and the potential revaluation of the American currency against some currencies of the emerging world. And mainly against countries that, like Argentina, depend heavily on external financing.

“I have made this decision thinking of the best interest of all Argentines, not lying to them as has been done so many times (…).I am convinced that fulfilling commitments and moving away from demagoguery is the way to achieving a better future,” said Macri yesterday, trying to instill tranquility in the markets. Investors fear that this situation will negatively impact the country’s debt, and may even infect the markets of other emerging economies, and by proximity, those of Latin America

Last Friday, in a new attempt to defend the exchange rate of the peso against the dollar, the Central Bank of the Republic of Argentina (BCRA) decided to raise the reference interest rate to 40%, less than 24 hours after it had raised the price of money to 33,25%. Therefore, the central bank increased the benchmark rate by 675 basis points in less than a day, in what represents the third increase in the price of money last week, thus raising the benchmark interest rate to 40% from the 27, 25% rate of the previous week.

Precautionary measure

The new aid measures aim to alleviate this situation. For Alejandro Hardziej, Julius Baer’s Fixed Income analyst, this is a “precautionary” measure: “It seems that Argentina is negotiating a line of credit as a precautionary measure to cover potential financing needs without having to go to the international debt markets in a scenario of rising loan costs and greater risk aversion of investors to emerging markets,” he explains. In his opinion, the movement”doesn’t reflect an underlying liquidity problem but it’s a government move to calm investor’s fears and reduce pressure on the currency, the Argentine peso”

“The fact that Argentina has gone ahead and asked the IMF for help is a good sign, as it can help because things are being done properly, despite the fact that it damages Macri’s image”Alejandro Varela, Portfolio Manager at Renta 4 Gestora.

For Amílcar Barrios, Tressis analyst, “Argentina resorts to the IMF toget a line of financing that the market is denying it, owing to the extensive and disastrous financial history accumulated by that country, regardless of who governs.”

Claudia Calich, Fund Manager of the M & G Emerging Markets Bond fund, pointed out that, in the last two months, the Argentine peso had become more expensive in real terms, following the strong flows received from international investors in 2017. “These capital flows caused the ratio of nominal exchange to depreciate much less than inflation.” But the tide began to change at the end of last year, when, in her opinion, the country’s Central Bank committed the political error of raising the inflation target for 2018, from 10% to 15%, so that adjustment allowed the entity to cut rates at the beginning of January, something that undermined its credibility and raised concerns about whether monetary policy is free from government interference. “Another political error was the announcement of the 5% tax on Treasury investments in Argentine pesos, which had an impact both on local and international investors and led to a reduction in investments in public debt in pesos,” the expert explains.
A higher reading of inflation and a stronger dollar generated strong pressure on the country’ currency, explains the asset manager, so the Central Bank realized the need to restrict monetary policy, with three emergency increases, until the 40% mentioned above. “I think that monetary authorities will now be successful in slowing down the depreciation of the currency,” she explains. Calich argues that the overvalued peso is also contributing to expand the country’s current account deficit by up to 5% but, in this situation, she expects it will begin to reduce as the peso moves towards equilibrium. “The implications will be higher inflation this year and possibly the next one, lower growth, and a further decline in Macri’s popularity.”

But without default…

On whether or not it’s a default situation, she believes that “not yet. I see this as a re-pricing of Argentina’s risk, which had started at the beginning of the year, along with sales in the emerging debt market in both local and strong currency,” she explains.

She also speaks of two glimmers of hope for Argentina: First, the next elections will not be held until January 2019, so authorities have time to take their “bitter medicine” this year, but it will lead to a readjustment of the economy in 2018. Secondly, the IMF can intervene with an aid program if the Latin American country loses access to the capital market or if there is some type of crisis caused by the outflow of capital (unlike other markets such as Venezuela), something that it considers positive. “Argentina and the IMF have had a tumultuous relationship in the past but the objective this time would be to ensure stability so that Argentina does not return to its failed populist policies under a new administration,” she adds.

A Warning Sign?

However, we must not lose sight of the situation of emerging markets… especially those with fundamental weaknesses. This advice comes from Paul Greer, Asset Manager at Fidelity, who explains that the South American country has reached this point largely due to the strengthening of the dollar and the increase in the profitability of US fixed income.
“As with the caged birds that serve as a warning for gray gas in the mines, Argentina is a wake-up call to investors positioned in emerging markets with weak fundamentals. These types of assets do not get along well with an increasingly strong dollar. The recent price situation illustrates how quickly [investor] sentiment can change,” he says.

Impact on Spain

Luis Padrón, an analyst at Ahorro Corporación, believes that Argentina’s problem “seems to be more structural than a currency problem.” Regarding Spain’s exposure to this market, he points out “how much the situation regarding the exposure that Spanish companies have had in this market has changed”, going from being one of the countries with greater exposure to having a very reduced exposure in the business of the companies.”Only Día, Centis and, to a lesser extent, Telefónica are ‘suffering’ the impact of this situation”, he adds (see Ahorro Corporación’s table below).

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