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APFI and DoorFunds Launch a Digital Platform to Streamline and Standardize Fund Due Diligence Processes

Bancos y gestoras lanzan una nueva plataforma digital, llamada DOOR, para acelerar los procesos de due dilligence al invertir en fondos — Wikimedia Commons. APFI and DoorFunds Launch a Digital Platform to Streamline and Standardize Fund Due Diligence Processes

The processes used by fund investors to gather information from asset managers has always been a time consuming exercise. But their need for transparency, speed of analysis and the ability to compare across qualitative information sets has never been greater!

The industry is coming together to co-create a new solution. Supported by the Association of Professional Fund Investors to represent industry best practice, key Fund Investors from 10 leading Distributors, such as Mediolanum, Santander, EFG and Pictet Bank are collaborating with 12 major asset managers, such as Aberdeen, Columbia Threadneedle, Franklin Templeton, M&G, Nordea Asset Management, Pictet Asset Management and Schroders. They aim to solve a common problem.

The problem

Within Fund Investor teams, much time is being spent collecting and organising fund information. Asset managers have to resource large teams to be able to respond to information requests in a multitude of formats. APFI reviewed dozens of its member Fund Investor firms’ due diligence questionnaires and discovered around 90% of questions are common. Furthermore APFI found that:

Historic practice and increased regulation is creating additional effort for fund investors and asset managers in fund due diligence
Fund investors are pursuing ways to reduce the time it takes to collect and organise information
The speed at which changes to fund information is communicated to fund investors could be significantly improved
Lack of standardisation and best practice in due diligence questionnaires creates additional effort for asset managers – DDQ work volumes have doubled in 12 months for some asset managers

Both asset managers and fund investors recognise there should be a better way to collect and organize fund information and, by doing so, to enhance customer outcomes.

The solution

This collaboration aims to bring fund due diligence into the modern age. A new digital platform called DOOR will maintain up to date responses to The Standard Questionnaire, allowing fund investors to access a robust set of common information at any time and separately ask additional questions specific to their needs – thereby removing the need for each fund investor to send common data requests. DOOR will be free of charge for fund investors to use.

Other benefits include:

Maintaining and advancing industry best practice standards, overseen by APFI
Quick and automated uploads of fund information by asset managers, meaning
resources can be redeployed
Provide fund investors with information on all available fund ranges
Improve fund investors’ user experience in selecting or monitoring fund holdings
Speeding up and democratising communication of changes to fund information between asset managers and fund investors

“In today’s world of information overload, this unique initiative can add significant value to the manager selection process. DOOR’s platform and technology can make a big difference by freeing up time for data analysis and critical thinking, and less time on data collection. More productive collaboration between fund investors and asset managers is always to be welcomed in our view.” Brian O’ Rourke, Head of Multi-Manager, Mediolanum.

“The industry needs to collaborate more to drive faster and more efficient communication of information. At APFI, we want to maintain and advance industry best practice and ensure greater transparency and ease of fund selection for our members.” Jauri Hakka, APFI Director.

“Standardisation in due diligence information means I can access the majority of the information I need without waiting weeks for a response. It will save me time and allow me to focus on that information that it most important to me. ” José María Martínez-Sanjuán, Santander.

“Asset managers and fund investors have common issues with fund due diligence. So, collaborating with them to solve these issues is an innovative approach. Adopting industry best practice and standardising the process will allow us to refocus resource on delivering a wider range of fund information to our clients. By employing a digital solution, we can ensure information is secure, up-to-date and relevant.” James Cardew, Global Head of Marketing, Schroders.

PIMCO Hires Jeffrey Thompson as Executive Vice President and Portfolio Manager

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PIMCO refuerza su equipo de real estate con la incorporación de Jeffrey Thompson — . PIMCO Hires Jeffrey Thompson as Executive Vice President and Portfolio Manager

PIMCO has appointed Jeffrey Thompson, as Executive Vice President and Portfolio Manager, to join its commercial real estate team as the firm continues its expansion of its global alternatives investment platform.

In this new role, Thompson will be joining an established commercial real estate platform where he will focus on CRE lending opportunities which is an important area of growth. He will be based in the firm’s New York office and will report to PIMCO’s Co-heads of U.S Commercial Real Estate, John Murray, Managing Director and Portfolio Manager and Devin Chen, Executive Vice President and Portfolio Manager.

”Jeffrey brings more than 20 years of experience as an investment professional to our accomplished commercial real estate team, which continues to find significant investment opportunities in this space globally, ” said Murray.

“We are excited to welcome Jeffrey to the team. As a tested portfolio manager in commercial real estate and private credit, Jeffrey’s hire further demonstrates the strength of talent and expertise we have at PIMCO,” said Chen.

Globally, PIMCO’s alternatives offerings span a range of strategies with more than 100 investment professionals overseeing hedge fund and opportunistic/distressed strategies, including global macro, credit relative value, multi-asset volatility, and distressed mortgage, real estate and corporate credit opportunities.

“PIMCO continues to look to attract the best investment talent globally and has hired more than 210 new employees this year including more than 40 investment professionals across alternatives, client analytics, emerging markets, mortgages, real estate and macroeconomics,” says Dan Ivascyn, Managing Director and PIMCO’s Group Chief Investment Officer.

Andrew Astley to Join T. Rowe Price Group as Global Head of Product

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Andrew Astley será responsable global de producto de T. Rowe Price Group — Pixabay CC0 Public DomainAndrew Astley, courtesy photo. Andrew Astley to Join T. Rowe Price Group as Global Head of Product

T. Rowe Price Group has hired Andrew Astley as global head of product, effective January 23, 2017. In leading the global product group, Astley will collaborate with the firm’s investment and distribution teams to develop product strategies for U.S. Equity, Global/International Equity, Fixed Income, and Asset Allocation. He will also focus on developing and implementing plans for launching new products, ensuring that the firm’s existing range of strategies continue to meet the needs of clients and prospects, and delivering high-quality investment and product content.

Astley will be based in Baltimore and report to Robert Higginbotham, a member of the firm’s Management Committee.

Higginbotham said: “As we invest further in broadening our investment capabilities and distribution reach, combining strong management of our current and future product range with our outstanding investment performance and client service will enable us to continue meeting evolving client needs across channels and geographies. Introducing new investment strategies and vehicles is a key strategic initiative designed to help grow and further diversify our business. As we continue this build out, Andrew’s strong product and global experience built over 25 years in the investment industry will be a powerful asset to our clients and to our firm. We look forward to welcoming him in January 2017 as he takes on this very important role.”

Astley, said: “I look forward to working with the experienced and talented global product team at T. Rowe Price, and helping strengthen the firm’s long-term competitive position as a leading global active investment manager.”

Astley previously served as head of global product and marketing at State Street Global Advisors for eight years and was formerly the firm’s chief operating officer for EMEA based in London. A member of their executive leadership team, he most recently served as head of integration and transition during State Street’s acquisition of GE Asset Management. Prior to joining SSGA in 1997, Astley worked in a variety of client-facing roles at PanAgora Asset Management. He graduated from the University of Michigan with a B.A. in political science and has also earned the Chartered Financial Analyst designation.

Too Much, Too Little, Too Late?

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El ciclo entra en su fase madura y hay que estar atentos — CC-BY-SA-2.0, FlickrPhoto: Joao Caram. Too Much, Too Little, Too Late?

Business cycles don’t typically die of old age. More often than not, some outside force, such as higher interest rates, snuffs out the expansion. Surely the US Federal Reserve’s intent is not to bring the economic cycle to a close, but that is often the end result of trying to rid the system of risks like excessive financial leverage or runaway inflation. Sometimes the Fed has an accomplice or two, such as an oil shock or a currency dislocation. Whatever the cause, recessions are unwelcome, bringing with them rising job losses, falling financial markets and even bankruptcies.

The end of a business cycle can be tough on investors. Stock and high-yield bond portfolios typically tumble. The average decline in the S&P 500 Index during a recession is 26%, and during the global financial crisis, the index declined nearly 50%. Recessions can be particularly damaging to Main Street investors, as they typically exit the markets after most of the harm has been done and often do not reenter markets until well into the subsequent expansion, when confidence abounds. Poorly timed exit and entry points mean the average investor does not achieve anything like the returns of the major indices. For instance, only now, with markets up 230% from their March 2009 lows, are Main Street investors reentering the market. This begs the question, are they too late again?

Alive and kicking, for now

We’re in the midst of the third-longest business cycle in the post–World War II era. At the moment, even though the cycle is showing signs of fraying, there are no obvious threats to its continued well-being. However, it may pay to be wary of entering the market at this late stage, as risk/reward ratios tend to become unfavorably skewed late in a cycle.

With that in mind, let’s look at our late-cycle checklist.

Ampliar

Investors may want to take heed of the increasingly worrisome signs indicated above. However, these should be taken as cautionary signs, not a call to retreat. There are also some positive signs afoot. For example, inflation has been late to arrive this cycle, which should allow the Fed to tighten monetary policy much more gradually than would normally be the case. Also, the US labor market continues to slowly improve, suggesting this business cycle will be prolonged. However, there is the risk that the cycle could suffer a slow fade-out. While US personal incomes are rising, health care costs are rising faster, taking away purchasing power, which is impacting consumer-facing sectors such as restaurants and retailers. US business spending remains very weak, and credit conditions are already tightening for certain borrowers. Several market sectors are experiencing profit erosion, which contrasts with the first six years of this business cycle, when margins and profits rose in tandem. US worker productivity is falling, as well, as unit labor costs rise.

Aging expansion vulnerable

While we’re not yet in bubble territory, I’d caution investors that US and European markets are historically expensive on both a price-to-earnings and price-to-sales basis. For example, the Russell 2000® Index is now at a price/earnings multiple of 27. However, I don’t foresee a quick or violent end to this cycle, as we saw in 2008. But I am concerned that late-cycle entrants into risk assets like stocks and high-yield bonds are taking a leap of faith at a time when there is less room for markets to move up and growing risks of them falling back. I do foresee this cycle coming to an end, but not as suddenly or brutally as in prior episodes. This aging expansion, now in its eighth year, weakened by faltering profits, is becoming more vulnerable due to slowly rising interest rates, sluggish consumer spending, shrinking profit margins and rebounding energy costs. Gone are its youthful days of mid-cycle strength.

In the wake of the US election, the retail investor has come back to life. But history tells us that changes in political regimes have relatively modest impacts on the real economy, which obeys only the laws of supply and demand. The signals being sent by the real economy are much more sobering than the signals being sent by a euphoric market. In my view, the odds of a reacceleration in economic growth are minimal at this late stage of the cycle. Retreating slowly from risk is one way to manage today’s ecstatic environment, perhaps by lightening up on historically expensive assets and shifting over time into high-quality corporate bonds or shorter-term fixed income vehicles.

James Swanson is Chief Investment Strategist at MFS.

Allfunds Bank Starts its Asian Expansion

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Allfunds pone un pie en Asia con el lanzamiento de un centro operacional en Singapur — Pixabay CC0 Public DomainPhoto: Zephylwer0. Allfunds Bank Starts its Asian Expansion

Allfunds, Europe’s largest fund platform, is launching its Asian operational hub in Singapore to service local business as well as those in Hong Kong and Taiwan. The Singapore branch will start its operations early next year. The hub will also pursue other opportunities across Asia.

Back in 2014, the company assigned David Pérez de Albéniz to investigate Asian markets. He has since been establishing the businesses infrastructure in the region.

Allfunds CEO, Juan Alcaraz, is confident that the time is right to press ahead with Allfunds’ expansion. Not only is the Allfunds platform business readily leveraged into new territories at relatively low cost, but there is growing demand from many wealth management distributors to streamline operational efficiency, focusing on asset servicing, data analytics and fund research, for potential outsourcing areas.

Also, Alcaraz said, the expanded distribution reach that Asia provides Allfunds’ existing asset management partners improves the potential for distribution of their funds.

“We have identified the key differences between the various countries and territories in Asia – as in Europe they are all different with different requirements. But having gone deeply into the needs of the funds industry in the area, it became very clear, that our highly efficient open architecture model would suit most of Asian markets, so we see no reason to limit our ambitions in the area,” Alcaraz said.

“Asia will massively contribute to the future definition of the global asset management industry due to its economic and demographic significance, and its accelerated digitalisation pace. China is, and definitely will be in the coming future, a significant contributor to these trends due to its relevance and magnitude in the global economy. We want to become global and entering Asian markets is a natural and resolute step for us,” he said.

Perez de Albéniz added: “Asian distributors have become increasingly interested in Allfunds for three reasons – because of the expertise gained from being at the heart of the mutual funds industry with a genuinely non-conflicted, open architecture model; because Allfunds’ holistic proposition comprises the widest range of fund processing, information provision and fund research activities currently available; and all can be offered through a single high quality provider at an outstanding competitive price.”

“Banks, insurance companies, asset managers and wealth managers in Asia are taking a very hard look at their bottom lines and how effectively they run their business. When talking to Allfunds they quickly realise that they can hand over mutual fund services to a business that has an institutional focus with a very extraordinary degree of specialisation – it is a powerful combination during these challenging times.”

Robeco Launches the QI Global Sustainable Conservative Equities Fund

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CC-BY-SA-2.0, FlickrFoto: Skeeze. La sostenibilidad: el dilema de los consejeros delegados (Parte I)

Robeco, in close cooperation with RobecoSAM, launched the Robeco QI Global Sustainable Conservative Equities fund, which builds upon the successful conservative equity strategy and aims to provide equity returns at lower risk by exploiting the low-risk anomaly. Additionally, it aims to offer a significantly better sustainability profile than the reference index, the MSCI World All Country.

The fund will be managed by the Robeco Conservative equities team based in Rotterdam who currently oversee €16.9 billion AUM, as per the end of October 2016, and have a proven track record of delivering enhanced returns with lower volatility. Robeco has a distinguished heritage in developing quantitative factor-based investment solutions for its clients, with the Robeco Global Conservative Equities fund recently enjoying its tenth anniversary.

RobecoSAM, the investment specialist focused exclusively on Sustainability Investing, co-developed the strategy and is responsible for factoring in “Smart ESG” scores, reducing the environmental footprint of the portfolio by 20% (vs. MSCI World All Country), and avoiding investments in companies with controversial business practices.

Pim van Vliet, PhD, founder and Portfolio Manager of the Robeco Global Conservative Equity funds, said: “I am delighted that ten years after the launch of our first conservative equity strategy, Robeco has developed a new offering that, while fully based on the philosophy and research of the original strategy, simultaneously offers clients a very strong sustainable profile. The strategy will apply strict criteria based on high ethical standards, high ESG scores and a low environmental footprint.”

Daniel Wild, PhD, Head of Sustainability Investing Research and Development & Member of the Executive Committee, RobecoSAM, said: “Marrying the low-risk anomaly with ‘Smart ESG’ scores makes perfect sense. The two concepts complement each other and we are proud to see the strategy being launched. Sophisticated investors can now benefit from Robeco’s decade-long expertise in the conservative equity strategy and RobecoSAM’s two-decade-long history of SI.”

The fund, which is domiciled in Luxembourg and will be available for investors in Robeco’s key markets, is aimed at both institutional investors and retail investors, who are interested in both low-volatility investing and sustainability.

Increased Investor Demands And Powerful New Voices Spur Optimism For Women In Alternatives

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Norteamérica ofrece las mejores oportunidades para las mujeres en inversiones alternativas — Pixabay CC0 Public DomainPhoto: Unsplash. Increased Investor Demands And Powerful New Voices Spur Optimism For Women In Alternatives

Increasing interest from investors to allocate more capital into women owned and managed funds, coupled with public support from industry leaders, is spurring optimism for women in Alternative Investments, according to KPMG‘s 2016 Global Women in Alternative Investments Report: The Time is Now: Real Change, Real Impact, Seize the Moment.

KPMG surveyed and interviewed nearly 800 women professionals and industry leaders within the Alternative Investments sector, across hedge funds, private equity, venture capital and real estate in North America, U.K., Europe, Asia Pacific and Latin America. The majority of survey respondents believe North America offers the greatest opportunities for women in alternatives, with the UK and the remainder of Europe ranking second and third.

“This year’s report uncovered a number of positive trends as firms, investors and industry organizations are taking some bold new steps to help move the needle,” said Jim Suglia, Alternative Investments national practice leader for KPMG LLP. “We strongly believe that with continued attention to these issues, the industry will keep pushing the boundaries to secure the future success of women in alternatives.”

The survey found that many respondents remain optimistic, with 28 percent planning to launch or manage a new fund in the next five years. Twenty-six percent of women-owned and managed funds expect to grow their fund to over $1 billion in assets under management (AUM).

“With more women in investment-decision making roles, the industry will gain on a huge source of talent and insights in an area that is core to its success – returns,” said Camille Asaro, audit partner in KPMG’s Alternative Investments practice and co-author of this year’s report.

The majority of this year’s survey respondents (79 percent) also believe it is still more difficult for women fund managers to succeed in the alternative investments industry. The majority also believe that it is harder for women-owned and managed funds to attract capital.

You can download the report in the following link.

Vijay C. Advani Will Be Joining TIAA Global Asset Management as President and COO

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Vijay C. Advani se une a TIAA Global Asset Management como presidente y COO de la firma — Pixabay CC0 Public DomainPhoto: LinkedIn. Vijay C. Advani Will Be Joining TIAA Global Asset Management as President and COO

Effective December 31, 2016, Co-President Vijay C. Advani will be leaving Franklin Templeton to join TIAA Global Asset Management as president and chief operating officer. As a result of this change, current Co-President Jennifer M. Johnson will continue as president. There are no current plans to replace Advani’s co-president position.

Johnson, who has been with the firm for 28 years, has a proven track record of managing all major aspects of the business. She has worked in senior leadership positions since 1995 and was named co-president of Franklin Resources in 2015. Prior to that, Johnson served as executive vice president and chief operating officer since 2010, and has also previously served as the company’s chief information officer.

As president, Johnson’s responsibilities will include overseeing all divisions of the business with the exception of Finance, Human Resources, Legal, Corporate Communications and Templeton Global Macro, which will report to the CEO and Chairman, Greg Johnson. Johnson will work closely with her fellow Executive Committee members, including Greg Johnson, Ken Lewis, chief financial officer, Craig Tyle, general counsel, and the company’s three investment heads: Michael Hasenstab, chief investment officer of Templeton Global Macro, Chris Molumphy, chief investment officer of Franklin Templeton Fixed Income Group, and Ed Perks, chief investment officer of Franklin Templeton Equity. The Executive Committee is comprised of seasoned individuals, each with over two decades of industry experience and more than a decade with the firm.

According to a press release, Franklin Templeton, “as a firm, we are committed to ensuring continuity of our services and remain focused on our goal of delivering competitive and consistent results for our shareholders and clients around the world.” And promises to communicate any additional updates regarding this matter in a timely manner.

Saxo Bank’s 10 Outrageous Predictions for 2017

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Los 10 cisnes negros de Saxo Bank para 2017 — Foto cedidaSteen Jakobsen, courtesy photo. Saxo Bank's 10 Outrageous Predictions for 2017

Will this be the year when China exceeds growth expectations, Brexit turns into Bremain, the Mexican peso soars and Italian banks turn out to the best performing equity asset class?

Saxo Bank, the online multi-asset trading and investment specialist, has today released its annual set of ‘Outrageous Predictions‘ for the year ahead.

Continuing in the tradition of making a selection of calls aimed at provoking conversation on what might surprise or shock the investment returns in the year ahead this year’s predictions cover a range of scenarios, including a Chinese growth rebound, an Italian bank rally, Brexit giving way to Bremain and the EU’s willingness to change in the face of populist backlash, among others. The Outrageous Predictions should not be considered Saxo’s official market outlook, it is instead the events and market moves deemed outliers with huge potentials for upsetting consensus views.

Steen Jakobsen, Chief Economist at Saxo Bank, commented: “After a year in which reality has managed to surpass even seemingly unlikely calls – with the Brexit surprise and the US election outcome – the common theme for our Outrageous Predictions for 2017 is that desperate times call for desperate actions.

“With change always happening in times of crisis, 2017 may be a wakeup call which sees a real departure from the ‘business as usual’, both in central bank expansionism and government austerity policies which have characterized the post-2009 crisis.

“As some of our past outrageous predictions have turned out to be far less outrageous that at first thought, it is important that investors are aware of the range of possibilities outside of the market consensus so that they can make informed decisions, even in seemingly unlikely market scenarios.”

It is in this spirit that we release Saxo Bank’s Outrageous Predictions for 2017:

China GDP swells to 8% and the SHCOMP hits 5,000
China understands that it has reached the end of the road of its manufacturing and infrastructure growth phase and, through a massive stimulus from fiscal and monetary policies, opens up capital markets to successfully steer a transition to consumption-led growth. This results in 8% growth in 2017, with the resurgence owing to the growth in the services sector. Euphoria over private consumption-driven growth sees the Shanghai Composite Index double from its 2016 level, surpassing 5,000.
Desperate Fed follows BoJ lead to fix 10-year Treasuries at 1.5%
As US dollar and US interest rates rise in increasingly painful fashion in 2017, the testosterone driven fiscal policy of the new US President leads US 10-year yields to reach 3%, causing market panic. On the verge of disaster, the Federal Reserve copies the Bank of Japan’s Yield Curve Control, by fixing the 10-year Government yield at 1.5%, but from a different angle, effectively introducing QE4 or QE Endless. This in turn promptly stops the selloff in global equity and bond markets, leading to the biggest gain for bond markets in seven years. Critical voices are lost in the roar of yet another central bank-infused rally.
High-yield default rate exceeds 25%
With the long-term average default rate for high yield bonds being 3.77%, jumping during the US recessions of 1990, 2000 and 2009 to 16%, 10% and 12% respectively, 2017 sees default rates as high as 25%. As we reach the limits of central bank intervention, governments around the world move towards fiscal stimulus, leading to a rise in interest rates (ex Japan), thus steepening the yield curve dramatically. As trillions of corporate bonds face the world of hurt, the problem is exacerbated by a rotation away from bond funds, widening spreads and making refinancing of low grade debt impossible. With default rates reaching 25%, inefficient corporate actors are no longer viable allowing for a more efficient allocation of capital.
Brexit never happens as the UK Bremains
The global populist uprising, seen across both sides of the Atlantic, disciplines the EU leadership into a more cooperative stance towards the UK. As negotiations progress, the EU makes key concessions on immigration and on passporting rights for UK-based financial services firms, and by the time Article 50 is triggered and put before Parliament, it is turned down in favour of the new deal. The UK is kept within the EU’s orbit, the Bank of England hikes the rate to 0.5% and EURGBP plummets to 0.7300 – invoking the symbolism of 1973, the year of UK’s entry into the EEC.
Doctor copper catches a cold
Copper was one of the clear commodity winners following the US election; however in 2017 the market begins to realise that the new president will struggle to deliver the promised investments and the expected increase in copper demand fails to materialise. Faced with growing discontent at home, President Trump turns up the volume on protectionism, introducing trade barriers that will spell trouble for emerging markets as well as Europe. Global growth starts weakening while China’s demand for industrial metals slows as it move towards a consumption-led growth. Once HG Copper breaches a trend-line support, going back all the way to 2002 at $2/lb, the floodgates open and a wave of speculative selling helps send copper down to the 2009 financial-crisis low at $1.25/lb.
Huge gains for Bitcoin as cryptocurrencies rise
Under President Trump the US fiscal spending increases the US budget deficit from $600 billion to $1.2-1.8 trillion. This causes US growth and inflation to sky rocket, forcing the Federal Reserve to accelerate the hike and the US dollar reaches new highs. This creates a domino effect in emerging markets, and particularly China, who start looking for alternatives to the fiat money system dominated by the US dollar and its over-reliance on US monetary policy. This leads to an increased popularity of cryptocurrency alternatives, with Bitcoin benefiting the most. As the banking systems and the sovereigns of Russia and China move to accept Bitcoin as a partial alternative to the USD, Bitcoin triples in value, from the current $700 level to $2,100.
US healthcare reform triggers sector panic
Healthcare expenditure is around 17% of GDP compared to the world average of 10% and an increasing share of US population cannot pay for their medical bills. The initial relief rally in healthcare stocks after Trump’s victory quickly fades into 2017 as investors realise that the administration will not go easy on healthcare but instead launches sweeping reforms of the unproductive and expensive US healthcare system. The Health Care Sector SPDF Fund ETF plunges 50% to $35, ending the most spectacular bull market in US equities since the financial crisis.
Despite Trump, Mexican peso soars especially against CAD
The market has drastically overestimated Donald Trump’s true intention or even ability to crack down on trade with Mexico, allowing the beaten-down peso to surge. Meanwhile Canada suffers as higher interest rates initiate a credit crunch in the housing market. Canadian banks buckle under, forcing the Bank of Canada into quantitative easing mode and injecting capital into the financial system. Additionally, CAD underperforms as Canada enjoys far less of the US’ growth resurgence than it would have in the past because of the longstanding hollowing out of Canada’s manufacturing base transformed from globalisation and years of an excessively strong currency. CADMXN corrects as much as 30% from 2016 highs.
Italian banks are the best performing equity asset
German banks are caught up in the spiral of negative interest rates and flat yield curves and can’t access the capital markets. In the EU framework, a German bank bailout inevitably means an EU bank bailout, and this comes not a moment too soon for the Italian banks which are saddled with non-performing loans and a stagnant local economy. The new guarantee allows the banking system to recapitalise and a European Bad Debt Bank is established to clean up the balance sheet of the eurozone and get the bank credit mechanism to work again. Italian bank stocks rally more than 100%.
EU stimulates growth through mutual euro bonds
Faced with the success of populist parties in Europe, and with the dramatic victory of Geert Wilders far-right party in the Netherlands, traditional political parties begin moving away from austerity policies and favouring instead Keynesian-style policies launched by President Roosevelt post the 1929 crisis. The EU launches a stimulus six-year plan of EUR 630 billion backed by EU Commission President Jean-Claude Juncker, however to avoid dilution resulting from an increase in imports, the EU leaders announce the issuance of EU bonds, at first geared towards €1 trillion of infrastructure investment, reinforcing the integration of the region and prompting capital inflows into the EU.

The whole publication “Outrageous Predictions for 2017” and more details can be found here.

Mark Mobius: Emerging Markets Take-Off Again, and the Main Reason is the Internet

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Mark Mobius: los mercados emergentes despegan de nuevo, y la razón principal es Internet — Foto cedidaPhoto: Mark Mobius, Executive Chairman of Templeton Emerging Markets Group / Courtesy photo. Mark Mobius: Emerging Markets Take-Off Again, and the Main Reason is the Internet

Franklin Templeton began investing in emerging markets in 1987 with a USD 100 million fund. Today, it manages over USD 26 billion in emerging market strategies. Mark Mobius, Executive Chairman of Templeton Emerging Markets Group and architect of this expansion, talks to Funds Society in an interview from which a fundamental idea emerges: technology, especially if it’s internet-related, is transforming emerging countries by pushing them to a new Era of growth that is revolutionizing the way we invest in these markets.

The average growth of the economy in emerging markets is 4.5%, as compared to 2% in developed countries. According to Mobius, this gap will continue to expand, and to understand why, we must look beyond mere demographic reasons, and the key is in technology.

“The Internet’s massive penetration in emerging markets has caused these countries to take a technological leap, maximizing productivity and overtaking the developed ones. For example, in China, the importance of online shopping is such, that they have devised an online payment system far superior to all traditional payment systems used by banks. Even in Africa, we see similar examples, like M-Pesa, created by Vodafone in Kenya, a pioneer in money transfers using mobile phones. “

M-Pesa (M for mobile, and Pesa, for the word money in Swahili) is a means of payment by cell phone that includes transfers and microfinance, and which has extended from Kenya and Tanzania, where it was launched in 2007, to South Africa, India, Egypt, Lesotho, Ghana, Mozambique and several countries in Eastern Europe.

China can be just as innovative, or even more so, than the United States

Alibaba, the Chinese “Amazon”, in its last “Singles Day” had revenues of USD 17.8 billion, compared to the USD 5 billion spent in the United States on Black Friday plus Cyber Monday. The Chinese market is huge, and Internet activity is the norm. “China accounts for 10% of the global internet traffic, as compared to 4% for the United States,” says Mobius, “and it’s not just about applying the law of large numbers, technological innovation is cutting edge.”

An example of local technology is WeChat, owned by TenCent Holdings, one of the companies held by Templeton’s Emerging Global Strategy. This app is the Chinese answer to Whatsapp and Snapchat and has more than 700 million users, mostly in China, although it is also used in India or even in Latin America. In the big cities in China, it has a penetration of over 90% and its uses go far beyond those in Whatsapp, as it is used to close business appointments, order food in restaurants, call a taxi, transfer money, etc. WeChat’s estimated ARPU, or average revenue per user is USD 7, seven times that of Whatsapp, which, as we may recall, was acquired by Facebook in 2014 for USD 22 billion.

China has its own Silicon Valley in Shenzen, a city in the south of the country. “A lot of talent based in Silicon Valley comes from China and India. If Trump applies very stringent immigration regulations, some of this talent will have to return to their countries of origin,” says Mobius,” something that would be very damaging to the tech industry in the United States.”

Chinese technology is being exported to other emerging markets

China’s telecommunications equipment industry, for example, has achieved very sophisticated but cheaper technology than its European competitors, Ericsson and Alstom. China is also willing to provide financing to emerging markets that need to invest heavily in infrastructures. Mobius describes how its team noticed an unexpected decline in capex in telecommunications equipment in Argentina. When analyzing the situation, they saw that the investment in infrastructures had fallen because the acquired telecommunications equipment was cheaper, and Chinese. “Although the price was lower, the service was excellent, as the Chinese company had transferred 100 engineers to Argentina to implement the equipment.”

Smaller companies offer the greatest opportunities

According to Mobius, China is a more liquid market, and the opportunities are huge, especially now with the connection between the Hong Kong and Shanghai markets, which has provided access to smaller companies, whereas before you could only invest in large caps. That said, India has a higher rate of growth. “The potential in India is higher since it starts from a lower base. There are 4,000 listed companies, and even though there is more research now than when I started investing in emerging markets, not many more than 100 are covered. There are still a lot of opportunities that can be exploited if you have an investment team in the ground, especially in the field of small caps, and also in private equity. “

The advantage of having local teams extends to all the markets in which Mobius invests. Franklin Templeton has a strategy that invests in smaller companies in emerging markets, that has had particularly strong performance this year. The asset management firm is also present in the field of private equity in emerging markets through specialized vehicles. In this area, Mobius noted, “We focus on companies that are close to going public, preferably within a three to five year time frame”.

The other force for change mentioned by Mobius is political: emerging markets are veering politically towards more orthodox governments, promoting pro-market reforms. “Greater freedom in these countries leads to an increase in social movements and demonstrations, which are sometimes violent, but which also promote change,” adds Mobius.

Does the FED rate rise pose a risk to emerging markets?

In addition to the reservations caused by Trump’s rise to power, which, to a certain extent, have slowed down the flow towards emerging markets, there are a number of factors that worry investors. The behavior of these markets in a raising rates environment is number one on the wall of worries for many investment professionals. Mobius believes in the case of emerging market equities, history shows all kinds of behavior in periods of rate hikes by the FED, “there is no correlation,” Mobius points out. In fact, in his opinion, it may be positive for the markets because US savers will feel more secure seeing their pensions are yielding something, and will be less reluctant to invest in more risky assets such as emerging markets equities.

Argentina and Brazil, a winning tandem

Templeton is a value-based asset manager, and this year, this approach has benefited the emerging market strategies managed by Mobius, obtaining returns that generally beat their benchmarks comfortably. But there are also other factors that explain this good behavior.

The main one is the overweight of the technology sector, including internet-related stocks, the cornerstone of development in emerging markets. “We were late to the internet because, as value investors, we found it difficult to find companies with good earnings, but now we do find them, especially in China.”

Investing in a couple of heavily undervalued Brazilian banks has also had a positive impact on Templeton’s equity strategies. Brazil, along with Thailand, are positions that Mobius has been overweighed for a long time. This year, both markets have worked very well. In addition Argentina is one of the countries whose change is more plausible, according to Mobius, who is very positive about its prospects. “We would like to see more privatizations of state-owned companies and more issues, but on the whole, Argentina has a terrific profile for investing.”