Is there a financial instrument that protects investors in the face of rising inflation?

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In a period such as the current one, where there are high levels of uncertainty with a latent recession, investors are searching for financial instruments that provide above-average returns but with protection against market volatility.

 

At the end of January of this year, inflation stood at an annual rate of 6.4%, higher than expected and only slightly below the previous month’s rate, 6.5%, which confirms the slowdown in the rise of prices. However, not at the desired rate, so the Federal Reserve has yet to rule out the possibility of continuing to raise rates. Nonetheless, this may be lower since continuing to push with moderate levels could trigger the U.S. to enter a recession.

 

According to the U.S. Securities and Exchange Commission (SEC), structured notes are securities issued by financial institutions whose returns are based on, among other things, equity indexes, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies. Thus, your return is “linked” to the performance of a reference asset or index. Structured notes have a fixed maturity and include two components – a bond component and an embedded derivative.

 

Structured notes were introduced in the United States in the early 1980s and gained notoriety in the mid-1990s as a result of the crisis generated in the fixed-income markets during 1994, when the Fed raised interest rates by 250 basis points, generating heavy losses for fund managers with positions in structured notes issued by agencies.

 

According to a report by The Wall Street Journal, around US$73 billion in structured notes had been issued in the U.S. as of November of last year, getting very close to the record of US$100 billion in 2021.

 

According to Monex, structured products are generally created to meet specific investor needs that cannot be met with standardized financial instruments available in the markets.

 

Typically, structured notes are used by different market participants as:

 

– an alternative to direct investment

– a part of the overall asset allocation

– a risk reduction strategy in a portfolio

 

Just as stocks and bonds serve as essential components in the foundation of a well-diversified portfolio, structured note investments can be added to an investor’s portfolio to address a particular objective within an investment plan.

 

During periods of inflation, investors are turning to structured notes as a financial instrument to obtain above-average results thanks to the combination of elements of both fixed and variable investments, i.e., if used correctly, this instrument can offer specific protection against a downfall in the assets in which it invests. 

 

For the above reasons, using structured products as investment vehicles provides a possible system for regulating risk exposure, making it possible to adapt it to the investor’s profile, considering their profitability objectives.

 

An investment vehicle is a mechanism by which investors obtain returns; structured notes can be cataloged as one since they are hybrid investment instruments that allow the design of a tailor-made portfolio, which can have guaranteed capital.

 

Some specialists believe structured notes in uncertain conditions can improve the risk-return ratio since they can encompass many assets. This instrument also facilitates access to specific markets or financial assets that do not have sufficient transparency, liquidity, or accessibility.

 

How to do it in 5 simple steps:

 

At FlexFunds, we are specialists in the setup and issuance of investment vehicles through exchange-listed products (ETPs), for which we have designed a 5-step process that simplifies it:

 

Step 1. Customized assessment and design of the ETP:

A detailed study and data collection of the desired investment strategy is carried out.

 

Step 2. Due diligence and signing of the engagement letter:

Once the product structure is defined, the client’s due diligence is performed, and the process continues with signing the engagement letter. 

 

Step 3. ETP structuring:

The portfolio manager’s onboarding is performed in this step, and the essential documents, such as the “series memorandum,” are reviewed.

 

Step 4. Issuance and listing of the ETP:

The investment strategy is repackaged as a bankable asset thanks to generating an ISIN code that facilitates its distribution.

 

Step 5. The ETP is ready for trading through Euroclear:

Investors can access the ETP through their existing brokerage accounts from many custodians and private banking platforms.

 

Thanks to the features of instruments such as structured notes, FlexFunds can offer innovative, customized solutions that can allow you to diversify your investment portfolio and facilitate access to international investors.

 

Emilio Veiga Gil, Executive Vice President, FlexFunds 

 

Apex Group Appoints New Head of Dallas Office

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Pamela Goldminz, Head of Apex Dallas Office

Apex Group announces the appointment of Pamela Goldminz as Dallas Office Head.

Following organic growth and acquisitions in the Texas market, Apex Group is now one of the largest independent fund services providers by headcount in the State, according to the company’s release.

Goldminz joined Apex Group in Dallas in 2022, following the acquisition of Texas-based SandsPoint Capital Advisors LLC a provider of advisory and consultancy services to alternative asset managers, with specialism in the Real Estate market. Outsourced services include Fund Administration, Property Administration, Investment Accounting, Portfolio Analysis, Treasury Services & Expense Processing, and are supplemented by Consulting and Strategic Advisory across projects and business processes.

She was Managing Director at SandsPoint, having held senior roles during her nine years at the firm in Dallas and Irving, TX. She has over 20 years of experience in private equity, real estate and the financial services industry. Working for both private equity firms and private equity service organizations over the course of her career has given her a unique perspective and level of understanding of clients’ needs and challenges, along with the viable solutions to fulfil those needs.

Her previous experience includes JPMorgan Alternative Investment Services and JPMorgan Partners. Goldminz started her career in audit at KPMG and Ernst & Young.

Pamela Goldminz, Office Head, Dallas at Apex Group comments: “I look forward to leading Apex Group’s Dallas team as we continue to value our client relationships, supporting our long-term clients, and bringing our single-source solution to new clients. We continually evolve our solutions, to ensure that we can support our clients through one efficient and convenient relationship throughout their continued success and growth.”

Euronext Launches a Proposed Public Offer for Allfunds

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Allfunds Group plc confirms that it has received an unsolicited, indicative and conditional public offer proposal from Euronext N.V. for the entire issued and outstanding share capital of Allfunds Group plc at an offer price of EUR 8.75 for each Allfunds Group plc ordinary share payable as follows: EUR 5.69 in cash plus 0.04059 new Euronext N.V. shares.

Under the proposal, the number of new Euronext N.V. shares for each Allfunds Group plc ordinary share would be set by reference to the 1 week volume weighted average price of Euronext N.V. shares on the last trading day before the date of formal announcement of the offer in order for the price per Allfunds Group plc ordinary share to be EUR 8.75.

In addition, as part of the proposal, Euronext N.V. would also pay to Allfunds Group plc shareholders who tendered their shares in the offer a ticking fee per Allfunds Group plc share, corresponding to 5.5% per annum applied to the offer price from the date of the formal offer announcement to the earlier of: (i) the first settlement date of the offer (both inclusive); and (ii) 31 March 2024 (both inclusive). Under the proposal, the ticking fee would be payable in cash, Euronext N.V. shares or a mix of cash and Euronext N.V. shares at Euronext N.V.’s option.

Allfunds Group plc has been informed by Euronext N.V. that Euronext N.V. has been in discussions with Hellman & Friedman and BNP Paribas, together owning 46.4% of Allfunds Group plc’s share capital, to obtain their support for the offer. Allfunds Group plc has not been party to such discussions.

The Allfunds Group plc board is currently evaluating the offer proposal, which would be subject to a number of conditions. There can be no certainty that any transaction will be forthcoming nor as to the terms on which any such transaction may occur.

Further announcements will be made if and when appropriate.

This is a public announcement by Allfunds Group plc pursuant to section 17 paragraph 1 of the European Market Abuse Regulation (596/2014) and article 5, paragraph 1 of the Dutch Decree on Public Takeovers.

This public announcement does not constitute an offer, or any solicitation of any offer, to buy or subscribe for any securities.

 

Barclays Appoints New Co-Heads of Investment Banking

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Barclays announced that Taylor Wright and Cathal Deasy have been appointed Co-Heads of Investment Banking, effective 27 March and subject to regulatory approvals.

In their new roles, Mr. Wright and Mr. Deasy will jointly manage the business across coverage and product groups and will be tasked with deepening client relationships and dealmaking efforts around the world. They will report to Paul Compton, Global Head of Barclays’ Corporate & Investment Bank and President, Barclays Bank Plc, and will join the CIB Management Team.

“In their expanded and new roles, Taylor and Cathal will make a formidable team as we continue to progress building a resilient and diversified Corporate and Investment Banking franchise,” commented Compton. “Our strategy is fundamentally grounded in delivery for clients, and their leadership will best prepare Barclays for the coming decade of investment banking.”

Mr. Wright joined Barclays in 2019 as Co-Head of Americas Equity Capital Markets. He was appointed Global Co-Head of Capital Markets in July 2021, with shared oversight of and responsibility for the Leveraged Finance, Investment Grade Debt, Securitized Products, and Risk Solutions, Equity and Equity-linked businesses. Mr. Wright previously worked at Morgan Stanley.

Mr. Deasy was most recently Global Co-Head of M&A, and EMEA Co-Head of Investment Banking and Capital Markets, at Credit Suisse. During his tenure, he oversaw significant re-focusing and growth within M&A, particularly in Europe, where he was instrumental in leading some of the investment bank’s most important relationships. Prior to this, Mr. Deasy worked at Deutsche Bank and Merrill Lynch.

The Unified Managed Householding Is a Key Focus for Advisors in 2023

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As fee-based financial advice combined with financial planning becomes the industry standard for wealth managers, financial advisors must find new ways to differentiate their practice. According to the latest Cerulli Edge—U.S. Advisor Edition, aggregating client relationships on the household level is one way to achieve this objective, improving the client experience by creating more efficient tax outcomes and greater opportunities for portfolio customization.

The potential benefits of householding and the stronger outcomes it can create are apparent to wealth managers. According to Cerulli, 22% of wealth managers said consolidating to a unified managed household (UMH) is a significant priority, with half reporting it as a moderate priority for their firm moving forward. This comes as wealth managers continue to shift toward fee-based assets and away from transactional brokerage relationships and consolidate accounts from multiple sources.

The UMH is steps beyond the account-level aggregation of the unified managed account (UMA) and considers not just the client’s financial picture, but also that of their entire household. The UMH takes all assets, accounts, and holdings from a household and coordinates them to ensure the best possible financial return across the household.

“Householding gives financial advisors an additional opportunity for customization best suiting the needs of their clients while adding the tax savings clients desperately crave,” says Matt Belnap, associate director. “Advisors who can implement a household level view have a better chance of standing out from their peers and retaining client assets,” he adds.

The crux of the UMH is asset location, algorithmically determining the best place to allocate client assets. “This builds upon something many advisors already do in an ad hoc manner; for example, placing income-producing securities in qualified accounts to minimize taxes,” says Belnap. “By systematizing this process, and by combining that with other strategies such as tax-loss harvesting and intelligent rebalancing, householding through a UMH can create better outcomes for clients,” he concludes.

High yield fundamentals: weathering a slowdown

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Challenging economic conditions are setting the stage for an interesting year ahead. As the economy slows and the cycle ages, companies will likely face financial headwinds. Although firms are entering the year with solid balance sheets, can high yield issuers weather a downturn?

Solid fundamental starting point- while caution is warranted, we think many high yield companies are well-positioned to navigate a downturn given the solid fundamental starting point. In recent years, high yield companies diligently improved their balance sheets, resulting in the lowest leverage levels in more than a decade (Exhibit 1) and the highest interest coverage ratios in recent history. This fundamental improvement is further evidenced by the ongoing upgrade momentum with rising stars outpacing fallen angels. In addition, the credit quality composition of the market has improved, with the high yield market now being over 50% BBs and roughly 10% in CCCs and below. For context, prior to the great financial crisis, the high yield market included more than 20% in CCCs and below.

Heading into 2023, the global macroeconomic environment remains extremely uncertain. Higher and potentially rising interest rates, persistent inflation, elevated geopolitical risk, tight energy markets and the effects of an uncertain reopening in China are just a few of the top-of-mind worries.

These risks may well lead to further slowing of the US and developed market economies and create financial headwinds for many high yield companies. With a potential recession risk looming on the horizon, high yield companies will likely be facing slowing consumer demand and cutbacks in business investments—both of which could lead to declining revenues. Margins may contract as earnings come under pressure in the slowing economy. In addition, interest coverage ratios are likely to decline as coupon rates reset higher and interest costs increase, especially for issuers with floating rate loans. As a result, we believe fundamental improvement has peaked for many high yield companies.

Despite the cloudy macro outlook, we believe most high yield companies are well-positioned to navigate a slowdown. Balance sheets are generally in decent shape and credit metrics are not stretched for most companies. Additionally, there is no immediate maturity wall that presents a refinancing challenge to companies (Exhibit 2) and overall liquidity levels are good. During the year ahead, we expect that the high yield market will present compelling opportunities to invest in companies with attractive risk-return characteristics.

 

Tribune by Kevin Bakker, CFA and Ben Miller, CFA, co-heads of US High Yield at Aegon Asset Management.

 


Read more insights from the experts at Aegon Asset Management.

Dynasty Financial Partners and BridgeFT Announce Strategic Partnership for API WealthTech

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Dynasty Financial Partners (“Dynasty”), announced that has chosen BridgeFT’s WealthTech API as its primary custodial data partner to power Dynasty’s integrated wealth technology offerings across the Dynasty Network. BridgeFT is a cloud-native, API-first wealth infrastructure software company that enables financial institutions, FinTech innovators, and registered investment advisors to deliver better, data-driven outcomes for their clients.

In conjunction with this partnership, Dynasty and select Dynasty affiliates will make a strategic minority investment in BridgeFT.

“We are honored that the team at Dynasty has committed so deeply to our technology and our company,” said Joe Stensland, Chief Executive Officer of BridgeFT. “Dynasty has a reputation for transforming the way advisors use technology that matches our own. We are excited to support and grow with the leading wealth technology and integrated services platform in the industry.”

BridgeFT will be responsible for custodial data aggregation to fuel the technology of all Dynasty’s integrated partners. BridgeFT’s WealthTech API is the industry’s first WealthTech-as-a-Service platform offering a single, open API to trade-ready, multi-custodial data, analytics, and applications.

WealthTech API removes the need for individual data feeds from a range of custodians and back-office providers, allowing wealth management firms and FinTech companies to create differentiated, next generation wealth management applications.

“The Dynasty Network of independent RIAs is connected by our integrated WealthTech platform, and our partnership with BridgeFT will allow us to enhance the world-class tools at our advisors’ disposal to best advise their clients’ complete financial lives,” said Ed Swenson, Chief Operating Officer at Dynasty. “BridgeFT brings Dynasty speed of execution, reduced cost, and a turnkey architecture that will allow us to scale more efficiently. We are excited to partner with and invest in a company that moves at the speed of Dynasty’s pace of innovation.”

As part of Dynasty’s investment, Frank Coates, Dynasty’s Chief Technology Officer, will be joining BridgeFT’s Board of Directors. Prior to joining Dynasty, Coates served as Co-President of Data and Analytics for Envestnet Inc. Prior to Envestnet, Coates co-founded and was CEO of Wheelhouse Analytics, which was acquired by Envestnet in 2016.

Love or Money? Housing Costs Impact Romantic Decisions

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Moving in with a romantic partner is a big step, and one that shouldn’t be taken lightly. However, when it comes to taking the next step in their relationship, 63% of people who have moved in with a romantic partner said that their decision was impacted by finances and/or logistics. Realtor.com® and HarrisX surveyed 3,009 consumers to highlight how today’s expensive housing market is impacting people’s love lives.

“Living with a romantic partner might bring a couple closer together, but it can also magnify potential issues in a relationship,” said Clare Trapasso, executive news editor, Realtor.com®. “While the idea of splitting the rent or mortgage can be very attractive, it’s important to have tough conversations with your partner and think through how living together will work before you take the plunge.”

Younger respondents were significantly more likely to be persuaded by money/logistics with 80% of Gen Z and 76% of Millennials saying that one or both of these things were a factor in moving in with a romantic partner. This is compared to 56% of Gen X, 44% of Baby Boomers who said the same thing.

Will you be my… roommate?
Unsurprisingly, among those who factored finances and/or logistics into their decision to move in with a partner, Gen Z respondents (56%) – who have faced notoriously high housing costs in their lifetime – were the most likely to say that saving money by splitting the rent/mortgage was a contributing factor. Additionally, 70% of all respondents who have moved in with a partner reported that they were able to save money by moving in.

A significant percentage of respondents who have moved in with a partner moved into a home that one person already rented (37%) or owned (21%), while 30% decided to start fresh with a new rental and 9% took the leap directly into buying a home together.

Don’t go breaking my heart
Not all relationships work out and living with a partner isn’t always easy. Forty-two percent of people who have moved in with a romantic partner ended up regretting the move.

“When you’re renting or purchasing real estate together, it’s important to make sure you’re both financially protected,” said Trapasso. “For example, if you’re buying a home together as an unmarried couple, it may be a good idea to chat with a real estate attorney first to figure out what would happen with the home in the event that you broke up.”

Will you accept this contract?
Nearly a third (31%) of survey respondents who have moved in with a partner signed a contract outlining what would happen in the event of a break-up. Younger respondents were significantly more likely to have signed a contract, with 54% of Gen Z and 47% of Millennials doing so. This suggests that younger generations might be more financially and/or legally savvy and understand the importance of protecting their investments.

Methodology
The survey was conducted online from Feb. 1-4, 2023 among 3,009 adults in the U.S. by HarrisX. The sampling margin of error of this poll is +/- 1.8 percentage points and larger for subgroups (including those who have moved in with a partner at +/- 2.3 percentage points). The results reflect a nationally representative sample of U.S. adults. Results were weighted for age by gender, region, race/ethnicity, and income where necessary to align them with their actual proportions in the population.

Tigris Investments and Zink Solutions Create Tigris Alts to Reinforce their Commitment to Alternative Investments

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Photo courtesyFrom left to right: Jimmy Ly, Tigris Investments CEO; José Castellano, President of Tigris Investments; and Conchita Calderon; Manuel Sanchez Castillo; Miguel Cebolla; & Jose Santamaria y Partners of Zink Solutions.

Tigris Investments, founded by Jimmy Ly (CEO) and José Castellano in Miami, and Zink Solutions, a large asset management firm created by Conchita Calderón, Miguel Cebolla, Manuel Sánchez Castillo and José Santamaría, have launched Tigris Alternative Investments (Tigris Alts), to expand their capabilities in the alternative investments business.

As they have explained, this is a new company that combines the experience in global distribution and product development of Tigris Investments, with the experience of Zink Solutions, which brings a solid and unique set of capabilities that translates into the identification and selection of the best investment ideas.

Both companies believe that investing in alternative assets requires a more disciplined approach to ranking and selecting managers so that qualified investors can benefit over the long term. In addition, alternative investments are non-traditional asset classes that are relatively less transparent in nature and more difficult for the general investor to access. To address these challenges, Tigris Alts’ approach and process will leverage the expertise and track record of its team, mirroring the way sophisticated investors analyze and invest in this asset class.

Regarding the companies, it highlights that Tigris Investments is focused on providing dynamic investment strategies to investment professionals and asset managers around the world. The purpose of its founders, Jimmy Ly and Jose Castellano, is to identify independent and consultative strategies and programs to suit an evolving and highly sophisticated investment community. Its ecosystem includes extensively vetted asset management partners, as well as opportunities related to consulting, technology and marketing solutions.

Zink Solutions was founded by Conchita Calderón, Miguel Cebolla, Manuel Sánchez Castillo and José Santamaría, who bring together more than 100 years of experience in the financial industry. Zink Solutions is oriented to achieve independent solutions to the needs of ultra high net worth individuals and family offices.

House Prices Declining Fastest in Overvalued Markets

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First American Financial Corporation settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, today released the November 2022 First American Real House Price Index (RHPI).

The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

“In November 2022, the RHPI increased by 60 percent on an annual basis. This rapid annual decline in affordability was driven by two factors — a 7.6 percent annual increase in nominal house prices and a 3.7 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago. Even though household income increased 3.5 percent since November 2021 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and still-strong nominal house price growth,” said Mark Fleming, chief economist at First American.

“The loss of affordability has prompted buyers to pull back from the market, putting downward pressure on prices. While still elevated by historical standards, nominal house price appreciation has slowed considerably since early 2022. Nationally, annual nominal house price growth peaked in March 2022 at nearly 21 percent, but has since decelerated by more than 13 percentage points to 7.6 percent in November,” Fleming added.

“Real estate dynamics are local, yet nearly every market in the country during the pandemic was characterized as a seller’s market. Wherever you turned, multiple-offer bidding wars were the rule, not the exception,” said Fleming. “However, as house prices adjust to the reality of higher mortgage rates, the pace of adjustment will vary significantly by market.”

Real Estate is Local, Again

Nominal house prices declined from their recent peaks in 37 of the top 50 markets we track in November. The market with the biggest decline was San Francisco, where nominal house prices peaked in April 2022, but have since declined by nearly 10 percent as the housing market rebalances. San Jose, Calif. follows closely behind, as nominal house prices have declined 7.8 percent from the recent peak in March 2022, said Fleming.

“However, house prices have only recently hit their peaks and have yet to decline in markets such as Louisville, Ky., Kansas City, Mo., Hartford, Conn., and several others. Of course, repeat-sales price indices, such as the one used in this analysis, are based on the prices from closed sales, which are a lagging indicator of price changes in the housing market because the contracted prices for these closed sales were agreed to months earlier,” added Fleming.

Overvalued Markets Correcting Faster

Many of the markets with the largest price declines from peak, such as San Francisco, San Jose, and Phoenix, are also some of the more overvalued markets, meaning the median existing-home sale price exceeded house-buying power in these markets,” said Fleming.

“If housing is appropriately valued, house-buying power should equal or exceed the median sale price of a home. Many of the markets where house prices have not yet declined, such as Louisville, Ky. and Kansas City, Mo., are still considered undervalued, meaning house-buying power exceeded the median existing-home sale price in November. There are exceptions to this relationship, but generally it seems that the most overvalued markets are correcting the fastest,” added the First American’s chief economist.

The Silver Lining

While price changes vary by market, there is one trend that bodes well for all top 50 markets – much of the homeowner equity gained during the pandemic remains. For example, in both San Francisco and San Jose, house prices increased by 31 and 29 percent from February 2020 to their respective peaks in 2022. Kansas City and Hartford gained 48 and 40 percent from February 2020 to their respective peaks in 2022. “As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners over the last few years,” said Fleming.