Pixabay CC0 Public Domain. HSBC AM incorpora un equipo especializado en tecnología climática y prepara un primer fondo de capital riesgo
HSBC Asset Management has hired a Climate Technology (Climatech) team as part of its strategy to expand direct investment capabilities in alternatives. The new team will develop a venture capital investment strategy providing clients with opportunities to invest globally in technology startups who are addressing the challenges of climate change.
In a press release, the asset manager revealed that the strategy will focus on companies across the energy, transportation, insurance, agriculture and supply chain sectors. The first fund is planned to be launched before the end of the year with an intended cornerstone investment from HSBC.
The team will report to Remi Bourrette, Head of Venture and Growth Investments, who arrived at the firm last year from HSBC Global Banking and Markets. As for the new recruits, Christophe Defertjoins as Head of Climate Technology Venture Investments. He has over 16 years’ experience in investment banking, private equity, corporate M&A, energy contracts and venture capital. Before joining HSBC Asset Management, he spent 10 years at Centrica where he most recently built and led Centrica Innovations’ Venture effort globally.
Also Michael D’Aurizio has been appointedInvestment Director, Climate Technology. Hehas over 10 years’ experience in power, utilities, and clean energy including business strategy and venture capital, and previously led Centrica Innovations’ US activities.
“Technology will play a major role in enabling the energy transition, funded by public money, private capital and philanthropic commitments like HSBC’s Climate Solutions Partnership with the World Resources Institute and WWF. The appointment of this team will allow us to provide clients with early exposure to sectors which are just emerging as such, but will become major sources of financial and environmental value over the decade”, Joanna Munro,Global CIOatHSBC Asset Management, commented.
In 2020, HSBC Asset Management set out its strategy to re-position the business as a core solutions and specialist emerging markets, Asia and alternatives focused asset manager, with client centricity, investment excellence and sustainable investing as key enablers. The firm currently manages 45 billion dollars in alternatives strategies.
Aberdeen Standard Investments is confident that frontier market bonds represent a compelling investing opportunity in a diversified portfolio, considering the low level of interest rates worldwide.
Among the main features of this asset class, we could mention its decorrelation versus Treasuries, which is especially interesting if yields continue its upward trend and if the ghost of inflation remains in place. But also, because of the decorrelation we could find among the different local currencies of frontier markets.
Kevin Daly, fund manager of the Aberdeen Standard SICAV I – Frontier Markets Bond Fund, explains in this interview with Funds Society why he thinks the risk/return profile of this asset class is interesting compared to other emerging market assets, especially government bonds or equities.
Why is the present market environment a suitable opportunity to invest in frontier markets? Given their growth, the level of volatility and risk and the potential reflationary situation.
There are several reasons why I believe frontier bonds remain attractive. Firstly, higher carry compared to mainstreamEmerging Markets(EM) and lower duration risk, explains outperformance amid rising US Treasury yields. Angola is my top pick in terms of USD bonds, as they have very moderate external liabilities coming due over the next several years following China and DSSI [The G20 Debt Service Suspension Initiative] relief in 2020. High oil prices will also result in an improving fiscal outlook and declining debt levels. With spreads of 650-725 investors can access an attractive risk premium for a country with improving credit metrics and low issuance needs. Having said that, I would expect Angola to return the market in 2022 if spreads continue to decline.
We continue to see good value in Sub-Sahara Africa bonds such as Ivory Coast, Senegal, Ghana, Kenya, Nigeria and Gabon. We are also maintaining a 2% position in Ecuador, which surged after the election result last month. Egypt remains our top pick in local markets given the high real and nominal rates, and stable currency. Ghana, Ukraine, Kazakshtan, Kenya and Uganda are other local markets where we see value.
What about the risks?
The main risk for frontiers is higher default risk over the medium term, as we could have more countries opting for the Common Framework [debt relief beyond the DSSI] if they don’t address fiscal and debt vulnerabilities.
What do these markets offer in terms of advantages over emerging markets and from a decorrelation and diversification point of view?
Higher yields and lower duration risk compared to mainstream EM has been beneficial for investors in frontier bonds 2021. I would expect that to remain intact during the year. Rising commodity prices is another factor why some frontier credits have performed well in 2021.
What is the current level of flows to these markets and how might they evolve over the course of the year?
Flows into EM funds have been pretty strong at around $32bn, of which half is hard currency funds. Using a straight line benchmark assumption, that suggests around $2.5-3bn have gone into frontier hard currency bonds.
And in terms of expected valuation evolution?
Spreads on frontier hard currency sovereign bonds are currently 540bp over USTs, and while they’ve tightened around 60bp this year, they are still 120bp wide of their 2020 lows. So I believe there’s still decent value, although I would not expect spreads to revisit 2020 lows until we have a better picture on the impact from the pandemic, and some improvement on the fiscals and debt levels.
What role do local currencies play in investing in these markets and specifically in your investment philosophy?
Local currency provides higher carry and in some cases defensive characteristics compared to hard currency, as was the case during the peak of the pandemic in 2020 when hard currency sold off sharply due to huge outflows from mutual funds that invest in those bond. However, there’s very little mutual fund investment in frontier local markets. When it comes to portfolio construction, we take a bottom up approach, and we will look at the relative value between hard and local currency bonds that will dictate how we want to be positioned in that particular country.
Why Aberdeen Standard SICAV I Frontier Markets Bond?
We have the resources and long track record investing in frontier markets. Among our four dedicated frontier bond strategies, we have a highly diversified approach as our fund has traditionally invested in HC, LC and corporates. We can also demonstrate a consistent long-term track record.
The trajectory of the onshore Chinese bond market has been positive over recent years with increasing inflows. Eight percent of the market is already owned by offshore investors, which includes about 3% foreign ownership, and this is up from virtually 0% just 5 years ago. The IMF SDR (’15), the JPM GBI-EM (Feb ’20) and the FTSE WGBI (Oct ’21) have all created demand for local Chinese bonds and Bond Connect has helped create a path to satisfy that demand, with average daily trading volume in April at RMB24.7 billion.
However, as with most things, it takes time – time for funds to recognize that the benefits outweigh the costs (operational, execution, setup) and time to get approval to trade in the onshore market as an offshore participant.
If Bond Connect were easier to deploy, more funds in the US, Europe and Japan would have pre-positioned in the lead-up to China bonds being included in the FTSE Russell WGBI. Once funds are greenlit, it will be a steep trajectory for inflows. With that, investors will see more strategies oriented towards offshore investors and a huge push for green bond issuance (already 13% of the market and the 2nd largest green bond market in the world) which is a major topic for investors in the west.
Given China’s ambitious net-zero carbon target by 2060, the country will require trillions of yuan in new investments to revamp its carbon-intensive economy and energy system over the coming four decades. This will pique the interest of many funds given the average yield of Chinese green bonds was 3.44% as of March 31st, compared to 0.58% for the Barclays MSCI Global Green Bond Index.
Source: Goldman Sachs
China debt inclusion in the Russell flagship benchmark (FTSE Russell WGBI) will be a gamechanger in terms of foreign investors’ strategic allocations.The inclusion can’t be ignored, as an estimated $2-4 trillion in assets follow this index. It will make China the sixth largest market by weight and will have the second highest country group yield in the FTSE World Government Bond Index (WGBI) behind only Mexico, but with a much larger weight (5.25% vs .6%) thereby pushing the overall index yield up 15bps. It may not sound significant, but it is, considering the whole index only yields 32bps today. Monthly passive inflows will likely total US$5-7.5bn a month (3x today’s pace) from October 2021.
There will likely be a 36-month phase in after that (in-line with previous inclusions). We should expect an acceleration of inflows (2x today’s pace) which could lead to a market driven compression of yields which was the case when Malaysia and Mexico were added to the index in 2007 and 2010, respectively.
The inclusion also provides a stamp of approval around liquidity, policy transparency and currency management that have kept many offshore managers at bay for years. For many funds, navigating the local landscape was a daunting prospect. With this inclusion, the prospect is far less scary.
Source: Goldman Sachs
The Chinese government’s management of Covid-19 along with recent policy changes have made its bond market more attractive to institutional investors. While policy makers elsewhere were cutting funding rates, expanding balance sheets and increasing fiscal spend, Chinese counterparts were more austere, and in some cases, they even tightened policy. The goods and digital economy in China far outweigh the service economy so less structural support was needed.
Why does this matter? Chinese rates were stable and even higher in absolute terms while bond yields were plummeting elsewhere with some credit fundamentals deteriorating. The Covid-19 pandemic has really been a goldilocks situation for Chinese bonds. After the initial shock of the pandemic, investors started to realize China offered a unique opportunity and we saw flows into Chinese local bonds ramp up in the second half of 2020.
Default risk in China has always been more about refinancing risk than leverage. Seventy-six companies have roughly $50bn of repayment pressure over the coming months. Moody’s forecasts the trailing 12-month default rate for these firms will fall to 3.5% at year-end from 7.4% at the end of 2020. Continued supportive fiscal and monetary policies and better pandemic containment with vaccination rollouts also play a role in the improvement.
Still, weaker firms’ funding channels “could be restricted” following guidance last month from China’s supervisor of state-owned assets regarding bonds’ proportion of total debt at riskier firms.
In the private credit sector, there can be too much gearing, forex risk, and/or secular headwinds. This risk is far easier for international investors to tolerate, understand and navigate than the SOE risk. If a company has 8x debt to EBITDA and a majority of that is in FX despite most income being in local currency, there is potential solvency risk. It’s high yield for a reason.
Regulators have stepped in to limit home price growth and home development. That means the property names that grew unchecked for years by accessing cheap financing in USD and using it to amass disproportionately large land banks, now find themselves on the wrong side of regulation. These corporations have a lot of assets that they cannot offload or develop along with acute debt service costs.
Regarding SOEs, bank regulators are doing what they can to limit future default risk by guiding the so-called zombie corporations towards insolvency. By doing so, they are pruning fundamentally impaired institutions before they become a systemic issue and cause contagion. We applaud these measures. Coal names come to mind most readily with the default of Yongcheng in late 2020 just weeks after they issued bonds. Fortunately, it was only RMB 1 billion, so it wasn’t a systemic issue. SOEs have some 5.4 trillion yuan of bonds maturing this year. Net bond financing has been negative for more than a dozen provinces since Yongcheng Coal’s default in November.
Ayman Ahmed is a Senior Fixed Income Analyst at Thornburg Investment Management.
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Founded in 1982, Thornburg Investment Management is a privately-owned global investment firm that offers a range of multi-strategy solutions for institutions and financial advisors around the world. A recognized leader in fixed income, equity, and alternatives investing, the firm oversees US$45 billion ($43.3 billion in assets under management and $1.8 billion in assets under advisement) as of 31 December 2020 across mutual funds, institutional accounts, separate accounts for high-net-worth investors, and UCITS funds for non-U.S. investors. Thornburg is headquartered in Santa Fe, New Mexico, USA, with additional offices in London, Hong Kong and Shanghai.
Foto cedidaGregor Hirt, nuevo director de inversiones global de multiactivos de Allianz GI.. Gregor Hirt, nombrado director de inversiones global de multiactivos de Allianz GI
Allianz Global Investors has announced in a press release the appointment of Gregor Hirt as Global CIO for Multi Asset as of July 1. He will be based in Frankfurt and report to Deborah Zurkow, Global Head of Investments.
In his new role, Hirt will work closely with the firm’s Multi Asset experts in Europe, Asia and the US to ensure Allianz GI continues to strategically develop and grow its Multi Asset business in areas of client demand, including risk management strategies and multi asset liquid alternatives.
Hirt brings 25 years of experience in Multi Asset investing from both a wealth management and asset management perspective. He joins from Deutsche Bank, where he has been Global Head of Discretionary Portfolio Management for the International Private Bank since 2019. Prior to that, he was Group Chief Strategist and Head of Multi Asset Solutions at Vontobel Asset Management, having also gained strong experience at UBS Asset Management, Schroders Investment Management and Credit Suisse.
“Allianz GI has a rich heritage in Multi Asset investing, with one of the strongest teams in the industry. Marrying the best of our deep expertise in both quantitative and fundamental approaches, while integrating ESG considerations, will be pivotal in ensuring that our offering is as successful for clients in the next generation as it has been in the past. With just the right mix of leadership experience, market insight and client understanding, we are delighted to be welcoming Greg. As well as significant experience across asset management and wealth management, he has deep appreciation for quantitative discipline while having a background in fundamental analysis”, highlighted Zurkow.
Allianz GI currently manages 152 billion euros in Multi Asset portfolios for retail and institutional clients around the world. AllianzGI’s Multi Asset investment approach combines a systematic assessment with the insights of fundamental analysis with the dual objective of mitigating risks and enhancing return potential for clients.
Pixabay CC0 Public Domain. Los gestores siguen siendo optimistas sobre los lanzamientos de megafondos en China
China is a major player in the global fund industry. Blockbuster fund initial public offerings (IPOs), which have seen popular new funds being oversubscribed and sold out within a day after sales commence, have become more common in the country over the past few years. While short-term investor sentiment has been hurt by the recent market downturn, Cerulli Associates points out in its latest analysis that the trend could resume over the long run.
China’s mutual fund assets under management, including that of ETFs, recorded robust year-on-year growth of 37.5% to reach 19.7 trillion renminbi (3 trillion dollars) in 2020. Total assets garnered through mutual fund IPOs reached 3.2 trillion renminbi, double the size in 2019. The average IPO volume of new funds also improved to 2.2 billion renminbi, compared to 1.5 billion in 2019.
Local media reports show that in 2020, over 100 new funds were sold out within one day after subscriptions commenced, and 15 of these IPOs successfully garnered assets of over 10 billion renminbi. “The trend continued in the beginning of 2021, according to China Fund News reports, when a total of 122 new mutual funds were rolled out in January, raising assets of almost 500 billion renminbi, the second largest monthly amount for IPO assets recorded in the market”, Cerulli says.
Among the factors behind blockbuster new fund launches the firm identified are optimistic investor sentiments, star managers with good track records, and sufficient liquidity in the market. Over the past few years, the Chinese government has introduced a series of monetary easing measures to stimulate the economy following the U.S.-China tensions and COVID-19 pandemic. “Part of the money supply went to the real economy and real estate market as traditional long-term investment vehicles for local residents, while the rest was available to asset management products. This created plenty of opportunities for mutual funds, as other investment products in general are not attractive enough”, they add.
In this sense, some managers Cerulli spoke with said that the fast-track fund approvals introduced by the China Securities Regulatory Commission (CSRC) have also facilitated their new fund launches. Extensive marketing efforts and digital distribution have also supported mega fund launches.
Following this year’s Chinese New Year holiday, the stock market plunge dampened investors’ interest in new fund launches. However, despite the potential challenge to fundraising, the firm’s analysis shows that managers focused on the long term are still upbeat about the industry’s prospects, and are “confident that mega fund launches will resume if the stock market turns bullish again”.
In Cerulli’s view, mutual funds’ long-term growth prospects should continue because profits earned by listed enterprises which survived COVID-19 will eventually enter the stock market, and funds have an inherent advantage over other financial products.
“The cooling of market sentiments is normal, and it is also an opportunity to educate small-ticket young investors who have not experienced many market cycles. As long as the recovery does not take too long and a bear market is avoided, the long-term outlook for mutual fund IPOs should remain positive”, said Ye Kangting, senior analyst at the firm.
The independent investment advisory firm Insigneo continues to boost its New York network with the hiring of Margaret Rivera, who joins from Wells Fargo’s International office.
“Insigneo is continuing its New York City expansion, please welcome our new International Financial Advisor Margaret Rivera from Wells Fargo’s International office in NY. Margaret has been a financial advisor covering clients across the globe for over 29 years”, reads the company’s posting on its LinkedIn profile.
Rivera started in the financial services industry at Smith Barney in New York. She spent the majority of her career at Chase Investment Services and at Citi International, where she worked for 17 years before joining Wells Fargo.
“Margaret brings a wealth of experience in international markets to our new Insigneo NY office in Midtown Manhattan, she is a great addition to our team. We are looking forward to working with her and continuing to expand our footprint in New York City”, said Jose Salazar, Head of Business Development for the US Offshore market at Insigneo.
Meanwhile, Rivera claimed to be “very pleased” to be part of an expansion which “truly caters” to the international client. “I am reunited once again with former colleagues from Citigroup and Wells, and most importantly: my clients won’t have to worry on any business model changes because International is the core model for Insigneo. It is perfect all around and it just feels right”, she insisted.
This appointment comes after the recent opening by Insigneo of a new office located in midtown Manhattan and the hiring of Alden Baxter and Adelina Rodriguez.
Despite the huge popularity of green bonds, NN Investment Partners believes that their specific environmental focus and use-of-proceeds structure mean they might not be the best option for every issuer as some have insufficient environmental projects to issue a green bond. In its view, there is also a role for other types of sustainable bonds, like the more flexible sustainability-linked bonds (SLBs), as a financing tool for companies that still want to take positive steps towards sustainability.
Analysis by the asset manager indicates that sustainability-linked bonds do not command the equivalent of a green premium (greenium) which is the case for some green bonds. “This shows that there is more scepticism in the market as to the how sustainable SLBs really are“, they say.
These bonds have key performance indicators (KPIs) set by the issuers that are aligned with their sustainability strategies. NN IP points out that their goals can be more general and overarching rather than the bond’s proceeds being tied to the financing of specific projects that create a positive environmental impact, which is the case for green bonds. The market for SLBs has grown rapidly from 5 billion dollars in 2019 to over 19 billion in the first half of 2021.
“SLBs offer companies an instrument to tackle sustainable or social issues that are not directly climate-related. Many are not large CO₂ emitters and do not have sufficient environmentally linked financing needs to enable them to issue green bonds. Issuing an SLB gives these companies the opportunity to look beyond the pure environmental theme at the bigger sustainability picture”, says Annemieke Coldeweijer, co-lead Portfolio Manager Sustainable Credit at NN IP.
The analysis shows that investors have some degree of scepticism about SLBs because there is less concrete information on how their proceeds will be used and the potential impact they will have. The flexible structure of the KPIs also makes “sustainability washing” easier. To combat this risk, the asset manager recommends investors to consider four key factors when assessing the robustness of a bond’s sustainability KPIs:
Climate-related
Any KPIs related to the climate crisis should be aligned with the company’s carbon neutral target by 2050 (1.5°C scenario). In its opinion, issuers should establish this target and have it verified by an external party, such as the Science Based Target Initiative.
Focus on emission scopes
Climate-related KPIs should focus on the key emission scopes of the issuer. For example, while some companies have more emissions in Scopes 1 and 2 -directly generated by the company or related to its upstream activities, such as its power sources- others, such as automotive manufacturers, have more emissions in Scope 3, which include emissions that are a consequence of a company’s operations but are not directly owned or controlled by it, such as when consumers use its products.
NN IP believes that SLBs should have KPIs that accurately address the crucial sustainability problems that the issuers are facing. Recent examples include healthcare company Novartis, which issued a sustainability-linked bond with KPIs linked to patient access, and food retailer Ahold Delhaize, where the SLB had KPIs linked to food waste.
Independently verified
The KPIs should be well-documented and verified by independent parties, such as Sustainalytics or ISS. Issuers should report on their progress in terms of the KPIs annually and have them audited externally.
Lastly, Coldeweijer highlights that transparency and corporate disclosure are key when it comes to assessing the impact of an SLB and a company’s ESG targets and achievements; but she warns that data and reporting on sustainability is still a challenge for both companies and investors, and although increasing regulatory requirements are improving standards, there is still some way to go.
“This is also why in our bond selection process we do not rely solely on data from the companies themselves or on third-party ESG data sources alone. We carry out our own thorough ESG analysis of the issuer, both qualitatively and quantitatively. This ensures we develop a proprietary view on the ESG/sustainability performance, before investing in any issuer and in any bond”, she concludes.
Pixabay CC0 Public DomainLa Administración Biden contempla una fuerte inversión en infraestructuras. Golden Gate
The U.S. stock market rose to a record closing high at the end of April, scoring its best monthly gain since November. The spring rally was powered by a strong stimulus fuelled economic recovery and corporate earnings reports that by month end had topped analysts estimates by a wide margin. Berkshire Chairman Buffett commented at the annual meeting on May first that U.S. fiscal and monetary stimulus ‘did the job,” and 85% of economy is running in ‘super high gear’. However, the U.S. economy remains about eight million jobs below its pre-pandemic level in February 2020. Continued gains at March’s pace of 916,000 new jobs and a six percent unemployment rate would take a while to catch up and may bump into the time frame when the Fed is expected to start tapping on the monetary brakes. Fed chairman Powell addressed this market concern at the April FOMC meeting when he said, “We don’t have to get all the way to our goals to taper asset purchases, we just need to make substantial further progress.”
As we look for new investment opportunities, our equity research continues to focus on infrastructure. President Biden’s American Jobs Plan (AJP) has spending proposals targeting transportation, including roads, bridges, train service, and the transition to electric vehicles. Plus, upgrading public water systems and improving broadband access and connectivity to rural Americans.
Mr Buffett commented on the current backdrop for deals from Berkshire’s perspective. Here are some of the dots. Berkshire has not made a major acquisition since 2016 and has $70 billion to $80 billion of its $145.4 billion cash hoard it would “love to put to work.” But the ‘casino’ effect from SPACS has made it difficult to compete for deals. Despite environmental concerns, Mr. Buffett said he would ‘not feel uncomfortable’ owning ‘the entire business’ of Chevron, but did not say that was his intention. Berkshire held Chevron shares at year-end 2020. Chevron’s market capitalization is about $200 billion compared to about $630 billion for Berkshire. An upbeat Mr. Buffett said he is looking forward to seeing everyone at next year’s annual meeting in Omaha.
M&A activity remained vibrant in April with nearly $500 billion in newly announced transactions, providing merger arbitrageurs with an expanded menu of investment opportunities. Performance in April was bolstered by deals that made continued progress towards closing, improved deal terms, and deals that were completed in April. Notably, Alexion’s acquisition by AstraZeneca received antitrust approval in the U.S. without an extended review, in what was viewed as an early test of the Biden Administration’s approach to pharmaceutical mergers. Kansas City Southern received an overbid from Canadian National Railway, and Suez reached an agreement in principle to be acquired by Veolia under improved terms. We believe these dynamics highlight a desire and urgency to acquire strategic assets, and believe it bodes well for a healthy M&A environment.
After a record first quarter, April’s global convertible market issuance returned to a more normal cadence and continued on more attractive terms than previously occurred at the beginning of the year. The market moved higher as underlying equities advanced, but many new issues traded lower. There were two reasons for these moves. First, the convertible valuations were a bit stretched. It was reasonable for companies to take advantage of the market to improve their capital structures, but convertibles with zero coupons and 60 or 70% premiums very rarely make attractive investments. Second, many of these convertibles came from growth companies where high valuations were somewhat dependent on low interest rates. As investors include higher interest rates in their valuations, weakness has developed in growth equity and in turn weakness in their aggressively priced convertibles. This has left the convertible market in a compelling place. We anticipate that issuance will continue this year, as the convertible market is one of the most attractive ways for companies to raise capital while allowing investors to participate in equity performance in a risk adjusted way. There are also many existing converts that are now more attractively priced and offer asymmetrical profiles that should participate in more equity upside than downside.
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GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.
Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.
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GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.
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GAMCO Convertible Securities’ objective is to seek to provide current income as well as long term capital appreciation through a total return strategy by investing in a diversified portfolio of global convertible securities.
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The fund invests in convertible securities, as well as other instruments that have economic characteristics similar to such securities, across global markets (but the fund will not invest in contingent convertible notes). The fund may invest in securities of any market capitalization or credit quality, including up to 100% in below investment grade or unrated securities, and may from time to time invest a significant amount of its assets in securities of smaller companies. Convertible securities may include any suitable convertible instruments such as convertible bonds, convertible notes or convertible preference shares.
By actively managing the fund and investing in convertible securities, the investment manager seeks the opportunity to participate in the capital appreciation of underlying stocks, while at the same time relying on the fixed income aspect of the convertible securities to provide current income and reduced price volatility, which can limit the risk of loss in a down equity market.
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Class F EUR LU2264533428
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It is in one area in particular where listed infrastructure is emerging as a viable alternative to its private counterpart: clean energy.
It’s abundantly clear that renewables and sustainability-related sectors will be a magnet for infrastructure investment in the coming years. Both governments and an increasing number of large multinational corporations have committed to ambitious carbon reduction targets in the post-Covid era.
This will require trillions of dollars of capital to be re-directed to clean energy assets. The shift was already gathering momentum prior to the public health crisis.
In the year before the pandemic, the renewables sector had accounted for the largest share of private-sector infrastructure investment. It drew in more than USD40 billion in new capital in 2019 alone – or over 40 per cent of the total amount invested in infrastructure that year. This is up from 20 per cent at the start of the decade (1).
That looks modest compared with what could unfold. According to the International Renewable Energy Agency, cumulative investments in the energy system will need to increase 16 per cent to USD110 trillion between 2016 and 2050 from what’s currently planned to meet climate targets.
If that happens, investment opportunities in the electrification and infrastructure segment – which includes power grids, EV charging networks and hydrogen or synthetic gas production facilities – could expand to as much as USD26 trillion by 2050. It is a similar picture in renewables.
Public infrastructure: gaining depth
And there are reasons to believe that the public market could attract a significant share of this capital.
The rise of blank-check financiers, popularly known as SPACs (special purpose acquisition companies), is a crucial development in this regard.
SPACs start off with no assets and go public to pool capital with the intention of merging or acquiring targets. They provide a quicker and more efficient alternative for firms to raise capital than through a traditional public listing.
According to US law firm Vinson & Elkins, the number of announced “de-SPAC” transactions by clean energy companies – or the post-IPO process of the SPAC and the target business combining into a publicly traded operating company – set a record in 2021 while IPOs of energy transition SPACs have been equally robust.
Among the most popular industries targeted by SPACs are electric/alternative fuel vehicles, vehicle autonomy and grid-level battery storage (2).
The V&E report adds: “with projected capital requirements to meet carbon goals and deep investor appetite for these investments, activity to date may be but a prelude to even more robust activity over the next decade.”
The average clean-energy SPAC is estimated to have an anticipated enterprise value – a measure of a company’s potential takeover value – of USD1.8 billion (3).
Traditional IPOs in the clean energy industry are also strong in some regions. In Spain, partly in response to the EU’s green recovery investment plan, at least four companies, including Repsol, are working on possible IPOs of renewable assets this year.
Green infrastructure for impact
As the world accelerates efforts to decarbonise and become more resource efficient, listed infrastructure firms specialising in clean energy and sustainable solutions are both a complement and alternative to private assets.
Listed infrastructure stocks, especially in clean energy and sustainable sectors, also allow investors to align their investment return objectives with their environmental and social goals.
Pictet Clean Energy strategy: investing in energy transition
Pictet AM’s Clean Energy strategy is ideally placed as a complement for institutional investors looking for exposure in sustainable infrastructure.
The strategy invests in companies supporting and benefiting from the energy transition. It aims to deliver long-term capital growth with a scope to outperform major global equity indices over a business cycle.
The strategy invests in broad and diversified clean energy segments, not only in renewable energy but also technologies, innovations and infrastructure supporting smart mobility, energy efficient buildings and efficient manufacturing.
Utilities and industrials make up at least 40 per cent of the portfolio.
About a third of the portfolio is directly exposed to infrastructure assets and investments, while the remaining has indirect exposure which should also benefit from growing inflows into green infrastructure.
The portfolio is nearly 100 per cent exposed to US President Joe Biden’s USD2 trillion stimulus.
Launched in 2007, Clean Energy strategy has a track record that is one of the longest in the industry. The experienced team that manage the Clean Energy strategy sit within our pioneering Thematic Equities team that manages around USD53 billion across a range of strategies.
Data as of 31/03/2021.
Opinion written by Xavier Chollet, Senior Investment Manager in the Thematic Equities Team co-managing the Clean Energy Strategy at Pictet Asset Management
(1) Source: Global Infrastructure Hub. Investments combining debt (75%) and equity (25%) flows.
(2) Source: Vinsons and Elkins, 13.01.2021
(3) Shayle Kann, a San Francisco-based managing director at Energy Impact Partners, in an InterChange podcast entitled “The Cleantech SPAC Attack.”
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Just four months into 2021, global equity markets have already hit our targets for the year (returns of 10 per cent). That and tentative signs that economic and corporate earnings growth may be peaking has led us to take some profits. We therefore downgrade equities to neutral, and trim our exposure to cyclical stocks.
Our business cycle indicators suggest the global economy is recovering well from the pandemic, but growth momentum has slowed slightly. That’s particularly true in China, where weaker-than-expected first quarter data has prompted us to trim our 2021 GDP growth forecast there to 10.0 per cent from 10.5 per cent. This slowdown is partly due to a cooling in credit growth. China’s credit impulse, our own measure of credit flowing through the economy, has dropped off sharply since October is now broadly in-line with its long-term average of 6.5 per cent of GDP.(1) This is in keeping with the view that China will stick to its promise of maintaining continuity and stability in economic policies.
In the euro zone, the recovery is not self-sustaining yet and is fully conditional on successful control of the pandemic, the vaccination campaign and on the persistence of accommodative monetary and fiscal policies. Economic activity in the US, meanwhile, continues to beat expectations – for now. We expect growth to peak in the current quarter, before slowing into the year-end as the fiscal boost starts to fade. Reinforcing our view, a New York Fed survey shows US households plan to spend just 25 per cent of the their stimulus cheques; 34 per cent of the cash will be used to pay down debt and the balance saved.
Our liquidity indicators show that private credit conditions – credit flowing to household and corporations – have normalised globally. Overall liquidity, however, remains marginally supportive for riskier assets thanks to continued central bank stimulus. However, this support is likely to ease over the coming months. We think that the US Federal Reserve may move faster than expected on tapering QE; it could flag the shift in policy as soon as its June rate-setting meeting.
That, in turn, adds to the case for dialling down exposure to equities – particularly in light of extremely stretched valuations. The total return ratio of US equities versus bonds is now at a historic high, and a staggering 47 per cent above its long-term trend (see Fig. 2). The gap between stocks’ earnings yields and government bond yields, meanwhile, is at its lowest since the 2008 financial crisis.
Globally, stocks’ earnings multiples should come under further pressure in the coming months as monetary stimulus fades. Any further upside for equities will thus have to come from corporate earnings growth. This could indeed continue to surprise on the upside for a while longer, but with investor positioning in – and sentiment towards – stocks already at very bullish levels, any positive market reaction to news of stronger profits is likely to be muted, while weaker-than-expected results could be severely punished.
Technical indicators suggest we are about to enter a three-month long period of negative seasonality for equities (the period running from May to July tends to be associated with weak stock market performance). While investment flows into equities remain strong, the momentum is slowing even if our indicators do not yet suggest stocks are ‘overbought’. For bonds, the overall technical signal remains negative.
Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.
(1) China’s credit impulse is a broad measure of credit and liquidity to the real economy, which we calculate as year-on-year change in total social financing quarterly flow (ex-equity).
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
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