Jupiter has completed the renaming of Merian products in line with its existing fund range. The asset manager announced in a press release that, following its acquisition of Merian Global Investors in 2020, this decision is one of the final milestones in the creation of a single unified business operating solely under the Jupiter brand.
With immediate effect, Merian branded products will lose the Merian badge, instead taking on the Jupiter name and branding. For example, the Merian Gold & Silver Fund, managed by Ned Neylor-Leyland, will become the Jupiter Gold & Silver Fund.
While the majority of funds will make the switch to the Jupiter prefix, the Merian Systematic Equity fund range, headed by Ian Heslop and Amadeo Alentorn, will now be renamed to “Jupiter Merian”. Meaning, for example, the Merian North American Equity Fund will become the Jupiter Merian North American Equity Fund.
“We are delighted to have completed this project, making it clear that we are now one business with one brand, moving forward as one. The Jupiter brand has a long heritage. While the essence of the brand hasn’t changed, we believe that this new visual identity builds on this established heritage while also reflecting the active, innovative, international asset management firm we are today”, Phil Wagstaff, Jupiter’s Global Head of Distribution, said.
Broader brand refresh
Furthermore, as part of this rebranding process, the asset manager has launched a new website with a refreshed visual identity. Jupiter’s logo has been updated, and all fund collateral, including advertising, has also undergone a refresh. Going forward, all information and materials concerning the combined fund range can be found onthe Jupiter website.
While large-cap stocks often grab the headlines, it is small and mid-caps that really represent the heartbeat of the US economy. So explained Bob Kaynor, Head of US Small and Mid-Cap Equities at Schroders, at a new Virtual Investment Summit moderated by William M. Gambardella, Head of Offshore Solutions at Morgan Stanley Wealth Management Global Investment Office (GIO).
Schroders limits the universe of US small- and mid-caps to companies with market capitalizations of between $300 million – a market capitalization of less than $300 million implies accepting a significant amount of liquidity risk – and $12 billion. These limits are flexible, as the composition of benchmark indices changes from year to year, but one could say that the weighted average is around $7 billion.
“With a lower concentration in stocks and sectors than in the S&P 500 index, it is really in the small and mid-cap companies that you can feel a slight optimism as the economy begins to reopen,” explained Bob Kaynor.
Valuations
Small and mid-cap companies are trading at multiples of 21x over earnings and around 16x over expected earnings. These figures may seem reasonable given the current level of interest rates. But it is a diversified universe, so there are several opportunities to find companies and industries that are going to experience growth that is differentiated from what large cap stocks may be signaling.
In Kaynor’s opinion, the returns that were achieved last year are explained by an expansion in multiples thanks to the significant monetary and fiscal stimulus programs that have been announced. While markets have anticipated a recovery in earnings, going forward to 2021 and 2022, it is very important that these expectations are met because high returns cannot be expected in the absence of profits.
The Focus on the Domestic Economy
When looking at the revenue composition of the small and mid-cap universe, about 22% of revenues come from other regions compared to 33% for the S&P 500 index.
The United States operates a global economy. Even in the small and mid-cap segment, many of the companies selected by Schroders in its strategy conduct part of their business internationally. As a result, the weakness or strength of the dollar could have some impact on their business. However, in general, this segment has a greater focus on the domestic economy than on the global economy. When an investor allocates a portion of his assets in this universe, he is really betting on the improvement of the US economy.
The Effects of the Biden Administration
We are currently in an environment where monetary and fiscal policies in the US are working in tandem to achieve a recovery in both financial assets and in the real economy. As we move into 2021, a transition from monetary and fiscal policy support to real growth would be needed to get the economy to reopen.
According to Kaynor, one could argue that fiscal policies promote inflation and cyclical sectors. Such stimulus could benefit the universe of small and mid-cap stocks, because unlike the S&P 500, it is less dependent on a small group of stocks with high multiples that benefit from secular growth to determine the benchmark’s returns.
The Concentration of Large-Cap Indices
When looking at the S&P 500 index, the five largest stocks by market capitalization – the so-called “FAMAGs”, Apple, Microsoft, Amazon, Facebook and Alphabet (Google) – account for about 25% of its total capitalization. By contrast, when benchmarks for the small and mid-cap universe are explored, the five largest stocks have a weight of 2.5%.
A large-cap US equity investor needs to have exposure to these five stocks. Whereas in the small and mid-cap market there is very little risk in not having exposure to any of the stocks that make up the universe. The technology sector represents 15% of the benchmark, but that percentage doubles in the large cap universe. US Small and Mid-Caps have a greater bias towards industrials, consumer goods and financials – with exposure to regional banks – again, sectors closer to the real activity of the US economy.
A Balance between Risk and Value
This universe allows the management of risk while adding value. If you look at risk-adjusted returns over a long-term horizon, you can see that they offer a higher return compared to the additional volatility they incur than elsewhere in the market. In small caps there is a higher risk trade-off for the exposure to momentum that is being sought by investing in them. Investors in this segment must have a higher tolerance for this risk. As we move towards mid-caps, the market shows a degree of inefficiency, without the need to take an excessive amount of risk, there is the opportunity to identify alpha and portfolio risk can still be managed given the diversified nature of the universe.
The industrial sector is the most heavily weighted sector within the index and probably the segment with the most opportunities. As the economy recovers, there will be increased spending on infrastructure and capital equipment, investing in improved supply chains or factory automation processes. This will impact on these companies with returns based in the real economy rather than in the financial economy.
The Technology Sector
In the technology sector, they have a preference for semiconductor production companies as opposed to rapid growth software companies, where with enterprise value-to-revenue (EV/R) multiples of 18x, they are not as attractive.
Historically, semiconductor companies were perceived as the cyclical part of the technology sector while software companies were perceived as secular growth companies. With an increased presence of semiconductors in the automated processes of other industries, such as automotive or telecommunications, this perception is changing.
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Allfunds Blockchain, the blockchain technology arm of Allfunds launched in 2020, has signed a partnership with ConsenSys, leading Ethereum software company, to drive blockchain technology in the financial sector, specifically in fund distribution.
Allfunds explained in a statement that, historically, traditional fund transfer between financial entities, intermediaries and third-party payment systems has been a complex process. But, in its view, blockchain technology “can revolutionize fund distribution by dramatically reducing processing and settlement times, while providing a secure system for multiple parties with no single point of failure”.
Through this agreement, the firm will combine its Technical Solutions area with ConsenSys Quorum to power its funds industry platform. Furthermore, both companies are working together to further develop and support the Allfunds Blockchain Technical Solution in combination with ConsenSys Quorum, an open-source protocol layer for developing with Ethereum.
Allfunds revealed that the solution includes advanced privacy features that enable participants in a blockchain network to control, at a granular level, who is allowed to see information, and what nodes participate in the consensus validation of data containing confidential information.
A “truly unique” blockchain product
“We are thrilled to be partnering with ConsenSys to bring this revolutionary blockchain solution to the wider market. Through its expertise, our clients will benefit from a truly unique blockchain product. We selected ConsenSys Quorum to be our enterprise blockchain protocol because of its significant adoption in enterprise blockchain and the ongoing development and support it provides. This is another important step forward in the evolution of Allfunds Blockchain technology”, said Rubén Nieto, Managing Director at Allfunds Blockchain.
Madeline Murray, Product Lead at ConsenSys Quorum, stated that they are seeing growing global interest in ConsenSys Quorum, the open-source enterprise Ethereum protocol built to simplify the use of enterprise blockchain. “This partnership with Allfunds will further facilitate global blockchain adoption for the funds industry and enrich the ecosystem with technical innovations suitable for advanced privacy use cases”, she added.
Chile has been plunged into recession by the double shock of the late-2019 social protests and the ongoing COVID-19 crisis. Sound public finances have enabled bold stimulus action to support the economy, yet risks remain. Once the health crisis is under control, and the recovery well underway, reforms should focus foremost on boosting job creation and making growth work for all, according to a new OECD report.
The latest OECD Economic Survey of Chile sees the economy recovering gradually over the next two years, with activity back at pre-pandemic levels around late 2022. The Survey projects GDP growth at 4.2% in 2021 and 3.0% in 2022, after a drop of 6.0% in 2020, though it notes that the evolution of the pandemic remains a major risk. Any resurgence of social conflict could also dampen the pace of recovery, as could political uncertainty over upcoming elections and an ongoing constitutional review.
Scars will remain, as a surge in unemployment to levels not seen since the 2008 global financial crisis and strained corporate balance sheets will leave firms and households in a precarious situation for some time. Persistently high inequality was already a key challenge for Chile where, despite progress in reducing poverty, 53% of households are classed as economically vulnerable, meaning they have no financial cushion to protect against a sudden drop in income, compared to an OECD average of 39%. Chile’s system of taxes and transfers does much less to reduce income inequality than in most other OECD countries.
“Strong institutions and sound public finances are helping Chile to weather the crisis, yet many households still face severe difficulties,” said Alvaro Pereira, OECD Director of Economic Country Studies, presenting the Survey alongside Chilean Finance Minister Rodrigo Cerda. “Adjusting taxes and transfers could reduce the number of economically vulnerable households, and investing in education and skills will reduce inequality over the long term. The COVID-19 crisis offers an opportunity to create consensus on reforms to ensure strong public services, a dynamic business sector and a fairer society where all Chileans can share the fruits of economic growth.”
The Survey recommends continuing support to firms, especially small businesses, and cash transfers to vulnerable families until the recovery is underway. It welcomes a two-year emergency package of enhanced income support for households with unstable incomes, hiring subsidies, public investment and liquidity measures for firms in need. It says temporary protection to the newly unemployed could be extended, and a single pool of healthcare funding should be created to cover common services for all. It is also vital to create the conditions for midsize firms to flourish so they can drive the recovery and create jobs.
Broadening the income tax base, by lowering the thresholds for both the top and bottom tax brackets, and eliminating unnecessary tax exemptions, would be a start towards building a more effective tax and transfer system. Some of the extra revenue raised could finance a negative income tax, assuring each household and individual a basic benefit, the Survey says.
Public spending on primary and secondary education, currently among the lowest of OECD countries, should be increased. Access to quality education in Chile is strongly linked to socio-economic status, which perpetuates inequality. Improving education for all would be a way to address some of the discontent over unequal incomes and living standards that ignited the social protests of 2019.
In the business sector, improving competition, encouraging the adoption of digital technology and reducing the complexity of regulatory procedures would drive productivity gains and help firms to grow. Chile is a digital leader in Latin America but still needs to improve access to high-speed Internet, notably in rural areas, step-up firms’ adoption of digital tools and improve digital skills across the workforce, enabling all Chileans to benefit from the digital transformation.
Bolton Global Capital announced this Wednesday that a Wells Fargo team specialized in Latin American and U.S. clientes and based in Weston (Florida) will be moving its business to the firm, according to a statement accessed by Funds Society.
The group of seven advisors chose Bolton following an extensive due diligence process. This involved multiple companies competing for the teams that have been released after the wirehouse announced the closure of its wealth management arm for the Offshore business, as reported by Funds Society.
The team manages 1 billion dollars in client assets which it plans to transfer to Bolton Global with BNY Mellon Pershing acting as clearing firm and custodian. It will be based in Bolton’s offices at the Four Seasons Tower on Brickell Avenue in Miami until suitable office space can be leased in the Weston area, the statement revealed.
The advisors are Jorge Aguerrevere, Ernesto Amengual, Felix Bosque, Andrei Santos, Rafael Sotillo, Norvin Ulloa and Leonardo Tedeschi, and their wealth management business consists largely of servicing ultra high net worth clients based in Latin America and the US.
“We are delighted to have such a well-respected team of professionals affiliate with our company. These advisors have chosen to convert to the independent business model through Bolton because we offer the best value in terms of global platform capabilities, compensation and ownership. Our strategy for continued growth in the international wealth management space is to affiliate with top tier professionals like these, who conduct high-quality business with a reputable clientele“, said Ray Grenier, CEO.
Also, the firm expects to recruit other major teams from Wells Fargo’s international division over the next several weeks.
During the presentation of its annual results, Amundi announced that Valérie Baudson will replace Yves Perrier as CEO of the company. Meanwhile, Perrier has been appointed Chairman of the board of directors.
According to Europe’s biggest asset manager, this change in leadership will take place next May 10, when Perrier will formally step down. “After 14 years as head of Amundi, Yves Perrier has wished to hand over the general management responsibility. Under his leadership, Amundi enjoyed outstanding development, becoming the indisputable European leader and one of the world leaders in asset management, recognised for the strength of its business model, its growth momentum and its position as a financial player committed to society”, said Xavier Musca, current Chairman of the board, a position he will hold until May 2021.
Musca explained that Perrier will succeed him at the chairmanship, which will allow the company to continue to benefit from his exceptional experience. “This change in governance will ensure a smooth transition and the continuity of Amundi’s development, and will take place following the next Amundi general meeting on 10 May 2021″, he added.
Baudson thanked the board and the general management of the Crédit Agricole Group for the confidence they have shown in her. “It is a honor to be appointed Chief Executive Officer of Amundi and to succeed Yves Perrier, who has built a global leader in asset management. I know that I can rely on his support. I look forward to continuing to develop the company to which I have dedicated my efforts for the past 14 years, in line with our strategy, which has been driving Amundi’s success since it was founded”, she pointed out.
Lastly, Perrier looked back at 2020 and highlighted that Amundi demonstrated the strength of its business model through its economic and financial performance. “2020 also saw the launch of several strategic initiatives that will support the future growth of the company: the renewal of the partnership with Société Générale, the acquisition of Sabadell AM combined with a long-term distribution agreement with Banco Sabadell in Spain, and finally the launch of the new subsidiary in China with BOC”, he concluded.
Claudia Calich, directora de Renta Fija de Mercados Emergentes en M&G Investments, comenta, en el siguiente artículo, los riesgos y oportunidades que presenta hoy en día la deuda emergente.
Puede acceder al artículo completo, publicado en la revista de Funds Society, a través de este enlace.
U.S. stocks rebounded in January, a reprieve for investors who endured a challenging 2022. The rally for stocks was driven by investors’ increased confidence that interest rates may be near peak levels. The market is starting to price in the possibility that the Federal Reserve may soon pause rate hikes followed by interest rate cuts in the second half of 2023. As a result, riskier assets have benefitted from the rally, such as growth companies as well as stocks with high short interest. While general market sentiment improved, there is some caution on whether the move represented a real inflection point or yet another bear-market trap.
As January concluded, the market entered the busiest part of the Q4 earnings season. While only a portion of companies have reported thus far, management commentary remains conservative amid the uncertain demand backdrop. Despite lower earnings expectations, the tone of the market seemed to align more with soft-landing expectations than hard-landing scenarios.
On February 1st, the Federal Reserve announced a 25bps rate hike at the end of its two-day policy meeting, citing persistent inflation. This hike now brings the targeted federal funds rate to 4.50-4.75%, up from 0.00-0.25% prior to the initial increase in March 2022. The Fed anticipates that ongoing increases in the target range will be appropriate in order to return inflation to 2% over time. Fed Chair Jerome Powell said that the full effects of interest rate increases had yet to be felt, and that there was still more work to do. The next FOMC meeting is March 21st-22nd.
After almost three years, China reopened its borders on January 8th and ended a requirement for incoming travelers to quarantine, dismantling the last component of its stringent zero-COVID policy. Investors are optimistic that the reopening and recovery of the world’s second-largest economy should help spur a broader economic revival.
Merger arb performance in January was bolstered by deals that made significant progress towards closing. Shaw Communications (SJR/B CN-C$39.60-Toronto) and Rogers Communications were victorious defending their C$25 billion merger against the Canadian Competition Bureau in Canada’s Federal Court of Appeals. The parties now await approval from the Canadian Department of Innovation, Science and Economic Development, the final remaining approval before the deal can close. South Jersey Industries, Sierra Wireless, and Meridian Biosciences each received the final required regulatory approvals and the three deals closed in January. Deals announced in January including Evoqua Water Technologies’ $8 billion acquisition by Xylem, Magnet Forensics’ C$1 billion acquisition by Thoma Bravo, and CinCor Pharma’s $2 billion acquisition by AstraZeneca are creating new opportunities for investment.
Convertibles got off to a strong start in 2023 with the best month for performance since 2020, led by a number have factors, but generally the appetite for risk has increased to begin the year. Additionally, we have seen some of the worst performers from 2022 be the best performers YTD. A few of our fixed income equivalent holdings have benefited from a “credit delta” where an improved perception of a company’s balance sheet and access to capital causes investors to bid up the bonds. The result has been one month returns that many investors were expecting for the entirety of 2023.
We continue to see opportunity in the convertible market this year. The fixed income equivalent issues still offer compelling yields to maturity even after the recent moves. Many of these bonds are the only debt on the balance sheet and have 3 to 4 years until maturity. We expect these bonds to accrete to par over time, building a solid foundation for performance. We have seen some companies address these bonds by buying them back in the open market or by offering an exchange for a new convertible. We anticipate more exchange offers as the year progresses. It is also likely that some convert issuers will be acquisition targets which would make their bonds puttable at par if the acquisition is for cash, or convertible into the acquiring company if shares are used. Either outcome should be desirable to convert owners.
New issuance continued to be anemic this month, but what did come saw significant demand with upsized deals pricing at the rich end of the price talk. We expect companies to use convertibles when raising capital this year to reduce interest expense and extend maturities in a covenant lite structure. We believe many companies have delayed coming to the market and converts offer an attractive way for companies to add low cost capital to their balance sheets. Continued issuance allows us to stay current and we expect to selectively layer new issues into our portfolio to maintain the asymmetrical risk profile we are seeking to achieve.
GAM Investments has announced the inauguration of its first range of sustainable investment strategies with the launch of a local emerging market bond fund. The new approach was developed in close partnership with VBV-Pensionskasse, a leading pension fund for sustainable investments in Austria.
In a press release, the asset manager pointed out that the strategy will be managed by its emerging markets debt team and it’s the first in a range of sustainable investment strategies the firm plans to launch throughout 2021.
“The new strategy draws upon the expertise of Paul McNamara and GAM’s highly experienced emerging markets debt team, whose differentiated, conviction-driven approach to EM debt investing has been developed over 20 years”, GAM says. Its goal is to generate long-term financial returns by investing in a way that is sensitive to the impact decision making may have on society and the environment.
The approach combines a positive tilt towards sovereigns with higher environmental, social and governance (ESG) scores, as defined by its benchmark, the JP Morgan ESG GBI-EM GD Index, with the team’s proprietary investment process incorporating ESG factors for active allocation within the index tilts. The JP Morgan ESG GBI-EM GD Index leverages research from both Sustainalytics and RepRisk therefore allowing investors to combine the benefits offered by active management applied to an ESG benchmark, highlights the asset manager.
A “crisis cycle filter”
Its process mirrors that of the long-running local emerging bond strategy. Based on its assessment of developments in the US, Europe and China, the team establishes global themes that determine country selection, along with specific return and risk driver preferences. Given the emphasis on crisis avoidance, country analysis is then performed using the team’s proprietary‘Crisis Cycle Filter’. This captures the interaction between core ESG factors and nine traditional macroeconomic variables considered to be highly reliable, early indicators of financial crises, such as falling FX reserves or rapidly rising inflation.
The strategy typically has active exposure to 15-25 emerging and frontier markets, centered upon approximately 10 very liquid core markets and 100-150 bonds and FX forwards.
“We have taken ESG factors into account in our investment process for our local emerging bond strategy for a number of years, purely for their impact on risk-adjusted returns. However, as ESG factors become more efficiently priced in the sovereign debt market, we believe that now is the time for a strategy that targets both a specific ESG tilt and integrates ESG factors from a risk/return perspective”, Paul McNamara, Investment Director for emerging market debt at GAM, said.
Meanwhile, Günther Schiendl, member of the Executive Board of VBV-Pensionskasse, commented that they invest responsibly, sustainably and with a focus on performance. “Particularly in the area of fixed-income emerging markets, a new approach that increasingly takes ESG criteria into account was important to us, as this type of solution has been rare so far”, he added.
Lastly, Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM, pointed out that they have seen a “clear client demand” for more strategies focused on sustainable investing, so they are working in partnership with them to develop these. “The sustainable local emerging bond strategy combines the benefits of using a well-established ESG benchmark, with the opportunity to benefit from active management and expertise of GAM’s emerging markets bond team. Later this year, we plan to launch additional ESG focused products, further building on our award winning Swiss Sustainable Companies strategy, which has a track record of more than 20 years”, she revealed.
Cryptocurrencies are not only gaining prominence among individual investors, but also among institutional investors. According to an Evertas survey, 26% of pension funds, insurers, family offices and funds say they will be “substantially” increasing their exposure to this asset class over the next five years.
“Our latest survey shows that institutional investors are enthusiastic about increasing their exposure to cryptocurrencies and cryptoassets in general, but it is clear that there are many issues relating to the infrastructure, operations and regulation behind these markets that are still of concern to them. Clearly there are issues that need to be addressed if we expect institutional investors to want to take advantage of the potential that this asset class can offer,” says J.Gdanski, CEO and founder of Evertas, a company specializing in cryptoasset insurance.
According to their survey, another 64% of institutional investors anticipate a slight increase in their exposure to cryptoassets in general and to Bitcoin in particular. As we explained a few weeks ago, this type of investor sees Bitcoin as an asset to protect themselves from inflation and currency devaluation. Even hedge funds admit to their increased interest in this type of asset, or at least this is what 32% of those surveyed by Evertas acknowledged.
This trend has also been noted by Lyxor. In its Lyxor Weekly report, the company explains that while Bitcoin’s bullish trend in 2017 was driven primarily by retail investors, it appears that the 2020 rally was driven by a broader range of investors, including institutional investors.
“Besides retail investors, family offices and high net worth individuals continue to be the prevailing investors and the sources of new Bitcoin wallets and IP addresses. Bitcoin benefited from a favorable environment, and was increasingly used as a hedge against declining real yields and heavy quantitative easing programs by central banks, as it was feared that this would eventually depreciate global currencies and trigger inflation. It also represents an alternative to declining equity dividend yields. As might be expected, the correlation between Bitcoin and gold and inflation (and, to some extent, equities) is now quite stable,” the report notes.
On hedge funds, he points out that they have become important players in the Bitcoin segment either through dedicated investment vehicles or by incorporating Bitcoin into their allocations. “Although still in its infancy, the market continues to gain depth, in terms of types of investors and product range. In the early days, asset managers focused primarily on direct long positions in cryptoassets such as Bitcoin, Ethereum or Ripple. Since then, the broader range of products linked to digital assets allows managers to implement more flexible and sophisticated strategies. Managers can now use swaps, options and futures indexed to cryptocurrencies; they can also focus on the income generated by the underlying technology. In addition, they can invest in securities issued by crypto-asset companies and their infrastructure, although most of these are still only accessible through venture capital and investment capital strategies,” he adds.
An example of this development is the decision announced by BlackRock, which will allow two of its funds to invest in Bitcoin through futures. At the end of January, the management company informed the SEC that it will include Bitcoin in the eligible investment universe of two of its funds: BlackRock Funds V (including BlackRock Strategic Income and BlackRock Emerging Markets Flexible Dynamic Bond Portfolio) and BlackRock Global Allocation Fund.
“Each fund may use instruments called derivatives, which are financial instruments that derive their value from one or more securities, commodities (such as gold or oil), currencies (including Bitcoin), interest rates, credit events or indices (a measurement of value or rates, such as the S&P 500 index or the prime lending rate). Derivatives can allow a Fund to increase or decrease the level of risk to which it is exposed more quickly and efficiently than with other transactions,” explained BlackRock to the SEC in its statement.
Another way in which asset management firms are approaching the cryptoasset universe is by investing in blockchain technology, which is becoming an increasingly popular area for thematic portfolios that invest in technology or those that follow technology megatrends. For example, Mellon’s BNY Mellon Blockchain Innovation Fund, which is one of the few actively managed blockchain products in Europe.
“Cryptocurrencies are part of the digital ecosystem. They have matured rapidly as the digital world has evolved, with increasing validity underpinned by the growing number of global constituents. The progress of regulatory bodies, the increased use of blockchain technology in businesses and a payments ecosystem help meet the banking needs of a whole new generation that is flourishing. Virtually all of these trends have accelerated as a result of global digitalization efforts to help solve the challenges created by COVID-19. In our view, these developments further validate blockchain as an integral component of the future technology infrastructure,” explain Erik A. Swords and Justin R. Summer, managers at Mellon.
According to these asset managers, “Bitcoin’s key features – being decentralized, supply-limited, secure and increasingly accepted – represent an attractive risk/reward trade-off against the significant tax burdens that central banks will be tempted to inflate as this whole digital transformation unfolds within the financial sector.”
An open debate
Although BlackRock’s decision may seem incidental, it is not; as it is the first time that one of the market’s largest fund managers has made such a decision. This contrasts sharply with the position held on this asset class by investment firms, as few of them are commenting on the subject. However, for example, Chris Iggo, Core Investments CIO at AXA Investment Managers, is willing to give his views on Bitcoin.
“I don’t think of it as a currency, because it has no fundamental legal or sovereign backing. For assets to be considered in a long-term investment portfolio, one should be able to attribute some fundamental intrinsic value to them: the long-term profit growth in equities, the credit risk premium in relation to risk-free rates in bonds. There is no Bitcoin cash flow other than that which is driven by the price change, which can be broadly negative or positive. Certainly, this is not derived from any fundamental economic cash flow such as profits or tax revenues. It is a speculative instrument that ultimately lacks any legal security, that cannot really be valued and which, by the way, has a huge carbon footprint. I would consider investing in or buying Bitcoin in the same way I would consider betting on the Grand National, but not as a serious long-term asset,” Iggo explains.
Billionaire investor Warren Buffett has also been critical of the asset class. Among his many pronouncements on the subject, this one stands out: “Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a cheque, they can’t do anything, and what you hope is that somebody else will come along and pays you more, but then that person has the problem. In terms of value: zero.”
Another critical, or at least reflective, opinion belongs to financial institutions. On this occasion, we have heard the European Central Bank (ECB) call for global regulation of cryptocurrencies. During the Reuters Next conference in mid-January, Christine Lagarde, president of the institution, described them as a “highly speculative asset.” She said: “I think there is an absolute need for global cooperation and multilateral action as initiated at the G7and then carried over to the G20, but it is something that needs to be addressed.”
Whatever the future of these assets may be in investors’ portfolios and in the composition of the funds created by fund managers, as Carlos Ruiz de Antequera points out, it will be imperative to have a good understanding of what cryptoassets are all about.
Latest news
One of the latest developments in the crypto area has been the announcement this week by Tesla that it has invested 1.5 billion dollars in the crypto and expects to begin accepting Bitcoin for payment “in the near future.” This investment will give the firm liquidity in the cryptocurrency once it starts accepting payments, after ending 2020 with only over 19 billion dollars in cash and equivalents.