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Pictet Asset Management: No Need for Evasive Action

There is no summer lull for investors this year. The global economy is powering ahead despite the resurgence of COVID-19 infections while inflationary pressures continue to build, particularly in the US. Then there’s renewed upheaval in China.

The Chinese government’s surprise ban on for-profit after-school tutoring, essentially shutting down the circa USD100 billion edu-tech sector, has raised concerns about an intensification of Beijing’s regulatory crackdowns. The latest intervention comes on the heels of cybersecurity investigations of the ride hailing app DiDi and other e-commerce companies, increased scrutiny of overseas IPOs and the imposition of fines and restrictions on some of China’s largest e-commerce firms.

Authorities have also moved to restrict the use of the variable interest entities (VIE) structure – holding companies based in tax haven jurisdictions and designed to allow foreign investors to invest in key sectors such as tech without giving them any operational control.

A positive reading of such developments is that they are a belated response to innovation and the breakneck growth of industries that flourished in the absence of a regulatory framework. Even though such moves would in effect add a permanent ‘risk premium’ to Chinese stocks and bonds, the should not fundamentally change China’s growth model or the broader investment case for the country’s financial assets.

Nonetheless, a greater degree of caution seems sensible and we feel justified in taking profits in Chinese bonds, which have performed strongly year-to-date.

More broadly, we retain a neutral allocation across equities, bonds and cash; still, we continue to favour assets that benefit from stronger economic potential, such as European stocks.

Our business cycle analysis shows that economic activity is picking up strongly across the euro zone, following a sharp deceleration over the last two quarters. Purchasing manager indices remain buoyant, especially in the service sector. Retail sales have meanwhile recovered above the pre-pandemic trend. Bank lending conditions are also easing, which augurs well for future credit growth. Overall, it would seem that European economic growth is more likely to to surpass consensus forecasts than the US, where we are starting to see some signs that its expansion is moderating. Worryingly, second quarter GDP growth came in at just 6.5 per cent on an annualised basis – some 2 percentage points below the consensus forecast.

China’s growth has clearly peaked with industrial production, retail sales and construction all coming in below their three-year average. Even so, we still expect a very respectable 10 per cent expansion in GDP for the year – some distance above the 8.5 per cent consensus forecast.

Should Beijing’s regulatory crackdowns threaten growth, however, there is some comfort to be taken from our liquidity indicators, which show that China has plenty of monetary fire power. Indeed, we already saw authorities take action in July, when the People’s Bank of China (PBOC) announced a 50 basis point cut in the reserve requirement ratio (RRR); we expect to see more action in coming months.

The US is moving in the opposite direction, with the US Federal Reserve edging into the first stages of a tightening cycle. Notably, at its latest meeting, the US central bank highlighted the improvement in economic conditions and “progress” in the labour market. However, we expect the tightening journey to be a relatively slow one, and for now US monetary policy remains the loosest of all the world’s major economies, according to our models.

One of the clearest signals from our valuation models is that US Treasures now look expensive, particularly when compared to levels implied by the cyclical trends we monitor.

The same applies to US equities. US stocks’ price-to-earnings ratio of 21.5 times based on 12 month forward earnings can only be sustained if trend growth is unchanged, profit margins are stable at high levels and bond yields stay low. So far, the recovery in US earnings has been in line with GDP (see Fig. 2), and we think further upside to this year’s corporate profit growth is unlikely in the absence of an upward revision to US GDP growth forecasts.

Technical indicators suggest the correlation in the returns of equities and bonds has turned negative again, improving the diversification appeal of fixed income.

Another conclusion to draw from our technical gauges is that investors appear more cautious. This is arguably reflected in the strong inflows into government bonds seen in recent weeks, as well as into equity funds that invest in quality stocks. Some USD6.7 billion flowed into tech, healthcare and consumer goods stocks in the first three weeks of July at expense of cyclical sectors, according to EPFR data. Approximately USD3.1 billion was withdrawn from financials, materials and energy stocks in the same period.

Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.

Discover Pictet Asset Management’s macro and asset allocation views.

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.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).

In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.

Robert Sharps Becomes T. Rowe Price’s New CEO

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Trowe ceo — Foto cedidaRobert Sharps, asumirá como CEO de T.Rowe Price en 2022. Rob Sharps

T. Rowe Price has recently announced key leadership transitions. Its CEO and chair of the Board of Directors, Bill Stromberg, will retire on December 31, 2021, after 35 years at the firm. In a press release, the asset manager has revealed that Rob Sharps, its current president, head of investments, CIO and a member of the firm’s Management Committee, will succeed him as of January 1.

Sharps will then become president and CEO, take over as chair of the Management Committee and join the Board of Directors. He joined T. Rowe Price in 1997 as an equity analyst and his role and influence have broadened in recent years as he has taken a more active role in corporate strategy, product development and key client relationships. Before becoming head of investments and group CIO, Sharps was co-head of Global Equity, the longtime portfolio manager of the US Large-Cap Growth Equity Strategy, and portfolio manager of the former US Growth & Income Equity Strategy.

“I am honored to be the next CEO of T. Rowe Price and am grateful for the confidence that both Bill and the Board have placed in me. T. Rowe Price is well positioned to execute on significant opportunities ahead, and I am excited to lead our business forward and continue helping our clients achieve their financial goals”, he said.

Alan D. Wilson, lead independent director, highlighted that Stromberg has been a remarkable leader and highly effective CEO: “He has deftly navigated the firm through a period of significant change and disruption in the industry. Under his leadership, significant investments in our investment, distribution, product, operations, technology, and corporate function teams have helped the company deliver strong results for clients and take advantage of strong markets to grow assets under management, revenues, earnings, and dividends”, he added.

Lastly, Stromberg commented that, over the course of hist 20-year partnership with Rob, he has consistently demonstrated his abilities as “a talented investor, a principled decision-maker, and an accessible and impactful leader of people and processes”.

Additional leadership transitions

The firm has also announced other changes in senior positions. Specifically, Céline Dufétel, chief operating officer (COO), chief financial officer (CFO), and treasurer, will be stepping down, but she will serve in an advisory role until August 31, 2021, “to ensure a seamless transition”. Jen Dardis, currently head of Finance, will take over her roles and join the Management Committee.

Besides, Eric Veiel, currently co-head of Global Equity, head of U.S. Equity, and chair of the U.S. Equity Steering Committee (ESC), will become head of Global Equity, as of January 1, 2022. At that time, Josh Nelson, currently associate head of U.S. Equity, will become head of U.S. Equity and chair of the U.S. ESC and will join the Management Committee.

The Financial Industry Comes Together to Help the Victims of the Surfside Collapse in Miami

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Captura de Pantalla 2021-07-29 a la(s) 00 — . Pexels

On September 9^th at 6:30 p.m. (Miami time), Funds Society will be partnering with MFS and Ninety One to host a fundraiser for the victims of the collapse of Champlain Towers South at the Surfside condominium. This terrible tragedy has touched the South Florida community in its heart, and unfortunately, we all know someone who has been affected. The Miami asset and wealth management industry is pulling up an effort to raise US$50,000.00 for the victims.

The event will be held at the Rusty Pelican and all proceeds will be donated to Global Empowerment Mission, which is collecting for three distinct funds which support the residents themselves, a general program on the collapse, and the relocation efforts for the survivors who lived in the building. We invite you to take a look at the programs through this link.

Corporate and individual sponsorship opportunities are still open and we truly hope to engage the key players in the South Florida financial industry to support this effort.

So far, the event is supported by the following sponsors:

Diamond Sponsors: Funds Society, MFS and Ninety One

Gold Sponsors: AXA IM, Janus Henderson, Schroders, Insigneo, Bolton Capital and Jupiter.

Silver Sponsors: RWC and Natixis IM.

If you would like to participate in the event either as a corporate sponsor or as an individual, please contact Elena Santiso at elena.santiso@fundssociety.com or Alicia Jiménez at alicia.jimenez@fundssociety.com. Please consider contacting us to participate in this event.

Tragedy

On June 24^th, a collapse occurred at the Champlain Towers South building in the Surfside condominium that left 98 people dead. With the exception of the first few hours following the collapse, no other survivors were ever uncovered.

As reported by Agence Press in Miami, search teams spent weeks dealing with the hazards of the rubble, which included an unstable portion of the building that was still standing, a recurring fire, and Florida’s oppressive summer heat and storms.

On July 23^rd, the Miami-Dade Fire Department’s search and rescue team withdrew from the site and announced at a press conference that the search was officially over. A few days later, the identity of the last missing person was confirmed, bringing the death toll to 98 and concluding that there were no more bodies amongst the rubble.

Reasons to Remain Optimistic in the Convertible Space

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butterflies-1127666_640 — Pixabay CC0 Public DomainBonos convertibles . Bonos convertibles

The U.S. equity market set new records during the second quarter with the benchmark S&P 500 index marking its 34th record close of the year on the last day of June. U.S. stocks gained for a fifth straight quarter, the longest run since 2007, and this year’s first-half performance was second only to 1998. According to BofA, ‘stocks were the only major asset class with positive returns in 1H.’

The Fed’s aggressive monetary policy has forced short-term nominal U.S. interest rates down close to zero percent. The Fed is buying $80 billion of U.S. Treasuries and $40 billion mortgage bonds a month, swelling its balance sheet. The mid-month June FOMC statement surprised the markets by pulling tapering expectations for the first rise in short rates forward, citing strength in the U.S economy from vaccinations progress, strong fiscal and monetary stimulus, and the ongoing recovery in sectors hardest hit by the pandemic. With a focus on upcoming U.S. employment and economic releases, the Fed may have to shorten its taper lift-off date again as reverse repo market pressures continue to rise.

Evercore ISI’s economist Ed Hyman writes: The Pandemic Recession has been counted as a recession by the NBER, albeit totally unique with the biggest plunge ever, the shortest recession ever, and the sharpest rebound ever. Nonetheless, the most likely path forward is a typical expansion which have lasted 5 to 10 years.

Mergers and acquisitions activity remained vibrant in the second quarter with $1.6 trillion in announced deals – a new record – bringing global deal volume in the first half to $2.8 trillion, also a record. Market conditions remain conducive for continued M&A including historically low interest rates, accommodative debt markets and a desire to better compete globally. We realized gains on deals that closed including Corelogic, Extended Stay, Signature Aviation, and Cooper Tire. Newly announced deals in June include Lydal’s acquisition by Clearlake Capital for $1.3 billion, Cloudera’s acquisition by KKR and CD&R for $5 billion and CAI International’s acquisition by Mitsubishi Capital for $1 billion. We remain constructive on the M&A market and our ability to earn absolute returns.

Streaming wars and Tech, Media and Telecom deals will be heating up in Sun Valley, Idaho during a five-day conference which started July 6th. Media moguls from major companies including Netflix, Walt Disney, Discovery, Amazon, WarnerMedia, Comcast, ViacomCBS, Lions Gate, News Corp, and Fox were in attendance, bringing potential deals and the future of media to the spotlight.

In the convertible securities space, performance improved in June as underlying equities moved higher. Issuance continued at a more normal pace than the record numbers occurring earlier in this year. Convertibles remain a very attractive way for companies to raise capital quickly at agreeable terms, and we anticipate that 2021 will be another year of strong issuance. The global market for convertibles is approaching $600 Billion USD, with the US accounting for nearly 3/4 of the total outstanding.

Globally, convertibles have become very equity sensitive this year, with 54% in what we would consider equity equivalent issues, only 34% in total return issues and 12% in fixed income equivalent. By comparison, we remain focused on total returns for our shareholders, with 22% of the fund in equity equivalent issues, 72% in total return, and 6% in fixed income equivalent. As a result our portfolio has a 2.2% yield, 25% premium, 61 delta and average price of 120. The global convertible universe yields 1.4% with a 24% premium, 64 delta, and 129 average price. By picking up yield but maintaining a similar conversion premium and delta closer to par, we believe this more balanced mix of holdings will help us participate in further equity upside while still offering the asymmetrical return profile that makes convertibles attractive investments.

For the month of June, our top contributors to fund performance included QTS Realty and Splunk. QTS Realty is a data center provider that is being acquired by Blackstone Group. The stock was up sharply on the news and the convertible preferred moved higher as well due to its equity sensitivity. Splunk provides software for data analytics and security. The stock moved higher on news of a strategic investment from Silver Lake. Top detractors from performance this month included Southwest Airlines and JetBlue. Both of these airlines had moved higher in anticipation of travel accelerating, but the stocks and convertibles moved lower despite positive headlines in the month of June

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To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:

GAMCO MERGER ARBITRAGE

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.

Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476

GAMCO ALL CAP VALUE

The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.

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.

Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155

GAMCO CONVERTIBLE SECURITIES

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.

The Fund leverages the firm’s history of investing in dedicated convertible security portfolios since 1979.

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.

Class I USD LU2264533006

Class I EUR LU2264532966

Class A USD LU2264532701

Class A EUR LU2264532610

Class R USD LU2264533345

Class R EUR LU2264533261

Class F USD LU2264533691

Class F EUR LU2264533428

Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to ﬁnd out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

Allfunds Strengthens its US Reach Through an Agreement with Interactive Brokers

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sparkler-839806_1920 — Pixabay CC0 Public Domain. Allfunds refuerza su presencia en Norteamérica gracias a un acuerdo con Interactive Brokers

Allfunds, the world’s leading B2B wealthtech and fund distribution platform, has strengthened its reach within the US market by entering into an agreement with Interactive Brokers LLC, a leading global securities broker and custodian with over 348 billion dollars in clients assets, as of June 2021.

The firm has explained in a press release that the agreement will help Interactive Brokers offer mutual funds to RIAs, broker-dealers and self-directed investors. This is facilitated through Interactive Brokers’ Mutual Fund Marketplace which gives clients access to more than 40,000 funds worldwide, including 37,000 no-load funds from over 400 fund families.

The Mutual Fund Search Tool can be used to search for funds by country of residence, commission charged, fund type or fund family. It can be accessed by clients from over 200 countries and territories and includes many prominent fund families, including funds from Amundi, BlackRock, Franklin Templeton, Invesco, Lombard Odier, MFS Meridian, PIMCO and Schroder. In addition, over 7,700 funds are available with no transaction fees. Also, included within the platform is the ability to view suitable share-classes for RIAs and institutional investors.

Allfunds is in the process of building a pool of eligible funds to facilitate access of Offshore UCITS funds in Canada under the relevant local exemptions regime. “This will open the opportunity to fund managers to sell their products in an efficient and cost-effective manner to certain client types”, has pointed out the firm.

In its view, this agreement strengthens its “already sizeable reach” in the USA offshore market. In 2020 Allfunds opened its representative office in Miami to focus on the offshore market mainly composed of private banks, as well as, broker dealers, wirehouses and self-clearing firms. Allfunds is a global leader in open end fund offerings with clients in 60 countries and over 1.5 trillion dollars in assets under distribution.

“We are thrilled to continue to work with Interactive Brokers, a true leader in the electronic broker space. We have seen great success over the last several months working together and we look forward to seeing additional flows from Canadian and US investors into the platform. At Allfunds we are committed to transparent, efficient and cost-effective access to funds and this agreement with Interactive Brokers helps reinforce these values in the North American market”, has stated Laura Gonzalez, Global Head of Wealth Management at Allfunds.

Wells Fargo AM to Become Allspring Global Investments with Joseph A. Sullivan as CEO

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5d3218ae6f6c45ae — Foto cedidaJoseph A. Sullivan como nuevo CEO de Allspring Global Investments (anterior Wells Fargo AM).. Wells Fargo AM pasa a llamarse Allspring Global Investments bajo el liderazgo de Joseph A. Sullivan como nuevo CEO

Private equity firms GTCR LLC and Reverence Capital Partners, L.P. have announced that upon closing of their acquisition of Wells Fargo Asset Management, announced last February, the newly independent company will be rebranded as Allspring Global Investments. As part of the transition, Joseph A. Sullivan will become Chief Executive Officer, in addition to his previously announced role as Executive Chairman.

Sullivan will succeed Nico Marais, WFAM’s current CEO, who will retire upon closing of the transaction and continue to serve Allspring as a senior advisor. With this new name, the asset manager seeks to reflect its “rich history” in investment leadership and its commitment to renewal, growth, and meaningful client outcomes as a newly independent firm.

“I am honored and energized to have the opportunity to lead Allspring, as we enter a new era for the firm. In spending time with Nico and the organization over the past few months, I have been incredibly impressed by the depth of investment expertise and quality of our people and leadership. Our new name truly embodies a renewed corporate culture and commitment to continue to invest thoughtfully and partner with our clients to navigate the future”, said Sullivan.

Collin Roche, Managing Director of GTCR, highlighted that these announcements mark “key milestones” in the transformation of WFAM into a focused, independent, global asset management firm serving private wealth and institutional clients around the world. “We are excited about the possibilities of our new name and that Joe Sullivan will become Allspring’s CEO. He is recognized as one of the asset management industry’s most respected leaders, and he will be exceptionally valuable as we execute on our growth strategy. We would like to thank Nico Marais for his strong leadership of WFAM, and we are pleased that he will continue to serve as a senior advisor”, he added.

Meanwhile, Marais commented that his is “a tremendously exciting time” for the company, and as they make this transition, he believes it is the right time for him “personally and professionally” to step down from active leadership and assume a new advisory role: “I have cherished my time as CEO of WFAM and am very appreciative of the passion and professionalism of our people. We have accomplished a great deal, including the transition to independent ownership. I look forward to working with Joe and the team, and I am confident about what the future holds for the organization”.

Lastly, Milton Berlinski, Co-Founder and Managing Partner of Reverence Capital, noted: “Today’s leadership and name announcements give us even stronger conviction that the partnership between WFAM, GTCR and Reverence puts us in a powerful position to execute on our strategic vision for Allspring. We are pleased to have a leader of Joe’s stature to take us forward as a newly independent company, and we are very grateful to Nico for his strong continued partnership during this time.”

Natixis IM Names Joseph Pinto Head of Distribution for Europe, Latin America, Middle East and Asia-Pacific

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Natixis Investment Managers has announced changes among its senior positions, with Joseph Pinto appointed Head of Distribution for Europe, Latin America, Middle East and Asia Pacific; and Christophe Lanne named Chief Administration Officer.

In a press release, the asset manager revealed that they will continue to report to Tim Ryan, member of the Natixis Senior Management Committee, Global CEO Asset & Wealth Management within Groupe BPCE’s Global Financial Services division, and to serve on the Management Committee of Natixis Investment Managers. They are also members of the Natixis Executive Committee.

Both professionals have a long track record in the asset management industry and will have a high level of responsibility in the company’s business after their promotions. Pinto, who was previously Chief Operating Officer, will oversee client-related activities and support functions for these regions.

Meanwhile, Lanne will oversee global operations and technology as well as human resources and corporate social responsibility strategy. He was previously Chief Talent & Transformation Officer at the firm.

“These appointments reinforce our ambition to progress among the top fifteen largest asset managers in the world and become the most client centric asset manager. With our affiliates’ distinctive investment capabilities: Active Management, Real Asset Liability Driven Investments, and Quantitative Management, and a more client-centric organization, we remain committed to delivering the best investment outcomes and the best experience for our clients”, said Tim Ryan.

Lastly, Nicolas Namias, CEO and Chairman of the board of directors commented that the appointments of Pinto and Lanne to these newly-created roles will support their pursuit of “the ambitious goals” they have set for Natixis Investment Managers under their strategic plan, BPCE 2024: “Notably the ongoing diversification of our activity as we bolster our commercial momentum and reinforce our position as a global leader in asset management”.

As Markets Edge Back Toward Normal, Fed Optionality Could Be Key

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26021684772_7c7d87530e_c (1) — Foto cedida. A medida que los mercados vuelven a la normalidad, las opciones de la Fed podrían ser claves

As investors search for clues about when and how the US Federal Reserve will normalize monetary policy, Fed Chairman Jerome Powell deserves a place in the “central bank Hall of Fame” for developing a management and communication style that has provided the central bank with plenty of options to normalize policy depending on how growth and inflation evolve.

Powell has connected with markets very differently than his predecessors, showing a willingness to be behind the curve as he uses policy to curb inequality and unemployment, but ready to raise rates or cut quantitative easing if things don’t turn out as planned.

That covenant with markets distinguishes him from previous Fed chairs: Alan Greenspan spoke opaque “Fedspeak” but revealed little, Ben Bernanke spoke plainly but vacillated and Janet Yellen, shadowed by the “taper tantrum” from the year before her tenure, was hesitant to normalize rates despite ideal conditions for such action. Four years of clearly communicating policy and being flexible when needed has convinced markets that Powell’s Fed needs policy optionality. With 10-year US Treasuries yielding about 1.4% despite consumer prices increasing 5.4% in June, markets are signaling that, based on his record, Powell is a safe pair of hands.

Powell earned this reputation quickly. He became Fed chair in early 2018 amid a 10-day, nearly 10% S&P 500 drawdown and immediately showed his fortitude. Despite market jitters, he pressed ahead with the Fed’s planned policy tightening, hiking rates four times in 2018. And, unbowed by the memory of the “taper tantrum,” pre-pandemic he had set a plan to reduce the Fed’s $4.5 trillion balance sheet over four years via $50 billion of monthly sales.

More recently, Powell’s bold actions to thwart pandemic disruption through unprecedented policy support and innovative liquidity programs were undertaken with assuredness. He also changed course when needed, as when he allowed Fed purchases of high-yield securities, and he found broad bipartisan support for his policies during a time when US politics have been divided and acrimonious.

Now, with stocks markets buoyant, the US economy enjoying its most rapid expansion since 1984 and prices spiking in certain sectors, Powell is nearing the end of his first term, which expires in February. With an announcement on his potential renomination expected by October or November, in my view, Powell deserves a second term to manage the transition back to normalized monetary policy.

Policymakers question Fed role in housing market

Powell’s Fed faces unique challenges to keep the US economy from overheating as it emerges from its pandemic-induced hibernation: Interest rates remain near zero and the Fed’s balance sheet continues expanding by $120 billion monthly. Policymakers are questioning whether these accommodations are still needed, particularly the Fed’s support for a housing market in which prices are already at record highs and forecast to continue rising. While the Fed should soon announce its tapering plans, policymakers are keenly aware of having missed inflation targets for the past decade and the fact that labor supply could jump as emergency jobless benefits expire and schools reopen.

As Fed watchers debate whether the Fed is ahead of or behind the curve, the reality is Powell’s policy of allowing inflation to run above its 2% target to compensate from a decade of insipid price gains. Fed strategy is to always be slightly behind the curve, thereby affording optionality.

Powell’s Fed has been clearly signaling it is keeping all options open. St. Louis Fed President James Bullard has openly questioned whether the Fed should buy mortgages, Dallas Fed President Robert Kaplan has said he supports tapering sooner rather than later, and Fed Governor Christopher Waller has said the Fed should taper this year to allow for the option of raising rates in late 2022, if needed.

Investors can expect even more clarity on upcoming Fed policy actions, both on tapering and the timing and pace of potential rate increases, at the Fed’s annual Jackson Hole retreat in August and then in the following weeks as Fed officials reinforce any evolution of policy via their public appearances.

Implications for investors

For fixed-income investors, conditions suggest there is little credit or liquidity risk, with interest rate risk now front and center. Low levels of credit risk can be attributed to the improvement in US corporate balance sheets during the pandemic, a rapidly strengthening US economy, and a consumer sector remarkably flush with cash to spend. Liquidity risk, too, should remain subdued thanks to the Fed’s deft handling both of policy and communication, as evidenced by the sanguine market reaction to the Fed’s announcement in June that it plans to unwind its corporate bond purchasing program (the Fed’s Secondary Market Corporate Credit Facility.) On the other hand, interest rate risk could carry significant volatility in either direction over the coming quarters.

Given the Fed’s desire for policy optionality to fight unwanted inflation and the fact that many large US public pension plans are close to being fully funded, we could see increased demand for very long-duration debt, possibly resulting in a bear flattening of the US Treasury yield curve.

In such a scenario, all yields would rise but the front and intermediate portions of the yield curve would rise a little faster than the long end. This suggests that investors should have some credit spread so their fixed-income portfolios can still generate income. And in the current price environment, investors should also beware paying premiums for securities, which can introduce mark-to-market downside volatility should there be a sharp increase in interest rates or asset class outflows.

With so many unknowns, empowering the crisis-proven Powell to continue leading the Fed would assuage investor concerns and, if markets are to be believed, is probably the best option.

A column by James Dudnick, Portfolio Manager and Director at Allianz Global Investors.

Nick Hayes: “Yields Could Continue to Rally on Any Undershoot of Investors’ High Expectations for the Recovery”

| For Romina López | 0 Comentarios

Hayes Nick AXA IM 2 — Foto cedidaNick Hayes, responsable de asignación de activos en las estrategias de retorno total y renta fija de AXA Investments Managers. Nick Hayes

The Global Strategic Bonds strategy, managed by Nick Hayes, Head of Asset Allocation for AXA Investments Managers’ Total Return and Fixed Income Asset Allocation strategies, is a flexible strategy that invests across the fixed income spectrum: government bonds, inflation-linked, investment grade credit, high yield and emerging market debt. This means that there is no single point in time when it is appropriate to invest in the fund, as it has the ability to adapt its allocation and positioning to the point of the economic cycle.

However, this does not mean that the fund provides strong positive returns in any environment. So far this year, the strategy has been able to navigate the bear market in fixed income with flat performance and, in recent months, has managed to begin obtaining positive returns as the bond rally has gained momentum. While the management team does not rule out the possibility for higher bond yields, it believes the worst of the sell-off in the fixed income market is over and attentions have now turned to the uncertainty in economic data and fragility of the ongoing recovery following the COVID outbreak.

According to Hayes, yields could continue to rally on any undershoot of investors’ high expectations for the recovery. As a result, the risk/reward trade-off has shifted to a more constructive view on duration. It could also be argued that the Global Strategic Bonds strategy offers investors benefits beyond attractive risk-adjustedtotalreturns, i.e. it provides much-needed diversification to complement an equity allocation and a strong focus on ESG integration.

The Inflation Debate

Reflation is the buzzword in 2021; inflation levels have reached much higher levels, and both expected economic growth and investor optimism are high. U.S. Treasuries have led the rise in yields throughout Q1, with the 10-year US Treasury bond reaching a yield of 1.74% at the end of March, with an apparent market consensus for 2% yields at some point in 2021. Despite this, however, bond markets have actually rallied since April, with much of the market caught underweight duration.

The reasons for this rally, according to Hayes, are much more driven by sentiment and technical factors than pure macroeconomic or fundamental. Although US inflation has printed much higher than in recent memory, the data has increasingly failed to meet or beat the even higher market expectations for inflation, leading to a consensus that it will be transitory and return to much lower levels at an undetermined point. Rather irrationally, investors sometimes place too much emphasis on key levels and round numbers. A 1% yield on the 10-year U.S. Treasury note is the starting point for the year, a 1.5% yield is halfway there, and a 2% yield would be the target that many investors think the market is headed for. If the market stays below 1.5%, bond investors will begin to focus on inflation data for the second half of the year, which will likely be lower than recent months and many will be concerned about the possibility of inflation falling below the central bank’s target, as has been the trend for many years.

Furthermore, at its June meeting, the Fed took a more hawkish tone by advancing the expectation of a rate hike with its dot plot, which summarizes Federal Open Market Committee (FOMC) participants’ outlook for interest rates, now suggesting two increases in 2023. A more hawkish Fed should point to higher yields, but other factors come into play, crucially that it might not allow inflation to run as hot as previously expected, adding credibility to the transitory inflation theory.

With yields rallying since April, investors have been rushing to close their short duration positions, creating technical demand for duration and compounding the move lower in yields. According to Hayes, for the time being, there is still reason to believe that the rally can continue with these factors in play.

Exposure to the yield curve

Looking at the spread between five-year and thirty-year U.S. treasury bonds, there has been a large steepening in yield curves in late 2020 and early 2021. With little movement in short-term bonds, the selling sprees have been focused on longer-term bonds that have substantially underperformed through March.

In recent months, however,stimulated by the transitory inflation momentum, the curve has been flattening, a move that accelerated during the week of the Fed’s June meeting. The scale and speed of the move appears to have forced many investors to rotate out of short-dated bonds and into long-dated bonds, unwinding many of the reflationary positions that were so consensual throughout the first quarter.

Over this period, the Global Strategic Bonds strategy has actively managed its duration position in line with market events. In mid-February, all the momentum seemed to be with the reflation trade, meaning much higher bond yields than expected, causing the team to significantly reduce duration from over 5 years to 1.5 years, stripping out nearly all outright US duration exposure but with a steepening position on the US curve. This worked well to protect the portfolio from the worst of the rates-driven sell-off in the first quarter. Since April 2021, however, the team has started building up a duration position once more, concentrated in long-dated US duration, which has worked well as the curve has flattened aggressively, sitting in early July with over 4 years of exposure.

Credit exposure

In the high yield corporate bond market, spreads continue to move sideways or tighten, supported by relentless demand from investor appetite for a bit more yield than that offered in the investment grade bond market. While these spread levels seem increasingly stretched from a valuation perspective, they appear to be well anchored with strong demand from both investors and central banks.

At the individual security level, there has been a greater level of dispersion in 2021 than there was in 2020, meaning lots of bonds with very compressed spreads as well as others trading at much more attractive valuations, making bottom-up credit fundamental analysis absolutely key. Increasingly, however, these levels of dispersion are beginning to decrease as spreads grind tighter and valuations appear stretched across the board, potentially making a more prudent approach to credit necessary in the coming months.

Currently, the Global Strategic Bonds strategy has a 36% allocation in emerging markets and high yield and 30% in investment grade credit. Its investment-grade bias is toward BBB-rated securities, investing primarily in bank and insurance company debt, and other companies that could benefit from the recovery following the COVID crisis. In high yield, the team has reduced exposure to some of the more cyclical companies and is focusing on shorter-dated high carry names. In emerging markets, they are moving away from traditional commodity sensitive areas, towards sectors that are influenced by the middle class consumer and increasing exposure to renewable energy brands.

Complacency over Inflation May Be the Biggest Risk Facing Investors

| For Sofia Cisneros | 0 Comentarios

sit-4300448_1920 — Pixabay CC0 Public Domain. La complacencia respecto a la inflación podría ser el mayor riesgo al que se enfrentan los inversores

The “Roaring Twenties” lived up to the hype in the first half of 2021 as most major indexes –S&P 500, FTSE 100 or Shanghai Composite- posted double-digit returns. Looking into the second half of the year, strategists of Natixis Investments Managers believe that along with rising returns, investors should especially watch two things: inflation and valuations.

These are the conclusions of a mid-year survey of 42 portfolio managers, strategists and economists representing Natixis IM, 16 of its affiliated asset managers, and Natixis Corporate and Investment Banking. It shows that even as the market considers the first real dose of inflation in 13 years, complacency may actually be the biggest risk facing investors.

More than a year into the pandemic, with light at the end of the tunnel, Natixis experts believe that long-term consequences of the last year will be slow to unfold. Still, the year-end outlook remains constructive with few risks on the horizon, suggesting investors best keep their eyes wide open as the long-term effects slowly begin to unfold.

“The Wall of Worry continues to keep sentiment in check. We hear many concerns about peak growth, and we remind investors not to confuse peak growth and peak momentum. We expect the pace of the recovery to ease, but ease to levels that are still very supportive for corporate earnings,” says Jack Janasiewicz, Portfolio Manager & Portfolio Strategist for Natixis Investment Managers Solutions.

Despite big returns from investment markets, the global economy has not yet fully reopened. More than half (57%) of strategists project it will take another six to nine months for the world to fully reopen. Others are similarly split between whether the economy is gearing up for the reopening towards the end of 2021 (21%) or whether it will be delayed until the second half of 2022 (19%).

Strong growth in the US

Regionally, sentiment runs most positive for the US economy. After watching it reopen sooner and faster than expected, with Q2 growth set to be 11% (annualized), two-thirds say they expect it to neither stall nor overheat in the second half, suggesting still strong growth ahead.

Looking at China, where economic growth has recovered to pre-pandemic levels, six in ten say the recovery has already peaked. Less than one-third (31%) think there’s more room for the Chinese economy to run in the second half of the year.

In Europe, where vaccination efforts are a few months behind the US and reopening is set to accelerate during the second half, 57% believe the economy will continue to lag the US, though 43% do believe it will catch up to the rest of the world through the end of the year.

Is complacency the real risk?

In this context, no single risk stood out for Natixis strategists in this annual survey, with no risk factor rated above an average of 7 on a scale of 10. Taken together, the views suggest that investors should monitor risks and investors be on the watch for potential headwinds.

“Indications are that inflation will prove transitory, driven by consumers fresh out of lockdown and flush with cash, coupled with supply chain bottlenecks. But the risks are clearly to the upside. Even the Fed had to acknowledge that inflation would run hot in 2021, though it is confident it will not spiral beyond that,” said Lynda Schweitzer, Co-Team Leader of Global Fixed Income at Loomis Sayles.

Value continues to lead in equities

One of the key market trends to come out of the pandemic has been the rotation to value investing. Looking into the second half of the year, 64% of those surveyed say value has at least a few more months to run, though only a quarter (26%) believe that outperformance could last for a few years. Only 10% believe the value run is already over, a sentiment that was strongest among the 21% of respondents who see markets stalling in the last two quarters of 2021.

Chris Wallis, Chief Investment Officer at Vaughan Nelson Investment Management points out that for value to continue to outperform, “we will need inflation to prove transitory and further fiscal spending by the federal government”.

It all comes down to the Fed

Of all factors that could impact market performance over the second half of 2021, strategists say that Fed moves matter most, rating them 7.2 out of 10. Similarly, they cite economic data releases (6.7), fiscal spending (6.1) and liquidity (6) as key leading market drivers, demonstrating just how much sway central banks continue to hold over markets. Valuations (5.2), vaccinations (5.1) and geopolitics (5) round out the pack, showing that respondents are looking past the pandemic and that, while valuations are high, they often do not lead to a correction on their own.

The outlook for emerging markets in the second half of the year is also dependent on the Fed, according to the survey. Indeed, 45% of respondents caveat their call for EM outperformance with the dollar and yields remaining contained, showing how far-reaching the Fed’s impact is. Only 10% of respondents gave an outright “yes” to EM outperforming into the end of the year, while 14% say EM needs Chinese growth to remain robust and nearly one in three (31%) said “no,” emerging markets will not outperform during the second half of 2021, regardless of any caveats.

ESG and crypto positioning

In considering two of the leading investment stories to come out of the pandemic, Natixis strategists have the strongest convictions about ESG (Environmental, Social, and Governance) investing. Throughout the pandemic, ESG strategies generated impressive results in terms of both returns and asset growth. Few think the success will be short-lived, as one in ten of those surveyed think of ESG as a fad. Instead, 48% say these investments are becoming mainstream and 26% call them a must-have investment.

When it comes to cryptocurrencies, the asset manager believes that while they have been grabbing headlines over the past year, two-thirds of those surveyed believe the market under-appreciates the risks, 17% say crypto is nothing more than a fad and 12% believe it is a disaster waiting to happen. “Not one of the 42 strategists surveyed believes cryptocurrencies are a bona fide alternative to traditional currencies”, the analysis adds.

Post-pandemic winners remain the same

As we start to look post-pandemic, respondents saw little change in the projected post-pandemic winners compared to last year’s survey. This year, strategists call for technology (88%), healthcare (83%), ESG investing (76%), and housing (74%) to be the winners from the crisis.

Given that nearly six in ten strategists (57%) put stay-at-home business in the winners’ column, it appears many think it will take time for the sector to mirror the return to the office. Convictions do not run as strong for energy (38% winner / 62% loser) and travel (52% winner, 48% loser), an outlook that aligns with a full reopening sometime in the first half of 2022 rather than the last half of 2021.