Pixabay CC0 Public Domain. AllianceBernstein lanza una plataforma de deuda inmobiliaria europea con Lacarne Capital como socio
AllianceBernstein has launched a European Commercial Real Estate Debt (ECRED) business by partnering with Lacarne Capital, a pan European real estate debt platform led by Clark Coffee, a veteran of the region’s private credit markets.
The asset manager has announced in a press release that ECRED will launch with 1.2 billion dollars of initial capital, making it one of the largest real estate direct lending platform launches in Europe. The business will focus on direct origination and secondary participations in whole loans, subordinate loans, preferred equity and other real estate backed investments across the UK and European markets.
AllianceBernstein believes that this is an opportune time for ECRED’s launch, “as the disruption created by COVID-19 has made traditional sources of capital harder to secure, resulting in an increased opportunity set and relevance for alternative lenders”. The launch follows the “success” of the firm’s US Commercial Real Estate Debt platform (CRED), currently overseeing nearly 6 billion dollars in investor commitments since its launch in 2013. The firm pointed out that this is a natural extension of its broader strategy of continuing to diversify and grow its Private Alternatives franchise.
Coffee will serve as Chief Investment Officer of the ECRED business. He will be joined by Shivam Rastogi, former Head of Deutsche Bank’s Debt Origination and High Yield Lending business in Europe; and Daniel Stengel, previously General Counsel of Tyndaris Real Estate. The team will be based in London and Frankfurt.
“Following the success of our US CRED business, Europe is the logical next step for expanding AB’s growing Private Alternatives franchise. We are delighted to be in business with Clark, who not only brings an impressive investment track record but also benefits from first-hand experience building a successful European private debt business”, said Matthew Bass, Head of Private Alternatives for AllianceBernstein commented.
Meanwhile, Coffee commented that they have secured a “great partner” in AllianceBernstein:“Their ability to raise significant capital in the midst of a global pandemic speaks for itself. The breadth of their operational expertise and investor relationships provides a strong foundation upon which we intend to build a leading European real estate debt business”.
For the second consecutive month, U.S. equities slipped in October as the economic recovery slowed and a lack of additional fiscal stimulus deal dented investor sentiment. A resurgence in coronavirus cases in Europe and America weighs heavily on an economic recovery, as investors fear another shutdown. Tech stocks trailed the broader market with underwhelming guidance and missed revenue expectations.
The end of the month saw a record high in COVID-19 cases for a week, which led to increasing restrictions in Europe. Despite the surge domestically in the US, resilient optimism around treatments and vaccine progress helped avoid another large market selloff.
October had plenty of political headlines including the nomination and confirmation of Justice Amy Coney Barrett, President Trump’s recovery from COVID-19 and the highly anticipated Presidential debates. As the election has been so close, it may lead to weeks of confusion, unrest, and litigation that could likely drag electoral uncertainty into next year.
Regardless of the final outcome of the US Presidential election, with Joe Biden’s victory, we are confident that our investment portfolio can benefit under the new administration. We will continue to use the upcoming market volatility as an opportunity to buy attractive companies, which have positive free cash flows, healthy balance sheets and are trading at discounted prices.
M&A activity remained robust in October as worldwide dealmaking totaled $420 billion, an increase of 68% from October 2019. Technology and energy were particularly active sectors for consolidation.
Column by Gabelli Funds, written by Michael Gabelli
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The global economy is recovering from the effects of the pandemic and corporate earnings are picking up, thanks in part to generous monetary and fiscal stimulus. Interest rates remain at low levels, and are expected to remain so for the long haul. History shows this is the kind of environment in which speculative grade credit does well.
The combination of improving economic and corporate earnings prospects and low debt servicing costs reduces the risk of default. Which means that high yield should continue to be one of the very few areas of the fixed income market where investors can still pick up a positive real return.
The economic picture is more encouraging than it has been for months. This follows a weak second quarter, when leverage among European high yield companies hit a multi-year high of 4.8 times, EBITDA dropped 47 per cent year-on-year and debt rose by 23 per cent (see Fig. 1). Recent data indicate that activity in Europe is now back to around 80 per cent of pre-Covid levels. Demand for cars, a leading indicator of economic growth, has bounced back to just 20 per cent below its six-year trends vs 80 per cent in the spring. We are therefore confident of seeing further positive surprises – both in macro-economic data and corporate earnings in the coming months. This has yet to be reflected by financial markets.
Prospects for speculative-grade companies look better still once fiscal and monetary policy are taken into account. The European credit market has benefited from unprecedent interventions from central banks and governments, which have stepped in speedily to protect viable businesses and limit the number of corporate defaults. The scale and speed of such interventions – which has included programmes such as furlough schemes and government guaranteed loans – have been impressive.
For their part, companies have strengthened their liquidity positions and balance sheets, by drawing on their credit lines, issuing new debt, cutting costs and reducing capital expenditure. The cash to debt ratio among speculative-grade companies in Europe has as a result risen from 10 per cent a year ago to 19 per cent in June 2020 (1).
Obviously not every company will come through this crisis unscathed – but the impact is likely to be less than originally expected. In March 2020, Moody’s central scenario assumed default rates of 7-8 per cent default rates for high-yield issuers. Since then, however, conditions have improved, prompting Moody’s to cut its default rate forecast to 4.9 per cent in August. There is a strong chance that defaults have peaked. Corporate Europe is in stronger health.
The opportunity set
Some investment opportunities are more attractive than others.
Bonds issued by French and German companies, for example. Among major developed nations, France and Germany led the way in terms of support for businesses with packages worth EUR 16.2 and EUR 14.3 billion respectively – more than double that of third-placed Italy (2).
The pandemic has also deepened the pool of attractive high-yield bonds. The economic fallout from Covid-19 has caused a spike in the number of fallen angels, companies that have just lost their investment grade status. In the first eight months of 2020, Europe saw some EUR 45 billion of fallen angels and that amount can be expected to nearly double by year-end (3). This creates a long term opportunity as many of these firms are strong, resilient businesses. The addition of fallen angels increases the size and improves the quality of the high yield market – augmenting an already large cohort of BB-rated companies.
This year’s pandemic shock has been different from the 2008 financial crisis as far as its impact on individual industries is concerned. In 2008-9, financials were the hardest hit; industrial companies also suffered as is common during recessions. This time, however, many factories were able to continue operating partly thanks to increased automation. Chemical and shipping companies fared much better in this crisis than in 2008-9. Instead, the economic impact was most felt by the services sector. Market pricing has yet to reflect this resilience in our view.
Elsewhere, in some of the hardest hit sectors like travel and retail, there is a tendency for all companies to get tarnished with the same brush despite possessing very different financial profiles. An online travel agency with limited fixed costs, for example, is in a far stronger position than a car rental operator. DIY shops have also held up relatively well as families spent more time at home and decided to improved their dwellings. Retailers with e-commerce operations have also proved resilient while those who rely on physical outlets have suffered.
Consequently, retail focussed real estate investment trusts (REITs) are among the worst hit, while residential REITs fared much better. The sports ban and closure of gaming avenues has benefited gaming companies with online presence.
With central bank and governments both focused on providing financial support that extends out by months rather than decades, shorter dated credit is particularly appealing. The high yield curve is nearly flat. For instance, Teva Pharmaceutical Industries’ 2027 bond is currently trading only 42bps wider that its 2023 bond (see Fig. 2). By investing in shorter maturities investors thus get similar return while taking on less duration risk (4).
We believe the flat curve reflects doubts about the sustainability of the economic recovery and corporate prospects. If such concerns turn out to be misplaced, the curve will likely revert to its usual upward-sloping shape, creating an additional source of return for short-term bonds.
Overall, then, the spread offered by short-term high yield bonds provides more than adequate compensation against the risk of default. We expect European short-term high yield credit will generate positive returns of 3-5 per cent in the next 12 months. As compared to other alternatives within fixed income, this is an opportunity not to shrink away from.
Opinion written by Prashant Agarwal,Senior Investment Manager specializing in High Yield in the Fixed Income team at Pictet Asset Management.
Notes:
(1) Morgan Stanley
(2) Deutsche Bank Research, “State-Aid Loans to High Yield Issuers”
(3) JP Morgan
(4) Duration measures how sensitive a bond’s price is to changes in interest rates.
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Foto cedidaNicolas Namias, CEO of Natixis.. Natixis Ends Its Partnership with H20 AM
Natixis Investment Managers has started negotiations with H20 AM to end their partnership. During the presentation of its quarterly results, the company revealed that the firm of Bruno Crastes is no longer a strategic asset for them.
In a joint communication, both asset managers explained they have entered into discussions to initiate “a progressive and orderly” unwind of their partnership. The process has to be considered by relevant regulatory authorities and will require regulatory approvals.
These discussions relate to a potential gradual sale of Natixis IM’s stake in its subsidiary and include plans for H2O AM to take over the distribution of its products over a transition period due to last until the end of 2021. The management company intends on giving a new direction to its development as the 10-year lock-up period provided for in its shareholder covenant with Natixis IM has come to an end, said the firms.
“In due course and in line with the regulatory process, H2O AM will make a further announcement regarding the impact of these proposals on its business, including its shareholding structure and changes to its governance approach”, they added in the press release.
This process will put an end to a situation that Natixis IM drags since 2019. In fact, last September, the French financial markets authority (AMF) asked H2O AM to suspend all subscriptions and redemptions in three of its funds: H2O Allegro, H2O MultiBonds and H2O MultiStrategies. The asset manager solved its liquidity problems with certain assets through a side pocket mechanism.
A new “European asset management leader”
Last week, Natixis also announced that it has completed with La Banque Postale the combination of their fixed-income and insurance-related asset management activities within Ostrum Asset Management. Both firms are reorganizing those businesses to give them a new dimension in an environment of persistent low interest rates.
“The closing of this combination on October 31 creates a European asset management leader with more than 430 billion euros in assets under management and over 590 billion euros under administration through its services platform as at end-September 2020”, they revealed in a press release.
The combined activities will be housed within Ostrum AM, owned 55% by Natixis through Natixis Investment Managers, and 45% by La Banque Postale as part of its asset management division. Ostrum AM will provide two distinct and independent offerings: asset management and investment services. In line with its client-centric organization, it is setting up two sales teams to manage all aspects of client relationships, one team for asset management and the other focused on its services platform.
Pixabay CC0 Public Domain. Union Bancaire Privée anuncia la adquisición de Millennium Banque Privée - BCP
Loomis, Sayles & Company, an affiliate of Natixis Investment Managers, announced in a press release the addition of an eight-person European credit team. They are launching three euro credit investment strategies, which are now available for institutional separate account management: Loomis Sayles Euro Investment Grade Credit, Loomis Sayles Euro Sustainable Investment Grade Credit and Loomis Sayles Euro High Yield.
The team is based in Loomis Sayles’ new European office, Loomis Sayles & Company, L.P. – Dutch Branch, located in Utrecht, Netherlands. It will be co-led by portfolio managers Rik den Hartog and Pim van Mourik Broekman, who join from Kempen Capital Management.
The other members of the team are portfolio managers Luuk Cummins, Sipke Moes, Quirijn Landman, Marco Zanotto, Ronald Schep; and the product manager Jeroen Potma.
“We believe the Euro Credit team has the potential to add something unique and exceptional to our organization. We are excited to welcome them to Loomis Sayles and establish our presence in the Netherlands. “Similar to all Loomis Sayles investment teams, their investment process is rooted in a differentiated investment philosophy, which has a strong track record of alpha generation”, said Kevin Charleston, chairman and CEO.
Top-down and bottom-up
Loomis Sayles pointed out that the foundational belief that underlies all of the team’s strategies is that credit markets are inefficient and rigorous research can access opportunities. The team seeks to generate alpha by combining a top-down view with bottom-up investment analysis when constructing portfolios. They feature a strong risk orientation and focus on quality, and ESG analysis is incorporated into the fundamental research. Additionally, the team takes an active engagement approach with issuers and uses their investor influence to shape corporate behaviors.
Chris Yiannakou, head of EMEA institutional services, believes that the three strategies they are launching play an important role in their investment lineup, particularly for their “large and growing” book of clients in Europe and the Middle East, for whom European credit and ESG are critical components of their portfolios. “These investors have a stellar reputation and we’re pleased to offer them a competitive and truly differentiated investment capability that complements our diverse product suite and reinforces our global reputation for investment excellence”, he added.
Pim van Mourik Broekman, co-head of the team, said that Loomis Sayles is a “well-respected” active asset management firm with a powerful global distribution platform. “We are very enthusiastic about joining the organization”, he commented.
Meanwhile, Rik den Hartog, declared to be “impressed” with the professionalism, infrastructure and international character of Loomis Sayles. “We look forward to playing an integral role in building out a broader European presence for the firm”, he concluded.
Foto cedidaJosé Noguerol, Florencio Mas y Fred Bates. BECON supera los 2.100 millones de dólares de activos bajo distribución
Third Party distributor BECON recently announced crossing a new milestone of 2.1 billion dollars in assets under distribution. BECON’s now nine person strong team distributes offshore mutual funds for a number of asset managers including Neuberger Berman, Cullen, and New Capital in the Americas.
Approximately 1,5 billion dollars in AUM was captured in Latin America for BECON’s original two partners Neuberger Berman and Cullen. For both managers, BECON focuses on the Latin American intermediary markets including private banks, broker dealers, family offices, funds of funds, insurance companies, and independent financial advisors. The strategies receiving the most interest in the region have been led by the following:Neuberger Berman Strategic Income, Neuberger Berman Short Duration Emerging Market Debt, Neuberger Berman Emerging Market Debt Hard Currency, Neuberger Berman Corporate Hybrid Bond, Neuberger Berman US Real Estate, Neuberger Berman 5G Connectivity and Cullen North American High Dividend Value
BECON also represents New Capital Funds from EFG Asset Mgt. in both Latin America and US offshore for the same retail segments. Since launching New Capital officially at the beginning of 2020 net sales have now surpassed 600 million dollars through the end of October.
Outside of New Capital flagship Wealthy Nations Bond Fund, the team has been gathering additional assets in CIO Moz Azfal’s dynamic multi asset balanced strategy called Strategic Portfolio.
Adapting to the new environment
BECON has been highly active transitioning its regular wholesale model of in office visits to the new virtual environment driven by the spread of the pandemic. BECON’s partners from Neuberger Berman, Cullen, and New Capital having been hosting virtual events in local languages bi-weekly in order to keep investors informed. In addition, they have lightened things up by offering clients more creative events such as cooking classes by world renowned Michelin star chefs, live virtual comedy events and concerts, as well as motivational events with professional athletes such as former NBA star Manu Ginobili from the San Antonio Spurs.
“The first months of Covid19 were extremely challenging” commented Jose Noguerol, Managing Partner from BECON. “Our priorities were keeping clients calm and informing them on a daily basis or how performance was developing as well as what perspectives were going forward. After 20 years in the industry the BECON team and I has seen our fair share of crisis before and were not really phased by the volatility. There was an element of trust that you get after having been around in the industry for decades that is priceless in moments like these. Thankfully most of our clients held on through the worst volatility and were able to participate in the recovery”.
BECON is led by industry veterans Jose Noguerol along with Florencio Mas and Fred Bates. “Whilst decades of experience and relationships helped us navigate this crisis it was the younger generation of the BECON sales team that really got us adapt an lead in the new virtual environment” commented Florencio Mas. “Juan Francisco Fagotti, Lucas Martins, Joaquin Anchorena, and Gian Franco de Bonis are all millennials. Their generation gets a lot of bad press in the news but when it comes to adapting and new technology we couldn’t have done it without them. They helped us move at lightning speed to create specialized digital content, video content, as well as execute transitioning ourselves and the clients to virtual forums”.
Managing partner Fred Bates had a more cautionary tone stating “we were all very fortunate that our industry and the team was able to adapt to this new environment and be able to work from home. Not every industry was as fortunate as we are in the financial sector and it is important to stay humble. You never know what waits around the next corner but all you can do is put the clients first and do right by them so things work out in the long term. If there is anything we have learned over the years is to focus on the client first and foremost.” Bates also commented that partners Neuberger Berman, Cullen, and New Capital rallied to do the same and went above and beyond to over communicate with clients in the most challenging times. “We couldn’t have been able to achieve everything we have over the last three and a half years and through the pandemic without excellent partners and some of the best products in the industry” said Bates.
Bates also added that its not just about selling mutual funds and wholesaling. “Building an asset management distribution business from scratch in the Americas is more than just sales. You really have to know your stuff from legal & compliance, marketing, operations, pricing, platforms, distribution agreements, and regulatory requirements now more than ever. The amount of hours we spend on all of the things to make the sales effort successful can make your head spin. I think our partners really appreciate the decades of experience we have not only in sales but these areas as well throughout the team”.
Miami office opening and new agreement to be announced soon
Now that the 2 billion dollars marker is behind them, BECON is not slowing down. The firm more recently opened their first office on Brickell Ave in Miami and is expanding their distribution in the US Offshore market as well as hiring additional sales support in Latin America.
Partner Bates, Noguerol, and Mas said their main goal is executing more with their existing partnerships but eluded to and exciting new announcement coming soon. The three mentioned that their original business plan was to never represent more than 4 asset managers in the region of which 3 slots are already taken. “From day one, we never wanted to be a supermarket. You have to know the products inside and out and ensure the asset managers think of you as an extension of their team. You can’t do that if you have too many fact sheets in the bag. It’s important our asset manager partners know you wake up everything day thinking of them and their funds no matter if the wind is blowing their way on not. You also don’t want to have too much overlap in the offerings to everyone has a great opportunity to grow AUMs “ ,said BECON’s Noguerol.
Pixabay CC0 Public Domain. ¿Afronta Europa una recuperación verde?
Europe’s Green Deal’s renovation-wave strategy not only creates a potential opportunity to combat climate change, but also may present a way to boost the economic recovery, says DWS.
When the global financial crisis hit more than ten years ago, climate commitments soon were forgotten for the sake of a fast economic recovery. This is best illustrated by the collapse of the United Nations Climate Change Conference in Copenhagen back in 2009 and the withdrawal of government support programs for renewable technologies.
“That lack of political support was probably reflected in a range of factors, including, perhaps, skepticism toward the scientific evidence, as well as concerns about an apparent trade-off between a sustained economic recovery and climate-change measures needed to move toward a greener economy”, points out the asset manager in a recent publication.
Fast forward to 2020, again in the middle of one of the worst economic recessions, but thanks to many climate activists amid a much more passionate public debate about climate change. This time around, policies to tackle the latter are no longer viewed as an economic luxury. “It is rather evident that the shift to a more sustainable economy entails risks and opportunities for employment creation”, comments DWS.
One such opportunity presented the Green Deal’s renovation-wave strategy published by the European Commission two weeks ago. It aims to dramatically reduce commercial and residential buildings’ carbon footprint in Europe1. This is “vital” since buildings account for around 36% of the EU’s carbon emissions.
However, energy-efficiency investment in buildings has stagnated and is currently not growing at rates required to reach the Paris-Agreement goals as depicted the chart2. The asset manager thinks that, from a capital-market perspective, retrofitting buildings could create opportunities in sustainable equities, real estate, infrastructure, green bonds, asset-backed securities and dedicated sustainable investment funds3.
So history did not end at the failed Copenhagen Climate Summit, but rather continued with the Paris Agreement. The Green Deal aims to double Europe’s renovation rate within the next ten years which contributes to the fulfillment of the Paris Agreement and makes it more likely that the scenario for 2019 to 2030 can be met4. “Of course, it’s an open question whether an EU-wide, one-size-fits-all approach is really the best way to tackle economic and climate problems over the medium term, given the varied economic and real-estate cycles in various member states”, says DWS.
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DWS and its affiliates do not provide accounting, tax or legal advice and investors should consult their own advisors with respect to their particular circumstances.
For investors in Peru / Argentina / Chile: Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction neither does it constitute the offer of securities or funds. The offer of any services and/or securities or funds will be subject to appropriate local legislation and regulation.
Additional disclaimer for Chile: This private offer commences on current date and it avails itself of the General Regulation No. 336 of the Superintendence of Securities and Insurances, currently the Financial Markets Commission. This offer relates to securities not registered with the Securities Registry or the Registry of Foreign Securities of the Commission for the Financial Markets Commission, and therefore such shares are not subject to oversight by the latter. Being unregistered securities, there is no obligation on the issuer to provide public information in Chile regarding such securities; and these securities may not be subject to a public offer until they are registered in the corresponding Securities Registry.
La presente oferta privada toma vigencia el date y está sujeta al Reglamento General No. 336 de la Superintendencia de Valores y Seguros (SVS), conocida como la Comisión de Mercados Financieros (CMF). Esta oferta cubre aquellos instrumentos que no están registrados en el Registro de Valores o Registro de Valores Extranjeros de la Comisión de Mercados Financieros (CMF), por lo tanto, dichas acciones no están sujetas bajo la supervisión de la CMF. Debido a que no están registrados, el emisor no tiene la obligación de proporcionar información sobre dichos instrumentos en Chile, los mismos no pueden ser ofrecidos bajo una oferta pública hasta que estén registrados en el Registro de Valores que corresponde.
Additional disclaimer for Peru: The Products have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This Prospectus is only for the exclusive use of institutional investors in Peru and is not for public distribution
For investors in Argentina: Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction neither does it constitute the offer of securities or funds. The offer of any services and/or securities or funds will be subject to appropriate local legislation and regulation.
For investors in Mexico: The funds have not been and will not be registered with the National Registry of Securities, maintained by the Mexican National Banking Commission and, as a result, may not be offered or sold publicly in Mexico. The fund and any underwriter or purchaser may offer and sell the funds in Mexico, to institutional and Accredited Investors, on a private placement basis, pursuant to Article 8 of the Mexican Securities Market Law.
Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction neither does it constitute the offer of securities or funds. The offer of any services and/or securities or funds will be subject to appropriate local legislation and regulation.
For investors in Brazil: The shares in the Fund may not be offered or sold to the public in Brazil. Accordingly, the shares in the Fund have not been nor will be registered with the Brazilian Securities Commission – CVM nor have they been submitted to the foregoing agency for approval. Documents relating to the [shares in the Fund], as well as the information contained therein, may not be supplied to the public in Brazil, as the offering of shares in the Fund is not a public offering of securities in Brazil, nor used in connection with any offer or subscription or sale of securities to the public in Brazil.
For investors in Uruguay: The sale of the [Products] qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The Products must not be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The [Products] are not and will not be registered with the Financial Services Superintendency of the Central Bank of Uruguay.
For investors in Brazil: The shares in the Fund may not be offered or sold to the public in Brazil. Accordingly, the shares in the Fund have not been nor will be registered with the Brazilian Securities Commission – CVM nor have they been submitted to the foregoing agency for approval. Documents relating to the shares in the Fund, as well as the information contained therein, may not be supplied to the public in Brazil, as the offering of shares in the Fund is not a public offering of securities in Brazil, nor used in connection with any offer or subscription or sale of securities to the public in Brazil.
The coronavirus pandemic has provided the world with its toughest stress test in more than 80 years. It has given rise to complex moral choices – not only for governments and businesses but also communities and families. Such has been the upheaval caused by Covid-19 that it is difficult to envisage a return to the life we knew before the virus struck.
Indeed, the history of pandemics shows that public health crises are profoundly disruptive. Their economic, societal and geo-political effects are often long-lasting, unfolding over many years. At Pictet Asset Management, we have conducted a study in partnership with the Copenhagen Institute for Futures Studies to better understand how the investment landscape might evolve in the next five to 10 years. The research presents investors with four scenarios that might plausibly unfold in the wake of the coronavirus pandemic.
We hope that these scenarios would serve as a starting point for long-term planning and strategic asset allocation. Our aim is to ensure investors are asking the right questions.
Scenario A – Act local, think global: Citizens emerge from the public health crisis with a new moral purpose, having come to accept that that inequality and environmental degradation can only be reversed through collective action. What is the impact of global productivity and trade?
Scenario B – All together now:The world transitions from a largely unipolar world directed by the US into a multi-polar one in which nation states and international organisations collaborate. Discover which investment trends could be on the rise.
Scenario C – Not my problem: Citizens prioritise their own livelihoods and financial security and disengage from political discourse and community life. Governments struggle to transition to a more inclusive economy. What course could this take?
Scenario D – Going it alone: Nation states turn inwards in an effort to safeguard their own natural resources, industries and workers. What is the impact on global problems such as environmental degradation and social inequality?
Each scenario has its own distinct economic, societal and geopolitical landscape. And each has its own set of implications for investors – industries that thrive in certain conditions might struggle for their very survival in others.
Tribune written by Steve Freedman, Senior Product Specialist at Pictet Asset Management.
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 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.
Julius Baer announced in a press release the addition of Francisco Buch Torres and Rodrigo Vela Bezanilla to its Mexico team, starting November 2. They will both work as Relationship Managers from the Zurich location “to support the region in driving continuing growth”, said the firm.
Buch joins as a senior RM after working for 6 years at UBS. In his latest role, he was a Relationship Manager for HNW and UHNW individuals at the Mexican desk in Zurich. Before joining UBS, he worked as a Director for Business Development at GNP Insurance (the biggest Mexican Insurance Company) and as an Associate Director for Commercial Strategy Private Banking at Santander in Mexico.
Vela joins Julius Baer from Credit Suisse, where he started as an analyst and junior Relationship Manager in Mexico in 2012. After that, he worked as an Account Manager in Singapore before starting as a Relationship Manager for International Wealth Management at Credit Suisse in Zurich. In his latest role, he managed HNWI Mexican clients on an advisory and discretionary basis.
“Mexico is our second-largest market in Region Americas and we continue to see a lot of potential for growth. We are excited to strengthen the existing team with these valuable additions”, said Luis Mariné, Market Head of México, and Beatriz Sánchez, Head of Region Americas
COVID-19’s second wave has left European governments scrambling to impose fresh restrictive measures to contain the rise in infections, raising fears that the continent’s economy will slide back into recession.
The euro zone purchasing managers’ surveys show that services activity, which accounts for around two-thirds of the bloc’s GDP, has contracted, while banks are tightening lending standards as they brace themselves for a rise in bad loans.
With the euro zone’s ground-breaking EUR 750 billion pandemic relief programme not expected to kick in until mid-next year, the region’s near-term prospects have become more uncertain.
Against this backdrop, Pictet Asset Management has downgraded their stance on European stocks to neutral from overweight.
In contrast, the outlook for Asian equities is brightening, thanks largely to China. China’s economic activity has almost fully recovered to pre-pandemic levels, with strong export demand driving the country’s manufacturing PMI to the highest level since January 2011.
While retail sales have lagged the strong recovery seen in other sectors, Pictet Asset Management believes there’s more room for private consumption levels to rise as the economy heads into 2021.
Therefore, Pictet Asset Management retains their overweight stance on emerging market stocks, and also upgrade Japanese equities to overweight. Given its exposure to international trade, the Japanese economy is especially well placed to benefit from Asia’s recovery.
The world’s third largest economy saw its real exports expand for four months in a row, while household spending is expected to pick up thanks to strong and well-coordinated fiscal and monetary stimulus.
What’s more, expectations for continued corporate reform under Prime Minister Yoshihide Suga and attractive valuation of Japanese firms will mean the country’s stocks are well placed to attract more inflows in the coming months. Another positive for Japan is that, much like its North Asian neighbors, the country is managing to control the Covid-19 virus better than Europe and the US.
Pictet Asset Management remains neutral US stocks, among the most expensive of the asset classes they invest in. They also stick to their underweight stance on UK, equities as the economy is facing a double whammy of a resurgence in Covid cases and the risk of a no-deal Brexit.
When it comes to sectors, Pictet Asset Management maintains their positive stance on materials and consumer discretionary stocks – both are attractively priced economically-sensitive sectors.
Among defensive sectors Pictet Asset Management prefers healthcare and consumer staples.
Pictet Asset Management remains neutral on IT stocks. Clouds are hanging over the prospects for US tech giants as there are growing calls for regulatory oversight of the sector. A16-month enquiry by a Congressional panel has concluded the companies wield monopoly power and stifle competition; it has proposed antitrust reform which could potentially see them break up.
Fixed income and currencies: China on the radar
As the mountain of negative-yielding debt grows, the attractions of local currency Chinese bonds hove into view.
The USD 14 trillion market, the world’s second largest, has seen record net inflows of RMB 300 billion in the first eight months of the year alone thanks to such bonds’ attractive yield, low volatility and diversification benefits.
Testifying to the asset class’ growing strategic importance, FTSE Russell followed other global bond benchmark providers to include Chinese government bonds in its flagship WGBI index from next year, a move that could trigger an estimated USD125 billion of inflows. What’s more, continued strength in the renminbi gives investors an additional source of return. The RMB is close to a 18-month high against the dollar and Pictet Asset Management expects the currency to appreciate further as Beijing increasingly opens up its capital market.
China’s 10-year bond trades at an attractive yield of 3.3 per cent and offers a record high spread of 250 basis points over US Treasuries.
Pictet Asset Management continues to express their preference for Chinese onshore bonds with an overweight stance in emerging local currency debt.
Pictet Asset Management also likes US Treasuries, which offer a reasonably priced way to hedge a diversified portfolio at a time when a worsening pandemic weighs on risky assets and elevate volatility. What is more, as the next figure shows, inflation is unlikely to undermine US government bond markets any time soon. Pictet Asset Management remains neutral on all other government bonds.
In credit, the only market in which Pictet Asset Management holds an overweight position is US investment grade bonds, where the US Federal Reserve’s bond buying continues to underpin prices. In contrast, Pictet Asset Management remains underweight US high yield debt as they believe valuations under-appreciate default risks. Moody’s expects US speculative grade default rates to rise to 9 per cent from the current 8.6 per cent, with issuers in advertising, printing and leisure sectors remaining particularly vulnerable.
In currency markets, Pictet Asset Management likes gold and the Swiss franc as safe-haven assets.
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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.
