Finding Opportunities in Today’s Credit Markets

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Pixabay CC0 Public DomainOportunidades en renta fija. Oportunidades en renta fija

Fixed Income can still provide protection on the downside and some benefits on the upside, but it is notably harder of late. You have to be opportunistic. You have to be nimble and you have to be solutions oriented.

In our view as active managers, the benchmark is not a starting place for asset allocation, but a proxy for risk. It’s how much risk a manager should be taking in order to achieve whatever solution is mandated. Ultimately, the first thing is to give active management a range around that benchmark. The aim doesn’t always have to be perfectly neutral. In times like COVID, you want your fixed income managers to be taking on a little bit more risk, and in periods perhaps like today or in a period where the manager doesn’t believe the risk is well-compensated, you want less.

The risk/reward isn’t skewed in an investor’s favor today. Becoming more defensive in building a portfolio that has a lower potential volatility and looking forward to areas of the market that may not sell off is important to protect against downside potential.

 

Risk and Reward: How to Play Defense

 1) Be cautious on duration

Our advice is to remain cautious on duration. We continue to look for opportunities to take down credit duration given the move in spreads over the last 12 months. The investment grade spreads are now tighter than early 2020 (pre-COVID sell off) despite corporate leverage having increased over 2020 from already high levels. Fiscal and monetary stimulus should continue to support the economy and ultimately corporate earnings and cash flows. Therefore, we aren’t concerned about the exposure; however, prices do seem to already reflect a lot of the economic healing. As always, we search for interesting opportunities no matter what the market environment. Recently these have been higher quality in the 2- to 5-year maturity range.

2) Move up the capital stack to securitized assets where possible

The reality is that sometimes markets are mispriced across silos, and one of those mispricings was actually global airlines pre-COVID where the corporate unsecured debt and a secured position in that exact same corporate airline were priced on top of each other. Going through COVID they diverged rather significantly. One of them went down 70 percent, and another went down around 40 percent, so 30 cents on the dollar versus 60 cents on the dollar. Today, it’s actually relatively easy to make those gift trades when you give up 1, 2, 3, 4 or 5 basis points of yield, but you take on a lot of protection by moving back up the capital stack spectrum and to securitized assets.

Secured credit is another area where we can do that, by just taking out credit duration, through both defensive posturing within individual assets, but also pulling back and being more defensive across the board.

Some agency mortgage-backed securities (MBS) continue to look reasonably attractive, especially relative to high-quality corporates. There are specific stories such as low coupon and low loan balance mortgages that have reasonably stable payment profiles such that we believe we are getting paid to take on the convexity risk (i.e., prepayment/extension).

3) The consumer story still resonates and has more runway

We still believe in the consumer story given the long-term improving job market and stimulus payments. Consumers entered the COVID recession in good financial shape, and while the immediate impact of the recession was quite harsh, direct stimulus payment and the overall economic rebound have allowed them to regain/maintain a good financial profile. 

The places where investors should be looking today are where central banks have intervened notably less, and that is the world of securitized products.

While spreads in senior tranches of Asset-Backed Securities (ABS) and non-agency Residential Mortgage-Backed Securities (RMBS) have tightened along with corporates, we continue to think some asset types and programs remain interesting. Senior ABS are particularly interesting because spreads are relatively attractive, and the durations are short. Additionally, most of those bonds are amortizing so we get cash flow each month. 

The non-agency RMBS market remains attractive because of the consumer financials as well as the strong housing market which provide collateral for these bonds (underwriting remains quite good with income/asset documentation requirements, low Loan-to-Values (LTVs), no low rate promo periods where there could be payment shocks, etc).

 

Structuring Portfolios for Economic Shifts, Volatility and New Opportunities

 

In some of our portfolios, we are moving toward a more conservative position. Spread compensation has decreased notably over last 12 months. Fiscal and monetary stimulus provide good economic support for credit (much already reflected in prices), but it also provides a basis for potential inflationary and policy rate move scares which could create volatility along the yield curve and in credit spreads. We want to be positioned to take advantage of those opportunities. Thus, we continue to preserve liquidity in the form of cash, Treasuries, agency mortgages, monthly amortizing ABS and short, high quality corporates.

Coming out of the global financial crisis a decade ago, there were structural shifts as to how the global economy was going to work. Central banks around the world shifted the regulatory environment. They became almost commoditized utilities, and to be fair, that’s being tested now with the winddown of a hedge fund in Asia that we all read about recently.

Coming out of the COVID crisis, we are seeing structural shifts again. There has been a shakeout of some of the levered players. To move up in quality as measured by rating agency grades, investors need to look across silos for relative value.

 

In sum, as active fixed income managers, we take risks when it makes sense to take risks, and we focus on downside protection when our view is that the markets aren’t well suited to reward risk-taking. In fixed income we are playing defense roughly 80 percent of the time, and that’s certainly true today.

 

 

 

 

 

 

Important Information
 

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

This is not a solicitation or offer for any product or service. Nor is it a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Thornburg makes no representations as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein.

Unless otherwise noted, source of all data, charts, tables and graphs is Thornburg Investment Management, Inc.

High yield bonds may offer higher yields in return for more risk exposure.

Any securities, sectors, or countries mentioned are for illustration purposes only. Holdings are subject to change. Under no circumstances does the information contained within represent a recommendation to buy or sell any security.

Investments carry risks, including possible loss of principal.

Outside the United States

This is directed to INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS ONLY and is not intended for use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to the laws or regulations applicable to their place of citizenship, domicile or residence.

Thornburg is regulated by the U.S. Securities and Exchange Commission under U.S. laws which may differ materially from laws in other jurisdictions. Any entity or person forwarding this to other parties takes full responsibility for ensuring compliance with applicable securities laws in connection with its distribution.

 

 

Founded in 1982, Thornburg Investment Management is a privately-owned global investment firm that offers a range of multi-strategy solutions for institutions and financial advisors around the world. A recognized leader in fixed income, equity, and alternatives investing, the firm oversees US$45 billion ($43.3 billion in assets under management and $1.8 billion in assets under advisement) as of 31 December 2020 across mutual funds, institutional accounts, separate accounts for high-net-worth investors, and UCITS funds for non-U.S. investors. Thornburg is headquartered in Santa Fe, New Mexico, USA, with additional offices in London, Hong Kong and Shanghai.

 

For more information, please visit www.thornburg.com

           

 

Navigating Market Uncertainty with a Focus on Both Income and Growth

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Pixabay CC0 Public DomainFree-Photos. Los gestores europeos confían en el rally de la bolsa pese a que decae el optimismo global sobre la macro

The US economy appears to be on a path to recovery after the massive dislocation caused by the onset of the Covid-19 pandemic in early 2020. Large scale vaccinations, a new $1.9 trillion stimulus package, and declining overall levels of infection have triggered renewed optimism among investors about the future of growth and financial markets.

But the path to normalization is not without risks, and investors should be mindful of potential asset-price volatility in the near future. Fears of higher inflation resulting from a re-ignited economy, for example, sparked a strong sell-off in Treasury bonds in March, boosting the yield on the 10-year note above 1.7% from about 1% in early February. Concurrently, belief in the so-called “re-opening trade” prompted many investors to rotate from high-growth stocks—which showed strong performance during the pandemic—to more cyclically oriented ones.

So, the question now is: What’s an investor to do?

We believe that a multi-asset approach combining equities and nontraditional fixed income has, historically, offered smoother returns in periods of volatility such as the one we see today. Based on more than 14 years of experience managing such strategies, we have found that a mix of US convertible securities, US high-yield debt, and US equities can offer a powerful solution for those seeking equity-like returns with less volatility than stocks while keeping a meaningful income stream.

Let’s contextualize this in our current environment. While it’s understandable that some investors are jittery about the rapid rise in US 10-year Treasury rates, it’s worth placing that in historical context: For the past decade, 10-year rates have moved between 1.5% and 3%. So, while the magnitude of the 10-year move (and its speed) is noteworthy, we view current rate levels as reverting to historically normal levels. Indeed, current rates are perhaps what investors should expect from a market that is starting to reflect an economy edging back to more normalized activity.

Investors that combine US convertible securities, US high-yield debt and US equities are seeking to generate upside participation and diminished downside relative to a pure equity allocation. So, how are market conditions in these three asset classes?

Two key themes dominate convertibles. First, convertibles had a strong 2020—returns topped 40%, its second-best year ever as measured by the ICE BofA US Convertible Index, only behind 2009, when the US was recovering from the Global Financial Crisis. In addition, new issuance was strong. The convertible universe was valued at less than $215 billion at the start of 2020, but with new issuance of over $100 billion and strong returns, it finished the year worth above $350 billion. The market also diversified beyond its concentration in technology and healthcare with new issuance coming from consumer discretionary and financial firms.

As new issuance continues, the asset class should continue to enjoy an asymmetric risk-return profile, typically capturing roughly 60% to 80% of the upside of the underlying equity and 50% or less of the downside. The first quarter of 2021 has already seen roughly $30 billion of new issuance and while we expect that pace to moderate, we still expect 2021 to be another strong year for new issues as companies take advantage of low financing costs and higher stock prices and opportunistically diversify their balance sheets.

High yield prospects also look positive for 2021 because of expectations of improved corporate earnings and stronger economic growth. Improving economies tend to lead to tighter credit spreads, benefiting high yield. Historically, when interest rates rise, high yield tends to outperform investment-grade credit and Treasurys because of its higher coupon and spread cushion.

The equities market has been dominated recently by some investors rotating from growth to value stocks and sectors that might do best in a re-opening. While we see some merit in that rotation, we believe that investors’ long-term focus should be on identifying firms with improving earnings expectations because, in the end, earnings are critical to generating outperformance. Firms that continue to meet or exceed expectations, should continue to outperform.

Investors should also be cautious about judging valuations based merely on price-earnings ratios, because for many companies, such as cruise lines and lodging/hospitality firms, earnings might not revert to trend until 2023. At the same time, investors should also take account of the interest-rate environment when considering valuations as well as the fact that the latest $1.9 trillion stimulus package is yet to hit the real economy. Until we get through this recovery phase, investors are unlikely to get clarity on the true earnings power of the US economy.

That said, companies’ cash positions are, on average, very healthy, especially those which used extremely low rates to issue fresh debt to shore up their balance sheets. In this light, we believe that conditions are in place for markets to see another wave of acquisitions in 2021 as companies utilize both their stock prices and debt to finance deals.

Overall, the outlook is positive with the tailwinds of improving earnings, massive stimulus and increasing M&A activity. Possible headwinds from inflation and higher interest rates are a risk, but on balance, we expect that investors should be rewarded for taking risk because tailwinds, at least for now, more than offset potential headwinds.

A column by Justin Kass, portfolio manager and managing director at Allianz Global Investors, responsible for the firm’s Income & Growth team

HSBC AM Appoints Paul Griffiths as Global Head of Institutional Business

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HSBC AM nombramiento
Foto cedidaPaul Griffiths, director global de negocio institucional de HSBC AM. . HSBC AM nombra a Paul Griffiths director global de negocio institucional

HSBC Asset Management has announced in a press release the appointment of Paul Griffiths as its new Global Head of Institutional Business. Based in London, Griffiths will start on May 5 and report to Nicolas Moreau, CEO.

With over 30 years’ experience in the industry, he will be responsible for the commercial development of the firm’s Institutional Business and leading its institutional sales and client management teams. He takes over from Brian Heyworth who left the firm last year.

Griffiths joins from First Sentier Investments where he was Chief Investment Officer for Fixed Income & Multi Asset Solutions. Prior to that, he held senior roles with firms including Aberdeen Asset Management, Credit Suisse, Axa and lnvestec. He is also the founder investor of the UK’s first student run investment portfolio based at the University of York.

“Paul’s extensive investment management experience and deep knowledge of the needs of institutional clients will prove invaluable as we continue to develop our proposition and differentiate our offering in the market. I look forward to welcoming him to the team”, Moreau has commented.

Meanwhile, Griffiths has highlighted that HSBC AM has seen significant growth in its institutional business over the past year: “This has been driven by bringing a strong set of innovative products to the market and I am thrilled to be part of its future development.”

In 2020, HSBC Asset Management set out its strategy to re-position the business and focus it on core solutions, emerging markets -specially Asia- and alternatives, with client centricity, investment excellence and sustainable investing as key enablers. The firm restructured its business to establish a more market competitive and client-centric operational model. As part of this, it changed its distribution model to operate with a global approach with the creation of Institutional and Wholesale client businesses.

Santander Becomes a Founding Member of the Net Zero Banking Alliance

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Pixabay CC0 Public Domain. Santander se convierte en miembro fundador de la Net Zero Banking Alliance

Santander has announced in a press release that it has become a founding member of the Net Zero Banking Alliance (NZBA), which has been convened by the United Nations Environment Programme Finance Initiative (UNEPFI).

Its goal is to help mobilise the financial support necessary to build a global zero emissions economy and deliver the goals of the Paris Agreement, besides providing a forum for strategic coordination among financial institutions to accelerate the transition to a net zero economy.

The NZBA brings together an initial cohort of 43 of the world’s leading banks, which also include BBVA, Bank of America, HSBC or BNP Paribas. Santander has highlighted that they focus on delivering the banking sector’s ambition to align its climate commitments with the Paris Agreement goals with collaboration, rigour, and transparency, acknowledging the necessity for governments to follow through on their own commitments. 

The commitments that have been reached by all of them include transitioning all operational and attributable greenhouse gas (GHG) emissions from their lending and investment portfolios to align with pathways to net-zero by mid-century, or sooner. They have also decided to set intermediate targets for 2030, or sooner, for priority GHG-intensive and GHG-emitting sectors; and to facilitate the necessary transition in the real economy through prioritising client engagement and offering products and services to support clients’ transition.

“If we are to green the world’s economy, we need a truly global effort: banks, companies, governments, regulators and civil society working together at pace. At Santander we are proud to be part of the founding members of this new alliance, and to accelerate progress towards net zero”, has commented Ana Botín, executive chairman at Banco Santander.

Santander has pointed out that is already playing a major role in helping to tackle climate change and enable the transition to the green economy. In February 2021 it announced its ambition to achieve net zero carbon emissions by 2050. The bank also published its first decarbonization targets with the ambition that, by 2030, it will have stopped providing financial services to power generation clients with more than 10% of revenues dependent on thermal coal, as well as eliminating all exposure to thermal coal mining worldwide and aligning its power generation portfolio with the Paris Agreement. At the end of 2020, Santander CIB was the world leader in renewable financing, according to Dealogic.

BNP Paribas AM Appoints Alex Bernhardt as Global Head of Sustainability Research

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Foto cedidaAlex Bernhardt, nuevo director global de análisis sostenible de BNP Paribas AM.. BNP Paribas AM nombra ficha a Alex Bernhardt como director global de análisis sostenible

BNP Paribas Asset Management has announced the appointment of Alex Bernhardt as Global Head of Sustainability Research within its Sustainability Centre. Bernhardt has joined on April 21st and will report to Jane Ambachtsheer, Global Head of Sustainability.

In his new role, he will be responsible for BNP Paribas AM’s Sustainability research agenda and ESG scoring platform. Bernhardt will manage the team of ESG analysts. and will work closely with the Quantitative Research Group, which plays an increasingly important role in developing and delivering the asset manager’s sustainability research agenda.

BNP Paribas AM has highlighted Bernhardt’s acknowledged role within sustainable finance, as he has received multiple awards for his work within insurance and investment across topics including climate risk management, disaster resilience and impact investing.

He joins from Marsh McLennan, where he was Director of Innovations, helping clients to address systemic issues including climate resilience, the catastrophe protection gap, diversity and sustainable infrastructure financing. Previously, he was Principal and US Responsible Investment Leader at Mercer, helping institutional investors to manage sustainability challenges in their portfolios, particularly related to climate change.

Bernhardt also worked at reinsurance broker Guy Carpenter where he devised bespoke risk transfer solutions for insurance brokers. He holds a BA in English and Philosophy from the University of Puget Sound in Tacoma, Washington.

“Alex will play an important role in driving our research agenda, thought leadership and thematic fund development. His extensive experience in sustainable investment and climate risk management will bring new insights to support our investment teams in generating long term sustainable returns for our clients”, has commented Jane Ambachtsheer, Global Head of Sustainability.

UBS Hires a Former Wells Fargo Team with 1.8 Billion Dollars in AUM

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Foto cedidaFoto: Businesswire. Foto cedida

UBS Private Wealth Management announced this week that three experts formerly in Wells Fargo have joined the firm in its South Florida market. The team manages over 1.8 billion dollars in assets.

Based in Miami, it is led by Financial Advisors Doris Neyra and Melissa Van Putten-Henderson, and also includes Relationship Manager Gina Jamurath. They will report to Karl Ruppert, South Florida Complex Director at UBS Private Wealth Management.

“It’s important that our advisors reflect the clients and communities they serve and we’re delighted that Doris, Melissa and Gina are very active in the local community. We know the team will bring to bear the full breadth of UBS’s global offering to clients, understanding their complex needs and helping them to achieve their goals”, said Ruppert.

Neyra has been working with ultra-high-net-worth clients for more than two decades. She holds the Certified Financial Planner® designation and has Series 7, 66, Variable Annuities and Life & Health licenses. Before joining UBS, she was a Managing Director and Wealth Advisor at Wells Fargo Private Bank in Miami for 15 years. Prior to that she worked at Northern Trust and Merrill Lynch.

Van Putten-Henderson has worked in the financial services industry for over 20 years. Before joining UBS, she was a Managing Director and Senior Investment Strategist at Wells Fargo Private Bank in Miami, where she specialized in creating tax efficient custom portfolios to meet clients’ needs and objectives. Prior to that she worked at U.S. Trust as a Senior Portfolio Manager. She holds the Chartered Financial Analyst® and Chartered Alternative Analyst (CAIA ®) designations.

They will both be supported by Jamurath, who was formerly a Wealth Advisor Associate at Wells Fargo Private Bank in Miami.

Technological Advances Will Determine Success of China’s New Five-Year Plan

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China has outlined in its latest five-year plan the three key pillars supporting its drive towards being a world power. These include technological advancement and boosts to both private investment and domestic consumption. But what will this mean for investors? NN Investment Partners answers in its latest analysis.

China’s technological advance will be crucial for growth but while investments in education and R&D have been impressive, the asset manager sees the main risk lying in its relations with other countries, from which it still needs to import knowledge, capital goods and high-end components. The extent to which China’s business climate will be able to generate the required level of private-sector investments is also questionable given the central government’s reluctance to give up enough control for competition in the corporate sector to drive innovation to a higher level.

NN IP believes that of China’s three ambitions, the one most certain of success is likely to be consumption growth. The improvements China has made in social security and public services since the 1990s have laid much of the groundwork for households to save less and spend more, while a more active income policy and the gradual easing of restrictions for internal migration should help expand the middle-income group and drive urbanization.

In the asset manager’s view, investors could benefit from focusing on consumption and services-driven stocks in the “new economy” sectors of consumer staples, consumer discretionary, media and entertainment, and healthcare. Additionally, investors should focus on IT companies, especially those that build digital and telecom infrastructure and those active in the broad shift from offline to online. Sectors to avoid are likely to be energy, materials and industrial stocks.

Many of the new economy companies are listed on the A-Shares market, which is becoming more accessible. In this sense, NN IP highlights that China is opening its equity and bond markets to foreign investors to reduce dependence on domestic bank funding and make capital allocation more efficient, while boosting international use of the renminbi.

“The Chinese leadership’s ambition to double its economy in the coming 15 years should be taken seriously. Experience shows that China tends to meet its growth targets. But whereas China’s rapid development in the past decades was mainly driven by exports, public investments in infrastructure and a sharp increase in leverage, growth in the coming period will have to come primarily from innovation and the private sector“, Maarten-Jan Bakkum, Senior Emerging Markets Strategist, says.

In his opinion, this strategy makes sense, given China’s high debt levels, the more challenging global environment and the less favourable demographics picture. “But if the private sector becomes the decisive force and capital allocation becomes increasingly market-driven, the authorities will not be as firmly in the driving seat as before. This should make China’s future growth trajectory less predictable and more volatile”, he adds.

All in all, NN IP thinks that investors who approach China from a strategic angle would do well to consider allocating explicitly to A-shares. The China weight in EM has risen sharply in the past years to 39% currently, and its dominance has become so large that more investors are likely to start allocating to China and EM ex-China separately.

China is likely to continue growing relative to the rest of the emerging markets. As this is likely to be driven primarily by the higher growth and better accessibility of the A-share market, the asset manager recommends to position for this with a strategic overweight in A-shares alongside a neutral allocation to Chinese equities overall.

Bitcoin, What Can We Expect Now?

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About a century later, almost the same scenes: the boy who washes cars on my street told me he wants to buy cryptocurrencies. He asked me to explain advantages or disadvantages among Bitcoin, Ethereum, Litecoin… He knew the names. He didn’t ask for investment advice, just to know the differences, if any. Similarly, three housewives chatted in a supermarket aisle about how much crypto prices could go up. Not to mention the daily advertising on social networks or the Internet that suggests huge profits with minimal investments.

When taxi drivers and shoeshine boys tell you what to buy…

In 1929, Joe Kennedy, the patriarch of the famous family saga, decided to sell, alarmed because the beggar to whom he gave coins spoke about stocks, and so the shoeshine boy and the taxi driver. Kennedy did it on time. The historic crash came and then the great depression.

What is it extrapolated to? Some voices are already warning of the risks of the Bitcoin boom: “enthusiasm −the ebullience, even− may be the biggest current risk of cryptocurrencies“, declared CoinShares’s chief analyst. While strategists have also warned of the unsustainable rally, others serious commentators, even analysts, are still calling to buy.

What is supporting the price increase? The frenzy, the euphoria, the cryptocurrency mania, all this skyrocketed the price. Acceptance announcements (from Paypal, Visa and others), investment banks’ decisions to open channels to meet demand, as well as massive purchases of Bitcoin by corporations such as Tesla, or the inclusion of Ethereum in CME, have contributed to impressive appreciation.

Between good news, high risks

It is more than a year since the impressive advance of cryptocurrencies began. Bitcoin accumulated more than 1,100% and Ethereum almost 1,900%. Is this sustainable? There are factors that favor the continuation of the rise but others that represent high risk.

  1. Factors favoring the rise:
  • Without the spectacular of January or February, the good news continues to flow. The greater news, new price records.
  • The approval of Purpose Bitcoin ETF, “BTCC”, in February by Canadian authorities intensified pressure on Securities and Exchange Commission to relax the rules. SEC had rejected two ETF attempts. The study period to decide on Grayscale’s application is in progress; if approved it, another bullish boost would come.
  • This acceptance would imply taking a step forward. It would open possibility and put additional pressure on the use of Bitcoin (and others) in more kind of activities.
  1. Some unavoidable risks:
  • The other cryptocurrencies benefit from the news or transactional advances of Bitcoin. A problem or bad news about one would have a ripple effect on others.
  • Cryptocurrency open interest in CME amounted to around $ 3,13 billion, as of April 1. 94,5% was Bitcoin futures and 5.5%, Ethereum. The number of contracts is altered according to price: higher price, higher open interest. The volume climbed at the beginning of the year, when the price reached $ 40,000; it went down with first take profit, increased when the price rose to $ 55,000 and has fallen consistently even though the price extended the increase to $ 60,000. So, futures market is indicating exhaustion.
  • According to CME Group, 75% of the mining (Bitcoin production) is in China while 59% of world trading is in US dollars. We already know the differences and misgivings of the US government with respect to that of China.
  • Cryptocurrencies are not money, assets, or securities but high speculation products. No country accepts them formally. A word in the negative sense by US government could cause the crash. The authorities have been reluctant to give hints about what they will do and do not seem in a hurry to decide. Even if they will do something.
  • Presumably, SEC would reject Grayscale’s attempt. If they do not approve it, disappointment would follow and probably a big loss. The chairman of the FED highlighted several discouraging points about cryptocurrencies. Secretary Yellen had expressed some negative comments before, somewhat less forceful. But not the final words. The pressures are derived from the frenzy caused by the tremendous boost in prices, basically. If prices fell like in 2018, pressures on authorities would diminish.
  • From a year to date, price growth has not responded to technical criteria, except for a few times. If it were for technical analysis, it would be said that now the tumble is more feasible.

Technicals do not explain ebullience

There are no indicators, patterns or signals that are worth it. Therefore, Bitcoin pullbacks since March 2020 have not been enough to break the RSI midline (see the slanted arrows). It only did so in September, at the beginning of the accumulation period from which it skyrocketed. Each of those contacts with the midline occurred when it stumbled to the 20-day moving average, after being overbought (see the green crests above RSI upper line). It has also not dropped below the 50-day moving average. Not even in January, when the biggest adjustment took place (see three vertical arrows). But now we see worrisome new symptoms of fall. May be bigger than the previous ones which would mean that it finally crossed that middle line and was in the oversold zone: 1st and 2nd tentative supports are US$ 50,000 and $40,000, respectively.

1

The indicators warn us of a new downfall formation:

  • See MACD: after the third smaller hill the formation of a fourth peak appears to have failed. None of the three hills was completed at its base, none fell to the median dividing line. While the price recovered to new highs, each hill was lower, so this fourth can reach the midline and move to the lower zone. This would occur at the time the RSI breaks through its own midline and the price falls finally below the 50-day moving average. RSI gradually rises less and falls more and, after 3 occasions of profuse overbought, it indicates fatigue.
  • Volume has decreased and has stabilized; it has not had in March those big jumps observed between November and February during the amazing ascent phase (see volume area). In fact, in the absence of spectacular news, volume jumps have been gradually lower since the last week of February.
  • The influence of market risk. Like a year ago, when Wall Street began to recover, then climbed, favoring the crypto mania, so now, if the market falls, Bitcoin would also fall.

But nothing about Bitcoin is normal. Formations and technical indicators have suggested a drop at other times. The more corporations accept it or create mechanisms to facilitate its use (transfers, bitcoin rewards, investment funds, etc.), the greater the possibility that the rally will persist. Although the innovations do not benefit the economy, not even a large number of users. Acceptance decisions favor cryptocurrency holders… until the big players decide to take profits or governments put things straight. Could it hold the levels, like the times before? Yes, of course. With more spectacular news −acceptance, business, or investments− from large firms. Not just big hike forecasts.

From secret code to popular investment, enthusiasm prevails and rises. The coffee ladies bought on the top, up $ 55,000. That was the price range when the carwash boy could have bought it. I saw him go by happily. He raised his thumb as if to say, “I did it”. Who was his counterpart, broker or intermediary? That is the other problem.

Column by Arturo Rueda

Kandor Global Partners with Summit Financial Holdings and Merchant Investment Management

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Captura de Pantalla 2021-04-15 a la(s) 10
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Kandor Global, an independent registered investment advisor (RIA) serving ultra-high-net-worth clients worldwide, has partnered with Summit Financial Holdings and Merchant Investment Management, through the newly created Summit Growth Partners (SGP).

SGP is an innovative custom capital solution launched by Summit Financial Holdings and Merchant Investment Management in January which combines upfront cash monetization with equity participation as well as exclusive partnership privileges. Based in Miami, SGP has taken a minority, non-controlling stake in Kandor Global, which now represents its 13th investment, and its first investment targeted toward serving international clients.

Meanwhile, with 450 million dollars in assets under management, Kandor Global was seeking an established strategic partner to propel growth initiatives, provide access to premier advisor and client resources, and expand in-house expertise and strategic capital.

“Our mission in establishing Kandor Global is to be a key wealth and investment management resource for the Latin American community at home and here in the U.S. We are seeing more and more highly successful Latin American entrepreneurs and families flock to the U.S. to expand their businesses and their wealth. We have the experience and resources through Summit Growth Partners to serve this specific subset of clients at the highest level and address their unique financial needs”, said his CEO, Guillermo Vernet.

Meanqhile, Stan Gregor, CEO of Summit Financial Holdings, pointed out that, with all the disruption that has taken place in the international wealth management space, they’ve been looking for the right firm to partner with that could deliver a “truly differentiated and customized” suite of services and solutions to advisors who cater to international clients. “We were very impressed with Kandor Global’s leadership team and are excited about our partnership”, he added.

Key Takeaways Behind New Record Highs in the US Stock Market

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Pixabay CC0 Public DomainMáximos históricos en renta variable estadounidense. Bolsa

The U.S. stock market rallied to a record closing high on the last day of March. The investment backdrop featured a disparate number of events, such as vaccination success, rising debt and ten year U.S. Treasury yields, and D.C. unrest, that generated high volatility cross currents for investors.  The surprisingly strong March employment report bodes well for U.S. economic growth. This underscores the powerful ongoing U.S. fiscal policy and now prospective infrastructure stimulus, in combination with the Fed’s unprecedented easy monetary policy commitment to “maximum employment” and willingness to permit inflation to run “moderately above 2% for some time”.

Regarding surging U.S. debt levels, Mr. Powell made the following statement on March 25 during a National Public Radio interview, “Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future”… “Nonetheless, there will come a time — and that time will be when the economy is back to full employment, and taxes are rolling in, and we’re in a strong economy again — when it will be appropriate to return to the issue of getting back on a sustainable fiscal path.”

Back to basics – Deals. On April 1, in a plus for broadcasters, the U.S. Supreme Court unanimously ruled that the Federal Communication Commission could repeal some local media ownership restrictions. Justice Kavanaugh summed it up: “The FCC reasoned that the historical justifications for those ownership rules no longer apply in today’s media market, and that permitting efficient combinations among radio stations, television stations and newspapers would benefit consumers.”

Looking more broadly, global deal activity in the first quarter totalled $1.3 trillion, an increase of 94% compared to 2020, and the strongest first quarter on record. This was the third consecutive quarter that deal activity exceeded $1 trillion, and the second strongest quarter for deal activity ever (behind only the second quarter of 2007 when deal activity totalled $1.4 trillion.) M&A in the U.S. was particularly strong, totalling $670 billion, tripling activity in Q1 2020. The most active sectors were Technology, Financials and Industrials. We believe the drivers for continued M&A strength remain: historically low interest rates, stimulative governmental policies, as well as more globally competitive corporate strategies adapting to changes in the business landscape hastened by the COVID-19 pandemic.

Finally, the global convertible market saw issuance continue at a torrid pace in March. With over $58 Billion in issuance globally, this quarter was second only to 2Q 2020 in terms of total convertible issuance. While terms were quite aggressive earlier in the quarter, they began to get a bit more investor friendly in March as investors pushed back on the low yields and high premiums that came with aggressive volatility assumptions. With all of the activity in the primary market, there was a bit of weakness across existing issues, and there are many existing convertibles that now have more attractive pricing offering us the opportunity to invest for total return with an asymmetrical risk profile. We anticipate convertible issuance to continue this year as it offers an attractive way for companies to add low cost capital to their balance sheets, particularly as interest rates move higher.

 

 

 

 

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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.