Americans are renouncing their citizenship at the highest levels on record, according to research by Bambridge Accountants New York.
During the first 3 months of 2020, the IRS reported that 2,909 Americans renounced their citizenship, far more than the total of the four quarters for 2019 (when 2,072 Americans renounced), and a 1,104% increase on the prior 3 months to December 2019 where only 261 cases were recorded.
Alistair Bambridge, partner at Bambridge Accountants New York, explains “The surge in U.S. expats renouncing from our experience is that the current pandemic has allowed individuals to get their affairs in order and deal with an issue they may have been putting off for a while.”
“For U.S. citizens living abroad, they are still required to file U.S. tax returns, potentially pay U.S. tax and report all their foreign bank accounts, investments and pensions held outside the U.S. For many Americans this intrusion is too much and they make the serious step of renouncing their citizenship as they do not plan to return to live in the U.S.”
“There has been a silver lining for U.S. expats that they have been able to claim the Economic Impact Payment of $1,200, but for some this is too little, too late.”
Americans must pay a $2,350 government fee to renounce their citizenship, and those based overseas must do so in person at the U.S. Embassy in their country.
However, as Bambridge tells Funds Society, “you do still need to pay an exit tax if your net worth is $2m or more when you renounce.” If you are at the $2m threshold or over, the IRS will calculate a deemed sale of all your assets and will charge you on the capital gains that would be realized.
“Speaking to our clients, a lot of them feel nervous and worried about U.S. taxes and the current situation has added to that anxiety. So I think for many, by renouncing it is a way to reduce that worry and take back some control in their life.” He concludes.
Raphael Thuin, courtesy photo. Tikehau Capital nombra a Raphael Thuin responsable de su división Capital Markets Strategies
Tikehau Capital, an alternative asset management and investment group, appointed Raphael Thuin as Head of its Capital Markets Strategies offering, as of 11 May 2020.
Thomas Friedberger, CEO and Co-Chief Investment Officer of Tikehau Investment Management, said: “We are delighted to welcome Raphael Thuin to our team. His experience and deep understanding of equity and fixed income markets perfectly complement our long-term fundamental management approach. We look forward to him making a significant contribution to further development of our Capital Markets Strategies business”.
Raphael will oversee the management of Tikehau Capital’s bond, equity and flexible investment strategies. This range of funds provides access to long-term conviction-based management of investment grade and high-yield corporate bonds, financial bonds and equities of all capitalisations with investment capacity across Asia, Europe and North America. Assets under management of Tikehau Capital’s Capital Markets Strategies activity amounted to EUR 3.8 billion at 31 December 2019.
A graduate of the HEC School of Management, Raphael Thuin began his career in 2005 as a portfolio manager for Topaz Fund in New York. In 2008, he joined the capital markets business of Société Générale, also in New York. Since 2014, he was Head of Fixed Income Management at TOBAM in Paris.
. Artcles presenta una exposición virtual que reúne a artistas como Banksy, George Condo, Kaws y Jeff Kooms
A R T C E L S makes its highly anticipated Los Angeles launch presenting the world’s first asset-based tokenised contemporary art exhibition with works from Banksy, George Condo, Kaws and Jeff Koons. The 3D images will be available until May 18th at this link.
A R T C E L S is the brainchild of commodities trader, Gijs de Viet and London-based contemporary art gallerist, Elio D’Anna of the House of Fine Art (HOFA), who designed it to open the lucrative world of blue-chip art investments to a wider and younger international market. The pioneering contemporary art exhibition will offer investors equity in the form of digital tokens backed by shares in the artworks as registered assets of a London UK based Limited company.
Citing the Economist, Gijs de Viet explains that “Fine Art has been the single best performing asset class over the last 100 years, so it’s about time this opportunity be opened up to a much wider group of investors.” He adds, “A R T C E L S’ mission, is to provide a new alternative to traditional ways of investing in art whilst building a bold and diverse portfolio of Contemporary Art with a focus on rare editions and works on paper to attract younger, web-savvy investors with an offer on high-end assets and high value shares.
A R T C E L S parcels blue-chip contemporary art into shares worth a minimum of £390 ($500) determined through proven quantitative strategies for art asset acquisitions and made available exclusively to subscribers. Art connoisseurs and enthusiasts will get a chance to view A R T C E L S’ two week “XXI” exhibition, taking place at HOFA Los Angeles’ virtual gallery, where artworks by Banksy, KAWS, Damien Hirst, George Condo, Jeff Koons and other blue-chip artists will be on display. “Prospective investors will have the opportunity to choose between sole acquisitions or investments in wider, diversified art portfolios which offer fractional ownership and reduced risk. Whatever their choice, they can be assured they are investing in carefully sourced art, where their values are projected to appreciate based on expert analysis of market trends.” They conclude.
Pixabay CC0 Public Domain. AXA IM y XP Investimentos se asocian para llevar economía digital y estrategias de automatización al mercado brasileño
In an environment characterized by heightened market volatility and a sharp rise in employees working from home, AXA Investment Managers (“AXA IM”), a leader in active, long-term investing and XP Investments (“XP”), a top-tier financial services platform, announce they are partnering to offer Brazilian-based investors access to innovative, global equity and fixed income strategies via new local products focused on the digital economy, automation and the US high yield markets.
XP recently launched three local feeder funds for qualified individual and institutional investors, which invest directly into three AXA IM strategies: AXA IM US High Yield Bonds, AXA IM Framlington Digital Economy, and AXA IM Framlington Robotech.
The partnership comes during an era of significant market disruption caused by the COVID-19 pandemic and the ensuing accelerated evolution of technology and digitalization. This is characterized by a growing number of global companies with employees working from home, the prevalence of e-commerce and companies that continue to generate revenues from their customers in lockdown via social media, video-streaming and video-gaming. To help meet these challenges, XP and AXA IM are providing investment opportunities that were historically difficult to access for Brazilian-based investors seeking exposure to these types of companies that are typically based outside of Brazil. Launching these strategies in the local market will make them readily available in Brazilians Reais, eliminating concerns about any potential fluctuations with the U.S. dollar.
“The pandemic has had a profound impact on the digital economy, with so many employees working from home. The digital economy, a fast-growing trend last year, has now become a reality and is here to stay. Our partnership with XP comes at the right moment to provide Brazilian investors with greater opportunities to diversify their portfolios abroad and have access to companies whose businesses are not in lockdown but are in fact growing,” said Rafael Tovar, Director, US Offshore Distribution, AXA Investment Managers.
In an effort to provide its clients attractive investment options and diversification, XP is seeking partnerships with the best global asset managers, spanning numerous products and asset classes. As a result, XP chose AXA IM due to its successful and long-term expertise in high yield strategies, in addition to its leadership in investing in several overarching themes where technology and the evolving consumer are reshaping industries and sectors such as automation/robotics and e-commerce.
“There are many attractive opportunities in the international markets and Brazilian investors deserve better access to top-tier global managers as well as strategies that can help them improve the risk/return ratios in their portfolios,” explains Fabiano Cintra, Funds Specialist at XP Investments. “We are very pleased to partner on this client-focused initiative with AXA IM, one of the leading managers in the world with recognized expertise in active investment management.”
The strength of XP as a fast-growing financial powerhouse, combined with the innovative, global investment management capabilities and expertise of AXA IM, provides Brazilian investors global access to some of these dynamic and growing sectors, which are of particular relevance during the current market environment. Technology has facilitated a world in lockdown to continue to operate thanks to connectivity tools for home office and tele-medicine, as well as the capabilities of e-commerce, social media, digital advertising and video streaming to allow people to continue consuming content. The behind-the-scenes technological infrastructure to support these solutions has become critical. This includes the cloud, network broadband capacity, cybersecurity, payment technologies and the physical infrastructure to support the delivery of products and services, such as warehouse automation, semiconductors and robotics. As a result, equity strategies focused on technology disruption will be able to capture these long-term themes.
At the livestreamed Berkshire Hathaway annual shareholders meeting in Omaha on Saturday May 2, Chairman Buffett offered his frank and erudite views on the unprecedented human and economic challenges of the pandemic crisis. In his characteristic plain spoken style he gave these thoughts: “I’m convinced nothing can stop America”… “We haven’t faced this particular problem in the past” …”We’ve faced tougher problems and the American miracle, the American magic, has always prevailed”… “This is quite an experiment”…”We don’t know what happens when you voluntarily shut down a portion of your economy”…”I’m learning about this the same way that you are…There’s an extraordinarily wide range of possibilities on the health and economy sides and nobody really knows.” He also stressed why dry powder (lots of cash) and unused corporate debt capacity are important since the unexpected is to be expected. On the topic of potential M&A with Berkshire’s current record over $130 billion in cash, he said: “We’re willing to do something very big.” Possibly in the $30-50 billion transaction range as mentioned in the financial press. Stay tuned.
U.S. stocks looked through COVID-19 and economic driven gloom during April as unprecedented central bank easing and government fiscal policy stimulus spurred the best monthly gain since January 1987 and the best April return since 1938. Widespread fragile world economic conditions, a continuation of dour earnings, rising bankruptcies, and a potential second wave of virus contagion are likely to provide some sizeable potholes for the financial markets for a while.
We are focusing our stock research efforts on the long term beneficiaries of the digital revolution – speed, pipes, content, direct to consumer, telemedicine, remote health care, AI, automated vehicles, and warehouse logistics dynamics. Financial flexibility and rigorous capital allocation procedures are the long term ingredients for financial success for both companies and investors. This is the core strength of of the Gabelli Private Market Value (PMV) with a Catalyst™ stock selection process and its goal to find stocks selling below intrinsic value.
Column by Gabelli Funds, written by Michael Gabelli
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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
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.
Credicorp Capital Advisors, until this May Ultralat Investment Advisors, is better positioned than ever to serve Latin American clients who want to invest in the United States. According to CEO, Juan Pablo Galán, due to the current situation, “the appetite for this type of global investment solutions from the USA is increasing. We have been experiencing growing interest in recent weeks, given the uncertainty that is lived in the economies of Latin America due to this pandemic.”
Their RIA, which has already made its connection with Credicorp Capital, hired two portfolio managers, Fabiola Peñaloza and Gustavo Sorzano.
“With these appointments we complete strengthening the RIA team, with the aim of promoting and receiving from the different countries the different businesses related to this platform in the United States,” says Galán, adding that “Credicorp Capital is extremely interested in that its US Operation is a robust platform that allows serving all the clients that we currently have in the region, especially Colombia, Peru and Chile, in international investments.”
Peñaloza, who started her new role in early May told Funds Society that she feels “very happy to be back in the Credicorp group, it is going back home with old colleagues… I am very proud to have the opportunity to work again at a leading Latin American company in the financial industry, especially being part of the great team already present in Miami with the acquisition of Ultralat Securities.”
Fabiola Peñaloza, who joined the firm as Portfolio Manager of the Multi-Family Office in the USA, within the Wealth Management unit, has 17 years of experience. She is a graduate of Finance and International Business from Nottingham Trent University (Italy) and has a Master’s Degree in Art History from Jorge T. Lozano University (Colombia). She previously worked at AMCS Group, Credicorp Capital Colombia, Standard Chartered Bank, Credit Agricole, BankBoston and Morgan Stanley.
Gustavo Sorzano, who joins as US Mandates Portfolio Manager, within the Asset Management unit, has 13 years of experience. He is an economist from the Javeriana University (Colombia), a treasury specialist from the IEB (Spain) and is an MBA candidate from the University of Miami (USA). The last 4 years he worked in the Investment Solutions unit of Ultralat Capital Markets (the broker-dealer). He was previously linked to Helm Comisionista de Bolsa, Credicorp Capital Colombia and Helm Bank.
A company ready with contingency plans
According to Juan Pablo Galán, “work at home has not affected the operation of the broker-dealer nor the RIA. We are companies in an industry and region that usually have solid contingency plans that make working at home an everyday thing.”
The manager adds that in these extraordinary times, they have maintained a very fluid communication with clients, “we have organized online events for clients, with external speakers to discuss topics of various kinds. We use traditional electronic channels and clients are even having more time to review their investments. That has made it easier for them to make investment decisions with a cool head and proper analysis.” He points out.
Advances with the merger process
Although, after Credicorp Capital made the purchase of Ultraserfinco in Colombia (which included Ultralat in Miami), the RIA did not require a merger, and as of May, Ultralat Investment Advisors changed its name to Credicorp Capital Advisors, Galan comments that ” the preparation of the merger of the two broker-dealers in Miami (Credicorp Capital Securities and Ultralat Capital Markets) has not been affected by this period of social distancing either.”
“Proceedings with the regulator continue as planned within what was established a few months ago, only remotely. The merger of the broker-dealers will still take a few months to be carried out. We are preparing everything the regulator requires for its review.” concludes Galán.
Kirstie Spence, courtesy photo. Kirstie Spence (Capital Group): “Se ha creado una tormenta perfecta en los mercados de deuda emergentes”
Emerging countries are also facing a health crisis due to COVID-19 with serious financial and economic consequences. In this context, debt in US dollars has fallen 13% and debt in local currency of emerging markets has decreased by 15% in terms of US dollars, so far this year. Kirstie Spence, portfolio manager at Capital Group, analyzes the emerging debt market in this interview.
How has emerging market debt fared in these volatile markets?
Emerging market (EM) countries are facing a health crisis, with severe global financial and economic implications. I’ve been through many crises in my career and this one is truly extraordinary. US dollar debt is down year-to-date as EM local currency debt is in US dollar terms, most the falls reflects weakness in EM exchange rates versus the US dollar.
Within US dollar debt, it is generally the higher yielding portion that has disproportionately weakened, while declines in EM investment grade bonds are much more in line with movements in US corporate investment grade bonds. Results have also been mixed in local currency debt, but actually some of the frontier markets have been more stable, which is probably due to a lack of liquidity and being under-owned. Meanwhile, many core markets – for example, South Africa – have underperformed. That might be due to large foreign ownership of the bonds, but also because of specific issues related to those markets.
How has liquidity been in EM debt markets?
Several factors have combined to create a perfect storm in EM debt markets. The virus spread created fear and resulted in a correlated sell-off, which was then followed by an oil-price shock which always tends to impact EM as a commodity related asset class.. At the same time, passive exchange-traded funds (ETFs) were being unwound in very large amounts; there was demand for US Treasuries and dollars that couldn’t be met, all while banks and intermediaries were impacted by the practicalities of working from home, including that of the role of intermediation, which was impeded by regulations against risk-taking activities outside of an authorised environment.
We have seen extraordinary measures taken by various central banks, which have helped ease the situation. Mortgage and Treasury markets are functioning better, and US investment grade credit issuance in March was the highest on record as companies seek to lock in liquidity. Because of the domestic buyer base and support from central and local banks, trading liquidity in EM local markets has also improved. Liquidity is choppy, but there is very little actually trading outside of local markets, although it feels like it is normalising. This week, more EM countries have moved into lockdown (South Africa, India, Argentina and some parts of Mexico), which has also created liquidity challenges, although we are starting to see these ease. Capital Group has been able to trade in this difficult time, thanks to our traders’ good relationships and persistence. However very few of the prices we see on the screens, especially the lower ones, we are able to execute at.
How important is China in the recovery of emerging markets?
China’s role in a global economic recovery is key, especially for EM. China’s recovery will likely be slow, because supply chains are blocked and the US and Europe are effectively shut down. However, we saw PMI numbers this week, which were more positive than expected, demonstrating some early recovery.
China has a lot of firepower in terms of additional policy stimulus, and strong political will to use it; the country needs economic growth for political stability.
China could also get involved in lending to countries; this would be more of a mediator role, if certain EM countries face refinancing difficulties further down the line.
What is your outlook for the asset class?
Clearly the global economic backdrop for EM, in fact for the whole world, is dramatically different to what it was even a month or two ago. Our base case going into 2020 was one of relatively benign interest rates and global growth, which would have been supportive for EM debt. We now expect a large contraction in global growth in the second and potentially third quarters of the year. I don’t expect a V shaped recovery because of the nature of the pandemic and the length of the economic shutdown. The oil price has fallen dramatically, as have other commodities, which is broadly negative for EM.
A worst-case scenario could be one where very large EM stimulus measures, such as those seen in DMs, cannot be refinanced due to a prolonged recession and we face a debt restructuring, say, 12 months down the road.
However, the probability of that is very low because we have also had a huge and unprecedented level of stimulus both through monetary policy to support financial markets and fiscal policy to support the broader economies. That has come both from individual EM countries at the domestic level as well as internationally.
As long as the authorities stay ahead of the curve in terms of liquidity provision and a fiscal response to try and support growth, then I think that would be a relatively supportive backdrop for EM debt. I also think investors will continue to look for higher yielding assets with traditional portfolios of investment grade assets offering low yields, which will support EM debt issuance. It is very difficult to time the bottom of the market, but we are incrementally repositioning portfolios, rotating positions without making big portfolio shifts, expecting these to bear fruit over a time horizon of 12-18 months.
Pixabay CC0 Public Domain. Países Bajos, Suecia y el Reino Unido, los mercados más favorables para los inversores en términos de regulación e impuestos
The main conclusion of Morningstar’s Global Study of Regulation and Taxation in the Fund Industry, is clear: Regulation is adequate, but not always proactive. The Netherlands, Sweden, and the United Kingdom earned Top grades, while Australia, Canada, China, Japan, New Zealand, and the United States received Below Average grades.
The second chapter of Mornigstar’s biannual Global Investor Experience (GIE) report, now in its sixth edition, assesses the experiences of mutual fund investors in 26 markets across North America, Europe, Asia, and Africa. The “Regulation and Taxation” chapter evaluates the regulatory and tax frameworks that mutual fund investors face, assigning grades of Top, Above Average, Average, Below Average, and Bottom to each market.
Morningstar gave Top grades to the Netherlands, Sweden, and the U.K., denoting these as the most investor-friendly markets in terms of regulation and taxation. Conversely, Morningstar assigned Below Average grades to Australia, Canada, China, Japan, New Zealand, and the U.S., as fund markets where the regulatory and tax schemes need to improve. Morningstar did not assign a Bottom grade to any market, as every market in the study provides basic protections for investors.
“When it comes to regulation and taxation in the fund industry, we are looking for policy that ultimately empowers investor success, like tax incentives that encourage individual investment and effective regulation of funds that promotes transparency and limits misleading statements and conflicts of interest,” said Aron Szapiro, head of policy research at Morningstar and a co-author of the study. “We found that regulators in the U.S. and Canada are generally running efficient systems. However, the pace of reform there hasn’t kept up with the rest of the world, explaining why the U.S. and Canada continued to receive a Below Average grade for regulation and taxation in our study.”
“Since our last report in 2017, the trend towards strong regulation that protects mutual fund investors has remained intact. We’re seeing more markets take steps to motivate citizens of all backgrounds to invest for their futures through special tax incentives or regulations that encourage lower fees, like mandatory disclosures,” said Andy Pettit, Morningstar’s director of policy research, EMEA, and co-author of the study.
Highlights include:
The Netherlands, Sweden, and the U.K. earned top grades in part because they provide strong incentives for ordinary people to invest, although none of the countries offer the overall best tax systems for ordinary investors. The U.K. continued the expansion of its auto-enrollment program and together with the Netherlands stood out for banning embedded commissions on most sales, and Sweden stood out for having strong governance and being a frontrunner in ESG disclosures.
Every European country covered by the MiFID II regulations earned at least an average grade as the regulation spurred needed reforms in areas like soft dollar commissions and increased transparency.
Australia, Canada, New Zealand, and the United States lagged other markets, as they have in previous studies. These countries have adequate regulation around mutual fund operations and distribution, meeting basic standards, and the experience for investors can be quite good. Despite that, they fall short of the standard set by other markets that govern conflicts of interest and incentivize investing. In addition, Australia, Canada, and the U.S. all lag on tax policy compared with other markets in the study, creating distortions and disincentives to invest.
Japan fell to Below Average despite making some positive strides. Japan fell to Below Average from Average mainly due to Morningstar’s revised methodology putting more emphasis on mutual fund operations and distribution policies, an area where other markets have taken major steps to shore up their regulations in recent years. Japan doesn’t mandate disclosure of third-party research costs or distribution costs paid out of fund assets, and there is no requirement to disclose advisors’ or distributors’ conflicts of interests.
China falls short in encouraging people to save for retirement and opening fund markets to promote greater choice. China only has a state-managed pension scheme and no other mandated supplementary defined contribution system. Additionally, the regulation of third-party research cost disclosure and soft dollars is weak. Although China has made efforts to further open up its capital market, fund choices are mostly limited to locally domiciled funds.
ETFs’ continued growth has given investors more choice in most markets, though distributors still have more incentive to offer open-end funds in some markets. In addition, the tax treatment of ETFs can vary. For example, in the U.S., the choice is distorted by differing tax treatments that are advantageous to ETFs, while, in New Zealand, ETFs are tax-disadvantageous for lower earners.
While funds in many markets continue to levy distribution fees through a fund’s expense ratio, there have been some positive steps to reduce this practice. For instance, commissions have been banned in Australia, the Netherlands, and the U.K. In Hong Kong, intermediaries that receive monetary or nonmonetary benefits from fund issuers can no longer refer to themselves as independent.
Of the 26 markets, only Singapore and Hong Kong do not tax fund investors at all. Many markets exempt fund investors from capital gains while they hold a fund but tax at least some of the fund’s income. The U.S. and Australia are notable exceptions where taxes are due on capital gains incurred by the fund, regardless of whether an investor has sold the fund or not.
Christian McCormick, Senior Product Specialist de Allianz China A-Shares Strategy. Christian McCormick: “Las acciones A de China ofrecen a la cartera de los inversiones diversificación y alfa”
According to Christian McCormick, Senior Product Specialist on the Allianz China A-Shares Strategy, so far this year, China's onshore equity markets are outperforming the China’s offshore equity markets, some developed markets and most emerging markets. In this interview, McCormick answers the key questions about what to expect from the China A-Shares market.
Q. In your point of view, are Chinese regulators in a better position to respond to the challenges of the current environment compared to other developed economies?
A. China’s current fiscal and monetary response has been significantly smaller in scope (about 3% of its GDP) than its response to the 2008 financial crisis (about 13% of its GDP) and the US’ current response (about 25% of its 2019 GDP). China’s economy remains in a better position today than it was during the financial crisis, with greater economic prospects, access to capital markets and a lower budget deficit forecast than developed nations. Chinese policymakers have also shown more restraint in responding to the pandemic. We estimate China would need stimulus of about 4.5% of its GDP to offset the economic damage from the pandemic, leaving potential stimulus on the table should the global economic fallout prove to be more dramatic than anticipated, or should the country have to mitigate a second wave of local infections.
Q. What has burdened the performance of Chinese equities compared to other regions such as the United States or other emerging countries?
A. We believe this disconnect has been driven by the historically ever-changing structure and youth of the domestic equity market. In addition, locally listed A-shares have a smaller foreign investor base than other equity markets and are underrepresented in global indices. Foreign institutional investors were first permitted to own onshore Chinese stocks in 2001, but access to local Chinese equities has expanded more recently.
Q. What relevant steps have been taken recently for foreign investors to have access to the China A-Shares?
A. In 2018, MSCI added China A-shares to its Emerging Market Index and will gradually increase its weighting to eventually represent its true global market cap weighting of approximately 8%. We think this increased representation will help drive higher investor demand globally for China A-shares, potentially narrowing the disconnect between A-share market performance and the country’s economic growth potential.
Q. From a beta perspective, what can favour the growth of China A-Shares?
A. Secular growth areas like consumer discretionary, technology and health care are far better represented in the China A-share market than in offshore Chinese listings, creating an attractive opportunity set for investors. Additionally, there is a high degree of private sector participation in these secular growth areas rather than state-owned enterprises. In this way, two relevant aspects are: government continues to work to Internal transform its economy from an emerging to a developed one and also it works to make public companies more competitive with respect to their foreign counterparts.
Q. What role can China A-stocks play in an investor's portfolio?
A. We believe China A-shares offer substantial potential to generate alpha while also providing attractive diversification. The onshore China A-share market is dominated by small- and mid-cap companies (85% of the market), whereas the offshore H-share market is dominated by large-cap companies (53% of the market). In our view, this broader opportunity set of small- and mid-size companies creates a greater potential for outperformance than offshore H-shares. From both a price/earnings and price/book perspective, China A-shares are currently trading well below their historical 10-year averages, and they trade at attractive valuations relative to developed markets and other emerging markets.
Q. How does ESG analysis factor into evaluating China A-share opportunities?
A. We find ESG analysis extremely valuable when assessing company opportunities in the China A-share market. In addition to analyzing a host of environmental and social factors, we emphasize governance factors as the market as a whole is still ramping up to the level of sophistication of other developed markets. We seek to understand corporate board and management structures, executive incentives, the relationship a company has with its local and central governments and the alignment of interests between management and its various stakeholders, including its workforce and shareholders
Bolton Global Capital announced that Otavio Sardinha has joined the firm. He was formerly a financial advisor with XP Securities in Miami where he managed a book of $107 million for high net worth clients based in Brazil. Sardinha, who has 18 years of experience in the securities industry, will be working at Bolton’s office on Brickell Avenue in Miami.
He began his career in 2002 as Equity Sales Trader with BarraInvest in Rio de Janeiro. In 2007, he joined Banif Securities where he was head the firm’s International Institutional Desk. Banif then transferred him to Miami in 2012 where he held the position of Head of Institutional Sales and Trading .
In 2013, he joined a team with Banco do Brazil Securities in Miami with $1.2 billion in assets where he was responsible for managing client relationships and growing the business. Prior to joining Bolton, he worked for XP Securities for four years as a banker and financial advisor. Mr. Sardinha a graduate of Universidade Candido Mendes, Rio de Janeiro, with a major in economics.
Bolton Global Capital is a boutique firm focused on managing the wealth of high net worth individuals on a global basis. The firm specializes in converting top tier financial advisors from the major financial institutions to the independent business model by providing turnkey office space and a full suite of international wealth management capabilities. By transitioning to independence, financial advisors achieve higher compensation, greater ownership of their business and customized solutions to support their growth.
