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Despite the Uncertainty About U.S. Trade Policy, Equity Markets Continue to Rally

U.S. equities closed August with a solid gain and set a record high even as the ongoing multi-front trade war’s ripple effects spread to include more products and industries in the EU, China, Canada and Mexico. NAFTA talks are active. Investors were encouraged by strong economic and booming corporate profit data fuelled by the new lower tax rate. Second quarter after tax earnings grew at the highest rate in six years and GDP grew at a 4.2 percent annualized rate. The bull market that started on March 9, 2009 is now the longest post World War II bull move on record since there has been no 20 percent or more decline. August ended with many questions about U.S. trade policy still unanswered. If left unresolved this may weigh on stocks as specific profit dynamics erode.

The economic implications of the historically flat U.S. Treasury yield curve have become a focus of debate. The Fed is undeterred and continues to raise rates which is keeping the dollar up, emerging markets down, and inflation in focus. In the UK and Europe, Brexit and the Italian budget deficit are two way catalysts.

Agricultural products have been center stage as soybean exports and imports with China have gotten worldwide attention. The U.S. dollar has gained year to date against the major emerging market currencies while U.S. stocks have remained in the global performance sweet spot versus lagging non-US markets.

In the U.S. blue vs red political arena, mid-term elections will be held on Tues Nov 6, 2018. The pundits expect a split Congress, with Democratic control in the House and a Republican controlled Senate. President Trump is the wildcard catalyst so the outcome may be the unexpected as was the case in November 2016 when financial market volatility spiked, will history repeat itself?

In the ongoing deal arena, British TV group Sky PLC is the target of an intense bidding war among Comcast, Disney and 21st Century Fox and the U.K. Takeover Panel is the referee of this complex heavy weight match. More background around two deals in the telecom and media space:

Sky plc (SKY LN-London), the European telecommunications provider and broadcaster, continued to be the subject of a bidding war between Disney (through its pending acquisition of Twenty-First Century Fox) and Comcast. On July 11, Disney boosted its bid for Sky to £14.00 cash per share, and hours later Comcast increased its bid to £14.75 cash per share, which values Sky at £33 billion. Shareholders approved Disney’s acquisition of Fox at a meeting of shareholders on July 27 after fending off an unsolicited bid from Comcast. The approval means that Disney will also acquire Fox’s 39% ownership of Sky which puts it in an advantageous position to increase its bid.
Tribune Media Company (TRCO-NYSE) suffered a setback after the FCC designated its proposed acquisition by Sinclair Broadcasting to an administrative law judge (ALJ.) Despite signs that the DOJ was close to approving the transaction on antitrust grounds, the FCC said it objected to the proposed buyers of the stations the company had agreed to divest. It appeared unlikely the FCC would approve the deal, and it was subsequently terminated on August 9. We remain constructive on shares of Tribune. The company has valuable assets including real estate, and a 35% stake in Food Network and recently received a favorable court ruling on the UHF discount. We believe there are a number of opportunities to surface value. With broadcaster Nexstar and private equity firms circling the company, Tribune is widely expected to put itself up for sale again in September. Tribune shares are trading near $37 in August.

Stay tuned…

Column by Gabelli Funds, written by Michael Gabelli

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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.

Rising Rates Series: Ride the Current with Floating Rate Notes

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We have come a long way from the “zero interest rate policy” implemented by the U.S. Federal Reserve in the aftermath of the financial crisis. Today, the Fed Funds target rate, the rate it pays banks on excess reserves, is in the range of 1.75–2.00%. The Fed is widely expected to raise rates at least one more time this year following a 0.25% hike on June 13; that would put the target in the range of 2.00%-2.25%, a level not seen since 2008. (Source: FRED/St. Louis Federal Reserve.)

One of the ways that investors can help navigate a rising rate environment is through exposure to bonds with coupons that adjust, or float, with short-term interest rates. These adjustments mean investors are not exposed to potential price losses, and can also benefit from income increases as rates rise over time.

Understanding floating rate notes

While there are several types of debt instruments with variable interest rates, such as bank loans or variable rate demand notes (VRDNs), floating rate notes (FRNs) are growing more popular with investors. These investment-grade bonds, issued primarily by corporations, have coupons that periodically reset using a short-term interest rate and typically have maturity dates ranging from 18 months to five years. Most floating rate notes pay coupons quarterly, but a few pay monthly.

How are coupons reset?

FRN coupons are adjusted on periodic reset dates, typically three months after the bond was issued. The coupons are calculated based on the following formula:
Coupon = Reference Index Rate + Fixed Spread
The reference index is a short-term interest rate, typically the 1-month or 3-month London Interbank Offer Rate (LIBOR). LIBOR is the rate an international bank would charge another bank for a short-term loan, so it tends to be higher than the Fed Funds target rate.

The fixed spread is determined at the time of issuance, and is based on the market’s perception of the issuer’s credit risk. The fixed spread does not change over the life of the bond. Here’s an illustration of how resets might work.

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Floating rate notes versus bank loans

Investors might be familiar with bank loans or leveraged loans, which are high-yield loans that also have coupons that reset with 3-month LIBOR. The popularity of these instruments has grown over the past decade, as investors sought higher yields when rates were exceedingly low. While FRNs and bank loans both offer floating interest rates, they have key differences in terms of credit quality and liquidity.

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For illustrative purposes only. This illustration does not represent the actual performance of any iShares Fund.

Floating rate notes in a portfolio

Investors can use FRNs to help manage risk and return in a rising rate environment, by making adjustments to their portfolios:

Put cash to work – Investors who use cash equivalents in an effort to protect portfolios from rising rates run the risk that their income might not keep pace with inflation. Floating rate notes may offer more income to help maintain purchasing power, although it’s important to note they don’t have protection of principal as a bank deposit or money market fund would.
Reduce portfolio duration – The duration, or interest rate sensitivity, of floating rate notes tends to be very short, as the bond’s coupon regularly resets. The Bloomberg Barclays Floating Rate Note <5 Years Index had a duration of 0.15 years as of May 31, 2018, meaning it carries very little exposure to interest rate risk. By comparison, core bond indexes like the Bloomberg Barclays U.S. Aggregate Index had a duration of 5.95 years. (Durations are from Bloomberg.)
Gain exposure to short-duration credit – FRNs offer access to corporate debt, which may generate more income than a similar maturity U.S. government bond. However, U.S. government bonds are generally considered to have less credit risk.

Exchange traded funds, such as iShares Floating Rate Bond ETF (FLOT), are a convenient, low-cost way to add diversified exposure to a bond portfolio, while managing interest rate risk in a rising rate environment.

Build on Insight, by BlackRock, written by Karen Schenone, CFA Fixed Income Product Strategist

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.blackrock.com/latamiberia. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.
Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest rates. The Fund’s income may decline when interest rates fall because most of the debt instruments held by the Fund will have floating or variable rates.
When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds. Buying and selling shares of iShares Funds will result in brokerage commissions.
Diversification and asset allocation may not protect against market risk or loss of principal.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
An investment in fixed income funds is not equivalent to and involves risks not associated with an investment in cash. The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Barclays or Bloomberg Finance L.P., nor do these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of June 2018 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds may not been registered with the securities regulators of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.
©2018 BlackRock. iSHARES and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners.
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The Real Estate Investors Summit 2018 is Coming to Texas

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Marcus Evans is proud to announce the Real Estate Investors Summit 2018 will be taking place this year from the 28th to the 30th of October at the Four Seasons Resort & Club Dallas at Las Colinas, Irving, TX.

The Real Estate Investors Summit is the premium forum bringing elite buyers and sellers together. As an invitation-only event, taking place behind closed doors, the Summit offers senior investment executives and service providers an intimate environment for a focused discussion of key new drivers shaping asset allocations.

Confirmed speakers include:

CEO, MSF Capital Advisors
CEO, U.S.Capital Corporation
US Director/Family Office Executive, Modi Global
Managing Partner, Global Head of Real Estate and Alternative Investments, Green Mesa Capital, LLC
Vice President, Family Office Capital, Hayman Properties

To better understand the summit, please visit its site or contact Deborah Sacal.

Close to 20,000 Candidates Pass Level III CFA Program Exam

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CFA Institute, the global association of investment management professionals, announced that of 35,518 candidates who sat for the Level III CFA Program exam in June, 56 percent have passed, completing their final CFA Program exam. Successful Level III candidates will become CFA charterholders starting in early October, pending verification of professional experience and other membership requirements. They will join more than 154,000 charterholders around the globe who have earned the CFA designation and lead the investment industry by promoting the highest standards of professionalism to build a better world for investors.

Level I and II candidates received their results on August 14th. Of 79,507 candidates who sat for the Level I exam in June, 43 percent were successful and of 64,216 candidates who took the Level II exam, the pass rate was 45 percent. These candidates will continue on their journey to becoming CFA charterholders.

“Congratulations to all candidates who passed their June exam and those who will soon be awarded the CFA charter,” said Stephen M. Horan, CFA, CIPM, managing director of credentialing at CFA Institute. “Successfully completing all three levels of the CFA Program is an outstanding accomplishment, setting the foundation for a career-long journey of professional learning. As we strive to build a better world for investors, our incoming charterholders are joining a global community of highly motivated individuals committed to putting investors interests ahead of their own, and creating a profession that serves society’s need for a well-functioning investment management industry built on trust.”

The total number of candidates who sat for a CFA Program exam in June grew 18 percent globally year-over-year, with a 25 percent increase in Level I candidates for the same time period. Strong demand for the program continues in emerging and developing economy markets, where candidate numbers have doubled over the past five years. View historical pass rates and a series of infographics about the growth of the CFA Program.

Axel Christensen (BlackRock): “In the Short-Term, the New Mexican Government May Bring Good News in Terms of Increasing Consumption”

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Axel Christensen, Head Investment Strategist for the Latin America and Iberia region at BlackRock, and a member of BlackRock Investment Institute, has recently relocated from Santiago de Chile to Miami. On July 19^th, he participated in the 2018 Mid-Year Outlook presented by the BlackRock Investment Institute at the Mandarin Oriental Hotel in Miami, sharing his views on Latin American markets and the concerns that BlackRock’s clients in the region -pension funds in Mexico, family offices in Brazil or insurance companies in Peru- are conveying.

After being in negative territory or close to zero in 2015 and 2016, last year, the GDP growth forecast for the Latin America region started to pick up. For next year, market analysts are expecting a growth of about 3% a year.

“Probably due to the increase in uncertainty and risks, the final growth rate will be somewhere lower than a 3%. But I would like to say that the glass looks half full when looking at the region. The numbers in aggregate look good. We have seen a recovery in growth. Additionally, inflation, which has been a problem in the past, has been converging nicely into their target zone for most of the central banks in the region. The current account deficit, which is very important in rising rate environment because it tells you how exposed the region is to changes in flows, and the fiscal balance, meaning how much money is the government overspending in comparison to their income, are probably still two of the more challenging issues,” explained Christensen.

“If we look at the region as whole, I would say that the picture is a good reflection of a fairly looking awkward environment. A lot of the economies in the region are very synchronized with the US economy, something that we look forward that should continue. It we look at things at a more specific level, the region starts to become much more interesting, especially from the risk perspective. Perhaps, the risk that most investors are spending time on while looking into Latin America is political risk. There is a good reason for that. If we look at the past twelve to eighteen months, we had a very busy electoral cycle. We had Congressional elections in Argentina in October last year. We also had a General election in Chile. This year we had Presidential elections in Colombia and Mexico, and next October a major election will be held in Brazil. And, guess what? We do not know who is going to win”, he added.

In Latin America, BlackRock uses an index specifically built for the region, that they named the ‘Increase of Latin American populism’.

“We are concerned that changes in government will bring back policies in the economic space that not necessarily fit well with financial markets, being for instance a new President in Mexico that has come in with a very strong mandate to change things. We are concerned that change might mean removing some of the recent reforms that the current government has put in place, like opening the energy sector to private investment. And of course, in Brazil, we are concerned because whoever will lead the government, starting next year, will have to face very tough decisions from the first day in office: to solve a situation of high fiscal deficit on top of a lot of public debt being issued to finance that deficit. There is a lot of concern from investors on who is going to lead these countries and whether they are going to take right decisions that eventually will lead their economies to grow and therefore companies to prosper. The macroeconomic backdrop is pretty good, so is not that we are overly concerned in an overall sense, but we do identify there are specific challenges that may make the difference.”

Latin America is signaling green

The Latin American heatmap, the visual representation of economic indicators using red, yellow and green colors that BlackRock prepares to have a better grasp of what is going on in the region, is overall signaling green. The macro indicators of the two largest economies, Brazil and Mexico are also green, despite their higher exposure to political uncertainty.

Mexico and Brazil

Investors in Mexico are in a “wait and see” mood. They want to see how the new government comes in. A lot has been said during the campaign, and investors want to check to which extend AMLO (Andres Manuel Lopez Obrador) is going to fulfill his electoral promises.

“This uncertainty is going to create interesting opportunities. As investors, we are seeing valuations on fixed income and equities that have not been at this levels for some time. A couple of Mexican companies, that we have visited there, see that in the short-term the new Mexican government may bring good news in terms of increasing consumption. As the new government wants to increase wages, people will have more disposable income to buy more goods and services. There is also an ambitious infrastructure investment agenda. However, they are concerned that the government may get too ambitious in terms of spending too much, and that the longer-term effect on Mexican economy may end up being negative. Not only in terms of fiscal situation deterioration, but also in terms of a delay on investments decisions, that may affect economic growth, and eventually although we may have a couple of very good initial years, the Mexican economy may end up paying higher financial costs because the risks of holding Mexican assets goes up,” he clarified.

The case in Brazil is somewhat similar, BlackRock does see some green lights on the macro side. However, they are concerned with the high level of debt that the government carries and the uncertainty about the election. There are 13 candidates for the first round at the beginning of October, the frontrunner has slightly around 20% of voter support. Brazilian investors are holding to see who wins.

Argentina and Venezuela are signaling red

A couple of countries have, unfortunately, more red lights. Of course, there has been a very difficult economic situation in Venezuela, for some time now, in terms of geopolitical risks and hyperinflation. And then, Argentina, who used to share more green lights with the other countries, is now signaling more reds. As of recently the situation has become a lot more difficult, because the interest rates have come up responding to very high inflation level that has been reflected in the strong devaluation of the Argentinian peso against the dollar.

“The prospects of growth in Argentina are very concerning: To what extent can a country withstand such a high interests rates? It is very difficult for the Argentinian economy not to be affected in terms of growth. We are also concerned about the current account situation and their high level of debt. But if anything, we still think that the government is strongly committed to bring forward the necessary reforms at the Argentinian economy, and it needs to start resolving some of the more worrying aspects.”

Fortunately, most of the other economies in the region are doing quite well. Some of them are signaling green. Definitively Chile, Colombia and Peru are going through a more favorable part of the cycle. “We see growth in the Andean Region. Thanks to the comeback of commodities prices that are very important for the economy of this region -being copper, because of Chile and Peru, being oil, because of Colombia- the situation looks pretty good. At the same time, if we look at markets and their valuations, a lot of that good situation is already in the price,” he concluded.

Terry Simpson (BlackRock): “We See Macro Uncertainty Rising, Both To The Upside and Downside”

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Against a backdrop of rising trade tensions, BlackRock Investment Institute’s 2018 Midyear Investment Outlook remains pro-risk, but it has partially tempered that stance given the uneasy equilibrium that BlackRock perceives between rising macro uncertainty and strong earnings. On July 19th, at the Mandarin Oriental Hotel in Miami, Terry Simpson, Multi-Asset Investment Strategist of BlackRock’s Global Investment Strategy Team, discussed the macroeconomic environment and how investors should position their portfolios with investment professionals from the Latin American and US offshore business.

According to Simpson, a year ago, the global economy was facing a very different scenario: a very favorable environment brightened by synchronous global growth with still relatively high levels of monetary accommodation, in which everything was going well and there was an abnormally low volatility. But, these conditions have shifted, and the BlackRock Investment Institute is debating whether there is a new market regime change.

BlackRock’s base scenario sees strong US growth extending positive spillover effects to the rest of the world, sustaining the global economic expansion. The corporate tax reform has fueled US earnings surprises. However, the range of possibilities for the economic outlook has substantially widened due to US-China trade war tensions and tighter financial conditions via rising US rates and stronger dollar. This greater uncertainty argues for building greater resilience into portfolios.

Fiscal stimulus spurs US growth

With fiscal stimulus, US companies are rewarded for accelerating their expending on capex, something that could lift potential growth. According to the data provided by the Duke-Fuqua CFO Survey, the Deloitte CFO Signals survey and an average of regional Fed surveys, there is a notable pick-up in expected capex relative to two years ago. Over the next 12 months, capital spending is expected to grow about five times as much, as compared to first quarter 2016 projections.

The S&P 500 first-quarter earnings results confirmed US companies were investing at multi-year highs. “One of the struggles of this economic recovery is that it has yielded a subpar amount of capital expenditures or investment. Now, the government is willing to help finance business capex intentions, and firms are eager to invest. This could potentially extend the current business cycle as some supply side stimulus that may be very beneficial for changes on the potential GDP growth of the US economy”, explained Simpson.

“Developed market capex cycles are very beneficial for emerging markets. Specifically, it could be very beneficial for the Asian region, due to their dependency on global trade”, he added.

The range of possibilities for the economic outlook is widening

This year, the most significant development in the macro environment has been a rising dispersion in consensus forecast for US GDP growth. Economists see a wider range of potential outcomes for future economic growth, as the tails (outliers) of the distribution of the expected GDP growth have widened. On the upside, there is a chance for U.S. stimulus-fueled surprises. On the downside, that same stimulus could spark economic overheating. Resulting inflationary pressures could prompt a quicker pace of Fed tightening and bring forward the end of the current business cycle. Any further escalation in the US-China trade war also could have a knock-on effect on business confidence, hitting growth.

“Last year, forecasters were optimistic due to tax reform and fiscal stimulus. Now in 2018, forecasts have been reduced, something which could have a negative effect on sentiment, both business and households” he stated.

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With higher U.S. short rates has come dollar strength

The rising cost of US dollar financing has hurt Emerging Markets (EM), especially those dependent on external funding. “We all know the relationship between the dollar and emerging market assets, there is high sensitivity. The latest episode is proof that when the dollar rises, EM assets are tested. EM local debt and equities have gone down in aggregate. But there have also been idiosyncratic stories in places like Argentina and Turkey. But these are countries that have significant current account deficits. They are going to be challenged whenever the external cost of financing goes up. Regional and country selection is needed and can enhance investing outcomes that have relied on making an aggregate beta call on EM”, said Simpson.

According to the expert, some of this tightening on financial conditions has created new opportunities. Higher US rates have led to a renewed competition for capital and there is less need to search for yield as US dollar-based investors can get above inflation returns in short-term debt -as of midyear, the two-year Treasury was around 2,5%. The result is a higher risk premium all around. This repricing of risk free rates has made selected hard-currency EM debt look attractive again, both relative to EM local debt and to other alternatives, such as developed market credit.

“Emerging market dollar debt has widened out much more meaningfully, whereas local currency has widened out but not as much as the dollar-based debt. The historical yield advantage of local over hard currency EM debt has vanished”.

According to BlackRock, there is a case for favoring hard-currency EM debt over US credit, yet the firm remains neutral across both. The spreads have tightened in the latter asset class, paced by the outperformance of the riskiest portions of the market. Wider spreads in EM debt make valuations more attractive. They also see floating-rate bank loans having an edge over high yield bonds, given their lower duration and that they can benefit from rising income as short rates reset higher.

“We believe the Fed will raise rates four times total this year. The Fed has expressed their concern about trade tensions, but at the same time they are aware that the US economy is operating above potential. The U.S. economy is creating 200,000 jobs per month on average for the last 36 months, that is something very interesting in this given the duration of this economic cycle”.

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More volatility

Global financial conditions are tightening as US rates rise. Monetary policy is shifting, with the Fed pushing on with normalization and the European Central Bank (ECB) set to wind down its asset purchases by year-end. Additionally, US-China trade tensions have added new worries to the market. However, BlackRock still has a very positive risk stand stance, valuations have corrected enough in global equities and with 2018 earnings across the global coming in positively, there is still room to maintain equity exposure with a preference of equities over bonds.

“Most global investors are still positive on equities over bonds, even with all the risks the market is facing this year. According to EPFR funds flows, investors are putting more money in the equity funds than in bond funds. In 2018, we are seeing negative Sharpe ratio on a traditional 60/40 global portfolio, with higher volatility and negative returns. Going forward we are going to maintain risk on in our portfolios, but there is a need to adjust client expectations; it is unlikely we obtain the same returns that we gathered over the last few years of this bull market. Meaning, we now have to think where we want to take the risk in our portfolios”, he said.

Commodities

Oil prices are still at good levels, though they have already decreased a 10% from their recent peaks. Most of the worry was whether the OPEC was going to deliver a tremendous amount of supply back into the market, but BlackRock maintains their base scenario of global oil inventories remaining in a deficit into year-end; from a fundamental supply-demand view they do not think there is enough oil production to add back. In the next six months. If this view proves correct, oil prices should remain supported at these levels.

The metals picture looks a bit different. Copper prices, considered a barometer of global growth along with other industrial metals, have weakened on slowing global growth momentum and global trade tensions that are likely to persist for a while.

Allocation

BlackRock sees factors like momentum in equities outperforming, giving preference to quality exposure. They prefer US equities over other regions, as US stocks have outpaced other global markets on strong earnings growth, but they are also positive on Emerging Markets Equities, particularly on Asian equities including China. They are also neutral on Japan and underweighting Europe.

In fixed income, they are favoring short-term bonds in the US and taking a bias towards quality in credit. They are favoring Emerging market debt denominated in dollar versus local currency and selected private credit and real assets for diversification.

Dick Weil, Named Sole CEO of Janus Henderson Group

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Dick Weil is now the solo Chief Executive Officer (CEO) of Janus Henderson Group. In this role, he is responsible for the strategic direction and overall day-to-day management of the firm. He also leads the firm’s Executive Committee. Prior to this, Weil was Chief Executive Officer of Janus, a position he had held since joining the firm in 2010. Weil spent 15 years with PIMCO. He has 23 years of financial industry experience.

According to the company, while not an easy decision, due to having two highly qualified candidates, the CEO decision was based on a very rigorous process over several months, supported by expert advice from external consultants. “This decision was made with the full support of the Board, and the Board believes Dick is most appropriate to take Janus Henderson to the next level,” they mentioned in their earnings release.

“Now that our integration plans are significantly progressed, our Board has determined that the co-CEO structure has achieved its goals, and now is the appropriate time for Janus Henderson to be led once again by a sole CEO. Dick brings a breadth of skills and experience from prior roles in his career where he successfully led organisations through challenge and change”, said Richard Gillingwater, Chairman of the Janus Henderson Group plc Board.

The Board wishes to thank Andrew Formica for his tremendous leadership over the past 10 years, and especially for the dedication and collaboration he has demonstrated since announcement of our merger. While Andrew will resign his co-CEO role and Board seat effective immediately, he has agreed to continue on as an advisor to assist with final integration efforts through the end of the year”.

Commenting on his appointment as sole CEO, Dick Weil said: “I am honored and excited to have the opportunity to lead Janus Henderson. We have established a strong platform from which Janus Henderson can continue to drive deeper client relationships”.

Andrew Formica added: “It has been a pleasure to work with Dick in the creation and formation of Janus Henderson this past year. I am also proud of what we achieved at Henderson over the 10 years I was CEO. Janus Henderson is an outstanding business with a fantastic and talented workforce. I wish Dick and the team the very best going forward”. In connection with the Board’s decision, the firm will take a severance charge of approximately US$12 million, including the acceleration of long-term incentive compensation, that will be reflected in the third quarter results.

Phil Wagstaff, Global Head of Distribution, has decided that now is the right time to take a career break, given that the integration work is significantly progressed and the distribution team is well in place. Phil will work closely with Dick Weil over the next 6 months to ensure a full and smooth transition. Commenting on Phil Wagstaff’s departure, Richard Gillingwater said: “Phil has been instrumental in the development of our global distribution team, first at Henderson following the acquisition of Gartmore and then with the merger of Janus and Henderson, where he has played a key role in welding the two distribution teams together, creating a world-class distribution organisation. We are grateful for all Phil’s efforts”.

Alejandro Di Bernardo and Joel Ojdana Joined Jupiter

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Jupiter Asset Management has added two new analysts to its Fixed Income Team. Alejandro Di Bernardo and Joel Ojdana have joined Jupiter this Summer as the firm continues to broaden its Fixed Income capabilities.

Katharine Dryer, Head of Investments, Fixed Income and Multi-Asset commented: “Fundamental credit research is very much at the heart of our Fixed Income approach and we are delighted to be able to add two new analysts of such high calibre to the team. The ongoing development of our regional credit expertise is a key step in Jupiter’s initiative to strengthen and broaden the capabilities we offer clients in Fixed Income.”

Alejandro Di Bernardo, who is relocating from New York for the role, joins from Deutsche Asset Management where he worked as a High Yield and Leveraged Loans Analyst since 2012. Prior to that, he worked at Citigroup and Accenture in South America. A CFA charterholder, Alejandro will be joining the team as an Emerging Market Debt analyst focusing on Latin America. Alejandro will primarily support fund manager Alejandro Arevalo on the Jupiter Global Emerging Markets Corporate Bond fund and the Jupiter Global Emerging Markets Short Duration Bond fund (SICAVs).

Since 2015 Joel Ojdana has worked as a credit analyst at Balyasny Asset Management and Seaport, having previously spent seven years in investment banking working for firms including Mizuho Securities and BNP Paribas. A US Citizen based in London, Joel will work alongside Charlie Spelina and the broader Fixed Income team in generating US focused ideas for Jupiter’s unconstrained bond strategy, led by Head of Strategy Ariel Bezalel.

Tariffs, Treasuries, Taxes and Technology, the Four Ts Shaping the Second Half of 2018

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Recent M&A News: As background, Akorn (AKRX-NASDAQ) agreed to be acquired by Fresenius SE & Co (FRE GY-Munich) for $34 cash per share in April 2017, valuing the deal at approximately $5 billion. Akorn competes in the $90 billion U.S. generic drug market as a developer and manufacturer of generic and branded prescription pharmaceuticals with a focus on injectables. On February 26, 2018, Fresenius announced that it was investigating Akorn’s alleged breaches of FDA data integrity requirements related to product development. Later, on April 23, 2018, Fresenius attempted to terminate the acquisition on the basis that Akorn had failed to fulfill several closing conditions, including a material breach of FDA data integrity requirements. Akorn responded by filing suit in Delaware Court seeking Specific Performance to enforce the merger agreement.

Akorn Inc. and Fresenius SE & Co. met in Delaware Court, from July 9-13, capping off a long and tumultuous back-and-forth between the two companies as Fresenius has attempted to terminate its acquisition of Akorn. A decision is expected to be handed down by Delaware Chancery Court Judge Travis Lester in the weeks following August 23rd.

In summary, Fresenius claims that Akorn did not operate in the ordinary course of business during the pendency of the merger, Akorn breached the Representations and Warranties as stated in the DMA, Akorn denied Fresenius access to certain information and Akorn suffered an MAE (Material Adverse Effect). While many believe Fresenius likely did not meet the historically high bar of proving an MAE or breach of reps and warranties, they were able to instill some doubt that Akorn operated in the ordinary course of business in the period after the DMA was signed. On the other hand, it has been said that Fresenius’s actions stemmed from buyer’s remorse given Akorn’s recent struggles due to direct competition to key products, supply disruptions, and pricing pressure.

While we still believe Akorn has slightly better odds than Fresenius in receiving a favorable court ruling, we will continue to monitor the situation due to the large potential downside in Akorn’s stock and the difficulty in handicapping how the judge will assess the ordinary course claim given limited precedent.

The Aftermath of a Major Deal Break:

As background, NXP agreed to be acquired by Qualcomm for $110 cash per share in October 2016. Under pressure from activists, the deal price was raised to $127.50 in February 2018.

It was announced last week that Qualcomm will no longer pursue its offer to acquire NXP Semiconductors as the deadline for the deal passed without receiving antitrust approval from China’s State Administration for Market Regulation (“SAMR”), which was the last regulatory approval needed to complete the transaction. Qualcomm reported earnings and subsequently announced a $30 billion share buyback program in the absence of receiving approval from SAMR. Ultimately, it is our view that the merger became a victim of the U.S.-China trade war.

Most investors owned NXP because like us they saw the deal as both strategically and financially compelling for Qualcomm. It would have diversified Qualcomm’s revenue base and been strongly accretive to EPS. While many did not view antitrust as a risk, we underestimated the impact that Sino-U.S. trade relations ultimately had on the fate of the deal.

With NXP now trading in the low $90s, many arbs and event managers have exited the position. There will be pressure on the stock, as most hedge funds may sell their positions, but there are several positives that may lend support to NXP going forward. Firstly, they will receive a $2 billion termination fee which translates to about $5.80/share. Secondly, management held a conference and their general tone was upbeat. The company also announced a $5 billion buyback, approximately 15% of the shares outstanding. Post buyback, NXP will have leverage below 1x EBITDA, less than it has historically had. NXP now trades at trough multiples, below 10x EBITDA, and derives over 40% of sales from the automotive segment, one of the fastest growing segments in the semiconductor space given the increase in electronic contents and shift toward hybrid and electric vehicles. According to Bloomberg consensus 2018 price targets for the stock range between $100-110 currently, though most of the comps are trading at 9-13x EBITDA multiple, we expect the stock to continue to trade lower post deal break, especially as investors unwind the position.

The Markets and the Economy in the Second Half of the Year:

Mario Gabelli who leads our firm recently gave GAMCO’s views on the economy and markets for the balance of the year. He believes the landscape will be shaped by four ”T’s”:

The first is Tariffs. Global GDP is $87 trillion with the U.S just over 23%, the EU about 22%, China 16% and Japan 6%. The U.S. has $20 trillion of GDP and a trade deficit of about $500 billion, including $350 billion with China. That means we are knocking 2.5% off our GDP and delivering money to China. The tariff spat is creating cost inflation at the industrial companies we own, but it is also creating investment opportunities among U.S. companies that serve the domestic market.

The second T relates to the U.S. 10-year Treasury note. The yield was 2.44%-2.73% in January, rose to 3.11% and then fell back to 2.86%. Is the market’s current multiple of Ebitda (earnings before interest, taxes, depreciation, and amortization) sustainable? We don’t think so and expect inflation to pick up sending the 10-year yield back up over 3% by year end and higher next year.

Next are Taxes. The U.S. moved to a territorial tax system from a global system for corporations, which is good. A 21% corporate tax is a magnet for business to locate here. The write-off of capital expenditures drives new demand.

The fourth T is Technology. It is attracting a lot of attention in the stock market, and will continue to do so. The tariff situation is a surprise, but it does not bother us that much. Some of it is good since it creates volatility — the ‘old normal’ in markets. That allows investors to buy the value stocks at lower prices, and makes you look less dumb for not playing the momentum stock game.

Column by Gabelli Funds, written by Michael Gabelli

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.

Join PARTICIPANT at its Investment Launch Cocktail

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PARTICIPANT Capital, an affiliate of Royal Palm Companies (RPC) that provides individual investors access to projects normally reserved for large private equity, institutional funds, is celebrating the official launch of its tradable note product with a cocktail party in Miami.

The company’s investment strategy enables individual investors to invest in the construction of mixed-use projects side by side with the developer, at the developer’s cost basis.

Guests at PARTICIPANT Capital’s event will enjoy hors d’oeuvres and cocktails at 1010 NE 2nd Avenue on Thursday, August 16th 2018 between 5 and 8pm.

You can RSVP here.