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China’s economy is undergoing a tricky transition. Recent economic data out of China have underwhelmed, while escalating trade tensions with the U.S. and elevated domestic debt levels have sparked concerns. Yet we see China’s near-term outlook as resilient.

We share our take in our new Global macro outlook China: Quality over quantity. The gist: The tit-for-tat rhetoric on U.S.-China trade may have a real economic impact, yet we see activity holding up in the short-run, with consumption accounting for an ever-greater share of gross domestic product (GDP).

Chinese economic activity

The moderation in Chinese economic activity in the first half of 2018 has been gradual. First-quarter GDP growth beat expectations, due in part to solid external demand. Our BlackRock China GPS points to activity holding steady going forward. Big data signals developed by BlackRock’s Systematic Active Equity teams are an important component of the China Growth GPS. They include earnings guidance from Chinese companies and references to China in global earnings calls. These signals paint a rosier picture about growth than what recent data suggest. This is illustrated in the Steady slowdown chart below by the difference between the now-cast (gray) and the GPS (green), which incorporates the big data signal.

This outlook could be undermined if trade tensions with the U.S. morph into a full-blown trade war. Our base case sees that scenario being averted, though we do anticipate an extended period of tensions ahead as the tit-for-tat rhetoric heats up between the U.S. and China.

Growth in China is expected to slow only slightly to 6.6% in 2018 from 6.8% last year, according to International Monetary Fund (IMF) forecasts as of April 2018. This comes against a backdrop of Beijing’s progress in implementing reforms, financial de-risking and slower credit growth. A moderate economic slowdown is welcome, in our view, as China shifts to a more sustainable pace of growth less reliant on credit.

An important transition is taking place

Private consumption is making up an ever-greater share of activity relative to investment, as the focus of China’s government moves to quality (sustainability of growth) from quantity (GDP targets). Greater reliance on consumption and a move to quality of growth from quantity should put the world’s second largest economy on a more sustainable path.

Sectors dependent on consumer spending are expected to take the reins of the economy from the long dominant old economy state-owned enterprises (SOEs). Government policy in China could further tilt the economy toward consumption. Consumption is about 40% of GDP, according to data from the World Bank, compared with more than 60% of GDP across developed economies.

China does face constraints in making the shift to a consumption-driven economy. Achieving a smooth handoff to households and consumers is not easy after decades of investment-led growth. Demographics also stack up against China. An aging population lacks a sufficient safety net, explaining China’s high savings rate. Improved productivity, higher incomes and government policies that strengthen social security must support the transition to a more consumer-based economy.

Finally, China’s financial vulnerabilities–including the buildup of leverage in the country’s large and opaque financial system–represent the biggest risks over the medium term. Unresolved, these could lead to a large shock. Yet government steps to curb credit growth are underway. The creation of the Financial Stability and Development Committee and work towards a unified regulatory framework have put authorities in a better position to address financial stability risks.

Bottom line

China’s near-term outlook appears solid, but rising U.S.-China trade frictions are raising concerns. Additionally, consumption’s share of the economy needs to increase further if China is to pull off the balancing act of reining in credit, sustaining GDP growth and shifting away from export- led and investment-led growth. The trend on these fronts is good–yet much more progress is needed.

Build on Insight, by BlackRock, written by Jean Boivin and Tara Rice

Despite Wall Street’s ‘Old Normal’, U.S. Equities Continue in A Global Sweet Spot

The U.S. stock market closed higher for June and the second quarter. Rising volatility, part of what we call Wall Street’s ‘Old Normal’, reflected uncertainty over the eventual outcome of the aggressive trade actions taken by the Trump administration aimed at lowering the protectionist barriers of other countries. A relatively strong economy continues to position U.S. equities in the global sweet spot versus non-US stocks. The Fed is signaling higher rates ahead and this is keeping the dollar strong, emerging markets weak, and inflation in focus. Migration related political risks in Germany are stress testing European unity.

Second quarter earnings reports will start soon and are expected to rise in line with first quarter gains and to fuel deals, capex, dividends and share buybacks. Allocation of capital and financial engineering driven by strategic decisions made by company boards and managements continues to be an area of focus and opportunity for short and long term catalysts we have identified in the businesses we have researched as sound long term investments.

Global merger and acquisition activity set a record high in the first half of 2018 as the value of announced deals spiked to a new high of $2.5 trillion year to date, an increase of 61% compared to the first half of 2017. Cross-border deal making had its best quarter since 2007, totaling $1 trillion in the first half, or 41% of total M&A. Media company deals featuring Twenty-First Century Fox led the charge across the global headlines while deal making in the Energy and Power sector reached an all-time high in the first half of 2018.

One positive development during the second quarter for M&A occurred on June 12th when U.S. District Court Judge Richard Leon issued his decision which denied the Department of Justice’s request to block AT&T’s acquisition of Time Warner. Judge Leon put no conditions on the deal and said the government failed to make its case the merger would lead to higher prices for the consumer. The DOJ’s chose not to seek a stay preventing the merger from closing on appeal, and the deal was subsequently completed on June 15. After Time Warner withstood the government challenge, spreads on other outstanding vertical mergers firmed in response, including CVS’s acquisition of Aetna (AET-NYSE) for $70 billion and Cigna’s acquisition of Express Scripts (ESRX-NASDAQ) for $65 billion.

Research and investment areas that are of high interest for us include the U.S. Pet Population, Live Entertainment, Defense, and Equipment Rental. We continue to analyze major demographic trends in the growing world population. U.S. millennial and baby boomer preferences are of high interest. However, Generation Z is comprised of 1.9 billion people born between 1995 and 2009 and is a larger group than the Millennials born between 1980 and 1994. By 2020, Gen Z consumers are projected by Booz Co to represent about forty percent of the markets in the U.S., Europe, China, India, Russia and Brazil. There will be lots of fundamental investment dynamics ahead and rising deal activity.

In conclusion, the U.S. economy remains upbeat and as always, we are watching world economic and political developments as they may impact financial markets and opportunities.

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.

François Pienaar, the South African Rugby Legend and World Cup Champion, talks about leadership at Investec’s Inspirational Event in Miami

Honoring its South African origins, Investec Asset Management invited François Pienaar, the South African Rugby Legend and World Cup Champion, to speak about leadership at their second “Investec Inspirational Event”, celebrated at the InterContinental hotel, in Miami, last June 5^th.

Investec Asset Management business in the Americas region has grown exponentially since they opened their first office in New York, back in 2006. They started with 100 million dollars in asset under management, and now they are managing around 22 billion dollars. A “great journey” that according to Richard Garland, Managing Director of the firm, it’s worth celebrating. That’s the reason why Investec Asset Management brought together over one hundred investment professionals from the Latin American and US Offshore business to participate in an “out of the ordinary” inspirational talk.

Last year, they had the presence of Robert O’Neill, the Navy Seal who shot Bin Laden in May 2011, and this year, they invited François Pienaar, the South African Rugby player who was the captain of the Springboks from 1993 until 1996, who is best known for leading the South African team to a victory in the 1995 Rugby World Cup. An unexpected win that was later narrated on John Carlin’s book “Playing the Enemy: Nelson Mandela and the Game that Made a Nation” and then turned into the film “Invictus”, directed by Clint Eastwood.

A national hero

François Pienaar was born on the 2^nd of January of 1967 into a bad time in South Africa, in which the basic human rights of ordinary South Africans were brutally violated. He grew up in Vereeniging, a small town close to Johannesburg. As a kid, he went to school with white children and never really interacted with black people, except for the lady that normally came his house to do some of the cleaning.

“The kids were not allowed to sit at the table with the adults. So, whenever the adults got together, the kids were going away to play, and we played in the garden with folks that were seated there and would talk about two things, sports and politics. And when it came to politics, Nelson Mandela’s name came up regularly, followed by the word terrorism, and comments about his coming out of jail as a disaster for the country. There was no debate. Very sadly, everyone agreed on that view and no one, me included, said anything or questioned”, explained Pienaar.

From an early age, sports played an important role in his life. It was through rugby that he earned an athletic scholarship to study Law at the Rand Afrikaans University. “My family did not have much money. Sometimes I could not go to play rugby because my parents could not afford it. Sports were my way to getting out of the industrial belt where I grew up. I did well at rugby and I got a scholarship to study law at the University of Johannesburg. There I met people very different from what it was my own world: people that did not believe in god, that had a different religion, people that spoke different languages, and that had strong views about politics”, he continued.

Pienaar attended the University in the late 80s, but there were already rumors that Mr. Mandela was going to be released out of Victor Verster Prison soon. And he was finally released in February of 1990. The negotiations to end Apartheid also had a direct impact on sports, national teams were allowed again to come back to the international arena. In 1992, the Springboks, who had been excluded from the first two world cups in 1987 and 1991, were then readmitted by the International Rugby Football Board (now, World Rugby), to international championship. One year later, the new South African team was announced on television, on the main news, the names scrolled down the screen and Pienaar’s name appeared, he would be the captain of the team.

In 1994, Mr. Mandela is elected the first black President of South Africa. In that moment, he pronounces an unforgettable speech: “The time for the healing of wounds has come. The moment to bridge the chasms that divide us has come. The time to build is upon us […]. Never, never, and never again shall it be that this beautiful land will again experience the oppression of one by another and suffer the indignity of being the skunk of the world. Let freedom rein. The sun shall never set on so glorious a human achievement! God bless Africa”. At that moment, he made a promise to the nation and he delivered on his promise.

Meeting Mr. Mandela

A couple of months later, knowing that South Africa was set to host the 1995 Rugby World Cup, the first major sport event held in the country since the end of Apartheid, Mr. Mandela wanted to use the power that sport has to inspire and awaken hope to unite the nation. So, he asked his personal secretary to schedule a meeting with François Pienaar. When they finally met, they talked for an hour in which Mr. Mandela asked him about his family, the rugby sport and the Olympic Games in Barcelona. He also spoke about his imprisonment in Robben Island. Once the conversation ended Pienaar knew that the country was in the hands of a very wise leader and that he felt safe.

Before the opening match against the Australia’s Wallabies, a team undefeated in the previous twelve months and the favorites to win the game. Mr. Mandela went to see the Springboks at the end of the training. His helicopter flew and landed on a field not far from where the team was playing. He went one by one greeting every member of the team. One of the players gave him his cap, and he immediately put the cap on. He wished them good luck, went back to the helicopter and left.

When the first match was about to start, Mr. Mandela appeared in the stadium wearing the Springboks rugby cap, a symbol of the white elite that was detested by the black majority; he got booed by the crowds, but he answered: “This is our team. These are our boys that are playing for us”.

According to Pienaar, that was an incredible moment that boosted the morale of the team. They were able to win the match comfortably, with a phenomenal performance that drove them to the final of the Rugby World Cup.

The final

At the Ellis Park Stadium, the Springboks would have to play against one of the best rugby teams that the world has ever seen, the New Zealand’s All Blacks. This team had the first rugby global superstar and arguably the sport’s biggest name playing for them, Jonah Lomu, “120 kilograms of muscles that ran 100 meters in 11 seconds”, according to Pienaar.

The support for the Springboks had grown during the championship. All the people in the country, independently of their race, were cheering for their rugby team. “The day before the final, there was a group of black kids that saw us, and they started chanting the names of the players, something that they would never have known before the World Cup. They started running next to us with their beautiful smiles”, said Pienaar. “We were receiving messages from kids all over the country, and the kids had pour their hearts on them and they were beautiful to read”, he added.

On that Thursday night, their coach, Kitch Christie, walked to every room and he put a little piece of paper under each door, a poem written by Theodore Roosevelt that said: “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat”.

The following day, hours before the World Cup final, there were thousands of people waiting to cheer them around the bus that would drive them to the stadium. “There were about 50 motorcycles waiting to escort the bus to the final, and what it strucked me was how clean the motor cycles were. They must have been cleaned by the children the day before”, said Pienaar.

The captain had a personal conversation with everyone in the team, asking them about their worries and how he could help to solve them. “Their rhetorical thinking led them to start wondering: What if I make a mistake? What if we miss a tackle? And my counter speech was: What if we don’t take our chances? What if we don’t give up our hope? What if we just play and come back without regrets?

Mr. Mandela came into the changing room with his Springboks’ cap and jersey on. With a beautiful smile he said to us: “Thank you for what you are doing for your country. Good luck”, and when he turned around, he was wearing my number on his back”, narrated Pienaar.

The team learnt to sing the national anthem together, understanding its lyrics, expressed in five languages: Africans, English, Xhosa, Zulu, and Sotho, to represent “one team, one country”, a chance to bridge the cultures and extend hands across a divided society.

The final was an epic match. The Springboks missed their first tackle, but they got better and better, and the game went to the extra time. Pienaar reached the final minutes of the game with a calf strain that prevented him from running, but the coach insisted that he must stay on the field. “At the stadium, the people, mostly white South Africans, were chanting an African tribe song that means move forward. When I started hearing that song, I said to the team: “Live for your country, back each other, and we will be fine. This is the strategy to follow, let´s execute it”, and so we did”.

A drop goal from Joel Stransky led them to a three-point victory over the All Blacks. At the stadium everybody was chanting. At the streets everybody was celebrating and dancing. “I feel incredible blessed to have had the opportunity to experience how powerful sport is. When we won a reporter stuck a microphone next to my face and asked me: “François, tell us what was like to win in front of 65.000 people”, to what I replied: “We did not win in front of 65.000 people, we won for 43 million people. And the reason why I gave that reply was because we had already the feeling that the whole country was supporting the team. The gentleman who served us breakfast at the hotel was a Zulu, and he was concerned on whether we had eaten enough breakfast for the match. The lady who cleaned our room, was a Xhosa, and she asked if we needed extra pillows, so we could sleep better and rest. The trophy could never just be for the lucky few that got ticket to come to the game. As a team, we did win, because we wanted to make our country proud”, said Pienaar.

“Mr. Mandela was one of the greatest politicians of his time, but he was also one of the greatest sportsman, in the sense that he gave us so much joy, which is the main power of a sportsman. He gave me a very clear instruction: “I want you to show love and passion”. When he passed away in December of 2013, the whole world stopped, he was in every newspaper. On the next 18^th of July, it would had been his centenary. And we miss him. But we now have a new leader, Cyril Ramaphosa, who was one the one who held Nelson Mandela’s microphone when he was released from prison in Cape Town. He is now following Mandela’s footsteps. He is an extremely successful businessman who does not need to get involved in politics, he is doing it because he wants a better country”, he concluded.

Aberdeen Standard Investment Is Celebrating its 20th Anniversary in the Latin American Institutional Business

20 years have passed since Aberdeen Standard Investments (ASI) landed in the Latin American Institutional business. Back then, the asset management firm started visiting Chile to register their funds with the Chilean Superintendency of Pensions (SP) and made them available for Pension Fund Administrators (AFP) to invest. In those days, the team was formed by Bev Hendry, Chairman of Americas for Aberdeen Standard Investments, Silvana Barrenechea, currently relocated to the UK office and Linda Cartusciello, Senior Institutional Business Development Manager for the Latin American business.

In 2010, ASI established a partnership with Celfin Capital, a Chilean investment bank and asset manager with an important market share on the institutional distribution business for international asset managers. In 2013, Celfin Capital was acquired by BTG Pactual. However, in 2015, the original partners and executives that were in charge of the distribution business decided to continue working independently in a new firm named Excel Capital, which has maintained its relationship with ASI until today.

In 2013, during the emerging market bull cycle, Aberdeen Standard Investments’ expertise in that asset class led to a peak of 6 billion dollars in assets under management, involving several pure equity and emerging market strategies for institutional clients in Chile, Colombia and Peru, always counting on Excel Capital International as their local distribution branch for the institutional business. Nowadays, ASI’s Latin American business totals 5 billion dollars in assets under management, belonging two third of the assets to the institutional business and one third to the wealth management business.

Aberdeen Standard Investments’ presence in the Americas region

Seated, from left to right: Rocío Hernández, Client Manager, Linda Cartusciello, Senior Institutional Business Development Manager, Erika Gucfa, Investment Manager & Private Markets. Standing, from left to right: Bev Hendry, Chairman of the Americas, Jeff Klepacki, Head of Distribution, David Blackwood, Business Management. (All of them, from Aberdeen Standard Investments).

In August 2017, the merger between Standard Life and Aberdeen Asset Management was completed. The group’s combined investment business, Aberdeen Standard Investments, with over 1.000 investment professionals, and 778 billion dollars in combined assets under management as December 2017, is now one of the largest asset management firms globally.

Campbell Fleming, Global Head of Distribution, leads the Asia-Pacific, EMEA-UK and Americas regions, and Jeff Klepacki, Head of Distribution of Americas, supervises the Canadian, the US and Latin American markets. In Canada, ASI has an office in Toronto, where they hold a sales team, a distribution team and a compliance team. In the US, they have offices in Philadelphia, Boston, New York, Stanford, Los Angeles and Miami, where Menno de Vreeze, Head of Business Development for the US offshore Business, will be soon relocating to cover Latin American retail business. Whereas, in the domestic Latin America-ex-Brazil region, Linda Cartusciello covers the institutional business, the Pension funds, AGFs & State Entities and the partnership with Excel Capital International in the Andean region, Rocio Hernandez is in charge of the Client Service from the Madrid office, and George Kerr, director of Aberdeen Standard Investments’ Brazil office, covers the distribution business for pension funds, wealth management firms and family offices within Brazil.

In terms of assets under managements, the Americas region represents 80 billion dollars, most of this volume is the institutional business of United States and Canada, but they also hold around 15 billion dollars in domestic mutual funds (40 Act) and for the Latin American business, including institutional and offshore business, about 5 billion dollars.

“The merger has given us scale, now we are the second largest asset management in Europe and one of the largest in the world. It is also giving us a more diverse range of products. To be fair, Aberdeen Asset Management, and mostly in Latin America, was best known for its pure equity strategies, investing either on emerging or Asian-Pacific markets, but now, Aberdeen Standards Investments can offer a full range of investment strategies, including alternative investment products,” said Bev Hendry.

“What may work in Europe, may not work for Latin American investors, especially in those countries in where there are very high interest rates. In developed economies, interest rates are next to nothing and investors are in a constant search for yield. On the other hand, investors from Brazil or Argentina may not be searching as much for yield, but for diversification. In Brazil, we have set out a couple of local products. Right now, they are small in volume, but we are seeing a good improvement in the economy and we trust that the country will recover from the crisis. So, we are expecting good results in Brazil on the next year. We have two interesting things going on, firstly, the external investors are looking to invest in Latin America and secondly, Latin American investors have now the confidence to invest in their own region,” he added.

“The Latin American business was not particularly affected by the merger because Standard Life did not have a distribution plan in place yet. They have registered about 15 to 20 mutual funds in Luxembourg, but they did not have a designated distribution team, something that has worked great for us, as the Latin American distribution team now has more product to distribute,” continued Jeff Klepacki.

“We try to listen to our clients first, and really get an understanding of what their needs are for investing. As they become older and more reliant on their pensions, they do get more conservative, with a longer term in their investment approach. That is why we are having success with products like frontier bonds or Indian fixed income strategies, because the offer an attractive yield. We have also seen a restored appetite for China A Shares, Japanese and Latin American equities. We like to make sure we understand what the Latin American Institutional clients’ needs are, and we do that by working with Excel Capital, as they provide us a good handle on the market. We also want to educate clients on our new firm and what new capabilities we are gaining. For pension plans, we will hold the institutional conference in London, in November, and as always, we will invite some of our clients from Latin America. There, they will get to meet our portfolio managers and get to hear our outlook around the world. It is a good chance to stay connected to our clients in Latin America, because their risk appetite is very different, we have to make sure we have the right products to suit their needs,” he said.

“Although 95% of the assets that we manage for Latin American institutional investors are invested in equity strategies, Aberdeen Standard Investments’ equity franchise is opened to do new things, with structural changes and re-evaluating new opportunities. For example, before we did not invest directly in China, only through Hong Kong listed companies, today we have significant investments in China A shares. Additionally, our exposure to sectors, which used to be a direct consequence of our bottom-up investment approach, now we have a dedicated research that provides macroeconomic insights and its outlook by sectors, like Technology” commented Linda Cartusciello.

Alternative investments

Aberdeen Standard Investments has capabilities in quantitative investment and smart beta strategies. They can apply different factors to indices, depending on investors’ concern about volatility, dividend yield or price momentum, putting all these factors into an investment strategy they are developing a retail smart beta strategy, aiming to outperform the market. They also use ESG factors embedded in their investment process to measure companies’ carbon footprint and have a carbon fund strategy to help with the environment.

But, their most recent development in alternative investments is the strategic partnership that a couple of years ago was formed between Aberdeen Standard Investments’ Infrastructure team and a Colombian boutique advisory company, LQA Funds SAS. Together they have launched a first fund of 250 million dollars that are hoping to invest over the next 3 or 4 years, in about 10 to 12 projects in Chile, Colombia, Mexico, Peru and Uruguay.

“We are currently fund raising now for an Andean Infrastructure project that invest in public and private placements. We would partner with a local government as an outside investor to help to build for a hospital or schools. The product is managed from Bogota, Colombia, where we partner with a local fund called LQA Funds. They are the local real estate experts, they find the projects and help on the due diligence to determine whether we want to bid for the project or not and we do the fund raising and the portfolio management,” explained Mr. Klepacki.

New opportunities in Mexico

Regarding the recent change in the Mexican pension funds regulation, which will allow Afores to invest in international mutual funds, Linda Cartusciello commented that they are speaking directly with the CONSAR (the Mexican National Commission for the Retirement Savings System).

“We are thrilled to launch a successful institutional business in Mexico. Throughout these 20 years of developing business in the region, we count with a deeper knowledge and wider experience, we are better organized working with our colleagues based in Luxembourg, Singapore, London and USA offices. We have selected the right people with the right training. All of us are highly committed to serve the Latin American market. I am very proud of our achievements and very grateful with the unconditional support from the Management Team in our group”, concluded Ms. Cartusciello.

Spring Planting: Bloom Off The Rose?

The economic conditions that have supported markets over the last year are still flourishing, but this year has seen a variety of factors weighing on investor sentiment. Concerns around interest rate hikes, stock valuations (despite strong earnings), as well as potential trade disruptions and new tech regulations, all have led to higher volatility in 2018. Still, opportunities exist in this market for those with focus and discipline.

Ease on down the road

The Federal Reserve (Fed) is continuing on its path of interest rate hikes this year. Still, although financial conditions have moderately tightened, they remain relatively easy, at least by historical standards. In this environment, the financial sector is a particularly interesting one to monitor. The prospects could brighten if the yield curve, which has flattened since the start of the year, steepens. In that case, the best offense is a good defense. Volatility has climbed higher, but in an era of rising rates what constitutes an effective portfolio hedge is changing. Rather than high-dividend “bond proxies,” which could do more harm than good in an era of higher rates and inflation in the U.S., we would advocate an allocation to quality companies.

Against a backdrop of moderately tighter financial conditions—but still relatively easy by historical standards—we continue to prefer growthgeared sectors, namely technology and financial companies, as well as the momentum factor. In order to achieve this, an investor may want to consider using ETFs such as the iShares U.S. Financial Services ETF (IYG), the iShares North American Tech ETF (IGM) and/or the iShares Edge MSCI USA Momentum Factor ETF (MTUM).

Given the current economic backdrop, we also continue to favor the momentum factor, that could be appreciated by the iShares Edge MSCI USA Momentum Factor ETF (MTUM). However, investors may want to consider an allocation to quality as well. Consider the iShares Edge MSCI USA Quality Factor ETF (QUAL).

Emerging markets: China A-shares inclusion update

This June, an important market event occurs: MSCI will begin including China’s Shanghai-traded A-shares in its key indexes, amplifying the importance of China in key benchmarks. Economic and reform prospects have us constructive on Chinese equities, but the MSCI event has important implications for investors and the way they think about emerging markets.

The inclusion of China A-shares occurs at a time when we are constructive on Chinese equities. We see U.S. protectionist threats as largely negotiating tactics, while Chinese reforms, a stable growth environment and a solid earnings outlook may support equities. That is reflected in ETFs such as the iShares MSCI China ETF (MCHI), the iShares MSCI China A ETF (CNYA), the iShares MSCI China LargeCap ETF (FXI) and/or the iShares MSCI China SmallCap ETF (ECNS).

Opportunities within investment grade bonds

Although we are underweight fixed income, and neutral investment grade bonds within the asset class, spreads have widened and current levels present reasonable value from an overall portfolio diversification perspective. We would consider opportunities in floating rate notes, shorter-maturity fixed rate exposure or interest rate-hedged positions.

It’s a difficult environment for bonds, but we believe investment grade credit may now offer reasonable value in the overall context of portfolio diversification. A way to achieve it would be using ETFs like the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), the iShares 1-3 Year Credit Bond ETF (CSJ), the iShares Floating Rate Bond ETF (FLOT), and/or the iShares 0-5 Year Investment Grade Corporate Bond ETF (SLQD.

The commodity rally

Commodities are off to a strong start to the year, outperforming the S&P 500 Index by nearly 10%. At this point, energy equities may have more room to run than the commodities themselves in the short term, but investors looking to diversify risk or protect against inflation might consider exposure to commodities.

Historically, commodities have offered some protection against inflation and provided diversification benefits. If looking to include or increase commodity exposure, one might consider the iShares U.S. Energy ETF (IYE).

More information can be found in the iShares by BlackRock’s Spring commentary.

Build on Insight, by BlackRock, written by Chris Dhanraj

Gershon Cohen (Aberdeen Standard Investment): “Right Now, One of the Best Places to Invest in Infrastructure Projects is the Andean Region”

Over the last two decades the ASI Infrastructure Platform has only ever invested in social and economic infrastructure projects. From their London and Edinburgh offices, in UK, they invested in government concessions, called Public Private Partnerships, which offer investors attractive risk-adjusted returns with a low correlation to economic cycles and other asset classes.

The Infrastructure Investment Team built a successful franchise that was then exported to Europe, opening offices in Paris and Madrid to cover all the Euro zone. Later, the team decided to expand to Asia, installing an office in Sydney, from where they invest in Australia, New Zealand and United States in funds that are targeted at US and Australian dollars. Last year, they decided to tap into the Andean region and the Latin American market, launching a fund targeting Social and Economic infrastructure projects in the Andean region.

According to Gershon Cohen, Global Head of Infrastructure Funds, his team tend to work closely with global contractors and operators in infrastructure, organizations that they consider their industrial partners, some of them are renown companies like the Spanish construction company Grupo Ferrovial or the French firm Bouygues, who specializes in developing, building and operating infrastructure projects around the world.

“We work with our industrial partners in bidding for concessions and the opportunity to invest in infrastructure through these concessions. We are backed by some of the worlds’ leading investors in infrastructure. Investors that, for the last 20 years, have pioneered in infrastructure investments, like the large Dutch sovereign wealth fund, as well as the South Korean and some of the Chinese funds, and some of the very large private equity groups, like Partners Group. These groups have supported us on our journey”, said Mr. Cohen.

“When we invest in infrastructure and concessions, we are always looking for a degree of political, fiscal and economic stability, as well as legal certainty. All these characteristics are relative, because they have a different mix and degree depending on which part of the world you are investing. However, we try to marry the opportunity to invest with the needs of our investors and with a degree of stability. In that sense, UK and US are a very stable place, Europe is fairly stable and Australia a very good place to invest. But, we also look for governments that are wanting to bring forward a large pipeline of investment opportunities, and right now, one of the best places that has all these ingredients is the Andean region in Latin America. Argentina and Brazil also present many opportunities, but currently Chile, Colombia, Mexico, Peru and Uruguay offer more economic and political stability, in our view. Especially now that Colombia has just became a member of the OECD and Peru is on its journey to become a member of this organization”, he added.

The Latin American footprint

The Infrastructure Investment Team always thinks on a long term basis, elucidating which economies will look more stable from a political perspective and which ones will want to bring forward infrastructure projects to support their growth. In the specific case of Latin America, they invest in infrastructure projects that build roads, rails, schools, hospitals or water treatment plants. Even today, a high proportion of the population in Peru does not have access to clean drinking water, therefore, there is a big need to invest in projects that can treat water and convert it into potable water. Health, education and transportation are big issues as well.

“We are genuinely the only social infrastructure fund focused on the Andean region. There is no other competitor that are active and have offices on the ground or have capital dedicated to the region. Many of our peers are investing from their global vehicles, flying in and out, but giving the institutional way into our commitment to the region for a very long time, we have invested in developing a partnership with people on the ground, to gain a first movement advantage in the region, because we are honestly excited about building a team in Latin America”, said Ivan Wong, Deputy Head of Primary and Secondary Funds’ Investments and Asset Management at Aberdeen Standard Investments.

A couple of years ago, the ASI Infrastructure team team formed a strategic partnership with a Colombian based organization, a boutique advisory company – LQA Funds SAS that has a long track record in raising capital for infrastructure projects with both the government and the private sector; and was looking to become more of a fund manager. Last year, they launched a first fund of 250 million dollars that are hoping to invest over the next 3 to 4 years, in about 10 to 12 projects in Chile, Colombia, Mexico, Peru and Uruguay.

“We team up with our industrial partners to bid for contracts. Hopefully, if we are successful and the investors supporting us are pleased with the results, maybe in 2 or 3 year-time, we would do another fund, and maybe after that, another one. That is our strategy: to create a long-term presence in Latin America’s infrastructure environment. Later, on, we could bring up alternative or private equity strategies.

In mature economies, infrastructure has become so well understood that there is an oversupply of capital and less supply of projects, causing returns to decrease. However, the slightly more emerging economies -with relative political and economic stability- offer a similar risk profile and infrastructure projects yield mid-teens returns. If we stayed in Europe now, we will not be able to achieve that type of returns. That is why we are making a strong commitment to the region, we have an office in Colombia with seven people from the strategic partner, some more people will join our local partner from our teams in Madrid and Australia”, explained Mr. Cohen.

“As we become more familiar and successful within the region, and there is more economic stability in other parts of Latin America, we could look to broaden our scope to Argentina or Brazil, but we are very cautious. For 20 years, we have been gradually growing our platform and it makes sense to be cautious when you are entering in a new part of the world. We often say we are not very exciting, but in a world of volatility, long-term institutional investors are delighted to trust their pension funds money to us, because we have a very long term outlook and a track record that supports this”, added Mr. Wong.

The challenges of the region

Latin America’s economies are not simple, Colombia has just finished a long-term conflict and they still have some issues pending and Peru is going through a change of president, which is normally not easy. But, because ASI Infrastructure Team has presence on the ground, they can explain their investors in a transparent manner the complexities of the region. “Latin America’s investors are predominantly American leading investors that have already been invested in the region for many decades, so they actually appreciate the understanding that we have gained, and they recognize the challenges of the region. Nowadays, the US has more economic ties with Latin America than ever before, mainly due to political and macroeconomic issues. It is being an interest journey for us. We are delighted to be doing what we are doing and it is going very well”, concluded Mr. Cohen.

Mexico is Under Pressure to Raise Rates as the Mexican Peso Loses its Shine

On June 21 the Board of Governors of the Central Bank of Mexico will meet to decide the fate of the policy rate, we now expect them to hike +25 bps. In our view, the balance of risks to inflation deteriorated from the last meeting, pressuring Banxico to increase the policy rate to 7.75%, as MXN has been losing its shine. Last Friday we learned from the CME that the long peso non-commercial positions change to negative after peaking this year on April at 18 pesos per dollar (see Chart 1).

The right policy tool is a hike in rates compared to an outright intervention in the FX market. We judged that the current level of the MXN at 20.7 is fully explained by the general depreciation of emerging market currencies, and the increase in the size of the deviation between MXN and its peers relates to the recent rise in NAFTA and trade tariffs jitters (see Chart 2). In this context, an FX intervention will only be warranted if MXN level was out of context with current risks due to a speculative attack which is not the case.

The recent rout in emerging market currencies has proven to be more aggressive (and less temporary than previously thought) with those currencies perceived as their Central Banks being behind the curve. Standing out the Turkish Lira and the Argentine Peso, where their Central Banks were forced to hike since May to date 900 and 975 bps respectively. Also, India, Indonesia, and Philippines have hiked 25, 50 and 25 bps respectively. The market could well be starting to re-price the beginning of the year scenario of balance global growth benefiting emerging markets, to one where only the US growth is standing out. If this is the case, Mexico’s recent weak industrial production performance puts us at a disadvantage.

Even though we have argued that if something Banxico has been ahead of the curve, they will not want to miss an opportunity like this one to reaffirm their position. This is specially true when other risks particular to Mexico have increased, including the likelihood of the next administration negotiating NAFTA, the recently imposed tariffs on Steel and Aluminum, and the threat of the trade war escalating with direct consequences to inflation.

We believe Banxico will not miss this opportunity to reaffirm its ahead of the curve stance when the market is already pricing in the TIIE curve with more than 90% probability a 25 bps move in June. Also, the market is pricing +38 bps by August. With a +25 bps hike in June, Banxico will put itself in a better position to cover the new risks and the ones they have been more worried about related to a post-electoral dispute in case of a close outcome.

Column by Finamex, written by Guillermo Aboumrad, Chief Economist

During May, Worldwide Deal Making Values Spiked to a New Record

The U.S. stock market rallied in May with the best return since January and the best for the month of May since 2009. Political uncertainties in Europe are rising as a Eurosceptic government is forming in Italy and a newly elected government is taking over in Spain. The Atlanta Federal Reserve bumped its second quarter U.S. GDP estimate to 4.7 percent at the end of the month, up from 4.0 percent previously. The robust economy is tightening the job market and wages and inflation are center stage.

The Trump Administration has levied tariffs on aluminium and steel imports from Europe, Canada and Mexico and is moving ahead with protectionist actions on China. These moves are based on the idea that trade wars can be won since foreign economies depend on U.S. buyers. President Trump’s unpredictable communication and decision-making style has added a new variable to data gathering and investment analysis. A new agenda item in process now includes the possibility of a multi-front trade war. Retaliatory moves may be on the way.

Corporate earnings posted strong first-quarter gains in aggregate but so far this has not been reflected in proportionally higher stock prices. A determined U.S. Federal Reserve remains on track to normalize interest rates with continued policy rate hikes and a shrinking balance sheet during 2018 and through 2019.

Merger and acquisition activity moved sharply higher on ‘Merger Monday’ May 21, as announced deals spiked worldwide deal making values to a new record above $2 trillion year to date. Previous records for the same time frames were set in 2007 and 2000 at $1.8 and $1.5 trillion respectively. The spreads on deals subject to Chinese review firmed in May, including Cavium (CAVM -NASDAQ), which is being acquired by Marvell Technology; Rockwell Collins (COL-NYSE), which is being acquired by United Technologies; and, Qualcomm’s purchase of NXP Semiconductor (NXPI-NASDAQ). In addition:

On May 15, Microchip Technology announced it received antitrust approval in China for its acquisition of Microsemi Corp. (MSCC-NASDAQ), a piece of good news given the recent slowdown of Chinese reviews. The deal was subsequently completed on May 29.
Monsanto (MON-NYSE) shares traded higher after Bayer reached an agreement with the U.S. Department of Justice (DOJ) to divest assets to BASF that satisfied the DOJ’s competitive concerns. In May 2016, Monsanto agreed to be acquired by Bayer for $128 cash per share, or about $66 billion. The transaction has recently closed.
Biopharmaceutical developer Avexis (AVXS-NASDAQ) was acquired by Novartis on May 15 for $218 cash per share, or about $8 billion.

May was another active month for M&A with new deals that included:

Shire plc (SHPG -NASDAQ), a biopharmaceutical company focused on treatments for rare diseases, agreed to be acquired by Takeda Pharmaceutical Co. for $30.33 cash and 0.839 shares of Takeda common stock for each share of Shire, or about $80 billion.
Grammercy Property Trust (GPT-NYSE), a REIT focused on managing commercial real estate, agreed to be acquired by Blackstone for $27.50 cash per share, or about $7 billion.
KLX Inc. (KLXI-NASDAQ) announced it would spin off its Energy Services business, and sell its aerospace distribution and services business to Boeing for $63 cash per share. The transactions value KLX at approximately $5 billion.

We remain well positioned to take advantage of the ongoing opportunities we are seeing in the market.

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.

Armistead Nash (Morgan Stanley Investment Management): “We Try to Invest in Those Companies that Are Exposed to Minimal Disruption Risk”