Pixabay CC0 Public DomainFoto: Kai Stachowiak, Public DomainPhotos. Los temas y riesgos que darán forma a los mercados en 2017
Each year BlackRock strategists and portfolio team members assemble to discuss the outlook for the coming 12 months. The major takeaway from our discussions this year: We believe three major themes—and a few key risks—are poised to shape markets in 2017, as we write in our new Global Investment Outlook 2017.
Theme 1: Reflation
We expect U.S.-led reflation—rising nominal growth, wages and inflation—to accelerate. Yield curves globally are liable to recalibrate to reflect this “reflationary” dynamic, and we see steeper yield curves and higher long-term yields ahead in 2017. We believe we have seen the low in bond yields—barring any big shock. Steepening yield curves suggest investors should consider pivoting toward shorter-duration bonds less sensitive to rising rates.
Expectations for global reflation are also driving a rotation within equities. See the chart below. Bond-like equities such as utilities dramatically undershot the broader market in the second half of 2016. Global banks, by contrast, have outperformed along with other value equities on expectations that steeper yield curves might boost their net interest margins—the gap between lending and deposit rates. We see this trend running further in the medium term, albeit with the potential for short-term pullbacks. We could see beneficiaries of the post-crisis low-rate environment—bond proxies and low-volatility shares—underperforming. We see dividend growers—companies with sustainable free cash flow and the ability to raise their payouts over time—as most resilient in a rising-rate environment. Our research suggests they perform well when inflation drives rates higher.
We see structural changes to the global economy—aging populations, weak productivity and excess savings—limiting growth and capping rate rises. Still-low rates and a relatively subdued economic growth trend are taking a toll on prospective asset returns, especially for government bonds.
This is one reason we believe investors need to have a global mindset and consider moving further out on the risk spectrum into equities, credit and alternative asset classes. U.S.-dollar-based investors should consider owning more non-U.S. equities and emerging market (EM) assets over a five-year time horizon while reducing exposure to government bonds, our work suggests.
Theme 3: Dispersion
The gap between winners and losers in the stock market is likely to widen from the depressed levels of recent years as the baton is passed from monetary to fiscal policy. Under extraordinary monetary easing during the post-crisis years, a rising tide lifted all boats. Fiscal and regulatory changes, by contrast, are likely to favor some sectors at the expense of others. The dispersion of S&P 500 weekly stock returns—the gap between the top and bottom quartile—recently hit its highest level since 2008. Other markets are likely to mirror the U.S. trend as major central banks approach the limits of monetary easing. Rising asset price dispersion creates opportunities for security selection. Yet the risk of sharp and sudden momentum reversals in sector leadership highlights the need to be nimble while staying focused on long-term goals.
At the same time, we are seeing a regime change in cross-asset correlations that challenges traditional diversification. Long-held relationships between asset classes appear to be breaking down as rising yields have led to a shakeup across asset classes. Bond prices are no longer moving as reliably in the opposite direction of equity prices. Similarly, asset pairs that have historically moved in near lockstep—U.S. equities and oil, for example—have become less correlated. This means traditional methods of portfolio diversification, which use historical correlations and returns to derive an optimum asset mix, may be less effective. Bonds are still useful portfolio buffers against “risk-off” market movements, we believe. Yet we see an increasing role for equities, style factors and alternatives such as private markets in portfolio diversification.
Key risks
2017 is dotted with political and policy risks that have the potential to shake up longstanding economic and security arrangements. There is uncertainty about U.S. President-elect Donald Trump’s agenda, its implementation and the timing. The UK has vowed to trigger its exit from the European Union (EU) by the end of March, while elections in the Netherlands, France and Germany will show to what extent populist forces hostile to the EU and euro are gaining sway. At the same time, expectations are building for the Federal Reserve to step up the pace of rate increases after a stop-and-go-slow start, and China’s Communist Party will hold its 19th National Congress, at which Xi is expected to consolidate power.
China’s capital outflows and falling yuan are also worries, as the trade-weighted U.S. dollar’s surge to near-record highs raises the risk of tighter global financial conditions. Rapid dollar gains tend to cause EM currency depreciation, apply downward pressure on commodity prices and raise the risk of capital outflows from China.
For more on these themes and risks, as well as a detailed outlook for sovereign debt, credit and equity markets, read the full Global Investment Outlook 2017 in the following link.
Build on Insight, by BlackRock, written by Richard Turnill
Although the investment-linked product (ILP) business is stagnating in Singapore and Hong Kong, other Asian markets such as Indonesia, China, Taiwan, and Thailand are offering better prospects, says Cerulli Associates.
Indonesia has the highest growth potential among the four countries stated. According to fund managers Cerulli spoke to, the growth momentum remains strong even though the first ILPs were launched more than a decade ago.
Banks and insurance agents are pushing ILPs more, as compared to mutual funds, because of higher fee incentives. Banks typically have exclusive arrangements with insurance firms to sell their products, but there are no such partnerships with asset managers to distribute mutual funds.
However, if the country’s regulator, Financial Services Authority (OJK) decides to scrap upfront fees and exclusivity in bancassurance partnerships, growth prospects might be limited.
At the same time, OJK has raised the cap on overseas Shariah investments from 15% to at least 51% since November 2015. Cerulli notes that this may present an opportunity for fund managers to offer foreign-invested Shariah-compliant funds on ILP platforms, if regulators allow it.
Managers Cerulli surveyed for the Asset Management in Southeast Asia 2016 report ranked insurers as the channel they would increase their use of the most in the coming three years. Various reforms introduced in the past few years are likely to help boost fund distribution through this channel. Banks will also continue to push bancassurance sales, which significantly involve unit-linked products.
Foto: Pexels. La industria de fondos irlandesa se prepara para crecer gracias al acceso al mercado chino
An agreement between the People’s Bank of China and Ireland means that funds domiciled in the country now can tap into a RMB 50bn (roughly €7bn) quota under the Renminbi Qualified Foreign Institutional Investor regime.
The quota means Irish funds can buy securities on local Chinese markets.
The news follows confirmation that the Central Bank of Ireland is able to accept applications from Ireland domiciled Ucits and AIFs to invest through the Shenzen-Hong Kong Stock Connect, notes Irish Funds, the body representing the cross border investment funds industry in Ireland. This adds to the existing agreement on the Shanghai-Hong Kong Stock Connect.
Looking ahead, Irish Funds adds that there are expectations of another boost for the Irish funds industry as and when indices start to include Chinese shares, which will mean Ireland domiciled ETFs will also be able to benefit from foreign investor interest in accessing Chinese assets.
Taken together, these developments affecting both active and passive funds are expected to increase the number of Chinese and international fund managers establishing funds in Ireland, according to Irish Funds.
Pat Lardner, chief executive of Irish Funds said market data suggests the country is already home to 4.9% of global fund assets and 14.6% of European fund assets.
The CAIA Association and SharingAlpha will run a fund selector’s asset allocation competition open to all investment professionals globally. Competitors will use their skill to construct a virtual fund of funds, starting February 1st 2017, and will be ranked based on their performance till November 31st 2017 (assessed as portfolio total return, minus maximum portfolio drawdown during the period).
The CAIA Association will offer scholarship awards of over US$5,000 to the podium winners, including a full scholarship to the CAIA Charter programme for the winner. Sign up on www.SharingAlpha.com by 31st January 2017.
Laura Merlini, MD EMEA of the CAIA Association said: “CAIA is very excited to support SharingAlpha in its mission to create a community of fund selection professionals. The CAIA Charter is the most relevant designation for asset allocators tasked with selecting and allocating to uncorrelated assets, and this competition will showcase that skill set. We wish the best of luck to all competitors”.
Oren Kaplan, CEO and co-founder of SharingAlpha, said: “Our vision is to offer the investment community a better way to select winning funds and at the same time to offer fund selectors and investment advisers the option of building their own proven long term track record. It’s about time that funds are rated on the basis of parameters that have been proven to work and fund selectors and investment advisers will be judged according to their ability to add value to investors. We strongly believe that the cooperation with the CAIA Association will help us in exposing a larger audience to our unique platform.”
Foto: Geralt. La mayoría de los inversores consideran razonables sus fees y no están preocupados de que los incentivos de ventas presenten un conflicto de interés
The FINRA Investor Education Foundation (FINRA Foundation) recently announced the results of its “Investors in the United States 2016” report. More than half of respondents (56 percent) report using a financial professional—such as a broker or advisor—primarily to improve investment performance (81 percent), avoid losses (78 percent) and learn about investments (63 percent). Survey results indicate that knowledge of investment concepts is low—particularly among women.
“On a 10-question investor literacy quiz, on average, men answered 4.9 questions correctly compared to 3.8 for women. Interestingly, both genders got the same number of questions wrong: 3.4,” said FINRA Foundation President Gerri Walsh. “But women were significantly more likely to say they did not know the answer to a question compared to men, perhaps pointing to differences in investor confidence by gender.”
Seventy-four percent of households surveyed report owning individual stocks and 64 percent report owning mutual funds. Individual bonds are held by 35 percent of the population and annuities by 33 percent. Fewer respondents report holding investments in exchange-traded Funds (22 percent), REITS, options, private placements, or structured notes (15 percent) and commodities or futures (12 percent).
The majority of investors (70 percent) feel that the fees they pay for their investment accounts are reasonable (5 to 7 on a 7-point scale). And fewer than half (43 percent) of investors who use a financial professional are worried that sales incentives present a conflict of interest.
Only 10 percent of the respondents who took a 10-question investor literacy quiz could answer eight or more questions correctly. The majority (56 percent) were able to answer fewer than half of the questions correctly.
Regarding generational differences the survey found that thirty-eight percent of investors between the ages of 18 and 34 have used “robo-advisors,” compared to only four percent for those ages 55 and over.
Crowdfunding remains a mystery to those ages 55 and up, as only 22 percent had heard of the concept. However, 58 percent of investors between the ages of 18 and 34 were aware of such investments.
A greater percentage (61 percent) of younger investors between the ages of 18 and 34 are worried about being victimized by investment fraud, compared to 28 percent of those ages 55 and older.
This Investor survey provides a detailed analysis of 2,000 survey respondents from across the United States who hold investments in non-retirement accounts. It is a new component of the FINRA Foundation’s National Financial Capability Study (NFCS), and one of the largest and most comprehensive financial capability studies in the country. In July 2015 (several weeks after the 2015 NFCS data had been collected), NFCS respondents who identified themselves as owning investments outside of retirement accounts were contacted and asked a battery of questions intended to provide the Foundation and researchers with a better understanding of how and why investors make investment decisions.
In a series of follow-up interviews, researchers explored topics such as investors’ relationships with financial professionals, understanding and perceptions of fees charged for investment services, usage of investment information sources, attitudes towards investing and investor literacy.
Economic fundamentals are looking better than the bearish consensus, says the Morgan Stanley Investment Management Global Fixed Income team. Yet, politics has been more disruptive to markets this year than expected and could get more fraught in 2017, with U.S. presidential and core European elections, Brexit negotiations and the Chinese politburo transition.
“We believe in this environment, riskier spread products could weather a gradual rise in risk-free rates, especially if it is supported by stabilizing or improving economic fundamentals. However, we are cognizant that, as psychological resistance levels get broached, rising yields could take on a life of their own. We have been reducing risk to help stay ahead of a possible bond tantrum and prefer spread exposures that are less correlated to interest-rate movement”, explains the team.
Subject to potential near-term event risks being resolved in the next few weeks, the Morgan Stanley Investment Management Global Fixed Income team remains optimistic about the prospects for emerging market fixed income for the remainder of the year as fundamentals, technicals and the macro environment remain supportive. China’s growth slowdown is likely to continue in the medium term, with short-term growth prospects reliant on continued fiscal and monetary policy support.
“We anticipate U.S. investment-grade (IG) credit will continue to outperform European IG, as the technical picture remains more supportive in the U.S. due to a more favorable yield environment. We maintain our constructive view on high yield as the global demand for yield continues to support this asset class in both the U.S. and Europe”, conludes the Morgan Stanley Investment Management Global Fixed Income team.
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.
All information provided is for informational purposes only and should not be deemed as a recommendation. The information herein does not contend to address the financial objectives, situation or specific needs of any individual investor.
Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.
Prior to making any investment decision, investors should carefully review the strategy’s/product’s relevant offering document. For the complete content and important disclosures, refer to the link above.
Foto: geralt. Los grandes inversores institucionales prevén cambios en sus asignaciones, menos los estadounidenses que están a la espera
Institutional investors worldwide are expecting to make more asset allocation changes in the next one to two years than in 2012 and 2014, according to the new Fidelity Global Institutional Investor Survey.
The anticipated shifts are most remarkable with alternative investments, domestic fixed income, and cash. Globally, 72 percent of institutional investors say they will increase their allocation of illiquid alternatives in 2017 and 2018, with significant numbers as well for domestic fixed income (64 percent), cash (55 percent), and liquid alternatives (42 percent).
However, institutional investors in some regions are bucking the trend seen in other parts of the world. Many institutional investors in the U.S. are, on a relative basis, adopting a wait-and-see approach. For example, compared to 2012, the percentage of U.S. institutional investors expecting to move away from domestic equity has fallen significantly from 51 to 28 percent, while the number of respondents who expect to increase their allocation to the same asset class has only risen from 8 to 11 percent.
“With 2017 just around the corner, the asset allocation outlook for global institutional investors appears to be driven largely by the local economic realities and political uncertainties in which they’re operating,” said Scott E. Couto, president, Fidelity Institutional Asset Management.
“Institutions are increasingly managing their portfolios in a more dynamic manner, which means they are making more investment decisions today than they have in the past. In addition, the expectations of lower return and higher market volatility are driving more institutions into less commonly used assets, such as illiquid investments,” continued Couto. “For these reasons, organizations may find value in reexamining their investment decision-making process as there may be opportunities to bring more structure and accommodate the increased number of decisions, freeing up time for other areas of portfolio management and governance.”
Primary concerns for institutional investors
Overall, the top concerns for institutional investors are a low-return environment (28 percent) and market volatility (27 percent), with the survey showing that institutions are expressing more worry about capital markets than in previous years. In 2010, 25 percent of survey respondents cited a low-return environment as a concern and 22 percent cited market volatility.
“As the geopolitical and market environments evolve, institutional investors are increasingly expressing concern about how market returns and volatility will impact their portfolios,” said Derek Young, vice chairman of Fidelity Institutional Asset Management and president of Fidelity Global Asset Allocation. “Expectations that strengthening economies would build enough momentum to support higher interest rates and diminished volatility have not borne out, particularly in emerging Asia and Europe.”
Investment concerns also vary according to the institution type. Globally, sovereign wealth funds (46 percent), public sector pensions (31 percent), insurance companies (25 percent), and endowments and foundations (22 percent) are most worried about market volatility. However, a low-return environment is the top concern for private sector pensions (38 percent).
Now in its 14th year, the Fidelity Global Institutional Investor Survey is the world’s largest study of its kind examining the top-of-mind themes of institutional investors. Survey respondents included 933 institutions in 25 countries with $21 trillion in investable assets.
As Fabio Balboni, European Economist at HSBC expected, Matteo Renzi‘s resignation as Prime Minister following the rejection of the constitutional referendum on 4 December did not lead to a snap election. The Italian president appointed the former Foreign Affairs Minister, Paolo Gentiloni, as Prime Minister. He believes Gentiloni’s caretaker government, supported by broadly the same parliamentary majority as Renzi’s, will have a narrow mandate, focussing on three key issues, before taking Italy to elections (likely in Q2 2017, in their view):
Re-align the electoral laws for the lower and upper house. There are conflicting views among parties on what the optimal law should look like, and the Constitutional Court’s hearing on the current law for the lower house, on 24 January, will also dictate the timetable. He expects the electoral law(s) will end up being a slightly softer version of the Italicum, effectively favouring some form of coalition government after the election (which would make it harder for the populist Five Star Movement to form a government on its own).
Address the challenging situation of the banks, and in particular the imminent recapitalisation of Monte Dei Paschi di Siena. Balboni thinks this process will end up with some form of direct government intervention, with the bail-in of equity and bondholders (though retail investors will be refunded). A possible bigger injection of money, to provide a safety net for other banks facing a similar situation in the future, is also possible, though might present bigger legal issues, in their view.
Respond to a possible call by the European Commission for an additional 0.1-0.2% of GDP fiscal austerity in 2017. This could happen when the final 2016 deficit outturn is communicated by Eurostat early next year (likely, March). But with a caretaker government in place and the prospects for imminent elections, he thinks Brussels will have a light-touch approach.
However, at least for now, the HSBC team does not think Italy’s euro membership is at stake.
Manhattan West Asset Management has added an ESG focused Private Equity Fund to its offerings. Roberto Barragan, former CEO of VEDC (Valley Economic Development Center), joins as Shareholder and Senior Managing Director to oversee the Fund.
Manhattan West’s new Fund, Manhattan West ESG Fund I, will provide financing and credit solutions for minority owned businesses across the United States.
“Access to capital severely limits the establishment and expansion of minority-owned businesses. By focusing on credit and debt structures with collateral ranging in size from $500,000 to $2,000,000, we will seek to eliminate those access barriers,” said Barragan. “My business lending experience and extensive relationships with financial institutions nationwide will allow our team at Manhattan West to deliver impactful CRA and ESG investments to our institutional clientele.”
Barragan led the VEDC to national prominence as a highly regarded and industry leading small business lender originating millions annually in small business loans to minority borrowers. Under his leadership and innovation, the VEDC increased its assets by over 700 percent in the last six years and lent millions to women and minority business owners. Additionally, he redefined how African American and Latino entrepreneurs can access capital through partnerships with financial institutions and corporations and launched numerous business programs including Business Opportunity Funds in Chicago and New York, the National African American Small Business Loan Fund, the Women’s Small Business Risk Mitigation program, the National Micro Finance Fund, and many others.
Barragan expanded VEDC’s portfolio to a national platform with loan funds in Los Angeles, Chicago, Las Vegas, Reno, Salt Lake City, Miami and the New York Tri-State area. Under his direction and leadership during a 21-year career, the VEDC helped thousands of businesses succeed.
“Roberto’s arrival at Manhattan West signifies our commitment to a strategic imperative of the firm,” said Lorenzo Esparza, Manhattan West Asset Management CEO. “One of our main objectives is to deploy investment capital for causes that will have a profoundly positive social impact. We are excited to welcome Roberto to Manhattan West where he will purposefully advocate the vision we set forth.”
Manhattan West is a Latino owned financial service firm, one of the few in the country providing full service investment management for private clients and institutions.
Foto: michaelmep. En 2017, el real estate de las Américas seguirá atrayendo flujos fuertes de inversión
Despite various sources of uncertainty and related bouts of financial marketvolatility weighing on the minds of investors over the course of 2016, commercial property proved to be a preferred destination for investment dollars in the third quarter in the Americas region, says Jonathan Geanakos, President, Americas Capital Markets, JLL. With record amounts of capital raised, driven by a search for higher-yielding investments in a low-yield world, and underpinned by solid performance in property market fundamentals, investment into Americas real estate increased in the third quarter.
According to the Americas Market Perspective, Q42016 recently published by JLL, total office, retail, industrial and hotel volumes grew to US$77 billion during the period, an increase of one percent from the third quarter of 2015. This reversed the year-on-year declines in the first two quarters of 2016 as investors had been displaying somewhat elevated caution amid more turbulent financial markets. Total volume in the Americas has declined 10 percent, to $207 billion year-to-date. Although in the United States, overall volume increased one percent year-over-year to US$71 billion in the third quarter, and for the year-to-date period has decreased a little more than 10 percent, to $193 billion.
Trading volumes increased in U.S. office markets during the third quarter, as private equity and overseas investors remain very active in pursuit of office product. Primary markets including Los Angeles and Boston have experienced notable increases in volume year-to-date, as fundamentals strengthen and investors anticipate further income gains over the next few years. It should be noted, though, that increases in activity were not consistent across geographies – in fact, in select markets, such as Chicago and Houston, office volume thus far in 2016 has notably been lower than in 2015.
Mexico saw an increase in sales activity in the third quarter, while volumes in Canada, for combined office, were down approximately five percent, retail, industrial and hotel transaction volume, year-over-year, reaching approximately US$4 billion. Still, total transaction activity in Canada has increased six percent for the year-to-date period. The hotel market was particularly active, and we continued to see an uptick in foreign investors actively buying in the Canadian market, notable for the nation’s traditionally strong domestic REIT and pension fund ownership landscape. Meanwhile, in Mexico, total transaction volume had a relative surge to over US$1 billion during the third quarter, which was more than triple that seen in the same period one year earlier. Activity was fairly diversified by sector. Year-to-date, volume in Mexico is up by approximately one-third. Investment volumes in Brazil continued to be historically light during the third quarter, as they have been for all of 2016 to date.
Given the significant weight of capital awaiting investment in real estate, the generally increasing institutional and private equity allocations to the asset class, as well as sturdy underlying property market fundamentals in most markets, the Americas is poised to continue to attract strong investment flows in 2017.
