According to Axa IM‘s credit market monthly review, the strong rebound in credit since mid-Feb has legs to run further. Greg Venizelos from the Axa Research & Investment Strategy team writes that the improvement in US macroeconomic data and the stabilisation in both the oil/commodity markets and the Chinese risk premia, have brought some respite to global risk. “Credit spreads saw a material tightening as a result, from levels that were arguably overdone in the context of global growth and credit fundamentals. Since 11 February, US High Yield (HY) has transformed itself from the worst performing market within developed market credit to the best performing, matching our early February call for HY to outperform investment grade (IG). Looking ahead, while it’s reasonable to expect a consolidation in the broader risk rally after a very strong run, we think that credit spreads can continue to tighten and HY spreads can compress further vs IG in the near term.
The rebound in US HY has been nothing short of spectacular, with the overall index returning 7.2% since 11 February, led by an increase of c.20% in energy and c.16% in metals and reaching 1.3% YTD
Venizelos notes that “the rebound in energy is, of course, from a very distressed level.” Indicative of the brutal correction earlier in the year, energy remains the worst among the biggest HY sectors year-to-date, down by 2.9%.
The outperformance of HY over IG that we advocated in early February has materialised and we see scope for this HY/IG spread compression dynamic to run further. While IG spreads have clearly widened YTD, HY spreads have remained relatively contained.
As a result, the US HY/IG spread ratio has compressed from 4.2x in mid-December 2015 to 3.6x currently.”We think that there is room for further compression in spreads, pushing the spread ratios towards the ‘low 3s’ in US and below 3.5x in euro. One technical hindrance to further spread compression for US HY, in particular, is that the US HY index spread has tightened markedly vs x-asset volatility, from 100bps (+3.7) in late January to -38bps (-1.5) currently, implying that the compression momentum could be due a pause for breath.”
From a seasonality perspective, Venizelos noted that, on average, March tends to be a month of positive returns for HY credit and flat-to- negative returns for IG credit. HY credit has already met and exceeded this seasonal pattern, with US HY at 2.8% month to date, which is above its March ‘average plus one standard deviation.’ “This suggests that the current run rate of HY performance is unlikely to be sustained over the entire month. Indeed, while the tail risks that have dogged global risk until early February have receded, credit investors may begin to fret about more mundane risks, like excessive supply in primary markets and insufficient new issue premiums, which could hinder credit spread performance,” he concludes.
Foto: Jonathan Mueller
. UBS Wealth Management Americas y UBS AM lanzan un servicio de externalización de CIO
UBS Wealth Management Americas and UBS Asset Management announced the launch of UBS Outsourced Chief Investment Officer (OCIO), a new service to address the needs of institutional clients and those who serve on investment committees at institutions such as religious organizations, pension funds, foundations, endowments, alumni associations and charities. This program combines UBS’s consulting experience and investment heritage, providing clients the ability to retain portfolio oversight while delegating investing decisions to experienced managers.
“Outsourcing investment decisions to aknowledgeable and dedicated discretionary consultant, rather than relying on those within the organization who have differing responsibilities, can better help organizations accomplish their missions,” said Peter Prunty, head of UBS Institutional Consulting. “UBS OCIO has the institutional skills and asset management expertise to work on behalf of clients to help them achieve their investment goals, giving clients more time to focus on their organization’s objectives.”
“In partnering with our colleagues in Wealth Management Americas to deliver a compelling OCIO offering, we are focused on enabling clients to concentrate on what matters to them and their organization,” said Frank van Etten, Head of Client Solutions for UBS Asset Management. “We have complemented the institutional offering of a global asset management organization with the accessibility of a local financial advisor who understands each particular client’s needs.”
The improved governance and shared fiduciary responsibility that OCIO provides can help clients better manage risk. OCIO also moves many administrative burdens from the client to UBS through a disciplined process that keeps clients focused on results. In addition, Institutional Consultants deliver regular performance reports and economic and market intelligence to help keep clients updated and on track.
When they write the final history of central banks and the global financial crisis, the six weeks from January 29 to March 16, 2016 will be a prominent late chapter.
We went from the Bank of Japan’s (BoJ) surprise adoption of a negative interest rate to the Federal Reserve finally giving ground to market bearishness, with yet another game-changing intervention from the European Central Bank’s (ECB) “Super” Mario Draghi in between. Not coincidentally, the S&P 500 Index rallied 11% from its lows during the same period. Central banks have been looking into the abyss of spiraling negative rates and all-out currency war over recent months—and the last two weeks saw them pull back from the edge.
My colleagues and I have discussed how corrosive negative rates could be for banks and, potentially, for the financial system at large. On top of this, benefits from resulting currency weakness were always likely to be outweighed by slow global growth, rising import costs and other countries entering the fray. Markets felt instinctively uncomfortable: The BoJ’s decision sparked a punishing fortnight for risk assets and a backlash from domestic savers and consumers. If ever a monetary easing announcement backfired, this was it.
Discussion spread well beyond Neuberger Berman, in a tone that I would describe as modestly critical.
Central banks themselves have been part of the conversation, sometimes in public (think of the normally dovish New York Fed President Bill Dudley describing talk of negative rates in the U.S. as “extraordinarily premature” on February 12) and sometimes behind the scenes. At the ECB’s policy announcement and press conference on March 10, a new consensus seemed to be revealed.
The irony is that the ECB did cut its deposit rate again, to -0.40%. It took some of the sting out by extending liquidity to banks at the same rate for five years, and also expanded its quantitative easing program and added corporate bonds to the securities it could purchase. Risk markets liked the news and the euro dived. But Draghi’s comments during the press conference were the real story: “We don’t anticipate it will be necessary to reduce rates further,” he said. He acknowledged the danger that would pose to banks and confirmed a shift “from rates instruments to other, nonconventional instruments.” Suddenly the headline wasn’t negative rates anymore, but the “nonconventional” stuff. Markets really liked that—and the euro soared.
When the BoJ held rates steady five days later, despite a gloomy economic assessment, and added measures to shield banks from its negative rate, that fit the new consensus.
And the Federal Reserve last week? In holding rates and revising its rate projections substantially downward, it finally responded to what markets had been asking for (via their pricing of risk assets and Fed Funds futures) after months trying to break free of those expectations.
But it fit the consensus in other ways, too. In 2015, the roadmap for the Fed’s policy trajectory was unclear: a bit about China and global conditions, a bit about U.S. employment and inflation, but not much about how it was all related. Last week, the message was crystal: We can’t consider U.S. prospects without taking account of global conditions. Despite very modest Fed policy moves so far, U.S. financial conditions have tightened significantly. Why? Because of U.S. dollar strength. And why is the dollar so strong? Because slowing growth led to aggressive monetary easing and weaker and weaker currencies in the rest of the world.
With the ECB and the BoJ choosing more direct stimulus over the rates-and-currencies channel, however, many believe the dollar is unlikely to rise much further from here. The resulting loosening of U.S. conditions may give the Fed wiggle room for its two hikes in 2016. This is what the Fed gains from the new consensus. With Thursday’s core inflation print surprising to the upside, is it possible that Fed Fund futures, which responded to the Fed announcement by lowering the implied probability of a hike in June, are now behind the curve?
We’ll see. The past two weeks have seen a major transition in central bank philosophy, and possibly a renewed sense of coordination. So far, markets have been euphoric at this turn away from the abyss and back towards some kind of “normality.” How this normality ultimately plays out remains an open question.
According to the latest BofA Merrill Lynch Global Research report, conducted from March 4-10, 2016, average cash balances are down to 5.1%, from a 15 year-high of 5.6% in February. While the three top most crowded trades are Shorting Emerging Markets, Long US dollar and Shorting Oil.
“With cash levels now slightly above their 3-year average, investors no longer are sending the unambiguous buy signal we saw last month,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch.
During March investors made a strong rotation of positioning into industrials, energy, materials and Emerging Markets, with the biggest monthly jump in allocation to commodities on record. Also, allocation to real estate/REITS experienced its second highest month in survey history.
The survey also noted that investors have flipped their views on credit, with a net 15% believing high yield will outperform high grade in March, versus a net 13% favoring HG in February. Net overweight positions in equities improved.
Regarding the US Monetary Policy, the vast majority of fund managers still expect no more than two Fed hikes in the next 12 months, while a record net 35% think global fiscal policy is still too restrictive, and “quantitative failure” is seen as one of the biggest tail risks.
According to Manish Kabra, European equity and quantitative strategist, “global investors are trimming their extreme regional views and cite ‘quantitative failure’ as the biggest tail risk. However, they remain the least bearish on Europe.” Europe is seen as relative winner as European cash allocations dropped to average levels, and the region remained the most preferred globally; EUR now seen as cheapest since April 2003. Japan has fallen further out of favor as allocation to Japanese equities declines to a 22-month low of net 15% overweight, down from net 24% overweight in February, whereas in Emerging Markets, Chinese growth expectations jump to 4-month highs but a net 26% of investors still expect a weaker Chinese economy over the next 12 months.
According to Detlef Glow, Head of EMEA research at Lipper, assets under management in the European mutual fund industry faced net outflows of €24.5 bn from long-term mutual funds during February.
The single fund markets with the highest net inflows for February were Switzerland (+€1.5 bn), Ireland (+€1.2 bn), Norway (+€0.8 bn), Germany (+€0.4 bn), and Andorra (+€0.1 bn). Meanwhile, Luxembourg was the single market with the highest net outflows (-€18.3 bn), bettered by the United Kingdom (-€2.8 bn) and Spain (-€0.8 bn).
Absolute Return EUR Medium (+€1.6 bn) was the best selling sector for February among long-term funds.
In terms of asset types, Bond funds (-€11.5 bn) were the one with the highest outflows in Europe for February, by equity funds (-€8.4 bn), mixed-asset funds (-€5.8 bn), and “other” funds (-€0.8 bn). On the other side of the table alternative UCITS funds (+€1.1 bn) saw the highest net inflows, followed by real estate products (+€0.6 bn) and commodity funds (+€0.3 bn).
BlackRock, with net sales of €5.4 bn, was the best selling fund group for February overall, ahead of Generali (+€2.9 bn) and Legal & General (+€2.7 bn). MMA II – European Muti Credit BI (CHF hedged) (+€0.7 bn) was the best selling individual long-term fund for February.
Signs of a global economic slowdown have impacted the US equity market this year and led to discussions about a possible recession in both the US economy and US corporate profits. Grant Bowers, vice president, Franklin Equity Group, says current conditions and the outlook for a key economic indicator don’t warrant such strong language. In this Q&A, Bowers maintains that, with the help of stronger consumer spending, the backdrop for the US economy and US companies should remain generally positive for the remainder of 2016.
Concerns about growth in emerging markets and collapsing energy prices have led many to fear that despite generally positive economic data in the United States, we may not be able to avoid lapsing into a recession. This has driven market pessimism to extremely high levels in the first few weeks of 2016. Despite these fears, Bowers continues to believe the US economy is performing well, “and 2016 will likely surprise many with modest corporate earnings growth, strong consumer spending and gross domestic product (GDP) growth in the 2%–3% range. These types of broad-based selloffs typically create opportunities for long-term investors to buy high-quality companies at attractive prices, and we have been actively seeking bargains for our portfolios in recent weeks.”
Despite a rough start to the year, he adds that they “don’t see a recession on the horizon, and believe the US economy is stronger than many believe. Every expansion since World War II has gone through periods of slow growth. I believe that when we look back in the rear-view mirror later this year, we will see this period as a growth pause in a longer expansionary cycle.” Bowers cites the strength of the US consumer as one of the reasons they remain constructive on US equities.
According to him, two key themes that emerged from earnings season. “First, a stronger US dollar was a headwind for many multinational companies, and the currency impact combined with slower global growth resulted in companies with high international exposure experiencing slower growth relative to more domestic or US-focused companies; second, lower oil and gas prices had a negative impact, where year-over-year earnings were down more than 70% for the energy sector, dragging down the average growth rate.” However he believes that “as consumers become more comfortable with lower energy prices, they will start increasing their spending on discretionary goods and increased consumption.”
Him and his team have a positive long-term outlook for technology and health care companies “with a tremendous amount of change likely to take place in the next few years… Some of the areas of technology that we are focused on are cyber security, Software as a Service (SaaS), cloud computing, digital payments, mobility and smart devices. In the health care sector, we continue to like the long-term outlook, where an aging population globally will drive increased consumption of health care services and demand for improved treatments and cures. This demographic tailwind combined with innovation in drug development and medical technology is creating numerous investment opportunities as well.”
Regarding the 2016 US presidential election, he believes the political uncertainty has contributed to some of the volatility we have seen year-to-date. And expects it to continue “until the presidential primaries are settled and we have a better understanding of who the major parties’ nominees are and what their policy proposals will be.”
Toscafund Asset Management and ML Capital are pleased to announce the restructuring and rebranding of the Pegasus UCITS Fund, the inaugural fund of the MontLake UCITS Platform. Launched in September 2010, the fund is now re-launching as the Tosca Micro Cap UCITS Fund. MontLake is a leading independent platform for UCITS funds that provides investors with access to a range of liquid, transparent and regulated investment products domiciled in Ireland.
The Fund will invest primarily in UK listed “micro cap” companies (defined as companies with a market capitalisation of up to £250m) and will seek to exploit inefficiencies in this sector of the market. This is a large universe of companies, many of which receive little coverage and are poorly understood in the market. Toscafund has a proven track record over the long term in UK mid-cap and small-cap investing, and the Tosca Micro Cap UCITS Fund is a natural extension of this same fundamental, value-orientated strategy, applied to the opportunity-rich UK micro cap sector.
The Fund will be led and managed by Matthew Siebert and supported by analysts Daniel Cane and Jamie Taylor. They work with and are supported by the team of investment professionals within Toscafund, many with over 20 years of investment experience. The Fund will capitalise on Toscafund’s mid cap expertise, employing the same core skill sets and doing deep dive research into companies, markets, sectors and peers, and benefitting from the existing relationships with analysts, brokers and companies.
The Tosca Micro Cap UCITS Fund’s capacity will be set at £50m, and Toscafund partners intend to invest a minimum of 10% in the Fund. The revised investment policy will also allow for investment of up to 20% of the NAV in companies that have a larger capitalisation, of up to £1bn. The Fund will have a diversified portfolio of 30 to 40 holdings, with risk limits governing position sizing.
According to Cyril Delamare, CEO of ML Capital: “Pegasus was the first fund to launch on the MontLake Platform, and it is exciting for us to see it develop as the Tosca Micro Cap UCITS Fund. Toscafund are a best in class manager and are committed to growing the fund to its full potential – we look forward to its progress in the year ahead.”
Martin Hughes, Founder and CEO of Toscafund said: “I look forward to investing in the Tosca Micro Cap UCITS Fund as the fund managers will uncover hidden gems, companies with high growth prospects that are neglected by mainstream funds as the valuations are deemed too small. This will be a very profitable strategy and an area where you find the acorns that then turn into oak trees.”
CC-BY-SA-2.0, FlickrAsa Norrie, responsable de Desarrollo de Negocio para Europa de Standard Life Investments. Foto cedida. SLI continúa su expansión mundial: el 67% de las suscripciones netas en 2015 llegaron ya de fuera del Reino Unido
Standard Life Investments, the global asset manager with Assets under Management (AUM) of €343.5bn, has reported strong growth for Europe during 2015 despite volatile markets. Assets managed on behalf of clients and customers in Europe have increased by 32% to €19.3bn (2014: €14.6) with net inflows across the region up 194% to €4.7bn, representing 32% of opening assets. These figures were released as part of Standard Life plc’s full year results for 2015.
The company has continued to expand globally and is now represented in 27 cities worldwide. In Europe during 2015, Standard Life Investments opened an office in Zurich along with expansions in Amsterdam, Stockholm and Frankfurt. The European Business Development team has now grown to a team of over 20 people based across Northern and Southern Europe and in Standard Life Investments’ headquarters in Edinburgh, with further expansion expected in the coming months.
Highlights of Standard Life Investments’ performance in 2015 include:
Total AUM worldwide is up 8% to €343.5bn (2014: €316.8bn); third party AUM worldwide up 17% to €177.1bn (2014: €151.3bn); strong third party net inflows worldwide of €14.2bn (2014: €2.1bn); 67% of net inflows from outside the UK as the company continues to expand its global reach; worldwide operating profit before tax up 48% to €471mn (2014: €319m); strong investment performance with 90% of third party funds ahead of benchmark over five years 95% ahead over three years and 88% over one year time periods; Europe net inflows up 194% to €4.7bn (2014: €1.6bn).
Asa Norrie, Head of European Business Development for Standard Life Investments, commented: “In this low and even negative interest rate environment in Europe, many investors – both Wholesale and institutional–are looking for capital efficient portfolios that offer true diversification. These figures demonstrate that Standard Life Investments is well positioned to meet the changing needs of investors in the region. We have been active in Europe for over a decade and continue to see ongoing demand for our range of investment solutions including fixed income and equity together with real estate, private equity and our innovative multi-asset solutions”.
“Looking forward into 2016, with difficult market conditions in Europe and globally, our expertise in risk management and our core Focus on Change investment philosophy will remain key in helping to deliver consistent performance and solutions for our clients and customers in the region”.
EFAMA strongly supports actions to deepen the European single market for retail financial products and services, and address its remaining barriers, for consumers and businesses to make full use of it.
Alexander Schindler, President of EFAMA, said: “Investment funds – UCITS in particular – are the best possible example to date of a well-functioning EU single market for financial services, and UCITS is often cited as a successful story to find inspiration from”. The share of funds distributed on a cross-border basis in Europe is regularly increasing and stood at 42% of total European investment fund assets in 2014 (from 29% at the end of 2004).
The UCITS cross-border distribution is working well, yet there is still room for improvement. EFAMA has identified a number of obstacles that are still hindering the cross-border distribution of investment funds. This mostly stems from the absence of an EU regulatory framework in certain areas, goldplating of EU legislation, fragmented marketing rules or discriminatory withholding of tax by EU Member States.
This should be addressed to further reinforce the merits of UCITS as a true cross-border financial product. In this sense, EFAMA is strongly in favour of building on the UCITS success factors and replicate these in other sectors, most notably in the area of personal pensions.
EFAMA has long advocated for the creation of an EU personal pension product as a solution to overcome the fragmentation of personal pension markets in the EU.
Peter de Proft, Director General of EFAMA, commented: “We feel very strongly about the need to address the current fragmentation of the market for retirement savings. This has to be done in order to foster portability, economies of scale to lower costs and generate better returns to consumers, and also to enhance transparency, competition and innovation. The creation of a standardised Pan-European Personal Pension product (PEPP) would allow progressing in that direction“.
The response to the Green Paper is also the opportunity for EFAMA to support the important work done by EIOPA on the PEPP, which would coexist with existing personal pension products and would be used on a voluntary basis.
EFAMA equally welcomes the broader debate about digitalisation and its impact on the retail markets launched by the Green Paper. The trend towards greater digitalisation of financial services promises to bring another dimension to the way fund products are to be marketed and sold.
. ¿Alguna vez se ha preguntado cómo comprar el diamante perfecto?
Most people have at least one diamond. In 1477 A.D., Archduke Maximilian of Austria presented a diamond ring to Mary of Burgundy as a sign of their engagement. They have since become the number one symbol of love and marriage around the world.
But what do we really know about them? Outside of being shiny, hard and expensive, very few people learn much about these stones. Be it for a gift, pleasure or as an investment, Karen Simmons a GIA Gemologist takes the mystery out of the topic in her new book, Perfectly Clear – Buying Diamonds for Pleasure and Profit.
“For decades”, Karen says, “people have been taught that the value of a diamond depends on how it is graded according to the 4Cs — Cut, Color, Clarity and Carat weight. But there’s really a 5th C and it makes all the difference. The 5th C stands for “character” which establishes and guarantees the integrity. And one of the best way to identify and establish the integrity of a diamond is to ask for proof that ensures the ownership of the diamond can be traced from its birth mine to the present owner or seller.”
Perfectly Clear offers up the fascinating history and amazing ins and outs of the diamond trade. It provides crisp advice on how to navigate the complex world of buying a diamond and how to minimize paying too much and getting taken advantage of, as well as a special section on gems and their ties to superstition, medicinal uses, and spiritual beliefs.
Included in Simmons’ recommendations for anyone who is interested in protecting their investment in diamonds are:
DO’s
Consider colored diamonds
Buy and grade diamonds as loose stones
Identify your diamond properly
Get to know your local jewelry professional
Determine a diamond’s real value
Learn the basics about diamonds
Broaden your diamond horizon
Enjoy the variety of diamond shapes
DON’Ts
Buy a diamond without an independent grading report
