In the old days, they said that when March comes in like a lamb it goes out like a lion. The proverb is rooted in the reality that, in the northern hemisphere at least, this month’s weather tends to be changeable and unpredictable—volatile, as we might say in the investing industry. At this time of year, winter and spring contend with one another like bears and bulls in financial markets. When it comes to the seasons, however, we may suffer the odd gale, but we know the days will lengthen, the air will warm. The markets are not so easy to forecast.
Still, March certainly came in like a lamb. The wintry blast of risk aversion lifted around February 11. Since then, world equities are up more than 8%, the VIX Index has fallen from 28 to less than 17 and the price of oil has stabilized. Emerging markets have joined the rally, suggesting that investors are regaining confidence to take long-term value positions. The correlation between daily moves in the oil price and equity markets that had spiked since December is breaking down. Both things suggest investors are focusing on underlying fundamentals again.
Positive data releases are translating into good news for portfolios. Earnings season was not necessarily great—the Q4 decline in U.S. earnings marked the first time there had been three consecutive quarters of year-on-year declines since 2009—but the soft spots in energy and banking were expected and there were few nasty surprises. Last week’s U.S. manufacturing PMI was healthy, construction spending was up, consumers surprised on the upside, and the latest inflation and unemployment indicators looked favorable. Given the improved U.S. economic outlook, markets are again pricing in higher probabilities of modest Fed rate hikes for 2016.
But let’s not forget the other half of that proverb. Is there a lion out there, waiting in the weeds?
In recent editions of our “CIO Perspectives” my colleagues and I acknowledged some serious fundamental challenges to global growth, but argued that the selling was overdone. Some “overselling” has unwound, but the challenges remain:
The price of oil may have stabilized, but it remains low and the future trend is far from clear.
China is still going through its economic transition and recent data has been soft: Last week saw the People’s Bank of China cut its required reserve ratio to add to short-term stimulus, Moody’s switch its outlook on the sovereign debt to negative, and a series of weak PMIs that hurt confidence.
Europe continues with a similar struggle for positive momentum, with soft manufacturing data from Germany and the U.K. and another dip into deflation coming through last week.
And that brings us to the catalysts that could unleash the lion of March: the ECB meeting on the 10th and the Fed meeting a week later. Once again, there is ample scope for market expectations to be met, exceeded or disappointed, and for disruptive signals to be sent. For all the semblance of “normality” over recent weeks, it will be events like these that continue to drive markets, create volatility and dampen the prospects of a sustained breakout by risk assets—at least until we have much stronger levels of confirmation out of the economic data, the earnings outlook and interest-rate expectations. Winter may not have released its grip just yet.
Standish Mellon Asset Management Company LLC, the fixed income specialist for BNY Mellon Investment Management, announced that Vincent Reinhart will join the firm as Chief Economist.
Reinhart, who will report to David Leduc, Standish’s Chief Executive Officer and Chief Investment Officer, is a recognized leader in economics and the investment management industry. He will serve as a key resource for Standish’s investment team and support developing the firm’s macro framework which is a key part of Standish’s investment process across all strategies.
“We are delighted to have someone of Vincent’s caliber and expertise to further strengthen our global macroeconomic research platform. He will provide additional scope to our team based investment process and will support our focus on developing innovative fixed income solutions,” said David Leduc.
Reinhart succeeds Tom Higgins who passed away late last year. “2015 was difficult as we said goodbye to a dear friend and remarkable colleague, but we find ourselves fortunate to add Vincent to the team,” continued Leduc.
Prior to joining Standish, Mr. Reinhart held the roles of Chief U.S. Economist and Managing Director at Morgan Stanley and is a visiting scholar at the American Enterprise Institute (AEI). In addition, Reinhart worked at the Federal Reserve for twenty-four years where he was responsible for directing research and analysis of monetary policy strategies and the conduct of policy through open market operations, discount window lending, and reserve requirements. Reinhart received his undergraduate training at Fordham University and has graduate degrees in economics at Columbia University.
“I am excited to be able to join Standish, a firm with an impressive history, strong team and excellent investment capabilities,” stated Reinhart. “I look forward to working with my new colleagues to meet the needs of our clients and to help them navigate ever changing market conditions.”
In 2015, global convertible bond issuance totaled USD 82 billion, a very decent level, although slightly down in comparison to 2014 and 2013. Overall, the past four years have seen a supportive dynamism in the primary activity across the major convertible bond markets, with repeated but also first-time issuers adding to the global convertible bond supply.
While the volume of the primary issuance is an important element of the renewal of our market, selectivity remains the key pillar. Our philosophy leads us to primarily focus on accessing cheap option characteristics and strong bond-floors. This answers to one key objective: capturing the convex potential of the asset class.
This implies to differentiate between the most expensive convertible bonds – for which the convex potential is considerably limited – and those which, in contrast, display strong drivers of convexity: cheap implied volatility, high credit quality, strong upside potential. Thus, in the latter part of 2015, our preference went to the Brenntag and FCT-Iren new issues, rather than to the latest deals from Vodafone and Total, whose pricing terms at issuance appeared relatively less attractive to us. Similarly, in January, while we found strong value in the Safran 0% 2020 new issue, we did not participate in the Technip 0.875% 2021, which displayed, at issuance, a higher implied volatility level for similar credit quality profile.
In the long run, convertible bonds’ convex potential is what has enabled the asset class to deliver enhanced risk-adjusted returns relative to equities. We were glad to see that this attractive feature was equally evidenced in the shorter term. Over 2015 market ups and downs, the Stoxx Europe 50 NR posted a volatility 3 times higher than European convertible bonds (represented by the Thomson Reuters Europe Convertible Index €-hedged) for an equivalent yearly performance.
CC-BY-SA-2.0, FlickrFoto: EvelynGiggles, Flickr, Creative Commons. La consolidación de la industria europea de fondos no parará aunque el mercado acompañe
The Thomson Reuters Lipper ‘Launches, Liquidations & Mergers in the European Mutual Fund Industry: Q4 2015’ report, available here, highlights the following trends int he industry:
Over the course of the year 2015 the European fund industry launched 2,162 new products, while 1,573 funds were liquidated and 1,127 products were merged into other funds. This meant the number of products available to European investors decreased by 538 funds during the year 2015.
At of the end of December 2015 there were 31,931 mutual funds registered for sale in Europe.
Luxembourg continued to dominate the fund market in Europe, hosting 9,174 funds, followed by France, where 4,572 funds were domiciled.
For Q4 2015, a total of 704 funds (444 liquidations and 260 mergers) were withdrawn from the market, while only 563 new products were launched.
“Since the European fund industry enjoyed high net inflows for 2015, it is surprising the industry was still cautious with regard to fund launches. There were a number of mergers between asset managers over the last few years, which led to a number of duplications in the respective product ranges that need to be cleared to achieve economies of scale. In addition, there was still a lot of pressure on asset managers with regard to profitability, which also drove the cleanup of the product ranges. This pressure might even increase, once the new regulatory frameworks are fully applied, since not all the costs related to regulation can be passed on to investors and will therefore become a burden on the asset management industry”, explain Detlef Glow, Head of EMEA Research, Thomson Reuters Lipper, and Christoph Karg, Content Specialist Germany & Austria, the authors of the report.
“In this regard the consolidation of the European fund industry might continue over the foreseeable future, and even a supportive market environment —with rising equity and bond markets—might not stop the trend. But, the consolidation should at least slow, since increasing assets under management can lead to higher income for fund promoters”.
“We might also see an even higher pace of consolidation in the number of funds available to investors in Europe, if the volatility investors experienced in the markets during December 2015 and January 2016 continues over the course of 2016”.
Foto: theaucitron
. Cambian las necesidades tecnológicas del family office
New research “Technology in the Family Office: Navigating New Solutions,” from Family Office Exchange (FOX), has identified a shift in recommended best practices for family office technology. The report details the ways that technology’s rapid development and the emergence of the cloud have disrupted the traditional approach to family office technology, and why it should lead to a change in the way offices think about that technology in the first place.
In the past, family offices typically had to custom build their technology infrastructure in order to meet their specific needs. It was an expensive, cumbersome process—and one that could leave an office unable to agilely adapt to a family’s evolving needs.
In recent years, however, two significant developments in wealth management technology have proven to have a positive impact on family office technology product selection and investment: Internet/Cloud delivery of wealth management applications, and functionality. Thanks to the cloud, family offices can now maintain their own “holistic” platforms, taking advantage of the wide variety of existing wealth management and financial service applications to design a services model that fits their unique needs.
“The sheer speed of technology development,coupled with the dramatic increase in technology adoption rates for family clients in their day-to-day lives, has created a sense of urgency for today’s family office,” said Steven Draper, senior technology consultant at FOX and author of the whitepaper. “Cloud-based solutions have the potential to change the way family office staff interacts with its client base. This shift requires a new mindset when it comes to an office’s investment in technology—family offices must act to remove outdated systems and processes in order to keep pace with modern business practices in office efficiency, security, service levels and execution.”
To design and implement this new cloud-based infrastructure, family offices need to make sure they have access to an expert who understands the unique needs of their office and the services it provides, concludes the document.
Michael Dobson, Chief Executive since 2001, will step down from the role and be succeeded by Peter Harrison on 4 April 2016. Peter Harrison joined Schroders in 2013 as Head of Equities, becoming a Board member and Head of Investment in 2014.
He has had a long and successful career in asset management and has a deep knowledge of Schroders’ culture and values, having joined the firm as a graduate in 1988, re-joining Schroders in 2013. Andrew Beeson, who has been Chairman for the last four years and a member of the Board since 2004, will retire from the Board on 4 April 2016. The Board is pleased to announce that Michael Dobson will become non-executive Chairman, effective 4 April 2016. The Board is mindful of the UK Corporate Governance Code’s provisions and believes these appointments are in the best interests of the company and its shareholders. Succession planning has been a long-term priority for the Board and these appointments have been made after careful consideration and in consultation with major shareholders. The Chairman has written to all shareholders to explain the reasons behind these decisions and a copy of the letter is part of this release, together with a statement from Lord Howard, the Senior Independent Director, who led the selection process for the new Chairman. Massimo Tosato, Executive Vice Chairman and Global Head of Distribution, will retire as a Director of the Company and leave the firm on 31 December 2016. He joined Schroders in Milan in 1995 before relocating to London in 1999, was appointed to the Board in 2001 and has held a number of senior positions within the firm. Ashley Almanza, who joined the Board in 2011 as a non-executive Director and is currently Chairman of the Audit and Risk Committee, has informed the Board that due to his commitments as Chief Executive of G4S plc, he will not seek re-election and will leave the Board at the forthcoming Annual General Meeting (AGM) on 28 April. Rhian Davies will become Chairman of the Audit and Risk Committee at the conclusion of the AGM.
Lord Howard, the Senior Independent Director, said: “We are delighted that Peter Harrison will succeed Michael as Chief Executive. Peter has great experience of the investment industry and a deep knowledge of the firm, its culture and values. Michael Dobson is the outstanding candidate for the Chairman role and the Board’s unanimous choice. Michael has been an exceptional leader of the business for over 14 years. During that time, profits have reached a record level in excess of £600 million, assets under management have tripled and significant value has been created for shareholders. Schroders has built a highly diversified business with an exceptional pool of talent, and the firm is well placed for the future. Michael will be involved in supporting the firm’s relationships with its major clients, shareholders, strategic and commercial partners and regulators. On behalf of the Board, I would like to thank Andrew Beeson for his significant contribution to Schroders over the past decade including the past four years as Chairman. We wish him the very best for the future. Although he will not be retiring from the firm until the end of this year, I would also like to take the opportunity to recognise the enormous contribution Massimo Tosato has made to the firm over 21 years as head of our highly successful global distribution business working closely with Michael Dobson as a Director of the Company for over 14 years. He will leave to pursue his entrepreneurial ambitions with our very best wishes.”
Andrew Beeson said: “It has been a privilege to serve on the Board of Schroders for over 11 years. As I look back on my time at the company I believe it has never been in a stronger position than it is today. Michael and Peter will make a formidable team and the firm could not be in more capable hands. I would like to thank Ashley for his contribution to the Board and in particular as Chairman of the Audit and Risk Committee. The appointment of Rhian Davies last year anticipated the need to have a successor for Ashley as he had indicated his executive commitments might prevent him from committing to Schroders in the longer term. As Chairman, Michael Dobson will be reviewing the composition of the Board and will lead the search for new non-executive Directors.”
Ashley Almanza said: “I have enjoyed my time as a Director of Schroders. It is a company I admire greatly. I am fully supportive of the changes announced today and I wish Peter and Michael every success in their new roles.”
According to Detlef Glow, Head of EMEA research at Lipper, assets under management in the European mutual fund industry faced net outflows of €42.6 bn from long-term mutual funds during January.
The single fund markets with the highest net inflows for January were France—driven by money market products (+€21.7 bn), Switzerland (+€1.7 bn), Norway (+€1.2 bn), Germany (+€1.0 bn), and Belgium (+€1.0 bn), while Luxembourg was the single market with the highest net outflows (-€33.5 bn), bettered by Ireland (-€13.6 bn) and the United Kingdom (-€12.2 bn).
Equity Eurozone (+€1.9 bn) was the best selling sector for January among long-term funds.
In terms of asset types, Bond funds (-€20.2 bn) were the one with the highest outflows in Europe for January, bettered somewhat by equity funds (-€19.7 bn), mixed-asset funds (-€5.3 bn), and “other” funds (-€0.08 bn) as well as commodity funds (-€0.04 bn).On the other side of the table alternative UCITS funds (+€2.2 bn) saw the highest net inflows, followed by real estate products (+€1.0)
Amundi, with net sales of €8.2 bn, was the best selling fund group for January overall, ahead of Credit Mutuel (+€3.4 bn) and Natixis Global Asset Management (+€2.5 bn). Legg Mason Western As US Mor-Backed Securities Acc (+€0.7 bn) was the best selling individual long-term fund for January.
Foto: LinkedIn / Foto de Londres de Jack Torcello. Chris Justice, nuevo COO y responsable de Janus para el mercado europeo
According to Investment Europe, Janus Capital International, the international arm of Janus Capital. has appointed Chris Justice as Chief Operating Officer and head of Europe.
Based in London, Justice will develop and execute Janus Capital International’s business strategy across EMEA working with Jamie Wong and Sylvain Agar, Heads of Institutions, and of Financial Intermediaries, EMEA.
Up until now Justice was Head of Strategic Initiatives for APAC and EMEA from Hong Kong. He will continue to report to Augustus Cheh, President of Janus Capital International.
Prior to joining Janus in 2013, Justice was managing director of Quam (Hong Kong) Ltd, where he led a team of research analysts and asset managers providing non-discretionary portfolio advice to high net worth and retail investors.
As of December 31, 2015, Janus Capital International had $42.4bn (€38.6bn) in assets under management.
At the end of 2015, Janus Capital group’s global assets totalled $192.3bn (€175bn), of which Janus Capital International represented 22% of total global assets up from 8% in 2010.
Foto: Davesag, Flickr, Creative Commons. BNP Paribas IP recibe el premio de Agefi a la innovación por su ETF de empresas europeas con bajas emisiones de CO2
THEAM, BNP Paribas Investment Partners’ (BNPP IP’s) manager of index-based investment solutions), has won the 2016 Innovation Award at Agefi’s Grands Prix des ETF for its BNP Paribas Easy Low Carbon 100 Europe® UCITS ETF. It received the award, which recognises leading ETF (exchange-traded fund) innovation in the equity category, on 11 February, at the second edition of the Grands Prix des ETF. The event was organised by French business and financial periodical Agefi in tandem with TrackInsight, the ETF analysis platform.
This award recognises the pioneering role played by BNPP IP, which in 2008 became the first investment management company to launch a Low Carbon ETF. Benchmarked to the Low Carbon 100 Europe® index, BNP Paribas Easy Low Carbon 100 Europe® UCITS ETF replicates the performance of 100 major European companies with the lowest CO2 emissions in their respective sectors.
This award demonstrates the innovative capability of BNPP IP, which helped modify the methodology of the Low Carbon 100 Europe® index, alongside Euronext and Carbone4, in November 2015. It is now possible to identify companies that make a positive contribution to the energy transition, whether through their operating performance or through the products sold to clients. This Low Carbon index fund combines responsible investment and a diversified exposure to European equities. Investing in this Low Carbon ETF means investing in a portfolio with half the CO2 emissions of the companies in a traditional Europe index.
This award underscores BNPP’s long-standing commitment to a low-carbon economy. After signing the Montreal Carbon Pledge in May 2015, implementing a carbon-linked investment policy, signing up to the Portfolio Decarbonization Coalition and publishing the carbon footprint of equity funds in its Parvest line in November 2015, BNPP IP has again demonstrated its ability to innovate and play a pioneering role in low-carbon investments.
Frédéric Janbon, Chief Executive Officer of BNPP IP, comments: “We are very happy to have received this award, which illustrates our commitment to responsible investment. Our many initiatives in recent years allow us to offer our clients, both institutional and retail, a broad selection of investment solutions based on our research and innovation.”
Denis Panel, Chief Executive Officer of THEAM, adds: “The Low Carbon ETF helps fund energy transition by directing investments to companies that are the most active in reducing CO2 emissions and that make the biggest contribution to limiting global warming to less than two degrees.”
Anthony Attia, Chairman and Chief Executive Officer of Euronext Paris, comments: “We congratulate BNP Paribas Investment Partners on this award, which illustrates that the new version of the Low Carbon 100 Europe® index and its related tracker were very well received. Innovation lies at the heart of offering investors index products that measure companies’ environmental performance.”
Liquid alternatives in a UCITS format are attracting interest from a wider range of investors, including insurers and pension funds, as a way to meet the transparency edicts of Solvency ll.
Cerulli Associates‘ report entitled European Alternative Products and Strategies 2016: Opportunity Knocks in the New Era finds that institutional investors are turning to retail-style alternative products as a cost-effective means to address regulatory pressure and to bridge the yield gap created by low-performing debt holdings.
More than 86% of asset managers surveyed by the global analytics firm predict an increase in demand for alternative UCITS funds over the next two years. Products with the UCITS stamp of approval are enticing conservative institutions in France and Germany into alternatives, as well as insurers EU-wide following the introduction of Solvency II.
In addition, hedge fund managers interviewed by Cerulli said that, although there had been fewer requests for UCITS products among institutional clients in the past 12 months when compared with offshore, AIFMD-branded alternative investment funds, and segregated accounts, they expected UCITS to be, along with offshore, the most likely format for new fund launches over the next two years.
“What was once the preserve of global and regional private banks is of increasing interest to continental institutions as well as EU insurers more generally,” says Tony Griffiths, senior analyst at Cerulli and co-author of the report. “One Swiss hedge fund manager told us it was surprised to find interest in the UCITS versions of its products among Swedish and Finnish institutions–two of Europe’s bigger buyers of offshore funds,” he adds.
Alternative beta -or risk premia- productsare also being sought, and implemented, by institutional clients as a cost-effective, liquid, and flexible means of securing portfolio diversification and achieving similar returns to hedge funds; a move that is stretching the definition of “alternatives”.
“The balance of power is shifting to the investor,” says Justina Deveikyte, senior analyst at Cerulli and co-author of the report. “Lingering dissatisfaction with offshore hedge funds-sluggish performance, high fees, and minimal opacity -has influenced the rise in demand for alternative beta products,” she adds.
A number of alternative asset managers and hedge fund houses across Europe are evaluating or have already developed alternative beta strategies, while others are quite skeptical. There has been an increase in launches by alternative asset managers as they seek to meet growing demand and diversify business. This will invite greater scrutiny of performance.
