Foto: Thomas Leth Olsen. La industria ha perdido el toque: hay que volver a lo básico
Generations of scribes have benefited from George Orwell’s famous rules for writing, guidelines that are still cited in the style manuals used at The Economist and Bloomberg. The author of 1984 and Animal Farm teaches us: never use a long word when a short word will do; if it is possible to cut a word out, always cut it out; and never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent. In other words, keep it simple.
Orwell, like all masters of their craft, knew that simplicity is the ultimate goal of any endeavour. Simplicity aids understanding. Simplicity promotes efficiency. Simplicity means fewer things can go wrong. And yet, simplicity, ironically, is hard to achieve. Mathematicians seek ‘elegant’ solutions to problems – solutions that are simple yet effective. Stephen Hawking, arguably the most famous scientist alive, spent many years searching for the single, as yet elusive, ‘theory of everything’.
Sadly, simplicity has eluded the financial industry, opines the Asian Equity Team at Aberdeen Asset Management. More than 50 years ago Benjamin Graham, Warren Buffett’s investing mentor, warned that the more elaborate the mathematics used to support an investment strategy the greater the likelihood experience was being replaced by theory, investment with speculation.
And yet complex mathematical models that nobody understood underpinned the most egregious products to blow up ahead of the financial crisis. ‘Modern finance is complex, perhaps too complex. Regulation of modern finance is complex, almost certainly too complex,’ said Andy Haldane, chief economist at the Bank of England, as recently as 2012. ‘That configuration spells trouble.’
“Asset management, in line with the broader financial industry, faces reform as regulators seek to prevent the repeat of abuses. They are subjecting fund managers to unprecedented scrutiny and censure even as new evidence of wrongdoing is being uncovered at the banks. Investors are also questioning whether so- called ‘actively managed’ funds offer value for money, while opting for low-cost index-tracking alternatives. Years of central bank stimulus policies have neutered the volatility in stock markets on which active fund managers depend”, writes the Aberdeen´s Asian Equity Team.
One of the biggest challenges the industry faces, continue the team, lies in winning back the trust of sceptical investors and market watchdogs. The challenge is both ethical and organisational. A simpler compensation structure helps remove some of the conflicts of interest that were inherent. For example, the U.K. has banned the payment of commissions by fund managers to financial advisers, a system which disadvantaged investors. This is something other jurisdictions are now looking to adopt.
Meanwhile, regulators need reassurance that financial institutions are behaving.
Whether they like it or not, fund managers are being treated more like banks, amid proposals in the U.S. to categorise them as being ‘systemically important’ to the financial industry and therefore subject to much of the restrictive legislation created after the financial crisis.
Asset managers would argue their industry does not pose the same risks, since it does not commit its own capital.
Creating and selling products that everyone understands is a priority, points out Aberdeen Asset Management. Regulators are trying to introduce more investor safeguards, but this can spawn more complexity not less. For example, excessive small print designed to highlight investment risks may serve the opposite purpose because the longer the disclaimers the less likely they are to be read. In an attempt to address this problem easier-to-understand ‘mini prospectuses’ are now mandatory in some jurisdictions.
“Disgust over the way some companies behaved before the financial crisis has paved the way for the return of simplicity as business proposition and regulatory imperative. However we believe that financial institutions, especially asset managers, should embrace the principle not because they have to, but because they want to. There should be nothing to fear if you have confidence in your investment process. Scrutiny should be something to be welcomed rather than avoided. We welcome the move towards simplicity, which is just as well, because simplicity is here to stay”, conclude.
Investors must, of course, be vigilant of the Black Monday events and what has led to them. They need to ensure that their portfolios are properly diversified by geography, industrial sector and asset class in order to manage risk and navigate the growing volatility.
If their portfolio is indeed well-diversified, for the time being at least I would urge investors to remain cautious and consistent.
In terms of what investors should do, it is not ‘sell in a panic’, or the opposite reaction: ‘fill your boots with bargains’. For most long-term investors, it is ‘keep calm and carry on’.
It’s nearly impossible to predict what the stock market is going to do in the immediate future – and it is much too early to say if the current sell-off is nearing its bottom.
However, stock markets can be fairly predictable over long periods of time. They tend, over time, to go up over multi-year time periods. With this in mind, a sensible strategy is dollar cost averaging.
Investors need to ask themselves ‘will stock markets be higher than this when I retire? Looking at financial market history, the answer is probably ‘yes’, if they have a decade or more ahead of them. So, logically they should carry on buying as markets fall.
It is often said that the key to investment success is to buy low and sell high. The only problem with that theory is that trying to accurately time the weakest point in the cycle is impossible.
As such, it is best to just feed the money in over time in a measured way in order to take advantage of the long-term trend of stock markets to deliver long-term capital growth.
History teaches us that panic-selling in stock market crashes can be potentially financially disastrous for investors.
Nigel Green is founder and chief executive of deVere Group. He established deVere in 2002 and today his organisation has more than $10bn under advice from 80,000 clients in 100 countries.
Markets across the globe are under pressure, with Asia and emerging markets seeing the worst year-to-date returns driven by a growing concern over China’s ability to manage its slowing economy and the related impact that is having on commodities and related industries.
In the U.S. the economy overall continues to grow at a moderate pace. However, weak manufacturing numbers and growing credit concerns, evident in high yield and other credit spreads, have combined with the China worries to cause a painful six percent drop in S&P 500 this week.
Scott Glasser, Co-Chief Investment Officer, Managing Director and Portfolio Manager at Legg Mason points out that ten-year U.S. Treasury yields dropped notably last week. “For the moment, deteriorating credit, falling commodity prices, emerging markets weakness and the potential for slower growth have become more worrisome to investors than the timing of fed fund increases”, explained.
Over the last several years, said Glasser, the market has appreciated significantly and well in excess of underlying earnings growth, making it vulnerable to disappointment. “We have had very little volatility in the broader market averages with no ten-percent correction for at least three years. This is rare from a historical perspective”, commented Glasser.
“However it must be noted that this is a mature bull market in its 6th year and recently we have seen a narrowing of stocks still participating in the rally. The precipitous drop in individual stocks over past few months reflected lack of conviction by speculators. This was not evident in the broader market averages as a whole until this week. We will continue to focus on market breadth or participation as an indicator of market health in months ahead”, said the portfolio manager.
According to Legg Mason, the market decline has been somewhat equally spread across stocks and sectors as liquidations of exchange-traded funds (ETFs) to raise cash or reduce exposure have resulted in broad declines across portfolios. However, momentum driven names have experienced the worst declines.
“Sentiment indicators like put/call ratios and trin ratios which show breadth of market participation show capitulation and are at extreme levels arguing for a likely snap back rally shortly”, said Glasser.
Based on history, Legg Mason believe the market is in the process of making a low. However, the selling typically needs to be followed by a quick reversal with strong buying support indicating that prices have become low enough to attract strong buying demand. The quality (strength and broadness of participation of the rally) can typically provide valuable clues as to whether the bottom is likely to be durable longer term.
“We have maintained all year that after the last several years of outsized large returns it would logical to expect markets to digest past gains and grow into existing market valuation that was high by historical standards. Said differently, it was our belief that stock returns would be up modestly in 2015. While the risks may be higher, that continues to be our expectation”, concluded.
A new survey of financial services professionals conducted by Cipperman Compliance Services (CCS) reveals that asset managers, broker-dealers, and other firms are embracing compliance as a core function of their business, with an equal number of respondents reporting that they now spend as much on compliance as they do their legal counsel.
The second annual “C-Suite Survey”, drawn on responses from 180 leaders tasked with compliance in the financial services industry, finds that although a greater number of firms have formed compliance committees and conducted reviews of their compliance programs in the past year, only18% allocate more than the industry-benchmark 5% of revenues to such activities.
As regulatory scrutiny of the industry continues, client pressures have driven an industry-wide march toward adopting formal compliance procedures.
Eighty-one percent of respondents are “concerned” or “very concerned” by the Securities and Exchange Commission’s practice of naming and prosecuting individuals. Moreover, 70% of respondents also report that prospective clients have asked to review compliance policies or interview compliance personnel, suggesting that compliance is now seen as an integral part of a desirable financial firm.
“Gaining the trust of clients is essential in asset management,” said CCS Managing Principal Todd Cipperman. “A manager’s ability to demonstrate a strong compliance program is a big factor in landing asset management business from institutional and individual investors.”
Accordingly, firms have taken concrete steps to formalize their compliance procedures. Sixty-three percent of asset managers indicate they have a compliance committee at their firm, rising from 48% reporting the same in 2014. Moreover, 88% of all respondents report that they have conducted a compliance review in the last year, as opposed to the 67% who answered as such in 2014.
“Firms are choosing to vest these duties with committees and individuals whose sole responsibility is compliance, as opposed to wearing multiple hats, which has proven to be the most effective means of maintaining a culture of compliance,” said Cipperman. “Truly dedicated compliance personnel reduce conflicts of interest, stay on top of the shifting regulatory landscape, and ensure compliance doesn’t take a backseat to other business functions.”
Resources Don’t Match Commitment
Even as firms report dedicating personnel to compliance, they have yet to fully devote the appropriate amount of resources to their programs. Just more than half of respondents, 53%, report spending between 0 and 5% of their total revenues on compliance.
Alarmingly, a significant number of respondents (who are charged with compliance activities at their firms) were unaware of how much they spend altogether. Twenty-nine percent of asset managers, 35% of broker-dealers, 14% of alternative managers, and 31% of wealth managers could not identify what they spend on compliance.
“These figures show, as they did last year, that it is much easier to talk the compliance talk then walk the walk,” noted CCS Managing Director Jason Ewasko.“Firms should spend a minimum of 5% of revenues or two basis points of assets under management on compliance in order to have an effective program. Less than that and they are putting their businesses, and in extreme cases their personal finances, at risk.”
Outsourcing Compliance Function Grows in Appeal
On the heels of recent acknowledgements by the SEC of outsourced compliance activities and court rulings validating the practice, the C-Suite Survey found that the industry has rapidly adopted the practice. Fifty-seven percent of all respondents say they outsource some or all of their compliance function, a rise from the 24% who outsourced in 2014. Leading the trend of firms embracing outsourcing are broker-dealers at 65% and alternative managers at 68%.
Foto: Luis, Flickr, Creative Commons. Los fondos monetarios captan 77.000 millones de dólares en julio ante la incertidumbre en el mercado
Global assets under management did not move significantly in July and stood at $35.9 trillion USD at the end of the month. Estimated net inflows amounted to $114.9 billion USD, while market movements in the reporting month delivered an $86.7 billion USD loss. In terms of market share, the trend continues to favour Equity Funds (+0.2 %) over Bond Funds (-0.2%) and Money Market funds (+0.1%), according to Lipper Thomson Reuters figures.
All asset types posted negative average returns, with Commodity Funds taking the biggest hit (-8.7 %) due to a further drop in energy prices after settling the Iran deal and a significant decline in precious metal prices. A further depreciating Euro versus US Dollar (-0.8%) had an additional impact on Lipper’s USD calculated fund market statistics.
Regardless of negative average returns, nearly all asset types except Bond and Commodity funds could profit from net inflows. Leading the way was Money Market Funds with $77.7 billion USD inflows, indicating some money being put aside because of uncertain market outlook, followed by Equity Funds with $29.5 billion USD. Bond Funds lost $0.6 billion USD and Commodity Funds some $1.7 billion USD, due to outflows.
Apart from the two big Money Market Classifications US Dollar ($41.0bn) and Euro ($29.5bn), the Equity Global ex US ($17.0bn), Equity Japan ($9.4bn), and Equity Europe funds with $7.1 billion USD estimated net inflows were able to attract the greatest interest from investors. As was the case in June, the Equity US fund classification had to accept redemptions, this time amounting to $7.3 billion USD which marked this the worst classification for fund flows in the top 50 Lipper Global Classifications league.
“The outlook for the securities market does not give a clear indication where it is heading. On the one hand it is anticipated that the FED will raise interest rates this year but, on the other, this seems unlikely as US macroeconomic data shows little signs of significant improvement. Cheap money (from borrowing at low rates) isn’t finding its way into the real economy, as investors prefer to stay on the sidelines, accepting lower interest rates for less risk in fixed income markets”, Otto Christian Kober, Lipper’s Global Head of Methodology and author of the report, comments.
“The situation is not much different in Europe. It doesn’t look like the ECB will raise interest rates any time soon, due to highly-indebted southern European countries. For Europe as a whole, the money continues to flow into Equity markets, with notable movement into Money Markets as well.”
Over the past few years, we have seen the launch and rise of several new companies like Uber, Groupon, and AirBnB. These companies may have started in local markets with a mostly Millennial customer base, but they have now evolved into global enterprises used across generations, creating a viable alternative to traditional methods of transportation, lodging, computing, food delivery and even legal services. These companies are all part of a group known as the “Sharing Economy.”
There has been quite a bit of buzz in the investment world about these companies, which often boast sky-high valuations. Many of these companies have the backing of important venture capital firms or titans of Silicon Valley. Clients have been asking us whether it makes sense to consider some of these companies as potential investments. It is our belief that while companies in the Sharing Economy have made things much more efficient by using technology, It remains uncertain that they will build a business of lasting value, or have a clear path to shareholder value creation. There are just not enough profits to share in the “Sharing Economy”. Most of the benefits are for consumers –which is why we believe clients should be consumers and not investors in these companies.
What is the Sharing Economy?
The Sharing Economy encompasses a new wave of companies that use the Internet to attack inefficiencies in the supply of goods and services. These companies create attractive offerings for customers by making them highly convenient and cost efficient. Perhaps the most well-known is Uber, the on-demand personal car service that is typically cheaper than a taxi. Uber is now available in 58 countries, 300 cities worldwide and services more than 8 million users.
The Sharing Economy has taken off in the last few years, thanks to the use of mobile technology and popularity of smartphones (85% of 18-29 year olds and 79% of 30-49 year olds in America own smart phones). Mobile technology allows consumers and producers to be instantly connected at any time and any place, removing barriers to supply and demand and creating more efficient markets.
The Sharing Economy has opened up the marketplace for providers of goods and services, allowing many local businesses or individuals-who did not have the correct infrastructure-to compete. Now consumers have more to choose from –and these providers must differentiate themselves by offering more competitive pricing and more added value.
What are the Implications for Investors?
Uber, a company founded only 6 years ago (and only operating outside of San Francisco since 2011) is currently valued at $50 billion, similar to the market cap of Kraft Foods or Target. Avis, a global rental company, is worth 10x less than Uber’s current valuation –Uber’s valuation is more on par to global car manufacturer Ford. AirBnB, the home sharing company (which owns no properties), estimates its current valuation is $20 billion, similar to that of Marriott International, the leading global hotel brand, and double the size of the global brand Hyatt.
Are these valuations justified? Revenues and other key financial data of these companies are kept under close wraps as they are private companies, so it is hard for outsiders to understand exactly the base of these valuations. However, we encourage our investors to look at these companies with caution. It is still unclear whether these companies are going to build lasting value for shareholders. Creating markets that are more efficient does not necessarily translate into creating output –or value.
Some analysts fear that companies will make profits in the short term –picking the “low hanging” fruit or profits that initially result from the market reaching a more natural equilibrium. Companies may use these profits as a base of unrealistic projections of future earning and valuations, which could be unsound as they may be based upon unsustainable initial success which maybe difficult to replicate in the longer term.
In conclusion, the Sharing Economy will likely continue to use technology in fascinating ways to make markets more efficient and bring more interesting options to consumers. We think it is much better for clients to thus use these companies as a customer, rather than an investor.
If you want to read the complete report, please follow this link
Citi has hired Stephen Roti as Managing Director and Global Head of Corporate Equity Derivatives (CED). In this position, Mr. Roti will be responsible for the overall strategy for originating high value added CED transactions and will lead the marketing and education efforts with business partners in Investment Banking, Capital Markets Origination, and Citi Private Bank. He will be based in New York and report to James Boyle, Global Head of Equity Derivatives, Tyler Dickson, Global Head of Capital Markets Origination and Andres Recoder, Global Head of Corporate Sales and Client Solutions.
Mr. Roti brings more than 20 years of structuring and origination of equity related products to Citi including equity derivatives, convertibles, and hybrid securities. He will join the Bank from Nomura where he was Head of Equity Capital Markets for the Americas. Before Nomura, he served at Barclays Investment Bank, where he was Global Head of Equity Linked Origination in New York.
“We are extremely pleased to have Stephen on board,” said Boyle. “He has extensive industry experience and a proven track record that will have an immediate, positive impact on our franchise.”
“This hire complements our existing team well and underscores our commitment to the sector,” said Derek Bandeen, Global Head of Equities. “As our platform evolves, we will continue to invest in the business and expand our services globally.”
Mr. Roti earned a JD from Yale Law School and a BA in Economics and Japan Studies from Macalester College.
Foto: Victor Camilo, Flickr, Creative Commons. Peter Röhrenbach: nuevo responsable de Real Estate de UBS Global AM para Benelux, Francia, Iberia y países nórdicos
UBS Global Asset Management has appointed Peter Röhrenbach as its regional head of Benelux, France, Iberia and the Nordics for its global real estate business, according to Investment Europe. Röhrenbach will leave its role of head of Iberia with immediate effect but will continue to be based in Madrid.
He will oversee and support the acquisitions and dispositions as well as asset management activity in the region in addition to defining the long-term strategic priorities for these markets.
Röhrenbach will retain his Senior Investment Advisor role for a key pan-European institutional investment mandate, according to the publication.
Röhrenbach has joined UBS in 2003 where he set up the Iberian property business currently managing assets exceeding €700m. Prior to joining UBS, he worked for Lend Lease as head of Real Estate Investments and Eurohypo AG as head of Iberia (Spain and Portugal).
Jesus Silva Gallardo: New Head of Iberia
Röhrenbach will be replaced by Jesus Silva Gallardo as head of Iberia. Gallardo was working as head of Asset Management for the Iberian Peninsula.
Foto: Robert Sheie
. OMGI lanza un fondo de rentas y bolsa global para el mercado offshore y cierra su homólogo onshore
Old Mutual Global Investors has confirmed that the offshore Old Mutual Global Equity Income Fund, managed by Ian Heslop, Amadeo Alentorn and Mike Servent has now launched. The Fund is a sub-fund of the Dublin domiciled Old Mutual Global Investors Series plc umbrella fund.
According to the company, the fund has been developed in response to client demand for an income-generating product managed by the award winning Old Mutual Global Investors Global Equity Team. The Fund is designed to service Old Mutual Global Investors’ UK and offshore client base and targets a total return through a combination of income and capital growth, with a monthly income targeted at 30% above that of the benchmark (MSCI All Countries World Index).
OMGI has also confirmed that its$60.75m (£38.8m) onshore Old Mutual Global Equity Income Fund will be closing on 15 September 2015, subject to regulatory approval. This fund was sub-advised by O’Shaughnessy Asset Management.
In a press release, OMGI informs that this onshore fund has seen a gradual decline in assets over the last few years. Given the small size of this fund and the associated operating costs, they believe that it is no longer in the best interest of clients to continue running this fund and that investors will be best served by having their proceeds returned in order for them to reinvest in other products.
Warren Tonkinson, Managing Director at Old Mutual Global Investors, comments: “We’ve experienced a high level of client demand for an offshore global equity income fund managed by Ian Heslop and his team. We are delighted that this fund is now live and will become a core part of our global fund range, available to both UK and offshore investors.
“We believe our decision to close the onshore Old Mutual Global Equity Income Fund is in the best interest of investors. Clients have been informed of our decision to close this fund and of the options available to them. We would like to thank O’Shaughnessy for their management of the fund.”
Foto: Steven Depolo
. Guggenheim Lanza un ETF sobre el índice S&P 500 Equal Weight Real Estate
Guggenheim Investments recently announced the launch of Guggenheim S&P 500 Equal Weight Real Estate ETF (EWRE). The ETF tracks the newly created S&P 500 EWRE Index, which equally weights the index constituents in the S&P 500 that are classified in the Global Industry Classification Standard (GICS) Real Estate Industry Group with an emphasis on exchange- traded equity REITs and real estate management and development companies, and excluding Mortgage REITs.
“Recognizing that real estate is evolving into a separate asset class as a result of its growing importance to advisors and investors searching for income and capital appreciation and underscoring our firm’s commitment to providing clients with innovative investment solutions, Guggenheim is first to market today with a new equal-weighted sector ETF which could have considerable impact on portfolio planning and research,” said William Belden, Managing Director of Product Development for Guggenheim Investments.
The new real estate sector includes equity REITs and real estate management and development companies. Mortgage REITs, which facilitate the financing of commercial and residential real estate, will remain in the financials sector. On September 16, 2016, S&P Dow Jones will implement the GICS real estate sector change as a part of their annual index rebalancing.
“There are several reasons real estate can be considered an attractive asset class,” Belden said. “First, real estate securities offer potentially attractive long-term total returns coming from both capital appreciation and higher-than-average income when compared to other equities. Second, EWRE’s underlying portfolio will be comprised primarily of equity REITs, which have a history of providing consistent, above-average dividends which can be used to meet current income needs or reinvested to accumulate wealth. Also, investing in real estate securities can be used as a hedge against inflation.”
EWRE becomes the 15th equal-weighted ETF in Guggenheim’s product line. Guggenheim pioneered the concept of strategic beta with the launch of Guggenheim S&P 500 Equal Weight ETF (RSP) in April 2003. The Firm’s strategic beta ETFs assets totaled $18.7 billion as of July 31, 2015.
“The time-tested equal weight strategy can help long-term performance by reducing the bias towards the largest individual companies within a particular cap-weighted strategy,” Belden said. “An equal-weight approach also may enhance portfolio diversification by reducing concentration risk often found in cap- weighted indices and provide a more balanced exposure across market capitalizations.”
