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BNP Paribas Launches First Equity Index-Linked World Bank Green Bond

BNP Paribas has launched the first World Bank Green Bond linked to an equity index comprised entirely of companies selected on the basis of their corporate sustainability ratings. The product has been designed by the capital markets teams at BNP Paribas Corporate and Investment Banking in collaboration with the World Bank, and the first issue was purchased by BNP Paribas Cardif, the group’s insurance division.

BNP Paribas and the World Bank worked together to satisfy growing investor interest in supporting both companies with good Corporate Social Responsibility (CSR) track records and specific climate-friendly projects. Their collaborative effort led to the creation of a unique sustainable Equity Index-Linked investment product, with capital insured through the World Bank Green Bonds, plus exposure to the performance of the Ethical Europe Equity Index.

The World Bank Green Bonds help raise funds for projects seeking to mitigate climate change and help those affected adapt to it, while the Ethical Europe Equity Index, calculated by Solactive, selects its companies through a strict Sustainable Responsible Investing (SRI) filtering approach. The stocks in the index are selected from corporates analysed by Vigeo – an established and globally-recognised Environmental, Social and Governance (ESG) rating agency. The index is based on ESG performance. Only best-in- class stocks not involved in disputable activities are selected and certified by Forum ETHIBEL, an independent Belgian ethical expert, which guarantees the strict respect of defined ethical principles. Solactive chooses its final 30 stocks using strict financial criteria: liquidity, dividend yield and volatility.

BNP Paribas Cardif purchased this first sustainable Equity Index-Linked Green Bond issued by the World Bank, a EUR50m note with a 10-year maturity. This innovative structure is perfectly in line with BNP Paribas Cardif’s CSR strategy and part of its commitment to drive progress in socially responsible investment solutions for its clients.

Doris Herrera-Pol, Director and Head of Global Capital Markets at the World Bank, said: “This is the first Equity Index-linked World Bank Green Bond. It is a further step in the development of the green bond market and expands the investor base to investors seeking to benefit from the financial performance of a sustainable equity index, while supporting climate-focused activities in World Bank member countries. We were very pleased to have worked with BNP Paribas Cardif and the capital markets teams at BNP Paribas Corporate and Investment Banking to design this structure”.

Olivier Héreil, Chief Investment Officer, BNP Paribas Cardif, comments: “This is our first purchase of an innovative sustainable investment product. With a strong commitment to Corporate Social Responsibility, BNP Paribas Cardif is honoured to be the first investor for this structure which benefits from the performance of the index for our clients and, at the same time, supports the World Bank’s climate mitigation endeavour”.

Renaud Meary, Global Head of Structured Equity, BNP Paribas Corporate and Investment Banking, says: “This investment solution is a landmark step in what is set to become a rapidly growing Sustainable and Responsible Investment market. This combines BNP Paribas’ traditional strengths in structured products, debt capital markets, and sustainable finance. It reaffirms our dedication to helping clients achieve their objectives and adapt to cultural shifts.”

Columbia Property Trust Expands San Francisco Portfolio with Acquisition of 650 California Street

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Columbia Property Trust compra un edificio de oficinas en San Francisco por 309 millones — 650 California Street. Photo: Moed de Armas & Shannon. Columbia Property Trust Expands San Francisco Portfolio with Acquisition of 650 California Street

Columbia Property Trust announced that it has completed the acquisition of 650 California Street, a 33-story, 478,392-square-feet Class-A office tower in San Francisco, California, from Tishman Speyer and Prudential Real Estate Investors for a total purchase price of $309 million.

The purchase price includes the Company’s assumption of a $130 million loan bearing interest at 3.60% and maturing July 2019. The $179 million cash portion of the purchase price was funded with a combination of borrowings under our unsecured credit facility and cash on hand. The acquisition is expected to increase Columbia’s leverage (based on debt to gross real estate assets) from 31% at the end of the second quarter to approximately 32%. Currently 88% leased, 650 California Street is expected to have first-year in-place net operating income (NOI) of approximately $11 million.

With its desirable location in the Financial District of downtown San Francisco and protected panoramic bay views, 650 California Street has demonstrated perennial tenant appeal. The LEED Gold-certified property underwent a $14.2 million renovation over the past two years that included the addition of an onsite parking garage and a comprehensive lobby renovation, to accompany the building’s large, highly-efficient floor plates and amenities such as fitness and conference centers and bicycle parking.

Asset management and leasing of the property will be overseen by Columbia’s Western Region team, which is led by David Dowdney, Senior Vice President – Western Region. To support its growing presence in the region, the Company recently expanded its San Francisco-based team with the addition of Michael Schmidt, who brings over 13 years of portfolio and asset management experience in major West Coast markets and will have oversight of this and Columbia’s other West Coast assets.

“We have established a significant presence in downtown San Francisco — a market that continues to be one of the best in the U.S., and we continue to achieve strong leasing results at our nearby asset, 221 Main Street,” said Nelson Mills, President and CEO of Columbia Property Trust. “650 California Street is a compelling opportunity to acquire one of the premier assets in this market at a discount to replacement cost. With more than half the current tenancy rolling in the next three years and in-place rents significantly below current market levels, we expect to employ the expertise of our expanded local team to increase net operating income at this property over the next three years.

“Given the extensive experience that Dave and Mike add and their track record of successful deal sourcing and asset repositioning, I am confident we have the right team in place to lead our efforts on this asset and our continued strategic enhancement of our portfolio.”

BNY Mellon IM Continues to Expect an Eight-Year Economic Expansion in the U.S.

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Monetary policy divergence is not the only kind of divergence in the global economy that is contributing to a prolonged global and U.S. economic expansion, according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update. Hoey cites global divergences of (1) output gaps, (2) real growth, (3) inflation, (4) real interest rates, (5) real exchange rates, (6) energy sensitivities, (7) stage of the debt cycle, (8) competitiveness, and (9) policy credibility.

“With a reduction in the fiscal drag and the deleveraging drag, combined with the gradual adjustment of the financial system to restrictive financial regulation, some acceleration in the pace of U.S. economic growth is likely,” Hoey continued. Hoey continues to expect an eight-year economic expansion in the U.S. He believes that the U.S. economy has just made an upward shift from a half-decade of expansion at a real GDP growth rate slightly above 2% to three years of 3% real GDP growth.

Other report highlights include:

Eurozone Faces Below-Target Inflation– While Hoey believes that Eurozone inflation is at its extreme bottom, the Eurozone faces below-target inflation for several years to come, according to the report, given excess capacity and an inefficient monetary transmission mechanism. “The fundamentally poor design of the euro system is hampering the transmission of monetary policy,” Hoey says. Reported inflation in the Eurozone is only slightly above zero and core inflation is below 1%.

G4 Central Banks Likely to Split into “Normalizing Central Banks” and “ZIRP Central Banks”– Over the next several years, the G4 central banks are likely to split into (1) the “normalizing central banks” (the Bank of England and the Federal Reserve), where economic expansion appears strong enough that short-term policy rates should begin to rise in 2015 and (2) the “ZIRP central banks” (the European Central Bank and the Bank of Japan), according to Hoey. (ZIRP stands for “zero interest rate policy,” which is likely to persist at the ECB and the Bank of Japan for several years, says Hoey.)

No China Meltdown– While Hoey believes that China is undergoing a permanent downward shift to a slower sustained growth rate, he also believes that the Chinese government has both the resources and the willingness to intervene to avoid a financial meltdown.

Large Balance Sheet at U.S. Federal Reserve – New Guidance– In Hoey’s opinion, the final easing action of the Federal Reserve was its modification of balance sheet guidance. Hoey believes that this change in balance sheet guidance contributed to the bond market rally in the first eight months of 2014. “The new guidance is that the Federal Reserve will be slow to reduce its bond portfolio, retaining a large balance sheet for many years rather than quickly reducing its bond portfolio,” says Hoey. Hoey also expects that a slow pace of tightening should cause Federal Reserve policy to eventually fall “behind the curve” over the next several years, resulting in an interest rate spike in 2017 or 2018.

“Our basic outlook continues to be that low inflation permits easy monetary policies which will support ‘a long economic expansion,'” Hoey concluded.

See this link for Hoey’s complete Economic Outlook.

Emerging Markets – Alive and Kicking

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Devan Kaloo is Aberdeen’s Head of Global Emerging Markets – Equities. He is also de portfolio manager of Aberdeen’s Latin America Equity Funds, for which he has been rated by Citywire as the most consistent portfolio manager over a 5 year period in the Latin American Equities arena. Aberdeen’s successful Global Emerging Markets Equity team, headed by Kaloo, is responsible for a series of strategies including the popular Emerging Markets Equity strategy, at capacity currently, and the Emerging Markets Infrastructure Strategy.

This is a summary of the ideas exposed by Devan Kaloo, speaking at the Aberdeen Investment Conference, “Home and Away: Why a Global Investment Approach Makes Sense,” in New York City  on June 2014

According to Kaloo, there are three key reasons why investors have been wary of emerging markets: 

1. Tapering. The Fed is printing less money, meaning that scarcer money is causing a rise in interest rates and a rise in the cost of capital for emerging markets.

2. China. Growth in the world’s second-largest economy has slowed significantly (Chart 1). As growth slows, the Chinese government continues to pump in fixed asset-led investment to stay about the 7% gross domestic product (GDP) growth standard, which can potentially lead to asset bubbles.

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3. Earnings. Emerging market corporate profitability has declined since 2010 (Chart 2), whereas the profitability of developed market companies remains flat.

The China Syndrome

Even as EMs continue to pick up steam and recover from the woes of 2013, the slowdown in China is still very much on investors’ minds. According to Kaloo, a major crisis in China would arise in one of two scenarios: a liquidity crisis caused by depositors fleeing and a banking collapse, or a solvency crisis caused by unbearable debt. “In the case of China,” Kaloo said, “the likelihood of either of those crises actually occurring is pretty minimal.” China’s financial system is funded domestically, and the Chinese government is to cover outstanding debt. Overall, Kaloo believes that fears over a hard landing in China are “overblown.”

Doctor, is there hope of a recovery?

Kaloo noted that emerging markets—like their developed market counterparts—have not been immune to downturns. Over the past two decades, they suffered the 1994 “tequila crisis” in Mexico and the 2007-09 global financial crisis (Chart 3). Kaloo argued that the recent downturn is similar to the others—cyclical, not structural, and likely soon to pass. “Somehow we always seem to stagger back,” Kaloo said. “When you actually look at any longer track record for emerging markets you can see that despite the volatility, despite the risks, emerging markets have been a better place to invest for the longer term than developed markets.”

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Elaborating on the cyclical nature of the latest downturn, Kaloo pointed to the post-crisis growth of emerging economies. After the crisis, EMs (and the companies within them) grew quickly. This resulted in a sharp rise in imports, paired with flat export growth—an unsustainable model, in Kaloo’s view. On the upside, trade balances have improved since the start of 2014 and have mainly balanced, with EM (ex-China) slightly outpacing the “fragile five”— India, Indonesia, Turkey, South Africa and Brazil.

For much of 2013, investors worried about the future of those countries. In 2014, their economies have improved dramatically. In Kaloo’s view, these economies have been forced to tackle their issues “the old-fashioned way”—by slowing the growth of credit and raising interest rates.

Looking forward

Kaloo concluded that being negative on emerging markets is the popular but misguided view of the moment. “What is happening in emerging markets is a cyclical adjustment,” he reaffirmed in closing. “These things happen. The cost of capital is going up and it’s forcing discipline on many companies and countries and they are adjusting.” Emerging markets continue to see an emergence of a new “business class” who understand what is necessary to build a profitable business.

Kalooreinforced that investing in emerging markets is always about companies, not countries. With emerging market companies refocusing on their operating margins, he expects profits to improve significantly within a year. Citing improving balance sheets, hopeful election results and a return to profitability, Aberdeen’s Head of Global Emerging Markets finally assigned a positive prognosis: emerging markets are alive and kicking.

Wunderlich Announces Plans to Acquire Assets of Dominick & Dominick

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Wunderlich Securities announced a definitive agreement to acquire the wealth management assets of Dominick & Dominick, a privately-held investment firm based in New York City. Upon closing, the combined firm is projected to have nearly 600 associates in 32 offices across 17 states with more than $10 billion in client assets.

“For more than a century, Dominick & Dominick has been a fixture in the financial services industry. The opportunity to join forces with this venerable firm is an ideal fit with our growth objectives,” said Gary Wunderlich, CEO of Wunderlich Securities. “Our firms share a common focus on building long-lasting relationships with our clients and among our colleagues, and we look forward to welcoming the team to our Wunderlich family.”

Dominick & Dominick, founded in 1870, is a historic name on Wall Street and one of the early firms to join the NYSE. The firm is headquartered in New York City and operates branch offices in Miami, Atlanta and Basel, Switzerland.

“We were impressed with the broad array of capabilities and expertise available through Wunderlich,” said Kevin McKay, CEO of Dominick & Dominick. “Our mission has been to provide clients with the best ideas and guidance available and we believe joining Wunderlich expands our ability to do just that.”

Following the acquisition, D&D will operate as Dominick & Dominick, a division of Wunderlich Wealth Management, the firm’s private client group. At that time, Kevin McKay will become general counsel of Wunderlich Securities; Michael J. Campbell, chairman, will join the Wunderlich Securities board of directors; and, Robert X. Reilly, COO, will become regional manager of the New York region and oversee Wealth Management offices in New York City, Great Neck, Miami, Atlanta and Basel.

Following the acquisition, approximately 150 Wunderlich associates will be located in the New York area, which will become the largest concentration in the firm’s footprint. Wunderlich Wealth Management and Equity Capital Markets operations currently located in midtown will move to D&D’s primary office at 150 E. 52^nd Street during 2015. Wunderlich Fixed Income Capital Markets sales and trading operations will remain in the Wunderlich downtown location.

The transaction, expected to close in early 2015, is subject to regulatory approval and other customary closing conditions. Terms were not disclosed.

Keefe, Bruyette & Woods, Inc . served as Wunderlich’s exclusive financial advisor in the transaction. Baker Donelson served as counsel.

Global X Funds Appoints Steven Swain President

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Global X Management Company LLC (Global X) has announced the appointment of Steven Swain as President. Mr. Swain concludes a series of recent hires at Global X.

In his new role, Mr. Swain will oversee Global X’s day-to-day operations, leveraging his 20 years of experience launching, growing and managing investment management companies. He will serve on the executive committee, along with CEO Bruno del Ama and Chairman Jose Gonzalez.

Commenting on Mr. Swain’s appointment, Mr. del Ama said: “Steven’s hiring strengthens our leadership team as we continue to grow, expand our product offerings and provide better service to our clients.” Mr. del Ama will continue in his current role of developing innovative products and strategic planning.

Mr. Swain joins from private equity firm Aquiline Capital Partners LLC where he served as an Executive Advisor. Prior to that, he held leadership positions at Lyster Watson and Company and Lazard Asset Management. He holds a Master of Business Administration from the George Washington University, a Juris Doctor from Villanova University School of Law and a Bachelor of Arts from Clark University.

“Global X is on the forefront of the ETF industry’s rapid growth with a reputation for building solutions to help meet its clients’ investment needs. I am honored to join Jose and Bruno during this time of rapid expansion for the firm,” Mr. Swain said.

ING IM Stresses Impact of Human Capital on Long Term Risk Adjusted Returns

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The portfolio managers of ING Investment Management’s (ING IM) EUR 1,5bn Sustainable Equity strategies regard human capital as an important value driver to achieve better long-term risk adjusted returns. Human capital – which encompasses factors such as talent, training, employee satisfaction, working conditions, labor relations and diversity – is probably an organization’s most valuable intangible asset, says Nina Hodzic, Senior ESG (Environmental Social and Governance) specialist at ING IM.

Research suggests that physical and financial accountable assets on a company’s balance sheet traditionally comprise less than 20% of the true value of the average firm. The remaining 80% consists of intangibles such as human capital, stakeholder capital, strategic governance and environment. ING IM’s approach combines financial analysis with a rigorous analysis of the hidden investment risks and value drivers that determine which companies will be long-term winners.

Nina Hodzic comments: “Human capital – especially employee satisfaction – is one of the key drivers of value creation in many sectors. Happy employees are more engaged and loyal. Low turnover means that good employees stay and are more productive. This has, generally speaking, a positive impact on company’s performance long term as it leads to higher expected future cash flows and lower risk. This is supported by an increasing number of academic studies. For example, Edmans [2011] shows that companies that were ranked as best-to-work-for in America produce an alpha of 3.5% annually above the risk-free rate. Best-to-work-for companies exhibit also substantially more positive earnings surprises and stock price reactions than their industry peers.”

Hodzic continues: “As economies in the West move from capital intensive firms – often combined with unskilled labor – to human capital-intensive firms, using high skilled innovative labor, investors will need new methodologies to assess the intellectual and creative strengths of companies and their constituent human capital.”

In order to maintain human capital advantages, ING IM believes that companies should look to increase training and development and build passion and purpose as young people look more and more for “meaningful work” benefiting the broader society. Diversity is also viewed as an increasingly important strength if companies are to understand the needs of those they look to provide services for, the asset manager highlights.

Hodzic points out: “The number of young people classified as NEETs (not in formal education or training) is a huge problem for governments and private sector companies. Universities, governments and companies will have to work together to ensure young people gain access to the training and skills needed to succeed in an increasingly human-capital focused environment and competitive employment market.”

ING IM launched its first Sustainable Equity Strategy in April 2000, making it one of the first global SRI (socially responsible investment) strategies available in Europe.

Schroders Multi-Asset Business Appoints Henriette Bergh as Head of Europe Product and Manager Solutions

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Schroders has announced the appointment of Henriette Bergh in the newly created role of Head of Europe Product and Manager Solutions (excluding the UK). Henriette joins the team this month reporting to Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions. She will have a functional reporting line into Justin Simler, Global Head of Product Management for Multi-Asset.

In her role Henriette will be responsible for the Multi-Asset product management and strategy in Europe. This will involve creating and implementing product strategy, management of the product range in Europe and consultant ratings, product development and client support.

Henriette joins Schroders from Morgan Stanley & Co. International where she was most recently, Head of Sales, Private Wealth Management for EMEA based in London. During her seven years at Morgan Stanley & Co. International she was also Head of Manager Selection Strategies, Private Wealth Management. Prior to this she was Executive Director, Global Manager Strategies at Goldman Sachs Asset Management International (GSAM). She has an MBA from Chicago’s Booth School of Business.

Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions: “Henriette is a key addition to our team. She has eighteen years investment experience advising both institutional and private clients across multiple asset classes and overseeing manager selection strategy teams. Henriette will work alongside our senior fund managers in London and Zurich, to enhance the investment service we provide to our clients”.

Stakes are Rising for Investors in Brazil

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The first round of Brazil’s presidential election is just days away and the stakes are rising for investors. With incumbent President Dilma Rousseff gaining ground on her key rival, business-friendly Marina Silva, global investors have lost much of the confidence originally gained when Silva first burst upon the scene in August following the death of her running mate and original presidential candidate, Eduardo Campos, in an air crash.

Marina Silva has proposed sweeping changes for Brazil, including a cracking down on corruption, tax reform, budget restraint, and promoting productivity gains at notoriously mismanaged state-owned companies. After an initial surge in the polls, Marina Silva has lost ground to Dilma as the President has used all the powers of her office and an enormous structural advantage in allocated media time to close the gap.

Two very divisive candidates

Opinion polls indicate that the first round of the election will result in a second round run-off between these two very popular and clearly divisive candidates. The polls indicate that the outcome of a Dilma-Silva election is too close to call. Investors have overwhelmingly endorsed Marina Silva’s progressive reform agenda and at the same time made it clear that four more years of Dilma spells trouble for Brazil’s sagging economy. What can investors expect after the26 October final vote, and is the recent volatility of the Brazilian financial markets a good indicator of just how good things might be under Silva, or how bad they might get under a renewed Dilma administration?

Lessons from other continents

The recent May 2014 national elections in South Africa and India offer investors insight into post-election returns and positioning. In the case of South Africa, very few investors relished the thought of incumbent President Jacob Zuma’s near certain re-election. He surprised his critics by bringing businessman Cyril Ramaphosa back into government and despite South Africa’s crippling unemployment, high inflation, staggering current account deficit and seemingly endless cycle of labor violence, the stock market has remained relatively resilient.

Well managed companies such as regional mobile telecom and data firm MTN and banking group FirstRand have seen their shares extend their long term outperformance. This could very well be the model for Brazil should President Dilma get re-elected; uncompetitive and mismanaged firms will probably suffer (in South Africa, for example, many mining firms have lost a third of their value since the election) while competitive companies thrive in an ecosystem devoid of real competition.

In India, investors were initially less certain of the outcome of the election between the Congress Party and the BJP but were well aware of India’s substantial macroeconomic challenges in the run-up to the election. In 2013 and into much of 2014, India’s once powerful economy was slowing, business confidence was waning, and the public had become tired of the mismanagement of the economy. Ultimately, the pro-reform BJP party led by Narendra Modi was swept into office, ushering in a substantial bull market in Indian equities.

Despite Modi not having transformed India much in his first 100 plus days in power, business and public confidence remain high. Companies have regained access to international financial markets and foreign investors have flocked back to the stock market. While weak companies have been given a new lease of life, India’s strongest and most competitive companies in technology, pharmaceuticals, and banking have soared. Given the reform agenda of Brazil’s Marina Silva, there can be little doubt that many investors see her as the best chance for Brazil’s financial markets to repeat the recent success of India.

Post-election market fortunes

In South Africa’s case, the wobbling post-election environment has favored the strong well-capitalized companies, which have regional African ambitions. Political and economic matters can best be categorized as ‘muddling through’, although the far left has made dangerous inroads with a potentially ruinous land reform program. The overall market, however, has treaded water in local terms and has underperformed the MSCI World Index by about 8 percent in euro terms, largely as a result of a weaker South African rand.

In India’s case the general election of 12 May 2014 has ushered in a rise of 20 percent in euro terms and India has outperformed the MSCI World Index by over 10 percent in euro terms. Despite early rallies in deeply depressed stocks in distressed sectors such as property and infrastructure, the real winners thus far have proven to be India’s highly competitive and well run companies, such as Tech Mahindra and Tata Motors, which were already doing well before the election.

The bottom line

Ours is an increasingly global economy — whether one is investing in India, South Africa or Brazil, investing in companies whose growth strategy, execution, and balance sheet can help ride out the discomfort of a disagreeable local election is vital. In both South Africa and India, these bottom-up factors have trumped the macro.

Given that Brazil’s election is very close and the two possible outcomes might be South Africa’s 8 percent underperformance or India’s 10 percent outperformance, we would argue that there is limited value in taking positions based on elections. Yet statistically there is arguably a slight advantage to taking a bullish position in Brazil based on this analysis!

Opinion column by Christopher Palmer, Global Head of Emerging Markets, Henderson Global Investors

It’s Time to Play Defense in the European Stock Market: Downside Risks May Outweigh the Upside Potential

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Es el momento de ser defensivos en bolsa europea: los riesgos bajistas podrían superar al potencial alcista — Phil Webster, senior portfolio manager for the European Equities team at Aberdeen AM. Courtesy photo. It’s Time to Play Defense in the European Stock Market: Downside Risks May Outweigh the Upside Potential

Since the crisis of 2008 left valuations at a minimum, it has been highly fertile ground for investing in European equities, and in any case, they have been the trendy asset in portfolios since last January. But the momentum is losing steam due to the high valuations achieved, at least in some names, the disappointing macroeconomic data, the lower than expected profits, some geopolitical risks, such as the conflict in Russia, and the impact of future interest rate hikes in the USA, although these could be offset by the accommodative attitude of the ECB.

Aware that downside risks may outweigh the upside potential, Phil Webster, senior portfolio manager, and Angus Tester, manager and analyst for the European Equities team at Aberdeen AM, opt for caution and consider that this is a favorable time to invest from a defensive position, which they embody in a concentrated portfolio of about 36 names with quality DNA in their European Equity flagship strategy.

“There is still much interest in this asset class, and we are cautiously optimistic about growth in the continent, but valuations are too high in some cases, even generating some bubbles, and profit growth should have to be evidenced in order to justify those numbers”, Webster explained in an interview with Funds Society, adding that the deterioration of expected profits in European companies, something which could continue to happen, hasn’t surprised him.

In this environment, in which investors are also more cautious after years of earnings, both in the bond and in the stock markets, he believes that a good answer might lie in quality assets. “Our fund has done worse than the index in recent months in the absence of more cyclical stocks that have been puffed up in these recent months of generalized increases,” he explains. But now the situation could begin to change and the market could begin to reward higher quality values, the most stable businesses. Now that there is cause for concerns and uncertainties about political issues and geopolitical crisis, among other things, “the time is right for quality assets, the markets do not like uncertainty,” he added. And, in that regard, he believes there will be volatility. A volatility, which, in any case, will give them the opportunity to invest selectively.

Cautious Optimism

They are cautiously optimistic with regard to European macroeconomic conditions, believing that there will be growth, but also problems that have not been solved, and that there are still major challenges ahead that will take time. They explain that this is not an insurmountable problem for investing in the asset class, however, due to the geographical diversification of companies, in fact, in their portfolio, firms have a balanced exposure to different markets, divided between North America (23%), Asia (22%), and Europe (36%, including UK), along with other emerging markets. They explain that, “the portfolio is well balanced in terms of countries, sectors and other factors.” The reason for its concentration, in about 36 positions at present, from more than 50 in the past, is the confidence and conviction that they want to place on their stakes, which they select after a thorough analysis which requires meeting with the companies. The team, consisting of 17 managers who are also analysts, and who manage different strategies of European and British equities for Aberdeen AM, holds 700 such meetings.

The European stock market’s flagship portfolio currently gives greater weight to countries like the United Kingdom or Switzerland (also by the currency effect), but is the result of a fundamental analysis rather than of the country itself. Names such as Linde, Roche, Rolls Royce, Nestle, Unilever, Nordea Bank, and Prudential, appear amongst the top 10 and are selected using criteria such as the fact of having a competitive advantage and the power to set prices, strong balance sheets, a clear business strategy that aims towards growth, a good management team, and a commitment to deliver value to shareholders. According to Tester, a good dividend policy is also a good sign for the evolution of the business.

Positive about Spain, and yet investing little in that country

As far as Spain is concerned, both managers feel positive regarding the last reforms, particularly in contrast to countries like Italy or France, although they warn about the possibility that reforms will slow down due to the general elections, expected for late next year, and the, as yet unresolved, debt problems. But this, “optimism to a certain degree”, is not enough to fill their portfolios with securities from that country, which don’t hold any positions in their European stock strategy, although in the past they had BBVA and names such as Amadeus in some portfolios. In the small caps portfolio, they do bet on names such as Viscofán or Barón de Ley.