Global investors have put some of their cash to work in spite of a more downbeat assessment of global growth and corporate profits, according to the BofA Merrill Lynch Fund Manager Survey for January. Investors have regained a muted risk appetite, turning to U.S. equities, bonds and real estate. The proportion of respondents overweight cash has tumbled to a net 17 percent from a net 28 percent last month. Average cash positions have fallen to 4.5 percent of portfolios, the lowest in six months, down from 5.0 percent in December.
More than two-thirds of investors say equities will outperform other major asset classes in 2015. Accordingly, a net 51 percent of asset allocators are overweight equities, down one percentage point since last month but the third-highest reading in the past year. A net 24 percent of asset allocators are overweight U.S. equities, up from a net 16 percent a month ago. However, a net 75 percent say U.S. equities are overvalued – the highest reading since the question first appeared in 2001. The proportion of asset allocators overweight real estate has climbed six percentage points to a net 9 percent. Investors also reduced net underweight positions in bonds.
Investors are less optimistic about the economy. A net 51 percent of the panel believes the world economy will improve this year, down from a net 60 percent in December. But, as deflation surfaces in the Eurozone, expectations of stimulus from the European Central Bank (ECB) are high. This month, 72 percent predict QE to start in the first quarter. Furthermore, the third quarter is now the most likely timing for a rate hike by the U.S. Federal Reserve, verses the second quarter a month ago.
“Lower oil prices and hopes for policy stimulus are sustaining both global growth expectations and investor confidence,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. “Amid expectations of ECB stimulus, consensus is convinced that Europe is the region to overweight in the coming year. But, on an absolute basis, European stocks will be vulnerable to headwinds from outside the region,” said Manish Kabra, European equity and quantitative strategist.
Equity allocations defy weaker corporate outlook
Allocations towards equities remain strong despite concerns about the prospects for profits and margins. A net 8 percent of global investors expect corporate operating margins to fall in the coming 12 months, up from a net 1 percent in December. The proportion of the panel expecting corporate profits to improve has fallen to a net 38 percent from a net 46 percent.
Only a small minority believes that a double-digit rise in profits is possible in the coming year. A net 53 percent now says that it is unlikely profits will improve 10 percent or more, up from a net 32 percent in December. On a regional basis, a net 41 percent of the panel says that profit outlooks are the most favorable in the U.S., with a net 20 percent backing Japan.
Oil and Energy – undervalued yet underweight
Investors see value in oil and in energy stocks – but it seems too soon for them to have made a move. A net 45 percent of respondents say that oil is undervalued, up from a net 36 percent in December and at the highest level in exactly six years. At the same time, a net 30 percent of the panel says that energy stocks are the most undervalued – up from a net 21 percent.
Allocators to energy and commodities remain weak. The proportion of investors underweight energy stocks has increased in the past month to a net 25 percent from a net 22 percent. Asset allocators have modestly increased allocations to commodities but a net 24 percent remains underweight.
Emerging markets fall further out of favor
With questions hanging over China’s economy, bearishness towards Global Emerging Market equities has intensified. A net 13 percent of asset allocators are underweight the region compared with a net 1 percent being overweight in December. Furthermore, a net 17 percent of investors say that emerging markets is the region they most want to underweight in the coming year. A net 41 percent of respondents to the regional survey say that they expect weaker growth in China in the coming year.
Foto: Anna Christina, Flickr, Creative Commons. La responsable de selección de fondos de la brasileña Itaú AM sale de la gestora
The head of offshore fund selection for Itaú Asset Management, Eliza Pepper, has left the Brazilian giant after seven years, Citywire Global publishes.
While her departure has been announced it is not yet known whether this will take place with immediate effect but her potential replacement, Jeff Lombardi, joined the group’s New York office last December as Head of Alternative Investing and Fund of Funds Group.
Lombardi is a former global head of private bank portfolio managers at Citi and is now a member of Itaú AM‘s international fund selection team.
Pepper joined the Brazilian group in 2008 to work in its New York office. Prior to this, she was head of investment manager research at UBS Wealth Management for two years. Between 1999 and 2006 she was at Citi, where was appointed head of research on its global investments platform for the wealth management division.
Itaú Asset Management runs $153 billion across all asset classes.
Lombard Odier Investment Managers (LOIM) has named Théodore Economou Chief Investment Officer of LOIM’s multi-asset business.
The unit, which managed $5.2bn (€4.5bn) at the end of December, also includes a fiduciary management division.
Economou most recently served as CEO and Chief Investment Officer of the CERN Pension fund, where over five years he initiated a risk-based approach that came to be known as the CERN Model. The multi-asset, factor-driven model aims to preserve capital while maximizing returns relative to risk.
Economou will be based in Geneva and build on a similar approach that LOIM began applying to its own employee pension fund in 2009 and developed for institutional clients. The risk-based approach is designed to meet the needs of Sovereign Wealth Funds and pension funds. He will report to Jan Straatman, Chief Investment Officer of LOIM.
In multi-asset investing, portfolios are built with a global mix of asset classes and styles, including investments in public and private markets. Factor-driven—also called smart beta-—portfolios allocate assets to investments with identifiable characteristics or “factors” that account for their performance.
Before joining CERN, Mr Economou was assistant treasurer of ITT Corporation in New York where he managed pension assets and liabilities worldwide as well as the firm’s capital markets activities. Prior to that, he was a consultant with Accenture’s Financial Services Group in Geneva and Zurich. He holds an M.Sc. in Mechanical Engineering from the Swiss Federal Institute of Technology in Lausanne and an MBA from Northwestern University’s J.L. Kellogg Graduate School of Management.
The European Fund and Asset Management Association (EFAMA) has published its latest Investment Funds Industry Fact Sheet, which provides net sales of UCITS and non-UCITS for November 2014. 27 associations representing more than 99.6 percent of total UCITS and non-UCITS assets at end November 2014 provided them with net sales and/or net assets data.
The main developments in November 2014 in the reporting countries can be summarized as follows:Net sales of UCITS reduced to EUR 27 billion in November from EUR 44 billion in October. This fall in net sales came despite increased net sales of long term funds during the month.
Long-term UCITS (UCITS excluding money market funds) posted increased net inflows of EUR 31 billion, up from EUR 23 billion in October. Equity fund net sales returned to positive territory in November posting inflows of EUR 2 billion, against net outflows of EUR 6 billion in October. Bernard Delbecque, Director of Economics and Research commented: “The decline in stock market uncertainty brought back net sales of equity funds to positive territory in November.”
Bond fund net sales reduced to EUR 11 billion, down from EUR 16 billion in October. Balanced funds enjoyed a pick-up in net sales to EUR 13 billion in November, up from EUR 9 billion in October.
Money market fund net sales returned to negative territory in November posting outflows of EUR 4 billion in October, compared to net inflows of EUR 22 billion in October.
Total non-UCITS net sales remained relatively steady in November at EUR 16 billion. Net sales of special funds (funds reserved to institutional investors) remained at EUR 12 billion for the second consecutive month.
Total net assets of UCITS stood at EUR 8.02 trillion at end November 2014, representing a 1.5 percent increase during the month.
Total net assets of non-UCITS increased 1.4 percent to stand at EUR 3.17 trillion at month end. Overall, total net assets of the European investment fund industry stood at EUR 11.2 trillion at end November 2014.
Foto: PrimelmageMedia, Flickr, Creative Commons. Seis tendencias en real estate a vigilar en 2015
The world in which we live and work is changing rapidly and it’s sometimes difficult to spot the trends that will shape the coming years. “We have been tracking these trends and considering the potential implications for the real estate industry”, says KPMG.
“These trends are not only to be watched and accepted, there are real developments that will call for action if you are to stand out. If you anticipate those trends, real opportunities can emerge for your business”. Here’s what they’ll be watching in 2015:
Globalization
Driven by the need to diversify beyond domestic markets, global capital flows will continue to build. This will bring even greater understanding of RE markets as a whole. KMPG prediction is that the result will be an expanded RE universe with investors on the lookout for strong risk-adjusted returns.
Shift to “real assets”
Uncertainty, heightened volatility and slower growth has led to investors allocating a larger piece of the pie to “real assets”. This term comprises a variety of tangible investments that give investors options and are widely thought to provide a stable source of income in weak markets and access to capital appreciation in strengthening markets.
Increasing risk appetite
The so-called “flight-to-core” has led to significant competition for prime assets in sought-after locations. As they are currently increasing allocations to real estate, investors are being forced – through competition – and encouraged – by improving economic sentiment – to diversify. “We expect to see new geographical locations, asset classes and asset segments gain in popularity”.
Asset class broadens
Property types which would have been considered ‘specialised’ just a short time ago are now becoming mainstream. As investors increasingly seek long-term income flows, demand for assets with operating elements – such as hotels, student accommodation and so on – are receiving increasing interest, which in turn is leading to yield compression. All signs point to this continuing.
Securitization
The depth and breadth of listed REITs/companies is increasing, with more conservative balance sheets post-2009. The shift from Defined Benefit (DB) to Defined Contribution (DC) is also supporting this trend, along with the emergence of DC-compatible private equity vehicles. Will this continue into 2015? We certainly believe so.
Debt
Ongoing bank deleveraging is making space for new entrants to debt markets. “Watch this space as we believe this is the sign of things to come”.
Nuveen Investments has announced it has extended its offerings to non-U.S. investors with the availability of a new UCITS fund focused on large cap core equities. The new fund is offered via Nuveen Global Investors Fund plc through a UCITS structure.
The new fund is managed by Nuveen Asset Management (NAM) LLC, a Nuveen investment affiliate recognized as a global investment manager with a broad investment platform. As a $130 billion multi-asset-class investment manager, NAM’s collaborative approach to portfolio construction is driven by integrated research and risk management processes.
The objective of the fund is to provide long-term capital appreciation through investments in large cap core equity securities. Led by respected portfolio manager and market strategist, Bob Doll, the portfolio management team will select securities using an investment process that combines quantitative, objective analysis with fundamental, research-based measures. Securities generally are added to the portfolio based both on the ranking given to a particular security by the multi-factor quantitative models used by the management team as well as the fundamental analysis of the securities.
In “Getting Closer to Home,”Henry H. McVey, Member & Head of Global Macro and Asset Allocation at KKR, outlines key global trends that he believes will impact asset allocations for the year.
“While the general backdrop for risk assets remains favorable, we are no longer advising folks to “Stay the Course” as we did in our January 2014 Outlook piece,” McVey writes. “Rather, given where we are in the cycle and the magnitude of gains in recent years, we have begun the inevitable process of “Getting Closer to Home” in terms of our asset allocation targets. In particular, we do advise folks to raise some cash and to tilt the invested part of the portfolio to become more opportunistic in 2015.”
In the piece, McVey also outlines key themes that make compelling “arbitrages” in the global macro landscape that CIOs and portfolio managers should pursue this year. These include:
China’s slowing is not an aberration. As such, its role in the global economy is materially shifting, which means that McVey expects to see sizeable restructuring and recapitalization opportunities in sectors that previously over-earned and/or overstretched their footprints.
Many corporations still have inefficient capital structures, including too much cash and too little debt, in his view. As such, investors can still benefit from corporate and/or shareholder actions to lower companies’ cost of capital and/or improve growth, including buybacks, dividends, capital expenditures and acquisitions.
Despite a slew of liquidity in the system, many companies across both emerging and developed economies still can’t get proper access to credit. Hence, McVey still sees a compelling illiquidity premium that is worth pursuing, particularly in today’s low rate environment.
McVey suggests harnessing volatility in the liquid commodity markets. He continues to favor private real asset investments with upfront yield, growth and long-term inflation hedging relative to traditional liquid commodity notes and swaps.
Government deleveraging in the developed markets is disinflationary, which drives McVey’s thinking about the direction of long-term interest rates as well as the relative value of risk assets against the risk-free rates.
La Française REM purchased the PANORAMA SEINE and DOCKSIDE buildings, located 255 and 224 quai de la Bataille de Stalingrad respectively in Issy-les-Moulineaux (92130), ZAC des Chartreux, overlooking the river Seine, near Paris. Designed by architects Patrice Novarina and Atelier de Midi, and built by Sefri-Cime, the office complex was completed in 2008.
The acquisition includes two buildings: a seven-storey building (at 255) with 7,905 m² of office floor space; a two-storey building (at 224) with 2,082 m² of office space, including restauration facilities. The complex has 116 underground parking spaces. The global headquarters of the Sodexo group have been based there since 2008, under a twelve-year lease.
La Française REM was assisted by law firm Fairway Avocats and 14 Pyramides Notaires. The financing was provided by pbb Deutsche Pfandbriefbank, assisted by Lefèvre Pelletier & associés and Attorney Moisy-Namand. The seller was assisted by DTZ, as part of an exclusive mandate, and law firms K&L Gates and Le Breton & Associés.
Historically, until the 19th century, the Spanish dollar, the forerunner of the Mexican peso, was used in a number of regions around the world. The “Mexican peso” was legal tender in the United States until the Coinage Act of 1857.
Today, the country once known as New-Spain is still the exception in the “emerging markets” universe. The global economic slowdown has exposed the vulnerability of economies with excessive dependence on commodity exports: Russia, Brazil, Indonesia, Colombia and Venezuela are just a few examples. These low-diversity economies have suffered the backlash of falling commodity prices as well as expectations of a hike in interest rates in the United States.
Fortunately, many countries have learned the lessons of past crises, including the need to adopt a floating exchange rate and, more generally, economic policies aimed at budget surplus and contained inflation. Mexico is one such. Like other countries in Latin America, Mexico lost a decade in the 80s with soft growth (estimated at –0.3% over ten years) and very high inflation. Average annual inflation was 69% between 1980 and 1990 with a peak in annual inflation of 175% on 31 March 1988. The country defaulted on its external debt in 1982. In 1994, just after the signing of NAFTA (the North America Free Trade Agreement), Mexico was subject to increasingly speculative movements of capital whereas the currency was anchored to the dollar, and was forced to devalue.
Mexican peso compared to the US dollar vs. American monetary policy in 1994
Despite these various destabilising episodes, Mexico remained firmly rooted in its industrial heritage. Contrary to what one might expect, and although it is one of the world’s leading oil producers at the intersection of two worlds (a rich service-based economy in North America and a South America still dependent on its below-ground wealth), Mexico’s economy is less focused on the export of primary products than its more southerly neighbours. Industry and especially services (tourism, telecoms, etc.) have played a vital role in the country for many years although there is huge disparity in terms of development between the Chiapas and the state of Sonora, or the Yucatán and the banks of the Pacific. Between the end of the 19th century and the 1930s, the development of the railway network boosted the integration of the north and north-east and greater economic proximity with the United States. Economic activity was to develop particularly with the maquiladoras, assembly plants and sub-contracting outfits for the United States which would drive the country’s modernisation.
In the 21st century, Mexico, heir to the Aztec administration, becomes increasingly dynamic. In an earlier blog, we mentioned the reforms adopted by the Mexican parliament. In particular, the reform of the energy sector will enable private players to participate thus tempering the bottlenecks that subsist at many levels. This is especially true for the petrochemicals, synthetic textiles and plastics sectors. NAFTA continues to be the driving force for the modernisation of the Mexican economy, with foreign investments no longer exclusively targeting energy but also the automotive industry, electronics, chemical and aeronautics. A number of big names in American and European industry have started to establish operations in the central industrial region: for example, Bombardier, Airbus and GE Aviation are investing in Querétaro. Since the 1980s, foreign direct investment in the aeronautical sector amounts to nigh on 33 billion dollars. According to the FT, in 2014, compared to 2009, Mexico had doubled its automobile production to 3.2 million vehicles. Honda, Mazda, Audi, Kia, Nissan and BMW have already invested or plan to invest several billion dollars to set up assembly lines in the country. All this comes against the backdrop of Mexico not only becoming increasingly competitive but also gaining in expertise versus one of its biggest rivals, China, whose currency has slowly but surely appreciated against the dollar since the summer of 2005.
Opinion column by Jean-Philippe Donge, Head of Fixed Income at BLI – Banque de Luxembourg Investments. This article is published on its blog: “From the peso oro to the maquiladoras”
The Internal Revenue Service announces the opening of the International Data Exchange Service (IDES) for enrollment. Financial institutions and host country tax authorities will use IDES to securely send their information reports on financial accounts held by U.S. persons to the IRS under the Foreign Account Tax Compliance Act (FATCA) or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.
More than 145,000 financial institutions have registered through the IRS FATCA Registration System. The U.S. has more than 110 IGAs, either signed or agreed in substance. Financial institutions and host country tax authorities will use IDES to provide the IRS information reports on financial accounts held by U.S. persons.
“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS Commissioner John Koskinen. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”
Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.
Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information.
Host country tax authorities in Model 2 IGA jurisdictions and financial institutions are encouraged to begin the enrollment process well in advance of their reporting deadline. To begin transmitting information in IDES, a financial institution or tax authority will need to first obtain a digital certificate. Digital certificates bind digital information to physical identities and provide data integrity. IDES stores each user’s public key and related digital certificate. All IDES enrollees (including host country tax authorities) must obtain a proper digital certificate in order to enroll; there is a list of approved Certificate Authorities available on irs.gov.
For host country tax authorities in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. Financial institutions will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list. The online address for IDES enrollment can be found here. IDES runs on all major browsers, including Chrome, Internet Explorer, Safari, and Firefox and will support application-to-application exchanges through the SFTP transmission protocol enabling a wide variety of users to interact with IDES without building additional infrastructure to support transmission.
Further information on IDES can be found here. The IDES User Guide with instructions for enrolling and using the IDES can be found here. The IRS has posted Frequently Asked Questions about FATCA and IDES on irs.gov and will continue to update the FAQs as questions are received. In addition, there is a comments link on irs.gov to submit questions specifically on IDES and another for other FATCA-related questions.
