Foto: Fondo Monetario Internacional Fotógrafo/Stephen Jaffe - Fotografías de la Reunión Anual del FMI 2007, FMI. ¿Exuberancia irracional 2.0?
The warning signs of new asset bubbles are growing almost by the day. Major institutions, like the International Monetary Fund (IMF) and the Bank for Internatinal Settlement (BIS), as well as individuals who have been right at pointing out bubbles in the past – such as Raghuram Rajan, Governor of the Reserve Bank of India, who correctly anticipated the US real estate bubble – have all started issuing words of warning.
Stefan Hofrichter, CFA, Head of Global Economics & Strategy at Allianz Global Investors, has written a report which was discussed in Allianz GI Investment Forum in Frankfurt last month where he addresses the following issue:
Are we currently witnessing the creation of a new asset bubble or, even worse, a series of asset bubbles fuelled by ultra-easy monetary policy?
The debate should not come as a surprise: US equities were just a few percentage points off their record highs as of the day of writing the report, and other major equity markets have reached all-time highs or multiyear highs over the course of 2014. Bond spreads – be it corporate bonds, emerging market bonds or euro-zone sovereign bonds – are tight by historical standards, albeit not at historical lows. In addition, real estate prices have rebounded forcefully over the past few years in the US, the UK and several euro-area countries. House prices have risen, especially in countries that did not suffer from the burst of a debt-financed real estate bubble at the end of the last decade. This is particularly true for China, other major emerging markets – like Turkey, Brazil and India – and several industrialized markets, notably Hong Kong, Singapore, Canada, Norway, Sweden and Israel. Allianz GI therefore thinks it makes sense to update its research on asset valuation and asset bubbles.
You may access the complete report through this link, though, these are some of the conclusions:
EQUITIES: Based on the cyclically adjusted price-earnings ratio (“CAPE”), also known as “Shiller PE”, global equities look roughly fairly priced and in line with long-term average multiples. European equities, especially in the periphery, even look cheap on this metric. The same holds true for emerging market equities, which are again trading at a discount of around 20 % compared to equities from industrialized countries and are at their lowest valuation reading since 2006 – and at a similar discount as they were in the mid-1980s.
While US equities today are undoubtedly at high multiples compared to their own history, valuations are not in bubble territory and do not preclude a further rise in stock prices. Current valuations are no reason to become ultra- cautious on equities at this juncture, even though current valuations are likely to imply below-average real returns in the coming decade if past experience is a guide for future developments.
BONDS:High-quality sovereign bonds, such as US Treasuries, UK Gilts and German Bunds, are trading significantly below what Allianz GI thinks are nominal trend GDP growth rates, which should be the long-term reference value, based on both economic theory and past experience. Nevertheless, Allianz GI is more relaxed about the valuation of non-German euro-area sovereign bonds relative to Bunds.
Compared to the beginning of the year, though, the valuation assessment today is less favorable for corporate bonds, even though spreads compared to sovereigns are higher today than they were just before the burst of the real estate bubble. This statement is particularly true for high-yield bonds, be it in the US or Europe.
Emerging market bonds issued in hard currencies (benchmark: EMBI+) are reasonably priced, according to Allianz GI’s report. Still, the manager finds that local currency bonds offer better value: first, because of the higher yields compared to sovereign bonds from developed markets; and second, because they also expect additional gains from currencies, which look undervalued in the calculations based on Allianz GI’s long-term valuation approaches.
Top portfolio managers often make the headlines — whether their strategies perform well, or as we’ve seen recently, when they leave their firms. Their departures can be disruptive — whether it’s perception or reality. Fostering “star managers” is a cultural decision — but it’s not one that often works over the long term. The best investment cultures are built on humility, collaboration and mutual respect. There are no stars — only teams, equality and a healthy exchange of ideas.
A strong culture matters a lot — particularly for an investment firm, where people and judgment are your greatest assets. The way teams interact and collaborate to make investment decisions not only impacts how well a strategy performs, but also how the firm does as a whole. Those teams have to function well and create value together if they want to achieve differentiated performance.
Great minds don’t think alike
A collaborative culture doesn’t mean everyone has to think the same way. In fact, diverse views can actually lead to better decisions because they allow you to benefit from multiple perspectives and different analytics to get to a better outcome. But the process of sharing different views must be respectful, not combative. Instead of challenging each other as individuals, it’s important to challenge each other’s ideas. Encouraging team members to offer different views helps a team sift through increasingly large amounts of industry information, filter out the noise and focus on good research. By debating the information together rather than acting on it alone, you can avoid individual biases — which can cause trouble. Ultimately what you get is an environment of constructive challenge aimed at providing better results for clients.
To share different views, however, you need common cultural values. It’s tough to debate investment ideas successfully unless you have a common understanding of the end goal. For instance, if one side believes in a long-term perspective while the other side focuses on short-term market sentiment, that creates a headwind to achieving better outcomes. In fact, research on team building shows that common cultural values form the bedrock for cognitive diversity that leads to differentiated performance.
Culture supports investment beliefs
An investment firm’s beliefs and philosophies should be ingrained in its culture. For example, if you believe that a longer-term investment horizon results in greater opportunity for differentiated performance, your culture must support it. You must reward longer-term performance, tolerate short-term underperformance and follow both an investment process and team orientation that supports these objectives.
Increasing globalization and complexity calls for collaboration and teamwork, not just around the globe but also across capital structures. Consider an equity analyst who can look at company valuations, macroeconomic factors and competitors but typically wouldn’t have a lot of debt experience. Now combine that equity analyst’s view with a fixed-income perspective that looks at more complex credit issues central to the company’s capital structure, such as its financing facilities and debt covenants. Bringing these views across capital structures together provides a much more powerful perspective on a company’s intrinsic value.
Culture also creates a sense of shared responsibility, which is important to good risk management. In a risk-aware culture, shared values and consistent behavior can lead to stronger risk management — yet another case where strong culture benefits the client.
Don’t set it and forget it
It’s not enough to hire talented people. They also need the capacity to work in teams, share information and fit well into the firm’s culture. Infusing cultural values in the management of the firm — each and every day — is just as important as hiring the right people. If you want a collaborative culture to work, you need your employees to live and breathe it so it’s part of the fabric of the firm. Keeping employees connected to the firm’s culture helps them stay invested in the firm. It also reduces staff turnover — which is critical to limiting disruption to portfolio management and reducing hiring and training costs for the firm.
Culture isn’t a skill or a talent. Competitors can’t recreate culture the way they can mimic an investment or business strategy. Firms own their culture, and it’s up to the entire organization to keep it alive.
Article by Michael Roberge, President and Chief Investment Officer, MFS
For many of us in the West, waking up to the aroma of a pot of fresh-brewed coffee is one of life’s little pleasures. In fact, over the course of a year, the average American consumes the equivalent of roughly 9 lbs. (~4.5 kg.) of coffee beans. In Finland, that average is nearly three times higher!
But could this morning ritual catch on throughout Asia? In recent years, China’s annual per capita coffee consumption has been less than a negligible half an ounce (~0.01 kg.). This may help explain a statement I heard recently: “China will never be a coffee drinking nation due to their love of tea.” But is this view really correct?
Japan, which has the highest rate of coffee consumption in the region, was introduced to the brew at the end of the 18th century, with bulk imports starting in 1877. However, only in the 1960s did Japanese demand for java soar, notwithstanding its famous tea culture. Between 1965 and 1980 demand grew six-fold and these days Japanese consumers drink almost as much as Americans. Similarly, in South Korea, consumption grew considerably between 1982 and 1992.
Annual Coffee Consumption Per Capita (lbs. of beans), 2011
Finland
26.8 lb. (12.2 kg.)
U.S.
9.3 lb. (4.2 kg.)
Japan
7.3 lb. (3.3 kg.)
South Korea
4.8 lb. (2.2 kg.)
Vietnam
2.4 lb. (1.1 kg.)
Taiwan
2.3 lb. (1.0 kg.)
China
0.02 lb. (0.01 kg.)
While the region’s new coffee drinkers may be paving the way, it is unlikely demand in China will climb immediately. There are many challenges to growth—complexities surrounding the import of beans and coffee powder, material import duties and taxes, just to name a few. These factors have pushed the cost of coffee well above the reach of the average consumer. Currently, only the well-off lounge in the overstuffed sofas of Chinese coffee shops. But we know that times do change. And we may well see a sharp rise in demand over the next decade as global players and locals all enter this underpenetrated market.
Between 2012 and 2013, Starbucks opened 500 stores in China—more than it opened in the previous 12 years and the company has set a target of 1,500 stores by 2015. And they are not alone. Taiwanese, Korean, Singaporean and Australian chains, too, are all planning rapid expansions of their own chains. And this is even before the usual army of ubiquitous local competitors sets up shop. All these efforts combined could raise exposure, spread the taste for coffee and ignite demand.
Should Chinese demand build, global supply of the commodity could be strained. If China’s coffee demand approaches annual consumption even just below Taiwan’s relatively low 1 kg. per capita, then China would be consuming the equivalent to over 22 million bags (60 kg.) of coffee—accounting for around 24% of total exports, up from less than 1%. This kind of growth could have a big impact in a market where it took global exports a decade to increase only 4.4% while prices rose by 69%/lb. (ending in 2010).
We could see Chinese demand (not to mention demand from other emerging markets) impacting prices sharply. Once coffee culture in India starts brewing, let’s hope we can all still afford our favorite cup of joe. In a world of fairly static supply growth, it seems we might need to wake up and smell the coffee.
Opinion column by Robert Harvey, CFA; Portfolio Manager, Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
ETFGI’s research finds ETFs and ETPs globally have gathered a record US$199.0 Bn in net new assets through the end of Q3 2014, surpassing the previous high of US$185.8 Bn set in the first three quarters of 2012. The Global ETF/ETP industry has 5,463 ETFs/ETPs, with 10,510 listings, assets of US$2.6 Tn, from 225 providers listed on 61 exchanges, according to preliminary data from ETFGI’s end Q3 2014 Global ETF and ETP industry insights report.
YTD NNA flows reached record levels for the ETF/ETP industries in Japan at US$15.0 Bn, Europe at US$47.4 Bn, and globally at US$199.0 Bn.
“In September investors invested the majority of net new money into North American equity exposures. Due to the on-going situation in the Ukraine, Scotland’s referendum vote, and the Bank of England Governor’s statement that a rate increase was “getting closer”, investors reduced their exposure to Europe. The unfavourable geopolitical environment caused the S&P 500 to decline 1% in September. Developed markets declined 4% while emerging markets declined 7%.” according to Deborah Fuhr, Managing Partner at ETFGI.
In September 2014, ETFs/ETPs saw net inflows of US$13.2 Bn. Equity ETFs/ETPs gathered the largest net inflows with US$14.8 Bn, while fixed income ETFs/ETPs saw net outflows of US$449 Mn and commodity ETFs/ETPs experienced net outflows of US$1.5 Bn.
SPDR ETFs gathered the largest net ETF/ETP inflows in September with US$10.5 Bn, followed by Vanguard with US$7.0 Bn, First Trust with US$939 Mn, Van Eck with US$858 Mn and Wisdom Tree with US$789 Mn.
iShares is the largest ETF/ETP provider in terms of assets with US$980.3 Bn, reflecting 37.3% market share; SPDR ETFs is second with US$431.6 Bn and 16.4% market share, followed by Vanguard with US$406.8 Bn and 15.5% market share. The top three ETF/ETP providers, out of 225, account for 69.3% of Global ETF/ETP assets, while the remaining 222 providers each have less than 4% market share.
Mario González-Pérez and Álvaro Fernández Arrieta. Courtesy photo. Capital Group Opens Office in Madrid with Álvaro Fernández Arrieta and Mario González
Capital Group has opened its first office in Spain, in Madrid, as part of its expansion plans in a number of strategic markets (11 in total) outlined at the start of 2014.
The Madrid based Business Development Managers are Álvaro Fernández Arrieta and Mario González Pérez.
Grant Leon, head of Sales, Private Wealth Distribution at Capital Group, said: “Spain is an important market where we are seeing demand from existing and prospective clients for investment managers that offer long-term stability. We are very happy to announce the establishment of our new office in Madrid, demonstrating our commitment to Spain. Working with clients in their home market is key to ensuring that we continue to understand and anticipate their needs and provide a personal and efficient service.”
Fernández Arrieta joined Capital Group from Amundi Asset Management in July 2014 with over twenty years’ experience in the sector, while González Pérez has been with Capital Group for over 10 years.
Both will be responsible for nurturing relations with existing clients, and for developing new business opportunities, in Spain.
Capital’s equity offering includes US, European and emerging markets funds. Its fixed income offer focuses on high yield and emerging debt. Capital Group’s entire range of strategies, which comprises 20 Luxembourg funds, is registered in the Spanish market.
With assets under management (AUM) of US$1.8 trillion the U.S. market for exchange-traded funds (ETFs) is more than three times that of Europe, and is growing at a faster rate. But there are signs that European ETFs are on the cusp of a new phase of growth, particularly in the retail market, driven by influential new entrants and a favorable regulatory climate, according to the October issue of The Cerulli Edge-Global Edition.
“Costs are coming down not only because of greater competition but also in response to the demands of retail investors using ETFs as strategic core holdings,” says Barbara Wall, Europe research director at Cerulli Associates.
“Although U.K. advisors have been slow to embrace ETFs post retail distribution review, a growing number are exposed to ETFs through model portfolios. Take-up is also gaining momentum in other European markets, notably Germany and the Netherlands. The shift will be given a significant boost by the Markets in Financial Instruments Directive.”
The smart beta bandwagon is also gathering pace amid growing demand for innovative passive investment strategies. Last year, ETFs employing smart beta approaches grew by 59% in the United States, and accounted for more than one-third of cash inflows into the asset class. Value and dividend strategies were popular with investors and advisors, accounting for 56.6% of U.S. smart beta exchange-traded products, while growth products account for a 21.7% marketshare.
“The advantages of ETFs are beginning to be felt in South America and Asia,” notes Angelos Gousios, a senior Cerulli analyst. “Exposure to China through Renminbi Qualified Foreign Institutional Investor (RQFII) ETFs has exploded since their launch just over two years ago, and allocations to cross-border ETFs by Latin American pension funds have grown on average 35% annually for the past four years, and are catching up with allocations to cross-border mutual funds.”
In LatAm, Mexico is home to the largest locally domiciled ETF market in Latin America with one-half of the region’s listed ETFs, and assets of US$6.2 billion, or almost two-thirds of the region’s total. Almost 60% of these funds are dedicated to equity strategies with the majority focused on the domestic market. The rest are fixed income.
In China, the market for RQFII ETFs appears to be thriving. The first was launched more than two years ago, but 16 are now trading on the Hong Kong stock exchange, and several more have been listed in New York and London. Cerulli believes that the RQFII ETF space will continue to gain traction as demand for exposure to China grows, and the RQFII program is likely to continue to be developed by the Chinese authorities as they strive to internationalize the renminbi.
Growth in USA
Cerulli estimates that 32.5% of ETF assets in the United States–which should surpass US$4.5 billion in 2015–are owned by U.S. institutions. Almost three-quarters (70%) of ETF providers say increased institutional adoption will be a major driver of growth over the next 12 months, which is a significant jump from 2013, when the figure was just 38%.
Michelle Boquiren. Foto cedida . Michelle Boquiren llega a Amundi como jefa de Distribución de Fondos en Estados Unidos
Amundi Distributors USA, LLC announced that Michelle Boquiren has joined the company, as Senior Vice President, Head of U.S. Fund Distribution. Amundi Distributors is a wholly-owned subsidiary of Amundi.
As Head of U.S. Fund Distribution, a new position, Ms. Boquiren is responsible for maintaining and deepening Amundi Distributors’ relationships with U.S.-based distributors and global distributors headquartered in the U.S.; managing existing and developing new partner relationships; and developing new fund solutions for investors. Ms. Boquiren will report to Stephen A. Eason, CFA, Chief Executive Officer and work primarily from Amundi Distributors’ offices in New York, New York.
Christian Pellis, Global Head of External Distribution, Amundi, commented, “We are delighted to welcome Michelle on board to head up Amundi Distributors’distribution business. Amundi, through its U.S. subsidiaries (Amundi Distributors USA, LLC and Amundi Smith Breeden, LLC) is firmly committed to its growth ambitions in the U.S. which is a key market. Michelle’s recruitment will strengthen Amundi’s footprint in the U.S.; she brings extensive experience in international fund distribution and I am confident that her contribution will help to take Amundi Distributorsto its next development phase.”
“We are pleased to have Michelle as the newest member of our team. Amundi is actively expanding its institutional and fund management business through its U.S. subsidiaries. With her 20 years of experience and many close relationships with key participants in the fund industry, Michelle is the ideal person to lead this expansion. I look forward to working with Michelle,” stated Mr. Eason.
Before joining Amundi Distributors, Ms. Boquiren held several senior management positions in business development and sales at Investec Asset Management for American and International client from 2006 to 2014. Prior to Investec, Ms. Boquiren was Managing Director, Origination and Distribution at Overture Financial Services, LLC. Earlier, she held product development and senior specialist positions at Merrill Lynch, Global Private Client Group. Ms. Boquiren began her financial services career at Philippine Commercial International Bank.
Ms. Boquiren holds an MBA in Finance, Dean’s List, from the Asian Institute of Management in Manila, Philippines. She earned a BA in Management, Dean’s List, from De La Salle University in Manila, Philippines.
Standard Life Investments highlights that we are still in a multi speed growth world with Europe in particular facing significant long-term adjustment challenges.
As the world’s second largest economy, the Eurozone matters a lot for global growth and it is important that European policy makers address the demand and supply-side problems that are limiting economic recovery.
Jeremy Lawson, Chief Economist, Standard Life Investments, said: “We believe that European recovery is still very weak. Draghi has finally acknowledged that fiscal policy has been too tight and accelerated structural and financial reforms are now needed to stop Europe being trapped in a low growth equilibrium. Unfortunately he only has control over one policy area – monetary policy – and the flaws in the Eurozone’s institutional design make it hard to achieve the right fiscal balance that is now required to get growth up and inflation back to target.
“The banking union also falls short of what is ultimately needed to allow the currency union to function better. With respect to structural reforms, the heavy lifting has to be done at the national level. Portugal and Spain are already reaping the benefits of the labour market reforms they have implemented but France and Italy continue to lag well behind. All of this implies that the Eurozone is at risk of suffering a lost decade in terms of living standards unless tough decisions are made.”
. Luis Gallardo nombrado nuevo CEO de Thinking Heads Americas
With determination to drive the expansion of Thinking Heads Americas, as of October 1st, the first operator in the Hispanic world specializing in the global market of ideas, Luis Gallardo, has been established as Chief Executive Officer and a member of the Board of Directors.
“Luis Gallardo is the perfect person to direct the expansion of Thinking Heads in the U.S. and Latin America, his multinational experience creating brands and strategic communication and marketing programs with global impact is unique and truly impressive,” notes Daniel Romero-Abreu, Founder and President of Thinking Heads Group.
Luis Gallardo will be building the capacities needed to win the confidence of a potential of US$ 2.5 billion market including in-person, digital, literary and trending content, aspiring to turn Thinking Heads into a Thought Leadership Hub on a global scale through the development and exploitation of its unique model for managing personal positioning.
The Board of Directors of Thinking Heads Americas also features prominent personalities from the world of finance in Miami such as JoseCastellano, director of Pioneer Investments, Eduardo Rabassa, director of Amrop Seeliger and Conde US, as well as Eric Bergasa, partner at Tagua Capital; Alex Blochtein, international manager of Nortek; Pete Pizarro, CEO at Whitney International University Systems; Ignasi Puig, CEO at SCPF America; Gustavo Cisneros and Steven Bandel, President and Vice President of Cisneros.
For the past two years, Luis Gallardo has been acting president for consumption and brand marketing at Burson-Marsteller for EMEA, as well as Director of Global Brand Strategy at BAV Consulting, both companies in theYoung & Rubicam group. From 2004 to 2012 Luis Gallardo was Global CMO at Deloitte, where he directed brand, marketing and communication strategy in more than 150 countries. Luis is also a counsellor for tech and entertainment start-ups such as Webrand, Shore and Hollywood Domino.
He is the author of, Brands & Rousers, The Holistic System to Foster High Performing Businesses, Brands & Careers, which was awarded the Axiom silver medal as the best marketing book in the world in 2013. Luis Gallardo holds an MBA from IMD in Switzerland, and a Master’s in International Relations from the University of Lancaster in the United Kingdom.
Shaping The Word Through Ideas
The premiere of Thinking Heads Americas in Miami will be on October 27, 2014. This very special moment will feature the presence of Felipe Gonzalez, President of Spain from 1982 to 1996, as well as Adriana Cisneros, CEO and Vice-Chairman of Cisneros. The two of them will hold a colloquium on the role of “multilatinas” in the emerging economic and social regional setting,moderated by Andres Oppenheimer, political analyst for CNN and Editor of The Miami Herald, with a cocktail reception following reflection and networking.
About Thinking Heads Americas
Thinking Heads Americas puts into practice the methodology that has won the confidence of some of the world’s most prestigious minds: personal positioning management through the generation and dissemination of knowledge. Thanks to this, personalities such as Felipe Gonzalez, Ricardo Lagos and Jose Luis Rodriguez Zapatero have managed to get in contact with those institutions that demanded their ideas to improve the environment in which they operated. And most important of all: always calling on the capacity for reflection and thought of the audience to whom they were addressed.
Thinking Heads Group has managed more than 6,000 public appearances and has made its digital content for audiovisual production into a successful training supplement for thousands of executives and companies. It has, moreover, guided and promoted the works of hundreds of authors, and planned the personal positioning strategy of more than 80 personalities from a variety of settings. Some of the distinguished figures include economists Jose Carlos Diez and Carlos Rodriguez Braun; attorney and former government minister, Ana Palacio; athletes Toni Nadal and Emilio Butragueno; the philosopher Jose Antonio Marina; journalist Pedro J. Ramirez and artist Theo Jansen, as well as a variety of personalities from the world of business, science and thought.
AltFi will host its inaugural AltFi Global Summit for the US institutional investor audience on Tuesday, November 4, 2014 at the NASDAQ in New York City.
2014 is the tipping point for alternative finance – with P2P lending, crowdfunding and invoice finance coming of age across the globe. Following the success of the AltFi Europe Summit 2014, AltFi.com is bringing the conference to the US to explore the various challenges facing this dynamic sector, to investigate the opportunities in both Europe and America, and to showcase the platforms that are leading the way.
The audience of approximately 250 attendees will be comprised of investors, wealth managers, hedge funds, family offices, broker dealers, financial advisors, venture capitalists, and consultants – and of course, major platforms from both sides of the Atlantic.
Confirmed Speakers Include:
Brian Korn (Corporate and Securities Lawyer, Pepper Hamilton)
Heather Schwarz Lopes (Co-Founder and Chief Strategy Officer, EarlyShares)
Larry Chiavaro (Executive Vice Presdient, First Associates)
Richard Swart (Global Crowdfunding and Alternative Finance Researcher, PhD, University of California, Berkeley)
Rohit Arora (CEO, Biz2Credit)
Rupert Taylor (Director, AltFi Data)
Simon Champ (CEO, P2P Global Investments)
Etienne Boillot (CEO, Shepherd Capital)
Giles Andrews (CEO and Co-Founder, Zopa)
Rhydian Lewis (CEO and Co-Founder, RateSetter)
Jens Glaso (CEO, Trustbuddy)
Stuart Law (CEO and Co-Founder, Assetz Capital)
Christian Faes (CEO and Co-Founder, LendInvest)
Jilliene Helman (CEO, Realty Mogul)
James Levy (Senior Advisor, Business Development, SICAV-SIF)
“We are hosting the definitive event for this sector—with a strong focus on investors, investment opportunities and business development. We’ve selected a fantastic line-up of prominent thought leaders to share their views about navigating today’s alternative finance space. We’ll analyze the leading platforms from both the US and Europe to produce a fascinating cross-continental view,” said David Stevenson, media entrepreneur and founder of AltFi.com.
