CC-BY-SA-2.0, FlickrFoto: Zeusandhera. Los activos cíclicos cuentan con el apoyo del crecimiento empresarial
The growth of corporate earnings has been slower than in past recoveries but has been more stable than macroeconomic variables and financial markets. This resilience looks all the more remarkable, when set against the backdrop of recurrent crises, mostly regional but with possible global implications.
Cost savings still accounting for most corporate earnings
Cost-cutting has accounted for much of earningsgrowth deep into this moderate recovery, as most companies still refrain from bold expansion plans and see cash flows as the main defense against any downturn. In an uncertain environment, sales revenues have only at times replaced cost-cutting as the main source of profits.
Based upon a very long period of observations, when above-trend operating earnings come along with below-trend inflation expectations, growth-sensitive assets (equities and corporate bonds alike) have provided the best returns over a 12-month horizon. Risk factors may lead to a more defensive allocation, implying less exposure to risky assets for tactical purposes. The downgrade of corporate bonds was a case in point of late.
Alternative Case
The headwinds to global earnings growth include: a disorderly exit from quantitative easing due to mounting inflation expectations and the elusive political solution to the euro debt crisis. Pioneer Investments is mindful of these risks but not overly concerned for their base case.
Photo: Daniel Ahlqvist. What Returns can Investors Expect Over the Next Five Years?
The world economy will strengthen over the next five years, but the average investment returns won’t.
“Nevertheless financial markets still offer investors enough opportunities to make money”, Robeco’s Artino Janssen says.
Returning to normality
These are the key predictions in Robeco’s latest five-year outlook, which aims to advise institutional investors on what to expect from now until 2018.
It is now five years since the financial crisis brought turbulent markets, bank bailouts, recession and austerity. The next five years should not be as dramatic – but what should investors expect?
First, the good news. “In our baseline scenario for the next five years, we expect a generally strengthening of the world economy,” says Janssen, Executive Vice President for Investment Solutions & Research.
“We see inflationary risks, but we doubt whether they will come through significantly, and whether that would be within five years.” Inflation was not significantly impacted by trillion-dollar quantitative easing (QE) programs, and is expected to remain below 2% once they begin to unravel.
“We expect a strengthening of the world economy”
The end of easy money
The end of QE will also signal the end of easy money, as market interest rates – and eventually, official base rates – begin to rise from their currently historically low levels.
“We expect 10-year bonds yields to rise gradually in the years ahead, with a 10-year German bund yield of around 3% at the end of 2018, a bit ahead of the forward curve,” says Janssen, co-author of Expected Returns, 2014-2018.
As yields rise however, bond values (which move inversely to yields) will fall, reducing overall returns for fixed income investors. The five-year outlook predicts an overall average annual return of about 0.5% for high-quality government bonds, below the expected rates of inflation, which would imply negative real returns for the first time since the financial crisis.
Corporate and high-yield bonds, along with emerging market debt, are more attractive because of their risk premium over government bonds, as the table below shows.
Stocks also impacted by higher rates
The picture is different for stocks, where Robeco sees higher average returns of 6.75% over the next five years. Global equities have had a good run so far this year and are currently slightly overvalued by 13-15% depending on which indicator you use, Janssen says. As with fixed income, higher returns are available in emerging markets, but with higher risk.
“Over the last 30 years all asset classes, including equities, have benefited from the strong tailwind of declining bond yields. This year we have seen this tailwind turn into a mild headwind,” he says.
“Further multiples expansion for equities will be difficult in an environment where central banks firstly reduce QE, followed by the gradual disappearance of artificially low interest rates. Earnings growth will be the key driver but further expansion of profit margins will be difficult.”
“Further multiples expansion for equities will be difficult”
Real estate and shale gas overblown
Other assets popular with investors include real estate and commodities, with huge interest in the consequences of the US shale gas revolution – but Janssen feels both sectors are currently overblown.
“We believe global real estate to be overvalued compared to stocks. The current valuation is likely to generate a headwind in the next couple of years as real estate tends to be more interest rate-sensitive than equities,” he says.
“And although the impact of the shale gas revolution will eventually be felt across regions and energy markets, we hold the view that for the next five years, shale gas will remain a largely US phenomenon.”
Lower portfolio returns on balance
While we expect lower average investment returns for 2014 -2018, financial markets still offer investors enough opportunities to make money, Janssen says. This can be achieved by deviating from the traditional market portfolio in which government bonds have a high weight, by allocating to asset classes that offer attractive risk premiums, such as equities or high yield.
“On balance, we expect returns that are below our prior long-term estimates for 2013-2017, though we believe risk premiums relative to safer assets remain very attractive over the next five years,” he says.
The table below shows how Robeco’s Expected Returns this year compare with the forecasts of the previous year’s report.
BNY Mellon has added the Liquidity Aggregator to its risk and collateral management-related services. The tool is available through the company’s Liquidity DIRECT portal.
“As Markets expand globally, the need to analyze and quantify your portfolio return and liquidity risk is paramount. The Liquidity Aggregator offers clients a deeper view of exposure and risk, which is essential to managing their investments,” saidKurt Woetzel, CEO of BNY Mellon’s Global Collateral Services (GCS) business.
“Nearly all financial transactions and commitments have liquidity implications,” said Jonathan Spirgel, EVP and head of GCS sales and relationship management at BNY Mellon. “To be highly effective, liquidity risk management requires insights, tools, products and services that support a client’s ability to both maximize liquidity and analyze investment exposure.”
The Liquidity Aggregator was created to help clients gain a new level of insight into their investments, across all US and Non-US Domiciled Funds in their portfolios. The system is designed to help clients actively monitor and help to control liquidity risk exposures and manage funding needs, taking into account security types; country and region of exposure; country and region of risk; weighted average yields and maturities. Clients can leverage the new dashboard across their entire investment portfolio to view:
Exposure across all funds with positions;
Money market mutual fund full holdings in a single place;
Largest holdings in the portfolio by security type and issuer across multiple funds, with the ability to determine shared securities; and
Trends and reporting for month-end and at 6-month intervals for money market mutual funds daily yields, WAM and holdings.
Wikimedia CommonsBanco Sabadell's Branch in London. Moor Park Capital Sells Banco Sabadell's Branch Portfolio to Mexican Group Backed by Moises El-Mann
Moor Park Capital, a London based specialist in European corporate finance led net lease real estate transactions for institutional and retail investors, today announced that a group of Mexican investors led by Moisés El-Mann through the Mexican investment vehicle Branch Management, have acquired 100% of the share capital of the Spanish company ISC Fresh Water Investment, S.L.U., owner of 253 bank branches in Spain, for a consideration of approx. EUR 290 million.
These bank branches, located throughout Spain with particular presence in Madrid and Barcelona, are let to Banco de Sabadell and represent one of the largest investments in the Spanish real estate market ever conducted by Mexican investors.
The bank branches have the benefit of a long term lease agreement with Banco Sabadell for an initial term of 25 years, put in place at the time the initial acquisition was closed by Moor Park Capital in April 2010, when 378 bank branches were acquired from Banco Sabadell. Since that time 125 bank branches have been successfully sold by Moor Park Capital to individual investors and the sale of the shares in ISC Freshwater completes the disposal process. Moor Park Capital have been retained by Branch Management as exclusive asset managers for the acquired bank branch portfolio. Clifford Chance (real estate and corporate/M&A), Garrigues (tax) and CBRE Spain advised Moor Park Capital on the sale and Banco Santander acted as financial advisors to the investors and Uría Menéndez advised the investors in relation to taxation and legal issues.
This transaction represents the first investment of a major acquisition plan for real estate investments to be undertaken by the Mexican group in Europe.
The investors plan to continue their real estate investments in Spain and Europe to convert Branch Management into a SOCIMI, the Spanish legal entity equivalent to a REIT (Real Estate Investment Trust) in the near future.
In March 2011, the Mexican developer Mosies El-Mann, his brother André and other partners, launched the first real estate investment fund quoted in the Mexican Stock Market, Fibra Uno.
Marielena Villamil. BBVA Compass Appoints Marielena Villamil to its South Florida Advisory Board
Civic leader and business executive Marielena Villamil has joined BBVA Compass‘ South Florida advisory board, adding a sixth voice to the panel as the bank builds its presence in the market.
Villamil is the cofounder and president of Coral Gables, Fla.-based The Washington Economics Group Inc., an economics consulting firm. Villamil, who serves on several community boards, earned her master’s degree from Vermont’s Middlebury College and her bachelor’s degree from St. Mary’s Dominican College in New Orleans.
“We are proud to have local market experts like Marielena on our board,” said BBVA Compass South Florida Market President Roberto R. Munoz.
Villamil is the sixth member of the board formed last year after BBVA Compass opened a loan production office in Miami. She joins Jeb Bush Jr., managing partner of Jeb Bush & Associates LLC and president of Bush Realty LLC; Mike Valdes-Fauli, president of JeffreyGroup; Alberto I. de Cardenas, executive vice president, general counsel and secretary of Mastec Inc.; Hank Klein, vice chairman of Blanca Commercial Real Estate; and Raoul R. Thomas, group chief executive officer of CGI Merchant Group.
US Senate leaders reached a last-minute deal on reopening the government and suspending the debt ceiling. As the debt limit is only extended by a few months, the relief will only be temporary. It is nevertheless a reason for us to increase our risk-on stance by upgrading equities, real estate and credits.
The improvement in economic fundamentals and the ongoing support from monetary policy are the main reasons why we held on to our growth oriented, moderate risk-on stance in the past weeks. Now that the deal is reached, we have increased our risk positions somewhat.
Markets have priced in a more dovish Fed outlook
Debt ceiling deal is a temporary relief One day before the ‘infamous’ deadline of October 17, The US Senate and House of Representatives finally managed to pass a deal to get the government back to work and suspend the debt limit, albeit for a short time. The deal opens government again until January 15 and suspends the debt ceiling until February 7, 2014. It also requires negotiations to reduce the budget deficit to be completed by December 13. The automatic, across-the-board spending cuts (also known as sequestration) that began in March, were not lifted. The next round of cuts is due to take effect in January when the temporary spending measures end. Their removal is expected to be a key part of the budget negotiations.
Given the short window for successful budget negotiations the current deal has delivered, this chapter in American politics is not over yet. We may yet return to similar brinksmanship later this year or early next year.
Economic and corporate fundamentals give support However, economic and corporate fundamentals continue to improve, while tapering seems to be postponed until 2014. The nomination of Yellen as the next Fed chair gives us every reason to believe in a ‘lower for longer’ monetary policy. European data surprise to the upside and also the Japanese recovery gains further traction. Emerging markets got some more room to breathe from the delay in tapering.
We have increased our risk-on positioning The improvement in economic fundamentals and the ongoing support from monetary policy are also the main reasons why we held on to our growth oriented, moderate risk-on stance in the past weeks. Now that the deal is reached in the US, we have increased our risk positions somewhat. We upgraded our neutral positions in real estate equities and credits from neutral to overweight, while we moved equities from a small to a medium overweight position. Meanwhile we have moved government bonds from neutral back to a small underweight position.
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Goldman Sachs announced that Robert B. Zoellick, former president of the World Bank Group, will serve as chairman of Goldman Sachs’ international advisors. In this role, Mr. Zoellick will advise the firm on global strategic issues and oversee the work of the firms 16 international advisors. He will be based in Washington, DC.
“Bob Zoellick has extraordinary knowledge of the global economy and has devoted himself to helping emerging economies realize more of their potential,” said Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs. “His experience and judgment will be important to our clients and to our focus on helping them identify growth opportunities around the world.”
”Goldman Sachs is a premier firm, with superb people, and global reach,” said Mr. Zoellick. “I look forward to working with senior management and teams across the firm to help serve clients in a rapidly changing and challenging global context.”
For the past year, Mr. Zoellick has been the distinguished visiting fellow at the Peterson Institute for International Economics and senior fellow at the Belfer Center for Science and International Affairs at Harvard University.
Photo: Daniel Mayer. Atlanta y Miami ofrecen oportunidades inmobiliarias que escasean en los mercados primarios de EEUU
Selected secondary markets such as Atlanta and Miami appear to have more potential for private real estate investors than primary markets such as New York, Washington and Boston, which have been the top performers in recent years, according to a study from Siguler Guff & Company, a BNY Mellon investment boutique.
The report, “Why Commercial Real Estate Investors Should Think Timing, Timing, Timing“, was written by James Corl, Managing Director of Siguler Guff.
Real estate values traditionally have been affected by location. While that continues to be the case, Siguler Guff notes the cyclical nature of real estate markets could create arbitrage opportunities between the valuation of a property at the bottom of the market cycle and value of that property at the top of that same cycle.
“While most investors seek increasingly expensive core assets in a handful of locations, they often overlook the opportunities offered by underpriced properties in recovering markets elsewhere,” said Corl.
Investors have been driven by fear, looking to buy properties in liquid markets that have done well such as New York, Washington and Boston, the report said. However, investors are realizing they need to look elsewhere as prices rise and inventory shrinks in these markets.
For example, Siguler Guff points to buildings in Atlanta that trade at a nine percent yield versus typical New York buildings trading at a yield of approximately four percent.
“In a year or two, investors are likely to consider places such as Atlanta, where we have bought properties that are being leased up,” said Corl. “Warehouses in the U.S. southeast are another area that appears attractive now.”
According to Siguler Guff, many investors are avoiding the risks of the past, such as liquidity risk and leasing risk, and are not focused on current risk of valuation. Corl said, “Looking at liquidity and leasing risks makes sense if you look backward at the 2009 pricing shock, but it doesn’t protect from the risk of paying too much.”
Another area of opportunity cited by Siguler Guff is smaller properties, which the private equity manager said are more likely to be priced inefficiently as they are not as heavily analyzed as larger properties.
Photo: Sailko. La SEC sienta las bases para un mercado de inversión de crowdfunding
The National Crowdfunding Association(NLCFA), welcomes the unanimous vote by The Securities and Exchange Commission to issue proposed rules for Investment Crowdfunding under Title III of the JOBS Act. As Commissioner Daniel M. Gallagher stated, “In Title III of the JOBS Act, Congress recognized the potential of the Internet to facilitate capital formation for very small companies at a critical stage of their growth.” The NLCFA agrees with Commissioner Gallagher when he goes on to say he is “glad that the President and Congress have forced the Commission to focus on small businesses, as they are the engine of growth for our economy.”
“We are pleased that the SEC has given the industry a framework from which to build on,” said Howard Landers, Director of Regulatory Affairs for the NLCFA and Co-CEO of eBarnRaiser, LLC a funding portal developer. “The industry will now study the proposed rules and engage with the regulators to ensure that investment crowdfunding in the United States is efficient, effective, and aids in capital creation while taking investor protection into account.” Mr. Landers added, “The NLCFA looks forward to working with all regulatory bodies; the SEC, FINRA, and members of the North American Securities Administrators Association (NASAA) to help create the investment crowdfunding marketplace, and to give the industry participants a voice through the NLCFA.”
The NLCFA will be reviewing the 585 pages of proposed rules along with the 295 questions in the release, and issue a comprehensive response to the SEC, thus providing a voice for the small business entrepreneurs and those investors who look forward to supporting them.
“That wind you felt today was the industry finally exhaling,” said David Marlett, Executive Director of the NLCFA. “It has been long anticipated.” He added, “We have a top notch regulatory team that crafted one of the definitive white papers during the first round of comments last year. I am looking forward to their analysis of these proposed rules.”
Photo: IntelFreePress . Active Safety – the Next Car Industry Revolution
It used to be the case that investors turned to automobile manufacturers as a secure, long-term option for growth. But those days have passed. The world might still run on cars, but in terms of being a sector in which to invest, it requires selectivity. In Europe, weak consumer spending and saturation of the market has sapped demand for such big-ticket items. This has left the car industry in Europe in a category we term as ‘euro grunge’ – the value end of the market.
However, times are changing once again. Following years of economic uncertainty and industry restructuring, strong Chinese sales and pent-up demand for replacement cars in the US has provided some reasons for optimism. But the automotiveindustry remains at a crossroads. Its future is bound closely to the growth of technology, with consumers increasingly focused on fuel efficiency (in response to stricter governmental regulations on emissions), hybrid and electric vehicles, and safety. Those firms that can meet those needs are those that will be able to sell more vehicles and raise their market share.
The safety trend is one that looks particularly interesting. Passive safety is something we all know about, such as that provided by airbags and seatbelts. But active safety, technology that helps to prevent accidents from happening, is seeing more and more growth. Active safety started out with technologies such as anti-lock braking systems (ABS) and Electronic Stabilisation Programs (ESP), but has now extended to driver assistance systems that can prevent the driver from moving into the wrong lane on a motorway, alert the driver to pedestrians, assist with parking, or even apply the brakes early to avoid an accident.
Technology is unpredictable, but the line between driver assistance and automatic driving will continue to blur the further we go. Germany-based automotiveindustry supplier Continental believes that vehicles will be driven motorway distances on a fully automated basis by 2025 utilising vehicle-to-vehicle communication, while car manufacturer Renault believes that this could be a reality by 2020.
A lot of the growth we see in safety is being driven by regulation. Safety assistance is one of four areas in which the European New Car Assessment Programme (NCAP) regulations judge cars. NCAP rewards and recognises car manufacturers that develop new safety technologies, from blind spot monitoring to systems that detect drowsiness. From a regulatory perspective, from 2014 it will not be possible for cars to receive a 5* rating without an active safety component. This creates an element of embedded structural growth that should help to partly offset the cyclical nature of the broader automobiles sector.
We remain very cautious about the prospects for big car manufacturers, away from the premium brand market (where we continue to favour BMW). Firms that specialise in developing technology and components seem well positioned to meet the demand for active safety technology and therefore offer great investment opportunity. Continental, French vehicle components provider Valeo or Swedish-American automotivesafety systems producer Autoliv are amongst the names that we like at present. A key benefit of these component suppliers is that not only are they at the forefront of these heavily-demanded technologies but in having partnerships with several automakers around the world, their revenues are spread across numerous car brands and geographies, helping to spread risk.
Opinion column by John Bennet, Portfolio Manager at Henderson Global Investors
