By Almonroth . The Damage Potential of Rising Rates
The initial goals of the Federal Reserve’s “Great Monetary Experiment”— to keep rates low, create negative real yields, spur consumption and cushion the budgetary consequences of fiscal stimulus — have largely been accomplished. Investors could now face the threat of rising bond yields. Various bull and bear scenarios might ensue. What are they and what could trigger them? What are the risks to portfolios?
Duration Described: The Ugly Math of Long Maturity
Duration is a measure of a fixed income instrument’s sensitivity to rising rates. In general, the longer the instrument’s maturity, the longer its duration, and the more sensitive its price will be to changes in market yields. This is because the instrument’s value is the sum of cash flows received (interest payments and principal payments), discounted at the current rate demanded by investors for that instrument until its maturity.
Time Value of Money
When rates rise, an investor has to implicitly discount all interest and principal payments for bonds at a higher rate. And that rate is compounded by the “time value of money”. Thus, if a bond’s interest and principal payments stretch far off into the future, the discount factor becomes large. The market reacts typically by dropping the value of the longer-dated bond much more dramatically than the shorter-dated bond.
Present Value
Consider two bonds with different maturities: a 2-year and a 30-year Treasury. For a $1,000 2-year Treasury bond yielding 1%, the principal to be paid back in 2 years is a large component of the bond’s present value. The interest payments (4 payments of $5 = $20 vs. $1000 principal) are a small part of the present value. Conversely, for the $1,000 30-year bond yielding 3%, the principal payment, made far in the future, is a smaller component of the present value. The interest payments (60 payments of $15 = $900 vs. $1,000 principal) are a much larger portion of the bond’s present value.
Many Interest Rate Scenarios Could Ensue Over the Next Several Months
One “extreme” scenario that some have suggested is the ultimate duration nightmare – a wholesale rout of the Treasury and Dollar markets. This event could transpire if investors lose faith in U.S. political and monetary authorities resulting from an extreme currency debasement and the simultaneous inability to reign in federal deficits. Those who argue we are going down this path may point to the seemingly never-ending rounds of Quantitative Easing and political paralysis on a long-term budget plan. While we sympathize with these concerns, we don’t find them compelling in the near- to intermediate-term for a number of reasons. We do, however, envision a number of different potential rate scenarios unfolding.
Click here to read Pioneer’s Blue Paper The Damage Potential of Rising Rates, which reviews these interest rate scenarios, and the conditions that could invoke them.
Column by Michael Temple Director of Credit Research, U.S, Pioneer Investments
Juan Garrido (above), and Les Baquiran, co-directors of the LatAm Chapter in HFA. Hedge Fund Association Appoints Juan Garrido and Les Baquiran Co-Directors of LatAm Chapter
The Hedge Fund Association has announced new regional leadership appointments. Victor Hugo Rodriguez, the first director of the HFA’s LatAm Chapter, is passing the reins to prominent hedge fund industry pioneers Juan Garrido and Les Baquiran.
Juan Garrido is global head of investment solutions at BBVA Global Private Bank in New York. He has almost two decades of market experience and a sound understanding of asset and wealth management, financial products and services, and infrastructure. Juan oversees BBVA’s Wealth Management’s global investment strategy, asset allocation and recommended catalog of products and services, is a member of the Global Private Banking Steering Meeting, and chairs the Global Wealth Management Meeting.
Les Baquiran was a New York-based principal at Park Hill, an alternative investment placement agent that is part of the Blackstone Group. Prior to joining Park Hill, he was a Managing Director at ISI in Institutional Sales and before that worked at Brown Brothers Harriman as an Equity Research analyst. Les has guest lectured or advised on curriculum on investment management and emerging markets at Yale, Harvard, Stanford, and New York University.
“Victor is clearly a hard act to follow but Les and I both look forward to facing the challenge of further developing the HFA’s activities in the Latin America region,” said Juan Garrido, Co-Director of the HFA’s LatAm Chapter. “I agree wholeheartedly. Whichever metaphor you choose to describe the magnitude of what lies before us, we will both need to be at our best to match, let alone emulate, what Victor has achieved to date,” added Les Baquiran, Co-Director of the HFA’s LatAm Chapter.
Victor Hugo Rodriguez became the director of the HFA’s LatAm chapter when it was launched in March 2011. The founder, president and CEO of LatAm Alternatives, he has over 17 years of experience in management, sales, marketing and business development within the securities industry in the U.S.-LatAm region. He was partner and head of Latin American Prime Brokerage for Merlin Securities and Director of Global Institutional Sales at TradeStation Securities. He has also been a live TV economics news anchor.
“It has been a privilege to head the HFA’s efforts in Latin America over the past two years,” he said. “I know that Juan and Les will strive just as hard to carry on all the good work we have done in that time, and I will of course remain available to help and advise them when and where necessary.”
“These appointments are designed to maximize the impact that the HFA already has in the LatAm region, and I am certain they will do just that,” said Mitch Ackles, HFA President. “The diversity and richness of the talent available to our members in Latin America and around the world never fails to impress me.”
Wikimedia CommonsFoto: AT&T. Morgan Stanley nombra a un ex directivo de AT&T miembro de su consejo de administración
Morgan Stanley announced that Rayford Wilkins, Jr., has been elected to the Company’s Board of Directors, effective August 1, 2013.
Mr. Wilkins, 61, most recently served as CEO of Diversified Businesses at AT&T, a position from which he retired in March 2012. Previously in his career, Mr. Wilkins held several leadership roles at AT&T and its predecessor companies, including Group President of Marketing and Sales at SBC Communications, President and CEO of SBC Pacific Bell, and President and CEO of Southwestern xBell Telephone, among others.
Mr. Wilkins’ appointment will bring the size of Morgan Stanley’s Board to 15 members. He will serve on the Board’s Nominating and Governance Committee.
James Gorman, Chairman and CEO of Morgan Stanley, said: “I am very pleased to welcome Mr. Wilkins to our Board. He brings highly relevant leadership experience, both domestic and international, having managed through extensive change and transformation during his long career. His perspectives will benefit our other Directors, our management and our shareholders.”
Mr. Wilkins currently serves on the boards of Valero Energy Corporation, América Móvil and YP Holdings. He is also a member of the Advisory Council of the McCombs School of Business at the University of Texas at Austin, where he holds a bachelor’s degree.
The summer of 2013 has seen a spate of social unrest episodes across the emerging market space. The riots had two things in common. First, they were sparked by a government decision affecting daily life. In Turkey, it was the government’s decision to change the use of Istanbul’s landmark Taksim Square; in Brazil, it was the decision to hike bus fares; and in Bulgaria and Indonesia, it was higher electricity and fuel prices, respectively. Second, protesters are not affiliated with political parties or movements, and they are well educated members of the middle class.
This was not the first time that the middle class has been at the epicenter of social unrest. The now developed economies suffered a spate of social unrest during the “long nineteenth century”,when the rise of a middle class of traders, entrepreneurs and better educated people fuelled demand for better living standards and more representation in political governance.
This report, signed by Manolis Davradakis, Senior Emerging Economist, AXA Investment Managers, attempts to examine the root causes of the recent episode of social unrest in emerging markets and rank the various emerging economies on the basis of their performance in the area of institutional governance, which matters a lot to the middle class.
The middle class revolution
The world’s middle class is growing and is expected to continue to do so. It is expected to become more populous compared to the poor by 2022, with its size climaxing at 4.9bn people by 2030, doubling its size in 2009, according to the European Union Institute for Security Studies. Middle classes will grow the most in Emerging Asia, followed by Sub-Saharan Africa, MENA and Central and South America (Exhibit 3).
Indeed, high levels of economic development render people more open-minded, leading to more emphasis on self-expression and more participation in the decision-making process.Knowledge societies cannot function effectively without highly educated citizens who are accustomed to thinking for themselves. Beyond a certain point, repressing mass demands for a more open society becomes costly and economically ineffective. Government unwillingness to acknowledge the people’s right to freedom of expression and a voice in decision-making is a source of social unrest.
Everyday problems all the same
As more people join the ranks of the middle class, existing institutional structures prove to be unable to accommodate the aspirations of members of this class for swift economic and social advancement. Middle class members realize that although they earn more now and are wealthier than before, they still face the same malaises as the poorer strata of the population
The crime rate in several emerging markets overshoots that of OECD countries by a large margin. Indeed, the homicide rate is the highest in South Africa, Mexico and Brazil, all three members of the G20 (Exhibit 4).
High crime rates force people to spend a large share of their income to protect themselves and their properties, diverting funds from more productive uses and impeding entrepreneurship.
Also, public spending for education and health care are lagging behind in emerging compared to developed economies.
Investment implications
Social unrest may have implications for emerging market ratings. Specifically, the combination of the current account deficit widening, foreign capital outflows in the aftermath of US Federal Reserve’s QE tapering off, and prolonged social unrest could result in Turkey’s sovereign credit rating outlook and Brazil’srating being downgraded.
Fitch has warned that poorly handled enduring social unrest could put Turkey’s investment grade at risk, while Moody’s has stated that a spike in political risk is a rating negative event. We believe that the two rating agencies will most likely opt for an outlook downgrade at first to prevent the reputation damage that would emerge should they relinquish the investment grade less than a year after receiving it.
The rating action on Brazil could imply a sovereign rating downgrade, most likely by Standard and Poor’s, which downgraded the country’s outlook to Negative in June 2013. In Brazil’s case, rating agencies do not face the same reputation risk that they face in Turkey. A rating action could take place by end- August, within the two-month period after the outlook change by Standard and Poor’s.
Wikimedia CommonsSteven Crosby. PwC 20th Anniversary Global Private Banking and Wealth Management Survey
The upcomingFIBA Wealth Management Breakfast Series is titled “PwC 20th Anniversary Global Private Banking and Wealth Management Survey: Navigating to Tomorrow: Serving Clients and Creating Value”, and will be presented by Steven Crosby – Americas Wealth Leader, PricewaterhouseCoopers LLP.
The Survey questionnaires canvassed the full range of senior management views. Chief Executives, Heads of Business Units, Chief Operating Officers, Finance Directors, Risk Officers and Human Resource Managers all completed specific sections. Acknowledging their crucial role in the client experience, there is also a section dedicated to Client Relationship Managers.
Survey headlines:
Pervasive regulatory pressures are driving cultural change
The quest for operational efficiency and differentiations through technology continues
Traditional approaches to product and service are changing
Understanding the client’s perspective of value is only getting tougher
Wikimedia CommonsNarendra Modi, likely candidate for Prime Minister in the Indian general elections due in May of 2014.
. Tech-Savvy Elections in India
The democratic process in India is famously complex with innumerable caste coalitions and competing interests. With poverty widespread and so many living in remote villages, voter turnout can pose unique challenges.
While growing up in India, I recall politicians ferrying people from the hinterlands to attend political rallies, offering free transportation, lunch and pocket money to those willing to participate—all to ensure a large turnout. But what has changed since then? India’s political parties are now embracing technology to reach out to constituents.
We see a notable difference in an August rally being planned in the southern city of Hyderabad by Narendra Modi, the current chief minister of the western state of Gujarat. Unlike other rallies, this one for Modi, who is expected to be the Bharatiya Janata Party’s nominee for prime minister in upcoming national elections, features online registration, and is seeking voluntary donations of about 8 cents that will go toward charity.
India’s next federal election is expected to highlight the extensive use of the Internet and other electronic media. In a country of 1.2 billion people and approximately 250 million households, it is estimated that 155 million households have television sets. Moreover, the majority of these households have cable TV or satellite connections with access to multiple channels, allowing viewers to hear diverse political viewpoints. In addition, the country has more than 860 million cell phones, which offer politicians more options to reach voters via social media platforms.
Will the winner of India’s next election be the party that can best harness technology to compel voters to action? If so, then Mr. Modi may possibly have an edge. With more than 2 million Twitter followers—the most of any Indian politician—he has been among the early adopters of technology in India’s political arena. (Parliamentary Member Shashi Tharoor is close second with 1.84 million followers.) In recent Gujarat state elections, Mr. Modi also made extensive use of 3D projection, a special audio visual technology, to boost coverage of his rallies.
Whether upcoming elections can be influenced by the strongest online presence remains to be seen. But, hopefully, it can at least help fuel more robust public discourse over India’s most pressing issues.
By Sudarshan Murthy, CFA. Research Analyst, 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
Wikimedia CommonsCorvo Bianco. Chef Elizabeth Falkner Brings the Italian Coast to the Upper West Side
Corvo Bianco, or “white crow” in Italian, has opened at 446 Columbus Avenue, and 81st Street, bringing coastal Italian fare to the Upper West Side of Manhattan. Executive Chef Elizabeth Falkner helms the kitchen, turning out both authentic and inspired takes on Italian cuisine that highlight fresh seafood, bright flavors, and handmade pasta.
An abbreviated bar menu offers inventive Bruschetta and a number of Pizza Griglia and Panini, with a beverage program boasting a 120-bottle wine list curated by Wine Director Enrique Duran. An impressive collection of both international and domestic varietals are poured; 30 of which are priced at $33. Ward III mixologist Michael Neff has created a number of signature cocktails incorporating complex amaros and infusions such as an option featuring Rye, Averna, bitters, and Earl Grey Tea. Corvo Bianco also offers draft and bottled craft beer.
“We wanted to bring the Upper West Side community a glimpse of that downtown vibe,” says Mexican co-owner Luis González Rul. “We hope that Corvo Bianco will cater to families, tourists, older crowds and younger crowds. But first and foremost, we want to be a neighborhood restaurant—a place where everyone feels welcome and at-home,” adds Paulina González Rul, co-owner and image consultant of Corvo Bianco.
The 225-seat restaurant, designed by the Mexican architect Mauricio Zermeño-Bessonart, is housed in what used to be the historic Endicott Hotel. Zermeño aimed to preserve much of the building’s original architecture and integrity, while also incorporating elements reminiscent of Italy’s iconic osterias and terraces. “We wanted something sophisticated-chic, yet cozy and inviting,” says Zermeño. Original brick archways line the perimeter of the main dining room, while a landmarked skylight sends natural sunbeams throughout the 7,000 sq. foot space. A terracotta fireplace to the back of the main dining room anchors the space and complements the potted plants dappled across the walls. For special occasions, a 30-seat private dining room to the side of the main floor is the perfect alcove from the bustling restaurant.
Corvo Bianco is located at 446 Columbus Avenue, and 81st Street, and will be open Sunday through Thursday 5:00pm to 12:30am, and Friday & Saturday 5:00pm to 1:30am.
For more information, please call (212) 595-2624 or visit their page.
Wikimedia CommonsFoto: mattbuck . ¿Qué estrategias reciben más consultas en Morningstar? La renta variable global gana posiciones
Individual investors, advisors, and institutions continued to show interest in large-cap equity strategies in the first half of 2013, according to a list of the most-researched investments in Morningstar’s platforms. The mid-year snapshot also finds individual investors seeking dividends, financial advisors exploring allocation funds and income investments, and institutions searching for opportunities internationally.
Highlights of the most-researched investments in Morningstar platforms during the first half of 2013 include:
Seven of the 10 most-researched separate accounts by institutional investors were large-cap growth strategies. Two value strategies also ranked in the top 10.
A bank loan strategy made the list of both the top funds and ETFs researched by individual investors—no bank loan strategies made the individual investor lists in 2012.
Financial advisors’ most-researched mutual funds focused on large-cap equity and allocation funds, while the number of fixed-income funds on the list declined from 2012.
Emerging-markets ETFs were most popular among individual investors, while advisors showed particular interest in bond ETFs and large-cap strategies; though an energy sector ETF topped the advisor list after not making the list during the previous period.
“Core equity and bond strategies largely remain the most-researched investments across our main product platforms, but changes to the number of searches in niche categories indicate that investors were switching gears in the first half of the year,” Paul Justice, director of fund research for Morningstar, said. “In the institutional segment, we saw a dramatic increase in interest in international preferred stock and junk-rated domestic bonds, likely because of the rapid shift in interest rates in the United States.”
“Within separate accounts, the new additions to the list indicate how institutions have changed sentiment,” Justice added. “According to searches in our software platforms, portfolio managers seem to be reinvigorating their search for income and international exposure following the rise in interest rates and perhaps the overheated performance of U.S. equities relative to the rest of the world.”
Most Researched Investments, Jan. 1 — June 30, 2013—Individual Investors (Morningstar.com):
Wikimedia Commons. 5th Convention of American Residents of Asturian Origin
The 5th Convention of American Residents of Asturian Origin organized by SabadellHerrero, took place on July 31st, with the aim of recognizing the work of the large group of entrepreneurs who, for many years, have been able to combine their roots in the Principality of Asturias with their successful careers in different countries of the American continent.
The event, which took place at the National Parador of Cangas de Onis, was attended by over 200 people who are either based in America or have interests in the American continent, and who have significant financial, business, cultural, and social responsibilities Among the objectives of the meeting was to facilitate the implementation of new business initiatives between Spain and the American countries in which these Asturian entrepreneurs operate.
During the day, Josep Oliu, president of Banco Sabadell, gave a lecture on the current macroeconomic climate and the future prospects for the coming months. Fernando Perez Hickman, business director of Banco Sabadell in America, and Graciano Torre, Regional Minister of Economy and Employment of the Principality of Asturias, also addressed the attendees.
Wikimedia CommonsBy Presidencia. Peruvian AFPs May Directly Register Their Investments in Foreign Mutual Funds
A few days before it became mandatory for Peruvian citizens to choose between the Private Pension System (SPP)and the National Pension System (SNP) to provide for their retirement, the Superintendence of Banking and Insurance (SBS) and the Peruvian President Ollanta Humala Tasso announced that they will seek to streamline investment in the stock market by private managers.
In his speech commemorating the 192 nd Anniversary of National Independence last week, the president said “This reform complements the one carried out to our Private Pension System, in order to expand pension coverage, increase the profitability of our funds, and benefit members; to date having achieved the reduction of commissions to a third of the average charged .”
Through a draft resolution, which shall receive input from the public until August 26th, the SBS proposes the “elimination of registration of instruments and fund operations,” thereby seeking to shorten the timeframes for the authorizations issued by the regulatory authority when transferring the registration of “instruments which are considered simple” such as local and foreign fixed income investments, foreign and local equities (stocks), and foreign mutual funds, to the AFPs.
