Foto cedidaÁlvaro Palenga. El Grupo AMCS amplía su equipo con una nueva incorporación en Uruguay y pone foco en su expansión
AMCS Group, a Miami and Montevideo-based third-party distribution firm, has appointed Alvaro Palenga as Sales Associate.
Palenga joins the firm at an exciting time, as the business is seeking to significantly grow the market presence of its two asset management partners, AXA Investment Managers and Merian Global Investors, while aiming to complete a deal with a third asset manager to further expand and diversify its UCITS offering to its distribution network.
Palenga will report to Santiago Sacias, Managing Partner and Head of Southern Cone Sales, who is also based in Montevideo. He will initially be tasked with supporting Sacias and the wider team in continuing to strengthen Merian and AXA IM’s position in the region.
Palenga previously worked for Sura in Montevideo as a financial advisor. Prior to Sura he worked at Trafigura as Oil Risk and Market Analyst. He also completed an internship at Citi International Financial Services (CIFS) as an Investment Analyst. Alvaro is a CFA level 3 candidate
Santiago Sacias, managing partner, the AMCS Group, comments:
“We are delighted to have Alvaro join the AMCS Group. His experience in the wealth management, alongside his academic achievements will fit perfectly with our investment-centric approach to client development and servicing. We all look forward to his contributions to our ambitious growth plans.”
The AMCS Group team details:
Currently the AMCS team is formed by the following member with the resposabilities described below:
Chris Stapleton, co-founder and Managing Partner, oversees global key account relationships across the region, as well as advisor relationships in the Northeast and West Coast.
Andres Munho, co-founder and Managing Partner, oversees all advisory and private banking relationships in Miami, as well as firms located in the Northern Cone of LatAm, including Mexico.
Santiago Sacias, Managing Partner, based in Montevideo, leads sales efforts in the Southern Cone region, which includes Argentina, Uruguay, Chile, Brazil and Peru.
Fabiola Peñaloza, Regional Vice President, is responsible for select advisory and private banking relationships in Miami, as well as firms located in Colombia.
Francisco Rubio, Regional Vice President, is responsible for the Southwest region of the US, as well as independent advisory firms in South Florida and Panama.
The team is supported by Virginia Gabilondo, Client Services Manager.
Foto: Matthews Asia. Japan According to Matthews Asia
Many investors already have exposure to the Japanese economy’s new era, ushered in by corporate reforms and increasing integration with broader Asia. While these growth drivers apply across the market capitalization spectrum, Matthews Asia believes a compelling alpha opportunity may exist in Japan’s small-cap market.
In a company publication, they say that the potential to generate alpha by investing in Japan’s small companies is driven by multiple factors: thin sell-side research coverage, an undersize venture-capital funding environment and low correlations to other asset classes.
Thin Research Coverage
After years of lackluster equity performance and declining commission rates in Japan, many sell-side firms focused resources on a limited number of large caps in Japan, primarily those with trading volumes that justify the costs.
Geography also plays a role according to the asset manager. Most Japan-focused sell-side firms are based in Tokyo. Companies elsewhere tend to be overlooked until they reach a certain size. As a result, the universe of small-cap Japanese equities is largely uncovered by sell-side analysts, leaving the field open for active managers to find undiscovered companies with growth potential.
Of the more than 1,900 Japanese small-cap equities for which FactSet Research Systems tracks analyst coverage, 75% are not covered by any third-party sell-side research providers or have just single-analyst coverage. Compare that with the small-cap market in the U.S., where 70% of companies are covered by three or more analysts, leaving only 22% with one or zero analyst coverage. In fact, among small caps, Japan has less analyst coverage than the U.S., Western Europe or even Asia ex Japan.
“This information asymmetry creates a potential advantage for fundamental active managers, as exciting companies with underlying characteristics that can fuel long-term, sustainable growth often are overlooked by investors.” They mention.
Limited Startup Funding
Although sell-side analyst coverage of small-cap companies in Japan is thin, there is no lack of companies to cover. In fact, Japan features a steady flow of small-company listings on public exchanges. Early- and middle-stage companies—and even companies with decades of history that want to launch a new phase of rapid growth—frequently turn to public listings to raise capital, given the country’s limited scope of venture capital and startup funding.
The gap in startup funding is significant. The market capitalization of listed U.S. companies is approximately six times larger than the market capitalization of listed Japanese companies—but the disparity in venture capital is meaningfully more pronounced: Venture capital investment in the U.S. is more than 40 times greater than in Japan, as of the end of 2017. Historically, the venture-capital landscape in Japan has been constrained by several factors, including cultural and language barriers, unfavorable tax and corporate laws and a bank-centric financial system that favors conservative investment strategies.
As a meaningful number of small Japanese companies turn to public markets for funding, according to Matthews Asia, alpha-seeking investors can benefit from a wider opportunity set—and many of these small, innovative companies start small and grow bigger, rewarding investors along the way.
Low Correlations Provide Diversification Potential
Japan small-cap stocks historically have enjoyed low correlations with other major markets, creating an environment with potential for diversification and alpha generation. In terms of correlation to the S&P 500 Index, Japan small-cap stocks posted similar marks over a 10-year period as frontier markets (such as Bangladesh and Pakistan). At the same time, Japan small caps are more liquid than frontier markets—a discernible advantage for most investors. The average daily trading volume of the Tokyo Stock Exchange Mothers Index, for example, typically is $1 billion to $3 billion, eclipsing the trading volume of the frontier markets in aggregate and even surpassing markets in South Korea and India.
The Alpha Environment in Small-Cap Japan
The characteristics described above lay the groundwork for alpha generation in Japan—but have portfolio managers historically been able to capture the resulting opportunities? In any given market, one or two managers will be able to identify alpha, even in efficient markets such as the U.S.; at Matthews Asia, they hypothesize, however, that the small-cap market in Japan has a robust alpha profile for long-term investors—one in which more than a select few can potentially identify alpha.
To validate this premise, they first gathered data on average investment-manager alpha generation in Japan relative to one of the most efficient environments: U.S. Large Blend (Core). According to Morningstar investment-manager category averages, the average Japan equity manager achieved alpha far in excess of that realized in the U.S Large Blend (Core) category over the three- and five-year periods ending March 31, 2019. In fact, alpha generation was negative for the average U.S. Large Blend (Core) manager during these periods.
Next, they broadened the universe to compare alpha generation of the average Japan manager against Europe, Asia ex Japan, U.S. Large Growth and China. As illustrated below, Japan led the pack in terms of alpha generation over the five-year period and ranked third over the three-year period.
Matthews Asia believes the Japan small-cap market is a unique environment where multiple factors combine to create a fertile hunting ground for alpha. As investors ask how best to harness Japan’s growth potential during its newest economic era, they believe the country’s small companies are a key component of the answer, providing investors with a powerful opportunity to help meet long-term goals for growth.
A New Era in Japan’s Economy
Corporate reforms are resulting in improvements in governance, capital allocation and shareholder-return policies — In part, the long malaise in the Japanese market was brought about by antiquated business practices and conceptions. For decades, Japan’s corporations and their boards primarily focused on safeguarding market share, head count and influence—all while hoarding cash, at the expense of profits and shareholder returns.
Today, the landscape is markedly different. With the advent of Prime Minister Shinzo Abe’s economic restructuring, sweeping corporate reforms and new Corporate Governance Code, Matthews Asia sees increasing pressure from the government, investors and peers on many of Japan’s longtime laggards to abandon weak businesses, diversify their boards and put cash to work, especially through dividends and buybacks.
From a bottom-up, fundamental perspective, they are seeing important signs of change in management behavior, including more-thoughtful and productive capital allocation decisions, a long-absent focus on ROE, more engagement with investors and better shareholder-return policies. All of these should benefit investors over the long term.
Japan is increasingly integrating with broader Asia — Over the past 15 years, Japan has become more integrated with the emerging economies of Asia than ever before. This deepening integration is propelled by multiple factors, including continued economic liberalization, tech-driven productivity gains and new entrepreneurship. As a result, they see incomes continuing to rise across emerging Asia. They expect this to continue to expand the already vast middle class, which now enjoys more leisure time, more disposable income and a taste for more sophisticated products and services.
“A growing segment of Japanese companies are well-positioned to access this growth in incomes and rising productivity. Many Japanese corporations have meaningful operations in broader Asia—especially in consumer products, household products and high-quality branded consumer products—which meet the evolving demand and growing sophistication of the rising middle class in Asia. Consequently, we see a growing set of opportunities among Japanese companies that benefit from the country’s increasing integration with the rest of Asia.” Matthews Asia concludes.
Foto: Pixnio CC0. Entre CKDs y CERPIs llegó el capital comprometido a 2.394 millones de dólares en 2019
The year of 2019 ended with an issue of 13 CERPIs and 5 CKDs. The committed capital placed in 2019 amounted to 2.39 billion dollars of which 28% (659 million) have been called. The amount placed in CERPIs was 84%, while in CKDs it was 16% showing interest in diversifying global institutional investors in Mexico. This appetite for CERPIs could continue in 2020. Own estimates project that in 2020 commitments could be placed for 2 billion dollars.
The placement of 18 CKDs and CERPIs in 2019 is within the range of issuance that were made in 2015, 2016 and 2017 where they were placed 19, 14 and 15 respectively, although it means almost half of the 38 issuance that were made in 2018 (20 CKDs and 18 CERPIs). This record was because of the change in CERPIs that allows global investment in private capital.
In CERPIs the committed capital was 2.01 billion through 13 new funds. 11 funds of funds were placed, where the issuers were in order of importance: Harbourvest, Blackstone, Actis Gestor, Lexington Partners and Blackrock; there was also one of private capital (Spruceview) and another of energy (Mexico Infrastructure Partners).
Regarding CKDs, the committed capital was 383 md through 5 new funds in 2019. Two issues of mezzanine debt were placed (both from Altum Capital), one from real estate (Walton Street Capital), one from private equity (ACON) and another of energy (Thermion Energy).
The main issuer was Harbourvest Partners with a CERPI of 870 million dollars in committed capital, while in number of issues Blackrock placed 7 CERPIs in December which together add commitments for 199 million dollars.
The 144 CKDs and CERPIs signify commitments for 25.525 billion of which 76% are issues of 112 CKDs and 24% to 32 CERPIs. Of this amount 54% has been called.
In 2018, 18 CERPIS were placed, which meant commitments for 3.92 billion, while in 2019 there were 13 and the amount committed was 2.01 million dollars.
Currently, the investments in local (CKDs) and global (CERPIs) private equity is 6% of the assets under management of the AFOREs at the end of December and in resources to call is an additional 5%.
Given the amounts placed in 2018 (3.917 billion) and 2019 (2.011 billion), reaching 2.000 billion in 2020 is achievable. This amount would be calling 400 million dollars aprox (20%) that for the 211.917 billion in assets under management of the AFOREs at the end of December would mean 0.2%.
Aberdeen Standard Investments will talk about multi-asset funds during the first edition of Funds Society’s Investments & Rodeo Summit, which will take place on March 5, 2020 at the Intercontinental Houston Medical Center.
During the presentation, Tam McVie, ASI’s investment director, will talk about the use of none-traditional asset classes to create genuine diversification, taking as an example the Aberdeen Standard SICAV I Diversified Income fund, a fund that “relies on a rich opportunity set that can reduce reliance on equities and bonds; Capturing the breadth of opportunities.”
As Investment Director for Aberdeen Standard Investments, McVie is responsible for providing investment and product support for ASI’s multi-asset solutions, including the firm’s flagship Global Absolute Return Strategies (GARS) portfolio. Working with the Multi-Asset Investing Team since 2007, he uses in-depth knowledge and technical expertise to support the on-going needs of the firm’s institutional clients. Previously based in the UK, Tam joined Standard Life Investments’ Boston office in January 2012 and was instrumental in SLI’s expansion to the US. He is a frequent speaker at key industry conferences, including FundForum, Citywire and Asset International’s CIO summit. Tam joined SLI in 2004 and previously worked at UK pension manager, Friends Ivory & Sime (now part of Aberdeen Standard Investments). He began his career with Standard Life Assurance Company in 1998.
The event will also be attended by Menno de Vreeze, who leads the firm’s international business development practice in the Americas, as well as Damian Zamudio.
Menno de Vreeze is Head of Business Development – International Wealth Management at Aberdeen Standard Investments. Menno is responsible for the US Offshore market and Latin American Wealth Management channel. Menno joined Aberdeen Asset Management in 2010. Previously, Menno was Head Financial Institutions Benelux where he was responsible for business development towards financial institutions as private banks, retail banks, insurance companies, and wealth managers within the Benelux. Other previous work experiences include: Carmignac Gestion as Head of the Netherlands, ABN AMRO Luxembourg within the Private Banking department, and Accenture as a Business Consultant specialized in the Private Banking/Asset Management industry. Menno holds an MS in International Business with a specialization in Finance from Rotterdam Business School. He has also studied at Ecole Supérieure de Commerce de Bordeaux and the Skema Business School in Sophia Antipolis. Menno holds FINRA 7 and 63 licenses.
Zamudio is a Sr. Business Development Manager at Aberdeen Standard Investments. Damian is responsible for building and maintaining relationships with investment advisors in wirehouses, RIAs, broker- dealers and family offices across the Americas international markets. Damian joined Aberdeen Asset Management in November of 2012 and brings over a decade of experience in wealth and asset management businesses. Previously, he worked at Merrill Lynch Wealth Management as a consultant for domestic and international financial advisors to facilitate guidance in asset allocation, investment trading and due diligence. Prior to that, Damian was Vice President at BlackRock responsible for sales of mutual funds, SMAs and alternative investment products across US private banking and international markets.
If you are involved in the management of fund portfolios, or the selection and analysis of funds, and want to participate in this event, reserve your place as soon as possible by writing to info@fundssociety.com.
Photo: PxFuel CC0. Riesgo en Inversiones Privadas, Parte 3: “¿Deberíamos alocar a fondos privados de mercados emergentes?”
Don’t get me wrong! Having a proper allocation to emerging market equities and fixed income is probably a very good decision, but illiquid, private investments are an entirely different story in terms of emerging market risk and reward considerations.
Really smart people build portfolios with emerging market allocations to private investments that mimic emerging market allocations in their public positions. But these two allocations should be viewed entirely differently given the illiquid nature of private investments. Risk assessment should not be disregarded as much as it is in emerging market investment decisions. One must be paid for higher risk tolerances with outsized relative returns.
The trouble is that in the private space, outsized emerging market returns have been few and far between, but their associated risk profiles are clearly greater in almost every direction one looks. Just think about Abraaj’s fraud leading to their collapse, or the Chinese government making high profile private investment managers disappear only to be replaced by the government’s own proxies, or currency shocks and fluctuations in Latin America driven by uncertain political climates.
If you knew in advance that these events would take place would you still invest in these opportunities? Of course not! And since we do not have the benefit of hindsight when looking to allocate to future opportunities, we can only imagine what might go wrong and then assess our comfort level with that list of potential factors.
Developed market private funds, in general, just don’t have the same elevated risk profiles and deliver relatively similar returns. So why do really smart families and institutions continue to allocate to private emerging market investments? Clearly, they view the risk profile to be tolerable and view the relatively muted returns to be acceptable. It seems as if it is just more important to check the box and allocate some portion of their portfolio allocation to this area. This behavior is a part of a portfolio allocation theory that in practice just doesn’t assign the needed weight to most of the associated risks.
We have a different view. We think there is a better way to allocate to private investments. Allocations should be based first and foremost on mitigating risk and choosing high quality investments with the lowest relative risk profiles. If a stable, thematically relevant, risk mitigated private investment fund based in the US delivers a decent return potential, then one should not allocate to riskier emerging market opportunities that do not provide truly outsized returns. A safer investment environment with a sound strategy should outweigh the check the box allocation exercise.
After six successful yearly events in Miami and one in Madrid, Funds Society will host the first edition of the Houston Investments Summit & Rodeo on March 5th, 2020 at the Intercontinental Houston Medical Center.
The event will start at 1pm with a luncheon, followed by four, mandatory and 40 minutes long, sessions with specialists from Aberdeen Standard, Carmignac, Investec and Vontobel.
After listening to the investments ideas and the outlook of these specialists, participants will head to Houston’s Livestock Show and Rodeo, where they will enjoy a rodeo show followed by a Becky G concert from Funds Society’s private suite.
A shuttle will take them to the NRG Stadium, host of the Rodeo, and then back to the hotel after the show (complementary valet parking will be provided at the Intercontinental Hotel).
For qualifying guests attending from outside Houston, Funds Society will take care of the travel and accommodation expenses.
If you want to join Funds Society for a great investments retreat with a perfect mix of academics and one of the most traditional events in Texas, remember that spots are limited so please reserve your space at your earliest convenience. You can do so by writing an email here.
Jose C. González and Emilio Veiga Gil, courtesy photos. FlexFunds nombra CEO a Jose C. González y vicepresidente Ejecutivo a Emilio Veiga Gil
Given the growing demand for asset securitization services that FlexFunds provides and the strong growth experienced in recent years, which have made it an international reference in structuring investment vehicles, FlexFunds has announced the reinforcement of its management team.
Jose C. González has been appointed Chief Executive Officer. Jose, founder of the company and majority shareholder, is also the founder of Leverage Shares, FlexInvest, co-founder and former director of Global X, a provider of exchange traded funds based in New York. Jose was instrumental in the success of Global X, making the company a reference as a supplier of ETFs that today has exceeded $10 billion in assets managed in more than 60 different products. Throughout his career, Jose has acquired extensive experience in the asset management and brokerage businesses, having served in Prudential Securities, MAPFRE Inversión and Banco Santander. Jose obtained his degree at Universidad Autónoma de Madrid.
Emilio Veiga Gil, the company’s current Chief Marketing Officer, has been promoted to Executive Vice President. Emilio brings 20 years of experience in marketing and business development in financial services, banking, and consumer goods. Following his beginnings at PricewaterhouseCoopers, Emilio held senior positions in marketing and business development in leaders of multinational industries such as MoneyGram International and Dean Foods Corporation. He has led multicultural teams in four continents and has implemented international initiatives in more than 50 countries around the world. Emilio has a degree in Economics and Finance from St. Louis University, an MBA and a postgraduate in Marketing from ESADE Business & Law School and Duke University, and an Executive MBA, with High Honors, from The University of Chicago, Booth School of Business.
With these appointments, FlexFunds reinforces its management team to accelerate the growth experienced to date, which has led the company to exceed $4 billion in securitized assets in more than 200 issues and in 15 jurisdictions around the world.
For more information about FlexFunds, visit them at their site or write to info@flexfunds.com.
Foto: Casa Blanca. A Year of Living Less Dangerously
The publication last week of the U.S. — China trade deal and the final macro numbers for 2019 should set the stage for healthy economic performance and stronger market sentiment in China in 2020, but the risk of a return to tense relations between Washington and Beijing looms over 2021 and beyond.
The “phase one” trade deal should create a truce in the tariff dispute. President Trump appears to believe that declaring victory over China will boost his re-election prospects, and it seems that Xi Jinping is willing to cooperate. There are no signs, however, that the Trump administration will scale back its willingness to confront Xi on a range of issues, especially those related to technology competition. The resulting political tension, as well as the deal’s unrealistically high purchasing targets, could break the truce in 2021.
Headline writers will continue to focus on slower year-on-year (YoY) growth rates in China, but most investors understand that the base effect allows the economy to expand by far more today than at the faster speeds of a decade ago. This creates greater opportunity for Chinese firms selling goods and services to local consumers, as well as for investors in those firms.
Assessing the trade deal
The trade deal will likely accomplish Trump’s main objective: creating the appearance of an important accomplishment as the election approaches. But the deal did not create effective new solutions to most of the trade-related problems cited when the tariffs were launched.
On intellectual property issues, a Trump administration priority, the deal accomplishes little. Many specific steps in the agreement were previously announced by Beijing, and the new steps are incremental. Most importantly, the agreement does not require China to make legal and structural changes needed to ensure compliance. There also were no significant new commitments on exchange-rate management or industrial policy.
Overall, this deal is not a significant improvement over the Trans-Pacific Partnership (TPP) program cancelled by the Trump administration, or the draft bilateral investment treaty (BIT) with China that was negotiated by the Obama administration but abandoned by Trump.
The deal also leaves in place much of the tariff burden already borne by American companies and consumers. “Even after the deal goes into effect, Trump’s tariffs will still cover nearly two-thirds of all U.S. imports from China,” according to Chad Brown of the Peterson Institute for International Economics. “He will also have increased the average U.S. tariff on imports from China to 19.3%, as compared to 3%” before the dispute began.
The 2020 deal upside
There are important positive consequences of the deal. I think Trump wants the deal to succeed to boost his re-election prospects—and Beijing seems willing to cooperate—so the trade truce is likely to hold at least through November. By significantly reducing the risk of the tariff dispute escalating into a full-blown trade war, the deal is likely to boost sentiment among Chinese companies and global equity and bond investors who are thinking about increasing their China exposure.
The 2021 deal risks
Two things could derail the trade truce next year. First, there are as yet no signs that the Trump administration will scale back its campaign to confront Xi on a broad range of issues, especially those related to technology competition. By next year, it is possible that Xi may reconsider whether cooperating with Trump on trade makes sense at a time when Washington is taking a confrontational approach on most other issues. Of course, if there is a new American president next year, Beijing will wait to see how that administration approaches the relationship with China.
My second concern is that the deal calls for what I believe are unrealistically large increases in Chinese imports from the U.S. According to the terms of the deal, in 2020, China’s overall imports from the U.S. should increase by 50% over the 2017 baseline, and then increase by another 20% YoY in 2021, for a total two-year increase of US$200 billion. This includes increases over the 2017 baseline of 52% for agricultural and 257% for energy imports in 2020, and then further increases in 2021—19% YoY for agriculture and 60% YoY for energy.
There is, of course, room for the Trump administration to play with the numbers. The text of the deal states, for example, that aircraft orders as well as deliveries will count toward the Chinese commitment, so Beijing could sign a lot of contracts for possible later delivery to inflate the numbers. But this kind of thing will only work if both governments cooperate. As U.S. Trade Representative Robert Lighthizer acknowledged, “This deal will work if China wants it to work.” And if, after the election, the Trump (or a different) administration also wants it to work.
As an aside, the deal text includes a long list of goods that are targeted for increases to hit China’s import targets. Some of them are puzzling. Iron and steel, for example, are on the list, even though in 2017, the U.S. exported less than US$500 million worth of that to China. Also on the list: “perfumes and toilet waters”; “preparations for use on the hair”; and “tea, whether or not flavored.” (Yes, China is the world’s largest producer of tea.)
Yes, Virginia, China’s growth rate is decelerating
As we switch to the topic of China’s economic health, I want to start by addressing the headline writers who pointed out that last year’s GDP growth rate was the slowest since the Tang dynasty. I’d like to suggest another perspective.
China’s growth has been decelerating gradually for over a decade, but the size of the economy (the base) has expanded quite a bit. GDP growth was 9.4% a decade ago, but the base for last year’s 6.1% GDP growth was 188% larger than the base 10 years ago, meaning the incremental expansion in the size of China’s economy in 2019 was 145% bigger than it was at the faster growth rate a decade ago. In other words, there was a greater opportunity last year for Chinese companies selling goods and services to Chinese consumers than compared to 10 years ago, when the GDP growth rate was much faster.
I expect that the YoY growth rates of most aspects of the Chinese economy will continue to decelerate, and as long as that deceleration continues to be gradual, I do not expect panic from the Chinese government, or from investors.
Modest easing of monetary policy
A clear sign that the government has been relatively comfortable with the health of the economy is that there has been only modest easing of monetary policy. I expect that approach to continue in 2020. The focus will be on stabilizing growth in response to slower global demand, not an effort to reaccelerate growth.
As was the case last year, aggregate credit outstanding (augmented Total Social Finance) will likely expand just a bit faster than nominal GDP growth, but not to the extent in past years.
Derisking to continue
I also anticipate that the government will continue to take steps to reduce financial sector risks this year. As I wrote last month, I expect further consolidation of smaller banks. I also expect a continuation of last year’s experiments of selected defaults by state-owned and private firms, in an effort to push investors to price risk. I do not expect the government to relax their tight controls over off-balance-sheet (shadow) financial activity.
Likely to remain the world’s best consumer story
China’s consumers drove economic growth again in 2019, and I expect that to continue in 2020. Last year was the eight consecutive year in which the consumer and services (or tertiary) part of GDP was the largest part, and consumption accounted for 58% of GDP growth.
Strong income growth continues to fuel the consumer story. Nominal per capita disposable income rose 9.1% in 4Q19, up from 8.5% a year earlier and 9% two years ago.
Household consumption spending rose 9.4% YoY in 4Q19, compared to 8% a year earlier and 6.1% two years ago. This metric for consumer spending, which is published quarterly, includes a wider range of services compared to the retail sales data. Services now account for about 46% of household consumption.
Pork prices should ease, so inflation shouldn’t be a big problem
An outbreak of African Swine Fever decimated China’s hog population last year, which pushed up the price of pork—the country’s primary protein source. Headline CPI rose to 4.5% last month and will remain elevated this year, driven entirely by pork. The disease seems to be fading and pork prices stabilized recently, although there is likely to be another spike in January, as the Lunar New Year holiday boosts demand. Core inflation, which was 1.4% YoY in December, should remain low, and I do not expect inflation to have a significant impact on consumer sentiment.
Modest improvement in CapEx likely
Investment spending by private firms was weak last year, largely due to uncertainty resulting from the Trump tariff dispute. The signing on Wednesday of the trade deal is likely to reduce that uncertainty, leading to a modest pickup in CapEx spending. Only modest, because the risk of a return to higher U.S. — China tensions in 2021 remains.
Bernardo González Rosas, courtesy photo. Amafore" Esperamos que la primera inversión en fondos mutuos internacionales ocurra en las siguientes semanas"
2019 represented a year of challenges and achievements for the Mexican Retirement Savings System (SAR). According to the Mexican Association of Administrators of Retirement Funds (Amafore), “after the turbulence of the financial markets during the last months of 2018, the capital gains accumulated during 2019 were the highest in the history of SAR, as they rose to 486.4 billion pesos. Today, of each peso managed by the system, 41 cents come from the returns generated.” Additionally, Mexico became the first Latin American country to adopt Target Date Funds for the administration of retirement funds.
“The migration of resources to these new funds was carried out successfully in mid-December, facilitating greater capitalization of workers’ returns and, something that surely, will contribute to improving the pensions of Mexicans,” added Amafore.
However, the association notes that there are still pending issues.
For Bernardo González Rosas, president of the institution, “time is up” to approve a pension reform. Although González would like to see a complete reform to improve the pensions of workers in Mexico, he is aware that this is difficult to achieve, so “we believe that we should start with an indispensable minimum reform: that the mandatory contribution be increased from 6.5% to 15%, which is the indispensable minimum,” he says.
He also considers that “it is very important that the investment reform, which is pending in the Chamber of Deputies, be approved as soon as possible so that we can better invest and diversify the resources of the workers. If we invest part of resources in other countries when Mexico is not doing as well as we would like or does not grow at the rates we would like, we can invest in other countries where such growth is taking place… What is important is to generate the greatest return to the workers.” He emphasized.
Regarding the use of international mutual funds in Afores’ portfolios, González Rosas told Funds Society that although “we still don’t have investments in these funds, we expect it to happen in the following weeks.”
Last September, Amafore highlighted 42 international mutual funds from 11 fund managers so that Afores can consider for their investments. As confirmed by Álvaro Meléndez Martínez, technical vice president of Amafore, the list, which is updated every month, already includes 70 funds from 14 administrators, ten funds and one more manager (JPMorgan) since the last update.
Pixabay CC0 Public Domain. UBS ha sido la gestora extranjera con mayor flujo de entrada por parte de las AFPs chilenas durante 2019
Investments in foreign funds by the Chilean AFPs registered net outflows of 1.8 billion dollars during 2019, according to the monthly report issued by HMC Capital. At the end of December, total AUM of foreign funds were of 84.3 billion dollars, which represent 29% of the pension fund portfolios.
Outflows were registered mostly during the second half of the year. While the first 2 quarters of the year registered positive inflows for an amount of 2.5 billion, and 411.7 million dollars respectively, these were offset by net outflows of 3.6 and 1.1 billion dollars during the third and fourth quarter of 2019.
It is important to highlight than since the social protests started in Chile on October it is not possible to distinguish a clear trend in the direction of flows as the last three months of the year have shown different behaviour. During the month of October 760.8 million dollars net inflows were recorded, 1.6 billion in November while outflows of 3.4 billion dollars were registered in December.
Significant outflows in equity funds
In terms of management style, active funds have registered outflows of 2.1 billion dollars versus net inflows in passively managed funds and 73.7 million dollars in money market.
By asset class, the AFPs have shown preference for fixed income funds during 2019 with a net inflow of 424.7 million dollars during the year, versus equity funds that have registered outflows of 2.3 billion dollars during the same period of time. In accumulated terms, equity funds represent 72% of foreign funds invested in Chilean pension funds portfolios, versus 27% in fixed income and 1% in money market.
Specifically, in fixed income, net inflows during the year have been invested in financial bonds funds (+595.2 million dollars), emerging market debt in hard currency ( +427.5 million dollars), US High Yield ( +399.5 million dollars) and convertible bonds in euro (+245.1 million dollars).
On the other side, the Chilean pension funds have reduced their exposure to, among others, emerging market debt in local currency (-409.3 million dollars), flexible bonds ( -243.1 million dollars) and Latinoamerican emerging market debt (-206.1 million dollars).
In equity markets, there has been significant flow of funds directed towards strategies that invest in China ( +1.77 billion dollars) and to a leaser extend to Korean and Asian equity markets with net inflows of 305.5 and 230.4 million dollars respectively. In contrast, there has been signifcant outflows in Japan large Cap asset class of 1.116 billion dollars, German equity (-962.4 million dollars), Asia ex Japan (-788.0 million dollars), Hong Kong ( -764.1 million dollars) and India ( -664.9 million dollars).
Asset manager ranking
Five have been the foreign asset managers that have succeeded in registering inflows over 500 million dollars. UBS leads the annual ranking with net inflows of 1.281 billion dollars, followed by Aberdeen (900.1 million dollars) and JP Morgan ( 737.5 million dollars). Lord Abbet and Pimco occupy the fourth and fifth position with net inflows of 663.5 million dollars and 541.7 million dollars respectively.
On the opposite side, seven asset managers have register net outflows over 500 million dollars during the year. GAM and Matthews overpass the 1 billion mark with net outflows of 2.070 and 1.016 billion dollars respectively. These two are followed by: Invesco ( -937 million dollars), Schroders (-826.9 million dollars), Fidelity ( -788.8 million dollars), NN Investments ( -752.4 million dollars), DWS ( -702.9 million dollars) and BlackRock ( -522.2 million dollars).
In terms of total AUM as of end 2019, in both active and passive funds, BlackRock iShares leads the raking with an amount of 8.19 billion dollars as of end December 2019, followed by Investec and Schroders with a total aum of 7.5 and 6.99 billion dollars respectively.
The chart bellows shows the ranking of asset manager with a total AUM over 1.000 million dollars as of the end of 2019.
Funds with largest inflows and outflows during the year
Regarding the funds that have recorded the largest inflows, the funds AMUNDI FUNDS EMERGING MARKETS BONDS, ABERDEEN GLOBAL CHINA A SHARE EQUITY FUND and UBS CHINA OPPORTUNITY (USD) stand out with inflows of 1.5 billion dollars, 1.3 billion dollars and 887.2 million dollars respectively.
On the contrary, between the 10 funds that have registered the largest outflows during the year, JULIUS BAER -LOCAL EMERGING BOND FUND: AMUNDI FUNDS EMERGING MARKETS BONDS and DWS DEUTSCHLAND IC stand out with outflows of 1.4 billion dollars,1.4 billion dollars and 958.8 million dollars respectively.
Lastly, as a side note, we must point out that the fund AMUNDI Emerging debt and HSBC Global Liquidity in dollars with inflows and outflows are funds with different ISIN code but that seem to follow similar investment strategies.
