Pixabay CC0 Public DomainPhoto: Dave McBee CC0. SEC is Still Undecided About Bitcoin ETFs While Bipartisan Bills Look to Strenghten US' Position
Two US congressmen have introduced pieces of legislation designed to prevent the manipulation of cryptocurrency prices as well as ensuring the US becomes a leader in the crypto sphere.
Democratic Representative Darren Soto of Florida and Republican Representative Ted Budd of North Carolina have introduced The Virtual Currency Consumer Protection Act of 2018 and the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2018. The bills are designed to protect retail investors from price manipulation while also positioning the US at the forefront of the developing industry.
In a joint statement eleased on December 6, the two congressmen emphasized the “profound potential” of cryptocurrencies and blockchain in their ability to drive economic growth.
“Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth. That’s why we must ensure that the United States is at the forefront of protecting consumers and the financial well-being of virtual currency investors, , while also promoting an environment of innovation to maximize the potential of these technological advances” the congressmen stated.
One bill directs the Commodity Futures Trading Commission to describe how price manipulation could happen in virtual markets, then recommend regulatory changes. Another seeks to keep the U.S. competitive in the global industry. They ask the Commodity Futures Trading Commission to come up with recommendations.
On the same day, the U.S. Securities and Exchange Commission (SEC) posted an update regarding the approval process for a rule change proposal for the allowance of a bitcoin exchange traded fund (ETF).
The ETF in question is the VanEck SolidX Bitcoin Trust, created in a team up between money management firm VanEck and blockchain company SolidX. The attempt is VanEck’s third at creating a bitcoin ETF. In the update, the SEC said it was delaying its decision until Feb. 29, 2018.
“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change,” Eduardo A. Aleman, assistant secretary in the SEC, said in the release.
The last time the SEC postponed the decision on the VanEck SolidX bitcoin ETF, over $9 billion was wiped off the value of bitcoin.Back in the summer, Jan van Eck, chief executive officer of VanEck said: “I believe that bitcoin has emerged as a legitimate investment option, as a type of ‘digital gold’ that may make sense for investors’ portfolios,” since then bitcoin has lost nearly half of its value.
CC-BY-SA-2.0, FlickrPhoto: Tina Nord / Pexels CC0. Why The Energy Stock Selloff May Be Overdone
Unless oil prices collapse, energy stocks now appear to be cheap, Russ Koesterich, CFA, Portfolio Manager for the BGF Global Allocation Fund explains.
While much ink has been spilled this year on the rout in emerging markets, and, more recently, the fall from grace of technology stocks, natural resource shares are actually the worst performers year-to-date. The S&P Energy Sector Index is down more than 5%, underperforming the S&P 500 by approximately 900 basis points (bps, or nine percentage points).
More interestingly, although oil prices have dropped sharply in recent weeks, they have not collapsed, unlike in early 2016. West Texas Intermediate Crude (WTI) is flat year-to-date, but the global benchmark Brent is still up 6%. This suggests that either the recent collapse in energy shares looks overdone or oil prices have further to fall. Consider the following:
1. Based on price-to-book (P/B) the energy sector is now trading at the largest discount to the S&P 500 since at least 1995 (see Chart 1). Energy stocks are currently trading at roughly a 50% discount to the broader market.
2. The sector also appears unusually cheap on an absolute basis. At less than 1.7x earnings, the current valuation is the cheapest since early 2016 and is in the bottom 5% of all observations going back to 1995.
3. As you would expect, the valuation of the energy sector tends to move (roughly) in tandem with oil prices. When oil prices are lower, the sector’s relative value versus the market also tends to be lower. Since 1995, this relationship has explained approximately 20% of the relative multiple of the sector. Based on oil prices at $60/barrel, history would suggest that the sector should be trading at a 15% discount to the market, not a 50% one.
Valuations hard to justify
As I’ve discussed in many previous blogs, value is a poor market timing tool. Neither cheap relative or even absolute valuations guarantee a bottom. The comparisons against both the broader market and oil prices could simply mean that the S&P 500 and/or oil prices might be too expensive, rather than energy shares too cheap. That said, both the market and oil would have to fall a significant amount to justify today’s sector valuation. As a simple example, if the historical relationship between oil prices and relative valuation were too hold, oil prices could fall to $40/barrel, roughly where they bottomed in 2016, and the energy sector would still appear underpriced.
Finally, there may be another reason to consider raising the allocation to energy shares. Historically, energy stocks have been more resilient than the broader market during periods of rising interest rates and/or inflation. If part of what has dislocated the market this year is the prospect for higher rates and an overheating U.S. economy, energy stocks seem a logical hedge. All of which suggests that for investors sifting through the rubble searching for bargains: Consider U.S. energy companies.
Build on Insight is written by Russ Koesterich, CFA, is a Portfolio Manager for the BGF Global Allocation Fund at BlackRock
In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds may not been registered with the securities regulators of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The provision of investment management and investment advisory services is a regulated activity in Mexico thus is subject to strict rules. For more information on the Investment Advisory Services offered by BlackRock Mexico please refer to the Investment Services Guide available at www.blackrock.com/mx. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.
57% of Americans say they prefer a partner who provides financial security more than “head over heels” love. The survey conducted with over a thousand mass-affluent respondents shows that this preference is true for men and women, whereas today’s youngest generation, Gen Z, is the only generation to prioritize love over money.
The report also finds that Americans are contributing more annually to their savings and investments, than they spend in a year on their mortgage, children’s education and travel.
However, as Aron Levine, Head of Consumer Banking & Merrill Edge while explains, “While an endless pursuit for financial security may be prompting Americans to save at record rates, it’s clear that saving does not mean planning.” The majority of respondents say they have no monetary goal in mind when it comes to many major life milestones, including having a baby (67 percent), getting married (64 percent), sending children to college (54 percent), and putting a down payment on a house (50 percent).
Could emerging technologies be the solution to these planning shortfalls?
Respondents are increasingly embracing artificial intelligence (AI) in their financial lives, with the majority already comfortable with AI providing financial guidance, managing day-to-day finances and making investments. And, nearly half of Americans admit social media impacts their finances on a daily basis, including their spending habits, budget, and savings.
Merrill concluded that many Americans are clearly in need of well-defined plans to help pursue their goals with more autonomy and confidence.
Pixabay CC0 Public DomainAlexas_Foto. Emerging Markets: Have they Ceased to be Attractive for Investors?
Following the volatility of the foreign exchange market in Turkey and Argentina, the uncertainty about future elections in Brazil, and trade tensions in China, which were motivated by the escalation of US protectionist measures, many investors have decided to limit their exposure to emerging markets. Is it time to exit emerging markets?
According to management companies, keeping emerging market assets in the portfolios remains a good option in order to diversify risks and to capture some more profitability with some types of assets, but they also emphasize that it must be done with caution after thoroughly analyzing both the countries and the assets.
For example, Luca Paoilini, Chief Strategist at Pictet AM, admits that they continue to overweight emerging markets. “In this state of affairs we maintain a neutral position in stocks and bonds. The world economy remains resilient, but caution is justified and it is too early to overweight. However, we continue to overweight emerging stocks, as the risks are compensated with attractive valuations and solid fundamental,” he says.
At Julius Baer they don’t rule out that in the short term there may be more sales in local debt from emerging markets, driven especially by the decisions that the Fed may take this week on interest rates. They are optimistic however, “Looking beyond the next Fed meeting, we note that fundamentals continue to support both local and strong currency emerging market debt on an equal basis. Valuations have returned from high risk levels to quite normal. Most importantly, global growth remains well supported by US consumer activity and housing resilience in China. Therefore, global growth is unlikely to decline to levels historically linked to emerging market bond crises,” explains Markus Allenspach, Head of Fixed Income Analysis at Julius Baer, and Eirini Tsekeridou, Fixed Income Analyst at Julius. Baer.
According to Legg Mason, despite asset management companies’ valuations, investors are beginning to show their fear of exposing themselves to the emerging universe. “Real yield spreads between emerging and developed markets are at 10-year highs, reflecting the backdrop of fear that continues to spread across the developing world, when one country after another is sold and then repurchased with yields high enough to tempt value and produce hungry investors,” say Legg Mason’s fixed income experts.
CC-BY-SA-2.0, FlickrCourtesy photo. ESG: Will It Become A Competitive Advantage?
A few months ago, a great manager and friend, a faithful follower of the philosophy of value investing, told me that he had introduced ESG criteria into his analysis, and that he considered them a source of competitive advantage for certain companies. He even gave an example. It is the typical comment that you interpret as a justification to support a new trend, but as it came from this person, it made me think. Not only for listed companies where to invest, but for the very business of asset management.
There is no self-respecting conference on investments that does not discuss ESG, no institutional investor that does not show interest in adopting these criteria in new investments and no slide in strategic presentations of companies that does not mention it. They have started to create certificates in “ESG investing” and, of course, the regulator is surely not far behind wanting to define and assign universal ratings…
Obviously, it would be an unsustainable competitive advantage as it does not create a lasting entry barrier, but the speed of implementation may condition the feasibility of the business in the short term.
From the asset management perspective, it should go from being a specific type of asset to be part of the corporate investment philosophy. It will be a new risk factor to control. However, and still being an unstoppable trend, in the short term it faces certain difficulties:
It is currently in direct conflict with passive management, where there is no type of ESG filter in most indexes, and therefore in the funds that replicate them.
Most capital allocation decisions are made within the companies themselves, which makes it especially difficult to analyse the decisions and the impact on different factors such as supply chains or trade policies.
It definitely means a great risk for asset managers, not being able to access a growing client base with clients who are looking for it, or ultimately, lose them (a great French institutional manager recently mentioned in a conference that 50% of its new business is coming with ESG criteria). And it is also a great risk for listed companies to see reduced access to capital markets, which may (it has not happened yet) increase their cost of capital. In certain cases, if a case of corruption by a senior executive of a company comes out, it could trigger a wave of indiscriminate sales from these funds. And if corporate governance does not work well, it may compromise its cost of financing in a much more aggressive way than we are seeing recently. And the client will eventually demand a report where their manager’s performance is analysed and the impact achieved in certain cases.
CC-BY-SA-2.0, FlickrPhoto: Extell Development Company. The World's Tallest Penthouse Will Set You (Or Your Client) Back by 95 Million Dollars
A beacon of glass and steel rising 1,550 feet on famed Billionaire’s Row in New York City, Central Park Tower is set to become one of the most prestigious addresses in the world. Offering endless views, exquisite architecture, gracious layouts and an unprecedented level of service, Central Park Tower will be the definitive New York skyscraper. Real estate development firm Extell Development Company will exclusively handle the sales and marketing for Central Park Tower which will have 20 condos worth over 60 million dollars, and a 95 million dollar penthouse.
“Over a decade of planning and collaboration with the world’s most talented architects, engineers and designers has resulted in Manhattan’s newest iconic structure,” said Gary Barnett, Founder and President of Extell Development Company. “Central Park Tower introduces a level of design, quality and service that hasn’t been seen before. This building will stand out in New York City history as the singular residential offering that redefined luxury living.”
Central Park Tower was designed by Adrian Smith + Gordon Gill Architecture (AS+GG), a firm dedicated to the design of high-performance, energy-efficient, striking architecture on an international scale. AS+GG has collaborated with clients across the globe to design nine of the world’s tallest and highest-performing buildings. Currently, AS+GG is responsible for the design of the next world’s tallest building, Jeddah Tower now under construction in Saudi Arabia, as well Wuhan Greenland Center and Greenland Tower Chengdu, both currently under construction in China.
With their breadth of experience, AS+GG is uniquely suited to deliver an iconic, landmark building like Central Park Tower. The building’s façade distinguishes itself from its surroundings by combining elements of glass, satin-finished stainless steel, and light-catching vertical and horizontal details that accentuate the interplay of texture and light. At a height of 300 feet from the street, the tower cantilevers to the east, creating Central Park views for all north-facing residences.
The definitive aspects of living in Central Park Tower are the extraordinary views and floor plans. The grand living and entertaining spaces are strategically positioned in the corners of the residences to maximize multiple panoramas and citywide views. Structural elements are discreetly located between the residential units, resulting in floor-to-ceiling windows, unencumbered views and gracious layouts.
“One of the greatest responsibilities of architecture is to continue to elevate experiences yet create structures that are elegant and respectful,” said Gordon Gill of Adrian Smith + Gordon Gill Architecture. “Central Park Tower was designed to take advantage of the spirit of the great city of New York and create an address worthy of its location on Billionaires Row and Central Park.”
The interiors of these grand residences are designed by Rottet Studio, whose credits include The Surrey Hotel in Manhattan, The St. Regis in Aspen, The Beverly Hills Hotel Presidential Bungalows and The River Oaks in Houston. Rottet’s interiors are marked by a distinguished level of detail and incorporating unique and custom finishes to create an unparalleled interior environment. Starting on the 32nd floor, the 179 ultra-luxury two-to-eight-bedroom residences range in size from 1,435 square feet to over 17,500 square feet.
Located within the tallest residential tower ever built will be one of the world’s most exclusive private clubs, Central Park Club. The Club will offer approximately 50,000 square feet of thoroughly curated luxury amenities spread across three floors, each location providing a unique experience complemented by five-star service.Extell is co-developing Central Park Tower with SMI USA (SMI), the US subsidiary of Shanghai Municipal Investment, a leading infrastructural investment company responsible for the esteemed Shanghai Tower, the second tallest building in the world.
For more information or to schedule a private appointment at the sales gallery, please call 212-957-5557 or visit their website.
Pixabay CC0 Public DomainAbraham E. Vela Dib, Linkedin. Abraham E. Vela Dib Will Head the Mexican Pension Funds Regulator
Abraham Everardo Vela Dib will be, as of December 1, 2018, the new President of Mexico’s pension funds regulator, the CONSAR.
Vela Dib told Funds Society that leading this endeavour will be “a pleasure and distinction.”
According to Funds Society sources close to the CONSAR, Vela Dib will meet with the team of Carlos Ramírez Fuentes next week to work on the transition process.
Since the beginning of the year, Ramírez has been preparing various materials so that the change of administration is as easy as possible and the new team has all the necessary tools to make the decisions they need.
Amongst the new administration to-do list is to hold the CAR meeting that will give the green light to Afores’ investment in mutual funds.
The PhD in Economics from the University of California, Los Angeles (UCLA), has held various positions at the Bank of Mexico and its Ministry of Finance. He has also been a visiting economist at the International Monetary Fund and the Bank for International Settlements. He recently joined the teaching team of the Colegio de México-where he completed his MA in Economics, after leaving his post at the Central Bank of Hungary, where he spent the last 10 months as an expert in macroeconomic analysis and education.
Pixabay CC0 Public Domain. “Argentina will Continue to be a High-Risk Country, but at Levels that Exceed the Reasonable Possibilities of Default”
In an exclusive interview with Gorky Urquieta, Global Co-Head of Emerging Market Debt Neuberger Berman, Funds Society has had the opportunity to talk about their current vision and perspectives of emerging markets debt after the instability experienced in these markets during last August.
The current situation of emerging markets is different from that of 2013 or 2015 Neuberger Berman’s assessment of the current situation of emerging markets differs significantly from what happened in 2013 or 2015, when emerging markets experienced significant spread extensions and currency falls. Although they admit that there is a certain deceleration stage, and that some countries will have to make more aggressive adjustments in monetary policy, they also point out that there are others that are in relatively good conditions despite a more complicated current environment. In particular, Urquieta points out that: “There are countries that are in relatively good conditions in Latin America, countries such as Mexico and Colombia, and even Brazil, which is recovering from a hard recession, but there are vulnerabilities that have become more evident in recent times due to the rate hike, the expectation of rising US Treasury rates and the revaluation of the dollar that has complicated refinancing prospects, access to liquidity, and financial conditions for markets in general.”
Main risks: trade conflict and rate hikes in the United States
At Neuberger Berman, they believe that one of the reasons for the adjustment of emerging markets has to do with the uncertainty with respect to “trade,” not only the trade dispute between China and the United States, but also with regard to the uncertainty generated before an agreement was reached in NAFTA. Urquieta concludes: “In general, this whole protectionist attitude in the US is clearly not prone to lead to growth in world trade and that will affect emerging markets to a greater or lesser degree.”
In particular, and with respect to the trade conflict between China and the United States, he acknowledges that there is a risk factor as to how it will affect the Chinese economy’s demand for raw materials, although he states that it’s in a very good position to react on the side of monetary and fiscal policy favored by low pressure for the devaluation of the renminbi.
However, he acknowledges that part of this risk in emerging debt assets has already been priced in: “It’s possibly the only risk asset which has put some price on that conflict, via commodities.” Despite this, he explains that Asian currencies that may be more exposed, such as, for example, the Korean Yuan or the Taiwanese dollar, have not been so affected, thanks to their good fundamentals.
When asked about another of the major risks that concern investors, the rate hike by the Fed, Urquieta says that some of these are already priced in and justify the appreciation of the dollar with respect to its base. However, he does not expect rates to rise more than twice, due to his doubts about the ability of the American economy to maintain its current growth rate, which is close to 4%, and adds: “As we approach 2019, growth expectations will probably begin to cool down a bit and we think that the FED will not end up raising rates 3 or 4 times.”
Opportunities in Latin America: Brazil, Argentina, and Mexico
After strong corrections in the markets, there are usually purchase opportunities due to the indiscriminate sale of assets that occurs in situations of uncertainty. Urquieta explains: “In times of stress, the market starts to act without differentiating; and we saw that in August, when the lira collapsed and the Argentine peso fared worse than the lira. That example indicates that when we see that kind of reaction it means that the market is capitulating, that is to say that it has reached a point that does not distinguish, and that indiscriminate fall creates many opportunities “
As regards their interest in debt markets in foreign currency and local markets, Brazil is a country that attracts them greatly. While it is true that local rates and the real have suffered a lot of pressure due to political uncertainty, there will potentially be a point of entry that has not yet been defined, but which will be after the first round of elections.
Argentine debt assets in foreign currency are a type of asset that also seems interesting, despite all the uncertainty surrounding the country, and he explains why: “Its market price, with the current spreads, as far as regards the probability of default, seems a bit excessive. But it‘s still a high risk country, which will probably continue to be high risk for a while, but it’s already at levels that exceed reasonable possibilities of default.”
Going into greater detail concerning the Argentine political issue, they agree that it’s complicated, but they also believe that Macri still has a relatively stable level of support, at around 40%, and that necessary adjustment plans for 2019 will be approved. They do not believe that there is any significant risk of government collapse and he adds: “Conditions would have to deteriorate greatly, a break with the fund, the program aborted for some reason, there would have to be a very extraordinary event outside of Argentina.”
“On the part of the markets we may have seen the worst,” Urquieta adds regarding the Argentine markets, although he acknowledges that the Argentine economy will suffer a severe adjustment and will be in negative growth for a long time. As for the Argentine peso, he believes that its fall is beginning to be under control, mainly because the domestic market begins to have more confidence and he adds: “That will follow a course and will eventually turn into a virtuous cycle, after having been a vicious cycle, where the outflow of capital, and the more aggressive sale of pesos to buy dollars has created a vicious circle. The stability of the exchange rate is a requirement for the rest to begin to recompose.”
Finally, he adds that, in their opinion, Mexico is another market to be taken into account, as it is a highly rated segment that seems interesting on the side of the handles and debt in foreign currency.
Portfolio recommendations
Given the current market environment and the variety of strategies that Neuberger Berman offers, we asked Gorky Urquieta about his investment recommendations and he presents the following 3 alternatives based on the risk profile.
On the more conservative side, he talks about short duration which is a fairly conservative strategy within emerging markets due to the duration profile, its foreign exchange risk, being exclusively foreign currency, and the credit quality of its portfolio with an average investment grade of BBB- . He also adds that, due to the pressure that has been observed in the short part of the curves of emerging markets during the month of August, the YTD (yield to maturity) was expanded by 100 basis points to stand above 5.8% , and thanks to this it is quite possible that they exceed the return target set at 3% over cash (3 month treasury rates).
On the opposite side, are the strategies in local currency and he adds: “If things recover, it is the strategy that has the most upside.” He also explains that based on their own analyses, following market falls exceeding 10 %, there will frequently be a rebound in prices in the following one to three months, and he confirms that the market has fallen 10% since February’s highs.
In between both strategies, there’s debt in foreign currency. Urquieta adds that although it‘s true that the spread of the benchmark has expanded 100 basis points since the beginning of the year to levels of 375 basis points, it’s mainly due to the component with credit rating below investment grade, which represents 49% of the benchmark , and whose spreads have expanded between 175-180 basis points, and half of this movement has occurred in August.
Gorky Urquieta joined Neuberger Berman in 2013. He is currently a Senior Portfolio Manager and Co-Head of the Emerging Markets Debt team, responsible for the management of numerous strategies including the following: Hard Currency, Local Currency, Corporate Debt, Short Duration, Blend, Blend Investment Grade, Asian Hard Currency, and China Bond Fund, with assets under management totaling 18 billion USD.
Founded in 1939, Neuberger Berman is a privately owned, 100% independent company. It has offices in 32 cities around the world, assets under management of approximately 304 billion dollars, and more than 40 UCITS funds registered in Ireland. With over 500 professional investors and approximately 2,0000 employees in total, Neuberger Berman stands out for its extensive offer in equities, fixed income and alternative products.
Pixabay CC0 Public DomainPhoto: Виталий Смолыгин CC0. 4 Potential Reasons for the Gold Rally
Written by Russ Koesterich, CFA, Portfolio Manager for BlackRock’s Global Allocation Team Russ discusses why gold, not a popular asset class until recently, has become so as a hedge.
October was not kind to investors. Not only did stocks suffer their worst monthly draw-down in years, but traditional hedges, such as government bonds, did not rallied enough to offset the losses (see Chart 1). As a result, a typical 60/40 stock/bond portfolio experienced one of the worst draw-downs since the financial crisis.
Interestingly, gold, largely left for dead, has rallied. Not only has gold bounced, but it has done so despite a steady dollar. Which raises the question: Why is gold rallying now? Here are four potential reasons:
1. Gold got “cheap.”
Over the very long term gold and the U.S. money supply, measured by M2, tend to move together. Changes in gold prices have roughly equaled changes in the money supply, with the ratio tending to mean-revert towards 1. By the end of September, this ratio had fallen to below 0.7, the lowest since 2005. When the ratio is low, defined as 25% below the long-term average, the average return during the subsequent 12-months is 15%.
2. The dollar has stabilized.
While the DXY Index is pushing against the upper end of its five-month range, the dollar has been relatively stable since May. This is important as a rapidly strengthening dollar, as we witnessed last spring, has historically been a headwind for gold. To the extent the dollar has stabilized, this removes one headwind.
3. Real rates also appear to have plateaued.
Besides the dollar, the biggest challenge for gold in 2018 has been rising real rates, i.e. interest rates after inflation. Higher real rates raise the opportunity cost of an asset that produces no income. Between January and early October, real 10-year yields advanced by 50 basis points. However, since then, real rates seem to have temporarily peaked near the levels reached in 2013.
4. The return of volatility.
While real rates and the dollar are key fundamental drivers for gold, demand for a hedge against volatility also drives gold prices. With the exception of the brief correction in February, that attribute has not been in demand until recently. Prior to the recent swoon, U.S. equities were well on their way towards another year of double-digit gains. Unfortunately, this pleasant trajectory has been interrupted. Equity market volatility, measured by the VIX Index, has doubled since early October. This is important, as gold has a history of performing best versus stocks when volatility is spiking. Historically, in months in which volatility rises by more than 20%, gold typically beats U.S. stocks by more than 5%.
Bottom Line
In short, whether or not gold can continue to rally will largely be driven by the direction of the dollar, real rates and market volatility. Another dollar rally will likely interrupt gold’s recent strength. That said, absent another leg up in the dollar, an environment of rising volatility, particularly one in which economic uncertainty is rising, has historically been exactly the environment when gold has proved its value as a hedge.
Russ Koesterich, CFA, is Portfolio Manager for BlackRock’s Global Allocation team.
Photo: Funds Society. Shiller: "You Must Have Exposure To The United States Even Though It Is One Of The Most Expensive Markets In The World"
According to Robert Shiller, Nobel laureate in economics 2013, economic growth is good in the United States and although there is concern about high valuations, he does not predict a near collapse.
In his last visit to Mexico, to celebrate the launch of the Ossiam Shiller Barclays ETF in the Mexican Global Market (SIC in Spanish), the economist told Funds Society about the importance of geographic diversification and added that, within it, exposure to the United States should be kept, even though “the US market is at high valuations with a cap ratio of 30”.
“Despite the short-term fluctuations that come and go, I think we should not think that a bear market is approaching and I think that we should have some exposure to the United States that, although it is one of the most expensive markets in the world, continues to behave positively. The key is not to put all the eggs in the US basket, but to diversify,” he added.
In his opinion, one way to get exposure to this market is to look for instruments that have a value-focused approach, such as the ETF that replicates the index resulting from its collaboration with Barclays.
However, he warns that markets are not only about interest rates and their effect, but the ideas of people. Currently we have important changes in the political sphere of the United States and many places in the world, including Mexico, and according to the economist, “one would have believed that the markets had suffered, which did not happen on a large scale…”
In his opinion, “the way the economy looks is changing. It is becoming less theoretical, less mathematical, less abstract and is becoming more practical. Now it is giving greater importance to the narrative that accompanies it,” he mentions adding that, “the desire and willingness of people to invest and take risk changes over time and the narrative they live.”
Mexico
The economist, who personally has exposure to Mexico in his investments and considers the country as a key player in the global economy, commented that “the next government of Mexico, headed by Andrés Manuel López Obrador, should give certainty and security to investors” .
About the airport, Schiller said: “I do not know if Mexico needs a new airport, but I hope that this can be resolved in a way that all the people who made investments and plans feel that they made a good agreement … It is important that the new president encourages investors to feel that there is a safe environment to invest.” He concluded.
