Victor Arakaki . Victor Arakaki has Joined Morgan Stanley Investment Management
Victor Arakaki has joined Morgan Stanley Investment Management as Vice President, Latin America and Offshore Client Engagement.
Based in Brazil, he will be responsible for relationship management across Brazil, Argentina, Uruguay and Chile (intermediary clients). Victor will be based out of the Sao Paulo office reporting directly into Carlos Andrade, Head of MSIM’s Latin America and Offshore Client
Engagement.
Prior to joining the firm, Victor was at Deutsche Asset Management/DWS and was previously at HSBC Global Asset Management as Senior Product Specialist for Latin American Equities & Business Development in Latin America for both the institutional and intermediary channels. He has fourteen years of industry experience.
Photo: WCM Investment Management . Natixis Investment Managers to Acquire Stake in WCM Investment Management
Natixis Investment Managers (Natixis) signed an agreement to acquire a minority stake in WCM Investment Management (WCM) and become their exclusive third-party distributor, subject to limited exclusions. The agreement establishes a long-term partnership that will allow Natixis to distribute WCM’s investment strategies globally, which in turn enhances WCM’s ability to grow and create opportunity for its clients and employees while upholding its focus on its culture and investment process.
Under the terms of the agreement, Natixis Investment Managers will acquire a 24.9% stake in WCM and enter into a long-term exclusive distribution agreement, subject to limited exclusions. WCM will retain its independence and autonomy over the management of its business, its investment philosophy and process, and its culture, while benefitting from a strong global partner. Paul Black and Kurt Winrich will remain as co-CEOs, and there will be no changes to management or investment teams. The impact of the transaction on Natixis’ CET1 ratio is estimated to be approximately -15 basis points (bps).
“We are pleased to become the global third-party distributor for WCM, whose strong track record and proven investment process make them an excellent partner and strong addition to our global offering,” said Jean Raby, CEO of Natixis Investment Managers. “Our investment in WCM exemplifies our commitment to adding high-conviction, highly active investment managers to our multi-affiliate platform in order to provide our clients with a wide range of unique investment opportunities.”
“We’re really excited to enter into this partnership with Natixis,” said Paul Black, Co-CEO of WCM Investment Management. “After a lot of thought and collective input, we concluded the smartest way to enhance our stability, and to guard our investment temperament, was to partner with a world-class global distribution platform. For some time now we’ve known that diversifying the product mix within the firm – by raising the profile of our global strategy, our emerging markets strategy, and various other investment strategies – is the key to making this happen.”
“Our culture starts with kindling an entrepreneurial spirit, driven by empowerment and transparency,” said Kurt Winrich, Co-CEO of WCM Investment Management. “We try hard to pay attention, seize opportunity, be smart, stay humble, and stay hungry. While working hard and caring for your people is essential, we strongly believe it doesn’t explain everything, and that success also involves being given some opportunities. Today, we have another opportunity placed before us. This partnership will allow us to stay focused on what we do best; namely nurturing and growing a vibrant, robust culture, and generating superior performance for our clients.”
With $29 billion of assets under management (as of May 31, 2018), employee-owned WCM is best known for managing low-turnover, alpha-generating equity portfolios with a focused, global growth approach.
Heather Brilliant, CFA. CFA Institute Reaches Milestone As Women Elected to Board Leadership Positions
Heather Brilliant, CFA, has been elected the new chair and Diane C. Nordin, CFA, the vice chair of the Board of Governors of CFA Institute, the global association of investment management professionals. The election marks a significant milestone in the organization’s history with women elected to the top two leadership positions on the Board, the highest governing authority of CFA Institute. In total, five of the 15 Board positions (30%) for fiscal year 2019 will be filled by women – a goal CFA Institute set in 2016 and realized ahead of schedule in 2017. Brilliant will assume the chair on Sept. 1, 2018, succeeding Robert Jenkins, FSIP, who will continue on the Board, which is staffed by volunteers.
“Heather’s depth of experience in the investment management industry and her passion for the mission of CFA Institute are a powerful combination,” said Paul Smith, CFA, president and CEO of CFA Institute. “Building a better world for investors involves challenging industry norms and closing the gender gap, as well as raising standards in our profession. That sounds like a tall order but with Heather at the helm of our board, supported by Diane Nordin as vice chair and the rest of the Board, I am confident that we will continue to make meaningful progress.”
“I am honored to serve as chair of the Board and am proud of the organization’s dedication to building our industry on a foundation of ethics and integrity,” Brilliant said. “Investment management faces many headwinds: business models are changing; client demographics are shifting and products are increasingly commoditized. As chair, my goal is to ensure CFA Institute and our members are ready for the challenges they face and are equipped to take advantage of the opportunities they bring.”
Brilliant is managing director, Americas, of First State Investments where she is responsible for expanding First State’s market presence across the Americas. She was previously CEO of Morningstar Australasia, and was global director of equity and corporate credit research for seven years prior. Before joining Morningstar, Brilliant spent several years as an equity research analyst for boutique investment firms. Brilliant is co-author of “Why Moats Matter: The Morningstar Approach to Stock Investing” (John Wiley & Sons, 2014), a book on sustainable competitive advantage analysis. She has served on the CFA Institute Board of Governors for five years, and is a member of the CEO Search Committee, Compensation Committee, and Executive Committee. Brilliant holds a bachelor’s degree from Northwestern University and a master’s degree from the University of Chicago Booth School of Business.
Diane Nordin brings more than 35 years of experience in the investment industry to her position as vice chair. She is a director of Fannie Mae, where she serves as chair of the Compensation Committee and member of the Audit Committee. Recently, she was named to the Principal Financial Group Board, and is also on the Board of Antares, a spinout of GE Capital. Nordin is a former partner of Wellington Management Company LLP, where she held numerous global leadership positions, including director of fixed income, director of global relationship management, and director of fixed income product management. She has served on the CFA Institute Board for two years and is chair of the Audit and Risk Committee and CEO Search Committee. She holds a bachelor’s degree from Wheaton College.
Board of Governors Roster
The 2019 CFA Institute Board of Governors will comprise a diverse group of 15 members who reside in seven countries, namely: Australia, China, India, Malaysia, United Arab Emirates, United Kingdom, and the United States. The CFA Institute membership elects officers for a one-year term and governors for a three-year term that runs from Sept. 1 to Aug. 31. The full list of Board members for the new term is:
Heather Brilliant, CFA, (United States), First State Investments
Diane Nordin, CFA, (United States), Wellington Management Company (retired)
Pixabay CC0 Public DomainPhoto: Monsterkoi. Convertible Bonds Gain Popularity Given Volatility’s Return
During the first quarter of the year, convertible bonds were one of the most attractive assets, especially after seeing the first signs of the return of volatility to the market. In this second quarter of the year, this type of asset has continued to please investors.
As explained by Arnaud Brillois, Head of Convertibles at Lazard Asset Managementand and manager of its long-term convertibles, the main advantage of this asset is that it allows investing in attractive and volatile stocks, limiting risks.
“The greater the volatility of the underlying stock, the greater the value of the convertible bond. In addition, due to its main virtue, convexity, convertible bonds increase their exposure to equity with a rise in the underlying, and market exposure decreases with the fall of the underlying,” says Brillois.
Undoubtedly, the return of volatility and the investor’s certainty that it has come to stay, drives the popularity of this fixed income asset. According to RWC Partners, “the market has been assessing a level of volatility that is too low for the current level of stock valuations and the point in the economic cycle.”
Finally, Brillois points out as another positive characteristic of this asset that they have a short average life of 2.5 years and, consequently, “the impact of interest rate hikes is limited”.
More Issuances
Convertibles are among the very few asset classes that offer positive exposure at increasing levels of volatility. According to RWC Partners, this has also led to increased issuances within the convertible bond market.
“This increase in issuance is a trend now and is expected to continue as rates increase further. January 2018 saw spectacular increase of 120%, compared to the same period last year,” he says.
Léa Dunand-Chatellet, Courtesy photo. Léa Dunand-Chatellet, New Head of Responsible Investment at DNCA Finance
DNCA Finance – an affiliate of Natixis Investment Managers -recently created a Responsible Investment department, led by Léa Dunand-Chatellet. According to the company, and after the signing of the UN Principles for Responsible Investment (UNPRI) in 2017, this move clearly reflects DNCA Finance’s aim to take its responsible investment approach a step further.
She is tasked with setting up a Responsible and Sustainable Investment team as part of the broader portfolio management team, with the aim of providing in-house research for all fund managers, particularly for the SRI fund range, which will be available from September 2018.
“I am delighted to join this vibrant team and gain greater insight into the portfolio managers’ renowned expertise, as we work together to develop an exacting and pragmatic approach. We will aim to deliver high value-added extra-financial research, making it impactful for our portfolios and driving their performances” said Léa Dunand-Chatellet.
Eric Franc stated “We are very proud and pleased to welcome Léa to our team – responsible investment is one of DNCA Finance’s key strategic goals going forward”.
Léa Dunand-Chatellet, 35 years old, is a graduate of the École Normale Supérieure (ENS), with an agregation in economy and management (university highest-level competitive examination for teachers’ recruitment), and is also a member of various committees on the Paris financial market. She teaches courses on responsible investment in some of France’s major business schools and coauthored a key publication in 2014 “SRI and Responsible Investment” (published by Ellipse).
Léa started her career in 2005 at Oddo Securities’ extra-financial research department, and then became portfolio manager and Head of ESG research at Sycomore Asset Management in 2010. She spent five years at the company, setting up and managing a range of SRI funds with AUM of €700m, achieving a top AAA ranking from Citywire. Working within the investment management industry, she developed a pioneering extra-financial model that includes sustainable development issues in the fund management approach. In 2015, she joined Mirova as Equity CIO, managing a team of ten equity portfolio managers, with AUM of €3.5bn.
As we approach the middle of the year, with sluggish stockmarket returns so far in 2018, Investec believes that it makes sense to assess where we are with regard to the investment case for European equities. In their opinion, a volatile year so far for European equities hasn’t put a stop to the region’s fundamental equity drivers and each of the 4Factors on which they analyze stocks are showing encouraging signs for the region: earnings growth, fundamentally sound profitability, attractive valuation and technical momentum.
“Despite this recent moderation, we believe the current environment still offers plenty of scope to continue the strategy that has served our investors so well in recent years: finding areas of the market where earnings recovery is evidenced but not yet priced in.” Says Ken Hsia, Portfolio Manager, Investec European Equity Fund.
Looking at their 4Factors, Investec continues to see plenty of attractive opportunities in Europe. “Our experience on the ground shows that Europe’s earnings recovery is still very much under way. Analyst consensus still expects 8% EPS growth for 2018 and 2019 in Europe. Return on equity continues to improve with several drivers playing their part –revenue growth, margin expansion, financial deleveraging/share buybacks and some tax cuts. As some parts of the world are already seeing margins peak, this would indicate that Europe’s current business cycle still has room to run.”
Besides, they believe that Europe’s monetary policy will deliver a similar situation to the US, where the pace of recovery has been more gradual over a longer period of time than previous cycles. “As we are less than two years into the most recent uptrend– compared with over four years for the US – we believe there is room for European corporate revenues to recover further.”
In their opinion, the key risks are around global geopolitics. The Brexit negotiations continue to drive uncertainty for UK businesses and individuals – but that hasn’t stopped UK companies from investing for growth.
The ongoing talk of a global trade war also loomed large over the market, especially in the commodities sector. “However, as bottom-up stock-pickers, we will approach this on a company-by-company basis. This holds true for both the direct impact of the trade tensions, as well as indirect effects, such as decreases in commodity or metal prices if tariffs tilt supplies towards Europe”.
Their process is also showing positive improvements on the strategy front, where they focus in on companies that can generate shareholder wealth above and beyond the cost of invested capital. “As it currently stands, European companies have been delivering improving returns on equity, due in part to the improving revenue trends and the resulting operational leverage. All the while, improved capital discipline and cost cutting exercises undertaken during the previous earnings downturn are also starting to bear fruit.”
Looking at sectors, they believe the materials one is benefiting from higher commodities prices, as well as a newfound capital discipline. Meanwhile in financials – more specifically banks – they currently see good opportunities to invest “in a sector that is starting to recover from a decade of structural regulatory and economic headwinds. With the uncertainty around Basel IV regulation now resolved, banks have the possibility to use the excess capital sitting on their balance sheets to lend, creating additional revenues that can further fuel returns.” They also like the recent Strategy improvement in the UK food retail and are currently seeing some weakness in telecoms,healthcare and retail, which Investec believes are all at the low end of their historical profitability ranges.
As ever with equities, positive earnings momentum and solid profitability don’t necessarily guarantee returns as this often increases the risk of overpaying. However, Investec believes that although we have seen European equities trade more richly over the last 18 months, European equities do not look overvalued and technicals are showing no cause for concern.
“In summary, we continue to be constructive on European equities due to our investment thesis: that earnings and returns are benefiting from the economic recovery and the recent round of self-help measures undertaken by companies. Meanwhile, valuations do not reflect the full extent of the earnings recovery. Downside risks are common to equities, but we remain focused on the upside potential, especially if European banks are able to show lending growth.” Hsia concludes.
Erick Muller, Head of Strategy at Muzinich. The Time for Global Desynchronization in Monetary Policy, Taxation and Growth has Arrived
Much has been said about the unique phenomenon of global synchronized growth, the unanimity of a lax monetary policy, and the objective of having common fiscal policies by geographical regions. But what if all this had come to an end?
According to Erick Muller, Head of Strategy at Muzinich, an asset management company specializing in corporate fixed-income or credit, this may be the next market reality. Muller believes that a new macroeconomic environment is emerging in which the European and North American economy begin to take different paths. “2017 marked a new turning point since the great financial crisis as it brought about a scenario characterized by synchronized growth between emerging and developed countries, a stronger banking sector, very positive and growing corporate results, and a lower unemployment rate. Since then three things have changed: monetary policies, fiscal policies and the pace of global growth,” says Muller.
In Muller’s opinion, these three trends are the ones that are breaking the great synchronization that we had until now. Analyzing each one of them, Muller firstly points out the fiscal policy undertaken by the US and its announcement of tax cuts. In this regard, he stressed that these measures are not succeeding in making the US economy any more efficient; however, it could cause an increase in the budget instead.
“Donald Trump’s decision to redesign trade policy in order to benefit the US, could produce a certain shock in the market or short-term uncertainty in the business sector,” Muller points out, and points to protectionist policies as the clear difference with other economies. In this regard, he acknowledges that growth has slowed down, especially in developed countries, but it isn’t alarming because global and fundamental indicators are positive.
Finally, Muller refers to the fact that this desynchronization is more evident when it comes to talking about the monetary policies of central banks. “Inflation is not rising at the rate expected by central banks, which has a clear effect on the rate hikes they plan to make. The Fed has already started more firmly along this rate hike path, while the ECB is delaying the rate hike and lengthening the cuts to its asset purchasing program,” explained Muller.
Opportunities on the horizon
In this context of “desynchronization”, he sees investment opportunities in corporate bonds, mainly denominated in Euros. “We are convinced that the focus is on short duration and on being very selective, we believe that floating bonds, syndicated loans and private debt are interesting, although the latter has less liquidity,” says Muller, who explains that they have seen a growing interest in private debt by institutional investors.
When talking about geographical areas, Muller admits that they prefer Europe over the US. “It’s true that US high-yield can offer somewhat higher interest, but the currency exchange hurts it,” he concludes. In terms of emerging markets, he points out their attractive yields, especially in short durations.
Finally, Muller points to flexible strategies as the type of strategy that best adapts to an environment like the current one; In this regard, he also acknowledges that strategies of short durations and absolute return are among the most demanded, especially by conservative profiles. Instead, institutional investors have become more sophisticated, he added.
To the left Vladimir Colas, Member of Ardian’s Executive Committee and Co-Head of Ardian USA. To the right Nicolás Gazitua Senior Investor Relations Manager for Ardian . In a context of high demand, Ardian has confidence in Latin America
After the announcement of the opening of their first office in Latin America in Chile, Funds Society had the occasion to discuss the details of Ardian’s strategy in the region during an exclusive interview with Vladimir Colas, Member of Ardian’s Executive Committee and Co-Head of Ardian USA, and Nicolás Gazitua, leader of Chilean office and currently Senior Investor Relations Manager for Ardian in New York.
The election of Chile as the first country to establish is not only because of the stable economic and political environment but also because of the continued interest of the investors and clients in the country. “The growing demand of our LPs (pension funds, insurance companies, and family offices) in the region, particularly in Chile, Colombia Peru, has been the main reason for us to choose Santiago. Additionally, though our focus is to build stronger relationships with investors in these countries, we have seen significant interest from Brazil and Mexico to diversify their holdings outside of Latin America. We will be looking to fulfill that demand as well”, explain Gazitua.
When asked if the approval of the new investment act that expands alternative assets for pension funds has been a key drive in their decision, Gazitua states: “The internal decision was taken before the new regulation was approved. That being said, there is no doubt that the new regulation is a great push”
Ardian has since 2015 a distribution agreement with Volcom capital. In regards to the consequences that the new office might have in their relationship with the distributor, Colas explains: “We are extremely satisfied with our relationship with Volcom. The opening of Santiago will not change our agreement, it will strengthen and enlarge our collaboration”
Direct investment in Infrastructure
The immediate objective of the Chilean office, that will be led by Nicolás Gazitua, is to support the investor and LP relations across the region. Their view is that, due to both the improvement of foreign investment and the domestic economies, interest in infrastructure investment will increase, and as such, in the medium term, they are considering the possibility of managing direct investment from the Santiago office enlarging the team with the resources and expertise required.
Vladimir Colas explains: “our added valued lays in sharing with our investors and LPs, information, knowledge and strategies. We want to be close to the interests that our LPs and clients have in the region.”
Ardian is an approved asset manager for private equity and infrastructure assets by the Chilean risk rating commission (CCR), which makes them potentially eligible within the investment universe of the Chilean pension funds. Ardian is the sole foreign asset manager approved by the CCR for the infrastructure segment.
Interest in the Private debt segment
Gazitua stated that in the short term they will seek of authorization for the Private debt segment. Regarding the Real Estate segment, Gazitua adds “the requirements needed to gain the approval are demanding and we are considering asking for it once we are ready to meet them”. Colas adds that they have recently closed a fund that invest in European Real Estate assets with investor from the region, stating that there is evidence of real interest for this asset class.
Both executives end the interview by pointing out their competitive advantages versus local companies that already established in the local markets. Colas states: “We are a global and multilocal company, offering a wide variety of products (fund of funds, direct investments, infrastructure, private debt) with a significant expertise and business knowledge. We accompany our clients in their decision making process sharing our knowledge, experience and information of the different sectors.”
Gazitua adds: “Our main differentiating service is the possibility to offer our clients customized investment programs. Some investors are looking for a private equity solution where, rather than committing to a particular fund, they can invest in a number of fund and strategies combined over several years—and we have the ability to provide that solution.”
Pixabay CC0 Public DomainPhoto: Jarmoluk
. Record Number of Aspiring CFA Charterholders Sit for Exams as Program Marks 55th Anniversary
CFA Institute, the global association of investment management professionals, announced that a record 227,031 candidates registered for Level I, II, and III CFA exams at 286 test centers in 91 countries and territories. The exams, administered on June 23, mark the 55th anniversary of the first CFA exam, which was held in June 1963. Since then, the CFA Program has seen steady annual growth, with a notable 20% increase in exam registrations in the past year alone.
“From our humble beginning in 1963 when we administered the exam to 284 candidates, CFA Institute has grown dramatically around the world in pursuit of its mission,” said Paul Smith, CFA, president and CEO, CFA Institute. “We fervently believe that charterholders raise the standards of the investment management industry and contribute to making finance a noble profession, and we are gratified and humbled that so many candidates share that belief. The examination is the first step to a professional life dedicated to client service, continuing education, and engagement with regulators to protect investors and clients.”
The Asia Pacific region continues to generate the highest number of candidates, with 120,436 registered for the June 2018 exam, accounting for 53 percent of the total. Registered candidates numbered 63,368 in the Americas, 28 percent of the total, and 43,227 candidates registered in Europe, Middle East, and Africa (EMEA), accounting for 19 percent of the total. The exam was administered at 286 test centers around the world, including new test center locations in Barcelona, Spain; Dalian and Hangzhou, China; Hyderabad, India; Ulaanbaatar, Mongolia; Rio de Janeiro, Brazil; and Lagos, Nigeria.
CFA Institute has more than 154,000 charterholders who work in some of the industry’s most prominent firms. In 1959, the Financial Analysts Federation (FAF) formed the Institute of Chartered Financial Analysts (ICFA) to establish standards of ethics and competence for security analysts, develop the exam, and bestow the title of Chartered Financial Analyst® (CFA) on those who passed. The FAF and ICFA eventually merged to form what is now known as CFA Institute. On June 15, 1963, the inaugural exam was administered at 27 test centers in the United States, Canada, and London to 284 candidates, six of whom were women. Today, over 84,000 (37%) candidates are women.
Nick Timberlake, courtesy photo. "A Stronger Dollar Should Benefit the Emerging Markets Export Engine and Their Liquidity Should Be Less Vulnerable Than in the Past"
Despite the challenges in the form of monetary tightening in the United States or geopolitical factors, emerging market equities this year have everything to gain. The reason? Levers such as valuations, earnings growth expectations and the confidence of investors. This is what Nick Timberlake, responsible for Global Emerging Equities of HSBC Global Asset Management, states in this interview with Funds Society.
Is the global synchronized growth scenario in danger? If this is the case, how could this impact the emerging world?
Global growth remains strong, though there has been a slight loss in momentum recently. Emerging Markets continue to be the key driver of global growth, and we expect them to contribute about 70% to total GDP growth in 2018. Many Emerging Markets remain in a “Goldilocks” environment of strong growth and low inflation. Some countries have scope for monetary easing, while some countries are taking advantage of growth acceleration to implement long-term economic reforms. Different inflation levels across countries is leading to policy divergence. This can affect relative interest rates and currency strength, particularly resulting in higher US interest rates and a stronger USD.
What will be the impact in emerging markets of a higher inflation, a cycle of rate hikes in the developed world, and a potential greater strength of the dollar?
Inflation remains relatively low in most Emerging countries, despite cyclical inflation in the US. A stronger USD should benefit the Emerging Markets export engine. Emerging country liquidity should be less vulnerable to a stronger USD than in the past, given that governments have reduced the proportion of short-term USD debt and improved their current account deficits. This makes the country’s liquidity position less sensitive to foreign exchange movements. Many emerging countries have improved their fiscal positions, and increased macro credibility provides them a degree of monetary policy flexibility if needed. Certainly countries with a twin deficit are likely to be more sensitive than others.
Nonetheless, many experts are positive regarding emerging countries fundamentals, do you agree and why?
We are also positive on the fundamentals of Emerging countries. Fiscal budgets are better managed. For example, Russia has reduced the “oil breakeven” of its budget to reduce its sensitivity to fluctuations in oil prices. Monetary policy is more credible. A lower inflation environment in Brazil has allowed its Central Bank to implement aggressive monetary easing. Government reforms continue to strengthen the foundations for long-term economic growth. For example, Brazil is reducing its fiscal deficit through economic and anti-corruption reforms, while Mexico has a broad, long-term reform programme including energy, labour, and education. China is reducing capacity at state-owned enterprises and deleveraging.
Do the stock markets of emerging countries have potential to grow in 2018? At what pace or at what levels?
It is difficult to specify how the equity market will move, but, from my experience, this is the type of environment that should be positive for Emerging Markets equities and for active managers specifically.
Earnings drive equity markets. What is important for investors is that strong economic growth is translating into corporate earnings growth. Earnings growth expectations remain in double digits for 2018 and 2019, across most sectors and a majority of countries, though earnings revisions have moderated from a high level.
Valuations look attractive relative to profitability, though valuations are not as cheap as they were at the beginning of last year given the strong equity market returns. Emerging Markets equities offer a similar return on equity compared to Developed Markets equities while trading at a lower price-to-book valuation.
Investor sentiment has been positive. We have seen strong flows into the asset class over the past two years, yet global equity investors remain underweight Emerging Markets.
What is the biggest strength of emerging markets equities this year? The attractive valuations, corporate results outlook ….?
The biggest strength for Emerging Markets equities this year is that all the drivers we just discussed are present at the same time. We believe this combination of factors creates a positive and attractive environment for Emerging Markets equities.
What could be the impact of Fed’s rate hikes on the equities of the emerging world?
Investors should expect cyclical inflation at this point in the economic cycle. The current pace of Fed rate hikes has been well-flagged and has been priced in by the market. We are monitoring how high capacity utilisation, potential trade tariffs, and deficit spending could lead to higher prices and could cause the Fed to raise rates faster than expected. A much faster pace of rate hikes could lead to more volatility in equity markets in general, not specifically to Emerging Markets.
Currently, the volatility is stronger… Is this going to be the case in the stock markets of emerging countries. Which are the potential consequences?
Volatility in Emerging Market equities reached the lowest point in a decade in January 2018 and has been near pre-financial crisis levels, so a pick-up in volatility was expected and has not come as a surprise to us. There are any number of reasons why uncertainty increases or investors begin to have differing views of the future. Inflation, trade tariffs, and geopolitical tensions are the first examples that come to mind. As active managers, we need to monitor these issues and incorporate our perspective into our stock selection and portfolio construction. I should note that higher volatility can be advantageous, as it can create investment opportunities where we see our fundamental outlook has been mispriced by the market.
Which are the more attractive markets? (Africa, Latin America, Eastern Europe, Asia …)
Our region and country positioning is driven by our stock selection. This allows our portfolio positioning to be guided towards the areas of the market with greater opportunity. On a regional basis, we are overweight Eastern Europe and underweight Asia and Latin America.
On a country basis, we are most overweight Russia, given a stable macroeconomic backdrop, accelerating growth, and attractive valuations.
Regarding Latin America: with which markets are you more positive and why?
We are less positive on Latin America relative to other parts of Emerging Markets. On a country basis, we are somewhat neutral in Brazil, and we are underweight Mexico, Chile, and Peru. Mexico valuations are high relative to other Emerging Markets, and there is election uncertainty. Chile has fundamentally attractive companies but valuations are again high. Peru has a limited universe, and valuations are not attractive.
The situation in Argentina is complex following the support requested to the IMF … are you positive on that country?
Our Frontier Markets has exposure to Argentina. The country has been implementing structural reforms that we feel should support long-term growth. Any IMF support would help to reinforce that path. Our Global Emerging Markets fund currently does not have a position in Argentina.
