Fiona English, courtesy photo. Pioneer Investments: “Earnings Growth Will Be the Dominant Driver of Returns for European Equities"
The arrival of capital flows into European equities coincided with the reduction of political risk in the Old Continent after the first round of French presidential elections. But with the German and Italian elections on the horizon, the question is whether the fundamentals will continue to support the upturn. Fiona English, client portfolio manager at Pioneer Investments, talks with Funds Society about het outlook for European Equities.
Europe has received a big amount of inflows in the last quarter, but is it sustainable? Are the fundamentals supporting this performance?
Indeed flows coincided with the reduction in political risk following Round 1 of the French presidential Election as investors believe the chances of fragmentation within the Eurozone has subsided. That said, in reality there are 4 main drivers of European Equities which combined suggest that the performance of the European market can continue– 1) better economic growth, 2) better earnings growth 3) reduced political risk and 4)flows into the asset class
We are experiencing quite synchronized global growth at this moment and with 50% of earnings for European companies lying outside the Eurozone, this clearly provides a support to earnings potential for European companies. Within this, European GDP Growth is likely to strengthen this year with our Economists forecasting 1.8% for FY 2017. The key here is for companies to translate the more supportive economic backdrop into earnings growth and we are witnessing signs of this. In Q1 on aggregate, 46% of companies beat consensus estimates by 5% or more, while just 22% missed, pointing to the strongest quarter since the Q2 2007.
This and the reduction in political risk within the Eurozone has given investors the confidence they needed to return to the asset class with 18bn of inflows in the last 2 months alone.
In our view, for the market trajectory to be sustainable – we need to see confirmation of earnings growth continuing as we move through Q2 and Q3 this year.
Have investors lost the train in European equities after the rally seen in April and May?
While the rally was swift, we still believe there is more to go if earnings growth proves sustainable. The asset class remains underowned with many international investors now beginning to consider European equities “investable” again.
In fact despite the rally, European Equities have seen a slight reversal of this trend since mid-May with the market moving sidewards at best and underperforming the US market. There is probably an element of seasonality at play and the market is likely seeking another catalyst to move higher from here. We believe this will come in the form of a confirmation of further earnings growth. Any further weakness may provide a good buying opportunity as we move into the second half of the year.
Where are you finding the most attractive opportunities and what areas are you avoiding?
Given we believe that earnings growth will be the dominant driver of returns from here and in line with our investment process, we believe the most consistent way to generate performance will be through good stock selection. We do not believe that earnings growth will happen across the market as a whole but rather you must look for the companies which have a strategic competitive advantage and the ability to capitalize on better economic trends and convert it into better earnings growth. In this environment, stock selection will be key to performance.
How have you positioned your portfolio to take advantage from the rally?
We have looked to keep quite balanced portfolios not favouring any one area of the market but looking for idiosyncratic/stock stories which we believe have the potential to deliver medium term outperformance. For example, most of our portfolios are overweight Industrials at this moment due to the number of individual compelling investment cases we find there. The sector offers a number of different business models which will benefit from the more positive macroeconomic tone but also strong companies which have a strategic advantage that allows them to translate this into earnings growth. Finally valuation is clearly always important and we look to seek the correct entry point which should allow us upside potential from a valuation standpoint.
Is it the right moment to invest in more risky assets within equity or should we be more cautious?
The key for the equity market is to see greater earnings growth – if this happens we believe the market can move higher.
Do small-caps look attractive versus large-caps?
We see opportunities in all areas of the market. Finding value should be less focused on market capitalization but more on individual companies and their ability to deliver.
Pixabay CC0 Public DomainLoboStudioHamburg. Bright Future for Big-Cap Tech
Equity investors have enjoyed a solid continuation of the bull market in the first half of 2017. It is notable, though, that a handful of large-cap stocks have clearly driven the market. Journalists and analysts have been playing around with different acronyms to select and describe the current tech high-flyers. For the first time in 2013, CNBC’s “Mad Money” host Jim Cramer propagated the term FANG, which stands for Facebook, Amazon, Netflix and Google (now Alphabet). Recently, reporters included another “A” to include Apple and an “M” to include Microsoft in the acronym, sometimes replacing the Netflix’ “N”, depending whether the story’s focus is “growth” or “dominance”.
Currently, an impressive headline is that FAAMG (Facebook, Amazon, Apple, Microsoft and Google) comprise 12% of the S&P 500 Index and have contributed 28% of the index’s year-to-date returns with a market-cap weighted combined return of 25%. If we look at the NASDAQ 100, FAAMG has accounted for more than 50% of the return in 2017. What is more, until recently, the trend has been remarkably solid with a very low volatility. However, on Friday June 9, the tech started to sell off without any fundamental reason. The following Monday morning, the NASDAQ showed a loss of 4.5% from the Friday high, driven by heavy losses of the FANG and FAAMG groups wiping out a market capitalization more than 200 billion in these six companies. Suddenly, the financial press started to draw analogies between today and the dotcom bubble. Obviously, this comparison is far-fetched.
The most important difference is valuation. In the first months of 2000, the S&P 500 Technology Index reached a 12-month forward Price/Earnings Ratio of 60, which was more than twice the valuation of the S&P 500. Today, the tech sector is trading at a multiple of around 19, just narrowly above the market’s valuation. It is true that the valuation has gone up in the last years and the valuation is not cheap anymore, but it is certainly not in bubble territory.
More importantly, today’s tech giants have much stronger fundamentals with solid growth prospects. They still sit on a $ 700 billion cash pile, but started to invest huge amount of cash in their infrastructures and new growth areas. Today, the FAAMG companies have leading positions in at
least one of the most promising investment trends, such as cloud computing, artificial intelligence & machine learning, virtual reality & augmented reality and big data. They all benefit from a secular shift to online spending. For example, Amazon Web Services (AWS) accounts for more than one third of the global cloud infrastructure market generating $ 12 billion a year from nothing five years ago. This segment is expected to grow more than 15% annually. Amazon’s scale and leading IT and logistics infrastructure is highly disruptive for traditional retailers, especially as it enters the traditional bricks-and-mortar retail segment (best illustrated by the announced Whole Foods acquisition). Facebook has increased its monthly active users from 1.4 to an impressive 1.9 billion and more than doubled its revenues in the last two years. The company is ramping up its investments in research & development including video content and augmented reality, which should help to main profit growth north of 20% for several years. Alphabet has consolidated its leadership in mobile search ads and strengthened its positioning in video (YouTube), the cloud and Google Play. There might be interesting start-ups in these high-growth areas, but the difference in scale and resources compared to the leaders has never been so vast.
So if valuations are reasonable and fundamentals strong, what has caused the mini sell-off? Most analysts are pointing to an increasing dependence of algorithmic trading. JPMorgan estimates that only 10% of US stock trading comes from traditional traders. The machines are taking over. Before the correction, the positioning in the FAAMG stocks was extreme. Fund managers were overweight and the machines were long, following the strong momentum of growth stocks. Also the untypical low volatile of these stocks attracted the machines. The trigger for the sell-off is not really clear. Many point to a cautious Goldman Sachs research report published on Friday, June 9 that might have caused some selling pressure. Once the short-term trend was broken and the volatility spoke up, the machines took over and continued liquidating positions. The good news is that the sell-off stopped after only two days and that the pressures from quantitative traders has probably played out. The bad news is that investors that want to benefit from the strong long-term prospects of these tech companies should get used to higher volatility again. But the tech leadership is most likely here to stay.
Photo: Danielsantiago9128. Disappointment in Argentina After Not Recovering Emerging Market Status, While China's Inclusion is Poised to Redefine EM Investing
MSCI Argentina Index will not be reclassified to Emerging Markets status, at least until 2018, as investors expressed concerns that the recently implemented market accessibility improvements, including the removal of capital controls and FX restrictions, needed to remain in place for a longer time period to be deemed irreversible.
MSCI said in a press release that “although the Argentinian equity market meets most of the accessibility criteria for Emerging Markets, the irreversibility of the relatively recent changes still remains to be assessed.”
This decision hurt the Argentinean stock exchange and forex position. Argentine stocks also receded on Wall Street, state oil company YPF was particularly affected. According to Jonatan Kon Oppel, Director at Inversiones y Gestión “the decision to keep Argentina under review as an emerging market makes it clear that while the country managed to make important changes in economic policy, the sustainability of these changes is so important As the policies themselves.” The analyst added that “there is little time left for the elections and the government still lacks seats in Congress to make the structural changes it needs.”
In the Meantime, the MSCI approval of China A-shares inclusion in their benchmark Emerging Markets and ACWI indices is likely to redefine the way investors invest in emerging markets. Howie Li, CEO, Canvas at ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products (ETPs), mentioned that the investment landscape for emerging markets is now confirmed to change with the inclusion of China A-shares into MSCI’s Emerging Market benchmark, given demand for domestic Chinese equities is likely to increase.
Analysts at Allianz GI expect around USD 20bn of inflows as a result of this index change. “This is less than half a day’s trading volume on China A share markets. The longer-term implications are probably more significant, as this USD 7 trillion market cap opportunity becomes increasingly accessible to global investors. Inclusion in widely-followed global indexes means that an investment in China A shares moves from off-benchmark (and therefore can be easily ignored) to an active asset allocation decision. As the weight in indexes increases over time – as has been the experience in other emerging markets – then increasingly China A shares are likely to become too big to ignore for much longer.”
Foto cedidaJustin Simler, Investment Director at Investec / Courtesy photo. Investec: “With a Multi-Asset Strategy, the Investor Perceives Greater Protection”
Multi-asset strategies continue to gain weight in response to the current market environment. For Justin Simler, Investment Director at Investec, “it has become a reality everywhere, and the reason it is commonly demanded by investors is because it offers greater profitability, taking into account the relationship between the risk assumed and the return on investment.”
Simler speaks from his experience as Investment Director with the Multi-asset team at Investec Asset Management and, therefore, responsible for the management of processes and products throughout the range. “Investing in single assets forces you to follow a single market and is an attractive option, but what happened in 2008 remains fresh in the memory of many investors. With a multi-asset strategy, however, the investor perceives protection,” he points out.
As an example of this, Simler cites the Investec Global Multi-asset Income fund, which is marketed in Spain by Capital Strategies. It is a flexible fund with a maximum in equities of 50% per prospectus, but which has never surpassed 34%. It can invest in government or corporate bonds, as well as in all countries, but maintaining a minimum of 35% in countries within the European Economic Area.
“The focus of our multi-asset strategy is different from other strategies of this type. When selecting the assets, we take into account the fundamentals, as well as their valuation and the behavior of their price in the market. And when we build the portfolio, we establish an optimal mix between growth, defensive and uncorrelated assets, with the goal of earning attractive long-term income,” Simler says about the fund.
In this respect, the three key drivers of Investec’s strategy are: “a resilient portfolio built from the bottom up, structurally diversified and actively managed, and limiting downside risks,” he adds. In growth type assets, the fund considers corporate stocks, high yield, emerging market debt and private equity, amongst others; While among defensive assets it takes positions in government bonds, investment grade bonds and indexed bonds. Regarding the search for uncorrelated assets, it focuses on sectors such as infrastructures, insurance and assets of relative value.
As Simler points out, the three investment areas that they consider are: United States, Europe, and Emerging Markets. “In equities, we are moving away from the United States, although we remain in certain sectors like the technological one, which has allowed us to make a lot of money. Even though it’s not a matter of choosing between American or European equities but rather of being very selective with the securities chosen and the exposure that is taken. In general, we believe that we must take advantage of European fragmentation to keep the best assets,” he says. The political uncertainty experienced in Europe has also made him cautious, focusing his portfolio on emerging markets and Asia.
Within emerging markets, Brazil and Australia are the countries he places the greatest emphasis on. “For example, in Brazil, government-backed bonds offer a good quality option,” he cites as an example.
Economic Environment
Although political instability seems to have calmed down and global growth continues, Simler believes we still shouldn’t let our guard down. He is particularly concerned about the probability of recession and watchful of any economic signals pointing to that possibility.
“We are in an environment where there is growth in the United States, Europe and the emerging countries. For now, we believe it is unlikely that there could be a recession in the short-term. However, there are certain risks that are beginning to grow. And of course, the political risks around the Euro zone, in particular the Italian elections and the growth of that anti-European sentiment,” he says.
Foto cedidaDavid Bianco, Chief Investment Strategist para las Américas de Deutsche Asset Management. Foto cedida. “We are About to Witness a Record-Breaking Expansion Cycle in the United States”
After more than 150 days of the Trump administration, David Bianco, Chief Investment Strategist for the Americas at Deutsche Asset Management, during this interview with Funds Society, explains his perspectives on the markets, particularly on the American investor, with an optimistic look at the expansion cycle in this region.
The expert denies that stock markets are over-priced, due to the current level of interest rates, and he is confident of rises in the S&P 500 this year, especially in sectors such as technology, healthcare, and big banks. Trump’s tax reform should be a catalyst for US companies and not providing too many negative shocks, explains Bianco in this interview.
Broadly speaking, what major concerns are there currently in the US market?
What we have been discussing with other investors is that, rather than worrying about whether the market will rise by 3% or by only 1%, we should pay more attention to the expansion cycle. We are about to witness a record-breaking expansion cycle in the United States: the record until now was 10 years, from 1991 to 2001. If the cycle goes beyond the summer of 2019, we will be facing a new expansion cycle record. Forecasting is difficult, but I believe it will continue – and without recession – until at least 2020, and we could see a 12 year record of increases in the United States.
Do you believe that American stocks are overvalued?
It’s evident that we have high P/E Ratios in relation to historical values. The P/E Ratio according to last year’s profits has been 19.5 and the estimated P/E Ratio will be 18 or 18.5. Thus, the S & P 500 index has a 20% premium over its historical valuation, since in 1960 we had a P/E Ratio of 16x, reason why many consider the market is expensive based on historical standards.
But I believe it is justified, because interest rates are very low compared to historical rates and therefore stocks are still cheap when compared to interest rates and bonds. In my opinion, interest rates are the key when estimating whether the P/E Ratios are expensive or have upside: we have been expanding for eight years and interest rates remain very low in historical terms, and they remain low for structural reasons, not because the economy is weak. Thus, we are facing a secular decline in interest rates structurally that would justify these P/E Ratios.
I think interest rates will rise somewhat, but not much. I think the Federal Funds interest rate is going to rise to 2% by the end of 2018 and that the yield on the 10-year Treasury bonds will not exceed 3% during the remainder of the cycle.
What is your price target for the S&P 500?
My year-end price target for the S&P 500 is 2,400 points, but if the tax reform announced by the Trump administration takes place, I think the index could surpass 2,450 points. If it doesn’t end up happening, we would be at levels of 2,350.
What type of economic reforms do you think the Trump administration will be able to carry out?
The most important reform for the economy and markets is the corporate tax reform; I do not think they will implement the border adjustment tax. Republicans will be in haste and would want to carry out something simple and significant, and one of the most effective and simple economic measures is to lower the tax on businesses, something that the United States can afford, since tax collection through this tax is not so high and would be good for the economy, helping to consolidate the longevity of the expansion.
Who do you think would benefit more, small and medium-sized enterprises or large corporations?
The measure will consist of reducing the corporate tax rate from the current 35% to 25% with very few additional changes to the tax code. On the one hand, it would benefit small companies that are currently structured as “partnerships”, “S class companies” or “pass-through entities” that are paying tax on their profits, which, if they are doing well, would normally be around 40 % or the top marginal personal income tax rate. If we have the 25% corporate tax rate they will choose to organize as “C class” companies, and if they decide to reinvest their profits in growth and not pay dividends, they would then be deferring any dividend tax for many years and only be paying 25% tax vs near 40% now. But big companies would also benefit from this economic reform.
In what sectors do you think we will see growth during the next few years?
The sectors that have been behaving well, and which we are following, are technology and health, with technology performing particularly well, and I think they will continue to grow during the next three years. We also like big banks in both the United States and Europe.
Although many investors think more in terms of regions, I prefer to follow sectors and styles with the developed equity markets. In this respect, within “growth” securities in the United States we prefer technology and health, since there is almost no technology in Europe and health companies are cheaper in the United States than in Europe. And in Europe we like “value” stocks.
Where we are underinvested is in energy in the United States. We believe that oil must be above $ 60 in 2018 so that securities in the energy sector fairly priced where they trade today, and we think it will be difficult to see oil prices at those levels.
What about currencies?
I believe that currencies will be more stable than they have been in recent times, both the currencies of major countries and those of emerging countries. After all, currency stability opens the door to investing in other regions.
We believe that the Fed will raise interest rates twice more this year and probably two to three times more next year, and as this happens, my vision is that the Yen and the Euro will weaken somewhat. I think the Euro will be more between 1.05 and 1.10 dollars than above 1.10.
China could be interested in a slightly weaker currency in order to make its exports more attractive, but they will try to control it, since they don’t want an exodus of capital to other economies in the region.
Finally, do you consider that relations between China and the United States are going to be more hostile than in the past?
This government wants to implement a trade policy that is more active than what we have seen in recent times, with bilateral, reciprocal agreements, in which they will analyze case by case with each country to try to find opportunities to improve the trade balance. As I said earlier, I do not believe that a border adjustment tax, which is so feared for China, Mexico or Canada, will be approved.
I know that this government is very aggressive in its negotiations, but I think that what they are trying to do is to find situations with most countries where both parties win. For example, trying to have the industrial property of American products respected in exchange for not hindering imports. As long as the border adjustment tax is not passed, I am optimistic about the Trump administration, perhaps I am the only one who is.
That said, I believe that the friction between China and the US is going to be currency, rather than trade policy. It seems that the Trump administration has finally come to the conclusion that China is not manipulating the currency. Rather if they have done something, it has been to support their currency for the past two years instead of trying to make it weaker.
I think a lot of tension has been released between China and the US, and that’s why we probably hear more about tensions with Mexico or Canada. From my point of view, the relationship between China and the US is very harmonious. Another thing is the geopolitical influence, in which we are experiencing a natural transition, in which China will gradually gain influence in Asia, where the United States traditionally had it. But the business relationship with China is very important.
CC-BY-SA-2.0, FlickrRahul Gupta, courtesy photo. Matthews Asia: “Investors Have to think of Asia Within a 5 to10 Year Horizon, and not Just as an Alternative to the Current Situation”
The first word that comes to mind when talking about investing in Asian equities is growth, which justifies that throughout history many fund managers have relied on macroeconomic factors when positioning themselves in the region. But the concept of macroeconomics may be subject to very different perspectives: for some, it is a question of predicting GDP growth, interest rate developments, currency fluctuations…; while for others, the focus lies on analyzing where the continent’s production is heading, what the domestic purchase and demand trends are, where middle class spending is going to… And the latter is the perspective held by Rahul Gupta, Manager of Matthews’ Pacific Tiger Fund, which, for management purposes considers the macro from that point of view, but essentially follows a bottom-up process.
As he explained recently during an interview with Funds Society, he bases his management on the thorough knowledge of the firms in which he invests; knowledge obtained by his team (with 45 members in total) by means of more than 140 research trips annually, and on-site meetings with over 2,500 businesses in Asia, even though their headquarters are in San Francisco. Because only that knowledge of the business allows him to adopt a medium- and long-term investment vision, which explains why the fund has a very low turnover, of around 20% -30%, as compared to the average, which is close to 60 %. “During periods of markets’ ups and downs, this vision allows us to take volatility as an opportunity to buy businesses that we like, because the underlying fundamentals of companies are not subject to as much volatility as the markets,” explains the manager.
Domestic Demand as the Guiding Principle
The driver of this Matthews Asia fund is domestic demand in Asia, a theme with great potential in the long term and which is distanced from other more cyclical ones, as, for example, the raw materials theme which, nevertheless, in this environment of lower prices, and with Asia being a consumer rather than a producer, is benefiting the consumption story. The manager, therefore, focuses his analysis on understanding the dynamics of demand in each country, which are very different depending on the stage of development of the market referred to within the continent.
“The issue of sustainable living and industrialization will make economies more productive and lead to an increase in wages, fundamental pillars for building a consumer society in Asia, which is more developed in markets like Taiwan, while in others it is only in its initial stages,” says the expert. For example, the potential in India for the next few years is in sectors such as automobile or insurance, while in China the growing wealth will lead to heavy spending on leisure, travel, cosmetics, mobile phones, or health.
Regarding the opportunities in the financial sector, the asset manager distinguishes between the countries of North Asia, where the banking sector is more developed but where the insurance business has less penetration and offers more opportunities, and the countries of the South, where, in some cases, such as India or Indonesia, the population does not even have current accounts, and the banking sector, therefore, has great potential. Although Gupta is aware that debt problems in China and its banks could impact on the rest of the continent, he believes that this concern is manageable and focuses on other Chinese sectors, beyond banking and with very little leverage, like consumption. “Debt is manageable and will not impact the Chinese economy in general or other sectors in Asia,” he says.
Bias Towards the Less Developed Asia
Although the Matthews Asia fund invests across the continent, the bias is clearly towards more developing countries, which offer more potential for growth, and where asset managers find “more opportunities, quality businesses and sustainable growth,” explains Gupta. Because the point in this case, with this dynamic of consumption as the backbone of the portfolio, is to find businesses (hence the bottom-up analysis) with three characteristics: that they are good and able to grow over a cycle (“they don’t necessarily have to present the fastest growth, but sustainable growth”, says the asset manager), and which have good management and an attractive valuation. However, due to the growth they offer, these names are sometimes more expensive than other parts of the market, although the asset manager says that in the end they are more profitable, and what’s involved here is the search for alpha creation opportunities.
The other bias is the underweight of more cyclical sectors, such as raw materials and energy, which do not offer that sought after sustainability in growth. And the third bias is its larger allocation than the average to businesses with a small and medium capitalization(between $ 3 billion and $ 5 billion), which usually accounts for 40% of its universe: “Historically, we find more opportunities or sustainable growth, and less linear in these firms, and that leads to the creation of greater alpha versus the large caps,” says Gupta.
In this respect, the asset management company controls the volatility derived from these investments, and also the one derived from the currency risk – which they do not hedge – through analysis, focused on names that grow in a sustainable way and with quality: “We focus on balance sheets and on the business in order to manage these risks, ensuring that companies generate cash flows and have capacity or price power, so that in times of turbulence or problems, they can continue to gain market share,” he adds.
Reasons for Optimism
In the long run, the asset manager is very optimistic about the story facing Asia. Among the, a priori, negative factors and which he rejects, are challenges such as the Trump effect (he considers that Asia is in a much better position than other markets like Mexico), the problems in China, (which nevertheless offers many opportunities on the consumption side, thanks to the savings of its population, and that it moves towards a more balanced growth thanks to this consumption) or the effect that the next decisions of the Fed could have: “In 2013, the first signs of monetary restriction led to sharp falls in the markets and in Asian currencies, but a lot of that has already been absorbed and we think the next rate hikes are already priced in and will not impact Asian markets,” he explains.
Among the positive factors, he points out the reforms that the region is experiencing in countries such as India (which will improve the financial ecosystem), but above all, the stabilization of the prospects of benefits in Asia after times of slower than expected growth: “After a few years, we can now talk about stabilization and the next few financial years will be interesting,” he says.
Regarding the factors that are helping to change the sentiment towards the region, the step before the arrival of flows: “After a few years of being underweight in Asian stocks due to macro concerns about China and the good performance of US equities, since early 2017 investors have moved their positions in China from negative to neutral, because the worst predictions have failed to materialize and have also seen an improvement in macroeconomics and corporate profits in Asia.” This stability in China and the story of the turnaround in Asian profits, coupled with political stability – even more so than in Europe and the US – have reassured investors and begun to change sentiment towards the region.
And that improvement in sentiment, coupled with the fact that US markets are beginning to be expensive, point to the idea that sooner or later the investors will rotate their capital, taking it to Europe and Asia. “The change in sentiment has not yet been noticed in the flows, but it is the first step. Investors have to think about Asia within a 5 to 10 year horizon, not only as an alternative to the current situation,” advises the asset manager. That is, Asia as a source of alpha and not just beta.
Foto cedidaPhoto: Jean Médecin, Member of the Investment Committee / Courtesy photo. Carmignac’s Jean Médecin in Face of the Return of Inflation: “Step Out of your Comfort Zone, Look beyond Fixed Income Only”
Some years ago, we could not have imagined a world as dominated by politics as it is today. For investors, this has become a challenge, although not devoid of opportunities, according to Jean Médecin, an advising member of the Investment Committee of Carmignac. In an interview conducted in early April in Miami, Médecin shared his market view with Funds Society: “There are opposing forces: the economy is doing relatively well, but there are many fears about what will happen on the political arena. In my opinion, there is an opportunity for investors to look beyond politics and focus more on the economic environment”.
Goodbye to Globalization, Hello to Inflation
We are reaching a double peak: On the one hand, we are witnessing maximum liquidity, as central banks are normalizing monetary policy, and on the other, we are probably at the height of globalization, as with Trump’s protectionist policies, Brexit, etc., the signing of any global trade agreement becomes unlikely.
“In any case, what seems certain is that inflation will return, and you have to know how to handle it.”
In order to face this new reality, Médecin recommends studying opportunities in those countries that are better positioned to navigate this scenario. “Emerging markets are not badly positioned, despite what one may think. The United States’ trade deficit is equal to or greater with Germany than with Mexico”, he points out.
Médecin reiterates that we cannot lose focus. Although equity may seem less attractive than fixed income due to its volatility, the analysis of what has happened in the last 120 years puts the data in perspective. In nominal terms, during this period of history, we have witnessed two decades of negative returns for equity and none for bonds. However, if we introduce the effect of inflation and look at this statistic in real terms, bonds have five decades of negative returns, compared to only three for equities. “This illustrates the need to consider equities in investment portfolios. You need to get out of your comfort zone,” he says, referring to fixed income investment.
Médecin argues that we are not so much in an expansionary cycle brought about by the Trump administration’s promises, which is called Trump Inflation, but that we are actually facing an acceleration of the economic cycle that began before Trump won the elections, and has coincided with his inauguration. “The economic improvement is much broader and is not centered solely on the United States, but, for the first time in many years, is occurring globally, and therefore, is much more robust,” he claims.
In this context, notes the expert, “possibly, now is the time to be very selective, and also to start from a totally global investment universe.”
A Global Universe Expands Possibilities
Médecin cites the financial sector as an example, “It’s as important to know what you want to have in your portfolio, as, above all, what you want to avoid.” Within this sector, the banks that are trading at cheaper rates would be in Europe and Japan. The political uncertainty that Europe can present at the moment, makes the Japanese banks come out of this comparative analysis with the advantage. “I pick the Japanese banks: in terms of valuation they are the same as the Europeans, but there is no political uncertainty.”
We can look for other examples in very pro-cyclical sectors, such as the automotive industry, which should be driven by economic reactivation, but which, in the United States at the moment, has a clear regulatory risk with the possible introduction of tariffs for goods imported from Canada and Mexico. “A global investor can look for opportunities in other cyclical sectors, such as the retail sector, but we avoid American companies with mass production in Mexico, and look at companies like Inditex, Zara’s parent company, which has a business model that favors local production, making it much less vulnerable to the imposition of protectionist tariffs.”
Avoid Concentration
The interest rate environment is bullish, evidently in the United States, but also gradually in Europe. This context also represents a risk for fixed income investors, a particularly “treacherous” asset class at the moment, according to Médecin.
However, outside these two geographical areas, Médecin points out that there are opportunities in fixed income, especially in some Latin American markets such as Brazil, where real interest rates are very high and inflation trends are downward, which will gradually lead to a downward environment in interest rates. “Brazil is at the threshold of a virtuous circle in which interest rates will be reducing gradually, allowing the government to lower its cost of debt service,” he reaffirms.
However, Médecin points out that Latin American investors should avoid over-reliance on fixed-income markets in their local markets. “There are always factors of uncertainty, whether political, ecological, or economic, that do not allow you to act if you are over concentrated. I recommend expanding the spectrum. A common mistake is to overweigh what is ours, because it is what we know and trust. When it comes to diversifying, I think we should invest in those asset classes that give us an equally strong conviction.” Thus, Médecin explains that a good proxy for Latin American fixed income can be investing in the stock market in sectors that tend to behave in a similar way to a bond, such as electricity distribution in Brazil. Likewise, Latin American investors can diversify their portfolio of local bonds without leaving the region, although through equity stocks with high growth prospects, such as the regional leader in E-commerce, Mercado Libre, which is one of the most overweight positions within Carmignac’s global equity strategy.
As with equities, when it comes to fixed income Medecin points to two key aspects of investing in this environment. “Firstly, to actively manage the risk, being able to change the exposure as opportunities or risks appear, and secondly, to have a very global investment universe in order to be able to access all the opportunities as they arise.”
Some Advice on Risk Management
Médecin does not reject any particular asset. He knows that it is very difficult to anticipate disasters such as that of Lehman Brothers in 2008. However, he believes that it is essential to have the flexibility to react and to quickly undo the positions of the assets that become distorted. Carmignac has been able to react very well in times of market shocks “At the end of the day, our mandate is to protect and grow our clients’ wealth”, he points out.
In order to minimize risk, the expert points out that it is important to have adequate portfolio construction. “Do not be unidirectional in their construction”. For example, in their global equity strategy they mix a cyclical portfolio, with a growth portfolio. “We hold technology stocks, such as Facebook, which attenuate the volatility of other more cyclical sectors. In Europe, with the current elections, we do not want to be overexposed to stocks that may respond with great directionality to the outcome of these elections, whatever that may be.”
Carmignac also uses currencies as a shock absorber for these external swings. Sometimes, the management company takes positions in foreign exchange due to the belief that they will generate value. They started the year relatively optimistic on the Euro-dollar because they believed that the consensus in favor of Dollar strength was extreme and baseless.
To conclude, Médecin reiterates his warning: “We must be very prudent with fixed income, government and credit. It does not offer enough compensation for the risk involved, especially in high yield.” With regard to equities, he restates that stock selection is fundamental since the positive behavior of stocks will depend on their ability to accelerate the growth of business performance.
“In this respect, 2017 can be the year in which active management makes a comeback. Active managers tend to have much better results once central banks leave the scene,” Médecin concludes.
Left to right, top to bottom: David Ayastuy, Mike Kearns, Eduardo Ruiz-Moreno, Florencia Bunge and Carlos Osés. Unicorn Strategic Partners is Born, a New Distribution Platform of Investment Solutions
The new platform Unicorn Strategic Partners, an entity formed by a team of recognized professionals in the Investment Fund Industry, arrives to the Distribution Market. The firm, which specializes in the distribution of thirdparty funds, will be representing international managers in Iberia, Latin America — both in Retail and Institutional Business — and US Offshore regions.
Unicorn is defined as a solution that allows offering the managers it will be representing, a distribution platform with a first-class Asset Management Team, with an extraordinary adaptability and a consolidated track record on the distribution business in the different regions where it operates.
As Head of the project is David Ayastuy, founding partner of Unicorn SP and professional specialized in the Asset Management Industry and International Private Banking. According to Ayastuy: “Our model is based on working with a limited number of managers, maximizing at all times the capacity of positioning and distribution and avoiding any potential conflict of interest. We want managers to feel as part of their team, not only from the sales area but also in marketing, compliance, legal, operations and business development activities”.
The Unicorn model allows adapting to the particular characteristics and requirements of each of the markets. In this way, it becomes a strategic partner for many international managers in their entry to markets in which they lack local structure, and previous track record. A movement that can cause a strong wear, both in terms of resources, as well as image and positioning. Unicorn offers to these firms confronting the challenge of entering to new regions with a solid experience, excellence in service and personal relationships created by their team in each region.
From the side of the end customer, the advantages offered by a platform like Unicorn are of great added value, by facilitating a proposal that customers can receive with the best investment solutions in each of the different asset classes.
The firm will focus its activity on three key regions for the sector: Iberia, Latin America – both Institutional and Retail -and US Offshore. In this way, Unicorn is covering regions that could only be covered by having local presence, and where Unicorn professionals can properly take care of them because they have been working for decades, with strong established relationships.
Unicorn divides its business into four key areas:
– Latam Institutional. The office of Santiago de Chile, directed by Eduardo Ruiz-Moreno, will serve the institutional business of Chile, Peru and Colombia. Ruiz-Moreno, with 24 years of experience in the Financial Industry, worked most of his career as Director for Latin America and Spain at Edmond of Rothschild Asset Management, positioning this firm in Chile among the top 10 international managers, with assets of $2,000 million USD.
– Latam Retail. With offices in Buenos Aires and Montevideo. Led by Florencia Bunge, this division will serve retail customers in Uruguay, Argentina, Brazil, Chile, Peru and Colombia. For the last 16 years, Bunge has been responsible of Development and Distribution at Pioneer Investments from Buenos Aires, covering the Latin American Retail Market.
– US Offshore. With offices in Miami and New York, Mike Kearns will be in the lead. Mike Kearns developed much of his career in the Financial Asset Industry as Senior VP and Regional Director at Permal Group where he was responsible for sales and distribution in Canada, the United States and Latam. More recently, Kearns has been working on LATAM’s business development with Strategic Investments Group Ltd, where he will keep those relations with Unicorn.
– Iberia. From the Madrid office covering the Spanish Market, Unicorn will be represented by Carlos Osés, a professional with more than 25 years of experience as, among other positions, Sales Manager for Spain at BNP Paribas AM, WestLB Mellon and NN Investment Partners (formerly ING Investment Management.)
The Unicorn SP team initially will be formed by a total of 10 professionals, in addition to the support of the NFQ Group, an international consulting, solution development and outsourcing specialist in the financial sector with more than 500 employees and presence in four countries. Unicorn is letting us know that in the upcoming weeks they will be announcing the first representation agreements they have closed already.
Photo: Ian L / www.publicdomainpictures.net. What the Bond Markets Tell Us About Reflation
Global fixed income markets are flashing caution on “reflation trades” predicated on an expansionary economic environment. Positions that have recently come undone include betting on steepening yield curves and inflation expectations (inflation-linked over nominal bonds)—and in equity markets, picking value over growth shares. Yields have halted their late-2016 climb, curves have flattened, and market-based inflation expectations have waned.
Yet we believe these market moves mostly reflect a temporary flight to safety in the face of political uncertainties—rather than a breaking down of the underlying reflationary dynamic. We see this dynamic as alive and well, with the global economy moving from acceleration to a phase of sustained growth, as I write in my new Fixed Income Strategy piece Reevaluating reflation.
A recent pullback in headline consumer price inflation across developed economies has challenged the notion of steady, if unspectacular, increases in inflation from depressed levels. Yet core inflation in the U.S.—which strips out volatile food and energy prices—appears to be broadening, our analysis suggests, with an increasing share of Consumer Price Index components clocking gains. Global Purchasing Managers Indexes (“PMIs”) stand at six-year highs. And our BlackRock GPS, which combines traditional economic indicators with big data signals such as Internet searches, still points to above-trend growth as the global economy transitions from catchup to steady expansion.
We see steady economic growth and inflation extending the lifespan of the reflation theme without the need for further rises in the pace of those measures. Reflation is alive and well according to our definition: rising wages (albeit slowly this cycle) feeding stronger nominal growth, allowing lingering slack from the last recession to be gradually eliminated, and stirring higher inflation over time. And to be sure, many financial asset prices still reflect a dominant reflationary view. Equity markets overall are buoyant. Global financials are holding up, despite a recent bout of underperformance, and credit markets are looking robust.
Credit spreads today look to be roughly where you would expect based on their historical relationship with global PMI levels, our analysis shows. See the chart below. Investment grade and emerging market debt spreads are right in line with the historical trend line since 2006.
High yield bond spreads are a little tighter than they should be according to the analysis. This highlights rich valuations, which contribute to our “up-in-quality” preference in credit. It implies today’s strong PMI levels are already priced in, with future returns in credit likely to be more muted than in the recent past. Returns will likely come mostly from income (or carry), not from further spread tightening, we believe.
Credit conundrum
The divergence between sovereign debt and the credit market’s pricing of reflation is on the surface a bit of a conundrum. One possible explanation is that when market uncertainty increases, investors have two choices as to how to reduce risk in their portfolios. They can sell risky assets such as credit, or buy less risky assets such as government bonds, adding a buffer to their portfolios.
Investors tend to choose the latter of these two options, since government bonds are a much more liquid asset class than credit, with lower transaction costs. U.S. Treasuries are also regarded as the ultimate hedge against geopolitical risks. Jitters around the recent French presidential election—not fears that reflation is dead—likely lie behind the recent flows into U.S. Treasuries, we believe, as risk-on and risk-off episodes are becoming increasingly global, our research suggests.
Bottom line
We see stable global growth and inflation helping the Federal Reserve make good on its promise to normalize normalization. Global developed bond yields appear vulnerable to further increases as French political risk has faded, leaving improving fundamentals as a longer run driver for eventual global policy normalization. We remain overweight U.S credit for its income potential, but prefer investment grade debt given elevated credit market valuations. We are underweight European credit and sovereign debt amid tight spreads and improving growth.
Build on Insight, by BlackRock, written by Jeffrey Rosenberg, Managing Director, and BlackRock’s Chief Investment Strategist for Fixed Income.
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 have not been registered with the securities regulators of 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 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.
CC-BY-SA-2.0, FlickrDaniel Lacalle opened the second day of the Miami Fund Selector Summit 2017, which was held on the 18th and 19th of May at the Ritz-Carlton Coconut Grove.. The Second Day of the Miami Fund Selector Summit, Focused on Credit and European and Quality Equity Strategies, and also Supported by Big Data
Opportunities in equities, from a quality perspective (advocated by Investec), focused on Europe (an attractive option for Carmignac) or with an alternative management perspective and using big data as support (BlackRock), were the focus of much of the second and last day of the third edition of the Fund Selector Summit organized by Funds Society and Open Door Media on the 18th and 19th of May in Miami. But in this forum there was also room to talk about credit opportunities, championed by Schroders -which focused on high yield opportunities- and NN IP -in US investment grade credit.
Still Life Left in Credit
Thus, Julie Mandell, Fixed Income Investments Director at Schroders, said that there is still life left in this credit cycle and focused on high-yield opportunities. “The financial crisis forced central banks to create solutions: first cut rates to zero, but then came the non-traditional measures like QE, and the purchase of bonds,” she points out, describing the environment of liquidity and low rates, which were even negative after those measures. In this yield-seeking environment, risk assets have performed very well, including those with higher yields in fixed income, such as the high yield.
“Currently, global high yield is the most attractive segment within fixed income, with a yield of around 5%” and a strong rally so far this year, points out the asset manager, compared to the 4% yield of emerging market debt. The expert still sees opportunities in the US despite being in the last stages of the cycle, and she even believes that the cycle may extend over time. In an environment such as the current one, she says that companies tend to be more conservative, which also benefits investors in that asset.
Although, of course, if growth continues, the Fed will continue to raise rates, twice more this year and the question is what will it mean for fixed income: “Since 2001 there have been 15 periods in which Treasury rates have risen by more than 50 basis points, but in those periods the US and global high yield have offered positive returns of around 5% against slight declines in global credit,” she explains. The reasons: high yield has lower durations than other fixed income segments, and therefore is less sensitive to changes in rates. In addition, when looking at total return, even if price falls, being a higher yield, this asset provides greater hedging and cushion than investment-grade credit. And finally, the high yield benefits from an environment of economic improvements and falls in the default ratios: “It is currently a good asset class, a good place to be invested in general, and not where to worry about rate rises,” explains the expert.
In short, fundamentals are very good, technical factors are moderate and, in price, high-yield bonds are fairly valued,” he says. But there is a catch: she believes that the risks derived from the timing of Trump’s agenda, which is clearly pro-growth, haven’t been priced in. “The markets are not pricing in this uncertainty or compensating for it, so, to enter, we are waiting for increases in spreads of about 50 basis points. At those levels, it would be a good point of entry,” she says.
Thus, the asset manager is more defensively positioned, expecting a better entry point, with high liquidity positions (10%, twice the general levels) and some investment grade debt positions – at around 8% Because they are not sacrificing returns by these positions; they also provide uncorrelated high-yield and hedging returns; and because they can use the IG as a second line of defense and liquidity if necessary. Positions in BB-quality names account for 35% of the Schroder ISF Global High Yield portfolio, B account for 30% and CCC for slightly more than 15%. In sectors, they’re overweight on banks (especially in the United States, because they believe that they are overcapitalized and over-regulated and yields are attractive, even though they are underweight on European banks). The largest underweight is in capital goods. By countries, they’re overweight on US against their underweight in Europe.
At NN IP, they also opt for credit, but with higher credit rating: Anil Katarya, Co-Head of Investment Grade Credit at NN Investment Partners, talked about the advantages of investing in US investment-grade credit. “Investment grade credit continues to be an attractive asset class,” he said, emphasizing its safe asset characteristics, the returns generated in recent decades and its low relationships with equities and other fixed income assets, as well as the benefits of diversification by investing in a portfolio dedicated to US investment grade credit. “IG credit has grown three times after the financial crisis, and there are great management opportunities, we continue to see opportunities with active management,” he says.
He explains that current yields and valuations are attractive (despite a strong rebound in credit spreads since the US election, valuations remain attractive, as spreads are above their historical average, Katarya explains), as the growth prospects for the US support the compression of spreads, and demand for yields also supports growth globally, in a low yield environment: “We continue to see inflows from investors in Europe, Asia and Latin America,” says the asset manager. “In general, the market is positioned to offer risk-adjusted returns this year, given the improvement in the macro outlook, valuations, and strong demand for yield,” he summarizes. However, at some point he expects corrections, in the real estate market, or in equities… but, at this moment, he does not see any excesses that justify exaggerated falls.
In regard interest rates expectations, he indicates that given that the high growth expectations in the US will not happen, and that rates will gradually rise, it will still be a good time for this asset. In addition, when the hikes do occur, it will not be bad for the asset because it will finally offer higher yields: the asset manager also points out that the total return on the asset class has been historically positive and has offered adequate downside hedging in periods of rising interest rates.
In this environment, the asset manager believes that US investment grade credit can offer a total return this year of around 3.5% -4%. “The investment case for the IG is not about buying today or tomorrow, but to have a core allocation over a long period of time,” adds the asset manager.
In its NN (L) US Credit fund, its position is to not take positions in duration (covered with US Treasury futures), and to be guided purely by the selection of securities and companies, in order to form a portfolio with high conviction and an active management style to take advantage of strategic and tactical opportunities. Currently, the overweight in BBB-rated names (with an 18% overweight as compared to the index) is noteworthy, with attractive valuations and with the conviction that the credit cycle is not yet over. By sectors, energy and technology are some of their overweight bets. The fund can invest up to 10% in names below investment grade.
Equities, but With Quality
In equities, Abrie Pretorius, Portfolio Manager at Investec Asset Management, explained the attractiveness of global equities from a quality point of view, through the Investec Global Quality Equity Income strategy – a strategy focused on high dividends, but also on names that reinvest; and also of Global Franchise, a strategy of high conviction in global equities.
On the meaning of quality, he explains that a good company is one that can offer a high return for every dollar spent and invested, pointing out that there are few businesses that can sustain a profile of offering high returns. And that’s what the asset management company looks for in their portfolios. “Very few companies have the capacity to generate and maintain high levels of profitability over time. Companies that do this have often created lasting competitive advantages,” says the asset manager, who explained how his firm invests in companies that combine this high quality with attractive growth and performance characteristics to build portfolios with strong long-term returns and with risk below market levels.
The asset manager showed how these powerful factors can be used both in growth-seeking portfolios and in long-term income portfolios and that current valuations could be sending signals of an attractive entry point. Regarding Investec GSF Global Franchise, it’s a highly concentrated fund of high conviction (between 20 and 40 securities, so that for one security entered, others must be displaced), focused on investment-grade firms and understanding the risks of companies in order to reduce uncertainty in an uncertain world and reduce risks. It also has a low correlation with traditional indexes and comparable funds, and combines quality, growth, and yield perspectives to select the firms in which it invests. “For a firm to be included, it has to improve its quality, growth, or yield,” he explains. At the moment it has 35% in basic consumption but has tended to reduce that part to increase its exposure to technology (it now represents 28% of the fund). 17% are in health care. By geographies, North America accounts for 60% of the portfolio, but the exposure by income is only 40%, and the same happens when investing in European or US firms with exposure outside their borders: hence the significant difference between absolute exposure and exposure by income. Names such as Johnson & Johnson, Visa, Microsoft or Nestlé hold more than 5% weight in the portfolio, which is an attractive mix of value and growth.
Regarding the income strategy, Investec Global Quality Equity Income Fund, he explains that it is also of high conviction (between 30 and 50 high-quality names), and speaks of three options when looking for income: investing in cyclical businesses, such as Anglo-American, businesses with higher dividends but higher risk, such as American Electric Power, or, finally, invest in a quality component, even if the input yield is lower – but above the market – but with a high free cash flow yield, which is the option preferred by the asset manager. Among the main securities are Imperial Bands, Microsoft or GSK, with weights close to or above 5% and by geography, the fund is more exposed to Europe, followed by North America. By sectors, basic consumption and healthcare stand out and the fund has more exposure to industrial firms as compared to the previous product.
And, in Europe…
Carmignac’s Risk Managers see opportunities in European equities. Mark Denham, Portfolio Manager at the French asset management company, explained the attractiveness of the asset at a time when the context of European shares is increasingly favorable, with an improvement of the economy throughout the region that encourages profit growth expectations in 2017, and that they can take advantage of through the entity’s three strategies (a long only fund of large and mid caps, another focused on small and mid caps, and a third long-short of European equities).
“The economic background in Europe is currently favorable and indicates expansion and economic growth, which supports the market and in turn translates to profit forecasts,” explains the expert. And these forecasts are not reflected in the current valuations, so the asset presents attractive investment opportunities.
As for bottom-up investment philosophy centering on fundamentals, its focus is on businesses that have better long-term prospects, focusing on two main features: high sustainable profitability combined with reinvestment capacity and initiatives. In fact, the firms in which they invest usually have strong and unique brands, strong market positions and cost advantages, as well as powerful know how. His vision is long-term, active, and of high conviction (active share is around 80% and 90%) and gives a strong importance to risk management (inherent to the investment process).
As examples, he mentioned investments in firms such as Reckitt Benckiser or their positions in the pharmaceutical sector, where the asset manager sees opportunities for growth. Not forgetting the European banking sector, partly in Spain where he sees quality names (like Bankinter) and thanks to the improvement in its economy, something that cannot be extrapolated to Italy, where they have no exposure.
In an environment of polarization between ETFs and alternative products and hedge funds, and in which vehicles either have no daily liquidity, or no transparency, Carmignac wants to provide products that can de-correlate from markets and obtain returns independently of their behavior, while at the same time providing daily liquidity and transparency, explains its sales team.
Big Data to Provide Alpha in Alternative Vehicles
Chris DiPrimio, Vice President and Product Strategist at BlackRock, spoke about the role of Big Data in investment and about the BSF Americas Diversified Equity Absolute Return (ADEAR), a neutral market equity fund that leverages this tool to provide diversified and uncorrelated alpha. That’s why he began his lecture on the important and growing role in the portfolios of liquid alternative vehicles: “There are three benefits that can come from the alternatives: absolute returns, hedging against falling prices, and diversification”, so that these strategies allow asset managers to maintain clients invested even during difficult times.
The expert pointed out the great race that these vehicles have carried out in recent years, with assets tripled since 2009: “It means that we have to find sustainable and scalable portfolios.”There is great demand and we can invest in a wide range of liquid alternatives, but the challenge for all is how to differentiate ourselves in the market,” he said.
At BlackRock, they try to differentiate themselves from the rest of the competitors with the Scientific Active Equity platform, one of the pioneers in quantitative investment, with more than 90 professionals globally managing $ 86 billion in assets. “Usually we are seen as architects of quantitative investment,” says DiPrimio. On the role of Big Data in this context, he speaks of a world full of possibilities and of using it for investments, always keeping in mind to use an appropriate container as the key, while big data is the ingredient, with the aim of obtaining diversified alpha. “Big Data does not replace investments but is an increasingly important tool for investors who want to gain a competitive advantage in the markets.”
And that container, where these techniques are used to obtain differentiated and uncorrelated alpha, is ADEAR, a pan American fund that seeks to generate returns irrespective of the direction of the markets, with five underlying sub-portfolios (US large caps, US small caps, Investments in Latin America, another portfolio of Canada and a last US mid-horizon), destined to capture different opportunities, with a track record of five years and with emphasis on innovation, data, and technology. “We live in a world full of information and the ability to extrapolate it and put it into the process is a great competitive advantage,” he says. It is a neutral market vehicle that tries to provide diversified alpha based on big data. “It does not matter what happens in the long term, but what happens in real time,” says the expert. BlackRock also has a European and Asian strategy similar to the American one and with a global long-short fund that covers the developed markets.
SAE evaluates 15,000 stocks every day automatically: it blends investment vision with technology and big data in order to analyze a broader universe from three points of view: fundamentals (for example, Internet traffic to verify a company’s increase or decrease in sales for Identifying future growth), sentiment (such as conference calls, scanning lots of data to evidence changes in market sentiment) and macro issues (such as online job listings to evaluate growth prospects in industries by analyzing companies’ intention to engage in hiring). A strategy, for example, helps to exploit the differences in regional exposure across the US. and to find opportunities and red flags in the midst of all the avalanche of information that companies have to report. In Latin America, it combines first and new generation techniques.
Without Reflation… Due to Technology, Amongst Other Things
The importance of technology and big data connected with Daniel Lacalle’s presentation. Lacalle, a fund manager considered to be one of the 20 most influential economists in the world in 2016, according to Richtopia, opened the event on its second day as guest speaker. The expert denied the “reflation trade” agreed on by the markets for the next few years, and warned of the risks of denying the current problem of overcapacity and deflationary risk. Although, precisely because central banks are unable to get out of the liquidity trap in which they are immersed, he rules out a major financial crisis. Lacalle emphasized the role of technology as a disruptive force to invalidate the inflationary estimates that are seen in the market, and as an important source of opportunities from the investment point of view, and improvement in standards of living of citizens around the world.
In his presentation, he also advised as to the short-term importance of avoiding conformist or market consensus biases, such as the denial of Brexit or Trump, and as is now the consensus on the arrival of inflation, the return of profit growth to levels of the beginning of the century, the return of Capex, or the restrictive policies of central banks at a global level, which he considers to be impossible, and not occurring.
