2016, a Good Year for Hedge Funds

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Los hedge funds cierran 2016 con buenos datos
CC-BY-SA-2.0, FlickrPhoto: Elite Fuegos Artificiales . 2016, a Good Year for Hedge Funds

Markets closed 2016 on the right foot with the way cleared from the Italian wildcard. The post-Trump election rally extended to December, benefiting DM markets globally while EM markets lagged. The upbeat tone also echoed the global agreement to scale back oil production. The surge of Brent to $56 supported the US High Yield segment.

Meanwhile, and according to Lyxor AM´s monthly barometer, the fixed income space continued to witness the great divergence in monetary policies. The Fed hiked rates by 25 bps mid-month while the ECB delivered a dovish tapering: it extended the program until end-2017 but reduced monthly purchases. Yields spread between Treasuries and German Bunds hit record highs. That led to further strengthening of the USD vs. major currencies while gold sold-off.

“In 2017, we expect less monetary accommodation, more fiscal boost and more policy ruptures to support rising rates and inflation. That would result in greater asset prices dispersion and more fundamental pricing, especially in the US where the process is more advanced. These factors would benefit Macro managers. However, the strategy is likely to remain constrained by elevated political uncertainty, prompting funds to be either overly hedged or endure volatility in their returns. We maintain a slight overweight on the strategy but we expect rising fund performance differentiation.” said Jean-Baptiste Berthon, Senior Cross-Asset strategist at Lyxor Asset Management

The risk-on environment supported hedge funds, with the Lyxor Hedge Fund Index up 1%. Global Macro delivered strong returns thanks to their long on equity markets and USD crosses. On the flip side, L/S Equity funds lagged due to the underperformance of Neutral funds.

Global Macro funds continued to gain traction and confirmed their year-end recovery. Managers benefited from the strong rally in European equities past the Italian referendum, while the depreciation of the EUR and GBP against USD added to gains. Overall, Macro funds’ positions became more homogeneous in December. Most of them bet on the reflation trade in Europe (long equities, short bonds and short EUR), while playing out rising inflation in the US and a stronger dollar (long bonds and USD, but short equities). In that regard, the divergence that took place in the fixed income space proved costly for portfolios this month. Finally, funds caught up the swift jump in energy but the sell-off in gold was detrimental.

In December, CTAs regained a meaningful chunk of the lost ground. The negative correlation between equities and bonds was supportive for models as they slashed their long fixed income allocations and re- weighted equities. Long USD vs. EUR and GBP was also a strong driver of returns. The commodity bucket remained overall mixed, but their long stance on energy paid off.

 

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Special Situations outperformed within Event Driven, supported by the year-end rally. Sector wise, they benefited from core investments in Basic Materials, Consumer Non-Cyclicals, Financials and Technologies. Merger Arbitrage funds benefited from spread compression across a number of deals. The completion of the LinkedIn/Microsoft deal on Dec 8th paid off. In aggregate, managers closed the year cautiously exposed, with sizeable exposure to Consumer Non–Cyclicals and Technology. Heading into 2017, higher US corporate activity would foster Event Driven. Prospects of deregulation in some industries, corporate tax cut and cash repatriation would offer fresh opportunities for the strategy.

 L/S Credit Arbitrage enjoyed healthy returns and closed 2016 up 5.4% with a very low volatility. Credit markets were supportive, in particular in the High Yield segment. Additionally, fixed income funds delivered healthy returns as well. Relative value investors navigated well the rising bond yield environment.

L/S Equity strategy delivered poor returns in December, but this hides disparate returns across regions and styles. On one hand, the longest biased funds continued to extend gains this month, and closed the year up 4.5%. Long books were the main source of alpha, especially within the financial sector. Some variable biased with a value-tilt recorded strong results. On the other hand, Asian and European Market Neutral funds were hardest hit by sector rotation. Overall, L/S Equity funds dramatically increased their positions towards Cyclicals vs. Defensives. They moderately increased their net exposure to equities throughout the month.

Investor’s Attention Shifts to Passive in European Equities

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El inversor en renta variable europea muestra cada vez más interés por la gestión pasiva
CC-BY-SA-2.0, FlickrPhoto: Pedro Ribeiro Simões . Investor’s Attention Shifts to Passive in European Equities

Very disappointing results of active European equity fund managers in 2016 may have caused an acceleration of the shift into passive solutions, says www.fundinfo.com.

Active European equity managers got wrong-footed on sector allocation in 2016, adds the website. As ifund revealed this week, only 8% of European equity managers outperformed the MSCI Europe NR net of retail fees and just 24% did so gross of fees.

This may have caused an acceleration of the shift into passive solutions: while one year ago active European equity funds accounted for about 75% of all document views this number has most recently collapsed to 54%. This shift was most pronounced within public channels for German investors but was also remarkable for Swiss, Italian and UK investorss.
 

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% share in document downloads over 1 year for equites Europe, Europe ex UK, and Eurozone within European and Asian sales channels.

PIMCO Launches Global ESG Investment Platform

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PIMCO lanza una plataforma mundial de inversión en renta fija con criterios ESG
Andrew Balls, courtesy photo. PIMCO Launches Global ESG Investment Platform

PIMCO, a leading global investment management firm, has launched a dedicated Environmental, Social and Governance (ESG) investment platform globally, offering a range of fixed income solutions to investors seeking attractive returns while making a positive social impact. As part of this effort, the PIMCO GIS Global Bond ESG Fund has been launched in EMEA.

PIMCO applies a robust framework across its ESG solutions, delivering maximum impact for
investors. This framework includes three key elements: exclusion, evaluation and
engagement. Companies with business practices that are misaligned with sustainability principles are excluded from PIMCO’s ESG portfolios. Companies are also evaluated on their ESG credentials and those with best-in-class ESG practices are favored in these solutions. Critically, the team engages collaboratively with companies, encouraging them to improve their ESG practices and influence long term change.

The newly launched PIMCO GIS Global Bond ESG Fund invests in a range of sovereign and investment grade corporate bonds from around the world. The fund aims to maximize total return whilst favoring issuers with best-in-class ESG practices and those that are working to improve them. The fund is managed by a team led by Andrew Balls, Managing Director and CIO of Global Fixed Income and Alex Struc, Portfolio Manager co-heading the ESG initiative at PIMCO.

In addition, PIMCO has enhanced two of its socially responsible funds in the U.S. to incorporate a wider range of ESG considerations into the investment process. These funds are managed by a team led by Scott Mather, Managing Director and CIO for US Core Strategies and Alex Struc.

Andrew Balls said: “For many investors, screening out undesirable investment categories isn’t enough anymore; they want to use their investments to promote change in the world. Our ESG platform provides the tools to do that without compromising on returns.”

Alex Struc said: “Historically, this type of strategy has been pursued by equity investors but we firmly believe that engagement as a debtholder is equally important. Across the vast fixed income universe, small change can have an enormous positive impact.”

Sasha Evers Will Lead the Latin America and Spanish Business of BNY Mellon

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Sasha Evers amplía responsabilidades y pasa a liderar también América Latina
CC-BY-SA-2.0, FlickrSasha Evers, courtesy photo. Sasha Evers Will Lead the Latin America and Spanish Business of BNY Mellon

BNY Mellon Investment Management (BNY Mellon IM), the world’s largest multi-boutique asset manager with 1.7 trillion dollars in assets under management, announced that Sasha Evers, Managing Director for Iberia, expands his role to lead the Latin America business.

Antonio Salvador Nasur will continue in his regional role based in Santiago, Chile, reporting directly to Sasha Evers, based in Madrid, Spain. 

Under Evers’ leadership BNY Mellon IM opened its Madrid office in 2000 to successfully grow BNY Mellon IM’s presence across Iberia (Spain, Portugal and Andorra), where current assets under management are USD 3,537 bn (EUR: 3.730 m).

Sasha Evers, Managing Director of BNY Mellon IM for Iberia, said: “The Latin American region offers a strong long-term growth story for our business. I am looking forward to working closely with Antonio to further build upon our business in the region.”

Matt Oomen, Head of International Distribution at BNY Mellon Investment Management, commented: “While setting in stone our longer term distribution strategy to grow assets in Latin America, we saw many synergies between Iberia and Latin America. Sasha’s experience and leadership puts him in the best position to further grow our presence in the region, following his success leading BNY Mellon IM Iberia.” 

 

Where’s The Growth?

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Cinco factores para no perder de vista en 2017
CC-BY-SA-2.0, FlickrPhoto: Clint Budd . Where’s The Growth?

Looking into 2017, our primary investment thesis is based on the belief that investors are underestimating the prospect of stronger growth and inflation in the US economy relative to the rest of the world over the next year.

Where’s the growth?

Global growth has been weaker than many policymakers and market participants expected following the 2008 global financial crisis. The deleveraging cycle in the developed world and the Chinese economy’s transition to a lower-growth path have both acted as major headwinds to the global economy. In response, central banks have undertaken extraordinary policy measures to provide support, which, in turn, have strongly in uenced the direction of asset prices.

Pessimism is in the price

We believe the global economy’s structural issues will remain with us for some years to come, resulting in a continuation of the low-growth environment. However, this has largely been accepted by investors. Looking into 2017, our primary investment thesis is based on the belief that investors are underestimating the prospect of stronger growth and in ation in the US economy relative to the rest of the world over the next year.

Following an easing of financial conditions over the past year, with government bond yields and mortgage rates having declined significantly, we see positive trends emerging in US credit growth and the housing market in particular. In our view, this implies higher longer-dated US bond yields and a stronger US dollar looking forward. As a result, we believe that many of the areas that have struggled through 2016 appear to offer some of the most attractive opportunities.

Sectors are diverging

The large decline in longer-dated government bond yields this year resulted in a meaningful division within equity markets. This has been particularly prevalent in the US market where, although the S&P 500 has made little overall progress, there has been a high level of dispersion in performance between those sectors that gained from lower bond yields and those that lost.

US banking bounce?

An example would be the performance of US banks relative to utility companies, with the former underperforming significantly. While a stronger US dollar and higher bond yields may act as a headwind to US equities more broadly, we believe there is scope for a rotation within the equity market and consequently we have been sellers of US utility companies and buyers of US banks.

Greenback revival?

We have also been sellers of government bonds and have been reinitiating long US dollar positions against the currencies of countries where we expect monetary policy to remain loose or even be eased further, such as the Korean won, Taiwanese dollar, New Zealand dollar and Japanese yen. With the exception of the latter, these currency positions are designed to act as defensive positions at a time when government bonds may struggle to perform.

Positioning for 2017: Flexibility is the key

Although we believe there are a number of compelling opportunities in 2017, we acknowledge that valuations across the majority of asset classes are not as attractive as they have been in recent years, as we remain in an environment of structurally low growth with economies more susceptible to shocks. As a result, the overall risk level of our strategies will likely remain lower than would otherwise be true, were risk premia to be higher, and we will continue to use our flexibility to identify opportunities as they appear and to seek to protect capital as risks emerge.

Iain Cunningham is a Portfolio Manager in the multi-asset team at Investec Asset Management.

 


 

Annika Falkengren and Denis Pittet, New Managing Partners at Lombard Odier

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Annika Falkengren y Denis Pittet, nuevos socios directores del Grupo Lombard Odier
Pixabay CC0 Public DomainFoto: 495756. Annika Falkengren and Denis Pittet, New Managing Partners at Lombard Odier

The Lombard Odier Group announces the appointment of Annika Falkengren and Denis Pittet as new Managing Partners.

“These two nominations provide a solid base for the further build-up of the Lombard Odier Group” said Patrick Odier, Senior Managing Partner of the Lombard Odier Group. “We are particularly pleased to welcome two highly complementary personalities with Annika Falkengren, who brings a recognised expertise in the running of a respected and successful European financial institution, and Denis Pittet, who has contributed significantly to the strategic development of the bank over the past 20 years. These two appointments represent a strong endorsement of our strategy, differentiated business model and long term vision.”

Annika Falkengren, currently President and CEO of Skandinaviska Enskilda Banken (SEB), will join the Lombard Odier Group in July 2017 as a Managing Partner based in Geneva. Annika Falkengren joined SEB in 1987 and made a long and distinguished career which culminated in her nomination as President and CEO of SEB in 2005. Recognised as one of Europe’s most respected bankers, she is also Chairman of the Swedish Bankers Association.

“I am very honoured to join a Group with strong family values and with a truly international mindset and outlook”, said Annika Falkengren. “I firmly believe in the partnership model which has been underpinning Lombard Odier’s evolution over the 221 years of its history.”

Denis Pittet will become a Managing Partner in January 2017. Denis Pittet joined the Group in 1993 as a trained lawyer. He was Group Legal Counsel, before joining the Private Clients Unit in 2015 where he took over the responsibility for the independent asset managers’ department and led the expansion of wealth planning services in the areas of family governance and philanthropy. He became a Group Limited Partner in 2007. He is also Chairman of the Fondation Philanthropia, an umbrella foundation supporting clients’ long-term philanthropic projects.

“My objective will be to maintain a first class client experience at Lombard Odier”, added Denis Pittet. “We are solely dedicated to clients in a model which puts independence at the heart of everything we do.”

After 20 years of commitment to the Group, Managing Partner Anne-Marie de Weck retired on 31 December 2016. She joined Lombard Odier in 1997 to take over responsibility for the Firm’s legal department, and subsequently its Private Clients activity. A Managing Partner since 2002, Anne-Marie de Weck has made decisive contributions to the strategic development of the firm’s private client business.

“We would like to express our sincere thanks to Anne-Marie de Weck for her relentless commitment to serving our clients. We are also very grateful that she will maintain a close relationship with the Group as a member of the Board of Directors of our Swiss-based bank. In this role, she will continue to be involved in defining the strategic orientation and overseeing the operational activities of the business”, said Patrick Odier.

In July 2017, the Management Partnership of the Lombard Odier Group will be composed of Patrick Odier (Senior Partner), Christophe Hentsch, Hubert Keller, Frédéric Rochat, Hugo Bänziger, Denis Pittet and Annika Falkengren.

 

Private Funds: Venturing Off the Beaten Path

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Las oportunidades para 2017 pueden estar en el mercado privado
CC-BY-SA-2.0, FlickrPhoto: Chris D Lugos Z. Private Funds: Venturing Off the Beaten Path

This year, we expect a continuation of many of the same themes we’ve seen in private markets this year. The global macroeconomic environment remains weak, and central banks continue to pursue accommodative monetary policy. Top line growth is still hard to come by – both for companies and for the US economy.

Investors are looking for private market yield more than ever. So alternative investments continue to be popular among institutional investors as their comfort level in traditional assets of listed equity and fixed income is tested. Fixed income looks fully valued to many as interest rates can only go up from here and investors wait for the negative consequence of central bank intervention and negative rates to materialize. Long range forecasts for public market equities among major institutional investors are as low as 4%-5%, which is far below their actuarial assumptions for the growth of their liabilities. So where else can investors turn?

We think the biggest change just may be among investors themselves. When the world is becoming compartmentalized, investors feel crowded. Everyone is following the same themes and feeling the same pressures. Investors are looking for new opportunities and ways to optimize their exposure through a “best ideas,” unconstrained portfolio of private assets, whether it be in emerging markets or developed markets.

Finding opportunities

We’re seeing large buyouts in private markets, purchased at over 10 times (x) a company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) using 6x leverage for larger deals. In the general secondaries market, pricing is also becoming fully valued because more people are looking for truncated J curves and a visible portfolio that has growth potential. (The J curve shows a private equity fund’s tendency during its life to deliver negative returns and cash flows early on and investment gains and positive cash flows later on as companies mature and are sold off.)

We think investors should go where most of them aren’t – that is, areas of the market with less capital formation. It may be harder to do the work to generate returns, but it may actually be a lower-risk strategy than following the path of least resistance that many other investors follow. In particular, we are focused on opportunities in the small and midmarket segments of the private market, along with private credit. We believe that investors should focus on smaller companies and/or funds to pursue alpha, while keeping in mind that these segments require greater expertise and selectivity.

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A small midmarket business will generally trade at a lower multiple than a large market business. Among the same types of companies, just different sizes, investors can pay 7x EBITDA for the smaller company but 9x for the larger one. Why? Because the leverage is easier to come by for the larger company. The bigger the fund, the more pressure to put money to work. Of course, small midmarket transactions are hardly cheap, but it’s a relative value proposition as opposed to an absolute value one.

There’s another advantage to small and midmarket deals. Not only can investors get the benefit of higher growth, but once the company gets to a certain size, investors may get the benefit of an expanded multiple such that the next investor uses more leverage to buy the company. Investors should never use the expanded multiple as the main justification, in our view – they should look for growth, operational efficiency, and good bottom lines – but an expanded multiple can be a bonus.

Be mindful of risks

Of course, investors need to be aware of the risks and special skills involved in the private equity markets. Investors should do the proper due diligence to make sure the managers they pick are able to execute on the type of mandate they’ve been given. This execution risk is even broader in cases where an investor is looking for a manager to provide a “best ideas” portfolio. In the past, investors needed only to ensure that the manager was capable within a constrained or compartmentalized context. Now, managers need to demonstrate the breadth and depth of their capabilities in several areas or markets.

Another risk in the private markets is that portfolios cannot react as quickly to market developments or uncertainty as compared with more traditional asset classes like listed equities and fixed income. The ship turns much more slowly in private markets, and a level of uncertainty can slow things down. If an adverse event were to cause corporates to step back from markets, liquidity will become constrained for private equity. Exit trends have been favorable over the past three years as low interest rates have caused corporations to become more acquisitive. However, we expect the number of exits to moderate into 2017 and 2018. Exit trends have the potential to revert to the mean over the next 12-18 months because of the continued uncertainty over the global macroeconomic picture and investors’ nervousness about what central banks will do. On top of that is growing political risk, particularly in Europe and other developed markets.

Currency movements have had a huge impact on returns for international investments. EM currency performance relative to developed market currencies and even within Europe (for example, the euro versus the pound) has been dramatic. Most investment professionals believe volatility will still be the name of the game going forward, so general partners (GPs) of funds should be cognizant of currency effects. Many investors in the UK and continental Europe did not expect the pound and euro to move so dramatically. GPs should think about hedging within their funds versus telling their clients to manage it themselves, in our view.

Finally, it’s worth repeating that something that looks low risk can come at a high price. Investors can end up paying too much because debt is readily available. Paying up for an asset and then putting leverage on it makes something once solid and straightforward become more risky because of high purchase price multiples and high debt use.

One size will not fit all

The search for yield is becoming a catalyst for change in the private markets as investors now focus on determining the right strategy. Many are turning to alternative investments because of their ability to generate yield when there is little to be found in the traditional markets. Growth opportunities may also be more readily available in the private markets.

However, investors must remember that it’s not easy. As interest in these opportunities grows, assets become more expensive. And as competition for yield grows, returns are moderated. While there are many obstacles, we believe there is still more opportunity for skilled investors to generate yield and growth.

Steven Costabile is the Global Head of PineBridge’s Private Funds Group (PFG).

This information is for educational purposes only and is not intended to serve as investment advice. This is not an offer to sell or solicitation of an offer to purchase any investment product or security. Any opinions provided should not be relied upon for investment decisions. Any opinions, projections, forecasts and forward-looking statements are speculative in nature; valid only as of the date hereof and are subject to change. PineBridge Investments is not soliciting or recommending any action based on this information.

 

 

What The Markets May Be Miscalculating?

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El repunte de los mercados podría haber ido demasiado lejos
CC-BY-SA-2.0, FlickrPhoto: Toby Oxborrow. What The Markets May Be Miscalculating?

The last few days of 2016 have receded amidst continued pain for Asia’s markets. The year had begun with a rally in Asia’s equity and fixed income markets, but it ended in a slump. I wish performance had been better, but the sectors that rallied—materials, energy and other cyclicals—did so less due to fundamental reasons than due to expectations of inflationary conditions rising once again. Sectors with more robust secular growth profiles, such as health care, have recently suffered. This environment has been a difficult one for investors, including our team at Matthews Asia, which is focused on making long-term strategic decisions to buy secular growth at reasonable prices. But it is also an environment of which we have warned investors, one that I believe is transient, and so we intend to stick to our investment philosophy and our commitment to long-term growth, not short-term trading. But sentiment is against us right now.

Indeed, as markets have marched on since the victory of President-elect Donald Trump, each footstep seems to bring new confidence into the U.S. market, just as it sends tremors through the East. Expectations of higher inflation, easier regulations, and an America-first trade policy are being priced in as being a boon to the U.S. and a burden to Asia. But have the markets been marching blindly? Is the focus too much on NOW and too little on the far future? Has the market been relying too much on conventional wisdom, what it feels is true, rather than spending the time to think through the issues in a cooler, more logical fashion? If it has done so, it would not be surprising—given the shock and emotional reaction by many over Trump’s surprise win. And yes, I do believe that the market has gotten some things wrong.

First, the markets may be overestimating the inflationary stimulus from President-elect Trump’s economic policy. Tax cuts will raise the budget deficit, yes. But that will be offset by a faster pace of interest rates hikes by the Federal Reserve. Tax cuts that save money for the wealthiest and broaden the tax base at the bottom are more likely to be saved than spent. That is not stimulative. Plus, many on the new administration’s economics team are advocates of hard money and tighter control over, even auditing, the Fed. This is not an environment in which it will be comfortable for the Fed’s doves (those happy to see higher inflation) to operate.

Second, the markets may be overestimating the effects of looser regulation. Yes, there are costs associated with it, but it is not as if profits are at a low level. Indeed, they are close to peak levels of GDP. Where is the evidence that regulation has imposed high costs? The effect of tax cuts in the corporate tax rate are real—but for how long are they likely to persist? Perhaps the market is overestimating the boost to valuations from these potential events.

And the effect of trade tariffs? They are likely to impose costs—a one-off jump in import costs, on the U.S. consumer and businessman alike. The reaction in the markets has been stark—as if the U.S. was isolated to this effect and Asia is incredibly exposed. This is the old canard about Asia being an export-led economy. It is not. Asia grows because it saves, it invests and it reforms. The excess that it produces beyond its immediate needs, it exports. But that is not vital to its citizens’ standard of living. Indeed, Asia would simply consume even more of what it produces (and it already consumes the vast majority) if tariffs became punitive. The short-term impact is likely to make the U.S. dollar stronger—but less trade means less cross-border investment and that could weaken the dollar further down the line.

Would supply chains be affected? Shortened? Probably, but again, don’t take too much of a U.S.-centric view of the world. China and other large Asian manufacturers are building out their supply chains in more developing parts of Asia only in part to satisfy Western demand. The long-term goal is still to produce for their own citizens. China will keep investing in the rest of Asia. Yes, some businesses will suffer, but others will benefit. Our portfolios largely consist of those companies focused on the domestic consumer and the domestic business in Asia, where long-term trends are overwhelmingly positive.

Simultaneously, markets are, I believe, mispricing Asia’s long-term prospects. The better performance we saw in the early part of 2016 was, I believe, partly a recognition that Europe had its own problems, but also that in Asia, equity valuations were reasonable and real interest rates were actually very high in global terms (hence the rally in bonds)—and that despite several years of poor earnings results, Asia’s economic growth would sooner or later translate into profit growth. That confidence has gone for now. But the fundamentals remain in place and even as valuations in the U.S. become increasingly stretched as markets price in an idealistic interpretation of the next administration’s policies, valuations in Asia are getting cheaper for long-term secular growth businesses.

Indeed, as I meet clients these days, I am often asked: “Where is the good news?” As I talk about the likely issues to come—trade issues, more worries about China’s currency, a strong dollar, and all the other issues that the markets are focused on, it’s a fair question. The answer is twofold. First, Asia appears well set to weather the storm! This may seem mealy-mouthed, but it’s important to recognize the current issues and also to see that high savings, high current accounts, low inflation, and low budget deficits give Asia a lot of policy room to maneuver—room that Latin America, for example, largely does not have. Second, Asia’s economies are still growing faster than the West and that should ultimately mean stronger profits. This is no small advantage. It may seem like a thin thread to hang your hopes on, but it only appears thin because it is not tangible—corporate profits are not growing quickly NOW.

Still, Asia right now has much going for it—economic growth, stable politics, strong fiscal and monetary positions, and reasonable valuations. The only things it lacks are momentum in corporate profits and the change in sentiment which that would bring. As I look into 2017, I do not know if this is the year when profits will turn (though margins are close to 15-year lows). But with dividend yields in the market near 3%, I know we will be paid to be patient. And now in Asia, more than ever, there would appear to be prospective returns to patience. That patience may be tried at times by “junk rallies” and sensationalist headlines, but we will continue to look beyond the headlines and help you see the opportunities in the region. And we intend to keep investing in the companies that are set to grow sustainably for the long term, not try to time rallies in those companies enjoying their last days in the sun. When the market is thinking “now, now, NOW”… we are trying to be patient, patient, patient.

Robert Horrocks is Chief Investment Officer at Matthews Asia.

Invesco Fixed Income Appoints Emea Chief Investment Officer

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Invesco Fixed Income nombra nuevo CIO de EMEA
Photo: Investment Europe. Invesco Fixed Income Appoints Emea Chief Investment Officer

Invesco today announced the appointment of Gareth Isaac as Chief Investment Officer, EMEA for Invesco Fixed Income (IFI). Gareth reports to Rob Waldner,  Chief Strategist and Head of the Multi-Sector team for Invesco Fixed Income.

This is a newly created role and a significant hire to support the growth of IFI globally and in the EMEA region in particular. As EMEA CIO, Gareth will lead the portfolio management and strategic investment thinking of the Global Macro team in London and represent the EMEA region on the IFI lnvestment Strategy Team (IST). Gareth will support Nick Tolchard, IFI’s Head of EMEA, to drive growth of the IFI business in the EMEA region. He will also work closely with the Investment Grade Credit, High Yield, Emerging Markets and Credit analyst teams to contribute to product development in these areas.  

Gareth, who is based in London, joins from Schroders Investment Management, where he was a Senior Fixed Income Fund Manager for five years, with responsibility for portfolio management, investment strategy and client and consultant relationships. His experience in managing fixed income investments spans nearly 20 years, with previous roles at GLG Partners, SG Asset Management, Newton Investment Management and AXA Investment Management.

Nick Tolchard, Head of EMEA for Invesco Fixed Income, commented: “Gareth’s credentials in developing and delivering strong investment strategies and his depth of experience in fixed income markets make him the ideal candidate for this role. He is known in the investor and consultant industry as a highly credible and respected investment strategist and we look forward to working together to deliver a superior investment experience for our clients globally.”

Credit Suisse: Conflicts of Generations Sets Tone for 2017

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Credit Suisse: los conflictos generacionales proporcionarán un contexto incierto en 2017
Pixabay CC0 Public DomainPhoto: bykst. Credit Suisse: Conflicts of Generations Sets Tone for 2017

In its recently published annual Investment Outlook, Credit Suisse’s investment experts suggest that financial markets are likely to remain challenging in 2017. The central economic forecast is for global GDP growth to accelerate slightly next year from 3.1% to 3.4%, albeit with pronounced regional differences. In combination with a slight rise in inflation and some monetary tightening, most asset classes are expected to generate low returns in 2017.

Fundamental economic and social tensions – summarized using the term ‘Conflicts of Generations’ – provide an uncertain backdrop for investors. Michael Strobaek, Global Chief Investment Officer at Credit Suisse, predicts: “The investment environment remains difficult and political events are again likely to trigger some turbulence in 2017. However, market corrections are likely to offer selected opportunities that investors should seize”.

Global economic forecast

Global growth should improve somewhat in 2017, albeit with significant differences between countries and regions. On the whole, investors can expect a slight recovery in corporate investment coupled with still robust consumer demand, but overall growth is likely to remain well below pre-crisis levels. US fiscal easing would support the cyclical upswing, while uncertainty over global trade could act as a restraint.

Inflation is likely to pick up but should remain well below central bank targets in many developed economies except for the USA. While the US Federal Reserve will likely continue its gradual normalization of interest rates, other central banks will probably maintain a more accommodative stance, while shifting away from mechanical balance sheet expansion.

Oliver Adler, Head of Economic Research at Credit Suisse says: “Political uncertainty and risks look set to remain in the spotlight, as Brexit negotiations are initiated, elections are on the agenda in core European countries and the foreign, security and trade policies of the new US Administration take shape”.

Credit Suisse’s investment experts see European risk assets (credits and equities) as particularly exposed to an increase in political risks.

Global market outlook

Rising yields and steepening yield curves are beneficial for financial sector profitability. European political events are a source of potential volatility for European institutions, but US financials (including junior subordinated debt) are still favored as a source of return. The Trump administration is likely to favor less rather than more regulation in the financial sector. Emerging market (EM) hard currency bonds are attractive due to their yield and diversification potential. After the strong rally in EM bonds in 2016, country and sector selection will, however, be a key determinant of returns in the year ahead.

Among equities, investors should favor the healthcare and technology sectors in view of their sound fundamentals. Healthcare offers some of the strongest earnings trends. Technology, meanwhile, is still growing strongly in areas such as cybersecurity, robotics and virtual reality. Both sectors also have the most to gain from a likely US repatriation tax break.

Credit Suisse’s investment experts also favor selected infrastructure-oriented stocks, notably construction and construction-exposed industrials. In combination, the increased political will for fiscal expansion and a growing need to renew infrastructure will provide significant stimulus in several large economies in the coming years, including in the USA. The US dollar is expected to gain ground in view of rising US interest rates, fiscal expansion and a potential repatriation of deferred US corporate taxes. While the euro may suffer from a focus on political risks in 2017, the Japanese yen should recover from undervalued levels.

Nannette Hechler Fayd’herbe, Global Head of Investment Strategy at Credit Suisse, says: “The biggest challenge investors face in 2017 is to find yield at reasonable risk. We consider emerging market bonds to be the most attractive but selectivity as regards issuer risk remains key.”

Switzerland

For Switzerland, Credit Suisse’s investment experts expect continued moderate growth with an ongoing recovery in exports and subdued domestic demand. While inflation should remain below target, deflation risks have subsided.

The Swiss franc is, however, likely to weaken versus a generally stronger US dollar. Credit Suisse currency experts believe that any depreciation of the Swiss franc against the euro is likely to very limited, given that interest rates will remain low in the Eurozone and also due to lingering political risks in Europe.

Anja Hochberg, Chief Investment Officer Switzerland at Credit Suisse, says: “We recommend to add broadly diversified emerging market bonds to the portfolio and favor Swiss equities over Swiss bonds, with a preference for pharma and IT shares. For investors that can bear some illiquidity, private equity continues to be an interesting asset class.”

Europe & EMEA

Uncertainties over Brexit, political risks and intermittent worries over the health of European banks are likely to create bouts of volatility in European risk assets, making risk-adjusted returns on equities less attractive.

However, Credit Suisse’s economists believe that Brexit is unlikely to trigger exits by other EU members. Hence, peripheral sovereign and bank bonds should hold up well. Risks in Italy and Portugal need to be closely monitored, however.

The Eurozone should see modest growth. However, the divergence between a slightly tighter Fed and a still very accommodative European Central Bank mean the euro is unlikely to make gains against the US dollar. The British pound should stabilize after its drop below fair value in 2016.

Michael O’Sullivan, Chief Investment Officer International Wealth Management at Credit Suisse, explains: “What is certain even at this stage is that Brexit will visit economic and political uncertainty not just upon the UK itself but also upon its European neighbors.”

Asia Pacific

Asia can look forward to stable growth in 2017, underpinned by a structural transition from manufactured exports to services-based consumption.

China remains on course for a soft landing, as the government successfully manages a bifurcated economy in which the industrial trade sector continues to decelerate while domestic services expand steadily. In this context, the real estate sector must be prevented from overheating in tier 1 cities.

A supportive combination of firming economic growth, reasonable valuations and improving profitability suggests that emerging Asian equities should perform well in 2017, possibly outperforming their global emerging markets counterparts.

John Woods, Chief Investment Officer Asia Pacific at Credit Suisse, notes: “Our more favorable view on Asia reflects our improving view on China, where we believe the domestic economy – particularly the services sector – should surprise to the upside.”