Pixabay CC0 Public DomainPhoto: PS Photography / Pexels. Other Financial Assets Allowed the Afores to Minimize Mark to Market Loses
After the triumph of Donald Trump, financial markets show in the last 30 days: an upward shift in the US Treasury bond yield curve that reflects increases of up to 50 basis points (bp) along the curve. In the case of the Mexican bond curve, there is an increase that is between 50 and 107 bp between November 8th and December 8th. For example the Mexican bond that matures in 2024 (m24), that is in eight years, its effect is equivalent to a reduction in its price of 6%. The m24 raised 106 bp in that period.
In contrast, in the same period, there has been a rise in the international stock markets not only because of the movement in the exchange rate (Mexican peso/dollar), which moved in the last month 11%, but also driven by the expectations generated for Trump’s triumph. The Dow Jones industrial average rose 18% in pesos (11% explained by the movement in the exchange rate and 7% by the movement of the stock index). Other indices such as the Russell bring a 27% direct yield in pesos in the last month; while the ETF of financials in the United States (XLF) registers a 31% increase in pesos.
When reviewing the yields of the Siefore Basic 2 that are the Siefores that concentrates the largest number of resources (36%) of the 5 Siefore, you can see how different the results have been. Sb2 assets are worth $49 billion USD and in the last 30 days they had a mark to market loses of 1.7%, that means $ 826 million USD: 4 Siefores perform above average (Inbursa, Profuturo, Coppel and Azteca); two are in the average (Principal and MetLife); while 5 Siefores bring a performance below (XXI-Banorte, Banamex, Invercap, Sura and PensiónISSSTE), where the benefit or impact is different in each case.
Given these results we can see that the Afores that were diversified not only between fixed income, equities and other assets; had less investments (duration) in long bonds and had a diversification between local and foreign securities.
If 100% of the portfolio had been invested in the m24 bond, the result for the month would have been -6.3% in pesos; If 100% had been in the Mexican Stock Exchange index, the result would have been -4.4% in pesos; If 100% had been in dollars the yield would have been 11% in pesos; If it had been in the Dow Jones industrial index the yield would have been 18.4 in pesos and if it had been invested with foreign exchange coverage would have been only 7% in pesos.
These examples considered non-diversified investments where everything is invested in one asset class. This exercise is complicated by incorporating the regulatory limits where in the case of SB2 it is allowed to invest 25% in equity, where only 20% may be foreign securities; only 30% is allowed in foreign currency and the most important thing is that all investments can not exceed a Value at Risk (VaR) of 1.1%.
Due to the characteristics of the portfolios and the investment regime it seems that it is difficult to avoid negative returns without incurring the concentration in an asset class in periods such as that experienced in November, where there is a negative perception of the market and investments in Mexico.
When looking at these results, what emerges is the need to increase the percentage of equity, increase the limit of foreign securities and it is necessary to raise the limit of Value at Risk (VaR), because any increase in these
Pixabay CC0 Public DomainPhoto: NASTER. Robo-Advisors May Now Include Active Funds in their Offering
ifund and fundinfo have launched Digital-Advisor, a cloud-based, expert system for fund selection.
The tool scores active and passive funds based on scientific criteria derived from up-do-date and in-depth research on a wide range of success factors. It analyses data about fund houses, fund managers, and their investment processes, then combines the results with an investor’s preferences and convictions to instantly generate a list of recommended mutual funds and ETFs.
Fund analysts can use Digital-Advisor to obtain a short-list of attractive funds which they can evaluate in greater detail with fund managers. Banks can use the plug-in within their advisory services to rapidly identify funds that best reflect the CIO’s current view and customer specific requirements. Robo-Advisors may now for the first time include active funds in their offering.
Jan Giller, Head of Marketing and Sales at ifund and fundinfo said, “Digital-Advisor is the first expert system that evaluates both active and passive funds based on many years of research and scientific evidence, then combines the results with individual investor preferences and emotional convictions. Thanks to this unique technology, funds can be selected far better than with the usual past performance-related data.”
Digital-Advisor takes advantage of years of due-diligence performed on an ongoing basis by fund experts at ifund based in Switzerland. Thousands of active and passive funds have been analysed in a highly structured manner so that their information may be systematically evaluated and scored by Digital-Advisor. By constantly monitoring the legally relevant aspects of each fund such as business scope of the fund house, ownership, legal terms, guidelines for the fund, employment of derivatives and leverage, etc., the tool also ensures that customers and advisors fulfill the regulatory requirements at all times.With Digital-Advisor, investors can invest in funds that meet specific criteria such as fund house profile, investment style, sustainability, and manager experience; the tool takes investor’s personal preferences and convictions into account. Digital-Advisor may be used as a stand-alone tool, or embedded into existing investment advisory solutions via APIs.
Aberdeen Asset Management has made a number of appointments to strengthen its global distribution platform.
John Campbell will join Aberdeen in early January as Global Head of Strategic Clients reporting to Campbell Fleming, Global Head of Distribution. His role will be focussed on how Aberdeen works even more closely with its largest clients to help them achieve their financial goals. Aberdeen has a specific programme for its largest clients and John will look to build on this strong base.
John is a well-respected financial services leader, having led the Scottish financial community through the 2008 crisis as Chairman of Scottish Financial Enterprise. He has spent the last 16 years at State Street, most recently as Business Head of Global Services UK, Middle East and Africa. John was awarded an OBE in 2008 for services to the financial services industry.
Jeff Klepacki will also join early in the New Year as Head of Distribution – Americas reporting to Bev Hendry and Campbell Fleming. The U.S. is home to half of the world’s wealth and is of strategic importance to Aberdeen. John will provide vital leadership for Aberdeen’s distribution efforts in the Americas where the Group already manages around $65 billion.
Jeff brings with him a proven 23-year track record of leadership in financial services with world class organisations including Capital Group, Delaware Investments and Allianz Global Investors.
Separately Antony John, former chief executive BNP Paribas Investment Partners/FundQuest, and Richard Pursglove, who has held senior distribution roles at a number of companies, will join on a consultancy basis to work with senior management on driving forward Aberdeen’s distribution strategy.
Campbell Fleming, Global Head of Distribution at Aberdeen Asset Management, comments: “I am delighted that Aberdeen will be able to draw on the experience and expertise of John, Jeff, Antony and Richard. It says a lot about Aberdeen that we are able to attract individuals of such high calibre. Aberdeen is one of the few global asset managers to offer such a comprehensive range of investment capabilities from equities and fixed income through to property, alternatives and multi-asset portfolios. We’ve got to map these to the specific needs of our clients. The whole team globally is going to be focussed on doing this and these new appointments will really help those efforts.”
We take a bullish long-term stance on few sectors around the world — healthcare in Asia ex Japan is one. A combination of key regional factors—including demographics, urbanization and existing infrastructure gaps—all point to sustainable growth. Additionally, the competitive position of the region’s domestic healthcare providers, including local barriers and a low cost base enable future growth in export and service outsourcing.
We believe that the long-term potential of Asia ex Japan’s healthcare sector and the competitive advantages that Asian firms enjoy over global peers portend a key long-term opportunity for investors.
Why Healthcare in Asia is primed for expansion
Asia ex Japan’s ageing population, rising urbanization and lack of medical infrastructure coupled with nascent health insurance systems provide powerful impetus for long term growth. Asia already represents 60 percent of the world population. In fact, some of the region’s countries—such as Korea, Thailand and China—have rapidly ageing demographics, which will lead to a population comprising almost 1 billion aged 65 and older in Asia by the year 2050, according to the United Nations (World Population Prospects: The 2015 Revision). We believe the demand for medicine and healthcare services in Asia ex Japan can only increase.
Rising urbanization and better living standards will also amplify healthcare demands in Asia. As countries in Asia urbanize, their GDP per capita will improve, leading to an increase in healthcare spending relative to GDP. By means of comparison, healthcare spending in relation to GDP in the US, Germany and Japan in 2014 was 17%, 11% and 10%, respectively. Asia ex Japan on the other hand, was only spending 4 – 7% of GDP on healthcare in 2014, according to the World Health Organization. As these countries converge towards the same level of economic development as the US, Germany and Japan, their healthcare spending in relation to GDP will undoubtedly advance.
Finally, existing infrastructure gaps in Asia ex Japan presents a need for investment in medical infrastructure, such as hospitals, beds, healthcare professionals and medical equipment to meet rising demand, that will spur spending in other healthcare segments. In addition, healthcare insurance is still at an early development stage in Asia ex Japan. The region is at a crucial juncture in how it provides healthcare to its citizenry and the imminent shift from out-of-pocket to public/private insurance funding will further accelerate healthcare spending.
Asian healthcare firms have a competitive advantage
We believe that Asian healthcare firms can fully capture the growth in their home market, and that some firms may even gain market share outside Asia ex Japan.
Healthcare is largely influenced by local culture, distribution and regulation. For example, understanding traditional medical treatment in countries like China is critical and not easy for non-local players. Distribution is also extremely complicated throughout the region with no one-model-fits-all solution due to the area’s geography, size, culture and languages. Also, regulations—such as the drug approval process— differ in each country and frequently change, which makes it difficult for foreign players to keep up.
In most Asia ex Japan countries, affordability remains a key issue in healthcare. The strongest and best positioned healthcare companies can leverage their lower cost structure, such as for labor, to gain an advantage over their international peers.
The Opportunity in Asia ex Japan Healthcare
Asia’s healthcare sector has retreated in 2016, largely due to a combination of temporary, cyclical factors (such as sector rotation from healthcare to energy/material) and temporary price corrections (in particular, in the India generic pharma sector). Our view is that the recent market adjustment does not undermine the fundamental long-term growth story for Asia healthcare and that the mid-to-long-term investment thesis of the sector remains intact.
As a result, we consider the drawdown in Asia ex Japan’s healthcare sector as an investment opportunity for long term investors like ourselves.
Peter heads the Asian ex-Japan equity team at Nikko AM Asia.
Pixabay CC0 Public DomainCourtesy photo. Nils Bolmstrand: New Head of Nordea Asset Management
Nordea has appointed Nils Bolmstrand new Head of Nordea Asset Management, the largest asset manager in the Nordics.
“Nils Bolmstrand is the right person to maintain the very strong momentum and development of Nordea Asset Management. He has the competencies and experience within the asset management business, and he has strong leadership and personal skills,” Snorre Storset, head of Nordea Wealth Management says.
Nils Bolmstrand, 44, comes from a position heading Nordea Life & Pensions, and he has previously held managerial positions within Nordea Asset Management and the asset management-division of Skandia and Old Mutual. He starts in his new position on January 1st, 2017.
Nordea Asset Management is year-to-date number 1 in Europe in attracting new assets and has during the last 4 consecutive years been among top 10 in Europe of best-selling asset managers. Since 2011 60 % of Nordea Asset Management-sales have been to clients outside Nordea. Nordea Asset Management has total Assets under Management at EURO 215 billion end of third quarter 2016.
Johan Nystedt has been appointed acting Head of Nordea Life & Pensions, he will retain his position as Head of the Swedish Life & Pensions-organisation during the period as acting Head.
Pixabay CC0 Public DomainPhoto: miniqueaustralia. Erste AM Appoints Head of Multi Asset Management
Erste Asset Management (Erste AM) has reorganised the Multi Asset Management department. Discretionary Portfolio Management was set up as self-contained department at the beginning of December. Mixed fund solutions for retail and institutional investors remain with Multi Asset Management. This step was decided on within the context of appointing a Head of Multi Asset Management.
Alexander Lechner, previously fund manager with Erste AM, will take over as Head of Multi Asset Management. In his new position, he will focus on umbrella fund strategies in the retail and institutional segment, and he will develop the investment processes in cooperation with Gerold Permoser. Senior fund manager Jürgen Wurzer will also join the Erste AM team, having previously worked for Macquarie Investment Management.
Thomas Bobek has been Head of Discretionary Portfolio Management (DPM) since the beginning of December. He had previously held a managerial position in asset management with Credit Suisse in Vienna, and knows ERSTE-SPARINVEST very well from his former function as Head of Equity with the institute (2003-2011). He will be in charge of the entire range of DPM solutions across borders, and he will ensure the implementation of the investment processes in all markets.
Gerold Permoser, Chief Investment Officer (CIO) of Erste AM: “By reorganising Multi Asset Management and Discretionary Portfolio Management and appointing Alexander Lechner and Thomas Bobek as department heads, we are well-positioned for the future and can develop our range of products and services in a consistent fashion.”
Pixabay CC0 Public DomainPhoto: Abdecoral. Christian Felix Joins Bolton Global Capital
Christian Felix has joined Bolton Global Capital. Felix, formerly with the Merrill Lynch office in Coral Gables, Florida, manages client assets worth more than $120 million. This latest transition continues Bolton’s success this year in converting Miami based financial advisors from the major wirehouses to the independent business model. The advisors joining the firm’s Miami office in 2016 collectively manage over $1.2 billion in client assets.
Christian Felix was born in Ecuador and began his career in 2002 with Lloyds Bank in Ecuador and was later transferred to Miami. In 2006, he moved to Santander Private Bank International as Vice President where he remained until joining Merrill Lynch in 2010 as First Vice President in the firm’s international wealth management complex. He services high net worth clients primarily from Ecuador, Colombia, Bolivia and Venezuela.
To bolster its footprint in international wealth management, Bolton recently hired Ricardo Morean, who has managed major complexes in Miami, New York and Latin America for Merrill Lynch, Wells Fargo and RBC. The firm expects continued robust growth in its business in 2017.
Pixabay CC0 Public Domain. Capital Strategies selected by Investec Asset Management for exclusive representation
Capital Strategies Partners, an independent securities firm specialising in the representation of international asset management companies in the South European and LatAm market, has been chosen by global investment manager Investec Asset Management, to be its selected independent distribution partner in Spain, Portugal and Andorra.
Investec Asset Management is a specialist provider of active investment products and services to institutional and individual investors. Established in South Africa in 1991, the firm has been built from a small start-up into a successful international business, now managing over 117 billion dollars.
The firm provides investment solutions to clients across a range of global and emerging market asset classes. This global approach, combined with a footprint in both emerging and developed markets, has characterised the evolution of Investec Asset Management’s strategies.
Capital Strategies Partners has a 16-year track record of representing international asset management companies, interested in further developing the markets in which they operate. According to Daniel Rubio, CEO of Capital Strategies, “The launch of Investec Asset Management in Spain provides investors with access to a new suite of successful global, regional and especially emerging market solutions”. He also stated that Investec’s investment philosophies include “intelligent” diversification metrics and bottom-up security selection, which provide a framework for portfolios, and which may help to support more attractive risk / return characteristics for investors.
Stef Bogaars, Head of the Europe Client Group at Investec Asset Management said, ‘This partnership is exciting to us as it allows us to offer a broad range of investment solutions to a new and sophisticated investor base. We look forward to working with a firm that is able to provide the highest standard of client services alongside insight and access in this market.’
Pixabay CC0 Public DomainVincent Taupin . Vincent Taupin, New Global Head of Edmond de Rothschild Asset Management
Edmond de Rothschild Group, the wealth and investment manager, announced that Vincent Taupin will assume global responsibility for Edmond de Rothschild Asset Management with effect from 1 January 2017, alongside his existing role as President du Directoire of Edmond de Rothschild France. This follows Roderick Munsters’ decision to resign from his role as Head of Edmond de Rothschild Asset Management for personal reasons. However, he will continue to contribute to the Group by joining the board of Edmond de Rothschild Asset Management (France).
Commenting on his departure, Roderick Munsters said, “In a short but exciting period at Edmond de Rothschild, I have been able to review and prepare a new and integrated asset management strategy. I have reluctantly taken the decision to step down and to return to the Netherlands.”
Ariane de Rothschild, Chairwoman of the Group Executive Committee, commented, “I fully understand the reasons for Roderick’s decision to step down from his leadership role in Edmond de Rothschild Asset Management, and wish him all the best for the future. I have asked Vincent Taupin to assume responsibility for the asset management business alongside his existing French Private Banking role, as I believe that now is the right time to accelerate the convergence of our expertise, businesses and geographies. This is what our clients expect from a leading investment house.”
Commenting on his new responsibilities, Vincent Taupin said, “I am very much looking forward to taking on this additional responsibility, having worked closely with Roderick over the last six months.”
In related promotions, it was also announced today that Renzo Evangelista and Stéphane Pardini have been appointed Deputy Directors in the French Private Bank. In addition, Didier Deléage has been appointed CEO of Edmond de Rothschild Asset Management (France).
Commenting on these promotions, Ariane de Rothschild said, “I am proud to be able to strengthen the management team by nominating colleagues from within our excellent talent pool. I congratulate them and wish them success in their new roles.”
Pixabay CC0 Public Domain. Riding the S Curve of Creative Disruption
The S-curve, which shows the growth trajectory of a company creating a new product or even a new industry can be an ally or enemy for investors. Find such a company toward the front end of the S curve and you could potentially own the stock through its explosive growth period. Invest at the top of the S curve, and you’ve missed much of the growth. It’s at that point – when most of their growth is behind them – that many companies graduate to the larger stock indexes. Skilled active managers try to find these companies much earlier on in the curve, with an eye toward tapping greater growth potential.
Consider the adoption of the personal computer in the 1980s and 1990s, which started slowly when they were cumbersome and expensive. But once PCs became easier to use in the early 1990s and allowed multi-tasking, prices fell sharply and soon they were on virtually every desktop within major corporations. Retail prices fell further, bringing the PC within reach of the home user. The introduction of the web browser in the mid-90s suddenly unleashed a wave of demand for computers, software and related products that culminated in the dotcom bubble which burst so memorably in the spring of 2000. Eventually the market for personal computers matured and became saturated. They became a low-margin, commodity product with little to differentiate one from another.
Personal computers spawned an industry which has had unprecedented impacts on many aspects of society, including the way we work, learn and consume content. The ripple effects of the PC revolution continue to be felt, even as the devices themselves evolve.
Under such creative disruption scenarios, the investment opportunity for skilled active managers comes from: 1) understanding where a company is in its growth trajectory along with key drivers of growth in a given industry and 2) an ability to reassess as the market matures. Are we in the early adoption or infancy phase, where there is great potential but the need for patience? Are we in the expansion phase where growth accelerates almost vertically? Or the maturity phase, where competitors flood the market, the product becomes commoditized and margins compress?
As history has shown, these cycles repeat. In recent years the smart phone has displaced the personal computer. Instead of storing data on floppy disks, we now store it in the cloud. Instead of consuming entertainment content at home on a television, increasingly we consume more of it on the go on a mobile device. Creative disruption is a never-ending process, creating opportunity and risk at every turn. Having an integrated research platform helps a skilled manager identify the opportunities and the risks and make decisions accordingly.
The market is a discounting mechanism of all available information. What we do as managers is to try and determine what the market has discounted and whether it’s correct. Our goal is to recognize a trend or an undervalued asset and risk-weight that asset appropriately. Having diverse points of view across the organization — in terms of exploring opportunities from both a fundamental and quantitative perspective, across geographies and from analysts in different sectors—can all play a role in creating better investment decisions, and hopefully better outcomes.
A collaborative culture and an integrated research platform can help skilled managers understand the ripple-effects created by disruptive new technologies. Teams of talented managers and analysts are better positioned to think-through the ramifications on a global scale than those focused strictly on the technology or product itself. For instance, would a new technology, such as electronic payment methods be adopted more rapidly in developed markets owing to an infrastructure advantage, creating opportunities for incumbent technologies to gain market share in less developed markets? This is the type of issue where a skilled active manager who cross-pollinates ideas across disciplines and stress-tests assumptions among investment team members would hope to stay ahead of the curve.
Robert M. Almeida, Jr. is MFS Institutional Portfolio Manager.
