LatAm archivos - Page 188 of 221

How Have Markets Responded To The European Central Bank’s Corporate Sector Purchase Programme?

CC-BY-SA-2.0, FlickrFoto: Gideon Benari. Los precavidos inversores de renta fija europea podrían estar sacrificando el rendimiento

Tom Ross, Co-Manager of the Henderson Horizon Euro Corporate Bond Fund, and Vicky Browne, Fixed Income Analyst, look at the impact of the European Central Bank’s corporate sector purchase programme (CSPP).

What is the CSPP?

The corporate sector purchase programme (or CSPP as it is commonly known) was established by the European Central Bank (ECB) and began purchasing bonds on 8 June 2016. The CSPP is a form of monetary policy, which aims to help inflation rates return to levels below, but close to, 2% in the medium term and improve the financing conditions of economies within the Eurozone.

Purchases can be made in both the primary and secondary market. By the end of July 2016 – eight weeks into the programme – secondary market purchases formed 94% of purchases with only 6% being made in the primary market according to data from the ECB.

Which bonds are eligible for purchase?

Bonds purchasable under the scheme must be investment-grade euro-denominated bonds issued by non-bank corporations established (or incorporated) in the euro area. In assessing the eligibility of an issuer, the ECB will consider where the issuer is established rather than the ultimate parent. Thus an issuer incorporated in the Euro area, but whose ultimate parent company is not established in the Euro area, such as Unilever, is deemed eligible for purchase.

How have markets responded to CSPP so far?

To date the ECB has bought 478 bonds totalling approximately €11.85bn from 165 issuers (UniCredit as of 27 July 2016). The list of these bonds (but not the quantities purchased) is available on the websites of the national central banks performing the buying. Analysing these holdings would suggest that, on an industry sector basis, considerable CSPP purchasing has occurred in utilities and consumer non-cyclicals.

In June non-financial credit spreads initially responded positively to the CSPP purchases. However, excess credit returns over the month (returns over equivalent government bonds) detracted from total returns as market volatility increased as a result of the UK voting to leave the EU. Concerns surrounding the vote led to a temporary pull-back in demand for credit and this negative headwind overpowered the positive technical effect from CSPP.

July proved to be a stronger month for credit market performance. The European investment grade market – as measured by the BofA Merrill Lynch Euro Corporate Index – delivered a total return of +1.68% in July in euro terms and excess credit returns of +1.61% (source: Bloomberg at 31 July 2016). Undoubtedly, these positive movements have been partly driven by CSPP purchases as illustrated by the graph below. It reveals how spread performance – a declining spread indicates stronger returns – of the iBoxx Euro Corporate Index has been more pronounced in eligible bonds than non-eligible or senior bank assets.

Enlarge

However July’s returns are not just attributable to the technical support provided by the CSPP. An improvement in market sentiment driven by reduced fears about Brexit, together with a rise in flows into bond funds, has helped to increase demand for the asset class at a time when there is a lack of European investment grade supply.

How has the fund benefited from CSPP?

The Henderson Horizon Euro Corporate Bond Fund was positioned long credit and duration risk versus the index throughout June. Although the fund still trades with a long beta bias we have lowered risk levels over the past few weeks by reducing exposure to positions that have benefited from the recent rally in credit markets. Examples of these are euro-denominated bonds from utility companies Centrica and Redexis Gas, and US real estate investment trust WP Carey.

In July, the fund added to positions from CSPP-eligible issuers on a name-specific basis such as Aroundtown Property, Telenor and RELX Group. Exposure has not just been increased in CSPP-eligible issues but also in companies we favour that are not incorporated in the euro area, such as US names AT&T (in EUR) and Comcast and CVS Health (in USD). The CSPP technical has also been apparent in the primary market. The fund benefited in July from participating in a euro- denominated new issue from Deutsche Bahn, which has performed strongly post issuance. Positive fund performance has also come from a new issue from Teva Pharmaceuticals, which has seen solid demand since coming to the market.

While CSPP should help to provide technical support to European investment grade corporates, there exist several uncertainties in the market – such as the October referendum in Italy and instability in commodity prices – that could cause weakness to arise. We therefore continue to look to reduce risk into further strength while seeking to take advantage of any attractive opportunities presented by volatility or weakness.

What are the Key Dates for Investors During the Rest of 2016

| For Fórmate a Fondo | 0 Comentarios

CC-BY-SA-2.0, FlickrFoto: Dafne Cholet. Qué esperar del último trimestre del año en los mercados

The summer, while investors turned their attention to the Democratic National Convention in Philadelphia, the Republican National Convention in Cleveland, the Olympics in Brazil trading has been light.

But what can be expected for the rest of the year? According to Edward J. Perkin, Chief Equity Investment Officer at Eaton Vance Management, “the second half of the year is chock full of likely market catalysts, including potential Brexit fallout, the upcoming presidential election, Fed meetings and more. Against this uncertain backdrop, we continue to believe that equity investors should remain focused and opportunistic.”

For the specialist these are the dates to keep in mind:

September

September is likely to be a busy month. Post-Labor Day is when many voters will begin to pay close attention to the presidential election. Having skipped August, the Fed will meet again on September 21 to make a decision on rates.

There are also a large number of industry conferences, where company management teams will give updates on their businesses. One of these, the “Back to School” conference, held each year in Boston, involves the largest consumer companies.

September is also important in that it is the third month of the quarter. Many companies have “blackout” periods in the final weeks of each quarter and into the early part of the next quarter, when they report earnings. During these blackout periods, companies suspend their share buyback programs in order to avoid accusations of trading on material, nonpublic information. Given how important corporate buybacks have become to the market, this temporary removal of demand for equities has coincided with several of the market’s pullbacks in the past two years.

October

Like July, October is a busy month for corporate earnings releases. With three quarters of the year complete, companies and investors will begin to think about 2017 and the trajectory of earnings into the approaching year. We will likely have a presidential debate in October, perhaps the only debate of this cycle. Television ratings may well set records.

November 8 – Election Day

At the November 2 Fed meeting, Janet Yellen and her colleagues are likely to take no action in order to avoid roiling markets six days prior to Election Day. We expect the market to be focused on the election throughout the summer and into autumn. If the likely result appears clear, Election Day may not produce much of a market reaction. Regardless of who wins the presidency, the equity market may prefer to see the same party capture the House of Representatives and the Senate. The reasoning would be that a new president will be more effective if he/she has the support of Congress.

Under either party, increased fiscal stimulus in 2017 seems likely. This could include corporate tax reform (lowering rates, reducing deductions and encouraging companies to repatriate overseas cash) and an infrastructure spending bill. If modest regulatory relief is also part of the agenda, then the economic outlook for 2017 may be stronger than many currently believe.

November 30 – OPEC meeting in Vienna

OPEC typically meets twice a year, with its next meeting to be held six days after Thanksgiving. At its November 2014 meeting, OPEC surprised global oil markets by maintaining an elevated level of production, which exacerbated the already-falling price of crude. “We expect supply and demand to continue to rebalance between now and the end of 2016. A production cut at the November meeting would be supportive of oil prices, but is unlikely, in our view.” He notes.

December 14 – Final Fed meeting of 2016

In December 2015, the Fed raised the federal funds rate by 0.25%, which led, in part, to market volatility in early 2016. The expectation at the beginning of 2016 was that the Fed had embarked on a path to normalize the level of interest rates. In the first half of the year, however, the Fed failed to follow through with further rate increases. The market has begun to doubt the Fed’s will: At around midyear, the implied probability of a rate increase on or before the December 14 meeting stood at less than 11%.

December is also the month when many investors choose to conduct tax loss harvesting, selling losers in their portfolios to take advantage of the tax benefit that comes from booking the loss before the end of the year. This activity sometimes puts further pressure on stocks that have performed poorly earlier in the year.

Stay focused and opportunistic

The second half of 2016 is full of potential catalysts – including not only the specter of further Brexit turmoil, but also Fed meetings, a presidential election, corporate earnings and incoming economic data. There will likely be a few surprises along the way. “In our equity portfolios at Eaton Vance, we are staying focused on the long-term prospects of our holdings and will look to take advantage of any opportunities thrown our way by the uncertainty of these events.” He concludes.

Late Summer / Late Cycle

| For Fórmate a Fondo | 0 Comentarios

Final de verano, final de ciclo — CC-BY-SA-2.0, FlickrPhoto: Jorge Elías . Late Summer / Late Cycle

Here in Boston, cooler nights and unwelcome back-to-school advertisements tell us summer is beginning to draw to a close and autumn is approaching. Like seasons, business cycles often signal their coming demise.

One thing that recurs with greater regularity during the last phases of business cycles is a scramble by companies to purchase competitors. Corporate acquisitions have been rising and are now near peaks seen in other cycles. Late in the cycle, companies often see flagging internal rates of growth and seek to boost growth through mergers and acquisitions. Historically, companies often overpay for such acquisitions late in the cycle. We’re seeing that now with widespread takeovers and significantly higher premia in prices paid.

Another signal of changing cycle dynamics is the profit share of the economy. The share of gross domestic product going to the owners of capital in the form of net profits often dips in the final 12 months of a cycle. The United States is now experiencing the third quarter of such profit deterioration as the owners’ share of the expansion starts flowing to other parts of the economy, rather than to profit gathering.

Late in the cycle, companies often seek to add debt to their balance sheets in order to boost profit growth. Frequently, this results in a broad scale deterioration of credit quality, which is subsequently made worse by the onset of recession. US consumers also tend to add debt to their collective balance sheets in the late phases of a cycle. And indeed we see that the borrowing of both corporations and consumers, which has been comparatively subdued in this cycle, is now starting to rise.

Signs not totally aligned

Not all the usual signs of recession are present now in the US. Some typical late-cycle signs have yet to appear, and this should cheer investors. Typically the shape of the yield curve becomes distorted in the late months of a cycle as short-term rates rise above long-term rates, reflecting market expectations of subdued growth ahead. We’ve seen a flattening of the yield curve in this eighth year of the cycle, but not an inversion of yields, as short rates remain slightly lower than long rates.

Another late cycle characteristic is widespread fear of inflation taking hold and accelerating. The US Federal Reserve often acts to forestall inflation pressures by raising short-term rates, which can slow the economy’s momentum. So far, signs of gathering inflation pressures are scant, but worth watching. As our regular readers know, there are currently no signs that the Fed is about to act aggressively to prevent an inflation spiral.

As long-term investors, we know that fundamentals matter most. In this cycle we’ve seen profit margins hit near-record levels. Likewise, operating income compared to revenues and free cash flow compared to market capitalization have been consistently high for over six years. The return on equity of companies in the major US indices has been outstanding.

Fundamental shift

But in the past three quarters, margins and profits of US companies have been pressured, and not just by weak energy prices. Cost pressures in other sectors have appeared as rising general and administrative expenses and weak sales growth combine to trim profits. That environment makes it harder to grow profits than was the case in the first six years of the business cycle. Worryingly, this shift comes at a time when the S&P 500 price/earnings ratio has reached over 18 times expected 12 month forward earnings, a valuation measure which lies on the high side of history.

Despite the arrival of back-to-school ads in early August, and the return of neighborhood youth to US college campuses later in the month, we can choose to shrug off the passing of summer and instead relish the last warm sunny days. But the evening breezes now bring a chill to the air that we didn’t feel in June or July — a chill that should not be ignored. What we find most concerning is that late in the cycle, market behavior often seems to be propelled more by hope than fundamentals. Maybe that is happening today, as market averages for both large and small caps rise while revenues, margins and profits continue to diminish. It may be comforting to look the other way and pretend the days will remain warm and bright. But investors keen to hold on to their wealth should not let the hope of catching the final gains of the cycle keep them hanging on too long.

A Secure Retirement is Not Only a Fundamental Need for Mexicans, but Also Their Own Responsibility

| For Gabriela Huerta | 0 Comentarios

Un retiro digno no solo es una necesidad fundamental de las personas sino cada vez más su propia responsabilidad — CC-BY-SA-2.0, FlickrPhoto: Ken Teegardin. A Secure Retirement is Not Only a Fundamental Need for Mexicans, but Also Their Own Responsibility

Mexicans today seem to be aware of the challenge they face for their future: 89% of them agrees that their own retirement funding is increasingly their own responsibility, according to the conclusions of Natixis Global Asset Management’s Global Retirement Index 2016, with Mexico ranking 35th in a list of 43 countries.

As the responsibility to finance retirement transfers from governments and employers to people, the need to increase contributions to savings becomes imperative. We believe voluntary contribution via the Afore account can be one of the best alternatives. By defining a savings plan for retirement, financial advisors may provide an added value to workers, with clear ideas and information on how to be better prepared for retirement.

“The pension system coverage in Mexico is still a challenge, and achieving security in retirement may still be difficult, although a possible goal if all the stakeholders — policymakers, employers and workers – contribute”, said Mauricio Giordano, Country Manager, Natixis Global Asset Management México, at the 1st National Afore Convention.
According to Giordano, the following 5 principles are a good starting point for a successful retirement plan:

Define the spending needs in retirement: both advisors and workers should honestly assess their spending needs at the time of retiring, keeping in mind priorities such as mortgage or rent, healthcare, family, insurance and taxes. The lifestyle preferences such as travels, clubs and hobbies should also be considered.
Match your retirement funds with your expenses: The key challenges to plan for retirement is how to finance expenses short and long term. Dividing financial commitments in mandatory and optional may help simplify the process to prioritize the spending patterns. The main goal for financial advisors and clients is to continuously and sustainably match funds with spending needs. Resources may include income from investment, social security, pensions and other sources.
Plan for new risks in retirement: The fear to lose money is one of the biggest challenges for workers who save for their pension. This may make investment decisions difficult. Besides considering the traditional risks, retirement plans must consider additional risks such as longevity and inflation.
Minimize fiscal impact: in case an investment portfolio is a main source of cash flow, it is essential to have an effective fiscal strategy. Financial advisors and their clients may resort to a tax professional to ensure an optimum fiscal efficiency.
Commitment and Flexibility: Both for advisors and clients, establishing a plan to fund retirement and financial goals in retirement is a continuous process. It requires flexibility to adapt to changes in the interests and unexpected events such as healthcare issues or long term security. The most effective plans to finance retirement have the capacity to adjust to lifestyle changes.

“Our research shows clear findings: in those countries providing more security to their retirees, the government, employers and specialized investment firms offer incentives and innovative solutions so that workers have the tools they need to save for retirement,” concluded Giordano.

You can read the full report in the following link.

India: Strength in Numbers

| For Fórmate a Fondo | 0 Comentarios

India: la fortaleza de la demografía — CC-BY-SA-2.0, FlickrPhoto: Bo Jayatilaka. India: Strength in Numbers

Asia is home to about 60% of humanity. With 1.3 billion people, China has demonstrated over the last three decades how an economic miracle can be created by productively employing such masses. It moved millions of people from a rural low productivity, agrarian economy to a more productive industrial and urban economy, thereby radically lifting its economic standards. In 1990, more than 60% of the Chinese population was below the poverty line but by 2015 that proportion was less than 4%. India and the ASEAN (Association of Southeast Asian Nations) economic bloc maintain a similar strength in numbers with populations of over 1.2 billion and 650 million, respectively.

India’s case is particularly unique. Estimates suggest India will add over 115 million people to the global labor force in the next 10 years, and then an additional 100 million over the following decade. By some estimates, this means that India will add more people to the global labor force than the rest of the world combined, excluding Africa. This has significant macroeconomic implications not only for the country, the region and the world, but it should also create opportunities for investors.

Ampliar

A paramount challenge for India is effectively employing these millions and generating strength from numbers rather than merely allowing resources to become constrained by rapid population growth. The need for sustainably high GDP growth to generate new jobs is not a debatable topic. The debates center around whether India is doing enough and whether it is on the right path. India went through liberalization in 1991. And since then, the country has seen significant benefits as GDP growth moved from low single digits (3.5% from 1950-1980) to high single digits. There remains much criticism, however, that government reforms around land, labor and taxation have not been completed. But over the last two years, there have been several government efforts that are worth highlighting.

Bankruptcy Law: More Power to Banks

A structural factor to India’s banking woes has been the lack of a bankruptcy code, which distorts the system. “If a loan goes bad in India then the promoter (owner of the business) tells the bankers that he’ll see them in court and will keep seeing them in court for the next decade,” noted Indian central bank Governor Raghuram Rajan. This is aptly summarized given that politically well-connected promoters historically have not lost ownership of the asset even when loans have gone bad. Recovery takes much longer (more than four years versus less than two years in the U.S.) and recovery rates are dismal (25% versus 80% in the U.S.).

Recently passed insolvency and bankruptcy legislation, however, could critically revamp the current system by superseding existing laws, reversing the balance-of-power in favor of banks (i.e. promoters run the risk of losing their assets), and providing transparent and shorter time-bound resolution guidelines. The new law should remove willful defaulters from the system and prevent nonperforming loans (NPLs) from significantly jamming the banking system. Improving the efficiency of capital utilization is important in supporting entrepreneurs, and thereby helping job creation.

Inclusion for “Unplugged India”

When investors see India’s major urban areas, they see a lot of people but that does not describe the real story behind Indian demographics. Many in India still live in villages, rely on agriculture as their primary means of livelihood (about 65% of the population) and feel largely unconnected with the urban ecosystem. India cannot move forward without including this significant majority, or in other words, if included, the country should be able to produce tremendous national growth.

Much progress has been made over the last two decades in connecting “unplugged India” by improving and adding to its roadways and electricity grids. “All weather” roads have moved from fewer than 50,000 kilometers to over 450,000 kilometers; households with electricity have jumped from about 44% to more than 70%. These simple projects have provided a significant productivity boost to SMEs in India’s smaller towns.

In 2014, Prime Minister Narendra Modi launched a plan for comprehensive financial inclusion for all Indian households. This plan has added more than 175 million banking accounts to the existing 400 million over just two years. In India, consumer companies have been known to do well selling products in individual-sized “sachets” versus typical product sizes for such things as toothpaste or shampoo. In this way, this “sachetization” of the banking system over time will help broader access and increase participation in the financial system, leading to more efficient savings, credit availability for business, increase in investments, and hence, job creation.

Governance: a Prerequisite to Development

India ranks very poorly in terms of ease of doing business (130 out of 189 countries). Hence, the current ecosystem seems inadequate for the creation of enough new jobs to employ the millions expected to join the labor force. The numerous reasons for this poor ranking include layers of bureaucracy and corruption. In my view, improvements in governance are a precursor to improvements in physical infrastructure.

In May 2015, the government also passed the Black Money Act, which made ownership of illegal money a criminal offense. Some say it is an overly aggressive remedy, but necessary medication. The government also implemented a biometric check-in and check-out system for their officials, notorious for being missing-in-action while still being employed. Other improvements include the relaxation of certain rules for SMEs in order to promote a “start-up culture.”

Glass Half Full

Central bank Governor Raghuram Rajan’s announcement that he will not seek an extension to his term has created some anxiety. While some angst may be justified, I believe there is evidence that progress is in motion at various levels to improve the economic landscape. It should also be noted that the average length of tenure for the Reserve Bank of India (RBI) governor position has generally been shorter than that of Western countries. Already during Rajan’s term, he adopted an inflation-targeting framework, worked in conjunction with the Ministry of Finance to help resolve nonperforming assets in PBSs and set up a new Monetary Policy Committee as part of an institutional framework. These changes will become part of his legacy. The RBI has long been hailed as an institute of high repute in India, and should remain so even after his term.

Stepping back from the nuances of individual events, overall, I am impressed at the amount of activity and clear intentions by key officials in resolving the myriad of challenges at hand. Don’t get me wrong, there is still a long way for policy makers to go but some credit is due to them. India has a high cost of capital, hence, freeing up capital from dead physical assets, improving the allocation of that capital by an improved banking system and providing a higher governance environment for entrepreneurial talent in SMEs, will go a long way in delivering the strength of demographics. I hope that policy makers continue their good work and continue to take on the challenge of tough reforms to satisfy the need to create more jobs. Entrepreneurial businesses out of this fertile landscape would be good investment candidates for us.

At Matthews Asia, our investments are not based on macroeconomic projections or policy changes. That said, we still do try to understand the implications of the actions of key policymakers for our economies and businesses in the region. For us, macroeconomic understanding is not about predicting GDP, interest rates, and/or currency changes, but more about socioeconomic developments related to the social fabric of Asian societies. I look at these broader developments through that lens while seeking quality businesses and management teams.

Column by Mathews Asia written by Rahul Gupta, Senior Research Analyst and Portfolio Manager at Matthews Asia

AUM in the Global Investment Funds Market Grew US$1.1 Trillion in July

| For Fórmate a Fondo | 0 Comentarios

El mercado global de fondos de inversión creció en 1,1 billones de dólares en el mes de julio — CC-BY-SA-2.0, FlickrPhoto: Jose Gutierrez. AUM in the Global Investment Funds Market Grew US$1.1 Trillion in July

According to the Global Fund Market Statistics Report, written by Otto Christian Kober, Global Head of Methodology at Thomson Reuters Lipper, assets under management in the global collective investment funds market grew US$1.1 trillion (+3.0%) for July and stood at US$37.1 trillion at the end of the month.

Estimated net inflows accounted for US$107.7 billion, while US$967.3 billion was added because of the positively performing markets. On a year-to-date basis assets increased US$2.1 trillion (+6.1%). Included in the overall year-to-date asset change figure were US$123.9 billion of estimated net inflows. Compared to a year ago, assets increased US$1.1 trillion (+2.9%). Included in the overall one-year asset change figure were US$478.9 billion of estimated net inflows. The average overall return in U.S.-dollar terms was a positive 3.0% at the end of the reporting month, outperforming the 12-month moving average return by 3.0 percentage points and outperforming the 36-month moving average return by 2.9 percentage points.

Ampliar

Fund Market by Asset Type, July

Most of the net new money for July was attracted by bond funds, accounting for US$77.6 billion, followed by money market funds and commodity funds, with US$47.7 billion and US$3.3 billion of net inflows, respectively. Equity funds, with a negative US$19.4 billion, were at the bottom of the table for July, bettered by “other” funds and real estate funds, with US$4.5 billion of net outflows and US$0.3 billion of net inflows, respectively. The best performing funds for the month were equity funds at 4.6%, followed by “other” funds and mixed-asset funds, with 4.3% and 2.5% returns on average. Commodity funds at negative 1.3% bottom-performed, bettered by real estate funds and money market funds, with a positive 0.2% and a positive 0.3%, respectively.

Ampliar

Fund Market by Asset Type, Year to Date

In a year-to-date perspective most of the net new money was attracted by bond funds, accounting for US$279.3 billion, followed by commodity funds and alternatives funds, with US$26.0 billion and US$9.1 billion of net inflows, respectively. Equity funds were at the bottom of the table with a negative US$110.9 billion, bettered by mixed-asset funds and money market funds, with US$51.4 billion and US$38.2 billion of net outflows. The best performing funds year-to-date were commodity funds at 12.1%, followed by mixed-asset funds and bond funds, both with 7.2% returns on average. Alternatives funds, with a positive 1.3% was the bottom-performing, bettered by money market funds and “other” funds, with a positive 1.9% and a positive 5.1%, respectively.

You can read the report in the following link.

Schroders US Strengthens Credit Team with Three Key Hires

| For Fórmate a Fondo | 0 Comentarios

Schroders refuerza su equipo de crédito estadounidense con tres fichajes estratégicos — CC-BY-SA-2.0, FlickrDavid Knutson, Eric Skelton and Chris Eger . Schroders US Strengthens Credit Team with Three Key Hires

Schroders has announced three senior appointments in the US to underpin the strong growth of its US fixed income business.

David Knutson has joined the US Credit team as Head of Credit Research – Americas. He will be based in New York and report into Wes Sparks, Head of US Credit. David will be covering large US banks. David brings almost 25 years of research experience to Schroders; he joins from Legal and General Investment Management America, where he had been a Senior Analyst in Fixed Income Research for ten years. Prior to this, David spent three years as Director of Fixed Income Research at Mason Street Advisors and seven years working in Credit Research and Debt Capital Markets at UBS. David replaces Jack Davis who transitions internally into a Senior Analyst role.

Eric Skelton joined the Global Fixed Income and FX trading team as US Credit trader for US investment grade credit, based in New York. He will report into Gregg Moore, Head of Trading, Americas and will work closely with US Credit Portfolio Managers, Rick Rezek and Ryan Mostafa and the rest of the US Fixed Income trading desk. Eric Skelton joins Schroders from Achievement Asset Management (formerly Peak6 Advisors), where he was a Credit Trader. Prior to joining Achievement Asset Management in 2014, Eric spent three years at Nuveen Investments.

Chris Eger joins the US Credit team in a newly created role as Portfolio Manager, reporting to Wes Sparks. Chris is based in the New York office. He joins Schroders with 14 years of experience in Investment Grade – in both Trading and Portfolio Management capacities. He joins from J.P. Morgan Chase, where he held the role of Executive Director – Credit Trader, Investment Grade Domestic and Yankee Banks. Prior to joining J.P. Morgan in 2007, Chris spent five years at AIG Global Investment Group where he held two Vice President positions, firstly as a Credit Trader and then as a Total Return Portfolio Manager.

Karl Dasher, CEO North America & Co-Head of Fixed Income at Schroders, said: “Investors globally are increasingly attracted to US credit markets in the search for yield and we have been beneficiaries of that trend. To support continued client demand and process evolution, we have made three strategic hires. These additions will further strengthen our in-house research and execution capabilities in the USD credit domain.”

US Engine of Dividend Growth Slows Markedly, While Europe Picks up the Pace

| For Fórmate a Fondo | 0 Comentarios

El motor estadounidense del crecimiento de dividendos se frena notablemente mientras Europa recupera terreno — CC-BY-SA-2.0, Flickr. US Engine of Dividend Growth Slows Markedly, While Europe Picks up the Pace

Global dividend growth slowed in the second quarter, according to the latest Henderson Global Dividend Index. Underlying dividend growth, which strips out exchange rate movements and other lesser factors, was 1.2%. This is slower than the 3.1% underlying growth seen in the first quarter, partly reflecting Q2 seasonal patterns that give greater weight to slower growing parts of the world, and partly owing to a more muted performance from the US.

US payouts rose 3.1% on a headline basis to $101.7bn, equivalent to an underlying increase of 4.6%. This was the slowest rate of growth since 2013, reflecting subdued profit growth in the US, partly due to the impact of a strong dollar. The slowdown in the US began late last year but should be considered a normalisation to more sustainable levels of dividend growth after several quarters of double digit increases.

Income investors turn their attention to Europe in the second quarter. Two-thirds of the region’s dividends are paid in Q2, making it comfortably the largest contributor to the global total. European dividends (excluding the UK) rose 1.1% year on year in headline terms*, but on an underlying basis were an encouraging 4.1% higher. European dividends of $140.2bn made up two-fifths of the global second-quarter total. They were 1.1% higher than Q2 2015 on a headline basis. Underlying growth was an impressive 4.1%, once lower special dividends, particularly in France and Denmark, as well as other lesser factors were taken into account.

The Netherlands and France enjoyed the second and third fastest growth rate in the world, while German growth was hit by big cuts from Volkswagen and Deutsche Bank; Austria, Spain and Belgium also lagged behind.

In Japan, headline growth was 28.8%, with payouts totalling $30.8bn. Two thirds of this increase was down to the currency, with positive index changes accounting for the rest. In underlying terms, therefore, dividends were 0.8% lower, as company earnings were depressed by the strong yen, and as economic confidence in Japan weakened.

It was a challenging quarter for emerging markets. Dividends fell over a quarter on a headline basis to $22.9bn, as weaker currencies and index changes took their toll. Adjusting for these factors, payouts fell 18.8% in underlying terms, with a large number of countries, including the big four BRICs, seeing underlying declines.

The second half of the year is likely to be weaker than the first, partly because seasonal patterns means the emphasis shifts slightly towards those parts of the world where dividends are growing more slowly, like emerging markets, Australia, and the UK. Owing to the changes in the latest quarter, the Henderson’s team has reduced their forecast for the full year to $1.16 trillion, down from $1.18 trillion. This is equivalent to a headline expansion of 1.1%, or 1.4% on an underlying basis.

“We can see how more muted profit expansion, partly owing to stronger currencies, has slowed dividend growth in Japan and the US. In emerging markets, payout cuts have been greater than we expected so far this year as well. Europe remains broadly positive, in line with our expectations. The weak spots we have seen have been company-driven, or owing to specific sector trends like the impact of lower commodity prices, rather than related to wider economic difficulties. The slowdown in the US began late last year but should be considered a normalisation to more sustainable levels of dividend growth after several quarters of double digit increases.” Said Alex Crooke, Head of Global Equity Income.

Since the UK’s decision to leave the EU at the end of June, the pound has fallen further on the foreign exchange markets, extending a descent that began in the months running up to the referendum. However, a number of large international UK companies pay their dividends in dollars, so, according to Crooke, the impact will be less severe than the pound’s devaluation might suggest. In addition, the UK only accounts for around only 10% of global dividends so the effect on the global total is likely to be relatively small.

80% of Institutional Investors to Increase or Maintain Exposure to Real Estate Over the Next Two Years

| For Fórmate a Fondo | 0 Comentarios

El 80% de los inversores institucionales aumentarán su exposición al mercado inmobiliario en los próximos dos años — CC-BY-SA-2.0, FlickrPhoto: d26b73. 80% of Institutional Investors to Increase or Maintain Exposure to Real Estate Over the Next Two Years

Approximately four in five (80%) institutional investors plan to increase or maintain their exposure to real estate over the next two years, according to a new study by Aquila Capital. With 38% of respondents feeling ‘positive’ or ‘very positive’ about the outlook for the asset class, the research suggests that institutional investor demand for European real estate shows few signs of abating.

Overall, 87% of institutional investors currently invest in real estate, with their average exposure equating to 11% of their portfolio. 58% of investors have exposure to a core real estate investment strategy with a third (33%) holding core-plus assets. 27% and 16% of respondents are invested in value-added and opportunistic strategies respectively.

Despite their enthusiasm, investors have a number of concerns about the outlook for European real estate: nearly half (47%) are worried by the impact of continued economic uncertainty while 43% think assets are at, or are close to, being fully priced. Around a third (31%) flagged falling yields in prime markets while 22% cited uncertain geopolitics and the threat of terrorism as being problematic.

The real estate investment vehicles most favoured by institutional investors include: collective funds (39%), specialist investment funds (35%) direct ownership (23%) and fund-of-funds (23%).

Rolf Zarnekow, Head of Real Estate at Aquila Capital, said: “Institutional investor demand for European real estate remains extremely strong and we are likely to see increasing amounts of new capital allocated to this asset class given the risk-adjusted returns it can offer.

“In our view, the Spanish residential sector currently offers a significant investment opportunity. We began investing in the Spanish property market two years ago and continue to see a significant increase in demand from international investors seeking to gain exposure to prime residential assets in key cities such as Madrid and Barcelona.”

The findings follow Aquila Capital’s recent launch of a new real estate strategy for institutional investors that invests in the reinvigoration of the Spanish residential property market. The strategy focuses on the construction of residential housing complexes and the conversion of existing properties to residential real estate in the metropolitan regions of Spain. Aquila Capital has already made a number of acquisitions and has a significant pipeline of further opportunities in this sector. The strategy targets a total return of 155% to 175% after local taxes and costs by the end of its investment term in 2019.

According to the research, almost 82% of investors are positive or neutral about the prospects for the Spanish real estate market and one in three respondents (31%) expects to see increasing numbers of institutional investors capitalising on the opportunities offered by the sector over the next two years.

Roman Rosslenbroich, CEO and Co-Founder of Aquila Capital, added: “We are delighted by the interest that our investment strategy has generated among investors and look forward to deploying newly raised-capital across a range of residential schemes that offer tremendous potential for capital appreciation.”

Ampliar

Stressed? A Low Volatility Strategy May Help

| For Fórmate a Fondo | 0 Comentarios

¿Estresado? Una estrategia de baja volatilidad puede ayudarle a conciliar el sueño — CC-BY-SA-2.0, FlickrPhoto: Ben Sutherland . Stressed? A Low Volatility Strategy May Help

Investing means taking calculated risks, but nobody should have to lose sleep over it. If your portfolio is keeping you up nights, it may be time to consider a low-volatility strategy.

No matter what country they call home, investors who need their portfolios to generate steady income know they have to take some risk to get returns. But markets have grown more volatile and less predictable this year, and high-income assets are usually the first to sell off when sentiment sours or the market outlook changes.

Yet pulling out of high-income sectors altogether isn’t an option for most of us—particularly when income is so hard to come by. So how can investors stay the course and generate the income they need without taking undue risk?

Our research shows that high-quality, short-duration bonds have over time dampened portfolio volatility and held up better in down markets.

What’s the secret? A lot of it has to do with duration, a measure of a bond’s sensitivity to changes in its yield. In general, bonds are highly sensitive to yield changes—when yields rise, prices fall. The shorter the duration, the less damage a rise in yields will do.

For most investment-grade bonds, yield changes are driven primarily by changes to interest rates, or the yields on government bonds. High-yield bonds, though, are less sensitive to interest-rate changes than other types of bonds. But yields can rise for a number of reasons. When concern about global growth and falling commodity prices hit high-yield bond markets hard earlier this year, the shorter-duration bonds held up best.

Like any strategy, a short-duration one can lose money in down markets—but it generally loses much less than strategies with higher duration and additional risk.

Riding the asset-allocation seesaw

In up markets, on the other hand, investors who follow a short-duration strategy give up some return in exchange for a smoother ride—but not as much as they might think. To understand why, it can help to think of one’s various investment options as an asset-allocation seesaw, with cash in the middle; interest-rate sensitive assets, which do well in “risk-off” environments, on the left; and return-seeking assets, which thrive when investor risk appetite is high, on the right (Display 1).

Ampliar

Moving away from cash in either direction increases return. On the rate-sensitive side, moving away from the center increases duration, but investors are compensated with higher yields. There’s a catch, though: yields rise on a curve, not a straight line, so the further out one moves, the smaller the yield increase. Moving from cash to three-year government bonds can provide a hefty bump in yield. But the pickup available when moving from 10-year to 30-year bonds can be tiny.

It’s a similar story on the return-seeking side: return expectations increase as one moves away from cash, but by ever diminishing amounts. Moving from high-yield bonds to equity, for instance, increases returns only slightly, but doubles drawdown risk.

The good news is that this works when moving toward the center, too. An investor who wants to reduce risk doesn’t have to go all the way to cash. For example, she can shorten duration by moving from high yield to low-volatility high yield and only give up a little return in the process.

Don’t skimp on quality

Of course, not all high-yielding securities are alike. Credit quality varies widely, and that’s particularly important in short-duration strategies. The primary risk for short-duration high-yield bonds is credit risk.

We’re in the late stages of the credit cycle in many parts of the global high-yield market. Reaching for the high yields on low-quality, CCC-rated “junk bonds” in that environment is dangerous. In our view, the yields don’t justify the relatively high risk of default.

How investors choose to balance returns, risk and downside protection will vary depending on individual needs and comfort levels. But in our view, the ability to reduce risk and not sacrifice too much return makes this strategy a compelling one in today’s volatile markets. At the very least, we think it could help investors rest easier at night.

Gershon Distenfeld and Ivan Rudolph-Shabinsky are Senior Vice President and Credit Portfolio Managers at AB.