Chopper Money?

  |   For  |  0 Comentarios

¿Ha llegado la hora del helicóptero monetario en Japón?
CC-BY-SA-2.0, FlickrPhoto: Moyan Brenn . Chopper Money?

Imagine a helicopter flying overhead, spilling thousand-dollar bills all over your backyard. That’s the visual that comes to mind when I read about “helicopter money”, a proposed alternative to quantitative easing (QE). The most recent headlines on this topic have centered around Japan. As the Bank of Japan approaches practical limits on its purchase of government bonds, several economists have argued that it might be time to consider helicopter money.

Simply put, helicopter money is a direct transfer of money to raise inflation and output in an economy running substantially below potential. Thus far, conventional QE has not achieved Japan’s 2% inflation target. According to a paper by the St. Louis Fed, this could be due to expectations that it would eventually be unwound, diminishing the policy’s credibility. Since helicopter money is free and never has to be repaid, this approach may have a better shot at achieving Japan’s inflation target.

One form of helicopter money being discussed is the issuance of a zero coupon perpetual bond (with no maturity) by the Ministry of Finance to the Bank of Japan. The Bank of Japan “prints money” via an electronic credit of cash on its balance sheet, and uses the cash to buy the bonds. Because the bonds will pay no coupon and no principal, the Ministry of Finance would never have to pay it back.

It is important to point out the distinction between this “helicopter money” approach and QE. In QE, the central bank prints money and uses the money to buy bonds. However, the bonds eventually have to be repaid, so it adds to the overall debt levels of the country. The distinction here is the permanent nature of a perpetual bond. With QE, assets purchased are expected to be unwound at some point in the future, i.e. future generations would still have to pay back the money spent by today’s generation. With a zero coupon perpetual bond, the debt is never repaid, making this tool “helicopter money” rather than conventional QE.

Continuing with the helicopter analogy, QE is like the helicopters spilling 1,000 yen bills from the sky, but Japanese consumers and investors have been reluctant to pick up these 1,000 yen bills because the bills come with a string attached, a promise to pay back 999 yen sometime in the future. (One can think of negative interest rates as paying back less than the principal borrowed.)

The zero coupon perpetual bond would instead give the money to the government for free—call it a gift. With this free money, the government should be able to embark on the most ambitious public works program ever—hire people to upgrade roads, for example, or just deposit the money directly into its citizen’s bank accounts.

But once a government undertakes helicopter money, how easy is it to wean a populous hooked on free money? Can helicopter money be done incrementally? What if the Bank of Japan manages expectations by explicitly stating that this would be a “unique event which will never be repeated” as per Milton Friedman? Can taking baby steps lead to a gradual rise in in ation, wage growth, a mild depreciation of the yen, and nominal GDP growth?

Empirical evidences

The empirical evidence is mixed on helicopter money. The well-documented historical experience of Germany in 1923, Hungary in 1946, and most recently, Zimbabwe in 2008 were disastrous. At the risk of over-simplification, the tone of the policies these countries undertook was a drastic increase in the money supply, which led to hyperinflation, and a worthless currency, and ended in a major economic recession and political turmoil.

However, other less well-known historical evidence points to the opposite conclusion. A recent case study by the Levy Economic Institute on the Canadian economy in 1935–75 concluded that the permanent monetization of debt, with no intention of unwinding later, did not produce hyperinflation or exceptionally high inflation.

The huge increase in the money supply and credit engineered by the Canadian central bank was instead absorbed by a vast expansion in industrial production and employment.

In a recent article by former Federal Chairman Ben Bernanke, he said: “(Helicopter money policies) also present a number of practical challenges of implementation, including integrating them into operational monetary frameworks and assuring appropriate governance and coordination between the legislature and the central bank. However, under certain extreme circumstances—sharply de cient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt- nanced  scal policies—such programs may be the best available alternative. It would be premature to rule them out.”

In conclusion, we just don’t know whether or not helicopter money will work. The historical evidence has been mixed, with cases of success and failure. While helicopter money is still a low probability, we should not be surprised if some form of it gets implemented. Governor Kuroda is known for surprising the market, as he did when he introduced negative interest rates several days after signaling otherwise. It would certainly be a bold experiment from which most of the developed world would be able to learn from. In the meantime, we will wait for an announcement which could come by the end of the week and assess how the markets will react.

The immediate knee-jerk reaction would likely be a steepening of the yield curve and a depreciation of the Japanese yen on expectations of higher in ation over the long run and an increase money supply as a result of this policy. The longer-term impact on the economy and the markets will depend on the effectiveness of this policy.

Teresa Kong is Portfolio Manager at Matthews Asia.

Vanguard Looks to Diversify into Active ETFs

  |   For  |  0 Comentarios

Vanguard planea entrar en el negocio de ETFs con gestión activa en EE.UU.
CC-BY-SA-2.0, FlickrPhoto: AFTAB, Flickr, Creative Commons. Vanguard Looks to Diversify into Active ETFs

Vanguard, the king of passive investing with over 70 index-based ETFs, has asked for exemptive relief for offering actively managed ETFs via an Securities and Exchange Commission filing.

Vanguard, with over 2.5 trillion in AUM, is known for its index-based funds, both mutual funds and ETFs. However, the new filing suggests the firm is looking to branch further into active management. Although there is no mention of an initial fund and in practice there is a long period of time between been granted exemptive relief and launching a new product, with this filing Vanguard joins a growing number of fund companies filing for actively managed ETFs.

Companies such as Fidelity, Eaton Vance, Precidian, and Davis Selected Advisers have looked into joining the active ETF wagon, which accounts for roughly 26.4 billion dollars of the 2.3 trillion ETF market.

The Vanguard filing notes: “Applicants believe that the ability to execute a transaction in ETF Shares at an intra-day trading price has, and will continue to be, a highly attractive feature to many investors. As has been previously discussed, this feature would be fully disclosed to investors, and the investors would trade in ETF Shares in reliance on the efficiency of the market. Although the portfolio of each Fund will be managed actively, Applicants do not believe such portfolio could be managed or manipulated to produce benefits for one group of purchasers or sellers to the detriment of others.”

Sales Force Regulation is Slowing Transfers Between Afores

  |   For  |  0 Comentarios

La regulación de los agentes promotores frena los traspasos entre las Afores
CC-BY-SA-2.0, Flickr. Sales Force Regulation is Slowing Transfers Between Afores

The implementation of new regulatory requirements has led in recent months to a significant contraction in transfers carried out by the Afores. From an average of 165,094 monthly transfers in 2015, to 10,239 last June and 73,083 in July. The latter figure shows a recovery from the previous month, but do not reach even half the average transfers.

Until last year the business model most Afores was based on attracting a larger number of accounts and for this, recruited many promoting agents who were engaged in convincing workers to transfer their account, but not necessarily convenient for employee. Today this model is complicated.

In order to improve services to affiliated workers, in January last year, new surveillance checks, sales force supervision as well as new training criteria were implemented. The implementation has been gradual over 2015 and 2016. This led to a 10% drop in the sales force between January and October 2015 to locate in 42,070. As part of these changes, in May this year the use of biometrics, which means reducing the use of paper and incorporating digital, voice prints and digital signature which strengthens the verification of the identity of workers affiliated and security controls.

Practically since inception the pension system in Mexico (almost 18 years from November 1998 to July 2016), the figures show that 6 of 10 workers affiliated have been changed Afore. The data for the past 5 years show that the average transfer annual of the last 5 years is about two million workers annually representing nearly 4% of the 53 million registered accounts in the Afores, reflecting a significant reduction. Only between 2006 and 2010 the average transfer was 3.3 million workers annually that is a contraction compared to the current trend.

In the fall in transfers, only a couple of Afores have been able to recover such as Azteca, Profuturo and Sura which are above its monthly average affiliate of 2016. In June, for example, three Afores  made no affiliation (Metlife, Invercap and PensiónISSSTE) and in July these three Afores don’t reach a thousand affiliations.

The cost of transfers

One point that has done much emphasis Consar refers to expenditure by the Afores for transfers which rose from 31% –vs. fee income in 2014–, to 26% in 2015. These resources could be used in a better way by Afores, such as investments in human capital in order to have better management and investment of resources.

According to Consar, 2015 figures show a new trend in transfers:

  • The proportion of workers they are changed before a year permanence in the AFORE was 5%.
  • Workers who are transferred between one and three years of stay was 31%.
  • Workers who transferred after three years spent accounted for 64%.
  • Young workers are most changed Afore (SIEFORE Basic 4), as it accounted for 40% of all transfers in 2015.

Dimensioned to organic growth (transfers) between the Afores, this will lead in the medium term search for mergers. Even should not rule out the possibility of strategic alliances which have not been seen between Afores.

Column by Arturo Hanono
 

UK Investors’ Outflows Drive 900% Rise in Property Funds Trade

  |   For  |  0 Comentarios

Las salidas de los fondos inmobiliarios de Reino Unido se incrementan en un 900%
CC-BY-SA-2.0, FlickrPhoto: Niamalan Tharmalingam. UK Investors’ Outflows Drive 900% Rise in Property Funds Trade

UK retail investors’ activity around property funds has risen by 900% following Brexit compared with the same period a year earlier, according to data from Rplan.co.uk.

The increase in trade was driven by outflows outweighing inflows by more than 12 times, according to the online investment platform’s analysis.

The research mirrors latest data released by the Investment Property Databank that shows UK property values fell by 2.4% in July.

Investor outflows from property funds via rplan.co.uk peaked in the third week following Brexit (commencing 4 July) but dropped sharply thereafter.

In the first weekend after Brexit, UK retail investors ditched property and UK equity funds and switched into global and Japan equities.

“Self-directed investors pulled out of property funds in droves following Brexit, which would have played a role in driving down commercial property prices,” said Stuart Dyer, Rplan.co.uk’s Chief Investment Officer. “But our data suggests that gating was actually quite effective – or rather, than things could have been much worse without the gating/pricing adjustments,” Dyer said.

A Sigh of Relief

  |   For  |  0 Comentarios

Señales de alivio
CC-BY-SA-2.0, FlickrPhoto: d26b73. A Sigh of Relief

After a run of bad news, we are seeing more signs that growth trends are re- synchronizing among the major economies. Markets have responded in kind, with help from more policy stimulus around the world.

The widely anticipated acceleration in US economic growth seems not completely abandoned, just postponed. Following a stunningly weak second-quarter US GDP report, most economic reports point to a significant improvement over the summer. In Japan, the announcement of a massive fiscal stimulus program may not lift the mediocre growth rate right away, but it should boost business and consumer confidence and start adding to GDP growth in the fall. Meanwhile, business sentiment in China has improved to the highest level in a year and a half, highlighting the durability of its recent growth rebound.

Only the eurozone doesn’t fit the bill. The same surveys that track China’s improvement point to a modest European slowdown in the months ahead. Part of that is Brexit, but the bigger issue is its shaky banking system.

Financial markets get a sentiment boost
Global equities posted solid gains last month, led by strong performance in Europe (rebounding from the June Brexit selloff) and Japan (in anticipation of more policy stimulus). Fixed income markets also made a good showing: Government bond yields declined marginally, but corporate bond spreads rallied, contributing to the overall gains. Not surprisingly, the US dollar lost some ground against the major developed world currencies in the initial phase of the risk-on market rally. But it also weakened vis-a-vis emerging market currencies, particularly the South African rand and the Korean won.

The Fed lays low in the US
The weak second-quarter US GDP report has all but shut the door on further Federal Reserve rate hikes in the US this year. And a downgrade in future policy rate expectations at the next Federal Open Market Committee (FOMC) meeting in September looks likely. In June, the median of the FOMC members’ policy rate forecasts showed expectations of two more rate hikes this year. But that meeting also revealed how little conviction the Fed has in forecasts – both its own and the market’s. So, while most members may still be leaning toward raising rates further, we suspect the Fed will wait for stronger growth and, more importantly, evidence that it’s sustainable before acting again.

That is especially likely as long as inflation remains below target. With only three more meetings on the calendar this year and an increasingly contentious US presidential election campaign ahead, staying on the sidelines seems the best risk management strategy for the Fed. That alone should further support risk assets, as will the coming cuts in future policy rates.

The UK joins Europe with more QE
While the European Central Bank (ECB) has not announced any additional easing measures since March, some programs were only just implemented. The €20 billion increase in the bank’s quantitative easing (QE) program added corporate bonds to the list of eligible assets, the purchase of which started in June. This has already significantly compressed eurozone corporate spreads, indicating another noticeable easing in financial conditions. Adding to that, July saw the first auction of the ECB’s latest Targeted Long-Term Refinancing Operation (TLTRO) program, which is designed to ease the pass-through from easier financial conditions to more bank lending.

Almost immediately after the Brexit vote, the Bank of England (BOE) hinted at rate cuts over the summer. This came as no surprise to central bank watchers, but something else did: The BOE restarted its asset purchase program and included corporate bonds for the first time and, similar to the ECB, also announced a lending scheme. That won’t be enough to offset a sharp slowdown in the UK in the second half of 2016, but it should contribute to the easing of global financial conditions and may help avoid an outright recession.

Japan makes a fiscal push
Japan’s government announced a new massive fiscal stimulus program designed to boost aggregate demand– something monetary policy has failed to achieve in the past few years. At ¥28 trillion, or nearly 6% of GDP, it’s the biggest package since 2009. However, only ¥7.5 trillion represents new government expenditures that will directly contribute to GDP in the next two years, suggesting growth forecasts will only rise by 0.5% this year and 0.75% next year. The rest is harder to score and is likely to have a much smaller multiplier effect on the economy. Still, on the margin, the package will provide a much- needed stimulus to pull Japan away
from the recession danger zone. And, if combined with more monetary policy easing in the next few months, the impact could be stronger.

China picks up the pace
China’s growth surprise in the second half and its apparent sustainability through the summer quarter also has a lot to do with more policy stimulus. The underlying trend in aggregate social financing (the proxy for credit supply) started to re-accelerate last summer. While it started slowly, the pace picked up in November, indicating another round of monetary policy stimulus.

The government has also increased outright fiscal spending, indicated by a significant increase in the budget deficit to boost growth. Finally, the nearly 7% depreciation in China’s yuan since last August is starting to affect export revenues. Measured in US dollars, exports were still down 4.8% from a year ago in June, whereas local currency denominated exports values increased 1.3%. The combined effect of monetary, fiscal, and currency stimulus should keep the quarterly GDP growth trend between 6.5% and 7% for the rest of the year.

We are still optimistic
It was a dissonant first half of 2016 for global GDP growth. The US experienced disappointingly weak economic activity in all six months. The eurozone and Japan
surprised with stronger-than-expected growth in the first three months, but reverted to a weaker trend in the spring. It was the opposite in China, where growth in the first three months of the year slowed to the weakest pace in more than six years, only to rebound strongly in the second quarter.

After some excessive macro volatility, the second half of the year could deliver a more harmonious performance. China and the US are leading the growth acceleration, and more monetary and fiscal policy support in Japan and Europe should contribute to an easing of global financial conditions.

Yes, a few risks remain: Europe’s latest banking crisis hasn’t been resolved, a key constitutional referendum in Italy could trigger new elections, and the US will decide who will be its next president. But we think the year is likely to end on a more positive note, setting the stage for a stronger 2017.

Markus Schomer is managing director and chief economist at PineBridge Investments.

Disclosure: PineBridge Investments is a group of international companies that provides investment advice and markets asset management products and services to clients around the world. PineBridge Investments is a registered trademark proprietary to PineBridge Investments IP Holding Company Limited.
For purposes of complying with the Global Investment Performance Standards (GIPS®), the firm is defined as PineBridge Investments Global. Under the firm definition for the purposes of GIPS, PineBridge Investments Global excludes some alternative asset groups and regional legal entities that may be represented in this presentation, such as the assets of PineBridge Investments.
Readership: This document is intended solely for the addressee(s) and may not be redistributed without the prior permission of PineBridge Investments. Its content may be confidential. PineBridge Investments and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part.
Opinions: Any opinions expressed in this document may be subject to change without notice. We are not soliciting or recommending any action based on this material.
Risk Warning: All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. If applicable, the offering document should be read for further details including the risk factors. Our investment management services relate to a variety of investments, each of which can fluctuate in value. The investment risks vary between different types of instruments. For example, for investments involving exposure to a currency other than that in which the portfolio is denominated, changes in the rate of exchange may cause the value of investments, and consequently the value of the portfolio, to go up or down. In the case of a higher volatility portfolio, the loss on realization or cancellation may be very high (including total loss of investment), as the value of such an investment may fall suddenly and substantially. In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved.
Information is unaudited, unless otherwise indicated, and any information from third party sources is believed to be reliable, but PineBridge Investments cannot guarantee its accuracy or completeness.
PineBridge Investments Europe Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). In the UK this communication is a financial promotion solely intended for professional clients as defined in the FCA Handbook and has been approved by PineBridge Investments Europe Limited. Should you like to request a different classification, please contact your PineBridge representative.
Approved by PineBridge Investments Ireland Limited. This entity is authorised and regulated by the Central Bank of Ireland.
In Australia, this document is intended for a limited number of wholesale clients as such term is defined in chapter 7 of the Corporations Act 2001 (CTH). The entity receiving this document represents that if it is in Australia, it is a wholesale client and it will not distribute this document to any other person whether in or outside of Australia.
In Hong Kong, the issuer of this document is PineBridge Investments Asia Limited, licensed and regulated by the Securities and Futures Commission (“SFC”). This document has not been reviewed by the SFC.
PineBridge Investments Singapore Limited is licensed and regulated by the Monetary Authority of Singapore (the ”MAS”). In Singapore, this material may not be suitable to a retail investor and is not reviewed or endorsed by the MAS.
PineBridge Investments Middle East B.S.C.(c) is regulated by the Central Bank of Bahrain as a Category 1 investment firm. This document and the financial products and services to which it relates will only be made available to accredited investors of PineBridge Investments Middle East B.S.C. (c ) and no other person should act upon it. The Central Bank of Bahrain takes no responsibility for the accuracy of the statements and information contained in this document or the performance of the financial products and services, nor shall it have any liability to any person, an investor or otherwise, for any loss or damage resulting from reliance on any statement or information contained therein.

 

Desjardins Global Asset Management chooses Mirova for Delegated Management of a Green Bond Fund

  |   For  |  0 Comentarios

Desjardins Global Asset Management elige a Mirova para delegar la gestión de su fondo sostenible de renta fija
CC-BY-SA-2.0, FlickrPhoto: Dying Regime. Desjardins Global Asset Management chooses Mirova for Delegated Management of a Green Bond Fund

Mirova, an asset management company dedicated to responsible investment, got selected by Desjardins Global Asset Management to provide delegated management of an international green bond fund, the Desjardins SocieTerra Environmental Bond Fund, for a total of 100 million Canadian dollars.

The Desjardins SocieTerra Environmental Bond Fund puts the Global Green Bond strategy managed by Mirova into action. This fund will receive the recognized expertise of Mirova’s bond specialist teams, which are leaders in the area of green bonds.

Like Mirova’s Global Green Bond strategy, the Desjardins SocieTerra Environmental Bond Fund will be steered with active management and conviction management. The fund’s main performance driver will be investment in debt securities that support the environmental and energy transition, described as green bonds by Mirova’s responsible investment research team. As such, the management approach will combine financial and non-financial tactics: specific analysis of each project financed, Environmental Social Governance (ESG) analysis of the issuer, and fundamental analysis to determine the bond’s financial attractiveness. The fund will try to benefit from different international economic cycles by diversifying in terms of geography, economic sector, and credit rating.

The Desjardins SocieTerra Environmental Bond fund will be managed by Christopher Wigley, with Marc Briand, co-manager and head of fixed-Income at Mirova who will particularly rely on Mirova’s responsible investment research team of 12 analysts.

Philippe Zaouati, CEO of Mirova, commented on the announcement: “We are proud to have received this management mandate from Desjardins Global Asset Management. It is proof that our expertise in green-bond management is recognized on the market. Additionally, this mandate is part of our international growth strategy at Mirova, a strategy that is clearly beginning to pay off.”

Michel Lessard, Vice President of Desjardins Global Asset Management added: “By financing tangible assets, green bonds fill direct, concrete needs: they enable issuers to diversify their investor base and investors to actively participate in financing the energy transition. We are delighted, alongside Mirova, to commit to this energy transition by launching the Desjardins SocieTerra Environmental Bond Fund, the first green bond fund on the Canadian market.”

China Allows for Mutual Stock Market Access Between Shenzhen and Hong Kong

  |   For  |  0 Comentarios

China aprueba la fusión de las bolsas de Hong Kong y Shenzhen
CC-BY-SA-2.0, FlickrPhoto: TreyRaatcliff, Flickr, Creative Commons. China Allows for Mutual Stock Market Access Between Shenzhen and Hong Kong

The China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission (SFC) have approved the establishment of mutual stock market access between Shenzhen and Hong Kong (Shenzhen-Hong Kong Stock Connect) in order to promote the development of capital markets in both the Mainland China and Hong Kong. The organisms have also agreed to abolish the aggregate quota under Shanghai-Hong Kong Stock Connect.

The key features of Shenzhen-Hong Kong Stock Connect, including the shares eligible to be traded under the scheme, eligible investors and daily quotas, are set out in the joint announcement.  HKEX expects it should take approximately four months from today to complete the preparations for the launch of the Shenzhen-Hong Kong Stock Connect.

“We are excited about Shenzhen-Hong Kong Stock Connect, which will open up another Mainland market for international investors and strengthen the Mainland’s links with Hong Kong,” said HKEX Chairman C K Chow.

“Under ‘One Country, Two Systems’, Hong Kong is in a unique position to build important connectivity with the Mainland markets and to facilitate the gradual opening of China’s capital account,” Mr Chow said.  “This will further enhance Hong Kong as an international financial centre.”

“We look forward to launching Shenzhen-Hong Kong Stock Connect, which will be an extension of our successful mutual market access programme with Shanghai, so investors in our market and the Mainland market will have an additional secure, reliable channel for investment in the other market in an environment that they’re familiar with,” said HKEX Chief Executive Charles Li.  “We also look forward to enhancing Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect with additional products in the future.

“We aim to build Hong Kong into a mature, comprehensive financial centre that can serve as an offshore wealth management centre for Mainland investors, an offshore pricing centre for the Renminbi and global asset classes for the Mainland, and an offshore comprehensive risk management centre for Mainland investors.”

Can Brazil Win a Gold Medal as an Investment?

  |   For  |  0 Comentarios

¿Puede Brasil ganar la medalla de oro en cuestión de inversiones?
CC-BY-SA-2.0, Flickr. Can Brazil Win a Gold Medal as an Investment?

With the Olympic Games underway, many eyes are on Rio. Coincidentally, investors this year are similarly directing more attention to Brazil, although it is developments in the capitol, Brasilia, that are likely of greater importance.

Brazil has had one of the best performing stock markets in the world this year. This may come as a surprise given the headlines we’ve seen this year coming from the country on everything from a presidential impeachment to the Zika virus. But according to Bloomberg data, the MSCI Brazil 25/50 Index is up more than 50% this year, while the MSCI Brazil Small Cap Index has risen over 60%.

The question now is, can the rally continue? My take is that it could potentially, but investors need to be willing to accept significant risk.
Some economic bright spots

First the good news: After two years of a deep recession, the economic fundamentals of Brazil are showing signs of bottoming out. Industrial production has started to turn, and so have sentiment indicators, with business confidence indexes leading the way (source: Bloomberg).
Particularly encouraging are the improvements in the inflation trend. Prices have been easing since early 2016 (source: Bloomberg), and the new central bank committee’s focus on bringing down inflation has also helped lower inflation expectations for the year ahead. This ongoing adjustment has raised expectations of monetary policy easing, namely interest rate cuts in the fourth quarter, which will be supportive of a recovery in economic activity.

Brazilian stocks climb as perception of risk declines

Political vulnerability and stalling reforms

That said, Brazil remains in a fragile situation. Economic imbalances such as weak fiscal accounts, high levels of debt and unemployment need to be addressed. The reforms needed to fix the Brazilian economy are complex and in many instances very unpopular with the public, making this a significant challenge for any government.

But it is political developments that continue to be the main variable in assessing the outlook for Brazil. Most important of these is the pending final vote on President Dilma Rousseff’s impeachment, which will likely happen in late August or early September.

In May, Interim President Michel Temer took office, after Rousseff stepped down to face an impeachment trial. Since then, Temer has had a few successes. In particular, his cabinet appointments were well received by both investors and politicians, which helped strengthen the relationship with Congress. This relationship has been and will be key for the cabinet ability to pass policy measures.

A vote to impeach Rousseff is likely to prompt an acceleration of much-needed reforms, such as cutting fiscal spending and revamping the pension system. Progress on policy changes, in turn, may go a long way towards restoring confidence of both consumers and investors. Nevertheless, while many believe the Senate would follow through with Rousseff’s impeachment, we cannot rule out the opposite outcome, which would likely be adverse for risk assets especially given high market expectations. Adding to the already high political uncertainty: the ongoing corruption and money laundering investigations surrounding the country’s largest oil and gas company.

And there’s the rub: Given the sharp rise in the markets this year it seems that investors are making a bet on the best case scenario. Should that fall through, markets are likely to correct, perhaps sharply.

Things to look for

In short, investors in Brazil have already won a gold medal of sorts this year. Winning another medal will likely require a more prosaic path: a recovery of earnings on the back of the economic turnaround and effective execution on the reform front.

Investors interested in Brazil may want to consider the iShares MSCI Brazil Capped ETF (EWZ) or the iShares MSCI Brazil Small-Cap ETF (EWZS).

Build on Insight, by BlackRock written by Heidi Richardson.

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal.

This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.

This document contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries. Small-capitalization companies may be less stable and more susceptible to adverse developments, and their securities may be more volatile and less liquid than larger capitalization companies. The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this company make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with MSCI Inc.

©2016 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners.
iS-18947

 

Hedge Fund Managers See Opportunities in Europe

  |   For  |  0 Comentarios

La inestabilidad europea hace que los hedge funds apunten a la región
CC-BY-SA-2.0, FlickrPhoto: _TC Photography_ . Hedge Fund Managers See Opportunities in Europe

Preqin’s Q2 update on the hedge fund industry finds that economic uncertainty following the UK vote to leave the EU has created potential opportunities for hedge fund managers and, as a result, many more funds have launched focused on the region. Europe-focused hedge funds saw a large increase in the proportion of overall fund launches, rising from 1% of funds launched in Q1 to 16% of those incepted in Q2.

At the same time, UCITS-compliant funds accounted for 18% of overall fund inceptions through Q2, the highest quarterly proportion tracked by Preqin since the directive came into force. Given that UCITS funds are a key way for non-European firms to raise capital from Europe-based investors, it is a further sign of the growing interest that industry participants are taking in the region.

While long/short equity hedge funds remain the most common hedge fund vehicles in terms of both investor searches and new fund launches, CTA funds are being increasingly sought-after by investors. The proportion of fund searches issued in Q2 that specified CTA or managed futures funds was 22%, twice the proportion of fund searches issued in Q1. Despite this growing appetite among investors for the fund type, just 3% of new hedge fund launches through the quarter were for CTA vehicles, less than the proportion seen for UCITS vehicles (18%) or funds of hedge funds (7%).

Other Key Q2 Hedge Fund Launches and Searches Facts:

  • Launches by Strategy: Equity strategies remained the most common approach among new funds launched in Q2, representing 53%. The proportion of funds using a credit strategy rose from 10% of Q1 launches to 18% in Q2, while multi-strategy launches fell from 19% to 6% in the same period.
  • Fund Manager Location: North America-based fund managers launched two-thirds of all new hedge funds in Q2. There was also an increase in the proportion of vehicles launched by Europe-based firms, representing 28% of all launches, while Asia-Pacific-based managers represented 3% of fund launches.
  • Investor Type: Fund of hedge fund managers issued the largest proportion (18%) of fund searches in Q2, while wealth managers (17%) and private sector pension funds (12%) also accounted for notable proportions. After some high-profile redemptions, public pension funds comprised 6% of fund searches in Q2.
  • Searches by Region: Geographically, the proportion of fund searches has remained similar to Q1. Investors in the more developed markets of North America (40%) and Europe (45%) represented the majority of fund searches, while Asia-Pacific based investors comprised 7% of searches.

According to Amy Bensted, Head of Hedge Fund Products at Preqin, “the run-up to and aftermath of the UK’s decision to leave the EU caused volatility across several markets within Europe and beyond. Hedge fund managers have seen increased opportunities to capitalise on this turbulence, and more Europe-focused hedge funds have been launched by managers both in and outside the region. Although Europe-focused funds did not make the same gains as North America-or Asia-Pacific-focused vehicles in Q2, the ongoing volatility arising out of the uncertainty within Europe may provide opportunities for hedge funds focusing on the region to deliver some upside gains. More broadly, the appetite among investors for managed futures continues to grow, as investors seek products which can diversify their portfolio and add some downside protection over the coming months. Although these funds have seen some volatility in their returns over recent months, CTAs have performed more consistently in Q2 2016, and fund managers will be keen to show investors that they can offer uncorrelated returns and capital protection.”

You can read the report in the following link.

Hedge Funds and Private Equity Managers Show a Growing Interest in ESG

  |   For  |  0 Comentarios

Los hedge funds y gestores de private equity incrementan su interés por los factores de responsabilidad social corporativa
CC-BY-SA-2.0, FlickrPhoto: Ainhoa Sanchez . Hedge Funds and Private Equity Managers Show a Growing Interest in ESG

Unigestion, a boutique asset manager with scale that focuses on guiding its clients with risk-managed investment solutions, has again surveyed the hedge fund and private equity managers it invests in to track their attitudes to ESG.

The survey showed that more hedge funds are considering the value of ESG, as last year 60% of hedge fund managers were ‘reluctant’ to consider ESG as part of their strategies, whilst this year only 53% of hedge fund managers were in the ‘no interest’ category1. 30% of hedge funds managers surveyed were actively incorporating ESG into their strategies.  

Ampliar

Whilst there were a number of strategies represented in this sample, the clear leaders in ESG adoption were Arbitrage managers – 67% of which had an active ESG strategy. Tactical traders (including commodities, managed futures and global macro strategies) find it the most difficult to implement ESG into their investment processes because of the nature of the strategy

Ampliar

One of the managers surveyed, Winton Capital, explained that its approach to ESG encompasses broad initiatives such as sponsoring research prizes. In addition, its headquarters are a certified Low Carbon Workplace, one of only 8 in the UK.

Small and large firms also diverged in their approach to ESG. Whilst the survey showed that large firms are more likely to have in place a formal ESG policy than smaller firms, there are again exceptions. Arrowgrass Capital Partners has USD 5.9bn under management and has a strong ESG policy having partnered with an ESG data provider and a responsible investment consultant, and having its CEO and other members of the senior executive sitting on its ESG committee.

The survey also showed more hedge funds are becoming signatories to the PRI. Last year only 13% of hedge funds surveyed were signed up to the principles, whilst this year 20% had signed up.

Ampliar

As the practicalities of incorporating ESG into investment strategies is still a stumbling block for many managers, the PRI is spearheading a working group to create a standard ESG due diligence questionnaire for hedge funds.

Private equity managers are on the whole more advanced than their hedge fund counterparts in ESG adoption, and Unigestion has also seen a larger year on year improvement in this asset class. This year, 42% of private equity managers achieved ‘advanced’ or ‘leader’ status (up from 29% last year) and the proportion of ‘reluctant’ managers fell from 27% to 21%.

Eric Cockshutt, Responsible Investment Coordinator at Unigestion, said: “We are still seeing too many hedge fund and private equity managers dismissing ESG as a cost burden, incompatible with their strategies, or a mere marketing exercise. The experience of many managers however is that ESG adoption is both feasible and beneficial to clients and the company’s overall reputation for taking seriously its environmental and social responsibilities.

The survey’s results can be seen here.