Photo: Mortime, Flickr, Creative Commons. Standard Life Investments Launched the Enhanced Diversification Multi-Asset SICAV
Standard Life Investments launched the Enhanced Diversification Multi-Asset (EDMA) SICAV on July, 20th, 2016 in response to a growing client demand for multi-asset funds that manage downside risk.
According to a press release, “EDMA is part of our multi-asset range for investors who want to balance capital growth against volatility in financial markets. With EDMA, we aim to generate equity-like returns over the medium term with less volatility.” EDMA targets equity-type returns over the market cycle (typically five to seven years in duration) but with only two-thirds of equity market risk.
The Fund differs from many traditional diversified growth approaches. Standard Life Investments holds a range of market return investments (such as equities, bonds and listed real estate), however, they also use enhanced diversification strategies to provide additional sources of return and high levels of portfolio diversification.
“EDMA benefits from the expertise of our established and award-winning multi-asset investing team. By exploiting our resources and capabilities we believe we can offer enhanced, lower-risk performance that is cost-effective for our clients.” They conclude.
CC-BY-SA-2.0, FlickrPhoto: Darron Birgenheier. An Inflection Point For Emerging Markets?
Historically, commodity prices and emerging market assets have been closely correlated. This was true in the secular commodity bull market of the 2000s and has continued to be the case in the subsequent commodity market bust beginning in 2011. While the latter was unfolding amid the broader bull market, emerging market assets had always appeared to be more geared to the downside during sharp market corrections. Indeed, they have generally proven to be serial underperformers.
However, in the early part of 2016 this trend appeared to reverse. Markets plunged amid fears that the People’s Bank of China might devalue the renminbi again and in the wake of the US Federal Reserve’s modest rise in the Federal Funds Rate. Despite these ructions, key commodities, emerging market currencies, equities and xed-income securities weathered this particular storm far better than was the case in previous set-backs. More often than not, market price behaviour is more eloquent about true investor positioning than surveys and fund- flow reports. Consequently, market price behaviour, an assessment of investor sentiment and ows, forms one of the key elements of our core investment decision-making framework, Compelling ForcesTM, along with ‘fundamentals’ and ‘valuation’.
Correlation characteristics appeared to be changing in a stressed market environment, suggesting that the prices of metals and emerging market assets could be beginning a process of relative stabilisation or had actually reached their cyclical low points. Oil prices, however, suffered a further plunge at the beginning of this year, demonstrating an unusually high correlation with growth assets and in particular equity markets. However, oil has a unique dynamic due to the in uence of the cartel known as Organisation of the Petroleum Exporting Countries (OPEC). OPEC had kept prices abnormally high by constraining supply, which ultimately attracted investment in new technology and new entrants, effectively ending the cartel. With Opec no longer managing supply, the market price played this role and the oil market played catch-up with other global commodity markets.
The key change to fundamentals has been capacity cuts and supply constraint. Many market participants, as they often are, were simply ‘behind the curve’ because negative market momentum had taken over. But as the spectacular performance of gold mining stocks in the rst quarter of the year illustrated so well, when the sellers have sold, it only takes a modest amount of buying to have a dramatic impact on the price. To the end of June, gold mining stocks, as measured by the Euromoney Gold Miner Index, were up an eye-watering 100%.
We took relative commodity-price and emerging market currency resilience in the face of equity and credit market weakness as a signal to start the process of rebuilding exposure to commodity-related and emerging market assets in general. We have resisted the siren call of simplistic relative valuation metrics for a number of years. It is worth remembering the advice of one experienced emerging market observer: “never buy the equities until the respective currencies have put in their lows”.
Resource stocks specifically, but emerging market assets more generally, tend to be highly cyclical and in our view, should be treated as opportunistic rather than a core exposure in a multi-asset context. In this era of constrained growth and returns, we can’t afford to ignore emerging markets and related exposures, which represent a large and growing opportunity set and more normal risk premia. But as investors, we should accept their inherent cyclicality and act accordingly.
Philip Saunders is co-Head of Multi Asset Growth at Investec.
CC-BY-SA-2.0, FlickrPhoto: Foxspain, Flickr, Creative Commons. Nearly 16,000 Pass the Level III CFA Exam
CFA Institute, the global association of investment professionals that sets the highest standards of ethics, education, and professional excellence, announced that of 28,884 candidates who sat for the Level III CFA exam in June 2016, 54 percent passed the third and final exam. Pending experience and membership requirements, these successful candidates will become CFA charterholders starting in early October, and begin their journey as investment management professionals whose mission is to raise standards in the industry.
In addition, of 50,230 candidates who sat for the Level II exam in June 2016, 46 percent were successful and of 58,677 candidates who took the Level I exam, the pass rate was 43 percent. Globally, a total of 64,020 candidates passed Levels I, II and III, with the overall pass rate for all three levels at 46 percent. (View historical pass rates.)
“Congratulations to the successful candidates who have demonstrated their commitment to the highest standard of professional knowledge and ethics,” said Paul Smith, CFA, president and CEO of CFA Institute. “At CFA Institute, we aspire to develop future investment management professionals for the global financial markets. These candidates have taken the first step to earn the CFA designation and to join us in our pursuit to build professionalism, market integrity and a more trustworthy industry that puts clients’ interests above their own interests.”
To earn the CFA charter, candidates must pass all three levels of the exam which is considered to be the most rigorous exam in the investment profession; meet the work experience requirements of four years in the investment industry; sign a commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct; and become a member of CFA Institute.
“We applaud CFA Institute for its continued efforts to strengthen the professional and ethical foundations of our industry by upholding the highest standards in their certification process,” said Ronald P. O’Hanley, President and CEO of State Street Global Advisors, “and we congratulate all successful candidates. As an organization that is proud to partner with CFA Institute, we strongly encourage everyone to avail themselves of the many opportunities it provides for continuing education and certification to improve our industry and the quality of service and engagement for our clients.”
Successful candidates study approximately 1,000 hours on average to master 8,500 pages of curriculum. The CFA curriculum includes ethical and professional standards; financial reporting and analysis; corporate finance; economics; quantitative methods; equity, fixed income, alternative investments; derivatives; portfolio management; and wealth planning. Its depth and breadth provides a strong foundation of advanced investment analysis and practical portfolio management skills, which gives investment professionals a career advantage.
“The CFA designation is widely recognized as the gold standard of professional knowledge and business ethics in the investment industry,” said Yimei Li, CFA, Deputy CEO of China AMC. “We encourage and support our staff to pursue the CFA charter, as it demonstrates our commitment to our clients that we bring in the best talent to serve their needs.”
New candidates entering the CFA Program in this year’s exam cycle grew by 15 percent to 102,514 candidates, which reflects growing interest in building professionalism in the investment management industry. The growth has been strongest in Mainland China where Level I candidate registrations reached a record high of 22,999, surpassing the number of registrations in the United States for the first time.
The June 2016 Level I, II and III exams were administered in 258 test centers in 197 cities across 91 countries worldwide. The top 10 countries and territories with the largest number of candidates tested are the United States (31,501), Mainland China (26,758), India (12,117), Canada (11,136), United Kingdom (9,717), Hong Kong (5,359), Singapore (3,433), Australia (2,915), South Africa (2,006), and France (1,784).
CC-BY-SA-2.0, FlickrFoto: Hernán Piñeira. Los sectores bursátiles de infraestructuras, seguros o inmobiliario cotizan muy por encima de la media
Columbia Threadneedle Investments announces the introduction of the Threadneedle US Investment Grade Corporate Bond Fund to its SICAV range.
The UCITS fund, co-managed by Minneapolis-based portfolio managers Tom Murphy, CFA and Tim Doubek, CFA, aims to generate a total return from income and capital appreciation by seizing opportunities in the US investment grade corporate bond market, focusing on security selection and industry rotation as the primary sources of value added with a constant focus on downside risk.
The fund mirrors the existing investment grade corporate fixed income strategy managed by the duo for US investors with a strong track record over the last seven years. The fund’s benchmark is the Barclays US Corporate Investment Grade Index and the fund’s performance target is +100 to 150 bps over the index (gross) over a full market cycle of five to seven years.
The fund follows a rigorous, independent, bottom-up fundamental research process resulting in a deep understanding of issuer and industry dynamics. Experienced and dedicated portfolio managers and analysts are full partners in the portfolio construction and monitoring process allowing the team’s best ideas to emerge with a constant focus on maximized return and reduced volatility.
Initially registered in Luxembourg, the fund is intended for distribution across other markets (UK, Austria, Belgium, France, Germany, Italy, the Netherlands, Portugal, Singapore, Spain, Switzerland and Sweden) pending regulatory approval in each country.
Gary Collins, Head of Wholesale Distribution for EMEA and Latin America at Columbia Threadneedle Investments said: “In a low yield environment, exposure to corporate credit can provide an effective way for investors to preserve capital and generate income whilst diversifying their portfolio away from equity markets. Columbia Threadneedle manages c. US$24 billion in US investment grade and we also have successful European and Global investment grade corporate bond strategies available through our SICAV.”
Tom Murphy, CFA, Columbia Threadneedle’s Head of Investment Grade Credit and co-manager of the Fund, said: “Given solid fundamental credit insights, a reasonable time horizon, and the ability to withstand short-term volatility, we believe credit opportunities in the US investment grade corporate bond market can be exploited to achieve attractive risk-adjusted returns. Tim and I have close to 30 years’ experience each and a real focus on finding the best business models with the best management teams that offer solid relative value.”
CC-BY-SA-2.0, FlickrPhoto: TJDtrader. Mexican REITs (Fibras): Atractive Dividends, Poor Capital Gains in Q2
Fibras (Mexican REITs) dividends for the second quarter of 2016 were –in general–, similar to the previous quarter, although there were differences case by case. The average dividend for thw10 Fibras was 6.7% in the second half which was very similar to the 6.6% paid the previous quarter and above the average of 5.4% paid in 2015.
The range of dividends for the second quarter was very broad. Fibras’ dividends werebetween 5.00% paid by Fibra UNO (FUNO) and 7.99% paid by Fibra Terra (TERRA). The most attractive and above average, in addition to TERRA, dividends were Fibra Macquarie (FIBRAMQ) which paid 7.97%; Fibra Prologis (FIBRAPL) with 7.75% and fibra Monterrey (FMTY) with 7.03%. At the other extreme, dividends below average were for Fibra SHOP (FSHOP) with 6.60%; Fibra Inn (FINN) 6.42%; Fibra HD (FIBRAHD) 6.38%; Fibra Hotel (FIHO) 6.08%; Fibra Danhos (Danhos) 5.89% and Fibra UNO (FUNO) 5.0%.
In all cases the dividend was divided by the closing price of the Fibra at December 31, 2015 for comparative purposes, but each investor has its own dividend depending on the price at which s/he acquired the Fibra.
Considering that the recent issuance of debt by Danhos at 3.5 years and rated AAA pays a rate TIEE + 65 basis points equivalent to 5.23% it can be said that the dividends Fibras pay are good, where the risk is the volatility in the price.
Reviewing the performance of the Fibras in 2016, it can be seen that 5 Fibras show a positive behavior, one kept its price unchanged and 4 show accumulated losses for the year (to July 31, 2016) . This result for the Fibras is better when you consider that in 2015 the industry performance was negative reflecting a contraction of 9% where only 2 out of 10 had a positive performance in 2015.
The Fibras with positive performance in 2016 are: FIBRAPL (13%); TERRA (11%); FIBRAMQ (10%); FMTY (4%) and FUNO (1%). Fibra HD did not change in price. Moreover, the Fibras with losses in their contributions accumulated in the year (to July 31) are: FIHO (-14%); FINN (-11%); DANHOS (-4%); and FSHOP (-1%).
From our point of view the factors that explain the performance of the Fibras are: The expectation of rising rates; reopenings and increased indebtedness (debt issues).
When rates go up investors demand higher returns from the Fibras and this lowers their price. Higher rates also mean higher costs to finance purchases and this puts pressure on margins. To the extent that higher increases for local interest rates portend this will be a limiting factor in performance.
Dividends generate stable income. Incomes rise with inflation or with the movement in the exchange rate, but the increase in income depends on how the contract was set.
Another point to consider are reopenings and debt. Fibras seek economies of scale and thus seek more resources be made either through reopenings or greater debt. When resources be made by any of these mechanisms there is a period of time in which the money has not been put into real estate and this affects the performance of the Fibras and the dividend.
In the last 5 years Fibras in Mexico have emerged as an alternative investment. 8 of the 10 Fibras on the market have resorted to reopening (exceptions are DANHOS and PROLOGIS); while 4 of 10 (FUNO, FSHOP, FINN and DANHOS) have used debt issuance in the market in order to grow their resources.
If the Fibras are analyzed according to their specialization it can be seen that the ones that are diversified in at least two of the three sectors involved are those that have offered better results (industrial, commercial and offices). Those specialized in the industrial sector have been performing well, Which is not the case for those specializing in hotels and shopping centers.
CC-BY-SA-2.0, FlickrPaul Quinsee / JP Morgan AM. Paul Quinsee, New Global Head of Equities at JP Morgan Asset Management
Paul Quinsee, until now managing director and chief investment officer for U.S. equities at JP Morgan Asset Management, will replace Martin Porter as the firm’s global head of equities.
The appointment will be effective in the fourth quarter, after Porter’s retirement. He will split his time between New York and London and report to Chris Willcox, CEO of global investment management.
Quinsee will oversee a team of more than 400 investment professionals and $430 billion in assets under management. As of June 30, JPMAM had $1.693 trillion in assets under management.
CC-BY-SA-2.0, FlickrPhoto: Quinn Dombrowski. Making Sense of Misalignment
Old Mutual has agreed to sell Old Mutual Wealth Italy to ERGO Italia, owned by Cinven, the European private equity firm. The consideration for the transaction is €278m in cash, plus interest to completion.
The transaction is subject to usual regulatory approvals and customary conditions and is expected to complete within six months. The sale is the final part of the divestment of Old Mutual Wealth’s continental European businesses allowing it to focus on its core UK and cross border markets.
As reported previously, Old Mutual is working on a wider plan to break up its business, cut costs and revamp earnings. On March 11, Old Mutual said it would split into four businesses: a South African bank, an emerging markets unit, a US asset manager and a wealth manager in Britain.
Old Mutual Wealth Italy was established in 1997 and accounted for less than 5% of Old Mutual’s overall wealth management activities.
The business employs 110 people and manages €7bn for more than 53,000 affluent and high net worth customers. The post-tax adjusted operating profit for the year ended 31 December 2015 was €22m.
“We are pleased to announce the acquisition of Old Mutual Wealth Italy. This transaction is the result of a clear vision, whose goal is to create a leading player through consolidation in the Italian life insurance market. We look forward to building on Old Mutual Wealth Italy’s capabilities to enhance our distribution network and our product line, gaining access to a high-growth market,” said Erik Stattin, CEO of ERGO Italia.
CC-BY-SA-2.0, FlickrPhoto: Dennis Wong. What Will the Asset Management Industry Look Like in 2030?
A change in wealth allocation and investor attitudes is set to redefine the asset management industry according to the latest paper published by the Association of the Luxembourg Fund Industry (ALFI) and Deloitte Luxembourg, “How can FinTech facilitate fund distribution?”
The paper found that Millennials and Generation X will account for half of assets under management by 2030 and that their attitudes towards saving and investment will result in asset managers adjusting their future offerings to adapt to and facilitate a new way of investing.
ALFI and Deloitte have identified in their latest report new approaches towards investment and the implications these will have on the asset management industry. New thought patterns, standards and expectations which are substantially different from previous generations will lead to a boom in robo-advice, a change in tailoring portfolios, and a shift in marketing strategies.
Denise Voss, Chairman of ALFI, says: “These behaviours will be a driver for change and the investment management industry has a unique chance to respond to these positive opportunities. Asset managers not only have to consider their offerings in the future, but we are also currently seeing an increasing number of Baby Boomers being influenced by the younger generation’s fresh perspectives. This will result in today’s asset managers having to clearly understand and address the needs of each generation individually.”
In addition, the paper found that the new set of investors is seeking to further align their investment portfolios with their social and economic values. Issues such as global warming sit at the forefront of what is important to younger investors, and the report forecasts a sharp movement away from traditional investment in oil and gas to clean-energy industries such as solar and wind. The research also found that Millennials are often willing to accept lower returns in exchange for greater social and environmental impact compared to previous generations.
The DIY attitude of the Millennial investor will also see an important leap in assets under management in the robo-advice space. Over 50 per cent of investors interviewed as part of the research paper cited a lack of trust in advisers and belief in better performance from self-directed investment as the reasons for why they are turning away from traditional advisers and towards robo-advisers. Total assets under management that are managed by robots currently represent less than 0.1 per cent of the €29 trillion investable assets in the US. However, the report predicts this to grow to 10 – 14% by 2025.
Simon Ramos, Partner of Deloitte Luxembourg, says: “The emergence of algorithmic-driven, so-called “robo-advice” and enhanced distribution platforms offer great opportunities for traditional asset managers to re-think their business models. The robo-advisor phenomenon will be a game changer that could result in an overall reduction of fees and create a new digital experience for the end investor. We will continue to see robo-advisers entering the fund distribution ecosystem and Luxembourg’s strongly connected industry players are well-positioned to ensure that Luxembourg remains at the forefront for innovation. Luxembourg’s fund industry must play a leading role in this shift in order to address the future of investment management.”
MFS will present in Quebec its Annual Risk Management Conference on August 10-12th.
In the 18th Edition of the Conference, MFS will explore the drivers of volatility across borders and markets, delving into the issues it presents for DB pension plans.
Plan sponsors will have the opportunity to look closer at these drivers, the risks they pose and strategies, tools and arrangements they’re using to manage these risks.
CC-BY-SA-2.0, FlickrPhoto: Dennis Jarvis
. Are Emerging Markets Becoming Safer than Developed Markets?
When looking at global growth expectations for the near future, we continue to see a confirmation of the increasing weight of emerging markets (EMs) in the global economy and further divergences in the growth path between them and developed markets (DMs).
According to Matteo Germano, Global Head of Multi-Asset Investments at Pioneer Investments, all in all, EMs appear to be in a more resilient position, but they are still exposed to major risks, with a slowdown in China being the most significant. While China continues to play the most relevant role in the emerging space, other countries, such as India, continue to increase their relevance.
India’s economy experienced outstanding economic performance in Q1 2016, when GDP grew by 7.9% YoY, the most in two years. Going forward, Pioneer expects continued positive momentum in economic activity but much more moderate than in Q1 2016. For calendar year 2016, we expect GDP will grow a bit more than in 2015, at around 7.5% YoY on average.
“India is a relatively protected economy with respect to the damage that could come from a further slowing in global trade induced by the Brexit vote. Gross Exports as size of GDP at around 20% are on the lower side of the range for Asia Pacific countries.” Says Germano
The recently announced departure of Central Bank Governor Raguram Rajan is raising some uncertainty with respect to the way the new Governor will conduct monetary policy, starting from a revision of the inflation target, viewed by many as too low for a country such as India.
At the political level, preparation for next year’s elections is gaining momentum; recently, Prime Minister Modi decided to reshuffle his Cabinet after a careful screening process based on merits. The aim is to push ahead his program, changing ministers in favor of a more reform-oriented group of people, with an eye on the next electoral contest at the state level.
For the Pioneer expert, Post-Brexit vote, the focus has shifted towards the potential spillover of a slowdown in Eurozone and UK growth to other EMs. Obviously, the close economic, social and political linkages of Emerging Europe to the Eurozone and UK, the CEE4 countries (Czech Republic, Hungary, Poland and Romania) are expected to be the most impacted within EMs.
“From an investment perspective, we believe that the attractiveness of EM assets is increasing. EM bonds, having proven to be quite resilient during the recent stress phase, offer additional yield versus the compressed returns in developed markets.” He says.
Germano believes the dovish monetary policy stance prevailing in advanced economies could be supportive for EM currencies. “In EM bonds, selection will be key, as different economies are at different stages of their development process and face different challenges. EM equities also proved to be resilient in this market phase, outperforming the global equity market year-to-date. Within EM equities, we maintain our positive view regarding India’s and China’s “new economy” sectors, which could benefit from the move towards a more service-driven economy.” He concludes.
