Photo: AndyCastro, Flickr, Creative Commons. Eastspring Investments to Become Master Agent of Vontobel AM in Taiwan
Vontobel Asset Management reaches next milestone in Asia: Eastspring Investments will become Master Agent and will sell its mutual funds in Taiwan.
In Taiwan, Eastspring Investments is one of the leading asset managers for retail investors, providing investment solutions across a range of asset classes including equities, fixed income, and multi asset.
The cooperation will broaden the access of Vontobel Asset Management to the retail market in Taiwan and provide Eastspring’s clients with the opportunity to invest in Vontobel’s active investment products.
“We are very pleased that Eastspring has chosen Vontobel Asset Management as a partner for retail distribution in Taiwan. We believe this cooperation agreement is a win-win for both sides, allowing Eastspring to service the financial needs of its clients by offering further investment opportunities. Vontobel Asset Management has a strong partner in Taiwan with deep market knowledge and experienced staff,” said Ulrich Behm, CEO of Vontobel Asset Management Asia Pacific.
“We are delighted to provide Taiwan retail investors with access to Vontobel Asset Management’s funds. More than 82 percent of Vontobel funds are ranked in the top quartiles within their respective peer groups,“ said Ms Loretta Ng, CEO of Eastspring Investments Taiwan.
Vontobel Asset Management is a globally active asset manager with a multi-boutique approach. Founded in 1988, Vontobel Asset Management comprises six investment boutiques: Quality Growth Equities, Global Thematic Investing, Fixed Income, TwentyFour, Multi Asset Class Investing and Harcourt focusing on alternatives. As of December 2015, client assets totalled approximately USD 100 bn.
Photo: Yuichi Alex Takayama. Nikko Asset Management Appoints Yuichi Alex Takayama as Global Head of Sales
Nikko Asset Management has appointed Yuichi Alex Takayama as Global Head of Sales (International Business), the Tokyo-headquartered asset manager announced today. Concurrently serving as Head of International Business Development and Sales Planning Division, he will collaborate closely with overseas unit heads and senior sales managers in formulating the company’s international sales strategies.
He has more than 20 years of asset management experience, spanning Tokyo, New York and London, mainly as a portfolio manager and senior analyst for Chuo Mitsui Trust & Banking (now Sumitomo Mitsui Trust Holdings, Inc.) and Mizuho Trust & Banking Co., Ltd. His most recent postings were as Chief Executive Officer of the European unit of Tokio Marine and Asset Management Co., Ltd., and Head of International Sales.
“We are delighted to welcome Yuichi to our team. His expertise in major global markets and track record in international sales and leadership will help us build our position as Asia’s premier global asset manager,” Hideo Abe, Director and Executive Vice Chairman of Nikko Asset Management said.
. Don’t Confuse Price Momentum with Business Momentum
When a stock price tumbles, investors often think that something is really wrong with the company. But that can be a mistaken assumption—especially as ETF-oriented investors are buying broad sectors rather than individual companies.
Kurt Feuerman, CIO—Select US Equity Portfolios at AB and James T. Tierney, Jr., CIO—Concentrated US Growth at AB, explain that momentum is a funny thing. Share price momentum isn’t necessarily an indicator of business momentum. Sometimes a stock is falling simply because investors are taking profits after its outperformance, or because a portfolio is changing its risk profile in a volatile market. There are countless reasons why share prices move. Both managers believe that last year’s narrow market is a case in point. “Investors might assume that the underperformance of a large swath of the US stock market means that most companies are in bad shape. But there is another plausible interpretation. It could also mean that there are a lot of buying opportunities in undervalued companies that have much better businesses than is widely believed. Distinguishing between price momentum and business momentum is one of several ways that active investors can capture excess returns over long time horizons.” They write in theor company’s blog.
Healthcare Swings Ignore Company Fundamentals The healthcare sector provides a good example. Fears about potential drug-pricing controls have been a recurring theme during the US presidential campaign.
Back in September 2015, when Hillary Clinton announced with a tweet her intention to impose controls on prescription drugs, investors in pharmaceutical companies reacted instantly. It didn’t matter that she hadn’t even been nominated as a presidential candidate or that the political hurdles to her proposals would be formidable. That day, shares of drugmakers in the US and Europe fell sharply.
Among those companies was Zoetis, which tumbled by 11% over the following week—more than the broader US pharmaceutical sector did. But investors had missed something. Zoetis manufactures animal health products, so it probably wouldn’t be a target for pricing controls on medicines for people—and it’s long-term growth prospects hadn’t changed.
Over the following month, the healthcare sector continued to underperform the S&P 500 Index. Biotech stocks were also hit, including companies like Biogen and Celgene, which are expected to grow their earnings (and innovation pipeline) by at least 10% annually over the next five years.
Despite the furor about drug-pricing controls, nothing has changed in the business prospects of many pharmaceutical companies. The downward stock price momentum was fueled by speculation about a potential shake-up of industry dynamics, without any real consideration of individual company fundamentals, cash flows or earnings power.
Assessing Technology Momentum Share price momentum has also created a conundrum for investors in the technology sector. In early 2015, some of the large and more mature (“legacy”) US technology companies were trading at very low price/earnings multiples. Some investors may have seen this as a buying opportunity. Yet over the next several months, these companies’ share prices continued to move even lower. In this case, the companies were facing significant challenges, as the evolution of information technology was weighing on growth at their underlying businesses. Here, price momentum may indeed have been a reflection of business momentum, in our view, so it’s important for investors to assess the two separately, and to keep in mind that just because a stock is cheap, it doesn’t mean that it can’t get cheaper.
Rallies May Mislead Investors Similarly, not every stock that rallies sharply has a healthy underlying business. Take energy stocks as an example. Over the past year, shares of energy companies have tended to move up and down in close correlation with the oil price. But just because the oil price has rebounded in recent weeks, it doesn’t mean that every energy company has a resilient underlying business.
In their view, “some exploration and production companies have weaker business dynamics and could still struggle to grow their earnings even if the oil price continues to climb. But we believe that some of the larger integrated companies have higher-quality balance sheets and more scope to cut costs, which could help to minimize the earnings impact of continued volatility in oil prices.”
“Instead of blindly trading stocks based on price swings, it’s important to scrutinize the fundamental business prospects of each one in order to ensure that the stock’s long-term earnings path is sustainable. Passive portfolios will be vulnerable to swings in momentum by holding every stock in the benchmark. By being attuned to shifting momentum, active equity managers can aim to avoid false signals from sharp swings in share price, especially those driven by flows of exchange-traded funds. And when momentum surges upward, active equity managers can make tactical trims to positions in richly valued holdings, raising cash temporarily in order to redeploy into attractive stocks when the prices correct,” they conclude.
Photo: NathanLanier, Flickr, Creative Commons. Old Mutual Confirms that It Has Received Approaches from Third Parties to Acquire its Stake in OMAM
The London-based financial services firm Old Mutual said on Tuesday that it was approached by several potential buyers interested in its controlling stake in its Boston-based business OM Asset Management.
Following a report from the Financial Times on speculation that the Old Mutual board has endorsed a deal to sell its 66% stake in the US business to Affiliated Managers Group, Old Mutual said it has continued to assess its options but had not finalized any agreement.
“In response to media speculation, Old Mutual can confirm that it is continuing to assess the options available to it with regard to the preferred route to effect the managed separation announced on 11 March 2016. We will update the market as and when appropriate. As a consequence of the decision to proceed with the managed separation of Old Mutual, we expect to receive interest in our assets periodically. With regard to OM Asset Management plc, Old Mutual confirms that it has received approaches from third parties to acquire its stake in OMAM. There can be no certainty that these approaches will lead to any transaction or any certainty as to the terms on which any such transaction might proceed. Further statements will be made if and when appropriate”, said in a news release on Tuesday.
The company, which is listed in London and Johannesburg, said in March that it would split into four main businesses (Old Mutual Wealth, Old Mutual Emerging Markets, Nedbank and OM Asset Management) by the end of 2018.
CC-BY-SA-2.0, FlickrPhoto: Photo Philde. Amundi And Oddo & Cie Reach An Agreement On The Acquisition Of Kleinwort Benson Investors
Amundi, Oddo & Cie and Kleinwort Benson Investors (KBI) today announced that they have signed a definitive agreement whereby Amundi is to acquire an 87.5% stake in KBI from Oddo & Cie, while the management team of KBI will acquire a 12.5% stake.
KBI, a subsidiary of BHF Kleinwort Benson Group which was recently acquired by the Oddo group, is a fast-growing equity management firm, headquartered in Dublin, Ireland with offices in Boston and New York and employing 62 people. Its highly experienced investment team manages 7.6 billion euros of assets as of 31 March 2016, mainly across global equity capabilities. KBI has delivered an excellent performance track record over the years, and enjoyed dynamic growth of its assets under management over the past few years (CAGR 2011-15: +28%).
KBI’s clients are well diversified between institutional, subadvisory and third party distributors. The firm has developed successfully in North America which represents 52% of assets under management by client domicile, while Ireland and UK account together for 26%, Continental Europe 14% and Asia 8%.
In 2015 KBI posted net revenues of 31 million euros and a net income of 9 million euros.
Amundi and KBI are highly complementary in terms of product and geographic focus. KBI’s global equities expertise will strongly augment Amundi’s equity franchise. Likewise, KBI will leverage Amundi’s strong Retail and institutional presence in Europe, Asia and the Middle East.
The transaction benefits from the full support of KBI’s management team, who will hold a material stake in the company. Going forward KBI will retain its distribution, operating and portfolio management autonomy. Sean Hawkshaw will continue as Chief Executive Officer and Noel O’Halloran as Chief Investment Officer. All employees are expected to remain with the firm.
The transaction is fully in line with Amundi’s financial criteria for acquisitions: the deal will be immediately accretive to Amundi’s EPS and will comply with the target of an expected return on investment superior to 10% within three years.
In parallel with this transaction, Amundi and Oddo & Cie will strengthen their cooperation, namely via the cross selling of their investment expertise.
CC-BY-SA-2.0, FlickrPhoto: Images Money. Pension Funds Around the World Look into Alternative Assets
The 19 countries with largest pension funds in the world ended 2015 with assets under management equivalent to 35.32 trillion dollars according to the Global Pension Assets Study 2016 prepared by Willis Tower Watson. The study considers pension funds with both benefit and defined contribution schemes.
The countries analyzed are: Australia, Brazil, Canada, Chile, France, Germany, Hong Kong, India, Ireland, Japan, Malaysia, Mexico, Netherlands, South Africa, South Korea, Spain, Switzerland, UK and US. The largest markets are US, UK and Japan, while the smaller ones are Hong Kong, India and Spain.
7 of these 19 countries represent 93% of the assets under management analyzed as well as relatively high proportions to their countries’ GDP. US is the country whose Pension funds manage the largest assets at $21.78 trillion, representing 121.2% of their GDP; followed by the UK with $3.20 trillion dollars and 111.9% of GDP; and Japan with 2.75 trillion dollars and 66.7% of GDP.
In fourth place is Australia with $1.49 trillion and 119.6% of GDP followed by Canada with 1.53 trillion dollars and 97% of GDP; and the Netherlands with $1.34 trillion and 183.6% of GDP. Finally, in the seventh position is Switzerland with $804 billion and 118.7% of GDP.
In LATAM Chile manages 159 billion which represents 66.4% of their GDP; Mexico’s 177 billion are equivalent to 15.2% of their GDP and Brazil with $180 billion and 10% GDP, though Brazilian assets only include those from closed entities, highlights the study.
In terms of growth, Willis Tower Watson mentions that the assets of major pension funds had an average contraction of 0.9% in dollar terms in 2015. In many cases this contraction is explained by the movement of currencies against the dollar. In 2015 the Brazilian real depreciated 31.1%, the South African currency -24.7%; the Malaysian Ringgit -18.5%; Canadian dollar -16.1%; the Mexican peso -14.6% and the Chilean peso -14.5%.
The 7 largest pension funds at the end of 2015 had a distribution of 44% in equities; 29% bonds; 24% in other assets including real estate and alternatives and 3% in cash. If the figures are compared in a 20 year horizon it can be seen that the participation of Pension funds in alternative assets has increased from 7% in 1996 to 24% in 2015. While equities have lowered from 52 to 44% and debt from 36 to 29%.
The above percentages are an interesting comparative parameter for the composition of the portfolios of the Afores in Mexico, which have 20% of their assets invested in equities (13% international and 7% national); 74% in debt ((53% government, 20% national private debt and 1% international debt), and only a 6% (4% Structured, 2% Mexican REITS) in alternative assets. While the percentages have increased for Mexico there is still a wide margin to reach international standards, and to do so, both a healthy supply of alternatives, and the opening of the investment regime are key.
The Compound Annual Growth Rate (CAGR) in dollars, for Pension funds in the last 10 years (2005-2015) grew on average 5.1%. With rates above 8% are Mexico with 9.2%; Australia with 9.1% and Hong Kong with 8.8%.
According to Willis Tower Watson, the countries that increased the most their proportion against GDP over the past 10 years were the Netherlands, which went from 109% in 2005 to 184% in 2015; Australia going from 84% to 120%; and the UK from 79% to 112%. In LATAM Chile steped from 61 to 66% and Mexico increased from 8 to 15% while Brazil dropped from 15% in 2005 to 10% in 2015.
CC-BY-SA-2.0, FlickrPhoto: Chris Saulit. Euroclear And Lyxor Asset Management Collaborate To Bring Greater Transparency To Fixed Income Liquidity
Euroclear and Lyxor Asset Management are cooperating in the launch of “e-Data Liquidity,” an innovative tool enabling fixed income market participants a method of accessing the true intrinsic liquidity of an asset, therefore providing the full liquidity profile.
Against the backdrop of increasing regulatory requirements, accurately monitoring the liquidity of an asset plays a key role in helping investors adequately price assets and allocate their funds. Measuring liquidity can prove particularly challenging for fixed income securities, which mainly operate over-the-counter and offer less transparency by nature than other markets.
Stephan Pouyat, Global Head of Funds and Capital Markets at Euroclear said: “The current market climate is prompting investment managers, treasurers, risk managers, insurers, collateral takers, central counterparties and other buy-side institutions to better manage their asset portfolios and strengthen their balance sheets, including liquidity buffers. e-Data is a modular tool and the liquidity module provides key indicators founded on our neutral settlement data and presented in its simplest form, relying on the infrastructure stamp of Euroclear. This first module, designed in close collaboration with Lyxor, focuses on supporting the management of fixed income and more specifically high quality liquid assets.”
Jean Sayegh, Co-Head of Sovereign Bonds Investments, Lyxor Asset Management added: “Lyxor has always helped its clients understand and adjust to a rapidly changing environment. By teaming up with Euroclear we are participating in the current regulatory drive for market transparency and providing fixed income investors with an innovative tool helping them better manage their portfolios. This partnership confirms our expertise as an innovative and growing fixed income asset manager. By leveraging on the depth of Euroclear data, Lyxor creates value for its clients”.
The bond market’s volatility in the first quarter of 2016 had a familiar feel to it, as persistently sluggish global growth prompted renewed efforts by central banks to combat it. The good news is that after the quarter’s gyrations, value in specific credit sectors discussed in our fourth-quarter 2015 report remains intact, despite strong rallies in these sectors after mid-February.
The year started ominously for risk assets, with a large sell-off in equity markets as well as the high-yield bond and floating-rate loan credit sectors. Investors reacted to fears of another global downturn akin to the financial crisis, possibly sparked by a Chinese hard landing and currency devaluation, and a U.S. recession. The S&P 500 gave up 9% between January 4 and February 11, with smaller losses for high-yield bonds and loans.
Central banks responded with a multipronged stimulus package by European Central Bank President Mario Draghi, and moves by Federal Reserve Chair Janet Yellen to scale back the number of rate increases expected this year, citing risks posed by “global economic and financial developments.” China, for its part, denied that it was planning a major currency devaluation and pledged to do more to boost its economy.
Markets bounced back sharply – the S&P 500 regained 12.6%, and high-yield spreads tightened from 887 basis points (bps) to 705 bps – just 10 bps wider than year-end, based on the BofA/Merrill Lynch U.S. High-Yield Master II Index. Exhibit A shows the V-shaped recovery of equities in the second half of the quarter.
Taking measure of interest-rate and credit risks
Despite the rebound, today’s environment poses a unique set of interest-rate and credit risks for fixed-income investors. Profits for S&P 500 companies are expected to fall 9% for the fourth quarter, which would be the fourth consecutive quarterly earnings decline and the first such streak since the financial crisis. Tepid economic growth remains a burden on companies. At the same time, we believe the Fed is still likely to raise its target fed funds rate this year, as it is very close to achieving (and perhaps exceeding) both its unemployment and inflation targets. Though not as urgent as previously thought, fixed-income investors remain vulnerable to rising short-term interest rates.
In this vein, we believe the case for the three sectors we highlighted in our fourth-quarter report – high-yield bonds, floating-rate loans and municipal bonds – remains intact, should short-term rates rise.
In Exhibit B, the dotted square box shows the last period (2004-2007) in which the Fed hiked its target fed funds rate. All three sectors had positive total returns during that period, so it would appear that a likely scenario of modest hikes would pose relatively little threat to returns in these three sectors.
Credit concerns also remain legitimate, given continuing slow economic growth combined with a reasonable likelihood that the U.S. economy is in the latter innings of the current credit cycle. Despite this, however, in our view current valuations and income offered by below-investment- grade debt more than compensate for the credit risks assumed. We also believe active management is particularly important and relevant currently, given deep credit stress in particular sectors, including energy and commodities issuers.
Spreads on both high-yield bonds and floating-rate loans are at levels comparable to 2011, in the aftermath of the financial crisis, and are 143 basis points and 68 basis points higher than the median over the past 10 years, respectively. Of course, spreads could always widen further, but today’s levels represent a “value cushion” that is very rare – slow growth and high expected default rates are already reflected in today’s prices, with discounts below fair value, in our view.
Scatterplots point to high-yield value
For some perspective on today’s pricing of credit, Exhibit C has two scatterplots – the left for high yield, the right for the S&P 500. The dots compare valuation levels for each month since 1988 with subsequent three-year annualized total returns. While the dots aren’t tidy, they make two basic points. In general, the southwest-to-northeast slant of the dots indicates that as the sector gets cheaper (measured by spreads for high yield and earnings yields, or E/P1, for stocks), subsequent three-year returns get higher.
The dots on or very close to the red horizontal lines – indicating the current spread level and earnings yield, respectively – make a specific point about today’s valuations. For high yield, whenever spreads have been at or near the current level of 705 bps (on the BofA/Merrill Lynch U.S. High-Yield Master II Index), subsequent three-year annualized returns have all been strongly positive, ranging from 8% to more than 20%. For the S&P 500, when stocks had earnings yields roughly equivalent to today’s level of 3.8%, the range of outcomes has been much wider – from negative 20% to positive 30%, and about a third of the time the results were negative. At current relative valuation levels, high yield has been the stronger-conviction choice for investors seeking a tighter range of expected return outcomes.
The observation above should not surprise investors. Over the past 10 years, high yield has provided almost the same return as stocks, with two thirds the volatility; over the past 20 years, stock annual returns exceeded high-yield annual returns by 121 basis points, but high yield exhibited just under two thirds the risk and a superior (higher) Sharpe ratio. The high annual income generated by high-yield bonds has been a big factor contributing to these historical risk/return relationships.
Defaults as a lagging indicator
Given that we are in the latter part of the credit cycle, we anticipate that defaults for both high-yield bonds and floating-rate loans are likely to increase from current levels; each are currently near their 10-year medians. However, if investors wait for defaults to peak, we believe they will have missed a value opportunity, because current discounted prices already reflect a significant rise in default rates.
In floating-rate loans, for example, the March 31 Index price of 91.5 means the market is expecting total credit losses of 8.5% over the lives of the loans, which on average has been three years. When you factor in an average 70% default recovery rate that lenders have historically achieved, this implies a three-year annual default rate of 9%, which exceeds the three-year annual rate during the height of the financial crisis. This scenario seems very unlikely to us.
Second, active management can be key in building portfolios of companies that may help mitigate default risk – passive allocations that mirror the Index must include all issuers, including those most at risk. Third, waiting for defaults to improve can reduce potential total return because spread tightening (bond price appreciation) historically has preceded peaks in default rates. Exhibit E shows that in 2009 and 2011, high-yield spreads anticipated the turn in default rates – the tightening started while default rates were still increasing.
Déjà vu going forward
For the bond market, the first quarter of 2016 was déjà vu all over again, which is likely to be the pattern for some time. We believe that staying focused on credit fundamentals and investing for the medium term in active credit strategies is the best approach to seek profit (or protection) from volatile markets.
CC-BY-SA-2.0, FlickrPhoto: Dronepicr. Credit Suisse Closes its Panama Office
Just as it was expected since early 2016, Credit Suisse closes its Panama advisory office. This decision has nothing to do with the Panama Papers, a scandal started with an unprecedented leak of 11.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca.
Until now, Credit Suisse served the Panama Private Banking clients from their offices at the MMG Tower, in Panama City.
In an email, Drew Beson, Vice President, Corporate Communications at Credit Suisse told Funds Society: “Credit Suisse remains committed to Latin America, a key growth region for our private banking and wealth management businesses supported by our market-leading investment bank. By closing our Panama advisory office, we expect to deliver the same high-quality advisory services to clients out of Switzerland and allow Credit Suisse to strengthen presence on local locations with growth prospects. Other local presences in Latin America are not affected.”.
CC-BY-SA-2.0, FlickrMeraville Retail Park. TH Real Estate’s European Cities Fund Completes First Acquisition
TH Real Estate has acquired Meraville Retail Park in Bologna, Italy, on behalf of its European Cities Fund for a net initial yield of circa 5.96%. This is the first acquisition for the Fund, which was launched on 1 March 2016 as a pan-European open-ended real estate investment vehicle with €200m of equity.
Totalling 35,975 sq m (387,232 sq ft), Meraville Retail Park has been open since 2003 and boasts very strong sales performance, making it one of the top-two performing retail parks in Italy. Featuring a diverse mix of top retail tenants including COOP, Mediaworld, Leroy Merlin and top fashion retailers such as OVS, Pittarello, Alcott and Piazza Italia, the retail park has an occupancy rate of 99.7%.
Liz Sworn, Fund Manager, Europe, TH Real Estate, comments: “Measured against other European cities, Bologna continues to outperform in areas such as employment, growth and GDP per capita. In addition, retail sales growth in the city is predicted to average 1.4% per annum in the next five years, outperforming the Italian average. We strongly believe in the investment fundamentals of Bologna and feel that Meraville Retail Park will prove to be a strong asset for the Fund.”
Located in Bologna, the capital of Emilia Romagna and Italy’s second wealthiest city, Meraville Retail Park benefits from a 30-minute drive time catchment of nearly 800,000 people. In a rating of 1,200 European regions by TH Real Estate’s research team on factors such as employment growth, employment structure, unemployment, population growth and GDP per capita, Bologna rated in the top 12%.
Mario Pellò, Head of Investment, Italy, TH Real Estate, adds: “With its high occupancy rate, strong sales performance and location in Italy’s second wealthiest city, Meraville Retail Park perfectly meets our investment requirements for the European Cities Fund. We believe that the retail warehouse market will be a sector where we will continue to see yield advantage and that Meraville specifically presents strong asset management opportunities.”
The retail park adds to TH Real Estate’s strong presence across Italy, where its current portfolio of 11 assets totals c.€1.3bn AUM.
