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AMCS Group Promotes Álvaro Palenga to Sales Director in Miami

Captura de Pantalla 2022-02-08 a la(s) 14 — Foto cedidaÁlvaro Palenga, Sales Director de AMCS. Foto cedida

AMCS Group has announced the promotion of Álvaro Palenga, CFA, to Sales Director and his relocation from Montevideo to Miami. He will be reporting to Andrés Munho, Co Founder and Managing Partner.

In a press release, the company has pointed out that Palenga is assuming the role “at an exciting time”, as the business is seeking to significantly grow the market presence of its three asset management partners, AXA Investment Managers, Jupiter Asset Management and Man Group, in the US Non-Resident channel.

In his new role, he will be focused on covering wirehouses, private banks and broker dealers in Miami and Texas, while providing additional support to the New York area market, which is currently serviced by Chris Stapleton, Co-founder and Managing Partner of AMCS.

“We are extremely excited with the promotion and relocation of Álvaro as our Miami-based Sales Director. He has made significant contributions to our business in a short period of time, and we’re confident his consultative, investment-centric approach will be well received by our North American clients”, commented Munho.

Reorganization of the team

The firm has also announced the hire of Santos Ballester Molina as Sales Associate, based in Montevideo. He will support the wider AMCS sales team across the entire Americas region, with a focus on the southern cone client group.

“Having Santos join us in Montevideo at a pivotal time for our business to be able to support the wider team’s efforts represents a key addition to our team, and we’re confident he is up for the task of adding value for our clients across the Americas. We all look forward to both of their contributions to our ambitious growth plans”, said Munho.

Ballester will report to Santiago Sacias, Managing Partner and Head of Southern Cone Sales, who is also based in Montevideo. He joins from Riva Darno Asset Management in Buenos Aires where he has worked since completing his bachelor’s in economics from the University of San Andrés.

As part of this reorganization of the AMCS sales team, Francisco Rubio has left the business “to pursue other opportunities”, the press release says. He leaves “with tremendous gratitude” from the firm for his significant efforts over the years”.

Wirehouse Advisors Increased Their Productivity Over the Past Year Despite Shrinking Headcount

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Captura de Pantalla 2022-02-08 a la(s) 13 — . Pexels

Despite shrinking headcount, the wirehouse channel boasts a more productive advisor base, averaging $198 million per advisor at an increase of 14.4% year-over-year. This compares to an average of $88.1 million across all channels, according to Cerulli Associate’s report U.S. Advisor Metrics 2021: Client Acquisition in the Digital Age.

As wirehouses prioritize productivity, other advisory channels are capturing marketshare. The wirehouse channel, which has now lost 6.2 percentage points in asset marketshare since 2010, is projected to cede an additional 6.5 percentage points of total asset marketshare by year-end 2025.

By 2025, Cerulli projects that 30.6% of the industry’s assets will be managed by advisors in the independent and hybrid registered investment advisor (RIA) channels. The national/regional broker/dealer (B/D) channel (15.2%) is already overtaking the wirehouse channel (14.9%) in headcount marketshare.

The report shows that wirehouses are focused on wealthier clients, technology enhancements, client acquisition, and equipping their advisors with robust specialized support services. “Wirehouses are playing to their strength and providing advisors with the tools they need to capture and grow wealth,” says Marina Shtyrkov, associate director.

As the most productive channel, wirehouses have designed internal resources, fully integrated workstations, and teams that include multiple specialists spanning global capabilities. “Outside of a few niche B/Ds, banks, and highly specialized RIAs and multi-family offices, this scale can be mimicked but rarely matched,” she adds.

Main challenges

Advisors most commonly identify new client acquisition (52%), compliance (40%), and managing technology (30%) as their practice’s primary challenges. Cerulli points out that wirehouses have leveraged their scale to minimize these productivity hurdles for their advisors and tailor the firm’s resources to address the needs of large practices working with affluent clientele.

As a result, mega teams -practices with $500 million or more in AUM- are most pronounced in the wirehouse channel, which accounts for 41% of the industry’s mega teams. “Advisors are frequently held back by competing priorities as they balance the daily needs of their clients and the operational aspects of their businesses. Instead of vying for headcount, wirehouses have concentrated on solving these organic growth challenges”, says Shtyrkov.

Firms looking to increase productivity should focus on winning greater walletshare, advisor teaming, and merger and acquisition opportunities. However, in Cerulli’s view, they cannot lose sight of the capital required to develop infrastructure to support these efforts, as well as to recruit and retain practices working upmarket.

GAM Partners with Liberty Street Advisors in the United States to Invest in Late-Stage Innovation Companies

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CEO GAM — Foto cedidaPeter Sanderson, CEO del Grupo GAM Investments.. GAM se asocia con Liberty Street Advisors en Estados Unidos para invertir en la última fase de firmas tecnológicas a través del private equity

GAM Investments has entered into a strategic partnership with the Liberty Street Advisors team specialized in investing in late stage companies in the United States. Its aim is to provide its clients access to these firms through private equity investments.

In a press release, the asset manager has revealed that they will invest in “leading late-stage privately-owned technology and innovation” companies with high growth potential. The team at Liberty Street is deeply experienced in private markets investing and has an extensive track record investing in this sector.

In partnership with Liberty Street, GAM plans to launch a capability which will leverage the expertise of Liberty Street’s private markets investment team. This capability will give clients the opportunity to gain exposure to a market which has historically been difficult for them to access.

The firm has highlighted that growth equity is a segment of the private equity asset class which sits between venture capital and traditional private equity and “is expanding at unprecedented levels, with disruptive technology-driven growth across multiple sectors and industries“. This growth has led to a proliferation of unicorns, with more than 900 venture capital backed companies currently valued at over USD 1 billion and many more on a similar trajectory.

In this sense, by investing in these types of late stage high-growth, innovation companies the Liberty Street team seeks to participate in their potential appreciation while they are under private ownership.

“We are delighted to partner with Liberty Street to provide our clients with access to leading privately-owned companies. The team at Liberty Street has deep, multi-decade investing experience, as well as established relationships within the venture eco-system, and is an ideal partner for us”, said Peter Sanderson, Group Chief Executive Officer at GAM Investments.

He also pointed out that an increasing number of their clients are seeking to diversify their portfolios by including longer-term private asset investment strategies. “In our view, privately-owned companies in their later-stage nonpublic funding rounds could offer investors strong long-term performance potential, while their historical downside resilience and lower volatility compared to public equities also make this asset class attractive for portfolio diversification”, he added.

Meanwhile, Kevin Moss, Managing Director at Liberty Street, commented that they are seeing companies stay private for longer, driven primarily by regulatory changes, ease of business model development in the private sphere and a larger pool of available private capital. “A significant portion of these companies’ value appreciation occurs prior to entry into the public markets, at mid or large cap size. We believe that late-stage, private growth companies can present an attractive balance of risk and return for investors, compared to early-stage venture investments and public equities”, he concluded.

Seven Megatrend Themes To Watch

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Megatrends are the powerful socio-economic, environmental and technological forces that shape our planet. The digitisation of the economy, the rapid expansion of cities and the depletion of the Earth’s natural resources are just some of the structural trends transforming the way countries are governed, companies are run and people live their lives. Pictet Asset Management explains about seven key themes across science, technology and sustainability which are helping shape our future over the coming year – and beyond

1. Focus on food security

The recent supply chain disruptions – and the resulting empty supermarket shelves – have put the spotlight on food security. Advanced agricultural technology and improved logistics are key to successfully feeding an ever-growing global population in a context of climate change.

For a start, there is an onus on producing more food locally, which has multiple benefits of more reliable supply, reduced waste and carbon footprint and improved traceability. It also reduces pressure on shrinking resources, such as freshwater supply and arable land. Indoor, vertical farms are a big growth area, offering the prospect of quality local food to areas where there is little space or challenging climate conditions. Vertical farming company Kalera, for example, is set to launch a new mega farm in Singapore this year, aiming to grow some 500,000 kg of leafy greens per annum as part of the island nation’s plans to provide for 30 per cent of its nutritional needs by 2030 (up from around 10 per cent currently).

Traditional farms are also embracing latest scientific advances, which have given us the power to tailor crops to the environment and to improve nutritional values. The use of blockchain, meanwhile, can help boost crop yields and streamline supply chains – as well as increasing transparency over where our food comes from. French retail giant Carrefour is one of the pioneers here, and aims to widen the use of blockchain to some 300 fresh products this year, tracking and tracing their travel from farms to stores.

There is also increased appetite for direct-to-consumer food services, and indeed almost any new generation food production and logistics model, which can shorten the complex global supply chains and reduce the risk of logistics issues, spoilage and contamination.

There is an onus on producing more food locally, which has multiple benefits of more reliable supply, reduced waste and carbon footprint and improved traceability.

2. Wood, re-imagined

Wood was one of the first materials mastered by mankind – it’s been used in construction for more than 10,000 years. Today, it’s getting a new lease of life thanks to its sustainability credentials. Local government in Paris, for example, has mandated that any buildings lower than eight stories built for the 2024 Olympics must be made entirely from timber. France as a whole, meanwhile, plans to mandate that from this year, all public buildings are made of at least 50 per cent timber or other natural materials. EU’s “Green Deal” and other sustainability-focused Covid recovery initiatives are likely to accelerate the shift; carbon taxes, meanwhile, may make timber more affordable.

Wood already has a lot to recommend it. It is a fire-safe material, which can be used to offer fire resistance of up to two hours. It also chars and burns at a slow and even pace, in contrast to some metals – such as steel – which can melt in a rapid and unpredictable manner once it reaches critical temperature, potentially leading to sudden structural collapses.

Technology, meanwhile, is improving on nature. Whereas building in wood was formerly confined to single family homes or small multi-family buildings, mid-rise and even high-rise buildings can now be almost entirely built from wood, using cross-laminated timber (CLT) – a wood panel material made by gluing together boards cut from a single log. Stable and strong, CLT is used for the pre-fabrication of massive wooden floors, and other structures that can be assembled much faster at the construction site, reducing costs, emissions, and as wood is lighter but has the same strength capabilities as other construction materials, but with a much lower impact on the environment.

The market for CLT is expected to expand to USD 2.3 billion globally by 2025, from USD 670 million in 2016 (1).

And wood’s potential is not limited to construction – it can also be used in packaging, textiles, food ingredients and hygiene products. Finally, besides its use as a material, wood is vital for carbon storage – a characteristic that is becoming increasingly valuable.

3. Battery boom

The world is shifting towards more sustainable sources of energy and power. That, in turn, means that we need more and more batteries for everything from powering electric vehicles to storing renewable electricity.

Electric vehicle penetration is forecast to reach 50 per cent globally (and as high as 79 per cent in Europe) by 2030(2). This many cars would require around 4,000 GWH of lithium batteries – 25 times more than needed today (3).

The large-scale battery storage market, meanwhile, is expected to increase 20-fold by 2030 according to a new analysis by Blomberg New Energy Finance. This is necessary to smooth out electricity production from a growing number of wind and solar plants around the world, whose expansion is in turn fuelled by ambitious climate commitments and supportive government policies in countries including US, China, India, Australia, Germany, UK and Japan.

Batteries are also needed to support a growing market for rooftop solar and storage solutions for residential and commercial properties.

With such strong expected demand, technology is focused on making batteries smaller, lighter and less expensive – as well as exploring the possibility of moving away form lithium to other materials, including magnesium or even oxygen. Such research could get fresh momentum over the coming year due to increased lithium prices.

4. Cyber risks

The pandemic has triggered a deeper review of working practices around the world, with many shifting to working remotely at least some of the time. That presents opportunities in the digital world, not least through increased investment in cloud services and the resulting need for every more data centres. However it also creates its own challenges – not least for cyber security.

As the migration to the cloud computing architecture accelerates, more and more businesses will adopt zero-trust security architectures to control user access to cloud servers. Over the coming year, there will be growth in the use of two-factor authentication and biometrics. VPNs, meanwhile, are likely to be phased out as cyber attacks expose their vulnerability. Industry analysts are also increasingly concerned about the growth of so-called “deepfakes”, which, with the power of machine learning can simulate bosses or work colleagues on video or audio calls.

5. Life in the metaverse

Spatial computing already brings us virtual home assistants and ride-hailing apps. It lets gamers summon ghouls into their living rooms, and shoppers try on clothes in digital changing rooms. Next, imagine working, shopping and socialising as avatars, in a rich, three-dimensional digital world that overlays our own. Welcome to the metaverse – a shared virtual environment where the physical and digital worlds coalesce across virtual and augmented reality (VR and AR), providing a sense of immediacy and immersion.

For years, clunky headsets, poor connectivity and a lack of decent content held back the rise of these technologies. Advances in 5G mobile broadband and smartphones are changing that. At the same time, the pandemic has made the public more open to online interaction. The concept is gaining particularly strong traction among GenZ – the generation born from late 1990s to early 2010s, which now represents a third of the global population.

Big tech companies are taking note. Microsoft has just unveiled plans to acquire Activation Blizzard, the maker of “Call of Duty” games, saying this will “play a key role in the development of metaverse platforms” , while Facebook’s parent company has rebranded as “Meta”. The global metaverse market could grow to around USD800 billion by the mid-2020s, according to Bloomberg research. That will involved hardware (such as VR glasses), software (for shopping, socialising, education and work), cloud capacity and infrastructure (better networks, with increased bandwidth and reduced latency).

6. Diagnosis, please

Diagnostics has also taken centre stage in the wake of the Covid-19 pandemic. Losing your sense of smell and taste were quickly identified as key signposts of the virus. Crucially, though, that insight did not come from doctors, epidemiologists or lab researchers. It came from computers, which collected and crunched data from millions of people via the ZOE app.

And that’s only the tip of the iceberg. The potential of AI in diagnostics goes far beyond pandemics. After looking at thousands of scans, machines have learned to identify breast cancer with accuracy comparable to that of experienced human radiologists. Such techniques could also open up the possibility of diagnosis in places where there are few or no doctors – particularly in remote locations and in developing countries.

This is crucial, as early diagnosis means that treatment can be started sooner, improving the patients’ prospects and reducing the risk of the disease spreading. Governments, faced with ageing populations and tight budgets, are increasingly seeing these benefits and investing accordingly. The UK, for example, has allocated GBP 248 million to the NHS public health service this year to invest in technology for diagnostic tests, checks and scans.

7. PFAS pollution

PFAS – a “magical” manufactured chemical is used in an array of household items and industrial products, from non-stick coated frying pans, microwave popcorn bags and dental floss, to stain- and water-resistant fabric, firefighting foams and wastewater treatment systems. Its popularity is due in part to its durability. But that is also its biggest flaw – and one to which an increasingly environmentally-sensitive world is waking up. PFAS never breaks down.

Governments are starting to crack down on the chemical. The onus will be on clearing up existing pollution (which can be done, for example, with activated carbon) as well as on developing greener alternatives to PFAS. The latter is particularly urgent in the EU, where around 200 PFAS will be banned starting form next year – regulation that manufacturers will have to be ready for. In the food packaging industry, for example, experiments are currently underway with bamboo, palm leaf and clay coatings.

Opinion written by Hans Peter Portner, Head of the Thematic Equities team and a Senior Investment Manager at Pictet Asset Management.

Discover more about Pictet Asset Management’s expertise in thematic investing.

Notes:

(1) Transparency Market Research

(2) UBS Q-Series, “EVs shifting into overdrive” (March 2021)

(3) Bloomberg New Energy Finance

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation.

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management (Europe) SA, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

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China’s New Roar in the Year of the Tiger

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China’s roar has changed entering the year of the tiger. China will now emphasize quality over speed, not GDP growth at all costs.

2020 feels more like a decade ago than a year ago. The strong results provided by Chinese equities and bonds, the strong appreciation of the Renminbi, and the belief that a more balanced policy under President-elect Biden would occur; fueled their optimism going into 2021.

While KraneShares expected monetary and policy tightening going into 2021, they underestimated the intensity and reach of the tightening cycle.

Rapid developments were harder to predict, especially during a year of regulatory reconfiguration for one of China’s most lucrative sectors. Chinese internet companies were the targets of a broad regulatory campaign in China addressing anticompetitive behavior, cybersecurity risks, consumer data protection, and the financial risks posed by previously unregulated fintech companies. Even though 2021 was a challenging year for China, it was just a single year in the context of a much bigger opportunity.

2022 is an important year politically for China. China’s behemoth economy indeed suffers from imbalances with internal and external regulatory risks that could cost investors, especially in the short term. KraneShares believes the government is committed to dealing with these imbalances through reform and regulations. President Xi is expected to secure a third term during the Chinese Communist Party Congress (CCPC) assembly in the fall of 2022 and KraneShares is of the opinion that the government will seek to strike a positive tone in politics and business as the country continues its transition to high-quality growth. The US-China relations may see a moderate improvement in 2022 after their, albeit limited, progress over the past year. In absence of willingness to seek catastrophic confrontation, KraneShares believes the impact of US-China relations on markets will be neutral in 2022. The political importance of 2022 is also why they think China adopted a rapid-fire approach concerning internet regulations in 2021.

China’s policy darlings, which include health care, clean technology, 5G, and semiconductors, will continue to see support based on the most recent statement from the latest Central Economic Work Conference, which sets the government’s economic and financial policy framework each year. The takeaways from the Central Economic Work Conference, which was attended by senior political leaders in China, emphasized the stability, speed, and quality of growth in 2022. The conference acknowledged that China’s economy faces three pressures: demand contraction, supply shock, and expected weakness. The panel recommended that policy support, whether fiscal or monetary, be frontloaded in 2022. The recommendation explains the reserve requirement ratio (RRR) and loan prime rate (LPR) cuts in December, which KraneShares assumes will set the tone for a looser monetary policy in 2022.

In 2022, the country will continue to advance on many fronts, including climate, electric vehicles, health care, the internet, cloud, high-end manufacturing, and more. However, China’s leading industries, especially the internet sector, are undergoing an important shift from simply capturing ever more consumer spending to a focus on material innovations and the localization of import-reliant supply chains.

Consumer sentiment, the property sector, and China’s zero COVID policy are some of the risks facing China in 2022. The sporadic lockdowns in various Chinese cities and ports due to COVID-19 outbreaks hurt consumption and the feeling of security. Furthermore, real estate regulations aimed at setting a new normal in the property market hurt consumers’ sentiment. The recent earnings season in China confirmed consumers’ fatigue and household savings rates have surged since 2020.

Growth targets for 2022 will be more challenging to attain this year compared to last, especially as the favorable base effect recedes. Slowing GDP growth is to be expected, given the level of development that China has already achieved. KraneShares believes China will do whatever it takes to maintain the sentimental 5% level of GDP growth and we know skeptics will sound the alarm on the GDP level dipping below 5% for the first time, even though achieving 5% growth in a 16.8 trillion-dollar economy is like adding an economy the size of Germany every 3 to 4 years.

China’s roar may change its tone in 2022, but KraneShares thinks it will remain as loud as ever. As Joe Tsai, Alibaba’s co-founder and Executive Chairman put it during Alibaba’s investors day: “China is not going away.” The event’s tone was geared towards innovation and the future, without legacy industries hindering their progress. It represented what China is all about: innovation and progress.

KraneShares has always been constructive on China, especially in the long term. They encourage investors not to view China as a trade but rather as a long-term investment and encourage diversification across multiple industries to help reduce risks.

To find KraneShares’ in-depth outlook as well as investment opportunities for 2022 and beyond, please visit the following links:

UCITS

US (domestic market)

HSBC USA Appoints Four New Board Members

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HSBC Bank USA has appointed Deborah P. Bailey, Melvin L. Flowers, George W. Madison and Alice D. Schroeder to the HSBC North America Holdings Inc. (HNAH) and HSBC Bank USA, N.A. (HBUS) Boards of Directors.

In a press release, the company has announced that Flowers and Madison’s designations are effective as of January 11 while Bailey and Schroeder were appointed in late October 2021.

“We are delighted to welcome Deborah, Melvin, George and Alice to our Boards. They each have wide-ranging expertise from a variety of industries and we’re confident they will make valuable contributions to our Boards as we continue to transform and grow our US business“, said Jamie Forese, Non-Executive Chairman of the Board, HSBC North America Holdings Inc., and Director of HSBC Holdings plc.

Experienced and diverse

Bailey is a former Managing Director with KPMG and Deloitte, where she led advisory practices specializing in governance, compliance and risk management for financial institutions. Prior to her consulting career, Bailey spent many years in government service at US financial regulators, like the Board of Governors of the Federal Reserve, where she rose to Deputy Director of Banking Supervision and Regulation.

Flowers is a former Corporate Vice President of the Internal Audit and Risk Management function at Microsoft Corporation. During his time at the company, he transformed Microsoft’s internal audit and enterprise risk management functions into a strategic risk-based organization that covered financial reporting, risk management, cyber security, privacy and compliance with regulations and company commitments. Prior to joining Microsoft, Flowers served as Chief Financial Officer at Novatel and at two high-growth telecommunications equipment manufacturers.

Madison is a former Partner at Sidley Austin LLP, where he advised the firm’s multinational clients on corporate governance issues and regulatory compliance matters. Prior to joining Sidley Austin, Madison served as General Counsel of the Department of the Treasury under President Obama and as a senior advisor to Secretary of the Treasury Timothy Geithner. In this capacity, Madison played an instrumental role in the formulation of the Dodd-Frank legislation and related regulation, and advised on the creation of the Financial Stability Oversight Council and the Consumer Financial Protection Bureau.

Lastly, Schroeder is an experienced non-executive director, whose board roles include UK and US-listed businesses as well as privately held companies and regulated subsidiaries. She began her career as a CPA with Ernst & Young and spent the majority of her executive career in the financial services sector. She worked as a Wall Street analyst with a focus on insurance and investment management before joining Morgan Stanley where she was a Managing Director leading the global insurance research team.

“When we set out to appoint new members to our Boards, we were focused on finding experienced individuals who would bring diverse views and perspectives,” commented Forese,

The Most Challenging Annual Forecasting in Years

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The world remains in a state of disequilibrium. While modern civilization has rarely found balance, the range of outcomes tied to central banks optimizing for future growth and political leaders navigating new domestic and international realities stands particularly wide. That makes our annual forecasting ritual more difficult. Last year’s prognostications of a resilient consumer and stubborn inflation proved correct, but a major conflict in Europe and the Federal Reserve’s war on inflation left our market optimism misplaced. Higher interest rates and the prospect of a recession spared neither stocks nor bonds and punished speculative fads along with blue chip stalwarts. For 2022, the S&P 500 was down 18%, nearly returning the index to its 2020 close.

The direction of markets in 2023 and beyond depends largely upon the answers to three questions: (a) will hot and cold conflicts in Ukraine and Taiwan, respectively, stay contained? (b) can the Fed return inflation to the low-single-digits without triggering deep economic and earnings recessions? and (c) given the altered political economic backdrop, what multiple should investors pay for stocks? Despite abysmal sentiment, market volatility remains subdued with inflation data driven rallies and sell-offs punctuating what has generally been a steady grind lower. We continue to await a market uplift (the so-called January effect) as tax loss selling abates.

Uncertainty in the board room and elevated borrowing costs curtailed deals and financial engineering. M&A normalized to pre-pandemic levels, totaling $3.6 trillion in 2022, down 32% from the record-breaking $5.1 trillion activity in 2021, excluding SPACs. Activity by both strategic and financial buyers reawakened late in the year as market dislocations presented bargains too enticing to resist. Portfolios benefited from several deals, including Philip Morris International’s recently completed acquisition of Swedish Match and the announced acquisition of Aerojet Rocketdyne (+20%) by L3 Harris Technologies, Aerojet’s second trip to the altar in as many years. A number of announced spin-offs, including Liberty Braves as an asset-backed company and a fourth separation involving Madison Square Garden could create future consolidation targets. The most active industries were Technology ($720 billion, or 20% of total dealmaking), Energy & Power (13% of deal volume), and Industrials (12% of deal volume). Private Equity accounted for a record 20% of M&A activity in 2022, with total value reaching $785 billion. The U.S. remained the top venue for M&A with deal activity totaling $1.5 trillion, or 43% of worldwide volumes, a similar proportion compared to 2021.

The contracting stock multiples, widening credit spreads and rising interest rates spared few asset classes. Convertibles were caught up in this storm, but there are some positive takeaways for our market. Specifically, convertibles outperformed their underlying equities this year, participating in only 56% of the downside.

The convertible market is now quite fixed income oriented with high yields, high premiums, and low deltas. While this is not the typical profile of our market, it presents a unique opportunity. At current levels, many convertibles should participate in very little equity downside from here. They offer yields to maturity that in many cases exceed the expected annual return of our market over the long term. Some of these issues are trading at double digit yields to maturity despite positive cash flows and growth opportunities. We have seen some companies that have addressed investor concerns by issuing more manageable converts and buying back or exchanging some percentage of their existing debt. This can be an accretive transaction for the company and usually improves the credit. One portfolio holding, Bandwidth, did a transaction like this during the quarter and it was one of our top performing convertibles as a result. As it becomes clear that a company is not on a path to bankruptcy the bonds will move higher regardless of the equity price. This is what we call a credit delta. Additionally, in the event that one of these companies is acquired, the bonds would be puttable at par. This would be a very attractive outcome for bond holders. We continue to look for value in this area of the market and have added a number of these issues to the portfolio.

After a record low year for convertible issuance in 2022, we expect the primary market to rebound this year. The issuance we saw in the fourth quarter came at attractive terms and we expect this to continue as there is a significant appetite among convertible investors for new paper. We believe many companies have delayed coming to the market and converts offer an attractive way for companies to add low cost capital to their balance sheets, particularly as interest rates move higher and other forms of financing such as High Yield become more expensive. Continued issuance allows us to stay current and we expect to selectively layer new issues into our portfolio to maintain the asymmetrical risk profile we are seeking to achieve.

Pictet Asset Management: Omicron Wave Won’t Sink Stocks

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A new year, old problems? The rapidly spreading Omicron variant has triggered renewed mobility restrictions, leaving investors concerned about the economic fallout in some parts of the world.

But the global recovery remains resilient, thanks to a strong labour market, pent-up demand for services and healthy corporate balance sheets. Ample household savings can also cushion the blow: the IMF forecasts that the global gross savings ratio will hit an all-time high of 28 per cent in 2022.

Weighing the Omicron threat against this economic picture, we leave our asset allocation unchanged for the time being, with a neutral stance on equities and an underweight position in bonds. Given our positive outlook for the economy, we are looking for opportunities to raise our weighting in stocks in 2022.

Our business cycle indicators show the global economy is on track to grow 4.8 per cent in 2022.

We raised our GDP forecast for the US as the world’s biggest economy is experiencing a strong recovery in both manufacturing and services.

Buoyant consumer sentiment and excess savings of some USD2.2 trillion should also lead to robust jobs growth in the coming months.

Price pressures, however, been stronger and more persistent than expected. November CPI rose at the fastest pace since 1982 at 6.8 per cent, with core inflation running at an above-trend 4.9 per cent.

Even after stripping out Covid-sensitive items and base effects, inflation is still running way above the central bank’s official target at 3.6 per cent.

We expect core inflation to peak at 5.8 per cent in early 2022, which should prompt the US Federal Reserve to raise interest rates by as early as June 2022; it recently announced its intention to end asset purchases by March.

The euro zone economy remains resilient, but the outlook is becoming less clear because of the economic impact from renewed mobility restrictions and persistent supply chain disruptions.

Nevertheless, we still expect the region’s economy to grow 4.4 per cent, higher than the market consensus. We have become more optimistic on Japan; its economy is recovering from a sharp but brief Covid wave.

The country’s vaccine rollout is progressing well while consumer and business confidence indicators and housing market data have been encouraging. A weaker yen and a fresh fiscal stimulus should support growth in the coming months.

Our liquidity indicators lend weight to our neutral stance on equities.

Liquidity conditions for the US are turning negative as the Fed moves to rein in a surge inflation with tighter monetary policy. The picture is very different in China after the People’s Bank of China cut its reserve requirements ratio by 50 basis points in December.

The latest PBOC easing should release about RMB1.2 trillion of long-term monetary stimulus according to our calculations, equivalent to 1 per cent of GDP. The PBOC is creating liquidity at a quarterly rate of USD232 billion, by far the fastest pace among all major central banks.

Our valuation signals are more favourable than a year ago for both equities and bonds: price-earnings multiples for world stocks are down some 10 per cent from this time last year while bond yields across developed economies have risen by as much as 50 basis points.

Even so, it is difficult to find good value in any major asset class. We expect equities’ price-earnings ratios to contract some 5-10 per cent again this year in response to rising real bond yields.

Our expectations for earnings growth this year stand at 16 per cent, however, more than double the market’s consensus.

Technical indicators have turned negative for equities due to seasonal factors.

Balanced against this is the fact that investors sentiment is much less bullish than a few months ago, suggesting some more upside for riskier assets.

Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.

Discover Pictet Asset Management’s macro and asset allocation views.

Important notes

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

In Canada Pictet AM Inc is registered as Portfolio Manager authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA.

Jeff Klingelhofer (Thornburg IM):”The Returns Seen Over the Past Years Are Not Sustainable in the Medium Term”

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Inflation, tapering, valuations… what should we expect from global fixed income the year going forward? Jeff Klingelhofer, co-head of Investments at Thornburg IM, shares his view on the biggest opportunities and challenges in 2022.

With 2021 in the rear-view mirror, what are the biggest lessons you’ve learned over the past year? Did anything take you by surprise?

Navigating 2020 was not an easy feat, but after coming to grips with a global pandemic—and with the assistance from fiscal and monetary policy- makers around the world—the global economy and financial markets not only regained their footing but delivered extraordinary 2021 results that astonished investors. The biggest lesson in 2021 was that we should never discount the market’s ability to rally in the face of unknowns and adversity. The other lesson was to never discount the consumer’s ability to power the economy and drive company earnings growth. Bolstered by rounds of relief checks from the federal government, in the first half of 2021 consumer spending quickly recovered from its modest 2020 contraction and became the clear driver of economic growth.

Turning to fixed income specifically, the bond markets likewise did not follow the script many had expected. Buoyed by the central bank’s accommodative policies, as well as the government’s multi-trillion-dollar pandemic relief package, credit spreads between U.S. corporate debt and Treasuries narrowed to their lowest levels in more than a decade. A similar story held true for the high-yield bonds, where spreads collapsed and prices rallied.

Looking ahead to next year, what are your expectations for inflation and economic growth in 2022?

Our perspective is that inflation has been broadly a transitory phenomenon, as we expect supply bottlenecks to heal to some degree in 2022— although not dramatically. We also believe consumption demand will slow, as consumers have long ago tapped into their stimulus checks and personal savings levels are decreasing. Taken together, the supply-demand imbalance seen in the past year will improve, but wages will likely remain higher. So, we expect overall inflation to remain elevated, but it should begin to soften and remain moderate in 2022. Our expectations for economic growth next year will hinge on these questions: How fast will the labor market heal? And will the labor-market recovery be robust enough to replace the stimulus payments that will be fading away? We are cautiously optimistic that the current economic recovery will continue well into the new year, but that it will slow down due to structural headwinds in 2022, such as waning savings and easing of pent-up consumer demand.

How have inflationary risks and the potential for rate hikes impacted your portfolio positioning?

It remains to be seen whether inflationary pressures absolutely mean higher rates next year. The driving cause of inflation is critically important to understand when it comes to determining how quickly and by how much the Fed will raise rates—and in this case we think this will largely depend on whether inflation is predominantly driven by rising wages or by the ongoing supply-demand imbalances. If it’s the former, we think the labor market will be able to sustain higher wages than those of pre-COVID-19, as we’re coming off multiple decades of suppressed wages. Higher overall labor costs will feed into higher inflation, but not by a lot. On the other hand, if inflation is driven more by supply-demand imbalances and persists, we believe the Fed will act more aggressively to rein in inflation and won’t allow the markets to run hot. At the end of November, the Fed Chairman as well as other officials retired using the word “transitory” to describe the US inflation situation. We expect the Fed will be closely watching incoming data and will react appropriately to prevent run away inflation.

With rising rates set to knock on the door in 2022, many investors are questioning the role of fixed income. We continue to believe that bonds have had a long history of serving as a ballast in a portfolio during risk- off periods and that they can continue doing so by providing downside protection and diversification. We have therefore adjusted our portfolio positioning to be more defensive: We are favoring shorter-duration opportunities and will be even more discerning with our credit selections. For example, over the past couple years US investment grade issuance has doubled and companies have taken on meaningful amounts of debt due to the ultra-low interest rates. It will be more important than ever to select corporate credits from companies with strong cash flows that can service their debt coming out of the pandemic. We currently see opportunities in securitized markets that are backed by healthy U.S. consumer spending.

What are the risks worth keeping an eye on in 2022? What’s keeping you up at night?

Return forecasts will be arguably low going forward compared to previous environments where investors enjoyed double digit returns from equity markets for many years. The returns seen over the past years are not sustainable in the medium term. So the key risk lies in these concerns: How will investors prosper in an environment where we are unwinding from 30 years of falling fixed income rates and how do you continue to generate attractive returns? It will take a great deal of creativity to deliver positive outcomes for our clients and active managers will be best suited to meet that challenge.

Thornburg is a global investment firm delivering on strategy for institutions, financial professionals and investors worldwide. The privately held firm, founded in 1982, is an active, high-conviction manager of fixed income, equities, multi-asset solutions and sustainable investments. With $49 billion in client assets ($47 billion AUM and $1.9 billion AUA as of December 31, 2021) the firm offers mutual funds, closed-end funds, institutional accounts, separate accounts for high-net-worth investors and UCITS funds for non-U.S. investors. Thornburg’s U.S. headquarters is in Santa Fe, New Mexico with offices in London, Hong Kong and Shanghai. For more information, please visit www.thornburg.com.

For more information, please visit www.thornburg.com

Outlook 2022: New Capital Asia Future Leaders Fund

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city-ge42080e67_640 — Pixabay CC0 Public DomainCity of Ho Chi Min, Vietnam. Ho Chi Min

The key theme across Asia continues to be digitalization, supported by an increase in IPOs across e-commerce, mobility, and FinTech. Chris Chan, Portfolio Manager of the New Capital Asia Future Leaders Fund, shares his thoughts for 2022 for the Asian equity sector.

2021 was a tough year for Asian markets Compared to the S&P500, Asian markets underperformed by about 30% (year-to-date – 16/12/21). The key element driving this underperformance was the Chinese stock market. However, going into 2022, we are much more constructive on the Chinese market.

There are a three key reasons for this. First and foremost: valuations. If you look at Chinese valuations compared to the rest of Asia and the US markets, historically speaking, it remains very attractive.

Secondly, in December 2021, the PBOC came out for very supportive for monetary easing. When you look back, typically there is a very strong correlation between the monetary easing cycle and Chinese stock market returns. Therefore, we expect this to be a positive stimulus for the China markets for 2022.

Thirdly, when you look at what’s driven the drawdown, it’s largely Chinese Internet names due to the pressures of negative regulation. When you look over the past few months, you can see that the incremental regulatory news flow is much less than it was. We expect this to continue and believe will act as a catalyst for the large cap Chinese tech names to recover.

We do expect bottom up earnings to remain weak, particularly in the property and the consumer sectors, at least for Q1 so we are looking at Q2 onwards for recovery on the fundamental side.

Outside China, we remain constructive on India with valuations historically high given the fact that the market has rallied about 30% (YTD 16/12/21). In the ASEAN region, we’ve been increasing our weight in markets like Vietnam and Indonesia, primarily because when you look at the latent recovery coming out of lockdown, arguably ASEAN has been further behind the rest of Asia, and therefore has more to offer for 2022, as confirmed by superior real GDP growth rates compared to the rest of the region.

The overriding thematic that we see across Asia continues to be digitalization, both in terms of digital services in India and Southeast Asia, supported by the increase in tech or digital IPOs across e-commerce, mobility, and FinTech. Within China, electric vehicles and solar energy remain the key structural trends benefiting a variety of companies across the supply chain.

You can also listen to Chris Chan, Portfolio Manager of the New Capital Asia Future Leaders Fund, rated five stars by Morningstar, as he shares his thoughts for 2022 for the Asian equity sector in this video.