Pixabay CC0 Public Domain. GAM estrena su nueva gama de estrategias ESG con un fondo de bonos locales de mercados emergentes
GAM Investments has announced the inauguration of its first range of sustainable investment strategies with the launch of a local emerging market bond fund. The new approach was developed in close partnership with VBV-Pensionskasse, a leading pension fund for sustainable investments in Austria.
In a press release, the asset manager pointed out that the strategy will be managed by its emerging markets debt team and it’s the first in a range of sustainable investment strategies the firm plans to launch throughout 2021.
“The new strategy draws upon the expertise of Paul McNamara and GAM’s highly experienced emerging markets debt team, whose differentiated, conviction-driven approach to EM debt investing has been developed over 20 years”, GAM says. Its goal is to generate long-term financial returns by investing in a way that is sensitive to the impact decision making may have on society and the environment.
The approach combines a positive tilt towards sovereigns with higher environmental, social and governance (ESG) scores, as defined by its benchmark, the JP Morgan ESG GBI-EM GD Index, with the team’s proprietary investment process incorporating ESG factors for active allocation within the index tilts. The JP Morgan ESG GBI-EM GD Index leverages research from both Sustainalytics and RepRisk therefore allowing investors to combine the benefits offered by active management applied to an ESG benchmark, highlights the asset manager.
A “crisis cycle filter”
Its process mirrors that of the long-running local emerging bond strategy. Based on its assessment of developments in the US, Europe and China, the team establishes global themes that determine country selection, along with specific return and risk driver preferences. Given the emphasis on crisis avoidance, country analysis is then performed using the team’s proprietary‘Crisis Cycle Filter’. This captures the interaction between core ESG factors and nine traditional macroeconomic variables considered to be highly reliable, early indicators of financial crises, such as falling FX reserves or rapidly rising inflation.
The strategy typically has active exposure to 15-25 emerging and frontier markets, centered upon approximately 10 very liquid core markets and 100-150 bonds and FX forwards.
“We have taken ESG factors into account in our investment process for our local emerging bond strategy for a number of years, purely for their impact on risk-adjusted returns. However, as ESG factors become more efficiently priced in the sovereign debt market, we believe that now is the time for a strategy that targets both a specific ESG tilt and integrates ESG factors from a risk/return perspective”, Paul McNamara, Investment Director for emerging market debt at GAM, said.
Meanwhile, Günther Schiendl, member of the Executive Board of VBV-Pensionskasse, commented that they invest responsibly, sustainably and with a focus on performance. “Particularly in the area of fixed-income emerging markets, a new approach that increasingly takes ESG criteria into account was important to us, as this type of solution has been rare so far”, he added.
Lastly, Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM, pointed out that they have seen a “clear client demand” for more strategies focused on sustainable investing, so they are working in partnership with them to develop these. “The sustainable local emerging bond strategy combines the benefits of using a well-established ESG benchmark, with the opportunity to benefit from active management and expertise of GAM’s emerging markets bond team. Later this year, we plan to launch additional ESG focused products, further building on our award winning Swiss Sustainable Companies strategy, which has a track record of more than 20 years”, she revealed.
A year ago, emerging market equities were well positioned for a strong 2020, but the pandemic threw global markets for a loop. Following the annus horribilis, though, emerging markets are now even more favorably positioned for the year ahead.
The structural drivers supporting emerging market stocks remain intact, while the cyclical tailwinds are stronger than they were prior to the COVID-19 black swan. The MSCI Emerging Markets (EM) Index performance over the last few months reflects the bullishness undergirding developing country stocks, but a look under the hood reveals that regional, sector and style rotations are underway. A balanced approach to value and growth factors can help to squeeze more out of a broad, if uneven, market upturn.
Value vs. Growth Equities Performance Rotation Occurs Frequently in Emerging Markets
Source: Bloomberg
Rising incomes and an expanding middle class across the developing world are fueling increasingly powerful domestic consumption-led growth models. At the same time, expansionary global Purchasing Managers Indices reflect a rebound in economically sensitive cyclical sectors, including energy and materials, favoring emerging market exporters of raw materials and manufactured products amid world-wide inventory re-stocking.
Massive global liquidity injections, highly accommodative interest rates around the world, a weakening U.S. dollar, accelerating global growth and clearly the development and deployment of vaccines all bode well for emerging market stocks in the year ahead.
On the currency front, since the 2008 Global Financial Crisis, the greenback mostly gained ground. Europe grappled with its sovereign debt crisis from 2010 to 2012, so the U.S. Federal Reserve didn’t hint at tightening monetary policy until 2013, sparking the “taper tantrum.” The Fed began shrinking its balance sheet a few years later and in late 2016 started slowly lifting its key rate, which peaked at 2.5% in 2019. But the rate now sits near zero, where the Fed says it shall remain at least through 2023. The U.S. Dollar index has fallen about 13% from its March 2020 high to below the key 90 threshold, significantly mitigating the risk of EM currency depreciation for dollar-based investors.
In response to the pandemic’s deflationary impact, central banks in developed and developing countries have slashed their key rates. While many also engaged in fiscal stimulus, the developed economies pursued far greater deficit spending. Indeed, combined monetary and fiscal stimulus in the U.S. alone amounts to more than $10 trillion, nearly 50% of GDP. Because emerging economies don’t benefit from reserve currency status, they can’t afford deep fiscal deficits. But that means most entered the pandemic with smaller fiscal deficits and lighter debt loads, so they also don’t have to shoulder the heavy debt burdens weighing on advanced economies.
No doubt the globally synchronized monetary policy easing and gusher of fiscal stimulus create a powerful backdrop for global growth. But emerging markets are expected to rebound faster. According to Bloomberg consensus estimates, after shrinking 0.8% in 2020, emerging markets are poised to expand 5.1% in 2021, with China, the world’s second-largest economy, climbing 8.2%. Developed economies are set to advance 3.2% in the year ahead, not quite recovering from the estimated 3.5% contraction in 2020.
Earnings growth should prove robust globally in 2021, thanks, as noted, to the expected recovery in demand, re-stocking and extremely easy comparisons against prior-year numbers across most sectors. But earnings growth should be especially strong in emerging markets as the weaker dollar allows underlying local currency earnings to shine through, and in many instances exceed index earnings in advanced economies.
Estimated 2021 Earnings Growth for Most EM Countries Exceeds International Benchmarks
Based on Bloomberg estimated EPS (next annual) as of 12/18/2020
Source: Bloomberg
At the same time, structural reforms and productivity-enhancing investments that have been made in many emerging markets in recent years are material contributors to the recovery. India, for example, enacted a long-needed, sweeping goods and services tax reform; a crucial new Insolvency and Bankruptcy Code; a foreign direct investment liberalization; and a slew of financial inclusion initiatives. Brazil reformed its fiscally draining pension system and its deregulation drive reduced onerous business costs. China has reined in off-balance sheet, “shadow banking” and refrained from heavy debt-financed fixed investment “stimulus.”
Hundreds of millions of people in emerging markets will resume ascending into the middle class in 2021. Their ranks are estimated to grow 6% annually, if not more. Their demand for middle-class goods and services, from housing to white-line appliances to education and entertainment, has a far longer growth runway than that of mature, developed markets. Digitization means they can leap frog much costly infrastructure spending: wireless broadband over wireline, for example.
To be sure, sensible risk management, we believe, requires a fundamental, stock-by-stock approach that is diversified, stylistically balanced and disciplined. This provides downside protection whenever downturns or black swans appear. It then helps to compound off a higher base as recovery ensues and factor leadership shifts between growth and value, as it frequently does in emerging markets.
Founded in 1982, Thornburg Investment Management is a privately-owned global investment firm that offers a range of multi-strategy solutions for institutions and financial advisors around the world. A recognized leader in fixed income, equity, and alternatives investing, the firm oversees US$45 billion ($43.3 billion in assets under management and $1.8 billion in assets under advisement) as of 31 December 2020 across mutual funds, institutional accounts, separate accounts for high-net-worth investors, and UCITS funds for non-U.S. investors. Thornburg is headquartered in Santa Fe, New Mexico, USA, with additional offices in London, Hong Kong and Shanghai.
Pixabay CC0 Public Domain. Inversores institucionales, hedge funds y gestoras: ¿qué parte de la industria se sube al carro de las criptomonedas?
Cryptocurrencies are not only gaining prominence among individual investors, but also among institutional investors. According to an Evertas survey, 26% of pension funds, insurers, family offices and funds say they will be “substantially” increasing their exposure to this asset class over the next five years.
“Our latest survey shows that institutional investors are enthusiastic about increasing their exposure to cryptocurrencies and cryptoassets in general, but it is clear that there are many issues relating to the infrastructure, operations and regulation behind these markets that are still of concern to them. Clearly there are issues that need to be addressed if we expect institutional investors to want to take advantage of the potential that this asset class can offer,” says J.Gdanski, CEO and founder of Evertas, a company specializing in cryptoasset insurance.
According to their survey, another 64% of institutional investors anticipate a slight increase in their exposure to cryptoassets in general and to Bitcoin in particular. As we explained a few weeks ago, this type of investor sees Bitcoin as an asset to protect themselves from inflation and currency devaluation. Even hedge funds admit to their increased interest in this type of asset, or at least this is what 32% of those surveyed by Evertas acknowledged.
This trend has also been noted by Lyxor. In its Lyxor Weekly report, the company explains that while Bitcoin’s bullish trend in 2017 was driven primarily by retail investors, it appears that the 2020 rally was driven by a broader range of investors, including institutional investors.
“Besides retail investors, family offices and high net worth individuals continue to be the prevailing investors and the sources of new Bitcoin wallets and IP addresses. Bitcoin benefited from a favorable environment, and was increasingly used as a hedge against declining real yields and heavy quantitative easing programs by central banks, as it was feared that this would eventually depreciate global currencies and trigger inflation. It also represents an alternative to declining equity dividend yields. As might be expected, the correlation between Bitcoin and gold and inflation (and, to some extent, equities) is now quite stable,” the report notes.
On hedge funds, he points out that they have become important players in the Bitcoin segment either through dedicated investment vehicles or by incorporating Bitcoin into their allocations. “Although still in its infancy, the market continues to gain depth, in terms of types of investors and product range. In the early days, asset managers focused primarily on direct long positions in cryptoassets such as Bitcoin, Ethereum or Ripple. Since then, the broader range of products linked to digital assets allows managers to implement more flexible and sophisticated strategies. Managers can now use swaps, options and futures indexed to cryptocurrencies; they can also focus on the income generated by the underlying technology. In addition, they can invest in securities issued by crypto-asset companies and their infrastructure, although most of these are still only accessible through venture capital and investment capital strategies,” he adds.
An example of this development is the decision announced by BlackRock, which will allow two of its funds to invest in Bitcoin through futures. At the end of January, the management company informed the SEC that it will include Bitcoin in the eligible investment universe of two of its funds: BlackRock Funds V (including BlackRock Strategic Income and BlackRock Emerging Markets Flexible Dynamic Bond Portfolio) and BlackRock Global Allocation Fund.
“Each fund may use instruments called derivatives, which are financial instruments that derive their value from one or more securities, commodities (such as gold or oil), currencies (including Bitcoin), interest rates, credit events or indices (a measurement of value or rates, such as the S&P 500 index or the prime lending rate). Derivatives can allow a Fund to increase or decrease the level of risk to which it is exposed more quickly and efficiently than with other transactions,” explained BlackRock to the SEC in its statement.
Another way in which asset management firms are approaching the cryptoasset universe is by investing in blockchain technology, which is becoming an increasingly popular area for thematic portfolios that invest in technology or those that follow technology megatrends. For example, Mellon’s BNY Mellon Blockchain Innovation Fund, which is one of the few actively managed blockchain products in Europe.
“Cryptocurrencies are part of the digital ecosystem. They have matured rapidly as the digital world has evolved, with increasing validity underpinned by the growing number of global constituents. The progress of regulatory bodies, the increased use of blockchain technology in businesses and a payments ecosystem help meet the banking needs of a whole new generation that is flourishing. Virtually all of these trends have accelerated as a result of global digitalization efforts to help solve the challenges created by COVID-19. In our view, these developments further validate blockchain as an integral component of the future technology infrastructure,” explain Erik A. Swords and Justin R. Summer, managers at Mellon.
According to these asset managers, “Bitcoin’s key features – being decentralized, supply-limited, secure and increasingly accepted – represent an attractive risk/reward trade-off against the significant tax burdens that central banks will be tempted to inflate as this whole digital transformation unfolds within the financial sector.”
An open debate
Although BlackRock’s decision may seem incidental, it is not; as it is the first time that one of the market’s largest fund managers has made such a decision. This contrasts sharply with the position held on this asset class by investment firms, as few of them are commenting on the subject. However, for example, Chris Iggo, Core Investments CIO at AXA Investment Managers, is willing to give his views on Bitcoin.
“I don’t think of it as a currency, because it has no fundamental legal or sovereign backing. For assets to be considered in a long-term investment portfolio, one should be able to attribute some fundamental intrinsic value to them: the long-term profit growth in equities, the credit risk premium in relation to risk-free rates in bonds. There is no Bitcoin cash flow other than that which is driven by the price change, which can be broadly negative or positive. Certainly, this is not derived from any fundamental economic cash flow such as profits or tax revenues. It is a speculative instrument that ultimately lacks any legal security, that cannot really be valued and which, by the way, has a huge carbon footprint. I would consider investing in or buying Bitcoin in the same way I would consider betting on the Grand National, but not as a serious long-term asset,” Iggo explains.
Billionaire investor Warren Buffett has also been critical of the asset class. Among his many pronouncements on the subject, this one stands out: “Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a cheque, they can’t do anything, and what you hope is that somebody else will come along and pays you more, but then that person has the problem. In terms of value: zero.”
Another critical, or at least reflective, opinion belongs to financial institutions. On this occasion, we have heard the European Central Bank (ECB) call for global regulation of cryptocurrencies. During the Reuters Next conference in mid-January, Christine Lagarde, president of the institution, described them as a “highly speculative asset.” She said: “I think there is an absolute need for global cooperation and multilateral action as initiated at the G7and then carried over to the G20, but it is something that needs to be addressed.”
Whatever the future of these assets may be in investors’ portfolios and in the composition of the funds created by fund managers, as Carlos Ruiz de Antequera points out, it will be imperative to have a good understanding of what cryptoassets are all about.
Latest news
One of the latest developments in the crypto area has been the announcement this week by Tesla that it has invested 1.5 billion dollars in the crypto and expects to begin accepting Bitcoin for payment “in the near future.” This investment will give the firm liquidity in the cryptocurrency once it starts accepting payments, after ending 2020 with only over 19 billion dollars in cash and equivalents.
Pixabay CC0 Public Domain. Amundi crea la división de Outsourcing de Inversiones Amundi OCIO Solutions
Amundi has created Amundi Outsourced Chief Investment Officer (OCIO) Solutions Division, an investment and advisory team that offers investment services aimed at institutional clients and family offices.
In a press release, the asset manager pointed out that OCIO solutions are at the core of its investment management offering, having been carried out for Crédit Agricole Group companies for over 30 years. They have also been offering OCIO solutions to external clients since 2009, totalling 44 billion euros managed on behalf of non-Group companies.
“Against a backdrop of increasingly complex operational and investment challenges for institutional investors, exacerbated by the recent crisis, Amundi formally established in January 2021 an OCIO Solutions Division, embedded within its multi-asset investment platform“, says the statement. The new offering is structured in order to help clients focus on their strategic goals, by shifting to Amundi some or all of the investment functions typically performed by an Investment Committee.
Investment services will be led by a team of senior advisors within the asset manager, specialized per client type, with in depth knowledge of their challenges. In its view, this new set up will help address clients’ crucial strategic, investment and operational needs.
All in all, Amundi OCIO Solutions Division offers institutional clients a variety of fully customizable solutions to manage the complexity of their investments, from pure advisory to fully implemented portfolios and investment platforms, building on state-of-the-art infrastructure while benefitting from the set-up of a leading global player in asset management.
Specifically, OCIO solutions cover: governance and strategy, tactical asset allocation, asset liability management, funds and managers selection, architecture design and implementation, portfolio and risk management, risk overlays, reporting, and knowledge transfer and trainings.
Facing a complex environment
This new division combines 28 OCIO experts, leveraging on the multi-asset investment platform with more than 200 professionals, the 140 analysts and researchers and the whole range of Amundi investment resources present in 40 locations across the world. The division is organised around OCIO senior advisors with strong client experience and dedicated to specific client types: pension funds, insurance companies, family offices, sovereigns, central banks, corporates, agencies. The OCIO experts are located in Paris, Milan, Munich and Hong-Kong for increased proximity with clients.
“This new division leverages our comprehensive expertise and research-driven investment culture to support institutions on their investments, from key strategic asset allocation to portfolio management implementation. In an increasingly complex and sophisticated financial environment, this new OCIO set-up furthers Amundi’s strategy to complement its core asset management activity with services through a long-term partnership approach”, Matteo Germano, Head of the multi-asset investment platform, said.
Meanwhile, Laurent Tignard, Head of Amundi’s OCIO Solutions Division, added that institutional investors are facing a series of challenges, like low interest rates, macro and markets uncertainties, and IT and regulatory pressures. Now, they can outsource this operational investment complexity to the asset manager as an OCIO Partner and focus on their core business.
“We will optimize their operational structure, help them reduce costs, improve investments decision-making and provide better visibility and control of overall risks, both operational and investment. Our recommendations and investments will be aiming at benefiting each client”, he highlighted.
Foto cedidaClément Maclou, gestor del fondo Landolt Investment (Lux) SICAV - Best Selection in Food Industry de ODDO BHF AM. . Clément Maclou se incorpora al equipo de renta variable temática global del Grupo ODDO BHF
The ODDO BHF group is strengthening its global thematic equity management team with the arrival of Clément Maclou as equity manager. The firm highlighted in a press release that this appointment is part of its commitment to accelerate its development by relying on the alliance with Landolt & Cie in Switzerland.
Based in Switzerland, Maclou will take charge of the Landolt Investment (Lux) SICAV – Best Selection in Food Industry strategy, the objective of which is to invest in listed global companies, active across the entire value chain within the agricultural and food industry sectors. This thematic strategy -which is registered in Belgium, Switzerland, France, Spain, Germany and Luxemburg- aims to provide its clients with direct exposure to the global structural trend of the food revolution.
Since 2016, Maclou has been responsible for the management of thematic equity funds at Decalia Asset Management in Switzerland. In 2005, he joined CPR Asset management in France as a thematic equity fund manager.
“We are seeing strong demand from our clients for thematic equity funds. Continuing to enhance our offer to give them access to promising themes is therefore a major development area for the group, to which Clément will actively contribute”; said Laurent Denize, Co-CIO of ODDO BHF Asset Management.
Meanwhile, Thierry Lombard, partner at ODDO BHF and Chairman of the Board of Directors of Banque Landolt, where he initiated the Future of Food project, pointed out that the food revolution is a vital issue for our planet and the future of young generations.
“Starting from the field to the fork, we are bringing together all the challenges that humanity must meet, among which I would like to mention: the environment, agricultural production and distribution, and health. I am therefore delighted that this expertise, reinforced by the arrival of Maclou, will complement the know-how of the ODDO BHF group”, he said.
Pixabay CC0 Public Domain. Allianz GI amplía su oferta de fondos para acciones de China continental
Allianz Global Investors has launched the Allianz China A Opportunities fund. In a press release, the asset manager revealed that it is an extension of the Allianz China A-Shares and Allianz All China Equity product family.
The strategy invests in Chinese mainland equities (so-called A-shares) through a concentrated portfolio of around 45 stocks and is managed by an experienced portfolio management team consisting of Anthony Wong, Sunny Chung and Kevin You.
Allianz GI pointed out that the management team aims to identify “the most promising” large and mid-cap Chinese mainland stocks, based on fundamental criteria and with their proven stock-selection process. The investment philosophy is consistent with the Allianz China A-Shares fund but focuses on fewer stocks. The actively managed Allianz China A-Shares has outperformed its benchmark in each of the last five years under the stewardship of Anthony Wong and Sunny Chung.
“In a few days, China will begin the Year of the Ox, an animal that represents strength, perseverance and straightforwardness. Looking at the performance of Chinese equities in recent months, these attributes also seem to fit the stock market. With the Allianz China A Opportunities fund, we are now offering clients a new vehicle which allows investors to participate in China’s long term growth potential in a high conviction portfolio”, Anthony Wong, portfolio manager for Chinese equities, commented.
Arne Tölsner, Head of Distribution Germany, added that China is an economic giant, but is still underrepresented in conventional equity indices. In his view, this will change in the coming years, as they expect Chinese equities soon to be perceived and allocated as an asset class in their own right, alongside US equities and European stocks.
“With the two funds Allianz China A-Shares and Allianz China A Opportunities, which target Chinese mainland equities, and the broader Allianz All China Equity fund, which also includes the so-called H-shares traded in Hong Kong, AllianzGI now offers clients a well-rounded package to participate in the upward trend of the country”, he concluded.
In 2020, investments in alternative investments made by the AFOREs continued with their dynamism from previous years, with more attention going towards global allocations rather than local ones. While in 2020 investments in local private equity through the CKDs meant total commitments of 1.1 billion dollars; Global investments through CERPIs were practically double, reaching 2.1 billion dollars. In 2020, 5 CKDs and 17 CERPIs were issued.
Through 49 CERPIS the AFOREs ended 2020 with 9.7 billion dollars of committed capital, where only 25% have been called. In 2018, the year in which global alternative investments were authorized for the AFOREs, the committed capital reached almost five billion dollars; a year later (2019) another 2.4 billion dollars were added and in 2020 another 2.1 billion dollars were added, managing to maintain commitments above 2 billion dollars in the last two years.
The capital called barely reaches 2.4 billion dollars at the end of 2020 and its evolution has been gradual in recent years. In 2018 they were called 1.4 billion dollars; In 2019, 668 million dollars were added and in 2020 another 302 million dollars, so there would be still to call 7.3 billion dollars to channel them to global private equity projects.
These investments have been directed to the fund-of-funds sector, which represents 80% of the resources raised, followed by the private equity sector with 11% and the infrastructure sector with 7%. It is highly likely that the fund of funds sector has a diversity of sectors and projects, as this information is not public.
The assets under management of the AFOREs ended the year at 237 billion dollars, of which 5.7% are alternative investments, both local and global. Global investments barely mean 1% at market value or 4% if the committed resources are considered.
The assets under management of the AFOREs increased 12% in dollars in 2020, going from 211.8 to 237.2 billion dollars, which means 20.4% of GDP. It is interesting to observe that while in 2019 the local and global alternative investments of the AFOREs were 6.1%, a year later they had a slight decrease to end at 5.7%. Although there was a small decline from one year to the next, the growth in assets under management caused the percentage to drop and this is precisely what will give these investments greater dynamism by seeking competitive risk-adjusted options.
Preqin, the leading global private equity fund analyst, estimates the alternative asset industry will continue to grow and reach more than 17 trillion by 2025, which means registering a compound annual growth rate of 9.8% (CAGR rate) and a general increase of 60%.
Preqin believes that the private equity and private debt sectors will be responsible for driving the growth of alternative assets over the next five years, registering an increase in their assets under management of 16% and 11% annually. In fact, he points out that private equity will end up representing 53% of the alternative investment industry by 2025.
For 2021, AFOREs could be expected to maintain the dynamism of global investments at 2 billion dollars as seen in recent years.
Foto cedidaJim Leaviss (M&G), gestor del fondo M&G (Lux) Global Macro Bond y CIO de renta fija en M&G Investments.. Jim Leaviss (M&G): “El entorno de bajos tipos de interés representa el mayor reto para los inversores en renta fija”
Jim Leaviss, CIO of Public Fixed Income at M&G Investments, has over 30 years of experience in the industry, so he’s basically seen it all. That’s why in this interview we discussed with him the current environment and potential investment opportunities in the fixed income market.
Question: Low rates, negative yields on government bonds, inflation, purchase programs, increased defaults… What is the main challenge for fixed income managers?
Answer: The low interest rate environment arguably presents the greatest challenge for fixed income investors, although through a flexible and diversified approach we believe it is possible to capture attractive pockets of value across global bond markets. With this flexibility, we can constantly reassess relative value, ranging from government bonds and inflation-linked securities, to all segments of corporate bonds and emerging market debt.
Q: Looking ahead to preparing portfolios for 2021, in which fixed income assets do you see value? And by geographic area?
A: We continue to hold a constructive view on long-term valuations in emerging debt markets on a selective basis, given factors such as the real yields available in many developing countries. In addition, the backdrop of low or negative yields in developed markets has helped to underline the attraction of higher yields that can still be found among emerging market bonds. While default rates in emerging markets may be expected to rise, we believe that opportunities can still be found that offer adequate compensation for default risk. We would also note emerging markets continue to compare favourably versus developed nations on considerations such as economic growth forecasts and debt-to-GDP ratios.
Q: Considering the M&G (Lux) Global Macro Bond Fund, we see that you use currency exposure to generate returns, but also to reduce risk. Could you explain this strategy and how it is translated into portfolio exposure?
A: We consider currency investing to be a natural extension of bond investing which provides the potential to add value to performance. Within our currency approach, we examine the relative attractiveness of different currencies, analyzing indicators such as capital flows, economic growth, current account balances, monetary policy, and valuation metrics such as real effective exchange rates and purchasing power parity. In doing so, we seek to weigh up the relative values of currencies and assess how they may change.
The outcome of this process is that we only hold currencies that we expect to perform well. Relevantly, a diversity of factors typically has driven performance across global currency markets. Some currencies, such as the Norwegian krona and Canadian dollar, have tended to correlate positively to the oil price and to inflation. This may lead us to hold them in conjunction with inflation-linked bonds as we seek to increase the fund’s inflation sensitivity. Other currencies, such as the US dollar and Japanese yen, are typically viewed as ‘risk-off’ currencies that have tended to do well in times of market stress. Through such considerations, we always view currencies within the context of the other assets held in the portfolio, and approach currency positioning not only as a means to try to generate returns, but also as a way to manage and diversify risk.
Q: In the long term, how would a return to normal life and central banks being less active in the bond markets affect fixed income?
A: We think the encouraging developments regarding the COVID-19 vaccine will undoubtedly help to accelerate a return to normality and we could see a strong rebound in economic activity this year. This could have significant implications for the direction of travel in fixed income markets. For example, we think negative US interest rates now look unlikely, and we would expect the next move in rates to be up rather than down. For these reasons, we are staying cautiously positioned from a duration perspective.
At the same time, we believe many of the long-term trends that have driven yields lower over the past 30 years remain in place (such as ageing populations, technological developments and globalization), so we would not expect to see any significant rise in government bond yields. We will therefore remain flexible and look for opportunities to add duration where we see attractive value.
Q: How are fixed-income portfolios adapting to this low-for-long interest rate horizon?
A: As outlined above, we believe a flexible approach will be key to adding value in an environment of long-term, low interest rates. While we view the vaccine arrival as a positive development, the global economy still faces significant challenges. We therefore remain fairly defensive positioned overall, with a sizeable allocation to government debt. We have also been reducing our allocation to corporate bonds -especially high yield credit- given the recent tightening in credit spreads and continued economic difficulties caused by the pandemic. However, we believe there is still value to be found within global bond markets, and we maintain a constructive outlook on a number of emerging markets.
Q: In this sense, will we return to normal monetary policy or are we at an impasse? Which assets will suffer in a rate hike scenario?
A: We believe the world’s central banks will continue to support bond markets, whether through low interest rates or through an extension of their QE programs. While we think a modest rise in interest rates is possible as economic growth picks-up next year, we would not expect rates to return anywhere close to their historic levels. In this respect, we are not expecting a return of ‘normal monetary’ policy any time soon. While we remain cautiously positioned from a duration perspective for the time being, we could well take advantage of any future rise in yields to add some duration risk where we see value.
Q: Some analysts are suggesting that by the second half of 2021 we will see a bit of inflation. What is your outlook? Should we hedge portfolios for a possible increase in inflation?
A: In the near-term, the pandemic appears to have had a deflationary impact, with significantly reduced demand more than offsetting any supply factors. We do think inflation is likely to pick-up this year as economies reopen and consumers start to spend again. We are also mindful of the potentially inflationary impact of huge levels of fiscal stimulus from government around the world. For these reasons, we maintain some inflation-linked exposure, such as an allocation to US TIPS which we believe provide an attractive way to hedge against higher US inflation. That said, we believe many of the underlying forces that have kept inflation low for the past couple of decades remain in place and our base case scenario is for inflation to remain relatively subdued for the next few years.
Pixabay CC0 Public Domain. Regnan lanza el fondo Global Equity Impact para inversores pertenecientes a la Unión Europea
Regnan, the responsible investment management business affiliated with JO Hambro Capital Management (JOHCM), has announced the launch of the Regnan Global Equity Impact Solutions Fund (RGEIS) for EU-based investors. The firm has also appointed Freeman Le Page as Portfolio Specialist.
In a press release, the asset manager revealed that the strategy will be available via Regnan’s Dublin-domiciled OEIC fund range. This comes after the launch of vehicles for UK and Australian-based investors in October and December 2020 respectively.
The fund aims to generate long-term outperformance by investing in mission-driven companies that create value for investors by providing solutions for the growing unmet sustainability needs of society and the environment, using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens. Regnan also pointed out that it is a high conviction, diversified, global multi-cap fund with a strong emphasis on driving additional impact through engagement.
An annual management charge of 0.75% will apply for the Dublin-domiciled fund’s ‘A’ share class, with euro, unhedged and hedged, sterling and US dollar share classes available, subject to a minimum £1,000 investment, or currency equivalent. Furthermore, founder investors can take advantage of a seed share class featuring reduced fees and an expense ratio cap.
A new portfolio specialist
The asset manager also announced the appointment of Freeman Le Page as Portfolio Specialist. He joins from Newton Investment Management where he was SRI Client Director, managing accounts for investors with responsible investment mandates. Based in London, Le Page will be supporting Regnan’s investment strategies and the growth of the business in this newly created role.
Led by Tim Crockford, the Regnan Equity Impact Solutions team are pioneers in impact investing in public equity markets. The team previously managed the Hermes Impact Opportunities Equity Fund, which Crockford launched in December 2017.
“We are excited to bring the fund to European investors after the launch of our UK and Australian funds last year. We are seeing increasing interest in public market impact investing across Europe. Investors are being drawn to an approach that promotes long-term investment in companies providing solutions to the environmental and social problems facing the world while at the same targeting an index-beating return”, Crockford said.
Pixabay CC0 Public Domain. SKY Harbor transforma todas sus estrategias en sostenibles
SKY Harbor announced in a press release the transformation of all of its investment vehicles into ESG funds. Additionally, two of these US high yield strategies are widening their potential investment universe by incorporating non-dollar issuers and are thus becoming global.
The asset manager highlighted that it has long been supporting high yield investors in their quest to integrate sustainability into their risk-taking. As a further evolution of this commitment, all three sub-funds of the SKY Harbor Global Funds Sicav –totaling over 2.8 billion dollars of assets under management– are now effectively embedding sustainable investment principles.
“The below investment grade issuer universe is not well-positioned for the transition to a more sustainable economy given that in many cases they have secularly or cyclically challenged business models and lack the scale that would be supportive of a pivot to more sustainable products, processes and behaviors. We do, however, believe that supporting the companies where the commitment is sincere is our duty as responsible asset managers. Furthermore, we are convinced that investments in companies that position themselves for a more sustainable economy will deliver higher returns with lower risk over time”, said Hannah Strasser, founder and CEO of SKY Harbor.
The asset manager pointed out that, consequently, now the entire SKY Harbor Global Funds Sicav is complying with the latest and most stringent regulatory developments within the European Union, notably meeting the “significantly engaging” criteria from the French AMF doctrine. This means that eligible bond issuers will be measured by their transparency and disclosure of key climate-related risks, commitment to the communities in which they operate, focus on governance, health and safety, and policies and commitments around diversity and inclusion. All in all, “exposure to sectors and industries that are deemed to have unsustainable characteristics is minimized“, they said.
Further proof of its commitment is that all the commingled funds that SKY Harbor is either managing or sub-advising in Europe, in the US and in South America, which account for the majority of their assets under management, are about to implement such a Sustainable investment approach.
