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Nick Hayes: “Yields Could Continue to Rally on Any Undershoot of Investors’ High Expectations for the Recovery”

Hayes Nick AXA IM 2 — Foto cedidaNick Hayes, responsable de asignación de activos en las estrategias de retorno total y renta fija de AXA Investments Managers. Nick Hayes

The Global Strategic Bonds strategy, managed by Nick Hayes, Head of Asset Allocation for AXA Investments Managers’ Total Return and Fixed Income Asset Allocation strategies, is a flexible strategy that invests across the fixed income spectrum: government bonds, inflation-linked, investment grade credit, high yield and emerging market debt. This means that there is no single point in time when it is appropriate to invest in the fund, as it has the ability to adapt its allocation and positioning to the point of the economic cycle.

However, this does not mean that the fund provides strong positive returns in any environment. So far this year, the strategy has been able to navigate the bear market in fixed income with flat performance and, in recent months, has managed to begin obtaining positive returns as the bond rally has gained momentum. While the management team does not rule out the possibility for higher bond yields, it believes the worst of the sell-off in the fixed income market is over and attentions have now turned to the uncertainty in economic data and fragility of the ongoing recovery following the COVID outbreak.

According to Hayes, yields could continue to rally on any undershoot of investors’ high expectations for the recovery. As a result, the risk/reward trade-off has shifted to a more constructive view on duration. It could also be argued that the Global Strategic Bonds strategy offers investors benefits beyond attractive risk-adjustedtotalreturns, i.e. it provides much-needed diversification to complement an equity allocation and a strong focus on ESG integration.

The Inflation Debate

Reflation is the buzzword in 2021; inflation levels have reached much higher levels, and both expected economic growth and investor optimism are high. U.S. Treasuries have led the rise in yields throughout Q1, with the 10-year US Treasury bond reaching a yield of 1.74% at the end of March, with an apparent market consensus for 2% yields at some point in 2021. Despite this, however, bond markets have actually rallied since April, with much of the market caught underweight duration.

The reasons for this rally, according to Hayes, are much more driven by sentiment and technical factors than pure macroeconomic or fundamental. Although US inflation has printed much higher than in recent memory, the data has increasingly failed to meet or beat the even higher market expectations for inflation, leading to a consensus that it will be transitory and return to much lower levels at an undetermined point. Rather irrationally, investors sometimes place too much emphasis on key levels and round numbers. A 1% yield on the 10-year U.S. Treasury note is the starting point for the year, a 1.5% yield is halfway there, and a 2% yield would be the target that many investors think the market is headed for. If the market stays below 1.5%, bond investors will begin to focus on inflation data for the second half of the year, which will likely be lower than recent months and many will be concerned about the possibility of inflation falling below the central bank’s target, as has been the trend for many years.

Furthermore, at its June meeting, the Fed took a more hawkish tone by advancing the expectation of a rate hike with its dot plot, which summarizes Federal Open Market Committee (FOMC) participants’ outlook for interest rates, now suggesting two increases in 2023. A more hawkish Fed should point to higher yields, but other factors come into play, crucially that it might not allow inflation to run as hot as previously expected, adding credibility to the transitory inflation theory.

With yields rallying since April, investors have been rushing to close their short duration positions, creating technical demand for duration and compounding the move lower in yields. According to Hayes, for the time being, there is still reason to believe that the rally can continue with these factors in play.

Exposure to the yield curve

Looking at the spread between five-year and thirty-year U.S. treasury bonds, there has been a large steepening in yield curves in late 2020 and early 2021. With little movement in short-term bonds, the selling sprees have been focused on longer-term bonds that have substantially underperformed through March.

In recent months, however,stimulated by the transitory inflation momentum, the curve has been flattening, a move that accelerated during the week of the Fed’s June meeting. The scale and speed of the move appears to have forced many investors to rotate out of short-dated bonds and into long-dated bonds, unwinding many of the reflationary positions that were so consensual throughout the first quarter.

Over this period, the Global Strategic Bonds strategy has actively managed its duration position in line with market events. In mid-February, all the momentum seemed to be with the reflation trade, meaning much higher bond yields than expected, causing the team to significantly reduce duration from over 5 years to 1.5 years, stripping out nearly all outright US duration exposure but with a steepening position on the US curve. This worked well to protect the portfolio from the worst of the rates-driven sell-off in the first quarter. Since April 2021, however, the team has started building up a duration position once more, concentrated in long-dated US duration, which has worked well as the curve has flattened aggressively, sitting in early July with over 4 years of exposure.

Credit exposure

In the high yield corporate bond market, spreads continue to move sideways or tighten, supported by relentless demand from investor appetite for a bit more yield than that offered in the investment grade bond market. While these spread levels seem increasingly stretched from a valuation perspective, they appear to be well anchored with strong demand from both investors and central banks.

At the individual security level, there has been a greater level of dispersion in 2021 than there was in 2020, meaning lots of bonds with very compressed spreads as well as others trading at much more attractive valuations, making bottom-up credit fundamental analysis absolutely key. Increasingly, however, these levels of dispersion are beginning to decrease as spreads grind tighter and valuations appear stretched across the board, potentially making a more prudent approach to credit necessary in the coming months.

Currently, the Global Strategic Bonds strategy has a 36% allocation in emerging markets and high yield and 30% in investment grade credit. Its investment-grade bias is toward BBB-rated securities, investing primarily in bank and insurance company debt, and other companies that could benefit from the recovery following the COVID crisis. In high yield, the team has reduced exposure to some of the more cyclical companies and is focusing on shorter-dated high carry names. In emerging markets, they are moving away from traditional commodity sensitive areas, towards sectors that are influenced by the middle class consumer and increasing exposure to renewable energy brands.

Complacency over Inflation May Be the Biggest Risk Facing Investors

| For Sofia Cisneros | 0 Comentarios

sit-4300448_1920 — Pixabay CC0 Public Domain. La complacencia respecto a la inflación podría ser el mayor riesgo al que se enfrentan los inversores

The “Roaring Twenties” lived up to the hype in the first half of 2021 as most major indexes –S&P 500, FTSE 100 or Shanghai Composite- posted double-digit returns. Looking into the second half of the year, strategists of Natixis Investments Managers believe that along with rising returns, investors should especially watch two things: inflation and valuations.

These are the conclusions of a mid-year survey of 42 portfolio managers, strategists and economists representing Natixis IM, 16 of its affiliated asset managers, and Natixis Corporate and Investment Banking. It shows that even as the market considers the first real dose of inflation in 13 years, complacency may actually be the biggest risk facing investors.

More than a year into the pandemic, with light at the end of the tunnel, Natixis experts believe that long-term consequences of the last year will be slow to unfold. Still, the year-end outlook remains constructive with few risks on the horizon, suggesting investors best keep their eyes wide open as the long-term effects slowly begin to unfold.

“The Wall of Worry continues to keep sentiment in check. We hear many concerns about peak growth, and we remind investors not to confuse peak growth and peak momentum. We expect the pace of the recovery to ease, but ease to levels that are still very supportive for corporate earnings,” says Jack Janasiewicz, Portfolio Manager & Portfolio Strategist for Natixis Investment Managers Solutions.

Despite big returns from investment markets, the global economy has not yet fully reopened. More than half (57%) of strategists project it will take another six to nine months for the world to fully reopen. Others are similarly split between whether the economy is gearing up for the reopening towards the end of 2021 (21%) or whether it will be delayed until the second half of 2022 (19%).

Strong growth in the US

Regionally, sentiment runs most positive for the US economy. After watching it reopen sooner and faster than expected, with Q2 growth set to be 11% (annualized), two-thirds say they expect it to neither stall nor overheat in the second half, suggesting still strong growth ahead.

Looking at China, where economic growth has recovered to pre-pandemic levels, six in ten say the recovery has already peaked. Less than one-third (31%) think there’s more room for the Chinese economy to run in the second half of the year.

In Europe, where vaccination efforts are a few months behind the US and reopening is set to accelerate during the second half, 57% believe the economy will continue to lag the US, though 43% do believe it will catch up to the rest of the world through the end of the year.

Is complacency the real risk?

In this context, no single risk stood out for Natixis strategists in this annual survey, with no risk factor rated above an average of 7 on a scale of 10. Taken together, the views suggest that investors should monitor risks and investors be on the watch for potential headwinds.

“Indications are that inflation will prove transitory, driven by consumers fresh out of lockdown and flush with cash, coupled with supply chain bottlenecks. But the risks are clearly to the upside. Even the Fed had to acknowledge that inflation would run hot in 2021, though it is confident it will not spiral beyond that,” said Lynda Schweitzer, Co-Team Leader of Global Fixed Income at Loomis Sayles.

Value continues to lead in equities

One of the key market trends to come out of the pandemic has been the rotation to value investing. Looking into the second half of the year, 64% of those surveyed say value has at least a few more months to run, though only a quarter (26%) believe that outperformance could last for a few years. Only 10% believe the value run is already over, a sentiment that was strongest among the 21% of respondents who see markets stalling in the last two quarters of 2021.

Chris Wallis, Chief Investment Officer at Vaughan Nelson Investment Management points out that for value to continue to outperform, “we will need inflation to prove transitory and further fiscal spending by the federal government”.

It all comes down to the Fed

Of all factors that could impact market performance over the second half of 2021, strategists say that Fed moves matter most, rating them 7.2 out of 10. Similarly, they cite economic data releases (6.7), fiscal spending (6.1) and liquidity (6) as key leading market drivers, demonstrating just how much sway central banks continue to hold over markets. Valuations (5.2), vaccinations (5.1) and geopolitics (5) round out the pack, showing that respondents are looking past the pandemic and that, while valuations are high, they often do not lead to a correction on their own.

The outlook for emerging markets in the second half of the year is also dependent on the Fed, according to the survey. Indeed, 45% of respondents caveat their call for EM outperformance with the dollar and yields remaining contained, showing how far-reaching the Fed’s impact is. Only 10% of respondents gave an outright “yes” to EM outperforming into the end of the year, while 14% say EM needs Chinese growth to remain robust and nearly one in three (31%) said “no,” emerging markets will not outperform during the second half of 2021, regardless of any caveats.

ESG and crypto positioning

In considering two of the leading investment stories to come out of the pandemic, Natixis strategists have the strongest convictions about ESG (Environmental, Social, and Governance) investing. Throughout the pandemic, ESG strategies generated impressive results in terms of both returns and asset growth. Few think the success will be short-lived, as one in ten of those surveyed think of ESG as a fad. Instead, 48% say these investments are becoming mainstream and 26% call them a must-have investment.

When it comes to cryptocurrencies, the asset manager believes that while they have been grabbing headlines over the past year, two-thirds of those surveyed believe the market under-appreciates the risks, 17% say crypto is nothing more than a fad and 12% believe it is a disaster waiting to happen. “Not one of the 42 strategists surveyed believes cryptocurrencies are a bona fide alternative to traditional currencies”, the analysis adds.

Post-pandemic winners remain the same

As we start to look post-pandemic, respondents saw little change in the projected post-pandemic winners compared to last year’s survey. This year, strategists call for technology (88%), healthcare (83%), ESG investing (76%), and housing (74%) to be the winners from the crisis.

Given that nearly six in ten strategists (57%) put stay-at-home business in the winners’ column, it appears many think it will take time for the sector to mirror the return to the office. Convictions do not run as strong for energy (38% winner / 62% loser) and travel (52% winner, 48% loser), an outlook that aligns with a full reopening sometime in the first half of 2022 rather than the last half of 2021.

Carlos Carranza Joins Allianz GI’s Emerging Markets Debt Team

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Screenshot 2021-07-19 124446 — Carlos Carranza, foto cedida. foto cedida

Allianz Global Investors has appointed this week Carlos Carranza as Director and Senior Investment Strategist of its Emerging Markets Debt team.

Carranza will be based in the New York office and report to Richard House, Chief Investment Officer for Emerging Markets Debt. He joins from JP Morgan where he worked for thirteen years, leading the Latin America FX and Local Rates Strategy team as part of the Emerging Markets Research Group.

In his new role at Allianz GI, Carranza will provide macroeconomic, political, and ESG analysis of Latin American countries to develop and maintain country-specific macroeconomic and ESG models for investment trade ideas, portfolio monitoring, and positioning.

Carranza is bilingual in English and Spanish and received his Bachelor’s Degree in Actuarial Science from the University of Buenos Aires and Master’s in Finance from the University of Macroeconomic Studies, both in Argentina.

Wage Inflation, Excessive Issuance and Dearth of Liquidity Should Caution Bond Investors

| For Cecilia Prieto | 0 Comentarios

lifesaver-933560_640 — Pixabay CC0 Public DomainSalvavidas. Seguridad

Recently, the Fed spoke about how the U.S. economy was developing better than they had expected. They saw both growth and inflation as higher than they previously forecasted. This prompted the board of governors to move their timing of hikes forward by a few months, although still a couple of years from now. This was a punch in the market’s gut.

The timing estimate alteration was more due to positioning differences, really than a huge change in communication from the Fed. I would say that the Fed unanimously adopted a new inflation targeting framework last year, and part of that inflation targeting framework was that they would wait much longer to act than they had previously. It would be very unusual if the Fed were to change that framework again so quickly, and more likely the statement was simply the acknowledgement of the fact that growth and inflation were maybe notably higher, but still not likely to change their trajectory much.

However, inflation expectations are picking up. There are a lot of questions around the effects of inflation, both in the United States and globally. Although it’s difficult to figure out how temporary supply/demand balances might pass through to long-term price pressures, what investors really need to be looking at are the changes to levels of global wages. Wages are much stickier than goods prices. Lumber costs can go up and down, and commodity costs generally can go up and down, but once you get an increase, it’s hard to unring that bell. As somebody once said to me, “A raise is a raise for about three months, then it’s just your salary.” It almost never goes the other way. We’re seeing some wage pressures and some elements of a labor shortage, definitely in the U.S. and potentially globally. Keep an eye out.

Real Yields are Negative, but Consumer Balance Sheets are Strong

Real yields across the world in developed markets are essentially negative. This is an unprecedented condition and something which is extremely stimulative to the global economy, but the removal of that stimulus and the removal of that combination are challenging as we have seen recently. The market’s reaction to Fed remarks may be exaggerated, but negative real yields continue to be a dominant force. One of the reasons why Bond Connect is so interesting and so important is that China represents a vast market with positive real yields—hard to find elsewhere.

Global households in many places around the world are in much better shape than governments or companies. The consumer balance sheet, in aggregate, is strong relative to both historical metrics as well as versus the health of corporate and government balance sheets. The ability for consumers to service and pay down debt provides a strong fundamental tailwind for securitized bonds, particularly consumer-backed ABS and residential mortgage securities. Securitized bond investing allows investors to access sectors and securities with different risk/reward characteristics, underlying loan diversification, and loss protection features.

Increased Market Size Does Not Equal Greater Liquidity

I would caution investors who believe that lots of supply and larger market size equals good liquidity. Unrestrained issuance doesn’t necessarily lead to better investment opportunities.

In fact, liquidity tends to increase in good times, and evaporate in very bad times, and this exacerbates the market cycles that we’re seeing. When markets have a thirst for liquidity, it’s nowhere to be found, and that’s the environment we’re in, and a direct result of how markets have evolved due to regulation and to investor preference.

Liquidity is particularly important, given flows can be dramatic. One of the reasons why we saw the fastest downturn in credit markets in history in March 2020, was that flows in the worst week were 18 times worse in 2020 than the worst week in 2008. So, more money into markets, more money in and out of markets means that liquidity management is more and more important. That provides an opportunity. If you have got cash when other people don’t, you get some great prices, and ultimately that’s how we’re structured to manage and that’s what we executed in 2020.

Summary: Risk Up, Reward Potential Down

Generally, however, the compensation for taking on risks of over and above high-quality fixed income is pretty low. Heavy issuance by both corporates and the government at low rates has created a lot of unattractive paper. Therefore, we’re risk adverse, but the risk we are taking is more in global consumer balance sheets versus corporate or Treasury balance sheets.

And lastly, across the world you’ve seen a significant increase in duration and interest rate risk with a significant decrease in yield: The global aggregate index is at a duration of 7.4 years and a yield of 1.1. In 2010, the global aggregate had a duration of 5 years, so less interest rate risk, and a yield of 3.1, so almost three times as much yield. In 2000, back when everybody was buying internet stocks, just like they are today, the global aggregate had a duration of 5, so the same as 2010, but its yield was 5.8, which was a significant real yield, significant over and above inflation.

All this is to say risks are relatively high in fixed income and rewards are relatively low. Fixed income is really being used as a policy tool globally, and that’s just something that we as investors both in global fixed income and in global equities are required to navigate, and it’s producing some very unusual markets.

Jason Brady, CFA, is President and CEO at Thornburg Investment Management.

Important Information

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This is not a solicitation or offer for any product or service. Nor is it a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Thornburg makes no representations as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein.

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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.

For more information, please visit www.thornburg.com

Santander Acquires Amherst Pierpont, a U.S. Fixed-Income Broker Dealer

| For Marcelo Soba | 0 Comentarios

Captura de Pantalla 2021-07-15 a la(s) 14 — . Pexels

Banco Santander has announced that its U.S. holding company, Santander Holdings USA, has reached an agreement to acquire Amherst Pierpont Securities, a market-leading fixed-income broker dealer. The operation will take place through the purchase of its parent holding company, Pierpont Capital Holdings LLC, for approximately 600 million dollars.

In a press release, the bank has revealed that, with this transaction, Amherst Pierpont will become part of Santander Corporate & Investment Banking (Santander CIB) global business line. It is expected to close by the end of the first quarter of 2022, subject to regulatory approvals and customary closing conditions.

“This acquisition is consistent with our customer focused strategy and our commitment to profitable growth in the USA. It complements our product offerings and capabilities, allowing us to strengthen our relationships with our corporate and institutional clients”, Ana Botín, Santander Group executive chairman, said.

In her view, the new team brings a successful track record and experience in delivering value for their clients. “We look forward to incorporating their many strengths into our very successful and growing CIB organization”, she concluded.

Amherst Pierpont is an independent broker-dealer based in the U.S., with a premier fixed-income and structured product franchise. It was designated a primary dealer of U.S. Treasuries by the Federal Reserve Bank of New York in 2019 and is currently one of only three non-banks to hold that designation. It has approximately 230 employees serving more than 1,300 active institutional clients from its headquarters in New York and offices in Chicago, San Francisco, Austin, other US locations and Hong Kong.

The bank believes that the operation enhances Santander CIB’s infrastructure and capabilities in market making of US fixed income capital markets, provides a platform for self-clearing of fixed income securities for the group globally, grows its institutional client footprint, and expands its structuring and advisory capabilities for asset originators in the real estate and specialty finance markets.

The combined platform will also have strong capabilities in corporate debt and securities finance across the US and emerging markets. The acquisition creates a comprehensive suite of fixed income and debt products and services that will drive deeper and more valuable relationships across its respective client bases.

Joe Walsh, Amherst Pierpont’s CEO, pointed out that Santander Group is one of the world’s “most respected” financial institutions and “an ideal partner” for their growing franchise. “With Santander’s global reach we will be able to significantly expand our product offering, grow our client base and increase the level of service we can provide to our clients”, he added.

The broker dealer has generated attractive returns, with an average return on equity (RoE) of approximately 15% since 2016. In 2020 it generated a RoE of 28% and an estimated return on risk weighted assets of 3%. Its acquisition is expected to be almost 1% accretive to group earnings per share and generate a return on invested capital of 11% by year 3 (post-synergies), with a -9 basis point impact on group capital at closing.

The press release has revealed that Wachtell, Lipton, Rosen & Katz and WilmerHale served as legal advisors to Santander in connection with the transaction. Meanwhile, Barclays served as financial advisor to Amherst Pierpont, and Shearman&Sterling as legal advisor.

BlackRock Takes Minority Stake in SpiderRock Advisors

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caccamo wall street — Pixabay CC0 Public Domaincaccamo. caccamo

BlackRock and SpiderRock Advisors have entered into a strategic venture to expand access for wealth firms and financial advisors to professionally managed, options-based separately managed account (SMA) strategies. As part of the agreement, BlackRock will make a minority investment in SpiderRock Advisors.

This new venture builds on BlackRock’s position as a market leader in personalized SMAs, with its franchise managing over 190 billion dollars in SMAs as of March 31. This includes the acquisition of Aperio, a provider of personalized index solutions, which took place at the end of 2020.

SpiderRock Advisors will offer wealth management firms and financial advisors more tools to deliver tax-efficient, personalized portfolios and risk management solutions. This leading provider of customized options strategies in the U.S. wealth market manages approximately 2.5 billion dollars in client assets as of March 31, 2021.

The firm’s strategies are available through all of the major RIA custodians and are focused on risk management and yield enhancement for diversified portfolios as well as concentrated stock positions. BlackRock’s market leaders and consultants in U.S. Wealth Advisory will serve as the primary distribution and marketing team in introducing SpiderRock Advisors’ advisory services and strategies to wealth firms and financial advisors.

BlackRock is already an industry leader in SMAs for U.S. wealth management-focused intermediaries. The firm’s SMA franchise specializes in providing customized actively managed fixed income, equity, and multi-asset strategies. In its view, the venture with SpiderRock Advisors will expand the breadth of personalization capabilities available to wealth managers through this firm.

!We are excited to partner with BlackRock to introduce SpiderRock Advisors and our options management capabilities to a wider audience of firms and their clients,” said Eric Metz, President and Chief Investment Officer of SpiderRock Advisors. He believes that innovative advisors understand the value of managing risk “as we navigate a challenging capital markets landscape”.

“Between potential tax reform, historically low interest rates, and volatile equity markets, options-based strategies and solutions can often solve client objectives more efficiently than conventional allocations and techniques. With BlackRock’s breadth of industry relationships, SpiderRock Advisors will be able to partner with more advisors to deliver tailored portfolios and help investors achieve their investment goals“, he concluded.

Isadora Del Llano, Yzana Oestreicher, María Elena García and Nilia Gasson Join Insigneo from Wells Fargo

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Captura de Pantalla 2021-07-14 a la(s) 15 — . Pexels

The independent investment advisory firm Insigneo has announced the incorporation of a new team of four financial advisors who formed Green Grove Wealth Management. This group of women is comprised of Isadora “Sisi” Del Llano, Yzana Oestreicher, Maria Elena Garcia, and Nilia Gasson, who represent for the company “decades of dynamic international financial experience serving high net worth clients”.

They all serve as Managing Director at Green Grove WM and together they manage over 800 million dollars in assets catering to clients in the United States, the Caribbean, South America, Central America, and Europe.

“We are thrilled that Sisi, Yzana, Maria Elena and Nilia have joined our family of independent international financial advisors in Miami. They each come to us with decades of experience, and we look forward to supporting them and helping them grow their business,” said Javier Rivero, President and COO of Insigneo.

Del Llano studied at the University of Puerto Rico and joins Insigneo after 21 years at Wells Fargo Advisors and its predecessor firms, Wachovia Securities and First Union Brokerage Services. Before Wells Fargo, she worked at Paine Webber and Dean Witter. Her clientele is high net worth professionals and business owners throughout the U.S., Latin America, the Caribbean, and Europe.

Oestreicher is joining the firm with 26 years of experience in the financial services industry, 24 of them in Wells Fargo Advisors and its predecessor firms. Prior to that she worked at the Prudential Securities & Dean Witter. She services high net worth clients from Latin America and the Caribbean such as Suriname, Venezuela, Trinidad, Aruba, and several others from the Caribbean. She received her bachelor’s degree in International Finance and Marketing from the University of Miami and her master’s degree in International Business from NOVA University.

García is a 45-year veteran in the financial industry. She started her career at Chase Banking International, and then spent the remaining 30 years at Wells Fargo Advisors and its predecessor firms. Maria Elena focuses on servicing high net worth clients from US, Caribbean, Central America, and Europe.

Gasson has been living in Miami since 1965 and has served 40 years in the industry as a Financial Advisor, 30 of them at Wells Fargo Advisors and its predecessor firms. Previously, she worked at Southeast Bank Brokerage Services. She services clients across three different continents including the United States, Central and South America, the Caribbean, and Europe.

The Green Grove WM team claimed to be “honored” to be partnering with an “exceptional” firm like Insigneo. “This partnership allows for mutual growth and independence that will benefit all of us, but most importantly our clients. Miami is a premier location for the work we do as it grants us strategic access not only to domestic clients, but also markets in Latin America, the Caribbean and Europe. We look forward to a long and fruitful relationship”, they said.

At Insigneo they will leverage the firm’s technology platform, multi-custodian capabilities, robust product offering and open architecture to serve their global client base. The firm has joined the battle to recruit advisors from Wells Fargo’s US Offshore business after the wirehouse announced in January that it was exiting its international segment.

ACCI Signs an Exclusive Distribution Agreement with BlueBox Asset Management

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Captura de pantalla 2021-07-12 a las 18 — Pixabay CC0 Public DomainWilliam de Gale, gestor del BlueBox Global Technology Fund. William de Gale, gestor del BlueBox Global Technology Fund

ACCI, asset management firm specialized in systematic strategies through its ACCI Dynamic fund family, has signed an exclusive agreement with Swiss fund manager BlueBox Asset Management to distribute its BlueBox Global Technology Fund in Latin America and Iberia (Spain, Portugal and Andorra).

In a press release, the firm has revealed that this 5-star Morningstar rated fund is managed by William de Gale, who was Portfolio Manager for 9 years for the BlackRock World Technology Fund. It was launched in March 2018 and has been backed by a broad range of institutional investors, which has allowed it to recently surpass 500 million dollars in assets under management.

In ACCI’s view, this is possible thanks to its differentiated approach among other strategies in the sector, largely avoiding mega-caps and focusing on enabler-type companies, with strong balance sheets, profitability and strong cash generation. It is a UCITS fund, available on the main trading platforms such as Allfunds, Inversis and Pershing, among others.

“This partnership with BlueBox will strengthen our product offering aimed at institutional clientele in Latam South and Iberia, adding a solid and consistent strategy such as BlueBox’s, with average annual returns of over 31% and 141% since its launch just over 3 years ago”, Antonio de la Oliva, Head of Distribution at ACCI, commented.

Gely Solis, Co-Founder of BlueBox Asset Management, said that this agreement with ACCI, “who have proven their impressive distribution capabilities in key regions” for us, will serve to broaden their investor base, consolidate their growth and “give access to a unique strategy such as BlueBox to a broad typology of investors in the region”.

ACCI continues its commitment to offer a wide range of high value-added strategies to institutional investors, complementing its own strategies with distribution agreements with outstanding alpha-generating asset management firms.

The World Needs a Much Higher Carbon Price

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Pixabay CC0 Public DomainAndrew Gook. Andrew Gook

The transition from a fossil-fuelled economy to one powered by renewables carries the promise of being as transformational as the agricultural and industrial revolutions. But as things stand, hopes for containing climate change look ambitious.

New net zero pledges from the US, China and Europe are inadequate. They still leave the world far short of the Paris Agreement goal of limiting global temperature rises to below 2 degrees Celsius from pre-industrial levels. This is why carbon pricing is essential.

According to members of the Pictet-Clean Energy fund’s Advisory Board, a fully functioning carbon pricing mechanism could be the difference between halting climate change and allowing it to spiral out of control. Market forces, they argue, can be a powerful ally, helping change the behaviour of businesses and consumers.

The problem is finding a way to harness them effectively. Currently averaging globally at just USD 2 per tonne of CO2, the carbon market is clearly not doing the job it was set up to do. The International Energy Agency says carbon prices need to rise to as much as USD 140 by 2040 to meet Paris goals.

Breaking the tragedy

Getting there will not be straightforward. As former Bank of England Governor Mark Carney warned, the battle against climate change is hampered by the “tragedy of horizon”. In other words, the current generation has no direct incentive to fix the problem when catastrophic impacts of climate change will not be felt for decades. By making carbon emissions more costly today, however, there is the possibility of avoiding that tragedy.

The World Bank’s modelling has shown that carbon pricing has the potential to halve the cost of implementing Paris targets, saving some USD 250 billion by 2030. One problem is that carbon pricing schemes don’t cover nearly enough of the world’s emissions.

Globally, the carbon pricing market accounts for about 12 gigatonnes of CO2 equivalent – which translates into just under a quarter of all annual global greenhouse gas emissions (1).

The US, the world’s biggest polluter, does not even participate in carbon trading at the federal level while the Paris climate agreement did not include a provision for pricing carbon (2). Industry lobby groups in coal, oil and gas sectors had been fierce opponents too. And then there is a wide divergence in prices from country to country.

European countries set the example. Sweden levies the highest carbon tax in the world at SEK1,190 (EUR 117)/tonne CO2, covering about 40 per cent of its greenhouse gas emissions. In Europe, the world’s biggest and oldest market, carbon prices rose more than five-fold since 2018 to a record high in May (see Fig. 1).

But elsewhere, carbon remains under-priced. According to the IEA, the average carbon prices would need to rise almost 50-fold to USD 75-100 /tonne by 2030 and then USD 125-140 by 2040 to meet Paris Agreement goals.

University of California San Diego researchers believe even that will fall short. Their study puts the social cost of carbon – which takes into account empirical climate-driven economic damage estimations and socio-economic projections – at a staggering USD 417/tonne (3).

The lack of a harmonised market and a unified global carbon price are perhaps the most significant problems. Businesses, especially in energy-intensive industries, may relocate out of countries with high carbon costs into those with laxer emission constraints – in a phenomenon known as “carbon leakage”.

Our advisory board members say renewed international efforts to fight global warming could encourage more countries and regions to start adopting carbon pricing schemes. That should push prices higher in the long term and prevent carbon leakage.

The signs are encouraging. In China, which launched its national carbon market in February, market participants expect the price to average RMB 66/tonne (USD 10) in 2025 before rising to RMB 77 by the end of the decade (4). It has the potential to be the world’s biggest carbon market.

Elsewhere, the American Petroleum Institute, the powerful fossil fuel lobby, is now endorsing the introduction of carbon prices in a major policy reversal that underscored seriousness in tackling climate change.

What’s more, Brussels plans to present proposals to revise and possibly expand its emission trading system in line with the European Green Deal and its new target to reduce greenhouse gas emissions by at least 55 per cent by 2030.

One way to improve the emission pricing system is to expand the use of carbon credits. Governments can give out credits to businesses that lower their carbon footprint with carbon capture and storage (CCS) technology, reforestation activities or energy efficiency solutions.

This way, companies can gain flexibility in complying with carbon pricing regulations.

The discussion on carbon pricing and credits is likely to feature prominently during the landmark UN climate talks in Glasgow later this year as potential cornerstone to supporting climate goals.

Accelerating innovation

An overlooked benefit of effective carbon pricing is that it can also accelerate the pace of innovation in clean energy technologies and promote a faster and broader adoption of products and services that have yet to become commercially viable.

For example, our Advisory Board members say, certain types of hydrogen power generation that combines carbon storage could become cost competitive if carbon prices are set around EUR 60-70 per tonne of CO₂.

Other technologies that could become viable at higher carbon prices include advanced power transmission mechanisms and next-generation batteries.

This would have significant benefits. The IEA estimates such technologies alone have the potential to cut global energy sector CO₂ emissions by nearly 35 gigatonnes of CO₂ by 2070, or 100 per cent of what’s considered sustainable in the same period.

The transition to a decarbonised economy will be among the most wrenching socio-economic shifts humans have ever experienced. Yet even though the survival of the planet is at stake, resistance to change is proving difficult to overcome. A higher carbon price can smooth the path.

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Notes:

(1) Carbon Pricing Dashboard, World Bank
(2) Article 6 of the Paris Agreement provides options for voluntary cooperation amongst countries in achieving their NDC (nationally-defined contributions) targets to allow for higher climate ambition, promote sustainable development, and safeguard environmental integrity
(3) Ricke, K., Drouet, L., Caldeira, K. et al. Country-level social cost of carbon. Nature Clim Change 8, 895–900 (2018). https://doi.org/10.1038/s41558-018-0282-y
(4) China Carbon Pricing Survey 2020

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In Private Equity, the AFOREs Will Continue to Diversify Between Local and Global Sectors

| For Gabriela Huerta | 0 Comentarios

Screenshot 2021-07-06 110628 — Photo: Rulo Luna CC. Foto:

The supply of private equity funds listed on the Mexican stock exchanges (BMV and BIVA), as well as AFOREs’ investments in them, have almost doubled in just over three years. Between December 2017 and March 2021, the number of vehicles increased from 88 to 172 vehicles (+ 95%) while the investments of the AFOREs rose from 7.797 million dollars to 15.365 million dollars (+ 97%).

Mexico is perhaps the only country that has private equity funds registered in its stock exchanges, however, this occurred since the institutional investor can only acquire securities that are the subject of public offering, so making it public was the solution found to give institutional investors access to this asset class in 2009.

In December 2017, investments in private equity were basically local, the real estate sector (30% of the capital called) led the list; followed by infrastructure (21%); private debt (17%); private equity (14%) and energy (11%) to name the most relevant.

By allowing global investment as of January 2018, what has been observed is a recomposition that has allowed the AFOREs to diversify both by sectors and globally.

In December 2017, 93% of the resources were concentrated in 5 local sectors, while by March 2021, 91% were concentrated in 6 sectors where 5 are local and one global. In another 5 additional sectors there are the remaining 7%.

In 2017, investments in CKDs and CERPIs accounted for 4.9% of assets under management and by May 2021 they reached 6.2%, however, it must be taken into account that in the period the assets under management of the AFOREs increased 55% from 160.251 million dollars in December 2017 to 247.825 million dollars as of May 2021.

If you break down 6.2% of the private equity investments held by the AFORE, it means that in just over three years 5.2% are local investments (from 4.9 to 5.2%) and 1% are global investments.

The incorporation of global investments in private equity is not only causing sector diversification, but also a rebalancing between local and global investments. We already observed this recomposition when the AFOREs were allowed to invest in equities (2005), where in the first instance they were allowed local investments and later global investments through a variety of vehicles such as ETFs, mandates and in recent years mutual funds. Currently 14.1% of the assets under management of the AFOREs are in international equities and 5.8% in national equities, which means that 71% of equities are international and 29% local.

Today the AFOREs’ investments in private equity, 80% are in local investments and 20% are global, so as assets continue to grow, the composition of local and global investments will continue to seek sectoral and global diversification.

Column by Arturo Hanono