Photo: lucianalopezrec. “You Can Check Out Any Time You Like, But You Can Never Leave” (Hotel California, Eagles)
In our article of October 2018, we described the country’s history, the fighting spirit and the nation’s pragmatism to support the argument that a Brexit deal, or no deal, would not be an issue over the medium/longer term for the British people. As one observes the population go about its daily business, this comment is still pertinent today.
We also considered some kind of agreement past the Brexit deadline. With the possibility of an extension, this scenario is not totally off the table.
However, what we could not have imagined, was the extent of the political mess Brexit is causing in the House of Commons. As the UK parliament refuses the current proposal put forward by Prime Minister May, it confirms not wishing to leave the European Union (EU) without a deal of some sort at the same time. The actions of British Politicians are making them ‘all just prisoners here … of their own device’ (Hotel California, Eagles). In effect, they have manœuvred themselves into a corner with nowhere to go. They can no longer close the divorce process with the EU weeks before the deadline, nor can they accept a new deal, as there is none on offer (yet).
On the economic front, the Finance industry has already organized itself to maintain access to the European financial market, with passporting ‘put throughs’ via Luxembourg and Ireland. The ‘City’ is well prepared for any outcome. For trade however, the organizational logistics are becoming a nightmare. This is likely to disrupt exchanges with the EU, a large exporter to the UK. In addition, the sorry sight of a disorderly British Parliament and local media bashing of an imminent end of the world for its people post Brexit, are likely to weigh on the consumer sentiment moving forward. Not good for business either side of the channel.
‘Muddling through’, ‘Fudging’ a deal or ‘Kicking the can down the road’ have been traditional ways politicians sort out problems. However, the times today are so grave and the decisions of such consequence that these approaches are no longer appropriate. To top it all, the population is now divided and feed up with the whole Brexit issue. A new referendum or general election might not even provide a clear answer as to what way to go. As deadlock looms pending a new deal (if ever there is one), the UK could end up just being ‘unable to leave’ after having triggered Article 50 to ‘check out’ of the EU.
Wikimedia CommonsPhoto: koka_sexton. The Fed Will Stop Reducing its Balance in September
The Federal Reserve on Wednesday left rates unchanged and lowered its economic forecasts. Moving from a 2.3% GDP growth estimate to a 2.1%, as well as upping unemployment numbers from 3.5% to the still low 3.7%. It also signaled it was done hiking rates for the year.
“Growth is slowing somewhat more than expected,” Fed Chair Jerome H. Powell said at a news conference. “While the U.S. economy showed little evidence of a slowdown through the end of 2018, the limited data we have so far this year have been somewhat more mixed.”
Most importantly, the Fed also announced it would stop reducing its balance by September.
According to Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income: “The Committee also re-iterated its intention to run a larger balance sheet going forward than previously assumed, which we would agree with. That approach is more sensitive to the banking and broader financial system, which arguably has become a much larger part of the economy than ever before, but this is not necessarily a dangerous dynamic at all. It just requires regulation and moderate policy adjustment over long periods of time. Reducing mortgage holdings as part of the balance sheet adjustment and running a shorter weighted-average maturity of its Treasury holdings allows the Fed to run a larger balance sheet, but with less duration and a less “credit-heavy” character over time.”
Wikimedia CommonsPhoto: Steven Depolo. LatAm Institutional Investors Embrace ETFs As Instrument Of Choice For Volatile Times
Latin American institutions continue to adopt ETFs at record levels according to the third annual Latin American Exchange-Traded Funds Study from Greenwich Associates, with ETF allocation now 18% of total assets in 2018. This is up from 13% in 2017 and just 8% in 2016.
The Greenwich Associates study, entitled “ETFs: Instruments of Choice for Latin American Portfolios” surveyed 50 institutional investors throughout Latin America on how they are utilizing and implementing ETFs within their portfolios. Latin American institutions are applying the funds to a growing list of applications across asset classes, resulting in ETFs becoming more mainstream components of investor’s portfolios.
Several trends are contributing to that growth:
Risk management: Latin American institutions view risk management as their top priority for the year ahead, with approximately 70% of study respondents name “managing risk-return that is in line with objectives/outcome” as their primary 2019 objective. Latin American institutions are increasingly using ETFs to strategically and tactically position their portfolios against the looming risk of trade wars, economic recession and renewed market volatility.
Rise of indexing: Like their counterparts in the United States, Europe and Asia, Latin American institutions continue to move assets from active management to index strategies. In fact, 88% of study participants named ETFs as their preferred wrapper for index exposures and 45% have used ETFs to replace other vehicles, primarily active mutual funds and individual stocks. This transition of portfolio assets remains one of the biggest and most consistent sources of ETF demand.
Strategic Exposures: Latin American institutions continue to adopt ETFs for strategic purposes such as exposure to fixed-income, international diversification, and tax efficiency—with the last achieved through the use of European UCITS due to preferential withholding or estate tax rates for non-U.S. investors. 68% of respondent institutions label ETFs as strategic, with 40% of respondents reporting average ETF holding periods of longer than one year.
Appetite for Smart Beta: ETFs have also emerged as institutions’ vehicle of choice for smart beta strategies. Sustained appetite for factor-based approaches could actually accelerate demand for ETFs in 2019. More than 60% of current investors in smart beta ETFs plan to increase allocations to the funds in the coming year. This increase is partly being driven by more sophisticated use of factor-based strategies. 57% of institutions report having developed investment views on specific factors that they want to implement in their portfolios, and can do so using ETFs.
“As these and other developments make ETFs more mainstream components of institutional portfolios, Latin American institutions are applying the funds to a growing list of applications across asset classes,” says Greenwich Associates Managing Director Andrew McCollum and author of Repositioning Portfolios, Latin American Institutions Up Their Use of ETFs. “This proliferation of uses is fueling fast expansion—especially in equity portfolios, where half of current ETF investors are planning to expand allocations in 2019, with many of these institutions anticipating increases in excess of 10%.”
“The ETF discussion is no longer about active versus passive, it is about making active investment decisions utilizing ETFs. What we are seeing today around the world and in Latin America are active investors using ETFs as efficient building blocks for their active portfolios. We are also seeing increased interest and understanding from investors about the importance of diversifying their portfolios and gaining a larger exposure to international markets.” says Nicolas Gomez, Head of iShares for Latin America.
Wikimedia CommonsIgnacio Pakciarz, Aswath Damodaran, & Jerry Cohen. BigSur Partners' Event with Aswath Damodaran: A Total Success
BigSur Partners – a global investment and wealth management company headquartered in South Florida with more than $1B in assets under management and a provider of investment advising services throughout Latin America, the United States and globally – alongside NYU Stern School of Business, welcomed more than 100 business executives, community leaders, clients and NYU alumni to the private conference with “Wall Street’s Dean of Valuation” NYU Stern Professor Aswath Damodaran, at the East Miami Hotel in Brickell Avenue, Miami Florida.
During his presentation, Damodaran spoke on equity valuation and strategies that lead to increased investment sentiment for successes in business. Discussing topics from his recent book, Narrative and Numbers: The Value of Stories in Business, as well as giving meaningful insight to investor sentiment.
Ignacio Pakciarz, Founding Partner and CEO at Bigsur Partners, as well as Stern Board of Overseers member told Funds Society: “We were delighted to see so many guests from BigSur and from NYU Stern. We are also very honored to have Professor Damodaran as our main speaker; his views on valuation are truly compelling: an asset’s value is based not only on metrics, but also on its story! We hope we can host many successful events like this one in the future, where we can share ideas from leaders, experts, and academics across different sectors and industries with our community.”
The BigSur Event Series was created with the goal of finding the best ideas in academia, industry experts, leading family offices and other counterparts interested in financial markets to present to the firm’s valued clients for ongoing industry insights.
CC-BY-SA-2.0, FlickrPhoto: Streamsong Resort and Golf. Funds Society Organizes its Sixth Investments & Golf Summit
Funds Society is proud to announce that it will host its Investments & Golf Summit 2019 on May 7th and 8th at the Streamsong Resort and Golf.
The event includes a cocktail and reception dinner on the 6th, an Investments day on the 7th and the VI edition of our traditional Golf Tournament on the 8th.
Sponsors include AXA Investment Managers, Allianz GI, Amundi, Janus Henderson Investors, M&G, Participant Capital, RWC Partners, Thornburg Investment Management and Vontobel Asset Management.
On May 7th, at the Investment day, participants will be able to take the opportunity to discuss about Global Markets as well as the latest portfolio management strategies and investment ideas from top-performing Asset Managers.
Funds Society’s VI Golf Tournament will take place at the Streamsong Resort and Golf, a five star property near Fort Meade, Florida (around 240 miles from Miami) on the Streamsong Black, brought to life by renowned designer Gil Hanse, that celebrates the legacy of traditional Scottish links.
Spots are limited for the Tournament so please register at your earliest convenience. Non-player guests can take part in other activities such as Sporting Clays and Archery, or simply enjoy the academic day and dinner.
Foto: Scott S
. SEC Gets RIAs to Return 125 Million Dollars to Investors
The Securities and Exchange Commission announced on Monday that it settled charges against 79 investment advisers who will return more than $125 million to clients, with a substantial majority of the funds going to retail investors. The actions stem from the SEC’s Share Class Selection Disclosure Initiative, which the SEC’s Division of Enforcement announced in February 2018 in an effort to identify and promptly correct ongoing harm in the sale of mutual fund shares by investment advisers.
The initiative incentivized investment advisers to self-report violations of the Advisers Act resulting from undisclosed conflicts of interest, promptly compensate investors, and review and correct fee disclosures.
In a statement, SEC Chairman, Jay Clayton said: “I am pleased that so many investment advisers chose to participate in this initiative and, more importantly, that their clients will be reimbursed. This initiative will have immediate and lasting benefits for Main Street investors, including through improved disclosure. Also, I am once again proud of our Division of Enforcement for their vigorous and effective pursuit of matters that substantially benefit our long-term, retail investors.”
The SEC’s orders found that the investment advisers failed to adequately disclose conflicts of interest related to the sale of higher-cost mutual fund share classes when a lower-cost share class was available. Specifically, the SEC’s orders found that the settling investment advisers placed their clients in mutual fund share classes that charged 12b-1 fees – which are recurring fees deducted from the fund’s assets – when lower-cost share classes of the same fund were available to their clients without adequately disclosing that the higher cost share class would be selected.
According to the SEC’s orders, the 12b-1 fees were routinely paid to the investment advisers in their capacity as brokers, to their broker-dealer affiliates, or to their personnel who were also registered representatives, creating a conflict of interest with their clients, as the investment advisers stood to benefit from the clients’ paying higher fees.
The RIAs involved are:
Ameritas Investment Corp.
AXA Advisors LLC
BB&T Securities LLC
Beacon Investment Management LLC
Benchmark Capital Advisors LLC
Benjamin F. Edwards & Co. Inc.
Blyth & Associates Inc.
BOK Financial Securities Inc.
Calton & Associates Inc.
Cambridge Investment Research Advisors Inc.
Cantella & Co. Inc.
Client One Securities LLC
Coastal Investment Advisors Inc.
Comerica Securities Inc.
Commonwealth Equity Services LLC
CUSO Financial Services LP
D.A. Davidson & Co.
Deutsche Bank Securities Inc.
EFG Asset Management (Americas) Corp.
Financial Management Strategies Inc.
First Citizens Asset Management Inc.
First Citizens Investor Services Inc.
First Kentucky Securities Corporation
First National Capital Markets Inc.
First Republic Investment Management Inc.
Hazlett, Burt & Watson Inc.
Hefren-Tillotson Inc.
Huntington Investment Company, The
Infinex Investments Inc.
Investacorp Advisory Services Inc.
Investmark Advisory Group LLC
Investment Research Corp.
J.J.B. Hilliard, W.L. Lyons LLC
Janney Montgomery Scott LLC
Kestra Advisory Services LLC
Kestra Private Wealth Services LLC
Kovack Advisors Inc.
L.M. Kohn & Company
LaSalle St. Investment Advisors LLC
Lockwood Advisors Inc.
LPL Financial LLC
M Holdings Securities Inc.
MIAI Inc.
National Asset Management Inc.
NBC Securities Inc.
Next Financial Group Inc.
Northeast Asset Management LLC
Oppenheimer & Co. Inc.
Oppenheimer Asset Management Inc.
Park Avenue Securities LLC
PlanMember Securities Corporation
Popular Securities LLC
Principal Securities Inc.
Private Portfolio Inc.
ProEquities Inc.
Provise Management Group LLC
Questar Asset Management Inc.
Raymond James Financial Services Advisors Inc.
Raymond Lawrence Lent (d/b/a The Putney Financial Group, Registered Investment Advisors)
Wikimedia CommonsCourtesy photo. Justin Teman Joins Loomis, Sayles & Company
Loomis, Sayles & Company, an affiliate of Natixis Investment Managers, announced that Justin Teman has joined the firm as Director, LDI solutions. Justin is based in the company’s Boston headquarters and reports to Maurice Leger, head of product management and strategic planning.
“We are pleased to welcome Justin to Loomis Sayles,” said Leger. “Justin’s extensive expertise addressing client objectives with LDI solutions will continue to enhance our LDI presence and capabilities. He will be instrumental in delivering superior insights to our clients and designing solutions that meet their goals.”
In this new role, Justin will work closely with prospects and clients to understand and meet their needs by collaborating closely with the investment teams that contribute to Loomis Sayles’ LDI solutions. He will also help to position the solution set, deliver innovative thinking and contribute to LDI solution implementation.
Teman joined Loomis Sayles in 2019 from Cambridge Associates, where he was a Managing Director in the pension practice. As the firmwide expert on LDI, Justin helped clients in areas such as asset allocation, liability hedging, glide paths, risk transfers and completion management. Previously, he was an actuarial consultant at Mercer. Justin earned a BS in Business Administration, with a concentration in applied actuarial mathematics, from Bryant University. He is a CFA charterholder and a member of the American Academy of Actuaries.
Marisa L. Hernández, courtesy photo. Marisa L. Hernández to Join BigSur Partners
Marisa L. Hernandez will assume the role of Chief Operating Officer at BigSur Partners effective March 18.
In a statement, the company told Funds Society: “Marisa is a highly accomplished investment professional with 19 years of experience across asset classes, industries and regions. We are delighted to have an executive of her talent and seniority join our leadership team, as we are position BigSur for the next leg of growth given an exciting set of opportunities in the wealth management business.”
Hernandez joins BigSur after a successful career as an equity analyst and Co-Portfolio Manager at prestigious finance organizations in New York. She worked at asset manager Neuberger Berman for the last 12 years, where she most recently served as Senior Vice President. She was previously an equity analyst at UBS Securities. Before coming to the U.S., Marisa was an entrepreneur in her native Uruguay where she founded and managed a construction company.
Hernandez holds a Civil Engineering degree from the University of Uruguay, a post-graduate certificate from the University of Padua (Italy), an MBA from the MIT Sloan School of Management and is a CFA Charterholder.
Wikimedia CommonsPhoto: B137 . Climate Change: Risk for Florida Real Estate
Florida has been identified as a US states that will be under threat from global warming. Future challenges come in the form of more intense hurricanes and tropical storms, sea-level rises and extreme heat. “Of the total of 4.2 million US citizens that live at an elevation of less than 1m 20, 2.4 million of them live in South Florida. By 2045, nearly 64,000 homes in Florida face flooding every other week, with roughly half in South Florida and 12,000 in Miami Beach alone.” Points out Victoria Scalongne, Senior Real Estate Analyst at Indosuez.
Although these predictions depend on how high sea- levels are modelled to rise by the end of the century, in her opinion, it is clear that the housing market and infrastructure of the low-lying peninsula stands a very big chance to be negatively impacted during the course of the life-time of a mortgage taken out today (30 years).
In Miami, a property on or near the water currently fetches a premium and the cheaper real estate in the metro can in general be found on higher ground further inland. “With sea levels rising, this pricing scenario is likely to be inversed in the medium term, with higher ground fetching a premium. Whether it’s climate change, fashion, or real estate returns, developers have been reported to be buying up properties in lower value, higher elevation locations like Little Haiti, redeveloping them and letting them out at increased rents.” She mentions adding th (Scientific American). The median list price for all homes in this neighbourhood increased by 35% from January 2018 to January 2019, while the same indicator stayed flat for Miami Beach over the same period and only increased by 8% for Miami as a whole (Zillow). In Key Biscayne, on the other hand, the median list price in December 2015 was USD2.3 million, by January 2019, this stood at USD 1.54 million, a 33% drop.Florida ha sido identificada como un estado de los Estados Unidos bajo la amenaza del calentamiento global. Los desafíos futuros se presentan en forma de huracanes y tormentas tropicales más intensas, el aumento del nivel del mar y el calor extremo.
En Miami, una propiedad en o cerca del agua actualmente cuesta una prima y las propiedades inmobiliarias más baratas en la zona en general se pueden encontrar en terrenos más altos en el interior. “Con el aumento del nivel del mar, es probable que este escenario de precios se invierta en el mediano plazo”, comenta Scalongne añadiendo que ahora, los desarrolladores están comprando propiedades de menor valor, en lugares de mayor elevación como Little Haiti, reurbanizándolas y dejándolas a precios más elevados.
Según su investigación, el precio de lista promedio para todas las casas en este vecindario aumentó en un 35% desde enero de 2018 hasta enero de 2019, mientras que el mismo indicador se mantuvo estable para Miami Beach durante el mismo período y solo aumentó en un 8% para Miami en su conjunto. En Key Biscayne, por otro lado, el precio de lista promedio en diciembre de 2015 era de 2,3 millones de dólares, mientras que para enero de 2019, era de 1,54 millones, una caída del 33%.
The Florida housing market has traditionally not only been driven by local demand, but by retirees, people escaping cold regions, job seekers and the ebb and flow foreign investors (mainly South American concentrating on the condo market). It has also historically been quite a volatile housing market, relative to other locations. Scalongne notes that although this cycle has not been characterised by overbuilding as in period preceding 2006 (see chart above), and fundamentals are sound, any downturn in the real estate sector will have a profound impact on the economy, as the real estate sector is estimated to represent around 15% of US GDP. “Anyone thinking of investing in the short term has to think that we are in late cycle conditions, and anyone investing in the long term cannot ignore the potential negative impact that climate change could have on this part of the world. Instead of “location, location, location”, the new real estate motto could in the future be “elevation, elevation, elevation.” She concludes.
Didier Saint Georges, Managing Director and Member of Carmignac’s Investment Committee. / Courtesy Photo . Didier Saint Georges (Carmignac): “My Greatest Fear is What will Happen to Debt Once Economic Growth Slows Down”
In mid-2018, the IMF warned that, for the first time in history, global debt had reached 225% of world GDP. Due to central banks’ QE, global debt is today more than three times higher than the level of 20 years ago. The staggering level of debt is not a minor issue, as was pointed out by Didier Saint Georges, Carmignac’s Managing Director and member of its Investment Committee, during an informative meeting in Paris. “My greatest fear is what both public and private debt will do when economic growth slows down.”
In his opinion, the main difference today between strong countries and weak countries is precisely that: their debt. In the US, for example, private debt is low, but public debt is very high. In total, 72 trillion dollars, which is not only a record amount, but which surprises considering the country’s continued economic growth and its very low unemployment rate. But Saint Georges warns: “The problem is global, and the cycle is changing.”
From this perspective, sovereign bonds have become safe-haven assets for Carmignac, with priority over the Asian and European debt against the US bond. Meanwhile, corporate debt markets continue to be penalized, especially in the high-yield segment. “In developed country bonds, we have a history of convergence and the spread is reflected by the risk undertaken by the investor,” explains Saint Georges.
In fixed income investment, however, there is an asset that has become especially relevant in recent times: Liquidity. “Cash” trades bullish while waiting for better opportunities in the market, but the expert acknowledges that this also comes at a price. “We are concerned about the cost of liquidity and growth,” he says.
Is there opportunity in Italian Bonds?
In Italy, investors are faced with the dilemma of undertaking political and economic risk in exchange for a high return potential. For some it’s worth it, for others, not so much. According to Saint Georges, “there is nothing to worry about in the short term, in bonds of short durations, but we should be more cautious with those with long durations. The issue with Italy is not political, it’s purely economic.”
The big issue, however, is if the market starts to fear a recession. “The economy’s current performance doesn’t warrant that fear, except for the high debt. The markets, however, may be sensitive to a recession,” he adds.
Brexit and globalization
According to Saint Georges, “Brexit will be bad for everyone even if a negotiated agreement is reached” and, in the case of a “hard” option, he believes that the potential victims are Germany and France. “The referendum voters forgot to think about their pocket and made an emotional decision,” he says. Investors, he adds, are quite worried and have started 2019 thinking just the opposite than they did in early 2018, in panic mode.
The backdrop is rebellion towards globalization, which according to Saint Georges, is what has made China grow strong and has benefited Italy, France and Germany. However, “even though globalization is facing more and more difficulties at the political level, as an economic catalyst it is too strong to retreat from. There is a certain rejection against globalization. My fear of that is that it was globalization which drove China’s strong growth, in turn benefitting Italy, France and Germany. However, it is too strong to retreat from now.” He concludes.
