Above 3%. Is the Party Over?

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Superado el 3%, ¿se terminó la fiesta?
Wikimedia CommonsCourtesy photo. Above 3%. Is the Party Over?

It has been a long time coming but we have finally been given a wake-up call: the 10-year US Treasury bond yield has gone above 3%. So, now what? Should we prepare our fixed income portfolios to hedge interest rates in case of further hikes? Or should we increase the duration to take advantage of potential corrections below 3%?

In a time before Central Banks routinely employed cash injections and mass bond purchasing, textbooks on macroeconomics traditionally taught that 10-year yields responded to a simple formula: expected growth + inflation expectations. So, if we consider just these two factors and we believe the consensus forecasts for the coming years are valid, we could conclude that we will soon be grazing the 5% mark for the 10-year US Treasury bond. The reality is not all that simple and recent years have served to cast doubt on some of the principles we learnt during our studies, as they reflect a new reality in the interrelationships among economic variables. For instance, after several years of unlimited liquidity, inflation is only now beginning to rise slightly or even though the Federal Reserve increased official rates and four hikes are expected for this year, the dollar has weakened.

Some official projections for US economy growth include: IMF: 2.9% for 2018 and 2.7% for 2019; and OECD: 2.9% for 2018 and 2.7% for 2019. Yes, the figures look good. No doubt about it. But they do not point to accelerated growth that could justify inflationary pressures and aggressive rate hikes and we cannot rule out the possibility that these forecasts will fall in the coming quarters. After 35 straight quarters of economic expansion in the US, we may beat the record of 39 quarters set in the 90s, which culminated in the technology bubble (“dotcom”). Let’s face it, until Trump’s fiscal stimulus peters out, the tailwind will continue to blow for consumption, investment expenditure and the real estate sector. However, we are not looking at an abrupt rally, but an ongoing slow and steady pace for growth. In other words, even if we stick to the traditional factors that we mentioned, which determine the 10-year yield, we are not anticipating an environment that justifies much higher rates than now. We might also add other “non-traditional” factors into the equation, such as the impact of the behaviour of some very influential players in the sovereign debt market like China (largest foreign holder of US Treasury bonds), insurance companies and sovereign wealth funds.

Nor are we convinced by those who predict an imminent recession and a return to yields below 2% for the 10-year US bond. One of the arguments that has become popular among proponents of this position relates to the yield curve inversion. That is to say, a lower interest rate for the 10-year than the 2-year bonds. Historically, the inverted yield curve has been one of the best indicators of recessions. In fact, all the recessions suffered by the US since the 1960s have been preceded by yield curve inversions. Recently, the slope has reduced, but there is still a 50-basis point spread between the 10-year and the 2-year bonds. And we believe that this reduction is due more to the non-traditional dynamics that we have mentioned, which are sustaining the 10-year yield level, than to signs of an imminent recession.

And what about the voices warning us of another consumer delinquency crisis caused by official rate hikes? The market is discounting a total of four rate hikes by the Federal Reserve for this year. Despite the rise in the short rates, which brings an increase in consumer credit costs, we are still not seeing alarming increases in the delinquency rate among the various classes of consumer loans. If rates continue to increase more aggressively, we could indeed see this but, for now, it is not our base case.

Even if we think that the rate hikes will not be sufficiently aggressive to rain on our parade, we do need to be prepared for unexpected summer downpours. We choose not to fully hedge interest rate risk, but we are carefully looking at the relative value and potential risks. With a spread of just 15 basis points between the 5 and 10-year US Treasury bond yields, can we justify assuming an additional 4 years of duration risk? We do not think so.

Column by Meritxell Pons, director of Asset Management at Beta Capital Wealth Management, Crèdit Andorrà Financial Group Research.

Indosuez Wealth Management Looks to Expand in Mexico and Has Hired Ignacio López-Mancisidor for Miami

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Indosuez Wealth Management prepara su expansión en México y ficha en Miami a Ignacio López-Mancisidor
Wikimedia Commons. Indosuez Wealth Management Looks to Expand in Mexico and Has Hired Ignacio López-Mancisidor for Miami

Ignacio López-Mancisidor has recently joined the offices that Crédit Agricole Indosuez Wealth Management has in Miami, as relationship manager.

In his new responsibilities, he will report to Jon Diaz Valdenebro, managing director of CA Indosuez Wealth. Both professionals met when they worked at Santander Private Banking International.

CA Indosuez is also fueling its large clients business in Mexico. Credit Agricole already had a presence in the country through CACIB, the Corporate and Investment Banking division of the French bank, but the expansion will now be under its own brand, Indosuez Wealth Management.

Both López-Mancisidor and Valdenebro are part of the team led by Mathieu Ferragut, CEO and head of the division of Indosuez Wealth Management in the Americas and member of the Executive Committee of the firm.

López-Mancisidor arrives from Noctua Partners, an independent wealth management firm based in Miami, where he has spent his last year of his career. He also developed a large part of his professional career at Santander Private Banking International.

He has a degree in Media Management, with a specialty in Communication and Economics from the University of Miami, and a master’s degree in Corporate Communication from the Instituto de Empresa.

Credit Agricole Private Banking has about 100 specialized employees in Miami at its offices at 600 Brickell Avenue, dedicated to wealth management for the clients of Indosuez Wealth Management.

The Sixth Edition of the Mexico PE Day in New York is Approaching

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Se acerca la sexta edición del Mexico PE Day en Nueva York
Pixabay CC0 Public DomainPhoto: hotel Le Parker Meridien. The Sixth Edition of the Mexico PE Day in New York is Approaching

The AMEXCAP is organizing its sixth Mexico Private Equity Day in New York. The event will take place between June 6th and June 7th at the hotel Le Parker Meridien.

The main objective of this flagship event is to attract foreign investments in Mexico, as well as cement bonds and develop synergies between players operating in Mexico and international participants. The most dynamic LPs, GPs and specialized advisory firms will share their experiences in the Mexican PE market.

Mexico has yet to face several challenges in 2018. Among the most important ones are the resumption of the NAFTA negotiation rounds, as well as the Presidential elections in Mexico. However, 2017 was a great example of Mexico’s strength, as it faced many adversities, emerging victorious from pessimistic economic forecasts, protectionist policies from the US Government and two major earthquakes.

To register with the 25% discount on the non-member rate follow this link and use the code: ULPE191A103.

Funds Society Launches a Charity Campaign

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Funds Society convierte su sección Rincón Solidario en un motor para el cambio
Funds Society's Charitable logo. Funds Society Launches a Charity Campaign

Since Funds Society began the publication of the three editions of its magazine, in Spain, the offshore market and, since this year, for the Latin American region, it has told the stories of numerous NGOs that, in some way, are linked or supported by the firms and professionals in the investment fund sector.

Now, our publication goes a step further and has decided to support the NGOs that go through this section with an online advertising campaign. The objective of this campaign is to grow the NGO’s visibility in our readership with a banner under the slogan ‘Solidarity Corner: Together we will make it possible’.

Funds Society will be donating 10% of its publicity impressions of the MPU format during eight weeks to the foundation that was featured in the Rincón Solidario or Solidarity Corner section in the magazine. As is logical, these banners will direct the reader to the official website of the NGOs so that they can learn more about their activity and the groups they serve; as well as collaborate with them, if they wish to do so.

This quarter, the protagonist in Spain is the Association of Relatives and Friends of Children with Cancer (Afanic), an entity that aims to cover the diverse needs that hospitalized children present at both medical and psychological, educational and recreational levels. The organization interprets that these are basic needs to enable their expected recovery and give adequate attention to their families. José Miguel Maté, CEO of Tressis, has run numerous marathons to raise funds for his cause, and collaborates with them closely.

In the case of the offshore market, this space is assigned to the Adam J. Lewis School (AJLP), a non-profit institution created in 2013 in tribute to Adam Lewis, who died on September 11. In this school, 18 children between three, four and five years of age study under a model that mixes Montessori, Piaget and Reggio Emilia techniques. By 2018, their goal is to double the size of the school and for that, they are looking to grow their donations considerably. Supporting them in this effort, is Richard Garland, director of Investec, who is running seven marathons in seven continents to raise 100,000 dollars, contributions he is planning to match.

Finally, in the Latin American region the featured NGO is Los Tréboles, an educational center, located in Montevideo. This center is winning the battle against school dropouts, one of the biggest educational problems in Uruguay. The NGO, which is financed in 40% by private donations (45% contributed by the State) serves 120 children and 40 teenagers from the Flor de Maroñas neighborhood. They have been  20 years in the area and in 2017 they managed to get only 1.5% of those attending the place to repeat the course.
 

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According to Experts, Argentina’s Request for Help from the IMF is a Precautionary Measure and, as yet, There is no Risk of Default

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La petición de ayuda de Argentina al FMI es una medida de precaución y aún no hay peligro de default, dicen los expertos
Wikimedia CommonsPhoto: JoseTellez, Flickr, Creative Commons. According to Experts, Argentina's Request for Help from the IMF is a Precautionary Measure and, as yet, There is no Risk of Default

Mauricio Macri, President of Argentina, announced on Tuesday that he has begun talks with the International Monetary Fund (IMF) to receive a “financial support line” for the situation which has been generated in that country due to the strong depreciation of the peso against the dollar in a difficult global context, marked by the rise in US interest rates and the potential revaluation of the American currency against some currencies of the emerging world. And mainly against countries that, like Argentina, depend heavily on external financing.

“I have made this decision thinking of the best interest of all Argentines, not lying to them as has been done so many times (…).I am convinced that fulfilling commitments and moving away from demagoguery is the way to achieving a better future,” said Macri yesterday, trying to instill tranquility in the markets. Investors fear that this situation will negatively impact the country’s debt, and may even infect the markets of other emerging economies, and by proximity, those of Latin America

Last Friday, in a new attempt to defend the exchange rate of the peso against the dollar, the Central Bank of the Republic of Argentina (BCRA) decided to raise the reference interest rate to 40%, less than 24 hours after it had raised the price of money to 33,25%. Therefore, the central bank increased the benchmark rate by 675 basis points in less than a day, in what represents the third increase in the price of money last week, thus raising the benchmark interest rate to 40% from the 27, 25% rate of the previous week.

Precautionary measure

The new aid measures aim to alleviate this situation. For Alejandro Hardziej, Julius Baer’s Fixed Income analyst, this is a “precautionary” measure: “It seems that Argentina is negotiating a line of credit as a precautionary measure to cover potential financing needs without having to go to the international debt markets in a scenario of rising loan costs and greater risk aversion of investors to emerging markets,” he explains. In his opinion, the movement”doesn’t reflect an underlying liquidity problem but it’s a government move to calm investor’s fears and reduce pressure on the currency, the Argentine peso”

“The fact that Argentina has gone ahead and asked the IMF for help is a good sign, as it can help because things are being done properly, despite the fact that it damages Macri’s image”Alejandro Varela, Portfolio Manager at Renta 4 Gestora.

For Amílcar Barrios, Tressis analyst, “Argentina resorts to the IMF toget a line of financing that the market is denying it, owing to the extensive and disastrous financial history accumulated by that country, regardless of who governs.”

Claudia Calich, Fund Manager of the M & G Emerging Markets Bond fund, pointed out that, in the last two months, the Argentine peso had become more expensive in real terms, following the strong flows received from international investors in 2017. “These capital flows caused the ratio of nominal exchange to depreciate much less than inflation.” But the tide began to change at the end of last year, when, in her opinion, the country’s Central Bank committed the political error of raising the inflation target for 2018, from 10% to 15%, so that adjustment allowed the entity to cut rates at the beginning of January, something that undermined its credibility and raised concerns about whether monetary policy is free from government interference. “Another political error was the announcement of the 5% tax on Treasury investments in Argentine pesos, which had an impact both on local and international investors and led to a reduction in investments in public debt in pesos,” the expert explains.
A higher reading of inflation and a stronger dollar generated strong pressure on the country’ currency, explains the asset manager, so the Central Bank realized the need to restrict monetary policy, with three emergency increases, until the 40% mentioned above. “I think that monetary authorities will now be successful in slowing down the depreciation of the currency,” she explains. Calich argues that the overvalued peso is also contributing to expand the country’s current account deficit by up to 5% but, in this situation, she expects it will begin to reduce as the peso moves towards equilibrium. “The implications will be higher inflation this year and possibly the next one, lower growth, and a further decline in Macri’s popularity.”

But without default…

On whether or not it’s a default situation, she believes that “not yet. I see this as a re-pricing of Argentina’s risk, which had started at the beginning of the year, along with sales in the emerging debt market in both local and strong currency,” she explains.

She also speaks of two glimmers of hope for Argentina: First, the next elections will not be held until January 2019, so authorities have time to take their “bitter medicine” this year, but it will lead to a readjustment of the economy in 2018. Secondly, the IMF can intervene with an aid program if the Latin American country loses access to the capital market or if there is some type of crisis caused by the outflow of capital (unlike other markets such as Venezuela), something that it considers positive. “Argentina and the IMF have had a tumultuous relationship in the past but the objective this time would be to ensure stability so that Argentina does not return to its failed populist policies under a new administration,” she adds.

A Warning Sign?

However, we must not lose sight of the situation of emerging markets… especially those with fundamental weaknesses. This advice comes from Paul Greer, Asset Manager at Fidelity, who explains that the South American country has reached this point largely due to the strengthening of the dollar and the increase in the profitability of US fixed income.
“As with the caged birds that serve as a warning for gray gas in the mines, Argentina is a wake-up call to investors positioned in emerging markets with weak fundamentals. These types of assets do not get along well with an increasingly strong dollar. The recent price situation illustrates how quickly [investor] sentiment can change,” he says.

Impact on Spain

Luis Padrón, an analyst at Ahorro Corporación, believes that Argentina’s problem “seems to be more structural than a currency problem.” Regarding Spain’s exposure to this market, he points out “how much the situation regarding the exposure that Spanish companies have had in this market has changed”, going from being one of the countries with greater exposure to having a very reduced exposure in the business of the companies.”Only Día, Centis and, to a lesser extent, Telefónica are ‘suffering’ the impact of this situation”, he adds (see Ahorro Corporación’s table below).

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These Were the Best Moments from Funds Society’s 2018 Investments & Golf Summit in Miami

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Estos fueron los mejores momentos del Investments & Golf Summit 2018 de Miami organizado por Funds Society
Wikimedia Commons. These Were the Best Moments from Funds Society’s 2018 Investments & Golf Summit in Miami

On April 12th and 13th, Funds Society organized the fifth edition of the 2018 Investments & Golf Summit. The Blue Monster, the prestigious golf course that hosted the PGA tournament for 55 years, witnessed two days of golf aimed at fund selectors, financial advisors, private bankers and all those professionals involved in making investment decisions for non-resident clients in the US.

The sponsors on the second day of the event were 6 international asset management companies: Janus Henderson Investors, RWC Partners, Thornburg Investment Management, Vontobel Asset Management, GAM Investments and AXA Investment Managers, who accompanied over 70 players through the famous course.

Winners

Alejandro Gonzales was the winner in the first category -in which the players with a handicap of 1 to 18.4 participate- and the overall winner of the golf tournament. Ramón Prats was second in the first category. First place in the second category – which includes players with a handicap of 18.5 to 36 –, went to Andrés Vila, with John Roesset as second.

There were also prizes for the Longest drive. The one sponsored by Janus Henderson in hole 1 went to Laura Viveros and RWC’s in hole 12 went to Alejandro Gonzales. In the Closest to the pin contest, Ricardo Bembibre won the prize sponsored by AXA on the 4th hole, and John Elwaw won the second prize sponsored by Thornburg on the 15th hole. While the Straightest Drive, sponsored by GAM on the 8th hole, went to Rodrigo Sideris and the one sponsored by Vontobel on the 18th hole went to Ricardo Kent.
 

DBRS Limited and HR Ratings Announce Strategic Alliance

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HR Ratings México y DBRS Limited firman una alianza estratégica
Wikimedia CommonsFoto: US State Department CC0. DBRS Limited and HR Ratings Announce Strategic Alliance

DBRS, a Canadian credit rating agency, and HR Ratings, a Mexican credit rating agency, announced that they have entered into a strategic alliance to cross market their rating services in Mexico, the United States and Canada.

The collaboration will facilitate the efficient introduction of Mexican issuers looking to issue debt in the global markets to DBRS who, with its affiliates, is a globally-recognized credit rating agency, and U.S. and Canadian issuers looking to issue debt in the local Mexican market to HR Ratings, who is the leading local Mexican rating agency widely accepted by investors in the Mexican market.

“The goal of our collaboration is to provide broader, quality rating service options and products to issuers and investors in Mexico,” said Doug Turnbull, Vice Chairman of DBRS Limited.

“We are very excited about this strategic alliance with DBRS as it will expand the options and services we can offer the Mexican market,” said Alberto Ramos, Chairman of HR Ratings.

DBRS’s and HR Ratings’ cross-marketing activities will include co-hosting credit rating seminars for existing and potential clients, sponsoring joint informational events for users of credit rating services, and offering their unique perspectives on the macroeconomic challenges and opportunities facing issuers and investors in their respective markets.

While DBRS will no longer provide its local Mexican rating services, it will continue to provide international ratings to Mexican issuers. HR Ratings stands ready to offer its rating services to DBRS’s locally-rated customers.

HR Ratings and DBRS will each continue to operate independently in the Mexican, U.S. and Canadian markets. Each credit rating agency will continue to be recognized and regulated by the existing authorities over credit rating providers in the jurisdictions where they are currently licensed, including oversight of this strategic alliance.

 

Afore Metlife’s Former CIO Takes Over as CIO of Merged Afore Principal

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Afore Principal concluye su fusión con Metlife estrenando director de inversiones
Wikimedia CommonsNéstor Fernández, Photo linkedin. Afore Metlife's Former CIO Takes Over as CIO of Merged Afore Principal

“Néstor Fernández currently holds the position of Head of Investments of Afore Principal Mexico. In this position, Nestor is in charge of the investments for Principal Afore and reports directly to Juan Manuel Verón, who serves as CIO of Principal Mexico.” Said Principal to Funds Society, just after the Pension System’s regulator (CONSAR) informed that the merger of Afore Principal and MetLife has been completed.

With the conclusion of the merger, announced on October 26, 2017, Afore Principal becomes the fifth afore of the Mexican system, with assets under management which amount to almost 227 billion pesos or approximately 11.6 billion dollars.

Until now, the portfolio managed by Fernandéz was almost 70 billion pesos, which means that after the merger, his managed assets almost tripled. With more than 20 years of experience in the financial sector, Fernandez joined Metlife Argentina in 2005, transferring to Mexico in 2009, until separating from the firm for the period between 2011 and 2014. Among other companies, he worked at Citi, Grupo Generali and Megainver. He studied at the National University of La Plata, and has a specialization from the University of Buenos Aires and an MBA from the University of the Americas.

Muzinich & Co Reaches Third Close on Pan-European Private Debt Fund

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Muzinich & Co realiza el tercer cierre del fondo PanEuropean Private Debt al alcanzar los 460 millones de euros
Wikimedia CommonsSpanish team, courtesy photo. Muzinich & Co Reaches Third Close on Pan-European Private Debt Fund

Muzinich & Co has made its third close of the Muzinich Pan-European Private Debt Fund at 460 million euros.

Focused on lending to the lower mid-market, or companies with EBITDA of between 5 and 25 million euros, the Fund is one of a suite of 6 private debt vehicles managed by the firm, which has been providing flexible financing solutions to small and medium-sized companies since 2014. Locally-based teams across Europe deliver on-the- ground deal sourcing and origination.

“We are one of very few private lenders in the lower middle market with a Pan-European offering,” said Kirsten Bode, Co-Head of Private Debt, Pan-Europe. “We have a large team of investment professionals and a local presence across Europe with offices in seven key markets. We believe this gives us a significant advantage in accessing a broad and diverse market in order to generate attractive IRRs for our investors.”

The Fund focuses on bespoke financing for growth capital opportunities for lower mid-market companies to fund acquisitions, expansions and transitions.

The final close of the Fund is expected later in 2018.

Sherpa Capital to Launch a Mexican Equity Multi Factor ETF

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Sherpa Capital lanza un ETF multi-factor de acciones mexicanas
Wikimedia CommonsPhoto: Sherpa Capital. Sherpa Capital to Launch a Mexican Equity Multi Factor ETF

Sherpa Capital, an independent investment advisor in Mexico with 50 billion pesos (equivalent to more than 2.6 billion dollars) in assets under management, has launched a Mexican equity multi factor ETF.

The QVGMEX, which trades on the Mexican Stock Exchange tracks the S&P / BMV  Quality, Value and Growth Index.

Richard Ramirez-Webster, CIO of Sherpa Capital comments: “We are very proud to be part of this launch and be able to offer in the market an additional and complementary alternative to other ETFs that invest in the Mexican stock market and that are based on more general indices. The QVGMEX tracks a multi-factor index that seeks to invest in a selection of Mexican companies belonging to the IPC that stand out for being the best in QUALITY, VALUE and GROWTH and which seeks to generate more attractive long-term returns term that the Mexican stock market measured by the S&P / BMV IPC “.

With the QVGMEX, the firm that advises and manages resources of institutional, corporate, HNWI and family clients, seeks to invest in shares that are part of the S&P / BMV IPC allocating them with the highest combination of quality, value and growth factors. The S&P / BMV Quality, Value and Growth Index follows a unique fundamental approach and is the first index in Latin America that combines these three factors for the selection of stocks. “The QVGMEX offers an innovative perspective seeking to be a vehicle that helps in the diversification of investors’ portfolios,” concludes Sherpa Capital.

For more information follow this link.