“The Role of Fixed Income as a Volatility Dampener in a Diversified Portfolio Will Remain”

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“El papel de la renta fija como amortiguador de la volatilidad en una cartera diversificada permanecerá”
Ariel Bezalel, gestor del Jupiter Dynamic Bond. Foto cedida. "The Role of Fixed Income as a Volatility Dampener in a Diversified Portfolio Will Remain"

Fixed income faces many challenges today, but Ariel Bezalel, manager of the Jupiter Dynamic Bond, explains how, by combining a top-down and bottom-up approach with flexible management, opportunities can be found. Its bets: the financial sector of developed markets and emerging markets like India (debt in dollars and also in local currency). In this interview with Funds Society, he also explains how he keeps the risk of duration in the face of rising inflation and political risks in Europe.

Many experts say that the biggest focus of trouble could be now in fixed income: Is it true that nowadays fixed income has a higher risk profile than other assets? Why?

Undoubtedly, with yields at today’s levels it is not easy to achieve compelling returns. We will however have to work hard to spot the opportunities given the low yield environment. A key to this is our time-tested process combining top-down and bottom-up analysis as well as our flexible, unconstrained mandate. That flexibility enables us to find those opportunities.

It is worth mentioning as well that despite the rate hikes expected by the market, we expect that the role of the fixed income asset class as a volatility dampener in a diversified (bond/equity) portfolio will remain.

It seems that the inflation is going to rise suddenly… Are you amongst the people who think that or do you think expectations are overstated?

Inflation in the developed world has certainly been picking up. Market indicators, such as breakeven inflation rates, are rising in the UK, US and Germany, putting upward pressure on government bond nominal yields. Elsewhere, economic growth in China is ticking along nicely, reflected in resilient commodity prices and brighter US service sector data and wages.

Donald Trump’s election of course is a further inflationary signal. The US president’s rhetoric points towards potentially faster economic growth, and with an economy almost at full employment, inflationary pressures are bound to build. However, Trump still has yet to implement his plans and there is still a lot of uncertainty around the plan and the timeline.

Do your inflation expectations have any impact on the portfolio of your fund? Are you preparing for the rise of the inflation or it is too soon?

We are fortunate that our strategy’s unconstrained mandate means we can select what we consider to be the best opportunities across global bond markets while seeking to carefully mitigate risk, in part through management of duration which we continue to keep low.  In credit, for instance, as we see inflation risk picking up and favour short-dated paper with decent carry alongside ‘special situations’ where we see the possibility of capital gains.

With inflationary pressures building up in Europe, and rising political risk surrounding the French elections, we have also initiated a short position in French government bonds over the months.

Do you believe that this a moment to be cautious with the duration and to assume risk in credit, or are there various shades to this idea? Why?

We are balancing careful management of duration with a reactive approach to market developments and continue to use the strategy’s unconstrained mandate to exploit ‘special situations’ where we see the possibility of capital gains. That said, we have been steadily reducing duration, starting in August 2016, to help insulate the fund from rising rates.

Regarding central banks: have the markets already discounted the interest-rate hikes what the Fed is expected to make this year?

Markets are currently pricing in a 30% probability for a rate hike in March due to lackluster average earnings and the back-up we’ve seen in 10-year yields. The markets though see 50/50 chance of the Fed raising in April, and a close to 70% chance of a hike in June. However these probabilities may change significantly as Trump fiscal policy unfolds during the year.

Will the ECB take progressive measures also in terms of “taper tantrum” in the mid-term? Will it be more difficult for Europe than for the US to withdraw stimulus? What will be the effects on the European debt market?

The ECB’s decision to reduce its monthly asset purchase programme from €80bn to €60bn in April demonstrates the pressure the central bank faces from hawkish members to reduce the pace of the programme. While the ECB would seek to minimise disruption in the bond markets, it will be more and more difficult to justify QE as inflation picks up in the euro zone. Another very significant event risk for peripheral spreads in Europe will be the French elections in May. A victory for Marine Le Pen would likely trigger a significant widening across European peripheral spreads.

In which segments of the fixed income market do you see the best opportunities these days? (by regions, sections, countries … and by public or private debt)

Within developed markets we see opportunities in the banking sector as it benefits from both the reflation in the global economy and a secular trend towards deleveraging. EM is another area we like. However one has to be very selective. One of our main picks is India where the combination of favorable demographics and improvement of the institutional framework since Modi’s arrival to power have underpinned our investment thesis.

Because of the next rate hikes, is it a good moment to invest in the banking sector? Many people are talking about the attractive of the subordinated bank debt. Do you agree with them?

Banks remain a favoured sector for us because secular deleveraging combined with steeper yield curves should ultimately benefit bond investors in this area, particularly junior bond holders, although one has to be selective.

What are your views on EM debt? Do you prefer local or hard currency?

There are some exciting opportunities in emerging markets. We have been increasing our exposure to Indian bonds because of the country’s favourable long-term economic and political backdrop, putting us in a position where we are able to capture attractive yields. I’m very encouraged by India. It is a very insular economy; it doesn’t rely too much on exports, it doesn’t have much dollar-denominated debt and the current government is a very business-friendly administration that is really picking up on implementing reforms over the last year or so. We invest in both dollar-denominated and local currency bonds.

Do you believe that public Spanish debt has potential or this is not a good time to invest?

We have limited exposure to peripheral Europe due partially to the uncertainty surrounding the European project. However, one has to recognize that Spain’s economy is showing great strength underpinned by the structural reform undertaken following the crisis in the euro zone debt crisis.

Blas Miñarro Joins JP Morgan Private Bank

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Blas Miñarro se incorpora a JP Morgan Private Bank
Blas Miñarro - LinkedIn Photo. Blas Miñarro Joins JP Morgan Private Bank

Blas Miñarro has joined JP Morgan Private Bank’s Miami office as Managing Director and Senior Private Banker focused on the largest wealth segment, or UHNW, in the Southern Cone.

For 27 years, Miñarro’s professional career has been linked to different entities within the Santander Group. Prior to joining JP Morgan Private Bank, and since 2009, he has held the position of Commercial Director for the Southern Cone at Santander International, Santander’s international private banking business, headquartered in Miami; in which he arrived in 2005 as Senior Banker for Chile.

Before moving to Florida, Miñarro held different management positions at Banco Santander in Spain, dealing with sole proprietorships, companies, and institutions.

Miñarro has the MIT Sloan Executive Certificate in Management and Leadership, in addition to other degrees previously obtained at the University of Granada, Alcalá de Henares, or the Institute of Business Directors.
 

“We are Currently at an Experimental Period in Monetary Policy and we Must Discover if the Appreciation of Assets Since 2009 is Just a Monetary Effect

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“Estamos en una época experimental y hay que descubrir si la apreciación de los activos desde 2009 es sólo un efecto monetario”
Bob Michele, Fixed Income CIO at JP Morgan, at a recent conference. Courtsey Photo . "We are Currently at an Experimental Period in Monetary Policy and we Must Discover if the Appreciation of Assets Since 2009 is Just a Monetary Effect

According to Bob Michele, JP Morgan‘s fixed-income CIO, the Fed will raise rates in March; he believes that the monetary authority will carry out a normalization process in the US which will last at least five years, during which the Fed will raise rates every two months to around 4%.

During a conference on fixed-income opportunities organized by the management company, Michele pointed out, however, that the Fed’s main problem is managing the volume of US sovereign debt on its balance sheet. “By 2018 there will be 425 billion dollars in Treasury bonds, how can it wait until their maturity? Reversing will be difficult; therefore, it will have to opt for either gradual debt forgiveness or refinancing debt, because it could crush the market” he explained.

The expert also admits to being bearish with fixed income, and that bond yields cannot do other than rise in an environment of rising inflation and interest rates. That is, the trend that started after Trump’s victory, and which has increased the yield of the US bond from 1.5% to 2.4%, will continue. “The Treasury (10-year US bond) will act as a type of springboard. In summer we will see a change in profitability,” he states. He predicts that it will achieve 3.5% profitability during the next 12 months.

As for the upward trajectory that, a priori, interest rates have taken, a lot will depend on Janet Yellen’s successor as Fed Chair. According to Michele, there is a tide of opinion that bets on Yellen’s continuity but “the odds on that are %”. In this regard, he believes that the Fed has so far been controlled by academics who apply traditional econometric models. “These models work well in theory, but not in the real world,” he explains. In his opinion, “it’s good if someone from the real world, who is not so academic, arrives at the Fed.”

In fact, in recent years, reality has shown us that theories may probably not be fulfilled. The theory says, for example, that an accommodative monetary policy is the best for equities, but the reality is that fixed income has had a spectacular behavior. “We are currently at an experimental period in monetary policy and we must discover if the appreciation of assets since 2009 is just a monetary effect,” Michele states.

As Head of Fixed Income of one of the largest fund managers in the world, Michele is not reluctant to admit that he is bullish with equities. “If rates increase at a rate of 1% a year, the stock market will do very well, if they rise 0.5%, a bear market will be created.”As for options within fixed income, they focus on reducing durations, and betting on bonds linked to inflation, European and US high-yield bonds, and emerging market debt in local currency. “Many people think I’m crazy for recommending emerging debt in local currency, but these currencies have already made their adjustments. On the other hand, if I protect the currency, I give up a lot of profitability and I don’t want to do that,” he concludes.
 

Generali Investments: Applying a SRI Approach to the Ageing Population Theme Provide Additional Value

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Generali Investments: "Aplicar criterios ISR a la temática de envejecimiento de la población aporta un valor añadido"
Jean-Marc Pont, Equity Investments Specialist at Generali Investments. Courtesy Photo. Generali Investments: Applying a SRI Approach to the Ageing Population Theme Provide Additional Value

Turning the aging population into a responsible investment opportunity: this is what is done by the Generali Investments Sicav (GIS) SRI Ageing Population fund, a thematic fund seeking to capitalize on this long-term demographic trend, which is also in line with SRI (Socially responsible investment) criteria. It’s an innovative approach.

The so-called “gray power” is the basis on which to build portfolios that identify those sectors and companies that can most benefit from this phenomenon… and which also meet social profitability criteria.

In an interview with Funds Society, Jean-Marc Pont, Equity Investments Specialist at Generali Investments, explains that “the universe of investable companies is very broad, but the fund concentrates on large and medium-sized European companies with a very small position in those outside the Old Continent.” As a result of the management team’s selection, France, the United Kingdom, and Germany represent over 63% of their exposure to European markets, and there is no talk of uncertainty here because, as Pont points out, “it is a portfolio that is not moved by political events.”

Europe is the epicenter of its investment, while it is also the area of the world where the aging of the population will be most evident. After all, about a third of Europeans will be over 60 in 2040. As a result, it will be here that seniors will progressively control a higher percentage of income. This is the case in Sweden, Finland, Belgium, and France, where by 2020 they will already own over 30% of total revenues.

Also, as explained by Pont, “European companies have a high level of geographical diversification and, therefore, investing in them is investing in other areas of the world, that is, being exposed to worldwide income.”

Thus, its average exposure to income from the European continent stands at 53%, with the remaining 47% of exposure to income from the rest of the world.

Three major themes and 13 sub-sectors

The megatrend leads them to maintain an exposure at the end of January, of 48% to the consumer sector, 34% to the health sector, and 18% to retirement planning and saving products. Within these three themes, there are another 13 sub-sectors which range from anti-aging treatments to vitamin supplements, oncology, incontinence, or dental implants. Among the top 10 fund positions at the end of January are, Royal Philips, LVMH, L’Oreal, Roche, Axa, Prudential, or Sanofi.

The thematic investment strategy only includes securities that meet socially responsible investment requirements, and these are, in fact, ahead of the aging megatrend. “We indeed believe that applying a SRI approach to this theme will also provide additional value, through its in-depth analysis of extra-financial criteria,” says the expert.

In the SRI filtering process, a proprietary method is used that includes aspects such as reputation, regulatory pressure, or carbon footprint. Subsequently, companies that meet the 34 most relevant criteria for each sector are identified, and those with a higher than average rating are chosen.

The Thematic European Equity Investment team makes a thematic selection to identify the level of exposure of companies to the three investment pillars. The team then selects the companies for each of the three themes, based on different financial metrics. The result of this three-step strategy is a portfolio of about 50-60 securities that the team periodically follows in order to re-evaluate investment projects and sell the securities when objective valuation is achieved.

Unstoppable Trend

The aging population is worrisome and the figures are alarming. According to the UN, by 2040, the percentage of people over sixty will have increased from 12% in 2015 (900 million) to around 19%, or 1.9 billion.

Raphael Pitoun: “I very much doubt that at this stage of the cycle, it makes sense to invest in companies with a leveraged balance sheet”

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Raphael Pitoun: “Dudo mucho que en esta etapa del ciclo tenga sentido invertir en empresas con un balance apalancado”
Raphael Pitoun, courtesy photo. Raphael Pitoun: “I very much doubt that at this stage of the cycle, it makes sense to invest in companies with a leveraged balance sheet”

The Stryx Global Growth Fund, a global equity fund, only invests in the best companies in the world in terms of quality and growth. In fact, it is a growth strategy with a low number of expositions: between 17 and 25 shares. To this we must add that its rotation is of around 20%. Some of the companies stay for more than fifteen years. Raphael Pitoun, CIO of Seilern Investment Management, explains the reasons why the fund is concentrated: “The companies you are looking for are very rare,” he says.

The strategy, which Capital Strategies markets in Spain, selects stocks between industries and sectors that present high barriers to entry, strong pricing power and visible growth prospects. “The companies in our portfolio combine a sustainable competitive advantage with a strong balance and high profitability,” explains the CIO of this boutique manager with $ 400 million of assets under management in this interview with Fund Society.

How does your fund differ from other global equities funds?

The Stryx World Growth fund only invests in the best companies in the world in terms of quality and growth. Stocks are selected from industries and sectors with high barriers to entry, strong pricing power and visible growth prospects and the companies combine a sustainable competitive advantage with a strong balance sheet and high profitability. Stryx World Growth is a concentrated fund of between 17 to 25 stocks as the companies we are looking for are very rare. The fund has a low turnover of around 20%; some of the companies are in the portfolio for more than fifteen years.

What is your broad outlook for equities in 2017?

We continue to have a positive Outlook for Equities in 2017. The level of systemic risk is moderate as the banking sector restored its profitability and the amount of leverage in the private space is not disproportionate. There is still plenty of liquidity and except if the Federal Reserve makes errors and tighten too quickly this should continue to be the case. We are not very optimistic regarding the ability of the new US administration to boost growth but overall global growth prospects remain acceptable. Despite indexes reaching recent highs, the investment world is still largely skeptical and underweight in Equities. This bodes well for a continuation of the rally in the foreseeable future. We only start to perceive the first signs of market euphoria since a few weeks and these signs are still far from a bubble.

In which areas do you see more opportunities?

We are not keen to make any macroeconomic gamble and the companies we invest in are also chosen because they are more immune than an average company to any kind of macroeconomic trend. What we can say is that with the ongoing sector rotation, which favored low quality sectors, indebted companies and banks, our highly growing and predictable companies are very much affordable. Also, I very much doubt that at this stage of the cycle, it makes sense to invest in companies with a leveraged balance sheet for example.

Three themes for this year

One of the themes we have been working on recently is the consumer staples industry. It looks like the sector growth algorithm is getting increasingly challenged by competition, new consumption habits, the direct to consumer business and slowing developed markets. We become structurally more prudent about this sector and, for example, we sold our 17-year-old position in Reckitt Benckiser a few weeks ago.

The other theme, which looks interesting to us, is the healthcare sector. We progressively moved our exposure from pure drug manufacturers to medical devices makers. The latter often have a good pricing power, interesting strong growth prospects and high barriers to entry. We do not think they will be completely immune to the huge pressure on developed market’s healthcare system but, if chosen carefully, some of them make very interesting investments.

Last, we have been working on robotics. Most companies we invest in have a plan to increase their capital expenditures on automation. With inflation fears coming back and full employment in some markets, this should only accelerate this trend. What we see on that front is similar to what companies experienced in the 2000s when they outsourced production or open plants in low-cost countries: when one competitor start doing that, the others are obliged to follow creating a strong halo effect. This should benefit companies such as Fanuc in Japan.

Are we seeing a rotation from growth to value?

Yes, it is visible that some investors shift from growth investment into value. On our side, we are very wary of using the distinction between growth and value. We are quality growth investors and it is a big difference with what is considered a growth investor. We do not bet on growth prospects for one or two years but for the long term and growth is only one of the criteria we are looking at.  We do not have any style or do not follow any fashion: we use the equity market as a tool to invest but our investments are not in the equity market but in companies.

What are your capabilities of capital preservation?

Our capabilities of capital preservation are very high from both a company and portfolio perspective. At a company level, the risk of default is very low as the companies we aim at investing in are very established businesses (on average, they were founded in 1944), have healthy businesses and are highly cash generative. From a portfolio perspective, the main driver of the performance is the earnings generation rather than multiple expansion or fragile dividend payments. For investors who have a sufficient time horizon across the cycle, the capital should be not only preserved but increased significantly.

How do you identify areas of the market that may provide stock ideas?

Our ideas are purely proprietary and based on the work on our internal research team. We also capitalize on our own track record of 25 years and know how in the quality growth investment. Finding new ideas comes from two ways. Firstly, we are using a quantitative screening as we want the companies to tick many boxes in terms of track record, growth and balance sheet. Secondly, we identify structural growth themes and, often when we look at one company, it often leads to another one. But, again, identifying an idea is the very first step of a long process; we then deep dive and investigate on all the aspects of the company and this can take between six months and one year before a company is approved for investment.

We have seen a upward trend in US equities because of Trump, is this trend sustainable?

To put things into perspective, the change in the market environment has started last July before the US elections. The stimulus plan announced in China, and decreasing deflation fears in Europe already helped the equity market. The election of Trump made some investors think that the US could also see better growth prospects. That’s a point we are doubtful about given the local political context and the division inside the Republican party. But again Trump was only one explanation for the rally and a potential disappointment, even if it will not help, should not entirely break the positive market dynamics.

Why you do not invest in Banks? And in Oil? And in Insurances companies?

This is explained by our investment philosophy. We only invest in companies we can understand and analyze. Banks and insurance companies are not transparent enough. On top of that, there is no real structural growth driver and the capital intensity in the financial sector is going up. As far as oil is concerned, we want the earnings growth to be as predictable as possible. For oil companies, we are not in a position to forecast even the revenue line in an accurate manner.

 

Matthews Asia: “Yen Weakness is not a Requirement for Japanese Stocks to Perform Well This Year”

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Matthews Asia: “La debilidad del yen no es un requisito para que las bolsas japonesas lo hagan bien este año”
Photo: Kenichi Amaki, Matthews Japan Fund Portfolio Manager . Matthews Asia: “Yen Weakness is not a Requirement for Japanese Stocks to Perform Well This Year”

Regarding the factors that make him optimistic about Japanese equities in 2017, Kenichi Amaki, Lead Manager of the Matthews Japan Fund, notes that over the years, the Japanese economy has faced many macroeconomic headwinds, but this year many of them have turned into tailwinds.

As an example, the fund manager mentions that improved PMIs, the acceleration of wage growth, and the announcement that the Japanese government will expand fiscal spending for the first time in three years, all bode well for the strength of the economy.

And then, he says, we run into inflation. “Japan has been caught up in deflation for most of the past two decades and even I anticipated that after a few years of positive CPI growth, the economy would sink back into deflationary territory. However, given the weakness of the yen, a potentially inflationary environment in the United States and elsewhere, coupled with rising commodity prices, it is time to rethink this. I think that, in all likelihood, inflation may actually accelerate this year.”

The other note in this positive context is the yen, although Amaki likes to stress that its weakness is not a requirement for Japanese stock markets to perform well this year, although “it is helpful owing to its effect on corporate earnings.” Prior to the US election, the exchange rate ranged from 103-104, “however, I remain skeptical that it will weaken to as low as 125.”

He explains that this is how Matthews Asia arrives at the optimistic scenario it envisages for Japan this year: “All these factors, and especially our vision of inflation are good news for Japanese stocks and it is a tailwind that, frankly, we have not had before. It should be supportive of Japanese revenues, trickling down to earnings and eventually to share prices.”

For the Matthews Japan Fund manager, the two areas which are likely to benefit greatly are the retail sector and the financial sector. “Japanese retail companies underperformed last year, owing to expectations of a return to deflation and renewed price competition amongst retailers. However with a change in both currency and inflation expectations, those things might be viewed positively for the retail sector,” he anticipated.
Meanwhile, the fund manager points out that yield curves steepened globally, “including in Japan,” which should be positive for Japanese banks and life assurance companies.

In fact, 3 of the top 4 positions of the fund he manages are Japanese financial entities: Mitsubishi UFJ, Tokyo Marine Holdings and Sumimoto Mitsui.

Shinzō Abe Administration

But the question that everyone who is looking for opportunities on the Japanese stock exchange has in mind is: Is Abenomics working?
Shinzo Abe boasts one of the highest approval ratings amongst heads of state worldwide, which is basically another positive factor. Furthermore, the inflows into the stock markets are another reason to be optimistic.

“By the end of October last year, international investors had sold almost two-thirds of what they purchased at the start of ‘Abenomics’. Meanwhile, the Bank of Japan will be buying 6trn yen of Japanese equities annually, while corporate share buybacks have been robust, hitting 5trn yen in 2016, and are expected to continue apace this year,” he explains.

Meanwhile, Amaki adds that domestic pension funds are short of their target allocations for Japan, and goes on to explain that, he estimates that there is likely to be around 10-15trn yen of domestic buying into the asset class this year. “If international investors change their attitude to Japan and decide to up their weightings, it could really propel the market upwards.”

Trump and Car Manufacturers

But of course, as in the rest of the world, the risk for this optimistic scenario is called Trump. Especially for the Japanese automotive industry, which has many interests in the United States

Without going any further, Toyota imports from Mexico only 70,000 units of the 1 and a half million cars it sells in the United States, “it’s a tiny number, but it will still be affected to some extent. All Japanese car manufacturers will be affected,” he states.

Therefore, in terms of the fund’s exposure to the United States, Amaki has been reducing the positions of those companies that have US competitors producing in the United States. “Because, if US companies are actually producing in China, they will actually be in the same position as a Japanese company which also imports its parts from China.”

“His protectionist policies could have a big negative impact, while any U.S. policy mistakes causing U.S. economic reversal are also a concern.” In this regard, the risk comes from the mix of fiscal incentives envisaged by Trump and the rates hikes of the Federal Reserve, since this could hamper US growth.

“Policy mistakes causing deflationary trends would also be a threat to the global economy and remove all the inflationary tailwinds we discussed earlier.” Amaki adds.

“Such risk scenarios will inflict pain on all of US trade partners, not just Japan.” He concludes.

BigSur Partners Strengthens its Team with John Roesset’s Appointment

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BigSur Partners potencia su equipo con la incorporación de John Roësset
John Roësset – Courtesy photo. BigSur Partners Strengthens its Team with John Roesset’s Appointment

John Roësset, a well-known banker with over 20 years experience in the financial services industry, has joined the BigSur Partners team as a Senior Investment Adviser focused on Central America. BigSur Partners strengthens its team in Miami with this appointment.

Roësset has served as Director and Head of Fixed Income and Equity Flow Trading at Citi Private Bank, an entity in which he has held different management positions over a 10 year period, first in New York and then in Miami. Prior to joining the firm, he was associated with JRR Asset Management for eight years, after having gone through ING Baring (US) Securities, Citicorp Securities, and General Dynamics. He holds a CFA and an MBA from Dartmouth College and graduated in Electrical Engineering at the University of Texas.

Ignacio Pakciarz, CEO and Founding Partner of the BigSur Partners Multi Family Office, is enormously excited about Roësset’s appointment, and points out that “he is an extremely senior banker with a very important track record in trading, derivatives and fintech, and a past linked to engineering.”
 

Insight: “We Reduce Market Volatility by Buying Very Short-Term Bonds”

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Insight: “Comprando bonos a muy corto plazo logramos reducir la volatilidad del mercado”
Emma Duhaney, Senior Product Specialist at Insight, a fund management company owned by BNY Mellon. / Courtesy photo. Insight: "We Reduce Market Volatility by Buying Very Short-Term Bonds"

How can portfolios be protected from volatility in a context so marked by politics and with so much uncertainty? This is perhaps one of the headaches for many managers, for which each firm has been developing different strategies that allow them to contain the risks. In this interview, Emma Duhaney, Senior Product Specialist at Insight, a management company owned by BNY Mellon, explains the formula which they apply in the management of BNY Mellon Global Short-Dated High Yield Bond.

“We focus our investment in bonds with a very short-term maturity, which allows maximum reduction of volatility. The key is the assets we choose and the way we build the portfolio to ensure that there is no default,” explains Duhaney. In her opinion, the key is to reduce volatility by buying the bond when it is about to materialize because, “default risk is minimal and it is unlikely that the price will move.”

This is the strategy applied to the BNY Mellon Global Short-Dated High Yield Bond Fund, an actively managed fixed income product that seeks to provide returns in excess of Libor. In order to do this, it invests mainly in a high-yield bond portfolio, in other words, lower than investment grade, in the short term, but also invests in convertibles, loans, and securitization bonds. In addition, it selectively sells protection in credit derivatives.

Now, for this principle to work, how the portfolio is made up, and which companies are part of it, are both very important. “We have a team of analysts who analyze companies. When your strategy is short bonds, there are a number of things that you have to check, including: whether they are companies that will be able to pay, their capital structure, when their bonds mature, whether the company is flexible, or if their benefits increase. In short, all the aspects that come into play to evaluate its ability to pay or its capacity to refinance,” says the expert.

She doesn’t like the retail sector because it is extremely changeable, but she does not discard any others because, she points out, they focus more on the duration and quality of the bond than on a specific area of economic activity. “We have a system called ‘the main check list’ by which we seek to identify any risk that can be generated in companies and which affect profitability. For example, if there are chances of it being bought, or any possible regulatory risks. We try to detect any aspect that could jeopardize the payment of their bonds,” she points out.

For Uncertain Environments

According to Duhaney, this strategy is perfect for times as uncertain as they are now, because it is designed for environments with increasing spreads and changing interest rates. “We find that many traditional high yield fund managers are selling short-term bonds because bonds with less than one year of maturity are not within their index, which allows us to buy the type of asset we want at cheaper prices. And since we work in the short-term, it is easy to have liquidity to continue acquiring new bonds,” says the expert.

Among the risks she identifies in the market right now, Duhaney agrees with the widespread views of the sector: politics. “It always raises uncertainty, and right now we have elections coming up in Holland, France, and Germany. This always means volatility because investors have seen big changes in the last UK and US elections, so they are worried about what will happen in Europe this year.”

To political risk, we must add the decisions taken by central banks such as the European Central Bank (ECB) and the Federal Reserve (Fed), since obviously a rise in interest rates will impact the bond market. “We believe that the Fed will raise rates twice this year, maybe if the growth of the US economy is very strong, it will be more; but, currently, we think it will be twice in 2017,” she says.

She is cautious regarding Trump, and is waiting to see what the first economic measures taken by the new administration will be, and reminds us that trade and tax policies are the most important ones because of the impact that his electoral promises would have on them. As a matter of fact, she focuses on the commercial side and warns that it would be highly negative if Trump “gets into a trade war because it would cause significant restrictions on world trade.”

Asset Management Under the Banner of a Collaborative Culture, Key Premise at Thornburg Investment Management

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Colaboración, bandera de la gestión para Thornburg Investment Management
Jason Brady, courtesy photo. Asset Management Under the Banner of a Collaborative Culture, Key Premise at Thornburg Investment Management

U.S. management company Thornburg Investment Management (TIM) defines its management style as unique. Although this claim might not be very original in such a competitive industry, Jason Brady, Portfolio Manager and Head of the Global Fixed Income team, as well as the firm’s CEO for just over a year, states this with conviction. “I think the best example of the essence of the company’s philosophy is that I have been appointed to this position. What makes us strong is the confidence we have in what we do and in doing what we say,” says Brady to exemplify the strength of the company and its commitment to select those people and assets that contribute confidence to grow the global value of their firm and their funds.

After ten years in the company, Brady took up this position in January 2016 with a continuity approach. “Nothing will change in the way we manage our clients’ assets, because we have demonstrated that our strategy brings value,” he says. The firm, established in 1982 and based in Santa Fe (New Mexico), mainly offers its services to HNWI, but also to banking institutions, investment companies, and pension plans, amongst others. At present, about 95% of TIM’s assets are in the hands of the retail segment, and it has approximately US$50 billion of assets under management.

The company’s investment culture is based on generating confidence, which Brady considers a cross-cutting aspect for the management of any of its products: eight equity funds, eleven fixed income funds and a fund in the alternative assets class. One of the firm’s requirements is that the portfolio managers themselves fully understand the global scope of their job, and that they become shareholders of the asset management company. Additionally, the portfolio managers must invest in the funds they manage. “We work in an open room with 39 investment professionals where collaboration is paramount. It is impossible for any manager or analyst to know everything, but they can share what they know and get better results,” says Brady.

In this regard, Brady argues that there are two options to build a portfolio, either to use a very mechanical process or to spend a lot of time studying different opportunities and investing in different markets; to him, the key is to maximize the work of each of its portfolio managers and analysts and to promote collaboration and communication. “Our strategy is to maximize our team, and in this respect, the collaboration and sharing of all information and experience explains our success,” he says.

That is, if one of their portfolio managers is focused on a particular market, what he learns from it, or the opportunities he identifies, can be taken advantage of by another team member who manages a different fund. “Bringing that collaboration together makes the process easier and differentiates us from other managers,” Brady says, as CEO, he is committed to guiding his team so they do not lose focus, and to listen to whatever is needed.

The Importance of Selection

Regarding their strategy, the CEO and fund manager points out that they are looking for opportunities in any geography, but that they only select a small number of securities – averaging 60 positions in each equity portfolio – in which to invest. The way to identify such select names is none other than giving special relevance to the analysis, preparing reports and traveling to meet the companies. His method of work aims to achieve a great individual dominance of each of the elements of the portfolio and its environment. For Brady, the goal is to continue constructing more specific portfolios in the markets they are in right now, without losing sight of others that they consider interesting, such as Europe or Latin America.

“We prefer a portfolio with a lower number of securities than trying to encompass a large number. This allows us to know more about the reality of the environment of each asset, moving away from the more macro perceptions of the country or sector where it is. In addition, it allows a better understanding of the portfolio’s behavior and risk,” he explains. The firm argues that this is the reason why its “unique” approach marks a considerable difference when compared to other managers with a more quantitative strategy.

Internationalization of Thornburg’s strategies: UCITS fund range

Vincent Leon, who joined the firm in June last year, heads the business development efforts of the Thornburg UCITS range for the non-resident sector in the United States and Latin America.

For now, the firm has registered five of its equity funds in Ireland and is working to register new products. According to Brady the reason is none other than the complexity of adapting products to regulation in the most precise way. Thornburg has an office in the United Kingdom, from where it aims to grow in size and establish relationships with European and Middle Eastern investors. In addition to its UCITS range, the management company has a number of separate mandates for international clients.

In 2012, the firm began to address non-US investors. For the non-resident US market, Thornburg has leveraged its relationships with major domestic broker-dealers who also operate offshore. “Another key to focus on this segment, is that we already have a strong relationship with investors in the United States, and they know our asset management style. We have been evaluating which platforms to develop, although sometimes this process is not as simple as it should be. I believe that the products that we have in America can be potentially attractive to Europeans and Latin Americans,” Brady explains, adding that the geographic scope is not an obstacle since, ultimately, investment needs are similar throughout the world.

Another notable aspect of the market is that during the last few quarters there has been a great shift from active management products to passive management, or ETFs. Brady explains that it has partly been due to the training of broker-dealers in the US for compliance with the DOL fiduciary standard – although its approval is less and less likely– but another important part is due to the fact that in recent years the market has been very accommodating, rising almost uninterruptedly, especially with regard to the S&P500.

Many investors have wondered whether it is worth paying an active manager if he has not been able to beat the index significantly. “In the 1999-2000 period, we experienced a similar situation. The market went up unceasingly, and everyone thought they were able to manage their portfolios without the help of a professional. Then came the big correction, and that was the time for the active managers to stand tall and prove their worth,” says Brady.

Thornburg’s CEO believes that the current situation in the US market does not differ much from that of those years, in terms of valuation. “If you look at the S&P500 as of today you see that the top five components of the index have a larger market capitalization than the smaller 250. This does not look good for an index-focused investment approach,” he says.

The Trump Effect

Thornburg Investment Management’s 35 years of experience in the asset management sector, has led them to coexist and deal with all kinds of crises and recessions. Now, Brady is faced with the challenge of leading the management team surrounded by various ideas about the Trump effect in the markets. “There is a lot of expectation about his possible measures to lower taxes and boost infrastructure spending, but one thing is what was said during the electoral campaign and reality is another. I think everything will be much more static,” he says. In this regard, they are somewhat more concerned about the evolution of inflation in the country and how it will affect investments.

In this context, the company continues to defend its investment philosophy based on fundamental analysis with a long-term horizon, which is to say from 18 months to several years, and being flexible in order to improve returns. As Brady argues, what makes them unique is their collaborative culture, whereby their managers and analysts do not specialize in sectors or geographies, but all must understand and share information about the fundamentals of border markets, sectors, and industries.

Well-known Industry Professionals Create the Women in Finance Association, Which Already Operates in Miami and New York

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Conocidas profesionales de la industria crean una asociación de mujeres en finanzas, que ya opera en Miami y Nueva York
Pixabay CC0 Public DomainPhoto WIFA. Well-known Industry Professionals Create the Women in Finance Association, Which Already Operates in Miami and New York

WIFA, Women in Finance Association, was born less than a month ago, an entity which came to be thanks to the initiative of several well-known Miami professionals. Initially, it was Lauren Shapiro, a securities lawyer for the Miami-based company, Capital Legal Group, who founded the association, after realizing that there was no outlet or platform for female financial professionals in the area. “It‘s important for women to be given a voice, and to be able to meet in an intimate and attractive environment in which to discuss the difficulties of their successes in the industry,” explains Shapiro, when asked about the reasons behind this project.

WIFA was born after an extensive analysis of women’s situation in various sectors of the male dominated financial world, explains its founder. It is an instrument for raising awareness, ensuring adequate recognition of the impact of women in the world of finance, and for providing the tools which allow them to wade through a ruthless system and advance to executive level in their professional development. “We have created a forum so that women not only share the difficulties they face when working towards success, but which also allows them to share their knowledge, perceptions, and experiences with each other,” she says. “We are committed to giving every member, regardless of their level of expertise, valuable benefits to develop future executives, recognize and honor the achievement of women in the industry, and invest in the community.”

Currently, Shapiro is accompanied on the Board of Directors by her co-founders Franciele Sgarioni, Senior Sales and Marketing Executive for Trident Fund Services, and Stephanie Tetreault, Senior Audit Manager at KPMG; they are committed to the objective of creating an organization which women feel is beneficial, both from a professional perspective, and for achieving personal growth.

Presently, the association, which operates in Miami and New York, and intends to reach some Latin American cities in the near future, requires its members to pay a fee, which can vary from 25 to 250 dollars, depending on their professional rank.

In return, they are part of a platform that aims to bring professional women from the financial industry together for the purpose of networking, offering training, mentoring, leadership coaching, industry awareness, and philanthropy.

“In the future, we will have various programs and activities tailored to our members’ objectives,” explains Saphiro. They will focus on women and markets, and will offer programs and activities, in Miami and New York, for members at different levels. In order to do this, at the time of affiliation, each woman will be asked to select from a menu of objectives and, from there, they will receive information on the programs and activities geared to their specific objectives.

“We will make our events intimate, informal, and frequent, so that women feel comfortable and can truly be themselves,” adds the founder.

Even though it’s still in its early days, the association declares itself open to collaboration with other associations and corporations, as long as they are appropriate for their members and in tune with their objectives

At last, these fierce and powerful women, as Saphiro describes women in the financial world, from Miami and New York, have already achieved their own “club.”

For further information, please visit the WIFA website.