Foto cedidaPer Wehrmann. Head European High Yield DWS. DWS: “Despite uncertainty in Europe, weak economic growth, financial crisis, the European high yield market has had a lower default rate than the US "
At a time when the threats of Brexit and Italian finances are flying over the European economy, Per Wehrmann CFA, Head of European High yield in DWS, is confident that Europe will not enter into a recession although he expects a period of lower growth.
Lower growth but not a recession
As such, in an interview with Funds Society during his recent visit to Santiago de Chile, Wehrmann confirms that he expects a GDP growth for the Euro area of 2% for 2018 and a moderate slowdown during 2019 to 1,8%. The main risk drivers for Wehrmann are Brexit and the situation in Italy.
Regarding Brexit , specifically about UK’s exit terms for leaving Europe, he expects that the deal agreed with the European Union, that implies a broader free trade zone will be approved as it has limited impact in the economic relationship. For Wehrmann: “Clearly UK needs this deal more than the other way around, as it is dependent on having access to the European markets. At the end, and even if we expect some volatility and headline risk, we expect the most important terms of the deal to be agreed upon.”
As per the situation in Italy, whose government has already confirmed a disappointing third quarter growth figure, they expect that eventually an agreement will be reached with the EU, although there are chances that the actual government will not succeeded and new elections taking place in the near future are highly likely. Nonetheless, “ at some point we will see some improvement there and less uncertainty”, declares Wehrmann.
Germany is another country that has had a negative impact in the European economy, showing a negative growth during the 3rd quarter, due mainly because of the auto industry. “The auto industry has had problems to bring cars to the market because there is a new way to measure the consumption and pollution that have caused bottlenecks”, explains Wehrmann although he specifies that this impact is less important than the future of the Chinese economy : “More serious is of course the situation in China, we have seen a slowdown in autos and that is something that could have a negative impact on the auto industry.”
On a positive note, he mentioned that the German economy is rebalancing, towards a greater contribution of the domestic investment expending, thanks to mainly the construction sector, making it less dependent on trade balances.
He also points out, as a positive aspect, the role that Spain is playing, that to his view, has “changed the camp”: Previously it was a low growth country camp and now it is in the fast growing country camp” and adds “when we have seen Italian government spreads widen significantly, Spanish and Portuguese spreads were not much affected by it. So much less contagion effect to what you saw in 2011”
European high yield market: Lower growth since 2015
“The European high yield market is a relatively young market that has grown significantly in the last years and specially since Lehman crisis due to the “falling angels,” in other words, companies that have been downgraded from the Investment grade spectrum, explains Wehrmann. Another important factor in the evolution of this market, has been the downgrade of subordinated bank debt and its inclusion in the high yield market, that implied that 25% of the benchmark came from financials when it represented zero up until that moment.
Since then, it has had an stable growth up until 2015 but, “ =in the last two years we have seen a decline in the market volume because of the part of the cycle we are in, and as the economy has recovered we have seen more raising stars, companies upgraded from high yield to IG, than the other way around in Europe,” explains Wehrmann that stated that the size of the market is currently aprox. 1 billion euros.
In regards to the geographical exposure of the high yield issuers, Italy is the predominant country although countries as France, Germany, UK and US also have a significance presence in the European high yield market.
As per sectors is concerned, the European high yield market it is broadly diversified and it includes sectors such as: the basic industry sector, which includes chemicals, paper packaging, raw materials, steel companies; TMT; capital goods, or services.
In terms of the financial sector, Wehrmann points out that when the financial issues started being part of the benchmark they decided not to invest in financials. As such they don’t invest in banks or insurance companies, although they can invest in financial services, so their portfolios are maid mainly corporates.
European High Yield more stable than the US High yield market
If compared to the US High yield market, Wehrmann states that the European one has mostly been more stable after 2011. “Despite uncertainty in Europe, weak economic growth, financial crisis, the European high yield market has had every year a lower default rate than the US high yield market,” that is currently situated at 1% versus 2.5% of the American market. In addition, he adds that the credit quality of the European market has improved significantly and states that: “ European High yield market is very much dominated by BB ratings which may add up to 70% of the European High yield market. To put it into comparison with the US high yield market it has less than 50%.”
For Wehrmann the main reason for the lower volatility are the smaller exposure of the European High yield to the energy and commodities sector and the better average credit quality which is reflected in the lower default rate and the better average rating. The US high yield market on the other hand still benefits from the more stable investor base which is more value orientated and which is willing to enter the market when spreads widen.
Positive outlook for 2019
In terms of the market outlook, in DWS they are positive from a fundamental point of view although they remain cautious in credits with significant exposure to Italy, Brexit related risk as well as some cyclical sectors, such as automotive or construction. In DWS view, “as dispersion across credits increases credit selection becomes more important.”
From a market momentum and valuation point of view, the recent spread widening observed during the last few months, implies it is a good moment to overweight the European high yield asset class bearing in mind its high average rating quality.
As per rating preference, DWS prefer B rated credits over BB as tend to show lower interest rate sensitivity and they expect these issuers to benefit from a more positive market environment. In regards to maturities DWS prefer short term maturities from solid credits as their market risk is lower.
Pixabay CC0 Public Domain. 43% of Worldwide AUM Are Managed by 20 Companies
Total assets under management (AuM) of the world’s largest 500 managers grew to $93.8 trillion in 2017, representing a rise of 15.6% on the previous year, according to the latest Global 500 research from leading global advisory, broking and solutions company Willis Towers Watson’s Thinking Ahead Institute. In addition, the concentration of assets managed by the 20 largest managers reached the highest level since inception (in 2000) and now account for over 43% of the top 500 managers’ total AuM.
The research shows North America-based managers represent the majority of assets (58.1%), though their share fell slightly in 2017, the first fall since 2008. European managers represent 31.8% of assets managed (the U.K. being 7.4%), Japan 4.8% and the rest of the world 5.2%. Assets in each region grew in 2017. While the majority of assets (77.6%) are managed actively, the share of passive assets has grown from 19.5% to 22.4% in the last five years. In 2017 passive assets grew 25%.
BlackRock remains the largest asset manager in the rankings, a position it has held since 2008; Vanguard and State Street complete the top three for the fourth successive year.
“Once again, total assets have increased; the rate of growth in 2017 is the biggest since 2009,” said Bob Collie, head of Research at the Thinking Ahead Institute. “The names at the top of the ranking are familiar ones. There’s greater concentration in the biggest names. On the surface, the numbers might appear to tell a story of steady growth and stability. But when you look at broader developments within and beyond the industry, there are signs the industry is facing significant change.”
In an indication of future areas of focus, more than four out of five (81%) managers surveyed reported an increase in client interest in sustainable investing, including voting, while nearly three-quarters (74%) increased resources deployed to deal with technology and big data. Nearly two-thirds of firms surveyed had increased the number of product offerings during 2017, while 60% reported an increase in the level of regulatory oversight according to the research.
“It’s not just a focus on technology. There is a confluence of global trends — including demographic, economic, environmental and social pressures — that are combining to create a period of potentially massive disruption for the industry. The implications go well beyond the investment process. These changes affect business models, people models, operating models and distribution models. They will be felt in every corner of the organization.”
“Firms will choose to respond to these challenges in different ways. Successfully responding to these new industry realities may prove to be as much a test of character and culture as it is a test of traditional business and investment skills,” added Collie.
Pixabay CC0 Public DomainNietjuh
. Trade, Treasuries and Trump: Three Keys for Growth in 2019
For most of the last decade we have lived in what has often been termed a “Goldilocks economy.” Much as the fair-haired, home-invading subject of the children’s story found one bowl of porridge to be “just right,” economic growth and inflation have been neither too hot nor too cold1. During this time, coordinated action by the world’s central banks kept interest rates near zero and the prices of nearly all asset classes high. The US economy is in its 113th month of expansion, seven months short of the record. Notwithstanding a recent stumble, US equities are 119 months into the longest-ever bull market, led mostly by growth stocks riding a global wave of technological innovation and expanding prosperity. Except for growth scares in 2011, 2015 and perhaps one day in November 2016, market volatility has been low and its upward trajectory largely uninterrupted. There are signs, however, that the narrative may be changing as a turn in the aging business cycle may be accompanied by a wholesale shift in socio-political regimes from globalism to nationalism and capital to labor. Populism is on the march around the world with long-term effects that are unclear, but unlikely to be positive for equities. As in the story, the bears will eventually return home; their timing and mood is uncertain, as is how much of this eventuality the market has already discounted. Against this backdrop we believe bottom-up, fundamental stock selection of the type we have practiced for over forty years remains more important than ever.
The Political Economy of 2018
The most salient issue for the market is growth – with corporate tax cuts behind us and little slack left in the economy, growth will almost certainly slow from the 3-4% posted in 2018. That does not necessarily imply a recession, defined as two consecutive quarters of contraction, is on the immediate horizon. How far above or below the approximately 2% real growth that population and productivity gains suggest is “just right” depends on many factors including what we have described variously as Three T’s: Trade, Treasuries and Trump.
Trade
President Trump made “fair trade” the centerpiece of his election campaign and he has thus far made good on his promise to challenge the prevailing post-war “free trade” orthodoxy (however illusory that reality might have been). Hope for a trade deal with China rose when the administration renegotiated NAFTA, now called USMCA (the initials of its US, Mexican and Canadian signatories). The market understandably zags with each hint that a China deal could emerge since China accounts for over half of the US’ $600 billion trade deficit and remains our third largest export destination. The situation takes on even greater significance due to China’s role as an engine for global growth. China is slowing as it faces domestic structural imbalances. Pressure from President Trump exacerbates those issues, but a deal is unlikely to solve them or heal the lasting damage done to the Sino-American symbiosis.
Treasuries
Also critical to the outlook for the economy and stocks are the level and trajectory of interest rates. Since the Federal Reserve began its taper four years ago in October 2014, the ten-year Treasury rate breached 3% this year for the first time since 2013, standing now just below that level. Higher interest rates have real world impacts – they make the purchases of new homes, cars, capital equipment, companies and the US deficit more expensive to finance. All else equal, higher rates reduce the value of risk assets by making the alternative home for capital, “riskless” Treasuries, more attractive. The term structure of interest rates (aka the yield curve) has also been ascribed predictive powers. Inverted curves – situations in which the ten-year yield exceeds the two-year yield – have predicted all nine recessions since 1955, albeit with two false positives and a wide variation in timing. The virtually flat yield curve today thus worries some observers.
Trump
While there has always been a healthy interplay between markets and political figures, President Trump’s twitter habit, unpredictability and the potential legal challenges to his presidency have made him more “center row orchestra” than past leaders. Among the concerns for the next two years is how a Democratic Congress with no interest in helping Trump get re-elected approves the USMCA, a debt ceiling extension and further fiscal stimulus, especially when the ask may be a tweak to the tax cuts. Interestingly, the War on Tech (i.e. privacy and anti-trust investigations of Facebook, Google, Amazon and others) seems to be one of the few issues with bipartisan support and is worth watching in 2019. Geopolitical disruption is not unique to the US: if and how the UK exits the European Union, the precarious positions of leaders in Germany, France and Italy, not to mention the typical entanglements in the Middle East, also remain a focus.
Skeptics Could Be Wrong If Things Go Right
Not all news – whether real or fake – is bad of course. In fact, many economic indicators are quite strong, with 3.7% unemployment the lowest since the tumult of 1969, record consumer net worth ($109 trillion) and interest rates and inflation that, viewed over a longer time frame, remain quite tame. The Federal Reserve and the President are probably not past the point of no return and still have not lost policy control: President Trump, who possesses a keen sensitivity to the stock market, could resolve the trade war and the Fed could blink on 2019 rate hikes. That would leave reason to believe the expansion could continue and that the current state of the market is the pause, like the previous ones in this cycle, that refreshes.
Mr. Market
Causation, Correlation or Neither
The S&P 500 is down 6% and the small capitalization Russell 2000 index is down 13% to date, with each off 16% and 24% from the peaks in those indices in September and August, respectively. For most of the year, the performance of the S&P 500, dominated by six technology stocks (Facebook, Amazon, Netflix, Google, Apple and Microsoft – the “FANGMA”) that comprise 15% of its weight, masked the more significant declines posted by a broader group of stocks. Approximately two-thirds of stocks in the S&P 500 are negative this year with one-third down more than 20%. Even the vaunted FANGMA is now 25% off its highs, adding credence to the notion that the global growth trend may be broken. “Buy the Dip” has morphed to “Sell the Rip.”
Market declines of this magnitude could be expected to impart a negative wealth effect, i.e. consumers with slimmer brokerage statements feeling less inclined to make discretionary purchases, which could exacerbate an economic slowdown, but market declines are more often simply a precursor, not a trigger, of recessions. Since 1929, there have been sixteen bear markets with most, though not all, pacing a recession by approximately one year (the recession-less crash of October 1987 a notable exception). It is also worth stating that the market does not equal the economy. Just as some have suggested Wall St. prospered without much of Main St. over the last decade, the reverse could conceivably prove true.
Valuation Today vs. Five Years Out
In any case, stocks are already pricing a slowdown and/or higher rates. A flat year-to-date equity market compared with estimated EPS gains of 22% in 2018 and 8% in 2019, implies a contraction in forward multiples from 18x at the end of 2017 to roughly 15x today. That is at the low end of historical multiples during periods with inflation in the 0-3% area. This suggests that the market as a whole does not appear expensive. We do not buy the “market,” but we are finding a lot of bargains in individual stocks recently.
Deals, Deals & More Deals
Deal activity slowed through the year as political uncertainty weighed, but the underpinnings for mergers (low interest rates and a lack of organic growth opportunities) remain and the potentially waning days of the present administration may encourage activity sooner rather than later. Spin-offs rebounded in 2018 (twenty-six by our count), including two by Honeywell and one pre-takeover spin-off by KLX. Notable upcoming announced separations include Madison Square Garden’s spin of its sports teams, 21st Century Fox’s pre-deal spin of its news and broadcast assets, and three-way spins by DowDuPont and United Technologies. As discussed in the past, we like spin-offs because they not only tend to surface value but often serve as the source of new ideas.
Conclusion
Last year, we expressed surprise that a strong market was overlooking what seemed to be mounting risks late in the economic cycle. As many of those challenges – trade disputes, higher interest rates, political discord – play out, we wonder if the market is now ignoring what continue to be decent corporate fundamentals. Ultimately our job is to do the work on the microeconomic elements of each company and industry we cover, examine how the changing macroeconomic environment impacts those variables and make buy and sell decisions that balance the resulting opportunities and risks. Since the bears inevitably come home in each cycle, we have always erred on the side of capital preservation and that will especially be the case going forward. Children’s stories don’t always have happy endings but they serve as cautionary examples that we have heeded well.
““Goldilocks and the Three Bears” was an old tale first recorded by poet Robert Southey in 1837. Market commentator use of the analogy dates to at least the late-1990s expansion.
To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:
GAMCO MERGER ARBITRAGE
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.
Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.
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GAMCO ALL CAP VALUE
The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.
GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.
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Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to find out what those restrictions are and observe them.
Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reflect the manager’s current view of future events, economic developments and financial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.
Photo: spencer hickman. Over Half Of Fine Art Collectors Have Purchased A Piece Online Sight Unseen
UBS Global Wealth Management released a report that unveils the majority of art collectors are going online and using social platforms to stay at the forefront of the art market year round. Released during Art Basel in Miami Beach, this special Investor Watch Pulse Report, titled “Art in Motion,” studies the attitudes and behaviors of fine art collectors in the U.S. with at least $5m+ in investable assets. The percentage of art collectors who have purchased art online before they’ve seen it in person has more than doubled in the past year (26 percent in 2017 vs. 58 percent in 2018), while 63 percent of collectors polled have gone on the internet to participate in an online auction.
What’s more, art collectors are beginning to feel the pull of social media, using it as a resource to help them follow the art market closely. Among the collectors, 67 percent follow an artist on social media, while 65 percent have seriously considered buying art after first seeing it through their social media platforms.
“The technological trends changing the economy are increasingly changing the art market,” said Karl Ruppert, Market Head of Florida Private Wealth Management at UBS Global Wealth Management. “There are potential opportunities presented through future growth of the online art market to attract new buyers at different price levels, which is beneficial to the health of the overall market. For gallerists, fairs, auction houses, artists and collectors, digital tools will be a key area of growth over the next five years.”
Women artists on the rise, and so are the investments in them
Women artists are increasingly being recognized for their standout contributions along with breaking their sales records — which hasn’t gone unnoticed among collectors. Almost three-in-five collectors see the artist’s gender as a determining factor when purchasing a piece, and 70% plan on purchasing works by women in the next year.
“While male artists continue to lead overall sales within the market, we found clients are increasingly recognizing that women artists are undervalued,” said Ruppert.
Collectors ready to buy, but cautious to sell
Collectors are eager to grow their art collection with half stating they’re always looking to add new pieces, and 34 percent are opportunisitically searching. Moreover, 58 percent are ready to make an addition in the upcoming calendar year, while 64 percent of fine art collectors are gearing up to spend more than $100k on their new additions in 2019.
More than half (58 percent) of these wealthy art enthusiasts view their collections as their most prized possessions. Not surprisingly, collectors are only willing to sell up to a third of their collection.
Passing along the passion: Concerns for art inheritance
When it comes to passing along their passion pursuit to the next generation, 58 percent of art collectors are worried their heirs won’t know how to care for the collection and 57 percent are concerned about taxes when passing on to the next generation.
Pixabay CC0 Public DomainPhoto: leninscape. Looking Back on 2018 and Looking Forward to 2019
2018 has been one of the most difficult years for bonds over the last 10 years. The reasons behind this underperformance are different to those upsetting the financial markets of 2008. At that time, the health of the banking system was at the heart of many concerns. Since then, the banking industry has been streamlined and consolidated. Banks have improved their Capital footprint, reduced their risk profile, and improved their profitability.
The source of today’s financial uncertainty lies elsewhere.
Three predominant factors have weighed on Bond markets in 2018
The reorganization of international trade following trade barriers imposed by the American administration.
Capital flows following the change in monetary policy in the United States.
Geopolitcal events destabilizing Europe and the Emerging World.
As a result, the bonds issued by European names in USD have been adversely affected after having benefited from a strong performance in 2017.
With a continuing discord between the European Union and the UK or Italy for example, European subordinated bonds denominated in USD now provide some of the highest yield returns in the world in this currency (between 7% to 9% per annum) and stand out when compared to those of equivalent sized North American institutions. In a financially interconnected world, this discrepancy does not seem justified to us. In the coming months, we expect investors to reconsider their outlook on the dollar denominated debt of European household names, if only for the step up in yield that these bonds provide.
Outlook 2019
To face uncertain times, it is preferable to remain exposed to financially sound large household names. The USD subordinated instruments of these same issuers provide some of the highest yield returns, in a world of historically low interest rates.
As bilateral trade agreements are put in place, the current cycle of tariff disputes should progressively come to an end.
It was announced by the Federal Reserve (Fed.) that their interest rate increase cycle, initiated in 2015, would terminate by 2020 at the latest. This should stabilize the USD Fixed Income market moving forward.
The USD Fixed Income market is the largest in the world. Through a dollar denominated portfolio, investors can benefit from the widest investment opportunities available to the subordinated asset class, only through this currency.
For the Fund’s USD and Euro (hedged) tranches, investors can avoid being exposed to monetary changes projected for the Euro Fixed Income investment space.
In Europe, political arrangements look to be on horizon for the Italian Budget and the Brexit process. These issues have plagued the performance of USD European bond assets over the last few months.
Finally, world capital is looking for decent yield returns. The overall supply of subordinated instruments is limited relative to the potentially demand from this global liquidity. World investors have been and still are desperately looking for returns on invested capital.
Column by Ygal Cohen and Steven Groslin, of ASG Capital
Foto cedidaLázaro de Lázaro. Lázaro de Lázaro to Lead Santander AM's European Hub, While Luis García Izquierdo Will be in Charge of LatAm
Santander Asset Management is changing its organizational structure. As confirmed by Funds Society, the firm has created two hubs, with the aim of strengthening coordination efforts as well as relationships with banks and local customers.
In charge of the European hub will be Lázaro de Lázaro, and Luis García Izquierdo is to lead the Latin American one.
Lázaro de Lázaro was until now responsible for the Santander AM in Spain position that will go to Miguel Ángel Sánchez Lozano, until now responsible for Structured Products of Santander Spain.
Looking for a new CIO
Gonzalo Milans del Bosch, until now the global CIO, is leaving the firm for personal reasons and his position will be temporarily co-filled by Jacobo Ortega Vich, until now CIO of Santander Spain, and Eduardo Castro, CIO in Brazil, until a full time replacement is appointed.
Foto cedidaOlivia Watson and Jess Williams. Courtesy photo. Olivia Watson and Jess Willliams Bolster Columbia Threadneedle's RI team
Columbia Threadneedle Investments appoints Olivia Watson and Jess Williams for its Responsible Investment team. With the appointments, they have 12 investment professionals in the unit. They will report to Chris Anker, lead analyst for the EMEA region.
Iain Richards, global head of Responsible Investment said: “Investors are increasingly seeking to capture the value of effective ESG integration and understand the wider consequences of their investment choices. Olivia and Jess both join with strong experience of sustainable finance and knowledge of social and ethical issues, and will help us to continue to meet our clients’ needs through providing valuable support to our portfolio managers.”
Olivia Watson, who has been hired as senior analyst, will be in charge of responsible investment research and engagement on environmental, social and governance issues, as part of the company’s stewardship activities in EMEA.
Jess Williams, hired as portfolio analyst, will be responsible for research and analysis on client portfolios from a responsible investment point of view. She previously worked at S&P Global Ratings, where she developed sustainable finance products. She also worked on the Global Innovation Lab for Climate Finance at the Climate Policy Initiative in Venice.
Watson joins Columbia Threadneedle from the Principles for Responsible Investment, where she was responsible for overseeing the development of collaborative investor initiatives and investor engagement on environmental and social issues. Prior to that, she worked in corporate sustainability consultancy and in corporate governance research.
Columbia Threadneedle’s responsible investment team supports portfolio manager through oversight of stewardship relating to environmental, social and governance (ESG) issues in their portfolios, as well as portfolio construction through the identification of investment opportunities aligned to eight thematic outcome areas.
Photo: William Wan
. Merger Arbitrage Update for November 2018
Merger arbitrage performance in November was bolstered by deals that received key regulatory approvals, including “green lights” from the Chinese regulatory authority. Specifically:
Rockwell Collins (COL-NYSE) and United Technologies received antitrust approval from China’s State Administration for Market Regulation (SAMR) for UTX’s acquisition of Collins. This was the last remaining hurdle for the deal after clearing U.S. antitrust in October. The deal was subsequently completed on November 27 and Collins shareholders received $93.33 cash and 0.37525 shares of United Technologies common stock for each share, or about $30 billion.
Aetna, Inc.’s (AET-NYSE) agreement to be acquired by CVS Health received a number of state regulatory approvals in November, culminating with New York Department of Financial Services on November 26. The U.S. DOJ approved the merger in October after the companies agreed to sell Aetna’s Medicare Part D business, the only area in which the two companies competed. The deal closed on November 28, and shareholders of Aetna received $145 cash and 0.8378 shares of CVS common stock for each share, or about $71 billion.
Twenty-First Century Fox (FOX-NASDAQ) shares traded higher after Disney received Chinese SAMR approval for its acquisition of Fox. The deal remains subject to Brazilian regulatory approvals which is expected early in the first quarter of 2019. Under terms of the agreement Fox shareholders will receive $38 in cash and Disney shares, as well as one share of New Fox, which will own Fox’s broadcast and cable assets.
Some new deals announced in November included:
ARRIS International (ARRS-NASDAQ), a manufacturer of communications equipment and related products, agreed to be acquired by CommScope Holding for $31.75 cash per share, or about $7 billion.
Athenahealth, Inc. (ATHN-NASDAQ), a provider of cloud-based software used to manage electronic health records and medical practices, agreed to be acquired by a consortium led by Veritas Capital for $135 cash per share, or about $6 billion.
BTG plc (BTG LN-London), a medical technology and pharmaceutical licensing company, agreed to be acquired by Boston Scientific for £8.40 cash per share, or about £3.3 billion.
We continue to find attractive opportunities investing in announced mergers and expect future deal activity will provide further prospects to generate returns uncorrelated to the market.
Column written by Michael Gabelli from Gabelli Funds
To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:
GAMCO MERGER ARBITRAGE
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.
Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.
Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476
GAMCO ALL CAP VALUE
The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.
GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.
Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155
Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to find out what those restrictions are and observe them.
Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reflect the manager’s current view of future events, economic developments and financial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.
CC-BY-SA-2.0, Flickr. The US Dollar Should Weaken As Global Growth Converges Again In 2019
The US dollar was a clear winner in 2018 as it was one of the very few assets to register gains. Exceptionally strong US economic growth, political upheavals in Europe and the emerging markets and escalating trade tensions have buoyed the greenback this year.
Softer data in Europe brought on fears of a slowdown in the region and distanced the possibility of seeing a rate hike by the European Central Bank. In Italy, the coalition government of the League and the 5-Star Movement brought forth a budget plan that defied the European Commission and riled investors who feared that an increase in Italian debt would send ripple effects across markets. The pound sterling also weakened against the dollar in the face of the never-ending negotiations to reach a Brexit agreement. Finally, higher interest rates and the trade war between US and China especially affected emerging market currencies, as a more severe slowdown in China would have a direct impact on their economies.
We thought the dollar would weaken in 2018 but we had not foreseen the protracted trade war negotiations nor the outcome of the Italian election. 2018 has been a year of diverging economies, with a striving US on one side and the rest of the world on the other. We think this should change in 2019 as the fiscal stimulus fades in the US and the rest of the world recovers.
The slowdown in Europe was partly due to the normalisation of unsustainable high growth rates in 2017 and temporary factors such as the decline in the auto sector. The implementation of the Worldwide Harmonised Light Vehicles Test Procedure in September may well help to cut carbon emissions, but it also created problems in the production, distribution and storage of vehicles. Nevertheless, Europe is still growing above trend and these temporary factors should dissipate going forward. Furthermore, base effects will become easier and the improvement in the labour market should continue to support domestic demand.
With respect to political risks, Italy cannot go too far in its fiscal deviation as the markets will push yields higher, going against Italy’s own interests. It is precisely for this reason that they have already brought the deficit target down to 2.04%, almost in line with the requirements of the EC. As for the UK, there seems to be a multitude of possible outcomes, including an early general election or even another referendum. But whatever the outcome, eventually the UK will have to reach an agreement as a no-deal Brexit would be too disastrous for its economy.
Regarding emerging markets, we think China will resort to fiscal stimulus policies should the growth rate drop below 6% and, even though the ride could still be rocky, a trade agreement between the US and China should be reached in the best interest of all parties.
Market sentiment towards all these risks is already very negative and a gloomy scenario seems to be priced in. A positive outcome for any one of these issues, therefore, would probably see a downward movement in the dollar. Ultimately, the most important factor for currency movements is the shift in interest rate differentials. The market is only pricing in 40 bp of hikes by the ECB over the next two years, whereas the Fed is nearing the end of its hiking cycle. Consequently, there is ample room for a hawkish surprise on behalf of the ECB.
The main risk to this view is that the dollar may only start to depreciate during the second half of 2019, as political tensions may take time to resolve themselves and the European parliamentary elections in May could prove to be yet another hurdle.
Column by Jadwiga Kitovitz, CFA, Head of Multi-Asset Management and Institutional Clients of Crèdit Andorrà Group. . Crèdit Andorrà Financial Group Research.
CC-BY-SA-2.0, FlickrPhoto: Lowes Atlanta Hotel. Analyzing Women's Role in the Asset Management Industry
Financial Advisor magazine invites all advisors interested in women and wealth to attend its 5th annual Invest In Women conference, a national event that explores some of the most thought-provoking issues that face advisors and their female clients.
The 2019 conference will be held April 29-May 1 at the Loews Atlanta Hotel in Atlanta, Ga., and will feature a wide range of speakers on topics that include next-gen advisors, diversity, impact investing, executive women, estate planning, behavioral finance, divorce, client relations, marketing and much more.
“FA’s goal with Invest In Women is to provide a compelling, national forum for advisors to engage on topics that are particularly relevant to women,” said FA’s Executive Editor Dorothy Hinchcliff and Director of Conferences. “IIW has continued to grow each year, and we expect record attendance at our upcoming conference.”
David Smith, FA’s Group Publisher and Cofounder, said he is extremely pleased with the support sponsors have given to Invest In Women. “Leading firms such OppenheimerFunds, Dimensional Fund Advisors and TDAmeritrade, to name only a few, see the value in conveying the message that women advisors and clients are a force that shouldn’t be ignored. The fact that so many of our sponsors are capable of sharing their research and expertise to our content is confirmation of their commitment to the cause.”
Keynote speakers include:
Dr. Bernice King, the daughter of Martin Luther King Jr. and Corretta Scott King. As CEO of the King Center in Atlanta, she has continued to advance her parents’ legacy.
Lara Logan, a 60 Minutes journalist and war correspondent who faced harrowing experiences covering some of the world’s most dangerous places and who is known for her personal integrity.
Lauren Simmons, who has been dubbed the real-life “Fearless Girl,” who became the youngest and only full-time female trader at the New York Stock Exchange. She’s also the second African American woman in history to work as a trader on the floor.
Dr. Laura L. Carstensen, cofounder and director of the Stanford Center on Longevity at Stanford University. She has amazing insight on how we can make later life a time of great happiness.
Christina Boris, vice president and client research director at OppenheimerFunds, who is the architect of The Generations Project for the firm. Her current studies include advisor sentiment about wealth transfer, next-generation financial advisory practices, the shifting generational needs of high-net-worth families.
Marlena Lee, co-head of research for Dimensional Fund Advisors. Lee works closely with Dimensional’s clients on a variety of investment-related initiatives and questions. Previously, she worked as a teaching assistant for Professor Eugene Fama while she earned her Ph.D. in finance at the University of Chicago Booth School of Business.
FA’s Inside Retirement conference will immediately follow the Invest In Women conference. In its 10th year, Inside Retirement focuses on the changes clients face as a result of increases in longevity and how that impacts advisory practices. It also provides insight on issues for advisors who provide advice to small businesses on retirement plans, such as 401(k)s.
The events will also offer pre- and post-conference workshops. On April 29, immediately before the Invest in Women conference, FA has assembled a pre-eminent team to answer your key questions on planning for a sale of your practice. Following Invest in Women on May 1 and leading in to Inside Retirement, the ever-popular Susan Bradley, founder of the Sudden Money Institute, will present the workshop “In The Client’s Shoes.”
