The active/passive management conversation doesn’t have to be a debate. Those are better left to the politicians. As MFS Co-CEO Michael Roberge says in his October 18 opinion piece in the Wall Street Journal, investors can choose both. And they may want to consider that, given the potential diversification benefits of having active alongside passive in their portfolios.
With active management facing criticism of late, Mike sheds some light on the rhetoric and how to recognize a manager with skill. He also makes a compelling case for active’s risk management capabilities and the importance of excess return in an environment fraught with return-generating challenges.
Investors know this. In a recent survey conducted by MFS, nearly three-quarters of professional investors surveyed in the US cited strong risk management as an important criteria when selecting actively managed investments
So passive has its place. Active has its advantages. And there are some real merits to a “bipartisan” portfolio. Here’s what Mike has to say:
It is true that flows into passive strategies have picked up. But U.S. advisers are still allocating 70% of their clients’ assets to active investment strategies, according to our recent survey.1 Investment flows can be fickle and aren’t always a good barometer for long-term shifts in sentiment.
Most of it points to the average active manager’s inability to consistently beat their benchmark, net of fees. And while that might be true for average managers, there are skilled active managers who have consistently outperformed their benchmarks over a full market cycle. But how do you distinguish between skilled and average? It really comes down to conviction and risk management.
Investors caught in the active/ passive debate need to under- stand the issues—but stay focused on the outcome. Market returns might look appealing. Excess return will matter more. And managing the downside is essential. Long term, the bipar- tisan portfolio probably wins.
CC-BY-SA-2.0, FlickrPhoto: Indi Samarajiva
. Investors - Focus on State Polling as U.S. Election Nears
With less than a week to go until the U.S. presidential election, investor anxiety about next Tuesday’s outcome is running high, as evidenced by the recent move in risk assets. So what should investors (and others) focus on between now and Election Day? According to PIMCO, state polling in the coming days will be especially important.
Libby Cantrill, PIMCO’s head of public policy, says that since last Friday’s revelation that the FBI is considering other possible “pertinent” emails in the Hillary Clinton case, several national polls have shown the presidential race tightening, continuing a trend we had observed even before Friday’s news.
But at the end of the day, national polls can only tell us so much. Because of the unique way people elect their presidents in the U.S. – through the Electoral College, rather than the popular vote – a handful of key battleground states will likely dictate next Tuesday’s outcome, as in so many prior races.
Between 10 and 12 of these battleground states are important, but arguably only a subset are truly critical to get to the needed 270 electoral votes to win the White House: Florida, Ohio, North Carolina and Pennsylvania. That is because Donald Trump would have to win all four if Clinton maintains her relatively healthy leads in the battleground states of Colorado, Virginia, Michigan and Wisconsin.
Pathways to the White House
In other words, even considering Friday’s news, Trump’s pathway to 270 electoral votes, although possible, remains narrow. To be even more reductive, it is unlikely Trump wins the White House if he does not win Florida.
Similarly, most pathways for a Clinton victory require her to win Pennsylvania. She can afford to lose certain battleground states (including Florida, Ohio and North Carolina) given her polling in others, but it’s hard to see her winning the White House if she loses Pennsylvania.
Polling in Ohio shows Trump with more than a three-point lead on average and shows Trump tied with Clinton in Florida and North Carolina (according to Real Clear Politics). Clinton’s lead in Pennsylvania remains solid, however, with an average four-point lead over Trump.
We should be getting more state polling in these four states (and the other battleground states) in the coming days, and we think these data are what investors should focus on – not simply the national polls.
Regardless, with a tightening race and a larger number of undecided voters this election cycle, the chances of an unexpected election outcome are not immaterial – and that could cause continued repricing in the market, as we’ve seen over the past few days.
CC-BY-SA-2.0, FlickrPhoto: Matthew Hutchinson
. M&G's Juan Nevado will Host a Cocktail Conference in Miami
M&G is getting ready to offer a Cocktail Conference in Miami on the 9th of November. Juan Nevado, fund manager of the M&G Dynamic Allocation Fund and M&G Prudent Allocation Fund, will discuss where he currently sees the most attractive opportunities in the markets (bonds, equities, currency) followed by an introduction to the funds he manages.
The event will take place at 4:30PM at the Four Seasons Hotel Miami on 1435 Brickell Avenue.
The agenda wll be as follow: 4:30 – Registration 4:45 – Presentation with Fund Manager 5:30 – Q&A 5:45 – Cocktail 7:30 – End
CC-BY-SA-2.0, FlickrPhoto: David Lofink
. M&G to Resume Trading in M&G Property Portfolio
Effective from noon on Friday 4 November 2016, M&G Investments (M&G) will resume trading in the shares of the M&G Property Portfolio and its feeder fund, the M&G Feeder of Property Portfolio. The M&G Property Portfolio is a broadly diversified fund, which after all sales, will invest in 119 UK commercial properties across retail, industrial and office sectors on behalf of UK retail investors.
The decision was taken in agreement with the Depositary and Trustee and the Financial Conduct Authority has been informed. The fair value adjustment originally applied on 1 July 2016 has also been removed in full.
M&G announced a temporary suspension on 5 July 2016 after investor redemptions rose markedly due to high levels of uncertainty in the UK commercial property market following the outcome of the European Union referendum.
William Nott, chief executive of M&G Securities, says: “Suspending the fund wasn’t a decision we took lightly, but we felt it was the only way to protect the interests of investors in what were very unusual circumstances in the aftermath of the referendum. Suspension created an environment more akin to normal conditions, allowing us time to choose the most appropriate assets to sell at the right price in order to preserve the integrity and future of the fund. As such, the fund manager has kept higher quality assets while reducing the exposure to assets deemed riskier than their prime counterparts, putting the portfolio in a good position for any further volatility that may be experienced in the lead up to Brexit.” As confidence returns to the market, 58 properties have been sold, exchanged or placed under offer for a total of £718 million.
Meanwhile, and effective January 1st, 2017, Sam Ford will be the new manager of the £598 million M&G UK Select Fund given the incumbent manager, Mike Felton is leaving M&G. Until the end of the year, the fund will be managed by co-deputy managers Garfield Kiff and Rory Alexander.
CC-BY-SA-2.0, FlickrPhoto: contemplativechristian
. Wealthy Individuals Believe Charitable Giving and Volunteering Have A Greater Potential for Positive Impact than Voting
Most wealthy individuals believe charitable giving (45 percent) and volunteering (31 percent) have the greatest potential for positive impact on society –far more so than voting for (13 percent) or contributing to (1 percent) a political candidate who shares their ideals on topics important to them – according to the 2016 U.S. Trust® Study of High Net Worth Philanthropy. Through an ongoing partnership with the Indiana University Lilly Family School of Philanthropy, the sixth in this series of biennial studies reveals a strong commitment to charitable causes among high net worth (HNW) households, and giving and volunteering levels poised to increase in future years:
Last year, the vast majority (91 percent) of HNW households donated to charity. This high rate of giving among the wealthy compares with 59 percent of the U.S. general population who donate to charity.
Fifty percent of wealthy individuals volunteered their time and talents last year to charitable organizations they care about – twice the rate of the general population (25 percent).
The study offers an optimistic view of future giving levels, with 83 percent of wealthy individuals planning to give as much (55 percent) or more (28 percent) in the next three years (through 2018) than they have in the past. Women, African Americans, and younger individuals (age 50 and under) are even more likely to increase their giving in the next three years.
Future levels of volunteerism are also promising. Among wealthy individuals who currently volunteer, 90 percent say they plan to do so as much (60 percent) or more (30 percent) over the next three years. Even among those who did not volunteer last year, 39 percent plan to do so during the coming years.
“Wealthy donors continue to be incredibly generous with their time and money in support of social change in their communities and in the world,” said Claire Costello, national philanthropic practice executive for U.S. Trust. “And while their charitable activity is driven to a large extent by their personal values and convictions, donors are also listening closely to the needs of nonprofits as they make their giving and volunteering decisions.”
A variety of motivations drive HNW philanthropy. In 2015, wealthy households cited the following among the primary reasons they give: believing in the mission of the organization (54 percent); believing that their gift can make a difference (44 percent); experiencing personal satisfaction, enjoyment or fulfillment (39 percent); supporting the same causes annually (36 percent); giving back to the community (27 percent); and adhering to religious beliefs (23 percent). Just 18 percent of wealthy donors said they gave largely because of tax benefits in 2015.
Electing to give, and giving to elect
Twenty-four percent of wealthy individuals contributed to a political candidate, campaign or committee last year or plan to do so during the 2016 election season. Among this group, donors over the age of 70 (40 percent) and LGBT individuals (38 percent) were more likely to make such political contributions.
Among those who contributed to a political candidate or campaign, wealthy individuals reported doing so because they:
View it as an opportunity to exercise their voice (56 percent).
Hope to influence the outcome of elections (49 percent).
Believe their contribution can make a difference (46 percent).
The main reasons why 76 percent of wealthy individuals have not and do not plan to make political contributions during this election season include:
Feeling such contributions would have little to no impact when compared to corporate contributions (47 percent) and contributions from political action committees (PACs) (26 percent).
Believing such contributions won’t make a difference (31 percent).
Not having a particular candidate they would endorse (26 percent).
Results of this study are based on a survey of 1,435 U.S. households with a net worth of $1 million or more (excluding the value of their primary home) and/or an annual household income of $200,000 or more. To view a detailed summary of key findings and to access the full report, visit www.ustrust.com/philanthropy.
CC-BY-SA-2.0, FlickrPhoto: Anuma Bhattarai
. Aegon Asset Management US Announces New Head of Distribution
Aegon Asset Management has announced that Martin Coughlan has been appointed as Head of Distribution for Aegon Asset Management US. Coughlan is a 20-year veteran with US and non-US institutional sales, product, marketing, and client service experience. Coughlan was most recently Global Head of Institutional Sales and Client Service at Westwood Management, where he led the firm’s successful product and sales expansion globally.
Previously, Coughlan was Head of Global Institutional Services at Calamos Advisors LLC, where he spent more than seven years building the firm’s global institutional client base and a global business model for direct plan sponsor sales, consultant relations, and client service. Coughlan also served as a senior portfolio specialist while at Calamos, focusing on global and emerging markets strategies.
“I’ve seen Martin’s strong leadership skills first-hand,” says Gary Black, newly appointed CEO of Aegon Asset Management US. “His expertise in building high-performing teams across sales, client service, and product areas will add tremendous value to our goals of maintaining strong investment performance, growing our third-party asset base, and increasing profitability. We welcome his leadership to the team.”
Prior to Calamos, Coughlan, who graduated with honors from the University College Dublin with a Bachelor of commerce (banking and finance), spent nine years with Bank of Ireland Asset Management, where he served as Client Relationship Manager, working in Ireland, Japan, and the United States.
Coughlan will be located in the Chicago office of Aegon Asset Management US.
CC-BY-SA-2.0, FlickrPhoto: Google Earth. Marcelo Coscarelli Leaves Citi for EFG International
Marcelo Coscarelli has been appointed Head of Americas Region and a member of the Executive Committee at EFG International. The appointment will be effective January 1st 2017.
Previously, Marcelo Coscarelli was at Citibank Latin America, serving as Managing Director for high-net-worth and affluent clients since 2012. From 2008 to 2012, he was Chief Operating Officer of Itaú Private Bank International in Miami.
EFG International also announced that it has completed the acquisition of BSI for a preliminary purchase price of CHF 1,060 million. According to a press release, this transaction represents a milestone for EFG International’s positioning and growth. Joachim H. Straehle, CEO of EFG International said “the closing of the acquisition marks a historic milestone for both EFG International and BSI. Together we are forming a leading pure play private bank with strong Swiss roots, a broad international presence and an entrepreneurial spirit. Over the coming months, we will jointly drive forward the integration to realise the full benefits of the business combination for our clients, employees and shareholders. The combined group will have a solid capital and liquidity position, which will support the further development of the business.”
With the completion of the transaction, Steve Jacobs, Vice-Chairman of BSI from September 2015 until closing, and Roberto Isolani, CEO of BSI from May 2016 until closing, have become members of EFG International’s Board of Directors as representatives of BTG Pactual.
BSI will operate as a separate subsidiary within EFG International’s holding structure for a limited time, until its full legal integration, expected in the second quarter 2017.
CC-BY-SA-2.0, FlickrPhoto: Allie_Caulfield
. Singapore Tops The Charts As Best Overall Destination For Expats
For the second year in a row, Singapore takes the top spot in HSBC’s Expat Explorer country league table. Expatriates in Singapore enjoy some of the world’s best financial rewards and career opportunities, while benefiting from an excellent quality of life and a safe, family-friendly environment.
More than three in five (62%) expats in Singapore say it is a good place to progress their career, with the same proportion seeing their earnings rise after moving to the country (compared with 43% and 42% respectively of expats globally). The average annual income for expats in Singapore is USD139,000 (compared with USD97,000 across the world), while nearly a quarter (23%) earn more than USD200,000 (more than twice the global expat average of 11%).
Overall, 66% of expats agree that Singapore offers a better quality of life than their home country (compared to 52% of expats globally), while three quarters (75%) say the quality of education in Singapore is better than at home, the highest proportion in the world (global average 43%).
Now in its ninth year, Expat Explorer is the largest and one of the longest running surveys of expats, with 26,871 respondents sharing their views on life abroad including careers, financial wellbeing, quality of life and ease of settling for children.
The 2016 Expat Explorer report also reveals:
Millennials are drawn to expat life to find more purpose in their careers Nearly a quarter (22%) of expats aged 18-34 moved abroad to find more purpose in their career. This compares to 14% of those aged 34-54 and only 7% of those aged 55 and over. Millennials are also the most likely to embrace expat life in search of a new challenge: more than two in five (43%) say this, compared with 38% of those aged 34-54 and only 30% of those aged 55 and over. Millennials are finding the purpose they seek, with almost half (49%) reporting that they are more fulfilled at work than they were in their home country.
Expat life accelerates progress towards financial goals Far from slowing progress towards their longer term financial goals, expats find many are fast tracked by life abroad. Around two in five expats say that moving abroad has accelerated their progress towards saving for retirement (40%) or towards buying a property (41%), compared to around one in five (20% and 19% respectively) whose move abroad has slowed their progress towards these financial goals. Almost a third (29%) of expats say living abroad has helped them to save towards their children’s education more quickly, compared to only 15% who say it has slowed them down.
The top expat destinations for economics, experience and family are:
Dean Blackburn, Head of HSBC Expat, comments: “Expats consistently tell us that moving abroad has helped them achieve their ambitions and long-term financial goals, from getting access to better education for their children to buying property or saving more for retirement. Most expats also find that their quality of life has improved since making the move – and that they are integrating well with the local people and culture.”
CC-BY-SA-2.0, FlickrPhoto: Aston Martin. Aston Martin and the Real Estate Branch of the Coto Family Join Forces for a Luxury Real Estate Project
Aston Martin is collaborating with global property developer G and G Business Developments on a unique waterfront real estate project at the mouth of the Miami River. Aston Martin Residences at 300 Biscayne Boulevard Way will be a striking 66-floor luxury residential tower featuring approximately 390 condominiums offering incredible panoramic views of Biscayne Bay and the Miami area.
G and G Business Developments, the luxury real estate branch of the Coto family, has a reputation for pursuing innovative projects with a clear vision which ensures the delivery of exceptional results. To this Aston Martin brings its ability to define luxury and exclusivity through craftsmanship, design and attention to detail, understanding the important balance between beauty and performance.
Aston Martin’s design team, led by EVP and Chief Creative Officer, Marek Reichman, will design the interior spaces including the two private lobbies, the two-level fitness centre with ocean views and the full-service spa amongst other shared spaces in the development. When the development opens in 2021, seven penthouses and a duplex penthouse – all of which will enjoy private pools and spacious terraces – will be complemented by a range of luxury one to four bedroom condominiums.
These beautiful spaces will be encased in a bold sail-shaped building, an engineering master-piece designed by Revuelta Architecture and Bodas Mian Anger, renowned for creating landmark properties that are aesthetically pleasing and yet grounded in performance and purpose.
Katia Bassi, VP Aston Martin and Managing Director AM Brands said: “For over a century Aston Martin has delighted in working with talented people who not only understand our ethos but embody it. G and G Business Developments are just such people and we are excited to be collaborating with them to create truly exemplary residences. This remarkable new ven-ture realises our long-term vision of entering the world of luxury real estate, and is a natural extension of the Aston Martin brand. We create beautiful cars for those who appreciate automotive fine art, and we are excited to extend our expertise in design and craftsmanship into a project of this calibre. Such ventures enable us to further enhance and grow the brand into new aspects of the luxury world that appeal to both our existing and future customers.”
German Coto, CEO of G and G Business Developments said: “I am particularly proud of this project and our partnership with such an iconic British brand. We are working closely with the Aston Martin design team to create a stunning tower that will enhance and define the new Miami skyline. The collaboration is a beautiful mix of technology, style and elegance. I be-lieve that together we can build a highly desirable place to live, setting new standards in both design and quality of life.”
The Aston Martin Residences at 300 Biscayne Boulevard Way is part of a carefully curated collection of luxury projects and experiences within the Art of Living by Aston Martin portfolio’ taking customers beyond sports cars and expressing the company’s design and cultural ethos into other products and experiences.
The brand’s signature understated elegance, authenticity of materials and clean lines will be evident throughout and residents will experience the Art of Living by Aston Martin at every touch point. Highlight features will include doors with bespoke artisan Aston Martin handles, number plinths and kestral tan leather door tabs. Aston Martin designed reception desks fea-turing craftsmanship from the company’s halo products will adorn each lobby, along with key design features in all shared areas, including a beautiful infinity pool located on the 55th floor. Residents of the new development will also be able to enjoy easy access to the turquoise wa-ters of Miami via an exclusive yacht marina.
Reichman concluded: “As our first real estate project, we wanted to express the timeless style of Aston Martin through design elements and materials appropriate for an ultra-modern residential building. Our design team is providing the inspiration for a look and feel that will be truly Aston Martin.” The sales centre for the Aston Martin Residences at 300 Biscayne Boulevard Way will open in March 2017 and the project will break ground during Summer 2017.
Photo: Pictures of Money. Diagnosing the Health Care Selloff
Health care stocks have suffered as political rhetoric heats up around health care reform. Heidi suggests the sector may have been over-penalized.
No sector has been a victim of election antics and volatility like health care, the third-largest sector weight in the S&P 500 Index. The S&P 500 Health Care Index is down a little more than 2% this year and the S&P Biotechnology Select Industry Index has plummeted over 15%, while the S&P 500 has notched a decent 6% gain, according to Bloomberg data.
This should come as no surprise: A key factor in the recent selloff has been investor concerns that new regulations could impact the prices of drugs. These concerns are exacerbated by political rhetoric connected to the presidential election, and we think the likelihood of significant reform remains low. Although both U.S. presidential candidates have very different approaches to health care, each has proposed significant changes to the current system. And as politicians suggest plans to rectify an imperfect system, many health care companies feel the heat, particularly biotechnology companies, which then see weakened stock prices.
However, despite the potential for near-term political headwinds, there are positive fundamental and structural factors that suggest some health care companies are being over-penalized.
In recent years, U.S. equities overall have generally seen their stock prices gain from multiple expansion, rather than significant earnings growth. In other words, investors have been willing to pay more for the same dollar of earnings. But the health care sector is an exception; its earnings have been overlooked. The cheaper the stock prices get, the less the stocks are loved. See the chart below.
So why have health care and biotech stocks been left out in the cold? The market selloff in biotech began last year when Hilary Clinton commented on drug price gouging and the need for increased regulation. In a single day, the Nasdaq Biotech Index dropped almost 5% (source: Bloomberg).
I think this is a classic example of investor behavior driving stock prices rather than investment fundamentals. For now, this reform talk is all rhetoric. Actual reform measures affecting drug pricing would likely take years to legislate and implement. I won’t speculate on whether Congress would remain under Republican control, or which candidate would become president, but I believe that there is a strong likelihood of continued political divisions and gridlock. This suggests that the power to push through major reforms will be limited.
Markets in autumn have historically seen an uptick in volatility, according to Bloomberg data. Given that we are in the final weeks before the election, we expect volatility to continue in the health care sector. In fact, the issue is top of mind for voters. In a 2016 national survey of registered voters, health care ranked number four on the list of importance behind the economy, terrorism, and foreign policy. With so much focus on the sector, health care companies could continue to pay the price for political rhetoric in the near term.
The need for health care
But it’s important to remember that in addition to valuations and earnings, lifestyle and demographic factors support health care over the long term. First, while we can postpone discretionary purchases like a car or new appliances in dire times, health care is one thing we cannot live without. Meanwhile, an aging baby boomer population means demand for health care services will likely continue to grow. And as advancements in technology ensue, so will the average age in life expectancy, thus furthering the need for health care.
Some options to think about
Stocks in the biotech industry have a history of volatility, and given the election, nothing is certain. Yet, the industry is experiencing a wave of innovation. Within this context, it may make sense for some long-term investors to consider how biotech stocks may fit into their portfolio. Investors with a higher risk tolerance and/or a longer-term investment horizon may want to think about taking advantage of market volatility to find select opportunities in health care and biotech. To gain exposure to health care or biotech companies, investors may want to take a look at the iShares Nasdaq Biotechnology ETF (IBB) or the iShares U.S. Healthcare ETF (IYH).
Build on Insight, by BlackRock written by Heidi Richardson
