CC-BY-SA-2.0, FlickrPhoto: SpaceRitual, Flickr, Creative Commons. Mega Funds Continue to Dominate the Global Mutual Fund Landscape - 45% of Assets go to <1% of Players
Less than 1% of the approximately 65,000 mutual funds sold around the world controlled 45% of the global fund industry’s $23.0 trillion in assets as of 30 June 2016. New research from Propinquity, a specialist consultancy to investment management companies worldwide, offers insight into these giants. What’s more, the small subset of 634 ‘mega funds’, defined as those with total net assets of $5 billion or more, have been responsible for nearly half (48.1%) of the industry’s global growth since 2007.
446 of the 634 worldwide mega funds are sold in the U.S. This represents 82.9% of global mega fund assets ($8.5 out of $10.2 trillion). 68.7% of total U.S. mutual fund assets are in mega funds – the U.S. has never been this hyper-concentrated. This concentration is in sharp contrast with European domiciled funds, which have 16.9% of assets in mega funds.
In 2007, 11.6% of mega fund assets were passively managed. As of Q2 2016, passive funds make up 25.8% of global mega fund assets ($2.6 out of $10.2 trillion). By contrast, passive funds make up only 15.1% ($3.5 out of $23.0 trillion) of the broader worldwide mutual fund universe.
As of Q2 2016, the average passive mega fund has $40.1 billion in assets while its active counterpart has $13.4 billion – a third as large. The greatest economics of scale are found in passive strategies, while fees are slim, barriers to entry are high link.
CC-BY-SA-2.0, Flickr. Investors Should Take A More Thematic Approach In The Emerging Markets
For investors struggling to find growth opportunities in a low growth world, Colin Moore, Global Chief Investment Officer at Columbia Threadneedle Investment, offers two insights. Don’t write off Brazil, and don’t treat emerging markets as a homogeneous asset class.
Brazil is in the spotlight this year, both as host of the summer Olympics and as a country with a long list of problems. But after a recent visit to Brazil, Moore thinks investors should look much more positively at the country. “Brazil is a country rich in resources, especially its people. Improving health care and education will be critical to building a strong foundation for long-term growth. With proper stewardship and better fiscal control, Brazil’s future looks much brighter than it did just one or two years ago”, point out.
But the Global Chief Investment Officer considers that Brazil is not the only emerging markets country with opportunity for investors. “In today’s low and slow growth world, you have to identify where there are pockets of growth. One way to do that is to look at themes where there is growth around the world, such as the development of health care or the development of infrastructure. Emerging markets are going to be at the center of both these developments”, explains.
For Moore, it’s a mistake just to think about emerging markets geographically. “We all got obsessed about BRICs (Brazil, Russia, India and China). When you create these acronyms or names like “emerging markets,” you’re assuming a level of homogeneity about how they will act, and that’s clearly not the case. The trick will be to move beyond the country definition of emerging markets and take a more thematic approach”, concludes.
CC-BY-SA-2.0, FlickrPhoto: K-ryu . BlackRock Launches the Sustainable Euro Bond Fund
BlackRock has launched the BSF Sustainable Euro Bond Fund. With the launch, BlackRock is responding to the growing demand for investments incorporating environmental, social and governance (ESG) factors.
The BSF Sustainable Euro Bond Fund builds on the European Fixed Income’s team tried and tested investment process. The issuers we include in the fund are positively screened for environmental, social and governance (ESG) considerations using the MSCI’s ESG Ratings for corporate, sovereign and government-related issuers that assess how well the issuer manages ESG risks relative to its industry, or peer group. Investors benefit from the award-winning investment approach of Michael Krautzberger and his team, who manage the BGF Euro Bond Fund, the existing sister strategy on the basis of which Michael and the team won Morningstar European Fixed Income Manager of the Year 2016 award, the only fixed income team to ever win the award twice.
The BSF Sustainable Euro Bond Fund invests in a broad range of sources to add alpha and maximize total return, primarily focusing on euro denominated investment-grade bonds. There is a strong emphasis on diversification and active risk is spread through selection of country, sector, security, duration and yield curve positioning, as well as through flexibly-managed currency exposure.
According to Krautzberger, “sustainable investing is becoming mainstream as investors globally are placing greater emphasis on transparency and seek an ESG approach to their investments. Considering ESG factors is seen as a sign of operational strength, efficiency, and management of long-term financial risks of the companies they invest in. We are looking to incorporate MSCI’s ESG insights in our active positioning, for example underweighting issuers with deteriorating ESG profiles that we expect to be downgraded by MSCI. We also expect to hold a higher proportion of green bonds in this fund than we do in non-ESG strategies.”
Besides the ability to achieve specific ESG investment goals, companies with high ESG scores and in particular those scoring highly on governance, tend to be less prone to negative surprises. “This is an important consideration given the asymmetric impact of unexpected news on bond prices”, says Krautzberger. The fund is managed by Michael Krautzberger and Ronald van Loon who have a combined investment experience of over 37 years. Michael and Ronald are supported by the European Fixed Income team. BlackRock manages over $1.4 trillion in fixed income assets on behalf of global clients, including both active and index strategies.
BlackRock Impact
In February 2015, BlackRock appointed Deborah Winshel to help unify its approach to impact investing through the launch of BlackRock Impact, the Firm’s global platform catering to investors with social or environmental objectives. The development of the BlackRock BSF Sustainable Euro Bond Fund further highlights BlackRock’s commitment within this space and enables investors to access the platform which currently manages $200 billion of assets across impact investing, environmental, social and governance (ESG) portfolios, and screened portfolios.
CC-BY-SA-2.0, FlickrCourtesy photo. Paul de Leusse Appointed as CEO of Indosuez Wealth Management
Paul de Leusse has been appointed Chief Executive Officer of Indosuez Wealth Management. Paul has also joined Crédit Agricole S.A.’s Extended Executive Committee.
Paul de Leusse, aged 44, started his career in management consulting, first as a consultant (1997-2004) then as Managing Partner of Mercer Oliver Wyman (2004-2006). He subsequently joined the consultancy firm Bain & Company as Partner (2006-2009).
In 2009, he joined Crédit Agricole Group as Director of Group Strategy. In 2011, he was appointed Chief Financial Officer of Crédit Agricole CIB. He became Deputy Chief Executive Officer of Crédit Agricole CIB in August 2013. His knowledge of the Corporate and Investment Banking businesses, combined with his strategic vision, for the Major Clients business line in particular, will be a key asset for Crédit Agricole Group’s Wealth Management business.
Paul de Leusse is a graduate of École Polytechnique and a civil engineer trained at École Nationale des Ponts et Chaussées.
CC-BY-SA-2.0, FlickrPhoto: zoonyzoozoodazoo
. The Wait Is Over: The Shenzhen-Hong Kong Stock Connect
The Shenzhen-Hong Kong Stock Connect was approved in principle on Monday by the China Securities Regulatory Commission and Hong Kong’s Securities and Futures Commission. Global markets have been widely anticipating the Connect because it will allow global investors to trade stocks listed on the two exchanges. In an unexpected move, aggregate quotas for both Shanghai and Shenzhen Connect schemes also were abolished, although daily quotas remain.
Eligible shares will include Shenzhen Stock Exchange (SZSE) Component Index, SZSE Small/Mid Cap Innovation Index (which has a market cap of more than RMB6 billion/ US$900 million), Hang Seng Composite Large-Cap/Mid-Cap and Small-Cap index (over HK$5 billion/US$600 million market cap), and Shenzhen/Hong Kong dual-listed stocks. About 880 Shenzhen stocks and 417 Hong Kong stocks are qualified under Shenzhen- Hong Kong Stock Connect. Implementation should begin by late in fourth-quarter 2016.
Why the anticipation?
The Shenzhen-Hong Kong Connect represents another critical step in China’s capital market reforms. We believe it will further boost the case for the inclusion of A shares in MSCI indices, which could attract large amounts of fund flows to the Chinese stock market. (Although concerns over capital mobility, share suspensions, and restricted availability of A-share products are still being addressed.)
Through the Shenzhen-Hong Kong Connect, the Shenzhen exchange also will provide global investors with more opportunities to gain access to China’s new economy, particularly in sectors such as IT, high-end manufacturing, and new materials. The Shanghai exchange, in contrast, is dominated by state-owned banks and oil companies.
Finally, mainland China investors will also be able to diversify their exposure into the Hong Kong market. Our recent conversations with brokers, however, suggest that many of the mainland investors with a keen interest in Hong Kong are already invested, either through Shanghai-Hong Kong Stock Connect or through a local brokerage account in Hong Kong. It will be interesting to monitor the size of Southbound flows into Hong Kong Small/Mid-Cap names, to see whether or not the A-H share gap will finally narrow.
What next?
At first glance, banks and brokers should benefit initially from the potentially increased trading flows following the implementation of Shenzhen-Hong Kong Connect. However, we expect the incremental trading volume and, thus, revenue impact from Shenzhen-Hong Kong Connect to be minimal in the near term. Apart from the short-lived rally in April 2015, flows from Shanghai-Hong Kong Stock Connect have largely been disappointing, though they have picked up recently.
Although high valuations of many Shenzhen-traded companies – with an average of 40x price/earnings ratio compared with around 16x in the Shanghai Composite Index and 12x in MSCI China Index – may deter initial interest, the strong earnings growth for many Shenzhen-traded companies certainly warrants a closer look from investors.
What about H-shares?
Following Brexit, the MSCI China index rallied by more than 15%, driven by improving global sentiment and speculation on Shenzhen-Hong Kong Connect. Although MSCI China index looks cheap compared to it’s A-share peers, it is currently trading at close to its five-year high in P/E terms, while firsthalf earnings thus far point to softening fundamentals. Meanwhile, recent macro data released showed weakening momentum as recent stimulus measures fade. With Shenzhen-Hong Kong Connect, brokers and asset managers and their investors should be the biggest beneficiaries in the long term, though the potential risk/reward return has been reduced after the recent rally.
Wilfred Son Keng Po is Managing Director and Portfolio Manager of Asia ex-Japan Equities at PineBridge Investments.
This information is for educational purposes only and is not intended to serve as investment advice. This is not an offer to sell or solicitation of an offer to purchase any investment product or security. Any opinions provided should not be relied upon for investment decisions. Any opinions, projections, forecasts and forward-looking statements are speculative in nature; valid only as of the date hereof and are subject to change. PineBridge Investments is not soliciting or recommending any action based on this information.
CC-BY-SA-2.0, FlickrPhoto: hjjanisch
. Kingdon Capital Management Launches a UCITS Fund Using Lyxor AM's Platform
Kingdon Capital Management has launched a UCITS version of its long/short equity fund. According to HFMWeek it has done so using Lyxor AM’s Platform.
The Lyxor/Kingdon Global Long-Short Equity Fund was registered in Ireland on July 22. It is an open-end fund incorporated in Ireland that invests in publicly-traded equity securities and equity derivatives in global Markets. Its objective is to achieve attractive returns, over market cycles with a strong focus on capital preservation through diversification, risk management and stock selection.
Lyxor AM, a subsidiary of Société Générale, has been looking to grow its alternative UCITS offering as Philippe Ferreira told Funds Society (in Spanish piece) some months ago, these type of funds, ” have proved that they are able to offer similar returns as equities with a third of their volatility which explains why investors such as pension funds have grown their interest in them.”
Kingdon Capital Management, founded by Mark Kingdon in 1983, is an employee owned hedge fund sponsor. It invests in the public equity and fixed income markets using long/short strategies to make its investments. It employs fundamental analysis along with combination of bottom-up and top-down approach to create its portfolio and is based in New York, New York.
CC-BY-SA-2.0, FlickrPhoto: 401kcalculator.org. Optimizing Cash Management in a Fragmented and Restrictive Environment
Cash management has been a hot topic for financial institutions across LatAm due to the regulatory, political and infrastructure changes over the last few years. Thanks to the digitalization in the banking system, local and international banks see a lot of potential in expanding their banking services for retail and commercial clients in LatAm. Moreover, they are looking for strategies and innovative solutions to offer better cash management products and services to their customers.
With this in mind, marcus evans will gather specialists in Miami between September 7-9 in order to help banks overcome the challenges they experience when dealing with cash management, both locally and regionally. It will help them optimize their cash management strategies by providing them with a greater insight into examples that have worked well in different parts of the region. The disparity between international and domestic transactions will also be discussed, looking to achieve their integration into a single stream. There will also be a strong focus on AML and KYC policies and innovations in technology, to help banks move towards a fully secure digital era. Finally, we will explore strategies banks are implementing to reach unbanked regions in LatAm.
Attendants should expect to:
• Discover how to take advantage of new business opportunities that arise from regulatory changes
• Gain insight into the successful implementation of technologies, such as mobile and tablet banking, within cash management services
• Learn about the future of payments and collections
• Enhance your cash management infrastructure
• Discuss the regional standardization of payments
The speakers include Marco A. Almada of BBVA, Vitor Balao of Deutsche Bank, Liba Saiovici of Bank of America, Jorge Ruiz of Citibank, Alejandro Arauzo of Banorte, Claudia Macias García of Scotiabank, Luis M. Cifuentes of Banco Bradesco, Enrique Villarroel of Banco BICE, Felipe de Paula Pinto of Banco Itau, Adolfo E. Mora Vargas of BAC San José, Josie Forde of BNY Mellon, and Ruben Farias Sasia of Banco de Chile.
CC-BY-SA-2.0, FlickrPhoto: Ferruccio Zanone
. Strategic Acquirers Drive More Than One-Third of M&A Activity in 2016
Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to registered investment advisors (RIAs), retirement recordkeepers, broker-dealer firms, banks and insurance companies, recently released the Fidelity 1H 2016 Wealth Management M&A Transaction Report, which highlights the RIA mergers and acquisitions through the first half of 2016. The report focuses on Strategic Acquirers, firms that take a financial interest in an advisory firm to help them grow and perform more effectively through strategic guidance and operating support. Those firms have driven 39 percent of all M&A activity in 2016, and, based on extensive interviews with executives at major strategic acquirers, the report outlines different models of Strategic Acquirers as well as their approaches to acquisition. The findings also highlight how a need for scale, in order to help improve firm profitability, has driven this continued industry consolidation.
“Our goal with this report is to help advisors who are considering strategies to take their businesses to the next level to better understand their options and learn more about how to navigate the M&A space,” said David Canter, executive vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. “One thing they should know as they prepare for the negotiation process is that they will have to redefine their role as an entrepreneur. While that may mean giving up some control in order to continue to grow their business, a strategic acquirer may also help to drive scale and growth through capital and expertise.”
In addition to providing a detailed list of transactions for 1H 2016 and highlighting Strategic Acquirer models, this new report outlines questions that RIAs should ask themselves before beginning to engage with strategic acquirers:
What does being an entrepreneur mean to you as an advisor, and how would you like that to change to achieve your business objectives? Why do you need capital, what for, and how would you balance that need with the desire for independence/autonomy? What outcome do you seek? What do you need from a strategic acquirer: Capital? Access to talent? Management skills? An investment platform? Operating scale and leverage? What kind of a partner do you want?
“The biggest takeaway here for RIAs is that M&A strategies are becoming an increasingly important consideration for the future of their businesses,” continued Canter. “In order to realize their full potential value, advisors need to think about the firm they want to partner with and whether their businesses are in a good position for a successful acquisition.”
You can read the full report on the following link.
CC-BY-SA-2.0, FlickrPhoto: Elanaspantry, Flickr, Creative Commons. Morgan Stanley IM Launches Global Balanced and Global Balanced Defensive Funds
Morgan Stanley Investment Management has announced the launch of two new multi-asset funds, the Morgan Stanley Investment Funds (MS INVF) Global Balanced Fund and the MS INVF Global Balanced Defensive Fund.
The underlying investment process for the two funds mirrors that of the existing Global Balanced Risk Control (GBaR) strategy, which is designed to maintain a stable risk profile. The funds are the first in the GBaR suite to incorporate environmental, social and governance (ESG) factors into the process.
The chief difference between the funds is their targeted volatility. The Global Balanced Fund targets a volatility range of 4 to 10%. The Global Balanced Defensive Fund has a lower target volatility range of 2 to 6%.
Both funds will be managed by Andrew Harmstone and Manfred Hui in London. “The new funds will be based on our established GBaR process, which in our view is the most effective way for investors to participate in rising markets whilst providing strong downside protection,” said Mr. Harmstone, managing director and lead portfolio manager. “We expect the integration of ESG considerations into the process to further improve potential returns and enhance risk management.”
“Morgan Stanley Investment Management’s extensive multi-asset capabilities are reinforced by the addition of these two new funds,” said Paul Price, global head of Client Coverage, Morgan Stanley Investment Management. “Clients now have greater choice in the implementation of GBaR’s risk-controlled approach and their preferred level of volatility.”
The MS INVF Global Balanced Fund and the MS INVF Global Balanced Defensive Fund, registered in Luxembourg, are not yet widely available for sale and are awaiting registration in various markets. They are intended for sophisticated and diversified investors or those who take investment advice.
CC-BY-SA-2.0, FlickrPhoto: peasap
. Samuel Nunez joins Bolton´s San Diego Office
Bolton Global Capital announced this week that Samuel Nunezhas joined the firm. Nunez has spent the last 23 years as a financial advisor with Merrill Lynch, compiling a client book of $125 million with annual revenues of $1 million. His clients are primarily located in Mexico and the US.
Nunez will be joining Bolton’s San Diego office, which was opened recently under the name TransAtlantic Investment Partners. James Jiao, a former Merrill Lynch complex manager and FA who left the firm last year after working 18 years, established this office. Jiao began his career in 1990 with Deutsche Bank in Germany as a portfolio manager and then transferred to Deutsche Morgan Grenfell in New York as a Private Bank Manager in 1994.
Over the last year, Bolton has recruited 8 teams from Merrill Lynch with client assets totaling approximately $1.5 billion. Typically, advisors who join Bolton operate under their own brand name using Bolton to provide compliance, back office, trading and technology support with client assets held by BNY Mellon-Pershing and other custodians.
