Foto cedidaPhoto: BMV. WisdomTree Investments' Steinberg Wants to Triple Their Mexican AUM With a New Launch
As part of WisdomTree‘s 7th anniversary in Mexico, and the launch of its first ETF designed exclusively for Mexican investors, Jonathan Steinberg, CEO of WisdomTree, Jose Ignacio Armendariz, partner and CEO of Compass Group Mexico, in partnership with WisdomTree, and Ivan Ramil, Director of Institutional Clients at Compass Group Mexico, spoke with Funds Society about their expectations and plans for the Mexican ETF market, which Steinberg says is “growing rapidly” and is key to expanding their presence in Latin America.
WisdomTree currently has approximately 45.1 billion dollars in assets under management (AUM) worldwide, of which 650 million come from the nearly 40 funds available in the Mexican market. With the launch of their newest ETF, the WisdomTree Global ex-Mexico Equity (XMX), the manager expects to double and maybe triple its AUM in Mexico. “This is the first time we have created a specific fund for the Mexican market. I hope it’s the biggest fund in Mexico… We have been very successful with funds with exposure to Europe and Japan but I feel this will be bigger than all of them combined,” said Steinberg. Armendariz mentioned that the index that the ETF replicates was created with the Afores (Mexican pension funds) investment regime in mind, in order not to exclude them, but that, in addition to the Afores, it is also directed to other institutional and retail investors. “It is an ETF with great liquidity, low commission and that provides exposure to the world in a single instrument” he mentions. Ramil added that they are “very excited about the product. We just finished a roadshow and feel it will be a great product for the Mexican market.”
The XMX, which is traded on the Mexcan Stock Exchange’s Global Market platform (SIC), replicates a market capitalization weighted index covering 90% of the elegible shares in the global market, excluding Mexico, and that meet the eligibility requirements of The CONSAR (Afore’s regulator). The Index is calculated in US dollars, capturing 23 developed markets and 21 emerging markets, with more than 50% exposure to the United States. The most overweight sectors of the fund are financial, IT and discretionary consumption. The ETF is rebalanced every October, and includes minimum requirements for market capitalization and liquidity. It also sets sectoral limits to increase diversification.
Photos: Robert O'Neill, former Navy SEAL, at the Investec Inspirational Event / Courtesy photo. Investec Invites Robert O'Neill, the Soldier Who Shot Bin Laden, to Its Inspirational Event for Financial Advisors
Investec Asset Management has many reasons to celebrate. Last month, one of its flagship strategies, the Investec Global Franchise fund, celebrated its tenth anniversary with an excellent performance history, exceeding the MSCI All Companies World Index by 2.9% annually over the last 10 years. Added to this success, is the asset management firm’s extraordinary track record in Miami; and in appreciation, the company will try to hold an annual inspirational event for financial industry professionals.
The first “Investec Inspirational Event” took place in Miami last Thursday, June 15th featuring Robert O’Neill, the Navy SEAL soldier who shot and killed Bin Laden in May 2011. O’Neill, with over 400 missions, 52 medals and 17 years of service in the US military, shared his experiences, and the lessons arising thereof that can be applied in daily life, with a hundred financial advisors.
During his speech, he pointed out the strenuous selection process that he had to overcome to become part of the Navy SEALs: “It is an intensive training, very hard, in which it is very easy to quit, and which even encourages quitting, because there is the option to resign at any time. The army is always trying to increase the number of soldiers entering the Navy SEALs admission tests, but regardless of how many people enroll for this process, 85% don’t make it through.”
According to O’Neill, the main reason why the system works is obviously that each of the instructors is a Navy SEAL and has undergone the same training, which he describes as “not impossible, but very hard, followed by something even more difficult, which is immediately followed by something even harder, day after day, for 8 months.” However, he doesn’t recommend facing a challenge with that mentality, as the key to achieving a long-term goal is to focus on little victories. So, for months, he followed the advice of his first instructor: “Just think of waking up in time, making the bed properly, brushing your teeth and being on time for the 5 am training; afterwards, just worry about getting to breakfast, after that about making it to lunch time, and then about making it to dinner. After dinner, just worry about getting to a perfectly made bed. If the bed is made the right way, no matter how bad the day was, you will only think of the next day. And when you think of quitting, something that will pass through your head, think, ‘I will not abandon now, I will quit tomorrow’. All I am asking you is to do one thing, no matter what, never quit and you will be fine.”
Another important lesson that the Navy SEALs learn by simulating different extreme situations, is that panic will not help them, so they train in keeping calm by negative reinforcement. “All the stress we experience in life is in our head, it is self-induced. It’s a choice we make; it’s a burden we choose to carry. In combat, bravery is not the absence of fear, it is the ability to recognize fear, put it aside, and act. No one has ever achieved anything positive by panicking. Fear is natural, it makes you think with greater clarity, but there is a line that should not be crossed, because panic is contagious. Portray calm, and calm will be contagious.”
Once he became part of this elite army corps, he was deployed to several worldwide destinations until the September 11th attacks in New York. Then everything changed. He decided to enroll in a special unit within the Navy SEALs, where he would have to spend another 9 months in exhaustive training, this time competing against other seasoned Navy SEALs, knowing that 50% of the participants don’t succeed.
Then the secret missions, the truly dangerous ones, began; those in which he went from being a soldier to not existing, and to having to communicate with his children using fake e-mail addresses when entering combat. At that level, O’Neill points out the need to move from taught tactics to invented tactics, to being creative, to anticpating what the opponent is doing. It is at that moment that the usefulness of micromanagement is questioned, since each member of the team must know how to perform their task. This is achieved by training, adjusting tactics, and learning the best way to communicate effectively.
The Mission that Ended Osama Bin Laden’s Life
The mission was carried out by an incredible intelligence team, led by four women, who after years of searching managed to locate Bin Laden in Pakistan. O’Neill reveals that President Obama was not convinced that this was Bin Laden’s whereabouts, and that the mission was initially set up to check that information and return.
One of the most stressful moments of this operation was the 90-minute flight from the base in Afghanistan to bin Laden’s hideout, during which they could have been hit at any moment for invading the country’s airspace. “Ninety minutes during which your head doesn’t stop thinking: ‘everything can explode now’. Worrying about things you can’t control only adds to pressure. So what do you do? At that point, I started counting from 0 to 1,000 and then in the reverse, from 1,000 to 0, to keep my head free from distractions, speeding up the counting or slowing it down, in order to just not think.
Once they arrived at the destination, one of the helicopters fell without casualties, and the rest of the soldiers entered the house identified as Bin Laden’s hideout. He was able to witness the first steps of the operation from the front line, the rest of the team dispersed to check the rooms. On the last set of stairs, he sensed a movement behind a curtain which he thought could be Osama Bin Laden’s last protective barrier, expecting to find suicide bombers in explosive vests. “At that moment I remember thinking that it was not a matter of bravery, but the tiredness of constantly thinking that I could explode at any moment. I moved the curtain, and there I found him. In front of me was Osama Bin Laden, as tall as I expected, a little thinner, with a somewhat grayer beard.” O’Neill fired twice and felt paralyzed for a few seconds, and then more officers entered the room, asking if he was okay. Then O’Neill asked what the next step was, to which they responded “to go through the computer systems, we have rehearsed it a thousand times”.
On the return flight, another tense ninety minutes during which no one speaks until their arrival in Afghanistan, at which point the pilot jokes that it is probably the only time they will celebrate being in this country.
To conclude, O’Neill’s suggestion to his audience was: “The next time you feel overwhelmed by the stress at work, when nothing is working out as it should, or when you are at home and feel like the ceiling is falling on your head, breathe deeply and think of all those people who are fighting, defending and preserving freedom. Push yourself forward, never quit, and you will be fine.”
Foto cedidaSimon Fox, courtesy photo. Why, According to Aberdeen AM, Diversification is the Key to Creating Robust Multi-Asset Portfolios in the Long Term
For many years now, asset managers have been responding to financial challenges through multi-asset strategies that seek to adapt to different market contexts, and they always seek the most appropriate sources of profitability and protection for portfolios. But the current environment is different from the past, and the challenges it poses are more acute, so it’s necessary to seek more creative solutions and go beyond traditional portfolios – which move within a framework composed of 60% fixed income and 40% equities. For Simon Fox, Senior Investment Specialist at Aberdeen Asset Management, these strategies “will no longer serve to build robust portfolios in the future,” he explained in a recent interview with Funds Society.
The motives? Investors will not only have to face a much more volatile environment, (marked by short-term problems such as Brexit, and long-term, with structural problems for growth such as demography, adjustment in China or de-globalization) but will also be faced with the fact that traditional assets, such as fixed income and equities, will offer much lower returns than in the past, within a framework of lower global growth. “Investors will have to face strong short-term volatility, but there are also structural hurdles: stock markets will no longer provide returns as high as at other times in history, and bonds, which have also provided strong returns in portfolios in the last decades, have much lower yields,” he explains. And in many cases, the latter do not even offer protection. In conclusion, with the traditional mix between equities and fixed income, future returns will be reduced inexorably.
In order to deal with this situation there is no other option than to look for creative solutions. Some opt for more active management that regulates the exposure to equity and debt based on the market situation, that is, they choose to do market timing. For Fox, this solution is very difficult, because “the markets are very difficult to predict.” On the other hand, there are also professionals who, in order to navigate this environment, are opting for strategies based on the use of derivatives to boost returns and increase hedging, but which may be more complex to implement and highly dependent on the capabilities of asset managers and the success of their bets. Faced with these alternatives, Fox has no doubts and opts for diversification.
Therefore, the search for opportunities in new market segments, and research into new assets capable of enriching portfolios, is AberdeenAM’s commitment to its multi-asset flagship strategies (one focused on growth, Aberdeen Global-Multi Asset Growth Fund, and another in dividends, Aberdeen Global-Multi Asset Income Fund). The portfolios, which were traditionally positioned one-third in equities, another third in fixed income and the remaining third in diversifying assets, have evolved over time to a situation which, since the end of 2014, is much more diversified and with alternatives to those assets in which the asset managers do not see value.
For example, there is no exposure to public debt or investment-grade credit, because asset managers believe that they currently offer neither return nor hedging. Instead, these assets have been replaced by other segments of the universe of fixed income with more possibilities (emerging market debt, asset backed securities, loans, high yield…) and also with real assets. Therefore, segments such as private equity, real estate, and especially infrastructures, have gained strong positions in the portfolio, in an environment where traditional assets yield less, including equities, with positions of around 25%.
In total, the portfolios have hundreds of positions, implemented, in the case of equities. from a quantitative perspective and focused on low volatility. And it has been shown that the most diversified portfolios can provide value: they offer greater protection in case of problems and, as a result, better results than their comparable ones.
Long Term Vision
The idea of building these portfolios is not based on market timing or short-term analysis: According to Fox, their construction is based on a long-term global vision (5-10 years) carried out by a group of analysts who make forecasts with this horizon, and with whom the multi-asset management team works very closely within the management company. Therefore, the positions do not change overnight depending on the markets, but they work to find diversifying solutions that bring added value.
For example, the vision is that inflation will end up rising, but it will not do so abruptly in the coming months: hence the inclusion in the portfolio of assets such as floating rate bonds and, above all, the infrastructures to play this story of price hikes – while eliminating the risk of duration by renouncing to public debt in the portfolios.
New Assets
Creativity is key in this context, and at Aberdeen AM they point out some of the latest additions and newest strategies, or the assets with the biggest appeal to offer returns. “There are now many more opportunities than in the past,” Fox says, and that leads us to talk about not multi-assets, but multi-multi assets.
As examples in this regard, Fox points out the bonds in India with high investment grade calification (which can offer annual returns above 7% and is a market that benefits from the improvement in fundamentals – in fact, the asset management company has a fund focused on this asset-), or access to equity through a smart beta perspective (focusing on low volatility or earning income, something they apply to funds). The alternative spectrum also opens up new opportunities, such as aircraft leasing (which can offer returns of close to 10%),insurance-linked securities, or royalties on health companies, options which are available to the asset management company thanks to its global character and its size. At the moment, they do not use ETFs, although they could do so.
All of this, at a time when the traditional barriers to diversification (such as transparency, illiquidity, regulation, commissions…) are dissolving, therefore “currently, diversification is easier thanks to the size and globality gained by asset managers and by the greater exposure and access to different assets,” explains Fox.
Solutions for Retirement
These types of solutions are suitable for retirement because they offer a low risk profile and provide benefits of diversification, returns and profitability, so that demand is very strong in both Europe and Latin America, as well as in the US offshore market.
Smart Beta is a growing strategy that according to Sara Shores, CFA, Global Head of Smart Beta at BlackRock, has captured investor’s attention and interest for three main reasons: returns, diversification and fees. In an interview with Funds Society, she also explains how they do factor investing, a strategy that accounts for over 170 billion of their assets under management and expects double digit growth.
Shores explains that the main reason for the strategy’s popularity is that the return environment has been getting more and more challenging with equity returns in the 5% range, as expected by BlackRock’s capital markets assumptions for the next five years which “is not enough for most investors to meet their retirement goals.” So by focusing on factors, the broad, historically persistent drivers of return, and doing so with Smart Beta vehicles, one has the potential of incremental returns, with a significant lower fee than traditional active management.
Regarding diversification, which has been proven elusive via traditional allocations, she mentions that most the factors they look at in equities are also present in fixed income, currencies, commodities “and that then opens up a whole new range of diversification because momentum in equity is not particularly correlated with momentum in commodities or currencies, so by investing across asset classes we can really take full advantage of the opportunity set for factor investing.” So despite having equity factor investing as the largest Smart Beta asset class and continue to “see a tremendous growth in equities there are great opportunities in other asset classes.”
The BlackRock executive believes that there are five persistently rewarding factors in equity markets are: Value, Quality, Size, Low Vol, and Momentum and while “over the long run I love all my children equally and I love all my factors equally but over the short run your son or your daughter might be having a better day, and it is the same for factors, so one of the things the team has been working on is to see what factors are better poised based on the current market.” They are overweight in US equity markets with Momentum, and just recently moved to an overweight in minimum volatility given US growth is strong but grow at a modestly slower pace than in recent months, which could translate into investor caution.
About their operation, she mentions that at BlackRock they want to marry quantitative research with a really strong economic understanding on what drives markets and what drives risk and return. “Humans are made better by data, data is made better by humans, we like data and models but we also want to rely on our intuition. Our philosophy on factor investing is to always start with the economic grounding of asking why, what is the economic justification that suggest a factor will continue to earn a return in the future and only with that economic just we go and look at the date to see if it actually works over time over a wide range of assets and geographies, so we want to inject the human judgment as well.”
With over 170 billion in AUM for their factor-based strategies, both the index driven smart beta strategies and the non index ‘enhanced’ factor strategies, they are always mindful of liquidity and capacity to make sure that any of their strategies don’t move the market in an unexpected way. Most of their assets are in their smart beta ETF type strategies, whose markets are so large and liquid that liquidity is generally not a problem. However, in their enhanced strategies, where they have 12.5 billion in AUM they are “very mindful of liquidity, our strategies are not of a size were we are worried of moving markets yet, but we do think of how big can we be, we manage that by making sure we don’t have too much risk deployed in any individual factor/instrument to make sure we can trade the portfolio with a reasonable liquidity should something change unexpectedly. So we keep a very watchful eye on that capacity question.” She concludes.
Fiona English, courtesy photo. Pioneer Investments: “Earnings Growth Will Be the Dominant Driver of Returns for European Equities"
The arrival of capital flows into European equities coincided with the reduction of political risk in the Old Continent after the first round of French presidential elections. But with the German and Italian elections on the horizon, the question is whether the fundamentals will continue to support the upturn. Fiona English, client portfolio manager at Pioneer Investments, talks with Funds Society about het outlook for European Equities.
Europe has received a big amount of inflows in the last quarter, but is it sustainable? Are the fundamentals supporting this performance?
Indeed flows coincided with the reduction in political risk following Round 1 of the French presidential Election as investors believe the chances of fragmentation within the Eurozone has subsided. That said, in reality there are 4 main drivers of European Equities which combined suggest that the performance of the European market can continue– 1) better economic growth, 2) better earnings growth 3) reduced political risk and 4)flows into the asset class
We are experiencing quite synchronized global growth at this moment and with 50% of earnings for European companies lying outside the Eurozone, this clearly provides a support to earnings potential for European companies. Within this, European GDP Growth is likely to strengthen this year with our Economists forecasting 1.8% for FY 2017. The key here is for companies to translate the more supportive economic backdrop into earnings growth and we are witnessing signs of this. In Q1 on aggregate, 46% of companies beat consensus estimates by 5% or more, while just 22% missed, pointing to the strongest quarter since the Q2 2007.
This and the reduction in political risk within the Eurozone has given investors the confidence they needed to return to the asset class with 18bn of inflows in the last 2 months alone.
In our view, for the market trajectory to be sustainable – we need to see confirmation of earnings growth continuing as we move through Q2 and Q3 this year.
Have investors lost the train in European equities after the rally seen in April and May?
While the rally was swift, we still believe there is more to go if earnings growth proves sustainable. The asset class remains underowned with many international investors now beginning to consider European equities “investable” again.
In fact despite the rally, European Equities have seen a slight reversal of this trend since mid-May with the market moving sidewards at best and underperforming the US market. There is probably an element of seasonality at play and the market is likely seeking another catalyst to move higher from here. We believe this will come in the form of a confirmation of further earnings growth. Any further weakness may provide a good buying opportunity as we move into the second half of the year.
Where are you finding the most attractive opportunities and what areas are you avoiding?
Given we believe that earnings growth will be the dominant driver of returns from here and in line with our investment process, we believe the most consistent way to generate performance will be through good stock selection. We do not believe that earnings growth will happen across the market as a whole but rather you must look for the companies which have a strategic competitive advantage and the ability to capitalize on better economic trends and convert it into better earnings growth. In this environment, stock selection will be key to performance.
How have you positioned your portfolio to take advantage from the rally?
We have looked to keep quite balanced portfolios not favouring any one area of the market but looking for idiosyncratic/stock stories which we believe have the potential to deliver medium term outperformance. For example, most of our portfolios are overweight Industrials at this moment due to the number of individual compelling investment cases we find there. The sector offers a number of different business models which will benefit from the more positive macroeconomic tone but also strong companies which have a strategic advantage that allows them to translate this into earnings growth. Finally valuation is clearly always important and we look to seek the correct entry point which should allow us upside potential from a valuation standpoint.
Is it the right moment to invest in more risky assets within equity or should we be more cautious?
The key for the equity market is to see greater earnings growth – if this happens we believe the market can move higher.
Do small-caps look attractive versus large-caps?
We see opportunities in all areas of the market. Finding value should be less focused on market capitalization but more on individual companies and their ability to deliver.
Pixabay CC0 Public DomainLoboStudioHamburg. Bright Future for Big-Cap Tech
Equity investors have enjoyed a solid continuation of the bull market in the first half of 2017. It is notable, though, that a handful of large-cap stocks have clearly driven the market. Journalists and analysts have been playing around with different acronyms to select and describe the current tech high-flyers. For the first time in 2013, CNBC’s “Mad Money” host Jim Cramer propagated the term FANG, which stands for Facebook, Amazon, Netflix and Google (now Alphabet). Recently, reporters included another “A” to include Apple and an “M” to include Microsoft in the acronym, sometimes replacing the Netflix’ “N”, depending whether the story’s focus is “growth” or “dominance”.
Currently, an impressive headline is that FAAMG (Facebook, Amazon, Apple, Microsoft and Google) comprise 12% of the S&P 500 Index and have contributed 28% of the index’s year-to-date returns with a market-cap weighted combined return of 25%. If we look at the NASDAQ 100, FAAMG has accounted for more than 50% of the return in 2017. What is more, until recently, the trend has been remarkably solid with a very low volatility. However, on Friday June 9, the tech started to sell off without any fundamental reason. The following Monday morning, the NASDAQ showed a loss of 4.5% from the Friday high, driven by heavy losses of the FANG and FAAMG groups wiping out a market capitalization more than 200 billion in these six companies. Suddenly, the financial press started to draw analogies between today and the dotcom bubble. Obviously, this comparison is far-fetched.
The most important difference is valuation. In the first months of 2000, the S&P 500 Technology Index reached a 12-month forward Price/Earnings Ratio of 60, which was more than twice the valuation of the S&P 500. Today, the tech sector is trading at a multiple of around 19, just narrowly above the market’s valuation. It is true that the valuation has gone up in the last years and the valuation is not cheap anymore, but it is certainly not in bubble territory.
More importantly, today’s tech giants have much stronger fundamentals with solid growth prospects. They still sit on a $ 700 billion cash pile, but started to invest huge amount of cash in their infrastructures and new growth areas. Today, the FAAMG companies have leading positions in at
least one of the most promising investment trends, such as cloud computing, artificial intelligence & machine learning, virtual reality & augmented reality and big data. They all benefit from a secular shift to online spending. For example, Amazon Web Services (AWS) accounts for more than one third of the global cloud infrastructure market generating $ 12 billion a year from nothing five years ago. This segment is expected to grow more than 15% annually. Amazon’s scale and leading IT and logistics infrastructure is highly disruptive for traditional retailers, especially as it enters the traditional bricks-and-mortar retail segment (best illustrated by the announced Whole Foods acquisition). Facebook has increased its monthly active users from 1.4 to an impressive 1.9 billion and more than doubled its revenues in the last two years. The company is ramping up its investments in research & development including video content and augmented reality, which should help to main profit growth north of 20% for several years. Alphabet has consolidated its leadership in mobile search ads and strengthened its positioning in video (YouTube), the cloud and Google Play. There might be interesting start-ups in these high-growth areas, but the difference in scale and resources compared to the leaders has never been so vast.
So if valuations are reasonable and fundamentals strong, what has caused the mini sell-off? Most analysts are pointing to an increasing dependence of algorithmic trading. JPMorgan estimates that only 10% of US stock trading comes from traditional traders. The machines are taking over. Before the correction, the positioning in the FAAMG stocks was extreme. Fund managers were overweight and the machines were long, following the strong momentum of growth stocks. Also the untypical low volatile of these stocks attracted the machines. The trigger for the sell-off is not really clear. Many point to a cautious Goldman Sachs research report published on Friday, June 9 that might have caused some selling pressure. Once the short-term trend was broken and the volatility spoke up, the machines took over and continued liquidating positions. The good news is that the sell-off stopped after only two days and that the pressures from quantitative traders has probably played out. The bad news is that investors that want to benefit from the strong long-term prospects of these tech companies should get used to higher volatility again. But the tech leadership is most likely here to stay.
CC-BY-SA-2.0, FlickrPhoto: Grempz
. Entrepreneurship and VC Investing in Florida – Ready for Lift-Off
Florida is one of the most exciting stories on the U.S. venture capital scene right now, with the state being the third fastest growing startup state overall and Miami the number one fastest growing U.S. metro area for new startups. And yet Florida still receives less than 1% of global venture capital dollars. Why? And what will change this?
The key role of entrepreneurs is to bring together resources for success. The fundamental ingredients of a successful startup are experienced entrepreneurs with new ideas, great people to join the team, investment capital, support from mentors and peers, and strong team of advisors – sophisticated lawyers and accountants are essential. In addition to creating high-growth businesses and new jobs, a flourishing entrepreneurial ecosystem has an exponential effect on the local economy.
Florida has many of these ingredients in abundance already. By any measure, the Sunshine State is filled with smart capable people and a tremendous amount of capital. Record numbers of people are moving to Florida from major tech industry hubs like New York, California and Boston. There is growing awareness of angel investing thanks to local groups like AGP Miami, New World Angels, Florida Angel Nexus and the Tamiami Angel Fund. Members of these groups are pouring millions in investment into new startup companies every year. The local startup community is growing rapidly and becoming better organized. According to 2017 edition of the Kauffman Foundation Index of Startup Activity, Miami is the number one fastest growing U.S. metro area for new startups being created, with Florida being the third fastest growing startup state overall.
However, that same Kauffman Foundation report goes on to say that Miami is also second-to-last in the U.S. for scaling startups, defined as growing beyond 50 employees and $2 million in revenue within 10 years. Other Florida metros fare a bit better, with Jacksonville, Tampa, and Orlando all placing higher on the list. The reason for this discrepancy is obvious when you ask any entrepreneur – there are not enough professional investors at each funding stage to support a high-growth business in Florida. While Florida has done an excellent job in creating an environment that encourages entrepreneurial ideas to germinate, much remains to be done in creating a genuine ecosystem that will encourage more of these startups to reach their full potential.
Breaking into the Major League
So far, Florida has yet to seriously capture the eye of venture capitalists. The state receives less than 1% of global venture capital dollars. To large investors in Silicon Valley and elsewhere, Florida is still the “farm team” compared to the “major leagues” of California. Some new companies are bucking this trend. Most notably, companies like Magic Leap, Modernizing Medicine, and others are drawing in marquee investors and hundreds of millions in investment – but not from Florida investors.
One of the principal factors that led us to start Las Olas Venture Capital in Florida was the lack of professionally-run venture funds based in the state. All Florida entrepreneurs quickly realize that while there is plenty of angel investment money to get them off the ground, there is almost nowhere local to turn for their next round. Companies face a hard choice of trying to raise funding outside of the state or scrape together enough small angel checks to stay afloat. Without several more funds, focusing on each stage of a company’s life cycle, Florida will remain a tough place to successfully scale a company. To date there are not enough local success stories – companies achieving large exits and realized returns for their investors – that truly attract more companies, talent, and investment dollars. Dania Beach-based Chewy.com’s sale to PetsMart for $3.3B is a big step in the right direction, and an emerging sign that tech companies can be successful locally.
There are many emerging startup companies in Florida that we are excited about. For example, our portfolio company CarePredict, based in Plantation, is revolutionizing the elder care market with their Tempo platform. ReloQuest, another LOVC portfolio company based in Weston, is now the go-to technology solution for corporate relocation managers. We at Las Olas VC are seeing tremendous opportunities in the Florida market and believe that with proper infrastructure and support, the market will only continue to improve.
Good Times Ahead
The missing piece of the puzzle for Florida’s entrepreneurs is finding the “glue” that brings these startup ingredients together. The “glue” is strong investors, advisors, mentors, and peers to share experiences that bring founders together and enable their success.
Often times the quality of advice founders get is mixed at best. Most investors and advisors have good intentions, but their lack of experience in early stage investing can be a challenge. At LOVC we strongly encourage founders to do exhaustive due diligence on their prospective investors and advisors — as the ecosystem develops, participants that do not meet the rising level of professionalism will be winnowed. We believe in promoting a culture of candor and transparency and pushing our startup community in Florida to new and greater heights.
The good news is that the environment is improving with the recent growth in the number of professional investors – run by experienced entrepreneurs, operators and financial experts. At the same time, we are seeing more professional service providers who bring invaluable expertise and experience to the table. A great example is our administrator Trident Trust, a globally recognized name, which established a dedicated South Florida desk in Miami last year in response to the rapidly growing demand in the state.
All these factors are driving the opportunity for LOVC to play a major role in an emerging and growing technology startup ecosystem. Being an early mover in a large underserved market allows us to work with great entrepreneurs at mutually favorable terms. We’re entrepreneurs at heart, and we’re building LOVC as such. Our ultimate goal is to make Florida a viable place to scale technology startups. Timing is good, and we’re making progress together.
Column by Mark Volchek, Founding Partner, Las Olas Venture Capital
Photo: Danielsantiago9128. Disappointment in Argentina After Not Recovering Emerging Market Status, While China's Inclusion is Poised to Redefine EM Investing
MSCI Argentina Index will not be reclassified to Emerging Markets status, at least until 2018, as investors expressed concerns that the recently implemented market accessibility improvements, including the removal of capital controls and FX restrictions, needed to remain in place for a longer time period to be deemed irreversible.
MSCI said in a press release that “although the Argentinian equity market meets most of the accessibility criteria for Emerging Markets, the irreversibility of the relatively recent changes still remains to be assessed.”
This decision hurt the Argentinean stock exchange and forex position. Argentine stocks also receded on Wall Street, state oil company YPF was particularly affected. According to Jonatan Kon Oppel, Director at Inversiones y Gestión “the decision to keep Argentina under review as an emerging market makes it clear that while the country managed to make important changes in economic policy, the sustainability of these changes is so important As the policies themselves.” The analyst added that “there is little time left for the elections and the government still lacks seats in Congress to make the structural changes it needs.”
In the Meantime, the MSCI approval of China A-shares inclusion in their benchmark Emerging Markets and ACWI indices is likely to redefine the way investors invest in emerging markets. Howie Li, CEO, Canvas at ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products (ETPs), mentioned that the investment landscape for emerging markets is now confirmed to change with the inclusion of China A-shares into MSCI’s Emerging Market benchmark, given demand for domestic Chinese equities is likely to increase.
Analysts at Allianz GI expect around USD 20bn of inflows as a result of this index change. “This is less than half a day’s trading volume on China A share markets. The longer-term implications are probably more significant, as this USD 7 trillion market cap opportunity becomes increasingly accessible to global investors. Inclusion in widely-followed global indexes means that an investment in China A shares moves from off-benchmark (and therefore can be easily ignored) to an active asset allocation decision. As the weight in indexes increases over time – as has been the experience in other emerging markets – then increasingly China A shares are likely to become too big to ignore for much longer.”
Foto cedidaJustin Simler, Investment Director at Investec / Courtesy photo. Investec: “With a Multi-Asset Strategy, the Investor Perceives Greater Protection”
Multi-asset strategies continue to gain weight in response to the current market environment. For Justin Simler, Investment Director at Investec, “it has become a reality everywhere, and the reason it is commonly demanded by investors is because it offers greater profitability, taking into account the relationship between the risk assumed and the return on investment.”
Simler speaks from his experience as Investment Director with the Multi-asset team at Investec Asset Management and, therefore, responsible for the management of processes and products throughout the range. “Investing in single assets forces you to follow a single market and is an attractive option, but what happened in 2008 remains fresh in the memory of many investors. With a multi-asset strategy, however, the investor perceives protection,” he points out.
As an example of this, Simler cites the Investec Global Multi-asset Income fund, which is marketed in Spain by Capital Strategies. It is a flexible fund with a maximum in equities of 50% per prospectus, but which has never surpassed 34%. It can invest in government or corporate bonds, as well as in all countries, but maintaining a minimum of 35% in countries within the European Economic Area.
“The focus of our multi-asset strategy is different from other strategies of this type. When selecting the assets, we take into account the fundamentals, as well as their valuation and the behavior of their price in the market. And when we build the portfolio, we establish an optimal mix between growth, defensive and uncorrelated assets, with the goal of earning attractive long-term income,” Simler says about the fund.
In this respect, the three key drivers of Investec’s strategy are: “a resilient portfolio built from the bottom up, structurally diversified and actively managed, and limiting downside risks,” he adds. In growth type assets, the fund considers corporate stocks, high yield, emerging market debt and private equity, amongst others; While among defensive assets it takes positions in government bonds, investment grade bonds and indexed bonds. Regarding the search for uncorrelated assets, it focuses on sectors such as infrastructures, insurance and assets of relative value.
As Simler points out, the three investment areas that they consider are: United States, Europe, and Emerging Markets. “In equities, we are moving away from the United States, although we remain in certain sectors like the technological one, which has allowed us to make a lot of money. Even though it’s not a matter of choosing between American or European equities but rather of being very selective with the securities chosen and the exposure that is taken. In general, we believe that we must take advantage of European fragmentation to keep the best assets,” he says. The political uncertainty experienced in Europe has also made him cautious, focusing his portfolio on emerging markets and Asia.
Within emerging markets, Brazil and Australia are the countries he places the greatest emphasis on. “For example, in Brazil, government-backed bonds offer a good quality option,” he cites as an example.
Economic Environment
Although political instability seems to have calmed down and global growth continues, Simler believes we still shouldn’t let our guard down. He is particularly concerned about the probability of recession and watchful of any economic signals pointing to that possibility.
“We are in an environment where there is growth in the United States, Europe and the emerging countries. For now, we believe it is unlikely that there could be a recession in the short-term. However, there are certain risks that are beginning to grow. And of course, the political risks around the Euro zone, in particular the Italian elections and the growth of that anti-European sentiment,” he says.
. European High Yield: A Tale of Low Defaults and Diversification
Following a strong start to 2017, valuations in European high-yield (EHY) look less attractive than they did six months ago. However, while some volatility in the short term is to be expected, the asset class has proven its work in testing economic times.
Recent years have seen strong growth trends in the European corporate debt markets. This has provided a solid base for EHY to grow, becoming increasingly diversified with improved overall credit quality. Rather unsurprisingly, it is more appealing to investors as a result. With two full credit cycles since the late 1990’s behind it, the EHY sector is now an integral part of the global leveraged finance market. It may still be perceived as the smaller sibling of US High Yield, but that masks how fast it is growing and maturing.
This maturity can be seen in both size – the market has grown from €41 billion in January 2002 to €286 billion in January this year – and the decreased volatility relative to US High Yield that has occurred since 2012 (according to Bloomberg data), albeit a reasonable proportion of the latter trend has been down to stresses in the US energy market.
Relative to historic levels, yields are low. Yet with income and yield increasingly hard to come by a distribution of 5% is not to be sniffed at. And with yields on government bonds often negative, as is the case of 5-year German debt, the overall spread of yield over government bonds is even higher.
Although always important, with yields at relatively low levels, the role of defaults becomes heightened. The overall outlook is encouraging. Moody’s predict that rates will be 2% in Europe, compared to 4% in the US. Even so, rigorous security selection is required to weed out the companies most likely to default.
High yield’s equity-like qualities are well known. Its correlation with government bonds is low. To reinforce this point, we singled out instances where US 10-year Treasury yields rose by 1% and compared high yield returns over this period. The results are below, and are illuminating.
Past performance is not a guide to future results.
As you can see, high yield offers particular good diversification during these periods. Having an allocation makes sense as part of a broadly diversified portfolio.
In times of uncertainty, investors traditionally flock to the ‘safe haven’ assets, such as government and investment grade bonds. In normal economic conditions, these would offer a relatively safe spot to park your cash. But these aren’t conventional times; central banks have exhausted their weaponry, and as of 28 February 2017 45% of developed market bonds now yield less than 1%, and 20% of those offer negative yields, according to JP Morgan data. Brexit, key elections in Europe and Donald Trump don’t help matters either.
It is likely to be a bumpy road ahead for European high-yield bonds, as it will be for markets globally, but the combination of yield and relatively low duration in return for its credit risk remains compelling. EHY certainly warrants the increased interest among income-seeking investors.
Column by Aberdeen AM written by Ben Pakenham.
Risk Warning
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks may be enhanced in emerging markets countries.
For more on how Aberdeen can help meet the income needs of investors, visit http://international.aberdeen-asset.us/income.
