CC-BY-SA-2.0, FlickrPhoto: Claudia Calich, fund manager at M&G Investments. M&G’s Claudia Calich to attend Miami Summit
Claudia Calich, fund manager at M&G Investments will outline her view on where to find pockets of value in emerging markets debt assets, when she takes part in the Funds Society Fund Selector Summit Miami 2016.
Currently, emerging market investors face uncertainty from factors such as slower economic growth in China, volatile oil prices and geopolitical risk. Calich suggests flexibility in strategies such as the M&G Emerging Markets Bond fund facilitate taking high conviction positions without being constrained by local or hard currency, or differences between government and corporate bonds.
Outlining the opportunities, Calish will also explain her currency and interest rate positioning.
Calich joined M&G in October 2013 as a specialist in emerging markets debt and was appointed fund manager of the M&G Emerging Markets Bond fund in December 2013. She was also appointed acting fund manager of the M&G Global Government Bond fund and acting deputy fund manager of the M&G Global Macro Bond fund in July 2015. Claudia has over 20 years of experience in emerging markets, most recently as a senior portfolio manager at Invesco in New York, with previous positions at Oppenheimer Funds, Fuji Bank, Standard & Poor’s and Reuters. Claudia graduated with a BA honours in economics from Susquehanna University in 1989 and holds an MA in international economics from the International University of Japan in Niigata.
Photo: Enrique Chang. Janus Capital Names President, Head Of Investments
Janus Capital has promoted Enrique Chang to the position of president, head of Investments.
Chang took up his new duties on 1 April, overseeing Janus’ fundamental and macro fixed income teams, in addition to his existing leadership responsibilities of the Janus equity and asset allocation investment teams.
“The decision to promote Enrique to president, head of Investments, is reflective of his increased responsibility in now overseeing the majority of our Janus investment teams, as well as his significant contributions to the firm over the past two and a half years,” said Dick Weil, CEO of Janus Capital Group.
Chang will partner with CEO Dick Weil and president Bruce Koepfgen.
Janus Capital specified that Perkins Investment Management and Intech Investment Management will continue to report into their respective leadership teams and relevant boards.
Chang was previously CIO Equities and Asset Allocation. He joined Janus in September 2013 and was previously executive vice president and chief investment officer for American Century Investments, where he was responsible for the firm’s fixed income, quantitative equity, asset allocation, US value equity, US growth equity and global and non-US equity disciplines.
At end December 2015, Janus Capital’s AUM reached around $192.3bn (€169.2bn).
CC-BY-SA-2.0, FlickrPhoto: Harold Navarro. Boring Can Be Beautiful
While it’s easy to get caught up in campaign season — whether in the United States, where raucous primaries are underway, or in the United Kingdom, where the Brexit campaign is in full swing — that probably won’t help you make investment decisions. It’s probably better to see what’s going on inside some of the world’s biggest economies.
The US economy ebbs and flows, but the real average growth rate for this business cycle —after adjusting for inflation—has been about 2%. And we’re slogging along at about that pace as we begin the second quarter despite repeated, and so far unfounded, concerns that the economy is headed for a recession.
Here’s a look at the US economic scorecard for March:
Looking around the world, China remains weak, but economic data is no longer worsening. There is still a lot of excess capacity, but fears of a deep recession have faded somewhat.
We have seen manufacturing weakness in the eurozone amid headwinds from slowing exports to emerging markets. Inflation has remained scant, prompting the European Central Bank to push interest rates deeper into negative territory and adopt additional unconventional monetary policy tools. Consumption is a bright spot, boosting companies that cater to consumers. We expect a real economic growth rate of slightly better than 1% in 2016.
Japanese growth continues to hover near zero. Despite negative interest rates, fiscal stimulus and structural reforms, Abenomics has not proven sufficient to rekindle growth.
Few signs of excess
We follow a number of business cycle indicators for signs that the present US expansion may be continuing, or conversely, coming to an end. Of these indicators, half are flashing signs that excesses may be creeping into the economy while the other half are showing no signs of stress. Several areas of concern have shown modest improvement of late. For instance, there have been tentative signs of improvement in the Chinese manufacturing sector, and oil prices, which until recently had wreaked havoc with corporate profits, have stabilized to some degree.
While US growth may seem boring, there are some intriguing phenomena going on in other parts of the world. Perhaps the most interesting — some would say crazy — phenomenon is the adoption of a negative interest rate policy (NIRP) by the European Central Bank, Bank of Japan and other central banks. About 40% of the sovereign debt issued by eurozone governments today trades with a negative yield. Not only are investors paying to lend governments money, but they retain all the credit and interest rate risk with no compensation. That’s anything but boring.
Where to turn in a world of NIRP?
Logically, investors are seeking more rational alternatives. Dividend stocks have proven alluring against a backdrop of negative yields. US dividend stocks are particularly attractive. Positive real yields and a steadily growing US economy will likely help companies generate the free cash flow necessary to pay out, and eventually grow, dividends. The US private sector has been producing strong, if not record, free cash flow since the end of the global financial crisis. And dividend-paying stocks outside the US have proven attractive in many developed markets as well. The key is not to chase the ones with the highest yields — they can be dangerous — but to look for sustainable cash flow growers.
Absent a recession, which is often fueled by excessive credit growth, investment-grade credit markets look like an attractive alternative to government securities. They are relatively cheap by historic standards and offer the potential to outperform Treasuries in a mildly rising interest rate environment. It is our belief that against the present backdrop moderate additions to risk assets may be appropriate for some investors. Moving out the risk spectrum, cheap high-yield bonds also look compelling in this environment. And large-cap stocks are another area of opportunity, given their moderate valuations.
This economy may not be as exciting as the latest accusations on the campaign trail, but boring can be a good thing. Especially for long-term portfolios.
James Swanson is the chief investment strategist of MFS Investment Management.
Photo: David Leo Veksler. RBS Sells ETF Business To Chinese Asset Manager
Hong Kong based asset manager China Post has acquired the ETF offering of Royal Bank of Scotland, which consists of ten funds with combined assets of €360m.
China Post is the international asset management arm of China Post & Capital Fund Management. As a result of the acquisition, China Post will become the promoter and global distributor of the ETFs, formerly RBS’s ETFs listed in Frankfurt and Zurich.
Morover, the ETF’s will be seeded with additional capital to make them more attractive to institutional investors, they will also be cross-listed in Hong Kong.
The current fund range offers investors access to commodities, emerging market and frontier market equities, China Post aims to expand the offering with a new smart beta strategy offering investors access to Chinese equities.
Danny Dolan, managing director of China Post Global (UK), comments: “This acquisition demonstrates China Post Global’s long term commitment to the European region. Our aim is to differentiate ourselves through innovation. For example, while ETFs giving exposure to China and smart beta strategies already exist, no-one in Europe has yet combined the two.”
“Other differentiators for us include our access quotas to mainland Chinese securities, the strength of our parent companies and their distribution networks, and the strong financial engineering background of our team, which will help with product construction” he adds.
Photo: Steven Oh, Global Head of Credit and Fixed Income at PineBridge Investments. Does the Loan Market Continue to Offer Attractive Opportunities?
The leveraged loan market has more than doubled in the past decade to US$872 billion, with over 1,000 issuers. Steven Oh, Global Head of Credit and Fixed Income at PineBridge Investments, provides his views on the current state of the loan market, and whether this opportunity is attractive and sustainable.
Why are loans an attractive asset class in the current environment?
The outlook for US GDP growth for 2016, while weakening somewhat recently, is still in the 2%-2.5% range, providing a stable backdrop for leveraged-loan issuers.
The unemployment rate should trend even lower and wage growth is expected to accelerate modestly. Coverage ratios (EBITDA-capital expenditures/interest) are near all-time highs. The current default rate of 1.33% is still significantly below its historical average and is forecast to increase at a gradual rate.
What are the characteristics provided by loans that appeal to investors?
Leveraged loans can perform well in all market cycles. Loans rank at the top of the capital structure, so recoveries are generally higher than for high yield bonds. They provide a hedge against rising interest rates since spreads are typically based off of three month LIBOR.
Leveraged loans provide a high level of current income, with the loans market offering transparency and some liquidity.
Furthermore, leveraged loans are a stable asset class: There have been only two years of negative returns since 1997.
Do you believe that the opportunity to invest in loans will be sustainable? If so, why?
The leveraged loan market has more than doubled in the past decade to US$872 billion, with over 1,000 issuers. It is now a mature market that offers several benefits to issuers and investors alike.
What will be the impact of stricter rules and regulations on the banking sector?
While most loan issuers have multiple market makers, stricter regulations have adversely impacted liquidity. In general, commercial and investment banks that trade loans now hold less inventory. Additionally, regulators are scrutinizing leverage loans much more thoroughly than prior to the financial crisis. This is having the effect of keeping leveraged levels at more moderate levels. The amount of leveraged buyouts with debt multiples of seven times or higher is currently less than 4% as compared with 30% in 2007.
How do you think this market differs across Europe and the US?
The European loan market had been holding up better than the US market in 2015. Spreads are generally tighter despite intrinsic European challenges of lower liquidity and diverse jurisdictions.
But Europe has also weakened in 2016 due to reduced demand from one of the largest participants in the European loan market: CLO’s. At current levels, we believe investors are adequately compensated for expected defaults, although we could see further volatility.
Will that affect your portfolio positioning?
Given that the US market is considerably larger, the vast majority of our holdings are US domiciled; however, we are constantly evaluating relative value between the US and European markets. In our Global Secured Credit Fund, we shift allocations between the US and Europe based on our determination of relative value.
How do you analyze companies?
We conduct a detailed bottom-up credit analysis combined with top-down economic views. It is highly credit intensive and involves a globally coordinated team approach.
What are you typically looking for when deciding whether to invest?
We seek companies with sustainable business models, and consistent, positive cash flows. We also focus on fixed charge coverage, liquidity, and operating cash flow to ensure the amount of leverage is appropriate given the industry sector. Companies in cyclical industries should have less leverage and more liquidity to ride out commodity cycles.
How much more significant will company analysis be in this asset class compared with traditional assets?
In our view, fundamental credit analysis is the key to success in the leveraged loan asset class. Issuers are generally rated BB or B, and therefore have higher levels of risk compared with investment-grade issuers.
What risks are associated with loans, and how can you ensure you are compensated sufficiently for them?
The primary risk associated with leveraged loans is default risk. The key to avoiding credit loss is extensive analysis and monitoring of credits. We evaluate current spread levels to ensure we are being compensated for the expected level of default risk.
In the current environment, we believe spread levels are very attractive given our default expectations.
Are you being compensated enough for the associated illiquidity risk?
Although there has been a slight reduction in liquidity levels due to increased regulation, liquidity in the leveraged loan market is much less of a concern today than a decade ago.
Given current spreads, we believe investors are being well compensated for both illiquidity risk and default risk.
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.
The 7th Annual All-Star Charity Tennis Event took place on Tuesday, March 22nd, 2016 at the Ritz-Carlton Key Biscayne, Miami. The event was hosted by Grand Slam legend and Hall of Famer Cliff Drysdale, while headlined by Serena Williams, currently ranked number one single’s women player in the world and 21 time Grand Slam winner. Wimbledon finalist and former World No. 5 (2014) Eugenie Bouchard, World No. 8 Japanese standout Kei Nishikori, World No. 9 and French No. 1 Richard Gasquet also all participated to support the cause.
In part sponsored by Pioneer Investments, the gathering gave 24 amateur players the opportunity to test their skills in a qualifying tournament in which the winners earned a chance to play alongside the top professionals.
Proceeds from the 7th Annual All-Star Charity Tennis Event supported First Serve Miami. First Serve Miami is a 501(c)3 organization established in 1974, dedicated to developing, organizing, and conducting life skills or academic development programs with tennis, to youth from economically and socially challenged communities of Miami-Dade.
CC-BY-SA-2.0, FlickrPhoto: Pablo Blázquez Photo. Claudiana Ramirez and Carlos Hernandez-Artigas join the Relationship Managers’ Team at BigSur Partners
BigSur Partners, a multi-family office based in Miami, has expanded its team of Relationship Managers, with the addition of two experienced professionals: Claudiana Ramirez and Carlos Hernandez-Artigas.
Carlos Hernandez-Artigas joins the team after 13 years at Forrestal Capital, a firm of which he was a founding partner. Hernandez-Artigas was the general counsel for Panamerican Beverages (Panamco) for over a decade, until its sale to Coca-Cola FEMSA in 2003. His legal training, operational experience, extensive experience in both mergers and acquisitions, and advice to multi-jurisdictional families strengthen the Big Sur team. He is a member of the Board of Directors for Arcos Dorados and for Iinside, a Californian technology company.
Meanwhile, Claudiana Ramirez, a Colombian lawyer with a master’s degree in law from the American University, has over 18 years experience as a financial advisor to UHNW Latin American clients. Prior to joining BigSur Partners, she worked at Merrill Lynch, Credit Suisse and RBC Wealth Management.
Photo: Jürgen Mossack, co-founder of Mossack Fonseca/The International Consortium of Investigative Journalists. The Panama Papers, Another Reason Why The Offshore Industry Should be More Transparent
Yesterday’s leak from the International Consortium of Investigative Journalists (ICIJ) lays bare the extent to which corruption, tax evasion, and other criminality is made possible by the global offshore industry. Over 60 media outlets collaborating with the ICIJ are publishing a series of stories based on documents leaked from the prominent Panama-based law firm Mossack Fonseca.
This firm is one of the world’s top creators of shell companies, corporate structures that can be used to hide ownership of assets. The law firm’s leaked internal files contain information on 214,000 offshore companies connected to people in 200 countries and territories. The data include emails, financial spreadsheets, passports and corporate records revealing the secret owners of bank accounts and companies in 21 offshore jurisdictions, from Nevada to Hong Kong to the British Virgin Islands.
While the creation of these companies does not constitute any crime, using them to evade taxes or launder money, does. That is why organizations like Global Witness are calling for tax havens to end the secrecy that enables this abuse. “This investigation shows how secretly owned companies, many of them based in the UK’s tax havens, can act as getaway cars for terrorists, dictators, money launderers and tax evaders all over the world. The time has clearly come to take away the keys, by requiring the collection and publication of information on who really owns and controls these companies. This would make it much harder to launder dirty money and leave the rest of us safer as a result,” said Robert Palmer, campaign leader at Global Witness.
Meanwhile, Verdict Financial says that the Offshore Wealth Management will endure this latest crisis. Andrew Haslip, Verdict Financial’s Head of Content in Asia-Pacific for Private Wealth Management, comments that “The data leak from offshore law firm Mossack Fonseca has made headlines around the world. But it will have little direct impact on the amount of wealth offshored as High Net Worth (HNW) clients no longer book assets abroad to shelter wealth from tax or prying eyes.” Indeed the Panama Papers leak is, by all accounts, the largest to date and appears to have snagged a number of high-profile clients, including celebrities, politicians and businessmen. No doubt another round of investigations by tax authorities will be forthcoming, followed by hefty fines and, in a few rare instances, criminal charges. “However, the leak is not likely to significantly impact the offshore wealth management sector. Offshore wealth managers have been dealing with the decline in client anonymity for quite some time, and the Panama Papers are simply the biggest leak to date. Ever since automatic disclosure became the standard in the wake of the financial crisis, the industry has been transitioning away from client anonymity as an impetus for investing offshore.”
According to the most recent Global Wealth Managers Survey from Verdict Financial, in 2015 the top two reasons for investing offshore globally were HNW clients expecting both better returns offshore and access to a better range of investment options. Client anonymity barely registered, way down in eighth place.
“As long as HNW clients remain focused on the search for yield and superior investments, they will be attracted to the more freewheeling offshore sector. Offshore financial centres such as Singapore, Hong Kong, the UK, and the US (and even perennial whipping boy Switzerland) that can offer the sophisticated investments prohibited in more tightly regulated onshore retail investment markets will continue to see strong inflows.” Haslip concludes.
Amongst the leak the ICIJ includes a list of the Banks involved:
CC-BY-SA-2.0, FlickrPhoto: Lucas Hayas. Fading Fears, Growing Risk Appetite?
For months, the marketplace has feared a US recession, driven by a sluggish global economy, the collapse in energy prices causing a marked decline in capital spending in several key market sectors and tightening financial conditions. Those concerns have begun to ease in recent weeks. We’ve seen a modicum of stability return to oil prices, pressure on high-yield credit markets has lessened and volatility has declined. While US economic growth is far from robust, it has held onto its post-crisis average of about 2%.
Given how much fear has become imbedded in market expectations in recent months, these modest signs of improvement could help rejuvenate the market’s appetite for riskier assets going forward. Even with sluggish growth late in 2015 and a plunging oil price, once you strip out the energy sector, profit margins actually expanded in the fourth quarter. As input costs such as the price of energy and other raw materials fall and if interest rates stay low, profit margins for many businesses will likely expand. It won’t take much to move the dial on profits for companies in the consumer discretionary staples sector, as well as those in tech and telecom, assuming they get a little bit of a lift to the top line. The consensus this year is for profit growth of 2%–3%. A modest uptick in sales could see that expand up to 6%, in my view.
Buying power being unleashed?
Where will that uptick in sales come from? The buying power of the US consumer, boosted by a moderate increase in wages as well as falling gasoline prices, lower home heating and cooling costs and declining apparel prices. For some months now, those savings have been stashed away. But history tells us that when consumers feel confident that price declines (e.g., energy) are here to stay, they tend to spend more. We’re seeing glimmers of hope that consumers are beginning to reallocate some of these savings to more consumption, which is likely to modestly spur manufacturing and the service side of economy.
We’re also seeing other signs of a turnaround. Container shipments and truck shipments are up. Some air freight indicators are beginning to rise. Spending in the technology and telecom sectors of the S&P 500 have begun to improve. Taken together, all of these developments point to a potential improvement in final demand.
It looks as though the US economy won’t disintegrate into recession any time soon but will more likely maintain the slow-growth pattern of the past several years. Against this backdrop, the Federal Reserve will probably see little danger of falling behind the inflation curve, so interest rate hikes should be gradual. It’s an environment where investors, depending on their age and risk tolerance, may want to consider adding to their portfolios some of the riskier assets on offer in the marketplace.
James Swanson is the chief investment strategist of MFS Investment Management.
CC-BY-SA-2.0, FlickrPhoto: Michael Davis-Burchat. Don't Let the Name Fool You
For the past several months now, I have been on an extended research trip for the express purpose of taking a close look into China’s domestic A-share market. While many investment professionals typically rely on screening functions to select potential portfolio holdings in specific sectors, when it comes to mainland China’s domestic-listed, A-share companies, you will want to proceed with caution.
In recent years, many Chinese companies, and especially A-share listed firms, have been using their capital—either with cash or with shares—to make acquisitions. Some firms are expanding their operations within specific value chains (either upstream or downstream), some are adding more products or service offerings and some are even entering entirely different sectors from where they began. In a few extreme cases, firms have transformed themselves by divesting their original businesses and re-emerged in a new industry. In the interim, they may even continue to maintain their old firm name before revisions reflect their new business models.
I’ve recently met with several firms that have made acquisitions within the past two years. Through my discussions with management teams, I gained insight into the motivations that have driven recent acquisitions. Due to the economic slowdown, firms that have been operating in traditional industries, such as the property and manufacturing sectors, are facing some difficulty. So expanding into more value-added areas in related industries is an attractive move. Alternatively, major shareholders or management teams may decide to strategically pivot and enter new areas in order to tap other growth drivers or convert the company entirely. Due to the lack of relevant talent and the time it takes to develop expertise organically in new areas, a firm in this situation may also opt to purchase a strong existing player in the new sector.
This kind of diversification and business transformation makes sense. As in many cases, firms can either leverage current resources to create synergy with the new businesses, or if they venture into an area they are not familiar with, they can pay a reasonable price for a leader with a good track record and then allow the acquired management team to retain a partial stake. If these firms don’t change, they may not survive by merely adhering to their old business strategies. In other words, they have little choice but to adapt.
On the other hand, there are also firms that make acquisitions in “hot” areas such as information technology, health care and media. Acquisitions are sometimes made simply for the sake of having exposure to such industries despite a lack of any concrete plans for development in the sector. A company may also make so many acquisitions in a single year that integration becomes problematic. In nearly all cases, there are profit guarantee clauses embedded in the acquisitions, and if the acquired firms are unable to meet targets, there are penalties imposed.
Though many firms have thus far delivered on profit guarantee clauses, there is still no guarantee that all profit targets will be met at the end of the contract term. Meanwhile, in cases where profit targets are not met, the acquirer must then write down assets.
As long-term investors, our job is to identify those firms with solid management teams who have clear objectives for acquisitions to provide new growth areas for themselves and to avoid those that pursue “hot” concepts to support their stock prices in the short term. As Chinese investors become more mature, they will eventually reward only firms that achieve long-term earnings growth from such acquisitions.
