CC-BY-SA-2.0, FlickrPhoto: Mr. Usaji
. General Colin Powell, Monica Lewinsky, Tony Hawk, and Marc Randolph to participate in eMerge Americas
eMerge Americas third annual conference will take place on April 18 and 19, 2016, and will bring General Colin L. Powell, Former Secretary of State, United States; Monica Lewinsky, Activist & Writer; Tony Hawk, Legendary Skateboarder & Entrepreneur; Founder, The Tony Hawk Foundation; Tim Storey, World-Renowned Motivational Speaker; and Marc Randolph, Co-founder, Netflix; to Miami to share their inspiring stories.
Registration has just opened for the global event, which serves as a platform for the advancement of technology and idea exchange, and Launchpad for innovation connecting Latin America, North America and Europe.
Following a second year of growth, the event will bring together disruptive thinkers from an array of industries under one roof. Other than the already mentioned: Scott Wise, Partner, Andreessen Horowitz; Susan Lyne, President & Founder, BBG Ventures; Naveen Jain, Co-Founder & Executive Chairman, Moon Express; Gabriel Sanchez Zinny, Coordinating Founder & Partner, Blue Star Strategies; Miriam Lopez, President & Chief Lending Officer, Marquis Bank; Andrés Freire, Co-Founder, Officenet; Doug Dietz, Innovation Architect, GE Healthcare; Michael Samway, Adjunct Professor, Master of Science in Foreign Service, Georgetown University; Denelle Dixon-Thayer, Chief Legal and Business Officer, Mozilla; Nuala O’Connor, President & CEO, Center for Democracy & Technology; Alessandro Prest, Co-Founder & CTO, LogoGrab;Joan Cwaik, Latin America Marketing & Communication Manager, Maytronics; Will Perego, Founder & CEO, 24-hour Solar Roof; Ernesto Rodriguez Leal, Associate Professor in Robotics; CEO, Tecnologico de Monterrey; WeaRobot; Patricia Smith, Strategic Information Technology Consultant and Fran Allegra, President, the SEED School of Miami.
“The global tech community is growing fast, and our own rapid growth is testament to that. As the community continues to evolve, eMerge Americas will too, working to inspire and address the needs of this innovative community,” added Manuel D. Medina, founder of eMerge Americas.
For more information or to register for eMerge Americas 2016, follow this link
Andrew Feltus, Director of High Yield and Bank Loans, is Portfolio Manager of Pioneer Funds – Global High Yield, Pioneer Funds - U.S. High Yield, and Pioneer Funds – Strategic Income. Courtesy Photo. Andrew Feltus, Pioneer Investments: The Fed Wants to Increase Rates, but is Afraid to Kill the Cycle
Despite having very limited public spending, the United States is the fastest growing developed economy. What has changed during the past year in the U.S. economy? Andrew Feltus, Director of High Yield and Bank Loans, is Portfolio Manager of Pioneer Funds – Global High Yield, Pioneer Funds – U.S. High Yield, and Pioneer Funds – Strategic Income. With extensive experience managing a wide range of debt securities globally, including emerging markets and foreign exchange, Feltus narrows in his focus to review the situation for the U.S. credit markets at the InvestmentSeminar “Embrace New Sources of Return” which was recently held in Miami by the fund management company.
“In the past year, the fall in energy prices has led to a change in consumer behavior. The ordinary citizen has used the money from gas savings to pay down their debts and increase their savings” says Feltus. Right now, the U.S. consumer has much more flexibility and a bigger cushion than in 2008. “Banks are also much more robust.”
On the other hand, employment and wage inflation are doing relatively well, positively influencing consumption and services, “which make up the bulk of the U.S. economy.”
Energy and Liquidity the Black-Spots of the Credit Market
The companies which have suffered are almost exclusively in the energy sector. “In this industry, there are defaults, job losses, and reduced earnings per share. This doesn’t only affect the companies directly related to the energy industry, but all of those which service it indirectly, especially those related to shale gas.” The plight of this sector has infected the whole high yield credit market in the U.S., which with its 600 bp spreads are discounting a default rate of 7.5%, when in fact the default rate is at 2.5% (ex-energy data, end of September).
“This really seems too much,” says Feltus. Although he also adds that, until it is clear where the oil price points to, they are not looking to increase their exposure to the energy sector, because “the valuation is very attractive, but the fundamentals are very uncertain.”
An additional problem, which affects the whole credit market, is liquidity. “Liquidity is trash these days,” points out Feltus. “The lack of liquidity is what is causing credit spreads outside the energy sector, but if the problem is solved, there is now an opportunity to enter.”
Is this Enough to Curb the Fed?
Feltus explains how, historically, the worst time for the credit markets is from 3 to 6 months before the Fed begins to raise rates, “but the trouble this time is that we have been postponing the expectations of the first rate rise for almost a year. The Fed wants to raise interest rates, but does not want to kill the cycle, which is pretty nice.” Feltus, like many other voices in the industry, believes that probably at this point the market would react well to the first hike as long as the message continues to be one of gentle rises.
He also points out that the QE program ended a year ago, and the Fed’s balance sheet has been contracting since, “so, on that side, there has been some ‘tightening’ of monetary policy.” Meanwhile, general inflation is under control, but it is true that as you break down the index, energy prices have a big effect. In fact, inflation in the service sector is slightly above 2% -the Fed’s target-. In any case, “the reality is that rarely in the Fed’s history -only twice- it has raised rates with the GDP growing below 4%, which is the current situation.”
Barbell Strategy to Extend Duration
Due to the economic slowdown seen outside of the United States, and inflation expectations falling to lows since 2008, the Strategic Income Fund team has decided to be less short in duration than previously, but through the purchase of TIPS –long-term bonds linked to inflation-, which should benefit from a normalization in inflation expectations. “There is no value in buying Treasuries right now, unless you’re considering a scenario of recession, something we do not see at this time,” says Feltus.
An effect that is repeated in the history of the Fed’s upward cycles is the flattening of the curve, with a much greater effect on the shorter half of the curve. Faced with these prospects, the team is using a Barbell strategy in the portfolio, with very short-term bonds on one side, and TIPS on the other, to lengthen the portfolio’s duration and neutralize this effect.
Finally, Feltus declares himself to be a great fan of the dollar. “We have less exposure to currencies other than the dollar than what we have had in our history.”
Photo: Ana Patricia Botín.. UBS (Italia) S.p.A. to Acquire a Business Concern from Santander Private Banking Italia, which Includes €2.7bn AUM
UBS Group AG announced today that its Italian Wealth Management entity UBS (Italia) S.p.A. has entered into an agreement to acquire a business concern from Santander Private Banking S.p.A. (SPB Italia), which includes €2.7bn assets under management, all of its private bankers and branch support staff. The transaction is expected to close in the first quarter of 2016, subject to regulatory approvals and other customary closing conditions.
Based in Milan, SPB Italia provides financial advice and investment solutions to high net worth individuals and family groups. In addition to its wealth management services, SPB Italia’s offering includes banking products and services, loan products, and mortgages. As of 30 September 2015, SPB Italia operates through 6 branch offices located in Milan, Varese, Brescia, Roma Napoli and Salerno.
SPB Italia’s business will be integrated into UBS Italia and will enhance UBS Wealth Management’s presence in the country.
“SPB Italia has a distinguished positioning in our country as a provider of world-class Private Banking services. This transaction is a natural fit with our current wealth management offering in Italy in terms of both business and culture,” said Fabio Innocenzi, CEO UBS Italia. “It also represents a perfect opportunity to grow UBS’s business and to further expand our market share in Italy. SPB Italia’s clients and Private Bankers will gain access to one of the world’s leading wealth management platforms with an excellent reputation in the marketplace. UBS’s clients will benefit from a wider range of banking products and financial solutions.”
UBS is one of the largest wealth managers in the world, giving access to a global banking platform while providing excellent local advice. UBS offers a global scale, world-class investment capabilities and a compelling value proposition for its clients.
UBS (Italia) S.p.A. is an Italian registered bank, subsidiary of UBS AG, running wealth management activities for private investors in Italy. UBS (Italia) S.p.A. is the parent company of Gruppo UBS Italia, comprising also UBS Fiduciaria S.p.A, operating in the country since 1996 and employing about 480 staff serving from nine branches located in Bologna, Brescia, Florence, Milan, Modena, Padua, Rome, Treviso and Turin. UBS (Italia) S.p.A. is ranked 6th and has a market share of 4% in the Italian Wealth Management market (source: Magstat).
Funds Society joins the world showing its support for France after the terrorist attacks suffered in Paris on November 13th. Our thoughts are with the French people, and specially with the families and friends of the victims of the attacks.
Kenneth Akintewe is a portfolio manager on the fixed income Asia Pacific team at Aberdeen, responsible for the local currency interest rate strategy. The team is one of the largest dedicated Asian fixed income teams, managing approximately US$4.5 billion in assets. The team of 27 professionals, who are based throughout the region, has been managing Asian fixed income portfolios since 1997 and first got a Foreign Institutional Investor licence specifically for the Indian bond market in 2007. In this interview Akintewe goes over the progress on reforms in India.
Are you happy with the pace of reform in India?
We would like to see reforms move forward as quickly as possible – new land acquisition legislation is crucial – but we’re also aware of the magnitude of the task that faces Prime Minister Narendra Modi and his team. While there have been setbacks (such as a defeat in local elections earlier this year) we’re encouraged by progress that’s best described as “slow and steady.” Sure, some of the more ambitious reform legislation hasn’t been approved yet, but since Modi became premier last year, some 47 bills have been passed into law by Parliament and the administration’s commitment to reform remains unshaken. Not all of those bills would have been linked to the reform agenda, but this statistic shows that things are getting done despite political opposition in the upper house of Parliament. Beyond the headlines, quiet progress has been made on the devolution of economic power to state governments and on improving policy coordination between the capital and the regions. That’s in addition to measures to boost government efficiency and streamlining the approval process for infrastructure projects.
Can we see the benefits of reform in the economy?
The economy is in much better shape than it was even a couple of years ago – inflation is down, as are interest rates, and fiscal consolidation remains on track. Foreign exchange reserves of more than US$350 billion are at record levels and the rupee has seen better performance versus the majority of G104 and emerging market currencies. While the country has been a key beneficiary of the windfall gains from cheaper oil, policymakers have also taken the initiative to reduce fuel subsidies (subsidies for diesel and petrol were abolished, although those for liquefied petroleum gas and kerosene remain). The number of stalled investment projects has been declining as the government continues to try and clear the backlog that built up, while the value of new projects has been increasing. Foreign direct investment has also been on the rise. There are, of course, good reasons for caution. For example, corporate earnings have disappointed and many companies aren’t yet confident enough to invest in their businesses.
Why is infrastructure so important?
Decades of under-investment means India has appalling infrastructure. This is a major obstacle to the nation’s growth ambitions, especially if the country wants to become a manufacturing hub like China. Even a casual visitor will quickly realize that there is a desperate need for more of everything – better roads, modern railways, efficient ports. Power outages are a regular feature of daily life. Therefore, some of the most ambitious elements of the reform agenda are linked to infrastructure development. However, making this happen will mean changes to the law that have run into political opposition. From a fixed income investor’s perspective we think there are opportunities in the energy, power utilities/transmission and railways sectors. To start with, public spending will do the heavy lifting as private sector investment remains weak. If the government can harness the savings from lower oil prices (plus scale back fuel subsidies) and invest that money into public works, this could spur more investment from the corporate world.
Isn’t red tape still a problem?
Excessive, incompetent and/or corrupt bureaucracy is notorious in India. But this government is well aware of this and has been quick to address the problem. For example, Modi quickly clamped down on chronic absenteeism in the civil service and ordered the country’s so-called “babus”5 to tackle the backlog of work that was gathering dust in many government offices. There have been other administrative measures to improve government efficiency.
Why do local currency bonds look attractive?
In an unprecedented move, the Reserve Bank of India has started to target inflation as a key component of monetary policy. If reforms are successful, this could lead to a structural decline in inflation over the long term, which will likely drive down local currency bond yields. We believe Indian bonds pay an attractive yield even as the country’s economic prospects improve. Credit rating agency Moody’s Investors Service revised India’s sovereign outlook to “positive” from “stable” in April. Despite a year-long rally, 10-year sovereign bonds yield around 7.7%, while corporate bonds can yield some 60 to 140 basis points (bps) more than the government benchmark. Another attraction is the low degree of correlation with other bond markets. That’s because quotas and other market restrictions mean foreign participation is minimal and therefore this market is largely insulated from changes in foreign investor sentiment. The rupee, a currency that we think is undervalued, should continue to exhibit better stability and deliver better performance than a large number of other global and emerging market currencies. Meanwhile, central bank governor Raghuram Rajan has plenty of room to cut interest rates once there is greater clarity on issues such as the timing and impact of U.S. Federal Reserve (Fed) interest rate normalization, the direction of global commodity prices and the monsoon rains in India.
What are the key risks for investors?
Investor sentiment may be damaged if the reform program loses momentum in the face of stubborn political opposition, while lingering uncertainties over the tax liabilities of foreign investors are also unhelpful. After years of unproductive investment, state-owned banks and other companies have limited capacity to support Modi’s reforms. Inflation (which is largely driven by factors outside the control of Indian policymakers) could bounce back, particularly if there are unfavorable monsoon conditions that negatively impact agriculture. Meanwhile, investors need to be more careful when selecting so-called “quasi-sovereign” government-linked credits. A rush to find proxies for sovereign debt means some investors may have overlooked important differences in government-ownership levels and/or company fundamentals.
. Fund Society's "Fund Selector Summit Miami 2015" Event, Nominated for “Launch of the Year” at the PPA Connect Awards
PPA Connect Awards has shortlisted the Fund Selector Summit Miami 2015, held at the Ritz Carlton hotel in Key Biscayne and organized by Funds Society in collaboration with Open Door Media, for the “launch of the year” award The presentation of the awards to the winning finalists will take place on December 7th in London, where the community of professional events’ organizers granting the awards, have their headquarters.
Funds Society’s Fund Selector Summit was the first event organized jointly by Funds Society, an online reference publication for the US Offshore market’s professional investors and Spanish language magazine distributed quarterly in the United States, and Open Door Media, publisher of a magazine for professional investors in the UK and an experienced organizer of events for financial professionals, in several European countries.
The union of the two parties has shown itself to be a perfect tandem as 11 international fund management companies sponsored an event which was attended by more than 50 fund selectors in May 2015. Throughout the two days, meetings were held between small groups of buyside professionals and a fund manager from each of the sponsoring institutions. There was time for presentations, questions, coffees, talks, exchanging business cards, cookouts in the hotel grounds, and to enjoy an excellent presentation by Javier Santiso.
The celebration of Funds Society’s Fund Selector Summit 2016 has been announced for the 28th and 29th of April at the same venue, and organizers hope to repeat last year’s success.
Thanks to all the sponsors who supported the event for making this possible: Amundi, Carmignac, Goldman Sachs Asset Management, Henderson Global Investors, NN Investment Partners, Lord Abbett, M & G Investments, Matthews Asia, Old Mutual Global Investors, Schroders and Robeco.
Photos of the first day of last year’s event are available through this link and those of the second day through this other link.
Photo: Chase Elliot Clark. Should Quality Company Growth Be Highly Valued in Today’s Abnormal Cycle?
Good businesses are more expensive than they have been in the past, but ironically far more valuable in today’s world.
The reason for this is simple. In a world bereft of growth opportunities, growth is priced at a premium. Normal cycles produce an abundance of economic growth, which is good for the performance of average businesses. They also create opportunities for higher company earnings. However, this cycle is far from normal and requires differentiated thinking to achieve meaningful returns, not a reliance on what has worked in the past.
In December 2008, as the world was gripped by the onset of the great recession, US 10 year bond yields fell to 2.12%, a low not seen for more than 70 years. At that time very few grasped the deflationary risks the world was facing, apart from perhaps central bankers studying the Great Depression. Now, more than eight years on, despite higher stock markets, we still have a term lending rate to the US government of 2.03%.
Why have yields remained so low, when the world is in recovery mode?
This question has been perplexing economists and has occupied the brightest minds. Part of the riddle might be better understood if the message from the current commodity price landscape is considered, with oil prices at levels last seen in 2008. We believe low commodity prices and low bond yields confirm depressed levels of economic activity at a macro level, paired with intrinsic business model risk at the asset level.
What should an asset allocator do?
If the Federal Reserve is unwilling to raise interest rates from near zero, should you consider investing in growth assets if there is no meaningful growth? Quality equities can help. Quality businesses are more likely to produce consistent levels of growth during times of economic uncertainty. They can:
Provide compelling value: There has not been much new investment in Quality equity strategies over the past twelve months. This encourages us. Despite our funds delivering strong performance, we still see compelling value in owning a portfolio of businesses growing at high single digit rates, with no leverage and paying out 75% of the cash produced.
Manage their businesses for different trading environments: Stable cash generating businesses in consolidated industries have the ability to manage their pricing structures better than other industries. They can also cut costs through optimising distribution and marketing, paving the way for higher margins in the good times or protecting cash flows in the bad.
Become more active in M&A: South African Breweries is a good example. Our portfolios have enjoyed a value uplift from the proposal from Anheuser-Busch InBev. But if we look at the deal multiples paid on this acquisition, it would suggest our portfolio is around 50% below fair value on similar terms. As such, we would expect more of these corporate deals to occur.
Clyde Rossouw, Co-Head of Quality at Investec Asset Management.
CC-BY-SA-2.0, FlickrPhoto: James Jordan
. Credit Suisse: “The US Federal Reserve May be Able to Hike Rates in December 2015”
In his monthly Investment outlook, titled “Global economic stabilization more likelythan a further slowdown,” Björn Eberhardt, Head of Global Macro Research at Credit Suisse, states that the US FED may be able to hike rates in December 2015, while other central banks, such as the European and Japanese ones, may still announce further easing.
Eberhardt points that “The global economic outlook remains very uncertain. However, recent activity data on a wide range of economies has supported our expectation that the global economy is unlikely to slow further.”
Adding that the latest US data has also been relatively stable overall despite some signs of softening. Q3 GDP data is likely to show weaker growth compared to Q2, mainly due to weakness in trade. “Looking ahead, although business surveys have been weakening, consumer confidence remains very high, indicating that private consumption is likely to continue to be the main growth driver. And while payroll growth weakened in August and September, other labor market measures point to still very good conditions,” he says.
Based on solid domestic conditions – Eberhardt explains,the US Federal Reserve has good arguments for a first rate hike in December, “but the timing remains very uncertain. In our view, financial market pricing that virtually rules out a December hike has gone too far.”
Despite the fact that economic momentum in the Eurozone has, if anything, been somewhat more robust than in the USA Credit Suisse believes that the European Central Bank (ECB) may nevertheless have to announce further easing, “mainly because the outlook for Eurozone inflation remains very subdued and inflation expectations have weakened again.” As is the case in Japan. Eberhard believes further easing from both Central Banks might come as soon as this year.
Lastly, the expert states that when it comes to emerging markets and despite weak data, “the situation in major emerging markets has shown some signs of stabilization.”
Photo: Piergaetano Iaccarino is the Head of Thematic and Disciplined Equity at Pioneer Investments since January, 2012. Pioneer Investments’ Iaccarino: Growth Exists, Although it’s "Hidden"
Even if Pioneer Investments is more positive about China than the consensus, the firm believes growth must be found in other markets. Piergaetano Iaccarino, Head of Thematic Equity for Pioneer Investments, shared his thoughts at the investment forum “Embrace New Sources of Return” held recently in Miami: “China is shutting down one of its economic engines, and starting another.” This transition from fixed investment, exports, and government control, to an economy oriented to domestic consumption, services, and the private sector, will take time, but in China “there are still available instruments” claims Iaccarino referring to the forex exchange controls.
Debt and Deflation
Iaccarino determines that in the coming years, growth will be higher in developed economies, “where we are seeing a better growth outlook than for the 2007-2014 period. In emerging markets, the situation is reversed.”
Economies operate in an environment ruled by two major trends: financial leverage and deflation. “Nations do not only face the repayment of outstanding debt, but also their obligations to pay pensions and health costs of a population which is ageing quickly.” Japan is not the only country with this problem, the United States has a similar debt level once these future obligations are incorporated, “and the emerging markets are not immune to this problem because they have doubled their debt in recent years, with half of that debt issued in hard currencies (euro and dollar).
The other major trend mentioned by the expert is deflation, which represents an added problem for the most indebted countries. “Central banks of developed countries do not have the rate cutting tool readily available; They can print money (QE) or manipulate the exchange rate,” although the effectiveness of these measures is questionable.
So, Where is Growth to be Found?
“Growth is ‘hidden’. It exists but it’s hidden,” claims Iaccarino. The United States, with the strength of its labor market, represents an opportunity. Employment generates consumption, to which a favorable demographic picture must be added. “Perhaps the only negative point in the US is political, with the uncertainty arising from the elections next year.” Even the exposure to exports towards China is correct, as they are not as relevant, representing 1% of GDP, but the trend is growing, however “and the Fed knows it, so that the evolution of the Chinese economy weighs increasingly in monetary policy decisions in the United States.”
According to the expert, Japan represents the eternal promise. “Fixing Japan always takes longer than expected. Culturally, the process of reaching a consensus is painfully slow, but once matters have been clarified, action is usually rapid. “The reforms presented by Shinzo Abe are now in full debate in Congress. The TPP (Trans-Pacific Partnership) is very important for Japan, which will have to introduce certain reforms touching on immigration and corporate governance. “In this regard, it has already achieved a lot, with a penetration of 50% of independent board members in listed companies, compared with 16% a few years ago. Valuation and momentum support investment in Japan. “
Should Emerging Markets be Avoided Entirely?
While it’s true that emerging markets will see less growth, they should not be avoided entirely. “Some countries are more vulnerable than others to external shocks. We must find countries with good foreign exchange reserves and a healthy current account balance. You need to be very selective, “claims Iaccarino.
Another factor to consider is the credibility of reforms and the stability of the institutional framework. “India and China are in a much better position than Russia and Brazil.”
What to do?
Perhaps the key to medium-term positioning is to manage volatility. “Volatility is increasing, especially the volatility of volatility, creating stress in the market. Volatility becomes a risk if you are forced to sell in times of high volatility; however, if you do not have that time pressure to sell, it becomes an opportunity”.
Volatility feeds on a number of factors: the debt deleveraging process, an environment of below potential growth, in both developed and emerging markets, also coupled to the central banks’ lack of tools. In turn, there is the problem of liquidity in the market, directly derived from increased regulation of the financial sector.
All this creates opportunities, although “potential is limited, both in equities and in fixed income; the important thing is to hedge tail risks well.”
In credit, the expert mentions very selective opportunities in securities overly affected by the crisis in the energy sector. Pioneer Investments’ Head of Thematic Equity, has a more favorable opinion of equities, since there is a component of positive growth in developed markets, which is feeding into corporate earnings. “In Europe, the cycle lags behind the United States, but it’s improving. Valuation of the stock markets may be more questionable, but some things are attractive. The biggest risk is volatility, or risk perception, which punishes stock markets every time there is an episode of illiquidity.”
Iaccarino adds that technical factors particularly support the Japanese market, which is seeing a lot more domestic money in their stock markets, both by pension funds and by individuals, a group which now enjoys tax benefits for investing in stock markets.
Photo by Gerald Lau. Canadian BMO Global AM Launches Nine ETFs Aimed at European and British Investors
Canadian manager BMO Global Asset Management has launched nine ETFs targeting UK and European investors. The ETFs, all UCTIS compliant, are listed on the London Stock Exchange and registered in Ireland. Three of them are global corporate bond ETFs, one is global high yield and five are equity ETFs. Amongst the equity ETFs BMO offers exposure to the US, Europe ex-UK and the UK.
Richard Wilson, CEO, BMO Global Asset Management (EMEA), told InvestmentEurope “Establishing our ETF offering in Europe is a key strategic milestone for us as we continue to expand across the region.”
According to BMO, their fixed income offer will allow investors to more precisely position their fixed income exposure at a time when the world is preparing for the Federal Reserve to raise rates.
In regards to their equity offer, which follows MSCI indices, the Canadian bank reminds investors that their Income Leaders ETFs come in hedged and unhedged versions, allowing investors to implement active positions on currency.
