Photo: campamento de Lazio. CFA Institute Conference: Fixed-Income Management 2015 Preparing for a Different and Divergent Environment
What will be the impact of a divergence in monetary policies around the globe? What are the major risks facing the global economy and financial markets? What fixed-income strategies adapt well to a changing environment?
With fundamental questions lingering in today’s global debt markets, there is an increased need for savvy bond investors who have the skills and insights to thrive in a new cycle and deliver value to investors.
At Fixed-Income Management 2015 -organized by CFA Institute in Boston on October 22 and 23, leading practitioners will navigate through what’s happening in global bond markets, take a closer look at the long-term effects of a divergence in monetary policies and the path of growth in developed and emerging economies, and discover where leading investors are finding value. They will examine fixed-income strategies that provide diversification and adapt well to a changing environment.
Covering practical topics ranging from security analysis to sector allocation and risk management to portfolio construction, this year’s conference brings together researchers, analysts, portfolio managers, and top strategists to focus on
analysis of the long-term effects of the divergence in monetary policies in the United States, the United Kingdom, Europe, and Japan and their impact on sovereign debt markets
the unintended consequences of regulation on bond market functioning and liquidity;
inflation and deflation cycles globally;
strategy and sector allocation and the role of fixed income in the total portfolio;
the outlook for interest rates, economic growth, currencies, asset classes, and sectors;
credit investing strategies—where to find value and reduce market sensitivity;
critical factors that will influence the medium- to long-term performance of fixed-income investments, including demographics, technology, and policy; and
risk management and how investors can prepare for market recalibration.
Photo: adjusted Fotorus / Flickr Creative Commons image
. Rafael Tovar Joins Axa IM as US Offshore Distribution Director
Rafael Tovar has joined Axa Investment Management in order to develop the offshore business for the Americas, and will be working in James Wallace’s team.
Rafael will be based at the AXA Investment Management US headquarters, located in Greenwich, Connecticut.
Until a month ago, Tovar worked at Nikko AM, the Japanese management company, where he worked within the Sales and Marketing team based in New York, serving institutional clients and family offices throughout the Americas region.
Prior to that, he formed part of the team at Compass Group, where he was responsible for business development for institutional clients in Brazil, Miami, and New York, providing coverage to private banks, family offices, wholesalers, broker dealers, and pension funds. He had previously worked for renowned firms such as Goldman Sachs and Accenture.
He holds a Bachelor of Engineering Degree from the Simon Bolivar University in Venezuela, has an MBA in Finance, and an MA in International Studies from the University of Pennsylvania – The Wharton School.
As part of the process of internationalization of their asset management company, AXA Investment Managers, recently appointed Leticia Aymerich as Head of Customer Service for the region of the Americas, serving markets in the United States, Canada, and Latin America. Leticia has joined the management company’s headquarters in the United States from Spain, where she worked for Axa IM since 2006.
Photo: Arek Olek. Navigating The Storm: In Risk Budgeting and Alpha We Trust
The Lyxor Hedge Fund Index was down -2.7% in August. 1 out of 12 Lyxor Indices ended the month in positive territory. The Lyxor Convertible Arbitrage Index (+3.3%), the Lyxor L/S Equity Variable Bias Index (-0.7%), and the Lyxor L/S Equity Market Neutral Index (-1.1%) were the best performers.
The deflation and growth scares, which built up over the summer, accelerated following the CNY devaluation. They morphed into a vicious cycle in the last week of August. With volatility reaching 55 and equities plunging by the hour, Monday 24 will from now on count among the major stress episodes used as reference. The bulk of the Lyxor Hedge Fund index was endured during that week. Event Driven funds were the main losers. Return dispersion was elevated. Losses in some heavy-weight funds hid decent performances among macro traders (CTAs and Global Macro). A milder pressure on credit and govies supported credit and fixed income arbitrage strategies. The L/S Equity space proved resilient apart from Asian and US long bias managers.
“Beyond a possible near-term rally, we expect moderate and riskier returns from traditional assets. Thus, we continue to strengthen our focus on hedge funds’ relative value approaches.” says Jean-Marc Stenger, Chief Investment Officer for Alternative Investments at Lyxor AM.
To the notable exception of Asian and US long bias funds, the L/S Equity strategy was remarkably resilient. Most funds had steadily reduced their net exposures over the summer, cautiously positioned ahead of the sudden end-of-August debacle. In Europe, Variable bias managers implemented efficient hedging strategies, with an increased number of single shorts. European managers, which generally missed the reflation trade early this year, regained all the lost ground over the summer. They even outperformed market neutral strategies. In contrast, Lyxor Asian managers suffered in August, down -2% in aggregate. Their dramatic cut in net exposure since June (-10%) limited the damages. US Long Bias also took a major hit, losing most of their beta.
Event Driven funds were the main losers, with a severe plunge across the board. The aggregate Event Driven performance was close to flat before the last week of the month. Until then, some losses were recorded in China and Resources related exposures. They were offset by positive earnings releases in few large corporate situations and by the favorable closing of several M&A deals. The last week of August unsettled both merger spreads and the pricing of corporate situations, including activist positions. Special Situation underperformed Merger Arbitrage funds, even adjusted from their market beta. The sudden widening of deal spreads and the depressed valuation levels of corporate situations will probably open a phase of recovery going forward.
The Lyxor L/S Credit Arbitrage index was only down -1.5%. The market turmoil infected credit markets but less than equities. Spreads had already meaningfully widened over the recent months. This kept managers on a very cautious footing, positioned on high quality and high grade issues, with increased diversification. As dispersion returned in the space, short opportunities also emerged – and not only in the energy segment. In particular weakening cross credit correlations provided fixed income arbitrage funds with greater relative value opportunities. The alpha produced by Credit strategies alleviated the adverse beta contribution.
High dispersion among CTAs in August. CTAs were up nearly +1% before the last week of August. With their long bond and USD positions along with their short commodities exposures, they were well hedged against the various risks being priced in. In particular: a slower global growth, a slower Fed normalization and the Chinese ripple effects on EM countries and resources. During the last week, a majority of funds remained reasonably resilient. However some heavy weight funds were substantially hurt on their remaining long equity holdings and on some of their long USD crosses. ST models outperformed thanks to a faster portfolio repositioning. We observe that, in aggregate, LT models cut their about 30% net equity exposure down to less than 10% over that week.
Heterogeneous returns among Global Macro, with losses in heavy weights. Until the last week of August the strategy remained resilient, with a slightly positive MTD return. While cautiously exposed to risky assets, their hedges had little efficiency in the sell- off. They were essentially hit in their equity and long USD positions, with limited cushion from bonds or safe havens. However, losses in large macro funds actually hide a more heterogeneous and favorable picture. After the sell-off, Lyxor Global Macro funds were on average 10% net long on equities (from 15% early August), with more than half of their equity positions in Europe. They continue to play commodities mostly in relative value. Overall they remain long USD, especially against EUR and GBP.
Courtesy photo.. Hartwig Kos Joins SYZ Asset Management as Co-Head of the Multi-Asset Team
SYZ Asset Management, the institutional asset management division of the SYZ Group, has announced the appointment of Hartwig Kos as Co-Head of the Multi-Asset team. Hartwig Kos will co-manage the team with Fabrizio Quirighetti and also serve as Vice-CIO of SYZ Asset Management. He will take up his position on 15 October 2015.
Based in London, Hartwig Kos will contribute with his specific skills and experience in active allocation strategies to the team of 7 people in place and will take over the management of the OYSTER Multi-Asset Diversified fund as lead manager. For their part, Fabrizio Quirighetti and his team in Geneva will manage the OYSTER Multi-Asset Absolute Return EUR and OYSTER Absolute Return GBP and Fixed Income strategies.
Before joining SYZ Asset Management, Hartwig was a Director in the Global Multi Asset Group at Baring Asset Management, where he was responsible for managing the Baring Euro Dynamic Asset Allocation Fund. He was also the Co-Manager of the Baring Dynamic Emerging Market Fund. Moreover, Hartwig was a member of the Strategic Policy Group at Barings, the firm’s asset allocation committee. Hartwig holds a Ph.D. in Finance from Cass Business School in London and a degree in Economics and Business Administration from the University of Basel, Switzerland. Hartwig is also a CFA® charterholder.
The London office is one of SYZ Asset Management’s clusters of excellence and notably houses the European equities fund management and research team. An office was opened in Edinburgh in November 2014 to include additional European fund management and research capabilities and an expanded sales team.
Commenting on the appointment, Katia Coudray, CEO of SYZ Asset Management, said: “I am pleased to have hired Hartwig Kos. He is an investment professional who is highly respected by his peers and his renowned experience in active allocation management adds value to our fund management team.”
Hartwig Kos added: “SYZ Asset Management has an excellent reputation and a convincing track record in the competitive field of multi-asset management. I am delighted to be a part of this team and join a Group with a strong investment culture and a human dimension.”
Photo: Moyan Brenn. Advisors May Not be Allocating Enough Effort to Target Millenials
New data released by Hartford Funds suggests that there is significant opportunity for financial advisors to better engage their young clients. Survey results uncovered that most advisors report not proactively pursuing the ‘Millennial’ generation as potential clients, despite identifying as prospects the individuals that fall into that category. Findings also revealed that advisors expect client risk aversion to nearly double in the next 12 months, continuing an upward trend.
When asked how much they focus on attracting Millennial clients, 56 percent of advisors said “less than other age groups” or “not at all.” However, 70 percent reported that they target clients in their late-twenties and early- to mid-thirties. Further, the majority (63 percent) of financial advisors who say they’re not targeting Millennials at all are also pursuing prospects in this age group.
“The term ‘Millennial’ has become a buzzword in financial services, being discussed constantly by financial firms and advisors. However, our survey suggests a disconnect when it comes to understanding who falls into this Millennial category,” said Bill McManus, Director of Strategic Markets at Hartford Funds. “In an attempt to filter noise, many advisors might be missing valuable insights for attracting their younger client targets.”
When asked about retirement, 71 percent of financial advisors plan to work for at least 16 more years, and 53 percent plan to work for more than 20 years. Despite the desire to continue offering financial advice beyond 2030, these advisors overwhelmingly are not focused on attracting Millennial clients. More than half of advisors who plan to work for more than 15 more years target Millennials less than any other age group or not at all. Similarly, 51 percent of advisors who plan to work for more than 20 years are also targeting Millennials less than any other age group or not at all.
“When factoring in career longevity, there is even greater concern that many advisors aren’t intentionally engaging Millennial clients. Advisors who plan to work for at least two more decades need to thoughtfully engage their younger clients in order to grow along with their needs,” McManus continued. “Millennials will reach critical planning milestones in the coming ten years and require support in navigating the market and reaching their goals.”
When discussing client risk aversion, advisors expect a significant rise in the coming 12 months. Continuing a steady upward trajectory, 57 percent of financial advisors expect clients to become more risk averse in the next 12 months, up 22 percent from 2014 (35 percent) and up 40 percent from 2013 (17 percent).
“Because advisors foresee greater risk aversion among clients in the coming months, they are in the unique position to help maintain focus on the bigger picture and minimize clients’ tendencies to make emotionally-driven investment decisions,” McManus added. “Particularly as the market and investors anticipate a rise in interest rates, it will be critical for advisors to help clients manage through potential market adjustments.” The data underscores that the majority of financial advisors (57 percent) place market volatility at the forefront of the issues that keep them up at night; interest rates follows in second (51 percent) and international turmoil and its impact on markets follows in third (46 percent). Financial advisors appear to be unanimously less concerned by clients’ anxiety about saving and investing (42 percent), while only 32 percent of financial advisors are worried about attracting the next generation of clients. Concerns about inflation come in last, with only nine percent of financial advisors noting this as an area of worry.
For its third annual Advisor Anxiety Survey, executed by Hartford Funds during June of 2015, Hartford Funds spoke with more than 100 financial advisors about their anxieties as well as attitudes and practices regarding Millennial clients, individuals born roughly between 1980 and 2000.
Photo: ben
. Most Latino Business Owners Expect to Pass Business on to a Family Member
According to a new study by Massachusetts Mutual Life Insurance Company (MassMutual), research from the2015 MassMutual Business Owner Perspectives Study revealed that 80 percent of Latino respondents expect to pass their businesses on to a family member – most often a child. However, 37 percent of those individuals said their chosen successor may not even know about this succession plan.
For Latino business owners, the aspiration to live the American Dream is no different, but the definition of success may be broader, encompassing their ability to care for and support extended families, friends, and their communities. The study reported they feel a strong sense of responsibility to their families and communities but tend to lack financial confidence and knowledge to put plans in place to ensure they can continue to provide for them.
“Latino entrepreneurs are strongly interconnected with their businesses, community and families,” said Dr. Chris Mendoza, Latino Markets Director, MassMutual. “Without the proper financial knowledge and preparation, Latino business owners are inhibited from fully realizing and protecting their dreams.”
Latino-owned businesses are growing at double the national rate, according to the U.S. Census, are generally younger and more likely to take community into account when making business decisions.
Only half of the Latino business owners surveyed have a formalized plan in place (a buy-sell agreement) to protect themselves for an untimely death; even fewer have a buy-sell agreement in place for disability; Protecting the business (35 percent) and family (37 percent) are the primary motivators for having these plans in place, yet an unforeseen illness or injury could jeopardize their ability to meet that goal.
While Latino business owners are ahead of their general population peers, when it comes to succession planning (49 percent of Latinos vs. 41 percent of the general population have a succession plan), only about half of the Latino business owners surveyed have any type of succession plan in place; Eighty percent said they will pass the business on to a family member – most often a child. However, 37 percent of those individuals said their chosen successor may not even know he/she is the successor (significantly higher than 23 percent of the general population).
Forty percent don’t have any retirement savings plan outside of their businesses and either plan to continue receiving income from the business post-retirement or will use the proceeds from the sale of the business to fund their retirement; Latino business owners are significantly more likely than the general population to say they plan to retire but haven’t given it much thought, and few (only 12 percent) say they plan to retire in the next five years, driven by the younger average age of Latino business owners; They are more likely to leave the business to a family member or relative (80 percent vs. 65 percent of the general population) and much less likely to sell the business to a key employee (9 percent vs. 14 percent of the general population).
CC-BY-SA-2.0, FlickrPhoto: Chris Bullock, credit analyst at Henderson and co-manager on the Euro Corporate Bond Fund and Euro High Yield Bond Funds. . The High Yield Bond Market Has Trebled in Size in The Last 10 Years
High yield bonds have been a staple of US portfolios for more than thirty years, and the trends that have led to a large and well-developed US market are beginning to establish themselves elsewhere as companies increasingly turn to high yield bonds as a source of funding.
This growing global supply creates greater choice for investors at a time when demand for high yield bonds is also increasing because of the favourable risk/return and yield characteristics of the asset class.
High yield bonds are corporate bonds that carry a subinvestment grade credit rating. They are typically issued by companies with a higher risk of default, hence the higher yields. Henderson believe the following factors combine to make high yield bonds an attractive investment:
Growing and globalising market
High income in a low yield world
Low sensitivity to the interest rate cycle
Default rates expected to remain low
Significant opportunities for credit selection
A growing and globalising market
As the table shows, the high yield bond market has trebled in size in the last 10 years and, geographically, is becoming more diverse. “In part, this reflects a more confident and established market, as well as companies increasingly turning to the high yield bond market after banks cut back on lending following the financial crisis”, points out Chris Bullock, credit analyst at Henderson and co-manager on the Euro Corporate Bond Fund and Euro High Yield Bond Funds.
Today, the high yield market comprises a vast range of companies from household giants such as Tesco, Heinz and Telecom Italia through to small and medium-sized companies that are raising funding through bond markets for the first time. This creates an attractive and expanding mix of issuers that can reward strong credit analysis.
High income in a low yield world
High yield bonds continue to offer an attractive income pick-up.
Yields in many fixed income sub-asset classes are still close to historical lows despite recent rates market volatility. Yields have been driven by low global central bank rates combined with quantitative easing (QE). In the first half of 2015 alone, 33 central banks cut interest rates, while the ECB embarked on its €60bn-a-month quantitative easing programme.
From a risk-return perspective, high yield bonds are typically seen as occupying the space between investment grade bonds and equities. As the chart shows, over the last 15 years, high yield bonds have outperformed investment grade corporate bonds, government bonds and even equities, with less volatility than equities. The high income element in high yield bonds has been a valuable component of total return.
CC-BY-SA-2.0, Flickr. David Steyn Appointed as CEO and Chairman of the Management Board of Robeco
Robeco today announces the appointment of Mr. David Steyn (1959) as Chief Executive Officer and Chairman of the Management Board of Robeco Groep N.V. (‘Robeco’) as of 1 November 2015.
David Steyn has over 35 years of international experience in asset management, in management,distribution and investment roles. Previously David Steyn was in charge of strategy at Aberdeen Asset Management plc and chief operating officer and head of distribution at AllianceBernstein LP, based in London and New York. He studied law at the University of Aberdeen.
David Steyn, said: “I am honored to be given the opportunity to become part of an asset manager with such a strong heritage and reputation. I am looking forward to building Robeco further on a continuing path of excellence, meeting the evolving needs of clients around the world.”
Dick Verbeek, Chairman of the Supervisory Board, said: “The Supervisory Board has given positive advice to the shareholders, because we believe that David is an excellent candidate for CEO of Robeco to continue the growth path. I’m confident that we can count on David’s long and proven track record in asset management to lead Robeco and benefit from the opportunities that will arise in the global asset management market in the years to come. On behalf of the entire company, I would like to extend him a warm welcome.”
Makoto Inoue, President and Chief Executive Officer of ORIX Corporation and member of Robeco’s Supervisory Board, said: “I am delighted to welcome David Steyn to Robeco. I am convinced that together with the members of the Management Board and staff at Robeco he will be able to accelerate Robeco’s growth ambitions globally while continuing to deliver great results for clients.”
The appointment of David Steyn is subject to formal approval by the relevant Dutch authorities. Once the regulatory approval has been obtained, David Steyn will work closely together with Roderick Munsters, whose departure was announced earlier this month, to ensure a smooth transition.
Photo: Nicu Buculei
. Dividend: It Is Essential To Analyze The Long Term Sustainability To Avoid ‘Value Traps’
The case for equity income investing continues to strengthen. Worldwide, quoted companies paid out a record $1 trillion in dividends last year, according to the Henderson Global Dividend Index, a long-term study of global dividend trends. By investing globally, investors can gain exposure to a broader range of income opportunities and benefit from significant portfolio diversification.
Broadening opportunity set
Companies increasingly recognise the benefits of attracting investors by being able to demonstrate a strong and growing dividend policy. This is well established in Europe and the US but the dividend culture is now providing increased opportunities in regions such as Asia-Pacific and selected emerging markets. This broadening universe provides an attractive diversification opportunity for equity income investors.
Long-term outperformance
Studies indicate that dividends generate a significant proportion of the total returns from equities over time. The combination of reinvested income with potential capital growth has led to long-term outperformance of higher dividend paying companies compared to the wider equity market, as shown in the chart below.
A focus on cashflow is required in order for dividends to be sustained; dividends are therefore a strong indicator of the underlying health of the business.
Higher yielding shares by their nature tend to be more contrarian and out of favour thus offering revaluation opportunities.
Maintaining a healthy dividend stream imposes a disciplined approach on a company’s management team and can improve decision making.
Risk reduction – diversification benefits
As more companies globally pay dividends, the potential to diversify increases. Some markets suffer from high dividend concentration and as a result equity income strategies focused on single countries may become overly reliant on a low number of high-yielding companies that dominate the market. A global remit also maximises the opportunities at a sector level; for example, many high yielding technology companies can be accessed through investing in the US or Asia, but not the UK.
Key considerations
Look beyond the headline yield: High-yielding equities can be more risky than their lower-yielding counterparts, particularly after a period of strong market performance when equity price rises push yields down. The high-yielding companies that are left are often structurally-challenged businesses or companies with high payout ratios (distributing a high percentage of their earnings as dividends) that may not be sustainable. An investor simply focusing on yields, or gaining exposure through a passive product such as a high-yield index tracker fund, may end up owning a disproportionate percentage of these companies, often known as ‘value traps’. It is also worth noting that companies which cut their dividends tend to suffer poor capital performance as well. Therefore, it is essential to analyse the sustainability of a company’s ability to pay income.
Seasonality: A global approach offers equity investors diversification benefits and the opportunity to receive income from different sources throughout the year. Most regions show some dividend seasonality. European companies typically pay out more than three fifths of their annual total during the second quarter according to data within the Henderson Global Dividend Index. This is by far the region with the most concentrated dividend period. North America shows the least seasonality of any region with many firms making quarterly payments. UK firms also spread payments more smoothly than other parts of the world, although larger final dividends tend to be paid in the spring and summer following the annual general meeting season.
Dividend outlook: Overall, we are encouraged by the health of global companies generally, with strong balance sheets and disciplined management teams focused on generating good cashflow, which should be supportive for dividend growth in the long run.
Photo: Matthias Rhomberg
. Mirae Asset Global Investments Grows Equity Analyst Team in U.S.
Mirae Asset Global Investments has announced the hiring of four analysts to expand its global equity research team in the United States.The new investment analysts are based in New York and report to Jose Gerardo Morales, Chief Investment Officer. They are responsible for providing research and analysis in support of Mirae Asset USA’s mutual funds and international sub-advisory portfolios. The additions bring the total number of equity investment professionals with Mirae Asset USA to eight.
The additions to the investment team include:
Tatiana Feldman is a senior investment analyst focusing on global emerging markets ex-Asia. Prior to joining Mirae Asset USA, Mrs. Feldman served as an investment analyst with INCA Investments, an equity research analyst at Brasil Plural and a senior analyst at Morgan Stanley covering Latin America. Mrs. Feldman holds a bachelor of journalism and mass communications degree from New York University.
SungWon Song, Ph.D. is an investment analyst focusing on the global healthcare sector. Prior to joining Mirae Asset USA, Dr. Song worked at Nationwide Children’s Hospital, where he served as a postdoctoral research fellow, and The Ohio State University, where he worked as a Graduate Research Associate. Dr. Song holds a Ph.D. in Molecular Cellular Developmental Biology from The Ohio State University, a master’s in biotechnology of biological sciences from Columbia University and a bachelor of biotechnology and genetic engineering from Korea University.
Malcolm Dorson is an investment analyst focusing on global emerging markets ex-Asia. Prior to joining Mirae Asset USA, Mr. Dorson worked as an investment analyst at Ashmore Group covering Latin America and at Citigroup, as an assistant vice president focusing on asset management for ultra-high net worth clients. Mr. Dorson holds an M.B.A. from the Wharton School, an M.A. in international studies from the Lauder Institute and a bachelor of arts degree from the University of Pennsylvania.
Michael Dolacky is an investment analyst focusing on the global healthcare sector. Prior to joining Mirae Asset USA, Mr. Dolacky was an investment analyst with Senzar Asset Management and a fixed income analyst at Nomura Securities. Mr. Dolacky holds a bachelor of economics degree from Tufts University.
“We are committed to growing our investment infrastructure in the U.S. and building upon Mirae Asset’s reputation as a leading source of global investment expertise,” said Peter Graham, CEO of Mirae Asset USA. “Each of these new analysts brings a wealth of experience, diverse expertise and deep understanding of the markets or sectors they cover.”
