CC-BY-SA-2.0, FlickrPhoto: Dennis Jarvis. Are Dividends from Emerging Markets Worth The Risk?
Lyxor has been recently awarded by S&P Dow Jones Indices a license on the S&P China Sovereign Bond 1-10 Year Spread Adjusted Index, that will allow the manager to launch and list a China government bond ETF in Europe.
The S&P index includes Chinese government bonds with a maturity of one to ten years traded on the Shanghai or Shenzen stock exchanges as well as on the Chinese Interbank Market.
It currently represents a yield to maturity of 3.2% in renminbi for an average duration of 4.2 years, according to Bloomberg figures as of 29 May 2015.
Heather McArdle, Director of Fixed Income Indices at S&P Dow Jones Indices, commented : “The progressive liberalisation of China’s financial market has offered greater accessibility and flexibility to international investors looking to invest in the world’s second largest economy.
“As European investors increasingly look for China exposure beyond equities, we are excited to license the S&P China Sovereign Bond 1-10 Year Spread Adjusted Index to Lyxor to help bring China government bonds into their toolkit and facilitate portfolio diversification for investors.”
Lyxor’s ETF will be sub-managed by the Hong-Kong arm of the firm’s Chinese joint-venture Fortune SG.
Lyxor has €113.7bn in assets under management and advisory as of 30 April 2015.
CC-BY-SA-2.0, FlickrPhoto: Kcalculator. Threadneedle Remains Bullish on the Dollar Given the Likelihood of Superior US Economic Performance
Columbia Threadneedle Investments has held a bullish view of the outlook for the dollar for some time. This is supported by its belief that the US economy will outperform other advanced economies because:
it has fewer structural rigidities than, for example, the eurozone
it will enjoy greater long-term productivity gains than comparable economies
it will become less vulnerable to external energy shocks as its oil production potential increases following the shale energy revolution. Increasing oil output will also reduce the structural current account deficit.
But earlier this year the firm became concerned that the currency was strengthening beyond what was warranted by the United States’ fundamentals and it positioned itself accordingly with a tactical short position against a range of currencies. “A raft of weaker than- predicted US data dimmed speculation the Federal Reserve (the Fed) was about to raise interest rates. At the same time, the launch of QE in Europe caused investors to revise their expectations of deflation in Europe”, explains Matt Cobon, Head of Government and FX at Columbia Threadneedle Investments.
Dollar correction creates opportunity
The markets have now seen a sizeable fall in the dollar and the currency is now much more fairly valued. “The size of the correction is similar to that experienced in comparable structural dollar bull cycles and we do not believe that it should be a matter of concern or indeed a surprise. However, we continue to believe that the upward trajectory of the dollar will resume over the longer term, reflecting the country’s aforementioned economic advantages. Consequently, we remain dollar bulls, believing that the recent weakness in the US economy will prove temporary in part because we anticipate that consumers will start spending some of the windfall gains reaped from low energy prices”, says Cobon.
The likelihood that monetary policy in the US and the rest of the world will begin to diverge reinforces Threadneedle´s positive view that the dollar should strengthen. “We anticipate that while the eurozone delivers its massive QE programme and Japan continues to inject liquidity into its economy, the Federal Reserve (the Fed) will start to increase rates as the economy regains momentum. We are certainly more sceptical than the market that we will see such a reflationary bounce in the eurozone or that it will outperform in the longer term given the structural rigidities within the euro area” points out the expert.
Investors with long dollar positions are being squeezed at the moment and Threadneedle is using this opportunity to start to build back into its dollar risk position. “We certainly believe that the dollar is now trading at levels, which, particularly against the euro, appear compelling again from a long-term perspective – we still believe that the euro will reach parity with the dollar”, says the Head of Government and FX.
The main risk to this strategy is that the US economy is unable to gain further momentum and that as a result expectations of when the Fed begins to hike interest rates are pushed out to 2016. However, monetary policy in the US and the rest of the world would only converge if markets began to anticipate that the US was entering a prolonged downturn. “We do not think this is likely. Indeed, we believe that we are approaching a point in the US labour cycle where wage pressures are beginning to build and that this factor will start to influence monetary policy. There is little slack left in terms of unemployment and the output gap. Certainly, both have reached levels that in previous cycles were accompanied by a tightening of monetary policy”, concludes Cobon.
. Amundi Names Vincent Mortier as Deputy CIO and Member of Executive Committee
Amundi announces the appointment of Vincent Mortier as Deputy Chief Investment Officer (Deputy CIO). He will also become a member of the Executive Committee.
Mortier joins Amundi from Société Générale Group, where he started his career in 1996. He has occupied a number of senior roles at the Group during his career, culiminating in the position of Chief Financial Officer of the Global Banking and Investor Solutions (GBIS) division in 2013.
He was previously CFO of Société Générale Corporate and Investment Banking, Co-Head of Equity Finance, Deputy Head of Equity Finance and Head of Strategy and Development – Global Equities and Derivatives Solutions. Mr Mortier also sits on the SG GBIS Executive Committee.
New board of directors at ALFI. The Association of the Luxembourg Fund Industry Appoints Denise Voss as Chairman
The Association of the Luxembourg Fund Industry (ALFI) today announced the appointment of Denise Voss as chairman of ALFI. Ms Voss takes up the position, which will initially run for two years, with immediate effect.
“I am very excited about this appointment,” said Ms Voss. “The asset management industry in Europe has gone through dramatic change over the past few years, with extensive regulation that has been put in place following the crisis, and ALFI has played a key role in working through the implementation of this regulation.”
”Going forward, we face different challenges, for instance, from the greying of the population and more and more individuals being responsible for funding their own retirement, to the growth of digital technology, which means that buying habits are changing dramatically. My role is to inspire the industry to focus on these issues and to ensure that the Luxembourg Fund Industry continues to play a key role in driving the development of the industry worldwide, encouraging economic growth and providing long-term financial security for individuals.”
Denise Voss has played a key role in ALFI for many years. She has been Vice Chairman for International Affairs of ALFI since 2011 and has been a member of the ALFI board of directors since 2007. She is also Chairman of the European Fund and Asset Management Association (EFAMA) Investor Education working group.
Denise is Conducting Officer of Franklin Templeton Investments and has worked in the financial industry in Luxembourg since 1990.
CC-BY-SA-2.0, FlickrPhoto: Dave Kellam. Euroland Dividends: a Cornerstone of Returns
The real return that investors see ultimately depends on the starting price paid. In other words, buying equities when they are out of favour improves the prospects for better returns, said Henderson. Timing is always difficult, so it is important to have a reliable set of screening tools to identify stocks that are incorrectly priced, and which offer value in the market. There are many metrics investors can use to assess this: earnings; net asset value; value of growth and dividends to name just a few.
The firm place a high level of importance on dividends as a measure of a company’s health. Any increase in sales and revenues increase should be reflected in a rise in the common share dividend. A good dividend strategy can indicate a strong, cash-generative business, as well as a management team that understands the importance of prioritising shareholders’ needs. From a performance perspective, an attractive well-covered yield also increases the certainty of an investor’s return.
Higher dividends or a new factory?
While yield is an important source of performance for investors, it is important to avoid companies that chase yield at the expense of long-term capital return, affirm Henderson´s experts. Management teams need to properly allocate capital in a way that balances the needs of shareholders, while providing sufficient capital for reinvestment to help generate future growth.
Outlook for dividends
There currently seems little reason to suggest that dividends cannot move forward from existing levels, with the opportunity to see some special dividends in isolated cases. Eurozone companies have spent the past few years rebuilding their balance sheets and dividends are growing nicely, reflecting confidence in future revenue streams.
Significant levels of cash have been redirected towards share buybacks, supported by the European Central Bank (ECB)’s accommodative monetary policy. While these can provide a strong signal about a firm’s future profitability, not all buybacks are equal. The fund’s investment process factors in the need to be careful that a company, when it is doing a share buyback, is doing so at the right valuation level, without funding through additional debt, and for the right reasons.
“As always, stock selection is driven by the identification of value – even the best dividend stock is not worth holding at any price. Among the stocks we like at present, although this is no recommendation to buy, are Anglo-Dutch publisher Reed Elsevier, and France-listed global automobile company Renault and luxury goods firm Christian Dior”, point out Henderson.
Reed Elsevier generates healthy profits and sees a good return on its spending, and holds a leading position in an industry where it is difficult for new companies to thrive. The company has demonstrated long-term commitment to returning cash to shareholders via dividends and buybacks, reflecting the company’s strong underlying revenues.
Renault has a stable market share and has taken steps to rein in spending. The car-maker is entering a strong phase for model updates, suggesting that consensus estimates for future earnings may be too low. The company now has a five-year track record of providing dividends for investors.
Christian Dior looks priced at a significant discount, given the value of its stake in LVMH. The company is run by an experienced management team that has delivered consistent revenue growth in Christian Dior Couture operations over the past five years, which has been reflected in annualised dividend increases.
Nothing in this article should be construed as investment advice, or a recommendation. Past performance is not a guide to future performance. The value of your investment can go down as well and you may not get back the amount originally invested. The information in this article is not intended to be a forecast of future events or a guarantee of future results and does not qualify as an investment recommendation of any individual security.
CC-BY-SA-2.0, FlickrPhoto: George Laoutaris. Down to the Wire in Greece
Until this month, the base case for Grecce of many analysts and strategists was for an eventual agreement, even though no one had offered a clear road map on how to get there. In MFS´ view, such optimism suggested that these observers were overlooking the facts on the ground.
Virtually no progress toward an agreement has been made since the Syriza government took office in January. Pilar Gomez-Bravo, Fixed Income Portfolio Manager, Lior Jassur, Fixed Income Research Analyst, and Erik Weisman, Chief Economist & Fixed Income Portfolio Manager at MFS would argue that by rejecting existing agreements, sending conflicting messages and failing to provide detailed alternative proposals, Syriza has damaged Greece’s relationships with creditors. Now the country has little money left and has made no reforms or even commitments to reforms — and nearly all eurozone goodwill and solidarity has evaporated in the process.
Higher risk of default
June promised to be a milestone in the Greek debt saga, with the month’s first debt service installment payable to the IMF on 5 June and the second bailout program expiring at the end of the month. On 4 June, however, Greece took advantage of a rarely used IMF procedure to bundle together its 5, 12, 16 and 19 June installments totaling 1.5 billion euros and delay payment until 30 June.
Running out of cash and credit, Greece may be facing a political crisis, as the Syriza government’s adherence to its anti-austerity election platform could be putting the country’s economic future at risk. The three experts at MFS suspect that holding a referendum on extending austerity measures or launching a snap election now would be unlikely to solve much at this stage. “Even if another party could win an overall majority, it would take weeks to organize a budget and put forward an actionable plan for further reforms that would be acceptable to the creditor countries. Regaining the confidence and goodwill of its creditors could take Greece years”, said.
“We thought Greece might miss a payment, though without that leading to a declaration of default by the IMF. After last events, we are raising the probability we assign to default. And with large debt repayments due to the ECB by 20 July, political uncertainty further increases the chances that the default process could become disorderly”, point out from MFS.
Terms of agreement
From the perspective of creditors such as Germany, said the experts, the main point is that a framework for the second bailout package had been agreed upon with the government of a sovereign country. By the terms of this 2012 bailout, tangible reforms were supposed to be implemented in exchange for funding. Then another government under Prime Minister Tsipras came into power by promising to renegotiate the terms of this bailout — especially its onerous conditions for reform.
“Now creditors wonder whether this or any successor government will honor any existing agreements. That is why the creditors have been so inflexible. Politicians in the creditor countries need to see far more compromises on structural reforms before extending additional funding to Greece”, argued.
The firm thinks that there is an increasing acceptance that Greece could default on its sovereign debt or other state obligations and still remain within the eurozone. After all, a country cannot be expelled from the common currency zone; it has to choose to leave. If Greece chooses to leave the eurozone, it would also need to leave the European Union under current treaties, and the Greek population clearly does not want that to happen.
Nonetheless, the markets are facing a significant amount of market uncertainty and potential dislocation “if we enter the uncharted territory of a default within the eurozone or a country leaving the European Union. Based on the relative stability of periphery bond spreads and equity markets, it seems that investors may be underestimating such risks”.
Admittedly, the likely intervention of the ECB — as well as the implementation of the relatively new EFSF, Outright Monetary Transactions and banking union reforms — should help to provide financial stability and support asset prices in the near term. At the very least, however, we would likely see increased volatility — particularly on the currency side — and a migration toward “safer haven” assets. “Given the uncertainty that surrounds such a default or “Grexit,” we would warn against assigning too low a probability on a negative market event”, conclude.
CC-BY-SA-2.0, Flickr. BlackRock Appoints Dr. Andrew Ang to Lead Factor Investing Platform
BlackRock announces the appointment of Andrew Ang, PhD, as a Managing Director and Head of the Factor-Based Strategies Group. In this role, Dr. Ang will lead BlackRock’s expansion in the emerging field of active investing via exposure to different risk premiums. BlackRock currently manages over $125 billion in client assets across a variety of factor-based products and strategies.
Dr. Ang joins BlackRock from Columbia Business School, where he has focused on understanding the nature of risk and return in asset prices, in particular the behavior of factor risk premiums within and across asset classes, over the past 15 years. His research spans bond markets, equities, asset management and portfolio allocation, and alternative investments. Most recently, Dr. Ang was Chair of the Finance and Economics Division and the Ann F. Kaplan Professor of Business at Columbia. Dr. Ang’s recent book “Asset Management: A Systematic Approach to Factor Investing” published by Oxford University Press in 2014 has been lauded by the investment community.
In addition to his academic work, Dr. Ang has consulted for Canada Pension Plan Investment Board, Norges Bank and the Norwegian Ministry of Finance, the UAW Retiree Medical Benefits Trust and other large institutional managers on factor investing strategies.
“Markets are constantly evolving. Historic sources of outperformance are so widely understood and incorporated by investors that their impact has diminished. To generate sustainable investment results, investors will need to use data and technology in factor-aware investment processes,” said Ken Kroner, Global Head of Multi-Asset Strategies for BlackRock. “Andrew Ang is a leading light in this arena, having applied his knowledge to some of the largest portfolios in the world. His combination of knowledge and experience make him ideal person to drive BlackRock’s development in factor-based strategies.”
“With BlackRock’s established systematic investment platform, along with its data analytics capabilities and superior talent, this is the perfect opportunity for factor investing to truly transform asset management,” said Dr. Ang. “BlackRock is a trusted advisor to some of the most sophisticated asset owners in the world. Having that credibility supporting the next generation of factor-based strategies will be critical in educating investors and clients about these important developments in portfolio construction and active asset management.”
CC-BY-SA-2.0, FlickrPhoto: Philip Taylor. Henderson: “We Expect the Dollar’s Trajectory to Be More Volatile Going Forward”
In the US, in the short term, a strong dollar is positive for interest rates markets given low commodity prices, low inflation, and the falling cost of imports. However, the strong dollar may be undermining price insensitive buyers of government bonds as currency reserve growth slows. We have long argued that there are now fewer long-term buyers of US bonds.
Credit markets: fundamental analysis required
As the dollar rises, corporate earnings in the US could come under pressure. However, a strong dollar also means oil (priced in dollars) becomes cheaper and corporates should benefit from the stronger economy. Obviously, some sectors, such as energy, will suffer from the lower oil price. However, others, including retail, autos and industrials, will benefit from better demand and cheaper input costs.
In EM, a strong dollar should benefit corporations that sell products in dollars but pay costs, such as wages and rents, in local currency. However, regional exchange rate differences versus local competitors, such as Japan versus Asia, are a more important driver for these companies. Given the scale of EM credit growth in recent years, with many borrowing in US dollars, the true scale of dollar-denominated emerging market debt exposure is difficult to gauge. This necessitates greater discrimination as issuers with US dollar liabilities may find it harder to service their debt from local currency revenues if the dollar continues to strengthen.
Currency markets: prepare for volatility
So far the moves in currency (FX) markets, while large, have been relatively orderly. However, as we move further into Phase 3 with forced unwinding of carry trades to reduce risk and the potential for devaluations, events may become more disorderly and FX volatility rise.
Conclusion: risks and opportunities
With economic divergence fading as a driver of US dollar strength, the combination of central bank policy divergence, less currency reserve growth, and the unwinding of carry trades should continue to propel the US dollar higher. However, we expect the dollar’s trajectory to be more volatile going forward; while the majority of the dollar’s recent rise has been at the expense of the euro and the yen, the next phase may see Asia moving into the firing line. The third phase of the dollar’s strength may begin in earnest later this year, with the start of a US hiking cycle a possible catalyst. The environment this will create is certain to be a challenging one but as volatility rises it will also throw up opportunities for investors willing to examine the risks more closely.
James McAlevey is Portfolio Manager of Henderson Horizon Total Return Bond.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
Aviva Investors, the global asset management business of Aviva plc (‘Aviva’), has hired Rahul Khasgiwale as a senior investment specialist based in the Toronto office. Rahul will work closely with Aviva Investors’ strategic partners and clients in North America with a focus on our multi-strategy capabilities and outcome oriented solutions.
Rahul joins the team with 14 years of experience in the financial services industry. Before joining Aviva, Rahul was the Investment Director for Multi-Asset solutions at Manulife Asset Management. Prior to that, he was an Absolute Return Investment Director at Standard Life Investments focused on retail and institutional clients and consultants in Canada. Rahul began his investment career at HSBC Global Asset Management, where he held a variety of senior investment roles based in the UK, Switzerland, the Middle East and Canada across a twelve-year period.
Rahul is a CFA charter holder and also holds the CAIA designation. He earned a Bachelor of Science Degree from Nottingham University where he also studied medicine and surgery. Rahul practiced as a medical doctor in the UK National Health Service before a successful career change to the investment industry in 2001.
Rob Ranges, Head of Americas Business Development, said, “We are delighted to have Rahul on our team. His extensive experience working with investors, his deep understanding of outcome oriented solutions and client needs, and his experience helping clients achieve outcomes via multi-asset solutions is aligned with Aviva Investors’ value proposition. He will further enable us to provide our North American clients and strategic partners with exceptional support.”
CC-BY-SA-2.0, FlickrCourtesy photo. Union Bancaire Privée Strengthens Its Global Emerging Markets Equities Expertise With The Appointment of Mathieu Nègre
Union Bancaire Privée (UBP) announced today it has appointed Mathieu Nègre as Head of Emerging Market Equities. With this appointment, UBP is further reinforcing its expertise in the emerging market space while also ensuring continued cooperation between its regionally-focused EM equities teams.
Having previously worked at UBP as an emerging European equities fund manager, Mathieu worked at Aviva Global Investors from 2011, and then at Royal Bank of Canada Global Asset Management, where he was a global emerging markets portfolio manager. Mathieu returns to manage UBP’s new Global EM Equities strategy and will remain based in London.
Eftychia (La) Fischer, UBP’s Investment Management CEO, said of the appointment: “We have significant regional resources and expertise, as well as a wide range of strategies in EM equities, with investment teams based in London, Shanghai, Hong Kong, Taiwan and Istanbul. Mathieu’s arrival will add significant expertise at global level, while also ensuring optimal cooperation between different regional teams for the ultimate benefit of investors.”
Mathieu Nègre added: “Emerging market equities have gone through a period of weakness but we believe they have great potential over the long term. An improving macro picture, low valuations, and greater appetite for reforms in China, India and a number of other emerging countries, are all combining to make this asset class an attractive investment opportunity. I am looking forward to re-joining UBP and working with the EM equities team during these exciting times for our asset class.”
