CC-BY-SA-2.0, FlickrPhoto: Chris Potter. Three Reasons the Dollar Should Stay Strong
After a decade of weakness, the U.S. dollar has appreciated strongly over the past couple of years, with a particularly strong surge in the first three months of 2015. Some market observers have begun to wonder if the rally has run its course. PIMCO doesn’t think so. “Although the currency markets will likely experience bouts of volatility, we believe the dollar should remain strong over the next several years. Here are three reasons why”, point out Scott A. Mather, Chief Investment Officer U.S. Core Strategies at PIMCO.
1) Diverging global growth and monetary policy trends
Recent economic data has raised some concerns that the U.S. economy may be cooling a bit. Nevertheless, we continue to believe the pace of growth in the U.S. will lead the developed world, while the eurozone and Japan will fall well short of self-sustaining growth.
On the policy front, the U.S. Federal Reserve has clearly signaled its intent to embark on a monetary tightening cycle in 2015. The first rate increase could come as early as June, though a disappointing jobs report for March and other soft economic data may make a September move somewhat more likely.
Other central banks, however, are on a very different path. Since December, a parade of some 27 central banks from around the world – including most major central banks, save the Fed – have eased monetary conditions by slashing policy rates toward zero or even below zero.
But importantly, global central banks aren’t just cutting policy rates; they are printing money through enormous quantitative easing (QE) programs. The European Central Bank (ECB) announced in January a €1.1 trillion QE program – much larger and more open-ended than the markets had expected. In December, the Bank of Japan redoubled its QE efforts by increasing its monthly purchases to ¥80 trillion. At this pace, the balance sheet of the BOJ will reach 70% of GDP by the end of 2015. So not only policy rate divergence, but also QE divergence, will drive the dollar higher compared with the euro and the yen.
2) The experience of past strengthening cycles
Moreover, it’s important to put the recent strength of the dollar in context. First, as Figure 2 shows, the dollar started from a multi-decade low relative to other major trade-weighted currencies. So while the recent appreciation has been impressive, the dollar has a long way to go given how low it started. Second, when the dollar appreciates, it is typically part of a multi-year trend. Again referencing Figure 2, previous strengthening cycles have occurred over many years with ups and downs along the overall path to greater strength. From 1980 to 1985, the dollar appreciated by more than 60%, and by more than 40% from 1995 to 2002.
Related to global monetary policy divergence, central bankers also recognize this imbalance and are choosing to hold more dollars than euros and yen. Remember, central banks rank among the biggest players in the foreign exchange markets and exert tremendous influence on perceptions in the currency market. To provide a frame of reference, central bank reserves totaled $12.6 trillion in 2013, according to the World Bank. Following the 2008 financial crisis, central banks made a concerted effort to diversify the foreign exchange reserves they hold away from the dollar. In 2009, the share of foreign exchange reserves held in euros had risen to 28%. However, with Europe’s debt crisis in 2010, the euro’s appeal as a reserve currency began to decline. Last summer, in an effort to fend off recessionary pressures, European monetary policymakers reduced the central bank’s deposit interest rate to less than zero for the first time in history. That, plus the ECB’s aggressive program of quantitative easing officially begun in March, has made the euro significantly less attractive as a reserve currency and heightened the dollar’s appeal.
Investment implications
So what does this mean for investors? “The dollar will likely continue to appreciate, though the extent and pace of further gains will depend in part on the timing of the Fed’s initial tightening move. Nevertheless, given current economic fundamentals, the divergence in global monetary policy, the length of prior dollar strengthening cycles and the dollar’s persistence and prominence in central bank reserves, we continue to favor the dollar relative to the euro and the yen in particular. For those investors who find global stocks and bonds attractive – and PIMCO does – then carefully consider the currency exposure, lest the rising dollar sink your global gains”, said Chief Investment Officer U.S. Core Strategies at PIMCO.
Photo: youtube. Pioneer Investments Launches Global GDP-Weighted Government Bond Strategy
Pioneer Investments has launched a Global GDP-weighted Government Bond strategy as an approach to sovereign debt management – shifting from a market-cap weighted approach to a Gross Domestic Product (GDP)-weighted approach, with the aim of delivering more yield without increasing credit risk.
Today’s complex macro environment presents a number of challenges for Global Government bond investors. The current investment landscape of record low yields is demanding a new approach from investment managers to Government Bond investing which provides more yield, more diversification and greater alignment to long-term economic growth.
“The biggest issuers of government debt have also compressed bond yields through their monetary policy and quantitative easing,” said Tanguy Le Saout, Head of European Fixed Income. “’Investors are not being sufficiently compensated for increased sovereign indebtedness by the current level of sovereign bond yields”, he added.
“We believe the solution is to move from a market cap based approach to sovereign bond investing to a new innovative approach based on the GDP weights of the G20 nations, raising yield and creditworthiness”, point out Le Saout.
The typical global government bond index uses a market capitalisation approach to index construction, meaning that a country’s weight in the index is dependent on the amount of debt that country has outstanding. However, that means that countries with very high amounts of debt outstanding receive a higher weighting in the index. With a GDP-weighted approach those countries exhibiting the largest GDP and fastest growth make up a proportionally bigger part of the index. We believe this new approach will prove appealing to institutional investors who are concerned about the indebtedness of sovereign entities worldwide.
‘’We believe that a Global Government Bond strategy investing in future growth instead of past debt is a viable solution for fixed income investors seeking higher yields and more diversification,’’ said Le Saout.
For those countries where investing in cash bonds is not an option (such as China, South Korea and India), Pioneer Investments’ unique innovative approach will aim to synthetically replicate the index exposures of these key countries, using derivatives. Our long-established derivative expertise and experience in investing in these markets will help us in this optimization process. The strategy will focus only on high quality investment-grade government bonds.
Today, the People’s Bank of China has announced the granting of a 50 bn RMB RQFII quota to Luxembourg.
The RQFII (RMB Qualified Foreign Institutional Investor) scheme was launched in Hong Kong in 2011 and has been expanded to other jurisdictions since 2013 enabling offshore RMB to be reinvested into the Mainland securities market.
Luxembourg Minister of Finance, Pierre Gramegna, said: “The granting of the RQFII quota again demonstrates China¹s recognition of the Luxembourg financial centre as one of Europe¹s main hubs for international renminbi business. We are proud to play such a significant role in the process of the internationalisation of the renminbi.
Luxembourg has made the UCITS a globally recognized brand and more than 67% of UCITS funds distributed internationally are based in Luxembourg. Luxembourg is the largest investment fund centre in the world after the US.
The RQFII scheme is particularly useful for fund managers who use Luxembourg as a platform for cross-border distribution. Major international and Chinese fund promoters had already set up RQFII funds through Luxembourg domiciled vehicles, using other jurisdictions’ quotas. Luxembourg’s European and global investor base will now be able to use the RQFII scheme directly to invest up to 50 bn RMB on the Chinese capital market.
Together with the designation of ICBC as RMB clearing bank in Luxembourg, the RQFII quota consolidates Luxembourg¹s prominent position as a leading
Lori Monaco, CFA, SVP Financial Advisor at Morgan Stanley. Following the Closure of RBC WM, Lori Monaco Continues with her Renowned Track Record at Morgan Stanley
Lori Monaco, a reputed wealth management industry professional in Miami, has been developing her professional career at Morgan Stanley since January this year, following over 10 years at RBC Wealth Management. According to industry sources, who have confirmed the appointment, Morgan Stanley has acquired about 80% of the assets of RBC Wealth Management’s Miami office, which has been closed, along with the international private banking offices of the Canadian bank in USA.
Lori Monaco, Senior VP Financial Advisor at Morgan Stanley, attends to both domestic and offshore clients, and holds a CFA degree, as well as being fluent in English and three other languages: Spanish, Portuguese, and French.
Monaco has worked at RBC Wealth Management from 2004 to January 2015. In fact, she was hired to establish the Broker Dealer business in Miami and was branch manager in this city from 2004 to 2006. She has always worked as Financial Advisor, advising on investment solutions for wealth management clients.
According to her LinkedIn profile, she previously held the post of CIO at Coutts USA International for a period of four years, and was responsible for the Advisory and Execution team in Miami, focusing mainly on non-resident HNW and UHNW clients.
Previously, from 1995 to 2000, she worked as Head of Research at Vestrust in Miami, covering Latin American Corporate Debt, specializing in the Media and Telecommunications sector. She had previously spent four years in New York as an analyst in the technology sector. Therefore, Lori Monaco has over 25 years experience in the investment and wealth management industry.
Photo: Official White House Photo by Pete Souza. Investors Less Attracted to Mutual Funds Managed by People with Foreign-Sounding Names
Investors in the U.S. are less likely to invest in mutual funds that have managers with foreign-sounding names, according to a new study from the University of Miami School of Business Administration.
The study, forthcoming in The Review of Financial Studies, found that annual fund flows were 10% lower for funds managed by someone with a foreign sounding name compared to funds managed by someone with a more familiar American name, an annual loss of approximately $133,000 per $195 million under management.
The study also found:
These effects are stronger for funds that have more conservative investor clienteles or are located in regions where racial/ethnic stereotypes are more pronounced. The impact occurs even though managers with foreign-sounding names do not follow unique investment styles or have inferior investment skills. On the contrary, individuals who live in regions with a greater proportion of foreign-born individuals invest more in funds run with foreign sounding names.
Funds with foreign-named managers receive lower inflows after good performance and they experience relatively more outflows after bad performance. In other words, managers with foreign sounding names are rewarded less for good performance and “punished” more for bad performance.
Among the best performing funds in the 80th percentile of the performance missed out on $318,432 in advisory fees. For extreme out-performers, the loss of compensation can get even worse, climbing to almost $700,000 in lost fees.
After the Boston Marathon Bombings and 9/11 terrorist attacks, trust in foreign names saw a significant drop.
“We know that people consciously or sub-consciously assign attributes to a person when they hear their name – President Obama said it well when he joked that he got his middle name, Hussein, from someone who clearly didn’t know he’d ever run for president,” said Alok Kumar, Gabelli Asset Management Professor of Finance at the University School of Business Administration and the leader researcher.
“Our study suggests that if Barack Obama was a fund manager his name could cost his fund more than $100,000 this year,” added Kumar, whose research partners included Alexandra Niessen-Ruenzi of the University of Mannheim and Oliver Spalt of Tilburg University.
Photo: Neil Kremer. UBS Investor Watch Report Examines What Drives Millionaires
UBS Wealth Management Americas (WMA) today released its quarterly UBS Investor Watch report, “When is enough…enough?” revealing the anxieties that underlie the successes millionaires have achieved. The survey of 2,215 U.S. investors with more than $1 million in net worth revealed that while millionaires recognize their good fortune, they feel compelled to strive for more, spurred on by their own ambition, their desire to protect their families’ lifestyle, and an ever-present fear of losing it all. As a result, many feel stuck on a treadmill, without a real sense of how much wealth would make them satisfied enough to get off.
Climbing the Socioeconomic Ladder
Investor Watch found that more than three-quarters of millionaires (77%) grew up middle class or below. Working their way up the socioeconomic ranks was a conscious aim, as 61% aspired to become millionaires and 65% felt it was an important milestone to reach the $1 million mark.
Nearly three-quarters of millionaires (74%) surveyed feel like they have “made it” and the vast majority (85%) attribute their success to hard work. Forty-four percent said hard work was the single most important factor in becoming a millionaire.
Overall satisfaction with life rises considerably and consistently as net worth increases. The survey revealed that 73% of those with $1 – 2 million reported being “highly satisfied” with their life compared to 78% of those with $2 – 5 million and 85% of those with $5+ million. Millionaires recognize that their wealth buys them more than what their family needs: 37% of those with $1 – 5 million responded that their wealth allows them to live a fairly luxurious lifestyle, compared to 62% of those with $5+ million.
The Treadmill
However, with increased wealth come increased expectations. Investor Watch found that the wealthier people become, the more likely they are to have increased expectations for their standard of living. Fifty-eight percent of millionaires report feeling increased expectations for their standard of living over the last 10 years. As a result, millionaires keep striving for more.
Higher expectations cause stress for millionaires about their ability to maintain the life they’ve built. Among working millionaires with children at home, 52% feel like they are stuck on a treadmill, unable to get off without sacrificing their family’s lifestyle.
“The majority of millionaires say they have worked hard to earn their wealth and appreciate the lifestyle it affords them and their families. But enough never seems to be enough—even the wealthiest continue on the treadmill to achieve a better life,” said Paula Polito, Client Strategy Officer, UBS Wealth Management Americas.
Investor Watch revealed that no matter how much wealth is accumulated, millionaires still fear they could lose it all with one wrong move. Half (50%) of those with $1 – 5 million are afraid that one major setback (e.g., job loss, market crash) would have a significant impact on their lifestyle, vs. 34% of those with $5+ million. For millionaire parents working full-time, the anxiety is even greater–63% feel that one major setback would have a significant impact on their lifestyle.
Success Comes at a Price
Reaching the millionaire milestone does come at a cost, as 64% of millionaires report that they have had to give up precious family time to achieve their dreams. Most millionaires (68%) admit to having regrets, most commonly around making mistakes in a relationship with their spouse or family and not spending more time with family.
Millionaire parents with children at home struggle to provide the best for their children without spoiling them. They worry that their children will grow up without the right values–two in three (67%) already feel that their children take things for granted and more than half (53%) are at least somewhat worried that their children act entitled. Millionaire parents expressed concern that their children do not understand the value of money (65%), lack motivation (54%), harbor unrealistic expectations (54%) and fear that they will embark on an unstable career path (50%).
CC-BY-SA-2.0, FlickrPhoto: Philip Taylor. Three ‘Uncorrelated’ Trade Ideas for Multi-Asset Portfolios
Michael Spinks, portfolio manager of the Investec Diversified Growth Fund, discusses three multi-asset portfolio ideas that the team classes as ‘uncorrelated’ – these trades have a variable relationship with economic growth dynamics and overall risk appetite, with performance that is generally unrelated to real economic and corporate earnings growth
“As we enter the seventh year of this equity bull market and near the end of the 30+ year bond bull market, some investors are prophesising the end of the investment return-making world as we know it. While it seems hard to disagree that the days of low-hanging investment fruit are behind us, we believe that if investors rummage deep enough and look around in different places, opportunities still exist“, point out Spinks.
‘Uncorrelated’ return sources are one area of particular focus for Investec. These are investment opportunities that have a variable relationship with economic growth dynamics and overall risk appetite, so that performance is generally unrelated to real economic and corporate earnings growth. Not reliant on a strong market direction to be successful, they generate a different type of return stream compared to long-only holdings in equities and government bonds, providing possible diversification benefits to a portfolio. Relative value positions play a role here, constructed across equities, government bonds and currencies.
Whilst not easy to find, a broad opportunity set helps, as does a repeatable and structured idea generation process. Below we outline three ‘uncorrelated’ portfolio ideas to illustrate this view.
1) Taiwanese vs Singaporean equities
Our internal analysis ranked the Taiwanese stock market highly, but was much less positive about Singapore. “Taiwan, we concluded, offered quality growth potential at a reasonable valuation with supportive investor positioning and earnings revisions. Singapore, on the other hand, had poor fundamentals and a lack of earnings revisions, which outweighed the attractive valuations on offer”, said Investec manager.
Additionally, the respective sector composition was attractive as the Taiwan overweight to technology provided exposure to a US recovery and was less exposed to potentially higher US interest rates than other emerging markets. Singapore was characterised by a heavy bias towards banks with relatively high exposure to Chinese loans and a weakening domestic property sector. Therefore, in aggregate, this position offered exposure to the US and European growth cycles while hedging against further China weakness.
2) Hungarian forint vs Polish zloty
Although Investec was positive about the prospects of the Polish economy over the medium term, it had shorter-term concerns due to falling levels of inflation and the prospect of interest rate cuts in reaction to weaker industrial activity. Exposure to Russia and Ukraine also put pressure on growth. Hungary, on the other hand, offered strong economic growth, inflation that was picking up from a low base, and a stable interest rate environment. This position was a way to take advantage of diverging monetary policy and growth outlooks between the two countries, with the added advantage of the Hungarian forint being relatively cheaper than the Polish zloty.
3) Long Australia 10 year government bonds vs US 10 year government bonds
This idea was based on the view that divergent monetary policy and economic fundamental data would drive interest rates in Australia and the US in opposing directions. This trend had already been occurring for some time but, in our view, would continue to become more apparent in the period ahead as the US starts to gradually remove policy accommodation and Australia looks to provide more easing as it adjusts downwards to a once in a life-time terms-of-trade boom.
French asset manager Carmignac has announced the opening of its Zurich subsidiary headed by Marco Fiorini.
While the group has been distributing its funds in Switzerland for 12 years, it has now appointed six-person strong team headed by Fiorini in order to strengthen relationships with Swiss retail and wholesale clients.
Fiorini has been country head for Switzerland at Carmignac for the past four years.
Edouard Carmignac, chairman of Carmignac Gestion, said: “We are ready and able to help Swiss investors tackle their main challenges, namely helping them achieve financial security in retirement by preserving wealth and drawing an income from savings. ”
Headquartered in Paris, Carmignac now operates in Luxembourg, Frankfurt, Milan, Madrid, London and Zurich.
Kirk Pressley, director financiero de BBVA Compass. Kirk Pressley nuevo director financiero de BBVA Compass
BBVA Compass has appointed Kirk Pressley new chief financial officer after Angel Reglero leaves the post to help lead a newly created Spain unit of parent company BBVA.
Pressley currently serves as corporate controller for BBVA Compass, a role he’s held since 2003. He leads the bank’s accounting unit, its U.S. Securities and Exchange Commission reporting, other regulatory filings and Sarbanes-Oxley Act compliance.
“Kirk has been a key part of our success, but more importantly he will be a key part of our future,” said BBVA Compass Chairman and CEO Manolo Sanchez. “He’s stepping up amid our digital push to create a true 21st century bank. We’re in great hands with him as our new CFO.”
Pressley joined BBVA Compass in 1999, spending three years as its director of accounting policy before being promoted to corporate controller, where he successfully led the bank’s financial risk management activitiesand its compliance with acceptable accounting principles, among other responsibilities.
The announcement comes as BBVA closes on its purchase of CatalunyaCaixa, marking a new era for the bank’s growth in Spain. The Spain unit will comprise BBVA and CatalunyaCaixa, which will operate as a separate brand.
Josh Crabb. Old Mutual GI's Asian Equities Team Receives Regulatory Approval to Operate from Hong Kong Office
Old Mutual Global Investors is pleased to announce that the Asian Equities Team has received regulatory approval to operate from their Hong Kong office. This is the first time the business will have on the ground fund management capabilities in Asia.
Old Mutual Global Investors’ award-winning Asian Equities Team was hired in autumn 2014 and consists of four members, Josh Crabb, Diamond Lee, Kris Whitlock and Dmitry Lapidus.
The Team runs three funds, the Old Mutual Asian Equity Fund and the Old Mutual Pacific Equity Fund which are managed by Josh Crabb, who joined in October 2014 and the Old Mutual Greater China Equity Fund, managed by Diamond Lee, who joined the business in November 2014. The team now manages US $500 million in the region.
Old Mutual Global Investors, and its predecessors, have had a presence in Hong Kong for over 10 years. The business has expanded its Asian operations significantly in the last eighteen months, including the appointment of Carol Wong as Head of Distribution Asia in November 2013 and Simon MacKinnon as Asia Strategy Adviser, in February 2015. Old Mutual Global Investors also has a strong relationship with Capital Gateway, its Master Agent in Taiwan.
Julian Ide, CEO, Old Mutual Global Investors comments: “This is a significant development for Old Mutual Global Investors. Now we offer local products to the local market in Asia, we can connect with clients in in a way we have not been able to before. This is an award winning team with an enviable track record, which I believe offer a compelling choice for investors.
“Asia is a very important market for us and we are committed to building our business in the region. Asian industry is leading the field of endeavour in many sectors and we are keen to learn what makes the market so special. We will use this knowledge to ensure we deliver upon our ambitious plans for the region“, said Ide.
Josh Crabb comments: “We are really pleased to now be officially based in Hong Kong. The Asian equities market is hugely diverse and offers a great deal of potential for clients. The local market is incredibly important to us and we are keen to build partnerships in the region, as well as develop our funds.”
