CC-BY-SA-2.0, FlickrPhoto: historias visuales, Flickr, Creative Commons. Pioneer Investments Posts Record €10.7 Billion Net Sales in First Half of 2015
Global asset manager, Pioneer Investments, posted record inflows of €10.7 billion globally for the first half of the year, reflecting continued positive momentum across all regions and channels. Building on the first quarter of 2015, Pioneer Investments saw €3.6 billion positive net sales in the second quarter positioning the firm as one of the leading players in the industry. According to Morningstar mutual fund flows data, Pioneer Investments ranked 8th in Europe and 15th worldwide year-to-date through June.
The firm’s AuM increased by 19% YoY with assets under management standing at €221 billion as of June 30, 2015. Pioneer Investments’ product range attracted strong flows from markets such as Germany, Italy, Iberia and Latam amongst others, with the firm’s US and Asia businesses also recording positive momentum.
Commenting on these results, Giordano Lombardo, CEO and Group CIO of Pioneer Investments said, “We are extremely pleased to have again ranked amongst the industry’s top players in terms of fund flows, reflecting our clients’ trust in Pioneer’s investment process. We are seeing especially strong growth in our liquid alternative and outcome-oriented strategies. Our multi-asset mutual fund range attracted particularly strong inflows ranking third worldwide year-to-date through June.”
He added, “While our macroeconomic outlook remains reasonably optimistic for the rest of the year, we do expect market volatility to remain heightened, largely driven by geopolitical factors. Our priority remains to deliver strong investment results and industry-leading service and support to our valued clients.”
CC-BY-SA-2.0, FlickrPhoto: dpitmedia, Flickr, Creative Commons. A Bipolar Economy in USA: Strong Consumer Economy vs Weak Industrial Economy
Janet Yellen and her colleagues at the U.S. Federal Reserve (Fed) will spend the coming weeks and months contemplating the timing of an increase in short-term interest rates. While a cynic might describe the Fed’s behavior as “reactionary,” the Fed itself prefers the term “data-dependent.” As the Fed monitors incoming data, it will be searching for signs of the overall strength of the economy and any associated inflationary pressures. In so doing, the Fed is likely to find a two-speed economy, with the general health of the U.S. consumer improving rapidly, while the industrial side of the economy continues to struggle, says Eaton Vance in a report.
Part of the explanation for this seeming disconnect in economic data lies with energy prices. Over the past 12 months, the price of a barrel of oil has fallen 43%, from $105 to $60. This has led to a drop in average U.S. gasoline prices from approximately $3.70/gallon to $2.75/ gallon. With more money in their pockets, U.S. consumers (at least those who drive) are apparently feeling somewhat better about things. Accordingly, the University of Michigan Consumer Sentiment Index recently neared its five-year high.
While the collapse in oil prices has been good news for the consumer, it’s bad news for many industrial companies. Oil and gas is an important end market for capital goods and equipment manufacturers. “We have been struck by how rapidly the energy sector cut expenses at the beginning of 2015. North American exploration and production companies tell us they have cut capital spending by roughly 35% this year. This has had a ripple effect throughout the supply chain, well beyond the direct exposure of oil and gas equipment. The softness in the industrial part of the economy has begun to manifest itself in the form of lower utilization rates at U.S. factories”.
Aside from lower energy prices, another big reason for the greater optimism on the part of many consumers is the recent improvement on the jobs front. After topping 10% in 2009, the U.S. unemployment rate has steadily fallen since then and is now at what many would consider a more “normal” level – 5.3% as of June 2015. Perhaps even more telling is that wage growth has finally begun to pick up after years of stagnation.
Bringing it back to equities
Understanding the relative health of different segments of the economy is important, but for equity investors, the key question is always, “What’s not priced in?” Looking at the trailing 12-month performance of the consumer discretionary and industrials sectors within the S&P 500 Index, it seems clear that the U.S. equity market has begun to figure things out, as consumer discretionary stocks have handily outperformed industrials over the past several months.
“This divergence of performance between the two sectors has led to widening valuation differentials: Consumer discretionary stocks were recently valued at 19.5x forward EPS estimates, whereas industrials stocks were only valued at 16.3x. In the Eaton Vance Large-Cap Value strategy, we have recently been cutting back our consumer discretionary exposure and have been adding to industrials. Meanwhile, in our growth strategies, we have recently had underweight positions in industrials. Our growth team has continued to be optimistic about the outlook for companies that it believes to be benefiting from strong, secular growth trends in the areas of consumer, technology and health care, among others”.
Regardless of where there may (or may not) be opportunities in today’s equity market, their view remains that true bargains are far from plentiful. However, that could change in the months ahead. “In the interim, we continue to believe investors should selectively favor shares of companies with skilled management teams that allocate capital well”.
Photo: Day Donaldson. Rate Hike in the US: the Arguments and the Effect
There are clear indications that the Federal Reserve is going to raise interest rates for the first time in more than nine years this September. Kommer van Trigt, manager of the Rorento Total Return Bond Fund, looks at the arguments for and the likely effects of a rate hike.
The Fed is on course to raise rates in the autumn. In mid-June, Fed chair Janet Yellen stated that thanks to the strengthening economy there is room to raise the federal funds rate. This official interbank rate currently stands at an all-time low of 0.125%. She also made it known that in future rates would rise less rapidly than the Fed had originally anticipated.
In a normal cycle, rising inflation and the threat of an overheated economy resulting from too high a growth rate often trigger an interest rate hike. At the moment this is certainly not the case. In the last three years, core inflation in the US has fluctuated between the one and two percent level and since 2010, economic growth has moved in a bandwidth of one to three percent.
In previous cycles, economic growth was around four percent at the point when the Fed implemented a first rate hike. On the basis of those figures, a rate hike seems by no means a necessity. That makes you wonder why Yellen alludes with such certainty to a rate hike after the next Fed meeting in mid-September.
Building up weapon reserves
“One important reason for a rate hike is that the central bank want to build up its weapon reserves for the future”, explains Van Trigt. “If the US economy falls into recession, there is currently no room whatsoever for a further rate cut. The Fed wants to ensure that it does not have to rely on taking a whole range of unorthodox steps in such a scenario.
What Yellen also wants to prevent is a repeat of the so-called ‘Taper Tantrum’ of 2013, when a wave of selling engulfed the bond market after former Fed chair Ben Bernanke alluded to higher rates. “There is a much better chance that financial market stability will remain intact if the increase in interest rates takes place gradually, and if the market is made aware of the Fed’s plans”, explains Van Trigt to clarify this second argument for raising rates without it being economically necessary to do so.
In such a scenario, fixed income markets at least have plenty of time to come to terms with the idea of a rate hike and up to now the central bank has been pretty successful in managing market expectations. According to Van Trigt, this scenario is not without its dangers, however: “A rate hike is approaching, but the market is only pricing in a minimal rise of 12.5 basis points in September and 25 basis points in the months that follow. If these rate hike steps occur earlier than planned this could have a major impact on the prices of short-dated paper.”
Vulnerable market segments
The approaching rate hike in the US is the reason why we have reduced Rorento’s exposure to those segments of the bond market where this can hit hardest. “The fund is still invested in US bonds, but its interest rate sensitivity (duration) for bonds with a maturity of seven years or less has been brought back to zero”, says Van Trigt. Another part of the bond market that is vulnerable to rising US rates is emerging market debt.
There are better prospects for short-dated Australian bonds, given that the central bank there is still busy cutting rates. “By cutting back the duration for short-dated US paper and overweighting Australian bonds, we have ensured that Rorento is as well-positioned as it can be to cope with any negative effects of rising rates in the US”, summarizes Van Trigt.
CC-BY-SA-2.0, Flickr. Adrien Pichoud Appointed New Chief Economist at SYZ Asset Management
SYZ Asset Management has announced the appointment of Adrien Pichoud as Chief Economist. Adrien Pichoud is also a member of the Strategy Committee, which defines the Group’s investment policy. Under the direction of Fabrizio Quirighetti, Chief Investment Officer of SYZ Asset Management, Adrien Pichoud also assumes the function of co-manager of the OYSTER European Fixed Income and OYSTER USD Bonds funds.
Adrien Pichoud joined the SYZ Group in 2010 as an economist. Prior to that, he spent seven years as an economist in a brokerage firm in Paris. He holds a master’s degree in finance from the University of Grenoble (France) and a BA in Economics from the University of Sussex (UK). Adrien Pichoud is a well-known commentator in the Swiss investment media to which he frequently contributes.
“Adrien Pichoud’s skills as an economist greatly contribute to the quality of our investment strategy and the performance of our bond and multi-asset funds. This promotion demonstrates a strong internal progression confirmed by results,” commented Katia Coudray, CEO of SYZ Asset Management.
In addition, Adrien Pichoud is a member of the management team of the OYSTER Multi-Asset Absolute Return EUR and OYSTER Absolute Return GBP funds as well as other multi-asset funds and institutional mandates in absolute return strategies.
Ken Hsia, Manager of European Equity Strategy at Investec. Great Britain and the Franco-German Axis make up the Bulk of European Equity Strategy at Investec
Ken Hsia, manager of European Equity Strategy at Investec recently visited Miami. His strategy invests in companies listed on the European stock exchanges, including the UK, as well as in those that, while trading in other markets, carry out most of their operations on the continent.
It is precisely the British market which Hsia mostly favors, concentrating more than one third of the positions of the strategy which he manages. France, Switzerland, Germany, and Norway, complete the group of the five markets which he perceives most positive, whilst Spain is in sixth position. This strategy has a class which hedges all currencies in the portfolio – not only the Euro – ,ensuring a real exposure to the behavior of the underlying companies.
“Overall, there have been very few changes since November, but there has been a recovery of corporate earnings, often due to a reduction in costs through corporate reforms,” says the manager. “In the past nine months, both the Euro, in respect to the dollar, as well as oil prices, since June, have weakened, favoring a continent which, on the one hand, is almost twice as sensitive as the United States to exports, because much of its production is exported all over the world, and, on the other hand, is a net consumer of oil, which, with the low prices, the value is transferred from the producers to the consumers. Eight of the 10 Star ideas have exposure to Europe, “he says.
Hsia supports his positive view of the consumer, industrial, and technological sectors stating that “money is in the hands of consumers.” According to him, the relative value of European markets to the United States is unbalanced downward. “The European stock market is still down and there is a 45% gap between the European and US stock markets, which has to close,” he adds. “Indeed, my job is to find companies that have less than 10x EPS, with further growth in profits,” he says.
The average tenure of companies in the portfolio is two years, “despite market speculation, I have not had to change my portfolio more than normally,” says Hsia. It is an actively managed fund which concentrates its positions on three ideas: global winners, the assets with European exposure but which benefit from reduced competition, and a third group in sectors which are in question, but which are beginning to turnaround.
Among the first, which from about a year ago, account for between 50% and 60% of the portfolio, are Bayer, Novartis or Teleperfomance. The weight of shares of companies in the second group, TUI, DS Smith or Dixons Carphone, is growing as a result of improved profits, which are based on achieving better contracts due to reduced competition. A couple of examples: in TUI’s case, it’s margin has risen from 4% to 6% by negotiating major global contracts, and benefits are expected to grow in the coming years, resulting in a positive impact on the distribution of dividends; and with regard to Dixons Carphone, it will clearly benefit from the disappearance of its biggest competitor because the private equity which bought it out loaded it with debt.
The third group, the one in sectors in question, is composed of companies which, within the telecom and utilities sectors, for example, are expected to perform better than their competitors, and in the future become part of one of the other two groups. This could be the case withEndesa, which will benefit from the sale of its Latin American operations, with greater exposure to the Spanish recovery and therefore higher dividends predicted.
By sector, the manager is positive in discretionary consumer and technology (software and hardware) and negative in utilities and energy, as the fall in energy prices will decrease the sector’s corporate profits, and especially in banks, due to the efficiency problems they suffer. “There are not many cheap banks according to their results. In the UK, banks which are too-big-to-fail are being penalized. It currently makes no sense to have large banks,” although he admits havingKBC (Belgium) and ING (Netherlands).
Manuel Díaz - Photo: Funds Society. Manuel Diaz Joins WE Family Offices as Senior Family Councelor
WE Family Offices, the independent, family-focused wealth management firm, in response to a growing demand for family office services from multi-jurisdictional, ultra-high net worth families, announces the hire of international private wealth executive Manuel Diaz. Mr. Diaz will be based in the Miami office and will use his extensive experience to help WE serve international families from the United States and Latin America.
“As the wealth industry continues to become more globalized, we have seen the growing need to hire individuals who can appropriately serve these cross-shore families,” said Maria Elena Lagomasino, managing partner and CEO of WE Family Offices.
When asked about this critical hire, managing partner Santiago Ulloa comments, “We are thrilled to welcome Manuel to our team. With his numerous years of experience serving wealthy families, he will add critical value for our clients who need a counselor with a sophisticated global perspective and deep international expertise.”
Mr. Diaz’s career in international wealth management spans more than four decades. Beginning his career as an assistant professor of Latin American studies, Mr. Diaz spent 30 years in international private banking at Republic International Bank of New York, where he served as president and CEO. He continued as president of HSBC Private BankingLatin America until he served in a senior position at Safra Bank. Mr. Diaz joined WE Family Offices in July of 2015 as a senior family counselor.
Russian equities are among the cheapest in the world amid political and economic controversy. Yet investors might be surprised to discover that the rapidly developing retail industry offers undervalued opportunities with attractive return potential, said AB experts.
Russian equities are trading at an average P/E ratio of 6.5x versus the emerging-market average of 12.5x. There are good reasons for the discount: Russia’s economy is under severe pressure because of a weaker oil price and international sanctions as a result of its role in the conflict in Ukraine. The ruble has plunged versus the US dollar, inflation has shot up and Russia’s GDP is shrinking. Ordinary Russians are feeling the pinch in the form of declining real incomes.
“So, even the most contrarian investor needs to tread very cautiously before venturing into Russian stocks. That said, we believe selected large Russian food retailers represent a compelling structural opportunity for investors given the long-term modernization and consolidation of the country’s food retail industry”, points out Henry S. D’Auria, Chief Investment Officer, Emerging Markets Value Equities at AB, and Justin Moreau, research associate in the team.
Room to Grow?
In size terms, the industry is potentially massive; Russia’s population is as large as Germany and France combined. However, modern supermarkets remain relatively few and far between and the industry is still highly fragmented. The biggest retail chains have been expanding rapidly. Together, they’ve rolled out more than 2,000 new stores in each of the last five years. But they still have lots of room to grow and to win greater market share.
This growth potential doesn’t seem to be priced into the big Russian food retailers’ valuations, which look cheap compared with many of their emerging-market peers, opine both AB experts.
This is particularly surprising since they’re highly profitable. In other countries, intense competitive pressures have resulted in price wars, driving down industry-wide profitability. In Russia, these pressures are kept in check because the country’s vast geography and harsh climate represent significant logistical barriers to entry. Western food retailers have largely decided to stay away. The challenging business environment, economic sanctions and their unfamiliarity with the local market have persuaded them not to target Russia.
Riding out a Spending Squeeze
“Clearly, declining wages and soaring prices could curb Russian spending on food. Retailers are also pressured by government food import restrictions. Imports of fruit, vegetables, meat, fish and dairy products are banned from countries that imposed sanctions in protest at Russia’s role in Ukraine. The resulting shortages are making some items still more expensive. In this challenging environment, we think the big players are much better positioned to thrive than smaller chains and stand-alone stores” said D’Auria and Moreau.
The biggest modern chains are relatively young companies, having emerged in the 1990s and become publicly listed in the last 10 years. But they’ve fast gained the size and reach that we regard as key ingredients for success in today’s food retailing market.
Russia’s economic woes have driven down both labor and real estate costs—the big players’ two largest operating expenses. This should make it cheaper for them to open more stores in future—providing yet another boost to their consolidation prospects.
“Russia isn’t an obvious investment target in these difficult times. But because many investors are steering clear of the region, it’s an opportune moment to take a strategic look at the market. In our view, the retail sector is a good place for investors to shop for bargains that should benefit from structural change during current economic and political uncertainties, as well as—in the long run—when the conflict is ultimately resolved”.
CC-BY-SA-2.0, FlickrPhoto: Guillermo Viciano
. The Summer Months Seem Prone to Market Setbacks
The old investment adage, ‘Sell in May and go away, come back again on St Leger’s Day’ seems more pertinent than usual this year. The summer months seem prone to market setbacks in thin trading conditions. This time around not only are there some clear event risks on the horizon, but also market liquidity is likely to be even worse than usual, explained John Stopford, co-Head of Multi-asset at Investec.
The key risks are probably the threat of Greek default and of higher interest rates in the US. “To some extent, these possible events must already be partly in the price, because they are known. It is unlikely, however, that they are fully priced in as their likelihood remains uncertain and their market impact is unclear”, said Stopford.
In the case of Greece, investors appear to still put a high probability on a default being avoided. This assumes that fear of the consequences of default will force an 11th hour compromise between the institutions and Greece. The rhetoric of late, unfortunately, suggests that the risk of an accident is rising. Even if a deal is struck it may only to buy a little time for further negotiations, and would need to be passed by unpredictable parliaments and possibly electorates.
Greece is too small to have major direct economic ramifications for the global economy, and now that the ECB is buying government bonds, there is more support for peripheral markets. “At some level, however, Greek default and possible Euro exit would mark a failure of European monetary union. This should leave investors feeling less comfortable about holding other Southern European debt, at least without a higher yield premium”, point out Investec expert.
A near-term tightening of US monetary policy is seen, more so than Greek default, as quite likely. Despite this, the bond market continues to price the balance of risks towards a more dovish outcome. Investors are conditioned by post crisis experience, perhaps, to expect the FOMC to err on the side of caution. Labour market data, however, suggest that spare capacity is being used up quickly and the Fed board is in danger of falling behind the curve. Historically, said Investec the bond market has been slow to price in possible interest rate increases until they are imminent, and then the market has tended to over react.
“So the potential for a negative market reaction this summer to either event seems reasonably high, with a likely spill over into broader market volatility. The fear is that any sell-off will be exaggerated by poor liquidity, especially in bond markets. Trading volumes have been negatively impacted by market regulation which has reduced the ability and willingness of investment banks to make markets. Liquidity is likely be further diminished over the next few months, by the absence of many risk takers from their desks over the summer holiday season”, argued Stopford.
As a consequence, it seems prudent to take some risk off the table, or to buy protection. Any weakness, however, will probably be a buying opportunity as risks become more fully priced in. This is especially true for equity markets, where volatility tends to cause corrections rather than marking the end of bull markets.
Photo: Steven S.. Family Firms, an Opportunity for Minority Investors?
Family-owned firms are not just key drivers of economic growth, but also key employers. But do they generate returns comparable to benchmarks, and what type of specific risks do they pose for external shareholders?
To find out whether family firms generate returns comparable to non-family-owned peers, the Credit Suisse Research Institute analyzed financial data from the CS Global Family 900 universe, a proprietary basket composed of 920 family-owned businesses located across the globe.
From an investment point of view, sector-adjusted share price returns show that since 2006 family-owned companies have delivered superior performance: The CS Global Family 900 universe has generated a 47 percent outperformance compared to the benchmark MSCI ACWI index. This equates to an annual excess return of 4.5 percent over the nine-year period to the end of April 2015, according to the Research Institute’s study “The Family Business Model.”
Considering profitability in terms of return on equity (RoE), superior RoEs were seen in family-owned companies both in Asia and EMEA (Europe, Middle East and Africa), while US- and European-based family firms posted lower returns on equity (RoE) than benchmark. “Lower RoEs in more developed markets are indicative of more conservative strategies as well as broader priorities for family ownership beyond simply financial returns,” explained Richard Kersley, Head of Global Equity Research Product for Credit Suisse’s Investment Banking division.
But looking beyond a simple RoE analysis, data showed that the family firms in the CS Family 900 universe, excluding banks and regulated utilities, generated annual cash flow return on investment (CFROI) averaging 130 basis points higher than companies in MSCI ACWI. Over the longer term, family firms have generated twice the economic profit (earnings in excess of the opportunity cost of using assets or capital) than the benchmark.
US- and European-based family firms use less leverage than their non-family-owned peers and showed faster deleveraging following the recent financial crisis compared to benchmarks. Asian family companies, however, operate with higher leverage than the benchmark. Globally, family-owned businesses delivered smoother and more stable business cycles than the benchmark. “Sales growth is less volatile through the cycle with lower peaks and less pronounced troughs,” said Julia Dawson, an equity analyst at the bank’s Investment Banking division.
Annual sales growth has also been higher in family-owned firms – 10 percent compared to 7.3 percent for MSCI ACWI companies since 1995 – and less volatile during both the Internet bubble and the financial crisis. “A longer term corporate strategy is fundamental to the structural nature of this higher and less volatile (sales) growth,” Dawson said. “The importance of product or service quality, the development of long-term client relationships and brand loyalty, along with the focus on core products and innovation in these products rather than diversifying are all elements explaining this outperformance,” she underlined.
A founder’s premium was established when analyzing the CS Global Family 900 universe. Over the past nine years, first generation companies have delivered a share price compound annual growth rate (CAGR) of 9 percent. Share price returns are indeed the highest in the first generation, when investing alongside the founder, and then decline as family ownership passes down successive generations and the companies mature. “It pays to invest alongside the company founder, in the early years of a company’s existence that is likely to correspond to a period of high growth,” Dawson concluded.
Maria Eugenia Cordova. Maria Eugenia Cordova Appointed US Offshore Sales Manager for Miami at Henderson
Maria Eugenia Cordova has been appointed as the new Sales Manager with Henderson Global Investors for the US offshore market. She will be based in Miami, Florida, with immediate effect.
Henderson Global Investors’ has a strong commitment to these markets, with US $6 billion assets under management in the Iberian & Latin American region combined.
Maria Eugenia will report to Ignacio de la Maza, Head of Sales Iberia & Latin America, and she will be responsible for thewholesaleside of US Offshore markets.
Maria makes a welcome new addition to the team, and brings the headcount to a total of six sales people looking after Iberia & Latin America region. There are plans to further grow the sales team in Miami over the next 12 months.
Bilingual in both Spanish and English, Maria has a ten year career in asset management. Most recently she worked at Aberdeen Asset Management. Previously she was employed by Franklin Templeton, Pioneer and Chase Investment Services. She graduated from University of Florida with a BA in Economics and Finance.
Commenting on the appointment, Ignacio de la Maza, said, “Maria has an excellent blend of skills both in the asset management sector and the US Offshore market. She has spent a number of years fostering relationships with clients, and she understands their investment priorities. She adds great value to the growing presence that Henderson has in the US Offshore market.”
