On September 9 at 6:30 p.m. (ET), a fundraising dinner will be held at the Rusty Pelican, Miami and all proceeds will be donated to Global Empowerment Mission, which carries out three collections for those affected by the collapse of June 24 that left 98 dead and dozens without a home
So far we have raised US$50,000, but there is still a lot more we can do! We are now aiming to reach US$75,000. There are still available tables and new sponsors continue to be welcome.
15 firms from the asset and wealth management community in Southern Florida are already participating, divided in Diamond, Gold and Silver sponsorships.
Diamond: Funds Society, MFS, Ninety One Gold: AXA Investment Managers, BNY Mellon Investment Management, Bolton Global
Capital, Brown Advisory, Insigneo, Janus Henderson Investors, Jupiter Asset Management,
Schroders, Thornburg Investment Management Silver: RWC, Natixis Investment Management, Manulife Investment Management, Franklin Templeton
At a time when interest rates are either ultra-low or even negative, positive inflation-adjusted returns are in short supply. To achieve them, bond investors have turned to strategies that have the flexibility to invest in different types of fixed income, the most popular of which are multi asset credit (MAC) and absolute return fixed income (ARFI).
Both have plenty to commend them. But they should not necessarily compete for investors’ capital.
We would argue that it doesn’t have to be a case of one or the other. In fact, combining the two can improve a bond portfolio’s diversification and increase its overall risk-adjusted returns over the long run. That’s because MAC strategies tend to do particularly well when interest rates and bond spreads are stable, while ARFI portfolios outperform during periods of credit stress or when interest rates are volatile.
Universe and diversification
For a start, MAC strategies tend to have a tilt towards high yield rather than investment grade bonds. This helps them perform especially well when market volatility is low and yield spreads between corporate and government bonds are narrowing. Their overall credit investment remit, however, can be very broad; some portfolios include investments in private debt and loans. This means MAC strategies traditionally offer greater diversification than a direct allocation to high yield credit. It is the freedom to allocate capital across credit sectors that gives portfolio managers the opportunity to secure excess returns. Not only can they shift between investment grade and high yield, but also within those broad sectors into loans, subordinated bank debt and more.
By comparison, the ARFI universe tends to be, by design, much broader, embracing the full fixed income toolkit; the investment styles and the sources of excess return or ‘alpha’ are more diverse than for MAC strategies. In many cases such portfolios also invest in credit, but often do so alongside currencies, interest rate products and derivatives. Probably the most common feature of ARFI strategies is the incorporation of capital protection/risk mitigation trades. The aim here is to improve risk-adjusted returns, but it also means that absolute return strategies tend to lag during bull markets in credit spreads.
ARFI strategies also use all the investment tools available, including derivatives, to manage risk – keeping the desired exposure while hedging out unwanted risk – across the full spectrum of fixed income sectors. This makes ARFI strategies less sensitive than MAC strategies to the overall direction of the credit market. For example, an ARFI strategy can protect against the risk of inflation and rising rates by taking a negative duration position.
As ARFI strategies usually have a lower allocation to high yield debt than MAC portfolios, they tend to have lower solvency capital requirements (SCR), making them more attractive as investments among insurance companies that are subject to Solvency II regulations.
The differences between the two strategies mean that correlation of the returns generated by ARFI and MAC strategies tends to be relatively low, and certainly much lower than between the returns of the different funds within the MAC universe (see Fig. 1). Combining the two strategies could thus offer diversification benefits compared to investing in just one.
Liquidity versus returns
As a rule of thumb, credit investments and emerging market bonds tend to be less liquid than developed market sovereign debt and currencies. Thus, MAC strategies – which invest heavily in such assets – are usually less liquid than their ARFI counterparts, particularly if they have allocations to loans or private debt. This makes the risk of a sharp drawdown – or a sizeable peak to trough capital loss – more significant for the MAC strategies. This is particularly challenging during periods when market liquidity evaporates, as was the case in March 2020 and December 2018 (see Fig. 2). This is also the case even when comparing the top quartile MAC strategies with Pictet’s Absolute Return Fixed Income strategy.
On the flip side, by capturing this liquidity premia, MAC strategies tend to deliver higher returns, on average, than their ARFI peers over the course of a market cycle.
For a typical MAC strategy, up to 80 per cent of performance would be attributed to movements in yield spreads. By comparison, Pictet’s Absolute Return Fixed Income strategy aims to diversify the sources of return evenly between spreads, rates and currencies. By doing so, Pictet targets a liquid portfolio at all times.
The source of return also tends to be different, with MAC taking a more bottom-up approach and ARFI tending to place more emphasis on top-down, macroeconomic factors in portfolio construction. In our ARFI strategy, for example, only about 10 per cent of overall performance comes from security selection.
Manager diversification matters
One downside of the ARFI approach is the fact that the strategies are not homogenous, and success is highly dependent on manager skill. Due diligence is thus paramount. The same can also be said of MAC, where return dispersion within the universe is similarly high.
Both are dependent on portfolio managers’ timing when rotating between different investments. In fact, this is arguably more important for MAC strategies given that such portfolios concentrate investments in a narrower range of sectors and are less liquid.
Best of both worlds?
Despite their differences, MAC and ARFI vie for the same type of investor – one who is looking for a flexible approach that generates returns even in the current climate of low yields and low credit spreads. Yet, there are enough differences for the two types of strategies to be complementary. MAC can offer access to more exotic and less liquid securities that offer the prospect of higher yield. A well-balanced ARFI strategy, meanwhile, can harness strong macroeconomic trends while reducing risk and yet still delivering positive real returns.
By combining the two and selecting the managers that play to each strategy’s strengths, investors can thus achieve better risk adjusted returns than by focusing on either one in isolation (see Fig. 3).
Written by Andrés Sánchez Balcázar, Head of Global Bonds team at Pictet Asset Management.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
Pixabay CC0 Public Domain. Los inversores de los mercados emergentes esperan el momento adecuado para hacer uso del efectivo
Emerging market (EM) investors are holding high levels of cash in their portfolios, waiting for markets to stabilize before investing in higher-yielding assets, according to HSBC. Its latest quarterly EM Sentiment Survey found that 45% of investors polled have in excess of 5% of their portfolios in cash and 59% don’t expect to deploy it over the next three months.
“Emerging market investors are waiting for the right time to invest because the markets have been gyrating wildly over the past two months. Only last month, the US Federal Reserve turned more hawkish and the focus was on rate rises and tapering and this month the pendulum has swung completely the other way as investors worry about the continued impact of COVID on growth”, said Murat Ulgen, Global Head of EM Research at the firm.
The survey -the fifth of its kind in a series first launched in June 2020- was conducted between 8 June 2021 and 23 July 2021 among 124 investors from 119 institutions representing 506 billion dollars of EM assets under management.
The poll shows that around half of investors are neutral on the prospects for EM countries over the next three months, although 40% are now bullish, up from 34% in the first quarter of the year. Risk appetite (measured on a scale from 0 to 10 where 10 means the greatest willingness to take risk) also rose modestly to 6.17 from 6.04
EM investors are, however, becoming less optimistic on the growth outlook for EM countries over the next 12 months and have, therefore, also downgraded their inflation expectations. The proportion who are optimistic on growth dropped to 60% in the most recent survey, down from 89% at the end of last year, and those expecting inflation to rise dropped to 59% from 77% at the end of the first quarter.
Rates, the biggest concern
Nevertheless, a clear majority of investors (56%) still expect to see higher policy rates across EM countries with many central banks, including those of Brazil, Russia, Hungary and Mexico, already having hiked rates in 2021. “The feeling among investors is that while the growth outlook is dimmer and inflation is less of a concern than at the beginning of the year, EM countries will continue to hike rates because they are trying to pre-empt Fed tightening and avoid a repeat of the taper tantrum we saw in 2013-2014,” commented Ulgen.
The prospect of tightening by the US Federal Reserve was cited by more respondents as a concern than any other issue, ahead of inflation and COVID-19. This is encouraging investors to focus on economies with rapid rate increases. In this sense, Ulgen pointed out that when you fear that global rates are going to rise, “you’re going to be looking for a higher risk premium to invest in the emerging markets as insulation against tapering”.
With expectations for further rate rises in EM countries, 40% of survey respondents expect EM FX to appreciate against the US dollar, up from 22% in April. Those expectations tend to be most bullish in countries that are frontloading rate hikes, notably Russia and Brazil. Similarly, the poll results suggest investors are seeking a higher risk premium in fixed income as well, citing Russia (22% of the total), Nigeria (13% of the total) and South Africa (12% of the total) as the top three markets with a more favourable outlook in local currency debt.
While Asia remains the most favoured investment destination, the net sentiment has declined as investors are focusing on countries that are benefitting from the rise in commodity prices, including Latin America, Middle East and Africa.
Lastly, engagement with environmental, social and governance (ESG) investing continues to rise, with 45% of respondents now running an ESG portfolio either directly indirectly, up from 30% in June 2020. Climate change, inequality, and minority shareholder protection remain the top three ESG concerns respectively.
Foto cedidaNathalie Wallace, nueva directora global de inversión sostenible de Natixis Investment Managers. Nathalie Wallace, nueva directora global de inversión sostenible de Natixis Investment Managers
Natixis Investment Managershas appointed Nathalie Wallace as Global Head of Sustainable Investing, effective 1st September. She will report to Joseph Pinto, Head of Distribution for Europe, Latin America, Middle East and Asia Pacific, and will be based in Boston.
In a press release, the asset manager has revealed that, in her role, Wallace will be responsible for driving the firm’s ESG commitments across its distribution network, its affiliate managers and through its participation in industry-wide initiatives. She will also focus on supporting clients on their ESG journey from early stage integration to allocation to impact investing. “ESG is at the heart of the strategic ambitions of Natixis IM, which targets to have 600 billion euros of its AUM, equivalent to around 50% of the total, invested in the sustainable or impact investing category by 2024.
Wallace joins from Mirova US, where she was Head of ESG Strategy & Development. She earned her bachelor’s degree at the Institut Supérieur de Gestion Business School in Paris, France and is a Certified International Investment Analyst (CIIA). She served as French Foreign Trade Advisor from 2014 to 2020 and is a member of the CFA Institute’s ESG Technical Committee.
“Having most recently worked at Mirova, our dedicated sustainable investment affiliate, Nathalie, with her deep knowledge and long industry experience, is ideally placed to lead our strategy to support clients in their journey to align their ESG beliefs with their investment goals, and to help us further our contribution to the transition to a more sustainable global economy”, commented Tim Ryan, CEO of Natixis IM.
There is no summer lull for investors this year. The global economy is powering ahead despite the resurgence of COVID-19 infections while inflationary pressures continue to build, particularly in the US. Then there’s renewed upheaval in China.
The Chinese government’s surprise ban on for-profit after-school tutoring, essentially shutting down the circa USD100 billion edu-tech sector, has raised concerns about an intensification of Beijing’s regulatory crackdowns. The latest intervention comes on the heels of cybersecurity investigations of the ride hailing app DiDi and other e-commerce companies, increased scrutiny of overseas IPOs and the imposition of fines and restrictions on some of China’s largest e-commerce firms.
Authorities have also moved to restrict the use of the variable interest entities (VIE) structure – holding companies based in tax haven jurisdictions and designed to allow foreign investors to invest in key sectors such as tech without giving them any operational control.
A positive reading of such developments is that they are a belated response to innovation and the breakneck growth of industries that flourished in the absence of a regulatory framework. Even though such moves would in effect add a permanent ‘risk premium’ to Chinese stocks and bonds, the should not fundamentally change China’s growth model or the broader investment case for the country’s financial assets.
Nonetheless, a greater degree of caution seems sensible and we feel justified in taking profits in Chinese bonds, which have performed strongly year-to-date.
More broadly, we retain a neutral allocation across equities, bonds and cash; still, we continue to favour assets that benefit from stronger economic potential, such as European stocks.
Our business cycle analysis shows that economic activity is picking up strongly across the euro zone, following a sharp deceleration over the last two quarters. Purchasing manager indices remain buoyant, especially in the service sector. Retail sales have meanwhile recovered above the pre-pandemic trend. Bank lending conditions are also easing, which augurs well for future credit growth. Overall, it would seem that European economic growth is more likely to to surpass consensus forecasts than the US, where we are starting to see some signs that its expansion is moderating. Worryingly, second quarter GDP growth came in at just 6.5 per cent on an annualised basis – some 2 percentage points below the consensus forecast.
China’s growth has clearly peaked with industrial production, retail sales and construction all coming in below their three-year average. Even so, we still expect a very respectable 10 per cent expansion in GDP for the year – some distance above the 8.5 per cent consensus forecast.
Should Beijing’s regulatory crackdowns threaten growth, however, there is some comfort to be taken from our liquidity indicators, which show that China has plenty of monetary fire power. Indeed, we already saw authorities take action in July, when the People’s Bank of China (PBOC) announced a 50 basis point cut in the reserve requirement ratio (RRR); we expect to see more action in coming months.
The US is moving in the opposite direction, with the US Federal Reserve edging into the first stages of a tightening cycle. Notably, at its latest meeting, the US central bank highlighted the improvement in economic conditions and “progress” in the labour market. However, we expect the tightening journey to be a relatively slow one, and for now US monetary policy remains the loosest of all the world’s major economies, according to our models.
One of the clearest signals from our valuation models is that US Treasures now look expensive, particularly when compared to levels implied by the cyclical trends we monitor.
The same applies to US equities. US stocks’ price-to-earnings ratio of 21.5 times based on 12 month forward earnings can only be sustained if trend growth is unchanged, profit margins are stable at high levels and bond yields stay low. So far, the recovery in US earnings has been in line with GDP (see Fig. 2), and we think further upside to this year’s corporate profit growth is unlikely in the absence of an upward revision to US GDP growth forecasts.
Technical indicators suggest the correlation in the returns of equities and bonds has turned negative again, improving the diversification appeal of fixed income.
Another conclusion to draw from our technical gauges is that investors appear more cautious. This is arguably reflected in the strong inflows into government bonds seen in recent weeks, as well as into equity funds that invest in quality stocks. Some USD6.7 billion flowed into tech, healthcare and consumer goods stocks in the first three weeks of July at expense of cyclical sectors, according to EPFR data. Approximately USD3.1 billion was withdrawn from financials, materials and energy stocks in the same period.
Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
Foto cedidaRobert Sharps, asumirá como CEO de T.Rowe Price en 2022. Rob Sharps
T. Rowe Price has recently announced key leadership transitions. Its CEO and chair of the Board of Directors, Bill Stromberg, will retire on December 31, 2021, after 35 years at the firm. In a press release, the asset manager has revealed that Rob Sharps, its current president, head of investments, CIO and a member of the firm’s Management Committee, will succeed him as of January 1.
Sharps will then become president and CEO, take over as chair of the Management Committee and join the Board of Directors. He joined T. Rowe Price in 1997 as an equity analyst and his role and influence have broadened in recent years as he has taken a more active role in corporate strategy, product development and key client relationships. Before becoming head of investments and group CIO, Sharps was co-head of Global Equity, the longtime portfolio manager of the US Large-Cap Growth Equity Strategy, and portfolio manager of the former US Growth & Income Equity Strategy.
“I am honored to be the next CEO of T. Rowe Price and am grateful for the confidence that both Bill and the Board have placed in me. T. Rowe Price is well positioned to execute on significant opportunities ahead, and I am excited to lead our business forward and continue helping our clients achieve their financial goals”, he said.
Alan D. Wilson, lead independent director, highlighted that Stromberg has been a remarkable leader and highly effective CEO: “He has deftly navigated the firm through a period of significant change and disruption in the industry. Under his leadership, significant investments in our investment, distribution, product, operations, technology, and corporate function teams have helped the company deliver strong results for clients and take advantage of strong markets to grow assets under management, revenues, earnings, and dividends”, he added.
Lastly, Stromberg commented that, over the course of hist 20-year partnership with Rob, he has consistently demonstrated his abilities as “a talented investor, a principled decision-maker, and an accessible and impactful leader of people and processes”.
Additional leadership transitions
The firm has also announced other changes in senior positions. Specifically, Céline Dufétel, chief operating officer (COO), chief financial officer (CFO), and treasurer, will be stepping down, but she will serve in an advisory role until August 31, 2021, “to ensure a seamless transition”. Jen Dardis, currently head of Finance, will take over her roles and join the Management Committee.
Besides, Eric Veiel, currently co-head of Global Equity, head of U.S. Equity, and chair of the U.S. Equity Steering Committee (ESC), will become head of Global Equity, as of January 1, 2022. At that time, Josh Nelson, currently associate head of U.S. Equity, will become head of U.S. Equity and chair of the U.S. ESC and will join the Management Committee.
On September 9th at 6:30 p.m. (Miami time), Funds Society will be partnering with MFS and Ninety One to host a fundraiser for the victims of the collapse of Champlain Towers South at the Surfside condominium. This terrible tragedy has touched the South Florida community in its heart, and unfortunately, we all know someone who has been affected. The Miami asset and wealth management industry is pulling up an effort to raise US$50,000.00 for the victims.
The event will be held at the Rusty Pelican and all proceeds will be donated to Global Empowerment Mission, which is collecting for three distinct funds whichsupport the residents themselves, a general program on the collapse, and the relocation efforts for the survivors who lived in the building. We invite you to take a look at the programs through this link.
Corporate and individual sponsorship opportunities are still open and we truly hope to engage the key players in the South Florida financial industry to support this effort.
So far, the event is supported by the following sponsors:
Diamond Sponsors: Funds Society, MFS and Ninety One
Gold Sponsors: AXA IM, Janus Henderson, Schroders, Insigneo, Bolton Capital and Jupiter.
Silver Sponsors: RWC and Natixis IM.
If you would like to participate in the event either as a corporate sponsor or as an individual, please contact Elena Santiso at elena.santiso@fundssociety.com or Alicia Jiménez at alicia.jimenez@fundssociety.com. Please consider contacting us to participate in this event.
Tragedy
On June 24th, a collapse occurred at the Champlain Towers South building in the Surfside condominium that left 98 people dead. With the exception of the first few hours following the collapse, no other survivors were ever uncovered.
As reported by Agence Press in Miami, search teams spent weeks dealing with the hazards of the rubble, which included an unstable portion of the building that was still standing, a recurring fire, and Florida’s oppressive summer heat and storms.
On July 23rd, the Miami-Dade Fire Department’s search and rescue team withdrew from the site and announced at a press conference that the search was officially over. A few days later, the identity of the last missing person was confirmed, bringing the death toll to 98 and concluding that there were no more bodies amongst the rubble.
Pixabay CC0 Public DomainBonos convertibles . Bonos convertibles
The U.S. equity market set new records during the second quarter with the benchmark S&P 500 index marking its 34th record close of the year on the last day of June. U.S. stocks gained for a fifth straight quarter, the longest run since 2007, and this year’s first-half performance was second only to 1998. According to BofA, ‘stocks were the only major asset class with positive returns in 1H.’
The Fed’s aggressive monetary policy has forced short-term nominal U.S. interest rates down close to zero percent. The Fed is buying $80 billion of U.S. Treasuries and $40 billion mortgage bonds a month, swelling its balance sheet. The mid-month June FOMC statement surprised the markets by pulling tapering expectations for the first rise in short rates forward, citing strength in the U.S economy from vaccinations progress, strong fiscal and monetary stimulus, and the ongoing recovery in sectors hardest hit by the pandemic. With a focus on upcoming U.S. employment and economic releases, the Fed may have to shorten its taper lift-off date again as reverse repo market pressures continue to rise.
Evercore ISI’s economist Ed Hyman writes: The Pandemic Recession has been counted as a recession by the NBER, albeit totally unique with the biggest plunge ever, the shortest recession ever, and the sharpest rebound ever. Nonetheless, the most likely path forward is a typical expansion which have lasted 5 to 10 years.
Mergers and acquisitions activity remained vibrant in the second quarter with $1.6 trillion in announced deals – a new record – bringing global deal volume in the first half to $2.8 trillion, also a record. Market conditions remain conducive for continued M&A including historically low interest rates, accommodative debt markets and a desire to better compete globally. We realized gains on deals that closed including Corelogic, Extended Stay, Signature Aviation, and Cooper Tire. Newly announced deals in June include Lydal’s acquisition by Clearlake Capital for $1.3 billion, Cloudera’s acquisition by KKR and CD&R for $5 billion and CAI International’s acquisition by Mitsubishi Capital for $1 billion. We remain constructive on the M&A market and our ability to earn absolute returns.
Streaming wars and Tech, Media and Telecom deals will be heating up in Sun Valley, Idaho during a five-day conference which started July 6th. Media moguls from major companies including Netflix, Walt Disney, Discovery, Amazon, WarnerMedia, Comcast, ViacomCBS, Lions Gate, News Corp, and Fox were in attendance, bringing potential deals and the future of media to the spotlight.
In the convertible securities space, performance improved in June as underlying equities moved higher. Issuance continued at a more normal pace than the record numbers occurring earlier in this year. Convertibles remain a very attractive way for companies to raise capital quickly at agreeable terms, and we anticipate that 2021 will be another year of strong issuance. The global market for convertibles is approaching $600 Billion USD, with the US accounting for nearly 3/4 of the total outstanding.
Globally, convertibles have become very equity sensitive this year, with 54% in what we would consider equity equivalent issues, only 34% in total return issues and 12% in fixed income equivalent. By comparison, we remain focused on total returns for our shareholders, with 22% of the fund in equity equivalent issues, 72% in total return, and 6% in fixed income equivalent. As a result our portfolio has a 2.2% yield, 25% premium, 61 delta and average price of 120. The global convertible universe yields 1.4% with a 24% premium, 64 delta, and 129 average price. By picking up yield but maintaining a similar conversion premium and delta closer to par, we believe this more balanced mix of holdings will help us participate in further equity upside while still offering the asymmetrical return profile that makes convertibles attractive investments.
For the month of June, our top contributors to fund performance included QTS Realty and Splunk. QTS Realty is a data center provider that is being acquired by Blackstone Group. The stock was up sharply on the news and the convertible preferred moved higher as well due to its equity sensitivity. Splunk provides software for data analytics and security. The stock moved higher on news of a strategic investment from Silver Lake. Top detractors from performance this month included Southwest Airlines and JetBlue. Both of these airlines had moved higher in anticipation of travel accelerating, but the stocks and convertibles moved lower despite positive headlines in the month of June
To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:
GAMCO MERGER ARBITRAGE
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.
Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.
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GAMCO ALL CAP VALUE
The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.
GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.
Class I USD – LU1216601648 Class I EUR – LU1216601564 Class A USD – LU1216600913 Class A EUR – LU1216600673 Class R USD – LU1453359900 Class R EUR – LU1453360155
GAMCO CONVERTIBLE SECURITIES
GAMCO Convertible Securities’ objective is to seek to provide current income as well as long term capital appreciation through a total return strategy by investing in a diversified portfolio of global convertible securities.
The Fund leverages the firm’s history of investing in dedicated convertible security portfolios since 1979.
The fund invests in convertible securities, as well as other instruments that have economic characteristics similar to such securities, across global markets (but the fund will not invest in contingent convertible notes). The fund may invest in securities of any market capitalization or credit quality, including up to 100% in below investment grade or unrated securities, and may from time to time invest a significant amount of its assets in securities of smaller companies. Convertible securities may include any suitable convertible instruments such as convertible bonds, convertible notes or convertible preference shares.
By actively managing the fund and investing in convertible securities, the investment manager seeks the opportunity to participate in the capital appreciation of underlying stocks, while at the same time relying on the fixed income aspect of the convertible securities to provide current income and reduced price volatility, which can limit the risk of loss in a down equity market.
Class I USD LU2264533006
Class I EUR LU2264532966
Class A USD LU2264532701
Class A EUR LU2264532610
Class R USD LU2264533345
Class R EUR LU2264533261
Class F USD LU2264533691
Class F EUR LU2264533428
Disclaimer: The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to find out what those restrictions are and observe them.
Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reflect the manager’s current view of future events, economic developments and financial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.
Pixabay CC0 Public Domain. Allfunds refuerza su presencia en Norteamérica gracias a un acuerdo con Interactive Brokers
Allfunds, the world’s leading B2B wealthtech and fund distribution platform, has strengthened its reach within the US market by entering into an agreement with Interactive Brokers LLC, a leading global securities broker and custodian with over 348 billion dollars in clients assets, as of June 2021.
The firm has explained in a press release that the agreement will help Interactive Brokers offer mutual funds to RIAs, broker-dealers and self-directed investors. This is facilitated through Interactive Brokers’ Mutual Fund Marketplace which gives clients access to more than 40,000 funds worldwide, including 37,000 no-load funds from over 400 fund families.
The Mutual Fund Search Tool can be used to search for funds by country of residence, commission charged, fund type or fund family. It can be accessed by clients from over 200 countries and territories and includes many prominent fund families, including funds from Amundi, BlackRock, Franklin Templeton, Invesco, Lombard Odier, MFS Meridian, PIMCO and Schroder. In addition, over 7,700 funds are available with no transaction fees. Also, included within the platform is the ability to view suitable share-classes for RIAs and institutional investors.
Allfunds is in the process of building a pool of eligible funds to facilitate access of Offshore UCITS funds in Canada under the relevant local exemptions regime. “This will open the opportunity to fund managers to sell their products in an efficient and cost-effective manner to certain client types”, has pointed out the firm.
In its view, this agreement strengthens its “already sizeable reach” in the USA offshore market. In 2020 Allfunds opened its representative office in Miami to focus on the offshore market mainly composed of private banks, as well as, broker dealers, wirehouses and self-clearing firms. Allfunds is a global leader in open end fund offerings with clients in 60 countries and over 1.5 trillion dollars in assets under distribution.
“We are thrilled to continue to work with Interactive Brokers, a true leader in the electronic broker space. We have seen great success over the last several months working together and we look forward to seeing additional flows from Canadian and US investors into the platform. At Allfunds we are committed to transparent, efficient and cost-effective access to funds and this agreement with Interactive Brokers helps reinforce these values in the North American market”, has stated Laura Gonzalez, Global Head of Wealth Management at Allfunds.
Foto cedidaJoseph A. Sullivan como nuevo CEO de Allspring Global Investments (anterior Wells Fargo AM).. Wells Fargo AM pasa a llamarse Allspring Global Investments bajo el liderazgo de Joseph A. Sullivan como nuevo CEO
Private equity firms GTCR LLC and Reverence Capital Partners, L.P. have announced that upon closing of their acquisition of Wells Fargo Asset Management,announced last February, the newly independent company will be rebranded as Allspring Global Investments. As part of the transition, Joseph A. Sullivan will become Chief Executive Officer, in addition to his previously announced role as Executive Chairman.
Sullivan will succeedNico Marais, WFAM’s current CEO, who will retire upon closing of the transaction and continue to serve Allspring as a senior advisor. With this new name, the asset manager seeks to reflect its “rich history” in investment leadership and its commitment to renewal, growth, and meaningful client outcomes as a newly independent firm.
“I am honored and energized to have the opportunity to lead Allspring, as we enter a new era for the firm. In spending time with Nico and the organization over the past few months, I have been incredibly impressed by the depth of investment expertise and quality of our people and leadership. Our new name truly embodies a renewed corporate culture and commitment to continue to invest thoughtfully and partner with our clients to navigate the future”, said Sullivan.
Collin Roche, Managing Director of GTCR, highlighted that these announcements mark “key milestones” in the transformation of WFAM intoa focused, independent, global asset management firm serving private wealth and institutional clients around the world. “We are excited about the possibilities of our new name and that Joe Sullivan will become Allspring’s CEO. He is recognized as one of the asset management industry’s most respected leaders, and he will be exceptionally valuable as we execute on our growth strategy. We would like to thank Nico Marais for his strong leadership of WFAM, and we are pleased that he will continue to serve as a senior advisor”, he added.
Meanwhile, Marais commented that his is “a tremendously exciting time” for the company, and as they make this transition, he believes it is the right time for him “personally and professionally” to step down from active leadership and assume a new advisory role: “I have cherished my time as CEO of WFAM and am very appreciative of the passion and professionalism of our people. We have accomplished a great deal, including the transition to independent ownership. I look forward to working with Joe and the team, and I am confident about what the future holds for the organization”.
Lastly, Milton Berlinski, Co-Founder and Managing Partner of Reverence Capital, noted: “Today’s leadership and name announcements give us even stronger conviction that the partnership between WFAM, GTCR and Reverence puts us in a powerful position to execute on our strategic vision for Allspring. We are pleased to have a leader of Joe’s stature to take us forward as a newly independent company, and we are very grateful to Nico for his strong continued partnership during this time.”
