Wikimedia Commons. Federated Herme se expande en Latinoamérica a través de un acuerdo con PICTON
Federated Hermes, Inc. (NYSE: FHI), a global leader in active, responsible investing, andPICTON S.A., a leading third-party fund distributor in Latin America, have announced an agreement that allows PICTON to market certain Federated Hermes funds to institutional clients in Latin America.
The agreement focuses PICTON’s efforts on strategically positioning Federated Hermes’ investment capabilities and services in the Latin American pension funds industry and with institutional participants across the region on a private-offering basis.
“With their experience and strong local knowledge of markets in Chile, Colombia and Peru, we are pleased to work with PICTON to market Federated Hermes’ products in the region. As a global leader in responsible investing, it was important for us to be diligent in our search process and find a firm that is client-focused and has a track record of success. We found that in the PICTON team,” said Bryan Burke, Head of global accounts and Latin America at Federated Hermes.
“PICTON is proud to enter into this arrangement with Federated Hermes, a firm with outstanding history and a leader in responsible investing,” said Matias Eguiguren, founding partner at PICTON. “We look forward to a strong relationship driven by Federated Hermes’ investment capabilities and our broad and deep knowledge of institutional clients,” said Patricio Mebus, Head of mutual funds distribution at PICTON.
PICTON will provide due diligence, product information and analysis to institutional clients and serve as a liaison point between them and Federated Hermes’ teams.
PICTON is an independent investment firm serving high-net-worth individuals and institutional investors throughout Latin America. PICTON distributes best-in-class investment products to Latin American institutional investors, being one of the leading third-party fund distributors in the region with local offices in Chile, Colombia and Peru.
Federated Hermes, Inc. is a leading global investment manager with 628,8 billion in assets under management as of June 30, 2020. Guided by their conviction that responsible investing is the best way to create wealth over the long term, their investment solutions span 162 equity, fixedincome, alternative/private markets, multi-asset and liquidity management strategies and a range of separately managed account strategies. Providing world-class active investment management and engagement services to more than 11,000 institutions and intermediaries, our clients include corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Headquartered in Pittsburgh, Federated Hermes’ more than 1,900 employee, include those in London, New York, Boston and several other offices worldwide. For more information, visit FederatedHermes.com. #
Foto cedidaSusana García, director of sales for LatAm and Iberia; and Andrea Gerardi, senior sales executive for Jupiter AM.. Jupiter Expands Latin America and US Offshore Distribution Team
Jupiter Asset Management has announced two London-based appointments to its Latin American and US offshore distribution team, following the completion of its acquisition of Merian Global Investors on July 1st.
Andrea Gerardi will join the team as senior sales executive, assisting clients across the entire region, stated Jupiter AM in a press release. Meanwhile, Susana García, previously head of Iberian sales at Merian, joins as director of sales for LatAm and Iberia, as announced last June. García will focus on the Uruguayan and Argentinian retail markets, in addition to supporting her existing client base in Iberia.
They will both report to William Lopez, head of Latin America and US offshore. As a result of these appointments, the in-house team has doubled in size to four members.
Relationships with AMCS Group, AIVA and Compass Group
Jupiter also intends to leverage Merian’s relationship with external distribution agency, the AMCS Group, in supporting distribution in the US offshore market. This will extend Jupiter’s distribution model, already in place in the Latin America region. AIVA will continue to support Jupiter’s business development in the LatAm retail market, while Compass Group will continue to support institutional investors.
Lopez claimed to be “thrilled” to welcome two highly experienced professionals, to Jupiter. “I look forward to working with them, and our specialist distribution partners, AIVA, AMCS and Compass Group, as we grow our presence in the region. With a newly expanded product range and team, I am confident that we can offer superior service to our clients and continue to build our assets”, he added.
Described by the firm as “a front-line approach supported by local distribution partners”, Jupiter’s distribution strategy combines the expertise and oversight of an in-house team with the specialist local knowledge of on-the-ground distribution partners.
Pixabay CC0 Public DomainPhoto: Jesse Gardner. Photo: Jesse Gardner
By investing in companies finding solutions to the environmental crisis, investors can help build a better world for future generations.
A lightbulb moment for the planet
Pressure is mounting on governments and businesses to reverse decades of environmental degradation and to safeguard the world’s natural resources for future generations. Investors can play their part by providing capital to companies developing solutions to environmental challenges. In doing so, they can contribute to a more sustainable future whilst also potentially generating an attractive return.
There is precedent for technology to help us solve our environmental issues. In the 1960s a scientist found that a semiconductor he was tinkering with produced a weak glow. No one then could have guessed at the revolution that would be unleashed by the introduction of the first light-emitting diodes (LEDs), which consume a fifth of the electricity of their predecessors and have dramatically reduced energy use across the globe.
The LED is just one of many environmental technologies that have transformed our impact on the environment. Here, we look at five areas where investors, and the companies they invest in, can help make a positive impact on the environment.
5. Plastic alternatives
Hailed as a miracle material when it was invented, plastic has fast become the planet’s worst nightmare. Since 1950, some 8.3 billion tonnes of plastic were produced worldwide, of which only 6 per cent has been recycled (1). One refuse truck-worth of plastic is dumped into the sea every minute, and some fishermen now catch more plastic than fish (2).
Companies are now producing technologically-advanced alternatives to plastic that could change things. In the fashion industry, brands such as Stella McCartney and Prada are using Econyl (3), a material made from industrial waste (including fishing nets) which reduces greenhouse gas emissions by 58 per cent compared to nylon. Wood-based materials such as Cupro, Viscose, and Lyocell are also being used in everything from gym outfits to fire resistant clothing.
Plastics still account for more than half of the global food packaging market, but 500 million tonnes of plastic could be replaced with wood-based materials (4), with the latest carton packaging allowing food and beverages to be stored for up to 12 months without refrigeration.
4. Better water use, efficiency and recycling
A quarter of a per cent. That’s how much of the world’s water is usable. The rest is too salty, too polluted or too frozen. As our population grows so does the demand for this vital resource, which is already scarce. 40 per cent of the world don’t have access to sufficient clean water (5) and the situation is deteriorating fast.
The solution is to use less water and to use it more efficiently. Technology can play a big part. Agriculture accounts for around 75 per cent of all fresh water use (6), but precision irrigation can reduce both the amount used and the pollution it causes, through reduced herbicide and pesticide use.
In cities, high-tech sensors can help to detect leaks early and even forecast in advance which pipes are about to start leaking.
As well as using and wasting less water, we need to recycle more. The waste water recycling market is growing at 20 per cent a year (7), with nanotechnology and membrane filtering among the key innovations.
3. Renewable and more efficient energy
Every year, 40 gigatonnes of carbon dioxide (CO2) – the prime culprit in global warming, is released into the atmosphere. In order to put the brakes on destabilising, man-made climate change, the net release of this greenhouse gas needs to drop to zero.
Cleaner sources of energy production will help. For example, by abandoning coal, UK CO2 emissions have dropped 29 per cent over the past decade and are now the lowest they’ve been since 1888 (8). Renewables such as wind, solar and tidal already provide a third of UK electricity, and are fast becoming cheaper than fossil fuels.
Carbon capture and storage (CCS) can be as simple as planting trees and generating biomass, or as complex as using new technology to suck CO2 right out of the air and lock it up in stone or concrete, or back into old oil or coal seams. The CCS market is growing 14 per cent a year and is projected to reach USD5.6 billion by 2026 (9).
Energy efficiency is key. For instance, LEDs have helped drop UK electricity demand back to 1984 levels8 and globally, energy efficiency represents about 40 per cent of potential reductions in greenhouse gases (10).
Companies developing smart buildings, better design, insulation and materials will benefit from the drive to use energy more efficiently.
2. Pollution reduction and removal
Air pollution alone kills almost 9 million people a year and cuts three years from our life expectancy (11) whilst more people die from unsafe water than from all forms of violence including war (12).
The growth of ever more densely populated cities threatens to make matters worse.
But disaster can be avoided. With smarter urban planning and the development of pollution-reducing technology, dirty air and water could be consigned to history.
The global air pollution control market is expected to grow dramatically in the next few years, reaching over USD 100 billion by 2027 (7). Similarly, companies developing advanced water filtration and recycling technologies are helping to build a sustainable water system fit for the future.
1. Environmental investment funds
An effective way to protect the planet for future generations is to invest in companies developing solutions to its most pressing environmental problems. The environmental solutions sector is thriving – at USD 2.5 trillion in size, it is growing at 6-7 per cent per year (7).
Environmental funds invest in some of the world’s most environmentally-responsible companies, and those building products or services to help solve environmental challenges such as climate change, air pollution and a lack of clean water, such as those highlighted above.
And investing to safeguard the planet doesn’t necessarily mean having to sacrifice performance. An increasing body of research research indicates that companies with stronger environmental, social and governance (ESG) values are likely to outperform the broader market over the long-term, and prove more resilient in market downturns (13).
Even a small investment can make a big environmental impact across a whole range of factors – from CO2 saved to renewable energy generated, or a reduction in the amount of fertiliser washed into our lakes and oceans.
Notes:
(1) Source: Our World in Data, September 2018.
(2) Source: The Guardian, March 2019.
(3) Source: Aquafil 2015 Sustainability Report.
(4) Source: Lenzing, company website, January 2019.
(5) Source: UN Water Action Decade, March 2018.
(6) Source: Encyclopedia of Water Science, Second Edition.
(7) Source: Pictet Asset Management, June 2020.
(8) Source: Carbon Brief, March 2020.
(9) Source: Bloomberg, March 2020.
(10) Source: EU 2030 Climate & Energy Framework.
(11) Source: Air Quality Life Index, November 2018.
(12) Source: UN World Water Day, March 2010.
(13) Source: Morningstar, Axioma & Boston Consulting, 2020.
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 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.
The markets have continued to show a high rate of volatility in recent weeks. The evolution of the pandemic has been a succession of bad news, with new Coronavirus cases and a loss of momentum in real time indicators. However, according to Luca Paolini, Chief Investment Strategist at Pictet Asset Management, investors continue to display optimistic tendencies based on several assumptions.
The first is that data points to a population that is better prepared to live with the pandemic in the event of a second wave of COVID-19. There is also greater optimism about the possibility of a vaccine by the end of the year, whereas only a few months ago the best forecasts predicted that it would not be available until mid-2021. The second is that the economy is in a recovery phase and if new containment measures were needed, they would be implemented in short periods of time and at the local level. The fourth is that fiscal and monetary stimuli will work in reviving the economy, and if they do not work, there will be new measures taken. Fifthly, the conflict between China and the United States is seen as rhetorical. Ignoring the voices that speak of a possible second cold war, investors believe that US elections and the vulnerability of growth in China will lead to a trade agreement between the two parties. For the bulk of investors, the crisis is temporary and so is the hit to corporate profitability.
Caution on the part of Portfolio Managers
Investor optimism contrasts with the caution displayed by fund managers in a recent global survey conducted by Bank of America. The results of this survey showed that only 14% expected a V-shaped recovery, compared with 44% expecting a U-shaped recovery and 30% expecting a W-shaped recovery, but overall, most believe the recent recovery is a rally within a bear market, a response to fiscal performance that has been “too stimulative”. Over 70% of fund managers believe the market is overvalued, similar to the first quarter of 2000. On the other hand, 74% believe that US technology and growth stocks are a popular investment options in a market where US equities, commodities, health care and large technology stocks are unprecedently overweight, and energy, materials and UK equities have been heavily underweight. In addition, over the next 10 years, managers expect global equities to perform in the 3-4% range, which is well below the more than 10% seen over the last decade.
Evolution of Daily Activity
Daily activity indicators have flattened out again. Bloomberg’s daily activity indicator, which at 100% marks a normal level of activity before the crisis, reached 30% in the second week of April, placing the main economies in a state of hibernation. In the last weeks of July, the main developed economies are at fairly acceptable levels of recovery. Japan, Germany and France lead the way by exceeding the 80% mark, Italy and Spain by more than 70%, and finally the United States, the United Kingdom, Canada and Sweden by less than 65%.
It is interesting to see that this time the US equity market looks much worse off than the bulk of the European market. Only China has a daily indicator of activity close to 100. These data show that the recovery is still going on, but that the loss of momentum is significant because consumers still perceive a high level of uncertainty in their future. The confusion also comes from governments still trying to understand how they should act.
Market liquidity and valuations
The injection of money into the economy by central banks is twice the level of 2008. A large part of this liquidity remains in the financial markets, which is why there has been a huge disconnect between capital market data and the economy.
Overall, the trend could be said to be positive. Real interest rates are negative and central banks continue to inject liquidity into an economy that shows better signs of recovery than three months ago. But, if you restrict this analysis to recent months, momentum is accelerating at a time when, if you look at valuations, they are becoming somewhat challenging.
On a scale of 0 to 100, where 0 represents an expensive asset and 100 a cheap one, at the end of July, equity levels are at 38, bond levels at 32 and commodities at 66. Pictet AM’s valuation models show that, for the first time since September 2018, equities are expensive. The market however indicates that even with negative cash flows, investors are feeling pressure to put their money to work.
Benefits Reporting Season
While bond yields depend on inflation expectations, stock returns move in line with profits. Pictet AM’s models forecast a 30% – 40% drop in US corporate earnings, while the market consensus expects a smaller drop of 20% – 30%. There is a high concentration in the S&P 500 index, where growth stocks accounted for around 50% of total earnings last year. This high concentration means that earnings per share can diverge significantly from the real economy.
This recession is hitting the service sector harder than manufacturing. This recession is three times worse than the Global Financial Crisis, but the consensus expects earnings per share to fall to about the same level as they did in the 2008 crisis. Even so, there is a positive fact to highlight, 85% of companies are reporting data which is better than expected.
What is the best market to invest in right now?
The trend seen in the last three years, where the US has outperformed almost every market, is going to change dramatically, as the US market is now expensive. At present, it shows a high concentration in large technology firms that are beginning to be exposed to regulatory problems. In addition, we have to consider the political risk lurking the US with the approach its presidential elections and the effect that the pandemic is having on the country. For these reasons, the Pictet AM strategist believes that the investment universe should be expanded to other regions.
In this regard, European shares are trading at very low levels compared to the US, and their currency, the Euro, is cheap. The recently approved emergency fund in the European Union represents a change in the region, not only for the economy, but also in investors’ perception of the European Economic Union’s crisis management. This is why Pictet AM will overweight European equities.
They are also overweighting Swiss equities. The Swiss market is a well-performing market, relatively defensive in nature and overweighting two sectors, the healthcare sector and basic consumption.
In terms of asset allocation, Pictet AM will overweight consumer staples, from a neutral position, and reduce its exposure to the financial sector, believing that the time has come to be more cautious.
In fixed income, the environment is much more complex. Bond yields are at lows in virtually all developed markets. The 10-year US Treasury bond offers a return of close to 0.50 basis points. It’s difficult to rely solely on the Fed’s purchase programme, as it does not guarantee the investor a positive return. The alternative is emerging market debt. Markets that should be more vulnerable to the coronavirus crisis have been the best performing fixed income assets, thanks to the fact that most local currencies are at very low exchange rates. In particular, Pictet AM is very optimistic about bonds in China, which are trading at a record spread over US Treasury bonds.
Finally, gold is at expensive levels, but is expected to continue to rise in price due to purchases in gold reserves being made by central banks.
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 line with its mission to promote the development of the highest standard of financial practices, the CFA Society in Uruguay has sealed an alliance with UK-based fund manager Colchester Global Investors, in order to strengthen its areas of enterprise, exchange knowledge and to work together on the various actions and activities to be developed in the country, they announced in a statement.
The institutions will hold conferences, events and training sessions so that those interested can acquire the broadest knowledge in the field and exchange information with the participation of local and worldwide experts who have excelled in this area.
“Since the formation of Society in the country in 2018, CFA Society Uruguay brings together a hundred investment professionals committed to the principles of the CFA Institute, linked to the promotion of the highest ethical standards, the promotion of financial education and professional excellence for the benefit of society as a whole,” said the CFA Society Uruguay.
With over $40 billion in assets under management, Colchester Global Investors focuses exclusively on the active management of global sovereign bonds and currencies. Headquartered in London, the company has offices in New York, Dubai, Singapore and Sydney with a client base that includes sovereign wealth funds, pension funds, funds of funds, private banks and discretionary mandates.
“Among the key aspects of focusing exclusively on sovereigns is the low correlation with managers that include credit strategies, simplicity due to the lack of complex instruments, and liquidity, especially in times of market stress. Colchester is a signatory to the United Nations Principles for Responsible Investment (UNPRI) and the Task Force on Climate-Related Financial Disclosure (TCFD),” Colchester said.
Pixabay CC0 Public Domain. XP Inc y Moneda Asset Management firman un acuerdo de distribución de fondos en Brasil
XP Inc., a leading, technology-driven financial services platform, and Moneda Asset Management, one of the largest independent investment management firms in Latin America, announced a partnership to offer Brazilian-based investors access to offshore products via new local funds.
XP has launched the Moneda Latam Credit Advisory Feeder fund, a Brazilian domiciled fund dedicated to investing into the hedged (BRL) share class of the Latam Corporate Credit fund offered by Moneda Asset management in Luxembourg.
As interest rates continue to decline globally, the search for better yields has become a focus. Specifically in Brazil, this decline has shifted the focus from a traditionally home bias investment approach, to one which focuses on searching beyond Brazil’s borders in order to improve the risk/return balance in portfolios. By dedicating local funds to investing in Moneda Asset management products, XP seeks to give investors enhanced access to investment strategies from an experienced investment manager with a compelling track record.
Today, the majority of investments in Brazil are concentrated in local managers. XP’s strategy is to open a new avenue and bring the top managers in the world to the platform and expand investment options through local feeder funds. In this context, selecting Moneda Asset Management is aligned with XP’s strategy of partnering with top-tier managers in the world.
“Starting this partnership with Moneda is a remarkable milestone for XP. Through an award-winning debt strategy uniquely managed by Moneda, we aim to provide Brazilians enhanced access to one of the best-in-class investment firms in Latin America. We are all very thrilled with this promising partnership.”, explains the Funds Specialist at XP, Fabiano Cintra.
Alfonso Duval, CEO at Moneda Asset Management stated that “we are excited to partner with XP to provide Brazilian investors with greater access to Moneda´s Credit expertise. This is a project that has been in the making for many years, and with the combination of the new macro environment, coupled with the growth of the asset class and the new investment demand, it is now the ideal time to launch this product for the Brazilian investor to take advantage of this opportunity”.
Moneda has a globally recognized investment management expertise and XP has outstanding distribution capabilities, coupled with educational engagement that seeks to guide investors in intelligent diversification that makes sense in the current domestic and international scenarios.
“This is extremely healthy for the development of the fund industry and very good for investors. And XP has used its size and innovative DNA to lead this front and improve this disproportionate domestic bias that we still see in Brazil”, says Leon Goldberg, partner at XP.
Foto cedida. Lynk lanza Buyside Power Women Initiative
Lynk, a pioneer of the knowledge-as-a-service industry, announced the launch of Buyside Power Women, an editorial series that aims to increase visibility of female leaders and male allies in the investment management industry.
Peggy Choi, Founder and CEO of Lynk, said: “As a woman coming from the buyside myself, I have seen many women, despite being qualified for the roles, choose to opt out of a career on the buyside for reasons such as lifestyle or absence of sponsorship. Now, as a CEO, I strive to create an environment that is inclusive for all our team members, regardless of one’s background, and see driving diversity within the industries that we serve as part of Lynk’s mission. As you can see from the leaders in this Buyside Power Women series, there are many tangible ways for firms to help women take more calculated risks on a more even playing field.”
With regular editorial articles and live events, Buyside Power Women features top industry leaders on the buyside from all regions to highlight how advocacy for diversity could influence future capital allocation. Among the leading voices featured are top executives from global firms including PIMCO, AIA, Schroders, BNY Mellon Investment Management alongside regional buyside firms.
Kimberley Stafford, Managing Director and Head of APAC of PIMCO, sees increasing the talent pool on the buyside as a top priority, “we have been seeing a decline in terms of female MBA students opting to focus on finance…When we asked them about the reason why, the majority of them told us they just could not envision how they could integrate a career on the buyside and the personal life that they want. So one thing the buyside needs to do more is spend time demystifying how it is possible to have a fruitful personal life and career life on the buyside as this will help increase the talent pool.”
Mark Konyn, CIO of AIA Group, an outspoken advocate for women empowerment on the buyside, said, “I’ve worked alongside many great women who contributed significantly and consistently over time. Yet, as I reflect back, have women fulfilled their potential at senior levels? Probably not. If you go back 20 years in Asia, you could say women representation was still nascent and needed time to develop, but that’s no longer an excuse in 2020.”
Virginie Maisonneuve, Founding Partner and CEO of MGA Consulting, suggested, “if financial firms are required to report on sustainability and ESG, and if regulators also ask for those reporting, companies across the globe will have to think more about sustainability and diversity. If we start measuring everything, the bigger picture will become clearer.”
Markets have rallied sharply on unrelenting policy stimulus, but Covid-19 has yet to be defeated. Fears of a second wave and mounting political risks argue for investor caution. Below, Pictet Asset Management (Pictet AM) shares their views on Equities regions and sectors:
Europe shines but time to cut back on financials
Whether the vantage point is the economy, the political landscape or Covid-19, Europe appears to be in better shape than the US. Which is why Pictet AM retains an overweight position in European stocks. EU member states’ endorsement of the Franco-German led EUR 750 billion recovery fund last month and the ECB’s continued monetary stimulus put the European economy on a much firmer footing; Pictet AM has consequently raised their forecast for the region’s GDP growth for 2021 by 1 percentage point to 7 per cent.
Crucially for investors, Europe’s stock markets do not yet discount the region’s improving economic prospects. Particularly when compared to their US counterparts. At current levels, the gap in US and European price to book ratios (3.7 vs 1.7) implies American corporations’ return on equity will further outpace that of European firms, widening from a differential of 5 percentage points to over 10 percentage points. Such an outperformance looks highly unlikely.
US stocks are already very expensive in any case. For US equities to maintain their current price-earnings multiple of around 24, corporate profit margins would have to remain stable. That is a stretch, particularly when factoring in the US’s continued failure to contain Covid-19, the growing regulatory backlash against Silicon Valley and uncertainty surrounding the outcome of the November Presidential election. Mindful of these risks, Pictet AM remains neutral US stocks.
With an increase in consumer spending a feature of the recovery taking hold in parts of the world, Pictet AM is attracted to consumer staples stocks. The sector has failed to keep pace with the broader market rally, which has been led by cyclical stocks. As Fig.3 shows, consumer staples trade at just a 10 per cent premium to the broader global market – down from over 20 per cent in March and the 10-year average of 25 per cent. Consumer staples companies’ improving earnings growth suggests their stocks warrant a higher premium.
To maintain a defensive tilt in their equity allocation, Pictet AM has reduced their weighting in financials to underweight. Although banks’ bad debt provisions resulting from pandemic-induced lockdowns have been largely in line with expectations, they remain acutely vulnerable to any setback to the smooth reopening of economies.
Moreover, dividend payments are unlikely to recover for the foreseeable future. Regulators across the world– including the ECB, the Fed and the UK’s Prudential Regulatory Authority – have moved aggressively to either cap bank dividend payments or temporarily suspend them. This greatly reduces the investment appeal of financial stocks.
Please click here for more information on Pictet AM’sInvestment Outlook.
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.
The Alternative Investment Management Association (AIMA) and international law firm Simmons & Simmons have recently published a paper that examines how short selling can be used in the context of responsible investment. To do so, they have worked with some of the world’s leading alternative investment managers, revealed AIMA in a press release.
The research document describes how hedge fund firms can use their investment abilities to accomplish an important goal of responsible investment: protecting against undesired key risks such as climate risk. “Carbon footprinting” is one of the examples they used.
“By properly accounting for the carbon exposure of both their long and their short portfolios, alternative investment managers and their investors can gain crucial insights into how exposed their investments are to climate change and the attendant policy changes”, AIMA said. Short selling can thus be used to accomplish a key goal of responsible investment: protecting investors from ESG risks.
In their view, short selling can also be used to create positive impacts for the broader markets. Short selling campaigns are often triggered by ESG concerns such as questionable issuer governance, poor employee safety practices, environmental issues and even alleged human rights abuses. Alternative investment managers have a long and successful track record of discovering governance failures, as witnessed by the recent Wirecard scandal. They use this same expertise to expose environmental and social failings of issuers, creating more transparent, safer markets for investors around the world.
In that sense, AIMA CEO Jack Inglis commented that alternative investment managers have always been at the forefront of investment innovation. Today, they are using one of their defining abilities (short selling) to protect their investors from novel risks, and to make markets as a whole safer.
“We are happy to see this fact gain increasing recognition from investors and leading organisations such as the PRI, and we have no doubt that short selling will soon be seen not just as valuable for responsible investment, but essential”, he added.
Meanwhile, Darren Fox, Partner in Simmons & Simmons claimed to be “delighted” to have been able to assist AIMA in producing the Guide. “To dismiss short selling as not having a role to play in the context of ESG would be naïve. One only has to look at the recent events relating to Wirecard to realise that short selling has an important role to play within the ESG framework”, he stated.
Fox pointed out that AIMA has “a vital role” to play in fostering the debate on this very important issue and the new Guide should help to stimulate and move forward that debate.
Despite the market downturn resulting from the ongoing COVID-19 pandemic, secular trends in the asset management market that made the environment ripe for consolidation during the past five years (fee compression, outflows from higher-cost active strategies, and product rationalization) are not likely to disappear any time soon, according to the latest Cerulli Edge “U.S. Asset and Wealth Management”, an overview by Cerulli Associates.
In order to combat fee compression, shrinking shelf space, and the rising cost of compliance due to stricter regulations, numerous subscale managers have joined forces. These subscale deals are aimed at strategic expansion into broader markets around the globe and consolidation/rationalization of product lineups to focus on top-performing strategies.
“In theory, these are the kinds of M&A deals that make sense on paper, but they can also serve as cautionary tales of the difficulties of melding operations within different firms with varying cultures,” comments Bing Waldert, managing director. According to him, mergers of this type typically lead to at least some level of reorganization and staffing reductions that run the risk of disrupting a business in the near term after a deal is finalized.
For newly created mega-firms, that there remains considerable potential for growing pains and uncertainty stemming from their efforts to increase scale through outside acquisitions. For Cerulli Associates, a clearer path to success may reside in another type of M&A deal: the strategic acquisition of smaller firms with strong brands and industry reputation.
“We have observed an increasing amount of M&A deals that primarily focus on the opportunistic acquisition by larger firms of specific capabilities and brands known for their specialization in a given sector, like alternative investments and environmental, social, and governance (ESG) offerings,” says David Fletcher, senior editor of the firm.
The Focus on Alternatives and ESG
Alternative investment capabilitiesare an attractive M&A target for many asset managers given investors’ increasing interest in uncorrelated, risk-adjusted allocations and these products’ relatively attractive revenue potential. Alongside the 74% of firms polled by Cerulli in 2020 citing the potential for increasing revenues as motivation for developing alternative investment capabilities, 59% point to business diversification as a chief driver.
According to Fletcher, the buy option is attractive to many firms that lack in-house expertise and seek quick speed to market. “Acquisition of firms with strong reputations in niche spaces makes sense for larger managers with the luxury of going the ‘buy’ route as opposed to building internally”, he says. Cerulli survey data suggests that, in the case of alternatives, there will be increased use of in-house teams and affiliates to build product lines in the near term as opposed to outsourcing to unaffiliated subadvisors.
In addition to the alternatives space, Cerulli has seen an increasing number of managers expanding via specialized firm acquisitions in the ESG-related product universe. Nearly one-quarter of firms polled are in the process of developing ESG capabilities during the next two years. For some firms, there will be significant cost to building these processes and staffing them. Therefore, as asset owners continue to place increased scrutiny on asset managers’ business practices and processes, Cerulli expects that more M&A activity related to ESG/responsible investing will occur in the near term.
“While pandemic-related uncertainty may impact deal flow in the short term, asset manager consolidation is likely to continue”, says Cerulli. They think that, in addition to monitoring how larger M&A transactions transform the companies involved in coming years, firms should pay attention to the smaller mergers that afford those with more diversified investment capabilities. “These deals could help asset managers broaden their existing product offerings while also expanding their product suites into specialty, niche areas where they may enhance their revenue streams”, they conclude.
