Marc Pinto, courtesy photo. Janus Henderson Investors prepara la salida de Marc Pinto de cara a su jubilación en abril de 2021
After more than 26 years at Janus Henderson and 34 years in the industry, Marc Pinto is retiring from Janus Henderson Investors and the mutual fund industry, effective April 2, 2021.
As part of a robust succession planning effort for all their investment teams, the company is pleased to announce Jeremiah Buckley will assume primary portfolio management responsibilities for the Growth & Income strategy and the equity portion of the Balanced strategy, effective April 2, 2021.
“Both Marc and Jeremiah were instrumental in building the foundation of the successful effort that generated compelling risk-adjusted returns for our clients over many years. Given the lengthy transition period, Jeremiah’s 22 years of experience and their many years of partnership, we expect this to be a seamless evolution”. Ignacio de la Maza said in an emailed statement.
In connection with this transition, David Chung, Industrials Sector Lead and Research Analyst of the Centralized Research team, has been appointed Assistant Portfolio Manager on the Janus Henderson Balanced strategy and Janus Henderson Growth & Income strategy, effective June 30, 2020. The company stated that there are no changes to either the Fixed Income sleeve of the Balanced strategy or the Growth & Income strategy, nor to either strategy’s investment process or philosophy.
“I want to thank Marc for his many contributions to Janus Henderson and our clients over the past 26 years. He is an excellent investor and an exceptional leader. He and his team demonstrated their skill by delivering strong results for clients across several of our strategies over many years. Marc will continue working with the team through his retirement on April 2, 2021, which is a reflection of his professionalism and commitment to our clients.” Wrote de la Maza.
“I have the utmost confidence in the continuing investment team, whose investment process, philosophy and team approach remain unchanged. We are fortunate to possess significant professional depth and robust transition plans which are designed to respond to naturally occurring personnel changes without significant disruption to our clients or our business. This should result in an orderly transition for clients.” De la Maza concluded.
Foto cedidaKeith Skeoch, former CEO Standard Life Aberdeen.. Stephen Bird sustituirá a Keith Skeoch como CEO de Standard Life Aberdeen
Stephen Bird joins Standard Life Aberdeen as chief executive-designate, effective July 1, replacing Keith Skeoch later in the year.
Following a handover period, and subject to regulatory approvals, Bird, who was most recently CEO of global consumer banking at Citigroup, is expected to replace Skeoch as Group CEO by Sept 30.
Skeoch will retire from the board of directors of the firm in September, after five years as group CEO and 14 years as a director. He will spend the remainder of his contract — until June 2021 — as non-executive chairman of the Aberdeen Standard Investments Research Institute. The ASIRI is the firm’s macro research unit.
Bird “is an inspiring leader with a great track record and experience in leading businesses to harness digital technology to improve both productivity and the client and consumer experience,” Sir Douglas Flint, chairman, said in the release. “This, coupled with his ability to create valuable partnerships and guide businesses through periods of major change, means that he is well placed to build on the strong foundations we have at SLA.”
Stephen Bird said: “I am delighted to be joining Standard Life Aberdeen as its next Chief Executive. This is a company with a great history, a strong brandand an exciting future. The current crisis has highlighted the importance of active asset managementas well as building greater resilience into personal financial planning. SLA’sleading asset management, platforms and wealth capabilities give great scopeto help clients and customers navigate these challenges; thisis what attracted me to the company. I am looking forward to working with my new colleagues tocreate a better future for all our stakeholders.”
Standard Life Aberdeen, which has £544.6 billion ($671.6 billion) in assets under management and administration, was formed in 2017 following a merger between Standard Life and Aberdeeen Asset Management. The group is made up of two businesses: The £486.5 billion money manager Aberdeen Standard Investments and Standard Life. Mr. Skeoch was CEO of insurer Standard Life prior to the merger. The group has a strategic partnership with insurance firm Phoenix Group, which acquired Standard Life Assurance in 2018.
Valerio Schmitz-Esser, courtesy photo. Credit Suisse AM amplía su gama de ETFs con dos nuevos fondos de renta variable que invierten en small cap y en el sector inmobiliario
Credit Suisse Asset Management has launched two additional ETFs. The CSIF (IE) MSCI USA Small Cap ESG Leaders Blue UCITS ETF and CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF. The two funds are trading on SIX Swiss Exchange, Deutsche Börse, and Borsa Italiana.
Like the existing Credit Suisse Asset Management ETFs, the new products are being launched under the Credit Suisse Index Fund (IE) ETF ICAV umbrella. With US small caps and global real estate, the funds offer exposure to two interesting and promising segments. Both new ETFs bear the label “Blue”, which stands for Credit Suisse Index Funds without securities lending, and both fit into the strict Credit Suisse ESG framework.
The CSIF (IE) MSCI USA Small Cap ESG Leaders Blue UCITS ETF gives access to a broadly diversified portfolio of US small-cap stocks with market capitalizations below USD 10 bn. The eponymous benchmark index screens the investment universe for environmental, social, and corporate governance performance and thereby represents approximately 50% of the US small-cap opportunity set.
The CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF invests in a global portfolio of environmentally friendly real estate stocks and real estate investment trusts (REITS). In a low-yield environment, listed real estate combines stable rental income with long-term protection against inflation.
Since Credit Suisse Asset Management launched a new range of exchange-traded funds (ETFs) in March 2020, these products have already surpassed USD 2 bn in assets under management.
Credit Suisse Asset Management made its return to the ETF market on March 16, 2020. Since then, their ETFs have raised more than USD 2 bn and are fast becoming an integral part of a broader range of 98 index funds with USD 104 bn (as at May 31, 2020) in combined assets.
“Our long-standing experience in index funds has given us the requisite know-how to succeed in ETFs,” said Valerio Schmitz-Esser, Head of Credit Suisse Asset Management Index Solutions. “The efficiency of our processes and the precision of our techniques make our ETFs ideally positioned to take full advantage of the potential in this segment.”
. Task Force on Climate Related Financial Disclosures (TCFD) lanza recomendaciones traducidas al español
The Task Force on Climate-related Financial Disclosures (TCFD) launched on June 26th, the Spanish translation of its recommendations at a virtual event hosted in collaboration with EY. The translations were arranged by the Embassy of the United Kingdom in Chile. While the launch event addresses Chilean market participants in particular, the translations encourage wider adoption of climate disclosure practices across the entire Spanish-speaking business community.
The online event included remarks from Head of the TCFD Secretariat Mary Schapiro, EY Chile Chairman Cristian Lefevre, and COP26 Regional Ambassador for Latin America & Caribbean Fiona Clouder, followed by a panel discussion between Alan Gómez, Vice President of Sustainability at Citibanamex and TCFD Member; Kevin Cowan, Commissioner of the Comisión para el Mercado Financiero (CMF); and Francisco Moreno, Undersecretary of Finance for the Chilean government; and moderated by Elanne Almeida, Partner at EY. The panel discussed about the risks and investment opportunities in the market associated with climate change.
“Businesses across Latin America have a vast opportunity to become global leaders in disclosing and addressing the financial threats of climate change – and helping build a more resilient global economy,” said Mary Schapiro, Head of the TCFD Secretariat and Vice Chair for Global Public Policy at Bloomberg LP. “We are proud to make the TCFD recommendations more accessible to the business community across Latin America, and hope that the translations will foster accelerated uptake across the region.”
The Task Force, which is chaired by Michael R. Bloomberg, provides recommendations for companies to disclose climate-related risks and opportunities and the financial implications of climate change on their businesses through the TCFD’s globally recognized voluntary disclosure framework. Increased transparency on climate-related issues, as a result of disclosures, will help to promote more informed financial decision-making by investors, lenders, and insurance underwriters.
“While the countries of Latin America are unique and diverse, we are unified by the fact that greater disclosure of climate risk will help the financial community better allocate capital towards companies and industries across the region that are best prepared to address those risks,” said Alan Gómez, TCFD Member and Vice President of Sustainability at Citibanamex. “We thank our partners at the UK Embassy in Chile for dedicating the time and resources to translate the TCFD recommendations into Spanish, and we look forward to supporting the entire financial community – from investors to asset owners – in the journey toward more information and greater transparency when it comes to climate risk.”
“EY is committed to leading the dissemination of the TCFD recommendations to entities in Chile, Latin America and across the Spanish-speaking world,” said Cristian Lefevre, EY Chile Chairman. “Greater implementation of the TCFD recommendations will increase transparency and provide information to international market and global investment funds seeking to invest in companies and projects in the region that are prepared to tackle the long-term risks of climate change to their business. At EY, we are well-positioned to advise companies that want to join this voluntary disclosure framework of climate risks and opportunities.”
“As we rebuild our economies, disclosing in line with the TCFD recommendations is one of the key tools at the heart of building a resilient foundation for a clean economic recovery and net zero future,” said Fiona Clouder, COP26 Regional Ambassador for Latin America & Caribbean. “The Spanish version of these recommendations will help support key discussions on paving the path for sound, sustainable and inclusive growth across the region and raising climate ambition ahead of the COP26 next year.”
As of June 2020, more than 1,300 organizations around the world are official supporters of the TCFD. Supporting organizations and companies span the public and private sectors and include corporations, national governments, government ministries, central banks, regulators, stock exchanges and credit rating agencies. By publicly declaring their support for the TCFD and its recommendations, these companies and organizations demonstrate their commitment to building a more resilient financial system through climate-related disclosure. Widespread implementation of the TCFD recommendations will provide investors, lenders, and insurance underwriters with the information necessary to understand companies’ risks and opportunities from climate change.
CC-BY-SA-2.0, FlickrPhoto: Martin Abegglen
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Regulation BI is the new client-care regulation from the Securities and Exchange Commission that takes effect next Tuesday, and many firms have been leveraging its implementation to modify and sometimes prune their product offerings. That is the case of UBS Wealth Management USA, which will expand its offering of Separately Managed Accounts (SMA) with no additional investment manager fee to third party asset managers.
Starting July 7, clients will have access to nine additional strategies in this innovative pricing model, including Natixis Investment Managers/AIA, Breckinridge Capital Advisors and Goldman Sachs Asset Management, across equity and fixed income asset classes.
In August, another nine strategies are expected to join from Franklin Templeton, Invesco, Brandes Investment Partners and PIMCO. All SMA strategies will be made available via WM USA’s ACCESS, Strategic Wealth Portfolio (SWP) and/or the recently launched Advisor allocation Program (AAP) platforms.
In January 2020, UBS launched an innovative, simplified, all-inclusive pricing structure for all strategies available from UBS Asset Management and became the first firm to provide clients with access to select SMAs with no additional manager fee. The fee paid to investment managers will, instead, be borne by UBS. Certain strategies —such as sustainable investing or personalized tax management— can be selected for a fee.
“This is a win for our clients and Advisors – we’re simplifying SMA client pricing, expanding choice and transparency, and aligning our offering with the SEC’s Regulation Best Interest,” said Jason Chandler, Head of Wealth Management USA, UBS Global Wealth Management. “At the same time, we’re investing in our Advisors’ success, enhancing our advisory value proposition, and giving clients increased pricing flexibility.”
UBS is committed to offering an open and transparent platform, and as additional managers realize the benefits of this pricing model, it should allow UBS to further reduce the cost of SMAs for its clients.
“We’re committed to open architecture and are delighted that a premier group of asset managers have joined UBS Asset Management in this approach,” added Steve Mattus, Head of Americas Advisory and Planning Products. “We focus on delivering the best ideas, solutions and capabilities to our clients regardless of where those resources originate.”
According to Boston Consulting Group (BCG), “the wealth management industry is over 200 years old. Yet for most of that history, providers have operated according to the same general playbook. It took the massive digital and regulatory disruption of the past 20 years to begin shaking up industry business models, and evidence suggests that most providers have moved slowly, with many still adhering to traditional ways of private banking.”
Wealth managers must take action on multiple fronts in order to navigate ongoing market volatility and build fresh capabilities that will enable them to create sustainable competitive advantage over the next decade, according to a new report by BCG, titled Global Wealth 2020: The Future of Wealth Management—A CEO Agenda.
BCG’s 20th annual study of global wealth management takes a 20-20 view of the industry, looking back over the past two decades as well as ahead to 2040. Its review of global market sizing, which encompasses 97 markets, provides a detailed retrospective on wealth growth over the past 20 years—and its resilience through downturns—and evaluates the potential long-term impact of the COVID-19 crisis.
BCG has also created a vision for the future of wealth management, examining how the industry’s value proposition and offerings will change over the next two decades, how forms of interaction will evolve, and which new business models will emerge. Finally, BCG offers wealth management CEOs a comprehensive agenda for protecting the bottom line, prioritizing the areas in which they hope to win in the future, and building appropriate supporting capabilities.
“Effectively serving the world’s wealthy is going to get far more complex in the years ahead,” said Anna Zakrzewski, a BCG managing director and partner, coauthor of the report, and global leader of the firm’s wealth management segment. “As the demographics of wealth shift, so will the needs and expectations of wealth clients. With all the choices available, clients don’t necessarily want more—they want better. In addition, the disruptive forces that emerged at the beginning of the century are accelerating. And as digitization lowers barriers to entry to wealth management as a business, competition will intensify and offerings that once provided differentiation will face commoditization.”
Global Wealth Growth. According to the report, a striking feature of wealth growth over the past two decades has been its extraordinary resilience. Despite multiple crises, wealth growth has been stubbornly robust, strongly recovering from even the most severe tests. Today, more wealth is in more hands, and the wealth gap that separated mature markets and growth markets at the beginning of the century has narrowed dramatically. Globally, personal financial wealth has nearly tripled over the past 20 years, rising from $80 trillion in 1999 to $226 trillion at the end of 2019.
The CEO Agenda. In the report, BCG outlines three potential scenarios for post-COVID-19 growth: “quick rebound,” “slow recovery,” and “lasting damage.” Regardless of which scenario emerges, wealth management providers are likely to face more pressure, and many of them were already in challenging positions before COVID-19. Client needs and expectations are changing at an accelerated pace, competition is intensifying, and cost-to-income ratios have been significantly higher than prior to the previous financial crisis (77% in 2018 compared with 60% in 2007).
Although some wealth management providers have made advances in recent years in adapting their businesses to the changing environment, nearly all still have considerable work to do. CEOs must treat 2020 as a pivotal point. BCG’s recommended agenda for wealth management CEOs features three key imperatives:
Protect the bottom line by pursuing smart revenue uplift, optimizing the front-office setup, streamlining compliance and risk-management processes, and improving structural efficiency.
Win the future by developing more-personalized value propositions, enhancing ESG and impact-investment offerings, designing challenger plays, and leveraging ecosystems and M&A.
Build capabilities by gaining better client understanding, attracting top talent, investing in digital and data, and designing a state-of-the-art technology platform.
“The last twenty years have witnessed many peaks and valleys,” said BCG’s Anna Zakrzewski, “and the next twenty will likely bring the same. Although some of the necessary initiatives may not be new, there is much more progress to be made. By acting decisively now, wealth managers have an opportunity to build on their current momentum and position themselves optimally for the future.”
In BCG’s opinion, the melding of technology and human capabilities will enable levels of customization for clients that previously would’ve been too costly, and the wealth management model will expand and refocus during the next two decades as the divide between people and machines fade. However, this will also put further pressure on margins.
“In addition, younger generations, accustomed to pricing transparency in other parts of their professional and personal lives, will insist on greater fee transparency from their wealth advisors,” the report said. “Online comparison tools will make it easy for them to search for the most competitive offerings. Together, these pressures could cut margins on investment services by half, with the result that wealth management providers will have to meet clients’ burgeoning demands and find new ways to drive value with just a fraction of today’s resources.”
To counter that, wealth management firms should shift to dynamic, value-based pricing not necessarily linked to assets under management.
Elsewhere, BCG said the need for scale, specialization and choice could cause the wealth management industry to remake itself around four models, Large-scale consolidation,Niche Plays, Retail Bank and Asset Manager Expansion, andEntrance of Big Tech.
The local currency emerging market debt asset class had a strong positive return in 2019. Despite the fears of a global slowdown part way through last year, investors in the asset class enjoyed a 13.5%[1] return in USD unhedged terms. The impact of Covid-19 however has negatively affected the asset class this year. Risk aversion and uncertainty have swept through markets as investors and policy makers have grappled with the short and long run consequences of the virus. Emerging markets have been caught up in that dislocation, prompting some to question the value on offer in this segment of the fixed income market. As the dust settles and the picture becomes clearer, we find an asset class with valuations near historic lows.
The local currency emerging market debt asset class suffered a large negative return in the first quarter of 2020. The -15.2% decline was the largest quarterly fall in the JP Morgan GBI-EM Global Diversified Index since its inception in 2003 (in USD unhedged terms). It is important to separate the sources of return when looking at local currency debt and differentiate between the return from bonds and that from currencies. Historically the separate bond and currency return streams have not been highly correlated, with a correlation of 0.55. The currency element is also more volatile than the underlying bond component. In this occasion as in previous episodes of volatility, emerging currencies were more affected by the correction than bonds which proved somewhat more defensive.
While some individual countries were more exposed to their own unique and identifiable issues, the bond component of the JPM GBI-EM Global Diversified index declined by -1.4% in the first quarter of 2020 (in USD hedged terms). This was a particularly strong performance given the scale of the economic disruption caused by the crisis. It also stands in contrast to the -13.5%decline in the bond component of the global high yield index[2] and the -4.2% fall in the global investment grade corporate bond index[3] (both in USD hedged terms).
In contrast, emerging market currencies were negatively impacted by the “virus shock” in the first quarter, compounded in some instances by the sharp decline in oil and other commodity prices. In aggregate, the currency component of the local market debt index declined by -14.3%[4] versus the USD in the first quarter.
To assess the attractiveness of the asset class today, we can look at the real yield and real exchange rate valuations on offer in absolute terms and relative to history. Combining the two provides an assessment of the current potential of the asset class.
Colchester’s primary valuation metric for bonds is the prospective real yield (PRY), using an in-house inflation forecast rate which is discounted from that country’s nominal yield. We supplement this with an assessment of the country’s financial soundness. The virus induced adverse demand/supply shock and large decline in the price of oil (which fell two-thirds in the first quarter of 2020) and other commodities prompted us to revise our inflation forecasts lower within our emerging market universe. The large fall in the exchange rate in some countries tempered that revision, but the pass through to domestic inflation of such exchange rate depreciations has declined markedly over the past decade.
The resulting decline in our inflation forecasts and rise in nominal yields in some markets has seen an increase in the overall attractiveness of emerging market bonds on a prospective real yield which now sits around the average of the post Global Financial Crisis period.
Colchester’s primary valuation metric for currencies is an estimate of their real exchange rate – or purchasing power parity (PPP). We supplement this with an assessment of the country’s balance sheet, level of governance, social and environmental factors (ESG), and short-term real interest rate differentials (i.e. “real carry”). Emerging market currencies were already trading at attractive levels of valuation versus the US dollar according to our real exchange rate valuation estimates before the coronavirus crisis, the dislocation and uncertainty surrounding the pandemic has made them even more attractive for a USD based investor.
Combining the prospective real yield bond and the real exchange rate valuations together to produce an aggregate prospective real yield for the benchmark, suggests that we are now at levels only seen a few times historically. The value on offer in the local currency asset class today is on a par with that seen at the depths of the Global Financial Crisis in 2009 and most recently in 2015 when US dollar strength combined with some idiosyncratic country issues to produce compelling value in the space. The average benchmark total return in the two years following the three previous episodes of similar extreme valuation – June 2004, January 2009 and September 2015 – was +33.7%[5].
Valuations must be viewed within the context of the fundamentals. In other words, are the declines in currency values and increase in real yields occurring for justifiable reasons? In short, the answer would appear to be ‘no’ when looking at the emerging market universe in aggregate.
Going into the pandemic, emerging markets as a whole were arguably on a more stable footing than developed market peers on several metrics. Looking at debt-to-GDP ratios for example, shows that emerging markets had less than half as much debt as developed markets. Furthermore, the relatively lower increase in government debt in emerging markets over the last 10 years or so highlights their more cautious approach to macro-economic management and the widespread adoption of generally prudent and orthodox policies. The external position of many emerging markets also looks comparatively solid when one considers short- and long-term financing needs.
History also shows that countries with more overvalued currencies tend to be more exposed to an adjustment and reversal in capital flows. In simple terms, the greater the need for foreign capital and the more overvalued a country’s real exchange rate, the more exposed or vulnerable that country is. Most emerging markets are in the less vulnerable with undervalued exchange rates and little to no dependency on short term capital inflows.
The credit rating profile of the local currency emerging market debt asset class has remained at a healthy average of BBB+ for the past several years[6]. However, given the emergency Covid-19 fiscal packages and the associated growth slowdown, several rating agencies have recently acted quickly to downgrade several issuers in the universe such as Mexico, Colombia and South Africa. In contrast, countries in the developed world like the United States and the United Kingdom have not yet had their credit ratings altered[7] despite spending and pledging upwards of 11% and 19% of GDP respectively (to date, and counting) to help their economies weather the pandemic. In comparison, the Mexican and the South African government spending and support packages have amounted to a paltry 1.1% and 0.6% of GDP (to date).
From a purely ‘quantitative’ aspect, looking at some of the various balance sheet metrics, it is difficult to understand how some emerging countries can be rated lower than some of their developed market peers. Clearly you would expect the level of a sovereign’s debt to be a key factor. While there is a relationship between debt levels and ratings, there is a clear differentiation between developed markets and emerging markets. Emerging markets are currently rated lower at the same level of debt across the board, all else being the same.
One explanation for the difference lies amongst ‘qualitative’ factors. This encompasses things like a country’s historical precedent, the consistency of policy, the social-political willingness to undertake necessary adjustments and the level of governance, which includes things such as the control of corruption and rule of law. This traditionally is seen as a weakness by the rating agencies.
Overall however, despite the virus induced deterioration in the fiscal metrics, we believe that the balance sheets of most countries within the emerging market universe remain sound. Rating agencies may continue to downgrade across the sector, but the fundamentals are not pointing towards a meaningful increase in the risk of default. On the contrary, the benchmark is solidly “investment grade” and is likely to remain so in the absence of a further global melt-down.
While the real yields of emerging market bonds have returned to near their long-term average historical valuations, emerging market currencies are currently extremely undervalued in USD terms. This gives the asset class an added source of potential return. Historically this level of valuation has proved to be extremely attractive.
There remain some good reasons for the difference in credit ratings between the developed and emerging world. However, the differences may not be as large as some perceive and on balance, most countries within the emerging market universe should weather the Covid storm.
[1] JPM GBI-EM Global Diversified USD Unhedged Index
[3] ICE BofA Global Corporate Bond USD Hedged Index
[4] JPM GBI-EM Global Diversified FX Return in USD Index
[5] The total return on the JP Morgan GBI-EM Global Diversified Index (unhedged USD) between June 2004 and June 2006 was 27.7%, between January 2009 and January 2011 was 47.7% and between September 2015 and September 2017 was 25.6%.
Ricardo Soto has joined Norman Alex, an international consulting boutique providing executive search and corporate development services to clients within the financial services sector.
Soto, who is based out of Montevideo, will be in front of the company’s new Uruguayan office, covering the Latin American region and working closely with Norman Alex’ Miami office.
He has an extensive background in the financial services industry working for multinational banks. For the last three years he served as a Partner of a Swiss consulting and recruitment boutique based in Zurich and focused on wealth management.He also spent more than fifteen years at Citibank based in Montevideo and New York covering different areas but mostly private banking. He developed the wealth management activity in Uruguay managing a team of over thirty people and also led a project to implement credit sales teams throughout the region. Previously, he worked seven years for American Express Bank in several senior positions.
Soto speaks fluent English and Spanish (native language) and learnt French during a year in Geneva.
Established in 1997 in Monaco, Norman Alex has offices in Geneva, Paris, Luxembourg, London and Miami and they are looking to establish a presence in Singapore next year.
Pixabay CC0 Public Domain. La UE regula las plataformas de crowdfunding y crea un nuevo servicio de gestión de carteras de préstamos
Financial professionals, including investment advisers, wealth managers, broker/dealers, and financial planners, expect US stock returns to climb back from steep losses to finish the year down just 3.6%, according to findings of a survey published by Natixis Investment Managers. Despite seeing losses as high as -34% within the first few weeks of the crisis, financial professionals saw losses moderate to as little as -10% by the end of April.
The survey showed that 51% of financial professionals globally saw initial volatility caused by the coronavirus crisis as driven more by sentiment than by fundamentals. Optimistic the market will continue to right itself in the second half of the year, financial professionals’ main concern is the uncertainty of what happens next, including how investors handle it.
Between March 16 and April 24, 2020, Natixis surveyed 2,700 financial professionals in 16 countries, including 150 financial professionals in Mexico, and found that, globally, respondents forecast a loss of 7% for the S&P 500 and a loss of 7.3% for the MSCI World Index at year end. Their 2020 return expectations more closely resemble the modest declines seen in 2018 than in 2008, when the S&P plunged 37% and the MSCI posted a loss of 40.33%. In the US market, the outlook is more optimistic, but elsewhere, financial professionals are notably more pessimistic about stock performance in their own markets, with those in Hong Kong, Australia and Germany all projecting double digit losses for the year.
Ongoing volatility remains the top risk to portfolio performance and market outlook. Two-thirds (69%) of professionals globally cite volatility as a top concern, followed closely by recession fears (67%). Almost half (47%) say uncertainty surrounding geopolitical events poses a risk to their portfolios. In a dramatic shift in risk concerns from previous years surveys, a fifth of respondents (19%) expressed concern about low yields, while liquidity issues were also cited by 17% of those surveyed.
Resetting expectations: Hard lessons and teachable moments
After a 12-year run in which the S&P 500 delivered average annual returns of nearly 13%, and fresh off record highs in January and February, the magnitude of losses caused by the coronavirus pandemic was swift and stunning. Never mind that nearly half of financial professionals (47%) agree that markets were overvalued at the time; eight in 10 (81%) believe the prolonged bull market had made investors generally complacent about risk. And as long as the markets are up, 49% of respondents say their clients resist portfolio rebalancing.
The survey found:
67% of financial professionals think individual investors were unprepared for a market downturn (63% in Mexico)
75% (72% in Mexico), suspect investors forgot that the longevity of the bull market was unprecedented, not the norm, historically
76% -67% in our country- think individual investors, in general, struggle to understand their own risk tolerance, and the same number say clients don’t actually recognise risk until it’s been realized
“The market downturn – and expected recovery – serves as a lesson in behavioural finance, even if learned the hard way through real losses and missed goals,” said Dave Goodsell, Executive Director of Natixis’ Center for Investor Insight. “Investors got a glimpse of what risk looks like again, and it’s a teachable moment. Financial professionals can show their value by talking with clients in real terms about risk and return expectations, helping them build resilient portfolios and how to keep emotions in check during market swings.”
Nearly eight in 10 financial professionals (79%) globally and in Mexico, believe the current environment is one that favours active management. For those who embrace volatility as a potential buying and rebalancing opportunity, it’s another teachable moment for portfolio positioning and active management. Almost seven in 10 advisers, both global and in Mexico, agree investors have a false sense of security in passive investments (68%) and don’t understand of the risks of investing in them (72%).
Financial professionals are responding to new challenges managing client investments, expectations and behaviour. Under regulatory, industry and market pressure, their approach is changing on all fronts: investment strategy, client servicing, practice management and education. In a series of upcoming reports, the Natixis Center for Investor Insight will explore in-depth how financial professionals are adapting.
The COVID-19 pandemic has caused extreme volatility in the financial markets this year, which represents additional challenges for Brazilian investors. Concerns about the impact of the novel coronavirus led the Brazilian government to bring down its projected growth this year from more than 2% to 4.7% contraction. Given these factors, where should investors in Brazil look to drive growth and outperformance during such a difficult time?
New opportunities from disruption
Many Brazilian investors have been forced to explore alternative options outside of their traditional fixed income portfolios, due to historically low interest rates. Despite attractive returns in the local equity index (IBOV) over the past 10 years, the Brazilian Reais exchange rate with the U.S. dollar went from 1.5 to 5.4. This leads many Brazilian equity investors to believe that they have missed opportunities abroad, and as a result, they are now looking for ways to diversify their portfolios.
Fortunately, the impact of technological advancements on the Brazilian economy is providing new opportunities for growth. For example, the COVID-19 pandemic has actually led to the push for greater accessibility and mobility with so many employees working from home. Even prior to the onslaught of the virus, smart phones in Brazil were becoming ubiquitous, more affordable and easier to use. Now, technology is continuing to facilitate a world on lockdown, with more connectivity tools to work from home, practice telemedicine and engage in e-commerce.
Given the critical nature of behind-the-scenes infrastructure to support these products and services, we are seeing companies, and even whole industries, being forced to either retool or fail. These are companies that work in sectors such as the cloud, cybersecurity, automation, semiconductors and robotics. Investors who look to equity strategies focused on technological disruption will be able to capture the benefits of long-term trends in these sectors.
Investing without borders
The market environment has changed drastically, such that investors in Brazil who take a more globally diversified approach are more likely to reap previously untapped benefits. By investing outside of the country, they can take advantage of some of the more dynamic and fast-growing global sectors in this new environment, including those involving automation and digital economy strategies.
This is a new approach for Brazilian investors, who have historically maintained a very strong home bias and have had little to no need to diversify their investments abroad. But now, they can also look to opportunities in the global fixed income markets, where we’ve been in a historically low-rate environment for years. In particular, the U.S. high yield market has provided attractive relative levels of yield over the past 20 years, due in part to the strength of the U.S. economy. U.S. high yield has outperformed most other fixed income options and provided returns that compare favorably with the equity markets but with lower volatility.
In addition, it’s important for Brazilian investors to start looking more closely at global opportunities in tech-focused sectors that are seeing accelerated growth and disruption. These technologies are primarily produced in developed countries, and their value is in U.S. dollars. Previously, investors have accessed these spaces via direct individual equity investments or structured notes. Now the market is ripe for selective investment managers to help make these opportunities more attractive and accessible to a larger investor base in Brazil.
As an example, AXA Investment Managers and XP Investments recently partnered to offer Brazilian-based investors access to global equity and fixed income strategies through three local products focused on the digital economy, automation, and the U.S. high yield market. This provides local investors international opportunities with companies whose businesses are not in lockdown but are actually growing. As they look for better ways to reach higher performance, investors in Brazil should look out for vehicles such as these that provide them with easier access to strategies that can diversify their portfolios abroad.
We hope to see Brazil thrive once the pandemic recedes and investors become more comfortable accessing more unique and dynamic portfolio options. As the investment process is made simpler and more accessible, we anticipate seeing this goal accomplished.
Column by Rafael Tovar, director, US Offshore Distribution, AXA Investment Managers and Fabiano Cintra, Funds Specialist at XP Investments
