Pixabay CC0 Public Domain. Julius Baer nombra a Yvonne Suter como su nueva directora de Sostenibilidad Corporativa e Inversión Responsable
Effective November 4th, 2019, Yvonne Suter took over as Head of Corporate Sustainability and Responsible Investment of Julius Baer. In this role, she is responsible for further developing the CSRI strategy of the Group across all business areas. She reports to both the CEO Office and the Bank’s Sustainability Board.
Yvonne Suter joins Julius Baer from Credit Suisse, where she was Head of Sustainable Investment for the 5 past years and had held several leadership and management roles since 2005. She holds a Master in International Affairs and Governance from the University of St. Gallen.
Philipp Rickenbacher, CEO Julius Baer said: “I am delighted that we have been able to appoint Yvonne Suter, a proven expert, as the new Head of Corporate Sustainability and Responsible Investment. Thanks to her comprehensive knowledge and network, as well as her many years of experience, she has all the prerequisites for further developing Julius Baer in the areas of sustainability and responsible investment and expanding the Bank’s activities. This will further enable us to meet the ever-increasing demands in all aspects of sustainability: economic, social, as well as environmental.”
Foto cedidaLeft to right, Mark A. Boyar and Jonathan Boyar. boyar
New York based Boyar Asset Management recently signed an alliance with the Spanish manager Mapfre AM, to benefit from their mutual capabilities and which will boost their businesses. In this interview with Funds Society, Jonathan Boyar, President of Boyar Research – with 11 years of investment experience, and since 2008 relocated to Boyar, where he improves the analysis and management process, as well as being in charge of institutional sales for both the research area and the management service, explains the key points about this alliance and how to plan to make a foothold, with its particular investment style, in the portfolios of the Spanish investor. Above all, because he believes that value will have have its comeback, and will shine again.
You have recently signed an asset management alliance with Mapfre AM. What will Mapfre AM bring to Boyar AM and what will Boyar AM bring to Boyar AM after the agreement?
The entire team at Boyar Asset Management is excited about entering this partnership. With Mapfre not only do we gain access to long-term patient capital allowing us to make equity investments for the long term, we will also be able to leverage their significant distribution capabilities. We are also looking forward to access to Mapfre’s expertise in both ESG investing and European equities which are two areas that interest us greatly.
Through this strategic partnership, Mapfre will gain access to our expertise in long-term catalyst driven value investing which we have been practicing since 1975. Mapfre will also gain from the knowledge of our team of seasoned investment professionals.
Is Boyar AM looking for greater expertise in European equities thanks to Mapfre?
While we currently do not have plans to launch a European product, it is certainly something we are seriously considering as we grow. We look forward to beinging able to leverage Mapfre’s expertise in this area when the timing is right.
And are you also looking for ESG capabilities? Do you think it’s a trend with potential?
ESG is here to stay. It certainly is not a fad. Many well-respected money managers have adopted this practice and we look forward to benefiting from Mapfre’s already significant capabilities in this area.
With this alliance, will Boyar AM also seek to position itself in the Spanish market?
Absolutely. We plan on utilizing Mapre’s distribution network in Spain to target the Spanish market. We think this audience will embrace a long-term value-oriented investment style.
Boyar AM is a value asset manager and it will offer Mapfre its expertise in asset management in the US. What characteristics distinguish its investment style from other value houses, what characterizes its investment methodology in the US?
Boyar is quite different than most money managers as we take a private equity approach to public markets. Since 1975, our flagship publication (which through another entity we sell on a subscription basis), Asset Analysis Focus (AAF), has been read regularly by some of the world’s most sophisticated investors. In keeping with AAF’s mandate of uncovering undervalued stocks, we use that same research to build and manage individualized portfolios for our money management clients. Many money management firms claim to do their own research—but we can prove it.
Based on that research, we invest in companies whose stock is trading significantly below what we believe the entire company is worth—believing that within a reasonable period of time, the stock market will reflect (or an acquirer will purchase the company for) its intrinsic value.
Unlike many value managers we are focused on identifying catalysts that we believe will help the stock ascend in value over a reasonable period of time. We believe by identifying these catalysts it helps us to avoid value traps.
Is it difficult now, with valuations at high levels in the US, to look for opportunities, undervalued companies? In this sense, what levels of liquidity do you have in your funds?
While the overall market is somewhat expensive by historical standards. We are finding many names in the small and mid-cap area that are selling at significant discounts to what we believe the company is truly worth. This market has been led by a handful of mostly mega cap technology shares, at some point the leadership will change and we believe investors like us that stick to their style through both think and thin will be rewarded for their patience.
Value is not at its best… the performance has been bad compared to growth in recent times. Why and do you think this situation will change in the short term?
2019 has been yet another year when growth stocks have simply trounced value shares. The outperformance was consistent across all market capitalizations. The most expensive stocks continue to get more expensive, while the cheapest companies utilizing any acceptable metrics keep getting less expensive. At some point this trend will reverse course, as it always does. We just can’t predict the timing. On an absolute basis, value shares (just like prior to the dotcom crash) have posted respectable numbers but compared to growth stocks they significantly underperformed. Value investors were rewarded for their patience after the dotcom bubble burst and value investing enjoyed a renaissance. We see no reason why history will not once again repeat itself.
In Spain in recent years, managers have emerged with this style of investment and a lot of talent (Cobas AM, Magallanes, azValor, Horos AM …): do you know Spanish talent? Do you have any Spanish manager value among your references?
These are certainly people I know of by reputation and I have spoken at conferences where they have also presented, but I unfortunately do not know them personally. I would welcome the opportunity to meet some of them.
In an environment of increasing competition and polarisation in the asset management industry (and where scale matters more than ever)… do you believe that alliances are a good alternative to mergers between entities?
Anytime two smart organizations are able to share knowledge, ideas and best practices it is a win for everyone involved.
Do you think we will see a lot of M&A in the sector? Is a strong consolidation necessary? Or will we see more alliances and cooperation as a way of joining forces in this scenario?
I think due to compressing margins there will certainly be consolidation in the sector. Scale certainly matters, but I also think investors appreciate boutiques like ours that are able to invest outside of the mainstream. They understand as the great Sir. John Templeton once said, “If you buy the same securities everyone else is buying, you will have the same results as everyone else.
Pixabay CC0 Public Domain. Cuatro formas de invertir en la revolución CleanTech
As the impact of climate change takes its toll on the planet, consumers, governments and corporations are all assessing their environmental practices and developing new clean technologies, according to an analysis by Amanda O’Toole, a Senior Portfolio Manager of the AXA Investment Managers Framlington Clean Economy Strategy.
CleanTech refers to companies that seek to increase performance, productivity and efficiency by maximizing the positive effects on the environment. With the world’s population rapidly increasing and fixed resources in danger of running low, the need for CleanTech solutions has never been greater. In fact, demand is so strong, that the global CleanTech market is anticipated to reach US$3 trillion by 2025, significantly up from US$601bn in 2014.
What does this mean for investors?
O’Toole, who is also a thought-leader within AXA IM’s Thematic Equities team of investment experts mentions that there is a growing social awareness of the pressures on scarce natural resources and the need for greenhouse gas emission reduction. “Businesses that are prepared to respond to this paradigm shift in how we perceive our environment should enjoy a sustainable, competitive advantage by reducing their input costs over the long-term. These moves offer significant growth potential in the decades to come, along with exciting potential new opportunities for investors along the way.”
As a result of this changing dynamic, they have identified four key areas which they believe will provide innovative, new investment opportunities: sustainable transport, recycling and waste reduction, smart energy and responsible nutrition. “With this universe expanding at more than 10% per annum – a very attractive rate compared to other industries –the structural growth opportunities can be significant.”
Sustainable transport
Across the world, the demand for sustainable transport is increasing, providing investors with ample investment opportunities in electric vehicles, battery technologies and emission reduction systems.
“The benefit of investing in these companies is already evident. During the recent trade tensions, electrification as a secular trend outperformed the broader automotive industry and we believe this is on track to continue. Globally, electric vehicles are anticipated to grow at a rate of 33% by 2030 and with the cost of lithium-ion batteries falling by 35% over the past year, the potential for sustainable transport is on the rise.”
A stock they like in this area is Aptiv, a global technology company that develops safer, greener and more connected solutions. Headquartered in Dublin, Aptiv delivers the software capabilities, advanced computing platforms and networking architecture that makes mobility work.
Recycling and waste reduction
The plight caused by plastics and growing electronic waste has been dominating environmental headlines in recent years. With approximately 8 million metric tonnes of plastic entering the oceans each year and only an estimated 20% of electronic devices recycled per annum, consumers and governments are waking up to the need for change.
“This change is starting to take shape. In July 2018, Seattle became the first U.S. city to ban plastic utensils and straws, and its actions have now been followed by other cities such as San Diego, where Styrofoam food and drink containers have been banned. We believe that because of ongoing action, we are likely to see the investable universe for compostable materials continue to expand.”
A stock they like in this space is Smurfit Kappa, a FTSE 100 company that is one of the world’s leading providers of paper-based packaging. Smurfit Kappa is perhaps best known for its Bag-in-Box products, which offer more sustainable packaging for many industries such as wine, juice, liquid eggs, dairy and non-food applications such as motor oil and chemicals.
Smart energy
The necessity and demand for greener homes is growing, helping to provide the impetus and resources for the development of energy efficient technologies. This is creating investment opportunities in renewables, greener homes and efficient factories.
Notably, there has been an acceleration of interest in offshore wind development in the U.S., which historically has lagged Europe in adopting this form of technology. Massachusetts, for instance, recently approved contracts for an 800 megawatt (MW) offshore wind project, while New York State announced in July it had reached an agreement for two large offshore wind projects off the coast of Long Island. Momentum in this area is clearly building.
Responsible nutrition
The impact of unsustainable food production has put the planet in a delicate position. However, as O’Toole mentions, attitudes are changing. Companies are exploring new ways to meet the growing demands of rising populations while limiting the use of scarce water and land.
This has led some experts to algae, with some believing it could soon become a major source of the world’s protein. Growing ten times faster than terrestrial plants, algae does not require fresh water, can provide more iron than beef, and does not compete with other crops for land. The potential for algae is still in its infancy, but with ongoing developments the algae products market is anticipated to reach $5.2bn by 2023.
Furthermore, they believe that companies that are innovating to help support sustainable business practices – such as specialist ingredients firms that are shifting towards more natural ingredients and reducing the use of artificial products – are in an optimal position to perform well, despite the broader economic slowdown.
“We live in an uncertain world which gives investors little confidence from a macro or geopolitical perspective. Against this backdrop, it gives us comfort to invest in high quality businesses that benefit from clear structural growth trends within the Clean Economy.” O’Toole concludes.
Foto: Pxhere CC0. Schroders vende su participación en RWC Partners
RWC Partners announced that it has signed a definitive agreement for Schroders to sell their equity in RWC back to the Company and to RWC’s new long-term partner, Lincoln Peak Capital. Subject to regulatory approval, the transaction will see Schroders completely exit their equity stake in RWC Partners.
Dan Mannix, CEO of RWC commented: “We would like to thank Schroders for the support they have shown our organisation over the last 9 years. In Lincoln Peak, we welcome a new shareholder to RWC who we have known for many years. Lincoln Peak is a very attractive partner for us who has committed to our organisation for the next decade and beyond. Our priority has been to secure a shareholder who supports the commitments we have to our clients and investment teams. We are proud to differentiate our organisation through being independent, private and owned by very long-term shareholders who define success by the quality of services we provide to our clients and fulfilling responsibilities to our other stakeholders.”
Tony Leness, Co-Founder and Managing Partner of Lincoln Peak commented: “We feel very fortunate to have the opportunity to partner with RWC shareholders and RWC’s exceptional investment teams, management and staff. Our long-term relationship with the Company provided us with a unique window to understand RWC’s culture and future potential, allowing us to play an active role in assisting the key stakeholders to effect this transaction in a manner that will allow RWC to retain its independence and successful trajectory.”
Seth Brennan, Co-Founder and Managing Partner of Lincoln Peak added: “We believe that RWC’s entrepreneurial culture and commitment to providing its talented investment teams with clear incentives, world-class support and the independence to focus on client outcomes is designed to deliver exceptional, long-term results for clients. This transaction and commitments made by various parties preserves RWC’s successful business model and improves the alignment between all of RWC’s stakeholders, positioning the Company for long-term stability and continued success.”
Based in London, Miami and Singapore RWC Partners is a privately owned, independent asset management organization with 18 billion in assets under management.
Boston-based Lincoln Peak Capital is a private organisation that specialises in making long-term, minority investments in high quality asset managers. Founded in 2008, Lincoln Peak facilitates ownership transitions in a manner that aligns the interests of a firm’s key constituents and positions it for long-term stability and success.
Citi CEO Michael Corbat announced that he “asked Jane Fraser to serve as President of Citi, a role that has been open since earlier this year. Stephen Bird has informed me of his decision to leave Citi to pursue an opportunity outside our firm, so Jane will also become CEO of Global Consumer Banking. Stephen will be available over the next few weeks to ensure a smooth transition.”
Ernesto Torres Cantu, currently CEO of Citibanamex, will succeed Jane as CEO of Latin America. “Ernesto is well prepared to take on the role of CEO of the region.” Corbat added. According to him, an announcement about the leadership in Mexico will be made in the near future.
Jane has been at Citi for 15 years, since she joined from McKinsey to run Client Strategy in the Corporate and Investment Bank. “During the financial crisis, she led our Corporate Strategy and M&A group and, in many ways, Jane helped shape the company we are today. She subsequently ran two of our businesses, the Global Private Bank followed by U.S. Consumer and Commercial Banking & Mortgages”.
Most recently, Jane served as CEO of Latin America, where she and Ernesto have been overseeing Citi’s substantial investment in Citibanamex, which has strengthened their franchise as well as improved our products and services.
Ernesto is a 30-year veteran of Citi, having joined as a corporate banker in 1989. He was appointed CEO of Citibanamex in 2014. He has an excellent track record of driving business results while also prioritizing our culture and controls.
“Working together, we have made tremendous progress. I remain committed to leading our firm in the coming years and look forward to working even more closely with Jane in her new roles. We will continue to execute our strategy so we can deliver the results our stakeholders expect and deserve.” Corbat concluded.
Pixabay CC0 Public Domain. Tipos de interés globales: ¿Cómo de bajo puedes ir?
Central banks are rushing to provide additional support as the economic outlook darkens. However, there are growing fears that policy loosening might be doing more harm than good at present, warns Aberdeen Standard Investments in its recent “Macroscope”.
This so-called ‘reversal rate’ at which rate cuts become counterproductive is seen as working through a number of channels, including weak bank profitability; credit misallocation; softer household and corporate confidence; and low returns on saving. “But although there are some justifiable concerns over the unintended consequences of lower rates, we need to take into account the whole picture”, says the asset manager.
Indeed, most empirical evidence does not suggest that the costs of lower interest rates are outweighing their benefits, suggesting that policymakers have not reached a reversal rate (yet). This debate is a symptom of how much pressure is being put on monetary policy.
Then, how low can you go?
Historically, there have been concerns that a move into negative rates would prompt deposit flight from banks. However, says ASI, there have been few signs of an explosion in cash under mattresses. Instead, the fear has shifted to bank profitability: “banks have been unwilling (or legally unable) to fully pass on negative interest rates to depositors, providing a squeeze on net interest margins and profits”.
The fear is that this could undermine capital positions in the sector, leading to a reduced capacity to lend and driving a tightening in credit conditions. Besides, according to the asset manager, rate cuts beyond certain levels could sap confidence, as households and businesses see these as a sign of economic malaise.
“In economies with high domestic savings rates the lower return on these could encourage even more cautious activity”. Finally, the BIS has been keen to highlight the risks of credit misallocation as interest rates fall ever lower.
Ever-lower interest rates may well generate unintended negative consequences, but ASI points out that there are mitigating forces at play that need to be taken into account. For example, the squeeze on bank margins might be offset by higher lending, not to mention a boost from asset holdings.
Indeed, while the overall evidence is mixed, most credible studies do not support the conclusion that interest rates have fallen to a level at which the unintended consequences outweigh the benefits. “However, the fact that these exist adds to the case for fiscal policy to take more of the strain. Sadly, it does not feel as if governments are stepping up to the plate”, says ASI.
Another problem for banks
On the banks’ front, the fear is that lower interest rates could weigh on net interest margins and in extremis push deposits out of the sector. This might limit banks’ ability to pass through lower interest rates to the real economy and in some cases even force them to contract their balance sheets, lowering credit availability.
What banks need most in order to maximise the effectiveness of lower policy rates is 1) demand for credit, 2) an ability to lend at high leverage ratios and 3) for that the lending to be done at higher net interest margins – where curve steepness helps a great deal.
According to ASI, our starting point is that many banking systems, particularly those in Europe, are already struggling for profitability a decade on from the financial crisis and not just because of crimped margins. Post-crisis regulatory capital requirements more than quadrupled in some cases and banks needed to raise and retain substantial levels of new capital in order to comply.
Lending is now done at much lower multiples that require higher margins to maintain profitability. “However, weak growth, economic uncertainty, ageing populations and already high levels of debt have been drivers of lower demand for credit through the cycle”.
Reduced profitability since the crisis has affected banks worlwide. However, the problems have been most acute outside the US. The asset manager thinks that bond yields are a useful measure of market expectations for long-term growth and inflation, so it is no surprise that as European bond yields moved deeply negative, bank stocks continued to underperform other equities. “The cocktail of low growth, inflation and rates is clearly an unpalatable one for this sector”.
Pixabay CC0 Public Domain. Gillian Tiltman, Neuberger Berman: “El sector inmobiliario es el primero en responder a los cambios en la forma de vivir y trabajar de las personas”
Gillian Tiltman, portfolio manager of the two Neuberger Berman REITS strategies is convinced that the listed real estate sector is the first to react to the social and demographic themes that are changing the world. Thus, in an exclusive interview for Funds Society, the manager explains the strong potential that they expect in the non-core sectors in the listed real estate investment segment (REITS).
“We think that real estate is the first sector to respond on how people are living and working”, explains Tiltman.
Among others, data storage is one of the main new industries that they are taking advantage of. “If you think about cell towers, there are our largest holdings in both our global and us funds, the expanding global broadband usage requires robust cell tower infrastructure and this next generation 5G technology build out is already very much underway.”, affirms the expert.
Tiltman also highlights the expected growth rates close to 40% in data consumption in the United States until 2023. “ It is not just about people having more and more devices, is the amount of data that they are using. When we are thinking about cell towers, we are leasing space in the air, the more the data usage the more you need to lease. Is 0,02 megabites to send a mail is 11.000 times that to watch a 30 min TV show in Netflix”, explains the portfolio manager.
Another of the non-core sectors with a lot of potential is the industrial segment that has been developed in response to the rise of e-commerce. Strong sales in e-commerce have negatively impacted the traditional real estate sector due to shop closures and bankruptcies in the real economy, but, nevertheless, it has caused the development of the industrial segment to meet the last mile distribution needs, in which the Neuberger Berman REITS funds have also invested.
On the other hand, the socio-demographic changes of the millennial generation and the ageing of the population have resulted in an overweight of the US residential sector: “Getting married used to be a real driver of the US residential market to buy a single family home. Now people are getting married later and later or not getting married at all and even when they do so, this is not going to be the catalyst to buy a home. They want flexibility, they don’t necessarily want that to be tied down to home ownership.”, comments Tiltman.
In this sense, a bigger demand in professional rental services from the new generations stands out “What we are seeing now is that when people do get married, or having children and they want access to school and they want to live in little more suburban environment they still want to rent. But they want to do that in a professional way. They don’t want to rent just from a person, they want to rent from a company and that is why we are overweight in single family rentals.”.
The segment of manufactured housing is another one that is overweight in its portfolio, due to its popularity among more senior population and for being “one of the bastions of affordable housing still the United States, ” says Tiltman
Although the development of the non-core segments has mainly focused on the United States, sectors such as student residences and personal storage are non-core sectors in the United Kingdom, which have helped alleviate the lower growth and uncertainty generated by Brexit. “There is still robust demand for universities from UK nationals and non- EU foreigners and that is what we are concentrating on”, declares Tiltman.
As for the impact of the macro moment, Tiltman questions the idea that the real estate sector can be considered cyclical and highlights the importance of investing globally. “When you invest globally the cycle stops mattering that much because there are so many different so called cycle to investing. In our global fund, for example, if you think on San Francisco offices is a total different cycle than NY offices, to Miami hotels so we believe that it can be an evergreen asset class”.
As per the advantages offered by this asset class in the composition of the portfolios, Tiltman highlights three: liquidity, performance and exposure. “It is an asset class to hold in a portfolio alongside bonds, alongside global equities, alongside physical real estate as well.”, affirms. In terms of correlation with equities it is high because they are listed securities, but their current levels are at pre-crisis levels close to 0.5.
At this regard, the manager adds: “The longer you hold the securities the more direct real estate like you are going to became so that is why we take the view that understanding the true value of the asset is key and that is our investment style”.
Another advantage of this asset class is that listed real estate investments are required to pay to pay 90% of their capital income as dividends “this means they have to have a very good capital disciplineand they are never forced buyers are private real estates companies might be.”, explains the expert.,
Finally, Tiltman is optimistic about the outlook for this asset category despite the strong returns already recorded. “There is plenty of earnings growth coming in different sectors, REITS are trading at low multiple versus equities, we have seen great signs to show how REITS have been resilient late cycle and also in recession”, concluded the portfolio manager.
Rahul Chadha, CIO at Mirae Asset Global Investments.. mirae
Growth around the world is slowing down, but in Asia we can still find many stories of structural growth that make a case for equity investments in the region. This is explained by Rahul Chadha, CIO of Mirae Asset Global Investments in this interview with Funds Society. He acknowledges that the trade war between China and the US can cause some pain, but he believes that the measures that some countries are taking can alleviate the situation and even benefit some markets.
The world is slowing its growth… what are the perspectives for the Asian region?
Indeed global growth momentum is slowing; however, we believe that policymakers have the necessary tools at their disposal to support growth should downside risks arise. Our current base case is that we will see a gradual growth recovery as policy support filters through to the real economy. Along with stimulus measures including further infrastructure spending boosts, monetary easing and fiscal stimulus, we expect China to push forward with further opening-up of domestic industries (in particular financial sectors) and capital markets and implement more structural reforms. In India, the government has recently made a major move to boost growth and sentiment by announcing a substantial cut in corporate tax rates. Corporate income tax rates will reduce from 34.3% to 25.17%, effective this current financial year. Furthermore, for new manufacturing companies setting up after 1 October 2019, the corporate income tax rate is further reduced to 17%, which should help attract more Foreign Direct Investment (FDI)
What macro consequences will the U.S.-China trade war bring to the region? Which countries will be the most affected or which ones will be benefited from substituting China instead of the U.S. as a trading partner?
Increased tariffs will likely negatively affect growth; however, we believe that further easing policies will be able to mitigate some of these effects. In terms of the medium to longer term opportunities that these trade shifts could create, a number of Asian countries including India, Vietnam and other parts of Southeast Asia will be key beneficiaries. Multinational companies have already begun to explore shifting production facilities outside of China. These economies will benefit if their governments can build up the capacity to capture export share, which would attract higher foreign direct investments and create jobs. As mentioned earlier, the Indian government has lowered its corporate income tax rate to 17% for new manufacturing companies, which is a rate lowest among peers.
What will be the consequences in the markets? Do you fear a shock if the situation worsens?
US-China trade remains a key area to watch for markets and a meaningful escalation is a tail risk. Despite trade talks resuming, a near-term resolution for US-China trade appears unlikely at this stage, we expect the current dynamic to remain until one or both sides begins to feel the full impact of additional tariffs. Having said that, we believe both parties will continue to work towards an eventual trade deal.
In general, in Asian markets, what are the main risks for the coming months?
We expect that in the near term, markets will probably continue to see periods of higher volatility as investors grapple with the current key issues – temporary US-China trade truce, slowing global growth and synchronized central bank easing. Amidst some market volatility, we continue to focus on strong business models, which are more resilient from the impact of disruption and uncertainty, and prefer names that have reasonable, not high, implied growth expectations.
Even so, does investment in Asian equities represent a good opportunity? What returns can be expected for 2020?
We believe Asian equities remain very attractive. Despite some slowdown and macro uncertainty, the structural growth stories are still there. Importantly, Asia ex-Japan valuations are currently at an attractive level, and we see potential compelling risk-reward opportunities. Our base case for 2020 is that we see a gradual recovery on the back of policy support measures and if there is a resolution of trade tensions, then we could see a stronger recovery as it removes the overhang of uncertainty and boost corporate confidence.
Which markets have the best prospects? The big ones or the peripheral ones and why?
China remains an attractive structural story, despite the headline risks. While policy support is set to continue as trade uncertainties persist, the Chinese government still has many levers it can utilize to stimulate the economy, particularly given that the stimulus, thus far, has been very measured. A-share inclusion factor increasing on MSCI indices is also another positive. Since the initial inclusion of A-shares in June 2018, foreign investors have been increasing their exposure to China’s onshore market. At the end of 2018, foreign investors accounted for approximately 6.7% of the free-float market cap of the onshore equity market. This level is still low compared to other major markets in the region such as Taiwan, South Korea and Japan, where foreign ownership is in the 20%–35% range. We have been researching opportunities in the China A-share market since the Stock Connect program was first launched in November 2014, and we seek to further deepen and expand our capabilities in this space going forward.
In India, Prime Minister Modi’s re-election win gives him another five year term, which should be positive for the Indian equity market, as it provides stability and continuity for his development agenda. The recent corporate tax cuts will provide a boost to the economy. Near term growth is likely to remain softer as policy support measures will take some time to filter to the real economy. However, the fact remains that over the medium term, India is a very powerful story and the economy is at a cyclical bottom.
By sectors, do you have any preferences?
Our portfolios’ sector/country allocations are the end-result of bottom up stock selection. Irrespective of sector, we prefer companies with strong business models and leaders in technology/digitization, utilizing big data, as we believe they will be the stronger performers over the long run. Healthcare is an overweight position in the portfolio, we prefer leading private hospitals and innovative pharma companies, particularly those developing treatment for chronic diseases such as diabetes, cancer. Insurance is another area where we see very attractive opportunities as penetration remains very low across most Asian countries. We like industry leaders with strong brand, solid agency force/distribution.
How can central banks help Asian markets? How are central banks behaving in Asia?
Amid a more dovish stance from the US Fed, most central banks in Asia have embarke on easing of some sort and more is likely to come. For example, the Reserve Bank of India has been on a rate cutting cycle this year, the repo rate is now at a 9-year low. Additionally, Asian policy rates and currencies have normalized to a greater degree since 2013. This provides Asian central banks and policymakers with some room to confront potential downside risks to growth.
. Nace FE fundinfo: proveedor global de tecnologías y datos de fondos
This Monday, over a year after the merger of FE, Fundinfo and F2C, UK-based FE Fundinfo has officially unveiled itself as a global fund data and technology service, which it says is “holistic” and connects fund managers, fund distributors and financial advisers across the world.
The combined entity benefits from the three companies’ investment expertise, technology, software and services. The company will now focus on further developing its products through its fundinfo.cloud information marketplace, it said.
FE Fundinfo will allow fund managers and fund distributors to connect and share information, given that information published on fundinfo.cloud will allow fund distributors, fund managers and financial advisers to research and select funds with the latest data.
Peter Little, Chairman of FE fundinfo, says: “It is an exciting time in the global investment industry. Like many others, it is undergoing some rapid and fundamental changes which present both opportunities and challenges for those working within it. As such, there is an intrinsic need for forward-thinking and innovative organisations to service the industry’s stakeholders and to help them navigate between the challenges and opportunities. FE fundinfo will play a crucial role in providing new solutions and supporting the investment industry at every stage. In an industry where success is determined by the accuracy and timeliness of its data, FE fundinfo’s commitment to trust, connectivity and innovation will ensure investment professionals have the technology, data and network they need to support their clients and drive better investment decisions.”
With roots stretching back to 1996, FE fundinfo has offices in the UK, Switzerland, Luxembourg, India, Czech Republic, Singapore, Australia, Hong Kong, Germany, Spain, France and Italy. With more than 650 members of staff across these offices, the organisation is truly global in outlook and capability.
The company also enjoys significant market coverage in the investment industry, working with more than 3.500 advisers, paraplanning companies and compliance consultants; 1,100 asset managers; 100 banks and brokers; 15 platforms and 70 international insurance companies across the globe.
Louis d’Arvieu, courtesy photo. Louis d’Arvieu, gestor coordinador del Sextant Grand Large
In an environment that nears the end of the cycle, it is worth reducing exposure to equities, or at least that is what Admiral Gestion believes, according to Louis d’Arvieu, fund manager of the Sextant Grand Large, one of the entity’s most representative funds. In an interview with Funds Society, d’Arvieu confesses that, at this time, they prefer to invest in Asia rather than in the United States.
We are in the final part of the cycle … is it still a good time for equities? Should we increase exposure or reduce it at this time?
In the final part of the cycle it makes sense to reduce exposure compared to normal times as equities are very sensitive to any turn in the economic cycle. In our flexible fund Sextant Grand large, which is supposed to have a 50% exposure to equities on average we thus have only a 28% weighting currently.
How you value the new impulse of the central banks to the markets and his artificial extension of the cycle? Will it remain a favorable factor, for fixed income and equities?
We do not use nor do any macroeconomic scenario. For us the main point to consider for long-term performance is the valuation at the starting point. So we have not any strong views on central banks interventions.
And what are the main risks right now for equities? Is the next slowdown / recession? Are the geopolitical events and why?
For us the main risk right now for equities is high valuations, supported by narratives around sustainably record-low interest rates and thus sustainably record-high levels of debt, maximal central banks efficiency, and so on. Otherwise, equities are much more sensitive to recessions than to most of geopolitical events.
In this scenario, and despite the macroeconomic and geopolitical risks, how do you see the fundamentals of the companies in which you invest? are they sanitized? What growth and benefits are expected for the next twelve months?
We invest when valuations are cheap compared to the quality of the company. So there is a mix in our funds of high quality and recession-proof companies at reasonable prices, of mildly cyclical companies at cheap prices or of highly cyclical companies at deep value prices. We do not trust our or any 12-month forecast! But we spend much time forecasting what the earning power of a company would be on a mid-cycle 5-year + basis.
It is also a scenario in which the value seems not to give very good results, why? Will this situation change in the near future?
Value in the sense of deep-value and statistically cheap companies has not given very good results since the last GFC, but it had done uniquely well between 2000 and 2007. In the last 2 years, it is true that value in the larger meaning of fundamental investing, including some GARP ideas for instance, has also begun not to do well. The stock market performance has been increasingly polarized between expensive visible growth stocks which have recently become even more expensive and any kind of value stocks which have become even cheaper. Unfortunately I have no idea how long this can last and it can last for long as we saw in 1969 or 1999… But reversals come and are brutal.
Is it easier or harder to find value opportunities than in the past, due to the artificial prices created by central banks?
In that environment, it is easier to find value opportunities but the trick is that you have to be patient as it might still underperform for some more time! But if you look at cyclical sectors, at small caps, at Asian and European stocks, you will find a lot of value opportunities.
You have a French equity portfolio… which are the sectors where you see more opportunities? and because? Are you afraid of France’s macroeconomic data or not?
We do pure stockpicking and a very diverse portfolio of companies in terms of sectors in France, from Groupe Guillin which is the european leader in packaging for the food industry to Jacquet Metals in steel distribution or Groupe Crit in temporary staffing. We´re not negative with the macroeconomic data in France´s economy but our approach to investing is pure bottom-up so we don´t get influenced by macro in terms of portfolio construction, although we will avoid companies with too much debt when the macro picture deteriorates.
In international equities, in what areas or sectors are you now finding better options, for the fundamentals of companies?
Internationally, we find many opportunities in Japan, South Korea and Hong Kong, especially on the small cap segment, which we believe is more inefficient. We also work increasingly on cyclical sectors like commodities and banks. The most contrarian view we have is our underweight of US equities. We follow closely Shiller´s PE and valuations are close to 100% higher than the historical average, so a reversion to the mean seems reasonable. Thanks to our geographical flexibility, we prefer to invest in Asia rather than the US.
