Wikimedia CommonsBMV. Vanguard Lists Three UCITS ETFs in Mexico
Vanguard has listed three new UCITS ETFs on the Mexican market. Currently there are 68 Vanguard ETFs in the Mexican Global Market, known as SIC.
The new ETFs, with fees of 0.09%, 0.19%, and 0.29%, are:
Vanguard FTSE 100 UCITS ETF – it looks to replicate the returns of the UK market
Vanguard FTSE Japan UCITS ETF – it is focused on tracking the returns of medium-to-large cap Japanese firms
Vanguard FTSE-All Word High Dividend Yield – it tracks the returns generated by the index of medium-to-large cap emerging and developed market companies that pay high dividends
Juan Hernández, Vanguard Mexico Country Head, said: ‘We are pleased to list our Ucits ETFs on the Mexican Stock Exchange, offering Mexican investors additional opportunities to create a balanced portfolio that meets their investment goals. We are committed to providing durable and effective solutions to Mexican investors, helping them achieve success in their investments.’
The ETFs grant exposure specific international themes that are not offered among its current US-domiciled ETF range. According to the firm, the UK and Japan ETFs offer exposure to two of the world’s most developed countries while the High Dividend Yield ETF combines a diversified stock portfolio with high income, at a competitive price.
Santiago de Chile. Franklin Templeton Opens New Office in Santiago, Chile
Franklin Templeton Investments announced the opening of a new office in Santiago, Chile, to support the sales and client service needs in the country. The firm has also appointed Gonzalo Ramírez Correa as vice president, Sales. Based in the firm’s new Santiago office, he will work to develop tailored solutions for clients in Chile, leveraging the capabilities of Franklin Templeton’s various investment groups. He will report to Sergio Guerrien, director and country manager for South America ex-Brazil, who will oversee the Chile operation.
“We are very delighted that Gonzalo has joined our team in this period of growth in the Chilean market,” said Guerrien. “With the opening of this new office in Santiago, we are committed to strengthening our capabilities in the South American region as our clients look to us to solve their needs for specific investment outcomes while leveraging the comprehensive resources and broad expertise of Franklin Templeton.”
Ramírez Correa brings with him over 10 years of industry experience. Prior to joining Franklin Templeton, he was director of business development for Legg Mason Global Asset Management, focused on sales and based in Santiago. Before joining Legg Mason in 2015, he was an account manager and investment sales specialist for Latin America for Thomson Reuters. Earlier in his career, Ramírez Correa was with HMC Capital in institutional sales, where he was responsible for business relationships.
Franklin Templeton has been serving a wide array of local institutional investors, pension funds, private banks, retail distributors, mutual funds, insurance companies and family offices in Chile since 1995 and is among the top mutual fund providers to the Chilean pension system.
Franklin Templeton has been present in Latin America for over 20 years. The company opened its first office in the region in 1995, and today has a presence in Santiago, Buenos Aires, Bogota, Sao Paulo, Rio de Janeiro, Montevideo and Mexico City.
Marcelo Gutiérrez, Managing Partner for Invertax / Courtesy Photo. The New Law Against Money Laundering in Uruguay will Jeopardize the Offshore Industry
Uruguay has started the year with a new law against money laundering, a regulation that brings together all the provisions that were previously dispersed in different legal instruments. The reform places the country within international standards, in a global context of ever stricter regulations.
According to the new law, approved towards the end of 2017, tax offenses are considered predicate offences to money laundering, which entails a criminal process. Lawyers and accountants must report suspicious transactions, as well as banks, financial advisors, real estate agents, auctioneers, civil associations, casinos, foundations, political parties and NGOs.
After only a few months trajectory, the reform still raises a series of questions and doubts on the part of the taxpayers. What changes is this regulation generating in the Uruguayan financial industry? “The Uruguayan financial industry acquires the new requirement of ‘know your client’. From now on, tax compliance is mandatory,” explains Marcelo Gutiérrez, Managing Partner for Invertax.
“This change is not only occurring in Uruguay, but in many other countries, and is part of the new reality: more transparency, more information exchange. It was under discussion for a long time, but tax evasion is very difficult to support as a moral argument. The discussion on whether governments make good use or misuse of these resources is a different matter,” adds the expert on tax issues.
At Invertax they believe that the Uruguayan financial industry will encounter some difficulties: “As in the rest of the world, and with the end of banking secrecy, the offshore industry in Uruguay is on its way out. At present, only the United States offers traditional offshore services,” says Gutiérrez, Uruguay’s representative at the International Fiscal Association.
The new restrictions raise fears of a decrease in foreign investment, something that Marcelo Gutiérrez plays down: “It depends on what type of investment we are talking about, if we refer to Real Estate in Punta del Este, this new requirement will complicate things for many of the ’traditional’ investors. However, direct foreign investment, such as the pulp mills and other important ones already planned, will not be affected.”
CC-BY-SA-2.0, Flickr Morningstar 2018 Winners. Compass Investments, Scotia and Nafinsa, the Best Asset Managers in Mexico
During the sixth edition of the Morningstar Awards in Mexico, at the W Hotel in Mexico City, representatives of the best asset managers of the country gathered to recognize the three best firms and the six best funds of the year. At the event, Alejandro Ritch, Regional Director of Morningstar for Latin America, highlighted the positive transformation that is taking place in the sector.
He also noted that there is still a significant concentration in the sector: with 69% of the assets under management in the hands of the five leading firms. The executive also pointed to the growth of passive strategies and the consequences this has had on the fund market, mentioning that “the competition that the ETFs have created is real and the managers have lowered their commissions in response to this.”
In the category of Best Funds the winners were:
Short term debt Operadora Mifel
Medium term debt, Actinver
Long term debt, Intercam Fondos
Mixed fund, Principal
Global equities, Operadora de fondos Banamex (recently acquired by BlackRock)
Rodolfo Castilla, Citi’s Head for the Southern Cone. Citi: The Latin American Industry Must Change its Value Proposition
Rodolfo Castilla returned to Uruguay less than a year ago, after working for several years as Global Head of Wealth Management Products and Platforms for Citi’s Consumer Bank in New York. It’s obvious that he feels at home in the lands of the River Plate, as Castilla already experienced a professionally intense stage in Montevideo, heading the International Personal Banking business (IPB US) for this same division for the Southern Cone from the Uruguayan capital since 2008.
In view of the winds of change shaking that region, the challenge facing Castilla as Head for the Wealth Management business of the Consumer Bank for LatAm’s Southern Cone, based in Citi IPB US’ offices in Uruguay, will not be any smaller. Citi’s Director met with Funds Society to discuss the future of the industry.
In the few months that you have been in Montevideo, how have you found the situation in Uruguay after five years’ absence?
My first thought is that, in terms of sales practices and the platforms that we and our competitors use, I found it relatively similar to what I left five years ago, before going to New York. And I think that all players face the risk of losing competitiveness because there are three things that are already happening in more developed markets, such as the United States or even in Asia, a region that was similar to Latin America in this dimension. Over there, business models are changing, as is the value proposition in anticipation of these changes, which, in general, I have seen happening here somewhat more slowly.
In my own personal opinion, there are three major drivers happening in our industry due to which we have the responsibility to rethink our value strategy in order to better serve our clients.
The first one is regulatory evolution at a global level, with two well defined aspects in the case of Consumer Wealth Management. The first is transparency, in portfolios as well as in investment decisions and, above all, in the costs of advising and transactionality. The example that I like to use is the difference in the allocation of portfolios for the US domestic market, where passive products have been widely surpassing asset flows very consistently in recent years. And if we look at our region, the allocation of passive products is much lower in comparison, which can be explained by many factors such as the average level of sophistication of the clients, and of bankers and advisers as well, since mathematically there are times when they are not optimizing risk / return for the client, based on the costs incurred.
That is why I think that when these regulations oriented towards total transparency in returns, risk, and costs are approved and impact our region, (and in my opinion, following the trend in other regions such as Europe, the question is when, and not if, it will happen) I believe that there are many products present today in portfolios that will no longer be the first choice, forcing the entire industry to rethink and articulate a different value proposition.
The second aspect is what is happening with the DOL in the United States for retirement accounts, referred to the concept of “Fiduciary Standard”.In general, our industry currently works broadly with a suitability standard: our obligation is that the product / portfolio that we advise a client on, appropriately corresponds with the client’s risk profile. And that is a valid model which for many years drove our industry, whose controls are also automated in most of the current platforms at the level of each transaction and of the total portfolio.
The potential new standard, a fiduciary one, proposes an evolution that, in my opinion, is more than conceptually correct, where we will have to demonstrate not only alignment with the risk profile, but also be able to demonstrate at all times that we are making the best decision for a client. So when, for example, in order to express a market view, we are facing three similar products – a basket of individual bonds, an active bond fund, or a bond ETF -, we will not only have to check whether it corresponds to the risk profile, but we’ll also have to know why we choose one option or another, including the cost / benefit ratio. Something that, again in my opinion, is absolutely healthy, since it’s in line with what we always strive for in Citi: looking for the best solution for our clients.
Are clients in Latin America really going to demand that?
I believe that those players who opt for investing in educating clients on these issues of costs, performance, risks … that we will gain an important part of the market in the future, since this is an irreversible global trend. In my opinion, this is a model that may impact the short-term financial margin, but which is undoubtedly the right one, and that whoever manages to carry out a value proposal with these elements will gain volume share because the client will eventually realize the difference in value.
And now we move on to the second driver of change, global and also regional, which has to do with the Tax Amnesties that are happening in Latin American countries. When you think of Argentina, you also think of Brazil, and on what lies ahead for Peru and on what already happened in Chile, it is a regional context but immersed in a search for transparency that is also global. Our industry is going to be even more transparent than it is today, both towards clients and Institutions, which again is very positive.
As an example of the largest offshore market in the Southern Cone, Argentina, private studies show that a large majority of Argentine savings are abroad, and we have just witnessed the largest tax amnesty in that country’s modern history. That also changes the market because this significant volume of assets adds a third player: client, banker and now the local accountant. And there is an element in the conversation that is the tax optimization of the investment strategy, very important in many markets and with different models for the different players regarding the permitted level of direct tax advice. The obvious conclusion is that we must all have a varied offer of tax efficient products in our value proposition.
Many players in the industry believe that, whatever the regulatory evolution, the weight of the local market will increase anyway: What is your opinion on that?
It will inevitably increase the local market, because governments are creating the conditions for the development of local capital markets, very healthy and also important to generate new attractive investment opportunities for clients. In Argentina’s case, I believe that there will be an offshore and onshore mix that will enhance the value proposal. Even more so with these changes; in my opinion I believe more than ever that we must upgrade the value proposal, that in Citi’s case we open an institutional discussion based on proprietary Asset Allocation models, where there is a global investment committee sharing decision making with analysts in 4 continents, and which following all this decision making, ends in an offer with certain asset classes that optimize the return / risk / cost ratio, after which we just have to follow with the security selection of products. At Citi, we are now in a position to offer all the elements of this value chain.
I point out the difference because, for many years, our industry talked directly about products (this fund or this bonus), and that is no longer an optimal value proposition for the client. It has been widely demonstrated that individual selection of the product is 20 or 30% of the final performance, well below the correct selection of asset classes, regions, sectors, etc…
Along these lines, I think we should invest in Technology, as is already done in Asia and part of the US domestic market. We should create more intuitive platforms that allow for guiding the conversation towards understanding and solving the financial objectives of the client, instead of towards buying or selling products.
In Citi’s case in other regions, we have invested in one of those platforms that allow us to have several portfolios, one per client’s objective, each one with its risk profile and suitability controls. For example: “This is the money for my children’s university, I want to be conservative with this. And this is for my retirement, I will need it in 20 years, and I also have this 10% with which I can be more aggressive because I don’t need it in the short term and can assume greater risk”. Then, the platform allows you to build an asset location for each of these life goals, in a very intuitive way. And then comes the institutional proposal, backed by units of Due Diligence, Research, and Analysts in 4 continents calculating what the maximization of risk and return is. And, finally, it’s clearly a more efficient model also for bankers.
With these intuitive platforms, client education occurs naturally, by sitting with the client with an iPad, it is all quite simple and easy. The dialogue with the client is not based on choosing a fund or a bond but on making sure that we are fulfilling their financial objectives; that should be our common objective.
How much longer before we see this in Latin America?
While I cannot assure time-frames in Citi’s case, I can tell you that it is a global priority that is reaching our region. In the case of other important players, I do not have enough information to give my opinion about it. Our technological model at Citi is designed to complement the banker, although we think that it will never replace the banker because face to face is important, and that trust, relationship, and understanding the model and the family balance sheet will never be able to be replaced by an algorithm in certain market segments.
Are we already talking about a near- horizon in Latin America, is it possible to talk about what will happen within a ten-year period?
I reaffirm my opinion: I believe that it will be a transparent business where clients will know exactly what their objectives are, their returns, the risks assumed, what they are charged and why they are charged, in a much simpler and more intuitive way than at present.
It will be very easy to demonstrate whether the banker or adviser is doing things right or not, any client regardless of their sophistication will be able to understand that, and that will result in that only those of us who improve our value proposition will be able to maintain a leadership position.
There will be flows between onshore and offshore, with a much greater onshore allocation, because I believe in the region and believe in local markets. And if macroeconomic conditions improve, the enormous wealth generation of our countries can be channeled, instead of being consumed or absorbed by inflation. Latin America, and the Southern Cone in particular, is an area with enormous growth potential in the coming years, so whoever adjusts the value proposition faster in order to do the best for their clients, will gain a greater share of this growth.
In today’s credit markets, it is essential to have a defined roadmap, in which you can establish where you are in the economic cycle, how much risk you want to take and what you want to invest in, said David Hawa, Client Portfolio Manager of the Robeco Financial Institutions Bonds strategy, during the “2018 Kick-off Master class Seminar” that the asset management company of Dutch origin held in Palm Beach.
Fundamentals
In order to prepare its roadmap, Robeco analyzes the credit markets from three different perspectives, taking into account the fundamental, valuation, and technical factors.
Beginning with fundamentals, the 10-year US Treasury bond ended the year at 2.43%, the same performance level as it began the year. There was no volatility in the US sovereign bond market, nor was there any for German or Japanese bonds.
About inflation, in the United States the only component in the US with price growth is Owner Equivalent Rent. A trend that they hope will be reversed as inflation begins to gain relevance. Meanwhile, in Europe, all the components of the European GDP are growing, which, according to Robeco, is very positive because it means that loan default levels are decreasing.
“With the European Central Bank’s official rate at levels of -0.4% and the German two-year bond also in negative territory, investors have to pay to be holders of these bonds. When GDP growth was in deflation and there was no growth in Europe, it could be argued that these levels were going to be maintained, but with growth at between 2 and 2.5%, it’s logical to believe that normalization of interest rates in Europe is close, even without inflation. That’s why we believe that interest rates will increase. Comparing the German bond and the 2-year Treasury bond, the spread between the two has widened since the Federal Reserve began its cycle of increases. Sooner or later Draghi and his team will also have to begin to raise rates, let’s not forget that quantitative easing measures were launched in Europe due to the fear of deflation and now we have passed that phase. The fact that rates are going to start rising is good news for the income statements of European insurers and banks, whose margins are suffering in an environment of negative interest rates.”
In the case of the United States, if the level of unemployment continues to decline, inflation will be seen in wages: “If inflation returns in wages, the Fed could be pressured to accelerate the rate of interest rate hikes, something we particularly take into account as a potential risk. “
Valuations
In general terms, the aggregate of credit market valuations is much lower than its average. The behavior of European investment-grade corporate debt -excluding financials- was better than that of US corporate debt with BBB rating -also excluding financials-. That is why Robeco is committed to European credit as, with lower levels of leverage, it’s more attractive than US credit, especially now that the volatility seen in 2016 has disappeared.
“Taking into account the valuations presented by the different levels of subordination of the financial debt, some of the issues of contingent convertible bonds, the so-called CoCo’s, offer an adequate spread for their level of risk.
This type of debt supports a higher level of risk: if the Tier 1 capital level of the financial institution’s balance falls below the minimum pre-established by the issue, the bond is automatically converted into shares. But, some issues of these CoCo’s also reward the risk incurred with attractive spreads. It takes a very high level of experience in both transactional analysis and credit analysis to enter this market,” said Hawa.
According to Robeco, the valuations of European financial debt have greater attractiveness than European investment-grade corporate bonds. Specifically, subordinated debt issued by insurance companies offers a spread of 200 basis points, and Tier 2 bank debt a spread close to 120 to 130 basis points, as compared to less than 100 basis points offered by European investment-grade fixed income when excluding the finance sector.
“The CSPP (Corporate Sector Purchase Program), the quantitative easing program established by the European Central Bank, can buy corporate bonds, but cannot buy bonds from financial institutions. Having earmarked public money to help financial institutions after the 2008 crisis, there was a popular clamor for the ECB’s money not to be reinvested back into banks. Therefore, there is a gap between the valuations of investment-grade European corporate bonds and European debt issued by financial institutions.”
Technical Factors
Central Banks’ monetary stimulus programs, which for years have been injecting a lot of liquidity into the market, are being phased out. The Fed has been working on that for some time, Bernanke was the first president who indicated his intention to withdraw the quantitative easing program in 2013. With the arrival of economic growth in Europe, Draghi should also initiate the rate hike, something that Robeco does not expect to happen until 2019.
“Another interesting issue for US investors is that, given the asymmetry created between the Fed’s rate hike and the ECB, the cost of hedging for non-US investors has increased due to the existing spreads between short-term rates in Europe and the US. Many of the Asian investors who bought US corporate bonds are now looking for greater exposure to corporate debt and European financial debt because of the high price of hedging costs. Another point in favor of the Robeco Financial Institutions Bonds strategy.”
The Assett Classes Invested in
Most issuers in which the strategy invests have an investment grade rating. However, as the risk increases, the specific ratings of some of those issues decrease, which is why at Robeco they have a highly experienced team of managers and analysts, where 90% of the professionals have over 17 years experience, having dealt successfully with both bullish and bearish markets.
As contrarian investors, they believe that the credit markets are inefficient and that they usually incur a higher or lower valuation than what actually corresponds to an issue according to its fundamentals.
As an example of this investment philosophy, Hawa cited the purchase of subordinated debt from financial institutions when it increases market volatility. “Following the Brexit referendum, bank spreads in the United Kingdom skyrocketed, but in terms of fundamentals there were new opportunities, on that occasion we bought Barclays issues. Another example was what happened in Catalonia. On this occasion, with the increase in political risk, we increased our bets in Sabadell and Caixabank, which have solid financial balances. We have also bought other national champions among European banks such as Santander, Nordea and Credit Agricole.”
Recently, the strategy has increased its allocation to insurance company bonds, which are achieving greater spreads than issues by national banking entities. Some examples would be Aviva, NN, Generali, Swiss Re, as well as other less known names such as the Dutch company Delta Lloyd, the Belgian company, Belfius, and the British company, Direct Line Group, totaling some 70 issuers, which maintain the fund’s quality bias.
“The quality of insurance companies and the banking sector has improved in terms of fundamentals, with the progression of deleveraging of the balance sheets after the implementation of Basel III and the European Central Bank forcing banks to redistribute their financial balances to prevent what happened in 2008. Loan default levels and risk asset volume has decreased, so that banks’ balance sheets have been strengthened, but it is important to know which names should not be included in the strategy. As the level of subordination and risk increases, a greater spread is obtained, but whether or not the risk incurred is being compensated, must be taken into account. We can obtain better spreads betting on Tier 2 issues from insurers and banks, than for some of the credits with additional Tier 1 subordination level. That is our responsibility, to search for how we are being compensated for the risk we are taking in the strategy,” Hawa said.
Regarding investment in contingent convertibles, despite having investment-grade at the issuer level, it is possible that the issue has a much lower rating. That is why the Robeco Financial Institutions Bonds strategy limits its position in CoCo’s. “We want the strategy to always maintain the degree of investment in aggregate terms, so we use a tactical allocation in contingent convertible bonds, not founding the achievement of a good performance on this type of asset. Since the launch of the strategy in 2014, we have always maintained the percentage of investment in CoCo’s below 15%, allowing us to keep the investment grade in an aggregate manner “.
“In January 2016, Deustche Bank experienced a series of problems: the price of shares declined and there was a real concern that its issuance of Tier 1 contingent convertible bonds was unable to pay its coupon due to the ECB’s impositions. At that time, the spreads of UBS, Barclays, Erste Group or Raiffeisen Bank skyrocketed due to the fear of contagion. On the other hand, at Robeco we decided to buy those names whose fundamentals were attractive to us, based on transactional and liquidity risk. After this, spreads were strongly compressed, and we were rewarded for the risk of having these CoCo’s in position.
Currently, the total exposure to contingent convertible bonds exceeds 10% slightly, with a 9% exposure in the Tier 1 subordinated class and 2% in Tier 2,” concluded Hawa.
CC-BY-SA-2.0, FlickrPhoto: Funds Society. BBVA Bancomer Becomes the First Asset Management Company in Mexico to Adopt the CFA Institute's Code
Mexico’s largest banking institution is latest global firm to pledge ethical behavior to shape a more trustworthy financial industry. CFA Institute, the global association of investment professionals that sets the standard for professional excellence, has added BBVA Bancomer Asset Management to the growing list of investment firms that claim compliance with its Asset Manager Code. BBVA Bancomer Asset Management, with 20% market share in Mexico, is now one of the more than 1,400 companies around the world that claim compliance with the code.
The Asset Manager Code clearly outlines the ethical and professional responsibilities of firms that manage assets on behalf of their clients. For investors, the code provides a benchmark for the behavior that should be expected from asset managers and offers a higher level of confidence in the firms that adopt the code. The initiative was started by Jorge Unda, CIO at BBVA Bancomer and one of the first CFA’s in the country. Currently 40% of his team holds the designation and the rest is working towards getting it.
“Investors should expect and receive the highest level of professional conduct in the firms and individuals with whom they entrust their investments” said Jaime Lázaro, CFA, director of BBVA Bancomer Asset Management. “BBVA Bancomer once again shows its leadership in the Mexican financial system and the adoption of the Asset Manager Code reinforces our commitment to make the customer our priority in every decision.”
When Unda and Lázaro first started the program, 15 years ago, there were 30 CFAs in Mexico, nowadays, over 200.
The Asset Manager Code is grounded in the ethical principles of CFA Institute and the CFA® Program, and requires that managers commit to the following professional standards:
To act in a professional and ethical manner at all times
To act for the benefit of clients
To act with independence and objectivity
To act with skill, competence, and diligence
To communicate with clients in a timely and accurate manner
To uphold the rules governing capital markets
“Building trust in the investment profession is central to the CFA Institute mission, and to strengthen and ensure the future vitality of the global financial system,” said Bjorn Forfang, deputy CEO at CFA Institute. “We applaud BBVA Bancomer Asset Management, and all firms that have adopted the code, for displaying a resolute and tangible commitment to professional ethics and helping to build a better world for investors.”
BBVA Bancomer Asset Management is the largest asset management firm in Mexico, and the first asset manager and second company after Tempest Capital to adopt the CFA Institute Asset Manager Code in Mexico.
CC-BY-SA-2.0, FlickrPhoto: Twitter. Denise Desaulniers Joins Bulltick's Wealth Management Team in Miami
Bulltick confirmed to Funds Society that Denise Desaulniers, has officially joined the firm this week as Head of Structured Products.
She will be based out of the Miami office. Bulltick’s team has seven bankers and close to 1 billion dollars in AUM.
According to the firm: “Denise brings extensive experience, know-how and relationships in both the production and buy sides of structured notes and derivatives, along with a broad securities trading and advising career. She was most recently with Banco Santander International (Miami) where she spent over 15 years, serving UHNWI clients with a focus on assisting in meeting their exposure demands through structured products. Denise worked previously with Banco de Sabadell in Miami and Societe Generale in New York. She holds various FINRA licenses, including general securities and options principals licenses, among others. She is a graduate of New York University, is fluent in Spanish and French and has been a serious competitor in triathlon and Ironman competitions.”
Humberto Bañuelos, managing director at Bulltick Capital Markets, added: “Bulltick is at a very interesting fgrowth stage and Denise is a key piece in this process.”
Pixabay CC0 Public DomainPablo Sprenger, CEO at SURA Asset Management México . Sura AM is Targeting the Private Banking Client In Mexico
Mexico represents a very important market for SURA Asset Management, with 23% of its assets under management and 39% of its client base. Its Afore is the third in the system in assets and fourth in clients with 460 billion pesos under management (almost 25 billion dollars). In 4 years they have gone from 13 to 15% of the afores market, which according to Pablo Sprenger, CEO at SURA Asset Management Mexico, is due to a superior performance, a positive commercial effort, and its client’s high contribution rate. Although for SURA AM “Afores are still of utmost importance”, the executive points to the fund market, where they have almost 70 billion pesos, or 3.750 billion dollars in AUM, as their next main challenge.
“The average Mexican still has a long way to go in developing a savings culture. It’s not so much that they don’t save, but that they don’t use sophisticated instruments in order to do so; so there is an important opportunity to show them those,” comments the Head of the company that until now was focused on the mid- segment and is now betting for serving the high-end segment and competing with private banks.
During 2017, the fund segments grew three times more than the market; as their AUM increased by 30.8% while the industry grew by 9.9%, and in voluntary savings in the afore they grew by an impressive 47%. Sprenger attributes this success to “offering: Good product with good performance, to our team, and to the service we offer through technology, for example that you can buy a fund directly on the web, which we would like to be the best investment website in Mexico in 2018, the offices, the training, and our call center”. By 2018 they plan to grow 40% in funds and 35% in voluntary savings.
In order to serve the private banking client, their main efforts will focus on “positioning, as we have products and performance”. According to Sprenger they will offer even more open architecture products (they already have funds from GBM, Franklin Templeton, BlackRock and Actinver). In addition, they are analyzing how to offer brokerage firm products to their clients, either by developing that area or by partnering with a good company.
On the macro situation, the executive comments that “the world will not come to an end due to Trump. Mexico is more than NAFTA. We have institutions that do work. Although 2017 was highly volatile and volatility is the new standard, the result of the election will not change Mexico’s destiny. Mexico is a country that has advanced a lot over the past 30 years. Undoubtedly there is uncertainty and volatility, but in the end, Trump doesn’t have a majority in congress and the markets have already noticed.”
Short-term Opportunities
In the short term, Sprenger recommends staying away from the US. for high valuations. Neither does he recommend Brazil or Chile. However, he considers that “Mexico does have investment opportunities, as do Japan and some countries in Europe.”
On the 1st and 2nd of February, Robeco held its annual ‘2018 Kick-Off Master class Seminar’ at the Four Seasons Hotel in Palm Beach. The meeting was attended by about 130 industry professionals, mainly from the US Offshore business, based in Florida, California, Texas and New York, but also directly from Latin American countries, namely, Colombia, Uruguay, Panama and Peru. A total of 15 companies from the wealth management, private banking, institutional clients, and pension plans sectors participated, including Citibank, UBS, Santander, Morgan Stanley and BBVA.
Welcoming attendees to the event, Jimmy Ly, Head of the Americas Sales team (US Offshore and LatAm), opened the conference. Next, Michael Mullaney, Director of Global Market Research at Boston Partners, reviewed the macroeconomic outlook: “Global economic growth has been very remarkable. The United States has reached its tenth year of recovery since the financial crisis broke out in 2008; however, many countries are still in the early stages of the cycle. That would be the case of emerging markets, which are presented as favorites, and it is probably an intelligent decision to seek exposure to them. According to the OECD, such good growth data had not been seen since 2006, basically all of the 45 countries studied by the OECD are currently undergoing an expansion point. While data from the International Monetary Fund, which studies192 countries, indicates that only four of them anticipate a contraction in 2019. It is the minimum number of countries in anticipation of a recession recorded in a single year,” he said.
According to the expert from Robeco Boston Partners, China and India are the growth giants in global terms. China is decelerating its growth rate, transitioning from being an export-based economy with debt-based investment to a consumer economy, taking a more western profile. “We will not see a growth of 9% or 10% like that of a few years ago, but it will go from the present 6.5% to 5% in the coming years, being much more stable. However, growth in India is accelerating and will most likely become the next biggest contributor to GDP growth,” he said.
Another indicator which points to good growth prospects is the Purchasing Managers Index (PMIs), which is somewhat below 50, a value that determines if an economy is contracting, only in Indonesia and South Korea, showing an extraordinary strength globally in terms of production. Likewise, the PMI service index and the Citigroup economic surprise index indicate that the global economy as a whole shows strong signs of recovery, expecting an overall growth of GDP between 3.5% and 4%.
In turn, the withdrawal of accommodative economic policy programs could be a risk factor for equity markets, the rise of which benefited in recent years from the excess liquidity injected by central banks. “The real interest rate of federal funds globally is currently 30 basis points. The United States has never entered recession with a real interest rate of federal funds at levels near or below zero, which is exactly where we are now. The prospects for recession are very low,” he said.
Meanwhile, inflation, which continues at very benign levels, has risen slightly with the rise in oil prices. On the other hand, if we take core inflation into account, discounting food and energy prices, it is still below the 2% that most central banks usually aim for to fight against deflation, a problem that has historically remained.
Regarding salaries and employment levels, the overall situation has improved markedly, from 9% unemployment in 2009 to 5.5% today. Despite this, salaries have been very poor. “In the United States there are three reasons why wages have not experienced a significant rise. First, the most senior workers have retired and have been replaced by younger workers with lower wages. Secondly, globalization has caused companies to look for production centers with lower costs, causing something similar to the “Amazon effect”, which seeks a low-cost solution. Finally, technology is replacing many of the tasks, reducing the cost structure for many countries. In particular, Japan is among the most advanced economies when it comes to integrating robotics into its economy,” he added.
Finally, referring to the fall of the dollar, Mullaney mentioned the purchasing power parity index, according to which the Euro remains relatively cheap with respect to the dollar, and the current account deficit, which in the United States is at a -3% and in Europe at + 4%. In addition, Europe also shows a better fiscal balance than the United States, reasons that favor a weaker dollar.
Subordinated debt of financial institutions
Next, David Hawa, Client Portfolio Manager, explained the reasons why it may be a good time to invest in subordinated debt of financial institutions, the so-called contingent convertible bonds (CoCo’s), as their conversion is subject to certain conditions established at the time of issue and in relation to certain levels of capital. “The economic outlook in Europe is more favorable, benefiting from the solid growth enjoyed by the global economy. Growth in Europe remains strong and enjoys a broad base, while the credit cycle in the United States is much more mature. Against this backdrop, European financial companies continue to offer value. Credit spreads are not as generous as they used to be, but the valuations of financial companies are still attractive,” he said.
In that regard, the strategy dedicated to financial institutions’ bonds has the potential to achieve attractive spreads with an investment grade issuer risk. Spreads of subordinated financial debt are usually attractive compared to the rest of corporate debt, including high-yield debt. “Issuers of financial bonds tend to be predominantly corporate issuers with a high-grade rating within the investment grade. In addition, this type of asset serves as implicit hedging against rising interest rates, since it has a very low or low correlation with US Treasury bonds,” said Hawa.
During his presentation, he pointed out the capabilities of the Robeco Credit Investment team: “Since the 70s, Robeco has a specialized credit team, in which each member has an average experience of 17 years and includes about 4 financial analysts working on a full-time basis. They also differentiate between the responsibilities of portfolio managers and those of the credit analysts; displaying a profound knowledge of the financial sector and equity securities. They select the best subordinated bonds for each category, with a higher risk-return binomial and use an internally developed risk model to monitor both the portfolio and the issuer risk”.
Trends Investment
At the following lecture, dedicated to investing in trends, Ed Verstappen, Client Portfolio Manager, reviewed the performance of growth stocks, after a year in which the FANG shares (Facebook, Amazon, Netflix and Google), together with their Eastern version, the BAT (Baidu, Alibaba and Tencent) have dominated the markets.
“The ‘winner-takes-it-all’ effect, in which a group of companies generate most of the market’s profits, is becoming stronger, accelerating even profit growth. Facebook generated an increase of 50% in revenue for 18 consecutive quarters. While Netflix obtained growth of 35% in more than 20 quarters. For its part, Google achieved 31 quarters with organic revenue growth of 20%. And, Amazon reached 60 quarters with 20% growth in the retail sector. It is estimated that, by 2025, it will be the first US retail company to sell $ 1 trillion annually in products and services, when the company reaches 30 years’ history. Finally, the AppStore achieved a new record on New Year’s Day, when users made purchases worth 300 million dollars in purchases,” commented Verstappen.
To avoid taking unnecessary risks, the Global Consumer Trends strategy team evaluates risks with a strategic approach and considers the impact of regulation and the increase in capital intensity. In addition, they continue to reduce exposure to major US technology firms to start betting on equivalent names in China.
“This strategy identifies secular global trends with strong growth from the consumer’s perspective, such as the digital consumer, the emerging consumer, and the consolidated brands. Having a preference for investment in structural winners within each industry, with a focus on the 50-70 most attractive stocks, which offer higher quality and a higher growth profile,” he said.
Verstappen was also optimistic about the state of the economy: “The market is anticipating an improvement. The increase in consumer spending should benefit from low unemployment, higher wages, and high consumer confidence. It is expected that also in 2018, the markets will be driven by solid growth. The fundamental perspectives for large digital platforms (Google, Facebook and Amazon … etc.), are still very good. Emerging market shares can benefit from the prospects of improving global growth,” he added.
Robeco has specialized in analyzing trends, which are understood to be a disruptive change that displaces the previous ‘status-quo’ and with a visible effect in the long term. Thus, a new trend would result in new challenges for players already present and opportunities for challengers.
This global management company of Dutch origin offers strategies based on the analysis of trends, from the consumer angle, from the financial angle, from the production side, and from a total perspective: “It is an attempt to anticipate the future. We believe in the power of disruption from the demographic, technological and regulatory changes. It is a commitment to the long term, because short-term horizons lead to a lower estimate of secular growth trends creating high-conviction portfolios that are agnostic with respect to their benchmark,” he explained.
Concluding the morning conferences, Henk Grootveld, Managing Director of Trends Investment, explained the scope of the digitization of the financial sector. “In the next 10 years, payments made online will be adopted mostly, cash will become an exception. The digitization of the financial sector will allow 2 billion people to manage their assets; both China and India will establish themselves as the biggest players in FinTech, surpassing the rest of the world combined. Failure in the cyber security issue in the financial world means being out of the FinTech business,” he concluded.
