Foto: Alexas_Fotos. Los inversores globales aumentaron sus posiciones en efectivo durante diciembre
The BofA Merrill Lynch January Fund Manager Survey shows investors geared up for stronger growth and inflation, but are still reluctant to slash cash.
“Ahead of the US presidential inauguration, investors are positioned for stronger growth and inflation, but are not willing to turn fully bullish with China-related risks on the horizon,” said Michael Hartnett, chief investment strategist.
Manish Kabra, European equity quantitative strategist, added that, “Fund managers have returned to Europe amid improvement in the macro outlook, but UK remains the most underweighted region.”
“USD/JPY and Japanese stocks have been bought as inflation assets,” noted Shusuke Yamada, chief Japan FX/equity strategist. “Whether the post-election market trend reaccelerates or unwinds, these two asset classes are likely to be among the most impacted.”
Other highlights include:
Investor expectations of global growth improve to 2-year highs (net 62% from net 57% in December), while global inflation expectations remain elevated, with the fifth highest reading on record (net 83% from net 84% last month)
The percentage of investors expecting “above-trend” growth and inflation is at a 5.5-year high (17% from 12% in December)
Investors continue to identify Long USD as the most crowded trade (47%), while the highest percentage since April 2003 thinks that the Euro is undervalued (net 13%)
Big jump in percentage of investors expecting corporate earnings to rise 10% or more in the next 12 months (improved to net -22% from net -47% last month), the most bullish reading since June ‘14
However, cash levels rose to 5.1% from 4.8% in December, well above the 10-year average of 4.5%
The three most commonly cited tail risks are trade war/protectionism (29%), US policy error (24%), China FX devaluation (15%)
In January, investors said they were buying Eurozone, tech, equities and REITs, while selling industrials, EM equities and commodities
Allocations to Eurozone equities rose sharply to net 17% overweight from net 1% underweight last month
Allocation to Japanese equities remains unchanged from December at net 21% overweight, but optimism has room to grow
In closing a year of remarkable geopolitical events, there are still many unknowns that will only be revealed when the dust settles from the major elections and referendums across the globe. Natixis Global Asset Management and one of its leading affiliates focused on alternatives, AlphaSimplex Group, LLC. talk about volatility Ahead.
Downside risk is currently elevated at above average, appoints the firm, although not at extreme levels for international and emerging market stocks. For U.S. stocks, the measure is slightly below average. This may seem counter-intuitive given the modest gains delivered by stocks thus far in 2016 and the relatively positive market reaction to the U.S. presidential election results. But perhaps it isn’t all that surprising.
Recall the rollercoaster stock market of the first quarter of 2016, when investors became concerned about the slowdown in Chinese economic growth. Almost a year later, points out Natixis affliates, the health of the Chinese economy continues to be a global risk. Add to that the wildcard of the direction of U.S. and Chinese trade relations post-election. Other concerns weighing on global markets include rising interest rates in the U.S., a weak European recovery weighed down by immigration complexities and a refugee crisis. Mid-year, Brexit also added a pint of uncertainty to the world order.
“Against this backdrop, it appears the only certainty is persistent uncertainty. This uncertainty has contributed to a relatively wild ride in the U.S. stock markets over the year, where we have seen a trough to peak move in the S&P 500 Index of over 20%.2 While we do not view global equity risk at extreme levels, we do believe investors should proceed with caution”, conclude AlphaSimplex Group´s team.
New research from global research and consulting firm Cerulli Associates finds that women offer a solution to the industry’s impending succession crisis and talent shortage as advisor retirement accelerates. “Women represent only 15.7% of the 310,504 financial advisors in the industry,” states Marina Shtyrkov, analyst at Cerulli. “Women remain outnumbered in financial advisor communities despite efforts to recruit more female advisors; only 16 in every 100 advisors are women.”
“Close to 40% of advisors plan to retire within the next 10 years, leaving the industry scrambling to groom replacements,” Shtyrkov explains. “Women present an untapped talent pool that offers a solution to the industry’s recruiting problems. By expanding their focus and altering their recruiting strategies to appeal directly to female candidates, broker/dealers (B/Ds) and RIA custodians can help fill the gaps left by retiring advisors.”
The reasons driving women to become advisors can differ from those that inspire men to enter the industry. “Nearly all female rookie advisors consider the desire to help people reach their goals to be a major factor for becoming an advisor,” Shtyrkov says. “B/Ds and custodians will have better success recruiting prospective women advisors and safeguarding against a future headcount shortage if they accentuate the social impact that an advisor has when working with people to achieve their financial goals.”
“A B/D’s most powerful tool in recruiting female rookies is its existing group of established women advisors,” Shtyrkov adds. Cerulli believes that established women advisors can dispel negative perceptions about the industry that deter some women from considering advising a career option. By sharing their experiences, these women can address misconceptions about what it means to be an advisor as well as offer transparency into the profession.
These findings and more are from the first quarter 2017 issue of The Cerulli Edge – Advisor Edition, which discusses the role women advisors play in an evolving wealth management landscape, including how to attract more women to the industry, how to support established women advisors, and the concrete business advantages of gender diversity.
CC-BY-SA-2.0, FlickrSasha Evers, courtesy photo. Sasha Evers Will Lead the Latin America and Spanish Business of BNY Mellon
BNY Mellon Investment Management (BNY Mellon IM), the world’s largest multi-boutique asset manager with 1.7 trillion dollars in assets under management, announced that Sasha Evers, Managing Director for Iberia, expands his role to lead the Latin America business.
Antonio Salvador Nasur will continue in his regional role based in Santiago, Chile, reporting directly to Sasha Evers, based in Madrid, Spain.
Under Evers’ leadership BNY Mellon IM opened its Madrid office in 2000 to successfully grow BNY Mellon IM’s presence across Iberia (Spain, Portugal and Andorra), where current assets under management are USD 3,537 bn (EUR: 3.730 m).
Sasha Evers, Managing Director of BNY Mellon IM for Iberia, said: “The Latin American region offers a strong long-term growth story for our business. I am looking forward to working closely with Antonio to further build upon our business in the region.”
Matt Oomen, Head of International Distribution at BNY Mellon Investment Management, commented: “While setting in stone our longer term distribution strategy to grow assets in Latin America, we saw many synergies between Iberia and Latin America. Sasha’s experience and leadership puts him in the best position to further grow our presence in the region, following his success leading BNY Mellon IM Iberia.”
Nicolas Walewski, who heads Alken, has been in Madrid recently. Courtesy photo.. “It’s Dangerous to Be Negative in Banks: We See Conditions for Greater Growth and Margins in Europe”
Everyone is aware that last year was a complicated one for the funds of Alken, Nicolas Walewski’s fund management company. His compliance and convictions for the cyclical sectors took their toll due to events such as Brexit, which penalized his funds. But the market has been turning around for months, and in 2017 things have begun to unfold differently: “Taking panic and redemptions in European equities into account, 2016 was a year for buying,” Walewski said recently during a presentation with clients in Madrid.
The fund manager considers that, after three years of “destocking” in companies, this year begins a new “restocking” cycle, in which firms begin to invest again… and Walewski points to these new investments, to the recovery of industrial activity, and to the fact that many industries are boosting their pricing power -in addition to the fact that American and Asian investors have returned to the European market only very marginally- as positive indicators for European Equities. “Companies have invested little, overall, there are no excesses globally, so there is no reason to be pessimistic,” he says.
On the contrary, there are numerous indicators giving him the go ahead for buying equity and selling fixed income and shares with a behavior similar to bonds. “We’ve seen years of better behavior in bond-like securities while cyclicals lagged behind,” he recalls, but the story will change. In fact, this rotation from the defensive to the cyclicals is already occurring in the markets and he advises: those investors who are underweight or negative in sectors such as banking will be motivated to rotate their portfolios.
“Value will offer better returns as rates rise,” he says, “with the higher rates, the 10-year profits will be reduced, so that the growth style will offer lower returns” and lose its appeal.
In fact, this story is now rewarding the fund manager’s loyalty to the cyclical sectors, which weighed negatively last year. Walewski is still strongly committed to them this year.
Opportunity in banks
Among these sectors, and although Alken European Opportunities is still underweight in the financial sector (it underweighs the insurance sector), the fund manager points out the opportunity in banks. Thus, in the face of recent negative factors such as regulation, higher capital requirements and QE policies (“good for the cycle but terrible for banks”), the fund manager now sees positive factors, such as Real Estate price recovery (the main liability of banks), the deleveraging of individuals and companies (which allows capital reinforcement), or greater clarity in the Italian banking system. “We see conditions for higher growth and higher margins of banks in Europe, which is positive for shareholders,” says the fund manager. Although there are still many entities that are not to his liking (which is why they have not yet overweighed the sector), Walewski considers that it is “dangerous to be negative in banks”.
Cyclical sectors
One of the sectors to which he continues to be strongly committed is discretionary consumption (with an overweight of more than 22% in Alken European Opportunities), especially because of his conviction in the automotive sector, where he is beginning to see greater investments and anticipates a strong rally. He likes names such as Peugeot or Renault: the fund manager considers the latter as “the Ryanair of the automotive market”, due to its attractive low cost offer to which investors have not put a price and taking into account the great business opportunity currently opening in this business segment. As a matter of fact, Ryanair is another one of his big commitments, due to its price, to its strong growth in Germany and to the improvement of its cost structure. He also likes the luxury sector, which has been recovering in recent months (fuelled by demand stabilization in China) and whose rally will continue, he says. He is also committed to Wirecard, or B & M Value Retail, which he considers to be one of the best operators in the British retail market and which has been severely damaged by Brexit, but which could be revalued by up to 25%.
In its European stock fund, the fund manager also overweighs the industrial sector, where he sees greater business volumes and increasing power to establish prices. He speaks of Leonardo, an Italian defense company -and a case of restructuring- as a good investment in an environment of strong demand for the sector, which could boost its price up to 30%.
Healso overweighs Information Technology and the materials sector, and points out the opportunity at Glencore. “There is great skepticism about this sector, but it was the best last year and it will benefit from a more positive framework in the relationship between supply and demand.” He is cautious in energy but has increased the weight somewhat, although he admits that it is a sector that requires being very selective. Within this sector, he is still committed to renewable energy, a structural tendency “in spite of Trump”. Among his main underweights are telecommunications, health, utilities, or basic consumption sectors.
Due in part to the fact that many bond-like securities are in the large-cap segment, this year the fund manager glimpses opportunities in small caps. Last July, the management company opened its fund that invests in small capitalization firms, which had been closed to new subscriptions since 2013.
Alken, which admits to two management mistakes in recent times: the investment in Monte dei Paschi (“with the added lesson of not trusting an Italian banker”), and the fact of not seeing the “destocking” in 2015, currently has 4.5 billion Euros in assets under management.
The political impact
On the risks posed by politics this year, Walewski is cautious: in Europe, he sees evidence that much of the risk has already been accounted for with the strong capital outflows last year. “It takes a lot for this risk to prevail over fundamentals: banks are improving, valuations are cheap, industrial firms are improving their pricing power… it takes a lot,” he says. In fact, he believes that the truly important elections will be the French ones, because the risk is the lack of integration in the Union: “The risk is the lack of solidarity in Europe. Apart from the ECB, there is not much integration,” he says, and he believes the French stance toward more federalism, or its rejection, is the key.
As regards Brexit, which last year provided a buying opportunity for British domestic companies, he believes that “everything is negotiable” –you only need to see the Swiss case, he says, in which some sectors enjoy more protectionism, while others enjoy greater openness– and that it will take years. “The deadline for triggering Article 50 is artificial,” he adds. Although there may be more volatility, he believes that some of the impact is already accounted for. He is also cautious about Trump and explains that the reaction of the markets will depend on their measures. Of course, he believes that over time it could lead to some disappointments, but he does not see it as an immediate threat to the markets.
Finally, while recognizing that China will limit its growth, he points out that the debt is in public hands, rather than in private, which limits the problems, so he does not consider that to be an immediate threat.
The surprise election of Donald Trump has the potential to significantly reshape the United States’ domestic policy landscape and the country’s relationship with the world. In the latest edition of Global Outlook, Chief Economist Jeremy Lawson examines the trajectory of global growth and the possible economic implications of a Trump presidency.
The incoming president will inherit a supportive economic backdrop. Prior to the election, we saw increasing evidence that global activity had been improving. Stronger nominal growth also means a return to positive corporate profit growth and we are anticipating that this will continue to improve over the next 12 months.
Standard Life Investments believes there are a number of factors that will determine whether the first year of a Trump presidency amplifies the current trends or results in a change of direction. Significant factors would include an aggressive loosening of fiscal policy, a dismantling of President Obama’s domestic agenda and reorientation of American foreign and international trade policy.
Jeremy commented: “The near-term pro-growth aspects of the policy package promised by Donald Trump have been welcomed by investors after such a disappointing recovery from the financial crisis. The return of Republican majorities in the House and Senate should help to reduce the political stasis in Washington, particularly regarding fiscal stimulus where the President-elect and his party have the most common ground. A raw fiscal stimulus of more than 1% of GDP in 2018 is possible, which could lift growth a touch above 3%. This is almost a whole percentage point higher than our forecasts without stimulus. In turn, stronger US growth would have knock-on benefits for import demand from the rest of the world, though it would also be pulling future growth forward and probably bring higher Fed policy rates with it.”
He added that “other than tighter monetary policy and a stronger dollar, the biggest macro and market downside risks from a Trump presidency arguably derive from his trade agenda – such as his pledges to withdraw from the Trans-pacific Partnership, declare China a currency manipulator and lift tariffs. A new era of protectionism would be negative for the global economy. Hence the importance of identifying Trump’s real intentions as President. We believe the most likely scenario is that heightened rhetoric is ultimate used to secure better access to foreign markets for US companies and incentives to keep production at home. However, the views of Trump’s nominees for key trade policy roles in his administration shows that there is a significant risk that Trump means what he says.”
“Ultimately, America is not the only source of political risk for the global economy; Europe also faces a number of political challenges. Destabilising outcomes would likely reinforce the peripheral European spread widening that has already taken place recently amid speculation that the ECB backstop has become more equivocal, though we doubt policymakers would stand still in the face of movements that threatened to undermine four years of policy and economic repair.” Lawson concludes.
The European Fund and Asset Management Association (EFAMA), in cooperation with SWIFT, published a new report about the evolution of automation and standardisation rates of fund orders received by transfer agents (TAs) in the cross-border fund centres of Luxembourg and Ireland during the first half of 2016.
The report is an on-going campaign by EFAMA and SWIFT to highlight the advancement of automation and standardisation rates of orders of cross-border funds. 29 TAs from Ireland and Luxembourg participated in this survey. The report also provides data on standardisation levels in Italy and Germany.
According to the report, the total volume processed by the 29 survey participants reached 16.6 million orders by end of June 2016. The total automation rate of processed orders of cross-border funds reached 84.4% in the second quarter of 2016, compared to 85.4% in the fourth quarter of 2015. The use of ISO messaging standards decreased from 51.2% in Q4 2015 to 50% in Q2 2016, while the use of manual processes rose to 15.6% in Q2 2016 compared to 14.6% in Q4 2015.
The total automation rate of orders processed by Luxembourg TAs reached 81.7% in the second quarter of 2016 compared to 82.9% in the last quarter of 2015. The ISO automation rate decreased from 65% in Q4 2015 to 63.8% in Q2 2016, while the use of proprietary ftp remains stable at 17.9%.
The total automation rate of orders processed by Luxembourg TAs reached 81.7% in the second quarter of 2016 compared to 82.9% in the last quarter of 2015.
Peter De Proft, EFAMA Director General, notes: “The report confirms that further increases in automation rate levels for fund orders and switches towards the ISO 20022 standard will depend on the efforts made not only by fund managers to adapt their technology and operational structures, but also by the fund distributors sending the fund orders.”
Fabian Vandenreydt, Global Head of Securities, Innotribe and the SWIFT Institute, SWIFT, adds: “With funds order volumes stabilising across Luxemburg and Ireland, it is not surprising to see the automation rates level off as well. Over the years we have seen a consistent increase with automation and adoption of ISO 20022 compared to proprietary formats. The industry has made great progress and with near 85 percent of the market fully automated, the funds industry is in a good place to continue driving efficiency in the market.”
Pixabay CC0 Public DomainFoto: 495756. Annika Falkengren and Denis Pittet, New Managing Partners at Lombard Odier
The Lombard Odier Group announces the appointment of Annika Falkengren and Denis Pittet as new Managing Partners.
“These two nominations provide a solid base for the further build-up of the Lombard Odier Group” said Patrick Odier, Senior Managing Partner of the Lombard Odier Group. “We are particularly pleased to welcome two highly complementary personalities with Annika Falkengren, who brings a recognised expertise in the running of a respected and successful European financial institution, and Denis Pittet, who has contributed significantly to the strategic development of the bank over the past 20 years. These two appointments represent a strong endorsement of our strategy, differentiated business model and long term vision.”
Annika Falkengren, currently President and CEO of Skandinaviska Enskilda Banken (SEB), will join the Lombard Odier Group in July 2017 as a Managing Partner based in Geneva. Annika Falkengren joined SEB in 1987 and made a long and distinguished career which culminated in her nomination as President and CEO of SEB in 2005. Recognised as one of Europe’s most respected bankers, she is also Chairman of the Swedish Bankers Association.
“I am very honoured to join a Group with strong family values and with a truly international mindset and outlook”, said Annika Falkengren. “I firmly believe in the partnership model which has been underpinning Lombard Odier’s evolution over the 221 years of its history.”
Denis Pittet will become a Managing Partner in January 2017. Denis Pittet joined the Group in 1993 as a trained lawyer. He was Group Legal Counsel, before joining the Private Clients Unit in 2015 where he took over the responsibility for the independent asset managers’ department and led the expansion of wealth planning services in the areas of family governance and philanthropy. He became a Group Limited Partner in 2007. He is also Chairman of the Fondation Philanthropia, an umbrella foundation supporting clients’ long-term philanthropic projects.
“My objective will be to maintain a first class client experience at Lombard Odier”, added Denis Pittet. “We are solely dedicated to clients in a model which puts independence at the heart of everything we do.”
After 20 years of commitment to the Group, Managing Partner Anne-Marie de Weck retired on 31 December 2016. She joined Lombard Odier in 1997 to take over responsibility for the Firm’s legal department, and subsequently its Private Clients activity. A Managing Partner since 2002, Anne-Marie de Weck has made decisive contributions to the strategic development of the firm’s private client business.
“We would like to express our sincere thanks to Anne-Marie de Weck for her relentless commitment to serving our clients. We are also very grateful that she will maintain a close relationship with the Group as a member of the Board of Directors of our Swiss-based bank. In this role, she will continue to be involved in defining the strategic orientation and overseeing the operational activities of the business”, said Patrick Odier.
In July 2017, the Management Partnership of the Lombard Odier Group will be composed of Patrick Odier (Senior Partner), Christophe Hentsch, Hubert Keller, Frédéric Rochat, Hugo Bänziger, Denis Pittet and Annika Falkengren.
CC-BY-SA-2.0, FlickrFoto: Travis Wise. La victoria de Trump es una noticia positiva para la deuda high yield
Since Donald Trump won the presidency and the Republicans, a majority in Congress, the bond markets have priced in a steep rise in fiscal deficits. While it is more or less clear that the new administration will cut taxes drastically, a question mark hovers over the extent of infrastructure spending and, indeed, if such spending will even be approved.
“Congressional Republicans are traditionally opposed to deficits and the issue of public debt has led to political (more than economic) crises in recent years with renegotiations of the debt ceiling (in 2011 and 2013). The issues of US debt and fiscal manoeuvring room will be key to the coming years, and this is therefore a good time to look more deeply into their many facets”, explains Bastien Drut, Strategy and Economic Research at Amundi.
US public debt can be split into two categories, said Drut:
Marketable debt, which is raised on the markets. This is the debt that is traded on the markets each day, including T-bills, T-notes, T-bonds, floating-rate notes, and inflation-linked debt. As of November2016, marketable debt amounted to $13,921bn, or 74.6% of GDP.
Non-marketable debt, which is raised from US governmental bodies. For instance, US law provides that tax receipts levied to fund the Social Security Trust Fund and the Medicare HI Trust Fund must be invested in US Treasuries, most of the time non-marketable US Treasuries. As of November 2016, non-marketable debt came to $5,481bn, or 29.3% of GDP.
The debt ceiling applies – more or less – to the sum of the marketable and non-marketable debts, when the debt ceiling is not suspended (see below).
Marketable debt consists of:
T-bills, of an initial maturity of 4 weeks, 3 months, 6 months or 12 months
T-notes, of an initial maturity of 2, 3, 5, 7 or 10 years
T-bonds, of an initial maturity of 30 years
Floating-rate notes, of an initial maturity of 2 years (these were first issued in 2014)
TIPS, of an initial maturity of 5, 10 or 30 years.
More than 60% of marketable debt is T-notes. After falling precipitously in recent years (after peaking at 34% of marketable debt in 2008), the proportion of T-Bills is being driven back up by the reform of the US money markets (from 10% at and-2015 to 13% today). The expansion of the T-Bill market in 2017 will limit long-dated issuance.
“The average maturity of the US marketable is approximately 5.2 years. It has been rising since 2014. The future Treasury Secretary, Steven Mnuchin, indicated in a recent interview that the new administration would “look at potentially extending the maturity of the debt because eventually, [the US] will have higher interest rates and that this is something that this country is going to need to deal with.” He mentioned the possibility to issue 50 or 100 yr bonds”, concludes Drut.
Ever since the Conservative government came to power in 2010, one of its key policy goals has been reducing the annual government deficit to achieve fiscal balance. However, with the change of the Chancellor of the Exchequer in July, a change in fiscal policy could be expected, according to Mike Amey, Head of Sterling Portfolio Management at PIMCO. “The Autumn Statement on 23 November was Chancellor Philip Hammond’s first opportunity to “reset” fiscal policy ‒ and reset he did”.
“Quite correctly, the government recognized that with the deficit at 3%‒4% of GDP, the most important deficit reduction is now behind the UK, and fiscal policy no longer needs to be all about relentless austerity. This seems sensible”.
According to Amey, the reset of policy is most evident in the projections for the deficit in the Autumn Statement compared to the forecasts in the March 2016 budget. “As the graph shows, there is no aspiration to achieve fiscal balance by 2020, the date of the next general election. More broadly, there is a recognition that even a deficit reduction to 2%‒3%, assuming growth remains at or close to current levels, will be enough to put total debt-to-GDP on a stable footing. Given the uncertainties ahead as the UK goes through the Brexit negotiations, significant further tightening of fiscal policy probably seemed unnecessary, and this is the bet the chancellor has made”.
Investors immediately responded to the Autumn Statement by selling gilts, although interestingly, the British pound was little changed against the U.S. dollar. “Our sense is that UK gilts can fall further given that UK growth has already returned to pre-Brexit levels, the supply of UK government bonds is going to be higher than expected and the likelihood of further monetary easing has fallen. However, after a sharp rise in yields already, our preference is to reflect caution on gilts relative to other high quality government bonds rather than by selling outright. All of this also suggests that the yield curve may steepen as the term premium rises on a more balanced outlook for growth and inflation”.
The outlook for the British pound is a little more nuanced, the expert says. “The combination of a high current account deficit and more persistent fiscal deficits may well keep pressure on the pound, although that may turn out to be as much about U.S. dollar strength as pound weakness”.
