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Are Emerging Markets Becoming Safer than Developed Markets?

¿Se han vuelto los mercados emergentes más seguros que los desarrollados? — CC-BY-SA-2.0, FlickrPhoto: Dennis Jarvis . Are Emerging Markets Becoming Safer than Developed Markets?

When looking at global growth expectations for the near future, we continue to see a confirmation of the increasing weight of emerging markets (EMs) in the global economy and further divergences in the growth path between them and developed markets (DMs).

According to Matteo Germano, Global Head of Multi-Asset Investments at Pioneer Investments, all in all, EMs appear to be in a more resilient position, but they are still exposed to major risks, with a slowdown in China being the most significant. While China continues to play the most relevant role in the emerging space, other countries, such as India, continue to increase their relevance.

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India’s economy experienced outstanding economic performance in Q1 2016, when GDP grew by 7.9% YoY, the most in two years. Going forward, Pioneer expects continued positive momentum in economic activity but much more moderate than in Q1 2016. For calendar year 2016, we expect GDP will grow a bit more than in 2015, at around 7.5% YoY on average.

“India is a relatively protected economy with respect to the damage that could come from a further slowing in global trade induced by the Brexit vote. Gross Exports as size of GDP at around 20% are on the lower side of the range for Asia Pacific countries.” Says Germano

The recently announced departure of Central Bank Governor Raguram Rajan is raising some uncertainty with respect to the way the new Governor will conduct monetary policy, starting from a revision of the inflation target, viewed by many as too low for a country such as India.

At the political level, preparation for next year’s elections is gaining momentum; recently, Prime Minister Modi decided to reshuffle his Cabinet after a careful screening process based on merits. The aim is to push ahead his program, changing ministers in favor of a more reform-oriented group of people, with an eye on the next electoral contest at the state level.

For the Pioneer expert, Post-Brexit vote, the focus has shifted towards the potential spillover of a slowdown in Eurozone and UK growth to other EMs. Obviously, the close economic, social and political linkages of Emerging Europe to the Eurozone and UK, the CEE4 countries (Czech Republic, Hungary, Poland and Romania) are expected to be the most impacted within EMs.

“From an investment perspective, we believe that the attractiveness of EM assets is increasing. EM bonds, having proven to be quite resilient during the recent stress phase, offer additional yield versus the compressed returns in developed markets.” He says.

Germano believes the dovish monetary policy stance prevailing in advanced economies could be supportive for EM currencies. “In EM bonds, selection will be key, as different economies are at different stages of their development process and face different challenges. EM equities also proved to be resilient in this market phase, outperforming the global equity market year-to-date. Within EM equities, we maintain our positive view regarding India’s and China’s “new economy” sectors, which could benefit from the move towards a more service-driven economy.” He concludes.

BNY Mellon Launches Real -Time Delivery of Daily Net Asset Values And Dividend Accrual Rates

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BNY Mellon said its U.S. Investor Solutions Group has launched a real-time service to deliver net asset values (NAV) and daily dividend accrual rates for mutual funds.

The firm provides the data on behalf of its asset manager clients to intermediaries such as broker-dealers via The Depository Trust & Clearing Corporation’s (DTCC) Mutual Fund Profile Services (MFPS) by utilizing IBM MQ real time transmission methodology. The technology conveys information more quickly than the batch transmission technology it replaced. BNY Mellon is the first transfer agent to leverage the technology utilized by DTCC to deliver NAV data.

“Our first-to-market MQ technology delivery service enables asset managers to accelerate the delivery of key data—such as NAVs and daily dividend accrual rates—to intermediaries, thereby increasing their ability to meet critical nightly processing windows,” said Christine Gill, head of Investor Solutions Group. “The value of this improved turnaround time flows end-to-end to all stakeholders, not only to intermediaries, but in turn to the clients they serve, and ultimately to shareholders.”

The importance of providing timely data to broker-dealers has been increasing as these intermediaries have gathered a growing percentage of mutual fund assets on their platforms, according to the company. BNY Mellon’s U.S. Investor Solutions Group comprises its transfer agency and subaccounting businesses. As of March 31, 2016, BNY Mellon supported over $2.6 trillion in assets globally on its transfer agency platform and over 165 million accounts with assets of more than $2.6 trillion on its subaccounting platform and is ranked as the largest third party provider of subaccounting services and the second largest provider of transfer agency services (based on accounts) in the U.S., per the 2016 Mutual Fund Service Guide.

Concluded Gill, “We remain committed to investing in technological innovations that improve our clients’ experience and underscore our leadership position as the investments company for the world.”

European Equity Funds Experienced a Turnaround in Flows in May

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The European Fund and Asset Management Association (EFAMA) in its latest Investment Funds Industry Fact Sheet, which provides net sales of UCITS and non-UCITS from 28 associations representing more than 99% of total UCITS and AIF assets, highlights that for May 2016, net inflows into UCITS and AIF totaled EUR 52 billion, compared to EUR 65 billion in April.

According to EFAMA, the decrease in UCITS net sales was caused by lower net sales of bond funds. Long-term UCITS (UCITS excluding money market funds) recorded net inflows of EUR 24 billion, compared to EUR 33 billion in April.

Equity funds experienced a turnaround in flows, increasing from net outflows of EUR 1 billion in April to net inflows of EUR 3 billion in May.
Net inflows into bond funds decreased to EUR 14 billion from EUR 23 billion in April.
Multi-asset funds recorded net sales of EUR 5 billion, compared to EUR 6 billion in April.

Meanwhile, net sales of UCITS money market funds increased to EUR 17 billion, from EUR 11 billion in April and AIF recorded net inflows of EUR 11 billion, compared to EUR 21 billion in April.

Overall, total net assets of European investment funds increased by 1.8% in May to stand at EUR 13,519 billion at the end of the month. Net assets of UCITS increased by 1.9% in May to EUR 8,290 billion, and AIF net assets increased by 1.6% to EUR 5,229 billion.

Bernard Delbecque, Senior director for Economics and Research at EFAMA commented: “After three months of negative outflows, equity funds achieved again positive net sales in May”.

Bank of England’s MPC Deploys Aggressive Policy Arsenal

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According to Mike Amey, Head of Sterling Portfolios at PIMCO, with its first policy move in four years and first interest rate move in seven years, the Bank of England’s Monetary Policy Committee has very much embraced the view that if you decide to ease, then be aggressive. “When your economy is approaching the zero lower bound on interest rates and intermediate gilt yields are already well below 1%, it makes sense to use what modest monetary scope you have as decisively as you can. Thursday’s four policy moves – to cut interest rates to 0.25%, restart quantitative easing, initiate a corporate bond buying programme and provide financing support to the banking system – certainly constitute a decisive and comprehensive package. Now the two critical questions are will it work, and what are the investment implications?” He writes.

Amey believes that whether it is likely to work is best explained by looking at the BOE’s growth and inflation forecasts, which are very similar to PIMCO’s. UK growth is expected to fall to just above zero for the next twelve months, and then rise back up to 2% by 2018–2019. Headline inflation is expected to rise to 2.5% and fall back slowly to the 2% target thereafter. “This represents a relatively benign outlook, and assuming the new Chancellor announces some reversal of the previous plan to further tighten fiscal policy, there looks to be a good chance that these forecasts will be realised. Given the speed of deterioration in the Purchasing Managers’ Index and other surveys released post the Brexit vote, there are clearly risks to the outlook, but the new policy measures should go some way to negating those risks.” He adds.

The BOE’s asset purchase programme will take six months to complete and the corporate bond purchase programme is intended to be completed over an 18-month period. In amey’s words, this suggests monetary policy will remain highly accommodative for much of the cyclical horizon, keeping the damper on shorter- to medium-term UK sovereign yields despite the fact that many are already hitting new lows. In relative terms, longer-dated (30-year) gilts yielding around 1.5% are becoming more attractive versus shorter maturities, where yields are around 0.1% on the two-year and 0.7% on the 10-year. Meanwhile the British pound has been weak, but is still at levels above those seen in the last month.

“In summary, we expect longer-term gilt yields should be supported by the BOE policy moves and the broader economic environment, whilst the British pound looks to have scope to go lower.” He concludes.

Which Ones are the Top Alternative Asset Managers?

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¿Quién gestiona los 6,2 billones de dólares asignados a fondos alternativos? — CC-BY-SA-2.0, FlickrPhoto: Verónica Díaz Mateos . Which Ones are the Top Alternative Asset Managers?

Total assets managed by the top 100 alternative investment managers globally reached $3.6 trillion up 3% on the prior year, according to research produced by Willis Towers Watson. The Global Alternatives Survey, which covers ten asset classes and seven investor types, shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (34% and over $1.2 trillion), followed by hedge funds (21% and $755bn), private equity fund managers (18% and $640bn), private equity funds of funds (PEFoFs) (12% and $420bn), funds of hedge funds (FoHFs) (6% and $222bn), infrastructure (5%) and illiquid credit (5%).

The research also lists the top-ranked managers, by assets under management (AuM), in each area. Data from the broader survey (all 602 entries) shows that total global alternative AuM is now $6.2 trillion.

Luba Nikulina, global head of manager research at Willis Towers Watson, said: “Institutional investors continue to focus on diversity but not at all cost. While inflows into alternative assets continue apace, investors have become more mindful of alignment of interests and getting value for money. This has contributed to a further blurring between individual ‘asset classes’, as investors increase their focus on underlying return drivers with the ultimate objective of achieving true diversity and making their portfolios more robust in the face of the increasingly volatile and uncertain macroeconomic environment.”

The research – which includes data on a diverse range of institutional investor types – shows that pension fund assets represent a third (34%) of the top 100 alternative managers’ assets, followed by wealth managers (19%), insurance companies (10%), sovereign wealth funds (6%), banks (2%), funds of funds (2%) and endowments & foundations (2%).

The research shows, among the top 100 managers, that North America continues to be the largest destination for investment in alternative assets (50%), with illiquid credit and infrastructure being the only asset classes where more capital is invested in Europe. Overall, 37% of alternative assets are invested in Europe and 8% in Asia Pacific, with 5% being invested in the rest of the world.

According to the research, Macquarie Group is the largest infrastructure manager with over $95bn and tops the overall rankings, while Blackstone is the largest private equity manager with over $94bn and the largest real estate manager with also almost $94bn. In the ranking Bridgewater Associates is the largest hedge fund manager with $88bn and Blackstone is the largest FoHF manager with almost $68bn. Goldman Sachs is the largest PEFoF manager with almost $45bn and M&G Investments is the largest illiquid credit manager with over $33bn. PIMCO is the largest commodities manager with $10bn, the largest manager of real assets is TIAA with over $7bn and LGT Capital Partners is the largest manager of Insurance-linked investments.

Columbia Threadneedle Unveils Low-Cost, Diversified Liquid Alternatives Fund

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Columbia Threadneedle lanza un fondo alternativo líquido diversificado de bajo coste — CC-BY-SA-2.0, FlickrPhoto: Krzysztof Belczyński. Columbia Threadneedle Unveils Low-Cost, Diversified Liquid Alternatives Fund

Columbia Threadneedle Investments has launched a new, innovative absolute return strategy in form of the Threadneedle Diversified Alternative Risk Premia Fund, following regulatory approval by the CSSF (Commission de Surveillance du Secteur Financier) in Luxembourg.

The strategy is designed to capture the excess returns arising from exposure to market anomalies (the ‘alternative betas’ or ‘risk premia’) across all major asset classes (equities, fixed income, credit, currencies and commodities) and all major investment factors (value, style, curve, carry, short volatility and liquidity).

The daily liquid, transparent and diversified UCITS fund is managed by Dr William Landes, Marc Khalamayzer and Joshua Kutin, out of Boston, US, who between them have close to 50 years of asset management experience. The fund managers benefit from access to non-traditional sources of returns as well as macro inputs from Columbia Threadneedle’s wider asset allocation team, meaning that liquid risk premia exposures are tactically adjusted where macro events are believed to influence the holdings.

William Landes, Head of Alternative Investments & Deputy Head of Investment Solutions at Columbia Threadneedle Investments, said: “In the search to maximise and diversify their portfolio returns, institutional investors have often turned to multi-strategy or fund of hedge funds. This strategy offers many of the risk premia attributes present in multi-strategy hedge funds at a much lower cost. Now that tools have been developed which allow financial market anomalies to be cost-effectively packaged, alternative risk premia strategies present an attractive investment solution for institutional investors.”

Dominik Kremer, Head of Institutional Distribution in EMEA and Latin America at Columbia Threadneedle Investments, said: “We believe this is a truly unique offering in the marketplace. Our portfolio managers use advanced portfolio construction techniques, invest in a wide array of different risk premia across all major asset classes and combine this with an active, macro-driven tactical approach. In our minds, our strategy is an innovative solution for institutional investors seeking to both enhance portfolio returns and provide true diversification at a time when economic and financial conditions make investing increasingly challenging.”

United States Ranks 14th in Retirement Security

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The United States ranks 14^th for retirement security, according to the 2016 Global Retirement Index, released by Natixis Global Asset Management. The index examines key factors that drive retirement security and provides a comparison tool for best practices in retirement policy across 43 countries.

Among the leading countries for retirement security identified by the Index, Northern Europe dominates the top 10, including Norway at No. 1, followed by Switzerland, Iceland, Sweden, Germany, The Netherlands and Austria. They are joined by New Zealand (No. 4), Australia (No. 6) and Canada (No. 10).

“Retirement used to be simple: Individuals worked and saved, employers provided a pension, and payroll taxes funded government benefits, resulting in a predictable income stream for a financially secure retirement,” said John Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “Demographics and economics have rendered the old model unsustainable, but the leaders in our index are finding innovative ways to adapt to the new reality and provide a blueprint for the rest of the world.”

The Natixis Global Retirement Index, introduced in 2013, creates an overall retirement security score based on four factors that affect the lives of retirees. Finances in retirement are an important component, but three other sub-indices that gauge material wellbeing, health, and quality of life are included to provide a more holistic view. With this year’s edition, Natixis has focused on a smaller number of countries than in the past, mainly developed economies where retirement is a pressing social and economic issue.

Despite many positives, warning signs clear for the U.S.

The U.S. ranking benefits from high per capita income, the stability of its financial institutions and its low rate of inflation, according to index data compiled by Natixis. In addition, the nation’s unemployment rate has moved lower, continuing a long-term trend.

In contrast to these positive factors, the U.S. also has one of the highest levels of income inequality among developed nations, putting the goal of retirement savings beyond the reach of millions. The U.S. also has a growing ratio of retirees to employment-age adults, which means there are fewer workers to support programs such as Social Security and Medicare, putting increasing pressure on those government resources over time. That trend, combined with the broader shift from defined-benefit to defined-contribution employer retirement plans, is transferring the burden of retirement financing to individuals.

Americans recognize the shift in funding responsibility

American investors are acutely aware of increasing the need for individuals to fund a greater share of retirement. In a survey of investors conducted by the firm earlier this year, 75% said this responsibility increasingly lands on their shoulders.

However, many Americans may be underestimating how much money they need to save in order to retire comfortably. Investors estimate they will need to replace only 63% of their current income when they retire, well short of the 75% to 80% generally assumed by planning professionals.

In addition, a large segment of Americans simply doesn’t have access to employer-sponsored savings programs such as 401(k) plans. The U.S. Department of Labor estimates that one-third of the nation’s workforce doesn’t have access to a retirement plan. A separate survey of participants in defined-contribution plans found that, even when they have access to a plan, four in 10 contribute less than 5% of their annual salary.

U.S. investors see clear hurdles to financial security in retirement, identifying their three greatest challenges as long-term care and healthcare costs, not saving enough, and outliving their assets. When asked how they would make up for an income shortfall, two-thirds of U.S. investors say they will continue to work in retirement.

“Americans must come to grips with their increasing responsibility for their own retirement security,” said Ed Farrington, Executive Vice President of Retirement Services for the asset management firm. “The leading nations in our research are developing effective solutions, but we also need greater commitment by decision makers, engagement by individuals and a willingness to learn from the experiences of other countries around the world.”

A Stellar Year for the Old Mutual Total Return Bond Fund

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Bill Gross: "En deuda soberana no merece la pena el riesgo" — CC-BY-SA-2.0, FlickrPhoto: Pau. A Stellar Year for the Old Mutual Total Return Bond Fund

Just over a year ago, on July 6th 2015, Old Mutual Global Investors, part of Old Mutual Wealth, welcomed Bill Gross back as fund manager of the $330 million Old Mutual Total Return USD Bond Fund.

The fund seeks to maximise total return consistent with preservation of capital and prudent investment management. Ranking in the 1st quartile, the Fund has returned 7.61% against the benchmark’s return of 6.97%

Heading into the second year of managing this fund under Janus Capital Group, while facing a fairly stagnant economic environment and with the possibility of de-globalisation, Bill said: “Worry for now about the return ‘of’ your money, not the return ‘on’ it. Our Monopoly-based economy requires credit creation and if it
stays low, the future losers will grow in number. Until governments can spend money and replace the animal spirits lacking in the private sector, then the Monopoly board and meagre credit growth shrinks as a future deflationary weapon.”

When asked where he was looking for value in the bond market, he added: “Sovereign bond yields at record lows aren’t worth the risk and are therefore not top of my shopping list right now; it’s too risky. Low yields mean bonds are especially vulnerable because a small increase can bring a large decline in price.”

He also commented about his time as an investor, saying: “In an industry driven by facts and figures, stats and claims, here is another; I am heading very close to marking a half century of financial industry experience. Yes, much has changed in those near on five decades but for every challenge there has been an equal measure of opportunities. This portfolio can invest across global fixed income markets with the flexibility to utilise the high conviction views that me and the team have, in order to capitalise on those challenges and opportunities in a balanced way. Each day seems to bring fresh investment prospects, though all viewed with a cautionary caveat at this time.”

Warren Tonkinson, managing director, Old Mutual Global Investors comments: “We were thrilled that we were able to welcome back Bill as steward of this fund, and a year on the performance numbers speak for themselves. The past year has thrown up a number of economic curve balls which Bill and his team have been able to deal with, if not avoid, thanks to their vast experience of managing bonds throughout complex market conditions. Our thanks go to Bill for steering this fund positively through ‘choppy waters’. We look forward to working with Bill and the team for many years to come.”

Fixed Income Investors Should Seek Opportunity in Emerging Market and Investment Grade Bonds

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In a market update webcast, Western Asset Management Chief Investment Officer Ken Leech described a global economy rife with problems – yet one that continues to grow, especially in the United States, even if slowly and with evident risks.

“We expect steady, unspectacular U.S. and global growth,” Leech said adding: “That’s been our basic message: slow but sustainable growth globally. The fear the market had in the first quarter, that the slow growth rate might actually fall, is what got the markets in pretty dire straits.”

During that first quarter, Western Asset did not believe the global growth situation was going to develop into a global recession, (a prediction that has so far proven correct), but it has warranted exceptional monetary accommodation.

“Policymakers have to be attentive to downside risks, especially in an environment where U.S. and global inflation remain exceptionally subdued,” Leech said. “Fortunately, central bank accommodation is aggressive, and increasing. That means U.S. Treasury bonds and sovereign bonds will be underpinned by these low policy rates, which will continue around the world.”

As for the U.S. Federal Reserve, which Leech said has made “a dovish pivot,” he concluded, “The Fed is going to be very cautious, and is unlikely to be moving rates up any time soon.”

Leech continues to see strong opportunity ahead in investment grade (IG) corporate bonds. Regarding Europe, the recent Brexit vote injected a high level of uncertainty into the outlook.
He expects that the European Central Bank (ECB) will expand its QE program, both in length of the program and the size. Addressing emerging markets, Leech reported a generally positive outlook. “There’s a real case to be made for emerging markets, both in local currency and dollar-denominated bonds,” he said. “That’s an area we are focusing on even more meaningfully than coming into the year. The yield spread between EMs and developed has reached crisis wide. When you think about valuations and people needing yield, this is where yield is abundant… The two positions we’ve liked structurally have been Mexico and India. Over the course of the year we have been opportunistically investing in a number of others. One I’d highlight is Brazil.”

“Another point highlighted by the World Bank is the bumpy adjustment in China,” he added. “China’s growth is going to be slow. We need to be very thoughtful about it, but the policy adjustment in China was so aggressive that they could avoid a hard landing.”

“Global headwinds are straightforward. When you look at world GDP, we have been in the camp that a 3 percent growth rate, very slow by historical standards, can be maintained. A low bar, and it’s going to take a lot of policy help. Fortunately, we’ve had that, which truncated some of the downside risk. But the major headwind of growth over time is the enormity of the debt burden around the world. It’s going to take time, low interest rates and a continuation of policy support.” He concluded.

You can watch the replay of the webcast in the following link.

Nikko AM Adds a Global Credit Fund To Its UCITS Line-Up

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Nikko AM añade un fondo de crédito global a su gama de estrategias UCITS — CC-BY-SA-2.0, FlickrPhoto: Marco Galasso . Nikko AM Adds a Global Credit Fund To Its UCITS Line-Up

Nikko Asset Management is launching a Luxembourg domiciled Global Credit Ucits fund on 3 August.

The fund aims to target an excess return of 1.5% against the Barclays Global Aggregate Corporate Index and also has an absolute return target of 4% by investing worldwide in a portfolio of 70-120 corporate bonds. The team adopts an active investment approach based on thorough fundamental research, taking advantage of mispricings in global credit markets.

It is managed by head portfolio manager Holger Mertens and supported by the firm’s Global Credit teams based in London, Tokyo, Singapore, Sydney, Auckland and New York.

Nikko AM has been launching more Ucits funds to its product line-up, to meet global investors’ evolving demand for exposure to diverse products and strategies. This is the latest, following the recent launch of a Japan Focus Equity Ucits and an Asia ex-Japan, Global Equity and Multi-Asset Ucits in 2015.

“We are launching the fund in response to investor need for consistent and sufficient returns in a low yield environment through a diversified and high quality credit portfolio. The need is increasing for a highly skilled active fund management team with truly global resources, and experience in different regions of the world,” said Nikko AM head of Global Fixed Income, Andre Severino.