During Old Mutual’s second conference in Punta del Este, Uruguay, Ian Ormiston, Fund Manager for Old Mutual Europe (Ex UK) Smaller Companies Fund, defined his strategy as “a sensible fund which invests in a sensible mix of businesses, consistently providing a series of fairly high returns when compared with other funds in their category or against the benchmark.” A full bottom-up strategy, which invests in some 50 European small-cap companies, equally weighted at 2%, with sufficient market liquidity and which have pricing power and show growth potential.
For Ian Ormiston, the key factor is that companies are genuinely small cap companies: “For some fund managers, especially for those who have succeeded, the important thing is to achieve more assets, therefore small cap funds become small and medium cap funds. We want to buy companies that are genuinely small cap; the segment we seek is in the range of 1 billion to 1.5 billion. The reason is that it’s in this segment where the greatest opportunities lie, it’s the most imperfect segment in the market, and it’s where we will get the returns.”
As for the market outlook for European equities, Ian says that through the media we only become aware of the problems, the crisis in Greece, the probability of Brexit, Austria’s shift towards the radical right, the repetition of elections in Spain, the massive influx of refugees, etc.; while all this commotion favors the creation of opportunities for finding companies with good fundamentals at good valuation levels. “Europe is a rich continent with slow growth, with a GDP growth between 1.5% and 2%. It is not a dynamic economy, but there are pockets of growth. Especially in small-cap companies which have provided good returns over time. “
When asked about the advantages of investing in small cap stocks versus the large cap within the European market, the fund manager mentioned three reasons: the first factor is the higher compounded growth in returns in this asset type, generally small cap sales grow 2% faster than sales of large caps. Secondly, the low coverage by analysts, European large caps have an average of 36 analysts covering each stock, while only 5 analysts cover each stock within the small caps segment. And finally, the third reason would be the high degree of family ownership in European businesses in comparison to that of the United States or United Kingdom. “We maintain a stock in the portfolio for a period of between five and seven years, as usually, a person who has founded their company remains in charge of the company for the next 30 or 40 years, so their interests are aligned with ours.”
For the strategy, Ian Ormiston selects those small cap companies that have sufficient liquidity and which are relatively easy to operate. He also seeks companies with established sales growth, a good product, and a clear market. “We avoid those companies with business models resembling a lottery ticket. We look for companies which still have many years of growth ahead, with a potential upside of around 30%. We then meet with Management to test whether their strategy is credible, their growth is sustainable and their restructuring plan is believable.”
Regarding ECB measures and their impact on the economy, Ian points out that the EU’s delay in taking action on monetary policy, as compared to the US or the UK, led to the growth in divergence of economic performance between EU Member states. But he admits that the situation has improved since Mario Draghi made his “Whatever it takes” speech in 2012. Although the new measures have no direct effect on European small caps companies, these measures will lower the cost of financing, encourage credit growth, and avoid further fragmentation of interest rates between core European countries and the periphery.
Finally, regarding “Brexit“, he admits that two of the companies in which the fund invests specifically mentioned Brexit as one of the main reasons that have affected sales. “The uncertainty itself will have an impact. The UK is currently very much connected to Europe. If investors begin to worry about the UK’s possible exit, it could be very negative for Europe by fostering debate in Italy, Spain, Ireland and Greece, where the population also questions the future of the Euro “.
Last Friday, the Economic and Monetary Affairs Council of the EU approved the General Approach reached on MMFR at Council Working Party level. This General Approach followed an original proposal by the European Commission in September 2013.
The European Fund and Asset Management Association (EFAMA) is of the view that a well-functioning European market for MMFs has an important part to play in the European Commission’s flagship Capital Markets Union initiative. EFAMA, whose members manage both VNAV and CNAV funds, has from the outset indicated that a proportionate and balanced Regulation which ensures the viability of both CNAV and VNAV MMFs, can contribute to supporting alternative sources of financing to the real economy and financing European growth.
“We believe the agreement reached under the Netherlands Presidency, taking into account market realities, to be an improvement on crucial matters. We are nonetheless conscious that the magnitude of the MMF reform will require a major overhaul of the industry. We also believe that further work is necessary during the Trilogue discussions to safeguard current achievements but also to further ensure that the rules work in practice and secure the viability of all MMFs”.
Peter De Proft, Director General of EFAMA, commented: “Ultimately, EFAMA believes the final agreement should find the right balance between financial stability and economic growth. Ensuring the viability of MMFs as an alternative source of short-term financing with a crucial role to play in our capital markets is all the more important considering the unprecedented economic, political and societal challenges faced by the European Union today”.
CC-BY-SA-2.0, FlickrPhoto: Camilo Rueda López. Countdown To Brexit: What You Need To Know
Tomorrow, Britain will vote on whether or not to leave the European Union. Given the deep economic ties between Britain and the EU, “Brexit” would have implications across the global economy. “Before we understand the implications, it’s important to establish that Britain is an open economy actively involved in the global economy and heavily intertwined with the EU. Here’s what that looks like”, explains Colin Moore, Global Chief Investment Officer at Columbia Threadneedle in the firm´s Global Perspectives Blog.
Britain’s EU membership
Britain joined the EU in 1973 and is now one of 28 current member states. Nineteen of these share the euro as a common currency, accounting for around three quarters of EU gross domestic product (GDP). Britain is not part of the common currency and continues to use the British pound. The existence of the British pound with a floating exchange rate has given the Bank of England an array of policy options to manage the shocks to which Britain’s economy is subject.
The sizable impact of Britain’s role in the EU
While we may not be able to measure the precise impact of EU membership on Britain’s economy, it can demonstrate the interconnectedness of Britain and the EU. The following is extracted from the EU membership and Bank of England Report, published October 2015. British pounds have been converted to U.S. dollars based on an estimated exchange rate of 1.42.
Population
505 million people live in the EU, approximately 7% of the world’s population.
Britain is home to 12.5% of the EU’s population, the second most populous EU country.
Economies
EU is the largest economy in the world with GDP worth £11.3 trillion (approximately $16 trillion) in 2014, which is larger than the U.S. ($15 trillion).
Within the EU, Britain is the second largest economy.
The U.K. GDP was worth £1.8 trillion (approximately $2.6 trillion) in 2014, nearly one-sixth of EU output.
Cross-border trade
One-third of all global trade is with the EU, the largest exporter and importer in the world.
The EU is Britain’s biggest trading partner.
The U.K.’s exports and imports are worth 60% of its GDP.
70% of Britain’s largest import and export markets are fellow EU members.
The EU serves as the destination for or source of more than two-fifths of Britain’s cross-border investments.
Britain is one of the top destinations for foreign direct investment (FDI) within the EU and globally.
Two thirds of all global cross-border investment involves the EU.
Foreign investors own £10.6 trillion (approximately $15 trillion) of U.K. assets while U.K. investors own £10.2 trillion (approximately $14 trillion) of foreign assets.
The EU has one of the world’s largest financial service sectors, second only to the U.S.
The EU is home to 14 of the world’s 30 globally systemically important banks (GSIBs) versus eight for the U.S., and accounts for half of all global exports of financial services.
Britain is the largest financial center in the EU, with financial services accounting for 8% of Britain’s national income.
The British financial sector is heavily interconnected with the rest of the EU, with 80 of the 358 banks operating in Britain headquartered elsewhere in Europe.
A long goodbye
Global Chief Investment Officer at Columbia Threadneedle reminds that even if the referendum passes, a decision to leave the EU will not be effective for two years after a formal notice to leave is issued by the British government. The time between vote and exit would be critical to untangle the myriad of interconnections and negotiate new agreements. Agreements on trade, people movement, investment and financial services are important to both Britain and the EU. They are also important to the global economy.
Bottom line
“Overall, it is clear that a post-Brexit world would have its challenges. Only time will tell how the world reacts if Britain decides to leave the EU, but this is a global event not just a British or EU event. Many financial markets are at or above fair value and any disruption to growth would be cause for concern. In the event of market disruption caused by the vote, investors should keep in mind that an exit from the EU is not immediate and the required changes would take years to see through”, concludes Moore.
With the uncertainty generated around the outcome of Britain’s impending EU membership referendum, Thomson Reuters Lipper investigates if recent UK fund flows can reveal any insights into investor sentiment. Insights from Thomson Reuters Lipper follow below, with supporting data attached.
On mutual funds, examination of data on the U.K.’s Investment Association (IA) classifications (sourced via Thomson Reuters Lipper) shows an overall drop of 18% in total assets of the funds in all IA classifications and estimated net outflows of GBP 38 billion for the 12 months to May 31, 2016. January 2016 proved the worst month overall, with nearly GBP 16 billion of net outflows that month alone.
The largest IA sector (UK All Companies), with some 12% of all IA assets, has suffered a yearly net outflow of GBP 9.2 billion. In the last 12 months it has experienced only a single positive month of flows (July 2015).
The IA Sterling Strategic Bond sector has been worst hit as a proportion of its overall size in the U.K. market. With 4% of total assets overall, it has suffered nearly GBP 12 billion of net outflows to the end of May 2016, without a single monthly net inflow for the year.
Of the diversified categories the conservative IA Mixed-Asset 0%-35% has proven most resilient, with GBP 410 million of net outflows for the year to the end of May 2016. By contrast, the IA Mixed-Asset 20%-60% sector has suffered nearly GBP 5 billion of net outflows for the last 12 months.
Only four of the IA sectors have experienced more than GBP 1 billion of net inflows in the 12 months to the end of May: Property, Global Equity Income, Global Bonds, and Targeted Absolute Return. The latter sector has been the standout success story for the U.K. market for the last 12 months. It has collected nearly GBP 10 billion of net inflows. This is despite the corresponding average fund return of the sector being a negative 0.6% over the same period.
CC-BY-SA-2.0, FlickrPhoto: Hendrik Dacquin. European Equities Supported By Continued Earnings Recovery
Despite the bumpy start to the year in global equities, Investec has not changed its fundamental view for a recovery in European corporate earnings, and it remains cautiously optimistic about the outlook for European equities.
As Figure 1 indicates, expliains Ken Hsia, portfolio manager at Investec European Equity Fund, European companies have not seen the same recovery in their ROE as their US counterparts. And despite seeing a drop in the ROE of the MSCI Europe in recent months, largely due to declining returns from the resources sector, we believe they should continue to close the gap. “While increased instances of consolidation across some industries has helped to unlock cost synergies, merger & acquisition (M&A) activity in Europe has been slow compared to the US”, points out.
Furthermore, as a net consumer of oil, says, Europe is set to bene t from lower global commodity prices and this tailwind should help to support a gradual recovery in the European economy.
Those are current investment themes in the Investec European Equity Fund:
1. Global winners
Investing in Europe means investing in European expertise and not countries. Europe is home to many world class companies with strong competitive advantages, which we believe give them strength in any global economic environment.
Pernod Ricard SA – As the second largest spirits company in the world, they have strong market positions. This, coupled with the aspirational nature of its product portfolio, has led to strong returns.
2. Exposure to Europe and seeing less competition
Country reforms in recent years have provided a strong basis for stability in the region. We are seeing European exposed companies gaining more market share as consolidation across some industries has helped to unlock cost synergies.
Michelin – Second-largest tyre manufacturer in the world that is undergoing an ef ciency programme to boost returns. Additionally, demand for SUV tyres, which have better margins, is on the increase.
3. Knowing what to avoid
Investec constructs its portfolios from the bottom-up, as such we are able to selectively capture investment opportunities. This adaptable nature also means we are able to avoid challenged industries, enhancing the potential to outperform.
“While our bottom-up portfolio construction process allows us to avoid challenged industries. It also means we monitor good European companies that are becoming cheaper due to current market environments”, concludes Hsia.
CC-BY-SA-2.0, FlickrPhoto: 401(K) 2012
. SEC Approves IEX Proposal to Launch National Exchange
The Securities and Exchange Commission on Friday approved Investors’ Exchange LLC’s (IEX)application to register as a national securities exchange. At the same time, the Commission issued an updated interpretation that will require trading centers to honor automated securities prices that are subject to a small delay or “speed” bump when being accessed.
“Today’s actions promote competition and innovation, which our equity markets depend on to continue to deliver robust, efficient service to both retail and institutional investors,” said SEC Chair Mary Jo White. “A critical role of the Commission’s regulatory framework is to facilitate the ability of market participants to craft appropriate market-based initiatives, consistent with our mission to protect investors, maintain market integrity, and promote capital formation.”
IEX must satisfy certain standard conditions specified in the Commission’s order before it is able to begin the process of transitioning its operation to a national securities exchange, including participating in a variety of national market system plans and joining the Intermarket Surveillance Group.
The Commission’s interpretation applies to the Order Protection Rule under Regulation NMS, which protects the best priced automated quotations of certain trading centers by generally obligating other trading centers to honor those protected quotations and not execute trades at inferior prices. Under Regulation NMS, an automated quotation is one that, among other things, can be executed immediately and automatically against an incoming immediate-or-cancel order.
The Commission’s updated interpretation determined that a small delay will not prevent investors from accessing stock prices in a fair and efficient manner consistent with the goals of the Order Protection Rule. In doing so, the Commission interprets the term “immediate” under Rule 600(b)(3) of Regulation NMS as precluding any coding of automated systems or other type of intentional action that would delay access to a security price beyond a de minimisamount of time.
Additionally, Commission staff issued guidance concerning the duration of the de minimis intentional access delays. The staff guidance states that delays of less than one millisecond are at a de minimis level.
Within two years of the Commission’s interpretation, staff will conduct a study regarding the effects of any intentional access delays on market quality, including asset pricing and report back to the Commission with the results of any recommendations. Based on the results of that study, or earlier as it determines, the Commission will reassess whether further action is appropriate.
CC-BY-SA-2.0, FlickrPhoto: Steven Lilley
. Premia Global Advisors Named to 2016 Financial Times 300 Top Registered Investment Advisers
Premia Global Advisors has been named to the Financial Times 300 Top Registered Investment Advisers, as of June 16, 2016. The list recognizes top independent RIA firms from across the U.S. Premia Global Advisors is a member of Dynasty Financial Partners’ Network of Advisors.
This is the third annual FT 300 list, produced independently by the Financial Times Ltd. in collaboration with Ignites Research, a subsidiary of the FT that provides business intelligence on the investment management industry.
The “average” FT 300 firm has been in existence for 22 years and manages $2.6 billion in assets. The 300 top RIAs hail from 34 states and Washington, D.C.
More than 1,500 pre-screened RIA firms were invited to apply for consideration, based on their assets under management (AUM). Applicants that applied were then graded on six criteria: AUM; AUM growth rate; years in existence; advanced industry credentials of the firm’s advisors; online accessibility; and compliance records. Neither the RIA firms nor their employees pay a fee to The Financial Times in exchange for inclusion in the FT 300.
The FT 300 is one in a series of rankings of top advisers the FT produces in partnership with Ignites Research, including the FT 401 (DC retirement plan advisers) and the FT 400 (financial advisers from traditional broker-dealer firms).
According to the latest managed accounts research from global analytics firm Cerulli Associates, discretionary accounts will continue to exhibit strong growth.
“Clients are largely working with financial advisors because they want to delegate investment management,” comments Tom O’Shea, associate director at Cerulli. “In addition, advisors are looking to take over more of the discretion as it allows them to easily manage their books of business.”
In their latest annual report, U.S. Managed Accounts 2016: Leveraging Digital Advice to Maximize Scale, Cerulli analyzes the fee-based managed account marketplace, which has been a core research focus since the firm’s inception in the early 1990s. This report, in its fourteenth iteration, is the result of ongoing research and quarterly surveys of asset managers, broker/dealers, and third-party vendors, which captures more than 95% of industry assets.
“Many rep-as-portfolio-manager platforms and unified managed account platforms allow advisors to tie client accounts to portfolio models the advisor has created,” O’Shea explains. “In a discretionary arrangement, the advisor can quickly rebalance these accounts and swap out underperforming managers for new managers. In a client discretionary arrangement, where the client has the ultimate control, advisors need to get permission from the client before making changes to the portfolio.”
“If current trends in the managed account industry hold, discretionary accounts will reach $4 trillion by year-end 2019,” O’Shea adds.
“We believe Southern Europe has a significant recovery potential”, said François Gobron, fund manager of GIS European Equity Recovery, a Generali Investments‘ fund. “Clear signs point in that direction, including the economic growth in Spain and a rapidly rising employment in Italy. Furthermore, as companies in Southern Europe still trade at lower earnings multiples than their European peers, we believe their potential to outperform is meaningful. By leveraging our proven stock-picking skills, the fund will benefit from the re-rating of Southern European markets as soon as confidence in the macroeconomic environment is fully restored.”
More dynamic Southern European economies and supportive valuations at company level reinforce Generali Investments’ confidence in the recovery potential of Southern Europe and the investment theme underpinning the GIS European Equity Recovery fund, one of the few equity funds on the market specifically focused on this region.
The GIS European Equity Recovery fund invests mainly in equity securities issued by companies listed on Southern European markets. Spain, Italy, Portugal and Greece represent 99% of the total equity invested. The fund favors companies with strong operational leverage and large restructuring potential. The fund adopts a pure stock-picking investment process and selects companies based on the quality of their strategy and management. The shortlisted companies are valued through a Discounted Cash-Flow model combined with a recently introduced, proprietary and innovative Monte-Carlo model designed for highly uncertain environments. The fund invests in companies offering at least a 50% upside potential in terms of total return on a 3 to 5 years’ time horizon, leading to a low annual turnover ratio of 25%.
“Companies in Southern Europe still show higher upside potential relative to their European peers as the local financial markets have not fully recovered yet from the 2008 and 2011 crises and valuations remain lower on a relative basis”, added Gobron. For instance, the 11x median of the 2017 price-to-earnings ratio estimates of the fund’s portfolio compares with 15x for the Eurostoxx. The 1.0x median of the 2017 price-to-book value ratio estimates of the fund’s portfolio compares with 1.7x for the Eurostoxx. “We are therefore strongly convinced that the companies we decide to invest in after our careful strategic analysis have the potential to outperform peers on an operational basis going forward.” He concluded.
Recording the biggest single-tower real estate transaction in the Asia-Pacific, BlackRock agreed to sell the Asia Square Tower 1, a 43-story office building in Singapore, to the Qatar Investment Authority.
QIA will pay S$3.4 billion, or 2.5 billion dollars, for the Tower located along Marina View at Marina Bay, making this the largest-ever single-tower real estate deal in the Asia-Pacific region.
Amongst its more than 1.25 million square feet of net lettable area, the most prominent tenant in the building is Citigroup.
BlackRock was advised by real estate consultant firms JLL and CBRE. According to Seeking Alpha, the tower was on the market since last year after bids by a consortium of Norway’s sovereign wealth fund and CapitaLand, and rival bids by ARA Asset Management failed to clinch the deal.
