CC-BY-SA-2.0, FlickrPhoto: Atli Hardarson. Do You Need Inflation Protection?
“We believe inflation risks are underappreciated and underpriced. Now may be an opportune time for forward-thinking investors to add inflation risk management to their portfolios,” says Stewart Taylor, Diversified Fixed Income Portfolio Manager at Eaton Vance on the company’s blog.
According to Taylor, it’s easy to understand the lack of investor demand for this asset class. The CITI Inflation Surprise Index has been negative 52 of the last 53 months. With the exception of the financial crisis, year-over-year (YOY) headline CPI has been lower than at any point since the late 1960s.
“What many investors don’t appreciate is how persistent weakness in energy and food prices has hidden the underlying growth in services inflation. While energy and food represent only 21% of the CPI, they explain about 80% of its change,” he says while highlighting:
Spot WTI crude is down 55% from June 2014, while the S&P Goldman Sachs Food Index is down roughly 50% from its 2011 high.
Over this same period, the YOY run rate for services inflation has averaged 2.5% and has climbed above 3% over the past few months.
Because of this, Eaton Vance believes that the bear market in food is over and that the energy bear market is either over or in its very late stages. “Strength in energy and food should quickly translate to higher goods CPI, which, in turn, should help boost the already elevated services CPI. There is also evidence of increasing wage pressures. The 3.4% YOY growth in the Atlanta Fed Wage Growth Tracker in April is the strongest growth since February 2009. Historically, wage pressures have been associated with periods of higher inflation” Taylor writes.
The April CPI highlighted the changing inflation dynamic: The month-over-month change in headline CPI (0.4%) was the biggest monthly gain since February 2013. Also, at 2.1%, YOY Core CPI is now above the Fed’s 2% target; at 1.6%, YOY Core Personal Consumption Expenditures (PCE) (the Fed’s desired metric) is approaching its 2% target.
The trend in year-over-year Core CPI bottomed in early 2015 and has since been moving higher. Several alternate CPI measures that attempt to remove the most volatile index components to better ascertain the underlying trend also confirm this.
Taylor and his team think that investors are beginning to realize that the bear markets in energy and food are near an end. After roughly a year of outflows, net flows into TIPS funds and ETFs have turned positive over the past two months (ended April 2016), while break-even inflation rates on 5-year TIPS have begun to price in higher expected inflation. “We think these trends are still in their early innings.” And that “inflation assets are inexpensive relative to growing inflation risks.”
CC-BY-SA-2.0, FlickrPhoto: Ines Hegedus-Garcia
. Bolton Global Capital incorpora al equipo de Alex Astudillo
Bolton Global Capital recently announced that Alex Astudillo has joined the firm’s Miami office. Alex held the position of Senior Vice President with Merrill Lynch where he worked for the past 14 years and built a successful international wealth management practice with $173 million in client assets and $1.8 million in annual revenues. “We are proud to have such a distinguished professional affiliate with our organization and look forward to supporting the continued growth of his business.” stated Ray Grenier, CEO of Bolton. Angela Canas will manage client support operations for the team which will be branded under the name Private Wealth Advisors. Angela has been with Merrill Lynch for the past 9 years.
With the acquisition of the Astudillo team, Bolton is continuing to establish its position as a premier destination for top wirehouse teams transitioning to the independent business model. Over the past 3 years, the firm’s Miami office has acquired seven major teams from Merrill Lynch and a half dozen other teams from Morgan Stanley, RBC Wealth Management as well as Citi and HSBC Private Banks.
The Bolton Massachusetts based firm offers teams with $100 million or more in AUM, access to a wealth management platform with all of the capabilities of the major firms for both domestic and international business. Even with robust growth in AUM over the last five years, Bolton is highly selective in accepting new teams. According to Grenier “Quality is our number one criteria for affiliation. The most successful teams in the business generally focus on client satisfaction and on mitigating portfolio exposure to losses. Affiliating with the highest quality professionals is the key to sustainable growth in the wealth management industry.
Foto: Jeff Djevdet. Irlanda, Malta, Bélgica, Holanda, Chipre y Luxemburgo, los más afectados si se produce el Brexit
An exit from the EU by the UK (‘Brexit’) would weigh on the economies of other EU countries and increase political risks in Europe, Fitch Ratings says.
They mention that although they would not expect to take any immediate negative rating actions on other EU sovereigns if the UK left, negative actions would become more likely in the medium term if the economic impact were severe or significant political risks materialised.
“The economic impact of a yes vote in the 23 June referendum would be lower for the EU than for the UK, but would still be palpable. It would reduce EU exports to the UK, although the extent would depend on the nature of any UK-EU trade deal and the degree and duration of sterling depreciation.” The most exposed countries would be Ireland, Malta, Belgium, the Netherlands, Cyprus and Luxembourg, all of whose exports of goods and services to the UK are at least 8% of GDP.
EU countries could gain from the shift of some FDI from the UK to the EU. However, countries such as Luxembourg, Malta, Belgium and Germany, with a large stock of FDI and financial assets in the UK, would suffer losses in the euro value of those assets if there were a permanent depreciation of sterling. The banking sectors of Ireland, Malta, Luxembourg, Spain, France and Germany have sizeable links to that of the UK.
Brexit would reduce the UK’s contribution to the EU budget (a net EUR7.1bn in 2014 after rebates), potentially to zero. This would imply that other net contributors would have to increase payments, or net recipients accept lower EU expenditure. Brexit would create a precedent for countries leaving the EU. “It could boost anti-EU or other populist political parties, and make EU leaders more reluctant to implement unpopular policies with long-term economic benefits. Negotiating the terms of the UK’s exit could exhaust the EU’s time and energy and open up new fronts of disagreement. Brexit could shift the centre of gravity of the EU, making it more dominated by the eurozone core, poorer, more protectionist and less economically liberal. If the UK were to thrive outside of the EU, it might encourage other countries to follow suit.”
Brexit could precipitate Scotland leaving the UK, which might intensify secessionist pressures in other parts of the EU, such as Catalonia in Spain.
Fears of other countries leaving could widen bond spreads for “peripheral” countries, potentially increasing the average cost of debt and making it more challenging to reduce government debt/GDP ratios.
Fitch is not recommending any particular position, vote or outcome regarding the referendum vote on June 23rd 2016. If you want to read their report titled “‘Brexit’ Would Raise Downside Risks to EU Sovereigns”, follow this link.
Photo: Sriyan Pietersz. Prominent ASEAN Analyst Sriyan Pietersz Joins Matthews Asia As Investment Strategist
Matthews Asia has announced the appointment of Sriyan Pietersz as Investment Strategist.
In this newly created role, Sriyan will be a key member of the investment team, responsible for developing research focused on economic and political developments within ASEAN (the Association of Southeast Asian Nations) and frontier markets in Asia. His in-depth knowledge and unique insights into the region will support the Matthews Asia investment team and complement their wider research efforts.
Sriyan will also play a key role in representing the firm’s deep expertise of the developments in the ASEAN region and frontier markets to the firm’s clients and prospects around the world. He will act as a spokesperson for the firm on ASEAN and play an important role in the delivery of Matthews Asia’s thought leadership initiatives related to investing in Asia.
Prior to joining the firm, Sriyan was a Managing Director at J.P. Morgan Investment Bank, where he spent over 11 years with responsibilities spanning both equity research and distribution. As Head of ASEAN and Frontier Markets Equity Research, he was responsible for formulating country equity investment strategy for Thailand/Vietnam, regional Southeast Asia asset allocation, thematic strategy, and macro/strategy on Asian frontier markets, as well as managing a team of 18 equity research analysts. A member of the Asia Pacific Research senior management team, Sriyan was consistently ranked in the Top-3 in Institutional Investor sell-side research polls during his time at J.P. Morgan. Subsequently, he spent time in equity sales as Head of ASEAN Equity Distribution. Prior to this, he spent over 10 years in senior equity research roles in Asia, managing teams of equity analysts and conducting both macroeconomic and equity analysis.
William Hackett, Chief Executive Officer: “We are very pleased to welcome Sriyan to Matthews Asia. With almost three decades of experience focused on ASEAN countries, he is considered one of the leading authorities on the region’s economy and equity markets. Our global client base will undoubtedly benefit from his insight and analysis into the ASEAN region. I am delighted we have been able to attract someone of Sriyan’s calibre to the firm and as we continue to see the region’s equity markets develop and new frontier markets begin to open to investors, his appointment further cements our reputation as a leading, forward-thinking Asia-specialist investment manager.”
Robert Horrocks, PhD, Chief Investment Officer: “With nearly three decades of experience conducting both country and equity analysis into the ASEAN region, Sriyan has developed a deep understanding of the region’s markets and the growing role they play in Asia’s economy. His considerable expertise will further enhance the knowledge that already resides within our investment team and help develop our thoughts around how we invest in these countries.”
Sriyan Pietersz, Investment Strategist: “I’m delighted to have this opportunity to join Matthews Asia, a leading Asia investment specialist, and privileged to work with and learn from an investment team that has delivered outstanding returns for its investors over the long term.”
Foto: Randen Pederson
. Los inversores estadounidenses asignan erróneamente a los ETFs beneficios que no tienen
More than three-quarters of investors agree that index funds and exchange-traded funds (ETFs) are a cheaper way to invest, but 71% also believe they are less risky, according to new research published by Natixis Global Asset Management. The findings suggest that many investors have expectations that don’t reflect a full understanding of the risks of index funds versus the benefits.
“It is critical to understand the risks in your portfolio, so it’s troubling to see investors mistakenly assign benefits to index funds that they don’t actually have”
The asset management firm commissioned an independent survey of 750 individual investors in the U.S., from the affluent to the high net worth. It found that: 64% of investors think using index funds will help minimize investment losses; 69% believe index funds offer better diversification; And 61% believe index funds provide access to the best investment opportunities in the market.
However, investors expecting lower risk may have been surprised at the start of 2016 when the Standard & Poor’s 500 had its worst opening since 1928. The index bottomed out on February 11, having fallen 10.5% since trading began in January. The market did rebound, finishing the quarter 0.7% ahead. But tracking the index would have resulted in a hair-raising ride. And while the first quarter might be seen as an anomaly, volatility in markets is not.
“It is critical to understand the risks in your portfolio, so it’s troubling to see investors mistakenly assign benefits to index funds that they don’t actually have,” said John Hailer, CEO of Natixis Global Asset Management for the Americas and Asia. “Index funds have a place in portfolios, but their low cost seems to be providing a ‘halo effect’ that could blind-side investors during volatile markets.”
Professional investors see the role for passive investing differently. Recent surveys of both institutional investors and financial advisors by the asset manager showed they preferred active strategies to take advantage of market movements, generate alpha and provide risk-adjusted returns, while viewing passive investing primarily as a way to save on management fees.
Investors willing to use new investment strategies
The survey finds evidence that investors are willing to move beyond 60/40 allocation investment approaches. Nearly two-thirds (65%) say a traditional approach (equities and bonds) to portfolio allocation is no longer the best way to pursue returns and manage investments.
Further, 70% of investors want new strategies that are less tied to broad markets and 75% favor strategies that can help them better diversify their portfolio, an approach that would seem to open the door to wider ownership of alternative investments.
But just over half of investors (52%) surveyed actually own alternative assets, a grouping that includes private equity, long-short funds, hedge funds and real estate.
Investors who don’t own alternatives say the assets are too risky (56%); 34% acknowledge they don’t understand how alternatives work, and 28% don’t think they need alternatives.
Investors say learning more about investing is the number one thing that would help them better achieve their investment objectives – adding to their financial knowledge was named by 42% of respondents.
“It is encouraging to see investors are looking beyond traditional asset classes to build portfolios designed to help them reach their financial goals through the widest range of potential market conditions,” said Hailer. “However, it is clear the financial industry still needs to provide more education to help investors make informed decisions.”
About the survey Natixis surveyed 750 individual investors across the United States with a minimum of $200,000 in investable assets. The online survey was conducted in February 2016 and is part of a larger global study of 7,100 investors in 21 countries from Asia, Europe, the Americas and the Middle East. The findings are published in a new whitepaper, “Help Wanted: How investor behavior is rewriting the job description for financial professionals.”
CC-BY-SA-2.0, Flickr. AXA to Sell Its Investment, Pensions and Direct Protection Businesses in the UK to Phoenix Group Holdings
AXA announced today that it had entered into an agreement with Phoenix Group Holdings to sell its (non-platform) investment and pensions business and its direct protection business (Sunlife) in the UK. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals, and is expected to occur in the second semester 2016.
The overall consideration for the sale of the UK Life & Savings businesses, including the transaction announced today, the sale of the offshore investment bonds business based in the Isle of Man announced on April 28th, and the sale of the wrap platform Elevate announced on May 4th would amount to ca. GBP 632 million (or ca. Euro 832 million). These transactions would generate an exceptional negative P&L impact of ca. Euro 0.4 billion accounted for in net income.
The operations affected by these transactions will be treated as discontinued operations in AXA’s 2016 consolidated financial statements. As a consequence, their earnings will be accounted for in Net Income until the closing date.
Photo: Ennor. Alvaro Morales Appointed New Head of the Santander Global Private Banking Team
Santander is currently experiencing an overhaul of its Private Banking division. Amongst the most important changes is Alvaro Morales’ promotion to Head of Santader’s Global Private Banking team. He will continue to be based out of Miami, where up until now, he served as Head of Santander International Private Banking.
According to an internal memo by Angel Rivera, Head of Retail and Commercial Banking for Banco Santander, to which Funds Society had access, “The Retail and Commercial Banking division will also play a central role in the development of the Group’s Private Banking business, in the direct management of International Private Banking and in the support given to domestic private banks in the various geographies, taking greater advantage of the synergies of our international platform and all of the countries.”
The aim, according to the memo, is to continue improving the specialization of Santander Private Banking’s advisory service model with a segmented offer and a personalized specialist service model that provides each customer tailored solutions.
Morales has been working close to Santander since 1999 when he joined the group as Regional Director for Banco Banif. In 2007 he moved to London to run the UK’s Private Banking business of the bank. By 2009 he became Head of Santander International Private Banking and moved to Miami.
Carlos Díaz will remain in charge of products and market intelligence and will work with Álvaro in managing this unit. Blanca Vilallonga will now will be responsible for coordinating the division’s activities, implementing new ways of working, monitoring projects, ensuring compliance with work plans and measuring the impact they have on the organization.
Through the same internal memo Rivera signaled the following appointments:
Angel Rivera will directly assume leadership of Digital Transformation coordinating with the area of Innovation and with each country. It is a shared responsibility throughout the Group. Alberto Fernández Tomé will lead the Digital Solutions team, and Julián Colombo will continue to head the CRM and Business Intelligence team.
Fernando Lardies will be in charge of the new Network Banking project, wheras Javier Castrillo will be in charge of the Commercial Strategy and Best Practices team which includes:
Ignacio Narvarte who will be in charge of Means of Payment (issuing and acquiring).
Francisco del Cura who will remain in charge of Insurance
Frederico Bastos who will remain in charge of Businesses
Ignacio Gomez-Llano who will remain in charge of Quality and Customer Satisfaction
The memo also included Rivera’s appreciation to Gonzalo Algorri, former group director of Global Private Banking Santander, “for his contribution to the development of the Private Banking business and to all our colleagues who have left the Bank in recent weeks, for their contributions.”
CC-BY-SA-2.0, FlickrPhoto: Carlescs79, Flickr, Creative Commons. Santander AM Expands Selection to Passive Strategies
The Research and Selection team of Santander Asset Management (SAM) has started covering passive vehicles, on the back of demand for these strategies.
The move will see the Spanish firm’s recommended list or “manager matrix” increase from about 300 to almost 400 strategies, of which about 80 names will come from the passive sphere.
“This move [including the passive sphere] makes sense, it’s something that we have been discussing for a while, and finally we decided to merge both, passive and active within the same research team. I think it makes total sense,” José Maria Martinez-Sanjuán, head of Manager Research and Selection at Santander Asset Management told InvestmentEurope. “The fact is that there’s more demand, so we have to respond from a research point of view,” he said.
The growth in the ETFs segment illustrates investors’ bullish demand for passive strategies. According to ETFGI, assets invested in ETFs/ETPs listed globally reached a record high of $3.1trn (€2.7trn) at the end of April 2016.
This compares to $2.9trn in 2015, and $1.5trn in 2011 — a growth of 106% over the last five years. “If you see the flows of the industry, you will see that ETFs are only growing. There’s also a new wave of smart beta coming now to the market, so we need to be aware of this and understand the market evolution,” he said.
Martinez-Sanjuán said fee reduction plays a key role on the growth for passive vehicles, along with the ability to implement more easily strategic allocations through a core-satellite portfolio. Following this trend, the team led by Martinez-Sanjuán has developed a research process for passives, and it has just started to cover these strategies. “The coverage of passive vehicles is not as time consuming as the active world, but I guess that covering both gives you the global picture of what is going on in the industry and it is a value added piece of information for the investors,” Martinez-Sanjuán said.
“This is to help our various clients, so we can have a global view of any strategy, active or passive,” he said. Early this month, it emerged that SAM made two new appointments within its selection team. Last month, Wee-Tsen Lee joined Santander from Barclays Wealth to be responsible for manager selection global & US equities. In addition, Pryesh Emrith was promoted within Santander in March, to be in charge of US & global fixed income and multi-asset.
The two new appointments are based in the group’s London headquarters and work for the Research and Selection team, which works within SAM’s Global Multi-Asset Solutions team and alongside Santander Bank.
SAM manages around €20bn as an asset manager, and a further €20bn are assets under advice. The firm advised a further €8bn for institutional clients.
. Pinebridge Investments Wins Key Industry Award From Institutional Investor Magazine
PineBridge Investments has been named Floating-Rate Bank Loan Fixed Income Manager of the Year at the Institutional Investor US Investment Management Awards. PineBridge received the award at a gala event on 19 May 2016 at the Mandarin Oriental Hotel in New York City.
Steven Oh, Global Head of Credit and Fixed Income said, “We are honored to receive this recognition from Institutional Investor, and proud of the value we have been able to deliver to our clients, through an experienced and stable team that has navigated market challenges through multiple economic cycles. ”
The Institutional Investor US Investment Management Awards, now in their seventh year, recognizes US institutional investors for their innovative strategies, fiduciary savvy, and impressive short and long-term returns, as well as US money managers in 39 asset classes and strategies that stood out in the eyes of the investor community for their exceptional performance, risk management, and service.
According to Institutional Investor, the winners were chosen from a short list of top-performing managers across a range of investment strategies identified by the magazine’s editorial and research teams in consultation with eVestment, a leading provider of institutional investment data analytics. Investment strategies were evaluated on such factors as one-, three-, and five-year performance, Sharpe ratio, information ratio, standard deviation and upside market capture. More than 1,000 leading US pension plans, foundations, endowments and other institutional investors were also surveyed and voted for the top-performing managers in each strategy over the past year.
PineBridge received the Global Balanced/Tactical Asset Allocation Manager of the Year Award in 2015.
For much of the last few months it has been difficult to have any conversation about the outlook for the UK, or indeed Europe, without discussing Brexit, says Mike Amey. Uncertainty over the outcome ‒ the PIMCO´s MD and Portfolio Manager continues to assign a 40% probability to the UK voting to leave the European Union (EU) ‒ has slowed economic activity, pressured UK bank assets, reduced liquidity in sterling-denominated corporate bonds and put sterling under pressure.
The one market that has not been overly affected is stocks, he says. Due to the multinational nature of many UK-listed companies, the Brexit vote is exerting two opposing influences on valuations: The uncertainty of the UK’s trade outlook is counterbalanced by the positive impact of sterling weakness on overseas earnings.
Although his base case is that the UK votes to remain, “we devote much time to thinking about the implications of a vote to leave. Of the two competing views on this ‒ that it will be a globally systemic event or that, while important for the UK, its impact on global markets will be contained ‒ we side with the latter. In part this is due to our belief that any negotiations would be long and drawn-out. For one thing, a vote to leave would likely trigger a leadership challenge within the Conservative party. Furthermore, the UK does not even have a trade department that could lead the negotiations. In short, these things would take time!”
Nonetheless, there will likely be material volatility leading up to and around the vote on 23 June, adds Mike Amey. How can investors position for this?
In his portfolios he has been looking to combine positions that may benefit if the UK remains in the EU with those that will mitigate downside risk if it votes to leave. These include:
Buying UK bank bonds: They view the recent underperformance of UK bank bonds as an opportunity, with the subordinated bonds of major UK banks now trading at yields of 8% and above. Whilst there will be mark-to-market volatility in the event of a vote to leave, they do not see a material risk of capital loss.
Maintaining exposure to UK duration: They also see good risk-reward characteristics in five- and 10-year gilts, with the market currently pricing in a 25% probability of a 25-basis-point rate cut this year. With inflation low, they see a very small probability of a hike in the next 12 months regardless of the outcome in June, and in the event the UK votes to leave the EU, they think it likely that the Bank of England would cut the official rate to zero, potentially boosting gilt prices.
Selling the British pound versus the U.S. dollar: For portfolios with less liquid UK assets, or with significant exposure to UK banks, they think the best way to hedge is by selling the pound relative to the dollar. In the event of a vote to leave, they consider a 10% devaluation of the pound against the dollar.
“Clearly the outcome of 23 June can’t be predicted with certainty. However, through a combination of strategies like these, we think portfolios can be structured to potentially benefit in the event that the UK remains in the EU and hedged in the event it takes the alternate path,” he concludes.
