MUFG Investor Services Completes Acquisition of Capital Analytics

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MUFG Investor Services, the global asset servicing group of Mitsubishi UFJ Financial Group, has gained all regulatory approvals for its acquisition of Capital Analytics, the private equity administration business of Neuberger Berman Group, and the acquisition has closed.

The deal is part of MUFG Investor Services’ strategy to become a global industry-leading fund administrator and brings its private equity and real estate assets under administration (AUA) to $145 billion, and total AUA to $384 billion.

Junichi Okamoto, Group Head of Integrated Trust Assets Business Group, Deputy President, Mitsubishi UFJ Trust and Banking Corporation said: “The acquisition of Capital Analytics is another indication of our ambition and commitment to the fund administration industry and enhances our comprehensive offering in the alternative investment space. We look forward to leveraging the capabilities of Capital Analytics and providing a full market offering for both new and existing clients.”

John Sergides, Managing Director, Global Head, Business Development and Marketing, MUFG Investor Services, added: “The asset servicing and specifically fund administration landscape is changing significantly under the pressure of increased demands from regulators, investment managers and investors. This acquisition enhances our comprehensive private equity and real estate offering, for both general and limited partners, ensuring MUFG Investor Services is the ideal partner to support clients throughout the investment lifecycle. We will be making further announcements regarding our enhanced client proposition over the coming months.”

Anthony Tutrone, Global Head of Alternatives at Neuberger Berman, commented: “Our partnership with MUFG will continue to allow our clients to benefit from Capital Analytics’ best-in-class services that they and Neuberger Berman have come to rely upon.”

MUFG Investor Services has acquired all of Capital Analytics’ business and will provide a seamless transition for its employees and clients. Neuberger Berman funds will continue to receive administrative services from Capital Analytics; however, no funds or investment professionals will transfer as part ofthe acquisition.
 

Schroders Launches Total Return Commodity Fund

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Schroders Launches Total Return Commodity Fund
CC-BY-SA-2.0, FlickrFoto cedida - Schroders. Schroders lanza el Total Return Commodity Fund

Schroders has announced the launch of Schroder Alternative Solutions Commodity Total Return. The new fund will offer commodities exposure with a flexible approach, allowing the team to take advantage of a wide range of opportunities, as well as limit downside risk.

The fund will invest in energy, agriculture and metals sectors worldwide and will adopt a highly flexible strategy which includes the ability to take short positions and the use of leverage.

The fund will be managed by Schroders’ commodities team, led by Geoff Blanning.  Schroders has strengthened its investment resources in commodities in the past two years with the hiring of a Metals Fund Manager, a dedicated Commodity Quantitative Analyst and the inclusion of two highly experienced Global Energy Fund Managers from the broader investment group.

Geoff Blanning, Head of Commodities at Schroders said:

“Schroder Alternative Solutions Commodity Total Return will provide a flexible and low risk option to those investors who wish to re-establish their commodity market exposure following nearly 5 years of relentless price declines, as well as to those investors looking to participate in commodity markets for the first time. The fund will also appeal to those investors seeking liquid alternative investments run by an experienced and specialist investment team.“

John Troiano, Global Head of Institutional, said:

“Commodities as an asset class has had a difficult few years; however, there are encouraging signs that the fundamentals are now turning positive. The new fund is designed for investors who wish to participate in commodity markets to protect against the risk of inflation and invest in a potentially high return strategy, but who also wish to avoid the high downside risk inherent in a fully-invested approach.”

Schroders has a strong reputation as an active commodity manager, with a 10 year track record in actively managing a broad range of commodity funds for clients across the world.”

The fund is not yet registered for distribution in any jurisdictions. Subject to regulatory approval, Schroders plans to make it available to professional investors in Austria, Denmark, Finland, Germany, Greece, Norway, Spain, Sweden and the UK; for public distribution in Luxembourg, the Netherlands, Portugal, Hong Kong, Macau and Singapore; and to qualified investors in Switzerland.

 

Emerging Markets, Japan and Fixed Income: The Favorites on the First Day of the Miami Fund Selector Summit

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Mercados emergentes, Japón y renta fija: oportunidades protagonistas en el primer día del Fund Selector Summit de Miami
CC-BY-SA-2.0, FlickrPhoto: Mohmed Althani. Emerging Markets, Japan and Fixed Income: The Favorites on the First Day of the Miami Fund Selector Summit

Current markets present significant challenges, but investment professionals are convinced that there are many opportunities to be exploited: Emerging Markets (both fixed income and equities), Japanese Stock Market, High Yield, Global Fixed Income from a flexible perspective, and Convertible Bonds were some of the strategies presented by the fund management companies M&G Investments, Matthews Asia, RWC, Carmignac, Henderson Global Investors, and NN Investment Partners during the first day of the 2016 Fund Selector Summit, organized by Funds Society and Open Door Media, and held in Miami on April 28th and 29th .

The opportunity which emerging markets currently represent became apparent during the event. Regarding equities, John M. Malloy, Fund Manager at RWC, spoke of a positive environment due to attractive valuations, the strong growth in some markets, and some other matters which represent a great investment opportunity in certain securities. “Valuations are not like those of the late 90s or the year 2000, but markets are cheap. And the most interesting thing is that when profit begins to recover, they’ll become even more attractive,” said the fund manager. Growth will also support this statement: “We see emerging markets as a growth opportunity: although this has been questioned in recent years, countries like India, Pakistan, the Philippines and some Latin American markets will offer higher growth than in many parts of the developed world, and at some point, the markets will recognize it,” he added. He believes that these markets are in good shape overall, and there are positive signs such as export growth, which had been declining for some time but have since stabilized and begun to recover; and the expert is convinced that the figures will increasingly improve.

In addition, some of the factors which play in favor of some companies are automotive industry technology, the growth of infrastructure (strong in countries like India, Indonesia, and Brazil) or media and advertising (with companies that are not expensive, unlike in the developed markets). The team is currently optimistic, especially with Asia, which has very strong fundamentals and higher growth rates, but also speaks of turning points in Russia and Brazil: “Brazil faces major problems and a great recession but everything can change and the market may rebound faster than you can think… as was the case with Argentina: one year ago no one spoke of the country and in six months the markets’ mentality had totally changed,” he explains. Regarding interest rate hikes in the US, he believes there will be one or two more this year but will not be a big risk in an environment where the dollar is stable and will perhaps weaken (does not cover currency); and he is also more optimistic with data coming from China, because “the pressure has dropped.”

His emerging stock market strategy (which includes up to 20% in frontier markets and in the most liquid part, now 12%), combines a top-down and bottom-up approach. It is index-agnostic, and has a very high active share, over 90%, and materializes in 50-60 names, in a diversified portfolio which is very focused on growth (their companies have the potential to see their profits grow by more than 20%). It is also biased towards large and mid-caps. And they can boast of beating the market in difficult years. The company launched the fund in UCITS format in December and he thinks it can now generate much interest, and they also recently opened an office in Miami. In frontier markets, he points out Pakistan’s potential, for its demographics, its reforms, its political stability and Chinese and IMF investments, and also points out the existing opportunities within the banking sector.

But before investing in emerging market equities, many investors are beginning to increase their positions in emerging market fixed income, both in hard and local currency. Claudia Calich, Fund Manager of Emerging Markets Bond at M&G Investments, pointed out the opportunity presented by that asset and its good current entry point: currencies have depreciated a lot and are stabilizing, although still the levels are low and exporters will benefit; low raw material prices have stopped their collapse, although importers and consumers continue to benefit (also, beyond the winners and losers of cheap oil prices, she is positive in countries that have adapted to current levels of oil, such as Russia. She is not positive about Nigeria). She also believes that there are opportunities in the currency area, leading her to increase its exposure in the portfolio. In her opinion, Central America and the Caribbean are the most attractive markets in which to invest to benefit from the recovery in the US…. Moreover, growth is more visible and that can change the negative perception people have of emerging markets versus developed ones.

When it comes to risks, she believes these have diminished: and so, she is now less cautious with Brazil than she was a year ago. On oil prices, the situation has also changed in respect to early in the year; China’s rebalancing has improved, although there are still challenges ahead…With regard to countries that are suffering from exposure to China via exports, she points out the adjustments carried out in many of them, mainly from Latin America, for example with adjustments to their currencies.  Regarding the Fed, there have also been changes from the initial perception of four rate hikes this year.  She believes that there will be one or two rate hikes during the remainder of the year (in June or July, and at the end of the year): If the Fed is forced to make more rate increases, the losers would be countries with large financing needs, such as Brazil, Turkey, and South Africa, and the winners would be those exposed to its economy-because the Fed would raise rates for a good reason, such as Mexico, Central America and the Caribbean, or Eastern Europe. Due to that exposure to the US and its recovery, she is comfortable with countries like Honduras, Dominican Republic, El Salvador, or Guatemala. In general, by countries, the fund is heavily overweight in Bulgaria, Azerbaijan, Paraguay, Guatemala, and Romania versus underweight in Malaysia, Poland, Turkey, South Africa, or Colombia, with less attractive valuations which do not compensate for risk.

On valuations, she believes these to be similar to those faced in the debt crisis in Europe, far from the highs, and which, in some cases, compensate for the risk taken. The fund manager has reduced exposure to credit− the chances of defaults have increased and compensate less for the risks taken, while she believes that if the correct names are chosen, it is still interesting− and has increased investment in the area of government debt in the fund, which can invest in both corporate debt and public debt, in both hard currency or local currency −local currency exposure has risen recently−. The fund manager is positive with the attractive valuations overall, but is cautious with some, such as some Asian ones, and the fund’s exposure to currency is currently around 25% in aggregate terms. In relation to flows in emerging markets, she believes that we will not see as many outflows as in the past.

As regards fund management, she considers it essential to adopt a flexible and active style, which is capable of seizing opportunities wherever they may be found (in credit or public debt), and to find the best ideas, using both interest rates and currency exchange, as well as credit, as profit drivers.

Japanese equities

Matthews Asia focused its presentation on Japanese equities: the management company has been investing in these assets since the mid 90s. The company tries to look at Japan as part of Asia, and they explain that Japanese companies are experiencing a lot of growth from other parts of Asia (e.g. the consumer and tourism sectors): with a long-term and growth approach, they try to find the best ideas in Japan, ranging from 50 to 70. “The economy presents many challenges in terms of growth, it’s not an attractive investment destination from that point of view, but there is great opportunity in Japanese companies,” says Kenichi Amaki, Fund Manager. “There are high quality growth companies and that’s why I invest there.”

The fund’s portfolio is focused on the best opportunities in the country: the fund manager looks for growth companies, understanding this concept in three ways: leading global companies such as Toyota; the “Asia growers” that capture the productivity growth and wealth in the rest of Asia −a game that, unlike in the past, can now be played and which has great potential−; and companies which are able to grow in the domestic Japanese market, capturing niches. The company focuses on growth companies in the country, all of them of great quality.

The expert also pointed out the onset of the country’s improved corporate governance, and the trend of returning cash to shareholders: “Changing corporate culture will take time, but it will improve; most companies already have payout ratios… and that’s one of the reasons to invest in the country,” he says.

Regarding the recent disappointment in the Bank of Japan’s monetary policy, the fund manager believes that the authority will wait to push its monetary policy to announce those measures together with other tax measures, “combining both will be a more powerful combination.” Market expectations have also risen and, he believes, the central bank awaits its opportunity when expectations are lower than they are now, in order to positively surprise the markets.

With regard to valuations, the fund manager stressed that Japan is the cheapest developed equity market. By sectors, he points out opportunities in healthcare and industrial, while he is underweight in consumer discretionary, materials, utilities and financial institutions (“there is much competition for loans, banks have no power to set prices,” says the fund manager, whose consumer discretionary underweight is due to the fact that the benchmark weight in the sector is concentrated in auto companies).

Fixed income opportunities

Keith Ney, Fixed Income Fund Manager at Carmignac Risk Managers and Fund Manager of the Carmignac Sécurité fund (which has never had a negative result in 27 years) spoke about the fixed income opportunity. During his presentation, he focused on the strategy of the Carmignac Global Bond fund, managed by Charles Zerah since February 2010. The fund has a flexible and opportunistic style with a focus on total return, seeking to beat the market with a strong focus on risk management and capital preservation. The asset manager has greatly increased its holdings of  fixed income, which accounted for 23% of the portfolio in 2007, and now account for 60%. “The structure is very flexible and very quick to adapt to changing markets,” said the expert. Another of the fund’s key factors is a global universe, both as regards to geographies, as well as assets, which can take long and short positions (in duration, credit, currency… but the latter in a purely tactical way and for hedging purposes, as the fund is not a long-short). The fund’s duration can range from 4 to 10, so that they can benefit from rate increases. The idea is to exploit market inefficiencies to add value. The volatility is limited to 10%, and the fund has a negative correlation with other similar funds of its competitors.

Currently, in duration he has exposure to the US, Germany, Australia, and Switzerland and European peripheral debt in countries like Italy, Portugal, Bulgaria and Greece. However, he has slightly reduced his position in the United States because he advises that the market has perhaps underestimated future rate hikes in the country, but explains that the Fed is now more dependent on markets and global financial conditions than on economic data. In Europe, the activity of the ECB could be positive, although he believes that the corporate debt repurchase program will fail, to the extent that there are not enough debt securities to buy and the ECB will have to extend its purchases to the public debt of peripheral countries: hence its exposure to markets such as Italy.

In credit, positions are focused on sectors with very low prices, with an opportunistic view: the distressed raw materials segment− with many fallen angels− or CLOs. But the star position is on European banks, “still cheap and in deleveraging phase” and he points out the opportunity available in subordinated debt and CoCos, “a poorly understood asset which is a great opportunity from an opportunistic point of view.” In currencies, they currently have no great convictions: “We no longer hold the positive vision of the dollar which we had a few years ago,” says the manager. Carmignac will soon open an office with five people in Miami.

Henderson Global Investors also pointed out the opportunity in fixed income which High Yield credit represents from a global perspective: Kevin Loome, Head of US Credit, pointed out that High Yield spreads in the US do not signal a recession and that problems in the energy sector have been “contained”. “I do not think we’re close to the situation in 2008”, so the fundamentals are intact: “High Yield has been placed in a position which now represents an opportunity” in an environment of negative rates in many assets which increases appetite for this debt segment. “There may be a strong technical advantage in the coming years,” he adds. Finance companies have performed badly, he points out, and are disadvantaged by the policies of the Fed, but they don’t represent a large part of the high yield universe, he says.

On the asset side, he points out its higher returns overall, its shorter duration, and exposure to the upward rate cycle, low levels of default, a growing market in Europe and opportunities for stock pickers: “In my career I have never seen such great dispersion,” he explains, hence a good selection of credit can provide much value, which he applies to the Henderson Global High Yield Bond fund. In his opinion, the greatest opportunities are in High Yield and bank loans.

The fund manager also points out the importance of having a global High Yield strategy, and not just in the US, although it represents most of the market, and the management company has a bigger team in Europe and emerging markets than other companies. In fact, he sees opportunities in Europe for its better quality, less exposure to energy, and because the asset will benefit from the ECB’s policies in relation to the US market, where he is cautious. “We are now less US-centric because we see more opportunities in Europe,” he says.

With regard to defaults, they are low but they tend to rise especially in the US energy sector, in which Henderson is underweight.

Convertible bonds

Convertible bonds were also discussed at the event: Pierre Lepicard, of NN Investment Partners, brought the asset’s current status to the 2016 Fund Selector Summit. “The drought in Africa has consequences except for lions and crocodiles… that is what is currently happening in the markets: we live in a world with few returns and those who seek them have to leave their comfort zone, where they used to invest, and that is associated with risks.” For the expert, markets go through some fundamental changes: including that last year interest rates hit rock bottom, and that had consequences for investors.

“Convertibles are a way to take risk intelligently”, although it is important to choose a good fund manager. NN IP has the NN (L) Global Convertible fund to play the asset and obtain hedging in the bear markets while at the same time participating in bullish markets, focusing on selection from a thematic perspective approach, avoiding names which do not offer convexity, and the preservation of capital. Currently 95% of the portfolio is invested  in 16 investment themes (especially “cloud computing”, health spending and the rebound in Europe) and 30 convertible bonds; the portfolio is neutral in credit risk and duration, and is slightly overweight to equity exposure (especially in the US and Europe).

The fund manager pointed out the benefits of convertible bonds from the point of view of diversification and talked about how well they have performed long term, both in markets where equities have had good results, and in those where they don’t. “These bonds will provide convexity, downside hedging, and diversification for both secure and risk assets,” he said.

Lepicard used a low profitability environment like Japan as a laboratory to see if this asset would work in a global environment of zero interest rates, like the current one … and it does work. In fact, in Japan, stocks are very volatile, bonds offer very low returns, and convertibles shine with good returns. And if rates rise, he says, the asset can provide good protection that can help both in a deflationary scenario as well as in another with rising interest rates.

“There are few assets that can work like that, offering profitability and diversification, reducing portfolio risk, while also providing hedging in an environment of rising rates”, he defended, and showed the advantages of portfolios which include convertible bonds versus those that do not.

Dynasty Financial Partners Taps Senior Marketing Leader, Gordon Abel

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Dynasty Financial Partners Taps Senior Marketing Leader, Gordon Abel
Foto: Martin de Lusenet . Dynasty Financial Partners contrata a un ex directivo de Google como director de Marketing

Dynasty Financial Partners recently announced that it has hired industry marketing veteran Gordon Abel as Senior Vice President, Director of Marketing. Based in New York and reporting directly to Dynasty CEO Shirl Penney, Mr. Abel will build on the firm’s success as one of the leading wealth management platforms for independent advisors. In addition, he will work with Dynasty’s Network firms on developing and growing their brands and marketing strategies.

Gordon Abel has had an extensive career working in financial services marketing at the highest level. Most recently, he worked at Google as Head of Industry, Financial Services overseeing the enterprise relationships for MasterCard and JPMorgan Chase. Prior to this role, he was Executive Director at JPMorgan Chase leading agency and strategic marketing partnerships as well as digital marketing across the firm.

Prior to joining JPMorgan Chase, Gordon spent five years as Director in various executive marketing roles for BlackRock/iShares and spent eleven years in agency management and marketing at Carat, Euro RSCG and SF Interactive as well as others.

According to Mr. Penney, “Dynasty recently passed the five year milestone and we are now ready for the next chapter in telling the Dynasty story. And, as the firms in the Dynasty Network grow, they also want to expand the visibility of their brands in their respective markets. Gordy has the vision, marketing expertise and leadership skills to take the Dynasty brand — and our Network teams’ brands — to a whole new level. We’re very excited to have him join the Dynasty family. We will continue to add high quality intellectual capital to help our clients enhance their experience with end clients and to grow their businesses.”

In this role, Mr. Abel will be responsible for all strategic brand architecture and marketing development for Dynasty Financial Partners. He will focus on leveraging new marketing platforms, technology and data to build awareness and heighten customer value across relevant channels. This will include driving engagement across the growing social media landscape, developing valuable thought leadership content for distribution, expanding efforts in mobile and video as well as optimizing website and search engine best practices. In addition, he will be the point person for all external marketing resource partners.

Mr. Abel said, “I’m honored and enthusiastic about joining fast-growing Dynasty Financial Partners and creating and executing a focused marketing strategy to expand our brand and grow the business. I saw this as a unique opportunity to help tell the story of the future of wealth management and to partner with some of the brightest entrepreneurial minds in finance in our community.”

 

 

Investors Paid Lower Fund Expenses in 2015 Than Ever Before

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Investors Paid Lower Fund Expenses in 2015 Than Ever Before
Foto: Manuel . Los inversores en fondos pagaron menos comisiones que nunca en 2015

A study on U.S. open-end mutual funds and exchange-traded funds, recently released by Morningstar, finds that, on average, investors paid lower fund expenses in 2015 than ever before. The asset-weighted average expense ratio across funds (excluding money market funds and funds of funds) was 0.61% in 2015, down from 0.64% in 2014 and 0.73% five years ago. This decline stems from investor demand for cheaper passive funds (index funds and ETFs) and strong flows into institutional share classes, which carry lower fees. Vanguard also contributed to average fee declines, as its low-cost passive funds continue to attract large flows.

But lower average fund expenses do not necessarily mean investors are paying less for their investments overall, reveals the study conducted by Patricia Oey and Christina West. 2015 saw the strongest inflows to institutional share classes through retirement platforms and to ETFs via fee-only advisors. These channels typically levy another layer of fees in addition to the cost of owning funds, so investors need to consider their total cost of investing. Advisor and retirement platform expenses are beyond the scope of this fund fee study, but they are an increasingly important cost component as investors migrate toward investment services and products with these fee structures.

The recently released U.S. Department of Labor’s final Fiduciary Rule states that any industry professional providing investment advice to IRAs and retirement plans (such as 401(k)s) must put the interest of the investor first, primarily by focusing on costs. This rule may result in more scrutiny and better transparency on the total cost of investing, which we hope will lead to lower investment expenses for the average American saving for retirement.

The asset-weighted average expense ratio is a better measure of the average cost borne by investors than a simple average (or equal-weighted average), which can be skewed by a few outliers, such as high-cost funds that have low asset levels. In 2015, the simple average expense ratio for all funds was 1.17%, but funds with an expense ratio above that level held just 8% of fund assets at the end of 2015. (So it isn’t saying much if a fund company touts “below average fees.”) If we look at the largest 1,000 share classes, which account for about 75% of assets in mutual funds and ETFs, the simple average expense ratio remained at 0.64% from 2013 through 2015, as some fees go up and some go down.

This finding suggests that in aggregate, changes in the fees set by asset management firms across the industry are not contributing to the falling asset-weighted average expense ratio.

Indeed, active funds have seen larger asset-weighted average fee declines when compared with passive funds. This might lead to the conclusion that fee declines among active funds are driving overall fee declines, but this has not been the case. Instead, it has been flows out of more-expensive funds (often active funds) and into cheaper funds (primarily passive funds) that have resulted in lower asset-weighted average fund fees.

Michael Gordon, New CEO for United States at Lombard International

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Michael Gordon, New CEO for United States at Lombard International
Foto: Michael Gordon / Foto cedida. Michael Gordon, nuevo director general para EE.UU. de Lombard International

Lombard International, a global leader in wealth structuring solutions for the high net worth market, appointed Michael Gordon as CEO of its U.S. operations effective May 2, 2016. He will report to John Hillman, Executive Chairman of Lombard International.

Gordon joins Lombard International from his role as Global Head of Insurance Solutions at BNY Mellon. Additionally, he served as Chief Executive Officer of Tiber Capital Management, LLC, a wholly-owned subsidiary of BNY Mellon focused on managing assets for insurance and reinsurance companies. Before BNY Mellon, Mr. Gordon was an executive at New York Life Insurance Company, leading investment and insurance product management, sales and marketing functions.

The announcement is part of a series of strategic developments for Lombard International including the formal launch, in September 2015, of its global life insurance-based wealth management business. This announcement followed the successful integration of Luxembourg-headquartered Lombard International Assurance with U.S.-headquartered Philadelphia Financial.

John Hillman, Executive Chairman of Lombard International, said: “We are thrilled to have someone of Michael’s experience and background to guide Lombard International in meeting our aggressive ambitions for U.S. growth and achieving our goal of building a world class investment platform.”

Lombard International specializes in providing multi-jurisdictional wealth planning solutions through its partner networks across the United States, Europe and Latin America, issuing life insurance policies and annuities from the United States, Luxembourg, Guernsey and Bermuda. Global assets under administration are in excess of USD 75 billion with a global staff number of over 500, including more than 60 technical experts specializing in 20+ jurisdictions.

Trinidad & Tobago Set to Become a Premier Financial Centre

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Trinidad & Tobago Set to Become a Premier Financial Centre
Foto: David Stanley . Trinidad y Tobago busca convertirse en un importante centro financiero

Trinidad & Tobago continues to make great strides towards becoming a recognised international financial centre. To be a successful financial centre these days there are a number of factors that a location simply must get right. Factors like a strong regulatory environment, the rule of law, transparency and co-operation with the international community are all in the news at the moment and are vital in becoming a successful centre. They are also critical in building a strong reputation. In order to get these factors in place, Trinidad & Tobago has forged some strong international partnerships which are informing the country’s development as an international financial centre.

In 2015 Trinidad & Tobago signed a memorandum of understanding with the Toronto Financial Services Alliance (TFSA) to help work collaboratively with other international financial centres to promote robust and transparent regulatory frameworks. Janet Ecker, President and CEO of the TFSA said that amongst other benefits “The memorandum will help strengthen Trinidad & Tobago’s position as an emerging financial centre and will support increased investment from international financial companies.”

Trinidad & Tobago has also been working closely with the widely respected international law firm Herbert Smith Freehills (HSF). Andrew Roberts, a partner at HSF, said: “We are delighted to be helping Trinidad & Tobago ensure that their regulatory systems meet the expectations of the international community. Trinidad & Tobago’s commitment to offer the highest standards of regulatory oversight is very encouraging.”

Trinidad & Tobago has recently become a member of the Commonwealth Enterprise & Investment Council (CWEIC) a membership organisation based in London that promotes trade and investment by facilitating engagement between Government and the private sector throughout the Commonwealth. John Pemberton-Pigott, the CWEIC Director of Programmes, remarked that “Businesses require a set of values under which trade and investment can take place – transparency; good governance; respect for the rule of law; enforceable physical and intellectual property rights; equal opportunities and a diverse workforce. Lord Marland, Chairman of the CWEIC said that “our relationship offers Trinidad & Tobago a great opportunity to reach out to the Commonwealth financial community to promote itself as the premier financial centre for Latin America.”

Trend-Following and Crisis Alpha

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Managed futures strategies have demonstrated the ability to maintain diversifying characteristics when most needed, in a market crisis. In this interview with Robert Sinnott, a portfolio manager at AlphaSimplex Group, subsidiary of Natixis GAM, he discusses crisis alpha, diversifying factors, daily liquidity, and fees. But first, he explains why “the trend” has been his friend during the first few months of 2016.

2016’s market environment has been bumpy. How has your managed futures approach behaved?

We follow a trend-following strategy across global stocks, bonds, currencies, commodities. So in 2016, where the S&P 500 has gone down more than 10% and then come back up, it has been a time when trend-following strategies have shown their diversification benefits. These gains have come from multiple asset classes, including going both long and short in global currencies and both European and U.S. fixed-income.

How do you know when to get in and when to get out?

This systematic trend-following strategy is fundamentally a dynamic asset allocation strategy. We are figuring out when to go long markets and when to go short based on market momentum. We use a mix of quantitative models that track price trends in global markets over short-, medium-, long- and variable time horizons. When the models indicate an up-trend in a particular market, that signals a time to buy that asset; likewise, down-trend indicators will signal a time to sell and often go short these assets.

In terms of an investor’s overall portfolio, if you are thinking about when to enter and exit a strategy that itself is figuring when to enter into and exit out of a market, you are going to compound your challenge. What we find for managed futures, especially trend-following strategies, is that they serve as a long-term diversifier for overall portfolios. Also, I think having a strategic allocation approach rather than a tactical allocation approach makes more sense. If you try to time it, you have a good chance of missing the benefits, as we saw in January of this year. By the time you got in, most of that advantage was probably already experienced by the current holders.

Is liquidity ever an issue?

Because managed futures strategies generally trade liquid futures and forward contracts, they may not be exposed to the illiquidity costs and concerns of many other alternative assets or alternative strategies. Now, while it is possible that a futures market might become illiquid, this is much, much less likely to occur than we might see in other alternative strategies.

What is crisis alpha, and how important is it to ASG?

Crisis alpha is a very, very important concept. It’s actually a differentiating feature for managed futures relative to many other alternative asset classes. Some trend-following strategies have not only provided positive returns during most historical crisis periods, but they actually seem to provide additional positive return during these periods of crisis in excess of their average return in other market environments. This tendency is known as crisis alpha. I should point out that even strategies that have strongly documented historical crisis alpha may not provide positive returns in every crisis and that past results are not indicative of future results. Nonetheless, over the long term, we think strategies that exhibit crisis alpha may serve as a good diversifier in a portfolio, because they may provide returns when other investments are contributing to losses.

When we think of managed futures strategies as a group, it’s important to understand that not all managed futures strategies do the same thing. It depends on what approaches a particular strategy employs. Some focus in on very short-horizon trend signals, while others will only track very long-horizon trends. Still others, including AlphaSimplex, follow short-, medium-, and long-horizon trends, trying to get a more diversified approach.

Can you talk more about the diversifying factors of your strategy?

Because the ASG managed futures strategy considers global stocks, bonds, currencies and commodities, we have many different opportunities to follow throughout the world. We consider everything from the South African rand and the Mexican peso to the German Bund to the U.S. 10-year and beyond.

When we are looking at the positions and how the strategy moves, we get diversification from a broad asset set of liquid exchange-traded futures and currency forward contracts. Diversification also comes from being able to go both long and short in each of these contracts.

So this translates into a true diversifier for investors’ overall portfolios?

Yes, I believe so. A managed futures strategy has the potential to diversify investors’ portfolios in three ways. First, you have the potential for strong performance in down markets. Second, low to non-correlation with other asset classes. And finally, you gain exposure to more types of assets that may help your portfolio even in non-crisis periods.

Higher fees are often associated with managed futures strategies. Why is that?

Well, first of all it’s important to think about what goes into these strategies in terms of infrastructure and trading. We have a 24-hour trading desk that trades in all of the global markets. In addition to that, you have to remember these strategies first came out in the hedge fund area, which has considerably higher management fees.

What type of allocation should investors have in their portfolio?

Obviously it is important for investors to work closely with an investment professional to arrive at the right amount for their portfolio. But, for investors with a large equity allocation, it might make sense to have a meaningful managed futures component in their portfolios because of that propensity of managed futures to provide crisis alpha, as well as diversification from equity risk.

RISKS: Diversification does not guarantee a profit or protect against a loss. Managed futures strategies use derivatives, primarily futures and forward contracts, which generally have implied leverage (a small amount of money used to make an investment of greater economic value). Because of this characteristic, managed futures strategies may magnify any gains or losses experienced by the markets they are exposed to. Managed futures are highly speculative and are not suitable for all investors. Commodity trading involves substantial risk of loss. Futures and forward contracts can involve a high degree of risk and may result in potentially unlimited losses. Short selling is speculative in nature and involves the risk of a theoretically unlimited increase in the market price of the security that can, in turn, result in an inability to cover the short position and a theoretically unlimited loss.

In Latin America: This material is provided by NGAM S.A., a Luxembourg management company that is authorized by the Commission de Surveillance du Secteur Financier (CSSF) and is incorporated under Luxembourg laws and registered under n. B 115843. Registered office of NGAM S.A.: 2 rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. The above referenced entities are business development units of Natixis Global Asset Management, the holding company of a diverse line-up of specialized investment management and distribution entities worldwide. The investment management subsidiaries of Natixis Global Asset Management conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions. This material is provided by NGAM Distribution, L.P. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary. The views and opinions expressed may change based on market and other conditions. Past performance is no guarantee of, and not necessarily indicative of, future performance. 1483285.1.2

 

 

Durable Source of Alpha Generation: Invert the Pyramid

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Cómo añadir un alfa más duradero a la cartera: invertir la pirámide
CC-BY-SA-2.0, FlickrPhoto: Jacinta Lluch. Durable Source of Alpha Generation: Invert the Pyramid

Many a market practitioner has been humbled in recent years trying to project the direction of US interest rates. Professional forecasters, futures markets, and even the Federal Reserve have all consistently gotten their interest rate calls wrong over the last half-decade. At MFS, explains Bill Adams, MFS Chief Investment Officer, Global Fixed Income at the firm, “we devote a great deal of fundamental analysis to forecasting rates, duration and the shape of the yield curve, and those elements make up an important part of our alpha generation toolkit”. However, given the extraordinarily difficult and unusual market environment of recent years, the firm recognizes there is an unusually low probability of getting one’s rate call correct, and an even lower probability of getting it right consistently. That is simply not a reliable or durable source of alpha generation within a well-managed fixed income portfolio.

 

In our view, says Adams, consistent alpha generation depends on actively managing multiple sources of risk. “We view the portfolio construction process a bit like an inverted pyramid. At the bottom of the pyramid are the factors hardest to consistently anticipate—rates, duration, and curve positioning. Next come currencies, another piece of the portfolio notoriously difficult to forecast. Against the present market backdrop, unduly influenced by global central bankers, these are the lowest conviction pieces of our alpha pyramid”, points out the CIO.

In the current environment, MFS believes that it can add more durable and sustainable alpha by engaging in a thorough process of analyzing and underwriting both corporate and sovereign credit. So security selection and sector and regional allocations are areas we approach with the greatest conviction. While you cannot generate excess returns without taking risks, we believe it is critical to take risks that are appropriate.

“Allocating assets to multiple regions is an alpha source we embrace”, explains Adams in the MFS blog. “Bringing together securities from multiple regions and reducing home country bias in a fixed income portfolio helps improve risk adjusted returns, in our view. It is also important to look beyond absolute levels of return and focus on relative return opportunities. In isolation, a 10-year US Treasury bond yielding 1.80% is not all that attractive. But compared to a Japanese 10-year JGB with a negative yield or a German 10-year bund with a yield not far north of zero, the value of the US security becomes clearer”.

As we move up the inverted alpha pyramid, the conviction grows. Moreover, MFS prefers underwriting individual credits by leveraging our global research platform to trying to make a significant call on the direction of 10-year Treasury yields. That research capability allows the firm to better manage risk. This is where MFS place its greatest conviction, with a deep understanding of both sovereign and company credit fundamentals. “Our global research platform leverages not only fixed income analysts, but equity and quantitative analysts as well, who provide a deeper understanding of individual corporate credits. To truly understand credit fundamentals, an investor must assemble a complete view of a company’s capital structure”, says Adams.

In the unusual global economic and interest rate environment that exists today, MFS believes fundamental, country-by-country and company-by-company analysis is a much more durable and sustainable alpha source than interest rates bets.

David Schwartz, FIBA: “Compliance. Compliance. Compliance”

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David Schwartz, FIBA: "Compliance. Compliance. Compliance"
CC-BY-SA-2.0, FlickrDavid Schwartz, FIBA - Foto cedida. David Schwartz, FIBA: "Compliance. Compliance. Compliance"

With FIBA’s annual Wealth Management Forum in Miami just a few days away, we interview David Schwartz, CEO, FIBA, about the industry landscape.

What are the biggest challenges facing the industry in 2016?

The challenge is always “Compliance. Compliance. Compliance”.  Regulations continue to be more stringent while the cost of compliance becomes more expensive. This year, however, the theme of FIBA’s forum is “Transformation and Opportunities: The Consolidation Conundrum.”  The challenges for 2016 relate to factors that are driving transformation of the industry.  The large players are leaving the business, or reducing their involvement. This creates both new opportunities for smaller firms and problems for the industry. We are seeing, and will continue to see, growth in small family-owned wealth management companies. At the same time, we are also seeing more use of digital and the emergence of Robo Advisors. At the same time, the industry is undergoing a gender shift. Over the next few years, half of the world’s wealth will be owned by women. There is also a generational shift as the Millennials acquire their wealth. The industry has to adjust to all of these changes, while remaining compliant.

Addressing one issue at a time, why are the bigger players exiting the industry?

Compliance. There is a lot of due diligence required, and lots of risk involved if you don’t dig deeply enough to uncover the true owner of an asset. The Panama Papers show just how complex it is to see who really owns what.  Tax transparency laws have big players questioning just how far they have to go in order to meet compliancy regulations.

Is compliance easier for smaller, family firms?

Smaller firms do not need all the infrastructure required by larger wealth management firms. They have the luxury of being able to concentrate more directly on their clients.

How is the industry responding to the trend towards Robo Advising?

The industry is embracing Robo Advising in two different ways. Some firms are creating their own robo management service in-house, and others are acquiring small, FinTech companies and bringing these in house. Still others are partnering with Robo Advisers. An excellent example is BlackRock, one of the largest global investment firms.  BlackRock acquired FutureAdvisor, a small robo firm, and now RBC and BBVA., are partnering with BlackRock’s FutureAdvisor and integrating the service to digitally augment the advice given by their financial advisors.

That clearly demonstrates how digital is transforming the industry, and how quickly these changes can occur. How do industry professionals keep pace?

The goal and the mission of FIBA is to educate our members on the latest trends. We’ve established various groups to study the issues and present them to our members via webinars, conferences, workshops, seminars, forums and other channels. For example, we recently held a webinar on the Panama Papers, and although the advance notice was short, over a thousand members participated.

Can you elaborate on some of the educational programs you provide?

We provide a comprehensive program of learning opportunities, and professional certifications throughout the year. Our Anti-Money Laundering or AML conferences are the largest in the U.S., attracting on average 1,400 attendees from 40 countries around the globe.  Our AML certification courses, which are available both online and in the classroom, are among the most respected in the country. To date, FIBA has certified more than 6,000 individuals in compliance and thousands more in technology, bank security, trade finance and related specialty areas. We also hold regular conferences and instruction on technology innovation, bank security, trade finance, and other areas critical to our industry. 

Money laundering is an ever-present threat, and compliance a continuous challenge, do you work closely with the regulators?

To stay on top of developments, FIBA frequently meets with regulators in Washington. Our primary focus is on educating our members and helping them comply with new or changing regulations. As advocates for our members, we also work to influence policy. We submit comment letters and position papers to legislators and regulators, and are respected voice for the industry. In running so many varied programs, we invite the regulators to participate and share best practice ideas.  As an example, Robert Villanueva of the US Secret Service will be one of the presenters at FIBA’s Wealth Management Forum in May. His topic, “How the Criminal Underground is Targeting the Financial Sector and our Brokerage and Retirement Accounts,” will help wealth planners understand and recognize cyber threats, and how to respond, the regulators have a job to do, and by collaborating we can all stay ahead of the criminal element.

In addition to the Wealth Management Forum, FIBA is hosting several other international conferences in May—plus AML certification courses and other programs, including a Women’s Leadership Program. How do you plan and execute so many events, and remain on top of new developments around the globe?

In keeping our members informed, we stay agile and flexible—and busy. Yes, this month FIBA is hosting our 32nd CLACE conference on Foreign Trade May 22-24. From May 24-2, we will present our 19th annual FIBA ATFA conference on Trade Finance and Forfaiting. We begin our planning about six months in advance, and revise topics as changes occur or new trends emerge. We stay flexible and adapt to the hot buttons.  As mentioned earlier, we responded to the Panama Papers immediately with an informative webinar.

There are a lot of hot buttons for the industry right now. How did you land in the “hot seat” as CEO of FIBA?

I am a banker by experience, with more than 30 years as a senior banking professional within the international banking arena. And I am a lawyer by training. When the first and only CEO of FIBA stepped down, it seemed like a perfect fit for me to step into the position. And it has been exciting.

What is the composition of FIBA’s membership base?

We have about equal numbers international financial institutions, our core membership, and non-financial professionals who support or provide services to our industry in some way, including legal professionals, technology solution providers, consultants and others. We are always open to new members.