Photo: Proclos . Bill Gross: "Investors Cannot Make Money When Money Yields Nothing"
In his latest monthly outlook, Bill Gross mentions that negative interest rates are real but investors seem to think that they have a Zeno like quality that will allow them to make money, otherwise why would a private investor buy a security at minus basis points and lock in a guaranteed loss? The bond guru states that “zero and negative interest rates break down capitalistic business models related to banking, insurance, pension funds, and ultimately small savers. And although under current conditions “they can’t earn anything! … many of them are using a bit of Zeno’s paradox to convince themselves that they will never reach the loss-certain finish line at maturity.” But as Gross mentions, some investor has to cross the finish/maturity line even if yields are suppressed perpetually, which means that the “market” will actually lose money.
And this applies to high yield bonds and even stocks. “All financial assets are ultimately priced based upon the short term interest rate, which means that if an OBL investor loses money, then a stock investor will earn much, much less than historically assumed or perhaps might even lose money herself.” The reality, according to Gross, is that Central banks are running out of time. Their polices consisting of QE’s and negative/artificially low interest rates must successfully reflate global economies or else markets, and the capitalistic business models based upon them and priced for them, will begin to go south.
According to him, during 2017, the U.S. needs to grow 4-5%, the Euroland 2-3%, Japan 1-2%, and China 5-6% so that central banks can normalize rates or “capital gains and the expectations for future gains will become Giant Pandas – very rare and sort of inefficient at reproduction… Investors cannot make money when money yields nothing.” He concludes.
You can read the full letter in the following link.
Robert Hackney, Senior MD, First Eagle Investment Management, which advises the First Eagle Amundi International Fund - Courtesy photo. Making More, by Losing Less: Amundi First Eagle’s Pure Value Strategy
Robert Hackney is Senior Managing Director for First Eagle Investment Management, which advises the First Eagle Amundi International Fund, a fund that has been in operation for the past 20 years, and boasts a volume of assets under management of 6,45 billion dollars. We have had the opportunity to talk to him about the fund and its investment philosophy.
This fund is presented with the slogan “Making more, by losing less”, but what is really the philosophy of your strategy?
The manager explains that at First Eagle they follow Ben Graham’s – the father of Value Investing- investment philosophy, as set out in his book “The Intelligent Investor”. He believes that “Investors should look for opportunities to grow their wealth, but above all to preserve it. If an investor is comfortable investing in a company whose intrinsic value is higher than its stock market listing, you can be sure he is minimizing the risk of capital loss. “
Quoting Ben Graham, Hackney refers to the “margin of safety” concept: “there must be a difference between the intrinsic value of a stock and its market price, and when there is a significant discount in relation to the intrinsic value, it’s the time to buy.” Hackney believes that “investment should be approached by analyzing the fundamental value of a company, its ability to generate cash flow, so we can get to identify companies that are overvalued in order to move away from them,” this is when the motto “making more, by losing less” acquires its full meaning: “When the bubbles of overvalued stock burst is when our fund earns more“, because it loses less than the indices, in which the items with more weight tend to belong to overvalued popular companies.
“The only way to buy at a cheap price is by investing in companies which are not very popular.” Graham believes we can find value in undesired and unwanted companies, as could currently be the case with the energy industry, unattractive to most managers, “but which are, nevertheless, the ones we have added to our portfolio during the last six months”.
In short, the philosophy of the fund is to select companies for their intrinsic value and fundamentals, thus avoiding large unrecoverable losses.
What is the current level of cash in the strategy? And six months ago? What has changed? And gold?
“We use liquidity as a residual item while waiting to find good opportunities, preserving purchasing power, in order to have the opportunity to buy when we really think we should do it. When the market is cheap, we have little liquidity in the portfolios, and vice versa. We currently have 15% in cash, this item has historically been 10%, and the time it has been at its highest, during the second quarter in 2014, it reached 27%”
“With respect to gold, we have been buying for a year and a half, and the idea is to always maintain a 10% weight in our portfolio, which is what we have now, and we use it as a potential hedge against market decline and possible financial hardship and policies. During the period 2008-2011 the value of gold increased much faster than the value of shares, and as a result had to sell gold so as not to exceed 10%. In 2012 the value of gold began to fall and that of shares began to rise, therefore, we had to start buying to maintain that percentage.”
As Hackney points out, gold plays no role in the global economy. It has no industrial use and is either intrinsically worthless or intrinsically priceless, depending upon the state of affairs in the world. Humans have used it as currency and throughout history it has been the mirror of the world of finance and the barometer of investor confidence. In 1999, with an almost perfect global economic situation, gold traded at $ 300 an ounce, in 2016 it trades at $ 1,200, reaching $ 1,800 an ounce during the most tumultuous time globally.
The portfolio is constructed searching for balance and protection among the various items in the portfolios, thus minimizing risk exposure.
Are there good buying opportunities during a market correction? Where? Which sectors?
“Yes, there are good opportunities to be found within the energy sector and oil companies, some examples are Suncor Energy and Imperial Oil, Ltd., both Canadian companies, or Phillips 66. These are companies with healthy balance sheets that have little debt and which will survive. We need energy and oil, and if our investment horizon is long term, we can safely keep these companies in the portfolio,” says Hackney.
The expert finds other opportunities in markets such as Hong Kong, in which “real estate companies have great potential, as a result of fears and the collapse of the Chinese market are shifting activity and development to the Hong Kong market.” Finally, Hackney adds that the strategy is very interested in holding companies such as Jardine Matheson, Investor AB or Pargesa. “Generally they tend to be family-controlled companies that have a philosophy that fits perfectly with ours.”
One of the sectors which is not usual for this strategy is the banking sector. “We don’t have any European banks, since they are heavily indebted and it’s difficult to independently assess their assets. We do have a couple of U.S. banks in the portfolio, one is U.S. Bancorp and the other is BB&T. “
We have probably gone through a long period in which the “growth” stocks have behaved better than the “value” stocks. What has to happen for the market to be based on the fundamentals again?
“When the market is bullish and growing rapidly, we think it’s time to take positions in cash and gold, thus being below market. But we know that those periods are not eternal and that they often end up falling sharply, and that’s when we’ll return to buy,” said Hackney. “Humans react to fear and markets are a great school of the irrational, and can remain irrational for longer than we can remain solvent. For example, one may think Amazon is overvalued but you never know when, or if, the correction will come. For that reason we do not put ourselves short.”
How do you see current valuations?
“Currently in certain parts of the market there are companies with very attractive valuations such as in some parts of the global real estate sector; or companies with some exposure to the oil industry but which are not producers of the commodity, but have very attractive prices and they are what we are looking to buy,” says the manager. “The valuations we don’t like very much are in the social media or new tech sectors, because they are no longer adjusted in price and do not interest us.”
Do you think the proliferation of generic and factor based ETFs affect your investment style?
“In the short term, the proliferation of ETFs that replicate indices have dramatically increased market volatility, the spread is wider and the prices do not conform to reality, but the long-term effect is positive for selective managers who know what to buy, allowing them to acquire companies with artificially low values.” Hackney points out that they are really two completely opposite styles. “Our philosophy is that if you want to beat the market, it is impossible to achieve it by following the index, you must stop staring at the screen and look for the intrinsic value of the companies.”
CC-BY-SA-2.0, FlickrPoto: HelveticaFanatic
. CBRE Changes Leadership In Its Real Estate Investment Subsidiaries
CBRE Group has announced senior leadership changesin its real estate investment subsidiaries, CBRE Global Investors – a global real estate investment management firm – and Trammell Crow Company – a U.S. real estate development services business. The announcement was made by Bob Sulentic, CBRE’s President and Chief Executive Officer.
Matt Khourie, who has served as CEO of CBRE Global Investors for the past six years, has been named CEO of Trammell Crow Company. This move marks a return to the real estate development business for Mr. Khourie, who was a senior leader at Trammell Crow Company for 29 years before joining CBRE Global Investors in 2009
Ritson Fergusonhas been named CEO of CBRE Global Investors. Mr. Ferguson has served on Global Investors’ Global Investment Committee since 2011 and as Chief Investment Officer since 2015. He will also remain as CEO of CBRE Clarion Securities, the company’s real estate securities business.
Danny Queenan, who was named COO of CBRE Global Investors in August 2015 and also served as CEO of Trammell Crow Company since 2011, will now concentrate the vast majority of his time and energies on running CBRE Global Investors’ operations and strategic initiatives. Although he will not have a day-to-day role in Trammell Crow Company, he will remain active in this business at a strategic level, serving on its Board of Directors.
Courtesy Photo. FirstBank Florida Opens an Office on Brickell for Their Platinum Banking Division
FirstBank Florida, a leading boutique bank offering an extensive suite of services for personal and professional financial requirements, has opened its flagship location, the bank’s 11th South Florida location and first branch within Miami’s Financial District, at 848 Brickell Avenue. In line with South Florida’s tremendous influx of business and residential growth over the past several years – particularly Brickell – FirstBank Florida will also introduce a new service line tailored to meet the needs of individuals and organizations residing in its newest locale and beyond.
“We have been fortunate to effectively support our customers’ requirements personally and swiftly while contributing to the region’s economic recovery,” said Calixto Garcia-Velez, Regional Executive and Executive Vice President of FirstBank Florida. “Now is the perfect time to operate our flagship location in the epicenter of the Southeast financial gateway to the world.”
FirstBank Florida has chosen to open a branch in Brickell to serve as the main hub of its Platinum Banking Division, a growing concierge-style offering for businesses and individuals – including those in the international sector – seeking white-glove service from a team of proven, professional bankers.
Ramon Casanova, Vice President and Branch Manager and a leader within the FirstBank Florida’s Platinum Banking Division, is spearheading operations at the Brickell location. Casanova brings more than 23 years of banking experience, 18 of which have been on Brickell.
“Our organization is driven by a set of values that stem from being one with the community,” continued Garcia-Velez. “From this ingratiation with our customers, we are keenly aware of the growing dynamics and demands placed upon them, and as such, we are continuing to evolve and enhance our personalized services to extenuate our commitment and ensure their objectives are met.”
Asset management companies with flexible bond products that outperform have a chance of reversing the recent run of outflows but fee cuts may be a decisive factor in tempting back investors, according to the latest issue of The Cerulli Edge – European Monthly Product Trends Edition.
Flexible bond products, a category which usually includes strategic and unconstrained bond funds, fell out of favor in 2015 after soaring in popularity the previous two years, partly on the perception that they were better able than other bond funds to cope with the U.S. Federal Reserve’s supposedly imminent rate rises, notes Cerulli Associates, a global analytics firm.
The entire bond market suffered last year, but funds with a substantial high-yield element were hardest hit. However, Cerulli believes that the policies of central banks can benefit flexible bonds. The European Central Bank has cut its main refinancing interest rate to zero and announced an extension of bond buying. With some yields already negative, value in European bonds is proving hard to come by. This strengthens the case for a fund to be as unconstrained as possible as it searches for alpha. If emerging market corporate bonds seem to offer better value than eurozone sovereigns, the fund can act accordingly.
“Flows for flexibles may take some time to come back and many will fall by the wayside,” says Barbara Wall, Europe managing director at Cerulli Associates. “However, stronger funds may benefit from the shakeout. The longer established ones with better past performances may be able to convince investors they can recapture the glory days. Their chances of doing so will be that much greater if they reduce charges, even if only temporarily.”
Wall points out that Goldman Sachs, PIMCO, and M&G, which charge in the 1.4% to 1.7% range, look expensive given recent negative returns, especially when compared with the likes of Artemis and BNY Mellon, which charge well under 1%. She adds that some funds should consider ditching their performance fee, even though this has been largely irrelevant given the losses.
Accuity, the leading global provider of risk and compliance, payments and know-your-customer solutions, announced on Wednesday that it is opening an office in Miami to serve new and existing clients in Miami, Central America, Mexico, Colombia, Venezuela, the Caribbean and Gulf countries.
Accuity is part of Reed Business Information (RBI), which is in turn is part of RELX Group, a world leading provider of information solutions, listed on the London and Amsterdam Stock Exchanges.
The opening of Accuity’s Miami office is in response to the firm’s rapidly expanding business in Central and Latin America. It reflects Accuity’s strategy in LATAM, which has been to grow its Sao Paolo office to meet demand in the South of LATAM region (SOLA) and grow its Miami base for Northern LATAM and the Caribbean. Accuity has more than 200 clients in LATAM and predicts continuing growth across the region as a whole – across the breadth of Accuity’s payments, risk and compliance solutions. Being in Miami will enable Accuity to enhance its service levels to new and existing regional clients who already include some of the region’s leading financial institutions.
Hugh Jones, President and CEO of Accuity, said: “The opening of our Miami office brings us closer to our Central and Latin American customers, many of whom have branches in Miami. We see Miami as a financial services hub for the region and we look forward to forging ever stronger relationships with the financial services community there. Our local team, now based in Miami, will work closely with our Sao Paulo office to leverage our deep Brazilian market experience. Together, they will build on Accuity’s reputation for improving operational efficiency and protecting our financial and corporate clients against sanctions and compliance violations.”
Accuity’s new office is located at: 1101 Brickell Avenue, 8th Floor, South Tower, Suite #102. Miami, FL, 33131, USA.
According to Jodie Gunzberg, Global Head of Commodities and Real Assets at S&P Dow Jones Indices, March saw the biggest comeback in commodities.
St. Patrick’s Day didn’t just have a pot of gold at the end of the rainbow, but had basically the whole commodity basket. The S&P GSCI that represents the world’s most significant commodities, ended March 17th with a positive total return year-to-date for the first time in 2016, up 1.9%.
The index reached its highest level since December 10th, 2015, and gained 18.8% since its bottom on January 20th, 2016. This is the most the index has ever increased in just 40 days after bottoms.
Further, now in March, 23 of 24 commodities are positive. This is the most ever in a month with one exception when all 24 commodities were positive in December 2010. It is also the fastest so many monthly returns of commodities changed from negative to positive, making a comeback from November 2015 when just two commodities were positive.
Now, only aluminum is negative in March, down 3.1%. However, its roll yield recently turned positive that shows more scarcity (that is very rare for aluminum,) indicating it may turn with the rest of the metals. Especially if the U.S. dollar weakens, the industrial metals tend to benefit most of all commodities. That says a lot about their economic sensitivity given all commodities rise with a weak dollar.
According to Axa IM‘s credit market monthly review, the strong rebound in credit since mid-Feb has legs to run further. Greg Venizelos from the Axa Research & Investment Strategy team writes that the improvement in US macroeconomic data and the stabilisation in both the oil/commodity markets and the Chinese risk premia, have brought some respite to global risk. “Credit spreads saw a material tightening as a result, from levels that were arguably overdone in the context of global growth and credit fundamentals. Since 11 February, US High Yield (HY) has transformed itself from the worst performing market within developed market credit to the best performing, matching our early February call for HY to outperform investment grade (IG). Looking ahead, while it’s reasonable to expect a consolidation in the broader risk rally after a very strong run, we think that credit spreads can continue to tighten and HY spreads can compress further vs IG in the near term.
The rebound in US HY has been nothing short of spectacular, with the overall index returning 7.2% since 11 February, led by an increase of c.20% in energy and c.16% in metals and reaching 1.3% YTD
Venizelos notes that “the rebound in energy is, of course, from a very distressed level.” Indicative of the brutal correction earlier in the year, energy remains the worst among the biggest HY sectors year-to-date, down by 2.9%.
The outperformance of HY over IG that we advocated in early February has materialised and we see scope for this HY/IG spread compression dynamic to run further. While IG spreads have clearly widened YTD, HY spreads have remained relatively contained.
As a result, the US HY/IG spread ratio has compressed from 4.2x in mid-December 2015 to 3.6x currently.”We think that there is room for further compression in spreads, pushing the spread ratios towards the ‘low 3s’ in US and below 3.5x in euro. One technical hindrance to further spread compression for US HY, in particular, is that the US HY index spread has tightened markedly vs x-asset volatility, from 100bps (+3.7) in late January to -38bps (-1.5) currently, implying that the compression momentum could be due a pause for breath.”
From a seasonality perspective, Venizelos noted that, on average, March tends to be a month of positive returns for HY credit and flat-to- negative returns for IG credit. HY credit has already met and exceeded this seasonal pattern, with US HY at 2.8% month to date, which is above its March ‘average plus one standard deviation.’ “This suggests that the current run rate of HY performance is unlikely to be sustained over the entire month. Indeed, while the tail risks that have dogged global risk until early February have receded, credit investors may begin to fret about more mundane risks, like excessive supply in primary markets and insufficient new issue premiums, which could hinder credit spread performance,” he concludes.
CC-BY-SA-2.0, FlickrPhoto: Rede Brasil Actual. For Brazil, No Glimmers of Light Yet
With so many headlines recently over politics and economics in Brazil, Eaton Vance wants to provide an update on recent events and the market volatility that has followed.
Over the past two years, Brazil’s economy has suffered from a terms-of-trade shock as well as simultaneous fiscal and political crises. These shocks have led to seven straight quarters of economic contraction (the longest recession since at least the Great Depression era of the 1930s) and multiple credit rating downgrades, leaving Brazil’s sovereign credit rating back in “junk” territory by all of the major ratings agencies.
With the exception of large currency depreciation, says Matt Hildebrandt, Global Credit Strategist at Eaton Vance, Brazil’s progress adjusting to these shocks has been limited. Fiscal deficits have grown larger and public debt levels higher with no sign of debt sustainability in sight. To make matters worse, President Dilma is currently defending herself in congressional impeachment hearings while former President Lula and the heads of both of the lower and upper houses of Congress have been implicated for corruption from testimony received from the ongoing Operation Carwash investigations.
According to the expert, Brazilian assets have rallied the last few weeks, as the market has interpreted negative news related to President Dilma as positive for the country. The thinking is as follows: Dilma’s removal may ease the political gridlock currently paralyzing the policy process, which would allow the government to develop and implement a plan that puts the country’s debt trajectory on a sustainable path and that improves the economy’s competitiveness. Such thinking may prove correct in the long run, but impeachment will likely be a messy process and even if Dilma is removed, the political establishment will still be plagued by unscrupulous personalities, vested interests and party factions. The path to debt sustainability and greater economic competiveness will be a long one.
From a long-run perspective, Eaton Vance thinks Brazilian assets offer a lot of attractive opportunities. But, the recent market rally has priced in the best possible near-term outcome even though the outlook is fluid and uncertain.
“Expect more market volatility in Brazil in the months to come until the government, regardless of who is running it, is able to articulate and implement a more coherent policy path forward. Only at that point will we be able to say that there is some light emerging at the end of the tunnel”, concludes Hildebrandt.
Foto: Jonathan Mueller
. UBS Wealth Management Americas y UBS AM lanzan un servicio de externalización de CIO
UBS Wealth Management Americas and UBS Asset Management announced the launch of UBS Outsourced Chief Investment Officer (OCIO), a new service to address the needs of institutional clients and those who serve on investment committees at institutions such as religious organizations, pension funds, foundations, endowments, alumni associations and charities. This program combines UBS’s consulting experience and investment heritage, providing clients the ability to retain portfolio oversight while delegating investing decisions to experienced managers.
“Outsourcing investment decisions to aknowledgeable and dedicated discretionary consultant, rather than relying on those within the organization who have differing responsibilities, can better help organizations accomplish their missions,” said Peter Prunty, head of UBS Institutional Consulting. “UBS OCIO has the institutional skills and asset management expertise to work on behalf of clients to help them achieve their investment goals, giving clients more time to focus on their organization’s objectives.”
“In partnering with our colleagues in Wealth Management Americas to deliver a compelling OCIO offering, we are focused on enabling clients to concentrate on what matters to them and their organization,” said Frank van Etten, Head of Client Solutions for UBS Asset Management. “We have complemented the institutional offering of a global asset management organization with the accessibility of a local financial advisor who understands each particular client’s needs.”
The improved governance and shared fiduciary responsibility that OCIO provides can help clients better manage risk. OCIO also moves many administrative burdens from the client to UBS through a disciplined process that keeps clients focused on results. In addition, Institutional Consultants deliver regular performance reports and economic and market intelligence to help keep clients updated and on track.
