CTA & Merger Hegde Funds Insulated From Rotations

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Los hedge funds aumentan su protección contra el riesgo de ‘Brexit’
. CTA & Merger Hegde Funds Insulated From Rotations

The Lyxor Hedge Fund Index was down -0.9% in February. 3 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+2.2%), the Lyxor Merger Arbitrage Index (+0.5%), and the Lyxor LS Equity Long Bias Index (+0.4%) were the best performers.

“In a make-or-break environment, we recommend keeping some directionality through tactical styles. We would remain put on relative-value strategies, but focusing in areas least correlated to current themes.” says Jean-Baptiste Berthon, senior cross asset strategist at Lyxor AM.

Brexit risk helped Global Macro funds recoup some of the losses endured early February. It was a hill-start for the strategy, which suffered on their short bond and long European equities exposures (we note that positioning divergence among managers remained elevated). The collapse of the pound below $1.39 then allowed Global Macro funds to regain some of the lost ground. Indeed, London mayor Boris Johnson throwing support to the exit cause led markets to implement stronger protection against a risk of Brexit. The relative economic and monetary pulses between the UK and the US also played out. Funds remain slightly long in European equities. In bonds, they are long US and short EU bonds. Their top plays remain on their long dollar crosses.
 

The rally by mid-February triggered multiple macro and sector rotations. The selling pressure exhausted by mid-month. The rally in risky assets unfolded in poor trading volumes as most market players were initially reluctant to join in. An unstable market tectonic and multiple downside fundamental risks kept investors – hedge funds included – on the cautious side. In that context, CTAs outperformed, hoarding returns in the early part of the month, while remaining resilient thereafter thanks to stubbornly low yields. Besides, the longest bias strategies enjoyed a V-shape recovery. By contrast, those exposed to the rotations suffered the most.

L/S Equity: volatile and dispersed returns, skepticism prevails. Long bias funds enjoyed a V-shape recovery over the month and ended up slightly positive. They continued to generate strong alpha. Variable bias funds pared losses on the way down thanks to their cautious stance, but they underperformed on the way up. The rotation out of defensive back into value stocks proved costly. Market Neutral funds were the worst performers. They were hit by multiple sector and quant factor rotations, amid high equity correlation, while keeping their leverage steady. They endured a double whammy through untimely portfolio shifts.

Overall Lyxor L/S Equity funds slightly raised their market beta mainly through short covering. But skepticism prevails as to the sustainability of the rally. Interestingly, a number of funds are increasingly tactical in their stock and sector positioning.

Merger Arbitrage continued to defy risk aversion. The performance of Special Situation funds mirrored that of broader markets. They suffered in the early part of the month – especially in their healthcare and telecom positions – before recouping most of their losses. The returns of Merger Arbitrage funds were less volatile. Deal spreads initially factored higher macro risks, before settling down. Short duration operations with small P&L to lock in continued to lure managers. They maintained their elevated long exposures, reflecting their confidence in the current merger opportunity set.

The underperformance of European credit hurt L/S Credit strategies. The pressure mounting on global banks, and in particular European institutions, hurt some funds. Underperforming junior debt in Europe, and concerns about coupons suspension in contingent convertibles took a dent in some funds (as a reminder, “cocos” convert into shares if a pre-set trigger is breached – the level of solvency ratios for example. These securities were designed to enhance capital levels and provide investors with greater safety). BoJ venturing into negative yield regime also hurt Japanese and Asian issues.

Perfect conditions for CTAs, which continued to outperform. Continued de-risking in the early part of the month was beneficial to most CTAs. They kept on making strong gains in their long bond positions, their equity and energy shorts. In the second part of the month, most of the gains were made in EU long bonds and on GBP. The recovery in risk appetite led their models to shave off their most aggressive bearish positions. They reduced their short on energy and brought their equity allocation up to neutral. Their main vulnerability lies with their long bond exposure.

 

Neuberger Berman Trust Company Names Richard Gardiner Chief Investment Officer

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Neuberger Berman Trust Company Names Richard Gardiner Chief Investment Officer
Foto: Terry Johnston . Neuberger Berman Trust Company nombra CIO a Richard Gardiner

Neuberger Berman has announced that Richard Gardiner has joined the firm and is appointed chief investment officer of Neuberger Berman Trust Company, an affiliate of Neuberger Berman. Mr. Gardiner will also lead the firm’s Investment Strategy Group and join the firm’s Asset Allocation Committee.

As part of his role within the $11.4 billion Neuberger Berman Trust Company, Mr. Gardiner will work along with Neuberger Berman’s wealth advisors and trust officers on high-net worth individual and foundation and endowment clients. With oversight of asset allocation, manager selection, and portfolio construction, Mr. Gardiner and the Investment Strategy Group will identify the most appropriate managers and investment strategies across multiple regions to provide the most optimal outcomes for Neuberger Berman clients.

“Richard’s skill set complements and enhances our approach to wealth management and investing, including traditional and alternative investments. His diverse background working in wealth management and in alternative investment strategies for a wide range of clients is a great match for his role as chief investment officer of the Neuberger Berman Trust Company. We are delighted to have him join us in that position as well as leading the firm’s Investment Strategy Group,” said Erik Knutzen, chief investment officer of multi-asset class portfolios at Neuberger Berman.

Prior to joining the firm, Mr. Gardiner was a consultant at the Reservoir Capital Group and chief investment officer and co-founder of an independent wealth management firm. Earlier, Mr. Gardiner was at Man Investments as head of Arbitrage & Credit and a member of the firm’s Investment Committee. Before joining Man, he was responsible for convertible sales and trading at J.P. Morgan and Goldman Sachs. Currently, Mr. Gardiner is a board trustee of the Emma Willard School and a member of the school’s Investment Committee and Finance & Audit Committee. Mr. Gardiner graduated cum laude from Yale University and earned his M.B.A. from Harvard Business School.

Capital Group Opens Amsterdam Office and Hires Country Marketing Manager

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Capital Group Opens Amsterdam Office and Hires Country Marketing Manager
CC-BY-SA-2.0, FlickrFoto: Bastiaan, Flickr, Creative Commons. Capital Group abre oficina en Ámsterdam y ficha a Martin Hofman como Country Marketing Manager para Benelux y regiones nórdicas

Capital Group, one of the largest and most experienced investment management firms worldwide, has announced the launch of its office in Amsterdam, as well as the appointment of Martin Hofman as Country Marketing Manager for the Benelux and Nordics regions.

Capital Group continues to focus on delivering high-quality long-term investment services to investors and institutions throughout Europe. The launch of the Amsterdam office and appointment of Mr Hofman, alongside other recent investment and business development hires, highlight this commitment.

Speaking at the office opening last night in Amsterdam, Rob Lovelace, Senior Member of Capital Group’s Management Committee and a Portfolio Manager, commented: “Capital Group recognises the importance of enhancing its relationships on a global, regional and local basis, in order to build upon its long-standing heritage. Our Dutch office is the latest in a series of new European offices we have opened over the past two years and is an essential part of our ambition to deliver long-term, reliable asset management services for Dutch, and European, investors, as well as expanding our global footprint.”

Mr Hofman will be based in the Amsterdam office and joins Feike Goudsmit and Marnix van den Berge, who respectively lead Capital Group’s business development activities in the Benelux institutional and financial intermediaries markets.He will play a key role in expanding Capital Group’s services in the Benelux and Nordics regions.

Mr Hofman joins Capital Group from Columbia Threadneedle Investments, where he began as Regional Marketing Manager for the Benelux and Nordics regions in 2008. Since 2014, he has been responsible for leading the institutional marketing activities in the EMEA region, including strategy planning, and development and execution of regional and global campaigns. 

Capital Group has also continued to expand on its European operations by making several new appointments in the past year. These include the appointments of Christophe Braun in January 2016 and Julie Dickson in December 2015 as investment specialists in the London office.

Capital Group currently has sales branches in eight locations across Europe: Amsterdam, Frankfurt, Geneva, London, Luxemburg, Madrid, Milan and Zurich.

Growth is not a Valid Reason for Investment, not Even for Emerging Markets

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For many years, a constant within the capital markets was that emerging markets equalled growth. This also served as the universal argument for investing in emerging markets. For Marc Erpelding, fund manager of the BL-Emerging Markets fund, emerging markets will experience a slower rate of growth in the future.

“The days of “simple” growth, backed by state investment programmes and exports based on low wage levels are pretty much gone. Going forward, the service sector and the domestic consumption will play an ever greater role. However, studies have shown that there is no link between economic growth and stock market performance. So “growth” is not a valid reason for investment, not even for emerging markets.” Therefore, according to Erpelding, the slowdown in growth should not necessarily be considered a negative development.

His investment process includes focusing on firms “which are in a position to create added value in the long term for their customers and shareholders; ideally, they can do this independently of macroeconomic trends. Firms that have high barriers to entry, present robust balance sheets and generate strong positive cash flows generally have the advantage of seeing less correction in bear markets and often emerge on top after crises. In addition, we only invest in easy-to- understand business models. It does not matter to us whether or not these companies are included in the index or what their weighting is.” This consistent investment approach can result in them being very underweight in financials or commodities. “We often find that banks lack transparency and, in the case of commodities firms, the investment decision tends to depend more on the commodity cycle than on the company itself.”

In the years 2010 to 2014, the MSCI Emerging Markets index mainly moved sideways. “However, we are less interested in the direction of the index than in the price performance of the high-quality companies we are tracking. Since May 2015, we have seen sharp corrections in this segment too, which we have used to raise the equity ratio from around 68% to approximately 84% at present. This is the highest equity ratio in the fund since the financial crisis. The corrections have led to more attractive valuations for many high-quality firms and allowed us to add to existing positions or initiate on new companies. These are purely bottom-up decisions. We will increase the equity ratio further, should high- quality companies increasingly undergo correction.. In an asset class that is (unfortunately) still regarded as satellite and therefore heavily depends on investors’ appetite for risk, we think this countercyclical approach makes great sense” he concludes.
 

Buy and Sell Side Join Forces in Support of STS Securitisation

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The Association for Financial Markets in Europe (AFME), the European Fund and Asset Management Association (EFAMA), the International Capital Market Association (ICMA) and Insurance Europe have issued a joint paper backing efforts by EU policymakers to develop a robust and successful framework for simple, transparent and standardised (STS) securitisation.

In line with the Commission’s flagship Capital Markets Union initiative, the associations believe that a new framework for securitisation could play a pivotal role between banks’ financing and capital markets, enabling much-needed non-bank funding alternatives and providing investors with high-quality fixed income securities and attractive yields.

In the joint paper, the organisations affirm that securitisation is an important element of well-functioning financial markets and call for securitisation to be treated on a level playing field with other forms of investment. They highlight their shared views on the key points for EU policymakers to consider in their development of the new framework.

Simon Lewis, Chief Executive of AFME, said: “The development of a high-quality securitisation market in Europe is an integral part of the Capital Markets Union and contributes to the Commission’s objectives to revive the real economy through increased financing and prudent risk transfer. For the European securitisation market to be safely and successfully rebuilt, the new framework must be attractive for both issuers and investors whilst operating under a strong but fair and rational regulatory regime. We are delighted to unite with investors and other market participants on this important policy initiative.”

Peter De Proft, Director General of EFAMA, commented: “EFAMA is acutely aware of the generational opportunity offered by the Capital Markets Union in restoring economic growth in Europe. The Commission’s securitisation package, as an essential component of a successful CMU, could potentially generate billions in additional funding for the economy and could act as a key driver in encouraging investor participation in European capital markets. This joint initiative of the buy-side and sell-side is testament to the sheer emphasis we believe should be placed on achieving a balanced securitisation framework which will work for our markets, our investors and Europe as a whole.”

Martin Scheck, Chief Executive of ICMA, said: “Securitisation represents a crucial asset class for investors and borrowers in Europe. As an association with both buy- and sell-side members we have strongly welcomed efforts to revive securitisation as a key element in financing the drive to restore jobs and growth in Europe. This joint paper underlines our commitment to supporting an appropriately designed framework to achieve this.”

Michaela Koller, Director General of Insurance Europe, said: “Insurers must have access to a wide range of assets in order to diversify their portfolios, and this includes a need for high quality securitisations. Steps to identify good securitisations have already been made under Solvency II and the Commission’s proposal is a continuation of this, with some important improvements. However, further improvements are needed, some of which this paper outlines. From an insurer’s perspective, we are calling for a much needed revision of the capital treatment of securitisations under Solvency II.”

What Wealthy Families in Latin America Need to Know About Compliance Rules

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“Compliance rules have dramatically changed in the last few years, and the next two ones will be even more complicated or challenging for most wealthy families,” says Martin Litwak, from law firm Litwak & Partners who discusses how the new compliance rules are impacting private wealth management in Latin America.

According to the Lawyer, “there is a lot of information online about FATCA and CRS coming from banks and financial providers, but some families are not getting the best advice, from independent lawyers, on what to do or not do, how to manage the risks and the practical impact of these changes. It is not about filling out a new questionnaire. Families must make sure that the set of structures in place are in compliant with the new scenario. It is not just one piece of law that has changed; the whole system is now different.”

Nowadays countries are cooperating for tax purposes, and the information on a family’s assets is available to authorities as well as to third parties. “Which is a bigger issue in a region like Latin America, where kidnappings take place and many governments are corrupt. The fact that information could exchange hands for very little money is very dangerous” he says.

In his opinion, families must have the right structures in place before all these new rules take effect. They also should report whatever they have or own. “If they do not like the consequences this reporting may have, they can move to a different country with a better tax system. If they are not prepared to do this, they may be able to save or differ some taxes and/or to reach some level of confidentiality at least vis a vis third parties other than governments by setting up trusts and/or private family funds.”

Jurisdictions traditionally considered as offshore international financial centers have stronger protections of secrecy and privacy. “With offshore assets, it is better to structure them offshore too. Our clients usually pursue three objectives: privacy, tax optimization and succession planning. If they value secrecy the most, regulated  investment funds (perhaps with their shares being publicly traded) are better than trusts. If succession planning is more important, a trust structure might be the best solution. We try to identify what matters to them the most, but they must also understand what can and cannot be achieved in this new transparent world.”

Litwak will be present at the marcus evans Latin Private Wealth Management Summit 2016 in Panama.

Nikko Asset Management Receives Two Awards from Asia Asset Management

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Nikko Asset Management recibe dos premios en los Asia Asset Management Awards
CC-BY-SA-2.0, FlickrPhoto: Glyn Lowe. Nikko Asset Management Receives Two Awards from Asia Asset Management

Nikko Asset Management has been recognized for excellence in two categories by the Hong-Kong based publication Asia Asset Management. The firm won the Best of the Best Award for both the Japan: Most Innovative Product and the Singapore: Best RQFII House categories for 2015. This is the second consecutive year for Nikko Asset Management to win the Singapore: Best RQFII House Award.

The Tokyo-headquartered asset manager was recognized with the Japan: Most Innovative Product Award for one of its most innovative products in 2015, the Global Robotics Equity Fund. Launched in August, the fund attracted over 300 billion yen of inflows within three months, driven by Japanese investors’ demand for greater exposure to robotics-related equities. The firm’s research uncovered that fast-growing robotics companies were not well captured with a traditional sector-focused approach to investing. The Global Robotics Equity Fund was the first in Japan to focus on cross-sectoral robotics companies.1

“It’s an honor to be recognized for our excellence in product development and innovation. I believe it’s a strong testament to our firm’s ability to not only recognize global investment trends but to provide our clients with the ability to benefit from them,” said Hideo Abe, director and executive vice chairman at Nikko Asset Management.

The firm was also awarded the Singapore: Best RQFII House Award for its leadership in RQFII solutions. Nikko Asset Management launched Singapore’s first retail China Onshore Bond Fund in July 2014. The fund opened up a highly regulated market with limited foreign investor access to Singaporean investors. Following the launch of the fund, investors were able to participate in the potential growth prospects of China’s onshore bond market. The firm has been a pioneer in the offshore RMB bond fund market in Singapore since 2010.

In September 2015, the firm launched the Nikko AM China Equity fund in Singapore, offering retail investors the opportunity to benefit from the growth potential of the China A-shares market.

“This recognition as Singapore’s best RQFII house validates our position as the industry leader in providing our clients with direct access to China, which is expected to account for 20 percent of global GDP by 2020 and become the world’s largest economy within the next 15 years,” said Eleanor Seet, President of Nikko Asset Management Asia, a subsidiary based in Singapore of Nikko Asset Management.

 

Jérémie Fastnacht Joins Banque de Luxembourg as a Portfolio Manager

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Jérémie Fastnacht has joined BLI – Banque de Luxembourg Investments as a portfolio manager. His main responsibility in this role will be to support Guy Wagner in managing the BL-Equities Dividend fund.

The 30-year-old Frenchman comes from Banque de Luxembourg, where he served for one and a half years as an analyst and equity portfolio manager in the Private Banking Investments department.

“Quality research is even more important in today’s market environment. We are therefore staying on our chosen path and – as we have done successfully with our BL-Equities Europe and BL-Equities America funds – have provided our fund manager with a co-manager,” said Guy Wagner. “With Jérémie we have selected an in-house candidate, especially as he knows the Bank, our investment philosophy, and shares our values.”

Jérémie Fastnacht added: “I am pleased to take on this new role on the equity fund team of BLI – Banque de Luxembourg Investments. Alongside Guy I will share responsibility for the Bank’s flagship funds, which is highly motivating.” Jérémie holds a master’s degree in Finance from Université Paris-Dauphine and completed a post-graduate program in Financial markets from SKEMA Business School / North Carolina State University. Jérémie began his career as an equity fund manager at BCEE Asset Management in Luxembourg in August 2012.
 
 

Why We Think Mexico Is a Standout in Latin America

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I recently traveled to Latin America and had the opportunity to visit and collaborate with a number of our team members based in the region, including Rodolfo Ramos Cevallos, who works out of our office in Mexico City. Oil prices have certainly had an impact on Latin American economies—for better or for worse—but it was clear to us that Mexico has many potential growth drivers, with reform efforts playing a key part. I’ve invited Rodolfo to talk more about the economic prospects in his home country.

Over the last two decades, Mexico has taken decisive steps to integrate with the global economy through trade agreements, so it can be affected by external factors such as slowing global growth. While 2015 was a challenging environment for investors—including those in Mexico—we think Mexico stands out from many other countries in Latin America, and as well as other emerging markets, for a number of reasons. Mexico has developed into a high-value-added exporting powerhouse to the United States. It has passed structural reforms geared to encourage competition and attract investments at a time when most countries are shying away from private investment and liberalization, and it has stable fiscal and macroeconomic management. Because of this differentiation, Mexico’s equity market has been able to outperform broader Latin America as well as emerging markets overall (as measured by MSCI indexes) in the last one-, three- and five-year periods.

Currently, we are seeing opportunities in the export sector, which has benefited from a weakening in the Mexican peso versus the US dollar over the past couple of years. The automotive industry is a good example; Mexico is the seventh-largest automobile manufacturer in the world and largest supplier of automobile parts to the United States. Production of light vehicles has been on the rise, expected to grow from 3.2 million units annually in 2014 to more than 5 million units by 2020. We are also seeing bargains in the mining sector. While the mining sector has been out of favor in recent years, we have been able to find cost-competitive companies in Mexico with solid balance sheets that appear well-positioned to potentially benefit when the cycle turns.

Within Mexico, we are also finding opportunities in the banking and financial services sectors and believe banks are likely to continue to grow as younger generations get more comfortable using credit than perhaps their parents or grandparents were. Overall loan penetration in Mexico currently stands among the lowest in all of Latin America, and we believe financial services companies should do well as new industries (namely energy and oil) get listed and monetized in the equity market.

Monetary Policy and the Peso

The Mexican peso is one of the most liquid currencies in the world and the most liquid in emerging markets, which is why it is widely used by market participants to hedge emerging market risk. A large derivatives market also drives currency prices. The peso has historically been correlated with oil prices due to Mexico’s oil assets and the government’s dependence on them for tax revenues. These dynamics pushed the peso to an all-time low versus the US dollar at the beginning of the year. The peso’s dismal performance has been a major area of frustration and concern for global investors, especially considering Mexico’s stable macroeconomic outlook. Mexico’s central bank, Bank of Mexico (or Banxico), has historically taken a hands-off approach to foreign exchange markets. However, this extreme volatility prompted Banxico to announce a surprise interest rate hike in February and to directly sell US dollars to banks (instead of its routine US dollar auctions) to bolster the currency. The Mexican peso reacted positively to these actions, but it currently remains undervalued, according to our calculations.

Monetary policy is very much coordinated between the US Federal Reserve and its Mexican counterpart, which should limit any adverse impacts from a tightening cycle in US monetary conditions. However, we believe any US tightening will be a slow and gradual process due to stubbornly low inflation in the United States, expected at a mere 1.3% for 2016, based on the current Bloomberg consensus forecast. We do not foresee a material impact on Mexico’s economy from a gradual increase in interest rates in the United States.

The Impact of Oil, and Reforms

While oil is meaningful to the Mexican government in terms of revenues, Mexico’s reliance on oil is considerably less than is commonly believed, as oil represents only about 10% of its exports. With the decline in oil prices and an increase in economic activity, oil’s importance in Mexico has been significantly reduced in the last couple of years, with income tax and value-added tax (VAT) picking up the slack. Oil’s contribution to the federal budget has dropped by half in the last couple of years from about 40% in 2008 to about 20% in 2015. Unfortunately, consumers have generally not seen lower prices at the pump yet, but with the liberalization of the oil sector that could change in the coming years.

Throughout Latin America, governments can no longer rely on high commodity prices to help them finance key programs and projects, particularly related to infrastructure. So I think reforms are going to be very important. Energy reform in Mexico has opened up the oil sector to private investment through different participation schemes. Previously, the state-owned enterprise Pemex was the only firm that was allowed to capitalize on oil resources. Now, the newly established National Hydrocarbons Commission has the authority to auction fields to private parties. The commission has conducted three auctions so far, and each was more successful than the previous one, with the most recent auction securing a 100% assignment rate. The onshore fields already auctioned have low costs and have been profitable even at currently low oil prices. In addition to these auctions, Pemex will be able to partner with specialized oil players to develop its existing resources. The government is currently working on the rules governing the Mexican equivalent of a US master limited partnership (MLP) that will be used to list energy assets from Pemex and private parties. We believe all of these developments will likely lead to an increase in foreign direct investment.

Telecommunications has been another key area of reform, which has encouraged competition with the creation of an independent regulator, among other things. Telecommunications prices have dramatically declined since the reform’s implementation, translating into a direct saving to consumers. Last year, tumbling telecommunications prices played a major role in inflation falling to a record low of 2.13% in 2015.

In sum, the Mexican economy has been improving in a number of areas. Consumption has been very strong, and the government has been very proactive in announcing cuts as well as relying much more on private investment to finance a number of planned projects. Short-term market jitters aside, the US economy still looks strong, which should help Mexico going forward and make it an attractive place to invest.

Column by Mark Mobius and Rodolfo Ramos Cevallos
 

M&G Investments Appoints Tristan Hanson To Its Multi-Asset Team

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M&G Investments ficha a Tristan Hanson para su equipo de multiactivos
Photo: Tristan Hanson . M&G Investments Appoints Tristan Hanson To Its Multi-Asset Team

M&G Investments, a leading international asset manager, today announces the appointment of Tristan Hanson as Fund Manager to its Multi-Asset team, starting on 21st March. Tristan will be responsible for developing the team’s absolute return proposition and will report to Dave Fishwick, Head of Multi-Asset.

Tristan has 15 years’ experience in asset management and joins M&G from Ashburton Investments, where he was Head of Asset Allocation with responsibility for global multi-asset funds. Prior to this, Tristan worked as a Strategist at JP Morgan Cazenove covering equities, fixed income and currencies.

Graham Mason, Chief Investment Officer at M&G Investments, says: “We are very pleased to welcome Tristan to our team. He has extensive experience across multi-asset strategies and will play a key role in broadening our capabilities around absolute return products. This will strengthen our Multi-Asset team and meet increasing demand from our clients.”

Over the past 15 years, M&G’s 16-strong Multi-Asset team has successfully developed a robust investment approach by combining valuation analysis and behavioural finance.