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Corporate Defaults Piling Up

The corporate default rate is at its highest level since 2009. In its latest study on 30 November, Standard & Poor’s reported a sharp increase in the number of companies defaulting in 2015: 101 issuers reneged on their obligations. The last time the figure was so high was in 2009. The latest two companies failing to repay their debt are Uralsib, a Russian bank, and China Fishery, a global fish and seafood supplier. Among these hundred plus companies, only 21, i.e. one-fifth, are from emerging markets. Most are in Brazil and Russia. And the main sector concerned is oil and gas, says Jean-Philippe Donge, Head of Fixed Income at Banque de Luxembourg.

The latest news concerning Petrobras, Glencore, Valeant and VW has echoes of the crisis we saw in the 2000s on the corporate debt market. At that time, a number of companies were posting record debt levels which ended up causing them to default or engage in major debt restructuring: World- Com, Enron, General Motors and France Télécom to name a few. We might well wonder whether the situation is different this time round. “But if it isn’t, does this mean the corporate debt cycle is at tipping point? Are we about to see major debt restructurings?”, asks Donge. Let’s look at the history of the price of the Glencore 1.25% bond maturing in March 2021. In 2012, Glencore launched its acquisition of the Swiss mining company Xstrata. In 2013, it took over the Canadian trader Viterra and in 2015 embarked on a merger with Rio Tinto. The latter did not succeed.

Primary sector debts and bank loans

Many companies are now posting debt and liquidity levels equivalent to those of the telecoms sector in the early 2000s. You only have to look at the sharp increase in global issue volumes, says the expert. In 2014, these came to 3.5 trillion dollars compared to 2.1 trillion in 2008 (3). Weak growth and the resulting deflationary pressures have led to a fall in earnings. The first companies to be affected are linked to oil and mining.

In emerging markets, Brazil and Russia have the greatest number of struggling companies. Petroleo Brasileiro (Petrobras) and the Brazilian Development Bank (BNDES) are a microcosm of the type of problems encountered on the corporate debt market: meltdown in commodity prices at the same time as an increase in corporate debt. Petrobras is a semi-public Brazilian and integrated energy company. BNDES is the Brazilian government’s financial arm for funding various projects, ranging from agriculture to infrastructure, in Brazil and elsewhere but mainly in South America.

The quantitative easing programs being conducted in developed countries, in particular by the US Federal Reserve, led to massive financial inflows to emerging markets between 2008 and 2014. These flows encouraged an increase in bond issues and bank loans, for a total of nearly 7 trillion dollars, he adds.

The case of BNDES illustrates the position of the corporate sector in emerging markets. Last year, after a continuous increase in its loan portfolio and with assets of 330 billion dollars, it was on the point of overtaking the World Bank as the world’s second-biggest development bank after the China Development Bank. Unfortunately, it has suffered a sharp slowdown in activity this year, leading to a decline in disbursements. From January to October, the total amount of loans made by the bank came to around R$105 billion, which represents a drop of 28% compared to the amounts disbursed in the same period in 2014. From January to September, the bank’s net income came to R$6.6 billion, which is 10.3% below the level recorded in the same period in 2014, specifies Donge.

Are we heading for a corporate debt crisis?

Potential fears for the corporate debt market would seem to be justified. Debt levels are high. Earnings are down. Monetary policies have taken or will be taking a less accommodative turn (despite the recent pronouncements by the President of the ECB). In particular, the return to a cycle of rising US interest rates coupled with a relatively strong dollar are looming over the market. If this does not happen, it would mean that the economic situation is not improving. “Heavily indebted companies therefore find themselves between a rock and a hard place, especially those that operate in sectors most sensitive to economic cycles. For the next few months, it would be logical to expect them to have a decreasing capacity to pay down debt.” He concludes.

Schroders Strengthens Convertible Bond Team with New Hire

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Schroders refuerza su equipo de bonos convertibles con Stefan Krause — CC-BY-SA-2.0, FlickrPhoto: Stefan Krause, new Portfolio Manager at Schroders. Schroders Strengthens Convertible Bond Team with New Hire

Schroders is pleased to announce the hire of Stefan Krause in the role of Portfolio Manager in its convertible bond team based in Zurich. Stefan will work alongside Peter Reinmuth as co-manager of the Schroder ISF Global Conservative Convertible Bond.

Stefan joins Schroders from Man Investments (CH) AG where he was responsible for managing the Man Convertibles Europe Fund. Prior to joining Man in 2012, Stefan spent two years with Warburg Invest in Hamburg as a portfolio manager for European convertibles and almost five years with UBS in Zurich. Stefan holds a Master’s in Business Administration from the University of Zurich.

The hire coincides with the first anniversary of Schroder ISF Global Conservative Bond, in which the fund has achieved strong performance against the benchmark and peers, and continues to see positive inflows. The fund aims to provide capital protection and growth within volatile markets by investing in high quality convertibles with an average credit quality of investment grade at all times. The conservative approach emphasises protective elements of convertibles, focusing on above-average downside protection.

With a team of eight specialists, Schroders convertible bond team manages three dedicated investment strategies: global opportunistic, global conservative and Asian convertible bonds.

Japan Lowers Its Rates into Negative Territory: the Currency War Intensifies and Gives Wings to Short-Term Equities

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Japón sitúa sus tipos en territorio negativo: intensifica la guerra de divisas y da alas a la renta variable a corto plazo — CC-BY-SA-2.0, FlickrPhoto: Helfrain. Japan Lowers Its Rates into Negative Territory: the Currency War Intensifies and Gives Wings to Short-Term Equities

In a surprise move, the Bank of Japan decided on Friday to join the ECB’s strategy and cut interest rates by 20 basis points, taking rates into negative territory at -0.1% (from the previous + 0.1%) for deposits of financial institutions at the central Japanese bank. The experts are divided: the news will help the markets and an economy with great export weight, but accentuates the currency war spiral to capture very modest overall growth and finally, the consequences may not be as promising.

The adoption of a negative rate helps the Bank of Japan to fight deflation by reducing financial costs, in an attempt to breathe some life into Abenomics, the government’s major plan to revive the economy. The Bank of Japan, which blames oil prices for persistently low inflation in the country, adds this new measure to its program of quantitative easing which involves the annual purchase of 80 trillion yen in assets.

In response, the yen fell sharply against the dollar and other reference currencies like the euro, fueling a currency war which though undeclared, continues to cause panic in the trading rooms of half the financial sector.

In the press conference following the decision, the Bank of Japan’s Governor, Haruhiko Kuroda, stated that he does not rule out expanding the quantitative easing program, which could even include further cuts to increase the dip into negative territory.

“As such this challenges our previous outlook and as a result we are stepping back from some of our long yen currency positions as we reassess the absolute and relative policy stances of developed market central banks,” explained Kevin Adams, Director of Fixed Income atHenderson Global Investors.

Meanwhile, despite the rise in stock markets and debt, Keith Wade, Chief Economist and Strategist at Schroders, believes that the decision is caused by weakness and increases the risk that China may retaliate by further depreciating its currency.“If so, we will have entered a new phase in the currency wars where countries fight over a limited amount of global growth, an outcome which does not bode well for risk assets,” Wade points out.

Equities and fixed income

For Simon Ward, Henderson’s Chief Economist, it is more likely that the move is interpreted by the market as a negative signal for economic prospects, and as evidence of “Bank of Japan’s desperation”. This, claims Ward, will cause the market to be more, rather than less, risk-averse.

In the short term, however, the Bank of Japan has become the investors’ best friend. Japanese stocks rose on Friday and analysts agree that they are likely to continue rising in the short term. Robeco’s portfolio of international equities, Robeco Investment Solutions, is overweight in Japan. “We will obviously continue with this strategy. Our position has been strengthened by the decision of the Bank of Japan,” says Leon Cornelissen, Chief Economist at the firm.

“We believe that the surprise announcement is likely to have an incrementally positive effect on the outlook for Japanese equities, as it tempers the recent concern around the drag of a stronger yen on earnings. We maintain the view that Japanese stocks could withstand a moderate appreciation of the yen,” explains the team at Investec’s multi-asset strategies.

Regarding fixed income, Anjulie Rusius, from the Retail Fixed Interest team at M & G, pointed out that the move by the Japanese central bankhas been supportive of Japanese government bonds, alongside those of other countrieswhich have also adopted negative rate regimes, in a movement which could be repeated in the medium term.

The Global Economy’s Moderate Growth is Becoming Increasingly Fragile

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The global economy’s moderate growth is becoming increasingly fragile, largely due to the weakness of investments in the energy sector and slower growth in the Chinese economy. This is the view of Guy Wagner, Chief Investment Officer at Banque de Luxembourg, and his team, published in their monthly analysis, ‘Highlights.’

In the United States, there are mounting signs of industrial activity slackening due to the strength of the dollar and the weakness of investments in the energy sector. The increase in household purchasing power – fuelled by falling oil prices and the recent uptick in wages – is nonetheless keeping the US economy on a path to growth. In Europe, economic statistics are pointing in the right direction, although the pace of growth in absolute terms remains subdued. Japan’s economy is continuing to stagnate while economic growth is slowing in China. “The global economy’s ‘moderate growth’ is becoming increasingly fragile,” observes Guy Wagner.

Inflation is staying low due to the ongoing slump in oil prices. In the United States, inflation edged up from 0.2% in October to 0.5% in November. The Federal Reserve’s favourite indicator, the PCE (personal consumption expenditures) deflator, excluding energy and food, remained unchanged at 1.3%. In the eurozone, the inflation rate held steady in December. Core inflation, excluding energy and food, which Mario Draghi, President of the European Central Bank (ECB), recently said was a more representative measure of the cost of living, was unchanged at 0.9%. “While oil prices remain depressed, the ECB’s target inflation rate of 2% hardly seems realistic,” says the Luxembourg economist.

As expected, after seven years of a near-zero interest rate policy, the US Federal Reserve raised its key interest rate by 25 basis points. This was the first federal funds rate hike for nearly ten years. The monetary authorities have confirmed that any subsequent increases will be implemented slowly and gradually. In Europe, the ECB expanded the quantitative easing programme by extending the asset-purchase period from September 2016 to March 2017, by including regional and local government debt in the programme, and by further cutting its deposit rate. “If the inflation target is still not met, it is likely that additional QE (quantitative easing) measures will be introduced.”

Contrary to year-end tradition, equity markets performed poorly in December. Plummeting oil prices to below 40 dollars a barrel had a knock-on effect on equity markets out of a concern that the economic slowdown might worsen and that the financing capacity of lower-rated companies could suffer. According to Guy Wagner: “After a more volatile and less successful second half in 2015 and despite the lack of alternative investments, equities could suffer a difficult year in 2016 due to the slowdown in economic conditions, the sharp increase in share prices since 2009 and global geopolitical tensions.”

In December, the euro gained 3% against the dollar, with the euro/dollar exchange rate climbing from 1.06 to 1.09. The single currency’s rebound was prompted by investors’ disappointment over the scale of the ECB’s additional QE measures. Guy Wagner concludes: “If American and European monetary policies continue to diverge, the euro’s recent rebound is likely to be short-lived.”

Downward Pressure on Fees is Set to Intensify in 2016

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Finding ways to counter the downward pressure on fees will be a focal point for asset managers across much of the world in 2016, according to the latest issue of The Cerulli Edge-Global Edition.

In assessing the outlook over the next 12 months for the asset management industry in Europe, the United States, Asia, and Latin America, Cerulli Associates, a global analytics firm, has identified a number of key threats and opportunities.

In Europe, the migration by insurance companies to unit-linked products represents an opportunity for asset managers, says Cerulli. The growing demand for multi-asset funds should also be exploited. Threats include the emerging trend by institutions to band together to make their own investments, thereby cutting costs by using fewer external managers or even completely dispensing with their services. Exchange-traded funds (ETFs) will continue to be a bugbear for active managers.

“In Europe, as with much of the world, the downward pressure on fees, fuelled by passives, the comparisons platforms enable, and regulators will not let up in 2016. Asset managers are responding–the move by veterans of active management into ETFs is an example. Other examples include, diversification and the acquisition/ creation of platforms and fintech capabilities,” said Barbara Wall, managing director of the Europe office of Cerulli Associates.

Europe accounts for just 18% of the world’s ETF market, compared with the U.S.’s 70% slice. Wall, however, believes that big change is afoot. “A few years ago, just a small number of Europeans would have known what ETF stood for–that is no longer the case, especially among the ranks of the mass affluent and those aspiring to that status. Prominent direct-to-consumer platforms such as Fidelity are offering ETFs from, for example, Vanguard, HSBC, and the iShare range, owned by BlackRock. Online wealth manager Nutmeg, though not a direct-to-consumer platform, is also helping to raise the profile of ETFs among retail investors.”

In the United States, Cerulli foresees fee pressure generating opportunities for managers that offer multi-asset and strategic beta products. Other major challenges cited by U.S. executives include the threat of passive investments, and the increased cost of revenue-sharing costs. The latter has U.S. asset managers looking at new pools of global assets to distribute abroad.

In Asia, Cerulli expects the spotlight to fall on passive products as institutions look for cost-effective solutions and regulators take steps to boost the appeal of ETFs for retail investors. Cross-border initiatives are likely to increase in 2016, offering investors diversified investment options and enabling managers to expand in other markets.

In Latin America, global managers will continue to be hampered by the knock-on effects of U.S. regulation, competition from other asset classes, and reduced flows due to unfavorable exchange rates and struggling economies. Global managers in the region are eyeing the private-equity craze sweeping the region, while separately a cottage industry of specialist distributors is promising to leverage their ties to local institutions to help global firms break into Latin pension space.

“In 2016, the clamor for reduced fees, greater transparency, and an end to ‘closet tracking’ will continue apace; competition will intensify; and institutions will be obliged to follow a road that will be a dead end for some asset managers,” said Wall. “All the while, activist investors will not let up; markets will continue to surprise; and rising costs will strain budgets. But there will be opportunities. To seize upon these, foresight, experience, and occasionally courage will be needed.”

PIMCO Names Craig Dawson as Head of EMEA

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PIMCO has named Craig Dawson as Head of Europe Middle East and Africa, succeding Bill Benz, who retires after 30 years in the company.

Craig A. Dawson is a managing director and head of strategic business management. Previously, he was head of PIMCO’s business in Germany, Austria, Switzerland and Italy, and head of product management for Europe. Prior to joining PIMCO in 1999, Mr. Dawson was with Wilshire Associates, an investment consulting firm.

William R. Benz will retire at the end of June 2016. He joined PIMCO in 1986 and is a managing director in the London office and head of PIMCO Europe, Middle East and Africa (EMEA). He is the chief executive of PIMCO Europe Ltd., the chairman of PIMCO Funds Global Investors Series plc and is a former member of PIMCO’s executive committee.

Dawson said: “Europe is a strategically important region for PIMCO, where political, sovereign and macroeconomic events have been at the heart of the market forces shaping the global economy.

“I look forward to continuing the great success that Bill and the team have built over the years in their continued focus on providing investors with the performance, market insights and client service that investors have come to expect from PIMCO around the world.”

Douglas Hodge, chief executive of PIMCO, said: “Bill has built a leading business in the UK and across Europe, the Middle East, and Africa, which Craig is perfectly placed to build on given his combination of experience in Europe and oversight of PIMCO’s strategic initiatives.”

Benz added:“Although much has changed during my 30 years at PIMCO, there are two things that have remained constant and are stronger today than when I joined: the firm’s outstanding commitment to client service, and its unwavering focus on consistent, sustained and risk-adjusted investment outperformance for all clients.”

Pershing: We Look Forward to Helping our Clients Succeed in Latin America

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Although Pershing has no physical presence in Latin America, John Ward, Managing Director Global Client Relationship with the financial services company owned by BNY Mellon, emphatically expresses the company’s commitment to a region which he considers offers opportunities, due to the demographic and regulatory changes that are taking place.

Mr. Ward is referring to Pershing’s second largest market, both by the number of clients and clients’ assets. In the region of the “Americas”, in which each country is managed independently, they currently have 100 clients from the U.S. and other countries (including Canada), whose needs are managed from the United States. In order to do this, Pershing has teams which, besides English, speak Spanish or Portuguese and understand the culture, idiosyncrasy, needs, and environment of each of the markets in which the company operates. They have clients in Chile, Panama, and Mexico as well as clients in the US – in Florida, New York, California – who serve the Latin American region.

Amongst the greatest challenges in the area, Ward mentioned the economic situation, the regulatory aspects, and the evolution of commodity prices, along with the situation in Brazil or the political changes that may occur in each of the countries, or which, in some, are already occurring.

The executive believes that the regulatory framework is maturing and that expertise in the financial market is growing. Talent is increasingly developing. We’re witnessing a growing number of Latin American firms establishing their presence in the United States to retain talent within the organization, explains Ward, referring to financial companies from Brazil, Colombia or Mexico, setting up in Miami or Houston.

On the other hand, regulatory developments favor a gradual, but very slow, increase in offer to certain investors from specific countries, attracting European fund companies, also aware of population growth, the emerging middle class, and the increasing number of HNWI. In short, Ward defines Latin America as “an opportunity for growth.”

The number of asset management companies looking into Latin America as a region with which to improve their indicators has grown in 2015. Changes occurring, such as pension funds in Chile, Colombia, and Peru, are causing management companies to want to expand their product offering and bring in the sales force he explains. Very few firms have their own sales teams in situ, and those with dedicated teams in the United States are more numerous. “Maybe it’s not so much about new companies, although there are some, but about existing companies refocusing their strategy for increased growth in Latin America,” he points out.

The depth and speed of growth depends on the industry itself, (which is looking for new talent, both in Wealth Advisors and in Private Banking), regulation, and on how committed to the region are the companies operating in it. While it is true that some large companies are leaving the area due to the risks involved in sustaining the business, according to Ward, there will be a consolidation of service providers, but there will also be newcomers entering to service the niches left by others. With regard to how this future development will affect their business, Pershing’s managing director of global client relationships declares that, “The diversification of our client base allows us to adapt to different market environments.”

The executive, who has been working 23 years for the company, thinks that the profitability of relationships can be very different and that there are very diverse models. “We make no distinctions between our clients or in how the service is provided, depending on their size”.

The products sold in Latin America do not differ greatly from those distributed in the United States. Its institutional client base consists of regulated institutions like brokerage subsidiaries of banks, or broker-dealers, and so typically do not serve Family Offices or Multi Family Offices, which being an emerging activity is not regulated. As regards the profile of the final clients which their client institutions serve, it is individuals ranging from the highest segment of affluent investors to the UHNW niche, and some institutional, such as pension funds or insurance.

As regards other issues with a strong presence in industry forums, such as the AML regulations or CRS, Ward points out that his company is extremely compliant with them, and recognizes that the regulation will be a critical component for their business and for any other. “We pay attention to the client’s risk profile and base our relationship on collaboration.”

Ward defines the future of the Wealth Management industry as having a strong component of digital advice complimenting the human interaction, rather than solely through robo-advisors. “Embracing digital components is critical to the advisory service and an opportunity for joint growth,” not only aimed at millennials, which can be digital natives, but at all investors. The expert is certain that technology will have a major impact on the industry and that it will assist advisors in their marketing and sales tasks to create a digital brand and, for example, to design more collaborative processes with the client. Although competition will lower prices for services and that the industry is reviewing its models to maintain its profitability, he does not believe it will significantly affect the highest wealth or UHNW sector, and doesn’t see technology as a possible substitute for personal advice, in most scenarios.

Speaking of the role technology will play, we continue our interview by analyzing another of the concerns shared by the Wealth Management industry: the aging of its clients and its professionals. “There are now more individuals than ever saving for retirement, and there are 30 trillion dollars in the United States that will pass on to the next generation over the next 30 years,” he says, adding that “there will not be enough advisors to manage that. The help of technology as a tool will be required. Digital advice will help advisors to meet that need. “

Ultimately, after reviewing the current situation and prospects for Pershing and for the industry, especially in Latin America, Ward summarizes: “We see our clients facing a growth opportunity and we are personally invested in helping them succeed, so our vision is optimistic”. He concludes: “We have a great opportunity to grow our business in Latin America and look forward to building our client relationships in the coming years.”

Selectivity Needed in Emerging Markets

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Seleccionar con calma sigue siendo la estrategia más idónea para los emergentes — CC-BY-SA-2.0, FlickrPhoto: Rodolfo Araiza. Selectivity Needed in Emerging Markets

At a high level, emerging markets are caught between the twin economic powerhouses of the US and China. While it has been this way for many years, the exact nature of those influences has changed through time. Many emerging markets, particularly commodity exporters, have been hit by the sharp fall in demand for basic materials and commodities from China. As the People’s Republic rebalances its economy to favour services over heavy industry and infrastructure, fixed-asset investment and property have slowed from 25% year-on-year growth to 15% today.

Investec consider that these rates are likely to slow gradually over the medium term, rather than declining precipitously, as China works through capacity overhangs in many industries. Nonetheless, for countries that relied on extracting natural resources and selling them to China for their economic growth, this slowdown has come as a distinct economic shock and continues to hold back growth.

For many emerging markets, the US has shifted from being a strong demand and export driver through its consumption of their products, to a monetary driver as they import its ultra-low, quantitative- easing driven interest-rate policy. In some cases, notably in Asia, this cheap money- fuelled excess credit growth has allowed companies much freer access to global capital markets. “If, as we expect, interest rates begin to rise in the US, those economies with high debt loads will be vulnerable over the coming year. To combat the impact of the US rate rise and maintain competitiveness, these countries are likely to let their currency weaken against the US dollar and cut interest rates”, pointed out Investec.

Different pressures

However, noted the firm, not all countries face the same pressures. Countries that have substantial current account deficits such as, Brazil and Colombia, and which were the primary beneficiaries of quantitative easing between 2009 and 2013 are the most exposed to the impact of rising interest rates. Banking systems with high loan-to- deposit ratios and open capital accounts will also likely come under strain. The key risk for 2016 is, therefore, related to the financial cycle, particularly in Asia, where debt build-up is leading to the instability of the financial system and its attendant risks, even though the risk of global recession remains very low.

“Our favoured markets are those of countries that continue to adopt market- friendly growth strategies, remove obstacles to doing business effectively, tame inflation and gain credibility”, added.

Natural extensions

Investec also favour economies that are natural extensions of developed markets, such as Mexico of the US and Hungary of the EU. Both of these countries benefit from their neighbours’ recovery in growth and activity. The relatively robust US economy, propelled by an increasingly confident consumer, provides a potential broader benefit to Mexico. The previous stage of US growth, powered by manufacturing and the shale oil boom, by its very nature did not pass through demand to emerging markets.

However, a more typical recovery with consumers assisted by easier lending standards and a buoyant housing market could see a stronger source of demand.

Fundamentally, however, those countries that were reliant on natural resource revenues, which couldn’t mine it fast enough, and then couldn’t stop mining it fast enough, are distinctly out of favour with investors. Some of these commodity producers may now be fair to good value. However, even then we have to differentiate between those economies that have exhibited the deep political problems associated with a struggling economy, Brazil for example, and those that are simply adjusting to a slower growth path.

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Divergence brings back value

“It is easy to be pessimistic about this challenging macro scenario – indeed our central case remains another year of growth disappointments – but value has come back as relative and absolute valuations now more accurately reflect growth prospects”, said the firm. With 150 countries, US$7 trillion in market capitalisation for the MSCI Emerging Market Index and $3.25 trillion of investible debt, according to JP Morgan in March 2015, the emerging market universe is significant and its divergence, in terms of what is on offer, is huge.

Assets invested in emerging markets have proved sticky as institutional investors continue to make strategic allocations and to rebalance fixed-income mandates.

“The breadth of opportunities offered by the divergent bottom-up trends offers great scope to look for attractive returns and for value among the still fundamental challenges. The investor’s challenge is to discriminate between the value and the value traps”, concluded.

Michael McLintock to Retire as M&G Investments Chief Executive, to Be Succeeded by Anne Richards

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Prudential plc announced that Michael McLintock has decided to retire as Chief Executive of M&G Investments and as an executive director of Prudential. He will be succeeded later this year, subject to regulatory approval, by Anne Richards.

Anne Richards will join Prudential from Aberdeen Asset Management PLC, where she is Chief Investment Officer and responsible for operations in Europe, the Middle East and Africa. She has held senior roles at JP Morgan Investment Management, Mercury Asset Management and Edinburgh Fund Managers, which was acquired by Aberdeen Asset Management in 2003.

Mike Wells, Group Chief Executive of Prudential, said: “I would like to thank Michael for his exceptional contribution to M&G over the last two decades. Under his leadership M&G has grown to become one of Europe’s largest fund managers by offering innovative investment solutions to meet the needs of our customers and clients. I wish him all the very best for the future. I am delighted that a person of Anne’s talent is joining the group and I look forward to working with her. Anne will be able to deploy her leadership skills and exceptional knowledge of the global asset management industry to provide the best possible outcomes for our customers, clients and shareholders.”

Michael McLintock said: “I am absolutely delighted to be handing the reins to Anne. I have loved running M&G, but after 19 years I feel strongly that it’s time for a change. M&G is a special business. I would like to thank all of my colleagues for their support and hard work over so many years. I have no doubt whatsoever that M&G will flourish under Anne’s leadership and I wish her and the team every possible success.”

Anne Richards said: “I am delighted that I have the opportunity to lead M&G, which is a world-class business. I look forward to working with the team to continue building the business and leading the next phase of M&G’s development.”

Paul Manduca, Chairman of Prudential, said: “On behalf of the Prudential board, I would like to thank Michael for his exceptional service to the Group over so many years. He has built a fund management franchise that is a leader in its field and the envy of our competitors. Michael’s experience, expertise and leadership have played an important part in the success of the group throughout his time with us. I look forward to working with Anne when she joins the board. I am pleased that we are able to attract the very best talent from across the industry, demonstrating the quality of our succession planning. Anne’s achievements and experience make her the right candidate to continue M&G’s development.”

European Investors in US Funds Find Compensation in a Strong Dollar, if the Product Is Unhedged

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Managers of U.S. equity funds should look beyond short-term issues to see the opportunities, as the world’s biggest economy continues to strengthen, while a soaring dollar looks set to benefit European investors, according to the latest issue of The Cerulli Edge.

While U.S. equity funds face headwinds in 2016 -including a potential ‘risk-off’ stance sparked by the run-up to the presidential election, further Federal Reserve interest rate hikes, and rich valuations- there are also positives to be found, says the document.

“Fed hikes may well further strengthen the dollar, making U.S. exports less competitive, which held back some companies in 2015. However, for a European investor in a US fund, there is compensation in a strong dollar, if the product is unhedged,” says Barbara Wall, Europe managing director at the global analytics firm.

In the 12 months to November 2015, the S&P 500 barely edged into positive territory in dollar terms, underperforming European benchmarks. But in euro terms, it soared 20%. Allianz’s Ireland-domiciled US equity fund, investing in standard names such as GE, produced a handsome return despite trailing the benchmark, notes Wall.

The trends edition points out that the US economy is well on the road to recovery and having created more than 10 million jobs in the past few years, can look forward to strong domestic demand, which will reduce reliance on exports. Economic woes elsewhere can only have so much of an effect, says Brian Gorman, an analyst at Cerulli, adding that the potential for investment in the U.S.’s aging infrastructure should prove positive for domestically focused industrial names.

“Stock-picking may be key if investors are to realize upside, while limiting downside if the market goes as badly wrong as some fear. Firms with well-established track records, that have been selling reasonably well, can hope to make further gains, especially if the turmoil sees some fall by the wayside,” maintains Gorman.

He cites MFS Investments’ U.S. Value Fund as one of the steadier performers since its launch in 2002, noting that while passive funds do pose a threat for actives, it is during trickier times that the latter earn their fees. “The recent pullback has made many companies look considerably cheaper. The better active fund will distinguish between real buying opportunities and cases where there will be further pain. Strongly outperforming funds abound, such as T. Rowe Price’s Luxembourg-domiciled U.S. Blue Chip equity fund, with rewarding stock picks, notably in healthcare.”

Acknowledging that China-inspired turmoil may see further outflows in equity funds in the early months of 2016, the firm believes that a strong U.S. economy will help to generate sustainable corporate profits, dividends, strong M&A activity, and share buyback programs.

“U.S. equity funds with decent records of picking the right stocks can hope to sell in Europe, given the lack of alternatives. The upside potential is clear, while the better funds can mitigate the losses during the tougher times. Managers should be using established channels to extol the virtues of U.S. equity funds, as well as pushing to appear on the growing raft of self-directed platforms,” says Wall.