According to Michael Hasenstab, Chief Investment Officer at Templeton Global Macro, “at the start of 2016, we are encouraged by the vast set of fundamentally attractive valuations across the global bond and currency markets. We expect continued depreciation of the euro and yen, rising US Treasury yields, and currency appreciation in select emerging markets.”
During the next year, the investment professional expects a dichotomy of Monetary Policies, with rising interest rates from the US Federal Reserve and Quantitative Easing from the BOJ and ECB. Hasenstab also mentions that “fears of global deflation are unwarranted” and that him and his team “do not anticipate a global recession.” Their growth projections for 2016 are 2%–3% for the United States, above 1% for the eurozone, around 1% for Japan and between 6% and 7% for China. In regards to the Asian giant, Hasenstab believes that newer sectors such as the service one, will fuel wage growth and help support consumption.
Looking at Emerging markets, the Franklin Templeton expert believes that Solvency will not be a mayor issue in the area. “Emerging markets were often regarded as being in near-crisis condition during the second half of 2015. We believe concerns of a systemic crisis have been exaggerated” says Hasenstab, adding that commodity exporters, and emerging markets with poor macro fundamentals, remain vulnerable. Therefore, “investors should not view the emerging-markets asset class as a whole but should instead selectively distinguish between individual economies.” Hasenstab highlights Mexico and Malaysia as countries with strong fundamentals and solid domestic sources of financing, which will allow them to raise interest rates either in conjunction with US interest-rate hikes or shortly thereafter, while countries like Turkey or South Africa will most likely be negatively impacted by US interest-rate hikes.
Still, he believes that “an unconstrained global strategy is the most effective way to position for a rising-rate environment because it provides access to the full global opportunity set.” For 2016 he remains optimist, “we are encouraged by the vast set of fundamentally attractive valuations across the global bond and currency markets.” And favors currencies “in countries where inflation is picking up and growth remains healthy, yet the local currency remains fundamentally undervalued. Looking ahead, we expect continued depreciation of the euro and yen, rising US Treasury yields, and currency appreciation in select emerging markets,” he concludes.
The value of European private equity deals through 2015 has hit its highest level since 2007, according to data published by the Centre for Management Buyout Research.
So far the total value of all deals stands at €80.9bn, the highest yearly total since 2007, when the value hit €172.9bn. This is also the fourth highest year recorded by CMBOR, behind 2007, 2006 and 2005 respectively.
Currently, the total exit value in Europe is estimated at €153.2bn, which is a new record according to the methodology; IPOs and trade sales set records at €48.7bn and €63.8bn respectively.
CMBOR’s latest annual report suggests there were many bigger deals helping to drive the private equity market on this past year. Some 19 deals worth more than €1bn were recorded, against 13 the previous year. These bigger deals account for about half the total value of the European buyout market. Such deals were also geographically spread “with Switzerland (1), Denmark (1), France (3), Germany (4), Sweden (1), Austria (1), Spain (1) and the UK (7) all seeing deals of €1bn and over during the course of the year.”
“The spread of large deals across Europe, suggests a resurgence in the private equity market across the continent. For instance, Belgium has had a particularly strong year with total value of deals at €3.2bn, just below the 2007 record value, while Denmark has had its strongest year since 2006 (€4.8bn). Switzerland and Austria also had impressive years with the total value of deals in 2015 standing at €3.7bn and €2.6bn respectively, which in both cases are record values,” CMBR said.
And while the UK retains its position as the strongest European deal market, with value totalling €26.8bn, France has seen a rebound putting it on par with Germany.
Other findings in the data point to strong deal flows in manufacturing and retail, but less so in technology, media and telecommunication. The value of deals in the support services sector remained fairly constant, at around €9bn compared to €9.3bn in 2014.
Christian Marriott, Investor Relations partner at Equistone Partners Europe Limited, which sponsored CMBOR’s research, said: “2015 has been a very strong year for European private equity deal activity, with the UK still leading the way. However, all the core European markets have performed well, which reflects the trend of a consistent increase in total European buyout value of about €10bn since 2013. Boosted by the Verallia buyout, France has been strong in 2015 and made up previously lost ground on Germany, which in recent years has firmly established itself as Europe’s second biggest deal market behind the UK.”
“The European private equity exit market also had an outstanding 2015, achieving a record total value. While volatility in European markets stifled the IPO activity in the previous two quarters, a flurry of big IPOs at the end year, including Worldpay and Scout24, helped the boost the value to a record number. However, it has not all been about IPOs, as there have been more exits via trade sales than flotations amongst the year’s top 10 largest deals.”
“2015 clearly shows that big deals are back, as shown by the highest average deal value and number of billion plus deals since 2007. With the final quarter proving strong for both deals and exits, the European private equity market will start 2016 with positive momentum.”
Photo: AndyCastro, Flickr, Creative Commons. Monaco and China Pressure the US to Apply FATCA
On December 15 and 16, Monaco and China signed the multilateral OECD MAP agreement on automatic exchange of information, therefore, raising the number of jurisdictions that will automatically exchange information to 77.
Both countries will exchange information in 2018 about data of 2017.
According to the law firm Broseta, “the signing of the Multilateral MAP by a country such as China will probably increase the pressure on the US to bilaterally apply FATCA and, therefore, to exchange automatic information with countries with which the US has FATCA agreements”.
Foto: Pablo Fernández. La inversión responsable: ¿zona de conflicto para los fondos de pensiones?
The Volkswagen emissions scandal looks set to bolster environmental, social and governance (ESG) investing, but pension funds adopting this approach face potential conflicts of interest, cautions the latest issue of The Cerulli Edge – Global Edition.
“The possible legal implications of looking beyond pure financial returns when making investment decisions need to be weighed up,” says Barbara Wall, Europe research director at Cerulli Associates, a global analytics firm. The UK’s Law Commission, for example, says that trustees should not proceed on a decision motivated by non-financial factors if it risks significant financial detriment to the fund. However, as Cerulli notes, this can come down to a question of degree: in one case a court ruled that “church commissioners had acted within the law by deciding that excluding 13% of the market would be acceptable, while excluding 37% would not be.”
Affecting millions of vehicles globally, Volkswagen‘s fraudulent action may even threaten the German automaker’s existence. Cerulli says that pension fund shareholders of Volkswagen are entitled to feel aggrieved; not only over the loss to their portfolio valuations, but also because of the health and environmental damage inflicted on society at large.
“Would a focus on ESG have avoided investing in Volkswagen? Probably not, because no fund manager could have anticipated fraud in a company such as Volkswagen,” says Wall. “But, by probing companies’ governance structures and having a full understanding of their management incentives, investors should be better placed to identify those vulnerable to shock events.”
Over the past 10 years the United Nations’ Principles for Responsible Investment (UNPRI) initiative has grown from about 100 signatories with US$4 trillion (€3.7 trillion) in assets under management to 1,260 signatories with US$45 trillion in AUM. Cerulli believes that this trend will continue, with ESP investing playing a more prominent role.
Many investors have long had specific exclusions within their investment guidelines; faith-based entities, for example, often will not invest in weapons and tobacco. ESG investing, however, has moved well beyond passive exclusion to an activist approach that encompasses key issues, of which the most visible and controversial today is carbon dioxide-induced climate change, says Cerulli.
Dutch pension fund ABP announced in October that it will be asking every company in its investment portfolio to “reapply” as part of its new socially responsible investment policy. Companies will need to detail how responsibly they operated and how much attention they paid to sustainability.
“We expect more pension funds to start considering ESG investing, but cultural backgrounds and the level of investor sophistication will be factors in determining any commitment. For example, pension funds in the Netherlands and Denmark will be far more inclined to do so than say those in Germany,” says Justina Deveikyte, an international analyst at Cerulli.
According to Deutsche Bank Markets Research’s latest report, the global ETP industry continued to grow during November. After net inflows totaling US$ 34 billion in October, the November figure was a further US$ 25.7 billion. As such, the industry now manages US$ 2.9 trillion. As in the previous month, the American ETP sector was the driver of this growth. It contributed US$ 26 billion to global growth. Since the start of the yearUS ETPs have secured virtually US$ 200 billion. In keeping with the previous month, inflows from Equity ETFs dominated with US$ 25 billion.
The trend for Bond ETFs turned negative in November. In contrast to worldwide inflows of US$ 14.5 billion for this segment in October, during the month just past investors withdrew US$ 47 million. Inflows also declined for Commodities ETCs. After a plus of US$ 789 million in October, the past month saw a minus of US$ 153 million. In parallel with the American ETP sector, the European ETF sector continued to grow during November. Following net inflows of US$ 6.9 billion for October, the sector secured US$ 3.4 billion in November. Equity ETF inflows also dominated in this case. Conversely, Asian ETPs saw a continuation of the negative trend of the previous month. Investors withdrew US$ 3.7 billion. Equity ETFs were particularly affected with outflows running to US$ 3 billion. In fact, Bond ETFs also recorded a decline.
European ETF Market In and Outflows
Equities:
The positive trend for European ETFs continued during November. In total, the sector recorded net inflows of EUR 3.1 billion, compared with October’s EUR 5.9 billion. This was primarily due to Bond ETFs with net inflows of EUR 515 million which was significantly lower than the previous month (+ EUR 3.5 billion). At the same time, net inflows for Equity ETFs at EUR 2.5 billion were slightly higher than in October (+ EUR 2.4 billion).
ETFs on US Equities were particularly in demand with European investors. With net inflows of EUR 637 million, US Equities accounted for one quarter of positive Equity ETF cash flows, followed by Global Indices (+ EUR 436 million) and Japanese Equities (+ EUR 387 million). This marked a trend change for US Equities after investors withdrew capital totaling EUR 227 million from this segment in October.
Net inflows recorded by ETFs on European Equities fell to EUR 54 million after EUR 1.1 billion the previous month. Since the start of the year, cumulative net inflows recorded by ETFs on broadly-based European Equity Indices total EUR 20.3 billion, although during November the trend showed a slight change with investors withdrawing EUR 279 million from this segment.
The positive shift in ETFs on Emerging Markets continued in November. This segment recorded a further EUR 6 million following EUR 824 million in October. Since the start of the year however, Emerging Markets ETFs have registered total outflows of EUR 1.9 billion. Having said that, during November inflows for ETFs on large Emerging Markets declined, in particular India ETFs where investors withdrew EUR 225 million. Positive inflows were recorded by ETFs on international Emerging Markets Indices. Strategy ETFs achieved a turnaround in November again registering inflows of EUR 178 million, after October’s outflows of EUR 481 million.
Bonds
The positive trend for Bond ETFs also progressed in November, although net inflows of EUR 0.5 billion were significantly lower than the October figure (+ EUR 3.5 billion). In this arena, ETFs on Corporate Bonds accounted for the highest inflows with EUR 1.7 billion. This exceeded the October inflows figure. From an annual viewpoint, Corporate Bonds have registered net inflows amounting to EUR 13.1 billion. The positive trend over recent months for Sovereign Bonds has come to an end for the time being. Investors withdrew EUR 1.3 billion from this segment.
Commodities
European Commodities ETPs registered EUR 166 million in November after EUR 340 million during October. While ETFs on Industrial Metals did once again generate slightly positive cash flows, ETFs on Precious Metals shed EUR 167 million contrasted with October when this segment had made a positive contribution to inflows.
Most Popular Indices
In November, investors showed interest in Real Estate and Dividend ETFs. As such, ETFs on Real Estate Equity Indices in particular came high up the lists.
The most popular Equity Indices in November were the S&P 500, the Euro STOXX 50 as well as the Stoxx 600.
In the Bond arena, ETFs on Corporate Bond Indices in particular proved to be some of the most popular indices.
CC-BY-SA-2.0, FlickrFoto: Benontherun, Flickr, Creative Commons. La renta variable lidera las entradas durante noviembre en fondos y ETFs estadounidenses
Morningstar, a leading provider of independent investment research, has reported estimated U.S. mutual fund and exchange-traded fund (ETF) asset flows for November 2015. Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETFs by computing the change in shares outstanding.
The trend of heavy investor allocations to international stocks and passive positions in U.S. equity and taxable-bond funds seems poised to continue. Intermediate-term bond and foreign large blend remained two of the most popular categories in November.
Actively managed U.S. equity funds saw their sixth-worst monthly outflow in November since 1993, when Morningstar began tracking asset flow data.
The high-yield bond category has seen volatile flows over the past few months and landed among the five categories with the greatest outflows in November. The turbulence continued into early December following the announcement from Third Avenue Management that it would liquidate its high-yield bond fund, Third Avenue Focused Credit, without allowing investors to redeem their shares right away.
Outflows from active funds continued in November for a number of fund companies, including PIMCO, Franklin Templeton, Fidelity, and J.P. Morgan. On the passive side, Vanguard and iShares took in $14.2 billion and $13.0 billion, respectively. Vanguard has collected inflows of $1 trillion since the beginning of the financial crisis in December 2007 and has seen just two months of outflows since then, October 2010 and June 2013.
Each of the five active funds with the highest monthly inflows were fixed-income funds. PIMCO Income, which has a Morningstar Analyst Rating™ of Silver, led the pack with inflows of $1.2 billion, and Bronze-rated T. Rowe Price New Income was a newcomer to the list with inflows of $741 million.
As the regulation of European Long-Term Investment Funds (ELTIFs), established by the European Commission to give new impetus to economic recovery in Europe, entered into force on 9 December 2015, the Association of the Luxembourg Fund Industry (ALFI) announced that Luxembourg is prepared and believes it has a key role to play in ensuring the success of ELTIFs.
“The objective of the EU in setting up ELTIFs was to boost smart, sustainable and inclusive growth,” said Denise Voss, Chairman of ALFI. “Take-up of the new funds may be a gradual process, but we believe that Luxembourg has the in-depth experience and expertise required to support fund promoters wishing to launch ELTIFs, and we are ready to assist them.”
Ms Voss continued: “To articulate the essential role of investment funds for the global economy is an important part of the ALFI 2020 Ambition. Luxembourg has practical solutions for ELTIFs, the Luxembourg legal framework offering a wide range of solutions to fulfil the needs of ELTIFs, their managers and investors.”
ELTIFs are an initiative of the European Commission under its Capital Markets Union plan. They are a pan-European regime for Alternative Investment Funds (AIF) which channel the capital they raise into European long-term investments in the real economy in order to achieve growth and create jobs.
The ELTIF represents a milestone in the development of the cross-border European long-term funds business. Their long-term focus distinguishes them from most existing investment vehicles and they are therefore particularly suitable for institutions such as pension schemes and insurance companies with long investment horizons, as well as complementing and diversifying individuals’ savings portfolios.
Like the funds subject to the Alternative Investment Fund Manager Directive (AIFMD) legislation, they must have an authorised alternative investment fund manager, but like UCITS, their pan-European marketing ‘passport’ allows them (under certain conditions) to be sold to individual investors who may not necessarily be classified as professional or sophisticated.
“The leading position of Luxembourg as a true cross-border and fund distribution hub will greatly serve the development of ELTIFs”, Ms Voss concludes.
ALFI has prepared brochure on ELTIFs which gives details on what ELTIFs could look like and what the regulatory requirements are such as the fact that an ELTIF shall not undertake any of the following activities:
Short selling of assets;
Taking direct or indirect exposure to commodities;
Entering into securities lending, securities borrowing, repurchase transactions or any other agreement which has an equivalent economic effect and poses similar risks, if thereby more than 10% of the assets of the ELTIF are affected; and
The Association of the Luxembourg Fund Industry (ALFI) celebrated the fifth anniversary of the opening of its Asia Office in Hong Kong at its annual roadshow. Asia has become the main non-European market for UCITS funds, totaling approximately 62% of total UCITS registrations outside of Europe.
Luxembourg’s position as the international fund center of reference continues to grow in Asia, with over 700 people attending ALFI’s financial seminars in Tokyo, Tapei and Hong Kong this week.
“Through our ongoing activities in Asia, we have developed strong relationships with stakeholders from the various Asian fund jurisdictions and we continue to work with them on key issues that impact the industry,” said Camille Thommes, general director of ALFI.
“Since the opening of our office in Hong Kong five years ago, the Chinese economy and financial markets have undergone a remarkable transformation and seen significant growth. More specifically, the Chinese equity market has grown to the second largest equity market in the world after the US,” said Thommes.
“ALFI has helped to make significant in-roads into the opening up of China’s capital markets. Luxembourg was the first country to authorize an RQFII UCITS in 2013 as well as the first country to authorize a UCITS to invest through the Shanghai – Hong Kong Stock Connect program,” added Thommes. “Luxembourg is also Europe’s leading financial center in terms of RMB denominated investment funds.”
Launched in November 2014, the Shanghai-Hong Kong Stock Connect program represented one of the biggest developments for foreign investors wishing to access this market and enabled foreign investors to trade Shanghai-listed shares via the Hong Kong stock exchange, and mainland investors to invest in Hong Kong shares via the Shanghai stock exchange.
Over the past year, 69 Luxembourg UCITS funds as well as 12 alternative funds have received approval from the Luxembourg Supervisory Authority, the CSSF, to access Stock Connect. The RQFII scheme was launched in Hong Kong in 2011 and has been expanded to other jurisdictions since 2013, allowing an increased volume of offshore RMB to be reinvested into China’s securities markets. In April this year, the People’s Bank of China granted a RMB 50 billion Qualified Foreign Institutional Investor (RQFII) quota to Luxembourg. ICBC (Europe) and Bank of China Luxembourg both recently received regulatory approval as the first Luxembourg-based RQFII holders.
According to Detlef Glow, Head of EMEA research at Lipper, assets under management in the European exchange-traded fund (ETF) industry increased from €444.3 billion to €457.4 billion during November.
This €13.1 billion increase in November was driven mainly by the performance of the underlying markets, which accounted for €10.0 billion, while net sales contributed €3.1 billion to the overall growth of assets under management in the ETF segment.
In terms of asset classes, Equity funds with €2.2 billion enjoyed the highest net inflows for the month, followed by alternative UCITS products with €2.8 billion and mixed-asset funds with €2 billion. Meanwhile, bond funds, which in October had the highest net inflows, suffered during November from the highest net outflows, loosing €7.8 billion.
The best selling Lipper global classifications for November where:
Bond EUR Corporates with €0.6 billion
Equity Global with €0.6 billion
Bond EUR High Yield with €0.6 billion
Amongst ETF promoters, Blackrock’s iShares with €1.4 billion, Source with €0.5 billion and db x-trackers with €0.4 billion, were the best selling ones.
The best selling ETF for November was the iShares Euro High Yield Corporate Bond UCITS ETF, which accounted for net inflows of €572 million
CC-BY-SA-2.0, FlickrNick Sheridan is european equities manager at Henderson. Henderson: “Still Fundamental Value in Euroland Equities”
Henderson european equities manager Nick Sheridan explains why he tries to set aside the sentiment of short-term uncertainty when looking for value, and why he believes that the eurozone remains a prime area to seek out investment opportunities at the start of 2016.
What lessons have you learned from 2015?
Probably the most important lesson from 2015 is the importance of trying to look beyond the emotional impact of short-term news flow, when it comes to valuing stocks. Investors have had to deal with a bewildering series of ‘big news’ events, from the optimism surrounding the European Central Bank’s QE programme to unexpected shocks (the Greek debt crisis; uncertainty over Chinese growth, Volkswagen’s emissions bombshell). As ever these short-term sell-offs provided good buying opportunities for those discerning investors willing to focus on what matters: value.
Are you more or less positive than you were this time last year, and why?
While it is true that the recovery in Europe has been slower and more erratic than hoped, recent news has been reasonably upbeat. Eurozone PMIs are a 54-month high, German industrial output is improving and regional consumer prices are up – all signs that suggest solid growth in the region over the next few months. Although recent earnings in Europe have on the whole been a touch disappointing, many companies have upgraded their expectations for 2016. The question now is whether investors will be patient enough to wait for this earnings recovery to come through.
What are the key themes likely to shape your asset class going forward and how are you likely to position your portfolios as a result?
Our bottom-up strategy is designed to set aside the sentiment and incorporate in-depth analysis of meaningful measures to help identify those stocks that are best placed to outperform. Market volatility, short-term news flow and unexpected events can contribute to a degree of change, but we tend to focus on measurable factors, such as earnings/cash flow, dividends and the balance sheet.
At the heart of the process is very much a focus on value. What price you pay at the beginning of a holding period ultimately dictates your returns. Should market volatility continue to increase, this will create pricing disparities, offering a potentially rich vein of opportunities to invest in quality companies at attractive valuations.
