Foto: Steve Rainwater
. BlackRock compra FutureAdvisor
BlackRock has entered into a definitive agreement to acquire FutureAdvisor, a digital wealth manager. The company will operate as a business withinBlackRock Solutions (BRS), the firm’s investment and risk management platform.
The transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2015. The financial impact of the transaction is not material to BlackRock earnings per share. Terms were not disclosed.
The combined offering will enable financial institutions to grow their advisory businesses by leveraging technology to meet a growing consumer trend of engaging with technology to gain insights on their investment portfolios, including when making critical decisions around retirement. This need is particularly acute among the mass-affluent – a large segment accounting for 30% of total U.S. investable assets.
This acquisition helps the company meet the needs of a range of financial institutions including banks, insurers, large and small broker-dealers, 401(k) platforms, and other advisory firms looking for a digital-advice platform to increase customer loyalty and grow advisory assets.
“As demand for digital wealth management grows, we believe that our combined offering will accelerate our partner firms’ abilities to serve the mass affluent in a convenient, scalable way,” said Tom Fortin, Head of Retail Technology for BlackRock.
“BlackRock has dedicated enormous effort over the years to improving financial outcomes through its leading active and passive investment offerings as well as innovative retirement planning tools including its CoRI™ Retirement Indexes. We look forward to integrating and delivering this expertise to investors in partnership with financial institutions in the months to come,” said Bo Lu, Chief Executive Officer and Co-Founder of FutureAdvisor.
Courtesy photo. TotalBank Adds Ana Olarte as SVP To Private Client Group
TotalBank announced Ana M. Olarte is joining the recently created Private Client Group as Senior Vice President and Private Banker. In her new position, Olarte will service and augment existing Private Client relationships, and will develop relationships with new clients, targeting professionals and high-net-worth individuals.
Olarte was most recently a Senior Vice President and Private Banker at Gibraltar Private Bank & Trust. She began her career at BankUnited almost a decade ago, and her experience includes consumer lending and international private banking in addition to domestic private banking.
“Ana will be a tremendous asset to our private banking team. Having had the pleasure of working with her in the past, I know firsthand that she has the skills and experience needed in acquiring, developing, and retaining clients. She is also actively involved in the community and local professional groups, an essential component to growth and development in this important market,” stated Jay Pelham, EVP of the Private Client Group.
Olarte holds a Bachelor of Science degree in finance and international business from Florida State University. She is a member of numerous organizations including Bankruptcy Bar Association, Legal Services of Greater Miami, and Women’s Chamber of Commerce.
The People’s Bank of China (PBoC) moved to cut both the benchmark interest rate and reserve requirement ratio (RRR) on August 25. The stimulus measures should help market sentiment, but Craig Botham does not expect a resurgent China as a result.
The Emerging Markets Economist says: “The cuts, of 25bps and 50bps respectively, follow a disastrous few days on the equity markets, but we do not believe the PBoC wishes to reflate that particular bubble. However, the magnitude of the slump in the stockmarket is likely to have a negative impact on sentiment, especially given a weak economic environment (we saw a much softer-than-expected manufacturing Purchasing Manager’s Index (PMI) print last week).”
In addition, Schroders´s economist considers the change in exchange rate policy which resulted in a devaluation of the renminbi has seen capital outflows, which in turn have reduced liquidity and led to tighter monetary conditions. By cutting the RRR, alongside recent market operations, this liquidity is restored and lending supported. Interest rate cuts, meanwhile, should reduce borrowing costs for existing borrowers, particularly households and state-owned enterprises.
Will this stimulus drive a growth rebound? “We are doubtful. As mentioned, the RRR cut likely just restores lost liquidity. The rate cut, while helpful, probably just forestalls defaults, rather than encouraging investment in an economy beset by deflation, overcapacity, and high debt levels. Further, previous rate cuts have done little to lower borrowing costs for new borrowers, as bank interest margins have been squeezed by asymmetric effects on deposit rates compared to lending rates. This asymmetry has eased thanks to further deposit rate liberalisation, but banks may still seek to restore some of their lost margins, particularly given their mandatory participation in the local government debt swap.
“The stimulus measures should help market sentiment, but we do not expect a resurgent China as a result.” Concludes the economist.
Photo: R. Nial Bradshaw. Why High-Yield Bonds Are Compelling Now?
High-yield bonds occupy a special niche within the fixed-income market. These bonds, which are issued by companies with below-investment-grade credit ratings, offer higher yields to compensate investors for accepting exposure to additional credit risk. Generally, the lower the bond rating, the higher the yield.
Traditionally, companies with poorer credit ratings have issued high-yield debt to finance mergers or buyouts to help meet expanding capital needs. However, in recent years, more high-yield bonds have been issued to refinance existing debt. Companies have taken advantage of low interest rates and investors’ increased appetite for higher-yielding income investments to lock in relatively cheap financing. Situations where companies refinance their debt at more favorable rates generally put them in better financial health. Consequently, they tend to involve significantly less risk of default.
High-yield bonds are atractive to a wide range of investors because of their unique set of attributes. They appeal to investors who seek equity-like returns at much lower volatility levels than equities and to those who seek income with relatively low interest-rate sensitivity.
For the past five years, the high-yield market generally has been improving. These are, for Eaton Vance, four reasons to invest now in high-yield:
1. Low default rates.
The default rate has been below 2% in each calendar year since 2010, and as low as 0.6% in 2013 and early 2014, before rising to 2.0% with the default of TXU, a large high-yield bond issuer. This compares very favorably to the
10.3% default rate that was briefly reached in 2009, in the early aftermath of the credit crisis. It also stands well relative to the asset class’s long-term average default rate of 3.9%.
2. Healthy balance sheets.
Corporate balance sheets of below-investment-grade firms are generally in good shape and likely to improve as the economy gradually continues to recover.
3. Higher-quality issues.
The quality of new high-yield bond issues has been relatively good for several years, with 56% of issues currently being used to refinance debt, which is generally a positive scenario, bolstering company financial health. Conversely, fewer high-yield bonds being issued are lower-rated or being used to finance acquisitions and buyouts.
4. Low leverage
Another positive trend is that the leverage ratio of debt to EBITDA now stands at around 4, which is roughly where it’s been for about four years after peaking at about 5.2 in mid-2009. This is a reflection of the diligent work by many corporations to strengthen their balance sheets as well as more prudent stances taken by financial institutions and by investors in general.
With all that said, it is important to be mindful of market changes and the risks of deteriorating credit standards as the credit cycle changes at some point. For instance, a rise in the issuance of CCC-rated lower-quality debt could be a warning that the credit cycle is nearing an end. These riskier bonds tend to accompany an upswing in aggressive leveraged buyouts and indicate an increase in the high-yield market’s overall risk exposure.
Eaton Vance is mindful of quality within the high-yield market and the importance of being compensated appropriately or sufficiently for higher levels of risk. If yields are only rising incrementally for much higher levels of risk, it may be wise to pass rather than take on higher or excess levels of risk. “In brief: Ask if you are being paid appropriately or if risk is being appropriately priced“, said the firm.
Photo: Marcos Martínez Gavica (left) and Hector Grisi Checa (right) / Courtesy photo. Santander Mexico Appoints Hector Grisi as Executive President and CEO
Grupo Financiero Santander Mexico, S.A.B. de C.V. and Banco Santander (Mexico), S.A. Institucion de Banca Multiple, Grupo Financiero Santander Mexico, pursuant to the announcement dated August 12, 2015, in connection with the changes to their Boards of Directors and CEO, announce that their Boards of Directors held a meeting, in which Mr. Marcos Martinez Gavica was appointed as Chairman of the Board and Mr. Hector Grisi Checa as Executive President and CEO, subject to applicable regulatory approvals.
After years of committed and strategic leadership as Chairman of the Boards of Directors of the Group and the Bank since his appointment more than 18 years ago, Carlos Gomezy Gomezhas expressed his intention to retire. Mr. Marcos Martinez Gavica has been appointed as his successor as Chairman of the Group and the Bank beginning January 1, 2016, currently Executive President and CEO of the two companies.
The Board also approved the appointment of Mr. Hector Grisi Checa as the new Executive President and CEO of the Group and the Bank, replacing Mr. Marcos Martinez Gavica beginning December 1, 2015.
The new Executive President and CEO, Mr. Hector Grisi Checa, has extensive experience in the Mexican financial system, having been Executive President of Credit Suisse Mexico until last August 13, 2015.
Foto: Thomas Leth Olsen. La industria ha perdido el toque: hay que volver a lo básico
Generations of scribes have benefited from George Orwell’s famous rules for writing, guidelines that are still cited in the style manuals used at The Economist and Bloomberg. The author of 1984 and Animal Farm teaches us: never use a long word when a short word will do; if it is possible to cut a word out, always cut it out; and never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent. In other words, keep it simple.
Orwell, like all masters of their craft, knew that simplicity is the ultimate goal of any endeavour. Simplicity aids understanding. Simplicity promotes efficiency. Simplicity means fewer things can go wrong. And yet, simplicity, ironically, is hard to achieve. Mathematicians seek ‘elegant’ solutions to problems – solutions that are simple yet effective. Stephen Hawking, arguably the most famous scientist alive, spent many years searching for the single, as yet elusive, ‘theory of everything’.
Sadly, simplicity has eluded the financial industry, opines the Asian Equity Team at Aberdeen Asset Management. More than 50 years ago Benjamin Graham, Warren Buffett’s investing mentor, warned that the more elaborate the mathematics used to support an investment strategy the greater the likelihood experience was being replaced by theory, investment with speculation.
And yet complex mathematical models that nobody understood underpinned the most egregious products to blow up ahead of the financial crisis. ‘Modern finance is complex, perhaps too complex. Regulation of modern finance is complex, almost certainly too complex,’ said Andy Haldane, chief economist at the Bank of England, as recently as 2012. ‘That configuration spells trouble.’
“Asset management, in line with the broader financial industry, faces reform as regulators seek to prevent the repeat of abuses. They are subjecting fund managers to unprecedented scrutiny and censure even as new evidence of wrongdoing is being uncovered at the banks. Investors are also questioning whether so- called ‘actively managed’ funds offer value for money, while opting for low-cost index-tracking alternatives. Years of central bank stimulus policies have neutered the volatility in stock markets on which active fund managers depend”, writes the Aberdeen´s Asian Equity Team.
One of the biggest challenges the industry faces, continue the team, lies in winning back the trust of sceptical investors and market watchdogs. The challenge is both ethical and organisational. A simpler compensation structure helps remove some of the conflicts of interest that were inherent. For example, the U.K. has banned the payment of commissions by fund managers to financial advisers, a system which disadvantaged investors. This is something other jurisdictions are now looking to adopt.
Meanwhile, regulators need reassurance that financial institutions are behaving.
Whether they like it or not, fund managers are being treated more like banks, amid proposals in the U.S. to categorise them as being ‘systemically important’ to the financial industry and therefore subject to much of the restrictive legislation created after the financial crisis.
Asset managers would argue their industry does not pose the same risks, since it does not commit its own capital.
Creating and selling products that everyone understands is a priority, points out Aberdeen Asset Management. Regulators are trying to introduce more investor safeguards, but this can spawn more complexity not less. For example, excessive small print designed to highlight investment risks may serve the opposite purpose because the longer the disclaimers the less likely they are to be read. In an attempt to address this problem easier-to-understand ‘mini prospectuses’ are now mandatory in some jurisdictions.
“Disgust over the way some companies behaved before the financial crisis has paved the way for the return of simplicity as business proposition and regulatory imperative. However we believe that financial institutions, especially asset managers, should embrace the principle not because they have to, but because they want to. There should be nothing to fear if you have confidence in your investment process. Scrutiny should be something to be welcomed rather than avoided. We welcome the move towards simplicity, which is just as well, because simplicity is here to stay”, conclude.
Patrice Dussol, Responsible for Spain and LatAm. The Oddo Group Gives Rise to Oddo Meriten Asset Management
Following BaFin’s approval in Germany, Oddo & Cie has closed the acquisition of Meriten Investment Management. Together with Oddo Asset Management, the newly formed asset manager will be named Oddo Meriten Asset Management. With €45bn assets under management, the Franco-German player becomes a Eurozone’s independent asset manager leader. The Oddo Group confirms its expansion on the German market as well as its long term commitment to the asset management industry.
The Franco-German DNA of Oddo Meriten Asset Management translates into its current clients’ geographic breakdown: 55% in Germany, 37% in France, 8% in other markets of which globally 76% are institutional investors and 24% are third-party distributors.
The two key investment centers and geographical pillars of Oddo Meriten Asset Management are Paris and Düsseldorf with additional distribution offices in Milan, Geneva and Singapore. The two legal entities in France and Germany will be led as before by Nicolas Chaput and Werner Taiber. Nicolas Chaput becomes Global CEO and co-CIO of Oddo Meriten Asset Management while Werner Taiber, based in Düsseldorf, becomes Global Deputy CEO in charge of Sales Development.
Oddo Meriten Asset Management, a specialist focused on European markets, enhances its investment capabilites on all main asset classes. As of today, assets under management breakdown as follows: €17bn in Fixed Income, €8bn in Equities, €9bn in Asset Allocation, €2bn in Convertibles Bonds, €6bn in Systematic Strategies and other €3bn.
“Our existing clients will benefit from our enhanced combined capabilities. Our German institutional clients will be offered access to convertible bonds and fundamental European Equities expertises. As for our French and international institutional clients, they will get access to corporate Investment Grade and High Yield, Euro Aggregate capabilities as well as quantitative strategies (Trend Dynamics, Quandus). On the German Wholesale and IFA side, clients will benefit from a targeted mutual fund range, focused on asset allocation (Oddo Patrimoine, Oddo ProActif Europe, Oddo Optimal Income) and European stock picking (Oddo Génération, Oddo Avenir Europe, thematic funds on real estate and banks)”, according to the firm.
Oddo Meriten Asset Management’s 276 employees are committed to ensure continuity of client satisfaction.
Philippe Oddo, Managing Partner of Oddo Group says: “We are pleased to welcome our Düsseldorf colleagues. Thanks to them we are creating a Franco-German group. 25% of our revenues and teams are from now in Germany. Oddo’s partnership will be opened to Meriten’s talents. We want to continue to retain and to attract the best people.”
“Our unmatched understanding of French and German markets will enable us to bring a unique set of European investment solutions to our clients”, says Nicolas Chaput. “This is a major change of dimension, as we have become one of the top independent players in the Eurozone. We are committed to provide sustained top notch performance to our clients and to keep investing into proprietary fundamental and quantitative research.”
“The merger of Oddo Asset Management and Meriten Investment Management ensures the consistency in our investment approach as well as the continuity with our clients in Germany and abroad. In addition it supports our ambition to further grow the business with existing and new clients,” says Werner Taiber.
Photo: Garry Knight. Columbia Threadneedle Investments Grows UK Equities Team
Columbia Threadneedle Investments has appointed Jeremy Smith to the new role of Head of UK Equity Research. He joins in September to lead the UK research team and further develop Columbia Threadneedle’s UK equity research capabilities. His appointment follows that of new analyst recruits Phil Macartney and Sonal Sagar.
Jeremy will be based in London and will report to Leigh Harrison, Head of Equities, Europe. He joins from Liberum Capital where he was part of the Equities Sales team. He has 23 years of experience and has held various roles in asset management including Head of UK Equities at Neptune Investment Management and Director in the UK large cap team at Schroders.
Leigh Harrison, Head of Equities, Europe, said: “Jeremy’s appointment comes at a fantastic time. We have been experiencing great success across the product range; with our UK and European funds AUM at record highs this year and the UK Absolute Alpha Fund reaching £500m this month. Active management and insight are a key part of our ability to deliver successful outcomes for our clients and Jeremy’s strong track record and extensive experience will further enhance our client proposition.”
Jeremy’s appointment follows Mark Nicholls who joined the European Equity team as a Portfolio Manager in May this year. Phil Macartney joined the UK Equity team in March 2015 from Bramshott Capital where he was a senior equity analyst and Sonal Sagar also joined the UK Equity team in May 2015 from Jefferies International where she was an equity research analyst. Phil has eight years and Sonar has nine years of investment experience.
Photo: Flickr. Chinese Volatility Provides Longer-Term Buying Opportunities
The huge decline of Chinese equities is a sign of increasing market volatility rather than the start of a bigger correction, argues Lukas Daalder, Chief Investment Officer for Robeco’s Investment Solutions.
Signs that China’s economic slowdown is deepening have sent the Shanghai Composite Index to its biggest one-day percentage loss in eight years. The index closed down 8.5% on Monday. The decline was partly a reaction to the publication of the preliminary Caixin/Markit China Manufacturing Purchasing Manager’s Index (PMI). This leading indicator declined from 47.8 in July to 47.1 in August, the lowest level since March 2009.
“The shift from an export- and investment-driven economy to a model which is driven by local consumption is a bumpy ride,” says Daalder. “The disappointing PMI report is the newest piece of a growing pile of evidence that the cracks in the Chinese economy are bigger than most investors anticipated. The stock market was already shaken by the sudden depreciation of the renminbi two weeks ago and this is a new shock.”
In a reaction to the falling markets, China has allowed pension funds managed by local governments to invest up to 30% of their net assets in stocks and equity funds. Chinese state media has calculated that this will theoretically allow USD 97 billion to flow into the stock market. “Local governments tend to react quite quickly to this kind of change in legislation”, says Daalder. “We expect China to take additional steps if they are needed for equity markets to calm down. Even a new deprecation of the renminbi cannot be ruled out.”
A difficult choice
Daalder says the Chinese government faces a difficult choice if its current actions fail to create a more stable market climate. “Additional interventions might provide some stability, but that would mark a step back in the shift to a more market driven model,” he says. “It is also a dangerous precedent, for investors have a tendency to get addicted to government support for financial markets quite quickly. On the other hand, without intervention the current panic might lead to a decline of 20%.”
According to Daalder, the base scenario is that the decline in Chinese equity markets is a sign of increasing market volatility rather than the start of a large correction: “Global equity markets have had a steady run-up during the last couple of years, which was not always supported by an improving economy. We have already warned investors that they should prepare themselves for larger price movements and growing uncertainty.”
The effects of the correction on the Chinese stock market are also being felt in different regions and among other asset classes. “China has become an essential part of the world economy,” says Daalder: “The fear of an economic slowdown is putting huge pressure on commodity prices. The oil price has fallen to its lowest level in more than seven years. A correction in commodity prices usually spells bad news for emerging markets.”
Correction creates buying-opportunities
“Financial markets are already quite edgy and in this climate, investors tend to overreact to bad news,” explains Daalder: “As long-term investors, we are plotting the market to see if the price declines are creating buying opportunities in some markets. The correction in the high yield-market illustrates that investors are already bracing themselves for a sharp increase in defaults, anticipating that a lot of shale companies will not be able to survive the collapse in the oil price. There is a good chance that the market is overshooting with this price reaction.”
Another effect of the panic in Chinese equity markets is a possible delay of an interest rate hike in the United States, explains Daalder. “The Federal Reserve has been communicating to financial markets that it intends to raise interest rates in September,” he says. If the markets do not calm down, they might decide to hold off raising interest rates until December. All in all, although the turmoil may continue for some time to come, we are looking at it as a longer-term buying opportunity”.
Photo: BlackRock’s BGF Global Multi-Asset Income Fund portfolio manager, Michael Fredericks. BlackRock: "We Must Begin To Look Beyond The Traditional Income Generating Assets”
Today’s markets have largely been characterized by increasing market volatility coming from diverging global monetary policy and macroeconomic uncertainty. In addition, future return expectations across risk assets are more modest than in previous years, causing investors to have to rethink their overall investment strategy.
In this market environment it is very difficult to find assets which generate income while “keeping the risk at bay,” which is one of the obsessions of BlackRock’s BGF Global Multi-Asset Income Fund portfolio manager, Michael Fredericks. The company’s expert is convinced that flexibility and the ability to search for assets beyond traditional income-generating sectors will be a key element for the future, and the market is beginning to realize this.
Proof of this is that traditional income-oriented investments, such as dividend paying equities and high yield bonds, have seen significant inflow in recent years and are beginning to be overvalued. It’s time to look elsewhere.
The strategy, with five star Morningstar rating, has the flexibility to invest across a wide variety of income-producing asset classes, with no regional constraints. “Non-traditional income asset classes such as Master Limited Partnerships (MLPs), Real Estate Investment Trusts (REITs), Preferred Stock, Floating Rate Loans and Emerging Market Debt are often more difficult for individual investors to access yet can offer attractive diversification within a broader income portfolio.”
In addition to derivatives, BlackRock’s Global Multi-Asset Income Fund uses covered call options, “which are very attractive in a low interest rate and low returns environment,” Fredericks said. “In particular, we favor an approach that focuses on writing calls on individual securities rather than on an index as this offers more attractive opportunities to take advantage of market and individual stock volatility. We prefer short maturities, typically writing calls with maturities between 1-3 months, and write options that are on average 5-8% out-of-the-money which allow us to capture 5-8% upside potential on the underlying stock. We believe this approach provides the best risk-adjusted income and return opportunities for our investors.”
For Fredericks, it’s a fact that equities offer attractive value in this environment relative to credit. However, he reminds us that, “it is important to consider an investor’s risk tolerance when increasing an allocation to stocks. While valuations across most stock and bond sectors are at or near elevated levels, we do still think there are opportunities for attractive risk-adjusted yield opportunities, though investors need to tame their expectations for returns. Specific to credit, we believe current spread levels offer investors attractive opportunities for income, but we do not expect significant appreciation above and beyond the coupon from these securities.”
BlackRock’s BGF Global Multi-Asset Income Fund currently has a large percentage of assets invested within the US, mainly in fixed income. “. With bond yields at historic lows across the globe, we have favored exposure to U.S. credit sectors that offer attractive levels of income and ample liquidity,” adds the portfolio manager. However, when talking about the equity portion in the portfolio, Fredericks prefers to avoid the US market and opts for Europe or Japan. The reason is obvious: “quantitative easing programs offer an attractive backdrop for companies with greater exposure to those regions.”
While it’s true that fixed income is starting to look less expensive after a recent increase in yields, the expert from BlackRock, however, heightened volatility within bonds and believe a more tactical approach is necessary during these markets. “We currently favor corporate bonds (both investment grade and below investment grade) over government debt and also find opportunities within the mortgage-backed market, particular commercial mortgage-backed securities and residential non-agency mortgages. Finally, we see value in Preferred Stock, in particular the institutional preferred market which offers attractive income levels but also a fixed-to-floating rate structure which we find attractive amid the possibility of rising interest rates,” he explains.
