CC-BY-SA-2.0, FlickrPhoto: Kcalculator. Threadneedle Remains Bullish on the Dollar Given the Likelihood of Superior US Economic Performance
Columbia Threadneedle Investments has held a bullish view of the outlook for the dollar for some time. This is supported by its belief that the US economy will outperform other advanced economies because:
it has fewer structural rigidities than, for example, the eurozone
it will enjoy greater long-term productivity gains than comparable economies
it will become less vulnerable to external energy shocks as its oil production potential increases following the shale energy revolution. Increasing oil output will also reduce the structural current account deficit.
But earlier this year the firm became concerned that the currency was strengthening beyond what was warranted by the United States’ fundamentals and it positioned itself accordingly with a tactical short position against a range of currencies. “A raft of weaker than- predicted US data dimmed speculation the Federal Reserve (the Fed) was about to raise interest rates. At the same time, the launch of QE in Europe caused investors to revise their expectations of deflation in Europe”, explains Matt Cobon, Head of Government and FX at Columbia Threadneedle Investments.
Dollar correction creates opportunity
The markets have now seen a sizeable fall in the dollar and the currency is now much more fairly valued. “The size of the correction is similar to that experienced in comparable structural dollar bull cycles and we do not believe that it should be a matter of concern or indeed a surprise. However, we continue to believe that the upward trajectory of the dollar will resume over the longer term, reflecting the country’s aforementioned economic advantages. Consequently, we remain dollar bulls, believing that the recent weakness in the US economy will prove temporary in part because we anticipate that consumers will start spending some of the windfall gains reaped from low energy prices”, says Cobon.
The likelihood that monetary policy in the US and the rest of the world will begin to diverge reinforces Threadneedle´s positive view that the dollar should strengthen. “We anticipate that while the eurozone delivers its massive QE programme and Japan continues to inject liquidity into its economy, the Federal Reserve (the Fed) will start to increase rates as the economy regains momentum. We are certainly more sceptical than the market that we will see such a reflationary bounce in the eurozone or that it will outperform in the longer term given the structural rigidities within the euro area” points out the expert.
Investors with long dollar positions are being squeezed at the moment and Threadneedle is using this opportunity to start to build back into its dollar risk position. “We certainly believe that the dollar is now trading at levels, which, particularly against the euro, appear compelling again from a long-term perspective – we still believe that the euro will reach parity with the dollar”, says the Head of Government and FX.
The main risk to this strategy is that the US economy is unable to gain further momentum and that as a result expectations of when the Fed begins to hike interest rates are pushed out to 2016. However, monetary policy in the US and the rest of the world would only converge if markets began to anticipate that the US was entering a prolonged downturn. “We do not think this is likely. Indeed, we believe that we are approaching a point in the US labour cycle where wage pressures are beginning to build and that this factor will start to influence monetary policy. There is little slack left in terms of unemployment and the output gap. Certainly, both have reached levels that in previous cycles were accompanied by a tightening of monetary policy”, concludes Cobon.
. Amundi Names Vincent Mortier as Deputy CIO and Member of Executive Committee
Amundi announces the appointment of Vincent Mortier as Deputy Chief Investment Officer (Deputy CIO). He will also become a member of the Executive Committee.
Mortier joins Amundi from Société Générale Group, where he started his career in 1996. He has occupied a number of senior roles at the Group during his career, culiminating in the position of Chief Financial Officer of the Global Banking and Investor Solutions (GBIS) division in 2013.
He was previously CFO of Société Générale Corporate and Investment Banking, Co-Head of Equity Finance, Deputy Head of Equity Finance and Head of Strategy and Development – Global Equities and Derivatives Solutions. Mr Mortier also sits on the SG GBIS Executive Committee.
Global investors have moved out of equities into cash ahead of an expected U.S. Fed rate hike, according to June’s BofA Merrill Lynch Fund Manager Survey (FMS). Investors have also shown concern about a Greek default and a possible bubble in Chinese equities as they have scaled back risk.
Cash levels rise to 4.9 percent of portfolios, up from 4.5 percent in May; proportion of investors overweight equities falls to net 38 percent from 47 percent.
Expectations of higher rates are the highest since May 2011, with a net 80 percent of the panel forecasting a rise in short-term rates.
The majority of the FMS panel sees a negative resolution of Greece talks: 15 percent predict Grexit, and 42 percent predict default without exit.
China worries: seven out of 10 investors say China’s equity market is in a “bubble.” A net 50 percent see China economy weakening.
The proportion of investors expecting to underweight global emerging markets surges to a net 21 percent from net 6 percent in May.
Corporate operating margins will fall in the coming 12 months, say a net 17 percent of investors – up from net 5 percent in May.
The U.S. dollar is the most crowded trade as Fed tightening looms; 72 percent predict the euro will weaken vs. the dollar in coming year.
“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Investors remain bullish on European equities but are increasingly concerned about Greece and higher yields,” said James Barty, head of European equity strategy.
New board of directors at ALFI. The Association of the Luxembourg Fund Industry Appoints Denise Voss as Chairman
The Association of the Luxembourg Fund Industry (ALFI) today announced the appointment of Denise Voss as chairman of ALFI. Ms Voss takes up the position, which will initially run for two years, with immediate effect.
“I am very excited about this appointment,” said Ms Voss. “The asset management industry in Europe has gone through dramatic change over the past few years, with extensive regulation that has been put in place following the crisis, and ALFI has played a key role in working through the implementation of this regulation.”
”Going forward, we face different challenges, for instance, from the greying of the population and more and more individuals being responsible for funding their own retirement, to the growth of digital technology, which means that buying habits are changing dramatically. My role is to inspire the industry to focus on these issues and to ensure that the Luxembourg Fund Industry continues to play a key role in driving the development of the industry worldwide, encouraging economic growth and providing long-term financial security for individuals.”
Denise Voss has played a key role in ALFI for many years. She has been Vice Chairman for International Affairs of ALFI since 2011 and has been a member of the ALFI board of directors since 2007. She is also Chairman of the European Fund and Asset Management Association (EFAMA) Investor Education working group.
Denise is Conducting Officer of Franklin Templeton Investments and has worked in the financial industry in Luxembourg since 1990.
A new Fitch Ratings study of corporate bond liquidity takes a different approach to the topic by focusing on the characteristics of corporate bonds pledged as collateral in the tri-party repo market. The analysis identifies key features of a sample of bond collateral that could contribute to the risk of fire sales, or forced selling of collateral in a repo funding squeeze.
Corporate bond collateral characteristics such as long-dated maturities, low trading frequency and industry concentration (‘wrong way’ risk) could raise risks of a forced unwinding of repo-funded trades in a scenario where risk aversion increases sharply. Such risk aversion could limit the ability of dealers to finance securities in the repo market. Cash investors such as MMFs could also be forced to sell collateral in the event of a dealer default.
Maturity mismatches between short-term repos and the long-term corporate bond collateral they finance could exacerbate fire sale risk if repo trades are unwound quickly. Over 90% of the bonds in Fitch Rating’s collateral sample have maturities of one year or more. These bonds carry greater interest rate risk, and could be more difficult to sell in a period of market dislocation.
Fed officials have highlighted the risk that fire sales of securities could amplify price dislocation in a period of market turmoil. New York Fed researchers have estimated that up to $250 million per day in corporate bonds can be liquidated without negatively affecting bond prices. Total corporate bond tri-party repo collateral averaged approximately $75 billion in 2014. Forced selling of even a small fraction of that amount could accelerate price pressure during periods of market stress.
The Fitch study is based on a broad survey of corporate bonds pledged as collateral by dealers in the tri-party repo market as of Dec. 31, 2014. Data was reported by prime money market funds in their monthly N-MFP filings made with the SEC.
CC-BY-SA-2.0, FlickrPhoto: Dave Kellam. Euroland Dividends: a Cornerstone of Returns
The real return that investors see ultimately depends on the starting price paid. In other words, buying equities when they are out of favour improves the prospects for better returns, said Henderson. Timing is always difficult, so it is important to have a reliable set of screening tools to identify stocks that are incorrectly priced, and which offer value in the market. There are many metrics investors can use to assess this: earnings; net asset value; value of growth and dividends to name just a few.
The firm place a high level of importance on dividends as a measure of a company’s health. Any increase in sales and revenues increase should be reflected in a rise in the common share dividend. A good dividend strategy can indicate a strong, cash-generative business, as well as a management team that understands the importance of prioritising shareholders’ needs. From a performance perspective, an attractive well-covered yield also increases the certainty of an investor’s return.
Higher dividends or a new factory?
While yield is an important source of performance for investors, it is important to avoid companies that chase yield at the expense of long-term capital return, affirm Henderson´s experts. Management teams need to properly allocate capital in a way that balances the needs of shareholders, while providing sufficient capital for reinvestment to help generate future growth.
Outlook for dividends
There currently seems little reason to suggest that dividends cannot move forward from existing levels, with the opportunity to see some special dividends in isolated cases. Eurozone companies have spent the past few years rebuilding their balance sheets and dividends are growing nicely, reflecting confidence in future revenue streams.
Significant levels of cash have been redirected towards share buybacks, supported by the European Central Bank (ECB)’s accommodative monetary policy. While these can provide a strong signal about a firm’s future profitability, not all buybacks are equal. The fund’s investment process factors in the need to be careful that a company, when it is doing a share buyback, is doing so at the right valuation level, without funding through additional debt, and for the right reasons.
“As always, stock selection is driven by the identification of value – even the best dividend stock is not worth holding at any price. Among the stocks we like at present, although this is no recommendation to buy, are Anglo-Dutch publisher Reed Elsevier, and France-listed global automobile company Renault and luxury goods firm Christian Dior”, point out Henderson.
Reed Elsevier generates healthy profits and sees a good return on its spending, and holds a leading position in an industry where it is difficult for new companies to thrive. The company has demonstrated long-term commitment to returning cash to shareholders via dividends and buybacks, reflecting the company’s strong underlying revenues.
Renault has a stable market share and has taken steps to rein in spending. The car-maker is entering a strong phase for model updates, suggesting that consensus estimates for future earnings may be too low. The company now has a five-year track record of providing dividends for investors.
Christian Dior looks priced at a significant discount, given the value of its stake in LVMH. The company is run by an experienced management team that has delivered consistent revenue growth in Christian Dior Couture operations over the past five years, which has been reflected in annualised dividend increases.
Nothing in this article should be construed as investment advice, or a recommendation. Past performance is not a guide to future performance. The value of your investment can go down as well and you may not get back the amount originally invested. The information in this article is not intended to be a forecast of future events or a guarantee of future results and does not qualify as an investment recommendation of any individual security.
CC-BY-SA-2.0, FlickrPhoto: George Laoutaris. Down to the Wire in Greece
Until this month, the base case for Grecce of many analysts and strategists was for an eventual agreement, even though no one had offered a clear road map on how to get there. In MFS´ view, such optimism suggested that these observers were overlooking the facts on the ground.
Virtually no progress toward an agreement has been made since the Syriza government took office in January. Pilar Gomez-Bravo, Fixed Income Portfolio Manager, Lior Jassur, Fixed Income Research Analyst, and Erik Weisman, Chief Economist & Fixed Income Portfolio Manager at MFS would argue that by rejecting existing agreements, sending conflicting messages and failing to provide detailed alternative proposals, Syriza has damaged Greece’s relationships with creditors. Now the country has little money left and has made no reforms or even commitments to reforms — and nearly all eurozone goodwill and solidarity has evaporated in the process.
Higher risk of default
June promised to be a milestone in the Greek debt saga, with the month’s first debt service installment payable to the IMF on 5 June and the second bailout program expiring at the end of the month. On 4 June, however, Greece took advantage of a rarely used IMF procedure to bundle together its 5, 12, 16 and 19 June installments totaling 1.5 billion euros and delay payment until 30 June.
Running out of cash and credit, Greece may be facing a political crisis, as the Syriza government’s adherence to its anti-austerity election platform could be putting the country’s economic future at risk. The three experts at MFS suspect that holding a referendum on extending austerity measures or launching a snap election now would be unlikely to solve much at this stage. “Even if another party could win an overall majority, it would take weeks to organize a budget and put forward an actionable plan for further reforms that would be acceptable to the creditor countries. Regaining the confidence and goodwill of its creditors could take Greece years”, said.
“We thought Greece might miss a payment, though without that leading to a declaration of default by the IMF. After last events, we are raising the probability we assign to default. And with large debt repayments due to the ECB by 20 July, political uncertainty further increases the chances that the default process could become disorderly”, point out from MFS.
Terms of agreement
From the perspective of creditors such as Germany, said the experts, the main point is that a framework for the second bailout package had been agreed upon with the government of a sovereign country. By the terms of this 2012 bailout, tangible reforms were supposed to be implemented in exchange for funding. Then another government under Prime Minister Tsipras came into power by promising to renegotiate the terms of this bailout — especially its onerous conditions for reform.
“Now creditors wonder whether this or any successor government will honor any existing agreements. That is why the creditors have been so inflexible. Politicians in the creditor countries need to see far more compromises on structural reforms before extending additional funding to Greece”, argued.
The firm thinks that there is an increasing acceptance that Greece could default on its sovereign debt or other state obligations and still remain within the eurozone. After all, a country cannot be expelled from the common currency zone; it has to choose to leave. If Greece chooses to leave the eurozone, it would also need to leave the European Union under current treaties, and the Greek population clearly does not want that to happen.
Nonetheless, the markets are facing a significant amount of market uncertainty and potential dislocation “if we enter the uncharted territory of a default within the eurozone or a country leaving the European Union. Based on the relative stability of periphery bond spreads and equity markets, it seems that investors may be underestimating such risks”.
Admittedly, the likely intervention of the ECB — as well as the implementation of the relatively new EFSF, Outright Monetary Transactions and banking union reforms — should help to provide financial stability and support asset prices in the near term. At the very least, however, we would likely see increased volatility — particularly on the currency side — and a migration toward “safer haven” assets. “Given the uncertainty that surrounds such a default or “Grexit,” we would warn against assigning too low a probability on a negative market event”, conclude.
Foto: Dan Taylr
. Cuatro de cada cinco Limited Partners han participado en la reestructuración de fondos de private equity desde la crisis
Eighty percent of private equity investors have been approached with fund restructuring proposals since the onset of the financial crisis, according to Coller Capital’s latest Global Equity Private Barometer. One fifth of LPs having received more than five such proposals. Approximately the same proportion of LPs have actually participated in fund restructurings over the same period.
Three quarter of North American LPs, and almost half (45%) of European LPs, have committed to debut funds from new GPs since the financial crisis. This trend has been encouraged by strong results: 91% of LPs say these debut funds have equalled or outperformed the rest of their private equity portfolios.
Private equity has continued to deliver strong returns for LPs, with four fifths of all private equity portfolios having delivered annual net returns of over 11% across their lifetimes. Nearly half of LPs have achieved net annual returns from North American buyouts of greater than 16%.
“Creative destruction is the name of the game in private equity today,” said Jeremy Coller, CIO of Coller Capital. “Investors are accelerating the natural pace of change in private equity through hyperactive buying and selling in the secondaries market, a demonstrable willingness to support newly-formed GP franchises, and decisions to exit or stay invested in restructured funds.”
Areas of investor focus
Limited Partners have a more positive view of private equity in the Asia-Pacific region than they did three years ago. They see an improved risk/reward profile in India, Taiwan, Japan, Korea and Australia; and fewer of them now harbour doubts about Indonesia’s and Malaysia’s private equity prospects. However, investors are less positive about the risk-reward profile for China than they were three years ago – one third of LPs believe it has deteriorated in the intervening period.
Almost half of North American LPs intend to commit to oil and gas-focused private equity funds in the next three years, following the recent fall in in oil prices.
Co-investments are viewed as an established part of the private equity landscape – most LPs think co-investment opportunities will stay plentiful, despite the growing size of private equity funds.
Investors are split over the attractiveness of ‘longer life’ funds (i.e. private equity funds with lives intended to be significantly longer than ten years). Around half of them see longer life funds as a potentially valuable option for investors, whereas the other half think private equity’s model is not suited to funds with much longer lives.
Fundraising environment
Both the medium-term and short-term prospects for private equity fundraising look healthy. Over half of LPs believe private equity’s share in balanced investment portfolios will increase over the next 3-5 years. And for the shorter term, half of European investors and one third of North American investors have commitments below their target allocations to the asset class.
Investor demand for ‘in favour’ GPs is very strong. Two out of three LPs say they have failed to receive their full requested commitment to new funds in the last 12 months, with two in five LPs reporting that this has happened to them a few times in the last year.
‘Early bird’ discounts remain a common feature of the fundraising market. Over four fifths of LPs have been offered ‘early birds’ in the last two years – and two thirds of LPs have taken advantage of them.
Investor views of private equity fees are interestingly divided by geography. Over half of LPs in North America and the Asia-Pacific say that current fee levels are acceptable as long as fees are transparent and fund performance is strong. However, only 30% of European LPs take this view – with most saying fees are too high even if there is transparency and returns are good. Fewer than half of LP (45%) are under significant pressure to reduce fees from senior levels within their organisations.
Credit markets
LP appetite for private debt remains high,with 53% of LPs either having recently committed to private debt funds or expecting to do so soon.
Interestingly, over half (56%) of private equity investors believe credit markets are now in danger of being over-regulated (although one fifth of LPs believe more still needs to be done by regulators). However, only one in five LPs believe the SEC’s recent guidelines limiting debt multiples in buyouts will adversely affect private equity’s risk/return profile in the medium to long-term.
In recent months, the IRS has opened its information reporting portal and non-U.S. jurisdictions heavily affected by FATCA (e.g., Cayman Islands and British Virgin Islands) have issued official guidance to implement FATCA compliance for financial institutions in their respective jurisdictions.
The following list outlines upcoming FATCA compliance deadlines in 2015, as outlined by Kate Forde, Compliance Officer at Apex Fund Services :
*Deadlines for Cayman and BVI Financial Institutions
May 29, 2015: Cayman Islands Local Registration Deadline Each Reporting Cayman Islands Financial Institution must register electronically with, and provide certain information to, the Cayman Islands Department for International Tax Cooperation (the “DITC”).
June 26, 2015: Cayman Islands 2014 FATCA Reporting Deadline Each Reporting Cayman Islands Financial Institution must file a 2014 information return with the DITC.
Before June 30, 2015: BVI Local Registration Deadline Each Reporting BVI Financial Institution that is required to file a 2014 FATCA report must register with the BVI Financial Account Reporting System, and such registration must be approved by the BVI International Tax Authority, before such Reporting BVI Financial Institution can submit its 2014 report (which must be done by June 30, 2015, see below).
July 31, 2015: BVI 2014 FATCA Reporting Deadline
*Deadlines for Reporting Financial Institutions in Model 1 Jurisdictions (other than Cayman/BVI)
May 31/June 30, 2015: 2014 FATCA Reporting Deadline
Generally Reporting Financial Institutions in other Model 1 jurisdictions must file any required 2014 FATCA reports with the relevant Tax Authorities by one of these dates.
July/August 2015: 2014 FATCA Reporting Deadline
Financial Institutions in Australia and Mauritius must file any required 2014 FATCA reports by 31 July 2015 and Bahamian Financial Institutions must file by 17 August 2015.
CC-BY-SA-2.0, Flickr. BlackRock Appoints Dr. Andrew Ang to Lead Factor Investing Platform
BlackRock announces the appointment of Andrew Ang, PhD, as a Managing Director and Head of the Factor-Based Strategies Group. In this role, Dr. Ang will lead BlackRock’s expansion in the emerging field of active investing via exposure to different risk premiums. BlackRock currently manages over $125 billion in client assets across a variety of factor-based products and strategies.
Dr. Ang joins BlackRock from Columbia Business School, where he has focused on understanding the nature of risk and return in asset prices, in particular the behavior of factor risk premiums within and across asset classes, over the past 15 years. His research spans bond markets, equities, asset management and portfolio allocation, and alternative investments. Most recently, Dr. Ang was Chair of the Finance and Economics Division and the Ann F. Kaplan Professor of Business at Columbia. Dr. Ang’s recent book “Asset Management: A Systematic Approach to Factor Investing” published by Oxford University Press in 2014 has been lauded by the investment community.
In addition to his academic work, Dr. Ang has consulted for Canada Pension Plan Investment Board, Norges Bank and the Norwegian Ministry of Finance, the UAW Retiree Medical Benefits Trust and other large institutional managers on factor investing strategies.
“Markets are constantly evolving. Historic sources of outperformance are so widely understood and incorporated by investors that their impact has diminished. To generate sustainable investment results, investors will need to use data and technology in factor-aware investment processes,” said Ken Kroner, Global Head of Multi-Asset Strategies for BlackRock. “Andrew Ang is a leading light in this arena, having applied his knowledge to some of the largest portfolios in the world. His combination of knowledge and experience make him ideal person to drive BlackRock’s development in factor-based strategies.”
“With BlackRock’s established systematic investment platform, along with its data analytics capabilities and superior talent, this is the perfect opportunity for factor investing to truly transform asset management,” said Dr. Ang. “BlackRock is a trusted advisor to some of the most sophisticated asset owners in the world. Having that credibility supporting the next generation of factor-based strategies will be critical in educating investors and clients about these important developments in portfolio construction and active asset management.”
