Photo: Valentijn van Nieuwenhuijzen, head of Strategy Multi-Asset at ING IM . Investors Expect Deflation in Europe and QE by the ECB in 2015, ING IM Survey Reveals
According to the latest Risk Rotation survey released by ING Investment Management (ING IM), 64% of institutional investors expect the ECB to introduce quantitative easing (QE) measures this year, almost one third (27%) sees first measures to take place in the third quarter of 2015.
The research, which is based on a survey among 152 institutional investors, also revealed that half of all respondents consider a deflationary Japan-style scenario in the eurozone to be ‘moderately likely’, while 13% see it as very likely. Only 23% of investors believe that the eurozone will not enter deflation.
Valentijn van Nieuwenhuijzen, head of Strategy Multi-Asset at ING IM says: It is clear that there are very real concerns of a prolonged period of deflation which could – if investors are correct – twist Draghi’s arm when it comes to implementing a Sovereign QE programme in early 2015.
Other than a potential Eurozone crisis, investors cited interest rate rises (50%), Chinese hard landing (47%) and a fiscal shock (37%) as the most significant risks posed to investment portfolios.
With regard to asset allocation, 40% of institutional investors surveyed say they have maintained their positions in terms of risk over the past six months. European investors appear to be the most bullish when it comes to risk, with 32% having increased their appetite in recent months, compared to 29% for all investors.
Wikimedia CommonsIan Warmerdam, Manager of the Henderson Global Growth Fund and the Henderson Gartmore Global Growth Fund. Henderson: “There Are New Themes Emerging with The Potential to Become A Fruitful Source of Long-Term Growth Ideas”
Ian Warmerdam, Manager of the Henderson Global Growth Fund and the Henderson Gartmore Global Growth Fund, shares his outlook for 2015.
What lessons have you learned from 2014?
Market sentiment can turn very quickly and it is vital to possess strong conviction in your investment ideas. Strong conviction can only be attained via a thorough understanding of the risks and opportunities associated with each individual investment in the portfolio. In this respect, our two-stage process of fundamental analysis is key to gaining this comfort with the underlying thesis. During 2014, indiscriminate market ‘sell-offs’, not uncommon five years into a market recovery, provided both attractive entry points for new stocks and also the chance to add to our existing holdings with highest conviction.
Where do you see the most attractive opportunities within your asset class in 2015?
As we look to 2015, we continue to see compelling investment opportunities within our five existing themes, namely; Health Care Innovation, Internet Disruption, Paperless Payment, Energy Efficiency and Global Brands. We are also seeing some new themes emerging with the potential to become a fruitful source of long-term secular growth ideas, one of which is Factory Automation.
What are the biggest risks?
One of the biggest risks for the global growth strategy would be a period of sustained underperformance for the US stock market versus the wider universe. The fund’s overweight position in this market is almost solely a function of where we see the most undervalued areas of secular growth at this particular point in time.
Are you more positive or negative now than you were 12 months ago on the economic and investment outlook, and why?
We claim no ability to predict the short-term direction of the markets. However, through positioning our fund towards securities that we believe are undervalued and that are exposed to strong secular tailwinds of growth, we remain confident in our ability to generate strong absolute and relative returns over the long term.
. Are Valuation Divergences in Equities Justified?
As always, the question for equity investors is whether the risk/reward trade off is compelling enough.
Beginning 2015, investors have been ascribing an ever wider price-to- earnings multiple for developed markets relative to emerging markets. This divergence made sense as the United States, in particular, has delivered earnings growth and improving returns on equity (ROE), whereas emerging markets have not, explains a recent research by MFS.
Developed market valuations
Only in the US equity market has the forward P/E been trending higher, said the firm, reinforcing the importance of continued US corporate earnings and sales growth. Apprehensive that US margins might be stretched, investors are worried whether the momentum can continue. Yet with wages rising slower than revenues, energy prices falling and interest rates remaining low, we are not as concerned. Nevertheless the prospect of Fed rate hikes in 2015 has the potential to cap further upside in P/E multiple expansion, suggest the team of MFS. Historically, market indices have tended to peak no sooner than four months before the first rate increase and edge lower after a series of rate hikes, so there is precedent for caution.
Presuming forecast earnings can be delivered, many other DM regions look relatively inexpensive on valuation. In both Japan and Europe, the report card for 2014 will likely show that unprecedented policy support is simply not transmitting into growth in the broader economy. While Prime Minister Abe’s “three arrows” and ECB President Draghi’s pledge to do “whatever it takes” were initially well received by markets and generally regarded as defining moments for policy, both economies showed minimal evidence of cooperation with their central bankers.
Japan takes action again
In what was arguably one of November’s biggest macro developments, Japan’s policymakers surprised the markets by announcing a fresh round of stimulus. A few weeks later, data confirmed that the economy slipped into recession in the second quarter, prompting Abe to call an early election to reaffirm his support. Such action could be positive for the Japanese equity market in the short term but may be unsustainable without real structural change to drive durable ROE improvements. While corporate profitability may pick up next year thanks to the weakening yen, our long-term time horizon makes us cautious.
Similarly, the reform and growth picture in Europe is not much brighter, which is why the ECB may eventually be forced to resort to aggressive quantitative easing along the lines of the Fed and Bank of Japan programs. Over the course of next year, however, we do expect financial conditions to ease, with less fiscal drag and a weaker euro also helping to provide some support for eurozone earnings.
China and emerging markets
Not to be outdone on stimulus, the PBOC also announced an unexpected policy easing, which was widely interpreted to provide some near-term stability and limit the danger of a hard landing for China’s economy. This surprise move was yet another example of a central bank’s willingness to do more to minimize downside risk.
Even though MFS recognizes the flaws of considering EM countries homogenous, they generally face a subdued growth outlook. Just a few years ago the bullish EM story seemed so compelling, but now the common denominator across these economies is the difficulty in transitioning from fixed-asset investment to consumption-led growth. Sectors exposed to the theme of a rising middle class — for example, consumer staples and health care — are quite expensive relative to their DM counterparts, creating a dilemma for investors in EM equities, remarks MFS.
Focus on fundamentals
Equity markets are clearly at an inflection point. Outside the US market, which has regained its footing, other regions are still suffering from low consumer confidence, limited capital spending and deflationary pressures, leading to negative earnings revisions and equity market underperformance. Japan has been the only exception, primarily because of the weak yen.
Environments like these are often characterized by far greater stock price volatility than the changes in underlying earnings and dividends warrant. Without a doubt, the global economy remains weak — but it is not deteriorating. With central bankers still willing to provide support until job creation broadens and growth becomes self-sustaining, we believe the case for equities remains reasonable even though valuation support is weaker. We repeat our mantra that there are still opportunities among higher-quality companies with strong balance sheets and earnings visibility, concludes MFS.
JPMorgan Chase & Co. has released “How We Do Business – The Report,” which describes the company’s business practices and standards and reviews how it has addressed recent challenges. The report was initiated in response to a request by a shareholder group led by The Sisters of Charity of Saint Elizabeth.
Specifically, the report highlights efforts the company has been making to re-articulate and re-emphasize its cultural values and corporate standards – with the aim of ensuring that employees internalize these standards and live by them every day. It details many large-scale efforts and investments the company has made to strengthen its control environment through improved infrastructure, technology, operating standards and governance. And it describes the company’s commitment to its customers and to its relationships with regulators, shareholders and communities.
JPMorgan Chase & Co. is a leading global financial services firm with assets of $2.5 trillion and operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands.
Photo: John Stratford. New Year's Resolutions: The Four Ps
“If you’re like many of the people I meet, you just made a New Year’s resolution. And your resolution was most likely about something you want to do more of, less of, or differently. Now, if your resolution has to do with your body, I encourage you to share it — right away — with a friend or mentor, to increase the odds that you will act on it and succeed”, explains Vicky Schroebel, Director of Business Development at MFS.
However, if the resolution is a financial one (spend less, save more, etc.), Schroebel recommends to work with the financial advisor. “There are many financial New Year’s resolutions that I hope you might make over time, but let’s start with the most important one”.
Take control of the four Ps for a successful financial future:
Progress: At least annually it is necessary to review the progress towards retirement savings (or retirement income) goal. This means define or confirm the goal(s).
Protect: “At least annually I will ask my advisor to review what we are doing to protect against the greatest risks to my retirement income, which include taxes and inflation, among other risks”, says the MFS´expert.
Plan: Review annually the plan for the year, focusing on how maximize what you are setting aside for your future needs.
Portfolio changes: It is key make changes to the portfolio/plan based on the above three resolutions, rather than emotionally responding to short-term market swings.
“Take control of your resolutions by seeking support!”, concludes.
Foto: Doug8888, Flickr, Creative Commons. Smart beta, mercados emergentes y bolsa japonesa: estrategias a considerar en ETFs para 2015
BlackRock has released its ETP Landscape 2014 Year in Review. According to the company, the Global ETP industry AUM has grown 15% to over $2.7 trillion, driven by record inflows and increased adoption of ETFs among investors.
“The global ETP industry continues to grow at a double digit pace as ETPs attract a broader base of global investors than ever before. ETPs are being used by capital market participants looking for deep liquidity, to investors seeking precision exposures, to a growing segment of the market using ETFs as buy and hold investment vehicles,” says Amy Belew, Global Head of ETP Research at BlackRock.
“We are forecasting global ETP assets to double to $6 trillion over the next five years”. The secular trends of increased ETP adoption and market expansion contributed to record flows in 2014 and will be the driving forces behind future growth, according to BlackRock.
“The industry will continue to evolve to encompass new users and new uses. This will include, among others, an expanding retail segment in Europe and greater utilization of fixed income ETPs by banks and insurance companies. The breadth of strategies and exposures offered by ETPs, as well as more extensive cross-border investment brought by the globalization of the industry, should enable further market penetration. Regardless of the investment climate, ETPs are increasingly becoming viable alternatives to individual stocks and bonds, derivatives and mutual funds”.
Themes for 2015
Themes to watch in 2015 include smart beta, emerging markets and Japan equity, all of which remain compelling following notable contributions to 2014 flows.
Assets for smart beta equity have quadrupled since 2008. Investor appetite for tailored exposures not available via traditional market cap-weighted funds has accelerated in the past two years. Flows remained robust in 2014 after surging in 2013. Organic growth for smart beta is 18%, twice that of market-cap weighted equity ETPs.
Improved sentiment for emerging markets equity led to inflows of $4.3bn after redemptions reached ($10.3bn) in 2013. Valuations and economic growth levels remain attractive relative to developed markets. Flows into Japanese equity have reached $13.4bn. Still- attractive valuations and aggressive government stimulus makes this an important investment theme for 2015.
The sector, in 2014
According to the report, global ETP flows have reached $267.9bn through November, surpassing the previous full-year record set in 2012.
Increased adoption among institutions, intermediaries and individuals aided unprecedented expansion in the European and US markets. ETPs in Europe gathered $60.8bn, triple the amount last year, as market penetration increased and ECB bond purchases boosted fixed income flows. Accelerating US GDP growth propelled US-listed ETP flows to a record $193.5bn as demand for US equities and fixed income proved resilient.
Fixed income ETPs set a new record, gathering $78.6bn as appetite for yield and slower than expected global economic growth helped assets swell 21% to $430bn.
Two of Europe’s leading pension markets are about to undergo a dramatic shake-up in the new year with the introduction of ground-breaking reforms. In Italy, Cerulli is expecting an imminent change in the law regulating pension fund investments, and from April 2015, retirees in the United Kingdom will no longer be forced to buy an annuity with their pension funds.
The fourth quarter issue of The Cerulli Edge-Europe Edition takes a close look at these developments, and suggests why they represent an ideal opportunity for asset and hedge fund managers to step in and satisfy an expected increase in demand for strategies and products.
“Law ‘703/96’, which has been in force in Italy for the past eight years, is expected to give way to a new regime, sometimes referred to as ‘new 703’ where risk assessment and management will be at the core of asset allocation,” notes Barbara Wall, Europe research director at Cerulli Associates. “It will impact both ‘open’ and ‘closed’ pension funds, worth a combined €46.5 billion (US$57.9 billion)–or just more than 40% of the total Italian pensions industry–by allowing exposure to asset classes that have hitherto remained ‘out of bounds’, including hedge funds, emerging markets, and commodities. We describe the change as nothing short of an ‘investment revolution’.”
Cerulli associate director David Walker says, “The pension landscape in the United Kingdom is also about to see a profound change as pension savers will soon be at liberty to manage their own finances and seek alternative ways of generating an income in their retirement. Retirees will be looking to insurers to manage their longevity risk and asset managers to deal with their investment risk. As a result, we are anticipating greater demand for multi-asset funds, target-date funds, and an increase in the use of drawdown, which will soon become the mainstream option and not just the preserve of the affluent.”
J.P. Morgan Asset Management and Sonnedix have announced that institutional investors advised by J.P. Morgan Asset Management have joined Sonnedix’s management and shareholders in a new 50/50 joint venture platform company, Sonnedix Power Holdings Ltd., to pursue opportunities in the attractive, rapidly expanding global solar market.
The joint venture platform currently operates 17 power plants with 117MW of installed capacity across France, Italy, Spain, Thailand and Puerto Rico. It also has a portfolio of 18 projects representing over 600MW of projects in pre-construction stages in Japan, Puerto Rico, Chile, UK and South Africa. The joint venture anticipates a total commitment for the operating and development projects of more than €300 million.
Speaking about the partnership, Matt LeBlanc, CIO of OECD Infrastructure at J.P. Morgan Asset Management – Global Real Assets, said, “These are exciting times in the clean energy market and Sonnedix’s experienced management team, highly focused on execution and operations, is well positioned to benefit from the confluence of technology improvements, operational efficiencies and economies of scale. This combination results in a lower cost of solar PV, even with the current energy market volatility, and these operating investments are already generating consistent and growing investment yields supported by long-term contracts.”
Carlos Guinand, Chairman and Director of Sonnedix, said, “As the global solar power industry experiences exceptional growth rates, we are keen to expand further our footprint across multiple regulatory regimes that are at different phases of renewable integration. Our joint venture with J.P. Morgan Asset Management’s clients will be integral in capturing these opportunities and building our platform.”
Pan American Finance, Paul Hastings and Mayer Brown advised Sonnedix in the transaction. Skadden, Arps, Slate, Meagher & Flom acted as legal advisor to J.P. Morgan Asset Management.
Pátria Investimentos and Blackstone have announced that Blackstone Real Estate Partners VII and Pátria Brazil Real Estate Fund III acquired four office buildings in Rio de Janeiro from Opportunity’s Real Estate Fund for R$700 million. Pátria and Blackstone will own the portfolio in a 50/50 joint venture.
“Well-located and recently-constructed, these buildings have attracted a wide range of major institutional tenants. Given the current dislocation in the market, we believe this is an opportune time to be investing alongside Blackstone in these high-quality and promising assets,” said Helmut Fladt, Real Estate Director for Pátria Investimentos.
This is the second investment Blackstone Real Estate Partners has made in Brazil in partnership with Pátria. In late 2013, the companies acquired 70% of Alphaville Urbanismo, the leading developer of gated residential communities in Brazil.
“We are pleased to make this new investment with our partners at Pátria. It is an important market for us and we will continue to explore additional investment opportunities throughout Brazil,” said David Roth, a Managing Director in Blackstone’s Real Estate group.
Two of the buildings, Visconde de Inhaúma Corporate and Sao Bento Corporate, are located in downtown Rio de Janeiro, and the other two buildings, Americas Corporate (Towers 3 and 4) and Peninsula Corporate, are located in the district of Barra da Tijuca.
According to SailPoint’s 7th Annual Market Pulse Survey, companies around the world have reason to be worried about the use of cloud applications to share mission-critical information: 1 in 5 employees has uploaded proprietary corporate data to a cloud application, such as Dropbox or Google Docs, with the specific intent of sharing it outside of the company. The survey also found a clear disconnect between cloud usage across the business and existing IT controls with an alarming 66% of users able to access those cloud storage applications after leaving their last job. And, despite that 60% of employees stated they were aware that their employer strictly forbids taking intellectual property after leaving the company, 1 in 4 admitted they would take copies of corporate data with them when leaving a company.
SailPoint’s 2014 Market Pulse Survey was designed to measure employee attitudes toward protecting corporate digital assets. The company commissioned Vanson Bourne, an independent research firm, to interview 1,000 office workers at large companies with at least 3,000 employees across Australia, France, Germany, the Netherlands, the United Kingdom and the United States. With only 28% of survey respondents stating that corporate policies pay close attention to who is granted access to mission-critical SaaS apps, the survey showcases the complex challenge companies face when trying to manage applications outside of IT’s control, as well as the risk of massive security breaches and internal theft faced by companies.
The Market Pulse Survey focused on specific regions to help companies gain a better picture of the progress of security controls around sensitive information. The key findings of employee actions around the globe include:
Employees who have uploaded a sensitive document to share outside their companies via a cloud application (such as DropBox, Box or Google Docs): Australia (11%); France (20%); Germany (17%); Netherlands (13%); United Kingdom (18%); and United States (22%).
Employees who have purchased and/or deployed a cloud application (such as Salesforce.com, Concur, Workday, DropBox, DocuSign, etc.) without the help of IT: Australia (14%); France (14%); Germany (16%); Netherlands (18%); United Kingdom (21%) and United States (24%).
Employees who are aware of corporate policy that pays close attentions to who is granted access to cloud applications with mission-critical data: Australia (24%); France (27%); Germany (28%); Netherlands (24%); United Kingdom (30%) and United States (29%).
Employees who were able to access corporate data via cloud storage applications (including Dropbox and Google Docs) after they left their companies: Australia (56%); France (70%); Germany (70%); Netherlands (61%); United Kingdom (61%) and United States (69%).
Employees who are aware of corporate policies against taking intellectual property when they leave their companies: Australia (68%); France (49%); Germany (58%); Netherlands (57%); United Kingdom (60%) and United States (61%).
Employees who admitted they would take any corporate data when they left their jobs: Australia (21%); France (24%); Germany (16%); Netherlands (15%); United Kingdom (26%) and United States (27%).
“The survey results are an eye opener of how cloud applications have made it easy for employees to take information with them when they leave a company,” said Kevin Cunningham, founder and president at SailPoint. “With almost 20 percent of employees purchasing a cloud application for work without involving the IT departments, combined with the ability for employees to use consumer cloud apps for work activities, it’s virtually impossible to manage access to applications and the sharing of mission-critical data. In order to establish control over this ‘bring your own app’ phenomenon, it’s critical to provide specific incentives for end users to follow corporate policy such as offering users a seamless login experience in exchange for using a central access control framework.”
