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Van Eck to Launch First China Bond Focused ETF in the U.S.

Van Eck Global has launched the Market Vectors ChinaAMC China Bond ETF, a U.S.-listed ETF designed to provide investors with direct access to China’s onshore bond market.

The launch continues Van Eck’s leadership in China and emerging markets funds. The company launched the first ETF providing exposure to A-shares in the U.S. (Market Vectors ChinaAMC A-Share ETF) on October 13, 2010, and this summer it launched a Chinese equity ETF (Market Vectors ChinaAMC SME-ChiNext ETF), primarily focused on innovative, non government-owned companies.

CBON seeks to invest in all major segments of the Chinese fixed income markets, including sovereigns, policy banks, and high rated corporate bonds. “China’s domestic bond market is expanding and evolving at the same time. While the full liberalization of the markets is likely to take a long time, movement towards greater access for borrowers and lenders, and a higher degree of market oriented financings such as bond issuance have already greatly broadened the opportunity set for local investors,” said Fran Rodilosso, Senior Investment Officer for Market Vectors ETFs.

CBON is the newest addition to Van Eck’s family of emerging markets bond ETFs which include the largest local-currency bond ETF in the U.S., Market Vectors Emerging Markets Local Currency Bond ETF, and the largest emerging markets corporate bond ETF in the U.S, Market Vectors Emerging Markets High Yield Bond ETF, by assets under management as of October 31, 2014.

“China is currently the largest emerging markets bond market, yet to this point investors outside of mainland China have been mostly excluded from direct ownership of locally issued bonds,” said Mr. Rodilosso. He added “China’s onshore bond market has had historically low correlation to core asset classes and has delivered attractive yields in comparison to developed bond markets in recent years.”

CBON seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ChinaBond China High Quality Bond Index. The Index is comprised of fixed-rate, Renminbi (RMB)-denominated bonds issued in the People’s Republic of China by Chinese credit, governmental and quasi-governmental (e.g., policy banks) issuers. As of November 10, 2014, the yield to maturity for the Index was 4.1%.

ChinaAMC will serve as sub-adviser to CBON using a Renminbi-Qualified Foreign Institutional Investor (RQFII) quota that it has received in order to gain access to this market on behalf of foreign investors. This marks the third ETF for which Market Vectors and ChinaAMC have partnered, joining the China A-share focused Market VectorsChinaAMC A-Share ETF and the Market Vectors ChinaAMC SME-ChiNext ETF.

“China continues to be a focus for Van Eck Global, particularly through our Market Vectors ETF family,” said Ed Lopez, Marketing Director at Market Vectors. “Its economy has had significant impact on global markets in recent years and continues to evolve, yet may be under allocated in investors’ portfolios. This CBON launch is another example of how Market Vectors is delivering access to relevant investment ideas we believe will help shape tomorrow’s markets.”

CBON has a gross expense ratio of 0.57 percent and a net expense ratio of 0.50 percent, which is capped contractually until September 1, 2016. The cap excludes certain expenses, such as interest.

Reconsidering Asia’s Currencies

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Reconsiderando las divisas asiáticas — Foto: epSos. Reconsidering Asia's Currencies

The recent spasm of U.S. dollar (USD) strength is more likely a symptom, less likely a cause, of several political and economic dislocations in today’s markets. But what does the dollar rally mean to investors of Asian equities and fixed income? Gerald Hwang, Portfolio Manager at Matthews Asia, discusses this issue in a recent article:

The Asian Financial Crisis of 1997–98 looms like a ghost over any consideration of Asian currency risk. Given the robust performance of Asian currencies since 1999, however, it may be time to reconsider Asian currencies in a modern context that takes into account the diverse monetary systems, business cycles and development stages of Asia’s economies.

Over the third quarter, the worst-performing Asian currency was the Korean won, which depreciated 4.1% against the U.S. dollar. Interestingly, this was better than the best-performing G-10 currency—the Norwegian krone, which lost 4.6% vs. the USD. Performance in other Asian currencies ranged from a 1% gain in the Chinese renminbi to a 2.9% loss in the Philippine peso.

With the trade-weighted basket of Asian currencies losing 1% vs. the dollar in the third quarter, it’s fair to say that Asian currencies were relatively stable over the quarter compared to other currencies. Latin American currencies lost 6% over the same period. Even traditional safe haven currencies—the Euro, Swiss franc and Japan’s yen—lost ground against the USD, losing in the neighborhood of 7% to 8% each.

This is not the first time that Asian currencies have shown resilience in the face of stress emanating from more developed markets. They performed better than expected during the Great Financial Crisis of 2008, losing 9% vs. the USD from the end of July 2008 until the end of the following March. This compared favorably to the 27% loss in Latin American currencies and 14% loss in all trade-weighted currencies over that period.

Equity investors usually pay little heed to currency risk due to its small contribution, over the long run, to total returns. Foreign exchange (FX) volatility is also not a meaningful contributor to overall returns volatility.

For investors in Asian bonds, currencies matter more. Over the long run, currency returns have contributed about one-fifth toward total return and about two-thirds toward volatility. When you buy a bond denominated in a foreign currency, you receive the following basket of returns: local currency coupon income, local currency price return (primarily due to yield changes that can arise from either interest rate or credit spread changes), and FX return on the coupon income you have received as well as on the bond principal. Currency movements can either add to or detract from bond coupon and price returns.

The tension between FX return and coupon plus price return is starkest when markets become risk averse. For investors whose home currency is a “safety currency” (the USD preeminent among them), negative returns from local currency depreciation can negate positive returns from coupon cash flows.

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Since the Asian Financial Crisis, have Asian currencies been net positive or negative contributors to Asian bond returns? On a trade-weighted basis, they have appreciated about 1% each year on average. A valid objection is that 1999 is an unfair starting point because that marked the end of the Asian Financial Crisis. Use any point after that, and Asian currencies still look relatively stable compared to currencies of other developing markets. Compared to Latin American currencies, to which they are often compared, Asian currencies have performed decently, with less than half the volatility and less severe drawdowns.

Opinion column by Gerald Hwang, CFA, Portfolio Manager, Matthews Asia

The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.

First Trust Extends its Latin American Reach Via Mexico’s Pension Funds

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First Trust Advisors has announced that Mexican pension funds investment regulator, La Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR), has approved two First Trust ETFs for sale to Mexican funded pensions, known as AFORES.

According to Mexico’s pension plan investment guidelines, before an ETF can be purchased in a pension fund, it must be approved by CONSAR. “We are pleased that our first two AlphaDEX ETFs are officially approved for sale to Mexican pension funds,” said Dan Lindquist, Managing Director of First Trust. “This opportunity helps to further expand the footprint of our merit-based AlphaDEX ETFs into a new institutional market for First Trust.”

The two funds that have been approved are:

First Trust Large Cap Value AlphaDEX^® Fund (NYSE Arca: FTA)
First Trust Large Cap Core AlphaDEX^® Fund (NYSE Arca: FEX)

In addition, both funds are cross-listed on the Bolsa Mexicana de Valores under the same ticker symbols.

Currently, over 51 million Mexican workers save for their retirement in AFORES, according to CONSAR. There are approximately $164 billion (USD) in assets under management in Mexican pension funds and CONSAR projects Mexico’s retirement savings will grow to $225 billion (USD) by 2018. “As Mexico’s retirement savings grows, we are delighted to provide local pension managers an option for investing in index-based ETFs that seek risk-adjusted excess returns over time by selecting and weighting stocks based on fundamental merit-based factors,” Lindquist said.

EFG International Appoints New CEO for Luxembourg

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EFG Bank (Luxembourg), EFG International’s business in Luxembourg, has appointed Konstantinos Karoumpis as its new Chief Executive Officer, with effect from mid-January. The appointment is subject to regulatory approval, announced the firm.

He will replace François-Régis Montazel, who is leaving at the end of the year to establish his own business. In this capacity, François-Régis Montazel will continue to work with EFG Bank (Luxembourg) S.A. and will remain on its board.

Konstantinos Karoumpis was formerly at Credit Suisse in Luxembourg, which he joined in 2007. Latterly he was Head of Private Banking & Wealth Management, having previously been responsible for business development and support. Prior to this, he undertook corporate banking roles for BNP Paribas and Bank of Cyprus in Athens and Cyprus respectively.

In addition to his responsibilities at EFG Bank (Luxembourg), Konstantinos Karoumpis will help to oversee the development of EFG International’s planned new offices in Athens and Cyprus, which were announced at the time of the half year results.

“This is an exciting challenge for me. EFG International is a specialist private bank and a dynamic one, and this has been much in evidence in the development of its Luxembourg business. François-Régis Montazel deserves every credit, and I look forward to building on the strong foundation that he has put in place. I also look forward to helping EFG develop its new offices in Athens and Cyprus.”, said Konstantinos Karoumpis.

Which Business Schools Have The Most Billionaire Alumni?

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Harvard University claimed the number one spot on a Wealth-X ranking of business schools in terms of number of billionaire alumni. Harvard’s MBA program has produced nearly three times more billionaire graduates than that of Stanford University, which emerged in second place on the list.

Wealth-X also found that 21% of world’s billionaires who have pursued tertiary-level education have an MBA. Nearly 50% of these individuals obtained their MBAs from the 10 institutions on the list.

There are 2,325 billionaires globally in 2014, according to the recently released Wealth-X and UBS Billionaire Census, and 65% of them have tertiary education.

American business schools dominate the list, taking seven of the top 10 spots. Only three institutions are based outside the United States: INSEAD in France, International Institute for Management Development in Switzerland, and London Business School in the United Kingdom.

Below is a list of the 10 business schools with the most billionaire alumni:

Some notable billionaires who have graduated with an MBA include Philip Knight, founder and chairman of sports footwear and apparel company Nike, Inc. Knight obtained his MBA from Stanford Graduate School of Business in 1962.

David Gilbert Booth graduated from Chicago University’s MBA program in 1971 and went on to establish Dimensional Fund Advisors 10 years later. An avid philanthropist, he donated $300 million to the University of Chicago’s Graduate School of Business in 2008, which was subsequently renamed University of Chicago Booth School of Business.

Northern Trust Asset Management Launches Global Small Cap Institutional Fund

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Foto: Barry, Flickr, Creative Commons. Convertibles globales, con Franklin Templeton

Northern Trust Asset Management has launched a new fund for institutional investors that encompasses quality small capitalization stocks across global developed equity markets.

The global small cap fund builds on Northern Trust Asset Management’s growing Engineered Equity strategies, with a US$37.4 billion in assets under management as of September 30, 2014. The fund, launched this month with an investment by Kemper Corporation for its Master Retirement Trust, is designed to efficiently capture the premium associated with high quality small capitalization stocks while minimizing uncompensated risk factors.

“Our Engineered Equity approach provides efficient exposure to global small cap equities with a bias toward high-quality companies and factors that generate persistent performance over time,” said Matthew Peron, Managing Director, Global Equity at Northern Trust Asset Management. “We worked closely with Kemper to develop a solution that fits their performance and risk budget needs, leveraging our core capabilities, and we believe this strategy will have broad appeal.”

The global small cap fund is an extension of Northern Trust’s factor-based U.S. small cap strategies, which have a 15-year track record and US$3.4 billion in AUM as of September 30, 2014. The new collective trust fund is available to U.S. defined benefit and defined contribution retirement plans and Northern Trust intends to offer the global small cap strategy to a range of investors through separate accounts and other fund structures.

John L. Thornton Appointed Non-Executive Chairman of PineBridge Investments

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John L. Thornton, New Non-Executive Chairman of PineBridge Investments. Courtesy of PineBridge. John L. Thornton Appointed Non-Executive Chairman of PineBridge Investments

The Board of Directors of PineBridge Investments announced the appointment of John L. Thornton as Non-Executive Chairman effective November 21, 2014. Mr. Thornton will assume the Chairmanship from E. Mervyn Davies, Lord Davies of Abersoch, CBE, who has successfully presided over the Board for four years.

Mr. Thornton has extensive international experience in business, finance and public affairs and has served on the boards of leading global public companies. Mr. Thornton will work closely with the Board and members of senior management in driving the firm’s strategy.

Richard Li Tzar-Kai, PineBridge Board Member and Chairman of Pacific Century Group said, “I would like to thank Mervyn for his leadership and wisdom during the development of PineBridge as an independent multi-asset manager. Our strong position and enhanced investment offering owes a great deal to him. We are pleased to welcome John as our new Chairman and look forward to drawing on his considerable international experience.”

Mr. Thornton said, “I am honored to be joining PineBridge Investments and look forward to working with the leadership of the firm. PineBridge’s developed and emerging markets experience is exceptional as is its ability to create unique investment solutions for clients.”

Mr. Thornton retired in 2003 as President and member of the Board of The Goldman Sachs Group, Inc. He is Chairman of the Board of Barrick Gold Corporation and serves as a Director of the Ford Motor Company. He is Co-Chairman of the Board of Trustees of the Brookings Institution in Washington, D.C. He is a Professor and Director of the Global Leadership Program at the Tsinghua University School of Economics and Management in Beijing. Thornton is a trustee, advisory board member or member of the China Investment Corporation, China Securities Regulatory Commission, Council on Foreign Relations, McKinsey Advisory Council and Morehouse College. Mr. Thornton holds an undergraduate degree from Harvard College, a degree in jurisprudence from Oxford University and a master’s degree from the Yale School of Management.

Quality Growth and Income, Two Strategies to Invest in Europe by AllianzGI

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Quality Growth y Dividendos, las dos estrategias que recomienda Allianz GI para invertir en Europa — Neil Dwane, CIO of European Equity, Allianz GI. Quality Growth and Income, Two Strategies to Invest in Europe by AllianzGI

In order to obtain returns in the current low-rate environment, risks have to be taken. For Neil Dwane, CIO of European Equity at AllianzGI, it is essential to choose the type of risk you assume. “There is growth in the world, but you have to look around carefully for companies which do show growth. In periods of low growth such as now, stocks with high dividend yields are a good choice, and those with high quality growth are the other.”

With these two tips, Dwane focuses his discussion on what type of product is currently more attractive when investing in European equities. Focusing on quality growth, he cites late 2007 as an example as the situation was a similar to the present moment “in which quality was more affordable than companies with more questionable fundamentals; in that environment, Quality Growth, managed to rise in 2008 compared to a market which fell by 40%.”

Delving deeper into this “return to quality,” Dwane points out that it may come either from quality of growth, “as in Inditex’ case”, as from quality of dividends, “as Repsol’s or Royal Dutch’s.” Dwane explained that right now, the right decisions must be taken, even within sectors, and gives the example of the banking sector: “between two large global banks such as HSBC and BBVA, we currently opted for HSBC. Firstly, BBVA is more expensive, and secondly, the recovery in Spain and much of Latin America is questionable, while HSBC bank is more diversified. “

For investors who prefer something less volatile, a strategy focusing on a high dividend yields is more appropriate.

In the high income strategy, Allianz GI’s management team scouts for companies which have a 25% higher yield than the market’s. “It is a quantitative process that we carry out each and every Monday to see which companies meet this criterion. Once we have the candidates, we see which securities have solid fundamentals by looking at the sustainability of the dividend, the generation of cash flows, the quality of the management team, etc. Businesses that meet our criteria will enter the portfolio. In turn, the sales discipline is simple: when a security we have in the portfolio reaches the market’s dividend yield, it’s offered for sale” Dwane explains.

In an interview with Funds Society, Neil Dwane talks about bPost, the Belgian postal company, as an example of a company which fits these criteria. “bPost met the criteria of high yield dividends, but is also recently benefiting from Amazon’s entry into the Belgian market since most of the packages distributed by Amazon in Belgium travel through the bPost postal service. As befits a company of this type listed in Europe, bPost trades at a PE ratio of 6x and has an attractive yield of 6.5%, with an expected dividend growth of 10% due to improved cash flows” he adds.

Allianz GI’s European Equity Dividend strategy has an average dividend yield of 5.1%, with expectations that the yield will rise to 5.8% next year. “Therefore, a higher yield than that offered by high yield debt in the Euro zone is obtained through this strategy, and also, in the case of investing in dividends, you do so in high-quality companies, whilst if investing in high yield debt you are positioning yourself in companies with poor credit quality whose emissions, going back to par, have a potential drop of 35%,” argues Dwane.

Sentiment towards Europe Has Changed. Was It All an Illusion?

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El sentimiento hacia Europa ha cambiado: ¿Ha sido todo una ilusión? — Ann Steele, Portfolio Manager for Threadneedle’s Pan-European Equity Strategy. Sentiment towards Europe Has Changed. Was It All an Illusion?

Earlier this year, everything seemed to be running well in Europe. Mario Draghi had promised to “do everything necessary,” growth was returning to the economies of the euro zone, albeit slowly; and even peripheral countries showed recovery. Investors trusted this recovery and returned to the European market, and nobody would bank on the collapse of the euro.

But sentiment has now changed. Has it all been an illusion? Ann Steele, Portfolio Manager for Threadneedle’s Pan-European Equity Strategy, spoke to Funds Society on the problems besetting Europe. Her diagnosis is severe: “We’re in the same spot we were two years ago.” Steele puts some hard data on the table: “Earlier this year, the consensus estimated growth of 14%, in European earnings per share, we are now at 5%, and virtually everything is due to the currency effect. If we look at GDP, we see that growth has stalled. In fact, France does not grow, Germany’s growth is very weak, and Italy has negative growth. These three countries together generate two thirds of GDP in the Euro zone, the situation, therefore, is complicated.”

Economic sanctions on Russia, which even in the best of cases, will remain in force for some time, are affecting quite a few economies. The specter of deflation joins this economic stagnation. The Eurozone’s annual inflation data is, at 0.3%, “light years below the ECB’s 2% objective.” The falling oil prices will not help generate inflation in Europe. In short, “the banking and sovereign debt crisis has led to a growth crisis in Europe,” says Steele.

Some countries have taken bitter, but effective, measures. Steele cites Ireland’s example, which following the necessary reforms has managed to lower its unemployment rate from 15% to 11%, enjoys a recovery of 24% in housing prices, and has achieved 7.7%. GDP growth in the second quarter “The banks were recapitalized in 2009 and have taken off, and a tax reform, which has lowered corporate tax to 12.5%, has attracted worldwide multinationals to Ireland.” The country has managed to lower its budget deficit from 13.7% in 2009 to 2.8% in 2014.

Steele is disappointed that the Irish example does not abound in Europe. Even its island neighbor, the United Kingdom, which has maintained a fairly healthy rate of growth in recent years, is now slowed by political motives. “First we had the Scottish referendum, which will continue to generate debate and change.” Soon, the country faces a general election in 2015, and later, the referendum for the UK‘s permanence inthe EU, scheduled for 2017-18. “As a result, we have a market influenced by politics over the next couple of years,” states the Portfolio Manager, also adding that “we will not see any tax increases in the UK in April, as stated in the consensus, since elections are in May, so, at the earliest,they’ll come towards the end of the first semester.”

Europe faces a difficult road ahead, in which Draghi’s discourse and actions will have to demonstrate their effectiveness. While the European market’s valuation is relatively more attractive than that of the US, it doesn’t stand out in relation to either Japan or the emerging markets. What is the positioning for this market environment, of the pan-European strategy which Ann Steele manages.

It’s in times like these that good stockpicking shows its full potential. The portfolio manager has made several changes to her portfolio, which currently has 60 securities. On one hand, she has tended to invest more in large caps, or even in mega caps, dropping weight in small and mid cap which weigh heavily in domestic markets. By sector, Steele’s ideas for getting the best out of the current situation are:

Huge commitment onthe European pharmaceutical sector: among the 10 companies with the largest weight in the portfolio, four are pharmaceutical. “On one hand I am overweight in the sector because it has a defensive nature, but mostly because the portfolio of products under development in the field of cancer control is awesome right now, with a range of very encouraging products which act by boosting the immune system so that therapies to fight tumors could change radically. Roche and Novartis have good franchises in such drugs.”
Sale of domestic banks in which she invested in 2013: Currently, her strategy is underweight on banks, but it has not always been so. Just over a year ago Steele banked on the recovery of European domestic markets and was overweight on domestic medium-sized banks in countries like Spain, Italy and Ireland buying names like Bankinter, Banco Popular and Bank of Ireland. “On seeing the results of some of these banks during the first quarter of 2014, I undid many of these positions, and am now underweight in the sector, and I don’t have any German or French banks in the portfolio,” she explains.
Success stories such as Pandora and Richemont: Steele is underweight in consumer defensives “because of its high correlation with the development of emerging markets” and overweight in consumer cyclicals. However, she points out that in this field, the big companies of luxury goods are having uneven behavior. For example, LVMH, which is not in the portfolio, has performed weakly in the alcoholic beverages sector, while it did well in jewelry and watches. “To capitalize on this trend, I have the Swiss luxury goods company, Richemont, in the portfolio; it specializes in fine jewelry and watches, and also has a net cash position of 4.7 billion Euros.” Another success story which forms part of Steele’s portfolio is the Danish jewelry company Pandora, which has experienced a change in its management team to become a major exporter globally, and now plans to enter the Chinese market.

“Now, the strategy has a lower beta than a year ago, as well as a lower tracking error, and 3.5% in cash, more than usual. I see value in the European market, but also problems of growth, both political and geopolitical, so it’s a good time to step aside and wait,” says Ann Steele, portfolio manager for Threadneedle’s strategy for Pan-European Equities.

Deutsche Asset & Wealth Management Adds Private Bankers in New York

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Deutsche Asset & Wealth Management (Deutsche AWM) has announced that Heather Kirby, Charles Walker and Stewart Oldfield have joined the firm’s Private Bank. Based in New York, Kirby, Walker and Oldfield report directly to Andrew Gallivan, Managing Director and Head of the New York Private Bank.

“Over the past year, we have been focused on strategically hiring top talent as we aim to be the leading provider of customized wealth solutions to high-net-worth and ultra-high-net-worth clients in the Americas,” Chip Packard, Co-Head of Wealth Management in the Americas, said. “I am confident Heather, Chuck and Stewart’s extensive industry experience and deep client relationships will help us to achieve our goals and further expand our platform.”

With over 30 years of industry experience, Kirby joined as a Managing Director and Private Banker. Prior to Deutsche AWM, she was a Managing Director and Private Banker at Citi Private Bank, where she focused on the ultra-high-net-worth market. Previously, she was a Managing Director at US Trust. Kirby earned a BA in American Studies from Yale University and an MBA from the New York University Stern School of Business.

Charles (Chuck) Walker joined as a Director and Private Banker. Walker brings over 25 years of industry experience and also joined from Citi Private Bank, where he was a Senior Vice President and Private Banker. Previously, he was a Senior Vice President and Private Client Manger at US Trust. Walker earned a BA in Economics from Duke University.

Stewart Oldfield joined as a Director and Private Banker with over 16 years of experience. Prior to Deutsche AWM, Oldfield spent 12 years at Credit Suisse in their Investment Solutions Group, where he was responsible for developing and providing portfolio solutions and liquid alternative investments to the Private Bank’s top institutional and family office clients. Oldfield received a BSBA cum laude in Finance and International Business from Georgetown University. He has been a CFA charterholder since 2002, CAIA charterholder since 2013, and is a member of the New York Society of Securities Analysts.

In 2014 Deutsche AWM has made several key hires in its Wealth Management division. Most recently, the Bank announced that it hired Lee Hutter as the Head of Wealth Management for the US Western region. Deutsche AWM also announced the opening of its Private Bank in Dallas in September.