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Deutsche Asset & Wealth Management Renames Retail Product Suite in the Americas

Deutsche Asset & Wealth Management (DeAWM) has announced that it has renamed all retail products in the Americas, effective on Monday. This change will affect all open-end funds, closed-end funds, the Variable Insurance Portfolios (VIPs) currently named “DWS,” and the db X-trackers exchange-traded funds (ETFs).

“Renaming our products to reflect our integrated platform is the natural next step for our business, as we continue to expand our footprint and leverage Deutsche Bank’s global reach,” said Jerry Miller, Head of Deutsche Asset & Wealth Management, Americas.

“The Deutsche brand better reflects our platform’s global capabilities and our ability to deliver unique, holistic solutions to our growing client base in the Americas.”

As part of the rebranding, Deutsche Asset & Wealth Management’s suite of retail products and ETFs will be renamed as follows:

Current Brand Name				New Brand Name
DWS and DWS RREEF funds				Deutsche funds
DWS variable insurance portfolios (VIPs)				Deutsche VIPs
DWS-branded closed-end funds				Deutsche-branded closed-end funds
db X-trackers exchange-traded funds				Deutsche X-trackers exchange-traded funds

Additionally, the names of three key service providers will be renamed as follows:

Current Entity Name				New Entity Name
DWS Investments Distributors, Inc.				DeAWM Distributors, Inc.
DWS Trust Company				DeAWM Trust Company
DWS Investments Service Company				DeAWM Service Company

DST fund numbers, ticker symbols, and fund objectives will remain unchanged.

Discretionary Programs Growing 50% Faster Than Nondiscretionary

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According to global analytics firm Cerulli Associates, discretionary managed account programs are growing 50% faster than nondiscretionary programs.

“Discretionary advisory platform growth has far outpaced nondiscretionary programs and separate accounts over the last two years,” states Frederick Pickering, analyst at Cerulli. “Nondiscretionary unified managed account programs have grown faster than discretionary programs overall, but their small asset base had little effect on overall weighted growth rates.”

As of year-end 2013, total managed account assets reached nearly $3.5 trillion, representing more than 25% growth over year-end 2012. Cerulli projects the managed account market will exceed $5 trillion in assets under management by the end of 2016.

Strong market returns paired with substantial inflows pushed each program type, except separate accounts, to record asset levels. Though differences exist between sponsors and advisors regarding how to best implement the programs, the recurring revenues and process-driven portfolio management aspects of fee-based relationships have been roundly embraced as the industry’s preferred option for the delivery of wealth management services.

Overall, Cerulli anticipates continued growth of the segment as more advisors adopt the programs, and advisors who already use the platforms transition more clients out of commission relationships.

In their Managed Accounts 2014: Confronting Threats report, Cerulli analyzes the fee-based managed account marketplace, which has been a core research focus since the firm’s inception in the early 1990s. This report, in its twelfth iteration, is the result of ongoing research and quarterly surveys of asset managers, broker/dealers, and third-party vendors, which captures more than 95% of industry assets.

“Advisors have largely accepted that discretionary account management simplifies their business model and allows for greater trading efficiency,” Pickering explains. “Having already chosen to place their faith in their advisors by initiating their relationships, few investors feel the need to be consulted before any possible trades are executed.”

Cutting Trading Costs in Emerging Markets

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Rising wealth in emerging markets is making the companies listed on their stock markets increasingly attractive. Growing disposable incomes from a middle class that adds millions to its ranks every year means higher profits and better returns for investors.

However, buying and selling stocks in emerging markets can incur high trading costs. When these are deducted from gross returns, profits made on equity markets are reduced. It can also be difficult to buy and sell shares in the first place due to relatively lower numbers of investors in emerging markets than the developed world, which makes many equities illiquid.

To counteract the problem and make trading emerging market equity stocks both more affordable and accessible to investors, Robeco has developed a model that estimates stock-specific trading costs.

“Trading costs are disproportionately high in emerging markets,” says Wilma de Groot, portfolio manager for quantitative emerging markets equity for the past year and a quant researcher at Robeco since 2001.

Thought leadership for peers

De Groot’s research has been blended with that of her quant colleague Weili Zhou, who developed the trading costs model, and Joop Huij, who is also a quant researcher. The three authored a 2011 report, ‘Another Look at Trading Costs and Short-Term Reversal Profits’, which has formed significant thought leadership for the asset management industry.

“Our quant products have a relatively low turnover, so we are already cost-aware, but trading costs will become more important as the funds grow,” she says. “We developed a proprietary trading costs model, for our own Robeco trades, so these costs are visible in our tools when we do a trade.”

These cost estimates are reliable predictions for the actual costs that would be incurred when the trade is executed. “The next step is the integration of this trading costs model into our investment process and we have several ideas,” De Groot says.

“The first is that we want to use it to determine our active positions, so if a stock is very attractive, but has very high trading costs, then we will not take our full overweight position.

“The second is to make a connection between the expected alpha of a stock, and the trading cost of acquiring it. Although a stock might be expensive to trade, if it has an attractive alpha, it might still be worthwhile buying that stock.”

Market impacts important

Direct trading costs are fairly straightforward to quantify, but a bigger problem is the impact that a sizeable trade in the shares of an illiquid stock can have on the overall market. If an investor buys or sells a large tranche in one hit, the act of trading can itself move the share price upwards of downwards.

“Trading costs consist of multiple components: there are the fixed trading costs such as commissions and fees, and taxes, which can also be relatively high in emerging markets,” she says.

“But then we have market impact, because the trading volumes are much lower in emerging markets than in developed markets. And we continuously look at how we can further refine our market impact estimates. This is something on our research agenda.”

Relationship with anomalies

New research by the quant team includes a large-scale investigation into the relationship between investment anomalies and trading costs. These include market phenomena such as the momentum effect which has been proven to show that stocks which demonstrate high momentum outperform those with low momentum, contrary to standard investment theory.

“There is a stream of academic literature that argues that profits of well-known anomalies disappear once correcting for trading costs,” De Groot says. “We observed that the strategies used in these articles are, however, very simplistic and include many small- and micro-stocks which are very expensive to trade”.

Indeed, research by De Groot, Zhou and Huij shows that by implementing investment strategies using smart trade rules is a better option. It results in much lower turnover compared to naïve trading algorithms without the loss of gross performance, thus increasing net profits.

More Than 14,000 Investment Professionals Pass Level III CFA Exam, Take Final Steps to Becoming Charterholders

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CFA Institute announced that of 26,882 candidates that sat for the Level III CFA exam in June 2014, 54 percent passed the third and final exam. Pending experience and membership requirements, these successful candidates will become CFA charterholders starting in early October, bringing the number of charterholders worldwide to more than 125,000.

In addition, of 44,796 candidates who took the Level II exam, 46 percent were successful and of 47,005 candidates who took the Level I exam, the pass rate was 42 percent. Globally 54,768 candidates passed Levels I, II, and III, with the overall pass rate for all three levels at 46 percent. (View historical pass rates).

“The candidates that sit for the CFA exam each year are fine examples of those in finance who are committed to putting investors first and building a culture of trust in the industry,” said Steve Horan, CFA, CIPM, managing director and co-lead of Education. “Successful candidates have shown a significant commitment to professional knowledge, education and ethics, and are part of the CFA Institute effort to build a more trustworthy financial industry that better serves society. We congratulate these successful candidates on their hard work and dedication.”

Journey from candidate to charterholder takes commitment

To earn the CFA charter, candidates must sequentially pass three six-hour exams that are widely considered to be the most rigorous in the investment profession. The CFA curriculum includes ethical and professional standards; financial reporting and analysis; corporate finance; economics; quantitative methods; equity, fixed income, alternative investments; derivatives; portfolio management; and wealth planning. CFA Institute has administered well over a million exams since the inauguration of the CFA program in 1963.

The Level I exam is offered twice per year, and the Level II and Level III exams are offered once each year. The Level I exam consists of multiple-choice questions. Level II is composed of item sets (i.e., mini cases with detailed vignettes), and the Level III questions are 50 percent item set and 50 percent short answer and essay. On average, candidates report spending in excess of 300 hours of study to prepare for each level. CFA candidates typically take four years to pass the three required exams. When asked what their primary motivation for registering for the CFA exam is candidates cite career advancement, a higher level of knowledge and improved chances of obtaining a job as the top three reasons.

The 2014 exams were given at 255 test centers in 196 cities, across 91 countries worldwide. Examples of markets with the largest number of candidates that took the CFA exam are the United States (29,625), China (19,395), India (9,516), Canada (10,161), the United Kingdom (8,134), Hong Kong (5,422), and Singapore (2,983).

Last year CFA Institute launched its Future of Finance project, a long-term global effort to shape a trustworthy, forward-thinking financial industry that better serves society. The project aims to provide the tools to motivate and empower the world of finance to commit to fairness, improved understanding, and personal integrity. Recently, as part of the Future of Finance initiative, CFA Institute recognized Putting Investors First Month through a series of events, which spanned the month of May. The initiative united financial professionals throughout the world in a commitment to place investor interests above all others. Putting Investors First Month activities took place in more than 60 cities throughout the world, with participation from many of the 125,000 CFA Institute members.

BlackRock Launches Multi-Manager Alternative Strategies Fund

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Foto: Alanas Pantry, Flickr, Creative Commons. Ventajas que aportan al inversor los fondos perfilados

BlackRock launched the BlackRock Multi-Manager Alternative Strategies Fund, designed to offer individual investors the opportunity to access multiple alternative investment strategies in a single open-end mutual fund. The investment objective of the Fund is to seek total return. The fund was launched in the United States.

BMMAX extends BlackRock’s alternative mutual fund platform to seven funds, further establishing the firm as one of the preeminent providers of alternative investment solutions globally, with more than $115 billion in assets under management (at 6/30/14).

“Following the market volatility of recent years, it is critical for investors to understand that exposure to a wider range of investments is necessary as part of a core investment strategy,” said Ken Barbuscio, head of product and platform development for BlackRock’s U.S. Wealth Advisory Division. “BMMAX provides individual investors with a way to diversify across alternative investment managers and strategies in a single portfolio solution.”

BlackRock is responsible for identifying and retaining Sub-Advisers for the Fund’s selected strategies and for monitoring the services provided by the Sub-Advisers. Mark Everitt, CFA, Albert Matriotti, David Matter, CFA and Edward Rzeszowski are jointly responsible for setting the overall investment strategy and overseeing the management of the Fund.

The Fund allocates fund assets among alternative strategies managed by BlackRock and external sub-advisers including:

Benefit Street Partners, LLC – Fundamental Long/Short
Independence Capital Asset Partners, LLC – Fundamental Long/Short
LibreMax Capital, LLC – Fundamental Long/Short
Loeb King Capital management – Event Driven
MeehanCombs LP – Fundamental Long/Short
PEAK6 Advisors LLC – Relative Value
QMS Capital Management LP – Directional Trading

Pioneer Investments Appoints Lisa M. Jones Head of the U.S.

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Pioneer Investments incorpora a Lisa M. Jones como responsable del negocio en EE.UU. — CC-BY-SA-2.0, FlickrLisa replaces Daniel K. Kingsbury. Pioneer Investments Appoints Lisa M. Jones Head of the U.S.

Pioneer Investments, a global asset management firm, has announced that Lisa M. Jones has been named Head of the U.S. In this role, she will serve as President and Chief Executive Officer of Pioneer Investment Management USA Inc., the U.S. Division of Pioneer Investments. Lisa will be a member of Pioneer’s global leadership team and will report to Sandro Pierri, Chief Executive Officer of Pioneer Investments. She will start on August 11, 2014 and be based in Boston.

Lisa has over 25 years of experience in financial services, including multiple leadership roles in which she was responsible for developing and building asset management businesses. She joins Pioneer Investments from Morgan Stanley Investment Management (MSIM), where she was Global Head of Distribution and President of MSIM Distribution Inc., a position she left in 2013. Prior to MSIM, she was Head of the Global Institutional Division at Eaton Vance Management and spent more than 16 years at MFS Investment Management where she held leadership roles in both the retail and institutional divisions. She has been an active member on a number of boards, including the Foreign Policy Association in New York, the Board of Fellows at Trinity College, Hartford, Ct., and the Advisory Board of the Institutional Investor Institute. She earned a B.A. in Economics from Trinity College.

“Pioneer Investments’ U.S. Division is a critical and integral component of our global strategy, and Lisa’s hiring is an important step forward in accelerating the growth of our already strong U.S. business,” said Pierri. “Lisa is a proven performer in distribution and overall product and business strategy, and is an energetic, results-driven leader. Her experience and leadership skills will be significant assets in helping us achieve our growth objectives in the U.S.”

Pioneer’s U.S. Division, based in Boston, has approximately $72 billion in assets under management and 560 employees, including 79 investment professionals and a sales and marketing staff of more than 150. The division manages a wide range of equity, fixed-income, multi-asset, and alternatives strategies for retail and institutional investors in the U.S. and international markets. Boston is one of Pioneer’s three major investment hubs, with others located in Dublin and London.

Lisa replaces Daniel K. Kingsbury, who will remain at Pioneer until September 5, 2014 to assist with the transition. His departure follows a successful 15-year career at Pioneer, including the last seven as Head of the U.S. “Dan’s extensive experience as a global manager played an essential role in driving the expansion of the U.S. and its integration with Pioneer’s global capabilities. We greatly appreciate his dedication and service,” Pierri said.

Europe Bears Brunt of Falling Sentiment but Emerging Markets Thrive

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Rising geo-political temperatures combined with the threat of rising U.S. interest rates have led global investors to scale back risk and take cash levels to two-year highs, according to the BofA Merrill Lynch Fund Manager Survey for August. An overall total of 224 panelists with US$675 billion of assets under management participated in the survey.

Investors have shifted robustly into cash with a net 27 percent of respondents to the global survey overweight cash in August, up from a net 12 percent in July. Cash now accounts for an average of 5.1 percent of global portfolios, up from 4.5 percent a month ago. Both cash readings are at their highest since June 2012. The proportion of asset allocators overweight equities has tumbled by 17 percentage points in one month, to a net 44 percent in August. The number of survey respondents hedging against a sharp fall in equity markets in the coming three months has reached its highest level since October 2008.

Global growth predictions have fallen since July but remain firm. A net 56 percent of the global panel expects the economy to strengthen in the year ahead, a fall from a net 69 percent in the previous month. However, sentiment towards Europe has fallen significantly – the earnings outlook for the region suffered its greatest monthly fall since the survey started.

Fears of a geopolitical crisis is the biggest cause of risk-reduction – with 45 percent of respondents naming it their number one “tail risk” this month, up from 28 percent a month ago. But a new question in the survey highlights how a rate hike is also playing on investors’ minds – 65 percent of the panel expects a U.S. rate rise before the end of the first half of 2015.

“The market melt-up is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher rates,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research. “We see further de-risking to come in Europe. Negativity in this month’s survey towards Europe reflects growing softness in economic data from both the core and periphery of the region,” said Manish Kabra, European equity and quantitative strategist.

Europe’s gloss is lost

Europe’s status as the world’s market darling for much of 2014 has all but evaporated in the past month, with a big negative swing in the number of investors currently overweight European equities and an even greater negative swing in sentiment about the future.

A net 13 percent of asset allocators are overweight Eurozone equities – a fall of 22 percentage points in one month. U.S. equities also lost ground but only a 4- percentage point drop to a net 6 percent. Furthermore, a net 30 percent of global investors believe that the 12-month profit outlook is worse is Europe than in any other region. That reading has fallen 24 percentage points since July – a record one-month swing.

It’s not surprising therefore that Europe has now become more of a region to underweight than overweight. A net 4 percent of investors want to underweight Europe more than any other region. In July, a net 10 percent wanted to overweight Europe. The survey also highlights growing pressure on the euro. A net 40 percent saying that it is the currency they most expect to depreciate (on a trade-weighted basis), a reading that represents a two-year high in negativity towards the euro, up from a net 28 percent in July.

Emerging markets shine again

Global Emerging Markets (GEM), and to a lesser extent Japan, have bucked the wider global trend of pessimism. A net 30 percent of asset allocators are now overweight Japanese equities, a rise from a net 26 percent in July and making Japanese equities the most popular of the five regions.

GEM has shown the greatest momentum, with the proportion of asset allocators overweight the region rising to a net 17 percent from a net 5 percent in July. Behind the improvement is stronger belief in China and in commodities. A net 6 percent of regional fund managers expect the Chinese economy to improve in the coming 12 months – the first positive outlook of 2014. Just two months ago, a net 42 percent forecast China’s economy to weaken.

Fewer global asset allocators are underweight commodities – a net 5 percent compared with a net 15 percent in July. Looking ahead, a net 21 percent of investors say that GEM is the region they most want to overweight in the next 12 months, up from a net 4 percent in July.

Investors pursue big caps and value

Investors have expressed unusually strong opinions in favor of large-cap stocks and value-driven investment this month. The proportion of respondents favoring value over growth investing has reached a record level of a net 48 percent. Value investing is typically in favor during “risk off” phases, but the high this month outstrips even previous highs in 2009 in the aftermath of the financial crisis. A net 59 percent believe that large caps will outperform small caps, the highest reading in two years.

RBS Considers Sale Of International Wealth Arm

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Royal Bank of Scotland is considering selling its Coutts International business, among options that the UK-listed firm – mostly owned by the UK taxpayer – is considering as it intensifies its focus on the domestic market, according to an internal memo seen by Tom Burroughes, Group Editor in London, News Analysis.

A spokesperson for RBS, when asked about media speculation, said there is as yet no firm deadline on when any decision over the international business’s future will be made.

“It is no surprise that RBS is thinking of selling the international arm of Coutts. It does not fit with the new UK centric strategy and management realise, that if it does not invest in the business, then the value of the franchise will decline. While some kind of management buy-out/private equity transaction cannot be ruled out given the `capital lite’ nature of wealth management, the branding issue may mean that the better option for all parties is for a trade sale,” Christopher Wheeler, analyst at Mediobanca, told the publication.

“However, whichever route is followed, a big issue is how to deal with the US cross-border tax issue, which proved a sticky problem in the recent sale of BSI, by Generali, to BTG Pactual,” he added, referring to Coutts’ Swiss business.

For weeks, there has been speculation that RBS might sell off the international arm of Coutts, which operates under that brand in jurisdictions in Asia and Switzerland, among others. Other wealth management brands of RBS include Adam & Co, a Scottish-based bank that also has offices in London. Coutts is one of the most renowned banking names in the UK, dating back to late 17th century and famed as the bank used by the UK monarch.

A possible sale comes as some banks, which expanded into foreign fields in the years before the financial crisis, have found the business of managing overseas operations more burdensome recently as compliance and related costs have mounted. In other cases, banks haven’t felt they reached the critical mass of business to justify outlays, which is why, for example, Morgan Stanley has sold parts of its non-US wealth arm. Societe Generale sold its Asia private banking arm to Singapore-headquartered DBS earlier this year. Bank of America has spun off its international wealth business outside the US to Julius Baer. A broader issue is that RBS, which was bailed out by the-then Labour-led government in the depths of the financial crisis, is under pressure to return to full financial health as soon as possible, enabling the government to sell its majority stake. A similar process is under way at Lloyds Banking Group, in which the government holds a large minority stake.

The move will inevitably fuel speculation about whether private banking operations are best handled under the umbrella of a larger organisation, or as pure, standalone vehicles. At rival UK bank Barclays, that firm has recently folded its wealth management arm into a broader segment of the bank, and it no longer reports discrete results on the wealth business. By contrast, HSBC has reportedly stated it intends to keep its private banking arm as a separate unit.

International targets

RBS feels it will be tough a return on equity of more than 15 per cent on its international wealth management business; that operation accounts for around 41 per cent of client assets and liabilities and 35 per cent of revenues. At the UK arm, meanwhile, RBS said in its memo that it is confident of further strong growth and potential to boost return on equity. At present, the UK represents 59 per cent of customer assets and liabilities and 65 per cent of revenues in the banking group’s business.

RBS has been reviewing its wealth management units since February this year, stirring inevitable industry speculation. RBS wants a more strategic focus on the UK and will continue to serve UK resident non-domiciled clients. Options might include merging the rest of the current Coutts International business, joint ventures or a sale, “thereby reducing RBS’s footprint internationally”, the RBS memo said.

As far as the management structure is concerned, the wealth executive committee will operate as before; Rory Tapner, CEO of the wealth business, will continue to chair that committee and report to Alison Rose, who is CEO, Commercial and Private Banking at RBS.

“There are no immediate changes for individuals in these businesses and it is important that we continue to work together to deliver for our customers, and to focus on making RBS the most trusted bank,” the memo, signed by Rose, and Les Matheson, CEO, personal and business banking, said.

Predictions of Future Bond Yields Rely Too Heavily on Forward Rates

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ING Investment Management is warning investors against relying on forward interest rates when trying to estimate future bond yields, describing them as nearly ‘worthless’.

A forward rate is a theoretical expected yield on a bond several months or years from now, generated by subtracting the yield of a shorter maturity bond from the yield of a longer dated bond.

The investment manager is concerned that forward interest rates are currently being relied upon to advance the argument that future economic growth, inflation and bond yields will be lower than in the past. The relatively low forward rates implied by today’s bond prices are a seemingly objective measure that can be used to support “secular stagnation”, which is the idea that the world has shifted permanently into a lower growth mode. Applying this concept to today’s markets, the US Treasury five year note will yield approximately 3.34% on August 4th 2019 and the Bundesobligation five year will trade at approximately 1.97%.

However, analysis by ING IM reveals that using August 4th 2009 bond yields, the US Treasury five year note should be trading at 4.68% today and the Bundesobligation five year should be 4.18% – instead they are trading at 1.63% and 0.29%, respectively.

Tim Dowling, Head of Global High Yield, ING IM said: “Forward interest rates may be an objective measure, but they are close to worthless as a predictor.’’

“The main benefit from looking at the relationship between shorter and longer dated bonds is that it can provide some insight into trading levels a couple of months out, rather than five years from now. Making predictions that are more than a year away is little more than guesswork. The relationship of shorter and longer dated bonds really only helps with understanding how investors are anticipating short term price reactions.”

Group Led by Lexington Partners to Acquire Portion of JPMorgan Chase’s Interests in One Equity Partners

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Lexington Partners together with AlpInvest Partners have announced that they have entered into a definitive agreement to acquire JPMorgan Chase’s interests in approximately 50% of the portfolio companies currently held by One Equity Partners, JPMorgan Chase’s principal private equity unit. Terms of the transaction, which is expected to close by year-end, were not disclosed.

The OEP professionals will form a new private equity investment advisory firm, OEP Capital Advisors, and become independent from JPMorgan Chase once the sale is completed. OEPCA will manage the portfolio being sold by JPMorgan Chase, as well as the investments being retained by JPMorgan Chase.

“Lexington is pleased to partner with One Equity Partners to acquire a significant portion of JPMorgan Chase’s interests, and to support the future investment activities of the OEP team,” said Brent Nicklas, Managing Partner of Lexington Partners.

“We view this as a great opportunity to partner with one of the industry’s leading private equity firms,” said Tjarko Hektor, Managing Director of AlpInvest Partners.

“We look forward to delivering great long-term value to these two leading alternative investment management firms,” said Richard M. Cashin, Chairman and Chief Executive Officer of One Equity Partners. “We also thank JPMorgan Chase for their partnership and support of many years, enabling us to build the business we have today.”

The transaction is not expected to have a material impact on JPMorgan Chase’s earnings. J.P. Morgan advised on the sale.