Global investors are moving toward a “risk-off” stance, taking on greater protection as the prospect of geopolitical instability grows, according to the BofA Merrill Lynch Fund Manager Survey for March.
Responding at a point of growing tension in Ukraine, 81 percent of investors said they see geopolitical risk posing a threat to financial markets stability – more than four times the reading one month ago. Twenty-seven percent of investors say that a geopolitical crisis is the biggest tail risk – up from 12 percent in February. At the same time, investors continue to express concern about the prospects for emerging markets – with sentiment towards China’s economy falling further.
Investors have reacted by showing reduced optimism about the prospect for corporate profits globally and by reining in risk. They have increased cash allocations, reduced equity holdings and taken on greater protection.
The proportion of investors taking lower than average risk in their portfolio has increased to a net 14 percent from a net 2 percent in February. A net 16 percent of global asset allocators say that they are overweight cash, up from a net 12 percent last month. Average cash balances remain high at 4.8 percent of portfolios. The proportion of asset allocators overweight equities has dropped by nine percentage points month-on-month to a net 36 percent. Demand for protection against sharp falls in equity markets has increased to its highest level in 22 months.
“With neither inflation nor recession posing a threat, we believe the equity bull market is far from over and investors should be putting excess cash into risk assets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“We see signs that recent exuberance in sentiment and positioning in Europe is waning. While Europe’s recovery remains in play, markets likely need to consolidate further before resuming their upward trend,” said John Bilton, European investment strategist.
Corporate optimism off highs
Investors have scaled back their belief in a vibrant recovery in corporate profit growth – but remain positive. A net 40 percent of global investors believe that global profits will improve in the coming 12 months, down from a net 45 percent in February.
At the same time, investor demand for companies to borrow and invest has eased. A net 34 percent of respondents say that corporate balance sheets are underleveraged, down from a net 40 percent last month.
Sectorial allocations this month reinforce a defensive mindset with a sharp fall in allocations towards banks and a rise in allocations to energy companies and utilities.
Hedge funds take risk-off stance
Hedge fund managers provide an illustration of the risk-off mentality taking shape in this month’s survey, having reduced both leverage and exposure to equities. The weighted average ratio of gross assets to capital has fallen to 1.34 times from 1.49 times, the lowest in 20 months. Thirty-one percent of hedge funds have a leverage ratio of less than one time – compared with 19 percent in January.
Weighted net exposure to equities has fallen to 29 percent, down three percentage points month-on-month from 38 percent in January and the lowest since June 2012.
Emerging market sentiment close to lows?
The investor panel has indicated that sentiment towards global emerging markets is close to reaching a low and that improvement is in sight. While the view towards China has deteriorated further, investors see scope to return to the region.
A net 47 percent of regional fund managers in Japan, Asia Pacific and global emerging markets expect China’s economy to weaken in the coming year, up from a net 41 percent a month ago. The proportion of global asset allocators underweight emerging market equities has risen two percentage points month-on-month to a net 31 percent – a new record low.
On the brighter side, investors have indicated that they see value in the region. A record net 49 percent of the global panel believes that emerging markets is the most undervalued of the regions, compared with a net 36 percent in January.
PineBridge Investments announced today that its Mexican private funds vehicle, Mexican Certificados de Capital de Desarrollo, or “CKD I” PBFF1CK 12, which is listed on the Bolsa Mexicana de Valores, has committed capital to five private market funds. The initial investments represent approximately half of the US $209 million (MX $2,681,250,000) capital commitments in CKD I. The selected funds provide access to investment opportunities in Mexico across growth equity, private infrastructure and private credit strategies.
During the third quarter of 2012, PineBridge launched the first pure private market funds portfolio through a CKD vehicle. PineBridge’s CKD I offering provides Mexican institutional investors with the opportunity to access a diversified portfolio of institutional quality private market funds, most of which would otherwise not be available to its investors, through a publically listed vehicle.
After the first round of selective investments, PineBridge’s CKD I portfolio is positioned to meet its investment objectives. Through its fund investments, CKD I has already provided investors with access to 10 underlying Mexican companies and projects in multiple sectors including telecommunications, logistics, e-commerce, fast food, housing and animation. CKD I investments will be focused solely in Mexico.
“We are enthusiastic about the opportunities in the Mexican private markets and the investments we are providing to our limited partners,” stated Steven Costabile, Global Head of the Private Funds Group at PineBridge. “The pipeline of institutional quality private market funds in Mexico continues to grow and we expect to fund significant investments in 2014.”
PineBridge’s CKD I has committed capital to the following funds:
Real Infrastructure Fund (Mexico)– provides growth capital to small- and mid-sized renewable energy projects in Mexico
Ventura Capital Privado Fund – provides access to larger transactions within the Mexican middle market
Alsis Mexico Housing Opportunities Fund Offshore– provides financing to private mid-sized Mexican real estate developers
Alta Growth Capital Mexico Fund II– provides growth equity capital to mid-sized companies in Mexico
Latin Idea Mexico Venture Capital Fund III– focuses on growth equity investments in the TMT sector
“Our goal is to build a diversified portfolio that provides top-tier access to the best opportunities in the middle market in Mexico. By significantly broadening the opportunity set, and focusing on growth equity, private credit and infrastructure, we are well positioned to deliver on this,” stated Alejandro Rodriguez, Director at PineBridge in Mexico City. “We are proud to be able to meet our clients’ needs, while continuing to bring attention to the investment opportunities in Latin America.”
“Our listed private funds portfolio structure has opened up a diversified opportunity set of private market investments for our clients. This innovative approach is bringing efficiency and rigor to the portfolio construction process with access to specialized opportunities,” stated Sergio Ramirez, Head of Americas Business Development at PineBridge.
The increased tensions in the Ukraine have made ING Investment Management more cautious, but are no reason to alter their risk-on stance. However, they have lowered the overweight position in equities and look for more contrarian exposure in commodities and real estate, as it seems that the balance of opportunity has shifted towards these asset classes.
For now, there is little reason to significantly adjust our general risk-on allocation stance in place as both fundamental and behavioural dynamics are still in support of risky assets. At the same time, it has to be acknowledged that the risks surrounding this base case scenario have increased.
Real estate and commodities outperform global equities
They have lowered our equity overweight…
A modest risk reduction in thier tactical allocation stance seemed prudent last week. Thinking about how to execute this, ING IM took into account where regional sensitivity was most influential, where valuation was most stretched and where positioning was most concentrated. With global equities reaching a new all-time at the end of February, attractiveness in the previously relatively cheap European equity markets having been eroded in recent weeks and generally still most risk taking amongst investors focused on equities, we decided to lower our equity overweight from medium to small.
…and shift our focus towards real estate, commodities
This also aligns well with their increased desire to look for more contrarian exposures in our asset allocation stance. As investor consensus is still heavily tilted towards equities while real estate and commodities are generally still unloved by active market players, the balance of opportunity seems to have shifted to the latter two asset classes. This has already been visible in the relative performance of these asset classes since the start of the year (see graph). It is one of the arguments to gradually relocate their allocation focus from equities towards real estate equities and commodities. Both are now overweight positions.
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Foto cedidaPatrick Summer, Head of Property Equities at Henderson Global Investors. Henderson: The attractions of property equities
After 17 years at Henderson, heading the Global Property Equities team since 2004, and after 34 years in the property industry, Patrick Sumner will be retiring from Henderson Global Investors at the end of June this year. He was instrumental in starting the European, Asian and Global strategies, which today amount to more than $2.7 billion.
Guy Barnardand Tim Gibson will take over as co-heads of Global Property Equities. Guy is based in London and has been co-manager of the $1.2 billion Henderson Horizon Global Property Equities Fund since November 2008 and manager of the $600 million Henderson Horizon Pan European Property Equities Fund since September 2010. Tim is based in Singapore and manages the $350 million Henderson Horizon Asia Pacific Property Equities Fund. Tim will join Guy as co-manager of the Henderson Horizon Global Property Equities Fund. In addition, Guy and Tim will continue to manage other regional and global funds.
At the same time the team has been strengthened with the two appointments, one to be based in London and one in Singapore. Nicolas Scherf will join in London as portfolio manager, where he will take on responsibility for certain European portfolios and will assist in the running of the Henderson Horizon Pan European Property Equities Fund. Nicolas joins from Cohen & Steers Capital Management where he spent over 6 years as a property securities investment analyst.
Xin Yan Low will join as an analyst on the property equities team in Singapore. She spent the last six years at Bank of America Merrill Lynch as an equity research analyst covering Asia property equities. She will work with Tim Gibson and alongside existing analyst Yan Ling Wong on the Henderson Horizon Asia Pacific Property Equities Fund and on the Asian portions of other property equity portfolios. Both will start in the 2nd quarter of this yea
Tim Gibson adds, “With investors increasingly looking for alternatives to fixed income, we feel the listed property sector, with an attractive and growing income stream, is well placed for the years ahead. Guy and I look forward to building on Patrick’s success and working with our clients to develop the team and franchise further in the years ahead”.
Foto: Wallyg. AXA IM encarga a Tim Gardener la dirección global del nuevo Grupo de Clientes Institucionales
AXA Investment Managers (AXA IM) has announced the appointment of Tim Gardener as Global Head of the firm’s new Institutional Client Group, formed to reflect AXA IM’s focus on the investment needs of distinct client groups. Lisa O’Connor, currently European Head of Consultant Relations, succeeds Tim Gardener as Global Head of Consultant Relations.
Tim Gardener will lead the development of the firm’s offering and approach to institutional clients, including insurance companies, pension funds, and sovereign wealth funds. Elodie Laugel, previously Head of Solutions Development in AXA IM’s Multi Asset Client Solutions team, has been appointed Deputy Head of the Institutional Client Group. The global consultant relations team, led by Lisa O’Connor, is an integral part of the Institutional Client Group, representing the importance of consultants in both their traditional advisory role and as leading players in fiduciary management markets across the spectrum of institutional clients.
The Institutional Client Group is one part of AXA IM’s wider Client Group of 250 professionals led by Laurent Seyer. The division is in charge of developing AXA IM’s proposition by client segment (institutional, retail and wholesale), while coordinating and monitoring marketing and client relationship activities.
Commenting on the appointments, Laurent Seyer, Head of Client Group at AXA IM, said: “The leading asset managers of tomorrow will be those that are able to develop the strongest relationships with their clients. Our relationship with the AXA Group means that we are constantly challenged to stay at the forefront of financial innovation and that we have an in depth understanding of the needs of complex clients. The Institutional Client Group will ensure that we are leveraging this competitive advantage to the benefit of all of our clients. It will also support AXA IM in being as well positioned as possible to help its clients and consultants address the investment challenges facing them.”
M&G Investments, one of Europe’s leading asset managers, has reported record net retail fund sales of €8.9 billion in its established European markets and in Asia in 2013.
This marks a 46 per cent improvement on the previous year. Retail assets under management in Europe totalled €28.5 billion at the end of 2013, a 64% increase over the 12 months. They now represent 35 per cent of total retail assets under management.
Net retail fund sales were strongest in Italy, Spain, Switzerland and France.
At a group level, M&G posted total net inflows of €11.2 billion. M&G has attracted an accumulated total of €62.4 billion in net sales over the past five years.
Total assets under management were 7 per cent higher at the end of the year at €293.3 billion. External client assets rose 13 per cent to €151.4 billion, nearly treble their level at the end of 2008. Third-party clients now account for 52 per cent of the total assets under management at M&G, with the balance of the assets belonging to Prudential Group PLC, M&G’s parent company.
M&G’s most popular products were the M&G Optimal Income Fund, an international flexible bond portfolio, and the M&G Global Dividend Fund. During the year, 10 M&G retail funds attracted net inflows of at least £100 million (€117.8 million).
Ignacio Rodríguez, sales manager of M&G Investments for Spain, Portugal and Latin America says: “M&G enjoyed its most successful year yet in Europe. Measured by funds under management, our international business has grown at an annual compound rate of 79 per cent over the past ten years.”
Photo: Altavista 147. Thor Urbana Acquires Luxury Mall in Mexico City
Thor Urbana Capital, a real estate investment and development company based in Mexico City, recently acquired the luxury shopping center Altavista 147 which hosts several internationally renowned brands such as Louis Vuitton, Salvatore Ferragamo, Tiffany & Co., MaxMara, Carolina Herrera, among others.
“We are very happy to have acquired this gem in Altavista, situated in the southern part of Mexico City, an area in which culture, art, fashion and elegance are very present”, said Jaime Fasja and Jimmy Arakanji, Managing Partners at Thor Urbana. “This purchase reinforces our strategy of acquiring and developing fashion and lifestyle shopping centers with the best tenant mix, designs and in the absolute best locations in the country”.
Thor Urbana Capital is a real estate development firm formed by Thor Equities CEO Joseph J. Sitt and Mexican developers Jaime Fasja and Jimmy Arakanji. Based in Mexico City, Thor Urbana is a vertically integrated platform that specializes in sourcing, acquiring, developing, repositioning, leasing, managing, and disposing uniquely located retail, office, hotel and mixed-use assets in Mexico’s principal urban markets and main avenues.
With a management team that has over 120 years of experience developing triple-A real estate properties in Mexico, the United States, Europe and South America, Thor Urbana is uniquely positioned to capitalize on Mexico’s growing real estate market.
Wikimedia CommonsFoto: Tony Wills. El crédito con grado de inversión pierde su brillo
Yields on European investment grade credits have fallen so low that it is now time to sell securities in the asset class and look for a better deal elsewhere, says Lukas Daalder, Head of the Global Allocations team in Robeco.
Instead, the high yield, non-investment grade corporate bond market still offers a decent yield difference (spread) above sovereigns, and at relatively low default rates, he says.
Robeco Asset Allocation has subsequently decided to lower its exposure to investment grade credits by one percentage point and spend the money on high yield corporate bonds. The multi-asset fund is now underweight on investment grade, as it holds fewer bonds than the benchmark, and significantly overweight on high yield.
“European investment grade credits have shown a decent performance since 2009, leading to spread compression versus government bonds,” he says. “We see the corporate credit spread no longer as attractive, and a large part of the index spread is attributable to implicit country risk versus Germany.” Today, both investment grade credits and their sovereign bond peers yield around 1.5%-2%.
“However high yield bonds are still offering a decent credit spread, given their strong fundamentals, low default rates and the favorable regional mix, particularly in the US, despite the drop in high yield spreads in the last few years.”
Three reasons for the switch
Daalder gives three reasons why investment grade credits are not as attractive as they once were:
Both the non-financial corporates and the financial credits index yield have dropped significantly in the last years, and are now moving in tandem with European government bond yields. This can be seen in the chart below:
Source: Bloomberg
The index spread, measured against German Bund yields, is for a large part a compensation for the exposure to country risk against Germany. What people think is credit spread is actually country spread. For example, compared to the low German Bund yields, there still is a positive spread for various credits. However, if you compare it to national government bonds, which would be fairer, the spread is actually negative in many cases, as can be seen from the example of Unicredito in the chart below:
Source: Bloomberg
Although the credit fundamentals of European credits and financial bonds still look good thanks to strong balance sheets, conservative behavior and a low interest rate burden, we think that the solid fundamentals are discounted by the market by now.
US allocation helps spread buffer
Daalder says the spread buffer is higher and regional exposure is more favorable in high yield than in investment grade, thanks partly to a large allocation that his fund has made to the US.
“Sure, the yield and spread on high yield bonds have fallen as well, but the ratio between high yield and investment grade yields still looks attractive, while high yield fundamentals remain strong,” he says.
“We see the overall fundamental picture as still supportive for high yield bonds. The interest rate burden is at an all-time low, while default rates remain at very low levels.”
Photo: Martin St-Amant (S23678). Wall Street Bonuses Went Up 15% in 2013
The average bonus paid to securities industry employees in New York City grew by 15 percent to $164,530 in 2013, which is the largest average bonus since the 2008 financial crisis, and the third highest on record, according to an estimate released today by New York State Comptroller Thomas P. DiNapoli. The bonus estimate includes cash bonuses for the current year, supplemented by compensation deferred from prior years.
“Wall Street navigated through some rough patches last year and had a profitable year in 2013. Securities industry employees took home significantly higher bonuses on average,” DiNapoli said. “Although profits were lower than the prior year, the industry still had a good year in 2013 despite costly legal settlements and higher interest rates. Wall Street continues to demonstrate resilience as it evolves in a changing regulatory environment.”
After record losses during the financial crisis, the securities industry has been profitable for five consecutive years, including the three best years on record. The industry reported profits for the broker/dealer operations of the New York Stock Exchange member firms, the traditional measure of profitability for the securities industry, totaled $16.7 billion in 2013, which is 30 percent less than in 2012 ($23.9 billion) but still strong by historical standards.
The securities industry has undergone a major overhaul since the 2008 financial crisis. Regulatory reforms are changing the way the industry does business by requiring larger reserves, limiting proprietary trading and imposing other changes intended to reduce unnecessary risk and to enhance transparency. In response to compensation reforms, firms now pay a smaller share of bonuses in the current year and a larger share is deferred to future years.
Even though the securities industry has been very profitable in recent years, the number of industry jobs in New York City has not returned to the pre-crisis level. DiNapoli estimates the securities industry employed 165,200 workers in New York City in December 2013, which is 12.6 percent fewer workers than before the financial crisis. After large job losses during the recession, employment in the securities industry in New York City has stabilized.
DiNapoli’s office releases an annual estimate of cash bonuses paid to securities industry employees who work in New York City during the traditional bonus season. Bonuses paid by firms to their employees located outside of New York City (whether in domestic or international locations) are not included. The Comptroller’s estimate is based on personal income tax trends, which do not distinguish between cash bonuses for the current year and compensation deferred from prior years. The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld.
DiNapoli also reported that:
The bonus pool for securities employees who work in New York City also grew by 15 percent in 2013 to $26.7 billion during the traditional December-March bonus season. The Comptroller’s estimate includes cash bonuses for the current year, supplemented by bonuses deferred from prior years. Over the past two years, the bonus pool has grown by 44 percent, driven by compensation deferred from prior years;
Although data are not yet available for 2013, the average salary (including bonuses) paid to securities industry employees in New York City ($360,700 in 2012) was 5.2 times greater than the rest of the private sector ($69,200 in 2012);
Despite its relatively small size, the securities industry is still one of New York City’s major economic engines. The securities industry, for example, accounted for 22 percent of all private sector wages paid in New York City in 2012 even though it accounted for only 5 percent of the city’s private sector jobs;
The securities industry generates a significant amount of tax revenue for New York state and New York City. DiNapoli estimates New York City collected $3.8 billion in taxes in fiscal year 2013 from activities directly attributed to the securities industry, nearly 27 percent more than in the prior year and the second-highest level on record. Although less than the prerecession peak (11 percent), the securities industry accounted for 8.5 percent of the city’s tax revenues;
New York state, which depends more heavily on Wall Street revenues than the city does, collected $10.3 billion in taxes attributed to the securities industry during SFY 2012-13. Last year, the securities industry accounted for 16 percent of all state tax revenue, less than the prerecession peak (20 percent); and
City tax revenues could be $100 million higher than anticipated in the city’s budget because it assumed a 5 percent decline in the bonus pool. The state budget assumes a 7.8 percent increase in bonuses for the entire financial sector. While there is the potential for some additional state tax revenue, the state outlook is more consistent with DiNapoli’s forecast.
. Consensus Might be Underestimating the Tightness of the Oil Market
OECD oil inventory levels, a proxy for global oil stock levels, fell sharply in November (the latest month for which there is official data). The 54 million barrel decline was the largest monthly fall since December 2011, and preliminary indications suggest a further 43 million barrel fall for December.
Looking in more detail at the OECD oil inventory levels by geography, the Investec Commodities & Resources Indicator report, finds striking that the large draws in November were across the board in the Americas, Europe and Asia. Despite the surge in US oil production growth, US oil stock levels are lower than last year owing to high refinery utilization and strong product demand and exports. European oil inventories fell by 13 million barrels in November, compared to an average 12 million build for the month, and Asian stock levels also fell further than the seasonal norm.
Oil demand across the developed world significantly exceeded analysts’ expectations in the second half of 2013: year-on-year (yoy) comparisons were strong for both the third and fourth quarters of 2013. Third quarter demand rose from 45.9 million barrels per day (bl/d) to 46.4 million bl/d yoy, while increasing from 46.2 million bl/d to 46.6 million bl/d yoy in the fourth. We had suggested that oil demand for 2013 would come in above consensus, driven by a combination of non-OECD growth and OECD recovery, and so it proved.
Investec is expecting a repeat in 2014: the current fear around emerging market currency weakness distracts from the structural demand growth story which is still on track, and the asset manager expects oil demand growth from the non-OECD region of 1.3-1.5 million bl/d in 2014, following growth of 1.1 million bl/d in 2013.
Strong demand and low spare capacity has tightened global oil inventory levels. Investec’s Commodities & Resources team should not be surprised by Brent crude oil ranging between $100-$115/bl: the only surprising aspect from their vantage point is that many commentators, mainly economists, continue to talk about $80/bl oil.
You can access the last Investec Commodities & Resources Indicator report lin the following link.
