In February of last year, Henderson announced that six credit specialists had joined the firm in Philadelphia to broaden their US and global credit capabilities. As 2014 begins, Stephen Thariyan, Global Head of Credit updates investors on the integration of the team and his plans for next year.
One of the major attractions of the hires in the US has been their similar investment philosophy and approach to adding value in the asset class based around bottom up fundamental credit research. “In some respects we have made some very straightforward adjustments to incorporate the US resource into our weekly credit meeting and Kevin Loome into our monthly top down asset allocation review for credit portfolios. In addition, we have now created a dedicated fortnightly high yield strategy meeting, which focuses on the high yield strategies across fixed income and includes the high yield portfolio managers, the Head of Credit Research and representatives from loans (David Milward), retail credit (Nick Ware) and secured credit (Colin Fleury)”, highlights Stephen. Analyst research notes are shared globally across fixed income and equities on Henderson’s Sharepoint system, an online internal research portal.
All members of the new team in Philadelphia have spent time in London enabling them to understand Henderson’s broader fund range, build relationships and day to day contact with the London portfolio managers and analysts, and understand the systems and processes hands on. One of the key action points agreed for 2014 is an exchange program in which credit analysts and dealers will rotate through London and Philadelphia over the course of the year. “This is important in my mind so that analysts, dealers and portfolio managers cement strong relationships, familiarity with each other and can communicate effectively”, adds Stephen.
In April, Henderson launched theUS High Yield Opportunities strategy managed by Kevin Loome. While it has only been running for seven months, performance has been excellent and is top decile to date, continuing the strong performance and reputation that Kevin and the US analysts have built up over the years. Last month, Henderson launched the Global High Yield Bond strategy which is managed by Kevin Loome and Chris Bullock. “I am very excited at this prospect to broaden our high yield capabilities for our clients”, states Thariyan.
“While the Global High Yield strategy will naturally be the highest conviction expression of the views of our Global Credit Team, a broad range of fixed income strategies are beginning to see the benefit of this capability reflecting our unconstrained approach to building portfolios”. For example, Henderson’s Absolute Return and Total Return Bond strategies managed by the Investment Strategy Group are directly drawing on the bottom up credit ideas in US high yield. “Our Multi-Asset Credit strategy has participated in US loan deals such as Dell and BMC software and the team has provided valuable input on US loans underlying CLO transactions”.
Stephen Thariyan concludes : “It has been an extremely encouraging start in the US with the integration of the credit teams across the Atlantic having gone to plan”.
Photo: Ralf Roletschek - Fahrradtechnik und Fotografie. Skill Versus Luck in Investing
What roles do skill and luck play in our successes and failures? How much does pure luck contribute to investment success? Luck plays a much greater role in short-term investment results than many investors may think. Michael Mauboussin, Head of Global Financial Strategies at Credit Suisse, explains how investors can learn to avoid mistakes, and the ‘dumb money effect’.
Click on the image below to watch the video interview.
Photo: GFDL. Andbank Acquires Swiss Asset Advisors in Miami
Andbank has acquired Swiss Asset Advisors, an American advisory firm founded in 2008, currently headed by Michael Blank. Following this operation, which is part of the group’s growth strategy, Andbank will integrate Blank and the rest of the Swiss Asset Advisors’ team into its Miami office. Swiss Asset Advisors will provide the Andbank group with a portfolio of U.S. customers, as confirmed to Funds Society by both companies.
Blank, with 17 years of experience as an international private banker, was responsible for establishing Julius Baer in Palm Beach (Florida) and Credit Suisse Private Advisors in Miami before venturing to create his own consulting firm in 2008 with Giuseppe Mazzeo, from Switzerland, in charge of investments. With 25 years of investment experience, Mazzeo developed his career at Credit Suisse, where he led the Investment Strategy global team, with over 40,000 million Swiss francs in assets.
Blank, who is aware of the increasingly important role Miami plays as a business and finance hub for Latin America, declared to Funds Society that “the individual approach offered to each client with tailor made solutions, and the office staff with over 100 years of combined experience in international banking,” were definitely some of the reasons which drove him to integrate his personal project with Andbank.
The executive also stated that he was attracted by “its open architecture plan, and the Andbank roots, a bank from Andorra operating as a family office, owned by two families with over 80 years of tradition.”
“Miami is a special place, with tax experience in trusts, wealth planning, and real estate for non-residential, cross border, and U.S. clients. Miami is a unique melting pot of cultures for families and their interests, and Andbank is focused on positioning itself as a reference,” said Blank.
The acquisition of Swiss Asset Advisors by Andbank is waiting for the approval from the regulatory authorities in Andorra.
For Javier Rodríguez Amblés, managing director of Andbank Wealth Management, the incorporation of Michael Blank and the rest of the Swiss Asset Advisors’ team, is due to the fact that Andbank “aspires to continue growing; a growth which continues to combine the firm’s own organic growth with acquisitions in strategic moments.”
Likewise, the executive said that without yet including Inversis, whose private banking was acquired by Andbank in Spain last July, the company would now have over 17 billion dollars under management, which has doubled the size of the bank in the past five years, one of the objectives which was set in its day by the bank’s senior staff when they made a commitment to international expansion.
Growth prospects for 2014 are more positive for the Euro zone. GDP should increase by about 1%, according to Philippe Waechter, chief economist in the fund manager company Natixis Asset Management. “After 2 years of low or negative growth, this is a welcome change. This could stop the long under-performance seen since 2007 in most Euro Area countries”.
However, “even if 2014 brings color back to Europe, the road is still very long before considering that a new equilibrium has been reached”. The reason? The situations are very heterogeneous within the Euro area. Countries have very different profiles of activity and very different dynamics.
To illustrate this point he has taken the GDP per capita (at constant prices) for the Euro Area, for Germany, for France, for Italy, for Spain, for Ireland, for Portugal and for the United Kingdom. And heconsiders the time that will be required for each of these countries to be back to 2007 GDP per capita level.
Besides Germany, which has already reached the pre-crisis level of GDP per capita, there are three categories of countries. The Euro zone, France and the UK, using the growth rate of pre-crisis GDP per head, would converge to 2007 level in a little over two years. French growth is slower but the decline of its activity was lower than in the euro zone. In the UK the pre-crisis growth was very strong. This is what allows the rapid return to 2007 level. In Spain and Ireland, the period is a little over 4 years. Strong pre-crisis growth is the major support of this rapid convergence. For Portugal and Italy it is more than 10 years and is even close to 13 years for Italy. The low pre-crisis growth is responsible for the slow convergence.
However, these figures are misleading and probably too optimistic. Are France, the Euro Area and the UK able to find a growth pattern as fast as before the crisis? Can we also bet on the back of rapid growth in Spain and Ireland?, he wonders. “Spontaneously it seems difficult”, says the economist. “Discussions in Europe on the lower potential growth after the crisis reinforce this skepticism. Return to the GDP per capita level of 2007 will be much longer to implement than what is shown in these simulations. Consequently, the dynamics of the labor market will remain long fragile and balanced public finance will be longer to establish. For Italy and Portugal the question is simple: these countries before the crisis knew very little growth. Will they have rapidly the ability to return to these pre-crisis growth rates of GDP per capita?”
The slow convergence to the pre-crisis level of GDP per capita is a representation of the heterogeneity that exists today, notably in the Euro Area, says. “Before the crisis there was a kind of common trend within the Euro Area. This led to a kind of homogeneity of countries’ momentum. Spontaneously it seems difficult today to make this bet without creating more cooperation and coordination between member countries of the Euro zone”.
The heterogeneity of the situation in Euro zone shows that, and this is the target of this little exercise, must not lead to situations of opposition from one country to another as this may cause greater social and political instability. “This is what must prevail. Mario Draghi July 26, 2012 in London indicated that the construction of Europe was primarily a political construction reflecting the will of Europeans to live together. This is the time to demonstrate this will, by developing a more integrated institutional framework”.
Photo: Luis Pabon, Flickr, Creative Commons.. BlackRock's 10 best ideas for 2014
What’s in store for 2014? Russ Koesterich, Jeff Rosenberg and Peter Hayes offer their 10 best ideas for the year ahead, consisting of five ‘what to know’ items and five ‘what to do’ ideas to help the investors navigate the markets.
With economic and market conditions slowly improving, but uncertainty high and income and returns still tough to come by, the fund manager suggest that investors rethink their bonds, generate income without overreaching, and seek growth while managing volatility.
Here’s a look at BlackRock’s 10 best ideas regarding what to know—and do—in the year ahead.
Arnout van Rijn, CIO for Robeco in Hong Kong.. Award for manager Robeco Asia-Pacific Equities
Fund rater Citywire awards Arnout van Rijn for his consistent outperformance with the strategy Robeco Asia-Pacific Equities.
Citywire awarded Arnout van Rijn as “the most consistent fund manager” based on the five year track record of Robeco Asia-Pacific Equities. There are currently 50 Asia Pacific funds, but only two funds have consistently outperformed their average peer each year.
Robeco Asia-Pacific Equities has a concentrated portfolio and its investment strategy is based on bottom up stock selection.
Van Rijn has financials as his top sector exposure, this is while also being overweight consumer staples and real estate.
Elsewhere in the fund, he is underweight commodities and, in his latest investor note, he said it is difficult to find attractive industrials.
Van Rijn, who is CIO for Robeco in Hong Kong, has Japan as his biggest geographic exposure. This currently makes up 41% of his fund, with exposure to China making up 13.3%, South Korea 10.2% and Australia 9.2%.
James Swanson, Chief Investment Strategist at MFS Investment Management. Five questions and five answers about tapering
Chief Investment Strategist at MFS Investment Management, James Swanson, answers five questions about the backdrop for investing after the Federal Reserve’s decision to begin tapering quantitative easing. Click on the video to find out the answers.
CC-BY-SA-2.0, FlickrPhoto: danielfoster437. Three major reforms in China’s Economic Plan
A recent conversation between Giordano Lombardo, Global CIO at Pioneer Investments, and his colleague Mauro Ratto, Head of Emerging Markets, helped boil down China’s recent economic reform plan.
State-Owned Enterprises
The most awaited pro-market reform concerned the role of large state-owned enterprises (SOEs). Xi Jin Ping made clear that the government should refrain from directly affecting the markets, though retaining the ownership of key economic assets. SOE’s should resemble other Asian countries, such as Singapore, where firms operate in a truly competitive environment and try to maximize profits rather than building up a lot of capacity through oft-unproductive capital expenditure. Bottom line: even though SOEs remain, as the name shows, in state hands, increasing access of private enterprises to capital, land and energy markets should prompt SOEs to be more efficient in allocating capital or end up as losers in a new competitive environment.
Financial Sector Reform
The central bank (People’s Bank of China or POBC) is unlikely to speed up this part of the reform program, in spite of the plenum’s full commitment to change. The macroeconomic case for increasing consumers’ purchasing power due to higher interest rates on deposits looks strong, but so is the need to keep bank profit margins from shrinking, if too much sector competition was allowed too soon. Some measures are aimed at helping banks manage the transition to a more competitive market.
The issuance of negotiable certificates of deposit in local currency should enable banks to get large amounts of funds at relatively stable costs, thus containing the risks of a volatile wholesale (inter-bank) market. Another, more structural, change would let them diversify their assets out of loans and make profits less reliant on the spread between deposit and lending rates. Bottom line: top Chinese banks’ balance sheets may eventually resemble their American and European counterparts with the amount of marketable securities invested.
Social Reforms
Rural land and urban residence reform was on top of the plenum’s agenda. The main changes affect rural dwellers, who will be allowed to buy land for building residential housing or infrastructure. Any limitation left to domestic migration, which curbed rural residents’ ability to move to the cities, is to be scrapped and help speed up the transition to consumption-driven growth. Cities are the engine of China’s household-led expansion, as the urban per capita income is about three times as high as the rural one. Bottom line: the rural population will eventually be entitled to the same rights as urban residents, which will benefit overall consumer spending.
CC-BY-SA-2.0, FlickrPhoto: Flickr, Creative Commons.. I will not confuse tapering with tightening: the biggest resolution for 2014
It is once again time to consider some New Year’s resolutions for the market. What mistakes or misunderstandings did the market make over the last year that it should learn to avoid in the future? UBS Global Asset Management gives its suggestions.
1. I will remember that stability is not always a good thing. “At the start of the year we noted that the market had stopped reacting to political uncertainty very much, in both the US and the Eurozone. Investors had become habituated to the risks and learned to ignore them. Paradoxically, ignoring the risks can actually increase the risks. Sincepoliticians usually only change things when there is pressure from outside influence like market volatility, the problems do not get addressed. Just look at how a lack of volatility in Europe has also meant a lack of progress on structural reform and banking unión”.
2. I will not confuse monetary policy catch-up with a currency war. When the Bank of Japan (BOJ) announced ultra-loose monetary policy at the start of this year, there was much talk of currency wars, as if Japan was unfairly pushing down the yen to improve its competitiveness. UBS Global AM thinks that “a more realistic assessment would be that the BOJ had kept monetary policy far too tight in the face of both domestic deflation and foreign countries’ ultra-loose monetary policy. This meant that the BOJ was only catching up”. Wars have casualties, and in a currency war the first casualty is inflation – not something for Japan to worry about.
3. I will not confuse tapering with tightening. This has to be the big one of the year. When Ben Bernanke first announced that the Federal Reserve might start tapering its asset purchases under its quantitative easing (QE) programme, the market got over excited and translated this into earlier tightening. This was despite Chairman Bernanke insisting that tapering was simply a slower pace of easing. By September, the market pushed rates up so high that the Fed had to cancel the planned September start of tapering because financial conditions had become too tight, but finally followed through in December.
4. I will place more trust in forward guidance. The markets have tested central banks several times on their commitment to forward guidance, but central banks have stood firm. Markets do not have to believe that forward guidance will achieve the desired outcome in the long run, only that the central banks will stick to it as long as their forecasts are right. “And that is the key: feel free to disagree with the central banks’ forecasts, but trust them on how they say they will react to the data. The Bank of England is likely to be the first to be challenged simply because the unemployment data is turning out much better than its forecast”, comment Joshua McCallum, senior Fixed Income Economist in UBS Global Asset Management, and Gianluca Moretti, Fixed Income Economist.
5. I will start to ignore political bickering in Washington D.C. When the bipartisanship in the US ‘shut down’ the government and threatened a default on US Treasuries, the market talked a lot about the potential damage. In the event, the partial government shutdown had little impact on the economy and the default turned out to be the empty threat that it always was. The world continued, but the uncertainty may have held back the all-important recovery in business investment. The hope is that eventually businesses will become so used to the bipartisanship that they start to ignore it.
6. I will treat emerging markets as emerging. After the Fed announced the idea of tapering, some of the biggest market moves were in emerging markets (EM). Investors were treating emerging markets almost as safe havens, and capital searching for yield found a home there. Some EM used the capital inflows prudently, while others enjoyed the good times and saw their current accounts deteriorate. As soon as it looked like the QE tap might be closed, those markets saw their currencies dive. For a brief moment it looked like investors remembered that EM are risky, but promptly forgot all about it once tapering was delayed. Investors would do well to think again for this new year.
7. I will not complain when I get what I wish for. A year ago the markets were complaining that rebalancing of competitiveness in the Eurozone was not happening because inflation was too high in the periphery (pushing up the price of their goods relative to the core). Now that there are finally signs of an internal rebalancing with lower inflation in the periphery, markets are complaining that the Eurozone is heading for deflation. In fact, not much has changed between the two years – inflationary pressures were already low in the periphery while headline inflation remained high mostly because of increases in sales taxes.
8. I will not obsess about house prices. Too many people seem to think that rising house prices are a good thing in and of themselves, rather than being a symptom of a stronger economy or at least of a stronger economic outlook. Rising house prices are good for those who own houses but bad for those who do not and would like to.
9. I will prefer the simplest of similarly plausible explanations. Just as optimists invent many theories to explain why a bubble can go on forever and why ‘this time is different’, after a recession it is the pessimists’ turn to explain why they think everything will be worse forever. Some look at trend growth over the last thirty years and decide that the economy is broken, but take a look over the last 140 years and there have been bigger divergences from trend that still snapped back. As the 14th century monk William of Occam would have argued, the simpler explanation that the world is not so different is to be preferred to equally plausible but more complicated explanations about why it has changed.
Fitch Ratings projects that the U.S. high yield default rate will remain in a range of 1.5%-2.0% in 2014. The key pillars of a low default rate environment -credit availability and good corporate fundamentals- remain steady, according to the rating agency.
Building on the momentum of recent quarters, Fitch expects improved U.S. GDP growth of 2.6% in 2014, up from 1.7% this year.
Many of the recognized default candidates of the past several years have already restructured, and a stronger economy combined with favorable funding conditions is sure to give some strapped companies a new lifeline, says Fitch. “In this the fifth year of an uneven and often unpredictable recovery from the financial crisis of 2008-2009, the more important metric will be new issuance credit quality and the extent to which a soaring stock market and low borrowing costs will fuel more aggressive, debt-accretive transactions”, according to the rating agency.
The funding environment remains highly accommodative. Issuance has been exceptional and now includes a fully revived loan market. Scheduled bond and loan maturities are quite low over the near term. There is $117.6 billion maturing in 2014 and 2015, representing 5.4% of market volume and a just fraction of bonds and loans sold in 2013.
Importantly, top-line and EBITDA growth showed renewed vigor in the most recent two quarters, reversing lackluster results recorded over the prior years, says the report.
“In 2013, defaults closely followed our expectations. We projected a repeat of 2012 activity. Through late December, there have been 35 issuer defaults on $18.5 billion in bonds versus 32 issuers and $20.5 billion in 2012. The market grew 10% in size over the course of the year, which put some modest downward pressure on the default rate, but the issuer count and par value of defaults was nearly identical year over year”.
As with 2012, Fitch continue to follow developments related to Energy Future Holdings, which, due to its large size and precarious state, remains the well-recognized variable that could propel the default rate to a multi-year high. But its base forecast excludes an EFH bankruptcy. “Such an event would add 1.5% to the default rate”, says.
