CC-BY-SA-2.0, FlickrPhoto: Antonio de la Mano, Flickr, Crative Commons.. The European Commission Wants to Align the Application of PRIIPs and MiFID II
The European Commission announced on November 9th that it will take the necessary legal steps to postpone the PRIIPs Regulation for 12 months. The announcement aligns the dates of application of PRIIPs with MiFID II.
The European Fund and Asset Management Association (EFAMA) stated in a press release that they very much welcome the proposal by the Commission to delay the application date of the PRIIPs Regulation by 12 months.
In order to do so, the European Commission will publish its proposals in an amending draft Regulation, which must be quickly passed by Parliament and Council if the existing 31 December 2016 application date is to be successfully pushed back by one year.
“There is only one reason why we considered a delay absolutely essential, and this is because it is materially impossible and simply unrealistic for product manufacturers and distributors to meet the original 31 December 2016 deadline.”
A postponement therefore proved necessary and will now materialise in a more realistic timetable to comply with the Regulation.
They believe that this delay will allow companies to appropriately implement the new rules.
“Equally important is the fact that this postponement will also ensure more time is available for solutions to be found on the revised RTSs. Allowing past performance, and fixing the misleading methodology of transaction costs must absolutely be addressed. This remains a crucial part of ensuring the KIDs’ success.” EFAMA concluded.
Looking in the near term, Morgan Stanley Global Fixed Income continues to expect an environment of dampened interest-rate volatility, which means a good environment for carry. “We expect contrasting forces of slow but stable global growth but perhaps higher inflation expectations to keep long-end rates trading in a range with a slight upward bias.” They explain.
However, given ongoing policy reconsiderations at central banks and a predilection to believe global growth will be higher next year is wary of sharp curve steepening and thinks underweights in risk-free rates provide a good hedge to carry oriented strategies.
“We remain optimistic about the prospects for emerging markets (EM) fixed income for the remainder of the year as fundamentals, technicals and the macro environment remain supportive,” the firm states, adding that, the various factors both pushing and pulling investors into EM fixed income remain in place: Developed market yields remain very low, economic data in EM appears to have stabilized, fears of multiple Federal Reserve (Fed) rate hikes have subsided and concerns of a sharp slowdown in China have diminished. However, Morgan Stanley Global Fixed Income believes U.S. elections reflect a major event risk for some key EMs and the outlook for global trade.
“Accommodative policy and low global yields remain supportive of global credit, particularly U.S. credit, and we continue to believe the strong technical environment in global credit markets suggests a slow grind tighter into year-end. We remain cautious, however, as we enter the last quarter of 2016, and continue to watch for potential risks,” they conclude.
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.
All information provided is for informational purposes only and should not be deemed as a recommendation. The information herein does not contend to address the financial objectives, situation or specific needs of any individual investor.
Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.
Prior to making any investment decision, investors should carefully review the strategy’s/product’s relevant offering document. For the complete content and important disclosures, refer to the link above.
CC-BY-SA-2.0, FlickrPhoto: Sam Valadi. Trump Vote Wrong- Foots Forecasters
The result of the US presidential election, like that of the UK referendum on the EU, went against the predictions of most opinion pollsters, who had put Hilary Clinton, the Democratic candidate, slightly ahead prior to the actual vote. What currently seems the likely victory of Donald Trump, the Republican candidate, was in defiance not only of the pollsters, but also of many investors’ expectations.
Overturning predictions, Trump won key swing states of Florida, Ohio and North Carolina on his path to the White House. Forecasters have been wrong-footed, and there could be increased volatility in markets while investors digest this new information, and wrestle to understand the implications of a Trump presidency.
Trump is in many ways an unknown quantity, and his presidency could spell a period of uncertainty for investors. We shall be monitoring markets closely, but it would be reasonable to expect, in the short term at least, a sell-off in equities, not only in the US but also internationally. The immediate reaction of equity markets was negative, with Asian indices falling. The US dollar also fell, down 3.4% against the Yen as at 5:20am London time.
The dollar has come under pressure, both because a hike in interest rates by the US Federal Reserve now seems less likely, and also because investors may place a higher risk premium on US investments. Volatility across many asset classes could increase in the short-term.
Looking further ahead, several of Trump’s policies, for example his protectionism, his desire to scrap existing international trade deals, and to deport illegal immigrants, have the potential to contribute to longer-term market volatility; but others, for example his plans to slash taxes, including reducing the business rate from 35% to 15%, his plans to encourage repatriation of corporate profits held offshore, and to embark on massive infrastructure spending, could stimulate the US economy, lifting equities. Much is uncertain, not least because his campaign promises have been long on rhetoric and short on policy detail.
Given the intense degree of attention on the election, and its undoubted political importance, it may seem surprising that within the global equities team at OMGI we made no attempt to predict its result. We are not in the business of trying to predict events that are very hard to predict. Striving to forecast a binary (either/ or) event such as a close-run election is, in our view, not a good way to invest. We have built our investment process on other –we believe sounder– principles.
Macro events and geopolitical events, like the US election, affect our investment process implicitly rather than explicitly. They impact the market, and this is the key for us. We are much more interested in how the market is behaving because that gives us the clues as to how we should position our portfolios.
A Stable Process
Our investment process involves developing a view of how the stock market is behaving. We have to be very aware of the direction of the market, the volatility of the market, and of the ways in which individual stocks’ returns differ from each other. How, and to what degree, do stock returns vary from each other? How great is investors’ appetite for taking risk? Are investors comfortable exposing themselves to higher degrees of risk, in the hope of achieving higher returns, or are they much more risk averse, shunning risk and seeking the safety of stocks of higher quality? Those kinds of questions are being asked all the time within our portfolio investment process. That leads us to the stocks that we will want to buy.
US Equities Not Cheap
Recently, US equities have generally not been cheap in valuation terms, though many of the companies in this market are high quality, so one might expect to pay a higher price. Parts of the US market are particularly expensive relative to the average. For example, large caps (shares in larger companies) tend to be more expensive than small- and mid-caps (shares in small and medium-sized companies): this is partly because large caps are international, but also because they receive large inflows from investment funds that track indices (the largest of which track baskets of large caps). Other areas of the market that have become more expensive are dividend payers (shares which pay out high levels of dividends to shareholders), and low volatility (shares which move up and down less than the overall stock market).
In my view, active managers have a great opportunity at the moment because there is a lot of mispricing in North America. Although North America as a whole is not cheap, there are cheap areas of North America that can be exploited by investors who are nimble enough.
Ian Heslop is Head Of Global Equities at Old Mutual Global Investors and Manager of the Old Mutual North American Equity Fund.
CC-BY-SA-2.0, FlickrPhoto: Bradley Weber. The Morning After: What Now For Markets?
In a shocking development reminiscent of Brexit, Donald Trump, the Republican nominee, was elected the forty-fifth president of the United States on Tuesday, 8 November. In addition, Republicans maintained control over both houses of Congress.
Trump’s unexpected victory brings with it a great deal of policy uncertainty, given his lack of specificity during the presidential campaign. Judging by the tone of his campaign, one can surmise that foreign trade will likely be a major focus of the new administration. It is quite unlikely that the Trans-Pacific Partnership will be ratified against the present backdrop, while the North American Free Trade Agreement (NAFTA) could be renegotiated or even abandoned. Uncertainty over immigration policy is likely in the near term, which could potentially impact labor markets.
On the campaign trail, President-Elect Trump vowed to lower taxes and repeal the Medicare tax on investment income. He also promised to repeal the complicated alternative minimum tax, while taxing carried interest as ordinary income. Corporate tax rates would be reduced to 15% from 35%, and repatriated foreign profits would be taxed at a one-time rate of 10%, if Trump’s plan is enacted. Economists, however, question whether this package would spur enough economic growth to offset lost revenue from lower tax rates, which could widen fiscal deficits.
Sectors that may be advantaged under a Trump presidency include:
Fossil fuels: Trump repeatedly promoted US energy independence during the campaign, calling for leasing federal land for energy exploration, repealing some regulations on coal and reviving the Keystone XL pipeline project.
Pharmaceuticals: Price controls will be less of a concern for the industry than they would have been under a Clinton presidency.
Financials: Trump has called for repealing or significantly revising Dodd-Frank. Regulatory burdens could be reduced across the economy, based on his campaign rhetoric.
Trump’s focus on trade during the campaign and the risk that NAFTA might be revisited could pressure the currencies of two of the US’s largest trading partners, Mexico and Canada. Additionally, emerging market currencies will likely be pressured, since any additional US trade barriers would probably further slow the growth of global trade, which could negatively impact both producers of raw materials and of finished goods.
If the US puts trade barriers in place on imports, US exporters may be hurt as a result of trade partners retaliating against US actions. With roughly 40% of earnings from S&P 500 Index companies earned outside the US, there appear to be significant risks to US-based multinationals. A full-fledged trade war would be damaging to growth and employment, and could have ripple effects beyond US borders. Companies whose business is more domestic in nature may fare better against a backdrop of global trade friction. If financial markets have a persistently negative reaction to a Trump victory in the run-up to the December FOMC meeting, odds of an interest rate hike could shrink.
A front-loaded agenda
Given the political ebbs and flows of recent decades, it is reasonable to expect Republicans to try to pack as much policy change into the first two years of a Trump presidency as possible, much as Democrats did in the first two years of the Obama administration. In 2009–2010, Democrats controlled the White House and both houses of Congress and passed a large economic stimulus package and the Affordable Care Act. Oftentimes, when one party controls both Congress and the White House, voters perceive political overreach and seek to balance the scales during the midterm elections.
In 1994, President Bill Clinton’s Democrats lost both the House and the Senate and never regained congressional control during the balance of his two terms. Losing control of one or both houses in the midterms would limit Trump’s ability to achieve his agenda, suggesting that policy change could become more incremental later in his term.
CC-BY-SA-2.0, FlickrPhoto: Federico Mena Quintero
. Maitland Restructures its Institutional Client Team
Maitland, a global advisory and fund administration firm, has announced a major organisational restructure of the leadership team of its institutional client services arm. The management team will now reflect the five fund services products on offer – Traditional Fund Services, Transfer Agency, Hedge Fund Services, Private Equity & Real Estate Fund Services and ManCo Services.
The move reflects Maitland’s impressive expansion over recent years, both in terms of size and geographical reach as well as breadth of internal expertise and talent. The product approach empowers each product head to drive all aspects of the delivery to clients, both in terms of day-to-day service as well as longer-term strategic alignment.
The entire institutional product offering will be led by Jim Clark, who joined Maitland in May 2014 from State Street and brings over thirty years of industry experience to the role. The TFS team will be led globally by Rob Leedham, with Guido Frederico leading the South African business. TA and HFS teams are led globally by Mark Bredell and Ben Pershick respectively while Bruce McGlogan will head up the PERE team as it builds on its current period of success in Europe and South Africa.
Steve Georgala, CEO of Maitland, said: “Maitland is a unique firm in terms of its product capability and breadth of services we are able to offer institutional clients. We are delighted to have a leadership team full of deep industry experience, with each member bringing substantial knowledge and expertise to their domain. Our focus is to stabilise the areas of Maitland that have enjoyed substantial growth recently, whilst continuing to actively grow products and regions where our offering is attracting considerable market interest. Given this, it made sense to restructure our organisation to reflect our client-centric approach, and to empower our business leaders to deliver the best service possible. These are exciting times for the company.”
CC-BY-SA-2.0, FlickrPhoto: Colleen P. How will Bond and Currency Markets React to the US Election Result?
With the latest polls suggesting the race to become the 45th President of the United States is neck and neck. Bond and currency managers around the world are currently trying to assess how a win for either candidate might affect their portfolios. M&G’s Anthony Doyle offers his best estimate as to what might happen.
A Clinton win
A Clinton victory is seen by the markets as a continuation of the current US political environment, particularly if the Republicans retain control of the House of Representatives. This would be the most benign scenario for bond and currency markets as measured by price volatility. Following a Clinton win, the bond market would likely price in a higher probability of a move in interest rates, with the removal of perceived political uncertainty paving the way for a Fed rate hike in December. The US dollar stands to be the main beneficiary of this change in market pricing in the immediate future, though any gains are likely to be measured.
In a Clinton win scenario, bond prices across the Treasury curve would likely remain under pressure in the coming weeks given the high chance of a rate hike, rising inflationary pressures, and the possibility of an easier fiscal policy stance by a Clinton administration. A Clinton win is not likely to radically alter bond investors or economists views on the outlook for the US economy. If Clinton is able to implement easier fiscal policy in the US in the medium term, US growth and inflation would likely increase, meaning a rise in term premiums and a steeper yield curve.
A Trump win
A Trump victory would result in heightened volatility across a number of markets given the uncertainty around what the implications are for the US economy. Following the result, risk aversion would likely increase meaning a rising US dollar, lower bond yields and a weaker US high yield corporate bond market. In the fixed income universe, emerging market bonds and currencies would likely be hit the worst in this environment given Trump’s tough stance on China and Mexico. This market reaction could look similar to previous US risk-off events such as the 2008 financial crisis, the 2011 loss of the US government AAA rating, and the 2013 taper tantrum. Equally, should the Fed push ahead with a rate hike in an uncertain political environment, we may see an adverse reaction in markets similar to the 2014 rate hike.
Turning to credit markets, Trump’s proposal of a repatriation tax holiday would likely be positive for US investment grade corporate bonds at the margin and may lead to a reduction in corporate bond issuance. It is estimated that companies hold almost $1trn offshore, with around 60% denominated in US dollars. The big question is how companies would use this cash: will they pay out special dividends to shareholders? Will they increase capital expenditure and expand their operations? High yield companies would be less affected, as most companies have domestic sources of revenue.
Over the medium term, Trump’s proposals on large tax cuts for all is the equivalent of a large Keynesian injection of cash into the economy which would benefit economic growth but also raise inflation. The implementation of trade barriers would also be inflationary, as import prices rise from current levels. Immigration reform means the already tight US labour market would tighten further, leading to higher wages. Fed policy would need to counteract the rise in inflation, meaning much higher interest rates and a bear market for bond markets. The US treasury market would return to a world of higher yields and a much steeper yield curve. In this environment, the US dollar would likely strengthen given the contrasting monetary policy stance with other developed market economies. A Trump win would be good for government bonds in the short term, bad for bonds in the long term.
The bottom line
A Clinton victory would likely result in lower volatility in the near term relative to a Trump victory. In the immediate aftermath of a Clinton win, there may be some slight risk-on moves from investors but over the medium term much will depend upon the make-up of the United States Congress. Credit markets should prove to be relatively resilient, given that default rates are expected to remain low and the Fed remains cautious in removing policy accommodation, thereby reducing the chances of a policy error. A Trump victory would be seen as a risk-off event in the short-term, resulting in lower treasury yields, a higher US dollar and weaker risk sentiment towards emerging market assets. Given both candidates are advocates of an easier fiscal policy stance, government bond prices are likely to come under pressure in 2017 under both scenarios. Over the longer term, like a Clinton win scenario, the policies that Trump is able to implement given the make-up of Congress will be key to determining the outlook for the economy and consequently bond and currency markets.
The Muzinich Europeyield and Muzinich ShortDurationHighYield funds won the European High Yield and Short-dated Bond categories.
In addition, Muzinich Americayield was highly commended in the US High Yield category and the company was highly commended in Specialist Fixed Income Group of the Year.
The awards were judged using a combination of quantitative and qualitative criteria, based on independent performance data and analysis by a panel of leading industry figures.
Josh Hughes, Managing Director of Marketing & Client Relations at Muzinich said: “We take great pride in the fact that a panel of highly respected industry figures have recognised our success in delivering superior risk-adjusted returns for our investors, which has been the focus for Muzinich & Co for more than two decades.
It underlines the quality and specialist expertise of our credit team, who we believe are among the most experienced in the industry.”
The awards are designed to recognise consistency of returns by asset managers focused on specialist asset classes. Muzinich & Co was also recognised in last year’s awards when it earned four awards and was highly commended in two categories.
The active/passive management conversation doesn’t have to be a debate. Those are better left to the politicians. As MFS Co-CEO Michael Roberge says in his October 18 opinion piece in the Wall Street Journal, investors can choose both. And they may want to consider that, given the potential diversification benefits of having active alongside passive in their portfolios.
With active management facing criticism of late, Mike sheds some light on the rhetoric and how to recognize a manager with skill. He also makes a compelling case for active’s risk management capabilities and the importance of excess return in an environment fraught with return-generating challenges.
Investors know this. In a recent survey conducted by MFS, nearly three-quarters of professional investors surveyed in the US cited strong risk management as an important criteria when selecting actively managed investments
So passive has its place. Active has its advantages. And there are some real merits to a “bipartisan” portfolio. Here’s what Mike has to say:
It is true that flows into passive strategies have picked up. But U.S. advisers are still allocating 70% of their clients’ assets to active investment strategies, according to our recent survey.1 Investment flows can be fickle and aren’t always a good barometer for long-term shifts in sentiment.
Most of it points to the average active manager’s inability to consistently beat their benchmark, net of fees. And while that might be true for average managers, there are skilled active managers who have consistently outperformed their benchmarks over a full market cycle. But how do you distinguish between skilled and average? It really comes down to conviction and risk management.
Investors caught in the active/ passive debate need to under- stand the issues—but stay focused on the outcome. Market returns might look appealing. Excess return will matter more. And managing the downside is essential. Long term, the bipar- tisan portfolio probably wins.
CC-BY-SA-2.0, FlickrPhoto: David Lofink
. M&G to Resume Trading in M&G Property Portfolio
Effective from noon on Friday 4 November 2016, M&G Investments (M&G) will resume trading in the shares of the M&G Property Portfolio and its feeder fund, the M&G Feeder of Property Portfolio. The M&G Property Portfolio is a broadly diversified fund, which after all sales, will invest in 119 UK commercial properties across retail, industrial and office sectors on behalf of UK retail investors.
The decision was taken in agreement with the Depositary and Trustee and the Financial Conduct Authority has been informed. The fair value adjustment originally applied on 1 July 2016 has also been removed in full.
M&G announced a temporary suspension on 5 July 2016 after investor redemptions rose markedly due to high levels of uncertainty in the UK commercial property market following the outcome of the European Union referendum.
William Nott, chief executive of M&G Securities, says: “Suspending the fund wasn’t a decision we took lightly, but we felt it was the only way to protect the interests of investors in what were very unusual circumstances in the aftermath of the referendum. Suspension created an environment more akin to normal conditions, allowing us time to choose the most appropriate assets to sell at the right price in order to preserve the integrity and future of the fund. As such, the fund manager has kept higher quality assets while reducing the exposure to assets deemed riskier than their prime counterparts, putting the portfolio in a good position for any further volatility that may be experienced in the lead up to Brexit.” As confidence returns to the market, 58 properties have been sold, exchanged or placed under offer for a total of £718 million.
Meanwhile, and effective January 1st, 2017, Sam Ford will be the new manager of the £598 million M&G UK Select Fund given the incumbent manager, Mike Felton is leaving M&G. Until the end of the year, the fund will be managed by co-deputy managers Garfield Kiff and Rory Alexander.
CC-BY-SA-2.0, FlickrPhoto: Allie_Caulfield
. Singapore Tops The Charts As Best Overall Destination For Expats
For the second year in a row, Singapore takes the top spot in HSBC’s Expat Explorer country league table. Expatriates in Singapore enjoy some of the world’s best financial rewards and career opportunities, while benefiting from an excellent quality of life and a safe, family-friendly environment.
More than three in five (62%) expats in Singapore say it is a good place to progress their career, with the same proportion seeing their earnings rise after moving to the country (compared with 43% and 42% respectively of expats globally). The average annual income for expats in Singapore is USD139,000 (compared with USD97,000 across the world), while nearly a quarter (23%) earn more than USD200,000 (more than twice the global expat average of 11%).
Overall, 66% of expats agree that Singapore offers a better quality of life than their home country (compared to 52% of expats globally), while three quarters (75%) say the quality of education in Singapore is better than at home, the highest proportion in the world (global average 43%).
Now in its ninth year, Expat Explorer is the largest and one of the longest running surveys of expats, with 26,871 respondents sharing their views on life abroad including careers, financial wellbeing, quality of life and ease of settling for children.
The 2016 Expat Explorer report also reveals:
Millennials are drawn to expat life to find more purpose in their careers Nearly a quarter (22%) of expats aged 18-34 moved abroad to find more purpose in their career. This compares to 14% of those aged 34-54 and only 7% of those aged 55 and over. Millennials are also the most likely to embrace expat life in search of a new challenge: more than two in five (43%) say this, compared with 38% of those aged 34-54 and only 30% of those aged 55 and over. Millennials are finding the purpose they seek, with almost half (49%) reporting that they are more fulfilled at work than they were in their home country.
Expat life accelerates progress towards financial goals Far from slowing progress towards their longer term financial goals, expats find many are fast tracked by life abroad. Around two in five expats say that moving abroad has accelerated their progress towards saving for retirement (40%) or towards buying a property (41%), compared to around one in five (20% and 19% respectively) whose move abroad has slowed their progress towards these financial goals. Almost a third (29%) of expats say living abroad has helped them to save towards their children’s education more quickly, compared to only 15% who say it has slowed them down.
The top expat destinations for economics, experience and family are:
Dean Blackburn, Head of HSBC Expat, comments: “Expats consistently tell us that moving abroad has helped them achieve their ambitions and long-term financial goals, from getting access to better education for their children to buying property or saving more for retirement. Most expats also find that their quality of life has improved since making the move – and that they are integrating well with the local people and culture.”
