CC-BY-SA-2.0, FlickrPhoto: Ana Patricia Botín, Chairman of Banco Santander. World Travel & Tourism Council
. Santander Totta, Portugal ́s Second Private Bank After Banco Banif's Acquisition
With the aim of providing continuity to Banco Internacional de Funchal (Banif) and safeguarding the interest of its customers, the Bank of Portugal, the resolution authority, decided to award Banco Banif’s business to Banco Santander Totta, a subsidiary of Banco Santander. Following this decision, as of today, the businesses and branches of Banco Banif will become part of the Santander group.
The transaction will be carried out via the transfer of a large part (the commercial banking business) of Banif’s assets and liabilities to Santander Totta. Banco Santander Totta will pay EUR 150 million for Banco Banif’s assets and liabilities, which are transferred having been adequately provisioned. Meanwhile, other assets and liabilities remain in Banco Banif, which is responsible for any possible litigation resulting from its past activity, for their orderly liquidation or sale.
The acquisition of Banco Banif’s businesses positions Banco Santander Totta as Portugal’s second privately-held bank, after BCP-Milenium, with a 14.5% market share in loans and deposits. Banco Banif contributes 2.5 points in market share and has a network of 150 branches and 400,000 customers. Banco Banif is particularly important in the archipelagos of Madeira and the Azores, where it has very high market shares.
Ana Botín, chairman of Banco Santander, said today: “The acquisition of Banco Banif is another example of Banco Santander ́s commitment to Portugal, one of the group ́s main countries. We are fully committed to the economic development of Portugal and make available all our capacity to help people and businesses prosper in the communities where we operate.”
This transaction has an immaterial impact on the Santander group’s capital and a slightly positive impact on profit as of year one.
CC-BY-SA-2.0, FlickrPhoto: Andy Morffew
. Old Mutual Global Investors Brings Emerging Market Debt Fund in House
Old Mutual Global Investors, part of Old Mutual Wealth, has announced that John Peta, Head of Emerging Market Debt, will take over as fund manager on the US$168 million Old Mutual Emerging Market Debt Fund, effective from 21 January 2016, subject to regulatory approval.
The Fund, which is currently sub-advised by Stone Harbor Investment Partners LP is a sub-fund of the Dublin domiciled Old Mutual Global Investors Series. Its objective, to achieve asset growth through investment in a well-diversified portfolio of fixed and variable rate debt securities issued in emerging markets, will remain unchanged.
OMGI believes investors in the fund will benefit from John’s wealth of emerging market debt investment experience. He joined the business in March 2015 and has managed the US$115 million Old Mutual Local Currency Emerging Market Debt Fund since April 2015. He started his career in fixed income in 1987 and has spent 18 years specialising in emerging market debt investing.
OMGI has also proposed a change to the investment policy of both the Old Mutual Emerging Market Debt Fund and the Old Mutual Local Currency Emerging Market Debt Fund. This change, which will be effective 21 January 2016, subject to regulatory and shareholder approval, will allow the manager to increase the use of derivatives.
John Peta comments: “I look forward to taking on the management of the Old Mutual Emerging Market Debt Fund and identifying areas for growth opportunities. As we move into 2016, I believe emerging market debt will be an appealing investment for those looking to benefit from attractive yields across various regions, including Asia, Latin America and the Middle East”
Warren Tonkinson, Managing Director, Old Mutual Global Investors comments: “John Peta has a great deal of experience managing emerging market debt funds, which investors in the Old Mutual Emerging Market Debt fund are set to benefit from. By increasing his flexibility to use derivatives, John will have greater freedom in his portfolio management style; something we believe will deliver additional client value.
“I’d like to take the opportunity to thank Stone Harbor for their support in managing the fund until now.”
Marco Pirondini, Head of Equities – US at Pioneer Investments.. "Earnings Are Forecasted to Grow Double Digits, Measured in Euros, and Should Be Very Supportive of Equity Valuations in 2016"
Marco Pirondini, Head of Equities – US at Pioneer Investments, discuss with Funds Society, in this interview, his outlook for 2016.
In the current environment, do you consider the premium offered by equity markets attractive? Is it worth investing in this asset class rather than in bonds or cash?
We think that equities are fairly valued on an absolute basis but are attractive relative to other asset classes such as bonds, which are for the most part overvalued. In other words, equity risk premium are high by historical standards and this tend to correlate with future long term returns. For this reason, we like the long-term outlook for equities better than bonds.
Double digits returns have been seen last years… do you expect this trend to be continued or must investors lower their expectations on global equities?
We expect that equities could continue to offer double-digit returns measured in euros. That is partly because of improving earnings and partly because the euro should continue to depreciate. With respect to earnings, we think earnings globally will grow modestly next year despite headwinds from lower commodity prices and weak industrial demand as consumers continue to spend. Earnings are forecasted to grow double digits, measured in euros, and should be very supportive of equity valuations in 2016.
Divergent monetary policies in the U.S. and Europe will likely result in continued depreciation of the euro vs. the dollar, which will benefit European investors in U.S. and global equities, as the U.S. is the largest portion within global equity asset allocations.
We have also started to notice higher volatility levels, is it likely to see this trend on the coming year or you expect the opposite?
Volatility has increased in the last few months but is still relatively low by historical standards. We do not expect volatility to change significantly. If volatility does increase, we would view declines as a buying opportunity as we believe we are in a secular bull market for equities.
What are the main risks for the asset class: the Chinese transition, rate hikes by the FED…? How might these factors affect?
On top of the usual geopolitical risks, which include terrorism, the civil war and dislocation in Syria, and instability in some emerging market countries, a credit crisis generated by low commodity prices is probably the most imminent risk. While we believe there will be severe credit issues with companies in or exposed to the energy industry, we do not believe this will result in a global credit crisis, which would negatively impact equities as well as bonds.
Alternatively, we believe one of the risks investors have been most concerned about, a FED increase rate hike, will be a positive for U.S. equities, as equities usually rise in the first year of a rate increase. In particular, owning high quality companies with strong fundamentals is usually to best way to invest in a rising rate environment as they are typically growing and have strong enough fundamentals to cope with the unexpected.
Talking about regions, what are your winner bets? Which ones are properly valuated and offer the best opportunities?
We think that Japan is the most interesting region. It offers a unique combination of low valuations and improving earnings driven by better corporate governance. We also think the while the U.S. is fairly valued overall, there are opportunities to own world class health care and financial services companies at attractive valuations relative to international peers.
Is this a good moment to invest in the emerging markets?
We believe emerging markets are still risky because many of the countries have accumulated substantial amounts of dollar debt in the last few years. The emerging markets picture remains extremely varied. We expected modest growth in some countries supported by a pick-up in demand from developed markets and by some stabilization in countries that experienced strong contractions in 2015.
Is the long bull market cycle in US equities set to continue and if so, why?
Well definitely it has been a very long bull cycle. In the last 100 years this is the longest period of market expansion without a 20% correction, so that’s a very very high bar. A correction is possible, someone would say even likely, though it’s very difficult to see in the markets the reasons why we should have that correction. We haven’t seen excesses in valuations, we haven’t seen excesses in investments, the bullishness of investors towards equities is not particularly high…. So it’s very difficult to see what could cause a correction. What I can say is that every time the market in the US has passed its previous peak – and this has happened in 2013 in the US – it was the beginning of a very long bull cycle with some big corrections in them, but usually cycles that lasted 15 – 20 years. Honestly, I think that we may have corrections but the bull cycle in the US is going to last for a long time.
On a sector basis then, where do you see the main opportunities for US equity investors over the next twelve months?
When we look at 2016, we see opportunities in sectors where the US market has companies that are global leaders but are also exposed to some very powerful long-term trends like innovation, and like the ageing population in developed markets. In particular, we like companies in the technology sector, companies in the pharmaceuticals sector, I would say more established larger cap companies – in general we prefer large cap to small cap in the US in 2016. But we also see other opportunities, for example in financials. Financials has been a sector that has underperformed for many years, since the financial crisis really, and we think that 2016 could surprise a little with interest rates going up, we think that more financial companies could actually improve their earnings and start to pay some dividends and this will probably help their performance. Generally speaking though, we tend to prefer stable growth companies over value investments.
CC-BY-SA-2.0, FlickrPhoto: Seher Basogul. It Really Is Different This Time
Now that the US Federal Reserve has raised interest rates for the first time in nine years, investors want to know how this rate-hiking cycle might proceed and, more important, how markets will react. But searching past rate-hiking cycles for clues this time is like looking for your lost keys under a streetlight rather than in the dark, where you probably dropped them. It’s easy to see why investors would search somewhere familiar and convenient — but it’s still likely the wrong place to look. Fed tightening cycles over the past 30 or so years are simply not a good guide to what lies ahead. This time, the circumstances facing the Fed are far too different to rely on past economic cycles for any comfortable frame of reference.
Perhaps the biggest difference between this economic cycle and those past is that the Fed has just initiated a rate-hiking cycle while both real growth and inflation are very low. Historically, year-over-year nominal GDP growth rates have been above 5% at the beginning of a tightening cycle. Today, nominal growth stands at 3%. During past hiking cycles, CPI headline inflation has typically been around 3%, with core personal consumption expenditures (PCE) inflation usually above 2% — well above the current levels. Rate hikes generally come amid periods of rising corporate profits, not during an earnings recession such as the one we’re seeing now.
In another indication of how different this cycle is from any other, the Fed has now achieved liftoff amid a collapse in commodity prices, the primary catalyst for the drop in earnings. On the manufacturing side, this is the first time in 30 years that the central bank has started a tightening cycle while the Institute for Supply Management (ISM) manufacturing index has been below the breakeven level of 50, as it is now.
And while the global backdrop has generally supported the case for past rate-hiking periods, that’s clearly not the case at present. Growth and inflationary pressures remain sluggish in both the developed and developing world, so it’s no surprise that much of the globe is maintaining or enhancing monetary accommodation. Expectations of a tightening Fed have fueled robust US dollar gains, which run counter to a rate-hiking mentality, as these act to tighten US financial conditions. Indeed, if US rates had been a couple of hundred basis points higher, rather than brushing up against zero, we might have seen a rate cut rather than a hike.
Moreover, when was the last time the Fed raised rates after having been on hold —at zero— for seven years or with a $4.5 trillion balance sheet or when domestic and global debt burdens were this high and the global demographic profile was this unfavorable? The answer, of course, is never. This is the first time. So why are we so enamored with looking to the past for lessons? Perhaps because it is easier, but we would be better off looking at this episode as its own unique moment instead of applying the wisdom contained in dusty economic history books.
To be sure, large swaths of the US economy are performing well, highlighted by the robust service sector, strong vehicle sales and healthy income generation from a firm labor market. But what is markedly different here are the many areas of the domestic and global economy that are performing uncharacteristically poorly or are facing significant challenges as we progress with Fed tightening.
One direction?
What does all this mean for rate hikes that follow this one? A very different path. The terminal rate will likely be much lower than it has been in the past — nowhere near the average 600-basis-point rise in the federal funds rate we’ve seen since 1970. The likely outcome is lower for longer, with the front end of the yield curve rising with policy rates but the long end likely not moving very much. Will the Fed be able to tighten all the way into 2019, as it now projects? That seems doubtful, given that this business cycle is already seven years old.
We also see a risk in the Fed heading up one path while the rest of the world staggers down another. As a cautionary note, we recall that the European Central Bank and the central banks of Canada, Australia, New Zealand, Sweden and Norway all raised rates earlier in this cycle, only to lower them again before too long. Given the weak global outlook, the Fed may end up doing the same.
Now that the FOMC has met, we know when rate hikes will begin. But if we expect this knowledge to shed some light on the rate-hiking cycle further out, we could be in the dark for quite some time.
Column by Erik Weismann, Chief Economist & Fixed Income Portfolio Manager at MFS.
The Erste WWF Stock Environment Fund invests globally in companies in the environmental sector. It was first launched in 2001 as Stock Umwelt. Clemens Klein is fund manager with Erste Asset Management.
Mr. Klein, what was the goal in setting up Erste WWF Stock Environment Fund?
The basic idea is to invest in companies that contribute to environmental protection with their products or services. Our goal was to take into account the effects of global mega-trends such as population growth, urbanisation, and the growing middle class in growing regions such as Asia and Africa.
What are the effects of these trends?
These trends lead to an increase in energy demand and demand for scarce resources, higher emissions of greenhouse gases, and an increase in the volume of waste. With our topics “renewable energy”, “energy efficiency”, “water”, “mobility”, and “recycling”, we focus on those areas where solutions for these developments are available.
What strategy do you pursue in these funds?
We are strongly focused on small and medium-sized companies with interesting products or technologies. We hold them over extended periods of time in order to benefit from long-term trends. One example is Shimano, a producer of bicycle components, which we first bought for our fund in 2003. To date the company has recorded a price increase of the factor of ten.
Can you invest in any sector?
No, the fund invests only in companies whose products and services come with a benefit for the environment. Companies involved in nuclear power, the oil, coal, gas, or mining industry, or the automotive and aviation industry are not investable.
Are there certain topics in your investable universe that are promising?
We can see potential especially in renewable energies. Although clean forms of energy are crucial for climate protection, wind and solar power currently make up less than 2% of global power generation. This share will be growing to 30%-50% by 2050. We also regard companies as attractive that operate in energy storage and energy efficiency. Energy that you don’t consume doesn’t have to be produced at a high financial and environmental cost. The relevance of alternative propulsion systems such as electric or hydrogen-powered cars will drastically increase as well.
Photo: Alex Crooke heads Henderson’s Global Equity Income team. QE in Europe and Japan Set to Benefit Higher Dividend Yielding Stocks
Alex Crooke heads Henderson’s Global Equity Income team, which consists of twelve professionals with an average industry experience of 16 years. In his case, he has been managing income generating strategies since 1997. In an interview with Funds Society, Crooke explains: “high dividend yielding stocks are not a fad, they have played an important role in the market for decades. Dividends are a very powerful strategy when investing in equities.”
In fact, over time, dividends are responsible for a highly significant proportion of the total returns on global stock markets. In 2014, listed companies worldwide paid more than $1 trillion in dividends. They are also a good indicator of corporate health. In recent years, payouts of listed companies have continued to grow. The Henderson Global Equity Income team believes that this trend will continue as fundamentals in markets lagging the economic cycle, such as Europe, improve.
“Our strategy is truly global,” says Crooke. The universe includes Asia and emerging markets, and stocks of all market capitalizations. “Right now we find better yield in Europe and Asia than in the United States, as well as better dividends among large-cap companies, compared to small and mid caps. Essentially, we have a yield of 3.4%.”
In a world where interest rates are at historically low levels, a dividend culture is warranted, especially in those areas of the world where aging populations lead to increased demand for income-generating assets.
High and Rising Dividends
“Ours is a bottom-up investment process. The portfolio is constructed from a global universe of companies, which generate good dividend yields. In addition, we have found that companies that raise their dividend tend to perform better overall.”
Crooke’s team looks closely at companies that deliver good dividends, with a focus on analyzing whether they are able to increase cash flows over the next two or three years. “At the end of the day, a dividend is cash leaving the company, therefore, in order to have a dividend, there must be good cash generation.”
During the investment process, the Global Equity Income team examines several factors, including balance sheet strength, capex needs, and cash generation, but without losing sight of the macroeconomic framework. An example of this is what’s happened with oil companies over the past year, “the macro environment suggested that the price per barrel could not be maintained above US$100 for a long period of time, but even at that price, we saw that many companies within the industry were financing dividend distributions with debt, instead of cash flow; they were handing out the results of future projects. For us, that was a warning sign indicating that it was best to steer clear of these companies, even though their dividend was high. “
A UCITS Strategy for a Three-Year Old UK Domiciled Fund
Alongside Andrew Jones and Ben Lofthouse, Alex Crooke manages the Luxembourg-domiciled SICAV strategy, which launched a year and a half ago as a mirror version of the existing Global Equity Income Strategy, domiciled in the UK. The launch of the UCITS Luxembourg version was driven by the low interest rate environment, which has seen increasing demand in Europe and Asia, as well as interest for such products in the US Offshore and Latin America market.
Overall, Henderson manages approximately US$15 billion in both regional and global Equity Income Strategies. Henderson began investing in income at the global level in 2006, and manages US$3.5 billion in its global dividend strategy domiciled in the United States, and about US$1 billion in the strategy domiciled in the UK.
QE in Europe and Japan should Act as Catalyst for Higher Dividend Yielding Stocks
This strategy, which has the MSCI World Total Return Index as its benchmark, typically has between 50 and 80 companies in the portfolio. “The United States represent 30% of the portfolio, an underweight position,” explains Crooke. This positioning is more the result of valuation rather than one of dividend growth. “Since the United States launched its QE program, the popularity of stocks offering a good dividend yield increased, raising the price of securities in both equities and fixed income.” Henderson’s Global Equity Income team, however, does see some interesting American companies, such as mature technology names like Microsoft and Cisco, which have “a good payout combined with strong cash flow generation.” Another sector in which they are beginning to focus is that of US banks “which we think will be in a position to start paying better dividends.”
But it is in Japan and Europe where Crooke sees the greatest opportunities. “The QE program is in its infancy, thus, the same rationale which pushed money in the US towards dividend stocks should also operate in Europe and Japan.”
The average forecast yield of the companies which form the strategy is 3.8%, with an estimated dividend growth of 5 to 10%. “In the UK, for example, we see interest rates at levels below the average yield of the equity market; this is the situation throughout most developed world markets, except the United States. Now is the time to reconcile this difference.”
The team’s outlook for emerging markets is very cautious. The strategy’s allocation is less than 5%, although exposure is also gained through certain developed market companies with emerging market business streams.
Restructuring Companies, a Recurring Theme in the Strategy
Around a third of the stocks included in the portfolio are undergoing some form of restructuring. “Companies that have gone through a process of change to improve their fundamentals tend to behave well regardless of the economic cycle. Since we are not very positive about the global macroeconomic outlook, we focus on these types of businesses as well as companies in sectors uncorrelated with the economic cycle, such as pharmaceuticals or insurance.”
A recurring concern when investing in dividends is to avoid “value traps”. Some high-yielding equities can be more risky than their lower-yielding counterparts, particularly after a period of strong market performance when equity price rises push yields down. The high-yielding companies that are left can be structurally-challenged businesses or companies with high payout ratios that may not be sustainable. Crooke says that it is essential to analyse the sustainability of a company’s ability to pay income.”We avoid investing in companies whose dividend policy is vulnerable to regulatory changes, the interest rate environment, declines in commodity prices, etc”.
Does High Yield Debt Investment Compete with Dividends?
Crooke points out that investing in high yield bonds is currently not as attractive an option. “If you want high yields from fixed income, you have to look to heavily indebted companies. Those with a good credit rating don’t offer such attractive yields. In Europe, for example, 55% of companies offer better yields through dividends than through debt issues.”
Furthermore, if inflation returns, the risk of rising rates is still there, and it may damage the performance of a fixed-income portfolio. “If you’re counting on a gradual reflation of the economy, we believe that it’s much better to be in equities than in fixed income,” says Crooke.
Photo: Jackietl, Flickr, Creative Commons. BME Joins the Sustainable Stock Exchanges (SSE) Initiative to Promote Sustainable Capital Markets
BME has announced that it has partnered with the United Nations Sustainable Stock Exchanges (SSE) initiative to raise awareness on environmental, social and corporate governance issues, and to spread sustainable business practices.
The UN SSE initiative was launched by UN Secretary-General Ban Ki-Moon in 2009, and offers a learning platform for exploring how exchanges—together with investors, regulators and listed companies—can encourage sustainable investments and enhance corporate transparency. The SSE is convened by the UN Conference on Trade and Development (UNCTAD), the UN Global Compact, the UN Environment Program’s Finance Initiative (UNEP FI), and the Principles for Responsible Investment (PRI).
In a letter to UN Secretary General Ban Ki-moon, BME committed to working with investors, companies and regulators to promote long term sustainable investment and improved environmental, social and corporate governance (ESG) disclosure and performance among companies listed on its markets.
The Chairman of BME, Antonio Zoido, said: “We are proud to join the SSE Initiative and partner with the UN and our industry to support best practices in corporate governance and transparency related to corporate sustainability and help advance this cause globally. Being part of the Sustainable Stock Exchange initiative demonstrates our commitment to adopting sustainable business practices and encouraging our stakeholders to do the same”.
CC-BY-SA-2.0, FlickrPhoto: Gabriel Villena. Robeco Builds Presence in the UK
Robeco announces the opening of its new London office in the City of London. The office will focus on serving UK institutional investors, global distribution partners and global consultants.
As previously announced Mark Barry has been appointed Head of UK and Institutional Business for Robeco UK. Robeco’s Global Financial Institutions team, headed by Nick Shaw, and Global Consultant Relations team, headed by Peter Walsh, are also run out of the London office. They are currently supported by a team of 6 FTE and Robeco is planning to expand this to around 20 FTE within the next two years. Robeco has a long track record with the UK institutional market and currently has approximately GPB 5bn in assets under management (as at 30 September 2015) from UK client mandates.
As in many other regions across the globe, Robeco will provide its client base in the UK market with access to high level expertise, amongst others within the field of Sustainability and Quantitative Investing. Robeco has been integrating ESG criteria in its mainstream products for many years, and has been at the forefront of active ownership by engaging with companies in which we invest to improve their sustainability practices since 2005. Robeco is also a pioneer in the field of quantitative stock selection since the early ‘90s. In 1994 the first stock selection models were used in Robeco equity strategies. Following the success of these models in practice, Robeco launched a 100% quantitative equity product line in 2002. This expanded over the years, currently spanning a wide range of investment strategies, with different regional exposures and risk-return characteristic and has over the last years developed a number of innovative factor investing strategies.
Mark Barry said: “Robeco coming to the UK is about bringing a suite of capabilities and skill sets to help clients build more sustainable, long-term portfolios to achieve their objectives. There is definitely a space in the UK for Robeco’s ‘cautiously pioneering’ mentality of using long-term, highly innovative sustainable investment strategies. These have been built on the bedrock that founded Robeco in 1929 and still stands today: using research-based, tried and tested strategies to deliver long-term results.”
Hester Borrie, Head of Global Distribution & Marketing and a Member of the Management Board of Robeco Group, said: “Building on our track record with clients in the UK, we are ready to be going to the next stage. We are delighted that our commitment to the UK market is now set in stone, with the opening of our new London office and the appointment of Mark Barry as Head of our UK business. Mark is supported by a strong team within Robeco that has had a solid focus on London in recent years. London is a key hub for the institutional and wholesale investment business globally. With the opening of our new London office, Robeco is now well established in all of the world’s major financial centres.”
CC-BY-SA-2.0, FlickrPhoto: Naroh. Dentons Combines With Luxembourg's OPF Partners
Global law firm Dentons today announced that it will further its leading presence in the world’s top financial centers with a combination between Dentons Europe LLP and Luxembourg’s OPF Partners. OPF Partners’ is a leading Luxembourg firm, rated by Chambers and The Legal 500 for banking and finance, corporate, investment funds, tax, real estate and dispute resolution. The firm’s 34 lawyers, including nine partners, will join Dentons Europe LLP on January 1st, 2016.
In 2015, Dentons has entered or expanded in six of the world’s leading financial centers, and this combination means that the Firm now has a presence in the following cities out of the 25 top financial centers in the world: London, New York, Hong Kong, Singapore, Seoul, Toronto, San Francisco, Washington, DC, Chicago, Boston, Frankfurt, Sydney, Dubai, Montreal, Vancouver, Shanghai, Doha and Shenzhen.
“In our 10th transformative initiative in 2015, Dentons has done more for its clients this year than any global firm,” said Dentons Global Chairman, Joe Andrew. “By listening to our clients and planning our strategy around their business goals, we are creating the law firm of the future—one that anticipates client needs and delivers the specific practice expertise and business experience required, in communities around the world.”
Global Chief Executive Officer Elliott Portnoy added, “OPF Partners is recognized as one of Luxembourg’s leading firms and its lawyers will be able to offer our clients elite counsel in this important European market, consistent with our polycentric approach of offering the best legal talent in communities around the world. We are very pleased to welcome this high quality team to the Firm.”
Evan Lazar, Chairman of the Europe Board said, “Luxembourg plays a key role in the global and European investment fund and private equity sector, which is one of our core areas of focus and strategy. We are delighted to welcome our new colleagues from OPF Partners, with whom we have been working jointly for clients over recent years, and who share our commitment to excellence and building a leading pan-European practice.”
“We have already achieved a lot this year with our Milan launch, the hire of a substantial team in Hungary and the significant growth of our German practice with nine new partner appointments,” said Chief Executive Officer for Europe Tomasz Dąbrowski. “This transaction implements another top priority under our strategic plan for Europe which we will continue to focus on in 2016 and the coming years.”
Frédéric Feyten, Managing Partner of OPF Partners, commented, “We have always been committed to innovatively supporting local and international clients on the full spectrum of their Luxembourg projects. This combination will strengthen our capabilities in delivering pinpointed legal advice on a global scale. Luxembourg has achieved its status as a leading financial center, the largest European investment fund center, and a major private equity hub through its excellent services, international open-mindedness and stability. In this context, our teams are well positioned to solve the most challenging global client demands.”
The news builds on Dentons’ recent growth in Europe with the launch of a Milan office last month; the hire of 50 lawyers in Budapest earlier this year; and significant lateral partner hires in Germany, Russia and France. It also follows transformative combinations in China and the United States; the recent announcement of combinations with Australia’s Gadens and Singapore’s Rodyk; the Firm’s February establishment of its Johannesburg office in Africa, where it is the first global law firm to achieve Level 1 Broad-Based Black Economic Empowerment status; and the creation of its innovation platform, NextLaw Labs, which is focused on developing, deploying, and investing in new technologies and processes to transform the practice of law around the world.
Photo: Cheezepie. Equity and High Yield: the Assets in Which to Find Absolute Returns in 2016
In an environment which is more uncertain than in the past, investors are wondering where to find absolute returns in 2016. Schroders experts are clear: in assets such as high yield bonds, or equities. “Given the adjustments that occurred in the credit market, the yields are attractive and we can now get real positive returns, even in an environment of rising interest rates by the Fed,” explains Karl Dasher, Head of Schroders in the US, and Co-Head of the management company’s Fixed Income.
As part of the Annual International Media Conference held recently in London, he said he sees opportunities in the high yield segment, “a very interesting asset in which to be now.” Despite the caution by the energy component in asset, he deems that opportunities may be found in different industries, such as consumer or industrial sectors, and also in the financial sector, with differentials of 6% -7% – avoiding the energy risk, and predicts total returns of between 5% and 10% next year. “The important thing is the selection of securities and investing in a widely diversified manner; we have about 150 names in the portfolio, “he adds.
For Alex Tedder, CIO and Head for and global and US equities, there are always opportunities in equities, despite the uncertain environment in which the market moves. “This year’s returns have been almost flat, disappointing, but in geographical and sectoral terms, there is much divergence”, demonstrating that there are always opportunities. The manager sees a situation with several equilibrating factors: on the positive side, profits, liquidity and its condition as preferred asset and flow capturer; and in the negative side, profit revisions, except in Japan, valuations (most markets, with the exception of Japan are relatively expensive), and geopolitical risk.
But “there are reasons to remain positive: the yields on equities are attractive versus bonds and, if we go back to previous crises, we see that valuations are not so bad,” he adds. In addition, there are always opportunities in those areas where the market is often wrong: the manager mentioned securities which benefit from disruptive technologies, secular growth, innovation, niche players, or those who have purchasing power. For example, those industries which benefit from the growth in online transactions and commerce, such as Tencent, Alibaba, Uber, LinkedIn, Netflix, Google, Trip Advisor, Expedia or Airbnb. “We have no sectoral or country bias: We have no sectoral or country bias: we seek global growth and opportunities and with this viewpoint, the set of opportunities is substantial.
Opportunities in Debt
The bond market has experienced 30 years of gains in fixed income, in a scenario of slowing economic growth, higher saving rate (partly due to demographic reasons) and a lower level of investment than expected, excess savings also in emerging markets, and a fall in public investments. The Bank of England estimates that the overall impact of these factors, among others, explains a fall of 4.5% in real yields.
For Dasher, markets are not looking to the forward looking indicators but at the rearview mirror, and are behaving as if the Fed had already raised rates. “In fixed income markets, many of the fears of a rate hike have already been priced in.” he explains. The proof: Also speaking of credit, the spreads on debt assets are lower than at other times in history. He rules out that the Fed will make a move any time soon: the market has priced it in that it will do so in December, but progress will be very slow, reaching 1.5% -2% within the next 18 months. For its part, the ECB will continue with its QE but will disappoint, while UK rates will rise sometime next year.
In the case of US credit, the expert talks about its dynamics: supply and corporate issues increased, but foreign demand has not been sufficient. However, he sees a trend on the horizon: the appetite of Japanese investors for the asset. “Japanese investors are changing their habits and shifting from investing in domestic assets to international assets, for example, in US debt”; therefore, he explains that issues in corporate debt and the increased supply in this area, can be offset by demand for the asset.
He explained that in emerging debt, adjustments in China will be gradual, and that if the renminbi is not undervalued further, and continues at levels of three years ago, it is because the rest of the world has depreciated more. But he is not worried about the country’s debt levels: “If there is a debt crisis, comparisons with other historical moments would put China in the less severe end of the spectrum,” he adds. In general, he believes that in emerging debt there are interesting opportunities from a viewpoint of selection, of both companies and public debt, building portfolios which are very different from the benchmarks.
