CC-BY-SA-2.0, FlickrPhoto: Steve Gatto. Market Opportunities Related to the Water Sector Are Expected to Reach USD 1 Trillion by 2025
Water is essential for life. But for years some parts of the world have taken their water supply for granted. And it’s easy to understand why. Crystal clear drinking water flows in abundance from the taps in our homes, schools, and workplaces. Many of us don’t give a second’s thought to the challenges that lie behind getting clean water to our taps or indeed how much of this finite resource we consume on a daily basis.
But for most of the world, clean drinking water is a precious commodity. Although water covers about 70% of the Earth’s surface, we must rely on annual precipitation for our actual water supply. About two-thirds of annual precipitation evaporates into the atmosphere, and another 20-25% flows into waterways and is not fit for human use. This leaves only 10% of all rainfall available for personal, agricultural and industrial use.
Moreover, precipitation is not evenly distributed: 1.2 billion people are living in areas of water scarcity. What’s more, pollution has made much of that water undrinkable and unsafe for use. Meeting the world’s increasing water needs has fast become one of the biggest challenges facing society.
But there is reason for optimism: in the past, a short- age of vital resources has driven the need to innovate, discover new materials and generate new technologies. The water challenge is no exception, and companies across the globe are seeking to find solutions to tackle the problem.
The RobecoSAM study ‘Water: the market of the future’ examines the key megatrends that are shaping the water market, and explores the investment opportunities that are arising from these trends:
Population growth
Aging infrastructure
Water quality improvements are necessary in many places
Climate change is altering the availability of water resources
Such trends generate risks and opportunities for companies and investors alike. Market opportunities related to the water sector are expected to reach USD 1 trillion by 2025. Companies that are early to respond and take steps to exploit the market opportunities associated with these water-related challenges are more likely to gain a competitive advantage and achieve commercial success.
Photo: JImmyReu, Flickr, Creative Commons. GGM Capital Launches GGM Multistrategy, an IT-Centric Alternative Fund
GGM Capital, the investment banking IT focused boutique, is launching its new Technology-centric, open-ended fund under the umbrella of a Luxembourg SICAV-SIF. This new fund will have a target size above €50.0m and will invest in a diversified portfolio of equities, private equity/venture capital funds and corporate debt.
The objective is to achieve strong capital appreciation by investing in a diversified set of asset classes with various maturity levels, yields and risk profiles.
The asset allocation is outlined as follows: the equity portfolio, representing a majority of the invested assets at all times, will be composed of equities of technology companies listed in key financial markets such as NASDAQ, NYSE, LSE, Euronext and Xetra. For this purpose, GGM Capital will leverage on its extensive proprietary trading experience and in particular its strong track record developing successful intraday trading and short term swing strategies.
GGM Multistrategy will invest a smaller part of its assets under management in less liquid instruments, be it either investment funds or corporate debt, with generally a hold to maturity strategy. The objective of this part of the portfolio is to provide foreseeable returns with are not correlated with the equity portion of the portfolio.
GGM Capital will leverage of the combined 40+ years experience in capital markets of David Moix, Gabriel Padilla and Guillermo G. Morales as well as its positive track record achieved by GGM Capital managing venture capital investments in the technology space.
Guillermo G. Morales Lopez, Executive Chairman of GGM Capital said: “I’m excited to offer our investors a new innovative instrument leveraging on our experience and track record. We had been working hard in building up this amazing strategy during the last years and now we are pleased to offer this one of a kind investment opportunity to the market”.
Gabriel Padilla, Partner of GGM Capital added: “Our investors have asked us to develop an open-ended, diversified product to deepen their investment relationship with us. I believe we now have the right product for this purpose.”
CC-BY-SA-2.0, FlickrPhoto: Sasha Kohlmann. Innovation and Demographics: Growth Opportunities From Global Themes
Six years into a stock market recovery fuelled by coordinated and repeated bouts of quantitative easing, equities have arrived at a very interesting point in the road. The asset purchasing intervention by many of the developed world’s central banks drove bond yields to historic lows, forcing traditional yield-hungry fixed income investors to venture into the equity markets. While it is difficult to argue that, overall, valuations in equity markets are not now becoming somewhat stretched relative to historic levels, when compared to the meagre returns on offer from fixed income, the premium to historical averages looks easier to justify.
The Henderson Global Growth strategy applies a thematic overlay to identify areas of the market that are underpinned by a disruptive innovation or demographic trend, which is expected to drive long-term secular growth. Here, managers Ian Warmerdam and Ronan Kelleher analyse the themes of Energy Efficiency, Healthcare Innovation and Internet Transformation.
Higher growth has become overlooked
In recent years, there has been a keen focus and significant investment in high yielding equities, typically characterised by low growth and mature businesses, and this has led to a corresponding increase in relative valuations in this area versus the wider market. The knock on effect of this has been, in Henderson´s view, that parts of the higher growth areas of the stock market have become overlooked, resulting in attractive entry points for the longer term investor. This is precisely the area of the stock market in which we operate, scouring the globe for pockets of underappreciated long-term secular growth.
Thematic-based opportunities
On the Henderson Global Growth strategy Ian Warmerdam and Ronan Kelleher, managers at Henderson, apply a thematic overlay to identify areas of the market that may provide stock ideas that fulfil our long-term, fundamental investment criteria. Both maintain a focus on a small number of themes; each underpinned by a disruptive innovation or demographic trend that is expected to drive secular growth over the long term. Henderson current themes include: Energy Efficiency, Paperless Payment, Healthcare Innovation, Internet Transformation and Emerging Markets Growth. Here, we touch on three, but all provide a breadth and depth of investment opportunities.
Energy Efficiency: going Continental
“Energy Efficiency is a theme that has served us well in recent times”, said Warmerdam and Kelleher. The quest for greater energy efficiency is being driven by a combination of factors; environmental concerns, rationalisation of finite reserves of carbon-based fuels and governments’ pursuit of energy independence. Confronting these issues, governments in countries covering 80% of global passenger vehicle sales have set stringent targets for fuel economy or emissions.
In the US, for example, the National Highway Traffic Safety Administration (NHTSA) has mandated that the average passenger car’s fuel economy must increase from around 35 miles per gallon (mpg) today to 56mpg by 2025. Continental, the German listed manufacturer of auto components and tyres, benefits from these trends. The company enjoys strong market positions across its powertrain division, which integrates innovative and efficient vehicle system solutions with a broad portfolio of engine parts from turbochargers to start-stop technology, geared towards increasing fuel efficiency and reducing emissions.
Healthcare Innovation: ‘MinuteClinics’
“Another fruitful hunting ground for long-term growth has been Healthcare Innovation. Here we are attracted by the demographic changes at play as an ageing global population, as shown in the chart below, struggles to contain ever rising healthcare costs. Increases in life expectancy mean that the global 60+ age group is expected to double by 2050 to two billion people. We are attracted to companies such as CVS Health, the US pharmacy chain, which provides an integrated health care service for its customers”, point out both managers at Henderson. For example, they said, CVS now operates around 1,000 walk-in “MinuteClinics” across its 7,800 stores where patients can get a variety of everyday illnesses and injuries treated at a fraction of the time and cost of going to see a GP.
Finally, Warmerdam y Kelleher explained that Rightmove, a long-term holding within our Internet Transformation theme, is a stock we continue to like. The leading online UK property listings company has had a turbulent 18 months following a period of uncertainty surrounding the impact of a third entrant into its market. “We believe the proficient founder-led management team at Rightmove has done an impressive job at the helm, and the company has rightfully emerged as a more dominant leader in a market that should continue to benefit from the structural shift in advertising spend from offline to online”, concluded.
UK equities remain elevated, with muted volatility, but the next ‘macro shock’ could quickly change this backdrop.
The FTSE 100 Index broke through its all-time high when it moved above 7,000 in spring this year. It has since retreated but remains at elevated levels. Investors are rightly wondering whether the market can advance further or if they need to prepare for volatile markets.
The FTSE 100 Implied Volatility Index (IVI) 30 Day measures volatility. It is derived from the prices of underlying FTSE 100 options, and can be considered a ‘fear gauge’ by investors.
Volatility trends
The chart plots the FTSE 100 IVI Index against the FTSE 100 Index. It is clear that rising markets are often characterised by periods of low volatility, while falling markets typically exhibit increased volatility. Euphoria appears to be accompanied by smoother markets than panic. Psychologically this makes sense; numerous studies have shown that humans feel losses more than gains of the same value. Economists call this “loss aversion”. When losses begin to accumulate in the market this can rapidly descend into self-reinforced panic as confidence in the prices of stocks evaporates.
Volatility is, therefore, not typically welcomed by investors. However, our strategy can exploit this volatility in share prices, aiming to convert it into a stream of absolute (positive) returns for investors. We blend two trading strategies within the Henderson UK Absolute Return Fund. ‘Core’ positions, typically one third of the fund, constitute long-term views on earnings growth potential of underlying companies. ‘Tactical’ positions, typically two thirds of the fund, take advantage of factors influencing stock prices over a shorter timeframe. Both strategies can either go ‘long’ or ‘short’.
Macro effects
It is these tactical positions, in particular, that equip us with the potential to generate positive returns whatever the market backdrop, and there are plenty of macroeconomic issues to keep investors concerned: the timing of interest rate rises; Greece; and Spanish elections in December, to name but a few.
We may not be able to consistently forecast what (or when) the next ‘macro shock’ will be, but it is a fairly safe assumption that there will be one, and that stock market volatility will spike.
Case study
Volatility has been historically low in the last couple of years, although it picked up ahead of the UK general election in May 2015. In the run-up to the election, we took some tactical short positions in those sectors that were likely to be penalised if Labour won, such as selected bank, utility and transport stocks. Before the unexpectedly definitive result came through, we were able to close many of these tactical short positions, and in some cases, reverse them into long positions, generating strong returns for the strategy after victory for the Conservative party was announced.
Ben Wallace and Luke Newman are Co-Managers of the Henderson UK Absolute Return Fund.
Photo: Hernán Piñera. Henderson Global Investors Launches Global Multi-Asset SICAV
Henderson has expanded its global multi-asset portfolio offering with launch of the Henderson Horizon Global Multi-Asset Fund (SICAV). This is Henderson’s first UCITS multi-asset fund and further broadens the range of global products offered by Henderson Global Investors.
The Fund will be managed by both Bill McQuaker and Paul O’Connor, with additional support provided by Chris Paine, Director of Research. The team has a 10 year track record in multi-asset investing.
The Henderson Horizon Global Multi-Asset Fund will launch upon the merger of the Henderson Diversified Growth SIF, and its initial assets under management will be around £100 million.
The Fund expects to build long term attractive returns with lower volatility than equity markets. This is achieved by making flexible, conviction-led asset allocation decisions across a broad range of asset classes and strategies.
Greg Jones, head of EMEA retail and Latin America says, “The launch of the Henderson Horizon Global Multi-Asset Fund allows clients based outside of the UK to access the skill set of our highly regarded multi-asset team in a structure that is more familiar to them.
“Following the launch of the All Asset Fund in our US mutual range almost three years ago, the new fund will effectively complete the footprint of our global multi-asset offering.”
Bill McQuaker, co-head of multi-asset adds, “The multi-asset market continues to grow, with the total market valued at around £126.5bn.
“The current environment of historically low interest rates and elevated asset prices exposes investors to a range of risks and opportunities.
“By actively managing allocations to a range of asset classes and strategies, we aim to capture returns while protecting investors’ capital during more difficult market environments.”
CC-BY-SA-2.0, FlickrPhoto: historias visuales, Flickr, Creative Commons. Pioneer Investments Posts Record €10.7 Billion Net Sales in First Half of 2015
Global asset manager, Pioneer Investments, posted record inflows of €10.7 billion globally for the first half of the year, reflecting continued positive momentum across all regions and channels. Building on the first quarter of 2015, Pioneer Investments saw €3.6 billion positive net sales in the second quarter positioning the firm as one of the leading players in the industry. According to Morningstar mutual fund flows data, Pioneer Investments ranked 8th in Europe and 15th worldwide year-to-date through June.
The firm’s AuM increased by 19% YoY with assets under management standing at €221 billion as of June 30, 2015. Pioneer Investments’ product range attracted strong flows from markets such as Germany, Italy, Iberia and Latam amongst others, with the firm’s US and Asia businesses also recording positive momentum.
Commenting on these results, Giordano Lombardo, CEO and Group CIO of Pioneer Investments said, “We are extremely pleased to have again ranked amongst the industry’s top players in terms of fund flows, reflecting our clients’ trust in Pioneer’s investment process. We are seeing especially strong growth in our liquid alternative and outcome-oriented strategies. Our multi-asset mutual fund range attracted particularly strong inflows ranking third worldwide year-to-date through June.”
He added, “While our macroeconomic outlook remains reasonably optimistic for the rest of the year, we do expect market volatility to remain heightened, largely driven by geopolitical factors. Our priority remains to deliver strong investment results and industry-leading service and support to our valued clients.”
CC-BY-SA-2.0, FlickrPhoto: dpitmedia, Flickr, Creative Commons. A Bipolar Economy in USA: Strong Consumer Economy vs Weak Industrial Economy
Janet Yellen and her colleagues at the U.S. Federal Reserve (Fed) will spend the coming weeks and months contemplating the timing of an increase in short-term interest rates. While a cynic might describe the Fed’s behavior as “reactionary,” the Fed itself prefers the term “data-dependent.” As the Fed monitors incoming data, it will be searching for signs of the overall strength of the economy and any associated inflationary pressures. In so doing, the Fed is likely to find a two-speed economy, with the general health of the U.S. consumer improving rapidly, while the industrial side of the economy continues to struggle, says Eaton Vance in a report.
Part of the explanation for this seeming disconnect in economic data lies with energy prices. Over the past 12 months, the price of a barrel of oil has fallen 43%, from $105 to $60. This has led to a drop in average U.S. gasoline prices from approximately $3.70/gallon to $2.75/ gallon. With more money in their pockets, U.S. consumers (at least those who drive) are apparently feeling somewhat better about things. Accordingly, the University of Michigan Consumer Sentiment Index recently neared its five-year high.
While the collapse in oil prices has been good news for the consumer, it’s bad news for many industrial companies. Oil and gas is an important end market for capital goods and equipment manufacturers. “We have been struck by how rapidly the energy sector cut expenses at the beginning of 2015. North American exploration and production companies tell us they have cut capital spending by roughly 35% this year. This has had a ripple effect throughout the supply chain, well beyond the direct exposure of oil and gas equipment. The softness in the industrial part of the economy has begun to manifest itself in the form of lower utilization rates at U.S. factories”.
Aside from lower energy prices, another big reason for the greater optimism on the part of many consumers is the recent improvement on the jobs front. After topping 10% in 2009, the U.S. unemployment rate has steadily fallen since then and is now at what many would consider a more “normal” level – 5.3% as of June 2015. Perhaps even more telling is that wage growth has finally begun to pick up after years of stagnation.
Bringing it back to equities
Understanding the relative health of different segments of the economy is important, but for equity investors, the key question is always, “What’s not priced in?” Looking at the trailing 12-month performance of the consumer discretionary and industrials sectors within the S&P 500 Index, it seems clear that the U.S. equity market has begun to figure things out, as consumer discretionary stocks have handily outperformed industrials over the past several months.
“This divergence of performance between the two sectors has led to widening valuation differentials: Consumer discretionary stocks were recently valued at 19.5x forward EPS estimates, whereas industrials stocks were only valued at 16.3x. In the Eaton Vance Large-Cap Value strategy, we have recently been cutting back our consumer discretionary exposure and have been adding to industrials. Meanwhile, in our growth strategies, we have recently had underweight positions in industrials. Our growth team has continued to be optimistic about the outlook for companies that it believes to be benefiting from strong, secular growth trends in the areas of consumer, technology and health care, among others”.
Regardless of where there may (or may not) be opportunities in today’s equity market, their view remains that true bargains are far from plentiful. However, that could change in the months ahead. “In the interim, we continue to believe investors should selectively favor shares of companies with skilled management teams that allocate capital well”.
CC-BY-SA-2.0, FlickrPhoto: Jeckman, Flickr, Creative Commons. Edmond de Rothschild Group Opens a Branch in Zurich
Present in Switzerland since 1965, Edmond de Rothschild has further expanded its operations by opening an office in Zurich on 1 July this year. The Group is thus strengthening its offering of private banking and asset management services for German-speaking and international clients.
The Zurich agency marks the Group’s fifth location in Switzerland in addition to Geneva, Lausanne, Lugano and Fribourg.
“Switzerland is our foremost market in terms of assets under management and client numbers. While traditionally we have concentrated on the French-speaking area and Ticino, we are now determined to grow in the German region where we perceive real market demand,” said Emmanuel Fievet, CEO of Edmond de Rothschild (Suisse) SA.
The Zurich agency activities
Edmond de Rothschild boasts a full private banking offering that ranges from investment solutions, portfolio management and risk analysis and control to wealth engineering, corporate finance and access to exclusive opportunities. The Group provides each client with tailored services. “Our approach is based on catering to clients’ individual needs and taking account of their individual risk profiles. What makes us stand out is the power of our brand, the experience of our teams and the quality of our management,” Fievet emphasised.
In asset management the Edmond de Rothschild Group aims to grow its institutional business, mainly with pension funds, vested benefits institutions and insurance companies. It also wants to expand the external distribution of its investment funds. “We have a broad range of products and solutions that can be accessed by all Swiss investors and are capable of meeting their expectations and requirements. In addition we have a line of real estate funds that features the Swiss market and that clients in Zurich have owned shares in since 2012,” said Christian Lorenz, Chairman of the Executive Committee of Edmond de Rothschild Asset Management (Suisse) SA.
Photo: Day Donaldson. Rate Hike in the US: the Arguments and the Effect
There are clear indications that the Federal Reserve is going to raise interest rates for the first time in more than nine years this September. Kommer van Trigt, manager of the Rorento Total Return Bond Fund, looks at the arguments for and the likely effects of a rate hike.
The Fed is on course to raise rates in the autumn. In mid-June, Fed chair Janet Yellen stated that thanks to the strengthening economy there is room to raise the federal funds rate. This official interbank rate currently stands at an all-time low of 0.125%. She also made it known that in future rates would rise less rapidly than the Fed had originally anticipated.
In a normal cycle, rising inflation and the threat of an overheated economy resulting from too high a growth rate often trigger an interest rate hike. At the moment this is certainly not the case. In the last three years, core inflation in the US has fluctuated between the one and two percent level and since 2010, economic growth has moved in a bandwidth of one to three percent.
In previous cycles, economic growth was around four percent at the point when the Fed implemented a first rate hike. On the basis of those figures, a rate hike seems by no means a necessity. That makes you wonder why Yellen alludes with such certainty to a rate hike after the next Fed meeting in mid-September.
Building up weapon reserves
“One important reason for a rate hike is that the central bank want to build up its weapon reserves for the future”, explains Van Trigt. “If the US economy falls into recession, there is currently no room whatsoever for a further rate cut. The Fed wants to ensure that it does not have to rely on taking a whole range of unorthodox steps in such a scenario.
What Yellen also wants to prevent is a repeat of the so-called ‘Taper Tantrum’ of 2013, when a wave of selling engulfed the bond market after former Fed chair Ben Bernanke alluded to higher rates. “There is a much better chance that financial market stability will remain intact if the increase in interest rates takes place gradually, and if the market is made aware of the Fed’s plans”, explains Van Trigt to clarify this second argument for raising rates without it being economically necessary to do so.
In such a scenario, fixed income markets at least have plenty of time to come to terms with the idea of a rate hike and up to now the central bank has been pretty successful in managing market expectations. According to Van Trigt, this scenario is not without its dangers, however: “A rate hike is approaching, but the market is only pricing in a minimal rise of 12.5 basis points in September and 25 basis points in the months that follow. If these rate hike steps occur earlier than planned this could have a major impact on the prices of short-dated paper.”
Vulnerable market segments
The approaching rate hike in the US is the reason why we have reduced Rorento’s exposure to those segments of the bond market where this can hit hardest. “The fund is still invested in US bonds, but its interest rate sensitivity (duration) for bonds with a maturity of seven years or less has been brought back to zero”, says Van Trigt. Another part of the bond market that is vulnerable to rising US rates is emerging market debt.
There are better prospects for short-dated Australian bonds, given that the central bank there is still busy cutting rates. “By cutting back the duration for short-dated US paper and overweighting Australian bonds, we have ensured that Rorento is as well-positioned as it can be to cope with any negative effects of rising rates in the US”, summarizes Van Trigt.
CC-BY-SA-2.0, Flickr. Adrien Pichoud Appointed New Chief Economist at SYZ Asset Management
SYZ Asset Management has announced the appointment of Adrien Pichoud as Chief Economist. Adrien Pichoud is also a member of the Strategy Committee, which defines the Group’s investment policy. Under the direction of Fabrizio Quirighetti, Chief Investment Officer of SYZ Asset Management, Adrien Pichoud also assumes the function of co-manager of the OYSTER European Fixed Income and OYSTER USD Bonds funds.
Adrien Pichoud joined the SYZ Group in 2010 as an economist. Prior to that, he spent seven years as an economist in a brokerage firm in Paris. He holds a master’s degree in finance from the University of Grenoble (France) and a BA in Economics from the University of Sussex (UK). Adrien Pichoud is a well-known commentator in the Swiss investment media to which he frequently contributes.
“Adrien Pichoud’s skills as an economist greatly contribute to the quality of our investment strategy and the performance of our bond and multi-asset funds. This promotion demonstrates a strong internal progression confirmed by results,” commented Katia Coudray, CEO of SYZ Asset Management.
In addition, Adrien Pichoud is a member of the management team of the OYSTER Multi-Asset Absolute Return EUR and OYSTER Absolute Return GBP funds as well as other multi-asset funds and institutional mandates in absolute return strategies.
