CC-BY-SA-2.0, FlickrPhoto: David Blaikie. Lyxor Partners with Corsair for Alternative UCITS Fund
Lyxor has announced a partnership with Corsair Capital Management LP (Corsair) to launch the Lyxor/Corsair Capital Fund.
This fund, which is UCITS-compliant, runs a US long/short equity strategy. It is the first fund with daily liquidity Lyxor introduces within its alternative Ucits offering.
The Lyxor/Corsair Capital Fund aims to capture the performance of US equities with less risk, by preserving capital in down markets and using no leverage.
The product is mainly invested in US mid-cap companies going through strategic and/or structural change, as those companies have little analyst coverage and a complicated financial story.
This information gap between market consensus and Corsair’s proprietary research creates opportunities and generates alpha.
Corsair is managed by Jay Petschek and Steve Major, who lead an experienced team of twelve. Lyxor highlighted that the strategy deployed by the firm in 1991 has outperformed the US equity markets over multiple market cycles with less risk.
The fund is available on Lyxor’s alternative Ucits platform in EUR, USD, JPY, CHF, GBP, SEK, and NOK.
With Corsair, Lyxor welcomes its sixth alternative manager on its UCITS platform.
CC-BY-SA-2.0, FlickrPhoto: Atli Hardarson. In High Yield, Expect Volatility, Not Crisis
We’ve been hearing a lot lately from people who fear that rising interest rates may cause a crisis in US high yield. In our view, the logic doesn’t add up.
Don’t get us wrong: we understand why some investors are anxious. After all, it’s been almost a decade since the Federal Reserve last raised rates, and these many years of cheap credit conditions have left high yield looking a bit pricey. As we’ve written before, that’s certainly a reason to be selective. But it’s no reason to retreat from high yield altogether.
So what exactly are people worried about?
The hypothetical scenario goes something like this: Over the next year or two, rising rates will make it hard for high-yield companies to roll over their debt when their bonds mature, causing many to default. That could provoke a sell-off, and the less liquid conditions that make it harder to buy and sell bonds could turn into a full-fledged crisis.
Standing Tall as Rates Rise
There’s a lot to unpack there. First, let’s address default risk. This is something investors must always keep an eye on, and nobody should disregard it because current default rates remain low.
But here’s the thing: Rising interest rates don’t necessarily mean defaults will spike. In fact, high yield has weathered rising rate environments well. Since 1998 there have been four calendar years in which the Fed lifted policy rates, and high yield posted a positive return in all of them (Display).
That’s largely because rising rates go hand in hand with an improving economy. And in a growing economy, companies’ business prospects and credit standing improve, causing the extra yield offered by high-yield bonds versus US Treasuries—the yield spread—to shrink. This scenario works in favor of high-yield prices.
Different Bonds, Different Risks
Will the default rate rise as rates move higher? Of course. That’s inevitable when the credit cycle moves from expansion to contraction. Over the next few years, we expect the default rate to drift back toward its long-term average—about 3.8%, according to J.P. Morgan—from a bit less than 2.0% last year.
Moreover, not every high-yield company faces the same risk. We worry about issuers with fragile balance sheets and high debt levels. Many CCC-rated junk bonds fall into this category.
For companies with sound finances—including many BB- and B-rated high-yield issuers—rising rates are less of a concern. And remember—Fed policymakers have been pretty clear about their intention to push up rates slowly. Some market participants now say they don’t expect the first hike until 2016. That doesn’t strike us as a frightening scenario for high yield.
We think it’s also helpful to keep in mind that high-yield bonds, like most other bonds, have a known ending value. As long as the issuer doesn’t go bankrupt, investors get their money back when the bond matures. A period of rising rates may sometimes make total return lower than it would otherwise have been. But it doesn’t mean bond investors have to lose money. They may even come out ahead.
Liquidity Risk Can Be Managed
What about liquidity? There’s no doubt there’s less of it in today’s fixed-income markets. But this isn’t a new phenomenon. Corporate bond markets in general—and high yield in particular—were never as liquid as US Treasuries. And new bank regulations that have been draining even more liquidity from the market have been on our radar for years.
But as we’ve pointed out before, illiquid markets can offer attractive opportunities. When liquidity dries up in one sector, it can be plentiful in another. If managed properly, it can be an additional source of return.
US high-yield companies are by and large in the later stages of the credit cycle. But we don’t think investors should be winding down their high-yield allocations. Interest rates overall will remain low even after the Fed starts tightening policy. At average yields of nearly 6%, high-yield bonds offer investors who do their credit analysis a reasonable opportunity to potentially boost returns.
Should you expect periodic bouts of volatility in the coming year or two as Fed rate hikes become a reality? Absolutely.But a crisis? We don’t think so.
Opinion column by Gershon M. Distenfeld, CFA, Head of High-Yield Debt Securities across dedicated and multisector fixed-income portfolios for AllianceBernstein.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
CC-BY-SA-2.0, FlickrBill Gross. Bill Gross Takes Over Old Mutual GI’s Total Return USD Bond Fund, Currently Sub-Advised by PIMCO
Old Mutual Global Investors has today announced that the investment adviser of its US$272 million Old Mutual Total Return USD Bond Fund will be changed to Janus Capital, with Bill Gross returning as fund manager.
The Old Mutual Total Return USD Bond Fund is a sub fund of the Dublin domiciled Old Mutual Global Investors Series plc and is currently sub-advised by PIMCO. Janus is set to take over as investment adviser on 6 July 2015.
Bill Gross managed the fund in PIMCO for over 12 years since its launch in April 2002. Old Mutual Global Investors believes that the change of fund manager is in the best interest of clients who originally chose to be invested with Bill.
The fund’s investment objective, to maximize total return consistent with preservation of capital and prudent investment management, will not change.
Warren Tonkinson, Global Head of Distribution at Old Mutual Global Investors comments:
“We have a long standing relationship with Bill Gross and believe that clients who chose to be invested with him in the Old Mutual Total Return USD Bond Fund will benefit from this change. Bill has a vast amount of experience and an outstanding track record and we look forward to working with him and the team at Janus.
“I would also like to take the opportunity to thank PIMCO for its support in managing the fund until now.”
Bill Gross comments: “Old Mutual is an ‘old friend’ that always had faith in me at PIMCO and now has expressed confidence in me at Janus. They will get our best efforts and sincere thanks for the opportunity,”
CC-BY-SA-2.0, FlickrPhoto: Mike Beauregard. Higher Government Yields Suggest Choppier Waters for Credit Markets in the Short Term
There is an old adage in stock markets which suggests that investors should ‘sell in May, go away, and don’t come back until St Leger’s Day’. While we would never advocate such a simplistic strategy in an era of interdependent and interconnected financial markets, some investors will undoubtedly wish that they had sold and gone away given the weakness that is now being seen in bond markets. Since the beginning of April, the yield on the benchmark 10-year US Treasury has climbed from 1.86% to around 2.25%-2,27%.
While credit markets have ridden out the storm so far, longer-duration assets such as investment-grade credit are bound to come under some pressure if core bond yields continue to rise at the rate seen recently. The point at which core bond yields become attractive again is still some way off in our view. Nonetheless, the weakness in bond markets will certainly provide income-seeking and ‘go anywhere’ investors with plenty of food for thought.
For equities, the rise in bond yields is something of a double-edged sword. On the one hand, rising yields imply a stronger economic growth outlook and a return to normality following a period of very low or even negative bond yields. On the other hand, a prolonged and sustained rise in bond yields means that risk-free discount rates are likely to rise, which is unhelpful for equities, as the value of future earnings and profits is calculated by using a risk-free rate. Given that equity market returns in recent years have been driven by a valuation re-rating and the abundant liquidity provided by QE, rather than by earnings growth, a bond market sell-off could prove to be unsettling for stocks.
As we have discussed in our recent updates, we remain overweight equities in our asset allocation portfolios but have been taking a little money out of equities as a risk-reduction measure. Within equities, we continue to overweight Japan, the UK, Europe excluding the UK and Asia excluding Japan, while we remain underweight US and emerging market equities. In fixed income, we believe that the additional yield pick up from investment grade over government bonds – around 130bps for high-quality US investment grade – will provide support for the asset class given the lack of obvious alternatives, particularly for investors who can only invest in fixed income. Nonetheless, higher government yields suggest choppier waters for credit markets in the short term. We will be monitoring developments closely and we are running a short duration stance in our retail credit portfolios.
Our overweight in UK equities has worked well in recent weeks as the FTSE has rallied to within touching distance of its all-time high following a surprise general election result that saw the Conservative Party secure an outright, albeit small, majority. Scotland, meanwhile, is now in effect a one-party state with the SNP controlling 56 of the 59 Scottish seats at Westminster. In the coming weeks and months, the noise around further devolution and federalism is likely to increase, and further out on the horizon is a promised referendum on EU membership in 2017. In the short term, markets have clearly liked the election result and sterling has also rallied, but the longer-term outlook for the UK’s role in Europe is perhaps more uncertain now than at any time since the mid-1970s.
Mark Burgess is CIO EMEA and Global Head of Equities at Columbia Threadneedle Investments.
CC-BY-SA-2.0, FlickrPhoto: IQRemix. China is Choking on its Own Debt
China is Choking on its Own Debt. We have it on good authority. And in this case that authority is an unlikely source – the People’s Bank of China (PBoC). It’s difficult to remember the last time so many paid so little attention to something so vitally important. The revelation came in the bank’s release of its 1Q 2015 Monetary Policy Report on 8 May 2015.
The catch? The report is available only in a Chinese language version. In the report, the PBoC acknowledges:
China has too much debt
The government has relied too heavily on investment for growth
Credit expansion is no longer possible
The economy is inevitably decelerating as a result
These conclusions are not new for most of us, but the government’s admission of the problem is very new and very important. The English version of the quarterly monetary reports is usually published with a two months’ lag. So we are unlikely to see the English translation of this first quarter report until early July 2015.
Why is this important?
The PBoC has explicitly acknowledged that leverage in China is excessive and the level of debt is an impediment to further growth. We have been relating this story for months (maybe years), but now the government has openly acknowledged it’s in a bind. Here’s the relevant excerpt in the translation provided in the Bloomberg story.
“…Economic growth is, to a large extent, still relying on government-led investment, and the room for further expansion is quite limited. In addition, the rising debt size is forcing China to use a lot of resources in repaying and rolling over debt, which leads to contraction effects for the macro economy.”
Given the exceptional nature of the disclosure, we were determined to corroborate its validity. With Google translate in hand, we scanned the PBoC website and found our way to page 54 of the monetary report in Mandarin.
“Mostly Mandarin” website policy leaves foreigners out of the loop
The PBoC web site in English is far from exemplary in its disclosure. In fact, I find the differences between the PBoC’s English language and Chinese language sites utterly surprising from a country that aspires to an equal footing in the international community. If China aspires to have a reserve currency, shouldn’t transparency in monetary policy be a top priority for the PBoC?
I spent some time comparing the two sites and quickly made the following observations: the news scroll on the Chinese site posted 32 stories during April 2015, while the English site posted only 12. If you’re looking for detailed statistics, the English website will only bring you up into the current decade with 2010 information. On the other hand, the Chinese website appears to be full-fledged and current. Chinese economic data are available elsewhere, but in many cases entirely behind pay walls (Bloomberg, Haver and the CEIC data base.)
We ask ourselves the obvious question…is a currency with such a chasm in information disparities ready for an open current account? I think not.
Joseph Taylor is a vice president of Loomis, Sayles & Company and senior sovereign analyst for the Loomis Sayles fixed income group.
CC-BY-SA-2.0, FlickrPoto: Takuya Oikawa
. Visit to The Bay Area: Wear, Watch and Pay
An important area of focus in the Robeco Global Consumer Trends Equities fund is the emergence of the digital consumer. Consumers are spending more and more of their time and money on internet as a result of the strong growth in smartphones, tablets and other internet-linked gadgets. They are also using social media such as Facebook and Twitter more often and e-commerce is absorbing a larger portion of their monthly budget.
Where better in the world to get up to speed with developments relating to the digital consumer than the Bay Area of California? San Francisco and of course Silicon Valley – the technology Valhalla located on the south side of the bay – fall within this metropolitan area of more than seven million inhabitants. “The Bay Area is the place to be – not only is this where the head offices of the major players such as Google and Apple are located, leading conferences in the field of technology are also held here”, said Jack Neele, portfolio manager of RobecoGlobal Consumer Trends Equities fund.
Neele visited Morgan Stanley Technology, Media & Telecom Conference in San Francisco where as many as 240 representatives from the industry and 1200 investors gathered to discuss the major developments in these three sectors. “The combination of technology and media made it a useful visit, because an increasing amount of media consumption is occurring via the internet. On the last day of the conference we went to Silicon Valley by bus to visit some companies, one of which was Apple. We had an appointment there to talk to the financial top man, Luca Maestri, about the company’s future prospects”, related the portfolio manager.
The growth of mobile internet was a focus area again this year and three verbs dominated the discussion – wear, watch and pay. What are the most important developments from the perspective of the fund? That is the Jack Neele opinion:
1. Apple Watch – the most important wearable developed to date – as yet its impact is limited: The new Apple Watch is in the shops this month. Its market potential has fueled numerous discussions among analysts and investors. Some see it as a revolutionary product like the iPhone, of which there are currently around 300 million in use worldwide. Apple Watch should also ensure that the company enters new markets, such as the luxury goods sector. But others see the Apple Watch as a niche product with limited potential, a gadget like the many mobile fitness apps currently available. Which group is right?
I have taken up my own position somewhere between the two. Given Apple’s expected sales of USD 225 billion in 2015, I don’t expect the Apple Watch to make a significant contribution to the company’s earnings.
However, Apple Watch is the first wearable that consumers really want. Wearables are a new generation of mobile devices that can be worn on ones body. The Apple Watch has many handy functions like being able to phone easily, receive messages and retrieve your boarding pass, in addition to medical applications to monitor heart rate and blood pressure.
The Apple Watch’s major breakthrough will come when telecom companies start to offer it in combination with the iPhone. A bundling of the Apple Watch with a phone subscription could encourage many people to strap on this device. But initially the Apple Watch will only be sold in the Apple Store. In other words, I don’t expect to see the real breakthrough just yet.
2. Innovation is making video increasingly important on social media: Video for mobile internet is increasing in importance and Facebook is in a strong position. More hours of video are now being watched on Facebook than on Google subsidiary, Youtube. Most of the videos on Facebook are user generated content, for example, homemade footage of an Easter egg hunt that you can share with family members. But in the future Facebook may well start offering other content such as films and sport.
Facebook and Youtube both show advertising films, but the first offers important advantages from the user’s perspective. The users themselves click on the Facebook advertising films by choice, whereas the YouTube viewer is subjected to unsolicited commercials. I therefore expect Facebook to have considerable success when it comes to online video.
Another company that is betting heavily on video through new innovations is Twitter. Through a subsidiary company it has devised peer-to-peer streaming. This means that users can send live pictures via their telephones to their contacts. So you can watch live with someone. For example, footage of disasters or even football matches.
3. Market for mobile payments is growing rapidly and undergoing major changes. Firstly, I expect targeted takeovers by Paypal, which will be split off from eBay and gain a separate market valuation. I expect a higher valuation than it currently has under eBay, as Paypal is growing at a faster pace. This higher valuation can be used to help fund new acquisitions to bolster its market position. By issuing new shares the company can finance takeovers.
Facebook is also becoming more active in the field of peer-to-peer payments. The company announced that you can make payments to your friends via the Facebook Messenger chat function. A handy application, for example, if you go out for dinner with friends and want to chip in to pay a collective bill. This extra functionality is strengthening Facebook’s position in the market.
My visit to the Bay Area confirmed my impression that the technology, media and telecom sectors are all undergoing major changes, and that the latest developments are further strengthening the market positions of major players like Apple, Twitter and Facebook.
This publication is intended to provide investors with general information about Robeco’s specific capabilities, but it is not a recommendation to buy or sell specific securities or investment products.
CC-BY-SA-2.0, FlickrPhoto: Moyan Brenn. Schroders Launches EM Multi-Asset Fund
UK asset manager Schroders has announced the launch of a new multi-asset fund aimed at offering investors access to emerging markets.
The Schroders ISF Emerging Multi-Asset Income Funds, which is managed by portfolio manager Aymeric Forest invests globally in equities, bonds and other emerging market asset classes, including derivatives.
The share of stocks or equities within the overall portfolio can fluctuate between 30 and 70%.
“The price to book ratio of, for example, the valuation of emerging market equities is currently still 50% below that of the US S&P 500 index” comments Forest.
The fund aims to achieve an annualised return of 7% to 10%with a volatility of 8% to 16%.
CC-BY-SA-2.0, Flickr. Simler Hire Further Strengthens Investec Asset Management
Further growing its established Global Multi-Asset Team, Investec Asset Management has appointed Justin Simler as Investment Director. Simler brings with him an extensive track record dedicated to multi-asset product management. He will join the firm’s multi-asset investment capability under the leadership of team co-heads Michael Spinks, Philip Saunders and John Stopford. Tailored to both institutional and advisor clients, the range includes both unconstrained multi-asset income solutions and total return strategies, including the Investec Diversified Growth and Emerging Market Multi-Asset strategies, which aim to achieve investors’ most widely sought investment outcomes.
Simler joins from Schroder Investment Management where he spent ten years, most recently as Global head of Product Management for Multi-Asset where he was responsible for developing the product range, distribution, and management of client experience for the multi-asset business.
Michael Spinks, co-Head of Multi-Asset, commented: “We are excited about Justin joining the team given the considerable impact he brings in terms of team and business growth potential.”
He will be responsible for further building Investec’s Multi Asset capabilities globally and working with clients to develop tailored investment solutions. This will also involve both channel and geographic expansion in response to high demand for both income and growth-orientated, emerging market and broad multi-asset solutions globally.
The range includes a series of multi-asset investment solutions, catering to clients’ investment goals in an environment where low interest rates, inflation and uncertainty make the search for growth, income and capital preservation increasingly relevant.
“A growing number of clients want to target outcomes defined in terms of risk and return” said Michael Spinks. “With over 20 years of multi-asset investment experience within the team, our core investment capabilities are firmly established, and Justin Simler will play a key role in helping to grow this business.”
CC-BY-SA-2.0, FlickrPhoto: El coleccionista de instantes. Pemex and BlackRock Sign Memorandum of Understanding to Develop Energy Related Infrastructure in Mexico
Pemex and BlackRock have signed a Memorandum of Understanding (MOU) to accelerate the efficient development and financing of energy related infrastructure projects of strategic importance to Pemex. Through this MOU, BlackRock, a preeminent asset manager with global infrastructure investment capabilities and a local presence in Mexico, will provide industry expertise, risk management capabilities and sources of financing to support Pemex’s mission to enhance its market position and maximize its value to Mexico.
Jose Manuel Carrera, Corporate Director of Strategic Partnerships and New Ventures, of Pemex commented, “Through this MOU Pemex will stimulate new projects with efficient financial solutions.”
Jim Barry, global head of BlackRock Infrastructure said, “BlackRock is very excited to partner with Pemex in its pursuit of efficient financing solutions for its energy infrastructure project pipeline. In Mexico, where BlackRock is already the leading international asset manager with $25 billion of AUM, we are committed to building the leading infrastructure investment platform for the benefit of our local and international clients.” BlackRock’s global Infrastructure platform manages more than $6 billion in invested and committed assets in debt and equity strategies.
Armando Senra, BlackRock’s head of Latin America and Iberia commented, “We believe that Mexican infrastructure presents a substantial investment opportunity for our clients and builds on BlackRock’s long-standing presence in Mexico while demonstrating the Firm’s on-going commitment to the region.”
CC-BY-SA-2.0, FlickrPhoto: PaulDAmbra, Flickr, Creative Commons. Henderson Accelerates Australian Growth Plans With Acquisition of Perennial Fixed Interest, Perennial Growth Management and 90 West
Henderson Group has agreed to acquire 100% of Perennial Fixed Interest Partners Pty Ltd and Perennial Growth Management Pty Ltd from IOOF Holdings Ltd and the employee-shareholders of each company. The two companies have combined Assets Under Management (AUM) of £5.5bn (A$10.7bn).
In a separate transaction, Henderson has increased its ownership of 90 West Asset Management Pty Ltd from 41% to 100%. 90 West has AUM of £0.2bn (A$0.3bn) in global natural resources equities funds and segregated mandates.
Highlights
These acquisitions accelerate Henderson’s strategy to grow and globalise its business, taking its Pan Asian AUM to 11% of the Group’s total from £4.0bn (A$7.8bn) to £9.6bn (A$18.7bn).
Perennial’s fixed income and equities expertise will significantly extend Henderson’s offering to Australian clients, adding domestic investment management capability to Henderson’s globally focused offerings and providing a broader platform for future growth in the Australian market.
The Perennial transactions create an opportunity to forge a strong relationship between Henderson and IOOF, one of Australia’s leading wealth management and advice platforms.
Full ownership of 90 West will enable Henderson to benefit from the pipeline of new business the firms have created together, both in Australia and globally.
On completion of these transactions and the sale of its 40% interest in TH Real Estate which completed on 1 June, Henderson’s capital position will improve by £40m. Henderson will update the market on its capital position at its Interim Results on 30 July 2015.
Transaction structures
As part of the Perennial transactions, IOOF receives an upfront consideration and a deferred component dependent on future business performance, payable after two and four years.
In all three businesses, the employee-shareholders will receive a significant majority of their consideration through deferred earn-out structures to be paid four years post completion, with the quantum dependent on future business performance. Key investment professionals in all businesses have signed long term employment contracts with Henderson.
All transactions will be funded from existing cash resources.
The 90 West transaction closed on 29 May 2015, and the Perennial transactions are expected to close in the fourth quarter of 2015. Following these acquisitions, Henderson will continue to build out its distribution and business operations in Australia to deliver growth for new and existing businesses and teams.
Andrew Formica, Chief Executive of Henderson, said: “Developing our presence in Australia is a strategic priority for Henderson. These acquisitions will give us recognised domestic investment management capabilities to complement our global offering and take us into the Top 30 of Australian asset managers. They help us build scale in our Australian business well ahead of our previous expectations. On completion, we will more than double our AUM from Pan Asian clients and have around 40 investment professionals based in the region, managing money on behalf of local and international investors. This is another important step towards achieving our ambition to become a truly global asset manager.”
Glenn Feben, Managing Partner of PFI, said: “Our team is delighted to be joining Henderson. For us to become part of a truly global fixed income team will provide real benefits to our investment team and to our clients.”
Lee Mickelburough, Head of PGM, commented: “We see a strong cultural alignment with the team at Henderson and look forward to being part of an independent, investment-led firm, which will help us focus on investment performance for our clients and navigate our path to future growth.”
David Whitten, Executive Chairman of 90 West, said: “Over the last two years, we have formed a close relationship with Henderson, both in Australia and worldwide. We have seen the value they bring to our business. We are thrilled to be part of Henderson, and are now better positioned to deliver to our clients and to grow.”
