Inflation Not That Transitory and Omicron: Will Wall Street Keep On the Rise?

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Pixabay CC0 Public DomainRiesgos en las bolsas. Wall Street

The U.S stock market set a record high in mid-November before a sharp selloff that started when the new COVID-19 variant, Omicron, was identified, and ended the month with a slight loss. Other factors in the backdrop were supply chain disruptions, labour shortages, a higher U.S. dollar and lower oil and UST yields. Rising inflation, previously termed “transitory” by Chair Powell who now says, “It is probably a good time to retire that word,” shortened the bond taper timetable.

From Economist Gary Shilling’s Insight: ‘Historically, global supply shortages haven’t existed outside of wars, so the current episode, the result of temporary supply-chain bottlenecks and economy reopening disruptions, is unusual. But the reaction to it by consumers and businesses isn’t, as they rush to order and buy in anticipation of shortages and price increases in a self-fulfilling cycle.’

Another note, from economist Ed Hyman, on stock market tops vs Fed tightening: ‘The last three major S&P peaks occurred after 6 hikes in fed funds to 6.50% in 2000, after 14 hikes to 5.25% in 2007, and after 9 hikes to 2.50% in 2018.’

M&A activity remained robust in November with newly announced deals to the portfolio including: American Tower’s acquisition of data center operator CoreSite Realty for $10 billion; Novo Nordisk’s acquisition of biopharmaceutical company Dicerna Pharmaceuticals for $3 billion; GIC and CPP’s acquisition of IT security company McAfee for $15 billion; KKR and GIP’s acquisition of adata center operator CyrusOne for $15 billion; and, DuPont’s acquisition of specialty materials company Rogers Corp for $5 billion. Deals that closed in November included Merck’s acquisition of Acceleron Pharma for $11 billion, Pfizer’s acquisition of Trillium Therapeutics for $2 billion, and Paper Excellence’s acquisition of Domtar for $3 billion.

From the WSJ’s Buyout Boom Gains Steam in Record Year for Private Equity: ‘Private-equity firms have announced a record $944.4 billion worth of buyouts in the U.S. so far this year, 2.5 times the volume in the same period last year and more than double that of the previous peak in 2007…The IPO market is also running at a record pace, and merger volume in the U.S. is twice last year’s level.’

Lastly in the convertibles space, similar to the first quarter, the market saw multiples contract, which disproportionally affects growth equities. The convertible market is generally more growth oriented, so there was some weakness as the month came to a close. Despite this, issuance picked up significantly and we expect global issuance for the year to come in just below last year’s level. This expands our investible universe and is a sign of a healthy market.

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To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:

GAMCO MERGER ARBITRAGE

GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.

Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.

Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.

Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of  approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.

Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476

GAMCO ALL CAP VALUE

The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.

GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise.  The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach:  free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.

Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155

GAMCO CONVERTIBLE SECURITIES

GAMCO Convertible Securities’ objective is to seek to provide current income as well as long term capital appreciation through a total return strategy by investing in a diversified portfolio of global convertible securities.

The Fund leverages the firm’s history of investing in dedicated convertible security portfolios since 1979.

The fund invests in convertible securities, as well as other instruments that have economic characteristics similar to such securities, across global markets (but the fund will not invest in contingent convertible notes). The fund may invest in securities of any market capitalization or credit quality, including up to 100% in below investment grade or unrated securities, and may from time to time invest a significant amount of its assets in securities of smaller companies. Convertible securities may include any suitable convertible instruments such as convertible bonds, convertible notes or convertible preference shares.

By actively managing the fund and investing in convertible securities, the investment manager seeks the opportunity to participate in the capital appreciation of underlying stocks, while at the same time relying on the fixed income aspect of the convertible securities to provide current income and reduced price volatility, which can limit the risk of loss in a down equity market.

Class I USD          LU2264533006

Class I EUR          LU2264532966

Class A USD        LU2264532701

Class A EUR        LU2264532610

Class R USD         LU2264533345

Class R EUR         LU2264533261

Class F USD         LU2264533691

Class F EUR         LU2264533428 

Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to find out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reflect the manager’s current view of future events, economic developments and financial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

 

HSBC Launches a Thermal Coal Phase-out Policy

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Pixabay CC0 Public Domain. HSBC Launches a Thermal Coal Phase-out Policy

HSBC has recently set out a detailed policy to phase out the financing of coal-fired power and thermal coal mining by 2030 in EU and OECD markets, and worldwide by 2040. In recognition of the rapid decline in coal emissions required for any viable pathway to 1.5°C2, the policy will mean HSBC phasing out finance to clients whose transition plans are not compatible with HSBC’s net zero by 2050 target.

In a press release, the firm has pointed out that this measure builds on its current policy that prohibits finance for new coal-fired power plants and new thermal coal mines; “broadening the approach to drive the phase-out of existing thermal coal”.

The new policy, which will be reviewed annually based on evolving science and internationally recognized guidance, is a key part of executing on the bank’s October 2020 ambition to align its financed emissions – the greenhouse gas emissions of its portfolio of clients – to net zero by 2050 or sooner. It includes short term targets to help drive measureable results in advance of the phase-out dates.

Besides, a science-based financed emissions target will be published in 2022 to reduce emissions from coal-fired power in line with a 1.5°C pathway. HSBC also intends to reduce its exposure to thermal coal financing by at least 25% by 2025 and aims to reduce such exposure by 50% by 2030, using its 2020 Task Force on Climate-Related Financial Disclosures (TCFD) reporting as its baseline. 

Client transition plans

“Thermal coal financing remaining after 2030 will only relate to clients with thermal coal assets in non EU/OECD markets, and will be completely phased out by 2040. HSBC will report annually on progress in reducing thermal coal financing in its Annual Report and Accounts”, the bank said. It also revealed that it will work with impacted clients and will expect them to formulate and publish transition plans by the end of 2023 that are compatible with HSBC’s net zero by 2050 target.

“Client transition plans will be assessed annually, based on a range of factors including: level of ambition to reduce greenhouse gas emissions; clarity and credibility of transition strategy including any proposed abatement technologies; adequacy of disclosure and consideration of the principles of ‘just transition’”, HSBC commented. If no transition plans are produced, the bank will need to assess whether to continue to provide financing for that client, as there will be no basis on which to assess alignment with its commitment to phase out coal financing.

In this sense, it will decline to provide new financing (including refinancing) and advisory services to any client that fails to engage sufficiently on its transition plan, or where plans are not compatible with its net zero by 2050 target. In addition, HSBC will seek to withdraw any financing or advisory services with any client that makes a commitment to, or proceeds with, thermal coal expansion after 1 January 2021.

The energy transition in Asia

Given the bank’s substantial footprint across Asia, with the region’s heavy reliance on coal today and its rapidly growing energy demand, HSBC recognized it has “a critical role to play in helping to finance the region’s energy transition from coal to clean”. That’s why it will expect its clients to lay out credible transition plans for the next two decades to diversify away from coal-fired power production to clean energy, and from coal mining to other raw materials, including those vital to clean energy technologies.

”We want to be at the heart of financing the energy transition, particularly in Asia. This is where we can have the biggest impact to help the world achieve its target of limiting global warming to 1.5°C. We have a long history and strong presence in many emerging markets that are heavily reliant on coal for power generation. We are committed to using our deep relationships to partner with clients in those markets to help them transition to cleaner, safer and cheaper energy alternatives in the coming decades”, pointed out Noel Quinn, Group Chief Executive.

Meanwhile, Group Chief Sustainability Officer, Celine Herweijer, added that they need to tackle “the tough issues head on” to deliver on their net zero commitment, and for a global bank like HSBC with a significant presence across fast growing coal-reliant emerging economies, unabated coal phase out is right up there.

“Asia’s ability to transition to clean energy in time will make or break the world’s ability to avoid dangerous climate change. Whilst our coal phase out dates and interim targets are driven by the science, we need an approach that recognizes the realities on the ground in Asia today. The transition will only be successful if development needs are addressed hand-in hand with decarbonization goals”, she added.

In this sense, she insisted that their clients in Asia are at different starting points to their EU/OECD counterparts, with more infrastructure, resource, and policy obstacles, “but many have declared a strong interest and ambition to invest in the transition and diversify their businesses”. In her view, the good news is that zero-marginal-cost renewables, rising carbon prices and a terminal contraction in coal demand are factors helping them diversify.

Indexing, ESG and Digitization Drive Growth in Customized Investment Solutions

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Pixabay CC0 Public Domain. La indexación, la ESG y la digitalización impulsan el crecimiento de las soluciones de inversión personalizadas

According to new research from quant technologies provider SigTech, 70% of pension funds and other institutional investors believe demand for custom portfolio solutions will increase strongly. The disruptive market forces of ESG, indexing and digitization are driving this increased demand for customization.

Customized portfolio solutions are bespoke investment strategies that are developed to meet the specific needs of investors. Two thirds of those surveyed (67%) believe it will become one of the biggest growth areas in asset management and is one of the industry’s most exciting developments.

“One of the key reasons for growth in this market is that 75% of institutional investors said they are becoming increasingly sophisticated in their individual ESG requirements. In addition, investors are finding it difficult to find off-the-shelf products offered by fund managers that are fully aligned with their needs”, explained the authors of the research.

Another interesting conclusion is that 41% of participants believed fixed income was the asset class with the biggest need for customization, followed by 27% who cited commodities, 18% said equities and 14% mentioned hedge funds.

When it comes to implementing their individual ESG policies, the study found that institutional investors use a combination of solutions. In this sense, 65% use off-the-shelf products (i.e. without any customization), 60% use customized portfolio solutions with external partners, and 52% said they develop these internally.

“Investing does not have to be just about searching for an existing product that offers the best possible fit to the investor’s needs. It is about creating a product that 100% corresponds to the investor’s requirements. Our research shows that 69% of institutional investors agree with this view”, pointed out Daniel Leveau, who heads SigTech’s strategic initiatives for institutional investors.

Schroders Buys 75% of Greencoat Capital, Investment Manager Specializing on Renewable Infrastructures

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Pixabay CC0 Public Domain. Schroders se hace con el 75% de Greencoat Capital, gestora especializada en infraestructuras renovables en Europa

Schroders has announced that it has reached an agreement to acquire a 75% shareholding in Greencoat Capital Holdings Limited (Greencoat) for an initial consideration of 358 million pounds (471 million dollars). Greencoat is one of Europe’s largest renewable infrastructure managers, with 6.7 billion pounds (8.93 billion dollars) of assets under management at 30 November 2021.

In a press release, the asset manager has pointed out that Greencoat “pioneered large-scale renewable energy infrastructure investing in listed and private formats”, delivering compound AUM growth of over 48% per annum over the last four years to 31 March 2021. Over the past 12 months it has achieved net new commitments​ for private funds and equity raises for listed funds of 1.6 billion pounds (2.13 billion dollars).

After this agreement, both firms have an ambition to be a global leader in this “fast-growing and important” investment sector. 

In Schroders’ view, Greencoat operates at the intersection of two significant growth opportunities. The first one is the global transition to net zero: the US and European markets for renewable energy assets are forecast to grow by more than 1 trillion dollars to 2030. The second is the “significant and accelerating” institutional client demand for environmentally positive products in order to meet their own sustainability commitments.

 

As part of Schroders, Greencoat’s growth and its offering to clients will be significantly enhanced, benefitting from Schroders’ distribution reach, sustainability capabilities, management experience and brand. Greencoat will become part of Schroders Capital, Schroders’ private markets division and be known as Schroders Greencoat.

Strategic rationale

Schroders’ believes that the transaction is aligned with its strategy to build a comprehensive private assets platform and enhance its leadership position in sustainability. In its view, providing private capital for the energy transition required to achieve a net zero future will become increasingly important as governments around the world look to accelerate towards this goal: “This is an area where we can support one of the most significant transformations required in economies worldwide to mitigate climate change. In addition, there is strong investor demand for such long-duration assets providing long-term secure income streams”.

Peter Harrison, Group Chief Executive of Schroders, highlighted that Greencoat is “a market-leading, high growth business, with an outstanding management team”, which provides access to a large and fast-growing market in high demand among their clients.

“Its culture is an excellent fit with ours and its focus aligns very closely to our strategy, continuing our approach of adding capabilities in the most attractive growth segments we can provide to our clients. We have demonstrated our ability to integrate acquisitions successfully, to generate growth and create significant value for our shareholders. We are confident that we will be able to leverage the strengths of both firms while preserving Greencoat’s differentiated position in the market”, he added.

Meanwhile, Richard Nourse, who founded Greencoat in 2009, claimed to be “delighted” to have found a partner in Schroders who sees “the potential” of their business and believes deeply in their mission to build a global leader in renewables investing. “We are extremely proud of what the brilliant team at Greencoat has together achieved, creating a market-leading renewables asset management firm in the UK and Ireland, a strong platform in Europe and an important expansion into the US. Combining this team with Schroders’ global distribution network and expertise will enable clients to capitalise on the unequalled opportunity that our sector represents – a trillion dollar investable universe – and the chance to meaningfully support the global transition to net zero”, he concluded.

About Greencoat

Established in 2009, Greencoat is a specialist investment manager focusing on renewable energy infrastructure investing, including wind, solar, bioenergy and heat. Greencoat operates nearly 200 power generation assets across the UK, Europe and the US, with an aggregate net generation capacity of over 3 gigawatts. Its investor mandates typically comprise permanent or 25-year capital, reflecting the longevity of the assets in which it invests. It manages the leading listed renewable infrastructure investment companies in sterling (Greencoat UK Wind PLC) and euros (Greencoat Renewables PLC) and has some of the UK’s leading pension funds amongst its fast growing £2.9 billion private market business. 

The firm has a strong, experienced team who have contributed to its success over many years and which is known for the depth and quality of its operational asset management expertise. It is led by its four founders Laurence Fumagalli, Bertrand Gautier, Stephen Lilley and Richard Nourse. 

Vontobel Acquires UBS’s Financial Advisers Business Serving US Clients

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Pixabay CC0 Public Domain. Pexels

Vontobel has signed an agreement with UBS to buy its subsidiary UBS Swiss Financial Advisers (SFA), based in Zurich. In a press release, the firm has announced that with this acquisition, it expects to further strengthen its platform providing clients with a global investment approach and geographic diversification.

Vontobel will combine SFA and VSWA (Vontobel Swiss Wealth Advisors), its existing business serving North American Wealth Management clients. Preparations for this will start after the closing of the transaction, which is expected for the third quarter of 2022.

“This transaction is reflective of our confidence in the US market and our ongoing strategic growth efforts in the region. This is a major step toward making Vontobel a global name that serves sophisticated clients around the world and builds toward our goal of increasing US client revenue and overall assets under management”, said Georg Schubiger, Global Head Wealth Management Vontobel and Chairman VSWA.

Together with SFA’s CHF 7.2 billion (7.82 billion dollars) in assets under management as of September 30, 2021, Vontobel, through its SEC licensed entities, is expected to become the largest Swiss-domiciled wealth manager for US clients seeking an account in Switzerland for diversification purposes. The combined pro forma assets under management will more than double to over CHF 10 billion (10.8 billion dollars).

Following the transaction, UBS will continue to refer its clients to SFA, an SEC-registered investment advisor and FINMA-licensed securities firm, which offers US clients tailored investment solutions in a Swiss-based environment.

Tom Naratil, Co-President UBS Global Wealth Management and President UBS Americas, claimed to be “pleased” to partner with Vontobel, “a leading global investment firm that’s client focused and committed to excellence”. In his view, this acquisition not only ensures UBS’s US clients continue to have access to a Swiss-based money management firm, but it also simplifies their business structure and enables them to focus on core activities with scale in line with their “strategic priorities.”

Vontobel has long been present in the US as an asset manager, and for over a decade has been growing its wealth management business with teams in New York, Geneva and Zurich. In 2019, Vontobel acquired Lombard Odier’s US-based client portfolio and plans to open a new office in Miami.

The transaction, which is subject to regulatory approvals, will be fully funded with cash from Vontobel’s balance sheet, covered by its robust CET1 and Tier 1 capital ratios. Additional financial details of the transaction were not disclosed.

Maintaining Dividend Sustainability in a Recovering World

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Pixabay CC0 Public Domain. 1

Company dividends have now largely recovered from the ravages of the pandemic, with payouts across European companies likely to return to pre-pandemic levels by mid-2022. However, the strongest recovery in dividends has been seen among more challenging sectors from an environmental point of view. Mining companies for example have declared bumper payouts on the back of rising commodity prices, and oil and gas companies have been able to raise dividends as energy prices have recovered.

Against this backdrop, investors need to find a path to ensure that their equity income strategy isn’t incompatible with an increasing focus on ESG criteria, while retaining sufficient sector diversity for prudent portfolio management. For NN Investment Partners (NN IP), there are three key ways to ensure long-term dividend sustainability:

Engage rather than exclude

NN IP’s preferred approach is to engage with companies to bring about change, rather than exclude. Nicolas Simar, Senior Portfolio Manager, European High Dividend, says: “We only get to where we want to be if we help companies to transition. Applying a blanket exclusion on specific sub-sectors doesn’t necessarily help, particularly if those assets are then sold to investors with a lower sensitivity to ESG factors. It is much better to act as responsible shareholders and engage with companies to help them move in the right direction. As investors we also need to build a realistic appraisal of how the path to net zero impacts their cashflows and the potential effect on dividends.”
 
Adjust financial metrics for specific ESG criteria

Mark Belsey, Senior Investment Analyst in the European Equity team, reveals that they look at the ESG risks and opportunities for individual companies and incorporate them into their valuation analysis: “There are elements that can be readily quantified. For these, we can adjust our financial forecasts and our discounted cash flow estimates. For harder to quantify factors, we integrate qualitative analysis into our investment case. We can then apply discounts or premiums to costs of capital, or valuation multiples, relative to their peer group.”

This evaluation can also run alongside engagement efforts. If an engagement works, the discount applied to a poorly performing company may be removed. If it does not, the discount would continue to be applied.

Quantify the cost of achieving net zero

Robert Davis, Senior Portfolio Manager in the European equity team continues: “Our analysts take a view of the operational and capital expense needed to bring companies towards a net zero target. Once we have built that into the forecasts, we may have a quite different projection of cash flows for that company than market consensus. This is important for dividend payouts: a company that needs to invest hundreds of millions of pounds in a carbon neutral project may see impairments to its cash flows.” 

However, in the longer term, this investment may improve a company’s financial position. It may see an attractive return on its investment because it no longer has to pay for carbon credits, or they can charge a premium for their product because it is sustainably produced.

Conclusion

For the dividend investor, Continental Europe has a broad selection of income-generative companies across multiple sectors. It has notably less concentration in cyclical sectors than, for example, the UK market. However, NN IP points out that it can still be difficult to find companies with a high and growing income that score well on ESG criteria.

With the right process in place, these are compatible goals: by picking the right names in each sector, it is possible to build an outperforming portfolio that generates income but also achieves a lower carbon intensity than the benchmark.

UBS AM Appoints Lucy Thomas as New Head of Sustainable Investing

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Foto cedidaLucy Thomas, nueva responsable de Inversión Sostenible de UBS AM.. UBS AM ficha a Lucy Thomas como nueva responsable de Inversión Sostenible

UBS Asset Management (UBS AM) has announced the appointment of Lucy Thomas as Head of Sustainable Investing. Based in Zurich, she will be responsible for leading the delivery of the sustainability and impact strategy; and will report to Barry Gill, Head of Investments. 

“As a leading global asset manager, we have a critical role to play, both in providing our clients with the investing solutions they need to meet their sustainability goals and helping to shape the future of the industry. During her 20-year career, Lucy has worked as an asset owner, asset manager, and asset advisor and brings extensive experience working with clients and leading the integration of sustainability factors into the investment process globally”, said Gill.

Thomas has 20 years of experience in the industry and joins UBS AM from TCorp, the financial markets partner of the New South Wales government in Australia, where she was Head of Investment Stewardship. Prior to that, she was Global Head of Sustainable Investment at Willis Towers Watson (2014-2018). She started her career as an analyst on the graduate program at Morgan Stanley.

Meanwhile, the new Head of Sustainability Investing claimed to be “delighted” to be joining UBS AM, a team with “a leading combination” of culture, capabilities and commitment to sustainability. “We are at an inflection point in our industry where creating value for clients, society and the planet has never been more crucial”, she concluded.

John William Olsen: “There Is a Long-Term Tailwind for Environmental and Social Solutions”

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Foto cedidaJohn William Olsen, gestor del fondo M&G (Lux) Positive Impact.. John William Olsen: “Hay un viento de cola a largo plazo para las soluciones medioambientales y sociales”

John William Olsen, manager of the M&G (Lux) Positive Impact fund, believes that all investments have an impact on people and the environment. Now that investors are aware of this, he thinks that fund managers have a great opportunity to boost SRI. In this interview, we discuss with him how they are tackling this challenge and how it is reflected in the strategy he manages.

1. Why do you think impact investing has become an easy way for investors to invest sustainably? 

All investments have an impact on people and the environment, whether positive or negative, intentional or unintended. Impact investing involves setting impact objectives alongside financial return objectives and quantifying and measuring these over the period of investment. Defining the impact that is (or is not) wanted and constructing a portfolio to meet the objectives enables investors to seek both financial return at the same time as aligning capital with broader objectives. With this, clients can put their money to work with a purpose.

2. Normally when we think of impact funds we relate it to equity funds. Why does it seem to be a type of strategy that fits better in this asset class? Is there room for a greater presence of fixed income in impact funds?

    All parts of the investment chain have a role to play when it comes to impact investing – from catalytic capital such as blended finance, through to private assets and then listed equity and credit. Some asset managers, such as M&G, can play across that whole sphere, with an end-to-end impact financing approach.

    Impact investing is growing rapidly. The Global Impact Investing Network’s latest surveys estimated the size of the market at $715 billion, with 36% of impact capital invested in private debt and 16% in private equity. While the majority of impact assets are in these two asset classes, impact investing across public equity, real assets and public debt is on the rise. But whether we are talking about early stage private asset investments or public listed investments, there are some crucial principles to impact investing that all investors should adhere to: intentionality, additionality, materiality and measurability.

    3. In this regard, what is most relevant?

    Every impact investment should be made with purpose to deliver positive outcomes that will support the United Nations’ Sustainable Development Goals. The investment must make a positive contribution to solving a challenge – investing in businesses that are bringing something new, innovative and additional to addressing that challenge. It’s also key to look at how the investment materially impacts the outcome that you’re looking to generate. And last, but not least, measurement is crucial.

    4. In the current context, and looking ahead to 2022, what role can and will impact strategies play in investors’ portfolios? Why?

      There is a long way to go in orienting towards a more sustainable and equitable society, but while there are obstacles and uncertainties, there is a palpable sense of hope as we continue to emerge from the COVID-19 crisis. The next nine years hinge on whether political leaders, companies and investors can help drive the shift to bouncing back in a resilient and equitable way – redesigning the future and pulling out all the stops to reach the UN’s 2030 deadline. An increasingly engaged population of concerned citizens also has a critical role to play in embracing behavioural change and holding these other actors to account. The world has pledged to ‘build back better’ – and we must keep that promise. We think investment strategies that are addressing these challenges will only gain in importance.

      5. Taking the M&G – M&G (Lux) Positive Impact fund as a reference, we see that it invests in six areas. Why have you chosen them?

      The fund embraces the United Nations Sustainable Development Goals framework and invests in companies focused on six key areas, mapped against the SDGs. These are: climate action; environmental solutions; circular economy; better health, saving lives; better work & education; and social inclusion. The SDGs provide a solid, excepted framework for determining material impact areas, and help frame the measurement of how those positive impacts are being achieved. It is estimated that by 2030 delivering capital to the SDGs could be a $12 trillion investment opportunity.

      6. What’s your portfolio construction process?

      Selection begins with a global universe of over 4,000 stocks, which is then initially screened for minimum liquidity and market-cap criteria, as well as screening out companies that are not capable of delivering demonstrable positive impacts to society. From this remaining pool of stocks the team ‘screens in’ a watch-list of some 150 impactful companies that can be purchased if the timing and price are right. These companies are analysed under the team’s ‘III approach’, examining the Investment case, Intentionality and Impact of a company to assess its suitability for the fund. As part of this analysis, it scores companies on these III credentials, and requires above-average results for consideration within the watch-list, as well as consensus agreement of a company’s merits from the entire Positive Impact team.

      7. I understand that the areas in which the fund invests have in common that they are megatrends or, at least, part of the secular growth. What is your outlook for them?

      We believe there is a long-term tailwind for environmental and social solutions. On the social side, the pandemic has shone a harsh spotlight on a range of development challenges and highlighted the need to step up efforts to achieve the UN Sustainable Development Goals. On the environmental side, we have seen an increased focus on reaching net-zero and a surge of ‘green deals’ worldwide. We believe that companies that offer solutions that help address the world’s biggest societal challenges are well positioned for the future decades of growth.

      8. Taking this fund as an example, how do you measure the impact and does the investor show interest in this information?

      We focus on each company’s given impact, assessing how its business activities are aligned to specific societal impact challenges that we have identified as both needing investment and being investable by public equity investors. We test the company’s stated purpose or mission statement, asking: “is positive impact genuinely a part of the business’s DNA and a demonstrable part of its corporate strategy? Or is it just good PR?” We assess whether the company’s actions demonstrate clear alignment with that purpose, and weigh up positive impacts versus negative impacts, in particular excluding any company whose activities represent an overwhelmingly negative impact that counterbalances any positive impacts it may deliver.

      We start with a qualitative assessment of a company’s business: what is it doing to address a particular impact challenge, and how much of its business is aligned to that challenge? While this assessment is qualitative, the UN Sustainable Development Goals (SDGs) have provided a more quantitative framework for investors, and we map every company’s business activity to these goals. Importantly, we use the 169 underlying targets to give this analysis greater focus.

      9. What are the main changes you have made to the fund in the last year and how are you preparing for next year?

      We have further shifted the portfolio towards the ‘under-served’ and ‘under-addressed’, to help ensure that the impacts being delivered are truly additional and material, while also steering the portfolio towards ‘C’ companies, as represented by the IMP+ACT ‘ABC’ classification system: ‘A’ investments act to avoid harm; ‘B’ benefit stakeholders; and ‘C’ contribute to solutions. We expect this shift will continue into next year and beyond.

      Institutional Investors Expect Revenge Spending and Central Banks to Drive 2022 Markets

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      Pixabay CC0 Public Domain. Los inversores institucionales esperan que el “gasto de venganza” y los bancos centrales impulsen los mercados en 2022

      The world’s institutional investors are confidently heading into 2022 armed with tactical strategies to counter their expectations of rising inflation, interest rate hikes and higher stock, bond and currency volatility, according to a survey by Natixis Investment Managers. 

      The study shows that 62% of institutional investors expect pent-up demand for big-ticket items will be a significant driver of growth in 2022 – dubbed ‘revenge spending’. However, most believe that policy makers ultimately hold the keys to economic recovery and that those policies are behind the current imbalance in supply and demand, inflation, and distorted stock valuations. In this sense, nearly 68% believe that once central banks stop printing money, the long bull market will come to an end, but not in the year ahead.

      This conclusions are based in the answers of 500 institutional investors who collectively manage more than $13.2 trillion in assets for pensions, insurers, sovereign wealth funds, foundations, and endowments around the world. Natixis IM has found that institutional investors plan to make few broad changes in their overall allocation to stocks (39%), bonds (37%), cash (5%) and alternatives or other (19%) in the year ahead. Instead, they are positioning themselves to make tactical moves.

      Inflation, interest rates and the hunt for yield

      Seven in ten investors say rising inflation is a top portfolio risk, though they are more likely to believe it is structural (55%), resulting from a combination of loose monetary policy and low interest rates, rather than cyclical (45%). The survey shows that inflation poses a number of long-range economic issues, but interest rate policy presents institutional teams with more immediate investment challenges, with 64% of respondents citing interest rates as a top portfolio risk.

      “Over a decade of low rates, and some even sinking into negative territory during the pandemic, have sent institutions on a hunt for yield”, says Natixis IM. That’s why private assets and alternatives have been sought after in 2021 with 84% of institutional investors now investing in private equity, 81% private debt and 81% in infrastructure. For 2022, information technology (45%), healthcare (41%) and infrastructure (40%), followed by energy (34%) are the most attractive sectors.

      However, 45% of respondents think private assets will offer a safe haven in the event of a market correction, as private markets continue to rise into record territory. Besides, 69% of those surveyed are concerned that institutions have taken on too much risk in their pursuit for yield.

      The study reveals that high volatility and distorted valuations mean active management is the preferred strategy. “Active management will be central for institutional investors wanting to be selective in finding the best opportunities and to achieve better risk-adjusted returns. Three-quarters of those surveyed say their active investments outperformed the benchmarks over the past 12 months”, points out Natixis IM.

      Lastly, institutional investors are also warming up to digital assets, with 28% already investing in cryptocurrencies, and four in 10 believe a digital asset to be a legitimate investment opportunity.

      The re-opening of trade: winners and losers

      As for the economic context, 56% see supply chain disruptions as the greatest risk to recovery. According to the study, central banks play an outsized role in market performance for institutions and 47% see less supportive policy as a risk; and “while traditional economic factors are the biggest risks right now, new variants, like the newly discovered Omicron variant, still rank number three on their list of economic risks”.

      Despite this, 60% say they believe that life will return to pre-Covid normal after the pandemic, which is expected to be reflected in trading trends. Institutions are less focused on streaming and digital products, predicting instead that we will see in-person experiences, such as theatres, restaurants, and travel, outperforming at-home trade, such as online shopping and Netflix.

      The asset manager highlights that 59% of institutions believe the energy sector will outperform in 2022 as economic recovery drives up demand. Nearly half (49%) see healthcare outperforming in response to the demand from Covid and subsequent vaccine drives around the world.

      The pandemic also impacted the outlook for the information technology sector, which was thrown into sharp focus during lockdowns when working from home drove the need for home IT solutions. On the other hand, traditionally defensive markets are expected to be the biggest underperformers, with 35% of institutional investors predicting real estate will underperform and 27% utilities.

      “Revenge spending will prove to be a real driver in 2022. There’s real pent-up demand from consumers who are in the market for big-ticket items, but we expect supply chain disruptions will continue to drive up prices. However, sustained economic growth is riding on central banks, which currently hold an outsized role in market performance. The majority of institutional investors see the long bull market coming to an end once central banks pull back on supportive measures”, commented Andrew Benton, Head of Northern Europe at Natixis IM.

      He also pointed out that generally, institutions are looking into 2022 with optimism. “But high volatility across the stock market, rising inflation and interest rates are keeping investors on their toes, increasingly pushing them to allocate more tactically to navigate the current environment”, he added.

      Natixis Investment Managers Appoints Emily Askham as Chief Marketing Officer, International

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      Foto cedidaEmily Askham, Chief Marketing Officer, International en Natixis IM. . Natixis IM ficha a Emily Askham para el cargo de directora de Marketing Internacional

      Natixis Investment Managers has appointed Emily Askham as Chief Marketing Officer, International. Based in London, she will start on January 12th  and will support Natixis IM’s strategic ambitions to become the most client centric asset manager globally.

      In a press released, the asset manager has explained that Askham will work closely with Natixis IM’s distribution teams and affiliate managers driving marketing strategies that deliver engaging, relevant and differentiated campaigns for both existing clients and new customers.    

      She will join Natixis IM in an expanded role and will be responsible for both Institutional as well as wholesale & retail marketing. In addition, she will oversee digital, content & advertising, roadshows, events and the RFP team. Askham will report to Joseph Pinto, Head of Distribution for Europe, Latin America, Middle East and Asia Pacific.

      On the client side she will translate the business strategy into appropriate marketing programs focusing on the customer throughout their investment journey, in close coordination with the Customer Experience team. She will also work with the product teams to help improve all areas of the clients pre-sales experience, accelerating the timeframe from initial sales concept to ‘go to market’ execution. 

      “To support Natixis IM’s objective of developing the business in a sustainable manner in all regions, Emily will streamline our marketing efforts across the board, accelerating our speed to market and supporting the needs of our clients as well as sales team. She will be responsible for expanding our digital presence enhancing our customer engagement. She has a strong track record in the industry and will play a key role in our ambition to become the most client centric asset and wealth manager and I am delighted to welcome her”, commented Pinto.

      Askham brings more than 12 years of marketing expertise to her new role. She joins from AXA Investment Managers where she spent nearly 7 years, rising to the position of Global Head of Retail and Wholesale Marketing since 2019. She has been the recipient of a number of industry awards in marketing effectiveness and campaign innovation and most recently receiving a placement on the ‘High Performers Mentoring Program’ by the AXA IM Management Board. Prior to AXA IM, she worked for M&G Investments.