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The US yield curve has been reversed again and the United Kingdom is about to do so, which worries investors. According to the main asset managers, the fact that it is invested can indicate that, at best, investors expect the economy to slow down and at worst, that a recession could be on its way.
In the opinion of Keith Wade, chief economist at Schroders, “The US curve is a reliable indicator of recession, the UK curve less so. Nonetheless, if the US goes into recession it is hard for others not to go the same way given its importance as a driver of the world economy. So the double signal is important. There is normally a lag of about one year from inversion to recession so the curves are signalling problems for 2020.”
The same concern is shared by Mark Holman, Chief Executive Officer of Twentyfour AM (Vontobel), who acknowledges that the reversal of the curve is not good news. “In our opinion, the reversal of the yield curve is fully justified given the weight of geopolitical events, and one thing absolutely certain is that an inverted curve is not good news. The only question is how bad this news is and how it could convey and encourage greater economic concern,” he says.
“August doesn’t seem as calm as we would have thought. Tensions continue between the United States and China. The German and Swiss yield curve is in a negative territory, European equity markets continue to live out, while gold continues to rise. On the economic front, recessions in China and Germany are being felt. Although the global economy seems to resist, investors begin to fear that a recession is not far. However, the United States is managing to maintain a solid cycle and the latest figures show an acceleration in consumption. Central bank measures seem to have become the last line of defense to prolong the cycle and alleviate political tensions. However, it is by no means certain that this is sufficient between now and 2020,” says Igor de Maack, fund manager at DNCA, affiliated with Natixis IM.
For Holman, the investment of the curves is explained by the global slowdown that is continuing over time, and that keep markets restless. “A consequence of this is that fixed-income investors increase exposure to risk-free pure assets such as US, German or UK Treasury bonds, but to protect the portfolios they must maintain a duration greater than the normal, which is one of the main catalysts of the curve’s shape. As a result, the curves become lower and flatter, which is perhaps more sinister than higher and flatter returns, ”he explains.
This reading is what alerts the investor, who sees the possibility of a recession as more and more likely. But the managers ask for peace of mind and continue to insist that we are not facing a recession. “While we agree that the risk has increased, a recession over the next year is not yet an inevitable conclusion. Unlike the period prior to other recessions in the past in the US, current financial stability risks appear moderate, balance sheets are solid, family debt is manageable and the personal savings rate is high. All these fundamental factors should help cushion any economic recession,” say Tiffany Wilding, US economist, and Anmol Sinha, fixed income strategist at PIMCO.
The same message came out of the BlackRock Investment Institute (BII) in its weekly report: “We do not believe that the investment in the yield curve is a sign of recession and we believe that the accommodative turn of the central banks is dilating the growth cycle… Assets considered refuge, such as gold, rebounded. We continue to observe limited short-term recession risks, since the accommodative turn of the central banks helps to prolong the economic cycle, although we note that commercial and geopolitical tensions pose fall risks.”
“The reversal of the yield curve does not cause a recession, but it indicates that we are in an advanced phase of the economic cycle. So, instead of considering it a cause for concern, it could be a good time for investors to verify that their portfolios are well diversified and that their fixed-income positions can limit excess risk. In the final stages of the cycle it is especially important to determine whether fixed income positions offer diversification with respect to equities, as well as the appropriate level of balance,” concludes Jeremy Cunningham, Investments Director at Capital Group.
Julius Baer has signed a declaration to support the United Nations (UN) Principles for Responsible Banking making it the first Swiss bank to commit to them. The Bank will formally sign the principles on the occasion of the UN General Assembly in New York in September 2019.
The Principles for Responsible Banking have been developed by the UN Environment Finance Initiative (UNEP FI) and 28 banks from around the world and will be officially launched on 22 September 2019. The Principles set out the banking industry’s role and responsibility in shaping a sustainable future and in aligning the banking sector with the objectives of the UN Sustainable Development Goals and the 2015 Paris Climate Agreement. The principles represent a single framework for the banking industry that aim to embed sustainability across all business areas.
Bernhard Hodler, Chief Executive Officer Julius Baer said: “We are very proud to be the first Swiss bank to commit to the UNEP FI Principles for Responsible Banking. At Julius Baer, we continuously include sustainability practices into our business, meeting a number of notable milestones in our pursuit of long-term value creation for clients, shareholders, and society as a whole. We see our responsibility as encompassing all aspects of sustainability: economic, social, as well as environmental. With our declaration to the Principles for Responsible Banking, we affirm our willingness to assume an active leadership role in sustainable changes.”
Foto cedidaHenry Wong, CFA Managing Director Head of Asia Fixed Income. Henry Wong, DWS: "There are Currently More Interesting Investments than Chinese Fixed Income from a Risk Return Perspective"
Henry Wong, CFA Head of Asia Fixed Income, with close to 30 years of experience in the industry, has a management style that runs away from sentimentality, maintains its long-term investment strategy, seeks internal and external transparency. “My intention when buying an asset is to sell it and when I sell it, to buy it again at a better time market momentum” states Wong
Chinese Macroeconomic picture
For the manager, “after four decades of continued growth, the Chinese economy is tired and with significant excess capacity” . The adjustment of this excess capacity will be painful in terms of job losses and increased competitiveness by companies.
In his opinion, it is still premature to know if it will be successful or not, because this adjustment needs a change in mentality that has not yet occurred and that takes time. But “they have no choice but to do so, and the government must decide whether to do it gradually or faster,” says Wong.
In addition, Wong points out that the markets since 2007/2008 have been favored by an excess of liquidity that benefited more asset holders than ordinary people, so in his opinion, the political class, especially in the United States and Europe, has to rethink its strategy in this line to redirect this imbalance.
For Wong, the trade conflict between the United States and China is a “consequence of this money printing excess,” but to some extent this increase in protectionism is also related to sustainability policies by having to reduce the transportation costs of products to favor of local products. “I do not think we can foresee a specific termination date of the conflict, it is a global structural change that will take decades,” he concludes.
Bond Connect
From his point of view, China, like many other economies, faces a problem aging population that will lead to a reduction in income due to lower taxes collected from a depleted workforce and an increase in expenses derived from an older population,
In this sense, the Bond Connect project, which will include fixed income assets in local currency in the main world indexes, is an effort by the State to open its capital market and secure foreign financing sources.
Although Wong´s portfolio invests mostly in hard currency, the manager states that this process has just begun and that the supply of available assets is still reduced, limited to government bonds and state owned entities: “At this very initial moment the Investment alternatives are very limited for international investors, who can only move along the curve buying assets with different maturities, but the number of issuers is very limited and liquidity is reduced. I think this market will get bigger every day, but it will do so at a very gradual speed, ” concludes Wong.
Regarding the attractiveness of the Chinese fixed income market, the manager affirms that risk return ratio currently does not suggest putting too many resources in Chinese assets, or in other words: “There are currently more interesting opportunities from a risk/return perspective than China”, he points out.
India and Indonesia
Specifically, one of its current hard currency bets is Indonesia, since after the presidential elections it is one of the countries that can benefit the most from an exit from the factories of China in search of greater competitiveness. Preferably, they opt for companies that have already gone through a process of restructuring and sovereign or quasi-sovereign issuers for the good macro moment that the country is going through.
Additionally, India is also an overweight country in its portfolio, although they are very selective and avoid financial names.
Increase in portfolio duration
With regards to positioning within the curve, Wong explains that they have been extending the duration of the portfolio gradually since last October, reaching a duration of 5 years compared to the 2 years they maintained in August 2018.
This commitment responds to his conviction that global growth will be slower and less efficient affected by protectionist policies and capacity adjustments. This duration objective has been achieved through the purchase of high quality long term Asian corporate bonds and 10 year and 30 year US treasuries up to 10% of its portfolio.
Foto cedidaChris Kaminker (left) and Ebba Lepage (right) / Courtesy photo. Chris Kaminker and Ebba Lepage Join Lombard Odier
Lombard Odier further strengthens its commitment to sustainability with two strategic hires. Christopher Kaminker and Ebba Lepage have joined the firm.
Kaminker joins as Head of Sustainable Investment Research & Strategy, a newly created role within Lombard Odier Investment Managers (LOIM). He will lead on strengthening LOIM’s sustainability offering and research capabilities. He joins from Skandinaviska Enskilda Banken (SEB), a leading Nordic financial banking group, where he was Head of Sustainable Finance Research and a Senior Advisor. He is the author of over 30 publications on sustainable finance, and has held responsibilities for cross-asset research and strategy, as well as advising on and structuring sustainability financing solutions for investors, corporates and sovereigns.
Prior to SEB, Kaminker was the lead economist and policy advisor for sustainable finance at the Organisation for Economic Co-operation and Development (OECD) and represented the OECD as a delegate to the G20 and Financial Stability Board. Previously, he worked at Société Générale and Goldman Sachs.
Ebba Lepage will join as Head of Corporate Sustainability on 19 August 2019. Her experience in corporate business development and ESG strategy, assessment and implementation will be key assets to help drive Lombard Odier’s sustainability agenda forward.
Lepage has worked in a multinational environment, in New York, Montreal, Monaco, London, and Stockholm. She has spent her career in corporate finance, investment banking, asset management and for nearly five years in sustainable innovation. She joins from Stora Enso, a sustainability leader of renewable solutions in biomaterials for consumer products, where she was Group Vice President M&A and Corporate Finance. Here, she oversaw the Biomaterials Innovation group division’s sustainable investment activities.
Patrick Odier, Senior Managing Partner of the Lombard Odier Group, said: “I am pleased to welcome such experienced talents to Lombard Odier as we continue to strengthen our sustainability expertise and offering. Seeking to identify and provide the best solutions for our clients is at the heart of what we do, while always ensuring we have a positive impact on society, creating a better future for the next generation.”
Hubert Keller, Managing Partner of the Lombard Odier Group and CEO of Lombard Odier Investment Managers, said: “Investors and the corporate world are coming under mounting pressure to transition to a sustainable economy. Christopher’s extensive experience across the academic, financial and policy sectors will advance our integrated sustainability solutions and bolster our research capability within LOIM as we seek to give our clients access to companies which adopt sustainable business models and practices.”
Annika Falkengren, Managing Partner of the Lombard Odier Group, said: “Lombard Odier has a long heritage in sustainable investment and corporate sustainability. These appointments further demonstrate our commitment to continually innovate in these fields. Ebba’s experience in sustainable innovation will be crucial in helping us become an even more sustainable business as we continue to grow over the coming years.”
Wikimedia CommonsIan Sims, President and CIO . Colchester Global Investors: "In the Medium Term, We Seek to Establish a Diversified Footprint in Spain and Other Spanish-Speaking Countries"
A new management company has landed in Spain: it is the independent firm and fixed income specialist Colchester Global Investors, which invests exclusively in public debt with the objective of “preserving the diversifying integrity of government bonds” and which seeks to offer investors between 150 and 200 basis points of alpha above the benchmarks, and de-related risk assets. It only uses derivatives in currency futures contracts, whose exposure manages separately from that of bonds. Constance de Wavrin, Client Relationship Manager at the firm talks with funds society about their expansion plans.
Why have you decided to make the jump to the Spanish market?
We have recently made our investment strategies available in daily dealing, Irish-domiciled, UCITS Fund form. This prompts us to make headways in more intermediary- and retail distribution-focused jurisdictions than we have in the past, such as the Spanish market. While Colchester’s current assets under management are globally well-diversified, our presence in Continental Europe has historically been more heavily weighted in the more institutional space owing to managing portfolios in global sovereign bonds. We believe however that our trademark real yield investing process can bear significant decorrelation, diversification and liquidity advantages to Spanish investors in the intermediary and retail space. Colchester is committed to the Spanish market and this move is the first step in deepening our relationship with and presence in the market.
Do you think it has potential for growth and there is room for new managers?
The Spanish fund market, like many other continental European markets, is dominated by sizeable, established global asset managers. Especially in recent years, the rate of penetration by large, global managers has increased exponentially. We believe that the appeal of smaller, less well-known, asset managers can contribute to helping investors diversify their cross-asset exposure. In addition, by virtue of being of a more modest size, our fund strategies can help them gain exposure to less likely sovereign debt issuers which display strong balance sheets, are on a solid debt path and whose bond issuance is highly liquid.
What are the keys to your DNA and your offer in sovereign debt and currencies?
Colchester’s business is focused solely on bond and currency management.
As a result of this narrow focus, we believe our firm possesses six key advantages:
Independence of ownership and the resulting alignment of our interests with those of our clients;
Concentrated focus on global sovereign debt and higher quality smaller markets;
Sovereign-only focus delivering the diversification benefit of being invested in bonds;
Size (as measured in assets under management), which enables us to take meaningful positions in markets within the opportunity set;
Consistent and disciplined application of time-proven value-oriented techniques; and
Stability of investment team and other key professionals. Only one investment professional has left Colchester since inception.
We believe Colchester’s use of the smaller higher-quality sovereign bond markets is unique in the global bond investment management universe.
Colchester’s active use of this diversity allows it to circumvent the use of credit products in its portfolios and provides clients with attractive diversification at the aggregate portfolio level.
How do you want to conquer the Spanish market and what kind of product?
The Colchester Multi-Strategy Bond Fund (“MSGBF”) ICVC has recently been registered for fund unit sales in Spain and has appointed Allfunds Bank as a transfer agent and distributor.
We are in the process of initiating relationships with a number of prestigious local banks. In addition, we are listed on a number of European platforms including Allfunds, MFEX and UBS Fondcenter. We also have strong, long-standing relationships with leading global consultants and are working closely with their respective local offices in Spain. Colchester is committed to the Spanish market and this move is the first step in deepening our relationship with and presence in the market.
We strongly believe that our singular focus on sovereign bonds will help Spanish institutional clients’ preserve the integrity of their fixed income allocations. We also expect our offering to complement existing fixed income products currently carried by fund buy lists at intermediaries in Spain, including retail distribution platforms, discretionary portfolio managers at private banks, open-architecture multi-managers and fund-of-funds.
We count four flagship strategies. Our core strategy is a Global Sovereign Bond program, which we have been running since September 2000. Colchester introduced the Global Inflation–Linked Bond program in 2006, the Local Currency Emerging Markets Debt program at the end of 2008 and the Alpha Program in 2005.
In the current environment of very low profitability in public debt… What is your bet to win profitability?
In order to respond to this question, I would like to share with you some insight into our investment style and process which aim to deliver value in real terms throughout the cycle to our investors.
Colchester is a value-oriented manager. At the heart of Colchester’s philosophy is the belief that investments should be valued in terms of the income they will generate in real terms. The investment approach is therefore based on the analysis of inflation, real interest rates and real exchange rates, supplemented by an assessment of sovereign financial balances – fiscal, external and monetary. Portfolios are constructed to benefit from those opportunities with the greatest relative investment potential for a given level of risk. Sovereign bonds form the majority of Colchester’s portfolios.
Colchester eschews corporate credit, believing instead that its broader sovereign opportunity set provides attractive diversity and return potential.
Colchester’s use of sovereign-only portfolios ensures that the diversifying integrity of bonds is not compromised. Our Global Bond program mainly invests in developed markets, however Colchester’s unique use of the smaller bond markets in its portfolios differentiates us from most other fixed income managers. The fact that we are willing to make meaningful allocations to the likes of Australia and New Zealand among the developed bond markets and to Mexico and Poland among the Emerging Markets sets us apart from peers.
Colchester applies a qualitative screen to all high-quality investment grade countries to decide upon their inclusion, or otherwise, in the opportunity set. Size of market, liquidity, institutional structure, regulatory environment, capital regulations, political environment, stability issues, etc., are all considered by Colchester in its determination of the suitability of a country to be included in the opportunity set. Not all investment grade countries are included as barriers to foreign entry, political uncertainty and other factors have resulted in some countries being ‘screened out’. We constantly monitor the suitability of all existing and potential countries for inclusion in their investment opportunity set.
Colchester’s investment process focuses on identifying “Investment Value” at each important level: country, currency, sector and duration/maturity.
“Investment Value” is the synthesis of what we term “Real Value” and “Financial Stability” and its determination provides the basis on which Colchester takes investment decisions. “Real Value” is composed primarily of traditional real yield and real exchange rate measures, supplemented with an analysis of the term structure of interest rates. The determination of real yields and rates requires forecasts of future inflation, for which we employ robust, time-proven quantitatively oriented methodologies. We complement this analysis with quantitative assessments of sovereign financial strength backed up by country visits. “Financial Stability” has as its key determinants economic deficits and surpluses, monetary conditions and policy objectives.
Bond management is treated independently from currency management when deriving optimal bond and currency portfolios and we aim to generate half to two thirds of the relative return from bond selection and one third to a half from currency management. However, cross correlation risk between bond and currency exposures are analysed as a part of the assessment of the overall composition of risks in the final portfolio. Colchester believes significant duration variation is a low information ratio strategy. Accordingly, duration management is constrained to approximately +/-25% of benchmark duration.
Colchester’s approach to currency management is underpinned by an assessment of a country’s real exchange rate. This real valuation framework complements the real yield driven approach used on the bond side. A currency’s deviation from fair value has repeatedly been a strong indicator of a currency’s future movement. The further and longer a currency moves away from fair value the greater the likelihood—and the faster the speed—of an adjustment back towards fair value. Accordingly, we believe that higher returns are achievable over the medium term by being exposed to those currencies that are the most undervalued according to their real exchange rate.
In practical terms, this means that little or no currency risk is taken when a country’s real exchange rate is around fair value, but currency exposure is taken as currencies begin to meaningfully diverge from fair value. Estimates of the real exchange rate therefore provide the cornerstone of our currency valuation. We supplement these estimates with an assessment of a country’s financial balance factors and real interest rate differentials to generate Colchester’s estimate of each currency’s value. These currency values are then input into our optimisation framework to determine final currency allocations. Final portfolio exposures reflect both this underlying real valuation philosophy and clients’ risk preferences. Approximately 60% of Colchester’s currency valuation is determined by our estimate of the deviation of the real exchange rate from fair value, 20% by our assessment of the state of a country’s financial balances and 20% by the differential in short term real interest rates.
Are the Funds registered in Spain?
Yes, our funds are registered for sale in Spain. Our transfer agent is Allfunds Bank. Allfunds are also our distributing platform. We are aiming to add to this soon for greater accessibility.
Please see below our flagship funds. Each strategy exists in Irish-domiciled UCITS commingled fund form offering daily dealing, with different currency share classes, available hedged and unhedged:
Colchester Global Bond Fund (sovereign bonds only) – USD 1.3 billion with a since inception annualised alpha of 0.9% (7yr track record)
Colchester Local Markets Bond Fund (EM local debt only) – USD 2.4 billion with a since inception annualised alpha of 1.6% (6yr track record)
Colchester Global Real Return Bond Fund (inflation-linked bonds) – USD 490 million with a since inception annualised alpha of 0.9% (10yr track record)
Colchester Global Low Duration Bond Fund (sovereign bonds only) – USD 97 million with a since inception annualised alpha of 1.1% (4yr track record)
Colchester Local Markets Real Return Bond Fund – seeded with our own money so only 2m USD in size with a since inception annualised alpha of 0.8% (7 year track record)
What kind of funds (of your offer) are generating more interest in the Spanish investor? And why?
To date, we have found that our EMD Local Currency fund is of particular interest to our prospects in the Spanish market. While demand in the EMD sector has recently shown signs of weakening and fund buy lists appear to be well-stocked, it appears that the compelling differentiating characteristics of our investment approach (as described below) are worthwhile considering by domestic fund selectors. Diversification in the form of uncompromised interest rate duration, daily liquidity and decorrelation from risk assets, including credit and other equity-linked securities, are appealing to today’s fixed income investors.
The analysis of your sovereign debt funds is different from the rest… how do you tell from the competition?
What sets us apart from other Global Fixed Income asset managers is that we are a value-oriented manager. At the heart of Colchester’s philosophy is the belief that investments should be valued in terms of the income they will generate in real terms. The investment approach is therefore based on the analysis of inflation, real interest rates and real exchange rates, supplemented by an assessment of sovereign financial balances—fiscal, external, monetary and Environmental, Social and Governance (ESG) factors. Portfolios are constructed to benefit from those opportunities with the greatest relative investment potential for a given level of risk.
Contrary to most managers of Global Bond and Emerging Market Debt funds, sovereign bonds form the majority of Colchester’s portfolios. Colchester eschews corporate credit, believing instead that its broader sovereign opportunity set provides attractive diversity and return potential. Colchester’s use of sovereign-only portfolios ensures that the diversifying integrity of bonds is not compromised. Our Global Bond program mainly invests in developed markets, however Colchester’s unique use of the smaller bond markets in its portfolios differentiates us from most other fixed income managers. The fact that we are willing to make meaningful allocations to the likes of Australia and New Zealand among the developed bond markets and to Mexico and Poland among the Emerging Markets sets us apart from peers.
This greater independence in the opportunity set improves the potential information ratio. This compounded with the highly liquid nature of our investment universe and the powerful decorrelation effect of the allocation make for a compelling investment proposition as part of a broader mix of assets.
Colchester give great importance to the ESG factors in the management. How we incorporate in the management of funds?
Colchester is a PRI signatory and we integrate ESG analysis into the financial balance sheet work within our investment process. All members of the Investment Team are involved in implementing our ESG Policy as part of their day-to-day involvement in research and portfolio management activities. Claudia Gollmeier, Senior Investment Officer, is responsible for PRI reporting and initiatives which are approved by Compliance and the Chief Investment Officer. Claudia is also a member of the PRI Fixed Income Advisory Committee (https://collaborate.unpri.org/news/eleven-new-signatories-added-to-pri-fixed-income-advisory-committee) and chairs the Sovereign Working Group. Please find on page 78 of the “PRI – Shifting Perceptions” a new paper from Claudia, which can be found here: https://www.unpri.org/credit-ratings/credit-risk-case-study-colchester-global-investors-/4028.article.
What customer profile do you direct?
We strongly believe that our singular focus on sovereign bonds can help Spanish institutional and intermediary clients’ preserve the integrity of their fixed income allocations. We also expect our offering to complement existing fixed income products currently carried by fund buy lists at intermediaries in Spain, including retail distribution platforms, discretionary portfolio managers at private banks, open-architecture multi-managers and fund-of-funds.
What growth objectives do you set in Spain for the next few years?
Colchester’s focus on generating solid risk-adjusted performance for our investors has been the main driver of the firm’s growth over the past 20 years. With this in mind, we are hoping to continue deliver for our clients and simultaneously gain traction with as many institutions, private banks and multi-managers as possible in the Spanish market. We are looking to establish mutually beneficial partnerships with key fund distributors. In the medium term, we are looking to establish a diversified footprint in Spain and other Spanish-speaking countries. As mentioned before, Colchester is committed to the Spanish market and this move is the first step in deepening our relationship with and presence in the market.
About the history and team…
Colchester was founded by Ian G. Sims in 1999 and commenced managing client portfolios in February 2000. Ian Sims, Chairman and Chief Investment Officer, was one of the premier global bond managers of the 1990s prior to founding Colchester. Our business is focused solely on interest rate, bond and currency markets managed by an investment team with combined experience of over 100 years. Colchester manages only fixed income, and as of end of May 2019 had US$ 46 billion under management.
Colchester is headquartered in London, and this is where the majority of the investment activities and operations take place. Colchester also has offices in New York and Singapore and Compliance and Marketing and Client Service representatives are based in all three office locations. Colchester Singapore was incorporated in February 2012 and is a wholly owned subsidiary of Colchester London and provides discretionary investment management, research and advisory services, marketing, client services and trade execution services to Colchester London and to external clients in Asia Pacific.
Pixabay CC0 Public DomainCourtesy photo. Facebook: The New Central Bank?
Facebook has become an essential part of our social, cultural, economic and political spheres. Now it is looking to become our new global payment system. This was the announcement that came last week from the Libra Association (led by Facebook) along with a whitepaper about the creation of a new cryptocurrency called Libra and its accompanying digital wallet, Calibra.
The first digital currency, Bitcoin, was followed by many others: Ethereum, Dodgecoin, Litecoin, Ripple, XEM, Dash, Monero, Petro, etc. Apparently, we will now have one more as early as the first half of 2020. However, this is not going to be just “one more” as Libra looks more like a fiat currency than a cryptocurrency. In other words, with the gold standard consigned to the history books, along comes the all-powerful Facebook to create a digital currency backed by a basket of financial assets.
Facebook is not alone in this endeavour. Companies like Visa, Mastercard, PayPal, Spotify, eBay, Vodafone, Booking, Mercado Pago and Thrive Capital are among the 28 founding members of the Libra Association that will govern Libra. The goal is to reach 100 members before the official launch of the digital currency. Besides the sheer weight of the consortium of businesses backing the currency, if we add into the equation the 2.32 billion active users enjoyed by Facebook each month (one third of the world’s population), it is not hard to image the potential reach of this new cryptocurrency.
In many respects, the use of blockchain technology for Libra is quite different from the other digital currencies we know about today. Quite the opposite, in fact. The Libra whitepaper rejects the idea of anonymity and secrecy in transactions and the Libra Association has already confirmed its collaboration with financial regulators to prevent money laundering and tax avoidance.
A further crucial difference with Libra is the backing of a reserve of low volatility assets including bank deposits and short-term government debt in stable currencies like the dollar, euro, Swiss franc and yen. That said, we will need to have faith that the Libra Association will maintain these assets, record transactions and that Libra itself will be fungible, etc. Ultimately, this is the same faith we currently have in the central banks, except for a couple of important distinctions: Facebook is a private entity but it will hold some underlying assets, whereas central banks are public bodies but they do not hold assets that fully support currency issuance.
Of course, misgivings and controversies are already springing up regarding matters like data protection and the use of information in such a high-profile project. Let us not forget that Facebook possesses a vast archive of personal data from its users, about whom it knows practically everything. Many of us have not forgotten about the fines imposed on Facebook by the European Union for controversies like this and the scandal surrounding Cambridge Analytica, the consulting firm that unlawfully used information gathered from 87 million Facebook users.
Following the announcement of Libra’s creation, it is inevitable that the reflections that have been floating around for some time regarding cryptocurrencies come to the forefront once again. For example, questions are being asked about the implications for central banks and monetary policy in the event of the widespread use of a payment system like Libra, which employs blockchain technology although with a different objective to other digital currencies like Bitcoin. At first glance, it may look like an attempt to undermine the power of central banks. But curiously, as one analyst has already pointed out, in the context of a financial crisis, it could reinforce the impact of negative interest rates as it would eliminate the possibility of hoarding physical currency and other means of avoiding negative rates.
According to the whitepaper on the creation of Libra, it is “a simple global currency and financial infrastructure that empowers billions of people”. For now it is just a fledgling project, but it is certainly an interesting one.
Margaret Franklin, courtesy photo. Margaret Franklin Becomes First Woman to Lead the CFA Institute
CFA Institute, the global association of investment professionals, has appointed Margaret Franklin, CFA, as its new CEO and President, the first woman to hold the position in its 73-year history. She will assume the role on September 2, 2019, taking over from Paul Smith.
Marg Franklin has been a leader in the investment management industry for 28 years, most recently as President of BNY Mellon Wealth Management in Canada and head of International Wealth Management in North America. Her deep practitioner experience has been gained at firms ranging from large, global asset managers to start ups, including Marret Private Wealth, State Street Global Advisors and Barclays Global Investors. Her work has included advising individuals, families, pension plans, endowments, foundations and government agencies.
Marg’s experience with CFA Institute also runs deep. In 2011, Ms. Franklin was chair of the Board of Governors of CFA Institute, which is a volunteer position, and is a member of CFA Society Toronto, where she has also served on its board. She is a founding member of the CFA Institute Women in Investment Initiative, a past recipient of its Alfred C. Morley Distinguished Service Award in 2014, and a member of its Future of Finance Content Council.
Franklin said: “I am honored to assume the leadership of CFA Institute whose mission to promote the highest standards of ethics, education, and professional excellence is more important than ever as our industry faces disruption from many quarters. I look forward to applying my wide-ranging experience as a practitioner and extensive knowledge of the organization in the service of its mission and members.”
“Marg joins CFA Institute at a time when candidate growth and our global society network are at all-time highs,” said Heather Brilliant, CFA, chair of the board of governors of CFA Institute. “We thank Paul for his work to promote the CFA charter and fair and functioning markets all over the world. He leaves a strong organization ready to address the challenges of markets and economies in flux, passing the baton to Marg Franklin, a proven leader.”
Franklin will join the organization on September 2. Smith, who previously announced his departure at the end of 2019, will remain in an advisory capacity to the CEO until December 31, 2019.
Pixabay CC0 Public DomainPhoto: PexelsCC0. Thornburg Funds Launch on Allfunds Platform
Thornburg Investment Management, a global investment firm with $44 billion in assets under management as of the end of Q119, is pleased to announce that its Ireland-domiciled range of UCITS funds have been added to the Allfunds platform, the world’s largest institutional fund distribution network and the largest European platform.
Thornburg has also widened its global distribution footprint in Europe. In addition to availability for investors in Ireland, Switzerland and the United Kingdom, Thornburg’s suite of eight UCITS funds are now accessible to investors in Denmark, Finland, Italy, the Netherlands, and Norway.
“Greater availability of our global equity, fixed income, multi-asset and alternative investment solutions, particularly across Europe, is an important step to making Thornburg’s investment strategies more accessible to investors,” said Carter Sims, global head of distribution at Thornburg. “We are excited to partner with Allfunds to offer our highly active and benchmark agnostic UCITS funds to intermediary and institutional investors across the globe.”
Thornburg’s range of UCITS funds available through Allfunds include:
Thornburg Investment Income Builder Fund is a globally oriented portfolio whose aim is to provide an attractive and growing income stream, with capital appreciation, over time. A dynamic blend of global dividend-paying stocks and bonds of virtually any type, this fund is broadly flexible in pursuit of its objectives.
Thornburg Global Opportunities Fund is a flexible and focused equity portfolio with holdings selected on a bottom-up basis via a disciplined, value-based framework.
Thornburg Global Quality Dividend Fund is a bottom-up, value-oriented, focused portfolio of dividend-paying stocks from around the world in a broad search for attractive dividend yield.
Thornburg International Equity Fund is a focused, diversified portfolio of leading, mostly large-cap international companies, selected via a fundamentally driven, bottom- up, valuation-sensitive process.
Thornburg Developing World Fund is a balanced approach to investing in emerging markets, built on a concentrated portfolio of leading companies at attractive valuations selected to manage risk while still pursuing a differentiated return.
Thornburg Limited Term Income Fund is a flexible, actively managed, core portfolio of high-quality U.S. dollar-denominated bonds.
Thornburg Strategic Income Fund is a global, income-oriented fund with a flexible mandate focused on paying an attractive, sustainable yield. The portfolio invests in a combination of income-producing securities with an emphasis on higher-yielding fixed income.
Thornburg Long/Short Equity Fund, a U.S. equity long/short fund that combines tenets of both growth and value investing to pursue long-term capital appreciation.
Thornburg Investment Management is a privately-owned global investment firm that offers a range of multi-strategy solutions for institutions and financial advisors. A recognized leader in fixed income, equity, and alternatives investing, the firm oversees $44 billion as of March 31, 2019 across mutual funds, institutional accounts, separate accounts for high-net-worth investors, and UCITS funds for non-U.S. investors. Thornburg was founded in 1982 and is headquartered in Santa Fe, New Mexico.
According to a company statement: “At Thornburg, we believe unconstrained investing leads to better outcomes for our clients. Our culture is collaborative, and our investment solutions are highly active, high conviction, and benchmark agnostic. When it comes to finding value for our clients, it’s more than what we do, it’s how we do it: how we think, how we invest, and how we’re structured.”
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. Black Tulip Asset Management Democratizes Access to Alternative Investments in the Entertainment Industry with FlexFunds
Black Tulip Asset Management, a Miami-based alternative asset management company exclusively focused on advising and structuring exchange-traded products (ETPs) for European capital markets, announces it is launching multiple ETPs with FlexFunds, a globally recognized service provider in asset securitization, allowing access to the entertainment industry.
Technology and a raft of new players in both entertainment production and distribution has forever changed the industry’s competitive landscape: Netflix, Apple, Alibaba, Tencent, Google, Hulu and Amazon. Traditional pay TV platforms have been forced to adapt.
The key is to capture the market with proven performers in the production arena, with a demonstrable track record of success and profitability. Rebel Way Entertainment and Empyre Media are good examples of production management teams and film financiers able to repeatedly achieve Internal Rates of Return in excess of 35%.
To address this market need, Black Tulip Asset Management has introduced Black Tulip Rebel Way Entertainment and Black Tulip Empyre Media Exchange-Traded Products (ETPs) arranged by the innovative asset securitization program offered by FlexFunds, which allows access to global investors.
The Black Tulip Empyre Media ETP offers the possibility of investing in a portfolio of three to six A-list Hollywood movies managed by Empyre Capital Management and advised by Empyre Media Ltd., a London-based media content financing and investment firm with over 50 years of experience in entertainment finance. Empyre Media management team has recently invested in 4 films that have generated more than $950 million in box office receipts and been nominated for 14 Academy Awards, four Golden Globes and eight BAFTAS.
The Black Rebel Way Entertainment fund is designed to invest in a slate of at least 10 low budget action and horror movies destined for streaming platforms and in some cases theatrical release. The principals have made over 350 films in this manner in the last four decades and the deal is an example of accessing valuable original content.
Lastly, Black Tulip Asset Management is also working with FlexFunds on a new $100 million content fund for women-empowered film, television and theatre.
Oliver Gilly, Managing Partner at Black Tulip Asset Management LLC, said: “We are delighted to continue working with the FlexFunds team and to be using their innovative securitization platform. The flexibility of FlexFunds’ model has allowed the issuance of the first ETP alternative uncorrelated notes to offer streamlined access to proven original content producers in Hollywood’s Second Golden Age, while the transparency of ETP securities enables global distribution, both privately and institutionally.”
Mario Rivero, FlexFunds’ CEO, said: “Through FlexFunds’ asset securitization program, we are capable of converting any asset into a listed security, allowing international investors to easily participate in any investment project. Black Tulip’s entertainment ETPs are a clear exhibit of how flexible asset securitization can be: from real estate assets to funds that invest in Hollywood movies, or any private equity project. Asset securitization plays a key role in allowing investors to participate in a wide array of opportunities at lower minimum investment levels, thus democratizing access to capital markets.”
Foto cedidaImage of the facilities at Streamsong Resort and Golf, in Florida, where the sixth edition of the Investments & Golf Summit organized by Funds Society was held. / Courtesy photo / Courtesy photo . Funds Society Investments & Golf Summit: Ideas on Global and Multi-Asset Fixed Income as a Source of Income
The sixth edition of the Investments & Golf Summit organized by Funds Society, and held at the Streamsong Resort and Golf, in Florida, left us with the best proposals of nine asset management companies in the field of equities, structured products and real estate, and also in fixed income and multi-asset funds.
Janus Henderson, RWC Partners, AXA IM, Thornburg IM, Participant Capital, Amundi, M&G, Allianz Global Investors and TwentyFour AM (Vontobel AM) were the participating management companies in an event which brought together over 50 fund selectors from the US Offshore market.
In the area of fixed income, Thornburg Investment Management and TwentyFour (Vontobel AM) took center stage. Danan Kirby, CFA, Portfolio Specialist at Thornburg Investment Management, spoke about the challenges faced by that particular asset and presented a flexible and multisector debt strategy. Among these challenges is the difficulty of predicting interest rates in an environment in which consensus seems to agree that rates are at very low levels and the cycle of increases has been “incredibly” slow, but in which investors should, nevertheless, avoid making comparisons with the past, since the path of these increases cannot be known. And experience shows that the market has been wrong many times. Also, among the challenges of investing in debt, the credit spreads, both in investment grade and in high yield, don’t compensate for risks taken and, in addition, they have improved after widening at first, following the Fed’s halt on the interest rate hikes cycle, due to low growth. What is real and what is not? The asset manager wonders.
Another challenge in fixed income is differentiation, since not all the names with a BBB rating, which makes up a large part of the investment grade universe, are the same: “Credits within the most defensive sectors with lower leverage should be better positioned while we approach the final phases of the credit cycle,” says the asset manager. And, as if that weren’t enough, global investors face a changing scenario in which they are forced to take more interest rate risks in so far as yields remain low. In this challenging environment, the asset manager proposes solutions: a flexible strategy with a relative value perspective to look for opportunities with a good risk / reward basis.
And this is the field of the Thornburg Strategic Income fund, focused on obtaining total returns through a portfolio which has the liberty to invest globally in all fixed income sectors, and which seeks a strong risk adjusted return by investing in the best relative value opportunities without benchmark restrictions. “When managing a scenario with volatility, investors need to incorporate a broader range of strategies that offer flexibility. A more complex global scenario and a greater frequency of risk off-risk on sentiment will create opportunities for flexible investors,” he adds. The asset manager explains that they are flexible and that they invest in bonds that offer attractive relative value as compared to the universe, have good fundamentals, and can add diversified exposure to risk. Currently, they invest in a variety of segments such as bank loans, common stocks, preferred stocks, foreign government bonds, domestic US treasury bonds, municipal bonds, investment grade and high yield (the highest positions) corporate debt, CMO, CMBS, Mortgage-pass through, agency bonds, ABS and liquidity.
The asset manager concludes that the market’s dynamic nature requires both experience and flexibility, and that a process of relative value provides opportunities to generate alpha, in all scenarios. “We only take risk where we are paid for it,” adds the expert, who explains that they do not use derivatives, use a bottom-up process, and analyze the capital structure of the companies in which they invest very carefully.
Global Fixed Income for Obtaining Income
TwentyFour AM, a boutique firm of the Vontobel AM group specializing in fixed income and working with Unicorn in the US Offshore market, also presented a global and multisector fixed income strategy for obtaining income (TwentyFour Strategic Income Strategy), the main focus of which is precisely to provide such income through the positive effect of diversification and a truly global investment. The idea is to provide an attractive level of income along with the opportunity for capital appreciation, although capital preservation is key. It’s benchmark agnostic, has high conviction (less than 200 individual positions) and seeks global relative value in the portfolio, with active risk management (duration and credit, but taking out currency) and that adds value with both asset selection, as well as with top-down proposals.
“Fixed income can work well with an active management perspective. If you like corporate bonds, there is a lot to choose from and through analysis you can find out where it’s most attractive to invest. With fixed income the benefits of active management can be proven,” explains David Norris, Head of the company’s US Credit team. Currently, around 30% of the portfolio has exposure to public debt (especially US debt, since it offers protection in a risk-off environment and also a decent return in an environment in which the macro vision indicates interest rate stability, with maturities of about five years) while the remaining 70% is in credit risk, mostly outside the US, with a lot of exposure in Europe and the United Kingdom (with names that pay more in the latter case due to the Brexit issue), but with shorter maturities, less than two years. “The cycle is getting old and although there is still value in credit it’s not like before, so we prefer not to take too much risk and therefore opt for short terms,” explains the asset manager. “It’s a reasonable environment for credit but we are cautious, and opportunities have been reduced compared to previous moments of the cycle,” he adds.
Banks weigh around a quarter of the portfolio, mainly due to the opportunities that the asset manager sees in Europe, with yields close to 7% with maturities of less than two years and a rating above BB. “The risk profile of banks is very attractive,” he says, and speaks of the large Spanish banks and some British that offer great value because they are not exposed to problem areas like Italy yet benefit from the premium provided by the Brexit issue. If analyzed with a global perspective, there are many areas that are attractive” he adds. As for emerging debt, they have some exposure, but this was reduced after the rally in recent months and only hold hard currency credit, since it’s in this segment that they show the greatest concerns. Also, as a risk, there is the possibility that commercial US banks do the tightening that the Fed doesn’t, causing the end of the credit cycle, although, theoretically, they don’t see any end of cycle signs in the US, nor of recession. In any case, they are vigilant, and the fund frequently shifts sectoral allocation if market prospects change.
Multi-assets: Winning Strategies
Also with a vision to generating income, but with a multi-asset perspective, Amundi Pioneer presented a solution for solving the income problem. “Traditional models of asset allocation oriented towards fixed income and equities can no longer produce the returns that investors need. Given the intervention of central banks, these figures will not return to historical levels. You have to find alternatives to debt in other assets in order to obtain more reasonable returns,” advised Howard Weiss, Portfolio Manager at Amundi Pioneer.
During the presentation he pointed out the attractiveness of Amundi Funds II-Pioneer Income Opportunities, originating in the US fund launched in 2012 aimed at obtaining income from a multi-asset perspective, as opposed to strategies, which tried to obtain income by focusing only on fixed income, because at that time it made sense (high-yield offered returns of 7%). But that compensation from the past has now disappeared: Over time, the spreads have been compressed, due to the continued interventions of central banks. Due to this lack of compensation, they have reduced their exposure to high yield in their strategy from over 44% in 2016, to around 13%. Equities offer a better value proposition for obtaining income: “We see conditions for the continuity of the economic expansion, for a longer cycle.” In order to create income from equities, and beyond dividends (in the case of these shares, they focus on the sustainability of the dividend, rather than on it’s being very high), they also opt for strategies such as equity linked notes. “Dividend strategies sometimes produce losses because cash flows are focused there, and the business deteriorates. We prefer to identify companies in difficulties, but that are in the process of rationalizing,” says the asset manager.
The strategy’s differential factor is the way in which the asset classes in which it invests are defined: At present, there are mortgage-backed securities, bank loans, emerging debt, US and international high yield, equity linked notes, bonds linked to events , MLPs, REITs (in Singapore and Europe…), emerging and developed world stock markets and hedging.
The objective of the strategy is to produce returns of around 4% and an appreciation of capital of 2%, so that annualized returns can reach 6%, although, even though it offers yearly income, capital appreciation will depend on the environment. “We only distribute what we produce, we will not consume capital,” says the asset manager.
Behavioral Finances
In multi-assets, M&G presented a strategy with a very differentiated approach: “There are two factors that move the market, fundamentals and economic beliefs, and these latter perceptions tend to change very quickly. In fact, sometimes the fundamentals don’t change, but the economic beliefs do,” explains Christophe Machu, Convertibles and Multi-Assets manager at the company. “Most of the time investors try to see where the benefits are going and try to make projections, but for this, you need better tools than those of your competitors and it’s difficult and arrogant to predict this data. That is why we focus much more on economic beliefs and their changes, that is, on investors’ perception,” he adds. Following these parameters, at the end of last year, for example, when the discussion wasn’t about whether a recession was coming or not (it will obviously come within the next two years, says the asset manager), but when it would come, they decided to take a contrarian vision and bet on shares, increasing their position, not because of the fundamentals but because of the change in the beliefs of the investors: it was a very good entry point, buying both US and foreign shares.
Thus, the strategy combines a framework of valuations with behavioral finances (episodes, events…), with tactical hedging, to establish its asset allocation and exploit irrational behaviors. As an example of the latter, explains the manager, volatility spikes tend to create opportunities for investment, helping long-term returns. One episode, he explains, has three characteristics: a rapid action on price, focusing on a single story, and presenting a price movement inconsistent with information flows: “It’s an opportunity where prices move for non-fundamental reasons,” explains the asset manager. In this way, without making predictions, and recognizing the importance of emotions, the strategy has managed to work well in different scenarios and market cycles: In optimism from 2000 to 2003, in the technology bubble, during which they cut back on equities and bet on bonds, in the subsequent crisis, and in the next period of compression of yields and recovery, in which they bet and benefited from the rally in all the assets… “We are now at a stage of compression in the risk premium of the shares, which means that the gap between the yield of the shares and the bonds is too wide,” says the manager.
With respect to their market vision, taking advantage of the pessimism of the end of last year, they increased equities, although they have subsequently reduced positions, due to the normalization of investor sentiment. “The last big change now has been the Fed, which has paralyzed rate hikes. If real rates remain at zero levels in the US, it will be good for emerging bonds, which have not moved much yet, and for stocks, especially outside the US. (in Asia, Japan and Europe). From a tactical perspective it is not as good as in December but from a strategic perspective it is.
The M&G Dynamic Allocation fund has an exposure of 41.8% to global equities, which means an overweight position, although it has been reduced and is centered outside the US. In fixed income, the bet focuses on emerging debt and is negative on public debt. “We prefer to take risk in stocks on credit,” assures the manager, who remembers that they are not stock pickers, and that they can make changes in asset allocation very quickly with index futures.
