VIS with DWS: Methods to manage currency risk in the portfolio

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The continued rise in strength of the U.S. dollar is having profound impacts on the global market. Forecasting spot currencies is never easy, and Investors need to understand how to evaluate whether they should hedge their currency risk in the international markets. In an upcoming Virtual Investment Summit on November 29 at 10:30 am (ET), DWS will bring these issues to the table.

Topics to be discussed include:

  • Portfolio strategies for a strong dollar
  • Learn how to implement a simple FX hedging strategy that may lower volatility, deliver positive carry income, and differentiate your practice in the process
  • Myths and misperceptions uncovered about costs, correlations, and carry
  • The challenges involved in predicting spot currency returns and central bank activity

To register as an attendee to this event click on this link

Host: Aiviel Sanchez, Latin America Coverage, DWS

Aiviel Sanchez is a senior relationship manager at DWS working primarily with institutional and other similar investors in Latin America. He has nearly two decades of financial services experience, having joined DWS in 2018 after previously being head of institutional sales-Chile at BlackRock and before that UBS and JPMorgan. Aiviel earned a BA in Finance from the University of Puerto Rico.

Speaker 1: Dean Allen, Passive Investment Specialist-U.S. Offshore, DWSXtrackers

Dean Allen joined DWS in 2021 with more than 14 years of relevant Passive and ETF experience. Prior to joining the firm he was responsible for wirehouse, private bank, IBD, and RIA clients in U.S. Offshore (UCITS ETFs and mutual funds) at Vanguard. Prior to that Dean was head of product management and ETF capital markets for Vanguard Investments Canada, based in Toronto, as well as having other roles relating to ETFs and distribution in international markets and U.S. businesses. He earned a BS in Finance from the University of Maryland.

Speaker 2: Jason Chen, DWS Research House

Jason Chen is a senior research analyst in the DWS Research House, the firm’s intellectual capital and analytics group focused on market analysis and thought leadership. He has been with DWS since 2018 and prior to his current role was a U.S. product strategist. Before joining the firm Jason focused primarily on multi-asset portfolio management and investment research when he worked at JPMorgan. He earned his BBA in Economics and International Business from Temple University.

Florida governor DeSantis is one of the biggest winners in midterm elections

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Ahmed Riesgo, Chief Investement Officer at Insigneo

Florida Governor Ron DeSantis was one of the night’s biggest winners in the U.S. midterm elections, commented Insigneo’s chief investment officer, Ahmed Riesgo.

The expert explained how DeSantis “outperformed expectations in largely Democratic strongholds like Miami-Dade and Palm Beach Counties”.

In addition, the governor, who was re-elected, polled well among Latin community.

Several political analysts noted how DeSantis was very well positioned for the 2024 presidential race. Riesgo agrees with this view.

“He should be considered the frontrunner for the Republican party Presidential nomination as of today,” he added.

On the other hand, the Insigneo expert, highlight that President Joe Biden is another big winner of the night because although he will lose weight in the House of Representatives, that defeat will be better than what is customary for presidents to suffer.

Riesgo remembered that Presidents and Congressional majorities almost always get flipped in the midterms. “Historically, the Democrats lost this election back in November 2020 when they were first elected,” he commented.

According to the analyst, Democrats “did an above average job of minimizing losses, especially considering the poor macro environment they faced and how many respondents during exit polls claimed that the country was headed in the wrong direction”.

On the other hand, the “red wave” that some pundits claimed was swelling in recent weeks did not hit the beach on Tuesday. Instead, we got merely a “red ripple”.

In that sense, “a divided government is obviously still the base case, but the small Republican majority in the House and the slim majority of either party controlling the Senate means that the debt ceiling will be a major issue for the markets to deal with in 2023,” he commented.

With this scenario, “both parties will have enough opposition critical mass (i.e., scapegoats) to blame the other side for not agreeing on a budget. ” he concluded.

Venture AUM in the Southeastern US has Quadrupled

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Venture capital AUMs in the Southeastern United States has grown nearly 400% over the last 5 years, with a CAGR of 31.7% according to Preqin’s Territory Guide: Venture Capital in the Southeastern US.

By the end of 2021, VC AUM in the region rose to $37bn from just $9.4bn in December 2016 at a compound annual growth rate (CAGR) of 31.7% . That asset growth was on pace with the larger national trend that saw VC allocations jump sharply in 2021 when regional VC firms added $13bn in AUM.

Amid this increase in assets, the number of managers and funds based in the region also rose. Last year, 75 funds closed about $5.2bn in aggregate assets. On 2020’s $2.8bn closed across 41 funds. Through the first nine months of 2022, 44 funds closed a total $2.4bn, on pace to fall below the highs of the year before.

Most recent Preqin data shows that 758 VC managers are operating in the Southeastern US, investing both in the region and globally. More than a quarter of those managers began operations since 2017, and are concentrated in Florida, Georgia, Virginia, and North Carolina. That growth has recently slowed in 2022 as equity markets, particularly tech, sold off.

Despite fewer managers opening funds this year, the number of funds managed in the region increased. More than 570 2021-vintage year funds came to market last year, followed by another 507 through the first nine months of 2022. On average, about 340 funds began investing annually between 2016 and 2020. Again, these funds were highly concentrated in the states mentioned above.

In 2021, total deal value in the region neared $15bn as VC investment across the country experienced a surge. While that number may seem insignificant in comparison to other regions like the Western US ($177bn),
VC investment in the Southeastern US rose at a five-year CAGR of 38.9% as of December 2021, just ahead of the national average of 35.6%.

Through the first nine months of 2022, private companies based in the Southeastraised $12.7bn in total.

The pandemic played a part in the redistribution of the US population, but the seeds of growth had already been planted. US census data shows that several parts of Southern US saw net gains in population from 2020 onward, but places like Miami (Florida), Northern Virginia, and Charlotte (North Carolina) were already mestablishing themselves in the VC space, particularly as tech hubs far from Silicon Valley.

VC investment in the Southeastern US has historically been on par with the Midwestern US. Yet the draw of lower taxes, better weather, and, at the time, laxer COVID-19 policies swung the balance southward, particularly for employees with the freedom to work remotely. The 1,088 deals made in the Southeastern US between 2021 and 2022 made up 8.3% of total US VC deals over that period, ahead of both the Midwestern US (6.5%) and the Southwestern US (4.5%)

In dollar terms, the $28bn in aggregate deal value was also ahead of both the Midwestern US ($19.2bn) and the Southwestern US ($15bn) over the 21-month period ended September 2022.

In 2022, the average deal size for the Southeastern US was $35mn, up from $27mn the year before. It’s important to note that average deal size jumped between 2019 and 2020, from $14mn to $23mn. While the pandemic attracted headlines in 2020, the global response to dropping interest rates was a major factor in the rise in valuations. Although deal prices have remained stubborn in the face of rising rates, it’s uncertain they’ll hold as recessionary pressure builds.

It remains to be seen how this year’s macroeconomic challenges – a down equity market, high inflation, and increasing interest rates – will impact the tech sector.

Private markets tend to lag public market corrections, something that is still yet to be seen in the Southeastern US. So far in 2022, the average information technology deal has been slightly lower than the average deal size at $30mn, however, this is still $4mn higher than that of 2021.

 

Market Volatility Drives Demand for Financial Planning Services

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In volatile markets, investors, particularly those experiencing it for the first time, look to their advisors for guidance. Advisors can seize upon this opportunity to engage existing clients and gain new ones by offering financial planning services, using effective communication strategies, and implementing financial planning software, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Nearly 75% of advisors’ clients receive some form of financial planning, a share that is expected to rise to 82% by 2023. 18% of investors working with a financial advisor do not have a financial plan in place but consider it important. Cerulli recommends advisors consider re-introducing their planning services to those who may not be aware of this service offering, particularly during periods of market volatility.

In addition to financial planning services, advisors should consider developing a communication strategy to attract and retain advisory relationships. Close to 40% of retail investors consider it extremely important that their advisor maintains an appropriate amount of contact with them.

Advisors can implement this by distributing timely information about the current market and economic situation and offering their own analysis, which clients are likely to share with their own personal networks. “A thoughtful stream of touchpoints can buoy client satisfaction even as markets falter, allowing advisors to be best positioned for client retention and growth,” says Scott Smith, director.

As firms continue to encourage financial planning, scale becomes an important consideration. “Well-integrated financial planning solutions can help advisors meet investor demand for bespoke planning services efficiently, which can prove invaluable, especially in times of market volatility,” says Smith. According to the research, 74% of advisors use financial planning software within their practice, and by 2023 this percentage is expected to reach 82% among firms polled.

Ultimately, according to the research, advisors who offer financial planning find that their clients are better positioned to stay the course and remain calm despite declining market performance while enabling advisors to develop enduring client relationships.

“Financial planning shifts the focus to progress made toward achieving goals rather than investment performance,” says Smith. “This frames volatility in the context of a bigger picture, which helps clients feel prepared when market shocks arise.”

Merrill Introduces Premium Access Offering to High-Net-Worth Clients

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Bank of America announced Premium Access Strategies, a suite of third-party investment strategies reviewed by the Chief Investment Office, including the added benefits of access to investment management teams and the ability to request expanded portfolio customization.

The new strategies are fully integrated into Merrill Lynch Investment Advisory Program to help support comprehensive planning discussions, as well as seamless implementation and inclusion in annual review materials.

“Premium Access Strategies is the latest example of Merrill offering personalized investments to align with clients’ goals and financial situations,” said Keith Glenfield, head of Investment Solutions at Bank of America. “The new offering is designed to address clients’ unique needs and provide further customization, all while being fully integrated into the Merrill Lynch One Platform.”

Premium Access Strategies allow clients to enter into a dual contract relationship by signing an agreement with Merrill and entering into an investment manager agreement with the selected manager, who can provide customized, professional investment management for a personalized portfolio at a negotiated manager rate. Managers planned to be available for the November launch, include AllianceBernstein, BlackRock, Franklin Templeton, Lord Abbett, Natixis Investment Managers/Loomis Sayles, Nuveen and PIMCO.

Premium Access strategies will address the unique needs of eligible clients by offering the ability to request enhanced portfolio customization to help clients’ investments align with their needs and goals; a relationship where clients can connect with the investment manager to discuss investments and receive reporting directly from the manager and portfolios governed by a separate agreement, directly with the investment manager with negotiable terms, including investment management fees.

This is the latest example of Merrill’s growing suite of products and solutions tailored to the needs of high-net-worth clients, a growing client segment.

The new offering is designed for clients with at least $5 million in combined assets at Merrill and Bank of America or at least $10 million in investable assets, including assets outside of Merrill and Bank of America.

HSBC U.S. Private Banking Enhances Wealth Management Solutions with Addepar

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HSBC U.S. Private Banking announced today that it has selected Addepar, a technology platform purpose built for investments, as its consolidated client performance reporting platform.

HSBC’s U.S. Private Banking serves domestic and international high net worth and ultra high net worth clients, as well as family offices, with $65 billion in assets under management.

Addepar’s software and data platform for wealth and investment managers is a proven leader in the space, with a client base that includes more than 800 of the world’s top family offices, registered investment advisors, private banks and large financial institutions across more than 30 countries.

Addepar will provide HSBC U.S. Private Banking with critical tools, such as comprehensive portfolio views and in-depth analytics, which will optimize the client experience. The platform will also improve reporting on private and alternative investments, leverage multi-currency capabilities, and provide tailored reporting for sophisticated needs of internationally-minded high net worth and ultra high net worth clients, as well as family offices.

“This new partnership with Addepar combines best-in-class technology with advanced analytics that will help us best serve our clients based around the world,” said Jessie Zhu, Head of Investments and Wealth Solutions, WPB US and Americas, HSBC. “We look forward to working with Addepar to manage, grow and preserve clients’ wealth for generations to come.”

“Investment professionals are facing constantly shifting environments and markets as they navigate the current financial landscape, with a need for technology and quality data being more acute than ever. We are thrilled to partner with the forward-thinking team at HSBC to bring Addepar’s category-defining platform to their U.S. Private Banking business,” said Eric Poirier, CEO, Addepar.

“The scalability, flexibility and security of our platform unlocks the ability for us to serve the fast-changing needs of the largest banks around the globe, and in turn, for them to provide exemplary service to their clients. We look forward to continuing to grow with HSBC in the years ahead.”

BNY Mellon Launches New Payment Platform Vaia for Payee-Choice Disbursements

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BNY Mellon launched Vaia, its new aggregated payment platform that gives U.S.-based institutions access to the latest digital payment options for disbursements.

Through a single integration with BNY Mellon, institutions can now provide their payees with access to Vaia’s wide range of payment choices – including real-time payments via RTP®, Same-Day ACH, Tokenized Payments with Zelle®, and debit cards – all on a client-branded front end. This could significantly reduce the time and resources needed for businesses to connect with all available payment rails.

“End customers want greater choice in how they are paid, but with so many digital payment options emerging, businesses are struggling to stay up to date with, and connected to, the latest capabilities,” says Jennifer Barker, CEO of Treasury Services at BNY Mellon. “Vaia does the heavy lifting to ensure that our clients’ end customers always have access to the latest suite of digital payment options.”

The new platform was built in collaboration with Verituity, a cloud-based solution that connects banks, payers, and payees to first-time and on-time digital payouts. Earlier this year, BNY Mellon announced that Verituity had joined its Accelerator Program, which fosters collaboration with the best developing technology companies to create next-generation solutions for emerging business challenges.

Vaia leverages BNY Mellon’s Account Validation Services to verify payee identities and validate accounts end-to-end, helping to mitigate payment fraud and deliver a safe and efficient payment process.

Going forward, Vaia will also continue to add the latest payment innovations to its portfolio of solutions, ensuring that clients and their payees have access to the most up-to-date digital payment options.

Vaia is currently available to BNY Mellon clients in the U.S., with plans to support cross-border payments in future roll-out phases.

Asset Managers Stand Firm on ESG Integration Despite Political Pressure

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Divided politics surrounding ESG investing have not deterred managers from pursuing an integration approach.

96% of asset managers have or plan to have (2%) an ESG integration approach and are using material ESG information when evaluating underlying investment portfolio companies to identify risks and opportunities, according to The Cerulli Report—U.S. Environmental, Social, and Governance Investing 2022: Social Issues Come to the Forefront.

The U.S. political environment has become increasingly polarized, with disparate views on timely environmental and social-related issues, in particular on climate change.

“On one hand, institutional investors and asset managers often feel the heat from moving too slowly on divesting fossil fuel assets, coupled with pressure from radical divestment campaigns,” says Michele Giuditta, director. “On the other hand, pension plans and asset managers, addressing the risk of climate change, could fear penalization by states and politicians who view ESG practices as ideologically driven.” The responsibility of navigating the complexities of these demands falls on asset managers and plan fiduciaries, as these asks do not typically consider the challenges of managing the assets.

Three-quarters of asset managers cite that clients believing that environmental, social, and governance (ESG) investing is driven by political views is at least a moderate challenge to increasing client receptivity of ESG issues, up from 49% in 2021. The political polarization is also impacting distribution, with 46% of financial advisors citing the perception that ESG investing is politically motivated as a significant deterrent to ESG adoption, compared to just 16% in 2021.

These recent pressures faced by investors have not impacted asset managers’ responsible investing plans, with climate change remaining a top strategic focus. According to the research, 83% of managers are making climate-related factors a top priority for new product development,  ESG integration (93%), and active ownership activities (94%). Climate change and other environmental issues are also top themes asset owners seek to address when allocating to responsible investment strategies. Climate change/carbon reduction (71%), environmental sector (65%), and sustainable natural resources/agriculture (55%) are top areas of focus.

To alleviate near-term skepticism from investors caused by recent political backlash, Cerulli believes that asset managers need to discuss the merits of ESG and sustainable investing with their clients and reinforce how and why they are using relevant ESG data to drive long-term economic value. Transparency and reporting that validates how ESG information is additive will also be key.

Morningstar Finds Wide Divergence in Investor Behavior and Portfolio Construction Across 14 Markets

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Morningstar published its inaugural Global Investor Portfolio Study, which examines how individual investors in 14 markets construct portfolios. The study finds there is a wide divergence in portfolio preferences based on where an investor is located.

“Our inaugural global study of portfolio construction shows that there is no such thing as an average investor,” said Wing Chan, lead author of the study and head of manager research for Europe and Asia Pacific. “As investors around the world demand more personalized portfolios, it’s important to understand the factors that drive investing behaviors in order to improve the investing experience and empower investors’ financial success.”

The study analyzes how local market practices and investment culture, retirement safety net, and regulatory landscape drive investors’ financial needs and their appetite to take risks in their portfolios. It also considers the availability of financial products, how investors approach portfolio construction, the overall asset allocation of portfolios, and the magnitude of home-market bias – when a portfolio’s geographic exposure is skewed towards the investor’s home market.

Investors are more willing to take risks in their portfolios when they begin investing early in life. This is seen in markets with a higher prevalence of defined-contribution retirement schemes, where investors tend to build or are defaulted into more aggressive portfolios with higher equity weightings and less bond and cash exposure. This includes markets such as Australia, New Zealand, the United Kingdom, and the United States.

In contrast, in markets such as France, Germany, and Japan, which have defined-benefit schemes and, in some cases, are supported by universal healthcare and a comprehensive social security net, there is less incentive for investors to make their own financial planning decisions. As a result, these investors tend to have conservative portfolios.

Real estate makes up most non-financial asset wealth globally and is the primary reason investors take on significant debt, especially in highly indebted markets such as Australia, Canada, China, Hong Kong, and New Zealand.

Home-market bias is prevalent in all markets, though there are often additional drivers beyond traditional reasons such as familiarity, accessibility, and avoiding currency risk. These include the size of the domestic equity and bond markets, capital controls, and tax benefits.

U.S. investors generally have a high appetite for risk, as U.S. households hold the least amount of cash and deposits. Investors in Japan, however, represent the most conservative cohort, with more than 50% of households’ assets sitting in cash or deposits, despite more than two decades of close-to-zero interest rates.

While sustainable investing is most popular in Europe and is gaining interest in Australia, New Zealand, and North America, ESG issues have yet to become top considerations when investors construct portfolios in Asia. In the U.S., sustainability plays a supporting role in investment selection, but ESG considerations appear to be particularly important to younger investors.

Cryptocurrencies are included in portfolios across the globe but continue to be used by a minority of investors, with a heavy concentration among younger cohorts. The most cryptocurrency-friendly investors are in Singapore – which is home to several prominent cryptocurrency companies, Hong Kong, and Canada – which has over 14% of assets allocated to the space.

Franklin Templeton Completes Acquisition of Alcentra

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Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton, announced the completion of its acquisition of BNY Alcentra Group Holdings, Inc. (together with its subsidiaries, “Alcentra”) from The Bank of New York Mellon Corporation (“BNY Mellon”).

Alcentra is an European credit and private debt managers with $35 billion in assets under management as of September 30, 2022 and has global expertise in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies.

With this closing, Franklin Templeton’s U.S. alternative credit specialist investment manager, Benefit Street Partners (“BSP”), expands its capabilities and presence in Europe, nearly doubling its AUM to $75 billion globally, and increases the breadth and scale of Franklin Templeton’s alternative asset strategies to $260 billion in aggregate, as of September 30, 2022.

Alternative asset management is a priority for the firm, as investors are allocating more capital across the full spectrum of strategies.

In addition to alternative credit through BSP and Alcentra, Franklin Templeton’s alternative asset strategies include specialist investment managers focused on private real estate through Clarion Partners, global secondary private equity and co-investments via Lexington Partners, hedge fund strategies via K2 Advisors and venture capital through Franklin Venture Partners.

Founded in 2002, Alcentra employs a disciplined, value-oriented approach to evaluating individual investments and constructing portfolios across its investment strategies on behalf of more than 500 institutional investors. Alcentra’s dedicated and highly experienced team is based in its London headquarters, as well as in New York and Boston.

In connection with this transaction, there will be no change to Alcentra’s brand in Europe or Alcentra’s investment strategies.