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Lon Erickson (Thornburg Investment Management): “There is Still Some Uncertainty Surrounding the Robustness of the US Economy”

On April 25^th and 26^th, Thornburg Investment Management (Thornburg), a global independent asset management company, brought together for its annual event more than 40 professionals from the investment industry, most of them financial advisors from Bolton Global Capital, Insight Securities, Morgan Stanley Wealth Management, UBS Financial Services, and UBS International. The event was hosted by Vince León, Director, Offshore Advisory Channel and Miguel Cortabarria, Offshore Internal Sales Consultant.

In this new edition of its “2018 International Advisors Conference“, which, as usual, was held in the city where the company has its headquarters, Santa Fe, New Mexico, Jason Brady, Thornburg’s President, CEO and Managing Director, welcomed the attendees. In his speech, he explained the characteristics that make his company’s investment process different; which begins with the importance of the firm’s location, away from the noise of Wall Street, in order to accordingly process the huge volume of information that investment managers receive nowadays. With about 48 billion dollars in assets, the company consists mainly of private capital of which an important part is held by its Managing Directors and employees (1.88%).
“We consider a wide range of opportunities, beyond the limits of the conventional, to find the best relative value. Thornburg uses a flexible perspective that benefits from the interaction of various investment teams in order to refine ideas, obtain better judgment and more competitive results for investors,” says Brady.

We feel that this leads us to better investment results for our clients. We look for a challenge, we focus on the objective and not on the reference indexes, which ultimately translates into conviction portfolios with a high active share. “Our investment approach is structured, in order that by being repeatable over time we can then achieve superior long-term results for our clients.” Specifically, the asset manager specializes in six asset classes, domestic and international variable income (value, growth and emerging), global fixed income, municipal bonds, multi-assets and alternative strategies (long/short in equities).

The Outlook for Emerging Equities

After Brady’s presentation, came emerging markets’ turn; these markets, representing 86% of the world’s population, 40% of the GDP and 21% of the market capitalization, usually translate into a greater demand for goods and services by an increasing middle class, with a much faster GDP growth. Something that already happened in the US during the past 50 years, and that Charlie Wilson, co-portfolio manager of the Thornburg Developing World portfolio, and Pablo Echavarría, Associate Portfolio Manager, recognize as a determining factor for long-term investment.
In the last ten years, the composition of the MSCI Emerging Markets’ index has changed substantially, if a decade ago the extractive industry and banks dominated market capitalization, nowadays, it’s technological companies such as Alibaba or Tencent the ones that lead the market. In that regard, the Thornburg’s strategy prefers to leave the index aside and choose quality companies with attractive valuations that minimize the typical breaks in which this type of asset usually incurs.

“In order to assess company quality, we pay close attention to the alignment of corporate governance’s interests with those of minority shareholders. We also examine the company’s balance sheet in depth. What we seek above all is to hedge the downside risk, since that’s the way we can obtain a higher compound interest rate, providing higher quality and higher return rate return to the fund. We tend to invest in financially sound companies, companies with low leverage that show no deterioration in their cash flows. These two issues are the most important in a bear market. In addition, we pay attention to the valuations, mainly those expressed in terms of free cash flows, and we establish an objective for the return in order to create expectations about the company and to measure the impact of the investments,” said Echavarría.

They use an approach of three investment baskets for the portfolio’s construction, in the first one they include basic value companies, with securities that fall within the classic description of the investment value. In the second basket, the stocks that consistently earn profits, and in the third, the growth companies that they call emerging franchises. “This approach allows us to participate in the market cycle’s different tides. It allows us to be aware of relative growth and the performance profile adjusted by the risk of these companies. We search among the different baskets, focusing on building differentiation to address market expectations,” argued Wilson.

The Fixed Income Vision

Then came fixed income’s turn; Lon Erickson, Portfolio Manager and Managing Director, expects that international demand and the consequent pressure on the yields of fixed income will decrease in 2018 due to the weakness of the dollar. “The majority of international investors invest with a hedge in currency, but the cost of hedging increased considerably with the movements in exchange rates. Once this cost is added on, US returns do not look as attractive. In addition, the Fed is reversing its asset purchasing program, as is the ECB, and even the Bank of Japan is talking about how to eventually exit the QE program. If you believe, as do we, that the purchasing program kept rates at low levels, it is reasonable to think that it will put some pressure on rates once the stimulus is withdrawn,” he said.

According to Erickson, the main question is whether it will affect them for better or worse. “An experiment on the Fed’s balance sheet like this one has never been seen before. At the current rate of reimbursements, it will take up to 6 years to return to the previous balance of one trillion dollars, a considerably slow schedule that the market could absorb. But it’s not only the Fed that is withdrawing liquidity, the ECB has also begun the withdrawal; which is something that will reduce the demand for dollar assets and increase the pressure on rates. We expect more pressure on the returns of the 10-year bond, but we also believe that it will be contained, as there is still some uncertainty surrounding the robustness of the US economy.”

According to the asset manager, spreads are very compressed and leverage levels are historically similar to those maintained during a recession. Regarding inflation, he believes that the recent fiscal reform will add pressure. Finally, in relation to positioning, he explains that credit opportunities are less attractive, since the public and corporate balance sheets don’t look as solid. Opportunities in interest rates exist above all in the long term and in the cash position, which responds directly to the Fed rate hikes. “It’s where the opportunities can lie in the short term, whilst waiting for new opportunities in the curve,” he concludes.

The Power of Dividends

Then came the turn for the company’s flagship strategy; Brian McMahon, Thornburg’s Vice-Chairman, CIO and Managing Director, presented Thornburg Investment Income Builder’s capabilities; the strategy was designed for investing 75% in stocks and 25% in bonds, but currently allocates 90% in equities, since the actions of central banks during the past few years has displaced investors out of the bond market. “The central banks of the main developed economies, the US, the UK, Japan and the Eurozone, have bought a very high percentage of debt in relation to sovereign bonds issued by these countries. In 2013, the Fed bought two thirds of the bonds that were issued, leaving only one third for the rest of private investors. Also, in 2017, the Bank of Japan bought 250% more than the amount issued by the government. The European Central Bank’s behavior was similar, substantially reducing the offer of sovereign bonds of developed markets and making asset managers’ work more complicated,” said McMahon.

As for the choice of companies that pay dividends, Thornburg chooses companies that have a capital discipline, that only invest in capitalization expenses if they have good projects to invest in and which respect their dividend payment policy. “From 2011 to 2017, the average growth rate of dividends globally has been good. The dividend yield of the shares has become very competitive compared to high-yield fixed income, in fact, in Europe, it is slightly higher than yields of the high-yield bonds issued in the region.”

According to McMahon, the positioning of the portfolio responds to the search for opportunities between regions and sectors that offer the highest dividend yield. “We fish wherever there are fish. By geography, at the end of Q1, we give preference to Europe, excluding the UK, to North America as, despite the US offering one of the lowest dividend yield rates of 2.1%, we trust that there will be a change with the fiscal reform, and to the Asia Pacific region; while, by sectors, we favor the financial, telecommunications, energy and consumer discretionary companies. We maintain a low exposure to the sectors that have traditionally been related to attaining dividends, such as public utilities, materials and real estate; because at present they have been an asset sought as a refuge and are traded similarly to short duration bonds.”

They expect that 76% of positions in the portfolio increase their dividends within the next 12 months, and that of the 14% that will pay lower dividends, 66% are companies that had already paid a special dividend the previous year. However, what will happen when rates continue to rise? The asset manager acknowledged that strategies similar to that of Thornburg Income Builder have lost about $ 100 million in outflows from investors who fear an increase in US Treasury rates. But, in the past, the fund has managed to surpass yields obtained by fixed-income indices when the 10-year Treasury rate has risen by more than 40 basis points in 27 periods, exceeding in 24 of them the profitability of the US Corp Bond Index and the US Aggregate Bond Index, and in 20 periods the profitability of the US HY Bond index.

A Distinctive Approach

It all started on Thanksgiving 36 years ago, Garrett Thornburg, Founder and Chairman of the company’s Board of Directors, and who had previously been a partner of Bear Stearns & Co, as founding partner of its public finance division, and CFO of Urban Development Corporation, decided to focus on the management of investment strategies. Two years later,Brian McMahon left Northwest Bank to join Thornburg. Together, they launched a first municipal bond strategy, followed by government bonds’ strategies, US value equities, international value and growth. Thus, in 2002, the Thornburg Income Builder strategy was launched, and in 2006, Jason Brady joined the firm.

“Our main value is doing the right thing. It’s very simple; we act with integrity and put our clients’ interests first. Our portfolios are concentrated, so we are not always in sync with the fads that may be in the market. We focus on the long term and therefore our equity strategies outperform their indexes in all their categories. Our motto, “It’s not what we do, it’s how we do it”, is very representative. And, our way of investing is collaborative, the entire management team is in Santa Fe and they work together, in total 236 people who can find a good investment idea. It’s possible that this idea does not fit into a value strategy, but it may work for a growth strategy,” Garrett Thornburg commented during his presentation.

As the event progressed, they didn’t insist as much on the positioning of the portfolios when facing the markets as on the importance of asset managers adhering strictly to the investment process of each strategy. “We are not experts in guessing the future. We carry out a conscientious decision-making process and believe that excellence in investment should guide our decisions. We look for the best for our clients,” concluded Rob McInerney, Sales Manager and Managing Director for the management company, who also emceed the event.

Corporate Profit Growth, Aggressive Corporate Stock Buy Backs, and Deals Should Provide a Cushion for Any Selloffs

| By Gabriela Huerta | 0 Comentarios

The U.S. equity market rallied sharply in January but ended slightly lower for March and the first quarter after an overdue high-volatility spike selloff during early February and a recovery rally into mid-March, followed by a month-end dip with the S&P 500 Index closing nearly 10% off its 2018 highs.

The U.S. Federal Reserve’s gradual liquidity reduction and rising policy rate, plus the prospect for the same from the ECB, have weighed on stock prices. However, the U.S. Treasury yield curve flattened as note and bond yields declined toward the end of March while stocks retreated. The main drivers for rising stock prices continue to be lower corporate taxes and higher profits.

Global merger and acquisition activity accelerated to a record $1.2 trillion in the first quarter of this year following the passage of U.S. tax reform and a boost from the catalyst of shareholder activists. CEOs are initiating major transactions sparked by excess cash and the goal of growing the top and bottom line. Industry consolidation deals are heating up as scarce targets ignite bidding wars. Uncertainty over Trump trade policy and regulatory hurdles are deal headwinds.

Duelling trade tariffs between the U.S. and China have increased tensions between the two countries. Widening spreads on a mark-to-market basis, not broken deals, were the culprit driving performance in March. Merger arbitrage spreads widened in reaction to these factors, allowing us to deploy additional capital opportunistically. These opportunities would lead us to expect to earn potentially higher returns when deals in the portfolio close.

We believe the recent widening of spreads and the increase in deal risk premiums present an attractive opportunity to add to and initiate positions with the potential to earn greater returns. We continue to find attractive opportunities investing in announced mergers and expect future deal activity will provide further prospects to generate returns non-correlated to the market.

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Rising uncertainties may keep the stock market on edge but corporate profit growth, aggressive corporate stock buy backs, and deals should provide a cushion for any selloffs.

Column by Gabelli Funds, written by Michael Gabelli

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The AMCS Group Strengthens its Team with New Miami Based Hire

| By Meritxell Sedo | 0 Comentarios

The AMCS Group, the recently established, Miami-based third-party distribution firm, is pleased to announce the appointment of Fabiola Peñaloza as regional vice president. She joins the firm at an exciting time, just weeks after its launch announcement and confirmation of a new distribution relationship with Old Mutual Global Investors (OMGI).

Fabiola will report to Andres Munho, managing director and co-founder, who is also based in Miami. She will initially be tasked with supporting Andres in continuing to strengthen the firm’s position with private banks and wirehouses in Miami, as well as helping to develop a number of new and growing relationships in Colombia, a country where she has previously worked.

Ms. Peñaloza has more than 15 years of experience in the financial services industry in the United States and Latin America. She recently moved to Miami from Colombia, where she worked for six years in Credicorp Capital Colombia S.A in Bogotá, leading the UHNW segment of the company from the Asset Management division. Previously, she worked in both investments and trading for some of the leading private banks in Miami and New York, including Standard Chartered Bank International, Credit Agricole Private Bank, Bank Boston International and Morgan Stanley.

Andres Munho, managing director, the AMCS Group, comments: “We are delighted to have Fabiola join the Miami team here at the AMCS Group. Her experience in the industry, including portfolio management as well as sales, will fit perfectly with our investment centric approach to client development and servicing. We all look forward to her contributions to our ambitious growth plans.”

Fabiola Peñaloza, regional vice president, the AMCS Group, comments: “I have known Andres and the team for several years as a client and have always admired the quality of their service. During their tenure at Old Mutual, the team established a great reputation and strong position in the industry for OMGI and I look forward to helping continue this growth trajectory as part of the AMCS Group.”

The AMCS Group team details:

Chris Stapleton, co-founder and managing director, manages global key account relationships across the region, as well as advisor relationships in the Northeast and West Coast.

Andres Munho, co-founder and managing director, oversees all advisory and private banking relationships in Miami, as well as firms located in the Northern Cone of LatAm, including Mexico.

Santiago Sacias, senior vice president and partner in the firm, based in Montevideo, leads sales efforts in the Southern Cone region, which includes Argentina, Uruguay, Chile, Brazil and Peru.

Fabiola Peñaloza, newly appointed regional vice president, is responsible for select advisory and private banking relationships in Miami, as well as firms located in Colombia.

Francisco Rubio, regional vice president, is responsible for the Southwest region of the US, as well as independent advisory firms in South Florida and Panama.

The team is supported by Virginia Gabilondo, customer service manager.

BigSur Partners Invites Scott Galloway to Unveil the Secrets of Amazon, Apple, Facebook and Google

| By Meritxell Sedo | 0 Comentarios

During the last twenty years, four technological giants, have been able to generate an unprecedented source of wealth for their shareholders, creating products and services that have transformed society and which are deeply rooted in the daily life of billions of people. But, could the time have come to consider how much power in the business world we want to continue to give these innovation leaders? Scott Galloway, Professor of Marketing at NYU Stern University and author of the book “The Four: The Hidden DNA of Amazon, Apple, Facebook and Google”, argued for it during the celebration of an event organized by BigSur Partners, the multi-family office founded in 2007 by Ignacio Pakciarz, in collaboration with the NYU Stern University.

The event, which took place in Miami in early February, was the first of a series of presentations in which BigSur Partners aims to have leaders, experts, and academics across different sectors and industries participating in order to offer their clients the best investment ideas. “We are honored to be co-hosts of this event with NYU Stern given our commitment to collaborate with the best minds in our network. Internally, we created the “BigSur Intelligence Unit” in which we strive to find the best ideas in academia, industry experts, leading family offices and other counterparts interested in financial markets. We also believe that it is important to always look at the world from different angles and to listen carefully to innovative thinkers,” said Ignacio Pakciarz, economist, founder and CEO of BigSur Partners.

According to Galloway, Amazon, Apple, Facebook and Google target the most primitive human instincts, which are then reflected as a body organ: Google channels its efforts towards the brain, Facebook represents the heart, Amazon targets our digestive system and Apple would be the company that champions sexual attractiveness. As a result of their respective strategies, they have created enormous value for their shareholders.

Since the great recession, its stock market capitalization has grown exponentially and currently only four nations, the United States, China, Germany and Japan have a GDP higher than the capitalization accumulated by these four companies, which is close to 3 trillion dollars. “

After studying these companies for ten years and examining them thoroughly during the last 24 months, Galloway came to the conclusion that the four big technology companies have to be regulated because they have reached a scale that could stiffen the economy.

Facebook is the largest social network in the world with 2.07 billion active users, who connect at least once a month, and 1.4 billion people connecting daily and also owns 6 of the 10 most downloaded mobile applications. With applications WhatsApp, Facebook Messenger, Instagram, Facebook and Facebook Lite, any smartphone becomes a distribution vehicle for Facebook.

In turn, Amazon represents 44% of the electronic commerce in the United States -the fastest growing distribution channel in the world-. “55% of sales made on Black Friday were made through the firm. 62% of American households provide a recurring income to Amazon through their Amazon Prime service. As if this were not enough, Amazon also owns 70% of the market share of the voice business, through Amazon Echo, the new appliance that will transform society.”

Likewise, the revenues obtained by Google in advertising as of December 2017, of approximately 90.9 billion dollars, represent 92% of the totality of the advertising market in the United States.

After presenting his argument about the monopolies created by the four largest technology companies, Galloway suggested that the introduction of regulation does not necessarily restrict capitalism, but that it could actually revitalize the market.

Galloway concluded by mentioning the need to break these monopolies, not because of tax avoidance or the destruction of employment they incur, but by the need to increase the number of innovators in order to avoid that the only competitors of these four companies be themselves, or that when a potential competitor appears, it is acquired by one of the four at a price that fewer and fewer companies can afford. It is about creating an ecosystem with a greater participation of venture capital companies, with a more diversified source of employment, a broader tax base and greater competition among companies.

Once the event concluded, Ignacio Pakciarz showed his enthusiasm for the concepts expressed by Professor Galloway. “They are very interesting, and perhaps even radical for a technologist and defender of free markets. His idea of regulation as the only means by which to protect innovation is an interesting stand on the argument. As investors in the creative economy, we believe that this event is valuable to understand the cultures of these technological giants and how they operate, as well as the implications that regulation can have on the stock and venture capital markets,” he concluded.

Henk Grootveld (Robeco): “The Digitalization of the World Has Led to the Introduction of Collaborative Robots”

| By Meritxell Sedo | 0 Comentarios

In his speech during the celebration of the “2018 Kick-Off Masterclass Seminar” in Palm Beach, Henk Grootveld, Head of Trends Investing at Robeco, compared two photographs of New York to explain the next wave of digitalization. The first one, was taken in the year 1901, at Fifth Avenue, and only one car was driving among a vast amount of horse carriages. The first internal combustion engine had been invented 20 years ago by Mr. Benz and his nephew, and the use of cars was far from extended. However, in twelve years’ time, in the same street and city, horse carriages became the exception and the first car models dominated the streets. New York went from one scenario to the other quite fast, simply because cars were cheaper than horses and easier to maintain.

In the same way, consumers went digital when Apple introduced its first iPhone in June 2007. The world has changed, and smartphones are a vital part of daily activities, a third of relationships between people and half of purchases are made through smartphones.

Today, the digitalization of the world has led to the introduction of collaborative robots. Rethink Robotics has created Sawyer and Baxter, ‘smart’ robots that can be taught new skills rather than being programmed and that can work together with humans, as they are full of sensors. Most of collaborative robots are used in the car’s industry, which is experimenting a high degree of transformation.

“In Germany, this process of transformation has been called the Industry 4.0, because it is the fourth attempt to become more efficient. The first industrial revolution started with the use of steam, the second one, brought manufacturing processes, the third, introduced computers and simple robots, and in the fourth revolution, robots can be connected and communicate with people through the internet of things. This new phase will radically change production in the next 10 years, in the same way as the smartphone introduced a change on how we think about consumption”, he said.

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The rise in robot use is particularly pronounced in Asia, specifically in the countries that have a problem of demographic aging, like South Korea and Japan, whose working population has been shrinking in the last 6 years.

“China’s working population is also diminishing, there will be a huge need to replace labor for robots. Specifically, they are expecting to go from the current rate of 68 robots per 10.000 employees to 150 robots. It is possible that they could get this target sooner or that they overshoot it. It is my belief, that by 2022, China will be somewhere around 200 hundred robots per 10.000 employees, while in the United States, the current number of installed industrial robots per 10.000 employees is 190”, he added.

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Automatization and digitalization are transforming all different sectors in the world and will definitively change the way people is related to reality. The Economist magazine has a very positive view, about robots, production of food and the idea that everything comes cheaper and is locally produced. However, The New Yorker, has a gloomier view, depicting a world in which robots will take all the jobs, showing two sides of the same coin. “Some estimates foretell that more than 50% of the known jobs in the world will disappear in the next 15 years. People will start to work in new companies”.

According to the World Economic Forum, advanced technologies will increase efficiency and reduce costs by up to 30%. Moreover, they forecast that factories can shorten their production times by 20% to 50%. They believe that globalization will become a trend of the past, production will become more local, transforming manufacturing into specialized and flexible production hubs able to be adjusted to the needs of consumer. “Adidas has already moved their manufacturing line from Thailand to Germany, where they are producing all their expensive running shoes as customers order them. They measure clients’ feet, in the shop or online, and within 24 hours, they produce the shoe and send it to customer’s door using smart manufacturing and 3D printing. Another example is Maserati, the Italian exclusive automaker, that has introduced a software in designing and production that has reduced the time-to-market by 50%, from 12 years to 6 years, by implementing technology related to the internet of things. At the same time, 3D printing technology is allowing huge advances and positive effects to the needs of every individual, for example, the technique of making 3D printed prosthetic limbs is very valuable in building prostheses for children, which are normally more complex due to their small size and constant growth”.

The electric self-driving car

At the same time, the artificial intelligent co-bots will change our society and the car industry. The introduction of electric self-driving cars will reduce accidents by roughly a 90% and will erase the need for repair shops or car insurance.

“Electric cars will eliminate all nitrogen oxide fumes and fine particulate matter, as well as it will reduce smog. China has become one of the largest advocates of electric vehicles, Beijing will replace all its buses with electric engines in one year. Breathing Beijing’s air reduces 10 years the expected life of its population versus any other city in China”.

The digital content per car will increase by 450% and will turn the car from hardware to software. “Two Swedish companies, Ericsson and Volvo, are working together to develop intelligent media streaming for self-driving cars. The idea is to adjust the journey to reduce the time in the car, but maximizing the time to watch content, allowing customers to choose routes and select content tailored to the length of their commute”.

Additionally, the introduction of robot taxi’s will improve mileage per car, dissolve traffic jams and make most parking spaces useless. “We normally only use a 5% of the time of our cars, and the other 95% is not used, while robo-taxis use the 43% of the time, gaining a huge efficiency and avoiding the need of parking lots. Waymo, Robo Taxi and Smart Nation Singapore are the leaders”.

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Digital finance

When it comes to digital finance, emerging markets are in the lead. “During the Chinese New Year celebrations of 2017, about CNY 462 billion (approximately U$D 68 billion) were exchanged in online payments, representing 343 million transactions, a 48% year on year increase, and 760,000 hongbao’s per second – hongbaos are red envelopes with cash as a monetary gift, a Chinese tradition during Chinese New Year believed to symbolize good luck and ward off evil spirits-. China and India are set to become larger in listed FinTech than the rest of the world combined.

In the next ten years, cash will become an exception and online payment methods will become mainstream. Digital finance will open the way to 2 billion people who currently do not manage their financial affairs.

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Cyber Insecurity

Finally, the lack of cybersecurity is the biggest threat to digitalization. In July 2017, global companies like Maersk, WPP, FedEx and Merck struggled to continue with their normal operations after being victims of a huge cyber-attack that compromised hundreds of computers, equipment and other technology. Some months before, the malware Wanacry had hit around 150 countries around the world, demanding ransom payments in the Bitcoin cryptocurrency. But far from being addressed, the problem will get worse in the future with the increase of cloud computing, which intensifies its vulnerability.

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Ed Verstappen (Robeco): “The “Winner-Takes-All” Effect is Increasingly Felt in the Technological Platform Segment”

| By Meritxell Sedo | 0 Comentarios

Of the three secular trends pursued by the Robeco Global ConsumerTrends strategy, the digitization of consumption was by far the strongest in 2017. Consumption through technology and consumption in emerging markets exceeded the consumption of famous brands. In his speech during the celebration of the ‘2018 Kick-Off Masterclass Seminar’ in Palm Beach, Ed Verstappen, Client Portfolio Manager, explained how end-of-year profits confirmed the strength of the digital consumer: “Technology companies such as PayPal, Amazon and MercadoLibre showed strong profits, while the US retail sector shows a general weakening. The commodity consumption sector was weakened in both the US and the European Union, but benefited from the start of new opportunities for mergers and acquisitions. In addition, there was an attractive recovery at the operating level in most companies in the luxury sector. We believe that much of what we have seen in 2017 will be developed in the same way in 2018.”

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Growth stocks dominated the markets. Both the FANG, (Facebook, Amazon, Netflix and Google), and its emerging version, the BAT (Baidu, Alibaba and Tencent), are the drivers for a relevant part of the market. Some of the risks that these stocks entail are valuation levels: “Shareholders tend to like companies that offer high levels of profitability, but they also ask themselves, ‘what will come next? Should I take my profits and leave the position, or do I feel that it will continue to grow later? In that case we take a strategic approach, even if it is our favorite company, with a correct trend, we make sure to sell what is showing a false growth, at least partially its exposure. An example would be Facebook; we have reduced its beta in the portfolio, replacing it with Chinese technology companies, which have provided the portfolio with greater benefits than its US counterparts. Facebook, which for a long time was among the top positions of the fund, may be affected by the increase in regulations. The benefits obtained in advertising were especially good, but we can see the problems that the current use that is being given to the Facebook platform can lead to. In contrast, Instagram, one of its subsidiaries, is in our opinion much more promising than the Facebook platform.”

The fundamentals of the largest internet platforms are very solid; in fact, Facebook has experienced 18 consecutive quarters with a profit growth of over 50% Google has reached 31 quarters with organic revenue growth of 20%, its stocks have risen, but the good news is that they are supported at a fundamental level by strong profits and a boost in revenue. Likewise, Microsoft has achieved a growth of its cloud computing business of more than 90% for ten consecutive quarters. “The ‘winner-takes-all’ effect is increasingly felt in the technological platform segment.The dominant companies in the internet sector take the entire market share. But to be honest, this is something that also happens in the luxury sector, where large companies have a good position and weaker companies do not have such a good position.”

The strategy’s investment process is based on finding secular trends that change the world in a disruptive way, but from the macroeconomic point of view, the current environment serves as support: a low unemployment rate, high consumer confidence, and potentially higher interest rates. The US leads in terms of consumption, something logical, as its economy has a greater consumption base. Although consumer confidence is strong, spending has been somewhat depressed, so there is still room for improvement, especially if wages start to rise.

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Secular Trends in Consumption

Within the digital consumer trend, Robeco’s strategy focuses less on advertising on mobile devices and more on the video game industry. Historically, the video game business had not had a continuity in profit flow, it was more a matter of hit-or-miss with games’ acceptance, but developers are now focusing on building franchises in the long term. Digital downloads have made the intermediary disappear, which has increased productivity in the industry. “There are new opportunities for monetization in the videogame industry, in which revenues from sales of virtual products or accessories for games, such as new levels, can be increased through micro-transactions. Mobile games offer developers a good opportunity to attract high margins in advertising. In addition, the so-called e-Sports are gaining followers; the retransmission of some finals has reached 36 million viewers. The platforms that distribute these events have seen their number of followers double. Specifically, Twitch.TV, the platform that Amazon owns, has registered more daily viewers than CNN.”

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The second trend within digital consumption is retransmissions of online video and through mobile devices. The competition for video diffusion has increased, with a greater number of competitors: YouTube, Facebook, Amazon Prime, etc., while the tendency is that Internet advertising exceeds television advertising. Search engines such as Google or Bing and social networks like Facebook, Instagram and Snapchat obtain more than 70% of their profits through online advertising.

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In addition, the third trend in digital consumption, the means-of-payment trend, shows that there is still a long way to go. Cash is still the dominant form of payment, but more and more forms of online payment are gaining ground. PayPal is currently the most used platform in e-commerce transactions. Meanwhile, small and medium enterprises benefit from their innovative payment offerings such as Square, a company that was founded by the creator of Twitter, or Apple Pay; however, the three main payment platforms continue to use the current payment infrastructure, which is why Visa and MasterCard continue to maintain a strong position.

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As for the emerging consumer trend, it is expected that, by the end of 2018, China’s retail distribution business will reach domestic sales of $5.8 trillion, the same figure expected for the US. The change in the behavior of the emerging consumer is determined mainly by the increase in the living standards of the Chinese population, which increases their spending on leisure, travel, and luxury goods. The anticorruption campaign carried out by the Chinese government led to a substantial decrease in the growth of the luxury sector, but little by little the sector is experiencing a rebound. The growth of China’s middle class should continue to drive growth in luxury purchases, along with a recovery in consumer confidence in mature markets.

The adoption of online commerce in China is much more advanced than in Western markets. The lack of a well-established physical infrastructure has accelerated the transition to online commerce. Alibaba broke its sales record on Singles Day with sales figures that exceeded those of 2016 by 42%.

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Finally, within well-known brands’ trends, companies that have a strong brand presence tend to outperform their competitors throughout the cycle. They usually enjoy a better perception of product performance, greater consumer loyalty, and a more inelastic consumer response in relation to price changes and higher profit margins.

Bjorn Forfang (CFA Institute): “FinTech is Going to Fundamentally Transform this Industry in the Next 5 to Ten Years, if Not Sooner”

| By Meritxell Sedo | 0 Comentarios

Every time Bjorn Forfang, Deputy Chief Executive Officer at CFA Institute, travels, he always gets asked the question of what could be his specific advice on how capital markets and how finance industry in certain countries should behave. His answer is always the same: “Although there are differences in financial markets, the very core of what we are trying to accomplish is exactly the same in every country around the world, and it comes down to trust, ethical and professional standards, and that is the core value proposition that exist whether you are in Brazil, Chile or Uruguay, or any other country in the world,” he stated at the “2018 Latin America Investment Conference,” an event jointly hosted by the CFA Institute and the CFA Society of Brazil in Rio de Janeiro.

The CFA Institute wants to globally lead the investment industry by globally promoting the highest standards of ethics, education and professional excellence for the ultimate benefit of the society. And, as presumptuous at this may sound, they really mean to benefit of the society: “We simply believe firmly, that fair and free capital markets underpinned by strong ethical values and highest professional standards is critical for prosperity on the financial industry. The financial industry has contributed significantly to society, and I cannot think on how many countries could actually achieve prosperity in the long run and reduced poverty without free and fair capital markets. Financial markets are the intersection of capital and ideas. There are people that may have ideas but no capital, and there are people that have capital but no ideas, it is that intersection what creates prosperity for nations and that is what we believe, and that is why the benefit of society is such an important part of the value statement of what the CFA Institute stands for,” he added.

The CFA Program started out 60 years ago, mostly in US and Canada, but now is a global program, with a 45% of growth in the Asia Pacific region and a 33% of growth in the Americas region, where the growth of the mature markets is flatting as well, and most of the growth comes from Latin America, being one of the fastest areas of growth for CFA Charterholders. “Argentina and Uruguay had a combined society because Uruguay was not big enough by itself. But once Uruguay obtained more than 50 members and had a path to reach 100 members, the inside rule of the CFA Institute to create a CFA Society, they obtained the approval from their board and became a separate society. Colombia will be the next country to have a CFA Society in Latin America, they already have 80 members and 400 candidates.”

The CFA Societies of Latin America interact among them because they have similar issues. They are developing economies, they have a sort of immature capital markets when compared with some of the developed markets, and they cooperate on multiple levels. And they also share best practices when it comes to member and continuing education events. Moreover, the Latin American advocacy look forward to preserving best practices issues and concerns among capital markets challenges.

The lack of trust

According to Forfang, one of the biggest problems in the financial industry is the fundamental trust gap that has been widening for many years, between what the financial industry delivers and what the costumers and clients perceive are delivering. “The biggest problem is trust, we have conducted a survey all over the world, with 3,000 to 4,000 respondents from institutional and retail investors, released on March 28^th. The survey asked about the concept of trust, about the quality of the financial advice that clients obtain and about attributes that the clients are looking for among other questions. In Brazil, there is a decent amount of people who still trust the industry. But Brazilians in this survey are also extremely skeptical, that trust is not something that they take for granted, is something that industry must deliver on, every single day, and that is a challenge for us, but is also an opportunity to seek for much higher professional standards in other to meet that challenges that we have, among our clients. The trust gap can be closed in a couple of ways, as trust is really about two things: credibility and professionalism, putting both together is a solution to narrow the trust gap.”

In the path of reestablishing the trust, Forfang believes that honesty and transparency are key. “Fees need to be transparent. Products, if they are complicated need to be fully explained so people who buy it understand exactly what it is that they are buying, and honest about expectations. There is a gap between how people think how they may live on retirement relative to what the actual reality is in every company of the world, and I think is up to us to be honest and explain what it does mean. There must be a commitment to put the client first when we are giving advice to a client, it interest must be ahead of our interest and that of our employers.”

The other challenges

There are other problems that the financial industry is facing: active management does not seem to be delivering value after fees, which is why you see the proliferation of passive moderate ETFs, quantitative strategies are reaping away alpha opportunities, replacing human beings with computers, and the result of all of that is margin compression. Also, the rising of markets for the last several years certainly have added a secular market compression to the industry, that leads to consolidation of asset management firms, as they are trying to build scale in distribution, technology and product offering.

Another challenge is fintech and its effect in the financial services industry. The CFA Institute firmly believes that Fintech is going to fundamentally transform this industry in the next 5 to ten years, if not sooner. Lastly, there is the regulatory scrutiny that the financial industry faces. These are the reasons why there is a need for full and complete commitment to lifelong learning by the professionals of the financial industry.

“There are topics in the curriculum of the CFA Program that are static that will always be, like the fundamental analysis, asset allocation, portfolio strategy, quantitative strategy and economics. Those things will always be in the curriculum. But then, in our continuing education program, professionals can rotate in and out topics that looks like they are going to come up, but not sure, like some aspects of fintech or blockchain. We want to make sure that our members are up to date with the latest thinking, but that is different than putting it into a curriculum,” he concluded.

Serena Williams Headlines Amundi Pioneer’s Annual All Star Tennis Charity Event

| By Gabriela Huerta | 0 Comentarios

Amundi Pioneer was proud to sponsor the Annual All Star Tennis Charity Event hosted by Cliff Drysdale on Tuesday, March 20th at the Ritz Carlton in Key Biscayne. Serena Williams, world-renowned tennis champion, headlined this year’s tournament, and was accompanied by tennis professionals: Simona Halep, Darren Cahill, Frances Tiafoe, and Nick Kyrgios.

2018 marks the 3rd year Amundi Pioneer has sponsored the event. This year the event benefitted ACEing Autism, a national non-profit organization that serves children with autism throughout the U.S. by enhancing their lives through tennis.

The round robin tournament gave the opportunity for 24 amateur players to interact, learn, and play with some of the best tennis players in the world. Select Amundi Pioneer representatives and U.S. offshore clients were invited to sit in the court-side VIP section at the tournament in support of the cause of the afternoon.

Richard Spurling, Executive Director & Founder at ACEing Autism, mentioned that his company services more than 1,000 autistic children nationwide every week and is working to expand to reach more children by enhancing their program offerings. Their plan is to reach 4,500 autistic children by the end of 2021.

According to Amundi Pioneer, “the event was a great success, and raised a grand total of $40,000 for an important charity.”

Please click here to view a video of the event. For any questions regarding this event, please contact Kasia Jablonski.

Zeina Latif (XP Investimentos): “Brazil Tends to Fail Managing Success, But it is Not that Bad Managing Crisis”

| By Meritxell Sedo | 0 Comentarios

According to Zeina Latif, Chief Economist at XP Investimentos, Brazil tends to fail in terms of managing success, but it is not that bad managing crisis. “If you take Cardoso’s or Lula’s first administration mandate, both started with huge challenges and they ended well, and we saw the reflection and the outcome of their policies. So, I think that ironically, the most serious fiscal crisis of Brazil’s recent history has a good side of the story, as it leads to force Brazil into rethink government intervention in economy and into eliminating those policies that are inefficient. It is really challenging, but the history tells us that we can do it. Our problem is that we cannot manage very well periods of success”, she stated at the “2018 Latin America Investment Conference”, an event jointly hosted by the CFA Institute and the CFA Society of Brazil in Rio de Janeiro.

Brazil suffered a significant draw on its productivity after being affected by the measures taken by former President Dilma Rousseff. The new government implemented a material shift in economic policies that are believed to be working, and that soon will bring some improvement in productivity as well. Unorthodox price policies that led to a high consumer inflation were removed, the new government understood that this issue was the first thing that needed to be tackled. “Regarding consumer inflation, we need to understand that the current decrease was not because the Central Bank was lucky, or because the forex exchange behaved favorably against other major currencies. We need to recognize that this low inflation is like the patient’s fever that is receding because the doctor was right on its diagnosis and on the treatment as well. This government understood the urge of the tackling fiscal prices and their strategy was correct”, Zeina added.

What can be expected for the coming years in Brazil?

Brazil is facing one of the most serious fiscal crisis in its history. In October, voters will elect another president who will have to face significant challenges. “Brazil needs really bad to stabilize its debt to GDP ratio, otherwise, macroeconomic stability will not be possible. We have clearly a problem of sustainability of public debt and the pension reform is the bedrock of the fiscal adjustment. I do not have many doubts that the next president will need to remember that politicians always consider cost-benefits of their decisions. In terms of political ambitions, is not really a good idea for President Temer to approve a pension reform now. It would have a huge political cost and the benefits will be reflected in the mandate of next president. In a scenario in which markets were really concerned about this issue, there would be a significant benefit of doing the pension reform this year, but clearly this is not the case. Markets have given the benefit of the doubt and are expecting this reform to be accomplished for the next president. But, anyway, this is something critical, we will not be able to see sustainable growth in Brazil while there is macroeconomic instability”, she said.

Brazil needs to look forward and implement structural reforms, the good news is that the current administration has already started. Brazil needs higher productivity gains to compensate for the end of the demographic dividend, the gap between working force and people out of the labor force is going to decrease in the next five years, and it means lower growth potential for Brazil. The next government will need to accelerate reforms to prepare the country towards the end of the demographic bonds, otherwise potential growth in Brazil’s GDP will be 1% or 1,5%, a mediocre growth rate for an emerging economy. Other matter that will be crucial for Brazil will be to open the economy for international trade, as the country needs to increase competition.

“I believe this is one of the most critical moments in Brazil history, but I also think there is a good chance of seeing good news in the next government. In my opinion, the risk of populism has decreased a lot. We see this more stable economic environment, in which unemployment rates and the fear of losing jobs still very high, but we are not seeing protests in the streets. We are seeing society that has calmed down”.

Economy is an important subject in Brazil, a country that has gone through two impeachment processes since its democratization and in both cases the processes were initiated following a collapse in the economy. “Now we have a president that has one digit of approval rate, but the streets are not asking for his ouster. All the possible candidates for presidency are looking for talented and renowned economists to be their finance minister. Politicians understand that there is no room for more mistake on the economic policy and they are trying to show their vision on the economy”.

Finally, the golden rule, a constitutional rule established to avoid the issuance of new bonds by the government to finance current expending, acts as a cap. The next president elected will need to gain flexibilization on the golden rule. Also, there is a significant change in the economic debate. “We are now discussing structural reforms on macroeconomic policies and pensions, and it is something that really matters, because 10 years ago, when Fernando Henrique Cardoso tried to approve a pension reform neither the press nor the private sector supported him. They did not understand the need for a reform. Today, nobody is denying the need of reforms. Politicians in Brazil have become very pragmatic and they use cost-benefit analysis all the time. The discussion is whether the next president will be ambitious enough and will have political conditions to do something different. Today, the question is whether it is going to be a good reform or not, and it is a completely different question. Although the challenges are huge, Brazil is better positioned to tackle these obstacles. Our politicians are not ideological, they are pragmatic”, she concluded.

Mauro Miranda: “CFA Institute is Present in Brazil to Add Resources”

| By Meritxell Sedo | 0 Comentarios

CFA Institute and CFA Society Brazil jointly hosted the second edition of its “Latin America Investment Conference” on March 1^st and 2^nd. After having held its first edition in Cancun, Mexico, this time the city of Rio de Janeiro, Brazil, was chosen to bring together more than 240 investment professionals.

CFA Society Brazil, the local society of the CFA Institute in Brazil, was founded in 2004, has more than 1,000 members and expects to have an annual growth of 15% percent in the next four years, contributing to exceeding the figure of the 2,000 members in Latin America.

Mauro Miranda, CFA, an investment professional specialized in fixed income, including structured debt and private credit areas, is also the president of the CFA Society Brazil since 2016. During his two years in office he has managed to open an office in Sao Paulo for hosting the society’s activities, to make once again Rio a test center and to hold the annual investment conference in Latin America was held in this city.

In the last 14 years since the CFA Society Brazil was founded, with some 50 members, much has changed, both economically, in the political arena and in the development of markets.

“In 2004, the global economy was going through a period of growth and attractive prices for commodities, Brazil benefited from these circumstances and went through a promising period until 2007. Meanwhile, in the 2002 elections Lula won the presidency. During his mandates, there were no major changes in terms of economic policy. There were certain ups and downs, but these were the usual ones in any normal business cycle. Brazil was then affected by the crisis of 2008, obtaining a very negative GDP in that year, recovering later like many other economies. Later, we began the period in which Dilma Rousseff took the presidency, implementing very unorthodox economic measures. The GDP fell quarter after quarter, not recovering the path of growth until after its deposition.

In terms of capital markets, a much more robust regulation has been achieved. The Securities and Exchange Commission of Brazil (CVM) has issued several instructions that were very important to facilitate the establishment of banks and asset management institutions in Brazil at that time. As an emerging economy, Brazil is a country in progress. In July 1994, the Real Plan was implemented, the plan that introduced the current Brazilian currency and ended with a period of hyperinflation of 80% per month. Then, the regulatory agencies and certain economic policy measures were created that included greater fiscal austerity, such as the Fiscal Responsibility Law, signed in 2000, forcing municipalities, states and the federal government to comply with it. We have also seen a progression in the creation of elements that allow the development of capital markets in Brazil “.

According to Mauro, in Brazil there was a clear crowding out effect in the economy when the government was paying a 15% annually. Investors stopped investing in the private sector because they incurred in greater risk for a not-so-great spread. “Thanks to the fact that inflation levels were controlled, the Central Bank of Brazil was able to lower its Selic rate. This was the prerequisite for many investors to begun to see other opportunities. The data from the National Superintendency of Complementary Social Security (PREVIC) indicates that only a 0.2% of the assets in the pension plans are invested in foreign assets and the reason is precisely the high interest rates that the government was paying up to a couple of years. Now the pension funds should start looking for new opportunities, which can be in foreign investment in stocks or bonds or investment in local shares and corporate bonds, subject to credit risk, creating the need for more investment instruments to be available to investors. Companies can now seek financing in a range slightly above 6.75% of the Selic rate for those projects that were forgotten in the drawer and can now be profitable. While investors can now look for opportunities in the private corporate sector “

Having taken control of inflation and lowered the level of interest rates, there is a need for the government to implement the pension reform to reduce the current fiscal deficit. “The current pension system causes a fiscal deficit that is not sustainable over time. Either the next Brazilian government becomes aware of this reality or the rating agencies will not revise upwards their forecasts on Brazil. The international investors will choose other countries in the region to invest, such as Peru, Colombia, Mexico or Argentina.”

The presence of the CFA Institute in Brazil

One of the issues on which the CFA Institute focuses is on increasing the qualification standards of investment professionals. This is accomplished through university associations, scholarships, global competitions in the field of economic research -CFA Research Challenge- and of course, through the CFA Program, a rigorous program of three annual exams, for which the CFA Society of Brazil has launched the first edition of a preparation course in Sao Paulo.

“We still have many professionals to be trained in the market and the CFA Program is very well recognized worldwide. Brazilians like the challenge of preparing it, of seeking excellence. It is very hard, but it offers a high reward for our members, who can opt for better job opportunities when they are CFA Charterholders. In addition, it is a global passport that is recognized throughout the world.”

To contribute to the advancement of professional excellence, there are services that promote activities that help members find opportunities in the workplace, with a job board both locally and globally with the CFA Institute. “Many companies seek CFA Charterholders when they are looking to hire someone, it is a guarantee that that person is well qualified and completed a rigorous financial curriculum and also gained experience before joining their firms.”

Also, the establishment of standards and ethics in the profession is probably one of the most important areas for the CFA Institute and local societies. “Especially in Brazil and in the Latin American region, after everything that has happened in recent years, we believe it is very important. As well as having integrity in the markets, an area that we will continue to defend from now on, we have certain goals and standards that we would like asset managers and banks to take as theirs to increase their commitment to the industry.”

Another important area they focus on is the development of financial markets. To this end, they encourage debate among industry members, publishing recommendations on policies and procedures, as well as research studies on equity markets, fixed income and pension plans. “Last year we launched the first monograph contest on financial innovation. We had a total of 21 participants who managed to publish their research papers, with a similar approach to the monograph awards made by the Central Bank of Brazil. Considering the success obtained, we repeat again this year, “said Mauro Miranda.

Relations with regulatory bodies are too an important point for the CFA Society Brazil, which has strengthened its advocacy area, expanding the dialogue with the Securities Commission of Brazil (CVM) and the National Superintendence of Complementary Social Security (PREVIC) to obtain the recognition of the CFA Charter as necessary accreditation for the performance of certain functions in the financial markets. “Our voice has a greater relevance in the markets in terms of influencing the new regulations, but always having the investor’s interest in mind, always from an ethical and transparent perspective. We have sent our comments to the CVM, basically when there has been a public consultation, about 4 or 5 per year, and that is how we maintain the course of our relationship and communicate the opinions of our members and participants in our working groups.”

Finally, Mauro Miranda stressed that the CFA Institute’s commitment to Brazil is unwavering, its investment in the country has been very strong and will continue to be in the future. “This affects the members and our work with regulators in improving capital markets. We sell ideas and ideals and talk about best practices in the markets. CFA Institute is present in Brazil to add resources.”