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GFG CAPITAL: A Value Proposition to Channel Change from Private Banking to Family Offices

The story of the Gruener brothers, Eduardo and Mauricio, is the story of a family establishing a multi-family office in Miami in July 2003. Like most of their clients, they are from Mexico, and both wished to treat their clients as they themselves would like to be served by a wealth management firm. “One family at a time, that’s how I can summarize the culture of the group. We see the client as an extension of our own family, and that’s how we also consider the professionals who work with us,” explains Eduardo Gruener.

GFG Capital started almost 15 years ago. Mauricio was then working for Credit Suisse, in its wealth management division, after having worked for Republic National Bank of New York and for Lehman Brothers. Eduardo’s curriculum is equally outstanding, but in his case always in the area of investment banking; first in Bankers Trust, and later in Deutsche Bank.

When they decided to launch GFG Capital, their combined knowledge was perfectly complementary. “Between the two of us, we covered two important parts of banking, private banking and investment banking, and we decided that we wanted to start this business together, with the philosophy of sitting on the same side of the table as our clients and eliminating the conflicts of interest inherent to private banking. From the beginning, we knew that we wanted to launch a wealth management area and an investment banking area. Real Estate, our third area of expertise, came later. These three divisions make up the group today, although we started with the multi-family office, GFG Capital,” says Eduardo.

The firm now has another office in San Diego, California, from where they serve both international and domestic clients. “We are a dynamic team of 18 people, within a very family-like environment. We manage close to 900 million dollars for our family office clients. We are registered with the SEC. I would say that 60% of our clients are families in Latin America and 40% are US residents.”

Eduardo tells us that the profile of their main clients is that of self-made entrepreneurs. “They are families that started businesses, which have done very well and grew up with us. Part of the organic growth of the group is because we serve many families of this type. Obviously we also have other types of clients, such as second generations, but I would say that our ‘core’ is this. The highest percentage of our families is Mexican, followed by families from the US and Colombia, in that order.”

Witnesses to industry changes

“14 or 15 years ago this business was not as we know it today. We started with the wealth management division and, especially in the Latin American part, we noticed that when we talked to people about what a multi-family office is, it was a very little known concept. Families, even the largest ones, operated at that time with private banking and when we told them why it was important to have a family office with their own interests and capable of designing a global and coordinated strategy, it was difficult for them to understand it”, recalls Mauricio.

Perhaps the key to the whole issue was explaining that diversification was not about opening different private banking accounts in different banks, but based on analyzing the portfolio in a global way, he explains.

From private banking to family office

“At the end of the day, the bank earned money from the product it sold, but we apply a ‘fee’ for the assets managed and for designing a strategy aligned with the objectives of the entire family and with its risk tolerance. We eradicate the source of conflict of interests that private banking has. Fifteen years ago, this that is now so common was actually a very innovative concept. This was an important part of the group’s success. At present, the large families of Latin America attend to their financial needs with a multi-family office and I would say that, in fact, many do not even have a private bank anymore. This has been one of the most radical changes in the industry in the last decade.”

It‘s true that it didn’t happen overnight, it was a gradual transformation, he clarifies. “Things in our countries are a little slower than in other markets,” laughs Eduardo; adding later, in a more serious note: “At the end of the day, what counts is the model of multifamily office that we have and the benefits that we can offer”.

He also explains the benefits that this structure adds. “The feedback we receive from our clients is that the possibility of managing multiple custodians is a very interesting value-added service. When you are with a private bank it’s that one bank and that’s it. But from GFG Capital, we help our families to manage and supervise all their relationships, either in one or in many banks,” says the youngest of the Grueners.

“Our investment philosophy is active and most of the work is done through asset managers, but at the same time there are certain strategies where there is not as much possibility of generating alpha, where we use ETFs. However, for us it is more of a product to complement the portfolio”, he adds when talking about the investment instruments they use in their day-to-day.

Client profile in Mexico

When asked about what their Mexican families are asking for, both brothers agree that this type of client is becoming more and more sophisticated. The proximity to the United States and the high exposure to international markets are making the market less local and more global.

“The Mexican client is increasingly more like the American in terms of the type of strategies he seeks in order to manage his assets and the type of products he wants to access. We must also bear in mind that the Mexican market has grown a lot, it’s a market with very high liquidity, and the number of issuers in its stock markets has increased exponentially. At present, the Mexican family, or Mexican wealth, feels very comfortable in local markets, but it delves a lot into international markets. This segment is where GFG Capital has more second generations.”

Eduardo firmly states that what this type of client asks for is “to interact with people as little as possible”, to be able to consult by themselves the movements, performance, the portfolio’s risk statistics, previous operations, or the duration of the fixed income, for example.

“This level of transparency and accessibility is one of the things that differentiate us significantly. We have invested a lot in technology. We have just launched an interactive platform for mobile, web and tablet, which allows the client to get into their profile and manage the information. Having the information when they want it is something that is very important for millennials.”

He adds: “Since in other areas of the business we also do investment banking and a lot of real estate, this is a perfect complement to the family office and allows us to really give global solutions where we attend to everything that has to do with your finances. This is much more comfortable than having to rely on many different providers.”

Families who migrate to the United States

Another area of knowledge of the GFG Capital team concerns migration to the US and the previous steps a family can take to leverage some tax advantages. “We advise on how to manage your pre and post-transfer investments, always in the good hands of a tax-consultancy office,” they explain.

“What these families must know when they migrate to the United States,” Mauricio explains, “is that regardless of their immigration status, whatever the type of visa, or even if they don’t come with any, several things can be done to prepare their assets for the moment they become US residents for tax purposes.”

The example he provides is the creation of a trust to avoid inheritance tax. “If we deposit the family’s capital in a trust where the beneficiaries of that money are the next generation, the inheritance tax is eliminated. It is a way to generate a lot of fiscal efficiency. But you have to do it before you arrive. The planning and execution of a scheme of these characteristics has to go hand-in-hand with the financial part. That’s the part we play.”

Trump’s tax reform

Obviously, in this regard, Trump’s tax reform is going to create many changes in the US. The Gruener brothers agree in that, while in principle this reform will only affect families in the US, there are channels for foreigners with investments, which is something that generates revenue for the country, to benefit.

If you’re a foreign owner of rental property in the US, you must pay 35% tax on ‘ordinary income’ and from 15% to 20% on ‘capital gains’. With the tax reform, if the ‘corporate tax’ is reduced to 20%, many of these families could channel their investments through companies and reduce their income tax to 20% rather than 35%. As we see it, tax reform will not only encourage companies in the US to be more competitive, but will also attract foreign investment,” concludes Eduardo.

David Hawa (Robeco): “We Use Tactical Allocation in Contingent Convertible Bonds”

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In today’s credit markets, it is essential to have a defined roadmap, in which you can establish where you are in the economic cycle, how much risk you want to take and what you want to invest in, said David Hawa, Client Portfolio Manager of the Robeco Financial Institutions Bonds strategy, during the “2018 Kick-off Master class Seminar” that the asset management company of Dutch origin held in Palm Beach.

Fundamentals

In order to prepare its roadmap, Robeco analyzes the credit markets from three different perspectives, taking into account the fundamental, valuation, and technical factors.

Beginning with fundamentals, the 10-year US Treasury bond ended the year at 2.43%, the same performance level as it began the year. There was no volatility in the US sovereign bond market, nor was there any for German or Japanese bonds.

About inflation, in the United States the only component in the US with price growth is Owner Equivalent Rent. A trend that they hope will be reversed as inflation begins to gain relevance. Meanwhile, in Europe, all the components of the European GDP are growing, which, according to Robeco, is very positive because it means that loan default levels are decreasing.

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“With the European Central Bank’s official rate at levels of -0.4% and the German two-year bond also in negative territory, investors have to pay to be holders of these bonds. When GDP growth was in deflation and there was no growth in Europe, it could be argued that these levels were going to be maintained, but with growth at between 2 and 2.5%, it’s logical to believe that normalization of interest rates in Europe is close, even without inflation. That’s why we believe that interest rates will increase. Comparing the German bond and the 2-year Treasury bond, the spread between the two has widened since the Federal Reserve began its cycle of increases. Sooner or later Draghi and his team will also have to begin to raise rates, let’s not forget that quantitative easing measures were launched in Europe due to the fear of deflation and now we have passed that phase. The fact that rates are going to start rising is good news for the income statements of European insurers and banks, whose margins are suffering in an environment of negative interest rates.”

In the case of the United States, if the level of unemployment continues to decline, inflation will be seen in wages: “If inflation returns in wages, the Fed could be pressured to accelerate the rate of interest rate hikes, something we particularly take into account as a potential risk. “

Valuations

In general terms, the aggregate of credit market valuations is much lower than its average. The behavior of European investment-grade corporate debt -excluding financials- was better than that of US corporate debt with BBB rating -also excluding financials-. That is why Robeco is committed to European credit as, with lower levels of leverage, it’s more attractive than US credit, especially now that the volatility seen in 2016 has disappeared.

“Taking into account the valuations presented by the different levels of subordination of the financial debt, some of the issues of contingent convertible bonds, the so-called CoCo’s, offer an adequate spread for their level of risk.

This type of debt supports a higher level of risk: if the Tier 1 capital level of the financial institution’s balance falls below the minimum pre-established by the issue, the bond is automatically converted into shares. But, some issues of these CoCo’s also reward the risk incurred with attractive spreads. It takes a very high level of experience in both transactional analysis and credit analysis to enter this market,” said Hawa.

According to Robeco, the valuations of European financial debt have greater attractiveness than European investment-grade corporate bonds. Specifically, subordinated debt issued by insurance companies offers a spread of 200 basis points, and Tier 2 bank debt a spread close to 120 to 130 basis points, as compared to less than 100 basis points offered by European investment-grade fixed income when excluding the finance sector.

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“The CSPP (Corporate Sector Purchase Program), the quantitative easing program established by the European Central Bank, can buy corporate bonds, but cannot buy bonds from financial institutions. Having earmarked public money to help financial institutions after the 2008 crisis, there was a popular clamor for the ECB’s money not to be reinvested back into banks. Therefore, there is a gap between the valuations of investment-grade European corporate bonds and European debt issued by financial institutions.”

Technical Factors

Central Banks’ monetary stimulus programs, which for years have been injecting a lot of liquidity into the market, are being phased out. The Fed has been working on that for some time, Bernanke was the first president who indicated his intention to withdraw the quantitative easing program in 2013. With the arrival of economic growth in Europe, Draghi should also initiate the rate hike, something that Robeco does not expect to happen until 2019.

“Another interesting issue for US investors is that, given the asymmetry created between the Fed’s rate hike and the ECB, the cost of hedging for non-US investors has increased due to the existing spreads between short-term rates in Europe and the US. Many of the Asian investors who bought US corporate bonds are now looking for greater exposure to corporate debt and European financial debt because of the high price of hedging costs. Another point in favor of the Robeco Financial Institutions Bonds strategy.”

The Assett Classes Invested in

Most issuers in which the strategy invests have an investment grade rating. However, as the risk increases, the specific ratings of some of those issues decrease, which is why at Robeco they have a highly experienced team of managers and analysts, where 90% of the professionals have over 17 years experience, having dealt successfully with both bullish and bearish markets.

As contrarian investors, they believe that the credit markets are inefficient and that they usually incur a higher or lower valuation than what actually corresponds to an issue according to its fundamentals.

As an example of this investment philosophy, Hawa cited the purchase of subordinated debt from financial institutions when it increases market volatility. “Following the Brexit referendum, bank spreads in the United Kingdom skyrocketed, but in terms of fundamentals there were new opportunities, on that occasion we bought Barclays issues. Another example was what happened in Catalonia. On this occasion, with the increase in political risk, we increased our bets in Sabadell and Caixabank, which have solid financial balances. We have also bought other national champions among European banks such as Santander, Nordea and Credit Agricole.”

Recently, the strategy has increased its allocation to insurance company bonds, which are achieving greater spreads than issues by national banking entities. Some examples would be Aviva, NN, Generali, Swiss Re, as well as other less known names such as the Dutch company Delta Lloyd, the Belgian company, Belfius, and the British company, Direct Line Group, totaling some 70 issuers, which maintain the fund’s quality bias.

“The quality of insurance companies and the banking sector has improved in terms of fundamentals, with the progression of deleveraging of the balance sheets after the implementation of Basel III and the European Central Bank forcing banks to redistribute their financial balances to prevent what happened in 2008. Loan default levels and risk asset volume has decreased, so that banks’ balance sheets have been strengthened, but it is important to know which names should not be included in the strategy. As the level of subordination and risk increases, a greater spread is obtained, but whether or not the risk incurred is being compensated, must be taken into account. We can obtain better spreads betting on Tier 2 issues from insurers and banks, than for some of the credits with additional Tier 1 subordination level. That is our responsibility, to search for how we are being compensated for the risk we are taking in the strategy,” Hawa said.

Regarding investment in contingent convertibles, despite having investment-grade at the issuer level, it is possible that the issue has a much lower rating. That is why the Robeco Financial Institutions Bonds strategy limits its position in CoCo’s. “We want the strategy to always maintain the degree of investment in aggregate terms, so we use a tactical allocation in contingent convertible bonds, not founding the achievement of a good performance on this type of asset. Since the launch of the strategy in 2014, we have always maintained the percentage of investment in CoCo’s below 15%, allowing us to keep the investment grade in an aggregate manner “.

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“In January 2016, Deustche Bank experienced a series of problems: the price of shares declined and there was a real concern that its issuance of Tier 1 contingent convertible bonds was unable to pay its coupon due to the ECB’s impositions. At that time, the spreads of UBS, Barclays, Erste Group or Raiffeisen Bank skyrocketed due to the fear of contagion. On the other hand, at Robeco we decided to buy those names whose fundamentals were attractive to us, based on transactional and liquidity risk. After this, spreads were strongly compressed, and we were rewarded for the risk of having these CoCo’s in position.

Currently, the total exposure to contingent convertible bonds exceeds 10% slightly, with a 9% exposure in the Tier 1 subordinated class and 2% in Tier 2,” concluded Hawa.

Robeco Gathers 130 Industry Professionals at its Annual ‘2018 Kick-Off Masterclass Seminar’ in Palm Beach

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On the 1^st and 2^ndof February, Robeco held its annual ‘2018 Kick-Off Master class Seminar’ at the Four Seasons Hotel in Palm Beach. The meeting was attended by about 130 industry professionals, mainly from the US Offshore business, based in Florida, California, Texas and New York, but also directly from Latin American countries, namely, Colombia, Uruguay, Panama and Peru. A total of 15 companies from the wealth management, private banking, institutional clients, and pension plans sectors participated, including Citibank, UBS, Santander, Morgan Stanley and BBVA.

Welcoming attendees to the event, Jimmy Ly, Head of the Americas Sales team (US Offshore and LatAm), opened the conference. Next, Michael Mullaney, Director of Global Market Research at Boston Partners, reviewed the macroeconomic outlook: “Global economic growth has been very remarkable. The United States has reached its tenth year of recovery since the financial crisis broke out in 2008; however, many countries are still in the early stages of the cycle. That would be the case of emerging markets, which are presented as favorites, and it is probably an intelligent decision to seek exposure to them. According to the OECD, such good growth data had not been seen since 2006, basically all of the 45 countries studied by the OECD are currently undergoing an expansion point. While data from the International Monetary Fund, which studies192 countries, indicates that only four of them anticipate a contraction in 2019. It is the minimum number of countries in anticipation of a recession recorded in a single year,” he said.

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According to the expert from Robeco Boston Partners, China and India are the growth giants in global terms. China is decelerating its growth rate, transitioning from being an export-based economy with debt-based investment to a consumer economy, taking a more western profile. “We will not see a growth of 9% or 10% like that of a few years ago, but it will go from the present 6.5% to 5% in the coming years, being much more stable. However, growth in India is accelerating and will most likely become the next biggest contributor to GDP growth,” he said.

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Another indicator which points to good growth prospects is the Purchasing Managers Index (PMIs), which is somewhat below 50, a value that determines if an economy is contracting, only in Indonesia and South Korea, showing an extraordinary strength globally in terms of production. Likewise, the PMI service index and the Citigroup economic surprise index indicate that the global economy as a whole shows strong signs of recovery, expecting an overall growth of GDP between 3.5% and 4%.

In turn, the withdrawal of accommodative economic policy programs could be a risk factor for equity markets, the rise of which benefited in recent years from the excess liquidity injected by central banks. “The real interest rate of federal funds globally is currently 30 basis points. The United States has never entered recession with a real interest rate of federal funds at levels near or below zero, which is exactly where we are now. The prospects for recession are very low,” he said.
Meanwhile, inflation, which continues at very benign levels, has risen slightly with the rise in oil prices. On the other hand, if we take core inflation into account, discounting food and energy prices, it is still below the 2% that most central banks usually aim for to fight against deflation, a problem that has historically remained.

Regarding salaries and employment levels, the overall situation has improved markedly, from 9% unemployment in 2009 to 5.5% today. Despite this, salaries have been very poor. “In the United States there are three reasons why wages have not experienced a significant rise. First, the most senior workers have retired and have been replaced by younger workers with lower wages. Secondly, globalization has caused companies to look for production centers with lower costs, causing something similar to the “Amazon effect”, which seeks a low-cost solution. Finally, technology is replacing many of the tasks, reducing the cost structure for many countries. In particular, Japan is among the most advanced economies when it comes to integrating robotics into its economy,” he added.

Finally, referring to the fall of the dollar, Mullaney mentioned the purchasing power parity index, according to which the Euro remains relatively cheap with respect to the dollar, and the current account deficit, which in the United States is at a -3% and in Europe at + 4%. In addition, Europe also shows a better fiscal balance than the United States, reasons that favor a weaker dollar.

Subordinated debt of financial institutions

Next, David Hawa, Client Portfolio Manager, explained the reasons why it may be a good time to invest in subordinated debt of financial institutions, the so-called contingent convertible bonds (CoCo’s), as their conversion is subject to certain conditions established at the time of issue and in relation to certain levels of capital. “The economic outlook in Europe is more favorable, benefiting from the solid growth enjoyed by the global economy. Growth in Europe remains strong and enjoys a broad base, while the credit cycle in the United States is much more mature. Against this backdrop, European financial companies continue to offer value. Credit spreads are not as generous as they used to be, but the valuations of financial companies are still attractive,” he said.

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In that regard, the strategy dedicated to financial institutions’ bonds has the potential to achieve attractive spreads with an investment grade issuer risk. Spreads of subordinated financial debt are usually attractive compared to the rest of corporate debt, including high-yield debt. “Issuers of financial bonds tend to be predominantly corporate issuers with a high-grade rating within the investment grade. In addition, this type of asset serves as implicit hedging against rising interest rates, since it has a very low or low correlation with US Treasury bonds,” said Hawa.

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During his presentation, he pointed out the capabilities of the Robeco Credit Investment team: “Since the 70s, Robeco has a specialized credit team, in which each member has an average experience of 17 years and includes about 4 financial analysts working on a full-time basis. They also differentiate between the responsibilities of portfolio managers and those of the credit analysts; displaying a profound knowledge of the financial sector and equity securities. They select the best subordinated bonds for each category, with a higher risk-return binomial and use an internally developed risk model to monitor both the portfolio and the issuer risk”.

Trends Investment

At the following lecture, dedicated to investing in trends, Ed Verstappen, Client Portfolio Manager, reviewed the performance of growth stocks, after a year in which the FANG shares (Facebook, Amazon, Netflix and Google), together with their Eastern version, the BAT (Baidu, Alibaba and Tencent) have dominated the markets.

“The ‘winner-takes-it-all’ effect, in which a group of companies generate most of the market’s profits, is becoming stronger, accelerating even profit growth. Facebook generated an increase of 50% in revenue for 18 consecutive quarters. While Netflix obtained growth of 35% in more than 20 quarters. For its part, Google achieved 31 quarters with organic revenue growth of 20%. And, Amazon reached 60 quarters with 20% growth in the retail sector. It is estimated that, by 2025, it will be the first US retail company to sell $ 1 trillion annually in products and services, when the company reaches 30 years’ history. Finally, the AppStore achieved a new record on New Year’s Day, when users made purchases worth 300 million dollars in purchases,” commented Verstappen.

To avoid taking unnecessary risks, the Global Consumer Trends strategy team evaluates risks with a strategic approach and considers the impact of regulation and the increase in capital intensity. In addition, they continue to reduce exposure to major US technology firms to start betting on equivalent names in China.

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“This strategy identifies secular global trends with strong growth from the consumer’s perspective, such as the digital consumer, the emerging consumer, and the consolidated brands. Having a preference for investment in structural winners within each industry, with a focus on the 50-70 most attractive stocks, which offer higher quality and a higher growth profile,” he said.
Verstappen was also optimistic about the state of the economy: “The market is anticipating an improvement. The increase in consumer spending should benefit from low unemployment, higher wages, and high consumer confidence. It is expected that also in 2018, the markets will be driven by solid growth. The fundamental perspectives for large digital platforms (Google, Facebook and Amazon … etc.), are still very good. Emerging market shares can benefit from the prospects of improving global growth,” he added.

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Robeco has specialized in analyzing trends, which are understood to be a disruptive change that displaces the previous ‘status-quo’ and with a visible effect in the long term. Thus, a new trend would result in new challenges for players already present and opportunities for challengers.

This global management company of Dutch origin offers strategies based on the analysis of trends, from the consumer angle, from the financial angle, from the production side, and from a total perspective: “It is an attempt to anticipate the future. We believe in the power of disruption from the demographic, technological and regulatory changes. It is a commitment to the long term, because short-term horizons lead to a lower estimate of secular growth trends creating high-conviction portfolios that are agnostic with respect to their benchmark,” he explained.

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Concluding the morning conferences, Henk Grootveld, Managing Director of Trends Investment, explained the scope of the digitization of the financial sector. “In the next 10 years, payments made online will be adopted mostly, cash will become an exception. The digitization of the financial sector will allow 2 billion people to manage their assets; both China and India will establish themselves as the biggest players in FinTech, surpassing the rest of the world combined. Failure in the cyber security issue in the financial world means being out of the FinTech business,” he concluded.

Ann Steele (Columbia Threadneedle Investments): “There is a pocket of excellence in European technology”

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With synchronized global growth expected to continue for the rest of the year, there should be no reason why 2018 should not be a good year for European equities, says Ann Steele, senior portfolio manager of the Threadneedle Pan European strategy from Columbia Threadneedle Investments.

During the last business cycle, European shares achieved lower returns compared to the rest of the global equities because they suffered the sovereign debt crisis in addition to the global financial crisis, delaying its recovery. On the European continent, the healing process did not really start until 2015, but there are several reasons to be optimistic. According to Steele, the market consensus expects that GDP growth for Europe will be between 2.5% and 2.6%. In addition, long-term unemployment in Europe is around 9%, while today the unemployment figure is 7% and in some countries, such as Germany it is around 3%. “The labor market has fueled the recovery, this is a positive issue for the world and certainly for Europe,” says Steele. “We had political problems, banking problems, but we feel that 2018 is going to be a good year for European equities. We can see a 12% to 15% increase in earnings growth, and European equities trade on P/E ratios of 14x and dividend yields of 3,2x, being cheaper than the multiples of other global areas. That’s why we think investors should overweight Europe.”

In recent published data, the PMI indicator (Purchasing Manager’s Index) reached levels of 58.6. Typically, cyclicals tend to overperform in a market in which the PMI indicators are raising until they reach levels of 60, and after that they stop outperforming. “We believe that there is still a lot of headroom for growth. We do not believe that a salary increase in Europe will be a massive problem in the region. In fact, in the United Kingdom, there is practically no salary increase. Although inflation is starting to increase, it will be a gradual and slow increase, because there is still capacity within the system. Until this excess capacity disappears, rampant inflation will not be seen,” she adds.

Positive on cyclical sectors

Given the current scenario of positive benefits, Steele believes that the cyclical sectors will continue to be very attractive and that they will continue to outperform. “I have the ability to run a portfolio with about 50 positions. This allows me to be quite aggressive in exposure to sectors within the strategy. Currently, the portfolio has 52 shares, with a strong position towards cyclical stocks. To begin with, we have an overweight in the whole financial sector, including banks, insurers and diversified financial companies. We believe that financial balances have improved significantly. Bank lending has started to pick up and with every cyclical recovery the financial sector will benefit.”

“In another area where we have an overweight position are industrials, which clearly are a play on a cyclical rally. Within this category would be, for example, companies such as Volvo. However, I have a more neutral position in energy, increasing the weight in the technological sector. There is a pocket of excellence in the European technology sector. For quite some time, I owned Arm Holdings in the portfolio, a semiconductor and software design multinational that was purchased by SoftBank Group,” she says.

According to Steele, one must be careful in the selection of growth companies in Europe, because they will not be bought up by the American technological giants. “We can see growth in stocks such as SAP or ASML Holding, which based in the Netherlands and is a chip supplier company. Among its main clients are Intel, Samsung or TSMC. The growth in the next three years will be spectacular for this company. If I can find real conviction ideas, they will be included in the portfolio. Specifically, ASML is the fourth largest position in my portfolio.”

The gap between Europe and the United States

European equities are about 25% cheaper than US equities and the business cycle is considerably lagging. The continuity of momentum in the United States cycle will depend on the infrastructure spending program of the Trump administration. “After the recent statements made in Davos, the dollar suddenly depreciated and the euro appreciated slightly. In fact, the Fed is raising rates in the United States, while the European Central Bank continues to maintain its program of quantitative easing. We believe that the dollar is overvalued and that it should return a bit. “

If the euro came to appreciate strongly this could be a problem for Europe, which is mainly an exporting area. “Draghi will remain the president of the European monetary authority until the end of 2019. The ECB is very pragmatic, if there was a threat to economic growth in Europe, which remains very fragile, he would most likely intervene with a supportive monetary policy.”

The political risks

One issue that could affect the performance of European equities is the political uncertainty that the region is still exposed to. “On March 4 there will be elections in Italy. There are parties that are very anti-Europe, which do not represent an immediate threat, but which will promise more generous pensions and greater spending to mobilize the vote and that is precisely what we do not want governments to do. We must be careful with overpromising and overdelivering.”

In addition, Angela Merkel continues to have problems forming a government. And, although the SPD party has sent the message that they will be happy to form a grand coalition, what happens now is that the votes will depend more on young people who recently joined the party, that are usually against that great coalition. “There may be an agreement before Easter and if they do not reach it, there will be new elections in Germany,” she says.

Of course, the Brexit negotiations will continue to create background noise. “In last year’s elections they did not win a clear mandate, going from hard Brexit stands to a soft Brexit stands, something that, in my opinion, will be better for the United Kingdom and Europe. The two parties should be more flexible. It will take between four and six years to negotiate the terms of business, so this discussion will go on for many years”.

As for Spain, Steele believes that the country is doing phenomenally well. “The problem in Catalonia is a noise that grumbles on the background, but at the end of the day people vote with their wallet. Being one of the main industrial areas, they need to keep their jobs, no matter how passionate they may feel about independence. When a crisis happens again, they will be happy to be part of largest Spain, ” she concludes.

CFA Institute and CFA Society Brazil celebrate their “2018 Latin America Investment Conference” in Rio de Janeiro

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Investors with exposure to Latin American assets have a must-attend event at the “2018 Latin America Investment Conference” in Rio de Janeiro. On the 1^st and 2^nd of March, at the Belmond Copacabana Palace, CFA Institute, the Global Association of Investment Professionals, together with CFA Society Brazil, will welcome internationally acclaimed speakers who will address a wide range of topics and perspectives to shape investment strategies in Latin American markets.

The event is comprised of several practitioner-oriented educational conferences that will focus on Latin American economies and capital markets, as well as on global issues relevant to investors worldwide to discuss macroeconomic trends, innovations affecting financial services, and investment opportunities in the region.

The conference will be opened by the welcoming remarks and opening address of Andrew T. Campbell, CFA, Conference Chair, followed by Mauro Miranda, CFA, President at CFA Society Brazil, and Bjorn Forfang, Deputy CEO at CFA Institute. It will continue with a panel on Brazilian pension funds, with the participation of Fábio Coelho, Managing Director for PREVIC “Superintendência Nacional de Previdência Complementar”.

Finally, Marcelo Barbosa, Chairman of the Securities and Exchange Commission of Brazil, will close the first day’s events.

On the second day, Zeina Latif, Chief Economist at XP Investments, will talk about the challenges facing economic policy in Brazil in the short and medium term. Next, a first panel comprised by Daniel Cancel, Managing Editor for Latin America at Bloomberg, Andrea Murta, Director of Business US for the JOTA publication, and Matias Spektor, Associate Professor of International Relations at FGV “Fundação Getulio Vargas,” will discuss the implications for investors of the political situation in Latin America;to be followed by a second panel comprised by Alberto J. Bernal-León, Chief Strategist at XP Securities, Carl Ross, Sovereign Analyst for Emerging Country Debt at GMO, and Lisa M. Schineller, Managing Director of Sovereign and International Public Finance Ratings at S&P Global Ratings.

Following lunch, Roberto Rigobon, Professor of Applied Economics at the Sloan School of Management at MIT, will talk about how Big Data can affect the region’s future.
In the afternoon, Mary Bobbitt, Director of Society Advocacy Engagement for the Americas region at CFA Institute, will review the regulatory scenario in Latin America; to be followed by a new panel on trends in debt markets in Latin America, in which Daniel R. Kastholm, CFA, Regional Group Head for Latin American Corporate Ratings at Fitch Ratings, Alexei G. Remizov, Managing Director at HSBC Securities USA, Marianna Waltz, CFA, Managing Director and Regional Head of the Latin American Corporate Finance Team at Moody’s Investor Services, and Flavio Papelbaum, CFA, Manager for the Capital Markets Division at BNDES will participate.

Next, Axel Christensen, Managing Director and Chief Investment Officer and Portfolio Manager at Onyx Equity Management, and Sonia Villalobos, CFA, Founding Partner of Villalobos Consultoria Ltda, will discuss the opportunities and challenges when investing in Latin America.

In the afternoon, Brian D. Singer, CFA, Partner and Head of Dynamic Allocation strategies at William Blair & Company, will explain how to implement dynamic allocation strategies and the evolution of top-down investment. Carlos Viana de Carvalho from the Central Bank of Brazil will be the closing keynote. The conference will close with a farewell reception.

For further information, please visit this link.

Funds Society Organizes its Fifth Investments & Golf Summit

| By Gabriela Huerta | 0 Comentarios

Funds Society is proud to announce that it will host its Investments & Golf Summit 2018 on April 12th and 13th at the Trump National Doral in Miami.

Sponsors include Janus Henderson Investors, RWC Partners, Thornburg Investment Management, Vontobel Asset Management, GAM Investments and AXA Investment Managers.

On April 12th, at the Investment day, sponsored also by Schroders Investment Management, Columbia Threadneedle Investments and MFS Investment Management, participants will be able to take the opportunity to discuss about Global Markets as well as the latest portfolio management strategies and investment ideas from top-performing Asset Managers from the nine sponsors, followed by a networking reception. If desired, we are providing complementary accommodation at the Trump National Hotel.

Funds Society’s V Golf Tournament will take place at the Blue Monster in Trump National Doral Club Golf, host of the prestigious PGA TOUR events for the past 55 years. The famous 18th hole was ranked by GOLF Magazine as one of the Top 100 Holes in the World.

Spots are limited for the Tournament so please register at your earliest convenience. Non-player guests can learn golf in our clinic or simply enjoy the academic day and dinner.

Big Sur Partners and NYU Stern University Invite Professor Scott Galloway to Talk About the Corporate Culture of Technological Giants

| By Meritxell Sedo | 0 Comentarios

On Wednesday, February 7th, in an effort to bring the best investment ideas to its clients, Big Sur Partners, the multi-family office founded in 2007 and headquartered in Miami, together with NYU Stern University, will hold a reception cocktail and the subsequent presentation of the book “The Four: The Hidden DNA of Amazon, Apple, Facebook and Google”, by its author, Professor Scott Galloway.

The event will be the first of a series of presentations in which Big Sur Partners will present some of the best academics, experts and leaders in different segments and industries.

“We are honored to co-host this event with NYU Stern given our commitment to collaborating with the greatest minds across our network. We internally created the “BigSur Intelligence Unit”, in which we strive to find the best ideas throughout academia, industry experts, leading family offices and other stakeholders across financial markets. We believe it is important to always look at the world from different points of view and to listen closely to innovative thinkers,” said Ignacio Pakciarz, Economist, Founder and CEO at Big Sur Parnters.

Scott Galloway is a Professor of Marketing at NYU Stern University, where he teaches Brand Strategy and Digital Marketing to second-year MBA students. In addition, he is the author of the Digital IQ index, a global ranking of prestige brands’ digital competence. He is also a writer and entrepreneur, founding L2, Red Envelop and Phrophet; and has participated in the boards of Eddie Bauer, The New York Times Company, Gateway Computer, and Berkeley’s Haas School of Business. He received a BA from UCLA and an MBA from UC Berkeley.

“We are excited about this event given that we consider Professor Galloway’s thoughts on regulation to be very interesting, and perhaps even radical for a technologist and advocate of free markets. His idea on regulation as the only means to protect innovation is an interesting stand on the argument. As investors in the creative economy, we believe this event is valuable for understanding the cultures of these tech giants and how they operate, as well as the implications regulation may have on both the equity and Venture capital markets”, concluded Ignacio Pakciarz.

Michel Fryszman Joins BNPP AM as Head of Structured Finance

| By Gabriela Huerta | 0 Comentarios

Michel Fryszman has been appointed as Head of Structured Finance within BNPP AM‘s Private Debt & Real Asset Group. He is based in Paris and reports to Laurent Gueunier, Head of Real Assets, SME Lending & Structured Finance.

He joined on 15 January and in this new role, he is responsible for the management of BNPP AM’s structured finance team, composed of five professionals. In a memo Funds Society had access to, Gueunier asked her team to “join me in welcoming Michel to BNPP AM and in wishing him the best of success in his new position”, and mentioned that “he will supervise the design and implementation of European private securitisation strategies and speciality finance assets including consumer loans, residential mortgage loans and trade finance”.

Fryszman’s professional experience spans mortgage finance, asset management and securitisation. He joined BNPP AM from AXA Investment Managers where he had worked since 2005, initially as an ABS portfolio manager, before becoming Head of ABS Investments in 2008 and Head of Mortgages & Specialty Finance in 2014. His previous roles include being a securitisation specialist at Groupe GTI and portfolio manager at Crédit Foncier. He has also acted as a securitisation consultant to the World Bank.

Why Should the Spanish Equity Stand Out in 2018?

| By Meritxell Sedo | 0 Comentarios

With the beginning of the year comes the process of scrutinising equities, one of the most common classes of assets. This scrutiny is a fundamental exercise for any analyst, manager, financial intermediary or investor. The analysis of the cycle, expected profits, dividend yields and the interpretation of multiples. In absolute and relative terms, these are some of the instruments we use to try to decipher the intrinsic value of a company or market.

So, while cautious of falling into what in 1991 was named “home bias” by French and Poterba (upon determining that share portfolios of American investors were comprised of 94% American companies despite the fact that the US represented just 48% of the global equities market at that time), if we analyse the Ibex for a moment, we can say that 2018 may be the year for looking out “from behind closed doors”.

The Ibex is beginning a new season after a relatively poor performance and in spite of market expectations, which paves the way for attractive valuations (12-month forward P/E relative to Eurostoxx 50 below 25 year average).
With ROEs on a par with European companies, the low yield on the Spanish market compared with the Eurostoxx does not respond to fundamentals. In other words, Spain offers the same level of ROE as the European market (approximately 8%) at a much lower price to book value.
The correlation between expected 12-month profits and the performance of the Ibex has been practically at an all-time low since the summer (when political uncertainty was more influential). This could cause an anticipated re-rating, which we may see with publication of business earnings in the fourth quarter.
Despite the good momentum of businesses and generalised deleveraging, profits per share on the Ibex remain below pre-crisis levels, which demonstrates the vast amount of ground still to be made up in terms of the valuations of Spanish companies.
The negative impact suffered by Spanish companies due to currency movements in 2017, which was an unquestionably strong year for the euro, is not expected to be repeated to such an extent in 2018.
Expected dividend yield for the current year is only exceeded by the FTSE100 (based on European indices, the S&P500 and the Nikkei225).

Although the negative impact of political uncertainty in the Spanish market was undeniable in 2017 and even though these concerns have not dissipated, the current scenario of recovery for the Spanish economy is obvious and it is gaining traction. This should act to soften the blow in the event of renewed mistrust that may manifest itself as falls in the market:

1) Growth prospects for the coming years are the highest in the Eurozone. Furthermore, growth is now healthier and more balanced, as the construction sector is losing weight and tilting the commercial scales towards tourism and an increasingly thriving domestic demand.

2) The competitiveness of the Spanish economy is demonstrated by the harmonised growth of net exports since 2010. This has been possible thanks to the containment of unit labour costs and the normalisation of availability and credit cost at similar rates to Germany and France (Fitch indicated in October that credit to businesses had stopped falling for the first time in six years).

3) The positive dynamic in employment creation, which still has a long way to go, demonstrates the still considerable potential for growth in internal demand.

4) Catalonia, which represents over 20% of Spanish GDP, drops 4 decimals per quarter since the political uncertainty began. This represents a reduction of the national GDP of 20% of this 1.6% in annual loss. In spite of this not insignificant figure, the negative impact of the tension seems to be under control nationally.

Alongside all of these factors, if we also consider the tailwind from greater confidence in the recovery of the Eurozone – which we are now seeing in yields on bonds and the euro, the macroeconomic policies underpinning growth that are still clearly in place and expansion in step with global economic principles (let’s not forget that 36% of Ibex revenue comes from emerging countries) – the domestic market is satisfying many of the requirements to perform adequately in 2018.

Column by Pilar Arroyo, a manager of funds and multi-asset SICAVs at Banco Alcalá, Crèdit Andorrà Financial Group Research.

Mark Mobius Announces Plans to Retire from Franklin Templeton Investments

| By Meritxell Sedo | 0 Comentarios

Franklin Templeton Investments announced that after more than 30 years with Franklin Templeton, Mark Mobius, Ph.D. has announced his plans to retire from the company on January 31, 2018.

“There is no single individual who is more synonymous with emerging markets investing than Mark Mobius. My colleagues and I are deeply grateful to have had the opportunity to work alongside a legend, and we thank Mark for his many years of dedicated service and tremendous contributions to the firm,” said Chairman and CEO Greg Johnson.

“Mark has been an investor through historically transformational times in emerging markets and later frontier markets. Over the last three decades, Mark has built a team of talented research analysts and portfolio managers around the world, and has generously shared his experiences with an audience that spans the globe. We wish him all the very best in his future endeavors, as we do not expect retirement will slow him down very much,” Johnson continued.

Mobius has spent more than 40 years working in emerging markets all over the world. He was hired by the late Sir John Templeton in 1987 to launch one of the first mutual funds dedicated to emerging markets.

Mobius oversaw Templeton’s emerging markets team from 1987 to 2016.

Mobius commented, “I feel very fortunate to have spent most of my career at Franklin Templeton Investments. I have had the great privilege of working with an emerging markets team that includes some of the most talented and passionate people in the business, a number of whom have been with me for decades. I leave with great confidence in the Templeton Emerging Markets team and leadership at Franklin Templeton.”

Over the past several years, Franklin Templeton has evolved its emerging markets equity investment team structure, and succession planning for Templeton Emerging Markets Group (TEMG) has been a key component in that process. In early 2016, Stephen Dover, CFA was named chief investment officer of TEMG. Mobius transitioned the day-to-day management of the group to Dover and day-to-day management of the funds to other senior members of TEMG.

As Mobius transitioned away from managing the team and management of the funds over the past couple of years, he has continued to share his insights and perspectives with the Templeton team and the market at large. Most recently, Mobius’ primary responsibility has been focused on serving as an external spokesperson for the group, sharing macro views on emerging markets.

“Mark was instrumental in building the very experienced bench of investment talent within our emerging markets team, and he is leaving the various emerging markets funds and strategies launched under his leadership in very capable hands,” said Dover. “We do not expect Mark’s retirement to cause any disruption to our clients, and Templeton Emerging Market Group’s time-tested philosophy and disciplined approach will remain the same.” Templeton Emerging Markets Group has approximately 50 experienced investment professionals in 20 offices and over US$28 billion in assets under management as of September 30, 2017