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Campbell Fleming (Aberdeen Standard Investments): “The LatAm and US Offshore business is a strategic priority”

Five months after the completion of the merger between Aberdeen Asset Management and Standard Life plc, an operation that has created a giant in the investment sector and which has probably been the largest in Europe in recent years, Aberdeen Standard Investments, with the help of Campbell Fleming, the firm’s Global Head of Distribution, and Menno de Vreeze, Head of Business Development of International Wealth Management, gathered about 70 industry professionals at the Mandarin Oriental Hotel in Miami to discuss investment opportunities in emerging markets.

The event was attended by Brett Diment, Head of Global Emerging Market Debt, and Nick Robison, Senior Investment Manager of Global Emerging Market Equities Investments. In addition, given investors’ growing interest in the renegotiations of the NAFTA agreement, Dr. Rogelio Ramírez De la O, President to Ecanal, and an expert on the subject, explained his vision.

Interview with Campbell Fleming

In an interview with Funds Society, Campbell Fleming, Global Head of Distribution, who has more than 20 years of experience in the LatAm market, shared the details of the merger and the management company’s new plans for the region.
With about 593 billion pounds, approximately 775 billion dollars in assets under management, the new firm is now the twenty-fifth largest asset management company worldwide, the first in the United Kingdom and the second in Europe. An operation that the market perceived as defensive, something with which Campbell Fleming agrees, as in an environment with an incessant consolidation in the industry, the two management companies thought it was a better strategy to become one of the biggest players in the market.

“With the merger, the firm has expanded all of its capabilities in the six main asset classes, including equities, fixed income, real estate, investment solutions, alternative assets, and private markets. In each of them we are acquiring a significant size. In the equity franchise we have reached 159 billion pounds, in fixed income we exceeded 160 billion, and in the investment solutions franchise close to 150. Prior to the merger, Aberdeen had always questioned whether it was too focused on the equity business. While Standard Life was more focused on the investment solutions business and absolute return strategies. There is a minimum overlap between the initial offers of each of the management companies, being a highly complementary offer when consolidated. In addition, only 4.5% of our worldwide clients overlap.Obviously, the opportunity is based on presenting Aberdeen products to Standard Life clients or Standard Life products to Aberdeen clients. A great opportunity for us, as we can now combine the capabilities of the two firms and become a solid global company,” says Campbell.

After the consolidation, the new firm has more than 1,000 investment professionals worldwide, investment managers in 24 different offices, offers client support in 50 locations and conducts business in 80 countries. A massive presence in order to be a management company that offers a complete service and more solutions and products to investment platforms.

“The new firm has been established very quickly, soon the sales teams and the client structure were formed, and gradually the announcements of who will lead the investment teams are being made.”
According to Campbell, the US business represents 11% of the assets under management, about 82 billion dollars and about 100 professionals dedicated to the distribution of funds.

“We manage around 100 billion dollars in the United States, and we will be able to develop more business in the country with greater authority than we have in the past. We are interested in the growth of US business, both on the domestic and international sides; with the combined resources of both firms we now have enough people to do business in the US more thoroughly than we have ever done before.The LatAm and US Offshore businesses in particular, are a strategic priority for us in the medium-long term. In the United States we have offices in Philadelphia, Boston, Stamford and New York and soon we will have someone permanently based in Miami for the US Offshore team. We manage over 4 billion in this business directly, with the help of Menno de Vreeze who is responsible for the US Offshore business and Linda Cartusciello, who is in charge of the institutional side of the business in Latin America. And, indirectly, we probably manage a larger amount via other booking centres. “

Under Menno’s leadership, the private banking business and the US Offshore distribution channels have grown very fast. “We are delighted to see growth in Latin America and how investors in the region are diversifying with investments abroad. We have received a great deal of interest from frontier-market debt funds or Indian fixed-income funds, as well as equity funds, which are of great interest to all those clients who wish to diversify.”

With the regulatory changes in transparency, business has decreased in Switzerland and elsewhere in terms of client identification and bank secrecy, increasing outflows, something that Campbell perceives as an opportunity for growth in the US offshore business.

Meanwhile, in Latin America they have increased their visits particurlarly to Uruguay and Santiago to channel more business development. They also have an office in Brazil, so they are covering practically the most important points in the region. “There is not a single model for the region. Some countries are more advanced institutionally, while others are beginning to build good wholesale and private banking relationships.”

With regards to the goals that have been set for the region, Campbell says that they want to double the assets in terms of their current market share. “At this moment, between the two firms we could reach that volume and we should get it. If we could globally double the assets within the next three to five years we would be looking very healthy.”

Lastly, in the Allfunds fund platform, Aberdeen Standard Investments has experienced continuous growth, managing close to 5 billion dollars from its relations with global banks and the business of institutions and consultants. “A lot of these assets are concentrated in Europe, particularly in Spain, but the platform is starting to build in Latin America and Asia,” concludes Campbell.

The event’s agenda

The event was attended by Brett Diment, Head of Global Emerging Market Debt, who described how the macroeconomic stability of emerging markets has improved significantly in terms of nominal gross domestic product growth, the deleveraging of the private sector, the recovery in the current account balance and the moderation of inflation. He also explained how the opportunities in traditional emerging debt are in Argentina, where economic recovery supports fiscal reform, in Brazil, where economic growth is about to return after a severe crisis, in India, where India’s Reserve Bank is expected to keep interest rates at lower levels, and in Russia, where disinflation paves the way for further cuts in rates. While in frontier markets, opportunities are centered in Egypt, where government reforms have significantly reduced the primary deficit, in Ghana, where interest rates have fallen due to lower inflation, in Sri Lanka, where the increase in tourism supports the commercial account, and in Ecuador, which offers attractive valuation levels compared to other competitors in emerging markets. However, according to Diment, the greatest investment opportunities come from the Asian giant: China is narrowing its research and development spending gap with respect to the most innovative economies, Japan, Germany, the United States, and the United Kingdom. China has changed its investment structure towards a more technologically intensive one, aggressively closing the IT investment gap it has with the United States. In addition, the local Chinese debt market, the third largest debt market worldwide, is open to international investors.

Next, Nick Robison, Senior Investment Manager of Global Emerging Market Equities, recommended some caution in the short term, although the asset class continues to offer attractive valuations and seems to be enjoying a recovery in economic terms and profits. The two main reasons for raising caution in this type of assets are the normalization process of the Fed’s policy and that of the rest of the central banks, which is expected to be gradual, but may still mean a risk for the region; and the fall of growth momentum in China.

Closing the presentations, Dr. Rogelio Ramírez De la O, President of Ecanal, explained the economic repercussions for Mexico of the renegotiation of the NAFTA treaty. After 24 years of the treaty, Mexico has not been able to develop a long-term development policy to achieve a significant advantage with the signing of the treaty. In these years, the wage spread between the US and Mexico has not diminished because Mexico has not managed to increase the domestic added value in its exports to the United States. While manufacturing exports have multiplied sevenfold in the period from 1993 to 2017, the value added in production has increased only 1.8 times, there being a disconnection between the NAFTA treaty and GDP growth.

Since the NAFTA treaty is a pillar of macroeconomic stability and an indirect guarantee for investment, it is very likely that Mexico will have to make substantial concessions to the demands of the United States, as Mexico has a greater dependence on the treaty and very little margin of leverage. If Mexico makes these concessions, the peso will most likely stabilize and continue to grow after the negotiations. The main obstacle is the pace of negotiations, since there are presidential elections in Mexico in July and elections in the US Congress in November 2018.

Charitable Giving to Maximize Your Tax Benefits

| By Gabriela Huerta | 0 Comentarios

According to Raymond James & Associates SVP Lisa Detanna, the process of estate planning when it involves a gifting strategy is to give what you want, to whom you want, when you want, and how you want and if possible save on taxes and expenses.

Financial planners and investment advisors help families develop an estate plan with the client’s trusted accountant and estate lawyer that utilizes current gifting laws to be efficient when passing assets to the next generation and the charities that the individual or families are dear to.

Generally, they start with a cash flow model and retirement plan whereby they determine if the client and their family have enough to live like their highest earning income years throughout retirement. Then, they run these future cash flow models out to age 110 with rich assumptions on the expense side of the ledger and conservative assumptions on the asset to err on the side of caution.

When there is a surplus, they work with a client and their families to identify if there are heirs that the family wishes to inherit the wealth at their passing and how much. It is not an “all or none” answer and is different for every person with no right or wrong answers. If there are not for profits or charities that are important to the client, they then look at developing a gifting strategy that fits into the client’s wishes and maximizes the tax efficient benefits under current gifting laws.

There are 3 options in estate tax: Avoid the tax: give assets away before death; Pay the tax: sell assets or transfer assets; and Insure the tax: use discounted dollars to pay the tax, preserve assets and estate.

Like the slogan “death and taxes are inevitable,” estate taxes are due in cash within nine months of death and they are progressive.

Currently, one can gift US$14,000 maximum per beneficiary per year (called annual gift) without filing a gift tax return or it eating into one’s lifetime gift credit or estate tax exemption at death. In addition, one can pay educational expenses or medical expenses if directly paid to the provider. This is the simplest way to make a gift and many charities will accept highly appreciated stocks, bonds or real estate which can be tax friendly to the grantor.

If one is fortunate enough to have over the exemption gifting amount, this is where the estate planning begins. One can gift to bonafide 501(c)(3) charities the overage of the exemption amounts and if they utilize some estate planning techniques they may be able to get some tax benefits on those gift that they can benefit from while they are still alive. Of course one can also gift with any level of wealth and these gifts can be tax efficient. Always consult your accountant, financial advisor and attorney prior to making the gift so there can be a discussion on how best to do it.

“Charitable giving is important within wealthy families as it instills the concept of giving back as assets are passed from one generation to the next and helps prepare heirs to be good stewards of wealth. Involving heirs early on to prepare them to be able to handle how to help others and utilize the wealth as well as finding purpose in life by helping others through philanthropic efforts is key for a family in creating a meaningful legacy. In fact, there are a wealth of gifting strategies and changes in tax laws or regulations may occur at any time. Be sure to discuss any tax or legal matters with the appropriate professional. ” Detanna concludes.

Rebecca Crockett Joins Legg Mason as International Sales Director for Americas International

| By Meritxell Sedo | 0 Comentarios

Rebecca Crockett joined Legg Mason Global Asset Management in December as the International Sales Director for the Americas International team. Rebecca’s core responsibility will be to cover the clients in the Northeast region and she will report directly to Lars Jensen in Miami.

Prior to joining Legg Mason, Rebecca worked with Morgan Stanley for twelve years. During her time with Morgan Stanley, Rebecca held multiple sales positions within the Wealth Management and Investment Management divisions. Her previous experience includes roles as a business analyst and equity research associate covering Latin American companies. Rebecca received a Bachelor in Science from the Wake Forest University with a dual major in Spanish and Business. She holds her Masters of International Business Studies from the University of South Carolina.

Why It’s Not Too Late To Embrace Risk

| By Gabriela Huerta | 0 Comentarios

We believe the synchronized global economic expansion has plenty of room to run in 2018 and beyond—more than many investors think. We like equities and see emerging markets (EM) at an earlier stage of expansion, boding well for EM assets.

The BlackRock Growth GPS (the green line in the chart below) shows that growth among G7 countries is cruising at above-trend rates. Yet consensus expectations have largely caught up with our GPS. That catch-up helped drive risk asset gains this year but now suggests less room for upside surprises to play such a role. Sustained growth amid low market volatility should underpin risk assets—especially if many investors, fearing a near-term downturn, start to embrace the upbeat outlook.

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We believe the broad global expansion is not as long in the tooth as many assume. See our 2018 Global Investment Outlook for more. Emerging markets are at an earlier stage of expansion and reinforcing the growth backdrop, benefiting from better trade activity and firmer commodity prices. We expect the EM world to weather any mild slowdown in China. The U.S. may soon receive a decent dose of fiscal stimulus from tax cuts. European economies are posting solid growth but have plenty of lingering spare capacity that could take years longer to absorb. The Federal Reserve is normalizing policy at a gradual pace, while other major central banks are still nurturing recoveries with stimulus.

Our conviction on the expansion’s durability, coupled with still subdued inflation and low interest rates, argues in favor of risk assets. And yet 2017 will be a tough act to follow. We believe returns in many asset classes will be more muted, even as structurally lower interest rates mean equity multiples can stay higher than in the past. We believe equities offer greater upside than credit as the cycle matures. And we see more earnings upgrades next year, though a higher base of comparison will make it harder to top expectations.

We prefer equities outside the U.S., where fuller valuations are less of a drag. We are positive on EM equities due to increasing profitability and relatively attractive valuations. In developed markets, we like tech and financials—with the latter poised to benefit from U.S. deregulation. We also see this environment as positive for the momentum style factor, albeit with potential for sharp reversals. Bottom line: We see the economic expansion—and the outperformance of risk assets—having more room to run. Read more market insights in my Weekly Commentary.

Build on Insight, by BlackRock written by Richard Turnill

Investing involves risks, including possible loss of principal.
In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds have not been registered with the securities regulators of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
©2017 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States or elsewhere. All other marks are the property of their respective owners.
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Casellas, Bernal and Vilchis Join Vanguard Mexico

| By Gabriela Huerta | 0 Comentarios

Vanguard continues to grow in Mexico. The firm that last summer hired Juan Manuel Hernandez to lead its business in Mexico as the company expands its efforts to meet local investors’ needs for low-cost and broadly diversified investment products, has hired three new sales employees.

Denise Casellas joins as Sales Consultant, while Guillermo Vilchis and Pablo Bernal join as Sales Executives. Juan Manuel Hernandez told Funds Society: “I am delighted that Denise, Guillermo, and Pablo are joining Vanguard to bring the Vanguard way of investing to Mexican investors. Their deep knowledge and expertise will serve our clients well.”

Denise Casellas joins Vanguard most recently from SURA Asset Management where she spent the last year as a Product Specialist. Before SURA, she spent almost 4 years at Santander Asset Management and earlier in her career, she worked for UBS Wealth Management and Prudential Financial. Denise holds a BS in Finance from ITESM, has a Banking and Finance Diploma from IEB Spain and is a Certified Financial Advisor per the Mexican AMIB.

Guillermo Vilchis joins Vanguard most recently from Citigroup´s Mexico broker dealer, Citibanamex where he spent the last 4 years as an equity sales trader. Previously, he spent 7 years at Bank of America Merrill Lynch. Guillermo holds a BS in Industrial Engineering from Universidad Iberoamericana and an MBA from ITAM. He is also a certified Mexican stock exchange trader and holds FINRA Series 7 Certification.

Pablo Bernal joins Vanguard from Sherpa Capital, a boutique asset management firm specialized in Mexican equities where he spent the last 5 years as an Associate Portfolio Manager. Previously, Pablo worked at BlackRock´s iShares, the United Nations, and Deloitte. Pablo holds a BA in Public Accounting and Finance from ITAM and is a CFA Chart holder.

Vanguard, the world’s second-largest ETF provider, offers 65 US-domiciled ETFs in Mexico.

Beamonte Investments Committed 1 Billion Mexican Pesos to Axman Holdings

| By Gabriela Huerta | 0 Comentarios

Beamonte Investments, has committed 1 billion mexican pesos over the next two years to Axman Holdings, a diversified company focused on manufacturing investments in Canada and Mexico.

Axman Holdings is a new company looking to take advantage of the arbitrage of NAFTA with the current geo-political situation focusing on distressed manufacturing companies in Canada and Mexico. Axman will be headquartered in Mexico City with offices in Toronto, Ontario.

Eliminating the North American Free Trade Agreement (NAFTA), which was crafted by former President Bill Clinton and enacted in 1994, was a frequent Trump campaign promise. The deal was intended to eliminate most trade tariffs between the three nations, increase investment, and tighten protection and enforcement of intellectual property. U.S. manufacturing exports to Canada and Mexico, the United States’ two largest export markets, increased 258 percent under the agreement.

“Building on Beamonte’s expertise in analyzing and managing performance risk, we believe Axman Holdings will offer many incumbents the ability to modernize their plant operations and equipment in order to become more institutional, efficient and Profitable,” said Luis Felipe Trevino, Senior Managing Director at Beamonte Investments and Chairman of the Board of Axman Holdings.

BlackRock Expands Asian Equity Range with High Conviction China Fund

| By Gabriela Huerta | 0 Comentarios

BlackRock has expanded its Asian equity fund range by launching the BlackRock Global Funds (BGF) China Flexible Equity Fund. The Fund is designed to enable a growing number of investors seeking to access opportunities in both onshore (A-shares) and offshore (H-shares, Red-chips, P-chips, American Depositary Receipts [ADRs], etc.) Chinese equity markets without having the need to allocate to two separate strategies.

Funds investing in China often focus solely on offshore equities, with onshore Chinese equities – namely China A-Shares – severely under-owned by global investors due to historic market restrictions on foreign investment.

The BGF China Flexible Equity Fund is managed under a flexible approach, and invests across A-Shares and Chinese offshore equities, market capitalisation, sectors and factors. It seeks to take advantage of the nuances in the Chinese equity markets, including valuation differences between markets, factors which work favourably in different market cycles, or sector specific opportunities. The Fund is a long-only, fundamentals-driven and concentrated portfolio, investing in between 20 and 50 companies from a universe of over 3,300 onshore and 1,000 offshore stocks.

The BGF China Flexible Equity Fund is managed by Helen Zhu, Head of Chinese Equities at BlackRock, and is supported by a team of 10 dedicated China-focused research analysts based in Hong Kong and Shanghai.

Zhu said: “Chinese equities have been demonstrating higher sector return dispersions, offering active stock pickers a rich investment universe. Dynamic, vibrant and now more accessible than ever before, we believe Chinese equities offer investors an attractive opportunity to invest in the transformation of this huge country. The Fund aims to blend the best opportunities, taking advantage of the nuances in the Chinese equity markets. Through flexible allocation, the Fund can invest across the full range of market capitalization and Chinese stocks listed globally, whether they are listed in mainland China, Hong Kong, the US or elsewhere.”

Michael Gruener, Head of EMEA Retail at BlackRock, added: “Backed by the world’s largest population, the second largest economy and an increasingly sustainable growth path, Chinese equity markets are a rich hunting ground for investors. Most funds investing in China still tend to focus solely on offshore equities, meaning investors are missing out on hundreds of potential investments. Through this fund, we are giving clients the opportunity to access both mainland and offshore Chinese equity markets with one flexible strategy.”

Pictet AM: “Tech Stock Valuations Still Offer Room to Invest”

| By Meritxell Sedo | 0 Comentarios

The new disruptive technologies are experiencing exponential growth and should be measured in terms of the power of transformation of their technology. It is more than a revolution, something that has to do with the potential to completely change the way societies live and work; a turning point from everything else before it.
For investors who do not want to be left behind in this revolution Pictet offers three thematic strategies. The most recent, Pictet Robotics, was launched in 2015 and invests in companies that provide an automated solution and in all technologies that allow this type of solutions (such as artificial intelligence, sensors, and semiconductors). The strategy has been so successful that it is only available to current investors that are already invested in the fund.

Pictet Security and Pictet Digital strategies had been launched previously, the first strategy invests in companies that develop security solutions to protect the integrity of governments, companies, and individuals. Meanwhile, the second strategy invests in disruptive companies that offer interactive business models through web-based applications and software.

In an interview with Funds Society, Alexandre Mouthon, Senior Client Portfolio Manager at Pictet Asset Management, presented the multiple examples of disruptive technologies that can already among us, and those that are yet to come, such as autonomous vehicles, artificial intelligence, robotics or process automation, as well as the internet of things.

“In the future, all electronic devices will be connected through sensors, being able to be linked effectively through the internet of things. The IoT is a very broad concept in which everything can be interconnected. It will be possible to create and manage infrastructures, cities and smart homes. An example could be effective control over traffic signals or even the vehicles themselves will be connected.”

Is it still a good time to invest in technology?

In a market in which the main technology stocks have experienced a rise above 35%, many investors are asking if it is still a good time to enter this sector or if instead it has risen to stratospheric levels. In that regard, Mouthon explains that he does not believe that tecnology stocks are experiencing a bubble like the one that occurred in 2000, since the price/earnings ratio of the MSCI World Technology index have recently traded at levels close to 18.4 xs.

“The MSCI World Technology Index reached a price/earnings ratio of 44.2x during the course of the internet bubble in the year 2000, then it was deflated by the correction of the market, and since then a lateral evolution has been seen, therefore, based on history, we can say that there is still room in these valuation levels.”

According to Mouthon, since 2010, earnings in the technology sector have been very positive. About 90% of the movement in the index could be explained by a very positive momentum; while the remaining 10% could be explained by a lower expansion of the ratio. “There is a slight expansion in the ratio levels, but with a positive momentum. This means that most of the yield is due to positive returns with very strong fundamentals. “

Technology companies’ balance sheets are solid. Especially when comparing Amazon’s, Ebay’s and Priceline’s December 1999 ratios with those obtained in September of 2017.

“At the end of 1999, Amazon’s enterprise value-sales (EV/S) ratio was 9.8 xs. While it currently stands at about 2.2x times. These companies are now generating much greater earnings, with much more cash. They are much more profitable than 17 years ago. The vast majority have much stronger balance sheets than in the year 2000. This does not mean that if companies were examined on a one-by-one basis, we wouldn’t find that some of them are not properly valued.”

Pictet manages between 40 and 70 stocks in its strategies, having the opportunity to diversify and arbitrate between those companies with the highest valuation and those that still maintain attractive levels of valuation.”It can be managed very effectively. At present, ratios in the portfolio are in line with or below the global equity market. Although the valuations are attractive, it is possible that there is a correction in the market. It’s something that we’ve been expecting for months, but that has not happened yet. It’s possible that it will happen shortly, but it will not be a total reversion of the market”.

The investment universe

The strategies are agnostic with respect to the index. To determine the investment universe of each of the strategies, the management team determines the thematic purity of these companies. In this way, the team seeks that at least 20% of the sales of the companies in which it invests a certain strategy has its origin in the theme of the fund. For example, in the Pictet Digital strategy, at least 20% of the sales of the companies in which the fund invests come from the internet or from a web-based activity.

“In the Digital strategy we are investing fundamentally in internet or software companies. Of course, the FANG, Facebook, Amazon, Netflix and Google shares, or their oriental versions, BAT, Baidu, Alibaba or Tencent, are part of the universe in which it is invested, and so are many of the internet or software participants such as Medidata, Athenal Health, and Zendesk. We are global investors by definition, as long as we find companies that dedicate 20% of their sales to internet services and software, whether in the United States, Europe or Asia, they may potentially qualify to be included in the strategy. Naturally, there is a bias towards the United States, due to the natural leadership of its companies in the Internet sector “.
Likewise, in the Pictet Security strategy, 20% of sales come from activity in cyber security, security in transportation, security in food processing companies, and in the Pictet Robotics strategy, these come from companies dedicated to automation of processes and artificial intelligence.

The most disruptive tendencies

Every minute, 500 hours of YouTube videos are uploaded to the internet; 3.3 million comments are posted on Facebook; 29 million messages are exchanged through WhatsApp, and 3.8 million searches are made on Google. Access to the Internet from any device is, according to a study carried out by the McKinsey Global Institute, the most disruptive technology of the coming years. This report points out 12 technologies that will completely change the current way of living and working. Specifically, six of them are expected to have a strong economic impact: automation and the introduction of robotics, mobile internet, the cloud, the internet of things and autonomous vehicles. “What we have tried is to establish a map with our strategies, integrating these six important disruptive technologies, to which we have added Fintech, which is also expected to change the financial industry and how we currently know it. This mapping is helping investors to realize how our three-disruptive technology fund are complementary in covering these 7 trends among the technology space and the coverage, through the 3 strategies is almost perfect. These seven technologies should benefit from a high growth environment, so they should grow in excess of the global GDP growth, and above of global spending on information technologies. These technologies are tending to grow exponentially and they interact with each other. The artificial intelligence market can be very significant, from 5 to 6 billion at present, and could reach 120 billion in 2025. This will happen when software and hardware applications are combined. You can invest in artificial intelligence through software, investing in the digital strategy, while investing in artificial intelligence through the hardware side is an exposure to robotics. Therefore, artificial intelligence is present in the two strategies.”

The effect of technology on employment

Both artificial intelligence and robotics will have a strong impact on the economy. In general, we talk about the negative effect that technology will have on the labor market, but we underestimate how these new technologies will open the door to new types of jobs that are not yet known.

“As in the internet revolution in the year 2000, when nobody expected that companies like Google could employ so many people, nobody has expected the emergence of companies like Salesforce or Zendesk nowdays, or the large number of companies that are benefiting from the internet revolution. Very likely, the same will happen with the robot revolution or the artificial intelligence revolution, where new jobs will be created from the digital revolution. The main issue is that artificial intelligence and robotics not only affect one sector of the economy, but they are affecting all sectors of the economy at the same time. It is a revolution that moves at a great speed and its growth is exponential. At some point, we will begin to see certain regulations coming into force that will try to slow down the adoption pace of automatic or robotic solutions, giving more time to the workforce to adapt and probably to learn new jobs,” concludes Mouthon.

Robert Spector (MFS): “We Expect a Flattening US Yield Curve and a Steeper One in Europe”

| By Meritxell Sedo | 0 Comentarios

In an environment in which interest rates are historically low after eight years of expansive monetary policies, Robert Spector, who along with Pilar Gómez-Bravo and Richard Hawkins is one of the lead managers for MFS Investment Management’s MFS Meridian Funds Global Opportunistic Bond strategy, believes that there are still attractive, or relatively attractive opportunities, in which you can get good returns.

During a recent conference in Miami, the asset manager pointed out that the strategy seeks to provide consistent returns and transparency: “We want to provide investors with a fixed income experience, regardless of whether we buy high yield debt or emerging market bonds. When there is an event in the market in which investors lose appetite for risk, we don’t want this fund to behave as if it were an equity fund.”

According to Jed Koenigsberg, Institutional Portfolio Manager, who also participated in the event, some of the funds that compete in the same Morningstar category have a 30% or 40% correlation with the variable income universe. The search for predictability in returns is the differentiating characteristic of this strategy relative to competitors: “When stock prices fall, you don’t want your fixed income exposure to go down as well”.

Where are the fixed income opportunities?

The current macroeconomic environment indicates that many global regions are showing more broad-based, sustained growth, something that had not been seen since the global financial crisis. With this growth, it is very likely that rates will start to rise, albeit gradually, with very different responses depending on each of the regions.

A year ago, there was genuine concern in the markets that China, and potentially the United States, could fall into recession. Today, the risk of an impending recession is very low. While fundamentals remain strong enough to support exposure to riskier assets, MFS suggests a note of caution because of credit spread levels and higher valuations. With this scenario, MFS sees value in the higher-quality part of high-yield market and in some investment grade bonds, especially in those sectors that are increasing their leverage.

For six or nine months, the MFS Global Multi-Sector strategy managers have emphasized emerging market debt within its high-yield allocation, where they have found greater value. Investment in emerging market debt began to make sense with the noise created by President Trump when he signaled that he was going to pull the US out of certain international treaties, and with the improvement of global growth.

According to Robert Spector, although the market continues to price in the continuation of Fed rate hikes, the risks incurred in fixed income when entering a more restrictive cycle are not being correctly evaluated. By reducing its balance sheet and interest rates at the same time, the Fed is accelerating the rate at which the monetary cycle is being restricted. Although the US central bank has informed investors that it is a gradual and automatic withdrawal, Spector believes that the combination of both measures will have a material effect in the coming year.

“The balance sheet rose from US$ 7.15 billion to US$ 3 trillion, which significantly helped the economy and served as support for risk assets. A reduction in this balance sheet should have the opposite effect. In the first phases, in which the balance sheet decreases, there will be no significant changes, but later it will have a material effect. In its economic projections and ‘dot plot,’ the Fed places the rate hike for the coming years at 2.75%, but it is likely that, if the balance sheet reduction takes place, the Fed will end up at a significantly lower rate, not above 2%. Even if the Fed stops its rate hike sometime next year, it is very likely that the US yield curve will continue to flatten. At the same time, the European Central Bank has announced that it will withdraw its quantitative easing program, although it will keep interest rates in negative territory. This has already caused the yield curves in Europe to begin to steepen. We are positioning the portfolio accordingly, remaining with steep positions in Europe and with flat positions in the United States.”

For Spector and the MFS team, the sovereign debt of core European countries is widely overvalued. “Yields on German 10-year bonds are around 50 basis points. Bond yields in countries such as Austria, Finland, the Netherlands, Belgium and France keep their interest rate below 0.75%. In a world in which Europe is growing at a rate of about 2% and inflation is between 1% and 1.5%, we see a historical gap between returns and the economy. These are signs of a significant overvaluation, which is why we have eliminated most of our duration risk outside that European core, especially in the short end of the curve.”

Performance of the rest of the central banks, such as the Bank of Japan and the Bank of England, should also be considered. Put another way, global liquidity carries as much weight as the Fed’s performance in its unwinding. “This experiment has not been done before, so the final result of quantitative easing will most likely be different from the expectations that have been generated with the models of the main central banks.”

Other opportunities detected by the MFS Global Multi-Sector Fixed Income team are structured products, which represent an attractive valuation opportunity as an alternative to high-quality fixed income, where the spreads are really significant. “We have found opportunities in commercial mortgage-backed securities (CMBS) not issued by government agencies, select asset-backed securities (ABS) and collateralized loan obligations (CLOs), as well as Freddie Mac bonds, which can be a good alternative to treasury bonds. Through this type of exposure, we are able to find excellent liquidity which is roughly equivalent to that of more expensive high-quality corporate debt.

Investment philosophy and alpha sources

The MFS team emphasizes the need for a diversified approach in fixed income, especially in an environment like this one. The team’s approach is to incorporate multiple alpha sources across different categories within fixed income to find attractively valued securities, paired with active risk management. Investment opportunities vary with changes in market conditions, so they require an integrated analysis between the different fixed income disciplines at MFS: global credit, global high-yield debt, emerging market debt, collateralized securities and municipal securities and currency. Furthermore, where MFS differentiates itself is in the selection of securities. “At this point in the cycle, where spreads are so compressed, it is more important than ever to focus on debt securities that are truly appropriate for the portfolio. There are always inefficiencies along the entire cycle and throughout the cycle. And these inefficiencies are not only in the sectors, but they are in regions, in credit quality, in currencies, and in duration. Our job is to have a team that finds these inefficiencies and then integrates these multiple perspectives within the analyst team, which then leads us to finding good ideas to position within the portfolio.”

Finally, the MFS Meridian Funds Global Opportunistic Bond generates alpha from a number of sources within the portfolio: between 40% and 60% from asset allocation, between 15% and 25% from duration and country exposure, with security selection accounting for 15% to 20% and currency between 5% and 15%. “We expect to obtain returns from several sources. The most important item for us is the asset allocation, moving in and out of different sectors, but the duration, the country, and the yield curve are also very important contributors. The selection of securities is an important part of who we are, applying a bottom-up approach. We hope that this is a determining factor that drives performance,” concludes Spector.

Legg Mason: “There is a Greater Movement towards Global Diversification by Brazilian Investors”

| By Meritxell Sedo | 0 Comentarios

During the ninth edition of the Annual Forum of Local and International Specialists for the Discussion of Economic Challenges in Brazil, which was held at the Unique Hotel in Sao Paulo on the 1^stof December, Western Asset, a subsidiary of Legg Mason received professionals of the investment world, with the objective of discussing the challenges Brazil faces in the short term.

Joe Sullivan, Legg Mason’s President and CEO welcomed attendees to the event. After his speech, Ken Leech, Chief Investment Officer for Western Asset, explained how the global scenario has been extremely benign for emerging markets in general, and for Brazil in particular, and what the chances are that this scenario will continue in 2018 .

Then, in a first panel, the government’s microeconomic reform agenda was analyzed as a catalyst for growth. Moderated by Paulo Clini, CIO for Western Asset Brazil, the debate was attended by Joao Manoel Pinho de Mello, Special Secretary of Microeconomic Policies of the Ministry of Finance, Walter Mendes, President of the Petros Foundation, and Marcelo Marangon, Executive Vice President of Citibank , who evaluated which are the most advanced microeconomic reforms to resume economic growth.

During the second panel, they examined how presidential elections will influence the agenda of fiscal reforms, analyzing the possibilities of achieving a fiscal balance in a turbulent political situation. On this occasion, the moderator was Adauto Lima, Chief Economist at Western Asset Brazil, and the panel counted with the contributions of Bernard Appy, Director of the Fiscal Citizenship Center, Caio Megale, Finance Secretary for the municipality of Sao Paulo, and Christopher Garman, Eurasian political consultant.

Strongly committed to Brazil.

The Brazilian economy has recently recovered from one of its worst crises in decades, and is finally returning to positive terrain. Interest rates remain at low levels, but investors worldwide have a strong interest in the yields offered by Brazilian debt.

“Interestingly, investors in Brazil think that their interest rates are at low levels due to their history, but when you think about the performance of the 10-year US Treasury bond, which is somewhat above 2%, in the German bond rate, which stands at 0.4% and the Japanese rate that is close to 0%, and you compare them with the interest rates in Brazil and the possibility that the currency will appreciate as the economy improves , you can get a very attractive return,” said Ken Leech during the press conference with journalists.

Meanwhile, Joe Sullivan added that they had increased exposure to Brazilian debt in all those portfolios in which the portfolio’s mandate allows it: “We have positions in Brazilian sovereign local debt and in certain Brazilian corporate bonds, usually denominated in dollars.”

Although the situation has improved in the Latin American giant, it’s still of vital importance that there is a fiscal reform in Brazil. “Our expectation is that some kind of fiscal reform will be approved, if not this year, the next, but we believe it will be enough to maintain support in favor of Brazilian debt securities. The Brazilian policy has turned towards a government more favorable to the markets, although the elections always introduce an element of uncertainty. We hope that this type of policy will continue, but we are prepared for what may come.”

Regarding how the normalizing process by central banks may affect emerging markets, Leech said that they hope that this time it will not be a problem: “If you think about the last three years, from 2013 to 2016, when the central banks were decreasing their interest rates, unlike in other periods, the rates in emerging markets rose, with a divergence of direction between the rates of developed countries and that of emerging countries. Our vision is that if the central banks begin to raise interest rates it will be because growth has improved and if this is true, then interest rates in emerging markets would not go down. With inflation so low, our vision is that interest rates are going to rise very slowly, so there should be no great impediment for emerging markets.”

The local investor’s appetite for diversification increases

Brazilian investors first became interested in international equities with exposure to currency. Many investors did not hedge currency because they really needed high volatility to compensate for the high rates that Brazil had until just a few years ago. In the last year, there has been an enormous success in hedged strategies because investors no longer need to have exposure to currency risk to find international investment alternatives that provide competitive returns when compared to the local interest rate level.

In any case, the demand from institutional and retail clients is different. The institutional client seeks long-term returns and is interested in variable income products that invest in infrastructure and global fixed income products, because they are a very powerful diversifying element as compared to local debt.

“Brazilian investors have the great advantage of having one of the highest interest rates in the world. So it’s not easy to find Brazilian investors wanting to invest outside of Brazil, where interest rates are much lower. But for the first time, Brazilian interest rates are at their minimum in decades, with inflation close to 3%. Many of their assets are invested in Brazil, but we have seen a growing interest in buying global returns. We believe there will be a greater movement towards global diversification on the part of Brazilian investors,” concluded Joe Sullivan.