Wells Fargo & Company announced this week that Kristi Mitchemhas been appointed president, chief executive officer, and head ofWells Fargo Asset Management, a division of Wells Fargo’s Wealth and Investment Management Group. Effective June 1, Mitchem will lead a business with more than $480 billion in assets under management in institutional separate accounts, mutual funds and stable value portfolios.
Mitchem most recently served as executive vice president at State Street Global Advisors (SSGA), the investment management arm of State Street Corporation. She replaces Mike Niedermeyer, who had served as head of WFAM from 1994 until his retirement in March after 28 years with Wells Fargo. Based in San Francisco, Mitchem will join the firm on June 1 and will report to David Carroll, senior executive vice president and head of WIM.
“Wells Fargo Asset Management is a valuable business for Wells Fargo, with a broad range of investment capabilities, strong risk management processes and a disciplined operating approach that have produced significant results for both customers and shareholders for many years,” said Carroll. “With an impressive mix of industry experience, a deep knowledge of the needs of institutional and intermediary investor clients, and proven success in inspiring large high-performing teams, Kristi is the ideal candidate to lead WFAM through its next phase of strategic expansion and growth.”
Since 2012, Mitchem led the Americas Institutional Client Group at SSGA, focusing the organization on delivering innovative investment solutions to institutional investor clients in the United States, Latin America, and Canada. Previously, she had served as the leader of the defined contribution businesses at both SSGA and Blackrock and of the institutionally-focused U.S. Transition Services group at Barclay’s Global Investors.
Bachelor of Arts degree in political science from Davidson College, where she graduated summa cum laude and was awarded First Honors. She received her Master of Business Administration from Stanford Graduate School of Business, where she was an Arjay Miller Scholar. Mitchem is also a Fulbright Scholar.
Companies are having a much harder time producing earnings growth. Those that are positioned on the right side of change should be better placed to increase profits—and deliver investment returns—in a growth-constrained world.
Corporate profit margins today are much higher than their average since the early 1950s (Display). These profitability levels are very high, even when taking into account that the mix of US economic activity has shifted toward more capital-light business models (e.g., services and technology), which inherently generate higher margins.
But not every company or industry is facing the same squeeze on earnings growth. In particular, changes triggered by technology, regulation or structural shifts in specific markets are excellent sources of growth potential—even in an earnings-constrained world. Finding companies that are on the right side of changes like these is one of several ways that active investors can capture excess returns over long time horizons.
Using Technology Right
Technological change isn’t only about the Internet or social networks. Consider the retail sector, where new technology and information systems allow companies to take advantage of massive amounts of available data on customer behavior. Companies that recognize this potential and invest accordingly are using these tools to deepen relationships with customers—and are capable of doing better than rivals who haven’t.
Manufacturing is another case in point. Companies that are at the vanguard of manufacturing innovation have greater flexibility in managing their businesses, which provides a powerful way to boost profitability.
For example, when we researched Nike in 2015, we discovered innovations that looked likely to significantly improve the company’s earnings growth potential. Nike may be adding sophisticated chips to some of its sneakers; this will allow it to deepen its relationship with customers by offering personalized deals that bypass retail outlets, bringing more profit to the shoemaker. It’s also using a new automated manufacturing technology called Flyknit that lets customers customize their orders with minimal labor, allowing Nike to shift its production closer to consumers—in the US and around the world—and save costs on shipping, duties and tariffs. Our research suggests that innovations like these are transforming Nike’s business model and could potentially trigger a leap in its profitability.
Why the wide gap between our view and the street’s? It’s because most analysts aren’t evaluating how new technologies and processes will filter down to the bottom line over several years; the potential payoff is a couple of years beyond their horizon. In a short-term world, building thoughtful, independent models like these can make the difference in choosing stocks that stand out from the crowd.
The Innovation Factor
It’s not only giants like Nike that turn innovation into investment opportunities. It’s becoming easier every year for people to change the world because traditional barriers to innovation—such as capital and time—are falling dramatically.
Today, new ideas can be transformed into businesses for only a fraction of the prior cost thanks to continued exponential declines in the cost of computing. For example, the required costs of a typical tech start-up have fallen by roughly 95% since the dot-com era of the 1990s (Display, left). And the disruptive potential is enormous, as seen in the shift in advertising from print newspapers toward the digital world, which has had a profound impact on profits for both traditional media companies like the New York Times and new media leaders like Google (Display, right). For investors, the challenge is to get an early grasp on how unfolding changes will transform the profitability outlook for a wide range of companies.
Transcending Traditional Industries
This often requires an understanding of broad themes that transcend traditional industries and sectors. For example, increasing environmental awareness is spurring global efforts to address challenges that include carbon emissions, clean water, food availability and sanitation. Policy support and technological progress are making the shift to decarbonized energy inevitable, in our view. And the costs of renewable energy such as solar or lithium-ion batteries for electric cars are falling dramatically (Display). We believe that many investors have underestimated the disruptive potential of exponential cost improvements to drive faster and broader adoption.
Changes like these are opening up big investing opportunities. Over the next 15 years, we estimate that $4 trillion will be invested in new solar and wind capacity. Industries like these are highly fragmented, and offer strong growth opportunities for winners.
But identifying investment targets requires a substantial research effort in order to understand the technological and business dynamics of many public companies operating in nascent industries. By searching for businesses that are on the right side of changes like these, we believe investors can find companies that should be well positioned to grow their earnings—even when broader business conditions are stagnant.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
Foto: Jorge Andrés Paparoni Bruzual
. Más de dos tercios de los family offices realizaron inversiones directas en alternativos en 2015
2016 FOX Global Investment Survey from Family Office Exchange (FOX) finds that 69% of Family Offices engaged in direct investing in 2015. Families with first- or second-generation leadership are much more likely to do direct investing than families with later-generation leadership, with 81% of Gen 1-2 families engaging in direct investing compared to 46% of Gen 3 and later. Growth capital is the most popular private equity deal stage (32%) followed by venture capital (30%).
“Investing directly in real estate properties or operating companies is familiar for many family offices that earned their wealth by building businesses,” says Charles B. Grace, III, managing director at FOX. “In the face of volatility in the public markets, direct investments can seem a haven for those who want transparency and prefer taking risks with companies and/or properties they can investigate and perhaps control in some manner.”
Direct investors tend to be active investors, with forty percent (40%) preferring a lead role that gives them the transparency and control that they desire from their direct investments. When asked where they are finding new direct investing opportunities, 71% of direct investors said they rely on networking or their existing relationships/word of mouth. Proper evaluation of opportunities and deal pricing are the two biggest challenges facing direct investors looking to implement their strategy.
“Deal pricing has become a bigger challenge in executing a successful direct investment strategy as the market has become more efficient,” says Karen Clark, managing director at the organization. “Evaluating opportunities is a bigger challenge for participants than finding deal flow.”
Regarding returns, the research finds out that the median overall return for survey participants in 2015 was 2%, and expected 2016 return is 6%. Also that direct real estate and direct private equity enhanced returns in 2015, gaining 18% and 15% respectively.
Seventy-eight percent (78%) of families are broadly diversified with a conservative growth orientation, including 20% to cash and fixed income, 43% to equities, 2% to hard assets, and 33% to alternatives.
The study provides an in-depth look at the investment activity of leading single family offices, providing perspective on a range of topics including Economic Outlook and Investment Opportunities for 2016, Asset Allocation and Performance, Use of Investment Consultants and Investment Committees, Reliance on Alternative Investments, and Direct Investing.
Foto: Leo Grübler
. J.P. Morgan Asset Management se hace con una participación minoritaria en el proveedor de ETFs Global X
J.P. Morgan Asset Management recently announced that it has made a passive, minority investment in Global X Management Company, a New York based ETF provider with a diversified suite of over 40 ETF solutions.
“Investing in Global X augments our ETF strategy by expanding and deepening our participation in this fast-growing industry,” said Jed Laskowitz, Co-Head of Global Investment Management Solutions for J.P. Morgan Asset Management. “We will continue to develop the J.P. Morgan ETF lineup with an eye toward future innovation in active ETFs while building this strategic partnership.”
“Widely acknowledged for its innovative products, Global X has become a leading provider of ETF solutions, and we are pleased to have them as a strategic partner,” said Robert Deutsch, Global Head of ETF Solutions for the firm. “This investment complements the growth of J.P. Morgan’s own ETF line-up, with seven strategic beta ETFs launched and many more to come.”
This investment will have no impact on how the asset management ETF Solutions and Global X operate their respective businesses. Specifically, there will be no co-marketing, investment management, distribution agreements or shared governance between the two organizations. This investment does not result in Global X becoming an affiliate of J.P. Morgan.
Aberdeen Asset Management PLC(Aberdeen) announced the appointment of Campbell Fleming as Global Head of Distribution.
Campbell will be responsible for Aberdeen’s global distribution platform encompassing 450 people across business development, product specialists, marketing and client service. He will also work closely with the senior management of all of Aberdeen’s investment capabilities.
Campbell is currently Chief Executive EMEA of Columbia Threadneedle as well as Global Chief Operating Officer. He joined Threadneedle from JP Morgan in 2009 as Head of Distribution. He has in-depth knowledge of markets in Asia, Europe and the Americas and has an enviable track record of successfully managing distribution teams across a range of client channels. Last October, Campbell was named CEO of the Year at the Financial News Asset Management Awards.
Campbell succeeds John Brett who stepped down from the role late last year. He will report to Martin Gilbert, Chief Executive and will join Aberdeen’s Group Management Board.
Martin Gilbert, Chief Executive at Aberdeen Asset Management, comments: “We are delighted to attract someone of Campbell’s caliber – this reflects the appeal of our global platform and our full-service capability across asset classes and strategies. After an in-depth worldwide search process, Campbell was identified as the outstanding candidate given his expertise and experience across client channels globally, including North America which is a key focus for us.”
Foto: Ged Carroll
. Los financial advisors son los que más influyen en las decisiones de inversión de los UHNW
Financial Advisors have a bigger role in investment decision-making for North American ultra-high net worth families than any other family member, group or committee, according to a new study from Morgan Stanley Private Wealth Management and Campden Wealth Research.
The study among 59 individuals from families with net worth in excess of $25 million asked specifically how they made decisions about overall asset allocation, investing in a specific opportunity and divesting from a specific vehicle. Respondents said these were most frequently decided by family advisors, family office executives and professional financial advisors.
A professional financial advisor is used in 41% of cases for overall asset allocation, and a family advisor or family office executive in 38%. These same non-family members also help make decisions about specific opportunities in 44% and 35% of cases respectively, and to divest in vehicles or companies 41% each of the time.
“The fact that ultra-high net worth individuals appear to listen more to their financial advisors than their own family members shows the premium placed on good, professional investment advice,” said David Bokman, Head of Ultra-High Net Worth Resources for Morgan Stanley.
The results are contained within the newly published ‘Family Decision-Making’ report, which examines decision-making within ultra-high net worth families in North America. The influence of financial advisors is a recurring theme through the findings, but is particularly prevalent around investments.
Asked how much influence key stakeholders inside and outside the family had on ultra-high net worths’ goals, 89% said their wealth advisors had either a strong (50%) influence or some (39%) influence. This was higher than any other stakeholder, inside or outside the family.
Family business strategy or partners and affiliates were the second-most influential entity (44% strong influence and 40% some influence). Parents were a strong influence for a third of ultra-high net worth individuals and spouses for a quarter.
Commenting on the findings, Dominic Samuelson, Chief Executive Officer, Campden Wealth said: “Financial Advisors play a very important role in family decision-making, and enjoy a special – and often very select – place at the table of these ultra-high net worth families. In seeking to service them as best they can, Financial Advisors should look to gain as wide an understanding into families as possible and think about their complete needs.”
“The more that Financial Advisors can understand, the more holistic advice they can offer, and the more families will gain from their interactions. Financial Advisors may even wish to be explicit about their desire to gain more knowledge into the family from the outset to help fast-track this process,” added Mr. Bokman.
A number of political developments are likely to trigger volatility in 2016, especially around the month of June. However, and according to Maxime Alimi, Economist – Euro area at Axa Investment Managers, the real risk lies in the longer term. For the first time since the 1950s, EU-scepticism is threatening the European project not just to stall, but to step back.
In Alimi’s last paper titled “Political risk in Europe: the short and the long view,” the strategist mentions that amongst the issues that may resurface around June are:
The UK’s Referendum
The possibility of elections in Spain
The relationship between the IMF and Greece
Portugal’s budget implementation review
More serious however is the EU-scepticism. Alimi mentions that “Europe has always been the subject of debates in terms of the political direction it should take: more or less pro-market, more or less social policies, more or less federal integration. But things are different today as Europe is challenged on two distinct fronts: first, the legitimacy of Europe as a relevant level for policy-making; second, confidence of Europeans in the reliability and trustworthiness of their peers. Europe is challenged as a relevant level for policy making. The line of argument is the inability of Europe to deal with the challenges of today and the ‘one size fits all’ policies: Europe has been unable to protect populations against a double crisis; Europe has been unable to lay out a policy response to international threats.”
The sovereign crisis, the QE programme and negative interest rates, as well as the terror attacks and refugee crisis of 2015 have provided further fuel to this dynamic of mutual distrust. “For the first time since its creation, one pillar of the European project – the Schengen agreement – was suspended as governments were no longer trusting their neighbours to enforce borders controls.” The risk Brexit brings is that for the first time since the project was initiated in the 1950s, Europe could not just stall but step back. “Building scenarios around a European disintegration is difficult and highly uncertain, but its impact would certainly be large,” he concludes.
You can download the full report in the following link.
Foto: Zorka Ostojic Espinoza
. Janus lanza un fondo de retorno absoluto global y asignación dinámica de activos
Janus Capital Group recently announced the launch of the Janus Adaptive Global Allocation Fund that aims to provide investors total returns by dynamically allocating assets across a portfolio of global equity and fixed-income investments.
Ashwin Alankar, Global Head of Asset Allocation and Risk Management, and Enrique Chang, Chief Investment Officer, Equities and Asset Allocation, are the fund’s portfolio managers. Chief Investment Strategist Myron Scholes, Ph.D., co-led the research and development of the fund with Alankar and will contribute to the overall investment strategy.
The Janus Adaptive Global Allocation Fund is designed to adapt allocations actively based on forward-looking views regarding extreme market movements, both positive and negative.
“While most investment approaches look for average outcomes, this adaptive global allocation fund seeks to manage outcomes that have the largest impact on growth, namely left and right tail events,” Alankar said.
The launch of the Janus Adaptive Global Allocation Fund furthers Janus’ Chief Executive Officer Dick Weil’sdiversification strategy, which included the July 2014 hiring of Alankar and Myron Scholes to begin designing asset allocation options for clients.
Foto: Chris Shervey
. AXA IM facilita y acelera el proceso de toma de decisiones de inversión
AXA Investment Managers announced a collaboration with State Street and MKT MediaStats to evaluate data-driven indicators that help analyse economic and market information.
MKT MediaStats is focused on financial market implications of increasingly available ‘big data’ from multiple sources, and is founded and led by well-known academic researchers. It leverages and extends into the commercial realm of considerable academic research done by its partners. The State Street PriceStats inflation series is a daily measure of inflation derived from prices posted to public websites by hundreds of online retailers.
“AXA IM, MKT MediaStats and State Street share a commitment to exploring new data sources that can enhance our ability to make timely and well-informed investment decisions,” said Joseph Pinto, chief operating officer at AXA Investment Managers. “Leveraging these big-data solutions will allow us to advance our client service on multiple fronts. Not only are we increasing the amount of knowledge available to us, but we are also cutting down on the amount of time spent manually sorting through information resources.”
“Investor success in the coming years will continue to largely depend on the ability to rapidly access and synthesise an exponential amount of information. Our goal is to bridge the gap between financial decision making and academic thinking to help investors achieve their return and risk objectives.” said Jessica Donohue, chief innovation officer for State Street Global Exchange.
MKT MediaStats uses unstructured data from many sources, including 25,000 distinct media sources, to derive a wide variety of indications of market behavior, such as sentiment, price movements, risk, and liquidity of individual assets.
The State Street PriceStats inflation indices are generated using software that scans the underlying code on public websites to capture the full array of products sold by online retailers, including food, beverages, electronics, apparel, furniture, household products, prescription drugs, and over-the-counter medicines. The technology monitors price fluctuations on roughly five million items sold by hundreds of online retailers in more than 70 countries.
Traditionally, equity people are supposed to be more optimistic than bond people, but I am prepared to buck the stereotype just a little as we enter day four of the Q1 earnings season.
Brad Tank, our fixed income CIO, followed Erik Knutzen in expressing cautious optimism that U.S. corporate earnings would recover enough in the second half of 2016 to justify much of the market rally that we’ve enjoyed since mid-February. They both wanted the economy to “show them the money” before dialing-up risk, as they put it, but they saw changes in the recent trends in the U.S. dollar and oil as the foundation for this recovery.
Truthfully, we are talking small degrees here. Brad and Erik both emphasized caution—as Erik put it, things were never as dark as they seemed on February 12, and they are probably not as bright as they seem today. Nor am I about to argue that we’ve inflated a bubble and stand on the brink of savage correction. Nonetheless, I think it’s fair to say that I am a little more circumspect.
The market pendulum tends to swing too far in both directions. Does the simple recognition that the world is not about to end explain why the S&P 500 Index went up more than 15% in 10 weeks? At 17.0-17.5 times forward earnings, U.S. large caps will not look particularly cheap should run-rate earnings for Q1 2016 come in at around $100-$105 per share, as seems likely. That’s a long way from the $120-$125 per share that we feel is required to support today’s multiples.
Amid the headline-grabbing extremes of pessimism, the more sober talk in January and February was of an earnings recession, and I don’t see anything that has fundamentally changed that narrative.
For sure, dollar strength has eased—but wasn’t that already underway by the second half of 2015? And yes, energy may be less of a drag this year—but does it follow that we are about to see break-out numbers from the financial, industrial, or consumer sectors?
Financials are especially important as it’s difficult to sustain a rally of this strength while banks are struggling to generate positive earnings. Q1 earnings from JPMorgan Chase, Bank of America Merrill Lynch, Wells Fargo and Citigroup have been released. We are used to the game in which analysts set expectations so low they’re almost impossible to miss: JPMorgan’s earnings per share beat the 13% slide that had been estimated. But the real takeaway was simple: the largest bank by assets in the U.S. saw its earnings fall by 7%. Citigroup’s, Bank of America’s and Wells Fargo’s reports told a similar story, with capital markets weakness hurting the first two and energy exposure the latter.
Elsewhere, some good news emerged out of Italy last week as a better-than-expected support program was thrashed out for its struggling lenders, but on the whole, European banks have performed poorly despite the expansionist policies announced by the ECB in March. Dealogic estimates that revenues in global investment banking are down 36% year-on-year, which would represent the toughest Q1 since 2009.
This background explains the elements of caution that underlie this rally in U.S. stocks. Small caps are still down year-to-date. The big value sectors that bore the brunt of the New Year sell-off, energy, materials and industrials, are up 6-8%, but the other big performers are defensive consumer staples and utilities.
I believe this is a “relief rally” that lacks a degree of conviction and is really a response to the excessive pessimism of the New Year. Again, to be clear, we are not talking about extremes in valuations. But the pendulum has swung far enough that I don’t feel compelled to chase this market, and I would need to see much firmer evidence of an earnings revival over the coming seasons to change my mind.
