Pontificia Universidad Catolica de Chile (UC) has overtaken Brazil’s Universidade de Sao Paulo (USP) to top QS (Quacquarelli Symonds) University Rankings: Latin America for the first time. USP slips to second, having ranked first every year since 2011.
Whereas USP is the top institution for research productivity, UC is well ahead when it comes to citations. UC has also improved its student/faculty ratio and web impact this year. To view the complete ranking use this link.
Brazil and Chile have strengthened their dominance this year, with Mexico, Argentina and Colombia struggling to keep up. Brazil has three of the top four institutions and 10 of the top 20, while 16 of the 20 leading Chilean universities have improved their position.
Universidad Nacional Autonoma de Mexico (UNAM) slips two places to 8th, falling behind Tecnologico de Monterrey for the first time. Despite being rated number one for academic reputation, UNAM has comparatively modest scores in several other indicators.
Argentina’s Universidad de Buenos Aires drops seven places to 19th, having ranked 8th in 2011. Buenos Aires is the region’s most popular institution among graduate employers, but like UNAM suffers from a comparatively poor student/faculty ratio and low proportion of staff with a PhD.
Seven of the top 10 Colombian universities have dropped, with Universidad de Los Andes Colombia slipping to fifth and Universidad Nacional de Colombia dropping five places to 14th.
“Universities from Mexico, Argentina and Colombia excel in specific areas, but they currently lack the all-round consistency of the top institutions from Brazil and Chile,” says QS head of research Ben Sowter. “High student-to-faculty ratios are an issue at several major public research institutions throughout the region.”
18 countries are represented, led by Brazil with 78, ahead of Mexico (46), Colombia (41), Argentina (34) and Chile (30).
CC-BY-SA-2.0, FlickrGonzalo Cuadrado Quiles is the Latin American Equity Fund manager at EDM Gestión. The Bottom-up Approach of the EDM Latin American Equity Fund Takes its Manager to... Brazil
It was just a few months ago that EDM Gestión decided to expand the stock markets in which it invests to Latin America, and that the company registered a fund in Luxembourg focusing on shares of companies within the region, which is managed with the same philosophy that has brought them so much success in their Spanish and European equity funds.
Gonzalo Cuadrado Quiles, manager at EDM Gestión, has been in charge of the project since its inception and, in an interview with Funds Society, recognizes the attractiveness of this whole new world of opportunities. Especially after the emerging markets’ scene in recent months, which saw investors making massive withdrawals of capital which have caused declines in valuations in markets like Brazil. In these times of great inefficiencies, when many investors who replicate indexes are forced to exit, is when a company like EDM can offer value. “This is where a management company of modest size can take advantage of the inefficiencies, and, through active management, provide additional value by means of a good research,” he said. Sometimes, due to their large size, funds can not take advantage of opportunities in smaller companies and that is a limitation which EDM isn’t faced with.
And it’s in those great inefficiencies which are created by massive outflows or by the size of the companies, where the manager finds value to construct the fund’s portfolio, which he admits he is still in the process of building. Although the portfolio is not yet fully constructed, it already offers returns of around 5%.
Through a process identical to that of other EDM European or Spanish vehicles, which is based on the selection of companies according to their fundamentals (high-ROE, visibility on earnings growth, sustainable and stable cash flows, low debt, quality management teams with integrity, and reasonable valuations), and on a process of long-term investment, the manager is ready to invest in any country, any sector and in any size company, although his steps led him especially to Brazil (with a portfolio weight of 45%) and Mexico (26%), with the rest in companies from countries like Chile or Peru.
Opportunities in Brazil
Although he insists that this composition is purely a result of the selection of companies, it is also obvious that Brazil is a market which actually offers many opportunities. First, says Cuadrado, by developing its equity market, which has boosted the number of companies, and which in turn offers more opportunities, at least in numerical terms. Secondly, he recognizes that Brazil has been under the spotlight of international investors and has suffered more than other markets in the region, a de-rating which has left valuations at attractive levels, although he focuses primarily on the quality of the companies. And he also admits that a change in government could help in the future. Among his investments are Localiza, the car hire market leader; the aircraft manufacturer, Embraer, and Vale, the basic materials company.
Cuadrado is not in favor of comparing prices in Brazil and Mexico, since the composition of the two markets is different; he also has a great part of the fund’s positions in the North American country, in companies like Gruma (world leader in packaged flour pancakes), a company with a lot of exposure to the U.S.
Cuadrado does not mind investing in European or American firms with exposure to Latin America (like the Spanish company Prosegur, with 85% of its EBITDA in Latam) or Latin American companies which have exposure to other parts of the world. In fact, he believes that the internationalization process to compete with European or U.S. firms is a value catalyst of the local companies which have done very well for decades. In fact, he reminds us that some sound and liquid companies are taking positions in Spanish firms. Other catalysts which will propel Latin American companies are the low private leverage (of households and businesses in the region), the need for development of tertiary services, which in many Latin countries are a far cry from those in Europe or USA, or the potential for consumer credit. Therefore, although his investment process focuses on companies, he admits that macroeconomics offer much potential to his fundamentals: policies to improve infrastructure in the region or the demographic factor (for example, a large percentage of the population under 25 years of age unlike the aging in Europe) provide the potential for the growth of many businesses in the region. “There is much talk about the poor state of Latin American economies, but it is not as alarming as it is usually portrayed: each country has an independent monetary authority, institutions which are increasingly sounder, less debt than many developed countries, smaller deficits, and with the exception of Brazil, controlled inflation,” explained the manager.
In addition, cash outflows in recent years in emerging economies and the concentration of flows in Europe or the U.S. make it increasingly more difficult to find opportunities in the developed world. “The times of cheap money in U.S. are over but that has already been gradually assimilated,” he says regarding the threat that tapering will pose for emerging economies. On the other hand, it seems logical that at some point the global flows will turn around to favor developing markets once again.
A Growing Appetite
Cuadrado explains that the fund, domiciled in Luxembourg, is attracting investors mainly from Spain and Europe, and already boasts 16.5 million Euros in volume. Their expectations are also for growth, both by the behavior of markets (“Latin America has a higher growth potential, although with other risks,” says the manager) and by flows. At EDM, they expect the demand to come not only from Europe, but also from Latin American clients, channeled through its sales organization in Mexico and due to the satisfaction with European or Spanish stock funds under the company’s management, and to the growth in active management. “There are not many managers characterized by their selection of securities and exposure is more common through ETFs,” he says. That is why this fund may provide them value.
Cuadrado manages the fund from Barcelona, but has frequent meetings with companies, whether in Latin America or in London, where the roadshow campaigns are targeted, because knowing the companies is a basic premise to invest in them.
CC-BY-SA-2.0, FlickrPhotos: Funds Society. Pioneer Investments Meets its Private Banking Clients at a Bayside Gathering in Miami
Pioneer Investments invited its international private banking clients in Miami to enjoy an evening on the shores of the bay, at the Cipriani restaurant, one of the finest in the city.
The cocktail event featured a performance by Dylan Ace, a magician and illusionist who is well-known for his appearances in major television networks in the United States and Latin America.
Through this event, and under the banner “Committed to Global Leadership through Innovation and Consistency”, Pioneer wished to thank its clients for their confidence in the company’s investment products.
CC-BY-SA-2.0, FlickrFoto: Alispire, Flickr, Creative Commons. La industria de activos europea etiqueta sus fondos de inversión responsable
The Luxembourg Fund Labelling Agency (LuxFLAG) has announced the launch of the LuxFLAG ESG Label. The ESG Label will be granted to investment funds which meet specific criteria related to their respect of Environment, Social and Governance objectives. The Label is available to UCITS and AIFMD funds domiciled throughout Europe or in equivalent jurisdictions. Three asset management companies have already committed to apply for the new ESG label: OFI Asset Management, Nordea and Sparinvest.
“Over the past ten years, the responsible investment sector has grown at a rate that has outstripped growth in most other investment strategies. The LuxFLAG ESG Label is a new tool in the broad range of initiatives that encourage fund stakeholders to act responsibly and aim for the achievement of a better and sustainable future. We in Luxembourg strongly support this goal” commented Pierre Gramegna, Minister of Finance of the Grand Duchy of Luxembourg.
“The new LuxFLAG Label is appropriate for investment funds which truly incorporate disciplined ESG criteria in their investment process. It will help these funds differentiate themselves from other offerings in the market place and it will help investors make informed decisions through the enhanced transparency and visibility the label provides”, said Mr Thomas Seale, Chairman of LuxFLAG.
Mr Seale continued: “As there is no existing product based label covering ESG, the new ESG Label by Luxflag fills a gap in the European investment fund market.”
Responsible Investing is an exciting area and is steadily gaining momentum with investors showing a growing interest in investment strategies that integrate Environmental, Social and corporate Governance criteria into the investment process. According to the KPMG RI Fund Survey 2013, the ESG category is by far the largest of all categories in the RI landscape, both in number of funds with 1,135 and in total AuM with EUR 198 billion (2012). In terms of creation of new funds, the sector demonstrated a steady increase. Approximately 100 funds were created in 2010-2011 and 62 new funds in 2012.
The financial crisis has forced the asset management industry to set up minimum standards and mechanisms to build up transparency and credibility within the financial sector. Asset managers now recognise that the integration of these standards in the investment process is a requirement from the investor community.
Until now LuxFLAG has offered two thematic labels: microfinance and environment. It has seen a two-fold increase in the number of funds it labels in the last two years as the number of responsible investing investment funds in Europe is growing.
The ESG Label is granted for a period of one year and can be renewed. The Label is granted by LuxFLAG’s Board of Directors, based upon an application by the investment fund including information reviewed by an auditor, and a recommendation by LuxFLAG’s Eligibility Committee of specialists.
The Eligibility Committee for the new Label is composed of: Nathalie Dogniez, Partner, PwC Luxembourg; Ulrika Hasselgren, President, Ethix SRI Advisors Sweden; Adrie Heinsbroek, Sustainability Advisor, ING, the Netherlands; Nicolas Hennebert, Partner, Deloitte Luxembourg; and Hakan Lucius, Head of Division, Corporate Responsibility and Civil Society, European Investment Bank.
CC-BY-SA-2.0, FlickrWim-Hein Pals, director del equipo de renta variable emergente de Robeco. Mercados emergentes: Buenos precios, mires donde mires
Investors are looking at emerging markets again after equity values have risen following months of underperformance. Part of the reason is that they have higher growth potential than Western stocks and offer “cheapness all over the place”, says Wim-Hein Pals, Robeco’s leading specialist on the asset class.
Wim-Hein Pals, head of the emerging markets equities team, believes that earnings growth in Asia and Latin America will exceed that available in the West, and the best picks lie in domestic companies serving a rising middle class.
He says the superior growth potential of emerging markets profits and share prices is partly due to the “base effect” of their currently low floor. He predicts emerging market companies will see profits rise by 12% in 2014 compared with 8% for developed markets.
The asset class has been ‘in the wars’ of late – sometimes literally with conflicts or civil unrest in Ukraine, Thailand, Turkey and the Middle East. Shares in constituents of the MSCI Emerging Markets Index have fallen heavily since the Ukraine crisis erupted, but have since bounced back.
Many investors believe the worst is over
Investor cash is flowing back into emerging markets.
Fund flows show that investors are returning to the sector, believing that the worst is over, partly thanks to elections that will lead to changes of governments or renewed restructuring in four of the world’s most populous nations. Polls are held this year in Brazil, India, Indonesia and South Africa, with business-friendly reforms high on the agenda. Meanwhile, the new Chinese government has adopted a new growth plan to focus more on restructuring.
“Emerging market stocks are way undervalued at the moment and there is cheapness all over the place,” says Pals, long-time portfolio manager of the Robeco Emerging Markets Equities Strategy.
“Earnings revisions have bottomed out and are now going up. There is hardly any profit growth in the EMEA region, but Asia and Latin America growth looks set to be in the mid double digits.”
Pals says emerging market equities are 30% cheaper than those in developed markets on the three major valuation metrics of comparing share prices to the earnings, book (asset) values and cash flow of the companies concerned.
“The valuation parameters have been very positive arguments for overweighting emerging markets over developed markets in a global equity portfolio,” he says. “Recently, earnings, macroeconomic and political momentum and sentiment – fund flows and spreads over emerging market bonds – have joined the group of strong arguments in favor of emerging markets equities.”
However, due to ongoing currency concerns, exporters will be more vulnerable than the companies that are internally serving a rising middle class with more spending power in their own countries, he says. “Domestic demand is a theme in our emerging market core portfolio; consumer discretionary is our favorite category,” he says.
“Across all sectors, cyclical sectors are doing a bit better than defensives in Asia, and we are also overweight on financial companies.”
From election fear to election cheer
“All these election outcomes turned out to be market neutral to market positive,” says Pals. “India was the one with the most positive outcome. It will be good for equities and the local currency as well.”
“So elections in emerging markets are no longer a fear factor but have become very much supportive of the asset class.”
Aside from India, Pals has a clear preference for three other nations: China, South Korea and Turkey. “Everyone talks about China as a homogenous group, but of course, stock selection is all important. Here we favor a combination of interesting restructuring stories in State Owned Enterprises, domestic consumer suppliers such as automobile makers, and internet-related names.”
“China is still growing at over 7% a year, and earnings are accelerating as well. We have to be very selective in the stocks that we pick, particularly in the financial sector, but overall, there are a lot of interesting investment opportunities.”
“We also have a long-term overweight on South Korea and we continue to be constructive from both a domestic and exporting point of view.” Pals is also overweight on Turkey, believing the worst of recent political turmoil is over, allowing the government to concentrate on the economy.
Photo: World Economic Forum. ECB Action Could Create Buying Opportunities
Mario Draghi last week signalled that the European Central Bank (ECB) stands ready to counter the threat of weak inflation in the eurozone. A top official has also been reported as saying that new measures are currently being considered, which may include a long-term refinancing operation, or a programme of asset-backed security buying.
News flow indicates that the European Central Bank is clearly worried that deflationary pressures are building and that growth is slowing. Recent gross domestic product (GDP) figures from France and Italy were disappointing and, in the case of Italy, showed a small year-on-year contraction relative to expectations for a small expansion. If you marry this with other macroeconomic headlines, and with what the companies are telling us about growth across a range of industries in Europe, it paints a pretty disappointing picture. Our assumption had been that this would be a year of growth across the eurozone, albeit tepid in nature. With yields tumbling across the eurozone, and indeed globally, bond market investors are starting to bet on a growth disappointment and equity investors are now readjusting their expectations. This helps to explain some of the intra-sector moves in markets that have been witnessed in mid-May and especially in certain stocks.
The Henderson Global Equities Team are bottom-up stock-specific investors, trying to identify stocks that we think are 50% mis-valued as we look forward 2-3 years, so such moves can potentially create buying opportunities. Any action from the ECB may also support a rise in European equities from current levels. There are a number of stocks that we currently favour in Europe. These include Italian bank UniCredit, where self-help measures are resulting in bad debts falling and costs being lowered. The company may also potentially benefit from Prime Minister Renzi’s reform agenda. We also have positions in Belgian bank KBC and Greece’s Alpha Bank. The latter is interesting because of the potential for rising margins, following the tremendous consolidation that has taken place in the Greek banking sector.
Outside of financials, we own Mediaset, which along with some cost-cutting related self-help would like be a beneficiary of any GDP recovery in the Spanish and Italian media markets. We also own Rexel, the French-listed electricals distributor. This firm would be a beneficiary of any European capital expenditure recovery, which you would think likely given the strength of corporate balance sheets and the increased tendency for this to be deployed to drive growth, as per the recent wave of announced mergers & acquisitions activity.
Matthew Beesley, Head of Global Equities at Henderson Global Investors
Please note: references to individual companies or stocks should not be construed as a recommendation to buy or sell them. These are the fund manager’s views at the time of writing and may differ from those of other Henderson fund managers.
Two researchers from the United States have claimed first prize (USD $30,000) for their study on the outperformance of diversified portfolios of index fund portfolios to portfolios of actively managed funds in S&P Dow Jones Indices’ third annual SPIVA Awards program. Second prize (USD $15,000) in the SPIVA Awards program went to a team of researchers from universities across the U.S. for their study of explicit indexing.
In its third year, the S&P Dow Jones Indices’ SPIVA Awards recognizes excellence in research on the topic of index-related applications, acknowledging researchers from around the world for exploring innovative techniques that enhance the use of indices in the financial markets. Winners are selected by a jury of academics and industry experts.
The winning paper, “A Case of Index Fund Portfolios,” published by Richard Ferri of Portfolio Solutions®, LLC and Alex Benke of Betterment, shows that an all index fund strategy in portfolios is favorable over portfolios of actively managed funds. Two distinct strategies were compared in the report: one that selects low-cost market-tracking index funds exclusively and a second that selects from actively managed funds that attempt to outperform the markets. The study revealed that the probability of outperformance using the simplest index fund portfolio started in the 80th percentile and increased over time. A broader portfolio holding multiple low-cost index funds began at close to the 90th percentile.
Honorable mention (second prize) was awarded to Martijn Cremers of the University of Notre Dame, Miguel Ferreira of Nova School of Business and Economics, Pedro Matos of the University of Virginia – Darden School of Business, and Laura Starks of the University of Texas at Austin for their research paper entitled, “The Mutual Fund Industry Worldwide: Explicitly and Closet Indexing, Fee, and Performance”. The paper examines the relationship between indexing and active management in the mutual fund industry worldwide. The findings suggest that the growth of explicitly indexed funds worldwide improves the efficiency of the asset management industry.
“As the interest in index investing continues to grow, researchers are delving deeper into the active versus passive management debate,” says David M. Blitzer, Managing Director & Chairman of the Index Committee at S&P Dow Jones Indices. “The winning paper adds a new dimension to this debate by comparing the performance of portfolios of index funds to portfolios of actively managed funds. The second paper studies how the growth in index investing has changed the competitive structure of mutual fund markets in 32 countries.”
To view the complete papers, as well as the biographies of each SPIVA Awards winner, please visit this link.
Standish, the Boston-based fixed income investment boutique for BNY Mellon, has launched a bundled solution for U.S. insurance companies that includes asset management, global custody, and insurance accounting and reporting.
Custody, insurance accounting and reporting are being provided by BNY Mellon’s asset servicing business. The new comprehensive offering meets the needs of insurance companies that require asset management and asset servicing to be bundled.
“Developing synergies between our investment management and investment services businesses enables us to meet the unique needs of the insurance segment, while also demonstrating the power BNY Mellon brings to bear across the investment lifecycle,” said Christine Todd, president of Standish and head of its insurance and tax-sensitive groups. “This is our initial offering of investment management and investment servicing as a single solution.”
The new offering enables BNY Mellon to provide investment management and investment services to a broader range of insurance companies, according to Vince Pacilio, executive vice president, BNY Mellon, and head of the insurance segment.
“We’re seeing more insurance companies looking for bundled solutions as they would rather partner with providers that offer a holistic and more comprehensive set of services,” Pacilio added.
Foto: MarcioCabraldemoura, Flickr, Creative Commons. El grupo de private equity EQT abre oficinas en Madrid
In light of the current round of “stress tests” on European banks, global investors are looking for distressed real estate debt and asset opportunities across Europe. Spain is among the most appealing European countries for such strategic investment opportunities.
K&L Gates organizes an informative program on investment opportunities in Spanish distressed real estate assets. The panelists will discuss the key opportunities and risks that such global investors should consider:
Opportunities in distressed real estate assets: from non-performing loans to real estate owned assets in Spain.
Practical aspects of the acquisition process: the view of the local experts.
Legal and tax aspects of structuring deals: investment structures for a U.S. investor.
Presenters include banking, real estate, legal, tax and policy professionals from the following companies:
Grupo Arcano – Spanish Independent Advisory Services Firm
Aguirre Newman– Spanish Real Estate Consultancy
CMS Albiñana & Suárez de Lezo – Spanish Law Firm
K&L Gates– U.S.-based Global Law Firm
The panel discussion will be followed by a Spanish wine and tapas reception. The event will take place on June 5th, 2014, in K&L Gates, 599 Lexington Avenue, New York, from 5 pm to 8 pm. Please RSVP by clicking this link. To RSVP, also contact the New York Events Team, or visit the event page on the Web.
On Monday, May 19, the Financial Stability Oversight Council (Council) hosted a conference on the asset management industry and its activities to help inform the Council’s ongoing assessment of potential risks to U.S. financial stability. During the conference, practitioners – including CEOs, treasurers, and risk officers – as well as academics and other stakeholders discussed a variety of specific issues that relate to the industry.
Opening the conference, Treasury’s Under Secretary for Domestic Finance Mary Miller noted that the Council was established to “bring regulators from across the financial system together to collectively identify, monitor, and respond to potential threats to financial stability.” She went on to note that Council members did not “come to today’s conversation with any predetermined outcome.”
Under Secretary Miller emphasized that if the Council identifies risks to financial stability posed by asset managers or their activities, it has a number of policy responses. She said: “the Council’s authorities include highlighting potential emerging threats in its annual reports to Congress, making recommendations to existing primary regulators to apply heightened standards and safeguards, and designating individual firms on a company-specific basis. If we identify risks that require action, we will seek to deploy the most appropriate remedy.” However, “it is possible that at the end of this comprehensive review, the Council may choose to take no action.”
Following her remarks, and before moving on to the panels, Norm Champ, the Director of the Division of Investment Management at the Securities and Exchange Commission (SEC), gave an overview of the asset management industry. The SEC’s presentation is available here.
The conference then moved on to the panels, each of which was moderated by a senior official of a Council member agency. The first panel, which was moderated by John Worth, Chief Economist, National Credit Union Administration, provided a discussion of investment activities and risk management practices within the asset management industry. The panelists were Kent Daniel, Professor of Finance, Columbia Business School; William De Leon, Global Head of Portfolio Risk Management, PIMCO; Itay Goldstein, Joel S. Ehrenkranz Family Professor, Professor of Finance, The Wharton School of the University of Pennsylvania; Michael Mendelson, Portfolio Manager, Risk Parity Strategies, AQR; and John Rogers, President and CEO, CFA Institute; Member, Systemic Risk Council.
The second panel focused on industry characteristics and the interaction of asset management activities with the broader financial system, and was moderated by Nellie Liang, Director of the Office of Financial Stability Policy and Research at the Board of Governors of the Federal Reserve System. The panelists were Sarah Breeden, Head of Market Sectors and Interlinkages Division, Financial Stability, Bank of England; Ken Griffin, CEO, Citadel; Barbara Novick, Vice Chairman, BlackRock; David Scharfstein, Edmund Cogswell Converse Professor of Finance and Banking, Harvard Business School; and Kim Schoenholtz, Professor of Management Practice, New York University Stern School of Business.
Finally, the third panel discussed key operational functions and what obstacles, if any, exist to resolving a failing manager or fund in a rapid and orderly manner, and was led by Lawranne Steward, Senior Counsel of the Commodity Futures Trading Commission. The panelists were John Gidman, Chief Information Officer, Loomis, Sayles & Company; Alan Greene, Executive Vice President, U.S. Investor Services, State Street Corporation; Andrew Metrick, Deputy Dean & Michael H. Jordan Professor of Finance and Management, Yale School of Management; Philip Prince, Treasurer, Pine River Capital; and Peter Stahl, Associate General Counsel, Fidelity Investments.
For additional information on the Council, please visit this link
