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In this video, Investment Solutions’ Tom Steenkamp discusses Robeco research showing that the traditional small-cap, value, low-volatility and momentum factors not only improve equity portfolio efficiency but also work for credit and commodity portfolios.
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MSCI, a leading provider of investment decision support tools worldwide, including indices, portfolio risk and performance analytics and corporate governance services, announced today that it has hired Chris Corrado as Chief Information Officer (CIO). Based in New York, Mr Corrado reports to MSCI’s Chairman and CEO, Henry Fernandez, and is a Managing Director and a member of the firm’s Executive Committee.
“The creation of a Chief Information Officer position marks an important step in the evolution of our firm,” said Mr Fernandez. “With over 30 years of experience in some of the most technologically sophisticated companies in the world, Chris will play a key role in ensuring that MSCI continues to offer our clients leading-edge products and services that are targeted to helping them achieve their business goals.”
Prior to joining MSCI, Mr Corrado was a Managing Director and Head of Platform Services at UBS where he oversaw technical infrastructure, global production services, application platform services and IT services. Mr Corrado started his career at IBM in 1981 before joining Morgan Stanley in 1985 where he spent over 11 years in a number of senior technology positions including CIO for Europe and Asia. He subsequently held CTO positions at Deutsche Bank and Merrill Lynch for five years. Between 2003 and 2012 he held CIO/CTO positions at Asurion, a technology insurance company, and at eBay and AT&T Wireless.
Mr Corrado’s appointment follows the recent hiring of Darla Hastings as Chief Marketing Officer, as the firm expands and strengthens its senior leadership team.
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A few weeks ago, my curiosity over Macau’s transformation since my last visit led me to hop a ferry there from Hong Kong during a hard rain. In particular, I wanted to see firsthand all the new casino developments underway in Macau’s Cotai neighborhood.
The last time I toured Cotai in 2010, I recall being overwhelmed by the sheer powerful presence of its big-time, VIP game players. Steve Wynn was in town that day for a grand opening and serious, hard-core gamblers were all there were. VIPs would spend millions overnight at the baccarat table. Back then, insiders would tell me that in Macau, unlike in Las Vegas, people came strictly for the gambling and non-casino entertainment facilities were not needed. Indeed, Macau’s casino revenue has grown from US$10 billion in 2007 to US$38 billion in 2012, and revenues from the beginning of 2013 to August were up 16%.
But while the casino business may be showing healthy returns, Macau’s newest growth area has been in related, non-gaming hospitality businesses. Massive hotel construction projects are underway to accommodate the region’s ever-growing number of visitors—not only VIPs, but also a rising number of family tourists. Visitors to Macau reached 28 million in 2012, up from about 23 million in 2009. Several factors seem to be driving tourism flows, including Macau’s improved infrastructure, its more affordable and family-friendly hotel rooms and increasing entertainment events. Pop musician Justin Bieber is scheduled to perform at the Cotai Arena this month, and November brings one of the year’s biggest professional boxing matches to the Arena.
In terms of infrastructure, border checkpoint areas to Macau such as the Gongbei Border Gate have recently been expanded, and new facilities may soon increase daily capacity to 350,000 visitors, up from approximately 270,000 today. Other projects include a new Macau light rail system and a 26-mile bridge and tunnel project, due for completion by 2016. This bridge-tunnel will connect Hong Kong International Airport to Macau, and is expected to cut car travel time between both sides of the Pearl River delta from four hours to just 45 minutes.
With seven more casinos slated to open by 2017, the number of hotel rooms should increase to 41,000, up from approximately 25,000 currently. New development projects are also planned on nearby Hengqin Island, which is just one bridge away from Macau. These include golf courses, theme parks and aquariums.
What is most impressive about Macau today is the strong sense of collaboration and commitment from all involved parties: both Macau and mainland Chinese government officials and casino operators. While Asia’s other gambling centers (Singapore, Malaysia, Cambodia and the Philippines) have also seen waves of notable development in recent years, Macau, in my opinion, should be recognized as the gold standard of the gaming space in Asia.
Opinion column by Taizo Ishida, Portfolio Manager at Matthews Asia.
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
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Obesity rates and related chronic diseases have risen at an alarming rate, straining healthcare systems. To help address this problem, RobecoSAM’s Governance & Active Ownership team launched an engagement initiative to encourage food producers and retailers to offer healthier products. Engagement Specialist Michiel van Esch and Analyst Peter van der Werf discuss some of the key findings from the past year of shareholder dialogue, and looks ahead to the improvements they anticipate in the coming years.
Obesity puts a spotlight on food companies
Though obesity is caused by a combination of factors: an unbalanced diet, a lack of physical activity and genetics, food companies have borne the brunt of the blame as many stakeholders link obesity to the widespread availability of unhealthy processed foods and sugary drinks. Food companies that fail to respond to regulatory and consumer pressures aimed at tackling obesity face reputational risks and a negative impact on sales. But by being fully transparent about their products’ ingredients and nutritional value, companies can play an important role in providing consumers with healthier food options while benefitting from market opportunities related to the desire for a healthier lifestyle.
Solutions begin with awareness
RobecoSAM kicked off their engagement efforts by determining whether companies recognize obesity – and childhood obesity in particular – as a challenge that requires their attention. They found that all targeted companies publicly acknowledged the obesity challenge in their sustainability reports, annual reports or websites and were already taking steps towards developing healthier food products. Examples include CocaCola, which has been innovating with natural sweeteners and Unilever, which has been gradually reducing the amount of fat, sugar and other unhealthy ingredients from its products.
Their discussions with companies revealed that in many cases, management is keenly aware that health concerns may reduce demand for products considered to be unhealthy. More importantly, companies understand that reducing fats, sugars and salts without compromising on taste can create a competitive advantage.
Engagement focus on company-wide obesity strategy
RobecoSAM focused its engagement efforts on broader objectives such as encouraging food producers to establish and disclose a companywide strategy to tackle obesity, set quantitative targets for developing healthier products, and commit to responsible marketing practices. Some companies are already taking steps in this direction. H. J. Heinz is developing an internal database to enable it to quantify and report on its global progress toward reducing unhealthy fat and calories and increasing nutrients such as calcium and fiber. Such an initiative as goes beyond focusing on a small a selection of the company’s healthiest products and truly allows the company to measure its progress on developing healthier foods across all product lines.
What next? Marketing practices offer room for improvement
RobecoSAM’s preliminary assessment is that most companies are taking some steps in the right direction, but there is a grey area between box ticking and a true commitment to improving the nutritional quality of food products.
But how are companies promoting their product lines? Children, in particular, are easily influenced by advertising, especially when popular cartoon characters and toys are used as a marketing tool. By adopting responsible marketing practices, companies have the opportunity to demonstrate their true commitment to tackling obesity, thereby avoiding reputational risks that can affect long term shareholder returns. Therefore, for the remainder of RobecoSAM’s engagement efforts over the next year and a half, they will focus on just that: the scope and relevance of companies’ strategies for tackling obesity and their commitment to responsible marketing practices.
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Young wealthy investors are investing less of their portfolio in the stock market and more in alternative assets versus older investors. That was a key finding of a recent Accredited Investor Survey conducted by iCrowd. The survey confidentially polled a large sample of accredited investors – investors with over $1 million in investable assets, excluding the value of a primary residence, or individual annual income exceeding $200,000 – aged 18 and older. The survey gathered information about investors’ approaches to asset allocation, trust in Wall Street and the financial community, key investment decision drivers, and general awareness of online investment opportunities.
Wealthy Young Investors Fear the Stock Market, Turn to Alternative Investment Opportunities
According to the survey, 49% of young accredited investors (ages 18-29) are currently invested in private company securities (private placements and angel investments) compared with 21% of 45-60 year olds. Young accredited investors are also more interested in alternative investments. 18-29 year olds have allocated 7% to both private equity and hedge funds, in comparison with their senior counterparts, who have allocated only 4% and 2% respectively to the same asset classes. And with an average of only 30% of young investors’ portfolios in equities, as opposed to 48% of baby boomers, results suggest that the Facebook generation may be more receptive to less traditional asset groups.
The Facebook Generation’s Perception of Wall Street
While wealthy millennials allocate less to stock market investments, 22% of 18-29 year olds believe Wall Street firms act in their best interest while only 10% of 45-60 year olds and 12% of 60+ accredited investors indicated that they trust Wall Street firms.
“When it comes to investing, the Facebook generation takes a less traditional, and much more open approach than their parents did,” said Brad McGee, co-founder of iCrowd. “Young accredited investors are seeking diversified opportunities outside of traditional equities in order to protect and grow their nest eggs.”
Cause-Related Investing is a High Priority for Wealthy Millennials
More than one quarter of young accredited investors rank investing in a business that supports the local community as a top factor when making investment decisions, as opposed to 11% of total respondents. The importance of cause-related investing for millennials is not a new trend. According to the American Dream Composite Index, “Individuals ages 24-35 are much more likely to participate in traditional crowdfunding campaigns; those over 45 are significantly less likely to back campaigns.”
“Reward-based crowdfunding has been successful because it’s predicated on establishing emotional connections with donors,” said Brad McGee. “Investment crowdfunding is likely to find a niche with investors who want to allocate a portion of their portfolios to companies that create financial opportunities and whose values they support.”
Tech-Savvy Young Investors are More Attuned to Online Investment Opportunities
Markedly, forty-four percent of digital natives are aware that some online securities brokers allow investors to view investment opportunities in private companies, as opposed to 38% of baby boomers. The results suggest that digital natives are more aware of online investment opportunities, and 37% would consider investing in private companies and startups through an online securities broker.
Where Age Doesn’t Matter
With changes in securities regulations went into effect in September, small businesses are allowed to advertise when they seek capital, but they may accept investments only from “accredited investors,” who presumably have the resources to bear the risks and illiquidity of small company investments.
Regardless of age, 71% of accredited investors 18 and up who responded to our survey do not know they are considered accredited, and thus, eligible to invest in certain asset classes. The recent lift on the ban on general solicitation opens myriad doors for these investors, which they might ignore simply because they are unaware they qualify.
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Recent bond yield spreads are signaling familiar territory, though US equity REITs have a decidedly different plan of action during this credit cycle, according to Fitch Ratings in a new report.
Bond yield spreads between equity REITs and corporate industrials have tightened to levels last seen during 2006-2007, the tail end of the last REIT credit cycle. However, a closer look by Fitch shows that equity REIT behavior has changed markedly over the last six years.
For one, “REITs are showing less tolerance for development risk, a likely byproduct of the economic crisis,” said Director Stephen Boyd. “While most REITs have sufficient access to capital to fund development, their hesitation to grow pipelines aggressively has more to do with a desire to preserve financial flexibility by limiting their exposure to non-income producing assets.” REITs are also showing less enthusiasm for share repurchases during this cycle, a more discerning approach that Fitch views as a credit positive.
Another notable change that Fitch has observed is a conscious move away from the “bigger is better” diversification strategy, utilized by some REITs during the last credit boom. ‘The REITs of today are diversifying in a more prudent and thoughtful manner that plays more to their strengths,’ said Boyd.
So what are the primary concerns that should be foremost on investors’ minds during this REIT credit cycle? They are a combination of risks both familiar and new, according to Fitch. In addition to the recurring threat of higher interest rates, REITs of 2013 are also contending with changes in tenant space usage requirements and leasing patterns stemming from technological developments that, for the most part, they did not encounter six years ago. That said, the generally more prudent approach to portfolio and liability management has positioned equity REITs well for the foreseeable future.
The report “Contemplating the REIT Credit Cycle” is available here.
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KKR, has announced a transaction to acquire Avoca Capital, a leading European credit investment manager with approximately $8 billion in assets under management. Financial terms of the transaction were not disclosed.
Founded in 2002, Avoca has a long track record as one of the leading investment firms in the European leveraged credit markets. Avoca invests across five strategies — European loans and bonds, credit opportunities, long/short credit, convertible bonds and structured and illiquid credit. The Avoca platform has experienced strong inflows in recent years as institutional investors seek access to credit asset classes with a focus on attractive returns and downside protection.
Henry Kravis and George Roberts, co-founders and co-CEOs of KKR, stated: “We believe the European credit space offers significant opportunity. To date we have built our European credit business focused on originated credit opportunities such as private credit and special situations, providing $2 billion of capital in just the last two years to European companies.”
“Avoca has a very strong track record, an entrepreneurial management team and excellent capabilities that are complementary to ours in European senior and liquid credit. This acquisition will enable us to expand our credit platform to offer a full spectrum of credit opportunities globally for our clients.”
Alan Burke and Dónal Daly, co-founders of Avoca, stated: “European credit markets are likely to grow significantly over the decade ahead as banks deleverage and take time to rebuild their capital bases. This transaction creates a broad based credit business that will be at the forefront of the developments in European credit markets in the years to come. We are very excited by the enhanced opportunities the transaction will bring for the Avoca team and its clients.”
As European banks have shifted assets to comply with Basel III regulations on capital and leverage, alternative capital providers that are able to make longer term investments are providing financing to European companies while providing institutional investors with the returns they need to pay their pension and insurance obligations.
Upon closing the transaction, KKR will have approximately $28 billion in credit assets in its multi-strategy credit platform operating globally in San Francisco, New York, Dublin, London and Sydney. The combined European credit business will have approximately 80 people on the ground and €8bn ($11bn) of European credit assets ranging across the entire capital structure in credit from senior loans to long short credit, structured credit, mezzanine, special situations and convertible bonds.
Alan Burke, Avoca co-founder and CEO, will lead KKR’s European credit platform and together with Nat Zilkha will help drive the future growth of KKR’s global credit business. Both Alan and Nat will report to Craig Farr, who has responsibility for KKR’s global credit and capital markets businesses. Dónal Daly, co-founder and Chairman of Avoca, will become a Senior Advisor to KKR at transaction close.
All Avoca employees in Dublin and London will join KKR on transaction close. Investment teams and processes for both KKR and Avoca, including the portfolio management of the respective firms’ strategies, will remain unchanged by the transaction. Avoca’s Dublin office will remain a core part of the combined franchise. The transaction, which is subject to customary regulatory approvals, is expected to close in the first quarter of 2014.
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Salamanca Group has together with existing management, acquired the Investec Trust group of companies from Investec Bank for an undisclosed consideration. Investec Trust Services currently has over £4.5 billion in assets under administration. The transaction is subject to regulatory approval.
The business will be run as a stand-alone division, and will be re-branded Salamanca Group Trust Services. It currently has offices in Jersey, Switzerland, South Africa and Mauritius and employs around 100 people, administering some 600 trust structures on behalf of clients. Clients include high net worth individuals and entrepreneurs; financial and professional intermediaries; family offices and corporate entities. Additionally the business regularly partners with specialist legal and tax advisers to achieve bespoke solutions for clients.
Commenting on the acquisition, Martin Bellamy, Chief Executive of Salamanca Group said: “The addition of Trust services has been a strategic objective for Salamanca Group for some time and having undertaken an extensive analysis of the market place, the Group concluded that the acquisition of Investec’s Trust business represented the ideal opportunity. We have bought a business with a first class management team and the highest levels of corporate governance.”
Avron Epstein of Investec Bank plc said: “As a professional services business we feel the trust company would benefit under independent ownership. We believe Salamanca, together with management, is best placed to take this business forward and to provide certainty and clarity to our clients and people. The professionalism and excellent service our staff have demonstrated throughout is testament to the strength and quality of the business. We wish them all the best and look forward to continuing our mutually beneficial relationship with the trust company.”
Salamanca Group Trust Services will offer the following services:
Martin Bellamy added: “Salamanca Group’s primary focus is establishing long-term, trusted relationships with our clients. This acquisition provides the Group with another significant medium through which to achieve this, expanding our offering to include a comprehensive range of high-end, tax compliant wealth preservation and succession planning services. There are also clear synergies with our existing business – particularly our Advisory and Private Client divisions. There will be no changes for existing clients nor will the other relationships with Investec be affected. We will work with management to build on the business’ solid foundations to create the pre-eminent Trust provider, distinguished by our core principles of integrity and agility.”
Xavier Isaac, CEO of Investec Trust Division said: “The acquisition by Salamanca Group and our existing management of the Investec Trust Group is a fantastic opportunity to deliver on our vision. High and ultra-high net worth individuals are no longer looking for traditional trust and fiduciary services in an increasingly complex environment. They expect independent thinking and high touch administration services complemented by multi-family office capabilities. By joining forces with a dynamic company like Salamanca Group, we will retain the entrepreneurial spirit that characterised us when we were operating under the Investec banner.”
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In the short term, the market seems to be just focusing on what’s going on in the Washington theatre. But what consequences will it have in the following weeks? Ignacio Pakciarz, CEO of BigSur Partners, a multi family office based in Miami, speaks with Funds Society about their views on this issue from an investment strategy point of view.
“We are concerned that holidays retail sales might be soft, as these should occur right before another potential government shut-down”
“The deal most probably to be finally passed will no doubt be a game of deadlines, with no real long-term structural solution tackling”, affirms Mr. Pakciarz, highlighting that “in 2-3 months from now, we will have another similar Washington horror show”.
BigSur Partners’ CEO lists some of the clear consequences of this political uncertainty: a lower level of consumer confidence, a rise in volatility to reflect a more normal environment and a lower level of investor sentiment in the US. “We are concerned that holidays retail sales might be soft, as these should occur right before another potential government shut-down”, he expresses, pointing out that the market is also starting to see some rotation outside of US Equities vs. International Equities, “mainly Europe, as German’s IFO survey at best level since the European crisis started”.
“The S&P 500 needs good fundamental news to move sensibly higher”
On the other hand, earnings revisions are pointing down. BigSur Partners sees a 3Q2013 earnings report that is mainly weak with S&P500 earnings expected to grow only 1%, and “revisions that at this point are coming down as we have a mixed picture, with a few large cap companies like Pepsi or Johnson & Johnson over-performing while others like Citigroup, Coca-Cola, JPMorgan Chase and Alcoa have underperformed.” Mr. Pakciarz asks himself the following question: Can the market continue to trade higher on market multiple expansion?
Regarding the delay of tapering Mr. Pakciarz considers that the Fed already made a big mistake in its communications with the market in May, provoking a sharp spike in market and mortgage rates, that it does not want to repeat. “We think Yellen’s Fed will ensure easy monetary policy continuation and delay tapering. However, after a great 2013, a great 3rd quarter and a great October, the S&P 500 needs good fundamental news to move sensibly higher.”
As a conclusion, BigSur Partners offers some advise for the following weeks: “From a strategic point of view, we maintain a portfolio positioning for a “reflationary” environment (long stocks, real estate, real assets and credit). From a tactical point of view, if the market trades up to a 1725 level and is unable to break that level, we think that the 4Q2013 could be disappointing on a fundamental level. We consider reducing our “Overweight” position in US Equities and rotating into lower valuation European and Emerging Markets stocks.”
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It was Mark Twain, in Pudd’nhead Wilson, who originally suggested that October is a dangerous month to speculate in stocks. He, of course, went on to suggest that every month of the year is ‘peculiarly dangerous’, in effect. This October seems to follow the phenomenon: there is a rather nervous feel to European markets, but almost solely due to political uncertainty rather than the imminent results season.
Politics has loomed its head across markets, with Italy in particular hit by concerns over recent attempts by the despicable Mr Berlusconi to avoid imprisonment. In the Netherlands, politics is an increasingly volatile game, while in Austria the populist ‘Team Stronach’ party, which campaigned on a mandate to split the euro by national borders, has won seats in parliament. In France, President Hollande continues to plumb new depths of unpopularity, and in the UK politics remains a threat to stability. Even Germany’s Chancellor Merkel is being forced to compromise with the left-leaning SPD in order to form a coalition, despite a very strong showing for her party in the recent elections.
Just in case all this is not enough to make markets nervous, party-political infighting over where to apply spending cuts has forced the US government to shut up shop for an indeterminate period.
If this all sounds familiar; it should. It was the same last year.
The result this time around is a sharp increase in short-term uncertainty, which throws a cloud over recent economic data and companies’ statements, which indicate that conditions are improving. Suddenly, the obvious inflow of funds to European markets could be checked by concerns that we might be close to launching into another Euro crisis.
My view is that the next few months may be tense, but the benefits of taking tough decisions on austerity are beginning to show. The only party in Germany that wants to exit the Euro, the AfD, failed to reach the 5% threshold needed to enter the Bundestag, and generally there is optimism that the eurozone has already passed through the worst. That some parts of the electorate want to return to previous failed policies seems a contradiction, given that economies in the region look to have finally turned the corner.
Part of the market thrives on uncertainty and changes of direction provide renewed opportunities to trade on conflicting investor sentiment, at least for a while. Certainly, after the strong share price gains we have seen so far in 2013, a period of consolidation is both healthy and quite likely. There is also evidence that a significant part of the funds flowing to European Equities has been by way of the ETF market, which has been shown to be a flaky, somewhat artificial means of ‘investing’. These investor flows might just as quickly run in the opposite direction, reversing a trend that has been in place for several months.
So prepare for a nervous few months and watch developments carefully. It may be difficult to filter out reality from the noise. My suspicion is that Italy will have a working coalition in the not too-distant future, which will get to grips with some of the many pressing issues that need addressing. Germany is likely to see a Merkel-led coalition, which will continue to press on with measures to reform and reflate the German economy, while also preparing for more debt write-downs in some of the peripheral countries of Europe. In the UK, we may still be wrestling over whether or not we want to be part of Europe, or part of some fantasy world.
In the meantime, the US government might reopen for business, after settling on a compromise agreement that allows difficult decisions to be postponed another year.
In this period, I recommend that investors look at where quality companies are trading and what returns they may be able to offer to patient investors over the next few years.
Opinion column by Tim Stevenson, Head of Equropean Equity at Henderson Global Investors