Despite declining fund use among advisors, traditional mutual fund managers, particularly large fund complexes, are positioned to play a leading role in the next phase of the ETF revolution, the rollout of active ETFs. This and other findings are included in a report recently released by Cogent Research, a Market Strategies International company. The report, Advisor Brandscape, is conducted annually and is based on a survey among a nationally representative sample of over 1,700 financial advisors in the U.S.
In the last six years, the proportion of advisors selling ETFs has increased dramatically, from less than half (46%) of advisors in 2007 to nearly three-quarters (73%) who use them today. In that same period, advisors’ allocations to ETFs have more than doubled, from 5% in 2007 to 12% in 2013. According to Cogent, most of the ETF gains thus far have come at the expense of mutual funds. Furthermore, for the first time ever, advisors now say they are as likely to invest new dollars in ETFs as they are to invest in mutual funds. However, as interest in active ETFs builds, it appears that traditional fund managers are well positioned to capture (or retain) a portion of future active ETF flows.
“While provider preferences certainly exist in the ETF category, many advisors remain relatively agnostic when it comes to choosing ETFs, particularly those tracking broad indexes,” says Meredith Rice, Senior Product Director and author of the Advisor Brandscape report. “However, the rules of engagement will change significantly when it comes to how advisors approach selecting actively managed ETFs. And that is where traditional active managers, even those late to the game, may find some real traction.”
While these findings may come as good news for active managers considering entry into the ETF marketplace, a potential downside is that advisors, while they are open to paying more for actively managed ETFs, expect these products to be less expensive than their actively managed mutual fund cousins.
“The potential pricing issues will certainly give some mutual fund companies pause,” says Rice. “But they need to look back over the past six years of ETF history, and ask themselves if they are willing to pass on the next wave of ETFs.”
Wikimedia CommonsFoto: bradley j. Invertir en farmacéuticas: una receta para ganar a largo plazo
The ebbs and flows of pharmaceutical stock prices relative to their underlying fundamentals over the last two decades have provided yet another example of the potential benefits of value investing. This is the main conclusion of a White Paper signed by Brandes Investment Partners, a Value Investment Specialist with nearly $25 bn under management, established in San Diego, California, in 1974.
Additionally, according to Brandes’ review, the changing performance cycles of pharmaceutical stocks underscore the patience and fortitude required to see through negative investor sentiment and industry headwinds.
The circumstances and conditions under which the pharma industry returned to favor, as shown in Exhibit 1, came amid the great recession, the storm of confusion over health care reform, and without the fanfare or arrival of any material new blockbuster drugs. This, to us, is yet another example of how the value-investing story often plays out.
Solid Businesses Bought at Attractive Prices
Like the current situation with pharmaceutical stocks’ return to investor favor,4 with a fundamental, value- based investment strategy, there is often no need for an extraordinary corporate event, exceptional execution or especially energizing macroeconomic forces for value to be recognized in the portfolio. In many cases, it is simply a solid business bought at an attractive price that is sufficient, if given the time to perform.
Brandes points out that this could be the most instructive lesson from the recent pharmaceutical cycle. It’s been said that there really are no value or growth stocks per se, just companies with fluctuating valuations at various stages of the business or market cycle. Over time they may pass in, and eventually out, of the value and growth categories. That a company’s fundamentals would gradually fluctuate over time is not especially surprising given the dynamics and vagaries of ever-changing markets and economies. The key from a value investor’s perspective is to recognize that good companies move in and out of fashion over time, purchase them when they are out of favor and under-priced, and have the discipline to sell when they reach estimates of fair value.
Pharmaceutical Industry Performance Cycles
Brandes takes a look back at pharma stocks’ performance cycles.
Almost 20 years ago, in a contentious and politically charged healthcare environment strikingly similar to today, pharmaceutical stocks sat poised on a launching pad in the eyes of investors, seemingly ready to either vault into the stratosphere or implode at ignition depending upon the fate of the pending health care reform legislation colloquially known at the time as Hillarycare. When the plan was defeated in 1994, share prices of the major pharmaceutical companies within the MSCI World Index soared starting that year and as the decade of the 1990s came to a close, as these companies were freed from the perception of potentially excessive governmental regulation and benefited from a roster of blockbuster drugs.
At the start of the new millennium, pharma share prices within the MSCI World Index hit all-time highs in the early 2000s as the growth prospects for an increasingly sophisticated and vitally important industry, just a few years away from catering to a soon retiring baby boomer generation, looked brighter than ever. Although Brandes Investment Patners were attracted to the fundamental business case for many of these companies, the high prices the market ascribed to them kept them from including these companies in the portfolios at the time.
Uncertainties Had Driven Prices Down by the Mid-2000s
As it’s inclined to do, however, uncertainty then visited the thriving pharma industry in the form of competitive and regulatory challenges, and as the first decade of the new century progressed, both the outlook and share prices for large pharmaceutical companies within the MSCI World Index changed course and fell considerably by the mid-2000s. During that time, significant market concerns including the following began to weigh on pharma share prices:
Looming expiration of valuable drug patents
Declining research & development (R&D) productivity due to longer and more expensive clinical trials and greater U.S. Food and Drug Administration scrutiny
Renewed and even more substantial healthcare reform pressures in the United States and globally
The market responded by re-rating pharmaceutical companies to much lower multiples than it was willing to apply beforehand. Suddenly, the Golden Age of Pharma was ending and the previously bright outlook for a rapidly growing industry was dimming, and their share prices responded accordingly starting in the mid-2000s, as mentioned above.
At the time the Brandes Global Equity Strategy began purchasing a number of the major pharmaceutical companies in 2004, the 12/31/2004 forward price-to-earnings ratio of the MSCI World-Pharmaceuticals had dropped to 16.2x. As is usually the case, P/Es had come down from lofty levels because the outlook for pharmas was not nearly as sanguine as it previously had been.
Fast Forward to 2013, Pharmaceutical Stock Prices Have Risen Again
Year to date through the end of the second quarter 2013, while pharma stocks within the MSCI World Index were on an upswing, their recent full cycle from high flyer, to laggard, and back again, is retracing a fairly familiar value pattern. A number of factors may have influenced renewed investor interest in pharma companies recently. These include the resiliency of the businesses amid changing investor perceptions, cash flow generation, conservative balance sheets as well as increases in dividends and share-buyback activity, as shown in Exhibit 2. Despite the recovery in share prices, Brandes Investment Partners still finds these companies attractively valued and they represent a meaningful allocation in the portfolio.
Weaving through flashing thunderstorms, our turbo-prop plane finally bounced onto the tarmac at Yangon International Airport in Myanmar during our research trip there earlier this summer. When constructed more than 60 years ago, the airport was considered among the best in Southeast Asia but it subsequently fell into disrepair and became antiquated. Modernized in 2007 with the design help of a Singaporean firm, the airport today is a bright little building with a faint whiff of antiseptic in the air. After immigration officials in dazzlingly white uniforms processed us and sent us into the steamy night, it struck us that this airport’s makeover seemed to mirror many other aspects of this once-outcast nation.
Over several decades, Myanmar’s brand of socialism had turned a land rich in rice, teak and natural resources into one of the world’s poorest nations that also faced dire political and diplomatic troubles. Only recently have sanctions been lifted following the dissolution of its oppressive military government in 2011. After three decades under this military junta, Myanmar has thrown open its doors to change. Areas such as agriculture, mining, manufacturing and tourism all appear to be bursting with potential.
Once described as the “rice bowl of Asia,” Myanmar had been famed for exports of its Paw San fragrant rice a generation ago. Its rice exports withered considerably since then but just this spring, Japan began making investments in Myanmar’s rice production, and also imported Burmese rice for the first time in more than four decades. Myanmar had also been an early oil producer, and nationalized its oil and gas industry in 1962. The industry is yet another that suffered from decades of isolation. However, just recently, the government has begun opening up to foreign exploration 30 untouched offshore oil and natural gas drilling sites. The country’s oil and gas agency is said to still be plagued by inexperience, mismanagement and cronyism, and Myanmar itself is under increasing pressure to fix its own energy shortages. But in June, the U.S. announced a new partnership with Myanmar to help “strengthen transparency and good governance” in the energy sector. The partnership aims to provide political support and technical assistance toward international best practices as well as improve financial accountability, safety and environmental stewardship.
Myanmar’s lack of infrastructure and the sheer amount of investment needed to boost it to match its regional peers is another obstacle to its success. In our view, the country’s infrastructure, although basic, is fairly solid and relatively well-maintained when compared to what we have seen in other frontier markets. The tens or even hundreds of billions of dollars of investment necessary to raise Myanmar up to a comparative regional level may be available should smooth political transitions continue. Myanmar is also strategically located, causing the need for various countries to nurture favorable relations. Many countries in the region have either maintained or rekindled longstanding relationships with Myanmar in recent years.
Myanmar’s large labor force and availability of land also offer opportunities for large-scale manufacturing activity. This could be additionally supported by the needs of many large corporations to diversify their country exposures. While we are still witnessing the very early days of this economic journey for Myanmar, we will continue to focus on developments there with great interest, including general elections and a planned opening of a stock exchange—both scheduled for 2015.
Opinion column by Emerging Asia Investment Team, 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.
Wikimedia CommonsFoto: Markus Bernet. DeAWM ficha nuevo responsable de wealth management para Latinoamérica
Deutsche Asset & Wealth Management announced today that Felipe Godard will join the firm as a Managing Director and Head of Wealth Management, Latin America, effective October 1, 2013. He will be based in Geneva, Switzerland and will report to Haig Ariyan and Chip Packard, Co-Heads of Wealth Management, Americas and into the Executive Management Board of the Swiss banking entity, chaired by Marco Bizzozero, CEO Deutsche Bank Switzerland and Head of Wealth Management for EMEA.
Ariyan said: “Felipe is an experienced and talented professional who has a deep understanding of the evolving investment needs of ultra-high-net-worth families and individuals.”
Packard added: “Latin America is strategically important to our wealth management franchise. We are excited to have Felipe join the team to lead our efforts in delivering the Bank’s global capabilities to clients across the region.”
Godard will join the Firm from Credit Suisse in Switzerland, where he was Head of Advisory, Solutions and Investments for the Latin American Private Bank. Prior to joining Credit Suisse in 2010, Godard worked for J. P. Morgan in Geneva for 11 years where he headed the Latin American Team and later took responsibility for the Eastern European and Swiss markets for the Private Bank.
In June, Dutsche Asset and Wealth Management appointed Raphael Zagury as Head of Key Client Partners and Wealth Investment Advisory for Latin America from Bank of America Merrill Lynch. Additionally, Antonio Braun joined from J.P. Morgan as a Senior Relationship Manager, focusing on the Mexico market. Caroline Kitidis joined in August as Head of Key Client Partners & Wealth Investment Advisory for the Americas from Goldman Sachs.
. LarrainVial Appoints LatAm's Fixed Income "Dream Team"
On the first of September, Pedro Laborde and Felipe Rojas will become part LarrainVial’s team, one of the leading financial institutions in Latin America.
Rojas has agreed to join LarrainVial AGF to be in charge of the Latin American corporate debt funds, and will do so just a few days after leaving Cruz del Sur, where he earned the honor of becoming the only Latin American in Citywire’s global list of top 1000 mutual fund managers.
Pedro Laborde, who has extensive experience in the investment area and has worked with Rojas for a long time, will serve as manager for Credit Strategies.
Rojas’ duties will begin on the 1st of September, as he commented to Funds Society.
With a presence in Chile, Peru, Colombia and the United States, LarrainVial, which was founded in 1934, is one of the oldest and most important investment firms within the Chilean market. It currently manages assets worth 14,400 million dollars.
Wikimedia CommonsFoto: Sasha Kargaltsev. GAIN Capital contrata a Peter Cronin como director Ventas Institucionales para EMEA
GAIN Capital Holdings, a global provider of online trading services, has appointed Peter Cronin as Managing Director and Head of EMEA GTX Sales. Peter Cronin will be responsible for growing GTX, GAIN Capital’s institutional business, in Europe, the Middle East and Africa. He will report directly to Executive Vice President and Head of GTX, Joseph Wald, and has begun his new role in GTX’s London offices starting August 5th.
“Peter is an accomplished and talented banking professional who is moving to the FX ECN business at a time when the global foreign exchange industry is undergoing many exciting changes,” said GAIN Capital Executive Vice President and Head of GTX, Joseph Wald. At GTX, Peter Cronin will specifically be responsible for growing the institutional client base and ECN volumes, and building out the EMEA sales team.
Previously, Mr. Cronin was Head of EMEA e-Commerce at UBS Investment Bank, where he managed a 16-person sales team situated in Zurich, Lugano, Dubai and the United Kingdom. Mr. Cronin joined UBS in 2000, and during his 13 years tenure held senior roles focused on developing the bank’s e-Commerce business.
On July 16th, GTX reported average daily institutional volume of $18.4 billion for June 2013, an increase of 10% from May 2013 and 137% from June 2012.
Nick Hamilton. Nick Hamilton, Invesco Perpetual's Head of Global Equities, Leaves Firm.
Nick Hamilton, Head of Global Equities at Invesco Perpetual, has decided to leave the firm and return back to his homeland country, Australia, where he will be responsible for Business Development in Colonial First State. Invesco Perpetual has informed that Nick Mustoe, CIO of Invesco, together with other team members of the global equity team will take over Hamilton’s duties.
Hamilton, who left Invesco Perpetual in the month of April, worked with Invesco for 10 years, previously as Product Director for UK Equity. Before that he worked at Rothschild Australia Asset Management and Thomson Reuters, according to Citywire.
Wikimedia CommonsBy Kevin.B. ING US IM Appoints Bas NieuweWeme as Managing Director and Head of Institutional Distribution
ING U.S. Investment Management has appointed Bas NieuweWeme as Managing Director and Head of Institutional Distribution. NieuweWeme, who reports to Shaun Mathews, Executive Vice President and Head of the Client Group, will oversee all aspects of the institutional business, setting strategic direction across U.S. and international sales, consultant relations, RFPs, client service and relationship management.
“Bas is uniquely qualified to lead our institutional business and – together with his team – will continue to build on the positive momentum we have achieved across our distribution channels. In the first half of 2013, ING U.S. Investment Management generated third-party net flows of $5.8 billion, and third-party assets under management have grown to $110 billion as of June 30, 2013, compared to $91 billion a year ago”, said Mathews.
NieuweWeme has worked at ING for 13 years, most recently as Senior Vice President and Head of Institutional Sales with ING U.S. Investment Management.
Earlier in his career, NieuweWeme held various domestic and global marketing and sales roles for ING. Prior to joining ING, he worked for the tax consultancy group at PricewaterhouseCoopers. NieuweWeme holds an Executive MBA from the New York University Stern School of Business and a law degree from the University of Amsterdam, School of Law.
ING U.S. Investment Management, which plans to rebrand in the future as Voya Financial, is a subsidiary of ING U.S., Inc. and has approximately $190 billion of assets under management.
Foto: Daniel Christensen . Testa vende Sabadell Financial Center de Miami por unos 190 millones de dólares
Wharton is hosting two events in Miami on August 13th, a Diversity Presentation followed by a General Admissions Presentation for the Wharton MBA program.
Diversity Presentation
Wharton invites you to a private reception with current Wharton students and local South Florida alumni. This event provides a wonderful opportunity for prospective students to learn more about Wharton’s diversity networks for African American, Latino/Hispanic American and Native American students. Afterwards, you can join the general Wharton information session immediately following the reception.
Immediately after de Diversity Presentation, The Wharton Club of South Florida hosts the Wharton Full-Time MBA Admissions presentation. Enjoy an evening with local Miami alumni as they share their personal Wharton experiences and help to answer your questions.
According to preliminary figures from ETFGI’s Global ETF and ETP industry insights report, near record net inflows of US$44.08 billion and strong market performance helped to push global ETF and ETP assets to US$2.16 trillion at the end of July 2013. There are now 4,883 ETFs/ETPs, with 9,925 listings, from 209 providers listed on 57 exchanges.
“Dovish comments from the Fed and positive market performance encouraged investors to put net inflows of US$44.08 billion back into the market through ETFs/ETPs” according to Deborah Fuhr, Managing Partner at ETFGI.
Equity
In July, Equity ETFs/ETPs gathered the largest net inflows with US$41.62 billion. North American/US equity ETFs/ETPs gathered the largest net inflows with US$32.99 billion, followed by European equity indices with US$3.51 billion, and developed Asia Pacific equity with US$1.82 billion.
Fixed Income
Fixed income ETFs/ETPs experienced net inflows of US$5.1 billion. High yield ETFs/ETPs gathered the largest net inflows with US$3.0 billion, followed by government bonds with US$2.2 billion, and corporate bonds with US$868 million, while inflation-linked fixed income ETFs/ETPs experienced the largest net outflows with US$650 million.
Commodity
Commodity ETFs/ETPs saw net outflows of US$2.72 billion. Precious metals ETFs/ETPs experienced the largest net outflows with US$2.19 billion, followed by energy, and agriculture with net outflows of US$223 million and US$175 million, respectively.
Providers
SPDR ETFs ranks first based on July net inflows with US$17.8 billion, and fourth YTD with US$11.8 billion. Meanwhile, Vanguard ranks first based on net inflows YTD with US$36.17 billion, and third in July with US$7.31 billion. iShares ranks in second place for both July and YTD net inflows, with US$10.9 billion and US$32.47 billion, respectively. WisdomTree and PowerShares rank in third and fifth place in YTD net inflows with US$11.85 billion and US$9.61 billion, respectively.
