Pixabay CC0 Public DomainJackmac34. Institutional Investor Journals to Join Pageant Media
Pageant Media, the business information specialist, acquired the Institutional Investor Journals (II Journals), a business which produces in-depth, original and practical research in global investment and finance aimed at professional institutional investors. The portfolio consists of 12 titles, covering various disciplines in portfolio management and has an extensive online archive of almost 10,000 research articles. The Journal of Portfolio Management is the flagship title, recognised as the authoritative practitioner research title.
Pageant Media is one of the financial sector’s fastest growing providers of intelligence and insight. The company, founded in 1998, provides membership services offering senior professionals – across a range of industries, including hedge funds, mutual funds, private equity and real estate – exposure to market leading news and analysis, data and events.
This acquisition provides Pageant Media with synergy opportunities within its existing market-leading products, notably Fundmap, HFM Global and Fund Intelligence, and will increase the company’s reach in the institutional investment space.
Commenting on the announcement, Charlie Kerr, Chief Executive of Pageant Media, said: “The II Journals are recognised across the asset management sector for their excellence in providing senior professional investors and leading academics with informed and thought-provoking technical analysis. We look forward to investing further in these titles and are excited to begin thinking about the ways in which the specialist knowledge exhibited in these journals can bolster the growing information and networking services we provide to our hedge fund, private equity, real estate and mutual fund communities.”
Institutional Investor Journals were previously owned by Euromoney Institutional Investor, with the business located in New York. Staff will join Pageant Media’s New York offices.
CC-BY-SA-2.0, Flickr. Mexican Afores Will Be Able to Invest in International Mutual Funds Next Year
International managers have a new reason why to look into Latin America’s second largest economy. It is expected that next January, Mexican Afores will be allowed to invest in international mutual funds.
Carlos Ramirez, president of the National Commission of the Savings System for Retirement (Consar), told Funds Society that “when looking to invest with an international manager we are looking for better returns, which we have seen so far with the mandates… Mutual funds are a mirror of the mandates and what we are really opening is another option to invest abroad, especially for the small and medium afores.”
He considers that mutual funds are a cheaper and more used worldwide alternative than the mandates. “What we are doing here is expanding the range to allow for a greater diversification and allowing all the afores to use these new vehicles to gain greater diversification.”
Authorization process
According to Ramirez, the authorization process of the mutual funds in which to invest will not be, as in the Chilean case, with a regulator based Risk Assessment Committee, but rather, the responsibility of the interested afore to demonstrate that the vehicle they want to invest in is adequate, as is now the case with ETFs.
Previously, in order to invest in ETFs, they had to be reviewed and authorized by Consar. Nowadays however, the process is done by Allfunds and the Afore’s association, the Amafore. “An intermediate mechanism that Amafore has will be used to see if mutual funds comply with the investment rules, Ramirez said.
According to a market player who preferred to remain anonymous until more information is available, “the Consar should make the rules the firms need to comply with in order to have eligible funds very clear, otherwise the market might get overwhelmed with firms that are not going to commit with the development of the industry here in Mexico.”
Franklin Templeton’s Manuel Alvarez told Funds Society that this is something the Amafore has been working on for over a year. “Of course we believe this is a positive thing, given it makes it so all the afores can have access to these vehicles, whereas before, not all of them had the capabilities to hire a mandate. Eligibility requirements should be quite restrictive at the beginning but, it is a start.”
Juan Manuel Hernandez, Vanguard Mexico’s CEO said: “One of Vanguard’s core principles of investment success is balance. The idea of balance encompasses both a suitable asset allocation and diversified investments. This new policy – once approved – will further help Mexican afores seek balance in their portfolios and ultimately, achieve their investment goals.”
Photo: Pxhere CC0. Cooperation Between Fundinfo and UBS Fondcenter for Fund Data Management
UBS and its group company Fondcenter have commissioned fundinfo to procure and source fund data from fund providers and asset managers. In order to provide efficient, legally compliant investment advice, UBS Fondcenter’s external and internal partners require on-demand access to complete, accurate and up-to-date fund information, including MiFID II and PRIIPs data. They also rely on the openfunds standard for fund data that was launched and is being continuously enhanced by UBS Fondcenter, Credit Suisse and Julius Bär.
“Fundinfo has many years of experience in the procurement, validation and distribution of fund information and meets our high quality requirements”, says Christophe Hefti, head UBS Fondcenter at UBS Asset Management. “By partnering with fundinfo, we can concentrate on our core competencies and expand our range of services, including data preparation. At the same time, we are providing fund providers with an experienced partner for high-quality fund data and document management.”
“After working successfully with UBS Fondcenter for many years in the area of fund document management, we are pleased and proud that UBS Fondcenter has now placed their trust in fundinfo to perform their fund data management” says Jan Giller, Head of Sales & Marketing at fundinfo. “It is a privilege and a strong testament to our capabilities that the largest asset manager in Switzerland has chosen to work with fundinfo to procure their fund data”.
Wikimedia Commons. Citi Wealth Management Reorganizes its Model Based On its Clients' Residency
Latin America will be the pioneer region in the reorganization launched by Citi Wealth Management, which will go from having a model based on the offices to having a geography-based scheme, industry sources told Funds Society.
The Cluster market model will consist of designating specialized managers according to the clients’ residency. Thus, strategy, growth channels and business model, in addition to regulatory and market updates, will be borne by the SCE Market Heads, experts focused on each market.
Financial advisors at each office will continue to report on their daily tasks in each place.
Juan Guillermo Ramírez, current director of Citi Wealth Management Latin America, will be in charge of leading the changes in the region and launching this new model.
The South Cluster for residents of Argentina, Uruguay and Paraguay will be centered in Montevideo, adding to the efforts of the Miami and New York teams. Rodolfo Castilla, current director of Citi Wealth Management Southern Cone, will be in charge of the new structure.
Miguel Gross, will be in charge of the follow-up of customers residing in Chile. The countries of the Caribbean, Central America, Colombia, Ecuador and Venezuela will form the third Latin American Cluster of Citi and Brazil and Peru the fourth.
Photo: Michael Dejana and Adelfa Rosario . Bolton Adds New York City Team with USD 315 Million AUM
Bolton Global is pleased to announce the addition of a New York City based team with more than US$ 315 million in client assets. Adelfa Rosario and Michael Dejena, formerly with Safra Securities and Safra Asset Management, have formed AiM Fidelis Wealth Solutions located at 555 Madison Avenue. They each have over 35 years in the wealth management business serving clients in the US, Europe and Latin America.
Ms. Rosario began her career in 1980 at The Bank of New York in Manhattan. She then joined Citibank International Private Banking in 1983 where she managed high net worth and ultra high net worth clients. Adelfamoved to Barclays Bank International Private Banking in 1990 until it was acquired in 2002 by Royal Bank of Canada (RBC) where she remained for 13 years. The team joined Safra after RBC’s exit from the international wealth management business in 2015.
Mr. Dejena played a key role in establishing the discretionary investment business of Royal Bank of Canada (RBC) International Wealth Management where he was responsible for US$ 2.0 billion in client assets. He was Chief Investment Officer, Chairman of the Investment Committee and a member of the Executive Committee. He was Co-Chair of RBC’s International Wealth Diversity Council and played a key role in promoting a diverse workplace.
Adelfa has been recognized for achievements throughout her career including thirteen consecutive nominations to RBC Chairman and Executive Council’s awards. She is a graduate of New York University Stern School of Business and holds FINRA licenses Series 7 and 66. She resides in New York City with her two daughters and family. She is a member and donor of the Museum of Modern Art, Metropolitan Museum of Art and The Brooklyn Botanical Garden.
Michael is a graduate of Fairfield University and holds FINRA licenses Series 7 and 65. He speaks Spanish, Portuguese and Italian. He resides in New York City with his son and family where he is a member and supporter of the Museum of Modern Art and the Metropolitan Opera.
Clearing and custody for AiM Fidelis’ client accounts will be through BNY Mellon Pershing. The addition of the AiM Fidelis team continues a successful year in Bolton Global‘s growth. In 2017, the firm recruited wealth management teams in the US with over US$ 2.2 billion in client assets.
Foto cedida. It’s That Time of Year…For Tax Loss Harvesting
December has historically been a very favorable month for the US equity markets. Whether this is due to the big institutional money managers being strongly incentivized to help the market end the year on a positive note, or just from the psychological boost that comes from the holidays, we may never truly know. What we do know is that the last couple of weeks of the year can bring some additional selling pressure on stocks that have had sharp declines during the year. Very simply, this is caused by tax-loss selling, a process where investors that are subject to U.S. tax laws will “harvest” (i.e. sell) positions that have a loss in order to reap a tax benefit. For those holding positions prone to tax loss selling, it can be like rubbing salt in your wounds as your positions that have not fared well this year get dumped right around Christmas time.
This year we may experience an exaggerated version of this effect for several reasons. The main one is that investors are expecting tax reform to be signed, sealed and delivered for 2018. All else being equal, investors would rather sell a losing position now in December where it gives them the most benefit rather than selling a few months later for a lesser reward. The most obvious impact from tax reform is the reduction of the rate for the highest tax bracket. This incentivizes investors to harvest their losses in 2017 while the highest marginal tax rate is still 39.6%. Short term capital gains (those of less than 1 year) in the US are taxed at your personal rate and not the 20% used for long tern gains. The Senate version of tax reform will give the wealthy a bit of a bonus by shaving that maximum personal rate to 38.5%.
Furthermore, one of the features of the proposed tax reform is the elimination of an investor’s ability to select which lot to sell. Currently, if an investor has purchased a stock at several different points in time (creating multiple “lots”), and he wants to then sell a portion of his position he can select which lot is most advantageous from a tax perspective. This usually means selling the lot with the largest loss. The proposed tax reform includes a provision that would disallow that practice and force investors to sell the oldest lot first in a FIFO manner (First In First Out) regardless of the gain or loss which amounts to a backdoor capital gains tax increase. Although we do not yet know if this will make it to the final version of tax reform, investors are very likely to be taking action and selling affected positions before 2018.
With the S&P 500 up 18% this year, most investors are sitting on some hefty gains and to the extent that profits are being taken, the pressure to offset the tax impact increases. However, the selling may not be limited to this year’s losers either. The tech sector has had a massive gain this year and could cause some institutional funds to do a bit of portfolio rebalancing before yearend. This may even lead to a bit of a vicious cycle as investors trying to align their portfolios to benefit from tax reform (specifically the lowering of the corporate tax rate), which would entail selling off stocks within sectors that have low tax rates such as technology and rotating to sectors that typically pay high tax rates (financials, consumer and telecom). The more technology stocks with large gains that are sold, the more demand there will be to harvest some of those losers.
Many of the big losers that can see additional selling are clustered within the consumer discretionary and the energy sectors. Within consumer discretionary, the traditional brick and mortar department stores have been one of the worst groups in the market as their businesses struggle against the move towards ecommerce. Even with the recent rally these stocks have had in November, many of them remain far below their 2016 levels. For example, JC Penney is down 61%, Sears Holding is down 54% and Signet Jewelers is down 43%. Even bellwether retailer, Macy’s, is down 27% this year. Outside of direct brick and mortar retail, athletic apparel distributor Under Armour is down 53%. In the energy sector, quite a few service companies were bid up after President Trump’s election in the last 2 months of 2016. However, 2017 has been a different story as US Silica is down 41% and Hi-Crush Partners has been well crushed for 46%. Retail and energy are not only groups where potential tax loss selling candidates can be found, as generic drug maker Teva Pharmaceuticals is down 55%.
Photo: CarlosHPG. Banxico’s New Governor First Order of Business: Hike with the Fed
The minutes from the last Banxico monetary policy meeting showed in the discussion that the majority of its members believe adequate to maintain the spread with the Fed, specially, in light of the heightened risks to inflation.
The new Governor may tilt the balance in either direction but its commitment to inflation will be highly scrutinized. The market is already pricing-in a hike for the month of December with 50% probability and a full 25bps by the February meeting. In light of recent inflation print way above the market consensus and Banxico’s reassurance that headline inflation was already on a downward trend towards the goal, we prefer to hike as soon as the next meeting.
Banxico was very concerned with inflation expectations commencing to increase due to the resilience of inflation to converge to the 3.0% goal. In the minutes even one member was very hesitant to believe the goal could be reached as soon as next year. Right now, our forecast for next year 12-month headline inflation stands at 4.6%.
According with our monetary policy rule, we now see the theoretical reference rate at 7.25% by end of January of next year once headline inflation drops to 5.3% due to base effects. In this case, we could be indifferent between hiking in December or February like the market is debating right now. But following the Fed is the least risky proposition, especially considering the still uncertain NAFTA, US fiscal reform and presidential elections outcomes. All three, could potentially depreciate the Mexican peso in addition to not follow the Fed, in an already deteriorating inflation environment.
On August 2nd we recommended getting into the short-term breakeven inflation, specially buying UDI 19 or 20 and paying the corresponding TIIE on inflation keeping surprising on the upside, and we still do. We still see value in this trade, even though it has paid good return and we are leaving it open preferring the UDI 20. We see the market adjusting its implicit inflation forecast to the upside towards our own forecasts.
CC-BY-SA-2.0, FlickrPhoto: Walter
. What Sanctions Would the 5 Latin America and the Caribbean Countries Included in the EU's Tax- Haven Blacklist Face?
After two years of negotiations, the Finance Ministers of the EU Member States approved in Brussels, the first list of jurisdictions that do not cooperate in tax matters.
Of the 17 states included in this list of tax havens, there are five from Latin America and the Caribbean: Barbados, Panama, Grenada, Saint Lucia and Trinidad and Tobago. All have been singled out for not making sufficient efforts in the fight against tax evasion and they are also included in the list that the OECD produces each year.
These five are joined by 12 other countries: American Samoa, Bahrain, Guam, South Korea, Macao, the Marshall Islands, Mongolia, Namibia, Palau, Samoa, Tunisia and the United Arab Emirates.
The Bahamas and the British and United States Virgin Islands were supposed to be blacklisted, as were Anguilla, Antigua and Barbuda or Dominica, but the European Union has postponed the analysis until 2018 so that these small Caribbean islands have time to recover from the devastating hurricane season.
In addition, 47 countries have committed to address the deficiencies in their tax systems and meet the required criteria. Uruguay is on this gray list. This is due to its legislation on Free Zones indicated this year as a “harmful legal incentive” by the OECD.
The parliamentary procedure of a reform of the Free Zones Law that subjects companies to greater controls, should finish removing Uruguay from the zone of doubt.
What does it mean to be included in this list?
Recognition of the countries that encourage abusive tax practices, according to the European Commission, should have a real impact on the affected countries, thanks to the new EU legislative measures.
First, following the Commission’s proposals, the EU list is now linked to funding in the context of the European Sustainable Development Fund (EFSF), the European Fund for Strategic Investment (EFSI) and the External Loan Mandate (ELM). Their funds can not be channeled through entities in the listed countries. Only direct investment in these countries (that is, financing of projects on the ground) will be allowed in order to to preserve development and sustainability objectives.
Second, the Commission has proposed that multinationals with activities in these jurisdictions be required to have much stricter reporting requirements. In addition, any fiscal scheme that includes operations in any of the countries included in the EU list will be automatically reported to the tax authorities.
Finally, the Commission has already taken steps for Member States to impose coordinated sanctions on these countries that include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions.
The EU’s reasons
These 17 countries on the blacklist have been identified after finding out that they do not comply with international transparency standards on automatic exchange of information or encourage unfair tax competition.
“Those countries that choose not to have a business tax or to offer a zero rate should ensure that this does not encourage artificial offshore structures without real economic activity,” the Commission explains in its statement.
CC-BY-SA-2.0, FlickrPhoto: White House. How will Trump's Fiscal Reform Affect Different Asset Classes?
After passing 51-49 in the Senate Trump’s tax reform is one step further towards becoming a reality, which is expected to provide a moderate boost to US growth.
According to a survey of 51 analysts conducted by the National Association of Business Economics, around half of economists expect that changes in fiscal policy will increase the growth of the world’s leading economy by between 0.28 and 0.39 percentage points next year.
“We believe that the success of a package of fiscal measures will probably be accompanied by a slight rise in prices in the short term, of a magnitude practically similar to the setback that would result from a legislative failure,” explained Mark Burgess, Deputy Global Chief Investment Officer at Columbia Threadneedle Investments.
Small caps, consumption and finance
In general, the impact is expected to be limited, but small caps, consumer-related stocks and financial securities will be the most benefited according to Patrik Lang, Head Equity Research at Julius Baer.
“The final result will still be subject to some changes, but now it seems increasingly likely that the tax reform will take effect in the coming weeks. We maintain our opinion that the direct impact on the S&P 500 will be limited, while small caps and the consumer and finance sectors will be the most favored by the reform”.
Equities
For Peter Garnry, Head of Equity Strategy at Saxo Bank, the tax rebates will especially benefit companies with a more national orientation, as it will be positive in terms of cash flow available after taxes. With the corporate tax rate decreasing from 35% to 20%, net operating profits will increase by 20% nationwide.
“Among the sectors that are being targeted by the US tax reform is the technological sector, since a repatriation tax of 12% could be imposed. This tax would encourage companies with money abroad to return to the US. It is estimated that around $2.5 trillion in cash are abroad and that around 50% of this money would go back home and be used for the repurchase of shares,” he estimates.
High yield debt market
The tax rates high yield debt issuers pay in the United States are, on average, 28%, recalls SKY Harbor Capital Management, so with everything else equal, the proposed tax cuts will modestly improve the free cash flow for issuers.
In addition, they explain, the issuers of lower rating and with greater leverage will be negatively affected by the reform, since a reduced tax shield will offset the benefits of a reduced tax rate. And on the other hand, issuers of higher quality and investment grade will be te ones that benefit the most of repatriation.
For the firm, sectors with high average tax rates, high interest coverage rates and capital intensive operating models should be the main beneficiaries of the tax reform.
Gold waiting for political events
The tax reform should have a more lasting impact on the gold market, since it is likely to reactivate optimism regarding a higher growth rate in the United States, support the idea of rate increases and encourage a rebound of the US dollar.
“The sustainable rise in gold should materialize once growth concerns creep into the financial markets and reactivate investor demand for gold as a safe haven,” says Carsten Menke, Commodity Analyst at Julius Baer.
Agnieszka Gehringer and Kai Lehmann, courtesy photos. As Rules Regarding the Creation of Synthetic ETFs Become More Stringent, They Could Have an Impact on Growth
According to Agnieszka Gehringer and Kai Lehmann, members of the Research Institute of Flossbach von Storch, ETFs go beyond passive investment, due to their hyper trading activity and the latest innovations in the field of smart beta. In this interview with Funds Society, the experts also warn of the uncertain behavior of ETFs in turbulent periods, something not yet tested, and are confident of the industry’s potential for growth in Europe, although, they are aware the stricter rules on the creation of synthetic products could be a drag on its development.
What do you intend when you doubt that ETFs are passive?
The ETF are often put in the context of passive investment, based on the fact that they follow the performance of a certain index. This is exactly the idea staying behind the traditional index funds – an invention of Jack Bogle dating back to 1976. But Bogle aimed at providing an instrument for a long-term investment in stock market by simply following the index. To the contrary, ETF investors are very much short-term focused. They trade ETF shares very actively, indeed hyper-actively. This is what we find in our analysis based on the three biggest equity ETFs tracking respectively the German DAX, the US S&P 500 and the FTSE 100 in the UK. The volume of the ETF shares traded on average every day is four times higher than the traded stocks of the underlying indices. This hyper-activity brings the idea of passive investment ad absurdum.
Has the innovation propagated the creation of ETFs which can be called active? Isn’t it a contradiction? How does the passive and active investing complement one another in an ETF?
Besides the traditional ETF there is indeed a growing interest in the so called smart beta ETFs. Whereas the traditional ETF are supposed to reconstruct 1:1 the index performance based on the market caps of the index constituents, smart beta ETFs weight the basket of the underlying securities based on alternative criteria, called factors. In this way, they aim at performing better than the market and thus better than traditional ETFs. These factors may relate to some kind of assessment of accounting metrics of the index constituents, like book value, dividends, or cash flows, or to still other factors, such as low volatility, undervaluation or expected momentum. In this sense, smart beta ETFs add an active layer with respect to traditional ones: they are not only actively traded, but render the underlying investment choice active as well. Is it a contradiction? I wouldn’t say so – it is more an enhancement on the activity scale. But the important thing to note is that such “active” choices are not comparable with the investment decision made by an active asset manager who thoroughly analyse the entire business model of a company in order to assess its intrinsic value. Smart beta strategies are focused on fast-track, partial, rather than thorough, and more quantitative, rather than qualitative assessment of companies.
Due to this innovation, could ETFs push the active strategies aside?
Given the current popularity of ETFs, be it traditional or smart, it wouldn’t be surprising to see further rise in the relative share of ETF-managed funds. At the same time I would doubt whether it is in the interest of ETF investors to fully eliminate active investment strategy. In the end ETFs freeride on the contribution which active managers deliver to the efficient price building on capital markets. By the same token, we can’t exclude that upon the attainment of a certain critical mass on capital markets by ETFs, the price building process might get into difficulties.
It is often stated that both types of investment strategies would survive. What would be the role played by the one and the other?
It is plausible to expect that both ETFs and active management will coexist. On the side of ETFs, they have been surely attractive so far, given the positive past performance on capital markets and their warranty of obtaining the performance of the underlying index. They could be thus appropriate for investors willing to simply follow the market. At the same time, not much is known so far about ETFs’ performance under difficult weathering conditions on capital markets. Only when markets enter more turbulent waters will we be able to assess the true performance of ETFs. For now ETF investors should keep this uncertainty in mind. On the side of active managers, and especially of those following a consistent and well-founded investment strategy, they will continue to play a role in enhancing the price setting on markets, especially when we see some market turmoil.
In your opinion, which was the major innovation in the world of ETFs during the last years?
The original idea of following the market in order to enjoy the long-term positive return at a rock-bottom cost is quite revolutionary. Their invention may have helped to get in touch with capital markets. But today there is not much left out of this. To the contrary, the hyper-activity of ETF trading and allegedly “smart” investment choices of smart beta ETFs could pose more risks than benefits, should capital markets experience turmoil in the future.
In launching of novelties (smart beta, currency hedging (?), …), where could the next innovations go in the world of ETF?
Given the past creativity in the field of ETFs, the innovation could go anywhere. Just think of the different kinds of thematic or even esoteric ETFs, like for instance “biblically responsible” ETFs… If this trend continues, the question will be increasingly about the risk-reward balance of less diversification and less market liquidity versus chances to pick up an index performing better than the others. All in all, there seem to be less and less well-founded investment choices.
Is the use of ETFs changing – from tactic to strategic positioning? Does this generalization in the use regard all types of investors?
This seems to be particularly the case for institutional investors. In the past, they were using ETF for cash equalization and transition management. But now the growing use for core exposure can be observed.
Comparing the markets, the European with the US market, Europe is lagging behind, but could still catch up. How much could the European industry grow?
The size of the ETF market in Europe is indeed significantly smaller than in the US. Precisely, the total assets held by US-ETFs now add up to about 3.3 bn. USD whereas its European counterparts are currently approaching the roof of 1 bn. USD. There is surely catching up potential for Europe. At the same time, there are some important regulatory changes applying next year, which could decelerate the process. Precisely, rules regarding the creation of the so called synthetic ETFs become more stringent. Accordingly, given the current non-negligible share of synthetic ETFs in Europe, this could have an impact on growth and the speed of convergence between the European and US ETF market.
Could the regulation have an impact on the use of ETFs and why?
As mentioned above, the regulation is already having an impact on the use of – in this specific case synthetic – ETFs. But more generally, given that ETFs can still be considered as relatively new to the financial market reality, the regulators have to gather information and experience regarding the functioning of ETFs. This task is not easy and regulators could lack the necessary information to set up well-functioning rules. And the past teaches us that unfortunately sometimes it needs an external shock to discover the loopholes in the system. Hopefully this time is different.
