CC-BY-SA-2.0, FlickrPhoto: Images Money
. Standard Life Investments to Reopen the Suspended UK Real Estate Fund
Standard Life Investments has announced its intention to reopen the suspended UK Real Estate Fund (and associated feeder funds) from 12.00 noon on Monday 17 October 2016.
The SLI UK Real Estate Fund was one of a number of funds to suspend trading on 4 July 2016. This decision was taken in order to protect the interests of all investors in the Fund following an unprecedented level of redemptions.
They subsequently implemented a controlled and structured asset disposal programme in order to raise sufficient liquidity to meet future redemptions and work is ongoing to ensure the Fund is well positioned for markets in the long-term. “We now believe the commercial real estate market has stabilised and that the adequate level of liquidity achieved will allow the suspension to be lifted.” Standard Life stated on a press release.
By lifting the suspension, dealing in the Fund and Feeder Funds, purchases and redemptions of shares, will return to normal on 17 October 2016, with the first valuation point being 12.00 noon on that date. Dealing instructions to purchase or redeem shares will be accepted from Wednesday 28 September 2016, in a written or faxed format only, ahead of the fund re-opening.
Providing advanced notice will enable investors in the fund to make any preparations required ahead of the re-opening.
David Paine, Head of Real Estate at Standard Life investments said: “In the immediate aftermath of the EU referendum result redemptions from retail investor property funds increased dramatically whilst property transactions reduced significantly. During the period of suspension the fund has been able to restore liquidity through an orderly disposal of assets. We are pleased with the progress made and the removal of the Market Value Adjustment, and able to announce the reopening of the fund next month. The Standard Life Investments UK Real Estate Fund invests in a diverse mix of prime commercial property. Its lower risk positioning should therefore be beneficial for performance at times of market stress and uncertainty and continues to offer a stable and secure income, with a distribution yield of 4.04%*. In our opinion, as the search for yield intensifies within a world of low interest rates and nominal growth, the outlook for UK commercial real estate returns and income remains attractive.”
CAIA Miami Event- Courtesy photo. Photos of the Successful CAIA Miami Event
Last Thursday, September 22, the CAIA Miami Chapter hosted its fall networking event at Novecento in Brickell. Executive Committee members Karim Aryeh, Eddy Augsten and Gabriel Freund welcomed CAIA Charterholders (Chartered Alternative Investment Analyst) in the Miami area as well as CAIA Candidates and guests from the Alternative Investment industry.
At the start of the evening, Eddy Augsten -from Vega & Oprandi Wealth Partners- spoke to the group about the activities of the Miami Chapter. “Our role in the AI community is to encourage networking and growth through events like this and to stimulate thought leadership through our educational events. Our next event will in November covering Private Debt and the investment opportunities in that space.”
The CAIA Miami event included participants from Hedge Funds, Private Equity firms, Family Offices, Private Banks, Asset Managers and other investment firms. “We are creating a platform for individuals in Miami and Latin-American to meet and share ideas regarding innovative investments strategies” said Karim Aryeh, who recently left Santander Private Bank and is starting up a Registered Investment Advisor (RIA) focusing on Alternative Investments.
“The event was a success. We had to close registration due to the number of attendees, and that validates the increased interest in the CAIA certification from all sectors of the investment community. From students to junior analysts to seasoned professionals” said Gabriel Freund.
You can see the pictures of the event following this link.
With central banks across the world attempting to hit their inflation targets, the Bank of Japan (BoJ) has adopted a new policy framework named “QQE with yield curve control”.
There are two elements to the new policy. Firstly, instead of the traditional central bank model of setting the short-term rate, the Bank of Japan will now seek to set the rate on the longer-term 10-year part of the curve too (they will target a yield of around 0% at the front-end initially, close to current levels). Secondly, the central bank has committed to keeping the policy in place until inflation has overshot the inflation target of 2%. It has abandoned the explicit target of expanding the monetary base by ¥80 trillion each year, but instead says it will adopt a flexible approach.
The policy is designed to shift inflation expectations, keep banks profitable via a steeper yield curve and seek to address the issue of Japanese government bond scarcity. While Governor Haruhiko Kuroda has delivered a policy that helps banks, we doubt it is going to lead to a rapid adjustment in inflation expectations – it is more a case of adopting a policy that enables the BoJ to stay in the game for longer as it hopes the policy will require fewer bond purchases. The central bank itself admits that “a further rise in inflationary expectations is uncertain”.
The BoJ is trying to keep policy loose while mitigating the negative side effects of excessive asset purchases.
What does this mean?
This is tapering but with asset purchases no longer the independent variable in the policy mix. The global pool of liquidity is unlikely to keep on increasing at the current pace so the ‘hunt for yield’ trade looks less attractive. The BoJ announcement that it will target the 10-year should suppress local yield curve volatility, but could lead to volatility in other markets and asset classes.
The yen Japanese banks finished up over 7%, while the yen is 0.4% weaker vs. the US dollar (it had been 1% weaker)*. Moves in other bond markets have been muted.
Nicholas Wall is co-manager of Old Mutual Global Strategic Bond Fund.
CC-BY-SA-2.0, FlickrPhoto: John Bennett, Head of European Equities. John Bennett: No Ordinary Cycle in Europe
In this interview, John Bennett, portfolio manager of Henderson European Absolute Return Fund and Head of the European Equities, explains his view about european equities and the influence of the central banks policies in the stocks markets.
Do European equities offer value?
I’ve always been wary of the value versus growth thing. I think these are convenient labels. Value is in the eye of the beholder. For me, value is about the price you pay for cash flow. What I would say about value is that the old definition of value and growth no longer applies, because this is no ordinary cycle. This has not been an ordinary cycle since the financial crisis. It cannot be an ordinary cycle because of the debt mountain that built up. We are still dealing with the threat of debt deflation – that is really what central bankers are fighting.
In the old days of buying value, you might have looked at cement, banks, steel, cars or aluminium – traditional value sectors. This is not a good idea now, because of deflationary risks, and because of central banks’ response to deflationary risks, namely the QE experiment. You have overcapacity in so many industries that you used to call value. Until we get a change in the inflation dynamic, this probably won’t change.
Are European banks rightly unloved?
Banks have been the poster children of the value trap. Value is never in a ratio. Fund managers have become inured to the many calls from strategists on the sell side who have suggested that it is time to buy the banks. It has been a spectacularly wrong since 2008 because the banking model has been severely disrupted, if not broken, by QE.
What are your post-Brexit concerns for Europe?
I have been less worried about the FTSE 100 and the UK economy than the European periphery in the immediate aftermath of Brexit; because of course Britain flexed its currency, devaluing sterling significantly. I worried about the effects of that more on the European periphery, an already fairly uncompetitive area, where the euro has arguably been too strong since it was launched.
The euro in my view has been too weak for Germany and too strong for everyone else. I thought it was wrong that people were panicking on UK house builders, for example. I haven’t said ‘panic about the periphery’, rather ‘worry about the periphery’. I think it’s a patient that is still healing. Recent GDP numbers from Italy hasn’t been that good, which threatens Italian Prime Minster Matteo Renzi in the upcoming referendum – yet another noisy political event in Europe. I doubt I’ll ever stop worrying about the economies in the periphery.
How is the healthcare sector performing?
Pharma hasn’t really participated in the defensives rally. At best pharma has been dull; in some cases worse than dull. I went into 2016 thinking that this was a year for stocks, not markets. I was trying to say I’m not convinced that this would be an ‘up’ year for market indices. So far, unless you have been based in sterling, you haven’t had an up year in European equities. I would extend that to say even stocks not sectors (from stocks not markets). So, we have nuanced our pharmaceuticals view to say it is not just so much about buying the whole sector. You are now seeing clear stock dispersion within pharma, with pricing pressure in some clinical areas in the US.
Look at the news from Sanofi on its diabetes insulin product. And look at the news from Novo Nordisk. Yes; pricing is beginning to be a problem in the US – a headwind for some pharmaceutical companies, but not all. Where I take an issue with the ‘one size fits all’ approach was that, if you have innovative medicine meeting unmet clinical needs, you will have pricing power. This is why our names are big names in pharma like Roche and Novartis, and also Fresenius in healthcare. I think stock dispersion is back, even within sectors.
CC-BY-SA-2.0, FlickrPhoto: Martin Fish. Investment Fund Assets Worldwide See 4% Increase in Q2 2016
The European Fund and Asset Management Association (EFAMA) has recently published its latest International Statistical Release, which describes the developments in the worldwide investment fund industry during the second quarter of 2016.
The main developments in Q2 2016 can be summarized as follows:
Investment fund assets worldwide increased by 4 percent in the second quarter of 2016. In U.S. dollar terms, worldwide investment fund assets increased by 1.4 percent to stand at USD 42.3 trillion at end Q2 2016.
Worldwide net cash inflows increased to EUR 206 billion, up from EUR 154 billion in the first quarter of 2016.
Long-term funds (all funds excluding money market funds) recorded net inflows of EUR 217 billion, compared to EUR 192 billion in the first quarter of 2016.
Equity funds recorded net outflows of EUR 17 billion, against net inflows of EUR 50 billion in the previous quarter.
Bond funds posted net inflows of EUR 130 billion, up from net inflows of EUR 72 billion in the first quarter of 2016.
Balanced/mixed funds registered net inflows of EUR 58 billion, up from net inflows of EUR 35 billion in the previous quarter.
Money market funds continued to register net outflows in Q2 2016 (EUR 11 billion), compared to net outflows of EUR 38 billion in Q1 2016.
At the end of the second quarter of the year, assets of equity funds represented 39 percent and bond funds represented 22 percent of all investment fund assets worldwide. Of the remaining assets, money market funds represented 12 percent and the asset share of balanced/mixed funds was 18 percent.
The market share of the ten largest countries/regions in the world market were the United States (47.1%), Europe (33.8%), Australia (3.8%), Brazil (3.6%), Japan (3.5%), Canada (3.1%), China (2.7%), Rep. of Korea (0.9%), South Africa (0.4%) and India (0.4%).
CC-BY-SA-2.0, FlickrPhoto: Wansan Son
. Department of Labor Conflict of Interest Rule Expected to Boost Advisors' Allocation to ETFs by 65%
Financial advisors are likely to recommend that their clients increase allocations to exchange-traded funds (ETFs) by 65 percent as a result of the recent Department of Labor (DOL) Conflict of Interest Rule, according to a white paper by BNY Mellon.
The survey results indicated that advisors in the study currently have 23 percent of their assets under management in ETFs, and they plan to boost that allocation to 38 percent over the next two years as assets are transitioned to ETFs from other products. That would increase the percentage of assets allocated to ETFs by 65.2 percent. Approximately 55 percent of the 170 advisors polled by BNY Mellon said they plan to increase their investments to ETFs because of the rule, which becomes effective in April 2017.
“The rule requires financial advisers to recommend investments that are in the best interests of their clients when they offer guidance on 401(k) plan assets, individual retirement accounts or other qualified monies saved for retirement,” said Frank La Salla, chief executive officer of BNY Mellon’s Global Structured Products and Alternative Investment Services business. “This includes emphasizing financial services products such as ETFs that tend to have lower fees than other types of investments.”
The advisors said they will increase their use of both actively managed ETFs and passively managed ETFs. They also said they expect to increase their use of separately managed accounts and decrease their use of unit investment trusts and annuities. Funding for the growing products is likely to come at least in part from the declining products, according to the survey.
La Salla noted that cost will not be the only factor determining the types of assets that advisors recommend. “The advisor and the client might be looking to fill a need in an investment portfolio, such as obtaining exposure to a particular asset class or country,” he said. “The best product might be an ETF, or it might be a mutual fund or some other financial product.”
While the respondents indicated they expect continuing rapid growth of ETF assets, they said that changes in three areas are needed to facilitate this growth. First, the majority of defined contribution programs will need to upgrade their technology to trade ETFs, as many do not have this capability. The DOL rule could accelerate the introduction of the necessary technology as plan sponsors and advisors will be more motivated to offer these products.
The other two areas are education and information access.
“The ETF industry will need to accelerate the educational efforts about ETFs and the DOL rule among industry participants to smooth the way for projected growth,” said Steve Cook, managing director and business executive for BNY Mellon’s Structured Product Services. “As to accessing information, ETF-oriented advisors tend to favor accessing research in small bites rather in long documents. They prefer to learn about new offerings via virtual webcasts rather than attending conferences or attending sales meetings.”
LaSalla concludes that registered investment advisors (RIAs), like brokers, are likely to give ETFs serious consideration. “Given the fee-based nature of RIAs, their level of sophistication and willingness to adopt new strategies to help their investors to optimize their investments, it would seem natural for them to embrace ETFs even more.”
The white paper, Accelerating Growth: The Department of Labor Conflict of Interest Rule and its Impact on the ETF Industry, produced by BNY Mellon in association with ETF Trends, can be read here.
CC-BY-SA-2.0, FlickrPhoto: ecosistema urbano
. J.P. Morgan Launches First Active ETF
J.P. Morgan Asset Management recently launched its first alternative and actively managed ETF, the JPMorgan Diversified Alternatives ETF (JPHF). The ETF provides investors with diversified exposure to hedge funds strategies including equity long/short, event driven and global macro strategies.
JPHF was designed and is managed by Yazann Romahi, CIO of Quantitative Beta Strategies at J.P. Morgan Asset Management. A pioneer in hedge fund beta investing, Romahi created the ETF with the support of a team of 17 investment specialists who have been focused on beta philosophy research and development for more than a decade. In addition, the team manages over $3.5bn of assets in alternative beta with this ETF being the latest extension of their offering.
JPHF aims to democratize hedge fund investing by providing investors with institutional quality hedge fund strategy in a cost efficient, tradeable ETF wrapper. The ETF can serve as a core component of a portfolio’s alternatives allocation. The bottom-up approach results in a purer capture of the hedge fund exposure and better diversification than traditional hedge fund replication strategies, as it employs strategies that have true low correlation to traditional markets.
“In the past, alternative investments have been an exclusive option only accessible by a small portion of investors; however, JPHF now makes these investment vehicles available to a wider array of investors,” said Robert Deutsch, Head of ETFs for J.P. Morgan Asset Management. “Alternative beta strategies provide investors with true diversification with attractive liquidity, transparency and cost.”
With the launch of JPHF, J.P. Morgan Asset Management’s Diversified Return ETF suite features nine product offerings. J.P. Morgan manages more than $120bn in alternatives globally.
CC-BY-SA-2.0, Flickr. New Leak of Offshore Files from The Bahamas
While most uses for offshore companies and trusts are legitimate and the International Consortium of Investigative Journalists (ICIJ) does not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly, their publication causes much scandal for those involved.
The latest revelations published by ICIJ reveal fresh information about a series of offshore companies in the Bahamas with the offshore activities of prime ministers, ministers, princes, convicted criminals, the UK’s Home Secretary Amber Rudd, and Neelie Kroes, a prominent former EU commissioner.
The Bahamas, which once sold itself as the “Switzerland of the West,” is a constellation of 700 islands, many smaller than a square mile. It is one of a handful of micro nations south of the United States whose confidentiality laws and reluctance to share information with foreign governments gave rise to the term “Caribbean curtain.”
Mossack Fonseca, the law firm whose leaked files formed the basis of the Panama Papers, set up 15,915 entities in the Bahamas, making it Mossack Fonseca’s third busiest jurisdiction.
In the case of Kroes, the former senior EU official, the records show that she was director of Mint Holdings, from July 2000 to October 2009. The company was registered in the Bahamas in April 2000 and is currently active. However, Kroes, through a lawyer, told ICIJ and media partners that she did not declare her directorship of the company because it was never operational. Kroes’ lawyer blamed her appearance on company records as “a clerical oversight which was not corrected until 2009.” Her lawyer said the company, set up through a Jordanian businessman and friend of Kroes, had been created to investigate the possibility of raising money to purchase assets – worth more than $6 billion – from Enron, the American energy giant. The deal never came off, and Enron later collapsed amid a massive accounting scandal.
The Bahamas has not signed the global treaty that helps countries share tax information. The OECD, the treaty’s governing body, calls it the “most powerful instrument against offshore tax evasion and avoidance.” In August, the number of participants hit 103, which includes tax havens and some of the world’s poorest countries.
Details from the Bahamas corporate registry, along with those of the Panama Papers and the Offshore leaks, are available to the public at the searchable ICIJ Database.
CC-BY-SA-2.0, FlickrPhoto: Trade Mark Alex. Credit Suisse Appoints Two New AM Heads
Credit Suisse recently appointed Bill Johnson as Head of Asset Management Americas, and Michel Degen as Head of Asset Management Switzerland and EMEA, which includes all existing Core businesses, Alternative Funds Solutions (AFS) and Credit Suisse Energy Infrastructure Partners.
Johnson’s new appointment, in addition to his current role as Deputy Global Head of Asset Management, will oversee the Commodities Group, Credit Investments Group, Securitized Products Fund and Private Funds Group. Furthermore, Anteil Capital Partners, NEXT, and Mexico Credit Opportunities Trust (MEXCO), will continue to report to him, as well as the other Americas-based businesses that have done so so far.
Michael Strobaek, former Head of Asset Management in Switzerland, should remain Global Chief Investment Officer of Credit Suisse and Head of Investment Solutions and Products for International Wealth Management.
CC-BY-SA-2.0, FlickrPhoto: Jotam Trejo. Stocks Are Not the New Bonds
2016 has been notable for droughts in some places and floods in others. There has been a disconnect, if you will, in normal weather patterns. Lately, we have witnessed a growing disconnect in the financial markets too. Asset class after asset class continues to rise in value despite stagnant global economic growth and flagging corporate profits. Why are investors chasing the market higher? Extraordinarily accommodative central bank policies are the most likely explanation.
With a large fraction of the world’s pool of government bond yields in negative territory, flows that normally would have gone into high- quality fixed income securities are instead finding a home in dividend-paying stocks. This “chase for yield” has pushed up traditional high-dividend payers like real estate investment trusts (REITs), utilities and telecom stocks to historically rich price/earnings multiples. This is the most concrete evidence we have seen in years that investors are substituting stocks for bonds in investment portfolios.
Bonds: Accept no substitute
There are two powerful reasons why stocks are not a substitute for bonds. The first is the relative volatility of the two asset classes. Stocks are historically about three times as volatile as bonds. Investors therefore demand higher returns in exchange for holding these riskier assets. Second, dividend payments to stockholders are not a contractual obligation; there is no legal compunction for corporations to continue to pay dividends. Dividend payments can be — and often are — cut at the first hint of trouble.
Stock investors need to be particularly mindful of potential economic inflection points. History has shown that markets often become the most euphoric at the most perilous point in the economic cycle. The current US economic expansion is now in its eighth year, while the average business cycle typically lasts five years. The stock market has historically peaked 6–8 months before a recession begins, though forecasting recessions is always challenging. When recessions do hit, corporate profits have fallen by an average of 26% and stock markets have typically fallen by roughly the same amount. Failing to avoid late-cycle euphoria can have severe costs for investors, especially for investors who have been driven into equities for the wrong reasons.
Don’t be late
Instead of being an equity market latecomer, yield-starved investors might want to consider adding “credit,” or corporate bonds, to their investment portfolios. Pools of investment-grade corporate bonds are currently not cheap by historic standards, but they are not at extremely rich price levels either. Investors seeking yield can find attractive opportunities in corporate credit, which offers yields similar to or higher than equity dividends, but generally with far less volatility.
Global central banks have been providing novel forms of support for world bond markets with the aim of stimulating economic growth and inflation rates. But in my opinion, sound investment strategy does not include guessing where central bank policy is heading next. The guiding principles of preserving capital while generating growth are vigilance on the fundamentals, caution regarding gains, and the avoidance of fads. Don’t follow raw market emotion, especially when easy money causes the temperature of the markets to rise just as fundamentals fall.
