CC-BY-SA-2.0, FlickrPhoto: King Simmy. Columbia Threadneedle Investments Strengthens European Equities Team
Columbia Threadneedle Investments has appointed Mark Nichols to Portfolio Manager in its European Equities team.
Led by Philip Dicken, the team comprises 11 investment professionals who together manage £17.8 billion (€24.5 billion) on behalf of retail and institutional investors.
Mark will be based in London and joins from F&C Investments where he was Director and Fund Manager in the European Equities team. He has 14 years of market experience and previously held European Equities roles at Lehman Brothers and Invesco.
Philip Dicken, Head of European Equities at Columbia Threadneedle Investments, said: “We are pleased to welcome Mark to the European Equities team and to expand our capabilities in this area. His strong track record and experience will further enhance our client proposition and help build on our success to date.
“The European economy is on a strong path to recovery. This has translated into positive momentum in the stock market – yesterday’s bears have become today’s bulls. We are expecting 10% corporate earnings growth in Europe this year and investors have a real opportunity to enjoy healthy returns”, point out Dicken.
CC-BY-SA-2.0, FlickrPhoto: Dennis Skley
. Is the Euro Heading for Parity with the US Dollar?
Since the European Central Bank’s (ECB) announcement in January 2015 that it planned to implement an expanded EUR1.1 trillion quantitative easing programme to stimulate the euro-zone economy the euro has fallen sharply against the US dollar and is currently trading around 1.06-1.10. The selloff in the euro has accelerated post the ECB press conference in the first week of March and the subsequent collapse in bond yields saw the euro trade below 1.06 against the dollar for the first time since March 2003. A further fall of about 6% will see it reach parity. At the same time, firm February US labour market data boosted bond yields there, favouring the US dollar over the euro. The chart below shows the historical trading between the euro since its launch in 1999 and the US dollar.
The question of parity is on many investors’ minds and in this viewpoint Investec AM will consider the likelihood of such an event.
How likely is a further fall?
When researching currencies Investec asks three questions: Do the underlying facts support the investment case? Is the investment cheap? And, are investors buying it?
“In answer to the three questions above, when we apply our research to the euro all our short-term indicators continue to suggest a reversal of the euro’s fortune and we can see the euro zone is beginning to recover. The ECB recently raised this year’s euro-zone growth forecast to 1.5%, up from 1% previously. Secondly the euro is cheap, currently trading at about 13% below its long-term moving average, and thirdly, investors have taken a short position and we believe oversold the currency in the short term”, explains Russell Silberston, Head of Reserve Management at Investec AM
Applying the same exercise to the US dollar, Investecs´ research suggests flat lining economic data, albeit at modestly positive levels. “Our data surprises indices, however, have turned sharply negative, suggesting data is genuinely weaker or that market participants are far too optimistic. Taking a short-term view, the US dollar is slightly expensive as the pro-US story has reached consensus, but it remains cheap on a longer-term view”, points out Silberston.
“Bringing this analysis together, our research suggests the possibility of a rally in the euro towards its moving long-term average against the US dollar and so a further fall of 6% to reach parity seems unlikely, he says.
Two economies at different stages
In the medium term, however, the picture is different and Investec believes the US dollar can continue to rally. “The reason for this longer-term pro-US dollar view is the same as it was when we first went long in 2012”, relates the Head of Reserve Management at Investec AM.
The US is in a much better cyclical position than the rest of the world having deleveraged post financial crisis. Her banks are well capitalised, her labour markets are very competitive, interest rates are likely to rise later this year and, despite the big fall in oil prices, industry still has a big energy cost advantage over other countries.
In contrast, the euro zone has yet to deleverage seriously and faces years of hard fought structural reforms to make economies more competitive. This could keep interest rates low and growth subdued. Also, the single currency is sub- optimal. Europe has achieved monetary union before achieving political union and there are no effective cross-border transfers to aid countries facing economic hardship. This means those currencies are effectively in an economic construct similar to the gold standard, where only internal devaluation through lower wages is the only real route back to prosperity. This raises the political risks in the medium term, and indeed, there has been a rise in populist political parties in recent months.
“It is certainly possible, therefore, that the euro could fall further and hit parity, but only if our medium term pro-US dollar view is correct”, concludes Silberston.
Photo: Mark Fischer. EM’s Diverging Universe: Opportunities and Risks
The Fed has made it clear it will start raising interest rates as soon as stronger data allows it to. “As a result, we should expect the Fed to begin its rate hike cycle before year-end”, explained Brigitte Le Bris, Head of Emerging Markets & Currency at Natixis Asset Management.
Impact on currencies worldwide
Higher U.S. interest rates should positively impact the U.S. dollar and negatively affect currencies with weak fundamentals or very low yields. Given the yield differentials caused by monetary policy divergence of the U.S. and other developed nations, the euro and the yen would be the first candidates to witness further depreciation.
The impact on emerging market (EM) currencies, however, is not so clear. After a short-term broad sell-off in EM currencies in early 2015, we should see some differentiation. For example, the Indian rupee and Indonesian rupiah are in a much better situation than they were in the summer of 2013. That’s because India’s current account deficit is now expected to be 0% in 2015 while it was -5% in 2012. These two currencies should be resilient, as opposed to the Turkish lira which is suffering from political jitters and structural high inflation. The South African rand may also get hit harder due to weak growth and an absence of structural reforms. I also expect Eastern European currencies to benefit from the nascent recovery in Europe, and expect the upward trend versus the euro to continue.
Emerging market debt implications
Within the EM sovereign debt universe, the low level of yields in major developed countries has pushed global investors to buy investment-grade issues. So far in 2015, this portion of the J.P. Morgan Emerging Bond Index (EMBI) has largely outperformed the high-yield portion, which has also been suffering from geopolitical risks in Russia and Venezuela, as well as oil price declines (the high-yield portion includes a lot of oil exporters).
That said, the high-yield universe is beginning to look more attractive. I think most of the underlying risks in the highyield area appear to be fading, while a higher spread should act as a buffer to any rise of U.S. government yields.
Some local markets, including the foreign exchange market (FX), offer value – including India and Indonesia. These two countries are going through a large set of reforms and their economies look quite promising. Another example is Brazil. This country is going through a severe economic adjustment but the high carry, proactive behavior of the Brazilian central bank and fiscal consolidation under way is reinsuring investors and “I am inclined to buy this market”, point out Le Bris.
Overall, despite lower growth prospects for EM countries and risks associated with rising U.S. interest rates, EM debt markets are still offering attractive opportunities. “This market has just begun to mature. Investors just need to be very selective in today’s environment”, said the Head of Emerging Markets & Currency at Natixis Asset Management.
CC-BY-SA-2.0, FlickrCourtesy photo. Financial Times Ranks IESE Executive Education Programs 1st in the World
IESE Business Schooltakes the top spot in this year’s overall Financial Times Executive Education ranking, published this week. IESE also ranks 1st in the world for its Custom programs, moving up two spots from last year mainly due to the school’s leading international clients, and 3rd in the world for its Open programs.
In this year’s survey, IESE received top marks for the diversity of its faculty and the international scope of its programs – both in terms of participants and faculty make-up, and geography.
Custom programs also earned top praise from clients for the highly interactive and collaborative approach of the school, enabling it to prepare sessions that are as aligned with clients´ needs as possible, as well as the flexible program design. IESE’s recent Custom program clients include Oracle, The European Network of Transmission System Operators, Airbus, L’Oreal, Santander, BBVA, Telefonica and Danone, among others.
The school’s Open programs were rated highly due to the international locations of it programs, taught from IESE´s five campuses in Barcelona, Madrid, New York, Munich and Sao Paulo; the quality of IESE’s alliances with partner schools such as CEIBS, Harvard and Wharton, and the long-term knowledge acquired on the programs.
According to Mireia Rius, Associate Dean of Executive Education,“These results reflect IESE’s global scope, not only among our faculty, participants and clients, but also geographically, as IESE have programs and strategic alliances with other business schools all over the world.This internationality gives us a cross-cultural vision of the environment in which executives work today.”
The Financial Times ranking is based on a mix of customer feedback and data provided by business schools on open and custom programs. It takes into consideration a variety of criteria including program preparation, course design, international participants and location, faculty, follow-up, and aims achieved among numerous others.
The other schools rounding out the top three are HEC Paris in 2nd and IMD in 3rd position.
CC-BY-SA-2.0, FlickrFoto: Omar. The Mexican Stock Exchange and S&P DJI Announce Agreement for Index Licensing, Distribution, and Management of BMV Indices
The Mexican Stock Exchange (BMV) and S&P Dow Jones Indices (S&P DJI) announced that they have signed an agreement to license all of the BMV indices including their flagship index, IPC (Indice de Precios y Cotizaciones) – the broadest indicator of the BMV’s overall performance.
This agreement aims to achieve an integration of operational processes between the institutions, a business strategy which allows for the expansion of clients globally, and the development and licensing, distribution and administration of new indices. In addition, the indices will be governed by an index committee composed of employees from both S&P DJI and BMV, which will sponsor the adoption of international practices.
According to the agreement, the BMV will transition the index calculation of its indices to S&P DJI over time ensuring a smooth transition that will have minimal impact to existing and new clients. S&P DJI will be responsible for the commercial licensing of the indices and the end-of-day data while the BMV will continue to commercialize real-time index data. As part of the agreement, all current BMV indices will be co-branded S&P/BMV.
A signing ceremony took place last week at the Exchange and was attended by Jose-Oriol Bosch Par, the General Director (CEO) of the Grupo BMV and Alex Matturri, the CEO of S&P Dow Jones Indices.
“Today is a very exciting day for S&P Dow Jones Indices as we officially embark on our joint strategic initiative with the BMV to bring a deeper lineup of index choices to the Mexican financial markets,” says Alex Matturri, CEO of S&P Dow Jones Indices. “Combining the BMV’s internationally recognized benchmarks with the global marketing, commercial licensing, and calculation prowess of S&P Dow Jones Indices will result in a new era of index based measurement and investing in Mexico.”
Moreover, Jose-Oriol Bosch commented, “We are very pleased to execute this agreement, associating the BMV with a global company with extensive experience in the creation and administration of financial market indices. We already have a similar agreement for fixed income indices through Valmer, and now via this agreement, will be able to leverage the distribution, capacity, and reach of S&P Dow Jones Indices’ internationally recognized brand and indexing capabilities.”
Photo: GEF TV-YouTube. Mirova Announces the Appointment of Léa Dunand-Chatellet as Head of Equities
Léa Dunand-Chatellet is appointed Head of Equities of Mirova. Reporting to Jens Peers, Chief Investment Officer for Equity, Fixed-Income & Impact Investing, she will be responsible for the team of 10 equity portfolio managers.
Previously Partner-Portfolio Manager and Head of ESG research at Sycomore Asset Management (2010-2015), Léa Dunand-Chatellet started her career at Oddo Securities in the extra-financial department research in 2006. Within the asset management industry, she developed a pioneer model of extra-financial ratings and processed the integration of sustainable issues in the portfolios. This approach has seen its practical application through a range of funds dedicated to Responsible Investments combining financial and extra-financial performances.
Lea Dunand-Chatellet is member of different committees and teach every year specific courses dedicated to Responsible Investment in leading Business Schools. Close to academic research, she co-wrote the last reference publication from Ellipse in 2014: “ISR and Finance Responsible”.
Léa Dunand-Chatellet is graduate from the French Ecole Normale Supérieure (ENS) and is Agrégée in Economy and Management.
Mirova is the Responsible Investment division of Natixis Asset Management.
CC-BY-SA-2.0, FlickrPhoto: Lauren Manning. Change of Trends Between Europe and US?
In Europe, economic data published since the start of the year has confirmed our view that economic recovery is taking place. We are confident that activity will accelerate further this year as there are several sources of growth. In the main Eurozone economies (Germany, France, Spain and Italy) which represent about ¾ of the region-wide GDP, exports are growing at a robust pace. Reforms implemented and the weaknesses of the single currency have all contributed to improve the competitiveness of these countries. More important in our view, domestic demand which was the major drag on growth is bottoming out. In all the main Eurozone economies, consumption is expanding on the back of a slightly better employment outlook and rising consumer confidence. Regarding investments, the GDP is by far the component the most hit by the crisis, particularly since its development is uneven. In Germany and Spain, capex is positive, while it continues to shrink in Italy and France. Recapitalized banks, declining interest rates and ample liquidity coupled with a better outlook should lead to a return of investment.
In line with the constructive flow of economic indicators, the European Central Bank (ECB) has revised upwards its growth forecast for the first time since the financial crisis. Deflation, which was a huge concern two months ago, has completely disappeared from investor radar screens once it became clear that the ECB would launch a large asset purchase program (QE) and once it appeared that growth was picking up. It is worth keeping in mind however that in March, inflation data was negative (-0.1%) and that core-inflation, while positive, has continued to slow down to +0.6%. Any activity slowdown will revive the specter of deflation.
On the other side, in the US, economic data published since the start of the year provides a more complex and less appealing picture. Virtually all economic data speaks for a slowdown in the first quarter of 2015. The key question is whether this is temporary or not and what are the implications of the Fed’s first rate hike. Several factors explain the American economic slowdown. The first factor is very temporary. In January, snowstorms hit central and Eastern States and in February the temperature was very cold, hindering construction works. As it was the case in the first quarter of 2014 as well, harsh winter impacts negatively the US economy. The second two factors are cyclical and probably cancelled each other. On the one hand, the strength of the USD weighs on exports, but on the other hand, the low oil price increases considerably the purchasing power of American consumers. Besides these factors that currently weigh on growth, we are confident that underlying growth remains robust. Consumption, representing about 70 % of the GDP, is supported by a robust labor market and slightly rising wages. In our view, the current episode of weak growth is a soft patch that would fade away in the coming months.
Against this background, we expect the Federal Reserve to raise rates for the first time since the Global Financial Crisis sometimes in the second half of the year. While a June rate hike is not completely ruled out, it appears unlikely today. As the Fed repeats, it depends on data, as we are. This adds uncertainty regarding the exact timing of the so called lift off. In our view, it is more important to focus on how fast the Fed will increase its fund rate rather to focus only on when the first rate hike will take place. We think that it will do it very gradually.
Analysis by Ethenea.Yves Longchamp is Head of Macroeconomic Research at ETHENEA Independent Investors AG. Capital Strategies is Ethenea distributor in Spain and Portugal.
CC-BY-SA-2.0, FlickrPhoto: Charles Clegg. Europe's "Great Rotation" Fails to Live Up to Expectations
The expected flight from bond funds to equities has not lived up to its “Great Rotation” billing, according to the latest issue of The Cerulli Edge – Europe Edition.
Cerulli Associates, the global analytics firm, says that where there has been movement, the outflow has largely ended up in other income classes such as property and multi-asset funds. That low interest rates and quantitative easing would help create the conditions for an exodus to equities made sense, yet a definitive shift, which would have left asset managers scrambling to stem bond fund outflows, has failed to materialize.
“While bond inflows are lower than they were, outflows haven’t happened to the extent that many expected,” says Barbara Wall, Europe research director at Cerulli Associates. “In the current climate, fixed-income managers are looking for new ways to deliver yield. Several have adopted an unconstrained, benchmark-free investment approach, which provides the flexibility to respond with greater decisiveness to macro developments, and to invest more broadly across regions, structures, and products.”
The marketing rationale behind unconstrained or strategic bond funds is that investors can access fixed income while enjoying some protection and also profiting from moving across asset classes. The advent of unconstrained emerging-market funds takes investors another step up the risk scale. Standard Life Investments launched one such vehicle in April, to sit alongside its emerging-market hard-currency and local-currency debt funds.
Also up the risk measure slightly from conventional bond funds is emerging-market debt, supporting the theory that rather than rotating away from fixed income entirely, investors are looking for yield in other areas of the market.
Angelos Gousios, an associate director at Cerulli, notes: “The macro environment is forcing managers to meet the needs of investors by providing both more alpha and greater protection. Product development, so long driven by supply, has become more demand led. The appetite for emerging-market debt has certainly grown, but to some extent investors have had little choice but to take more risk to get the yield they want from fixed income without leaving the asset class.”
Other Findings:
Europe’s alternatives managers may be on the cusp of some significant inflows, says Cerulli, as insurers look to non-mainstream strategies as a means of increasing yield. Insurers’ in-house investment skills typically stop at high -yield, or emerging-markets debt. The global analytics firm expects alternatives mandates to start trickling in from 2016. Until then business imperatives, including preliminary Solvency II reporting, will take precedent, it says.
Islamic funds are under pressure to ensure strict compliance with Shariah principles, which require investors to avoid interest and investments in businesses providing goods and services seen as contrary to the spirit of Islam. Cerulli believes the industry would benefit from a distinction being drawn between liquid and illiquid products. It expects that the challenge of raising assets will encourage asset managers to position funds as Shariah-compliant. However, these will need to be competitive relative to conventional products.
Socially responsible investing (SRI) is once again popular with retail investors in Europe, but nowadays managers must be able to explain stock selection, the research backing it, their engagement and divestment policies, and how the fund communicates and interacts with its investors. Cerulli notes that across Europe, impact investing – whereby investors seek to affect social or environmental change while also making money – is the fastest-growing area within SRI.
CC-BY-SA-2.0, FlickrPhoto: Diana Robinson. UK-Based Investment House Plants Emerging Market Team In Florida
RWC Partners confirms that it has hired a 15 person investment team previously at Everest Capital to establish a new Emerging, Frontier and Asia equity business. To support the team, RWC Partners has established a new office in Miami and is in the process of establishing an office in Singapore, subject to regulatory approvals.
The Emerging and Frontier market team is jointly headed up by John Malloy and James Johnstone. Malloy is primarily responsible for the Emerging Market portfolios and will be backed up by his co-portfolio manager, Thomas Allraum. Johnstone is responsible for the Frontier Market portfolios and backed up by his co-portfolio manager, Luis Laboy. Cem Akyurek has joined as the team’s Emerging Market economist, while in Singapore, Garret Mallal will serve as portfolio manager and Min Chen will be focused on Asian equity research. Additionally, RWC Partners has recruited Simon Onabowale to head up trading in Miami.
RWC Partners has established new funds replicating those previously managed by the team, covering long-only Emerging and Frontier markets and long-short Frontier and Asian strategies. The Frontier market strategies at Everest Capital were previously closed to new investors. Additionally, Tord Stallvik joins as a member of the RWC Management Committee and Head of US, with Frances Selby heading up US Institutional business development.
Dan Mannix, CEO of RWC Partners, commented:“An extremely unusual set of circumstances allowed us to recruit a fully formed institutional quality Emerging and Frontier markets investment team. It is incredibly hard to build a team of the depth and breadth that John and James have over the last few years and we are all very pleased to have been able to create the environment for the team to stay together. The support we have seen from John and James’ clients is a real endorsement of the quality of the investment capability and we have in the region of $1.3bn of committed capital and expect to exceed $1.5bn across the strategies in the near future.
“We have also taken the opportunity to strengthen our business development framework with the addition of Tord and Frances. Tord brings 25 years of experience from previous leadership roles in alternative and traditional asset managers, while Frances has been working in a senior capacity with US institutional investors for over 30 years.
“For RWC Partners this comes at an exciting time where our business has seen its assets double in the last two years on the back of strong performance and good inflows. We have developed our systems and infrastructure to support our rapidly growing business over the last two years and it is a great opportunity for us to launch an Emerging Market capability that is highly credible, fully formed, and at a point in the cycle where clients are starting to consider who they use in the Emerging Market space.”
Foto cedidaRichard Pease is manager of the Henderson European Special Situations Fund, the Henderson European Growth Fund and the Henderson Horizon European Growth Fund. Henderson: Identifying value in Europe
Global dividends fell to $218bn in the first quarter, down 6.3% year on year, the second consecutive quarterly decline and the sharpest since the first quarter of 2010, according to the latest Global Dividend Index from Henderson. However, this disappointing headline picture masks a more encouraging underlying one. Underlying growth, which strips out special dividends, currency movements, and other factors, was in fact up 10.9% year on year.
The severity of the drop in the first quarter is mainly because Vodafone’s $26bn special dividend paid last year was not repeated, but the sharp rise in the US dollar also made a significant impact. This means the value of dividends paid in a variety of currencies is translated back into US dollars at a lower exchange rate, costing dollar based investors $15.9bn in the quarter. For individual regions, especially Japan, Europe, and Emerging Markets, the effect is very pronounced. The impact on the headline growth rate in Q1 was to deduct seven percentage points, the largest exchange rate effect in any quarter since Q2 2011.
The US dominates the first quarter, accounting for more than half the global total, so the rapid growth in dividend payments from US companies had a very positive impact on the quarter. US companies paid out a record $99.4bn in Q1, up 14.8% at the headline level, (+11.2% underlying).
This is the fifth consecutive quarter of double digit increases, cementing the US as the engine of global dividend growth. All sectors in the US raised their dividend payouts growth, except for insurance and US dividends have outstripped the global average significantly since 2009. In Canada, headline dividends fell 4.5% to $8.8bn, with the fall due almost entirely to the weakness of the Canadian dollar. Underlying payouts rose a very positive 9.8%.
Europe and Asia Pacific
The first quarter is a very small one for Europe, accounting for just one seventh of the annual total payout. European dividends fell 2.0% (headline) to $34.3bn, with a $6.1bn currency loss deducting 18 percentage points from the dollar growth rate. By contrast, underlying growth in Q1 was impressive, at 15.2%, though this will be hard to sustain all year. Very few companies made payments, but the fastest underlying growth came from Germany, Spain, and France, while other countries had a more mixed performance. Swiss companies Roche and Novartis were the two largest payers in the world in Q1, together distributing $13bn. Japan, also a small payer in Q1, followed a similar trend of good underlying growth pulled down by currency weakness.
In Asia Pacific, dividends of $12.7bn were 11.7% higher than a year ago on a headline basis, but were up 18.3% underlying. Currency was the biggest adjustment factor, as a result of the sharply weaker Australian dollar, though Australia had the fastest growth in the region on an underlying basis, comfortably outstripping Hong Kong and Singapore.
Emerging Market dividends were boosted strongly by Russia. They rose 13.7% on a headline basis to $15.6bn, but were up 30% on an underlying basis, after currency declines and other adjustments were taken into account. Russia, unpredictable as ever, more than doubled its payout in dollar terms (trebled in rouble terms), after a poor 2014. Brazil, down in headline terms, showed growth after adjusting for the low Brazilian real, while total Indian dividends declined.
Industry perspective
From an industry perspective, financials and consumer industries grew rapidly, with the US leading the way. Healthcare, the second largest payer in the first quarter, has seen relatively subdued dividend growth of late and this was pulled down further by lower exchange rates in Q1. Utilities continued their poor performance, falling 13.6% year on year (headline). They remain the worst performing industry in recent years, from a dividend growth perspective.
As the US dollar extended its gains into the second quarter, offsetting a slightly stronger than expected underlying performance from a number of regions, Henderson has reduced its forecast for the year from +0.8% to -3.0% (headline), taking total dividends to $1.134 trillion, $42bn less than the forecast we made in January. Henderson expects underlying growth to be +7.5%, slightly stronger than Henderson’s initial forecast of 6.9%.
Alex Crooke, Head of Global Equity Income at Henderson Global Investors said:
“The effect of the strong dollar is set to be even greater in the second quarter when Europe and Japan pay a large share of their annual dividends. In fact, if the current exchange rates persist, the impact could be as much as $40bn. In any given period, exchange rates can have a very large effect on dividend payments, but our research shows that over time they even out almost entirely, so investors can largely disregard them if they take a longer term approach.
“Despite our lower forecast, there are many reasons for optimism. Japan, the second largest stock market in the world, is undergoing a cultural shift towards higher dividend payments, unlocking large cash piles from what has traditionally been a low yielding part of the world, while in Europe, though dividend growth is modest, it is tracking somewhat higher than we expected. Meanwhile the US goes from strength to strength, and is likely to break new records this year.
“With interest rates and bond yields likely to remain at relatively low historic levels, equity income investing has a significant role to play in meeting investors’ income needs. Over time, the risks to dividend growth are significantly smaller if you look beyond the confines of your own domestic stock market.”
