30 St. Mary Axe Building - The Gherkin. The Safra Group To Acquire London Premier Property 30 St Mary Axe
The Safra Group, controlled by Joseph Safra, and Deloitte, the receiver for the London property 30 St Mary Axe, today announced an agreement under which Safra will acquire 30 St. Mary Axe, a 180-meter office tower that is the second-tallest building in the City of London. Financial terms of the transaction were not disclosed.
Completed in 2004, 30 St Mary Axe, otherwise known as The Gherkin, provides highly flexible space and outstanding views of London. It is an iconic part of the London skyline, recognized around the world as a great achievement by noted architect Lord Norman Foster. It encompasses approximately 50,000 square meters of office space and its largest tenants are Swiss Re and Kirkland & Ellis.
Safra Group said, “The acquisition of 30 St Mary Axe is consistent with our real estate strategy of investing in properties that are truly special – at the best locations within great cities. While only ten years old, this building is already a London icon that is distinguished from others in the market, with excellent value growth potential. We intend to make the building even better and more desirable through active ownership that will lead to a range of enhancements that will benefit tenants.”
Photo: Stephen Thornber, Portfolio Manager of Threadneedle’s Global Equity Income . Threadneedle’s Global Equity Income Recaps Negatives and Positives for the Last Ten Months
Stephen Thornber, Portfolio Manager of Threadneedle’s Global Equity Income strategy, reviews the developments of the past ten months or so and outlines how the team has responded to recent challenges.
Style rotation
April and May of this year witnessed a significant movement away from growth stocks and into their value and defensive counterparts. Threadneedle’s positioning in more growth-oriented dividend stocks meant that it did not benefit from this rotation, unlike the more traditional, low-growth dividend strategies, which did gain an advantage.
Threadneedle continues to believe that its long-term strategy of investing in growing companies with high and sustainable dividend yields should generate superior returns. While it expects interest rates to increase only slowly, Threadneedle says we should be wary of low growth ‘bond proxies’ in the current environment.
Regional allocation
A diverging economic performance has seen US equities significantly outperform those in Europe and Asia this year. Additionally, the dollar has strengthened against the euro and most global currencies. Threadneedle’s Global Equity strategy has been positioned underweight the US, partly due to the fact that American stocks traditionally offer relatively low dividends.
Over thirty per cent of the portfolio is invested in the US, and Threadneedle could increase this exposure either through taking larger positions or selecting additional American stocks. However, they will continue to construct the portfolio from the best individual high-dividend stock ideas, which means that it is likely that they will remain structurally underweight the US market relative to the benchmark.
Sector allocation
The portfolio has been underweight the technology sector, which has outperformed this year. It has also been overweight the telecommunications sector, which has underperformed.
Thornber states that the portfolio will continue to be constructed by picking individual stocks on their merits rather than allocating by sector. In the past the team has had considerable success by investing in Asian technology companies with high dividend yields such as Delta Electronics. But the majority of US technology stocks, (even dividend payers such as Microsoft), remain well below their yield threshold for investing in a stock. The strategy will thus likely maintain its bias against technology. Within telecommunications, Threadneedle continues to avoid highly-indebted legacy, fixed-line operators, but favors exposure to younger, mobile-focused players, and those in faster-growing economies.
Exposure to China
The authorities in Beijing have tightened credit restrictions in order to cool China’s overheated property market. Consequently, sentiment towards companies with both direct and indirect exposure has weakened. The portfolio has been overweight Asia, and some of the more economically-sensitive Asian stocks to which they have exposure have underperformed.
Exposure to beta within Europe
Within the portfolio’s overweight position in Europe, exposure has been concentrated in Scandinavia, Germany, France and Switzerland. Unfortunately this has not shielded the strategy from deteriorating confidence, particularly following events in Ukraine. Positions in the media, financials, construction, industrials and telecoms sectors have all underperformed. Threadneedle continues to have confidence in the outlook for other investments held in Europe, but they are reviewing the scale of their overweight positioning given the softening outlook.
Acknowledging the positives
Notwithstanding the challenges outlined above, the strategy has benefited from positive investments this year. Highlights included the purchase of L Brands (Victoria’s Secret), in February, when the stock was depressed following weather- affected December results. The original investment case was based on both improving results in the US, as the economy brightens, and its global store roll-out plans. Since investing, the stock has paid two dividends, and gained c.20% on improved sales results and sentiment.
Elsewhere, UK healthcare stock AstraZeneca has outperformed following a takeover bid from Pfizer, which was ultimately rejected. Threadneedle recognized the attractive free cash-flow generation and improving prospects for the large cap pharmaceutical sector as early as 2012, as a number of companies moved towards or through patent expiries on major drugs. With fresh innovation, particularly in the area of immunoconcology, and tax-driven M&A, investor appetite for the industry has dramatically improved. We think AstraZeneca remains an attractive stand-alone investment, but would not be surprised should Pfizer return to the deal-making table in the future.
Conviction in the strategy remains intact
While recent performance has disappointed, the strategy has built an excellent long-term track record over the last seven years by patiently investing in ‘Quality Income’, i.e., companies with high, sustainable and growing dividends. Threadneedle plans to continue pursuing the approach that has underpinned this performance and is working hard to ensure that the good record is maintained. Thornber notes that investors should be aware that the portfolio has a defensive bias, and therefore its best relative performance usually occurs in weaker periods for the market. In that respect, he would remind investors that the last two years have been very rewarding, and that caution should be exercised in extrapolating recent trends over a longer period. It is also important to note that the strategy acts on a two to three-year view when taking investment decisions, and is prepared to ride out periods of underperformance to deliver its long-term objectives.
Foto: Moyan Brenn. AllianzGI Launches Flexible Emerging Markets Debt Fund
Allianz Global Investors has announced the launch of the Allianz Emerging Markets Flexible Bond Fund.
“We firmly believe that strong economic-growth prospects, favourable demographics and markedly improving fundamentals mean that emerging markets debt (EMD) is set to perform over the longer- term, despite any liquidity risk from a rise in US interest rates or country-specific geo-political tensions,” said Greg Saichin, CIO of AllianzGI’s EMD business and a 26-year veteran of the asset class.
The Allianz Emerging Markets Flexible Bond fund will invest across the full range of emerging markets debt instruments, including companies and countries of any credit rating or currency. The flexible approach enables the fund’s experienced team to construct a portfolio based on their conviction views of an asset class where individual securities can exhibit an exceptionally wide range of risk and return.
“The launch of this fund represents a significant milestone in our plan to make AllianzGI a benchmark in global emerging markets debt management. As a team of active, specialist EMD managers we understand and are able to navigate the diverse risks associated with this vast and varied asset class,” added Saichin, who has been a flexible bond investor for nearly 10 years having been an early pioneer of the approach.
Nick Smith, Head of European Retail Sales (Ex-Germany) at AllianzGI, added:
“This fund, which covers the full EMD spectrum, will give investors the opportunity to access carefully identified, high-conviction growth opportunities across some of the world’s most dynamic and diverse geographies, currencies and sectors.”
“This is an asset class where experience really counts. With no two emerging markets the same, our regional teams are able to act in clients’ interests in local time, using their skilled, experienced eyes to unlock the very best buying opportunities.”
The fund is a Luxembourg domiciled SICAV, available through the AGIF (Allianz Global Investors Funds) platform, a vehicle AllianzGI uses to distribute its funds to a number of markets across the globe. The fund is currently available to institutional investors in the UK and will be made available to retail investors later this year.
AllianzGI’s Emerging Market Debt franchise was launched in October 2013 on the conviction that emerging economies will expand more quickly than developed markets, offering potential for superior returns. The team is now 10 strong, with portfolio managers and analysts in London, New York and Hong Kong.
Photo: Tuxyso . Advent International Raises Largest Private Equity Fund Dedicated to Latin America
Advent International announced that it has received $2.1 billion in commitments for Advent Latin American Private Equity Fund VI (“LAPEF VI” or the “Fund”), reaching the Fund’s hard cap after less than six months in the market. LAPEF VI is the largest private equity fund ever raised for Latin America.1 Advent’s previous fund dedicated to the region, LAPEF V, closed on $1.65 billion in 2010.
Over 60 institutional investors participated in LAPEF VI, including public and corporate pension funds, endowments and foundations, funds of funds, sovereign wealth funds, family offices and other financial institutions. The majority of the capital came from limited partners in LAPEF V, with Advent admitting a select number of new strategic investors into the Fund as well. Approximately half the capital was raised from North American investors, one-quarter from European investors and the remainder from institutions in Latin America, the Middle East and Asia.
“We are pleased with the strong support we received from both existing and new investors,” said Advent Managing Partner Patrice Etlin. “We believe the high level of demand reflects our leadership position in Latin America based on our strong 18-year track record and differentiated strategy for creating value in companies. Latin America continues to be an attractive region in which to invest. It is a large, growing market with an expanding middle class, opportunities for productivity enhancement, a high degree of family ownership and limited competition from other financial sponsors relative to the size of the markets.”
Continuing the strategy of its predecessor funds, LAPEF VI will focus on control-oriented investments in later-stage companies throughout Latin America, investing mainly in Brazil, Colombia and Mexico. The Fund will target sectors where Advent has significant experience both regionally and globally, including business and financial services; healthcare; industrial and infrastructure; and retail, consumer and leisure.
“LAPEF VI underscores our longstanding commitment to investing in attractive opportunities in our target sectors throughout Latin America,” said David Mussafer, Managing Partner and Co-Chairman of Advent’s Executive Committee. “We believe our industry and local market expertise, combined with our global resources and operational approach to creating value, provides us with a distinct competitive advantage in the region. We are pleased investors continue to recognize this and we remain focused on exceeding their expectations.”
Allan MacLeod, director de Distribución Internacional de Old Mutual Global Investors. Old Mutual Global Investors nombra a Allan MacLeod director de Distribución Internacional
Old Mutual Global Investors announced that Allan MacLeod has joined the business in the newly created role of Head of International Distribution.
Based in London and reporting to Warren Tonkinson, Head of Global Distribution, Allan will be responsible for expanding Old Mutual Global Investors’ footprint in the global financial institutions and international sector. The business has already made steady progress in increasing its market share in this sector, however, it is widely recognised that this is a key sector where significant future growth opportunities exist.
Allan 25 has years of experience in the asset management industry. He spent 21 years at Martin Currie in a variety of senior roles including eight years managing money. He set up and ran the hedge fund business and had a number of international sales and client service roles, including running global distribution for the firm. He was also a member of the executive committee and a main board director. He left Martin Currie in 2011 and joined Ignis Asset Management in 2012 as Head of Global Accounts and spent two years building their business in the Middle East, Japan, Asia, Australia and North America.
Photo: Renate Dodell. Frontier Markets 101, by Global Evolution
In October 2014, Global Evolution attended the IMF-WB Annual Meetings to conduct face-to-face meetings with government officials from emerging and frontier countries, and to discuss joint research with the IMF Research Department, including the planning of an IMF-Global Evolution Frontier Markets Research Seminar for Spring 2015.
After these talks, Ole Hagen Jørgensen, Research Director, and Kristian Wigh Jespersen, Portfolio Manager at Global Evolution, discuss in its most recent Trip Notes their impressions from the 24 country-meetings they held in seven days. “ We attended public meetings with government officials and IMF mission chiefs from 24 emerging and frontier market countries.” These are their headline conclusions:
Angola: Good non-oil growth prospects; likely upcoming financing from WB and other donors; reduction in oil production and royalties; low risk to debt sustainability.
Belize: Fiscal numbers in bad shape; large contingent liabilities; no strong commitment to fiscal reform; oil sector waning down; elevated risk to debt sustainability.
Bangladesh: Prudent monetary policy; GDP revised upwards 50%; weak revenue performance; domestic political turmoil; delayed VAT reform; low risk to debt sustainability.
Botswana: Good fiscal stance; production not diversified; growth outlook worse due to lower diamond production; accelerating credit growth; low risk to debt sustainability.
Egypt: Impressive subsidy reforms; fiscal adjustment offset by infrastructure spending; improved revenue collection; FX flexibility needed; moderate risk to debt sustainability.
Ethiopia: IMF program unlikely; Eurobond issuance likely; high growth; volatile inflation; prudent fiscal performance; build up of debt, but low risk to debt sustainability.
Gabon: Increasing capital spending; business climate and electricity supply not good but improving; production needs diversification; low risk to debt sustainability.
Ghana: Negotiations with IMF on funded program; early budget to be prepared; other donors on board; high inflation; high debt service; moderate risk to debt sustainability.
Iraq: In civil war; Iran influence; IS Ramadi-takeover makes Baghdad-takeover easier; government safeguards oil but difficult; moderate risk to debt sustainability.
Jamaica: Fiscal program major success; need for revenue- enhancing measures; vulnerabilities to PETROCARIBE and external shocks; moderate risk to debt sustainability.
Mongolia: Nervous investor sentiment; too high exposure to China financing; FDI into mining is down; vulnerabilities in banking sector; moderate risk to debt sustainability.
Mozambique: Foreign financing is a concern; proceeds from bond issuance used for elections; huge gas reserves under ground; low risk to debt sustainability.
Nigeria: Economic impact of insurgence in the north is very low; little expected impact of elections on fiscal expenditure; good growth due to non-oil; low risk to debt sustainability.
Pakistan: Privatization program going well; tax reform important; Minister Daar seems fiscally committed and prudent; low risk to debt sustainability.
Paraguay: Inflation targeting implemented; a net creditor nation; VAT of 10% across income types very prudent; infrastructure challenge; low risk to debt sustainability.
Republic of Congo: Huge fiscal buffers; good non-oil growth prospects; inefficient government spending; poor business climate; need for fiscal reform; low risk to debt sustainability.
Senegal: Good fiscal consolidation; twin deficits; problematic fuel and electricity subsidies; low growth; manufacturing lacking; low inflation; low risk to debt sustainability.
Serbia: Huge fiscal slippage; likely upcoming emergency- financing from WB; privatization-process well under way; high unemployment; elevated risk to debt sustainability.
Tanzania: Fiscal deterioration; need for tax collection improvements; policy reforms moving very slowly; high financing needs; rebasing GDP; low risk to debt sustainability.
Turkey: Huge financing needs of 25% of GDP; oil price decline beneficial to economy but risks removing reform-focus; exports drops; low risk to debt sustainability.
Uganda: High growth; need for revenue-enhancing measures; infrastructure needs mounting; huge real interest rate; low risk to debt sustainability.
Ukraine: No clarity on political situation, economic impact, and external financing; IMF report to come out mid-December; high risk to debt sustainability.
Venezuela: Policy inaction; recent downgrade; 15% budget deficit; sell off in Venezuelan US dollar bonds; possible but unlikely default; moderate risk to debt sustainability.
Zambia: President Sata dies; election and succession in question with political outlook less certain; Fiscal consolidation important; mining companies taking government to court; low risk to debt sustainability.
Global Evolution, an asset management firm specialized in emerging and frontier markets debt, is represented by Capital Stragtegies in the Americas Region.
Steve Drew, Head of Emerging Market Credit of Henderson Global Investors. Henderson Global Investors Launches Two New Credit Funds
Henderson has further extended its fixed income offering with the launch today of the Henderson Horizon Emerging Market Corporate Bond Fund and the Henderson Horizon Global Corporate Bond Fund. The funds will be managed by Steve Drew, Head of Emerging Market Credit and James Briggs, Fixed Income Fund Manager, respectively.
The Luxembourg registered funds will have UCITS status and be denominated in US dollars.
The Emerging Market Corporate Bond Fund’s objective is to deliver a total return in excess of its benchmark.
Steve Drew, Head of Emerging Market Credit, says, “Emerging market credit offers investors a unique investment proposition. They are paid an attractive risk premium because of the ‘emerging market’ label, despite the investment grade characteristics of much of the asset class. And while emerging market companies represent some of the largest and fastest-growing companies, their bonds are typically under-represented in investors’ portfolios.
“The fund uses a proprietary thematic and quantitative filtering process that allows the team to concentrate on bonds that offer genuine value. Risk management plays a key role in portfolio construction and the fund is notable for its active management of interest rate exposure, with duration not tied to the average duration of the benchmark.”
The Global Corporate Bond Fund also aims to deliver a total return above its designated benchmark, but by investing primarily in investment grade corporate bonds.
James Briggs, Fixed Income Fund Manager, says, “The launch of the Henderson Horizon Global Corporate Bond Fund is the culmination of eight years of globalising our fixed income capabilities. The fund benefits from a flexible investment approach, using the analytical strengths of a team based in both Europe and the US to identify opportunities across all geographies and all areas of the credit spectrum. The combination of conviction-led investing with a blend of macroeconomic analysis and fundamental security selection can allow the fund to exploit disparities in markets around the globe.”
Both managers will have access to a sixteen strong credit research team and will work closely with the interest rates’ team headed by James McAlevey.
Greg Jones, Head of EMEA Retail and Latin America, adds, “We are launching these Luxembourg based SICAV funds to meet the needs of our clients seeking sophisticated fixed income funds in the global and emerging market credit space. These funds complement sophisticated UCITS launches in the European and global high yield sectors over the last two years and are the result of the globalisation of our fixed income teams.”
Global ETP flows of $37.3bn were driven by fixed income with $19.9bn, although equity flows also finished strong as stocks rebounded from a sharp correction attributed to economic growth and low inflation concerns, according to BlackRock.
The fixed income inflows represented an all-time high, including records for US and European exposures, and year-to-date asset gathering of $73.3bn has already broken the annual record of $70.0bn set in 2012.
High yield corporate bond ETPs had the best month of the year with $2.3bn to lead inflows of $7.5bn across all income-oriented categories as interest rates fell further and the search for yield intensified.
EM equity redemptions of ($3.0bn) were impacted by tactical trading in broad funds, but opportunities remain for selective investors currently underweight EM, particularly for Asian economies with attractive valuations and less sensitivity to rates/central bank action.
Japanese equity flows of $0.6bn included $3.2bn in the second half of the month as stocks rallied on expanded Bank of Japan stimulus and news the Government Pension Investment Fund will double its domestic equity allocation to 25%.
The 29 October statement from the Federal Open Market Committee (FOMC) doesn’t lend credence to the idea that the first rate increase is off the table for June 2015. Yields have dropped recently on broad-based disinflation, geopolitical concerns and fears of a slowdown in global growth. Yet these lower yields simply don’t reflect the US Federal Reserve’s current forecasts.
If you believe, as I do, that Fed policymakers will start to raise rates as early as next June, then they probably won’t begin to fully signal their intentions until the FOMC meets again in December. In the absence of a major deterioration in macro or financial conditions, the October statement primes the market for further “hawkish” guidance at the next meeting.
My view is that the Fed needs to start raising rates sooner rather than later. We’ve had negative real rates for a very long time, and that has almost certainly led to a misallocation of resources. Labor slack is being taken up; capacity utilization is rapidly normalizing. I think the Fed needs to slowly but assuredly take away the punch bowl, even though the party may just be getting started.
In the near term, as we assign a higher probability to the Fed’s first hike in mid-2015, rates will likely move modestly higher from here — especially at the front end of the yield curve. And as this environment of diverging central bank actions looks to be a multiyear trend, I believe the US dollar should continue to strengthen.
Opinion article by Erik Weisman, Ph.D., Fixed Income Portfolio Manager at MFS.
Pixabay CC0 Public Domain. Mark Mobius: El regreso de Argentina
Xavier Hovasse, manager on the Carmignac Emerging Discovery fund, has said that while the near term focus will be on Brazil in Latin America, it is the longer term prospects of Argentina that could shine depending on factors such as next year’s presidential election there.
Latin American makes up about 30% of the portfolio. Carmignac has previously stayed away from Argentina, for reasons such as the uncertainty surrounding the country’s participation in bond markets.
Currently, the country’s administration is fighting a battle with bond holders, who are owed debt in dollars. Going forward, the government might push to change the debt denomination to the local currency, Hovasse suggests.
Beyond that a key moment will take place with elections next year, which could mark the start of a different type of administration in terms of its dealings with international investors. Besides a new president, there are also Senate and Deputy elections taking place. Should that occur then Hovasse describes the country as “some day becoming the best frontier opportunity”. “The country has a relatively large population, that is well educated, and where you can find good entrepreneurs.”
Locals do not have credit because they do not want to put their money into the bank; so the deposit to GDP ratio is very low compared to similar sized economies. Hovasse estimates that debt to GDP ratio is around 45%.
The country has significant estimated reserves of onshore shale gas, which could become economically extracted if the government could encourage investment into the oil industry.
One of the challenges to investing is that the country has been involved in some unusual developments. For example, Hovasse said that the country was the only one in recent times that managed to have hyperinflation despite also enjoying surpluses, effectively leading into quantitative easing while having no debt. This is a completely different situation to a market such as the US, where quantitative easing occurred at a time when the government hit a sovereign debt crisis.
However, while Carmignac is not invested currently it is preparing to invest massively when it it feels there is a sound basis for change in the country. Hovasse said this might not be immediately following next year’s election, but at the same time there are potential candidates already putting forward policies that in his opinion look interesting.
Looking around Latin America more broadly, Hovasse, who joined Carmignac Gestion in 2008 from BNP Paribas Investment Management, said Colombia was one of the most interesting markets in the region, with sectors such as food retail still in a situation of low market penetration – about half of food sales in the country are still via non chain independent stores.
Colombia generally is enjoying the dividends of a peace deal between the government and FARC, which looks to be withing striking distance, and local politicians are impressing investors, for example, via a fiscal responsibility law. Ratings agencies have upgraded the country in recent years, and it is seen as less dependent on commodities exports than a number of other countries in the region.
Mexico offers potential in the banking sector, as about half the population do not have bank accounts – the result of previous financial crises that saw retail banking customers leave and never come back. Government reforms are progressing, and there is scope to privatise the country’s oil industry.
Insurance is another sector across the region where market penetration rates are low, thus offering good scope for growth, Hovasse added.
Brazil is set to provide the most immediate challenges to investors, after the presidential election. The country enjoyed a commodities and credit boom over the past decade, but the credit needs to be paid off, while commodities prices have weakened.
Cashflow and demography
Two key factors in determining investments in emerging markets are cashflow and demography, Hovasse said. His portfolio looks for companies with good cash flow growth; it is seeking companies with good prospects of self funding their growth. This varies by sector, with industries such as mining being capital intensive.
Hovasse does not look to ebitda. The key metric is free cashflow to equity yield before expansion capital expenditure. Hovasse said there is a split between maintenance capex and expansion capex, and he is looking for the figure after maintenance, but before expansion.
On ongoing challenge is the way accounting differs between jurisdictions. But by looking at cashflow and capital expenditure requirements, it means the fund will never buy a Gazprom or Petrobras.
The manager also uses the cash realisation ratio. If this is higher than 1, it means income statement multiples will make a company look more expensive than it is, so it is attractive from a valuation point of view. Cash return on invested capital is another key metric, Hovasse said.
Demographics are another key factor, he added. When women have fewer children they can be more economically active and provide better education to children, as well as result in other advantages to an economy. Hovasse said he is looking for evidence of populations growing “intelligently”. An example of where this factor suggests investors should stay away is Russia. The poor demographics affect the consumer story there, he said, even as investors struggle with other issues such as corporate governance and the impact of the oil price on the economy and a structural capital flight.
