Photo: Oasis in Libya by Sfivat - Own work. One Bright Spot in Equity Markets is Japan
September was a challenging month for risk assets with the S&P 500 index posting a dollar total return of -1.4%. UK equities also declined as the short-term uncertainties relating to the Scottish independence referendum weighed on sentiment, with the FTSE All-Share registering a sterling total return of -2.8%. For the year, the All-Share is now up only 0.6% on a total return basis. Returns from European equity markets diverged in September, with the likes of Italy and Denmark ranking among the stronger European bourses when measured in local currency terms, while Greece and Portugal underperformed. Japanese equities outperformed strongly, which was very pleasing as we continue to favour Japan within our multi-asset portfolios. However, Asian equities struggled, as markets in Hong Kong and China were unsettled by pro-democracy demonstrations in Hong Kong after Beijing ruled out fully democratic elections in 2017. In fixed income, benchmark US 10-year yields moved higher to finish September at 2.48%. Towards the end of the month, there was some volatility in Treasury and credit markets as the departure of Bill Gross from PIMCO led to concerns that the world’s largest bond fund – the c.$220bn PIMCO Total Return Fund – could be forced to exit positions to meet client redemptions.
At the time of writing, risk assets are struggling to make any headway due to the combination of weak European economic data, the first confirmed cases of Ebola in Europe and the US, and ongoing geopolitical worries in Europe, the Middle East and Hong Kong/China.
As I have highlighted in our recent asset allocation update, we have decided to take some money out of high yield (with the proceeds going to cash) as a risk reduction measure; the asset class is widely owned and yet liquidity remains patchy. Core bond yields continue to look poor value versus historic averages, but the deteriorating economic growth outlook in Europe and some signs that the US is moving to a more moderate rate of growth should provide some support for core bond prices, even allowing for the concerns about flows mentioned above.
On the policy front, the market continues to speculate whether the ECB will implement some form of full- blown quantitative easing (QE), but it was interesting to note that Mario Draghi looked somewhat dejected at a recent ECB press conference; it is clear that he would like Europe’s politicians to implement some form of structural or fiscal boost (a ‘cash for clunkers’ scheme is one potential easy win for Europe, especially given Germany’s position as a leading producer of cars) but nothing has been forthcoming. As for QE, I would continue to question the efficacy of sovereign bond purchases when European core yields are already so low. Ever-lower bond yields are unlikely to encourage European banks to lend when demand for credit is subdued and regulatory constraints mean that banks are being forced to conserve capital. However, given the politicians’ inaction on structural reform and fiscal stimulus, Draghi may feel that he has to implement QE because it is the only lever that he can pull.
On balance, we remain constructive on equities versus bonds on a relative basis but, in absolute terms, equities are no longer cheap and on some measures they are expensive. One bright spot in equity markets is Japan, where companies have benefited from the yen’s decline against the dollar; upward earnings revisions continue to come through, and should continue to underpin the relative attractiveness of the asset class, although Japan is unlikely to be immune to any short-term weakness in global equities.
Perhaps the biggest question for investors at the moment is whether the US really can ‘go it alone’ given that much of the developed world remains moribund in economic terms. Certainly dollar strength has been one of the major themes in markets this year and it is telling that US QE is winding down just as Europe seems to be contemplating its own full-blown program of sovereign bond purchases. One thing that is clear is that the dollar is likely to remain healthy in the short term and this should to prove a headwind for asset classes that historically have had a strong negative correlation with the dollar, such as emerging markets.
Mark Burgess is Chief Investment Officer at Threadneedle
Neil Dwane, Chief Executive Officer of European Equity, Allianz GI. “With this Setback, the Markets are Challenging European Politicians to Undertake Change”
This last week has been tough for the markets. What began on the previous week with a correction in commodity prices has now moved to the stock markets. “Investors have realized that global growth is slowing down,” said Neil Dwane, Chief Investment Officer for European Equities at Allianz GI, in an interview with Funds Society. As pointed out by this expert, this situation was triggered by weaker-than-expected inflation data in China, and especially “the negative PPI data, which raises concerns of a serious scenario for commodities and growth, coinciding with the end of tapering”.
Thus, investors are reacting to a scenario of lower growth and rising interest rates. A combination that last week led to yields on government bonds in Italy and Greece reflecting new concerns about sovereign risk in certain countries of the Eurozone. Some truncated corporate transactions, such as the U.S. pharma AbbVie’s takeover bid on UK’s Shire Pharma, have tumbled an entire sector, “bringing some hedge funds down along the way with bulkier positions,” added Dwane.
“All these factors represent a setback, so maybe it’s time to reassess the positions on our portfolios” he explains, adding that technical factors have also helped to aggravate the situation short-term because up until this week US$20bn of the US$70bn which North American investors had assigned to the European stock markets in recent years, had already flowed out, “but surely last week there were further outflows.”
If before this week, European equities were cheap, both in absolute terms and especially in relative terms to U.S. equities, now they are even cheaper. Dwane points out a number of factors to consider when allocating assets to European equities:
AQR (Asset Quality Review)– in late October, the ECB has to give its verdict on the quality of Eurozone banks. Until the last LTRO auction, this was never considered a very important event as the ECB had not been aggressive with the banks, “which is negative, because the banks need to recapitalize and if they don’t, nothing can change in Europe.” However, Dwane believes that after the banks’ lukewarm reception of the last auction, the ECB will be harder with European banks, forcing them to “ask for capital, which is something that they really need, so that within a year they will be ready to give credit,” thus helping the European economy to grow. So, something that at first may seem negative for banks and for the market as a whole, would be positive in the long term, and will provide an an opportunity to enter the market at more attractive prices.
Changing political disposition– this is an additional source of instability for Europe. Until now, European politicians have not taken the need for change seriously. “Countries like Spain and Ireland have taken measures, but others like Italy are still evasive. With this setback, markets are really challenging politicians to undertake change. While in the short term this means more uncertainty, if there is evidence of a serious political commitment from countries like Italy, France, and even the ECB, the European stock market could rally strongly.
Weak Euro –This is the factor which undoubtedly provides greater support for European corporations, their profits, and therefore their share price. “Unlike the detrimental effect of a stronger dollar on emerging markets, which see a rise in both the cost of the goods they need to import, and the cost of refinancing their debt, for Europe, a weak Euro against the dollar represents an extensive competitive advantage for their companies.” Dwane highlights that the effect of a weaker Euro will start to show up in corporate profits after a while, but even if it comes with a time lag the markets will welcome it. He adds that if you look at historical data, the average dollar rally is usually 20%, in this case it only accumulates a 9% rise so statistically, it could continue. “Probably in a few months we will start to see recommendations from analysts advocating buying Adidas and selling Nike, due to the effect of the dollar,” he added as an example.
Considering the risks and opportunities in European equities, Dwane concludes by pointing out not to lose sight of the attractive valuation of many of the European markets relative to the U.S. Using the cyclically adjusted PE ratio, and not even considering the market drop in recent weeks, the U.S. trades at a PE ration that exceeds 25x, while Germany, Netherlands, France, UK, Spain, Ireland, Italy, Portugal, and of course Greece, are clearly trading below the historical average for this ratio, which is in the vicinity of 17,5x.
This, Dwane notes, “does not have to result in a better performance of European markets over the U.S. in the coming months, but statistically there is a high probability that the annual returns of the U.S. market over the next decade will be around 2%, while that of Greece, would be of 15%.”
Allianz GI suggests two strategies for partaking in this future return given the current market environment: first, quality growth. Dwane explained that “there is corporate growth in Europe, but you have to know where to find it; the current environment is best for stock pickers.” On the other hand, a good argument in times like these is investing in companies with high dividend yields. To begin with, they receive the support of the global search for yield, and currently they offer a higher yield than that of European corporate bonds. In addition, companies that pay dividends tend to behave with less volatility than those that do not.
Foto cedidaPhoto courtesy of Man Group. The Narrow Road to the Deep North Wins the 2014 Man Booker Prize
Richard Flanagan was announced, on Tuesday 14 October, as the winner of the 2014 Man Booker Prizefor Fiction for The Narrow Road to the Deep North, published by Chatto & Windus.
The Tasmanian-born author is the third Australian to win the coveted prize which, for the first time in its 46-year history, is now expanded to include entries from writers of all nationalities, writing originally in English and published in the UK. He joins an impressive literary canon of former winners including fellow Australians Thomas Kenneally (Schindler’s Ark, 1982) and Peter Carey (Oscar & Lucinda, 1988 and The True History of the Kelly Gang, 2001).
The Narrow Road to the Deep North is the sixth novel from Richard Flanagan, who is considered by many to be one of Australia’s finest novelists. It centers upon the experiences of surgeon Dorrigo Evans in a Japanese POW camp on the now infamous Thailand-Burma railway. The Financial Times calls it ‘elegantly wrought, measured and without an ounce of melodrama… nothing short of a masterpiece.’
Named after a famous Japanese book by the haiku poet Basho, The Narrow Road to the Deep North is described by the 2014 judges as ‘a harrowing account of the cost of war to all who are caught up in it’. Questioning the meaning of heroism, the book explores what motivates acts of extreme cruelty and shows that perpetrators may be as much victims as those they abuse. Flanagan’s father, who died the day he finished The Narrow Road to the Deep North, was a survivor of the Burma Death Railway.
Richard Flanagan was announced as the 2014 winner by AC Grayling, Chair of judges, at an awards dinner at London’s Guildhall, which was broadcast live on the BBC News Channel. Flanagan was presented with a trophy from HRH The Duchess of Cornwall and a £50,000 check from Emmanuel Roman, Chief Executive of Man Group. The investment management firm has sponsored the prize since 2002.
AC Grayling comments: ‘The two great themes from the origin of literature are love and war: this is a magnificent novel of love and war. Written in prose of extraordinary elegance and force, it bridges East and West, past and present, with a story of guilt and heroism. This is the book that Richard Flanagan was born to write.’
In addition to his £50,000 prize and trophy, Flanagan also receives a designer bound edition of his book, and a further £2,500 for being shortlisted.
On winning the Man Booker Prize, an author can expect international recognition, not to mention a dramatic increase in book sales. Sales of Hilary Mantel’s winning novels, Wolf Hall and Bring Up the Bodies, have exceeded a million copies in their UK editions, published by Fourth Estate. Her novels have subsequently been adapted for stage and screen, with the highly acclaimed theatre productions of both novels arriving on Broadway in April 2015. Granta, publisher of Eleanor Catton’s 2013 winner, The Luminaries, has sold 300,000 copies of the book in the UK and almost 500,000 worldwide.
AC Grayling, philosopher and author, was joined on the 2014 panel of judges by: Jonathan Bate, Oxford Professor of English Literature and biographer; Sarah Churchwell, UEA’s Professor of American Literature; Daniel Glaser, neuroscientist and cultural commentator; Alastair Niven, former Director of Literature at the British Council and at the Arts Council, and Erica Wagner, former literary editor and writer.
Wells Fargo Building in downtown Miami. Photo: Daniel Christensen. Wells Fargo Advisors Miami Recruits a Team of Four Advisors from Merrill Lynch
Wells Fargo Advisors Miami International has hired a team of four new advisors for its high net worth families division (HNW); a team which hails from Merrill Lynch, and which will join the company’s international complex in Miami, as was reported by Wells Fargo through a notice published in the Miami Herald, the local newspaper.
Eugene Montoya and Francisco de la Cámara each join the firm as Managing Director of Investments, while Mario Baro joins as Senior Vice President of Investments and Kevin Montoya as Financial Advisor.
According to the company, these four professionals join Wells Fargo Advisors in order to serve the bank’s clients from their international complex in Miami. Wells Fargo has over 100 years’ experience advising HNW families.
Photo: Restu20 . HSBC Private Banking Hires Vicente Garcia as Head of Mexican Market for Switzerland and Luxembourg
According to information passed to Funds Society by sources close to the appointment, HSBC Private Bank has hired Vicente Garcia as the institution’s Head of Mexican Market in Geneva and Luxembourg, a post which he took up a few weeks ago from And Private Wealth of Andbank group.
With over 15 years experience in the Mexican market, living in Mexico during six of those years, he has extensive experience in financial markets, products, and investment and estate planning, as shown by his Linkedin profile.
From1999 until 2011, Vicente Garcia worked between Geneva and Mexico as private banker in Santander Private Banking, where he held the positions of Senior Relationship Manager and Team Leader for Mexico’s table. He began his career as a trader at Banque Kankaku and Cogetex, where he worked in Geneva for two years.
Garcia, CFA, has a degree in International Relations from The Graduate Institute for International Studies (IUHEI).
Photo: Sagitario. DeAWM Hires Dessy Arteaga From J.P. Morgan to Strengthen its UHNW Mexico Team
Deutsche Asset & Wealth Management (DeAWM) announced that Dessy Arteaga will join the Bank in January 2015 as a Managing Director and Senior Private Banker. She will be responsible for developing and strengthening the Bank’s relationships with ultra-high-net-worth clients in Mexico. Based in New York, Arteaga will report to Felipe Godard, Head of Wealth Management in Latin America.
“As we expand our wealth management offering in Latin America, we are committed to attracting the most talented professionals in the industry to serve our clients,” said Godard. “We are thrilled that Dessy has joined the Bank, as she will play a critical role in further expanding our platform and deepening our local relationships in Mexico.”
With over 35 years of industry experience, Arteaga will join from J.P. Morgan Private Bank, where she was most recently a Managing Director and a Senior Private Banker based in New York, specializing in ultra-high-net-worth individuals and families in Mexico. Prior to J.P. Morgan in New York, Arteaga spent nearly 20 years in Caracas, Venezuela at various firms including J.P. Morgan, Banco Union S.A.C.A. and Citigroup.
In addition to Arteaga, DeAWM has made several senior hires this year, as it expands it private bank in key wealth markets. The Bank recently announced that it hired Lee Hutter to head its Wealth Management division in the Western Region of the U.S. In addition, Deutsche AWM recently announced the opening of its Private Bank in Dallas.
Nicolas Descoqs. Courtesy photo.. Alken Adds Two Specialists to Investment Team
European equity specialist Alken Asset Management has added two experienced analysts to its highly regarded investment team.
Alken founder Nicolas Walewski says the addition of Michael Aubourg and Nicolas Descoqs further reinforces Alken’s long standing commitment to client service and delivering outsized alpha for investors.
Aubourg – an analyst in the food, beverages, tobacco and household & personal care industries – joins from Credit Suisse in Paris, where he was an associate in the group’s French investment banking division.
Before Credit Suisse, Aubourg spent three years at Lazard in the M&A and restructuring teams. He started his career in the research department of the IMF in Washington DC, assisting economists with quantitative models and econometric analysis. Aubourg holds a Master of Science in Applied Mathematics from Harvard University, as well as an engineering degree from Ecole Centrale Paris.
Descoqs – an analyst in the oil & gas, metals & mining, and aerospace & defence industries – joins from exploration and production giant ConocoPhillips, where he started his career in 2005.
At ConocoPhillips, Descoqs worked on a number of high level assets across the world. He began as a drilling and completions engineer in Norwegian and Chinese offshore oilfields, before becoming a project engineer in Houston. Descoqs holds a Master of Science in Engineering from Ecole Polytechnique in France, as well as Master of Science in Petroleum Engineering from Norway’s NTNU University.
“It has been always been our plan to continue investing in and reinforcing our research capability,” Walewski says.
“The insights of our trusted analysts have played a pivotal part of the outperformance Alken has delivered for investors. The addition of Michael and Nicolas further strengthens our investment proposition.”
Photo: Christian Frausto, Flickr, Creative Commons. Navigating the Regulatory Headwinds, at the 4th Annual Latin America Conference
BBH will co-sponsor the 4th Annual Latin America Conference with Vanguard, where BBH and Vanguard’s experts to discuss some of the most important and timely topics affecting our industry.
BBH will cover 2014 key regulatory developments, including the post-crisis regulatory agenda and an overview of asset management regulations, as well as: asset management as systemically risky (from global perspective); Volcker Rule & Money Market Reform , in USA; AIFMD/UCITS, in UE; and fund passport schemes in Asia.
Vanguard will provide an in-depth overview of ETF trends from one of their resident experts.
The event will be hosted twice, in two convenient locations: Las Condes, Santiago (Chile), on Tuesday 4th November, 2.30 to 6.30 pm at Ritz-Carlton (El Alcalde No. 15); and Lima (Peru), on Thursday 6th November, also 2.30 to 6.30 pm, at Hilton Miraflores (Avenida de la Paz 1099).
Please RSVP to: eventplanningny-nj@bbh.com or by calling 00-1-212-493-7958 by October 17th. Please identify which of the two locations you plan to join at.
Las Generaciones. By Roger Langevin artist. Ultra-Wealthy “Millennials” Are Idealistic, But Not Alienated; Challenge Stereotype of the “Idle Rich”
Ultra-wealthy “millennials,” those born between 1982-2000, are idealistic about the uses of their wealth, but say they are generally aligned with the values of their parents as Morgan Stanley Private Wealth Management/Campden Wealth “Next Generation” survey, that looks at families ranging in net worth form $25 million to over $100 million.
“The next generation members of ultra-affluent families are seeking to define their place in the family and find their voices. Education and opportunities will be central to their success. Areas such as philanthropy, values-based investing and entrepreneurism have high appeal with this group and present strong opportunities for engagement”
63% of millennials view themselves as stewards of their wealth for future generations, compared with 46% of older siblings.
58% view their wealth as a vehicle to help the community (vs. 38% of older inheritors).
74% view their wealth as a source of empowerment to pursue what is most important (vs. 54% of older generation).
While they may think differently about their wealth than their parents or grandparents, next generation wealthy of all ages remain close to their families.
95% say they recognize what is important to their families.
64% believe their values are highly aligned with those of their parents.
Only 6% said they have belief systems that differ significantly from their parents.
These are among the findings of a Morgan Stanley Private Wealth Management and Campden Wealth-conducted survey of 87 ultra-high net worth individuals under the age of 40, who come from families with a minimum wealth of $25 million. Over half (57%) had a family net worth of more than $100 million.
“A generation that stands to inherit considerable wealth tells us that the myth of the idle rich is just that – a myth. And, while they may use social media to connect in their personal lives, today’s next-gen wealthy say they prefer to manage their wealth in face-to-face meetings with an advisor,” said Douglas J. Ketterer, Head of Strategy and Client Management for Morgan Stanley Wealth Management.
“The next generation members of ultra-affluent families are seeking to define their place in the family and find their voices. Education and opportunities will be central to their success. Areas such as philanthropy, values-based investing and entrepreneurism have high appeal with this group and present strong opportunities for engagement,” said Mindy Rosenthal, President of the Institute for Private Investors and author of the study.
The myth of the “idle rich”
Among other key findings, the survey discovered that a substantial majority of wealthy inheritors do not plan to live a life of leisure, even though they could afford it.
81% of the wealthy next generation – irrespective of age – believe it is extremely or very important to have a successful career.
68% expect to continue working even after they inherit significant wealth.
In terms of their own spending habits, majorities believe it is extremely or very appropriate to borrow for education (67%), to purchase a primary residence (63%) or to fund a business opportunity, while only 7% believe borrowing to buy personal luxuries is somewhat appropriate.
Millennials are the most risk adverse among next generation wealthy
Perhaps reflecting the volatile market and economic environment in which they grew up, millennials are the most risk adverse of the next generation wealthy:
Only 11% say they are willing to undertake substantial risk for the possibility of substantial gain, compared with 33% among inheritors aged 30-40.
Managing wealth the old-fashioned way
A majority of next generation wealthy across all age groups (63%) believe working with advisors is necessary to make sound financial decisions, and half (49%) say they are extremely or very likely to continue working with their parents’ advisors.
While much is made of the growing power of digital and social media, most next generation wealthy prefer to manage their wealth the old-fashioned way:
82% want more in-person engagement with their financial advisors
74% want to do more business via phone
68% want more e-mail communication
15% want more social media interaction
5% want more communication via internet video/Skype.
Jaime Cuadra. Photo: Lindein. Jaime Cuadra Joins the Business Development Unit at Compass Group Asset Management
Jaime Cuadra has recently joined the ranks of Compass Group Asset Management from Mercantil Commercebank, following the departure of Rafael Tovar, who left the Chilean company to join Nikko AM.
Jaime Cuadra Jr. joined Compass Group as Vice President where will be responsible for leading the business development efforts out of New York for institutional clients globally in the United States, Europe, Asia and Middle East, while also covering key accounts in Miami and New York for private banks, and family offices. Prior to that, he worked for 9 years at Mercantil Commercebank (Miami) where he held positions as an internal consultant managing projects and most recently as an Associate on the Products team for the bank’s broker dealer and registered investment advisor.
He holds a Bachelors of Science degree in Industrial and Systems Engineering from Florida International University as well as Bachelors in Finance from Nova Southeastern University. He is bilingual in Spanish and English.
