Asset managers, pension funds, banks and insurers expect to be spending more on tax and regulatory-related change in 2015 and for some years beyond, according to a new poll by BNY Mellon.
The poll, conducted at BNY Mellon’s recent third annual Tax and Regulatory Forum in London, found that 71% of the almost 250 delegates attending the event expected to see higher costs in the coming year compared to 2014.
While at the start of the event only 41% felt tax and regulatory-related costs would increase in 2015 – and 5% expected to see spending decline – by the conclusion of the day’s programme, which explored some 20 tax and regulatory changes, the consensus among delegates had shifted significantly.
Key findings of the poll included:
UCITS V will be a key focus for providers and clients alike in 2015. 43% of delegates believe the cost of compliance will be higher than for the Alternative Investment Fund Managers Directive (AIFMD), with 29% saying it would be about the same or less.
As was the case with AIFMD, delegates were concerned about the proposed timing of upcoming regulatory changes and the potential for another bottleneck around compliance and approvals to materialise in Q1 2016.
At this stage 65% of delegates polled were undecided as to when they will implement the necessary changes mandated by UCITS V.
Questioned as to when they expect to see the current wave of regulatory change to materially recede, 38% of delegates said 2017, while 54% said never.
When asked about outcomes for investors, responses echoed findings from previous BNY Mellon surveys. 51% of delegates expected investors will see higher costs and less choice – but also better protection.
There was marked optimism – 82% of delegates – in that firms also see some opportunities arising from the current changes, with half of those respondents saying these opportunities would be material to their own business.
Asked to identify those opportunities, 38% said cost savings, while 24% cited new markets and new asset classes. Only 15% identified new product developments.
Paul North, head of product, Europe, Middle East and Asia at BNY Mellon, said: “There seems to be a consensus that the next two years will be the most demanding in terms of tax and regulatory work and costs. Despite this, we also note the continued optimism among asset managers when they consider their longer term prospects around, and ongoing interest in, reducing costs and maintaining the pace of product development.”
“The global trend towards tax transparency is at the heart of regulatory reform,” said Mariano Giralt, head of EMEA tax services at BNY Mellon. “The challenge for financial institutions is to keep pace with a host of new initiatives which include FATCA, the OECD’s Common Reporting Standard and potentially a Financial Transaction Tax which would cover 11 EU countries. These initiatives are adding significant compliance costs for financial institutions.”
Photo: Raphael Labbé. China Balances New Appetites with Food Safety
Over the last decade, China’s disposable income per capita increased more than threefold at a compound annual growth rate of 12.3%. With rising consumption power, China’s population is spending more on food and beverages, not only in greater quantities but also on higher quality products.
That’s generally good news for food and beverage firms focused on China. Unfortunately, also on the rise has been the number of food safety issues in the country. This has affected items ranging from sausages to watermelon to baby formula, to name a few cases. Most recently, recycled oil from restaurant waste in Taiwan entered into the supply chain of hundreds of food manufacturers there, tainting several prominent brands that export products to China. Such cases have reinforced general consumer mistrust, even in well-established brands. Thus, people feel that they need to better self-regulate and avoid or limit most processed foods to minimize their exposure to potentially harmful chemicals and preservatives. By way of comparison, the average Chinese already consumes only a quarter of the amount of processed foods that the average American consumes.
Highlighting food safety as a priority, China has taken steps to improve nutrition and food manufacturing—efforts that were outlined for the first time in its last Five Year Plan (2011–2015). Furthermore, in 2013 China’s Ministry of Health mandated that processed food manufacturers disclose the nutritional value of their products using a standardized labeling format. As a result, consumers now have more data with which to make better-informed choices.
Some local businesses are addressing the issue of trust head on by proactively disclosing the source of their ingredients. During my recent research trip to Guangzhou, I ate at a popular Sichuan restaurant that promotes the memorable tagline “oil is used only once.” I decided to visit this restaurant after reading about its philosophy of using only the freshest ingredients. Its success was evident as there was a wait of more than two hours for a table.
Gaining, and especially rebuilding, consumer trust in China’s food and beverage industry will take time. There will inevitably be more scandals related to food safety. However, with each visit to China, I am encouraged to see progress being made toward a safer tomorrow, unleashing the strong underlying consumer demand and driving long-term sustainable growth in the food and beverage sector.
Column by Hayley Chan, Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Photo: Clyde Rossouw, head of Quality at Investec Asset Management. Investec: Quality Businesses Typically Create Dependable Earnings Growth in Difficult Market Circumstances
Clyde Rossouw, Head of Quality at Investec Asset Management, explains his outlook for 2015.
What has surprised you most in 2014?
In terms of market performance the biggest surprise in 2014 has probably been the strength of the US stock market compared to most other markets around the world. In fact, it has been the only game in town; we have had a strong dollar and a great performing US stock market almost at the expense of everything else. We know that at the margin people have had the expectation that the US was getting better and that looks like it is running its course now.
How will ‘quality’ companies fare in 2015?
The ‘quality’ businesses we target have typically been able to create dependable, meaningful earnings growth in difficult market circumstances such as we have now, i.e. falling bond and commodity prices. Therefore, we would expect to see a similar consistency of earnings in 2015. In the past, when market participants have started to look for more dependability, quality assets have moved back into focus. As a result, we would expect a relative re-rating of such assets and that is typically the type of business in which we would look to invest in our strategies.
Where do you see the greatest opportunity in 2015?
We are focusing on two distinct categories: Companies that have pricing power and business models that are able to embrace ‘disruption’ risk.
Typically, businesses that have pricing power are able to put through inflationary or above inflationary rates of increases in their product prices. Tobacco is an obvious example: every year excise duties go up all around the world and even though the incidence of smoking is declining, tobacco companies have this pricing power mechanism built into their business model and are able to put up prices.
The other opportunity that we believe investors should focus on is businesses that have very strong market shares or business models that are able to embrace disruption risk. Technology is changing the way in which businesses have to operate. Therefore, investing in companies that are part of the disruption, but at the same time have very strong cash-generating business models, such as Microsoft, is, we believe, one way of offsetting some of the pricing risks that are at play in the market place.
What are the biggest risks to these views?
The biggest risk to any equity-based investment strategy would be if markets were to be just dismal and disappointing. We have had various episodes in the past, such as the financial crisis in 2008/9, where there was no obvious tailwind for stock market performance, and also in 2011, when there was a fear the euro zone might implode.
The biggest risk for us, therefore, is that even though we are invested in businesses that we think are more dependable in terms of their earnings, there could potentially be a significant drawdown because they are part of the equity markets.
How are you positioning your portfolio?
The businesses we invest in are typically of high quality. We also have sector preferences and have done a considerable amount of work looking at which parts of the market are able to produce companies that have intrinsically high quality characteristics. So, in terms of the natural leanings in our portfolio, we will always have a relatively high weighting in consumer staple names, certain parts of the pharmaceutical market and also within areas of technology. This does not mean that other parts of the market do not interest us, but generally they will have smaller weightings.
A cornerstone philosophically of the way we construct our portfolios is what some people would conceive to be inherent biases. But, based on academic evidence, we would rather invest in parts of the market where we believe we can maximise our probability of investment success.
In terms of individual stocks, our top ten holdings comprise a technology company, three pharmaceutical companies, a non-bank financial stock and a range of consumer staples companies with a specific focus on beverages, food, tobacco and home & personal care products. We still see opportunities across the board, but it is very much motivated by bottom-up opportunities and looking for superior businesses that have those key characteristics.
The rapid pace of both innovation and obsolescence in technology offers a constant flow of investment opportunities worldwide. Hyper-connectivity, cyber security, smartphones, the “digital wallet” and Big Data are among the major themes three technology analysts from across Natixis Global Asset Management are closely following. They share their insight along with 2015 outlooks for technology in the U.S., Europe and Asia.
Tony Ursillo, CFA, Equity Analyst, Portfolio Manager Loomis, Sayles & Co. explain: “On the consumer technology side, we are intensely focused on the relentless shift to mobile smartphone usage. Apple’s introduction of the iPhone in 2007 marked the beginning of the modern era. In those seven years, smartphones have achieved an installed base of over two billion users globally, with more than one billion new smartphones being sold every year”.
While the early play on mobile was oriented around device sales, including tablets, “we believe the more lucrative opportunity now revolves around expanding usage of smartphones by that already installed base. We are focused on companies that offer compelling applications or solutions that can be adopted by that base”, says Ursillo.
Expanding the social network
“Within the corporate or enterprise end market, we see two powerful trends that are far outpacing the trend line of about 3% growth in information technology (IT) spending”, tells the portfolio manager. The first is the shift of IT resources to “the cloud.” The cloud can simply be thought of as a hyperscale data center environment managed by an IT vendor who acts as a servicer, providing access to resources that historically would have been implemented and managed on premise by the enterprise itself.
The second powerful enterprise trend, continues Ursillo, is the heightened concern around securing enterprise data. High profile credit card breaches at retailers such as Target, Home Depot, and Neiman Marcus, as well as online sites like eBay, have put the spotlight on how vulnerable the payment information and other personal data of tens of millions of U.S. consumers are to an increasingly sophisticated hacker community. And that has made security breaches not just a network risk, but a business risk.
Is the “digital wallet” here to stay?
It´s no surprise that many companies are positioning themselves to gain a foothold in the online and mobile payments space. Giants like Apple, Amazon, Google and PayPal already have brand-name recognition and can leverage hundreds of millions of existing customer accounts with attached credit card or bank account information. “We maintain our belief, however, that the vast majority of these transactions will continue to traverse the existing financial network infrastructure, largely controlled by Visa and MasterCard”.
Meanwhile, Hervé Samour Cachian, Head of Value & Opportunities – European Equities says that Natixis Asset Management technology focus today is on everything that is related to Hyperconnectivity – the use of multiple communication systems and devices that allow us to remain constantly connected to networks and streams of information. This includes trends like Internet of Things, Big Data analytics, digital commerce & payment and social media. There are numerous applications, including driverless car technology, Google GlassTM and contactless payment systems that could be game-changers in the future.
“Emergence of the digital economy is the main theme in technology for us. Digitalization is a tremendously disruptive force in society and it knows no boundaries. Companies that fail to amend and to adapt their business model accordingly could be at risk, while companies that are preparing for this new paradigm can be offered multiple opportunities to reap the benefits”, explains.
“We are finding a few European tech companies connected to digital payment solutions that appear attractively valued today. For example, Paris-based Ingenico, which is a global leader in seamless payment solutions for mobile, online and in-store channels, combines three key drivers in our view: structural growth, market share gain and expansion up the value chain. We believe it could benefit long-term from the adoption of chip cards in the U.S. and the emergence of mobile payments. Another area of growing interest interconnected to it all is digital security. Within this space, European firms such as Gemalto are leading providers of innovative digital security solutions globally”, affirms Cachian.
Outlook for European technology
Despite a gloomy macroeconomic picture for Europe and other parts of the world, Natixis GAM have a positive outlook for the technology sector in 2015. Search for growth could lead investors to increase their exposure to the tech-related stocks and especially the ones that either sell or create cutting-edge products. “We believe that Internet of Things is the area of technology that could offer the most promising opportunities in 2015 – driven by gadgets and the widespread adoption of wearable technology.”
Ng Kong Chiat, Equity Analyst, Portfolio Manager of Absolute Asia Asset Management conclude that2014 extended the strong growth pattern for the technology sector seen over the past few years. Asia-ex-Japan technology stocks were driven by the launch of Apple’s iPhone 6 and iPhone 6 Plus in September. They were also boosted by the expiry of Microsoft’s support for Win XP earlier in the year – which gave rise to and supported a corporate PC replacement cycle. Further penetration of smartphones into the emerging markets and the moderate economic recovery in the developed markets, which prompted more corporate technology spend, also supported growth in the industry this year.
“But these positive factors in 2014 could turn into hurdles for the industry in 2015, as they have created a large base and are beginning to lose momentum. In addition, some of this growth was linked to a one-time event which we may not witness in 2015. Accordingly, we believe there will be less impact from the next version of the iPhone to be released in the New Year, as well as other Apple products. Also, we believe there will be a less robust PC replacement cycle in 2015, slower penetration of smartphones worldwide and more moderate technology capital expenditures by global companies. With such a backdrop, it may be trickier to navigate in the technology space”, argues.
Global equities continue to offer good value, though Threadneedle beleives the case for active management has seldom been stronger given the diverging performance of regional markets and the emergence of powerful trends that are driving individual stocks.
The price to earnings ratio of global markets is currently below the average seen since 1997, which would certainly seem to suggest that equities are not overvalued.
However, there are marked variations in terms of regions (as measured by trailing PE ratios). Surprisingly, Europe is among the more expensive markets despite its well-known problems, but if one looks at PEs on a forward basis, Europe is more attractively valued. This reflects a belief that European companies will grow earnings at a faster pace than those in other parts of the world. While the weaker euro may support earnings growth, we are concerned that expectations may not be met given the economic difficulties facing the region.
Dividend yields also provide an interesting measure of the relative attractiveness of equities around the world. Globally, sovereign bonds yields are low (below 1% in Germany and Japan, for instance), whereas dividend yields on world equity markets average around 2.5%. Not only is this yield attractive at face value, it will grow over time – making equities an attractive option for investors in a low-growth environment.
The case for US equities
Although dividend yields are relatively low in America, the picture changes markedly once you add in the impact of share buybacks. Including these, US companies are actually returning more capital to shareholders than their counterparts around the world. There are other good reasons for investing in US equities. The domestic economic recovery is continuing and the shale energy revolution is providing the US with a competitive edge in a wide range of sectors, and is boosting the country’s external finances. Meanwhile, corporate earnings growth is solid, helped by good cost management and the effective use of capital. Low interest rates will support equity valuations and we believe the main risk facing the US economy is how it reacts when interest rates start to increase.
Profit margins are at historically high levels. Threadneedle believes that they are likely to moderate in the long term, but remain high over the next few years at least given that:
Wage inflation is controlled and the participation rate can rise as economy improves.
Capital expenditure plans are conservative, with companies favouring capital returns or M&A.
Energy costs are particularly low in the US, reflecting the development of shale resources.
Thus, the asset management firm believes that US companies deserve their premium ratings.
Opportunities in Japan
Threadneedle is also overweight in Japan, where the government of Prime Minister Shinzo Abe appears to be succeeding in transforming the deflationary landscape of the past 20 years or so via its “three arrows” policy programme into one of inflation. Thus, we now have underlying inflation of around 1.5% in Japan, a development that is encouraging people to go out and spend rather than waiting for the price of goods to fall even further. The first two arrows – monetary stimulus via a massive programme of quantitative easing and fiscal stimulus via increased spending are already in place. Investors are now concerned that the delivery of the third arrow of structural reforms to the economy, including labour reforms, deregulation and trade agreements is making disappointing progress.
However, Threadneedle believes that investors would do better to regard the third arrow as a form of acupuncture with lots of little needle pricks taking place across the economy. Thus, Threadneedle points out that we have seen progress in a number of areas, including the ability of companies to make redundancies, and the encouragement of more women and migrants into the labour force.
There has also been significant progress in terms of corporate governance. Thus in 2013, the authorities launched a new stock index. The JPX-Nikkei 400 aims to showcase the country’s most profitable and shareholder-friendly companies and it is having a major impact. On learning that it was not in the index, the toolmaker Amada, for example, promptly announced that it would pay out half of its net profits in dividends, and use the other half to buy back stock, and improve corporate governance by appointing two independent directors. Thus, the new index is changing corporate behaviour and the third arrow is bringing about a major improvement in returns. Indeed, Threadneedle believes returns on equity can almost double over a period of three to four years as companies are increasingly run for the benefit of shareholders rather than employees.
Our overall strategy in global equities
Given the low growth environment that we envisage over the next few years, Threadneedle is focusing upon businesses which are not dependent upon a growing economy to expand their earnings. They favour companies that are fuelled by secular growth trends. These include:
Disney: benefitting from the rising value of differentiated media content.
Facebook and Google – beneficiaries of increasing advertising on the internet.
TE Connectivity (electronic engineering) – benefiting from the rapid growth of electronic components within cars in areas such as safety, infotainment, emission control, and fuel economy.
Overall, a positive outlook for active managers
In conclusion, there a number of reasons to be optimistic about the outlook for equities including the fact that although valuations have risen they are not high in historical terms, while cash returns to shareholders provide support. However, Threadneedle is also seeing a growing divergence in the performance of individual economies around the world and the rise of nationalism and geopolitical instability. The asset management firm believes this underscores the need for an active approach to stock picking, while the prospect of low economic growth over the next few years supports our focus on companies that are well positioned to exploit secular growth trends.
. ING IM Hires Convertible Bond Team from Avoca Capital
ING Investment Management has confirmed the hire off Tarek Saber and Jasper van Ingen from Avoca Convertible Bond Partners LLP to add convertible bond investment capabilities.
Having joined in November, Saber and Jasper respectively fulfill the roles of investment team manager Convertible Bonds and senior portfolio manager Convertible Bonds, based in London. The two previously managed the Avoca Convertible Select Global Fund, which launched in April 2012.
Tarek Saber has more than 27 years of experiences in convertible bond markets. He joined Avoca in 2011 where he led the convertible bond business. Prior to joining Avoca, Saber was at ABP/APG, where he set up and managed the successful corporate opportunity strategy fund (COS fund), which consisted of investments in convertible bonds and equity linked instruments. Before this, he spent seventeen years in investment banking as global head of convertible bonds at HSBC Investment Bank and as head of European convertible bonds and global head of global depository receipts trading at Schroder Securities.
Jasper Van Ingen has more than 10 years of experience in convertible bond markets. Between 2004 and 2010, he was senior portfolio manager at APG’s COS Fund. Van Ingen played an important role in the development of the COS Fund. He was responsible for the day to day management of the fund in all aspects, ranging from fundamental analysis to trading and corporate restructuring. Before joining the COS Fund, Van Ingen worked as a portfolio manager at APG’s $5 billion Hedge Fund investment department in Amsterdam and New York.
Last year’s decision to relax the one-child policy was an important political step by the Chinese government but it will have little impact on the country’s demographic and economic trends. Chinese leaders have effectively ended “one of the most draconian examples of government social engineering ever seen.”
Historical Background
Rapid population growth after World War II led to a global focus on birth control. One extreme response was India’s forced sterilization campaign between 1975 and 1976 when more than 8 million sterilizations were performed. In 1980, China began enforcing its “one-child policy,” which three prominent Chinese demographers, writing recently in a U.S. academic journal, called “the most extreme example of state intervention in human reproduction in the modern era. . .that has forcefully altered family and kinship for many Chinese.”
Last Year’s Policy Change
Last November, China’s Communist Party announced that the one-child policy would be relaxed by implementation of a policy in which families are permitted to have two children if either a husband or a wife is an only child. This marks a change from the previous rules which required both the husband and wife to be only children in order to qualify to have a second child.
Because this relaxation was accompanied by a decision to dismantle the one-child enforcement bureaucracy, in my view it spells the rapid end of the one-child policy.
The most significant aspect of this move is political, as it represents the Party’s decision to withdraw from its citizens’ bedrooms. Restoring this element of personal freedom should help rebuild people’s trust in the Party.
But, contrary to conventional wisdom, ending the one-child policy is unlikely to change the longer-term trend toward a lower fertility rate. China’s current fertility rate of about 1.5 could drop even lower in the future, closer to South Korea’s 1.3, as the pressures of modern life lead Chinese couples to have smaller families.
Smaller Families Before One-Child
It is important to recognize that the steepest fall in China’s total fertility rate (the average number of live births per woman) actually came before enforcement of the one-child policy began in 1980. The fertility rate dropped by more than half, from 5.5 to 2.7, between 1970 and 1980, influenced by rising urbanization and falling infant mortality rates. Today, China’s fertility rate is about 1.5.
Although 11 million couples are now eligible to apply for permission to have a second child under the new policy, only 700,000 couples (6% of total) applied through August of this year.
Long-Term Impact
Last year, before the policy change was announced, I spoke with one of China’s leading demographers, Wang Feng, about the prospects for change. Wang is a professor of sociology at the University of California, Irvine, and is on the faculty of Fudan University in Shanghai. He is also a nonresident senior fellow at the Brookings-Tsinghua Center in Beijing, and he recently wrote that the one-child policy “will go down in history as a textbook example of bad science combined with bad politics.”
Following are excerpts from my interview with him. I began by asking him about the long-term impact of ending the one-child policy. Professor Wang said expectations for a rebound in the fertility rate have been exaggerated:
Professor Wang: The reason I say it’s exaggerated is because in most of China’s rural areas, couples who want to have two children have already had two. There are certainly some couples who would want to have two children, which would be good for them, but we have all indications showing that many urban couples are happy to stay with one. And then there are couples who are actually choosing not to have any children, given the larger financial ramifications—the cost of having them.
For instance, in Shanghai, fertility is even below the one-child-per-couple level. This is despite the fact that, because of the early implementation of the one-child policy, many Shanghai couples are in the only-child cohort and are thus eligible, under the current rules to have a second; but they are often choosing not to have a second and many are not even having one.
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Foto: Philippe Put. How Can the Global Economy Adapt to Resource Scarcity?
The supply of resources is limited. Yet global demand for resources such as metals, fuel, water and minerals is increasing as the world’s population continues to grow. How can the global economy adapt to resource scarcity?
Resource scarcity prompts resourcefulness
According to the UN, the world’s population is expected to grow by another 3.7 billion, reaching a total of 10.9 billion by 2100. At the same time, changing consumer habits as a result of growing disposable incomes in the emerging markets and increasing industrial activity are putting additional pressure on natural resources essential to long-term economic prosperity.
The effects of rising demand are compounded by steepening costs of securing an adequate supply of resources. Most of the easily accessible resources have already been extracted. Geographical, political and environmental constraints mean that many supplies of critical resources such as oil or some metals are increasingly found in remote, difficult to reach places – such as deep sea areas or the arctic – making it difficult and expensive to extract them. In many cases, their extraction comes with added environmental, social and other indirect costs. All of this is contributing to price volatility and rising prices of production inputs. As a result, the global economy now sits at a crossroads. In order to prevent the depletion of natural resources critical to economic growth, we must transform industrial processes to become more resource efficient, develop substitutes for supply constrained resources and promote the reuse and recycling of limited resources.
But throughout history, human ingenuity and innovation have enabled us to adapt to resource scarcity by substituting away from supply-constrained resources and developing technological advances that have enabled productivity gains and the more efficient use of resources. Examples include energy-efficient LED lighting technology, or the aerospace industry, which has increasingly relied on lighter materials to reduce fuel consumption of their aircraft. These are the very mechanisms that have enabled humankind to cope with population and economic growth in a resource constrained world.
Companies that translate our resource challenges into opportunities by developing resource efficiency solutions that increase productivity or lower input costs will benefit from reduced risks associated with price fluctuations, environmental liabilities and regulation, and an enhanced reputation, boosting their competitiveness. And investors who identify these game- changers can benefit from superior risk-adjusted returns.
At RobecoSAM, we are convinced that companies that introduce innovative solutions to our resource challenges are more likely to enjoy a long term competitive advantage. Building on our in-depth understanding of long- term sustainability trends, we identify and invest in innovative game chang- ers that are leading the way in providing resource efficiency solutions. Our listed equity themes and private equity funds translate resource-related challenges into specialized investment portfolios containing future-oriented companies that are providing innovative solutions to resource scarcity in the areas of water, energy, climate, agribusiness and smart materials and infrastructure.
Ultimately, investing in the resource efficiency theme enables investors to mobilize capital to preserve resources critical to economic growth, generating a positive impact on the environment and society.
Wikimedia CommonsPhoto: Scott Service, co-portfolio manager at Loomis, Sayles & Company . Loomis Sayles Expands Scott Service’s Global Bond Portfolio Management Responsibilities
Loomis, Sayles & Company announced today that Scott Service, CFA, has been named co-portfolio manager on the following suite of investment strategies managed by the company’s global bond team:
Loomis Sayles Global Opportunistic Bond Fund (UCITS)
All institutional global aggregate strategies
All world government bond portfolios
Scott, a long-time global credit strategist and portfolio manager on the global bond team, joins co-portfolio managers Lynda Schweitzer, David Rolley and Ken Buntrock on the Fund. Prior to this promotion, Scott was a co-portfolio manager on the team’s global credit strategies. Together, the team oversees approximately $38 billion in global assets. Scott reports to Jae Park, chief investment officer.
“Scott is a valued member of the global bond team,” said Ken Buntrock, co-head of the global bond group. “As a team, we have enjoyed the success of a growing client base over the last ten years. By naming Scott a portfolio manager for our full suite of global bond products, we feel well positioned for future growth and success.”
Scott, a member of the global bond team since 2004, remains co-portfolio manager on the team’s global credit and global corporate strategies as well as several offshore funds including the Loomis Sayles Global Credit Fund and the Loomis Sayles Institutional Global Corporate Fund.
Scott joined Loomis Sayles in 1995 and was promoted to credit analyst in 1999. Between 2001 and 2003, Scott worked in Paris for Loomis Sayles’ parent company, Natixis Global Asset Management. He returned to the Loomis Sayles fixed income team in 2003 and became team leader of the global investment grade sector team. Scott joined the global bond team in 2004. Scott earned his Bachelor of Science from Babson College and an MBA from Bentley College.
Photo: Andrés Nieto Porras. Crucial Differences Amongst Multi Asset Funds
Research by ING Investment Management (ING IM) based on flow data from LIPPER confirms the overwhelming popularity of multi asset funds among investors in the recent years. Given the current environment, ING IM expects this trend to persist. At the same time, ING IM’s research reveals a number of important differences among these funds, in terms of expected returns and risks, which should be carefully considered by investors before putting their money to work.
Low growth and multiple financial crises have made investors more risk aware. In combination with the low interest rate environment this has made adaptability of fund managers, their absolute return focus and drawdown management more dominant themes for investors. Coupled with increased uncertainty in the markets, where purely behavioural factors can put pressure on asset prices, investors are seeking flexible funds with clearly defined return and overall risk objectives. Total return multi asset funds provide such characteristics and have been a popular choice among retail as well as institutional investors in the recent years.
Inflows increase
ING IM’s analysis of LIPPER fund data has found that asset allocation funds have been the most popular category of funds among investors in Europe in 2014 so far, with inflows topping over 54 bn EUR up until September. This was also the case in 2013 when asset allocation funds attracted more than 62 bn EUR. These flows were only seconded by sales of flexible bond funds, which saw inflows of around 29 bn in 2013 around 23 bn EUR up until September 2014.
What should investors focus on?
In the face of the apparent attractiveness of the total return multi asset proposition, the investment manager is flagging that investors need to focus more on proven risk awareness of the available multi asset funds. While the return objectives of all such funds are set well above government bond yields, it is essential take into account the riskiness of these funds, typically expressed as overall target volatility. Next to this, while the ability of multi asset fund managers to digest and react to changing market environment is at the core of the multi asset proposition, understanding the degree of flexibility and robustness of these funds at the outset is also essential for investors to decide on where to invest.
How do multi asset funds differ?
ING IM’s analysis of 20 of the largest and most well-known multi asset funds registered in Europe and available only to European investors, with combined assets under management of €165 billion reveals a wide variety of returns and risk. In this group of funds, annual returns before fees over the last 3 years averaged a solid 6.6%. At the same time however, there’s great diversity in the returns of the individual funds as well as their investment approach and the amount of overall risk these funds take on to achieve their returns. While the best performing fund in this group returned 9.8% on an annual basis before fees over the last 3 years, this figure was only 2.8% for the worst performing fund. At the same time the most risky of these funds showed an annualized volatility of 8.9% over this period, while this was only 2.1% for the safest one.
To get better insight in risk adjusted returns, ING IM has ranked the group in terms of their Sharpe ratios. This is the most well-known measure of the risk-return trade-off in an investment portfolio. A higher value indicates a greater reward to taking on risk. While the average fund of the first quartile of this group of 20 funds was able to achieve an annualized return of 8.6% before fees, with a volatility of just 4.5%, resulting and in Sharpe ratio of 1.87, this measure of risk adjusted performance was only 0.75 for the average fund in the fourth quartile, implying a significantly worse trade-off between risk and return. ING IM’s own flagship multi asset strategy – ING (L) Patrimonial First Class Multi Asset – ranks above the top quartile average according to Lipper data, with a Sharpe ratio of 2.04.
Valentijn van Nieuwenhuijzen, Head of Strategy Multi Asset at ING Investment Management, says: “Multi asset strategies are proving very popular with investors and as growing uncertainly fuels the markets, they are likely to be in even greater demand. However, there is a huge variance in the asset allocation of multi asset funds and their risk profiles, which could be made clearer to investors. For example, for downside risk mitigation purposes, with our Patrimonial First Class Multi Asset strategy we keep at all times at least 50% of the fund’s assets invested in very low risk assets such as high quality government bonds and money market instruments, while invest the rest in other potentially more rewarding assets such as equities and real estate.”
