Will Central Banks Look to New Tools?

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Starting in Japan, monetary policy may need to go to the next level.

With a couple weeks to digest the Brexit vote, I see some key takeaways tied to the market rebound.

There was a substantial selloff for the three days after the vote, and then (leaving aside more durable currency effects) a meaningful, if uneven, resurgence for many risk assets. But headlines regarding the bounce have been, I think, a bit misleading.

One notion is that the gains were driven by the fact that separation will take considerable time to implement—but this was known the day of the Brexit vote and seems to me of limited importance to the bounce-back. Another is that the parliament and prime minister may not have to follow through on Brexit at all, that voters “may not have known” what was at stake. Given the sizable turnout and wide margin of victory, I believe the idea of such a turnabout has been debunked. Brexit is real, for better or worse.

More significant for the rebound, in my view, was the response by central banks: The Bank of England announced that it would encourage bank lending through lower reserve requirements; ECB Chair Mario Draghi made reassuring comments about supportive policy; and Federal Reserve minutes reinforced the importance of non-U.S. conditions to its policies.

So investors felt better, which is great.

But I think it’s crucial to understand some key drivers of the vote itself that have far-reaching, global implications. In particular, I’m talking about the issues of trade and immigration, which have become lightning rods for voters, across Western economies, who are frustrated by subpar growth and the lack of opportunity and jobs it has engendered.

In my view, it would be a mistake to dismiss «Leave» voters and their counterparts on the Continent and in the U.S. as being narrow-minded or lacking global perspective. In fact, it is hard to find a good job, especially for the less skilled and the young, and people have latched onto what they perceive to be the most tangible culprits, namely immigration and trade. The reality is that many of the culprits are less tangible, such as inefficient tax codes, excessive regulation and simple demographics.

Could Japan Export Policy Innovation?
So the bigger picture issue becomes, how can you deliver better growth? Unfortunately, although central banks can provide some support, at the end of the day they can’t address the growth issue on their own. Indeed, then Fed Chairman Ben Bernanke was talking about the limits of monetary policy some five years ago, and with major central banks appropriately reluctant to aggressively pursue negative policy rates to spur growth, there are fewer policy options at their disposal.

After the Brexit vote, my CIO colleagues Joe Amato and Erik Knutzen, along with Benjamin Segal, head of the Global Equity team, participated in a webinar in which they discussed what could be done to break the economic logjam. One key market to watch, Erik said, was Japan.

The sharp rise in the Japanese yen is one of the more challenging effects of the referendum vote. The yen has long been viewed as safe-haven currency, and thus recently reached highs not seen since 2014, threatening to undermine progress made via Abenomics.

Given the bleak picture, we think it’s possible that Japan could be the first country to introduce the next stage of the Bernanke playbook, which is “helicopter money”—a term first coined by Milton Friedman to describe central bank policy that, instead of relying on indirect stimulus through banks, put dollars directly in the hands of consumers.

A central bank cannot implement such a policy on its own, of course. It needs the cooperation of executive branch heads and legislatures. This makes the task more challenging, but it also has the advantage of moving governments and economies toward structural reform. This could include increasing economic efficiency by simplifying tax codes, and reducing or streamlining regulation—which are key impediments to healthy growth.

Success in Japan could encourage action elsewhere. At the risk of overstatement, that in turn could prove a turning point in what has become a very long journey toward meaningful global recovery.

Neuberger Berman’s CIO insight by Brad Tank

Cryptocurrency for Dummies: Bitcoin and Beyond

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Bitcoin created a lot of buzz on the Internet. It was ridiculed, it was attacked, and eventually it was accepted and became a part of our lives. However, Bitcoin is not alone. At this moment, there are over 700 AltCoin implementations, which use similar principles of CryptoCurrency.

So, what do you need to create something like Bitcoin?
Without trying to understand your personal motivation for creating a decentralized, anonymous system for exchanging money/information (but still hoping that it is in scope of moral and legal activities), let’s first break down the basic requirements for our new payment system:

  1.     All transactions should be made over the Internet
  2.     We do not want to have a central authority that will process transactions
  3.     Users should be anonymous and identified only by their virtual identity
  4.     A single user can have as many virtual identities as he or she likes
  5.     Value supply (new virtual bills) must be added in a controlled way

Decentralized Information Sharing Over Internet
Fulfilling the first two requirements from our list, removing a central authority for information exchange over the Internet, is already possible. What you need is a peer-to-peer (P2P) network.

Information sharing in P2P networks is similar to information sharing among friends and family. If you share information with at least one member of the network, eventually this information will reach every other member of the network. The only difference is that in digital networks this information will not be altered in any way.

You have probably heard of BitTorrent, one of the most popular P2P file sharing (content delivery) systems. Another popular application for P2P sharing is Skype, as well as other chat systems.

Bottom line is that you can implement or use one of the existing open-source P2P protocols to support your new cryptocurrency, which we’ll call Topcoin.

Hashing
To understand digital identities, we need to understand how cryptographic hashing works. Hashing is the process of mapping digital data of any arbitrary size to data of a fixed size. In simpler words, hashing is a process of taking some information that is readable and making something that makes no sense at all.

    You can compare hashing to getting answers from politicians. Information you provide to them is clear and understandable, while the output they provide looks like random stream of words.

There are a few requirements that a good hashing algorithm needs:

  1.     Output length of hashing algorithm must be fixed (a good value is 256 bytes)
  2.     Even the smallest change in input data must produce significant difference in output
  3.     Same input will always produce same output
  4.     There must be no way to reverse the output value to calculate the input
  5.     Calculating the HASH value should not be compute intensive and should be fast

If you take a look at the simple statistics, we will have a limited (but huge) number of possible HASH values, simply because our HASH length is limited. However, our hashing algorithm (let’s name it Politician256) should be reliable enough that it only produces duplicate hash values for different inputs about as frequently as a monkey in a zoo manages to correctly type Hamlet on a typewriter!

Digital Signature
When signing a paper, all you need to do is append your signature to the text of a document. A digital signature is similar: you just need to append your personal data to the document you are signing.

If you understand that the hashing algorithm adheres to the rule where even the smallest change in input data must produce significant difference in output, then it is obvious that the HASH value created for the original document will be different from the HASH value created for the document with the appended signature.

A combination of the original document and the HASH value produced for the document with your personal data appended is a digitally signed document.

And this is how we get to your virtual identity, which is defined as the data you appended to the document before you created that HASH value.

Next, you need to make sure that your signature cannot be copied, and no one can execute any transaction on your behalf. The best way to make sure that your signature is secured, is to keep it yourself, and provide a different method for someone else to validate the signed document. Again, we can fall back on technology and algorithms that are readily available. What we need to use is public-key cryptography also known as asymmetric cryptography.

To make this work, you need to create a private key and a public key. These two keys will be in some kind of mathematical correlation and will depend on each other. The algorithm that you will use to make these keys will assure that each private key will have a different public key. As their names suggest, a private key is information that you will keep just for yourself, while a public key is information that you will share.

If you use your private key (your identity) and original document as input values for the signing algorithm to create a HASH value, assuming you kept your key secret, you can be sure that no one else can produce the same HASH value for that document.

If anyone needs to validate your signature, he or she will use the original document, the HASH value you produced, and your public key as inputs for the signature verifying algorithm to verify that these values match.

How to send Bitcoin/Money
Assuming that you have implemented P2P communication, mechanisms for creating digital identities (private and public keys), and provided ways for users to sign documents using their private keys, you are ready to start sending information to your peers.

Since we do not have a central authority that will validate how much money you have, the system will have to ask you about it every time, and then check if you lied or not. So, your transaction record might contain the following information:

  1.     I have 100 Topcoins
  2.     I want to send 10 coins to my pharmacist for the medication (you would include your pharmacists public key here)
  3.     I want to give one coin as transaction fee to the system (we will come back to this later)
  4.     I want to keep the remaining 89 coins

The only thing left to do is digitally sign the transaction record with your private key and transmit the transaction record to your peers in the network. At that point, everyone will receive the information that someone (your virtual identity) is sending money to someone else (your pharmacist’s virtual identity).

Your job is done. However, your medication will not be paid for until the whole network agrees that you really did have 100 coins, and therefore could execute this transaction. Only after your transaction is validated will your pharmacist get the funds and send you the medication.

Miners – New Breed of Agents
Miners are known to be very hard working people who are, in my opinion, heavily underpaid. In the digital world of cryptocurrency, miners play a very similar role, except in this case, they do the computationally-intensive work instead of digging piles of dirt. Unlike real miners, some cryptocurrency miners earned a small fortune over the past five years, but many others lost a fortune on this risky endeavour.

Miners are the core component of the system and their main purpose is to confirm the validity of each and every transaction requested by users.

In order to confirm the validity of your transaction (or a combination of several transactions requested by a few other users), miners will do two things.

First, they will rely on the fact that “everyone knows everything,” meaning that every transaction executed in the system is copied and available to any peer in the network. They will look into the history of your transactions to verify that you actually had 100 coins to begin with. Once your account balance is confirmed, they will generate a specific HASH value. This hash value must have a specific format; it must start with certain number of zeros.

There are two inputs for calculating this HASH value:

  1.     Transaction record data
  2.     Miner’s proof-of-work

Considering that even the smallest change in input data must produce a significant difference in output HASH value, miners have a very difficult task. They need to find a specific value for a proof-of-work variable that will produce a HASH beginning with zeros. If your system requires a minimum of 40 zeros in each validated transaction, the miner will need to calculate approximately 2^40 different HASH values in order to find the right proof-of-work.

Once a miner finds the proper value for proof-of-work, he or she is entitled to a transaction fee (the single coin you were willing to pay), which can be added as part of the validated transaction. Every validated transaction is transmitted to peers in the network and stored in a specific database format known as the Blockchain.

But what happens if the number of miners goes up, and their hardware becomes much more efficient? Bitcoin used to be mined on CPUs, then GPUs and FPGAs, but ultimately miners started designing their own ASIC chips, which were vastly more powerful than these early solutions. As the hash rate goes up, so does the mining difficulty, thus ensuring equilibrium. When more hashing power is introduced into the network, the difficulty goes up and vice versa; if many miners decide to pull the plug because their operation is no longer profitable, difficulty is readjusted to match the new hash rate.

Blockchain – The Global Cryptocurrency Ledger
The blockchain contains the history of all transactions performed in the system. Every validated transaction, or batch of transactions, becomes another ring in the chain.

So, the Bitcoin blockchain is, essentially, a public ledger where transactions are listed in a chronological order.

    The first ring in the Bitcoin blockchain is called the Genesis Block

There is no limit to how many miners may be active in your system. This means that it is possible for two or more miners to validate the same transaction. If this happens, the system will check the total effort each miner invested in validating the transaction by simply counting zeros. The miner that invested more effort (found more leading zeros) will prevail and his or her block will be accepted.

Controlling The Money Supply
The first rule of the Bitcoin system is that there can be a maximum of 21,000,000 Bitcoins generated. This number has still not been achieved, and according to current trends, it is thought that this number will be reached by the year 2140.

This may cause you to question the usefulness of such a system, because 21 million units doesn’t sound like much. However, Bitcoin system supports fractional values down to the eight decimal (0.00000001). This smallest unit of a bitcoin is called a Satoshi, in honor of Satoshi Nakamoto, the anonymous developer behind the Bitcoin protocol.

New coins are created as a reward to miners for validating transactions. This reward is not the transaction fee that you specified when you created a transaction record, but it is defined by the system. The reward amount decreases over time and eventually will be set to zero once the total number of coins issued (21m) has been reached. When this happens, transaction fees will play a much more important role since miners might choose to prioritize more valuable transactions for validation.

Apart from setting the upper limit in maximum number of coins, the Bitcoin system also uses an interesting way to limit daily production of new coins. By calibrating the minimum number of leading zeros required for a proof-of-work calculation, the time required to validate the transaction, and get a reward of new coins, is always set to approximately 10 minutes. If the time between adding new blocks to the blockchain decreases, the system might require that proof-of-work generates 45 or 50 leading zeros.

So, by limiting how fast and how many new coins can be generated, the Bitcoin system is effectively controlling the money supply.

Start “Printing” Your Own Currency
As you can see, making your own version of Bitcoin is not that difficult. By utilizing existing technology, implemented in an innovative way, you have everything you need for a cryptocurrency.

  1.     All transaction are made over the Internet using P2P communication, thus removing the need for a central authority
  2.     Users can perform anonymous transactions by utilizing asynchronous cryptography and they are identified only by their private key/public key combination
  3.     You have implemented a validated global ledger of all transactions that has been safely copied to every peer in the network
  4.     You have a secured, automated, and controlled money supply, which assures the stability of your currency without the need of central authority

One last thing worth mentioning is that, in its essence, cryptocurrency is a way to transfer anonymous value/information from one user to another in a distributed peer-to-peer network.

Consider replacing coins in your transaction record with random data that might even be encrypted using asynchronous cryptography so only the sender and receiver can decipher it. Now think about applying that to something like the Internet Of Things!

A number of tech heavyweights are already exploring the use of blockchain technology in IoT platforms, but that’s not the only potential application of this relatively new technology.

If you see no reason to create an alternative currency of your own (other than a practical joke), you could try to use the same or similar approach for something else, such as distributed authentication, creation of virtual currencies used in games, social networks, and other applications, or you could proceed to create a new loyalty program for your e-commerce business, which would reward regular customers with virtual tokens that could be redeemed later on.

Column by Demir Selmanovic featured on toptal

Wealthy Chinese are Looking to Increase Their Overseas Allocation

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According to a report from China Industrial Bank (CIB) and The Boston Consulting Group (BCG) on Chinese private banking development in 2016, despite the slowing Chinese economic growth, the wealth of high net worth individuals (HNWIs) is rising steadily. It is estimated that China’s high net worth families will reach 3.88 million by 2020 and their investable financial assets will then account for 51％ of China’s individual wealth, offering great opportunities for the development of private banking business.

The report, called 2016 China Wealth Report: Growing Against the Trend with Global Asset Allocation notes that as the Chinese economy continues to open, the demand of HNWIs for global asset allocation will increase significantly. It is estimated that the proportion of Chinese individual assets to be allocated overseas will increase from the current 4.8％ to about 9.4％ in the next 5 years. And that from 2015 to 2020, HNWIs’ investable financial assets will increase at an average annual rate of 15％, significantly higher than the projected GDP growth rate of 6.5％ over the same period.

Chen Jinguang, CIB Vice President, is optimistic about the prospect of China’s private banking, saying, “It is estimated that China’s high net worth families will reach 3.88 million by 2020 and their investable financial assets will then account for 51％ of China’s individual wealth, offering great opportunities for the development of private banking business. However, at the same time, we should recognize the undersupply of private banking services. At present, China’s private banking institutions manage less than 20％ of the wealth of high net worth families, which implies huge opportunities for development. Moreover, in recent years, the banking industry has been accelerated its transformation, focusing on developing capital-light businesses. During this process, private banking business will face unprecedented development opportunities by taking advantage of connecting investment asset and private wealth.

According to their survey, about 30％ of HNWIs have invested overseas, and 56％ have not yet but say they will consider overseas investment in the next three years. «As the most dynamic participants in China’s economy, HNWIs are leaders in bringing China in line with the international norms. China’s continuous economic globalization will drive the HNWIs to shift from domestic wealth allocation to global wealth allocation.»

The survey points out that, against the background of Chinese economic globalization, RMB exchange rate volatility and declining domestic return on assets, the drivers for overseas investment of HNWIs will be more diversified. The change of drivers will create more business opportunities for Chinese Private Banks: the number of customers seeking overseas investments will expand, including not just ultra-high net worth individuals (UHNWIs) but also HNWIs; the shift from real estate to financial assets will increase demand for wealth management services; and the shift from overseas-oriented one-way flow to domestic-overseas two-way flow will help expand Chinese institutions’ operations into foreign markets.

 

All but Equity Funds got Favored in April by a Very Accommodative Monetary Policy

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The European Fund and Asset Management Association (EFAMA) has published its latest Investment Funds Industry Fact Sheet, which provides net sales of UCITS and non-UCITS for April 2016 from 28 associations representing more than 99 percent of total UCITS and AIF assets’ net sales data. 

The main developments in April 2016 can be summarized as follows:

  • Net inflows into UCITS and AIF increased to EUR 65 billion, up from EUR 26 billion in March.
  • Net inflows into UCITS amounted to EUR 44 billion, considerably higher than the EUR 8 billion recorded in March.
    • The increase in UCITS net sales was driven by stronger net sales of long-term UCITS and money market funds.
  • Long-term UCITS (UCITS excluding money market funds) recorded net inflows of EUR 33 billion, compared to EUR 18 billion in March.
    • Net inflows into bond funds increased to EUR 24 billion, from EUR 11 billion in March.
    • Multi-asset funds recorded net sales of EUR 6 billion, same as in March.
    • On the other hand, equity funds continued to experience net outflows, albeit lower than in March (EUR 2 billion).
  • Net sales of UCITS money market funds rebounded to EUR 11 billion, from net outflows of EUR 10 billion in March.
  • AIF recorded net inflows of EUR 21 billion, compared to EUR 19 billion in March.
    • Net assets of UCITS increased by 1.4% in April to EUR 8,104 billion, and AIF net assets increased by 0.7% to EUR 5,148 billion.
    • Overall, total net assets of European investment funds increased by 1.1% in April to stand at EUR 13,252 billion at the end of the month.

Bernard Delbecque, director of Economics and Research at EFAMA commented: “The accommodative monetary policy and the stimulus still in the pipeline supported the demand for bond and multi-assets funds in April, whereas weak economic growth and downside risks continued to weigh on equity funds.”

You can read the EFAMA Investment Funds Industry Fact Sheet in the following link.
 

John DeVoy regresa a Loomis, Sayles & Company

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John DeVoy Returns to Loomis, Sayles & Company
CC-BY-SA-2.0, FlickrFoto: Unsplash / Pixabay. John DeVoy regresa a Loomis, Sayles & Company

 Loomis, Sayles & Company anunció que desde el 30 de junio, John DeVoy, ha regresado a la firma como estratega en el equipo de crédito de carteras discrecionales. Al mismo tiempo Brian Kennedy y Todd Vandam fueron promovidos a gestores de carteras. Todd, Brian y John reportarán a Elaine Stokes y Matt Eagan, co-lideres del equipo de crédito de carteras discrecionales.

“La complejidad de los mercados de renta fija continua creciendo. Estamos muy contentos de que John haya regresado”, comentó Elaine Stokes. “Además, el rol de John permitirá que Brian y Todd se enfoquen exclusivamente en la gestión de sus carteras. Las promociones reflejan el excelente trabajo que han hecho gestionando varias estrategias a la fecha”.

Entre las responsabilidades de John se encuentra el otorgar información de mercado y tendencias al equipo de gestión así como colaborar con los analistas de la firma y equipos de sectores para crear opiniones conjuntas de inversión así como el realizar recomendaciones de inversión.

Todd es uno de los fundadores de la estrategia Loomis Sayles strategic alpha que, lanzada en 2010, ya cuenta con más de 4.400 millones de dólares en activos bajo administración, y es cogestor del Loomis Sayles US high yield strategy con 3.500 millones. Tanto Todd como Brian se unieron a la empresa en 1994.
 

RARE Infrastructure (filial de Legg Mason): ¿Por qué son interesantes las inversiones en infraestructuras?

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RARE Infrastructure: Why Are Investments In Infrastructure Interesting?
Nick Langley - Foto cedida . RARE Infrastructure (filial de Legg Mason): ¿Por qué son interesantes las inversiones en infraestructuras?

Una de las primeras cosas de las que uno se da cuenta cuando empieza a observar la infraestructura como clase de activo es que la definición de «infraestructura» varía con la persona. Por eso a Nick Langley le gusta empezar aclarando que el punto de partida de RARE Infrastructure, firma en la que es co CEO y co CIO (y firma que es filial de Legg Mason), es el de buscar activos que proporcionen un servicio esencial para una economía y que tengan tal grado de certidumbre en el precio que sepan que el proveedor recibirá el pago por la prestación de su servicio.

El universo de las infraestructuras –cuando se habla de inversiones en infraestructuras cotizadas- se puede dividir, grosso modo, en cuatro tipos de activos: comunitarios y sociales, regulados, de pago por parte del usuario, y activos competitivos. Es importante hacer esta diferenciación porque los perfiles de riesgo y los retornos de cada grupo serán muy diferentes, explica, pues tanto los activos como las inversiones son diferentes.

El primer grupo, bienes comunitarios y sociales, reúne aquellos activos que la gente mencionaría si se le preguntara por infraestructuras, como escuelas, hospitales o cárceles. Son activos que tradicionalmente se financian con participación del sector público y que tienen un impacto positivo de gran visibilidad en la comunidad, aunque para los inversores puedan ofrecer rendimientos bajos con un potencial de crecimiento limitado.

El segundo grupo es el de los activos regulados, que son aquellos que operan en entornos regulados. Es decir, tanto su operación como, por tanto, su retorno se ven afectados por el regulador de esa industria. Claros ejemplos serían las empresas de energía que gestionan redes de suministro de gas o electricidad, o los servicios de agua. Estas empresas están reguladas ya que normalmente operan en mercados con tendencia natural al monopolio. Por ejemplo, el Reino Unido sólo tiene una red de transmisión eléctrica, igual que la mayoría de países, que es administrada y operada por National Grid.

En el tercer grupo se encuentran los activos que paga el usuario, que son activos relacionados con el transporte de personas o de mercancías en un mercado concreto. Por ejemplo, las empresas que operan redes de carreteras o ferrocarriles, aeropuertos y puertos. Estas empresas no están reguladas pero, sin embargo, a menudo operan con contratos basados ​​en concesiones, que suelen ser para un determinado tiempo. Estos activos están más expuestos al crecimiento que los activos regulados, ya que sus ingresos dependen –en general- del crecimiento económico o de la población.

El último grupo se compone de aquellos que operan en mercados competitivos, que están expuestos a presión en los precios y carecen de la seguridad que otorgan la regulación o las concesiones. Podrían servir de ejemplo las empresas de generación de energía y las minoristas que, en lugar de gestionar redes energéticas, crean energía y se la venden al usuario final. Este grupo está sujeto al riesgo asociado a la oferta y demanda, y potencialmente al riesgo de precio de las commodities.

«Centramos nuestra inversión en activos regulados y aquellos que paga el usuario pues u operan dentro de un marco regulatorio definido o cuentan con contratos a largo plazo que fundamentan sus perfiles de retornos. Los flujos de caja de estas empresas suelen adentrarse décadas en el futuro (es decir, son de larga duración) y los marcos en los que operan dan pie a que con la experiencia adecuada sea posible estimar estos flujos, y por tanto el valor intrínseco de la empresa con cierta precisión. Esto significa que los principales tipos de activos en los que invertimos son gas, agua y compañías eléctricas en el área de activos regulados, y autopistas, ferrocarriles, puertos, aeropuertos en de activos de pago por parte del usuario», explica el gestor.

¿Por qué son interesantes las inversiones en infraestructura?

En su opinión, la infraestructura tiene una serie de características, a menudo atractivas para los inversores, como su sólido y estable perfil de riesgo/retorno, protección frente a la inflación, ingresos, baja correlación con activos tradicionales y cualidades defensivas –generalmente- con menores caídas en mercados a la baja. «Puesto que las empresas de infraestructuras suelen prestar servicios esenciales (a menudo durante un largo período de tiempo), están respaldadas por activos físicos, y tienen un grado de certidumbre en los precios, vemos sus perfiles de riesgo/retorno estables en el tiempo. Si bien es cierto que cualquier retorno implicará un cierto grado de riesgo, la naturaleza de esta clase de activo permite a los inversores cualificados obtener un retorno que compensa de sobra el riesgo asumido. Además, puesto que la infraestructura subyacente suele tener un cierto grado de vinculación a la inflación anual reflejada en los marcos regulatorios o contratos a largo plazo, proporciona una buena protección contra la inflación. Aproximadamente el 70% de los flujos de caja de las empresas en las que hemos invertido a través de nuestra estrategia value están directa o indirectamente vinculados a la inflación».

Por otro lado, añade que las infraestructuras suelen proporcionar unos ingresos atractivos en el tiempo, teniendo en cuenta los recurrentes y crecientes dividendos que suelen pagar muchas de las empresas.

Además, dice que es una buena opción para diversificar dada su baja correlación con acciones o bonos. «La razón es que la rentabilidad subyacente de las empresas de infraestructura está fuertemente sujeta a los marcos regulatorios o contractuales, en lugar de estarlo a los elementos que mueven la rentabilidad de acciones y bonos. Es más, con frecuencia esta ventaja aumenta en momentos “market stress”, lo que significa que la infraestructura puede proporcionar protección a través de esa diversificación exactamente cuando más se necesita».

El experto explica que el tipo de empresa de infraestructura cotizada en la que invierte ofrece una atractiva rentabilidad (por lo general en la parte alta del dígito único) con relativamente poco riesgo. «También observamos buen comportamiento de estas en las subidas y bajadas de mercado, participando en los retornos de los mercados al alza, pero proporcionando protección en las caídas, gracias al carácter defensivo de los  activos regulados». Con todo, el rendimiento de los activos en los que invierte varía: «Mientras en los activos de pago por parte de los usuarios vemos, típicamente, un rendimiento menor; en los activos regulados observamos dividendos significativos y crecientes en el tiempo, con cifras alrededor del 5%-10%. Combinando estos dos tipos de activo, esperaríamos ver un rendimiento de entre un 3,5% y un 5,5% en una cartera con una ponderación 50-50 entre activos de pago por parte del usuario y activos regulados».

 

Bill Gross recomienda a los banqueros centrales recordar los principios del Monopoly

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Bill Gross: “Worry About the Return “Of” Your Money, Not the Return “On” It”
Foto: Rich Brooks. Bill Gross recomienda a los banqueros centrales recordar los principios del Monopoly

En su carta destinada a inversores correspondiente al mes de julio, Bill Gross afirma que si «los gobernadores y presidentes de la Fed entendieran un poco más acerca del juego conocido como Turista o Monopoly, y un poco menos acerca de modelos obsoletos como la regla de Taylor y la curva de Phillips, entonces nuestra economía y sus perspectivas de futuro podría ser un poco mejores». Así lo indica en la carta publicada en la web de su gestora, Janus Capital.

Sin olvidar otros temas sobre la mesa como el Brexit, el creciente movimiento populista en el terreno político y la posibilidad de lo que él llama la des-globalización (con menor comercio, migración y crecimiento económico), Gross se muestra muy crítico con la política de tipos de interés que han seguido los banqueros centrales, porque no ha servido para estimular el crédito en la economía real ni para impulsar el crecimiento.

Así, frente a modelos como la regla de Taylor y la curva de Phillips -modelos que relacionan los tipos de interés con la inflación y la tasa de paro, respectivamente-, invita a los banqueros centrales a mirar la importancia del crédito privado, porque si éste no se incrementa, la economía se estanca o incluso retrocede. De ahí que aluda al popular juego de mesa, el Monopoly, que ayuda a obtener 200 dólares al pasar de nuevo por la casilla de «Salida» o «Go», y lo equipara con un nuevo crédito, «responsable de la salud de nuestra economía basada en las finanzas. Sin un nuevo crédito, el crecimiento económico se mueve en la reserva y la bancarrota de los jugadores se hace más probable».

Gross también alude a cómo a principios del juego cuando «la banca» da los 1.500 dólares iniciales, el crecimiento es fuerte pero con el tiempo se empieza a desacelerar.

Gross añade que la oferta de dinero o el crecimiento del crédito no es el único determinante del PIB, sino que es importante también la velocidad que lleva ese dinero o crédito y advierte de una posible contracción económica. En su opinión, esto significa «a lo sumo, un techo para los precios de los activos de riesgo (acciones, bonos high yield, capital privado, bienes inmuebles…) y en el peor de los casos, signos negativos al final del año que fuercen a los inversores a abandonar la esperanza sobre rendimientos futuros comparables a los ejemplos históricos. Hay que preocuparse ahora por que el dinero retorne, no por el retorno que dé el dinero», dice.

En definitiva, nuestra economía requiere de la creación de crédito «y si se mantiene baja, los futuros perdedores crecerán en número», concluye Gross.

Puede leer la carta completa en el siguiente link.

Henrique Cardoso Believes that Brazil has Reached a Turning Point

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Over 2000 people gathered in Atibaia during the 24th, 25th, and 26th of June to attend XP Investimentos’ sixth national convention, one of the largest events held in Latin America for investment professionals.  The Expert 2016 event was attended by such international fund management companies with a local presence as Franklin Templeton, BlackRock, JP Morgan AM, BNP Paribas AM, Deutsche Bank, BNY Mellon, and Mirae Assets; local fund managers with a prominent role in Brazilian and Latin American markets such as the Group’s own fund manager, XP Gestão de Recursos, thefund management companies within the Azimut Group, Questy AZ and AZ Legan, BTG Pactual, Bozano Investimentos, Votorantim Asset, and Valora Gestão de Investimentos, amongst others. In addition, banks and insurance companies such as Porto Seguro, Prudential, Sulamérica Investimentos, and Icatú Seguros, as well as the fund distributor and custodian platform, Allfunds Bank, also participated.

During this financial industry trade fair, there was also time for conferences, training sessions and presentation of awards. The event kicked off with a welcome to all attendees by Guilherme Benchimol, XP Investimentos President and Founding Partner of XP Group. Benchimol recalled the company’s beginnings, reviewing its development from the outset. Gabriel Leal, a partner at XP Group and the company’s Retail Business Director, spoke about the current situation in the markets and the future of XP Group.

Next, Abilio Diniz, current President of the Board of Directors at Península Participaçoes, spoke about the challenges currently faced by Brazil. Diniz recommended trying to understand the country’s current crisis by using the example of the ideograms that make up the word “crisis” in Mandarin Chinese: “danger” and “opportunity”. Thus, he informed of the need for: survival spirit, monitoring costs closely, assessing the crisis as a whole, avoiding to blame the crisis, looking in the mirror rather than out of the window, and anticipating, all in order to exit the crisis stronger.  Abilio Diniz, who along with his father Valentim, was responsible for developing one of the country’s largest retail distribution networks, Grupo Pão de Açúcar, is also Chairman of the Board at BRF, and member of the board of directors for the Carrefour Group in Brazil.

Later, Martin Escobari, entrepreneurial and private equity investor partner in charge of General Atlantic’s operations in Latin America, shared his three rules for investing even in times of low visibility. For Escobari, the first rule is to look to the future, something relatively easy to do in markets such as Brazil which, to a certain extent, lag behind more developed markets. As an example, he mentioned the mutual funds retail distribution market in the US during the seventies, in which 80% of the funds were distributed through banks and 20% by independent firms, and its evolution to the present, in which 98% of investment funds are distributed by independent entities; while the Brazilian funds’ distribution market is almost entirely in the hands of banks, which portends a trend in the migration of savings towards independent channels. As a second rule, he recommended reacting quickly to market conditions, and finally, as a third rule, looking for resistance by investing in companies that do not depend on the country’s situation.

During his presentation, José Gallo, Director and President at Lojas Renner, spoke of the need to ‘enchant’ the client, the importance of developing an emotional attachment to the construction of a brand, and simplifying the management process as much as possible.

Finally, one of the most exciting moments of the day was when the audience stood to welcome the ‘Eternal President’, Fernando Henrique Cardoso, President of Brazil for two consecutive terms, from 1995 to 2003. Cardoso gave an overview of the extremism currently present in global politics, with the very recent Brexit results and the US presidential elections before the end of the year. With regard to the economic crisis currently faced by Latin America’s largest economy, Cardoso referred to the years of the global financial crisis and the performance of the financial team under Lula’s government, during which there was an increase in public spending, credit, and consumption, without an increase in investment, which in his opinion is a «Recipe for Disaster.» The former president also spoke of the need to reform the Brazilian political system, in which the more than 30 parties participating in Congress prevent setting a course for implementing the political agenda, he therefore commented on the need to return from cohabitation presidentialism to coalition presidentialism. As for the future of Brazil, Cardoso believes that the country reached a turning point where the Lava-Jato operation was a necessary and positive step for advancement. His only fear is the possible emergence of «backward» political demagogues who do not culturally perceive the need for what needs to be done. At the economic level, he trusts the dynamism of Brazilian industry and agriculture as a force to recover the path to growth. When asked if he would be willing to return to the forefront of politics, the former president’s felt honored by the request, but declined politely, joking that at 85 years of age, a return to politics would shorten his life significantly.  

PIMCO Strengthens its Emerging Markets Team

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PIMCO, a leading global investment management firm, has hired Gene Frieda as Executive Vice President and Global Strategist for the firm’s emerging markets and global strategies and Yacov Arnopolin as Executive Vice President and Emerging Markets Portfolio Manager. They will both be based in PIMCO’s London office.

Frieda, who will work primarily with the emerging markets team but will also contribute to other global, country and sector strategies, will report to Andrew Balls, Managing Director and Chief Investment Officer – Global Fixed Income. Arnopolin, who will focus primarily on emerging markets external debt strategies, will report to Michael Gomez, Managing Director and Head of the Emerging Markets Portfolio Management team.

“Gene and Yacov are two tremendous additions to our global macroeconomic and emerging markets portfolio management expertise, as their deep experience will bolster PIMCO’s investment process and tap the investment opportunities we see for clients in emerging markets,” said Dan Ivascyn, Managing Director and PIMCO’s Group Chief Investment Officer. He added: “PIMCO will continue to use its considerable resources to hire the best industry talent globally. Already this year, we have hired more than 130 new employees, including 14 portfolio managers and 20 more investment professionals across many areas including alternatives, client analytics, mortgages, real estate and macroeconomics.”

Frieda joins PIMCO from Moore Capital Management where he was a Partner and Senior Global Strategist. Prior to that, he was the Global Head of Emerging Markets Research and Strategy at the Royal Bank of Scotland. Prior to joining PIMCO, Arnopolin was a Managing Director and Portfolio Manager at Goldman Sachs Asset Management in New York where he helped oversee emerging market portfolios for institutional clients such as pension funds, insurance companies and sovereign wealth funds.

“Gene and Yacov bring nearly 40 years of combined investment experience and complement other specialized resources we have added in recent years, including in emerging markets corporates and local markets,” said Gomez.

“As the adverse global backdrop of lower commodity prices and a stronger dollar give way to a more constructive picture for emerging markets, now is an exciting time to be adding two such talented investment professionals as Gene and Yacov to the PIMCO team,” said Balls.

Digital Advice Could Offer a Solution For U.S. Consumers With Too Small Portfolios For Financial Advisors

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According to new research from Cerulli Associates, digital advice could offer a solution for U.S. consumers with portfolios too small to attract the attention of financial advisors.

«The mass market and the lower end of the middle market are underserved by financial advisors,» states Tom O’Shea, associate director at Cerulli. «A vast majority of consumers do not possess the assets necessary to merit attention from financial advisors.»

«Digital advice innovation presents an opportunity to enhance the efficiency of advisors servicing small accounts,» O’Shea adds. «Combining human and digital advice can strengthen the fiduciary foundation of the client recommendations. This combination also allows an advisor to scale their practice in such a way that he or she can profitably manage the smaller accounts of mass-market consumers.»

«Almost 90 million U.S. households have investable assets of less than $100,000,» O’Shea explains. «Yet, only 8% of financial advisors treat this segment as their core market. The overwhelming majority of advisors target clients with higher levels of investable assets.»

«It is not that advisors are unwilling to help small investors,» O’Shea continues. «Rather, they cannot figure out how to make money when working with them, leaving investors to go it alone or rely on guidance provided by direct-to-consumer firms.»