The Global Economy’s Moderate Growth is Becoming Increasingly Fragile

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The global economy’s moderate growth is becoming increasingly fragile, largely due to the weakness of investments in the energy sector and slower growth in the Chinese economy. This is the view of Guy Wagner, Chief Investment Officer at Banque de Luxembourg, and his team, published in their monthly analysis, ‘Highlights.’

In the United States, there are mounting signs of industrial activity slackening due to the strength of the dollar and the weakness of investments in the energy sector. The increase in household purchasing power – fuelled by falling oil prices and the recent uptick in wages – is nonetheless keeping the US economy on a path to growth. In Europe, economic statistics are pointing in the right direction, although the pace of growth in absolute terms remains subdued. Japan’s economy is continuing to stagnate while economic growth is slowing in China. «The global economy’s ‘moderate growth’ is becoming increasingly fragile,» observes Guy Wagner.

Inflation is staying low due to the ongoing slump in oil prices. In the United States, inflation edged up from 0.2% in October to 0.5% in November. The Federal Reserve’s favourite indicator, the PCE (personal consumption expenditures) deflator, excluding energy and food, remained unchanged at 1.3%. In the eurozone, the inflation rate held steady in December. Core inflation, excluding energy and food, which Mario Draghi, President of the European Central Bank (ECB), recently said was a more representative measure of the cost of living, was unchanged at 0.9%. «While oil prices remain depressed, the ECB’s target inflation rate of 2% hardly seems realistic,» says the Luxembourg economist.

As expected, after seven years of a near-zero interest rate policy, the US Federal Reserve raised its key interest rate by 25 basis points. This was the first federal funds rate hike for nearly ten years. The monetary authorities have confirmed that any subsequent increases will be implemented slowly and gradually. In Europe, the ECB expanded the quantitative easing programme by extending the asset-purchase period from September 2016 to March 2017, by including regional and local government debt in the programme, and by further cutting its deposit rate. “If the inflation target is still not met, it is likely that additional QE (quantitative easing) measures will be introduced.»

Contrary to year-end tradition, equity markets performed poorly in December. Plummeting oil prices to below 40 dollars a barrel had a knock-on effect on equity markets out of a concern that the economic slowdown might worsen and that the financing capacity of lower-rated companies could suffer. According to Guy Wagner: «After a more volatile and less successful second half in 2015 and despite the lack of alternative investments, equities could suffer a difficult year in 2016 due to the slowdown in economic conditions, the sharp increase in share prices since 2009 and global geopolitical tensions.»

In December, the euro gained 3% against the dollar, with the euro/dollar exchange rate climbing from 1.06 to 1.09. The single currency’s rebound was prompted by investors’ disappointment over the scale of the ECB’s additional QE measures. Guy Wagner concludes: «If American and European monetary policies continue to diverge, the euro’s recent rebound is likely to be short-lived.»

Downward Pressure on Fees is Set to Intensify in 2016

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Finding ways to counter the downward pressure on fees will be a focal point for asset managers across much of the world in 2016, according to the latest issue of The Cerulli Edge-Global Edition.

In assessing the outlook over the next 12 months for the asset management industry in Europe, the United States, Asia, and Latin America, Cerulli Associates, a global analytics firm, has identified a number of key threats and opportunities.

In Europe, the migration by insurance companies to unit-linked products represents an opportunity for asset managers, says Cerulli. The growing demand for multi-asset funds should also be exploited. Threats include the emerging trend by institutions to band together to make their own investments, thereby cutting costs by using fewer external managers or even completely dispensing with their services. Exchange-traded funds (ETFs) will continue to be a bugbear for active managers.

«In Europe, as with much of the world, the downward pressure on fees, fuelled by passives, the comparisons platforms enable, and regulators will not let up in 2016. Asset managers are responding–the move by veterans of active management into ETFs is an example. Other examples include, diversification and the acquisition/ creation of platforms and fintech capabilities,» said Barbara Wall, managing director of the Europe office of Cerulli Associates.

Europe accounts for just 18% of the world’s ETF market, compared with the U.S.’s 70% slice. Wall, however, believes that big change is afoot. «A few years ago, just a small number of Europeans would have known what ETF stood for–that is no longer the case, especially among the ranks of the mass affluent and those aspiring to that status. Prominent direct-to-consumer platforms such as Fidelity are offering ETFs from, for example, Vanguard, HSBC, and the iShare range, owned by BlackRock. Online wealth manager Nutmeg, though not a direct-to-consumer platform, is also helping to raise the profile of ETFs among retail investors.»

In the United States, Cerulli foresees fee pressure generating opportunities for managers that offer multi-asset and strategic beta products. Other major challenges cited by U.S. executives include the threat of passive investments, and the increased cost of revenue-sharing costs. The latter has U.S. asset managers looking at new pools of global assets to distribute abroad.

In Asia, Cerulli expects the spotlight to fall on passive products as institutions look for cost-effective solutions and regulators take steps to boost the appeal of ETFs for retail investors. Cross-border initiatives are likely to increase in 2016, offering investors diversified investment options and enabling managers to expand in other markets.

In Latin America, global managers will continue to be hampered by the knock-on effects of U.S. regulation, competition from other asset classes, and reduced flows due to unfavorable exchange rates and struggling economies. Global managers in the region are eyeing the private-equity craze sweeping the region, while separately a cottage industry of specialist distributors is promising to leverage their ties to local institutions to help global firms break into Latin pension space.

«In 2016, the clamor for reduced fees, greater transparency, and an end to ‘closet tracking’ will continue apace; competition will intensify; and institutions will be obliged to follow a road that will be a dead end for some asset managers,» said Wall. «All the while, activist investors will not let up; markets will continue to surprise; and rising costs will strain budgets. But there will be opportunities. To seize upon these, foresight, experience, and occasionally courage will be needed.»
 

PIMCO nombra a Craig Dawson máximo responsable para EMEA

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PIMCO Names Craig Dawson as Head of EMEA
CC-BY-SA-2.0, FlickrFoto: Youtube. PIMCO nombra a Craig Dawson máximo responsable para EMEA

PIMCO ha nombrado a Craig Dawson máximo responsable para Europa, Oriente Próximo y Africa (EMEA), relevando a Bill Benz, que se retira tras 30 años en la compañía.

Craig A. Dawson es el MD responsable de la gestión del negocio estratégico. Anteriormente fue responsable de PIMCO en Alemania, Austria, Suiza e Italia, así como de gestión de producto para Europa. Antes de unirse a la firma en 1999, Dawson trabajó en la firma de consultoria financiera Wilshire Associates.

Por su parte,William R. Benz se retira a final de junio de este año. Benz se incorporó a la gestora en 1986 y está basado en Londres donde, con rango de MD, es responsable del negocio en EMEA.

«Europa es una región de importancia estratégica para PIMCO, y su eventos políticos, de soberanía y macroeconómicos han estado en el centro de las fuerzas que han dado forma a la economía global. Estoy deseando continuar el gran éxito que Bill y e equipo han consturido a lo largo de los años de continuo esfuerzo por dar a los inversores los resultados, el entendimiento de mercado y el servicio que se espera de la firma en todo el mundo», explicó Dawson.

Pershing: We Look Forward to Helping our Clients Succeed in Latin America

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Although Pershing has no physical presence in Latin America, John Ward, Managing Director Global Client Relationship with the financial services company owned by BNY Mellon, emphatically expresses the company’s commitment to a region which he considers offers opportunities, due to the demographic and regulatory changes that are taking place.

Mr. Ward is referring to Pershing’s second largest market, both by the number of clients and clients’ assets. In the region of the «Americas», in which each country is managed independently, they currently have 100 clients from the U.S. and other countries (including Canada), whose needs are managed from the United States. In order to do this, Pershing has teams which, besides English, speak Spanish or Portuguese and understand the culture, idiosyncrasy, needs, and environment of each of the markets in which the company operates. They have clients in Chile, Panama, and Mexico as well as clients in the US – in Florida, New York, California – who serve the Latin American region.

Amongst the greatest challenges in the area, Ward mentioned the economic situation, the regulatory aspects, and the evolution of commodity prices, along with the situation in Brazil or the political changes that may occur in each of the countries, or which, in some, are already occurring.

The executive believes that the regulatory framework is maturing and that expertise in the financial market is growing. Talent is increasingly developing. We’re witnessing a growing number of Latin American firms establishing their presence in the United States to retain talent within the organization, explains Ward, referring to financial companies from Brazil, Colombia or Mexico, setting up in Miami or Houston.

On the other hand, regulatory developments favor a gradual, but very slow, increase in offer to certain investors from specific countries, attracting European fund companies, also aware of population growth, the emerging middle class, and the increasing number of HNWI. In short, Ward defines Latin America as “an opportunity for growth.”

 The number of asset management companies looking into Latin America as a region with which to improve their indicators has grown in 2015. Changes occurring, such as pension funds in Chile, Colombia, and Peru, are causing management companies to want to expand their product offering and bring in the sales force he explains. Very few firms have their own sales teams in situ, and those with dedicated teams in the United States are more numerous. “Maybe it’s not so much about new companies, although there are some, but about existing companies refocusing their strategy for increased growth in Latin America,” he points out.

The depth and speed of growth depends on the industry itself, (which is looking for new talent, both in Wealth Advisors and in Private Banking), regulation, and on how committed to the region are the companies operating in it. While it is true that some large companies are leaving the area due to the risks involved in sustaining the business, according to Ward, there will be a consolidation of service providers, but there will also be newcomers entering to service the niches left by others. With regard to how this future development will affect their business, Pershing’s managing director of global client relationships declares that, “The diversification of our client base allows us to adapt to different market environments.”

The executive, who has been working 23 years for the company, thinks that the profitability of relationships can be very different and that there are very diverse models. “We make no distinctions between our clients or in how the service is provided, depending on their size”.

The products sold in Latin America do not differ greatly from those distributed in the United States. Its institutional client base consists of regulated institutions like brokerage subsidiaries of banks, or broker-dealers, and so typically do not serve Family Offices or Multi Family Offices, which being an emerging activity is not regulated. As regards the profile of the final clients which their client institutions serve, it is individuals ranging from the highest segment of affluent investors to the UHNW niche, and some institutional, such as pension funds or insurance.

As regards other issues with a strong presence in industry forums, such as the AML regulations or CRS, Ward points out that his company is extremely compliant with them, and recognizes that the regulation will be a critical component for their business and for any other. “We pay attention to the client’s risk profile and base our relationship on collaboration.”

Ward defines the future of the Wealth Management industry as having a strong component of digital advice complimenting the human interaction, rather than solely through robo-advisors. “Embracing digital components is critical to the advisory service and an opportunity for joint growth,” not only aimed at millennials, which can be digital natives, but at all investors. The expert is certain that technology will have a major impact on the industry and that it will assist advisors in their marketing and sales tasks to create a digital brand and, for example, to design more collaborative processes with the client. Although competition will lower prices for services and that the industry is reviewing its models to maintain its profitability, he does not believe it will significantly affect the highest wealth or UHNW sector, and doesn’t see technology as a possible substitute for personal advice, in most scenarios.

Speaking of the role technology will play, we continue our interview by analyzing another of the concerns shared by the Wealth Management industry: the aging of its clients and its professionals. “There are now more individuals than ever saving for retirement, and there are 30 trillion dollars in the United States that will pass on to the next generation over the next 30 years,” he says, adding that “there will not be enough advisors to manage that. The help of technology as a tool will be required. Digital advice will help advisors to meet that need. «

Ultimately, after reviewing the current situation and prospects for Pershing and for the industry, especially in Latin America, Ward summarizes: “We see our clients facing a growth opportunity and we are personally invested in helping them succeed, so our vision is optimistic”. He concludes: “We have a great opportunity to grow our business in Latin America and look forward to building our client relationships in the coming years.”

Michael McLintock to Retire as M&G Investments Chief Executive, to Be Succeeded by Anne Richards

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Prudential plc announced that Michael McLintock has decided to retire as Chief Executive of M&G Investments and as an executive director of Prudential. He will be succeeded later this year, subject to regulatory approval, by Anne Richards.

Anne Richards will join Prudential from Aberdeen Asset Management PLC, where she is Chief Investment Officer and responsible for operations in Europe, the Middle East and Africa. She has held senior roles at JP Morgan Investment Management, Mercury Asset Management and Edinburgh Fund Managers, which was acquired by Aberdeen Asset Management in 2003.

Mike Wells, Group Chief Executive of Prudential, said: “I would like to thank Michael for his exceptional contribution to M&G over the last two decades. Under his leadership M&G has grown to become one of Europe’s largest fund managers by offering innovative investment solutions to meet the needs of our customers and clients. I wish him all the very best for the future. I am delighted that a person of Anne’s talent is joining the group and I look forward to working with her. Anne will be able to deploy her leadership skills and exceptional knowledge of the global asset management industry to provide the best possible outcomes for our customers, clients and shareholders.”

Michael McLintock said: “I am absolutely delighted to be handing the reins to Anne. I have loved running M&G, but after 19 years I feel strongly that it’s time for a change. M&G is a special business. I would like to thank all of my colleagues for their support and hard work over so many years. I have no doubt whatsoever that M&G will flourish under Anne’s leadership and I wish her and the team every possible success.”

Anne Richards said: “I am delighted that I have the opportunity to lead M&G, which is a world-class business. I look forward to working with the team to continue building the business and leading the next phase of M&G’s development.”

Paul Manduca, Chairman of Prudential, said: “On behalf of the Prudential board, I would like to thank Michael for his exceptional service to the Group over so many years. He has built a fund management franchise that is a leader in its field and the envy of our competitors. Michael’s experience, expertise and leadership have played an important part in the success of the group throughout his time with us. I look forward to working with Anne when she joins the board. I am pleased that we are able to attract the very best talent from across the industry, demonstrating the quality of our succession planning. Anne’s achievements and experience make her the right candidate to continue M&G’s development.”

La fortaleza del dólar beneficia a los inversores europeos en fondos de renta variable norteamericana sin cobertura

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European Investors in US Funds Find Compensation in a Strong Dollar, if the Product Is Unhedged
Foto: sean hobson . La fortaleza del dólar beneficia a los inversores europeos en fondos de renta variable norteamericana sin cobertura

Los gestores de fondos de renta variable estadounidenses deberían mirar más allá del corto plazo para ver las oportunidades, ya que el fortalecimiento de la mayor economía del mundo y un dólar al alza podría beneficiar a los inversores europeos, según el último número de The Cerulli Edge.

Mientras que los fondos de renta variable estadounidense deben soportar vientos en contra en 2016 -incluyendo el período previo a las elecciones presidenciales, nuevas subidas de tipos y valoraciones generosas- también se pueden encontrar aspectos positivos, dice el documento.

«Las subidas de la Fed pueden fortalecer el dólar, por lo que las exportaciones estadounidenses serían menos competitivas, lo que contuvo a algunas empresas en 2015. Sin embargo, para los inversores europeos en fondos norteamericanos, existe una compensación en un dólar fuerte, si el producto no cuenta con cobertura«, dice Barbara Wall, MD para Europa de la firma global de análisis.

En los 12 meses anteriores a noviembre de 2015, el S&P 500 apenas rozó el territorio positivo en términos de dólares, quedando por debajo de los europeos,  pero en euros creció un 20%.

El documento señala que la economía de Estados Unidos avanza camino de la recuperación y, habiendo creado más de 10 millones de empleos en los últimos años, puede esperar una fuerte demanda interna, lo que reduciría la dependencia de las exportaciones, dice Brian Gorman, analista de la firma. Las inversiones en las envejecidas infraestructuras de los EE.UU. deberían resultar positivas para las grandes firmas industriales del sector, añade.

«La clave puede estar en la selección de valores si los inversores quieren aprovechar el crecimiento y limitar las pérdidas, en caso de que el mercado tuviera un comportamiento tan negativo como algunos temen. Las empresas con buenos historiales, con ventas razonables, puede esperar mayores beneficios, especialmente si algunas se quedan por el camino», mantiene Gorman.

Gorman menciona el US Value Fund de MFS Investments como uno de los que presenta un comportamiento más estable, desde su lanzamiento en 2002, señalando que mientras que los fondos pasivos suponen una amenaza para los activos, es durante los tiempos más difíciles cuando éstos ganan sus fees. «El reciente retroceso ha hecho que muchas empresas estén considerablemente más baratas. El mejor fondo activo distinguirá entre las oportunidades de compra reales y los casos en los que se seguirá sufriendo. Abundan los fondos con resultados fuertes, como el US Blue Chip equity funddomiciliado en Luxemburgo de T. Rowe Price, con una selección de acciones que está dando muchas alegrías, en particular en el sector salud”.

Reconociendo que las turbulencias provenientes de China pueden provocar más salidas de los fondos de renta variable en los primeros meses de 2016, la firma cree que una economía fuerte en Estados Unidos ayudará a generar beneficios corporativos sostenibles, dividendos, una fuerte actividad en fusiones y adquisiciones y en los programas de recompra de acciones.

«Los fondos de renta variable estadounidenses con un buen historial de selección de acciones pueden esperar vender en Europa, dada la falta de alternativas. El potencial de crecimiento es claro, siempre que los mejores fondos puedan mitigar las pérdidas que se produzcan durante los tiempos más difíciles”, dice Wall.

 

New Record Inflows for the Global ETP Industry: 2.95 Billion Dollar by the End of 2015

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ETP assets up 8.3% reaching US$ 2.95 trillion in 2015 driven by record inflows Global ETP industry reached near the US$ 3 trillion mark and closed at US$ 2.95 trillion by the end of 2015. Amid volatile markets last year, ETP assets grew by 8.3% mainly attributable to organic sources (i.e. new money inflows) which made up 13.7%, while prices went negative and eroded 5.5% from overall assets. Year-on-year, organic growth or new money inflows continued to remain strong and provided healthy growth to the ETP industry.

Similar to 2014, global ETP industry once again received healthy inflows in 2015 recording inflows of US$ 373.8 billion but this time it is the highest ever flows total for any of the years historically. Flows for US listed ETPs were similar to last year but Europe and Asia listed ETPs saw significant jump in new creations. During the last three years’ equities have stood as leaders contributing the major portion of the inflows, but since 2014 fixed income ETFs also showed significant signs of growth and contributed US$ 105.4 billion in 2015 (US$ 89.4 billion in 2014).

The US, Europe, Asia-Pac, and RoW regional ETP assets closed the year at US$ 2.11 trillion (+6.8%), US$ 507.4 billion (+10.6%), US$ 250.2 billion (+23.8%), and US$ 74.7 billion (-7.9%), respectively.

ETP assets likely to reach US$ 3.46 trillion at the end of 2016

Deutsche Bank Markets Research projects the industry will continue to grow significantly in 2016 despite potential weak markets. In their base case scenario, assuming a neutral market condition, global ETF assets may grow by 17.8%: broken down into 11.6% or US$ 335 billion growth from new flows, and 5.5% from price appreciation. This growth should put the ETF assets well on their way to US$ 3.4 trillion by the end of 2016. Deutsche Bank Markets Research expects the US ETF market to be the major contributor with asset growth of 16.1% and inflows in the vicinity of US$ 230 billion. In a bull market case, ETF assets may grow by 29.7% reaching over US$ 3.7 trillion. Deutsche Bank Markets Research expects ETPs (including ETFs and other exchange traded products such as ETVs/ETCs) to experience a similar growth rate and reach about US$ 3.46 trillion in 2016 in their base case scenario, and pass US$ 3.8 trillion in a bull market case.

ETF flows suggest that investors continue to prefer less risky assets 2015 was another strong year for global equity flows with over US$ 250 billion.

Similarly, fixed income ETP flows also attracted healthy amounts of new cash reaching just above US$ 100 billion at the end of last year. However, other asset classes such as commodities with under US$ 5 billion of inflows didn’t enjoy the same degree of interest from investors.

Most of the major trends happened within equities. Among equity products, ETPs with exposure to developed markets excluding the US received the largest new allocations with inflows of US$ 195 billion last year. Meanwhile European focused and Japan-focused equity products also received significant attention from investors with positive flows of US$ 80 billion and US$ 50 billion, respectively.

ETPs tracking US equities didn’t fall short either, and attracted US$ 66 billion in inflows during the same period. On the other hand, ETFs with focus on Chinese equities also received significant attention, but mostly due to the exodus of investors who pulled about US$ 15 billion away from these funds. Outside equities, the most remarkable trend was registered in fixed income where the investment grade space received over US$ 70 billion inflows during 2015.

Going into 2016, Deutsche Bank Markets Research continues to favor global equities (mainly DM), a strong USD as well as investment grade credit and short durations in Fixed Income (Europe is more preferable than the US). Therefore, Deutsche Bank Markets Research expects equity products particularly in developed markets to continue attracting most of the flows. Certain type of Fixed Income products and currency hedge products should continue to remain relevant during 2016, although less than in 2015; while smart beta products should raise strong support as investors seek to control risk in a more specific way in the current year.

ETP trading activity up 16.8% in 2015 reaching US$ 21.8 trillion and will continue to rise

Trading activity picked up in 2015 again with ETP turnover levels registering a rise of 16.8% over 2014. Overall turnover levels in 2015, 2014 and 2013 were US$ 21.8 trillion, US$ 18.7 trillion and US$ 16.5 trillion, respectively. In 2015, Asian ETFs recorded the highest increase of over 100% in trading volumes (US$ 1.9 trillion), significantly surpassing European on-exchange volumes (US$ 903 billion, up 22.9%). US ETFs continue to dominate the global ETP trading activity (US$ 18.8 trillion, up 12.1%). Deutsche Bank Markets Research expects to see ETP trading activity to further increase in 2016 due to wider adoption of ETFs, elevated market volatility, and more product offerings.

ETF markets to continue forward on strong organic growth

In the US, the organic growth gap between ETFs and mutual funds, and passive and active management continued to widen reaching levels of about US$ 250 billion and US$ 500 billion through the end of November 2015, respectively. In the meantime, Deutsche Bank Markets Research believes that there is still room for new entrants and new products despite the record activity registered during 2015; however, Deutsche Bank Markets Research believes that smart beta ETFs and clear distribution access should be key to the success of new ETF ventures. Furthermore, it also believes there is abundant room for organic growth in the range of US$ 500 billion to US$ 1 trillion over the next 5 to 10 years just from migration away from less efficient vehicles and penetration to the retirement market.

In Europe, smart beta products expected to be in demand as market uncertainty remains and investment landscape evolves. Also, currency hedged ETFs to be utilized to invest with reduced currency risks. Despite poor start to equity markets, ETFs tracking European equities anticipated to have a reasonable year. In addition, absolute ETF trading volumes expected to increase despite concerns on overall equity volumes.

In Asia-Pac, Japan, China and South Korea were the key domestic markets which drove the industry in 2015. Most of the AUM growth and inflows of the region were contributed by Japan listed ETFs, while China listed equity ETFs saw heavy redemptions offset by money market ETFs receiving notable inflows. Trading activity also rose in the region in 2015, primarily in China, Hong Kong and Japan. South Korea saw most number of ETF launches along with many new development plans announced by its Financial Services Commission to boost ETF market in South Korea. Deutsche Bank Markets Research expects Japan (with increased equity allocation from GPIF and the ETF purchase from Bank of Japan), China (stronger asset growth as market stabilizes and increased product adoption) and South Korea (with new developments being implemented) to be major growth drivers in Asia-Pac region in 2016.

Mario Draghi, The Italian Banking Sector, and Oil; Main concerns for Fixed Income at Pioneer

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During last week, the three things that Pioneer’s European Investment-Grade Fixed Income Team talked about where:

1. ECB – “No Surrender”
Bravissimo Mario! After a lacklustre performance at the December 2015 European Central Bank (ECB) press conference, ECB President Mario Draghi was back to his best at this week’s ECB press conference. In a virtuoso performance Draghi signalled that it will be “necessary to review and possibly reconsider in March” the ECB’s current stance, given that the expected path of inflation in 2016 is “significantly lower than the path in December”. To be fair, that was always expected, given the ongoing precipitous fall in the oil price over that period. But Draghi didn’t stop there, giving us other soundbites such as the “risks of second-round effects should be monitored closely” and the emphasis that there are “no limits” to the measures that the ECB will undertake to ensure that it meets its inflation target of “close to, but below 2%”. That comment about “risks of second-round effects” is as close as we will probably get to the ECB admitting that ongoing low levels of inflation is now impacting the general economy – the famous “unanchoring of inflation expectations” that the ECB fears so much. The second comment suggests that all options will be on the table at the March meeting, despite the minutes of the December 2015 showing a distinct preference for a deposit rate cut. Finally, President Draghi noted that the line of communication adopted today was “agreed unanimously” by the Governing Council, suggesting that their bar to further action is very low. At this stage, we believe that another 10bps cut in the deposit rate to -0.30% is likely, with other options such as an increase in the monthly pace of bond purchases, an extension of bond purchases beyond March 2017, and the loosening of current restrictions on bond purchases all open for discussion.

2. Italian Banking Sector – Reality Bites
Media leaks last Monday (January 18th) suggesting that the ECB’s central oversight arm, the Single Supervisory Mechanism, was scrutinising the non-performing loans (NPL’s) and bad debts Italian banking system truly put the cat amongst the proverbial pigeons. While this news does not come as a surprise, the market became concerned that further provisioning may be required for the weaker Italian financial institutions, which would place additional pressure on solvency levels. At the same time, progress on the Italian bad bank appeared to have stalled, with a solution to comply with European Commissions State Aid rules proving elusive. The market reaction was swift and brutal, with both equity and bond prices plummeting. The subordinated bonds of the weaker Italian banks have been under significant pressure since the start of the year and are trading at around 75c per €1 face value. At Thursday’s press conference, ECB President Draghi confirmed that the ECB is not about to force higher provisions or capital raises on peripheral banks as part of its latest NPL exercise. Rather the focus is on improving processes and strategies around the resolution of NPLs across Europe (with the recent NPL information requests sent to a broad range of banks across the region, not just to Italian institutions). Further reports emerged that the creation of a bad bank may be agreed between the Italian government and European Commission over the coming weeks . Finer details remain light, but these reports were enough to drive a rebound in Italian bank spreads on Friday. While a step in the right direction, the Italian banks do not currently have sufficient capital or provisioning to transfer NPLs at market prices to a potential new asset management vehicle. This solution is unlikely to be the panacea to the sector’s problems, but will be welcomed nevertheless and hopefully help to kick-start sales in the NPL market. We have a cautious outlook on the Italian banking sector, and still prefer to sell into strength.

3. Oil is in a Bull Market 
Not the headline you might expect to see after the last couple of months, but technically it could be correct if the recent bounce in the oil price continues. The standard definition of a bull (bear) market is a 20% rise (fall) in the price of an asset. The oil price has appreciated by almost 18% from its intraday lows of last week to Monday morning. What is also interesting is the effect this has had on markets – it has been the main driver of a classic “risk-on, risk-off” sentiment. So as the oil price has risen in the past couple of days, we’ve seen equities recover, core bond yields rise, peripheral bond spreads tighten, the U.S. Dollar has appreciated against the Euro and the Japanese Yen and credit spreads globally have tightened. In turn, that backs up the view of the European Investment-Grade Fixed Income team that much of the price action in the first three weeks of the year is a response to the movements in the oil price, and not a reflection of changing economic fundamentals.

El venture capital marca nuevo récord en 2015

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Aggregate Venture Capital Deal Value Hits Record High in 2015

Foto: AJ Cann . El venture capital marca nuevo récord en 2015

En 2015 el valor agregado de las operaciones de venture capital creció por tercer año consecutivo, hasta situarse en 135.800 millones de dólares, frente a 93.500 millones de 2014 y más que duplicando los 57.100 de 2013. Aunque las 9.202 operaciones registradas en el año es una cifra similar a la de 2013 y 2014 (9.785 y 9.811 respectivamente), el tamaño medio de las operaciones creció hasta los 18,4 millones en 2015, desde 12,4 en 2014. Esto representa una caída del 6% en el número de operaciones en el último año, pero un aumento del 45% en su valor agregado, según publica Preqin en una nota.

Asia, en particular, ha visto un repunte significativo en la actividad, ya que China registró 1.605 operaciones, más que Europa, que se quedó en 1.373, mientras que la India registró 927 ofertas, casi el doble que en 2014, en que se registraron 512.

A pesar del sano entorno global, el significativo aumento en Asia lo tapó la disminución del resto del mundo. Europa registró 1.373 operaciones, en su segunda caída anual desde el máximo de 2.002 que registró en 2013 y el segundo menor número de operaciones desde 2010. Del mismo modo, aunque el valor agregado de las operaciones de América del Norte aumentó, el número de operaciones en la región cayó el 23%, pasando de 5.587 en 2014 a 4.307 en 2015. Aunque Preqin espera que estos totales aumenten a medida que se disponga de nuevos datos, la actividad de 2015 no parece que vaya a alcanzar los niveles observados en años anteriores.

Etapas, tamaños y salidas

La mayoría de las operaciones se produjeron en los primeros ciclo de vida de una empresa, con el 33% de las operaciones completadas en las fases previas al lanzamiento o etapa “semilla” y otro 26% en la etapa conocida como “serie A”;

El tamaño medio de las rondas de financiación se ha incrementado sustancialmente durante 2015. Las financiaciones de la Serie A crecieron un 34%, pasando 7,9 millones en 2014 a 10,6 este año, mientras que la financiación de la deuda pasó de media de 9,6 millones a 32,7. Las inversiones realizadas en la Serie D y posteriores suponen ahora una media de 94 millones.

La financiación en el mes de julio de Didi kuaidi fue, con 2.000 millones de dólares, la mayor operación de venture capital de 2015. De las 10 mayores operaciones del año, cinco tuvieron lugar en Asia y las otras cinco en Estados Unidos.

En general, las salidas se redujeron en 2015 por primera vez desde 2008, pasando de 1.138 en 2014 a 1.052 en 2015, y su valor total se redujo en un 41%, pasando de 125.100 millones a 73.300 millones.

«Ha sido otro gran año para el venture capital. De nuevo, Asia mostró un comportamiento fuerte durante todo el año y ha marcado un importante hito, ya que China ha superado el numero de operaciones de Europa por primera vez en la historia. Aunque América del Norte, especialmente California, sigue dominando la industria del venture capital, Asia está copando una parte mayor del mercado cada vez” dice Felice Egidio, jefe de productos de Venture Capital de Preqin.

“Las salidas han sido menores, tanto por número como por valor que en 2014. Un mercado difícil de salidas a bolsa ha hecho que los gestores e inversores fueran cautelosos, pero todavía se está generando mucho valor en las salidas de las empresas en cartera”, dice.

 

The Current Market Presents Unique Opportunities for Active Managers

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Reacting to the recent downturn in global equity markets, Francis Scotland of Brandywine Global, a Legg Mason affiliate, observed that there’s been a loss of confidence in the last month, which he attributed to a tightening global liquidity position; and capital coming out of financial assets worldwide. “We are in a correction that’s ongoing. I don’t expect it to be an extreme correction,” Mr. Scotland declared. “As a manager I like to use volatility to my advantage. I’m seeing compelling values come to the surface in U.S. stocks. The values tend to be in technology, financials, health care. A number of dividend growth stocks appear attractive. Quality-oriented stocks are doing better. That’s where the opportunities are.”

James Norman of QS Investors added that “people are re-evaluating where opportunities are. It’s hard to predict because a lot of it will be based on what investors believe. There’s going to be a lot of behavior involved in this. If people are nervous, markets will become more volatile. I think investors are nervous. We’ll have a lot of uneven economic data: some will surprise on the upside, some will surprise on the downside. It’s going to be very mixed. Going forward you need a diversified portfolio. Make sure you’re not exposed to too much of any individual economic risk or macro risk, whether oil prices, or China, or any of the things that China affects, and so on. That really is the best course of action. But it can go either way. If you look further out – three to five years – we think equities will be a very attractive place to be. However, it’s going to be a very bumpy ride over the next three to five years.”

Scott Glasser of ClearBridge Investments thinks the markets have retained many positives. “For stocks that are growing their earnings and giving capital back it is a fine environment,” he said. “We’re coming out of a period where we’ve had extremely low volatility, a function of a QE regime that had been in place for five plus years. Easy money and ultra low or zero interest rates promote a low volatility environment. We’re going back to normal and volatility will go back to at least normal. My expectation is to see higher volatility over the course of the next year… I don’t mind volatility,” he said. “From a client perspective it’s not fun to go through, but I think from a portfolio manager’s standpoint it actually gives us better ability to add value.”

In the fixed income arena, Michael Buchanan of Western Asset Management said, “We should continue to expect elevated fixed income volatility… One answer to what’s driving this increase in volatility is regulatory. Post-crisis, many firms – especially dealers and market makers – have been operating with a higher level of regulation, whether Volker Rule, Basel III, you name it. They’re operating defensively, with less inventory…the key point is that, especially given where valuations are now, you can take advantage of this opportunity. As much as it hurt in 2015, it’s likely to contribute to performance in 2016.”

“Global equity markets have really had quite a strong six years plus,” he said. “The things that had been very cheap six years ago have now gotten not cheap, and arguably maybe a little bit towards the upper end of normal. That’s sort of like a rubber band. When that rubber band is pulled tight, it’s much more sensitive to somebody pulling at it and vibrates a lot more… Three things we’re focusing on, that are going to drive a lot of the volatility but also a lot of opportunities because there’s a lot of dispersion, are: we are at fair valuations; investors are worried about growth going forward, but it’s going to be slow growth; and macro risks, since people are more sensitive to them when valuations are towards the higher end. Whether it’s China, oil, the U.S. Federal Reserve raising rates, people just become very concerned.”

“Because of that we’re seeing a lot of dispersion in individual country returns,” Norman said. “We’re also seeing a lot of dispersion in sector returns, so there are very large differences… All markets will see a high correlation but a very different magnitude of return,” he said.

In regards to China, Scotland mentioned “Philosophically, this is an economy where success has been measured by their ability to control the outcome. Moving forward, they really should be measured in terms of letting go.” Norman said. “China will be sort of a lumbering awkward teenager trying to figure it out. But at the end of the day, they will figure it out, because they have to. They’re also really a state-controlled economy and they will make it work – whatever it takes.”

When asked about oil, Buchanan said, “It’s tough to say near-term where oil is going… We strongly believe – and we think it’s a 2016 event – we’re going to print the bottom on oil, and that you will see a migration higher in terms of pricing… It’s just a matter of time before you start to see production come down in a meaningful way. At the same time, we do see demand continuing to grow. That supply-demand dynamic should go a ways towards addressing the imbalance.”