Market Environment is the Determining Factor: We Must Seek New Sources of Return Beyond Traditional Assets

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Modest expected returns across a variety of asset classes, sub-par growth and a compressed outlook environment has left investors a challenge of how to maintain income when so many traditional sources of income are drying up.

The fact is that we are undergoing a drought of returns in the traditional «income» products. In order to discuss these, as well as other issues, Pioneer Investments will hold an exclusive due diligence meeting entitled «Embrace New Sources of Return» at the JW Marriott Marquis, Miami, on the 8th of October.

The event will provide attendees with the opportunity to listen to the outlook from several members of the investment team at Pioneer Investments, who will explore beyond the traditional asset classes, conventional asset allocation and risk management, identifying new and attractive solutions for investors who are looking for more flexibility, more sophistication and more active management.

According to the investment team at Pioneer Investments, trends which are changing the market revolve around three very important issues: ageing demographic, public debt and increased regulation.

All of these  factors  could jeopardize investors’ retirement and savings plans.“There is a need to consider a different way of investing that targets new sources of return, downside mitigation, and volatility management,” highlights the asset management firm.

In 1980, there were 9.8 workers at a global level for every retired person – by 2050, it is expected to drop to four workers per pensioner; and this, along with public deficits, means that in 10 to 20 years, public pension systems will encounter serious difficulties to meet the needs of its citizens.

In the past, such a scenario has led investors to run more risk yet the increase in regulation has made it harder for long-term investors to make riskier choices; and that is why the investment team at Pioneer Investments recommends the use of tools which achieve lower correlation with traditional asset classes. According to the company’s experts, this will help to maintain volatility under control and achieve higher levels of wealth accumulation over time.

To access these alternative sources of return, the industry is recording significant inflows into two types of assets: multi-asset strategies, and liquid alternative strategies.

Liquid alternative mutual funds aim to provide diversification, improve risk-adjusted returns, and may act as shock absorbers during times of market stress. They offer additional flexibility to long-only allocations as managers seek to realise opportunities from non-traditional strategies. Such flexibility allows liquid alternative strategies to seek to capture alternative sources of return while remaining relatively uncorrelated with the global equity and bond markets.

Enlarge

Multi-asset investments can provide different potential sources of return and a more diverse means of allocating risk than through a simple global macro strategy.

According to Pioneer, investors are increasingly inclined to invest in terms of risk-return objectives.“We believe that investors are thinking more about the risk they are willing to run and are increasingly willing to sacrifice some upside in return for better downside protection,” company sources added. Moreover, investors are adding the reliability and stability of the portfolio’s income sources to that equation , a factor that adds to the already known risk-return binomial, and the portfolio’s time horizon. 

Amongst other Pioneer Investments Portfolio Managers and Market Specialists who will be attending the “Embrace New Sources of Return” event in Miami this Thursday October 8th Adam MacNulty, will be speaking about Pioneer Funds – Global Multi-Asset Target Income, and about liquid alt strategies as well, such as Pioneer Funds – Absolute Return Multi-Strategy, and Pioneer Funds – Absolute Return Multi-Strategy Growth. Thomas Swaney will also speak on Alternative Solutions – specifically, Pioneer Funds – Long / Short Opportunistic Credit.

“If you can free up some of your assets to work harder for you, if you can accurately measure your risk tolerance and if you have trust in your asset manager to be more active in your investments, then it is our opinion that you really could have the potential to generate greater returns in this environment,” concludes the firm.

For further information on this event or Pioneer Investments’ solutions please contact: US.Offshore@pioneerinvestments.com

Luxembourg Stock Exchange and ALFI Publish a Compendium of Investment Fund Laws and Regulations

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The Luxembourg Stock Exchange in cooperation with the Association of the Luxembourg Fund Industry (ALFI) has announced the publication of a compendium of Luxembourg laws and regulations on investment funds. The compendium is currently published in English, French and German and made up of two separate publications in each language.

The first publication covers undertakings for collective investment in transferable securities (UCITS) established under Luxembourg law and contains the amended Law of 17 December 2010 on undertakings for collective investment as well as the main regulatory texts relating thereto.

The second publication covers alternative investment funds (AIFs) established under Luxembourg law and other investment vehicles which are neither UCITS nor AIFs. It contains the amended Law of 12 July 2013 on alternative investment fund managers (AIFM), the amended Law of 17 December 2010 on undertakings for collective investment, the amended Law of 13 February 2007 on specialized investment funds, the amended Law of 15 June 2004 on the investment company in risk capital as well as the main regulatory texts relating thereto.

Denise Voss, Chairman of ALFI, comments:“The publication of such a reference booklet was long overdue. The number of laws, regulations and circulars impacting investment funds is steadily increasing. Fund professionals now have access to a single source book for each particular type of fund, containing all main legal texts and accompanying circulars. I am convinced that these publications will prove extremely useful to the international investment fund community”.

Robert Scharfe, Chief Executive Officer of the Luxembourg Stock Exchange, adds:“Investment funds are the second largest segment on the Luxembourg Stock Exchange, with more than 6,500 listings. As an international exchange serving a global base, these two publications respond to a clear need from the fund industry and provide an essential reference”.

These two publications of the main legal and regulatory texts were produced by the two Luxembourg law firms, Arendt & Medernach and Elvinger, Hoss & Prussen, who have actively cooperated to select and compile the legal and regulatory texts that are relevant for the different types of investment vehicles concerned. These two law firms have also prepared the English and German translations.

Effective Communication is European Asset Managers’ Greatest Challenge

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Of all challenges facing asset managers -compliance, competition, volatile markets- Cerulli Associates believes that effective communication is the toughest. Managers are keen to restore trust and confidence in an industry tainted by the 2008 financial crisis by targeting a variety of audiences with thought leadership initiatives -sharing knowledge, developing sustained rapport- via multiple channels, finds a new report from the firm entitled European Sales and Markeging Organizations 2015.

Managers said hat they want to offer fresh perspectives and solutions to help the wider audience -some of it new to investments- which they hope will give them an edge as competition and regulatory pressures intensify. 

A total of 94% of European asset managers said that they use thought leadership initiatives to target institutional investors. And almost two-thirds of managers use thought leadership strategies to develop a rapport with consultants, while 55.6% use such initiatives to target private banks and wealth managers. And about a third of managers surveyed are focusing on platforms. A further 22.2% of managers are targeting independent financial advisors. 

But thought leadership is not about the hard sell, say managers. They want their content to be informative and educational and a softer, more discerning part of the marketing machine.

«The written word alone is not enough and the variety of message is much wider, quirkier, and colorful. It is also sophisticated and fast moving: videos and podcasts are used as a matter of course,» says Barbara Wall, European research director at Cerulli. «Training for thought leaders has also evolved as fund managers go to greater lengths to develop talent, either through third-party experts or by developing internal know-how,» she adds.

Financial marketers spend between 10% and 20% of their total budget on their content marketing in the United Kingdom alone. And Cerulli’s interviewees have also allocated logistics and time to establishing internal systems while also involving third-party expertise, such as professional copywriters and respected academics. And in return for this commitment, fund managers want effective two-way communication.

«Feedback -any reaction, in fact- is meaningful because it shows that the message that caused it was incisive and engaging enough to warrant a response,»says Angelos Gousios, senior analyst at Cerulli. «This shows that the industry is growing more open and democratic, moving away from the one-sided information mode that has characterized it for so long,» he adds.

Meanwhile, managers are developing ways to measure the success of thought leadership initiatives, including external speaking requests and press coverage. A total of 80% of managers surveyed by Cerulli measure the impact of thought leadership campaigns by counting the hits on their digital and social media sites.

Blockbuster Year for Mixed Asset Products in Europe

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Mixed asset mutual funds drove the bulk of long-term net inflows from European investors through July 31, 2015, according to new data released in two reports from Broadridge Financial Solutions, Inc.

The European Fund Market Mid-Year Review and July 2015 FundFlash Monthly Snapshot reports both detail continued momentum in mixed asset products – those that invest in equities, bonds, cash and other funds –  and strengthening equity investments following June’s market correction. The reports include commentary and insight based upon a new partnership between Broadridge and MackayWilliams LLP, a leading mutual fund market analysis and research company firm for the domestic pan-European and cross-border fund markets.

Additional findings from Broadridge’s reports include:

  • Investors pumped EUR 55 billion into European investment funds including EUR 31 billion into long term funds in July
  • Mixed asset products accounted for 55% (EUR 124 billion) of total inflows in the first half and 23% (EUR 7 billion) in July
  • The top three markets by estimate net sales in July were Italy, Germany, and the United Kingdom
  • The top fund firms by sales in July were BlackRock, DeAWM, GAM Holding, Intesa and Vanguard

“It’s been a challenging year for asset managers in Europe with some periods of intense market volatility and increasing competition coming from the banks,” said Diana Mackay, chief executive officer of MackayWilliams, “But low interest rates continue to drive flows into retail funds and mixed asset funds, in particular, are having a blockbuster year.”

“Our new partnership with MackayWilliams follows our recent acquisition of the Fiduciary Services and Competitive Intelligence unit from Thomson Reuters’ Lipper division,” said Frank Polefrone, senior vice president of Broadridge’s data and analytics business. “Together, these investments demonstrate our ongoing commitment to providing our clients with innovative data, analytics and insights to enhance their sales efforts.”

Los tres pilares de la deuda high yield

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Why High Yield? Significant Opportunities for Credit Selection
Foto: Lee. Los tres pilares de la deuda high yield

Por el elevado riesgo idiosincrático de los bonos high yield, el buen análisis de la deuda corporativa se recompensa, lo cual lo convierte en un entorno propicio para los gestores activos. Estas son algunas de las características de la deuda high yield:

Mayor gama de oportunidades: El crecimiento del mercado plantea más opciones al establecer las carteras. Por ejemplo, en 2005 había 216 emisiones en el mercado del alto rendimiento europeo; en 2015 la cifra alcanza las 755.

Emisores poco estudiados: Los bonos cotizan en mercados no organizados (OTC) más que en las bolsas tradicionales. La falta de transferencia en el mercado OTC supone que los fondos cotizados (ETF) y los inversores más grandes se ven obligados a centrar el grueso de sus negociaciones en los grandes emisores de los índices. De esta forma se brindan excelentes oportunidades para que los inversores activos, como Henderson, identifiquen valor entre los emisores más pequeños y poco estudiados.

Ampliar

Divergencia de calificaciones. Dentro del ciclo crediticio, las agencias de calificación tienden a evaluar, en un principio, a los grandes emisores en el mercado de alto rendimiento y les lleva un tiempo pasar a los más pequeños, que suelen presentar una calificación más baja, por lo que tardan más en apreciar las mejoras entre las empresas con calificación CCC. Desde siempre Henderson ha mantenido un porcentaje de emisores CCC superior al índice de referencia en sus estrategias de alto rendimiento, pues considera que muchos de estos créditos no están bien calificados. También creemos que, desde la crisis financiera, las agencias de calificación han optado por desviar las críticas de que antes de 2008 eran demasiado generosas, aplicando un sesgo más prudente a las calificaciones en los últimos años. Una vez más, así se propicia el buen análisis de la deuda corporativa para identificar oportunidades mal calificadas.

Henderson ofrece tres estrategias dentro del sector del alto rendimiento: global, EE.UU. y divisa europea, además de ofrecer acceso al mercado del alto rendimiento a través de la exposición al margen del índice de referencia en estrategias de grado de inversión. Estas son las ventajas que ofrece Henderson:

  • Un enfoque realmente global: A diferencia de muchos fondos de alto rendimiento globales que se gestionan desde un único lugar, la estrategia global de Henderson de alto rendimiento se gestiona conjuntamente desde Londres, con Chris Bullock y Tom Ross, y en Filadelfia, con Kevin Loome, además de contar con la colaboración de analistas de deuda corporativa a ambos lados del Atlántico. Conforme el mercado del alto rendimiento se expande a escala global, Henderson considera que es crucial que los analistas estén más próximos a las empresas que estudian.
  • Carteras con grandes convicciones: Los fondos de alto rendimiento de Henderson se gestionan como las “mejores ideas” de fondos. En vez de intentar reproducir los índices sobre los que se referencian las estrategias, los gestores de carteras, junto con los analistas de deuda corporativa, eligen los mejores 75-150 emisores para incluir en una cartera. Se trata de un enfoque de grandes convicciones que recoge la solidez de nuestra experiencia analítica.
  • Flexibles y activos: Creemos que la selección y el análisis de deuda corporativa son clave para estructurar las carteras pero no se pueden pasar por alto los factores descendentes. Por lo tanto, las estrategias de alto rendimiento de Henderson asignan activos de forma ágil y según distintas calificaciones, zonas geográficas y sectores. En Henderson también somos expertos en derivados, que se pueden usar con fines de cobertura o para tomar posiciones short.
  • Equipo de Henderson Global Credit: reúne a más de 30 profesionales de la inversión con una media de 13 años de experiencia. Gracias a sus excelentes resultados, ha obtenido distintos reconocimientos y galardones.

Columna de Tom Ross, cogestor de los fondos de absolute return credit de Henderson.

Institutional Sales Teams Adding to Headcount on Sales and Servicing Teams

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New research from global analytics firm Cerulli Associates finds that institutional sales teams are adding personnel to their sales and service teams in the United States.

«We surveyed institutional sales managers about the types of changes they are making to their sales and service teams, and found, regardless of firm size, the majority of asset managers are focused on adding headcount,» states Alexi Maravel, associate director at Cerulli. «They plan to add headcount to nearly all groups, except relationship management, where headcount will remain the same.»

«Some institutional asset managers deliberately increase its client service and portfolio specialist headcount, because after the business is won, these relationships are immediately taken over by client service personnel,» Maravel explains.

«Institutional sales and service teams are typically structured to support portfolio management so that the firm’s investment personnel spend minimal time traveling and can focus on managing assets.»

«Managers that we spoke with also expressed interest in hiring junior associates for their sales, consultant relations, and client service teams,» Maravel continues. «Individuals in these roles are tasked with the more operational aspects of sales and service departments, such as intelligence and data-gathering, finding opportunities in territories, and assisting with creating slide decks that will be presented to clients and prospects.»

Morgan Stanley Investment Management reabre a nuevas suscripciones el fondo Global Brands

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Los family offices se vuelven globales
Foto: toastyken, Flickr, Creative Commons. Los family offices se vuelven globales

Morgan Stanley Investment Management ha anunciado que uno de sus fondos insignia, MS INVF Global Brands ha sido abierto a nuevas suscripciones una vez la la capacidad ha permitido volver a aceptar nuevos flujos de capital. El fondo llevaba dos años cerrado y está abierto de nuevo a partir del 1 de octubre.

La tesis de inversión tras el Global Brands sigue siendo la misma desde su lanzamiento, y ofrece una cartera concentrada de compañías de alta calidad con el objetivo de multiplicar la riqueza del inversor a largo plazo, a la vez que protegiendo el capital en los mercados bajistas.

“Hemos tomado una perspectiva conservadora en la gestión de la capacidad del fondo y continuaremos haciéndolo para proteger los retornos de los inversores”, decía el director de gestión y responsable del equipo de bolsa internacional de la gestora, William Lock, en un comunicado enviado por la entidad. El equipo gestiona los fondos de MSIM Global Brands y Global Quality.

Bruno Paulson, director de gestión y gestor senior, explica que “el fondo es agnóstico con respecto al benchmark” y que su objetivo es  hacer crecer el capital de los clientes, y no perderlo. “La robusted económica de las compañías de calidad ayuda a ofrecer retornos cuando son más necesarios, durante condiciones de mercado difíciles”, afirma.

What´s Really Restraining Bond Yields?

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In the latest edition of Global Horizons, “A Brave New World for Fond Markets” Jeremy Lawson and Sebastian Mackay -Standard Life Investments- look at whether bond markets are pricing in a great stagnation and how yields are likely to evolve through the rest of the business cycle.

 “These are highly unusual times in the world of fixed income. The factors weighing on bond yields are numerous, complex and in some cases, unprecedented.” Said Jeremy Lawson, Chief Economist, Standard Life Investments

 “Aftershocks of the financial crisis are still being felt, seven years after Lehman Brothers collapsed. Our analysis shows that the scarring from the crisis and prolonged private sector deleveraging has raised desired savings, weighing on domestic demand and inflation. Weakness in domestic demand in advanced economies has been amplified by policy mistakes and this has depressed labor markets, discouraged firms from investing, and held down inflation. Productivity growth, which had been in decline even before the crisis, has weakened further, underpinned by the drought in private and public capital spending.» 

 “Both by accident and design, central banks and regulators have been pursuing policies that lower real interest rates and term premia, enhancing the demand for all income yielding assets. Central banks have been forced to keep short term interest rates at or even below the zero lower bound, and to put in place unconventional policy measures aimed at suppressing real interest rates along the entire yield curve.”

 Jeremy Lawson, adds “Looking ahead and taking account of these special factors – why should the market change its mind and begin to anticipate higher long term interest rates? We examine the potential triggers for long-term bond yields to shift in the US. If recoveries in the advanced economies become more self-sustaining and if emerging market economic and financial conditions do not deteriorate further, inflation expectations could pick up. The Fed should be willing to accommodate some increase in real interest rates. Investors might also demand more compensation for holding long-term interest rate risk.

 “We conclude that it is unlikely that the long term interest rates will return to their pre-crisis norms. Our research suggests that the benchmark US 10 year government bond yield will peak at 3 to 4% during the current business cycle. This would be above today’s levels but well below the peak of previous business cycles.»

Global Fund Industry Assets Under Management Dropped by a 4% in August

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Global assets under management in the collective investment funds industry dropped by US$ 1.44 trillion or minus 4% in August and stood at US$ 34.7 trillion at the end of the month. Estimated net outflows accounted for US$ 20.8 billion while the remainder of the drop was due to market losses. Thus a provisional all time high in assets under management was reached at the end of April 2015 with US$ 36.4 trillion, according to Lipper Thompson figures.

All asset types posted negative average returns with Equity funds performing worst at minus 6.9% on average in US$ terms, while Bond funds where hit most net redemptions wise with minus US$ 38 billion. Some of this money, however, found its way into Money Market funds, which were able to attract US$ 28.5 billion net new money. However, the trend into money market funds slowed from the previous month as the market waited, “on hold”.

Taking a look at Lipper Global Equity Classifications, Equity Global ex US (+13.7), Equity Japan (+5.3) and Equity Europe funds with plus US$ 3.4 billion accounted for the highest estimated net inflows, while Equity US funds (+US$ 1.7 billion) were able to halt the outflows trend as observed in the previous two months. On the lagging side we find Equity Global (-10.5), Equity Emerging Markets Global (-9.1) and Equity Asia Pacific ex Japan funds with a minus US$ 8.2 billion in estimated net outflows.

On the Bond Classifications side, Bond Global (-6.7), Bond USD High Yield (-6.1) and Bond Emerging Markets Global HC with minus US$ 5 billion led the outflows table while only Bond USD Mortgages attracted significant net new money with plus US$ 1.4 billion. Money Market funds USD led the overall inflows table with plus US$ 30.1 billion followed by Money Market EUR funds with plus US$ 16.4 billion net new money.

“Rising volatility in equity markets and an uncertain outlook for fixed income, due to mixed signals from the FED, combined with a significantly expansive monetary policy from the ECB have left their traces in the global investment funds market in August, with investors remaining put or moving to the side lines,” commented Otto Christian Kober, Lipper’s Global Head of Methodology and author of the report.

“Bond fund outflows seem to anticipate rising interest rates as equity markets retreat from their all time highs”, added Kober.

Going Local Down in Acapulco

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Few global asset classes have experienced the same level of risk re-pricing as emerging market (EM) local currency bonds over the last three years. The yield on the asset class relative to a basket of developed market government bonds now stands at a six-year high, representing a pickup of 5.4%. Meanwhile, EM currencies have weakened to such an extent that many of them now appear very cheap on a range of valuation measures. However, we believe –says Standard Life Investment in their document- investors should refrain from viewing the asset class as a potential beta allocation opportunity. Rather, they should seek to understand the varied dynamics of the small number of large countries in the opportunity set.

When assessing investment opportunities within emerging markets, the company focusses on understanding the direction of travel of fundamentals for each country. This allows them to understand which are improving and which are deteriorating. The company´s relative value models for local market instruments determine whether these fundamental changes, or expected changes, are reflected in asset prices.

Its investment case in Turkey, for example, is less favourable. The country is heading toward fresh parliamentary elections, as the process of coalition building following the June elections appears to be failing. Meanwhile, they believe the country’s financing mix is extremely risky. “There are internal policy challenges that need to be resolved before we could become more bullish on local market assets. In Brazil, even though we believe that the government’s revisions to primary surplus targets for 2015 may present risks to debt sustainability, the market understands these risks better than those present in Turkey. Therefore, we would still consider holding Brazilian debt.”

Meanwhile –says the company-, the renewed slump in commodity prices continues to present challenges to those countries which rely on these products as a source of exports, government revenues or GDP growth. Any rebound in commodity prices – especially oil – would result in a more constructive view of fundamentals in Malaysia and Nigeria. Among oil exporters, Standard Life Investments believes Colombia should perform well in the months to come. “Its currency has undergone a drastic adjustment and we believe fiscal and monetary tightening is likely in the short to medium term.”

Emerging markets have been subjected to extreme stresses in recent years: the ‘taper tantrum’, China weakness and the precipitous decline in commodity prices having created something of a perfect storm. In such a scenario, investors can be guilty of exhibiting insufficient discretion, choosing instead to view all EM countries as equal. For those willing to take a more nuanced approach, however, this creates opportunities. Sound fundamentals and coherent, responsible policy making are still on display among many EMs, and their local currency bonds offer an attractive level of income in today’s low-yield world.