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.
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.
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».
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.
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, 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.
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.»
Zurich headquartered GAM, the industry’s third-biggest provider of liquid alternative UCITS funds, announced the acquisition of Cantab Capital Partners, an industry-leading, multi-strategy systematic manager based in Cambridge, UK. Cantab manages USD 4.0 billion in assets for institutional clients worldwide.
At the same time, GAM launches GAM Systematic, a new investment platform dedicated to systematic products and solutions across liquid alternatives and long-only traditional asset classes including equities, debt and multi asset. Cantab will form the cornerstone of GAM Systematic.
By moving into the growing segment of scalable systematic investing, GAM takes an important step to deliver on its long-term objective to expand and diversify its active asset management business. Leading systematic strategies are attracting substantial allocations from investors globally due to their compelling returns and their rigorous, disciplined investment processes.
According to a press release, «GAM Systematic will complement GAM’s successful active discretionary investment offering. It will also serve as the Group’s innovation hub for the development of new technologies, investment ideas and approaches for systematic strategies and products.»
Alexander S. Friedman, Group Chief Executive Officer of GAM, said: “We have been evaluating how best to enter the systematic space for the past 18 months because we believe it represents an important capability for an active investment firm in the current environment and in the decades to come. GAM Systematic will offer our clients a compelling range of unique products complementary to our strong discretionary product range at a time when the investment industry is challenged to provide cost-efficient, liquid and diversified sources of returns.”
“The market turmoil following the UK referendum last week has only reinforced our determination to pursue, and deliver on, our strategy of diversification and long-term growth. In Cantab we are acquiring industry-leading intellectual capital, a highly distinguished decade-long investment performance track record, and a profitable and scalable business. In combination with GAM’s global distribution reach, I am convinced that this business is well positioned for significant growth.» He concluded.
Foto: Global Panorama
. BNP Paribas crea un holding para agrupar sus filiales en Estados Unidos
BNP Paribas ha anunciado la creación de la compañía holding intermediaria (IHC, por sus siglas en inglés) BNP Paribas USA, Inc., con efecto 1 de julio de 2016. Esta decisión muestra el compromiso de la entidad francesa con el mercado estadounidense, su mayor operativa fuera de Europa y una región clave para sus negocios y planes de desarrollo.
Como gran organización bancaria extranjera, la corporación está obligada por la nueva regulación a crear un holding local que agrupe todas sus filiales del país. De esta manera, BNP Paribas USA acogerá la filial de consumo, BancWest, y las de banca corporativa e institucional (CIB) y gestión de fondos en los Estados Unidos.
Los negocios locales mayorista y de consumo del banco francés han experimentado un significativo crecimiento en los últimos años, y así, en 2015, la filial de CIB y los servicios bancarios al consumo incrementaron sus ingresos en un 15% y un 5%, respectivamente, en relación al año anterior. En la actualidad, el banco cuenta con 16.000 empleados en el país.
Michael Shepherd se convierte en presidente del consejo del nuevo holding, manteniendo la misma posición –que ya ocupa- en BancWest, y Jean-Yves Fillion, responsable del negocio de CIB, será el nuevo CEO.
Early “Brexit” impact was localized, but tail risk persists.
When the U.K. voted to leave the European Union, I happened to be in the thick of it, on a business visit to London. When I turned in on the night of 23 June, the opinion polls showed the race to be neck-and-neck, but financial markets were increasingly confident that a “Remain” vote would be returned. The comment we published the next morning was not the one we’d anticipated.
You had to be there to get a good sense of the shock the “Leave” vote caused. It has set off the U.K.’s biggest political and constitutional upheaval in 70 years. But what do markets make of it all?
Large-Cap Equities Erase Losses Our initial response was to convey our view that fears of a “Lehman moment” were overblown. The vote hadn’t changed the fact that we are in a slow-growth, low-inflation, low-interest rate environment. Sure enough, the FTSE 100 Index powered back through its pre-Brexit level at the end of last week. The S&P 500 Index has also been reversing its losses. Global risk assets were recovering even before Bank of England Governor Mark Carney boosted them by hinting, last Thursday, at “some monetary policy easing” over the summer. It looks like our first instinct was a good one.
We have now experienced a handful of these V-shaped moves in markets over the past two years, over which time both the price and the earnings of the S&P 500 have remained virtually unchanged. Indeed, it’s the “slow, low, low” background that is both stagnating earnings and allowing specific or localized shocks to cause outsized short-term volatility; it makes the margin of error for investors so thin.
And there is no shortage of additional potential shocks coming our way. The U.S. still has to choose between two (at least publicly) anti-trade Presidential candidates in November, and Spain’s latest general election kicked off an 18-month cycle that will include Germany, France, Italy and the Netherlands. But as long as the underlying fundamentals remain unchanged, volatility from these events can create opportunity, which is why we stress the importance of focusing on fundamentals rather than news headlines. Amid the noise of last week, for example, the Atlanta Fed raised its forecast for U.S. Q2 real GDP growth to 2.7%, while the Eurozone printed a positive headline inflation number and its lowest unemployment in five years.
The Impact Has Been Localized This is not to say that the vote hasn’t inflicted damage. At the end of last week, the FTSE 250 Index, which better represents the U.K. economy than the global, often U.S. dollar-earning companies of the FTSE 100, was still some 5% short of pre-Brexit levels. European stocks remained down by a similar amount. This is as challenging for the E.U. as for the U.K. itself: Standard & Poor’s downgraded both entities last week.
And then of course there is the pound sterling. Its 8% one-day drop against the U.S. dollar on 24 June was the biggest since the end of Bretton Woods. A recovery last week was stopped in its tracks by those comments from Mark Carney.
So far, so rational. Global markets in general have recovered, with those most exposed to the longer-term implications of “Brexit” re-priced for weaker performance.
Still “Slow, Low, Low”—But More So Where the vote has had a broader impact, it’s “more of the same”. “Brexit” hasn’t changed the “slow, low, low” dynamic, but may have amplified it. Fed Funds futures now forecast that the U.S. central bank will be on hold at least into next year. The prospect of monetary tightening disappearing over the horizon has driven bond yields lower. The two-year U.K. Gilt yield went negative for the first time last week, the entire Swiss curve is dipping in and out of negative territory and the German Bund yield has sunk to uncharted depths. And now the 10-year U.S. Treasury yield is also flirting with historic lows.
This puts banking-sector profits under more pressure: at the end of last week European banks were still down 15%-20% since the vote, but U.S. banks remained down 4%-5%, too. But does it forecast similar gloom for non-financial corporate earnings? This is something Joe Amato discussed a couple of weeks ago, and we still think bonds are being pushed by technical pressures rather than fear of an outright collapse in growth and earnings—and so far equity markets appear to agree.
Nonetheless, we believe this is a time for caution, not complacency. If the U.K.’s voters have articulated a cry of rage against trade and globalization that is heard and echoed further afield, we could see more than a localized effect on growth prospects. In Spain a week ago the electorate responded to “Brexit” by moving back towards the center, but there are still many more occasions for political risks to spill into global economic fundamentals—and for markets to hit bumps that are much harder to overcome.
Neuberger Berman’s CIO insight column by Erik L. Knutzen
