Brian Bollen's Blog

Global Bonds: 2013 Schroders

2013 A year in global bonds by Bob Jolly, Head of Global Macro, Schroders

"With yields on developed market bonds still at depressed levels and credit spreads considerably lower than last year, it’s clear that a passive approach towards global bond market beta is unlikely to make you rich this year. There cannot be a repeat in 2013 of the bond market returns of 2012. But it will be another year where markets will swing between euphoria – when either growth or politicians offer positive surprises – and misery – when either the political system takes its collective foot off the reform agenda or we see a temporary ebbing in economic momentum."

Trends to watch in 2013:

Etc Marks Dunedin Exit Hat-Trick

Dunedin, a UK mid-market private equity house, reports that it has delivered its third successful exit in six months with an exit from its market-leading conference and training venues business, etc  venues.  The management team has carried out a secondary buyout of the business which sees Dunedin realise a money multiple of more than 3x on its investment. The exit follows Dunedin’s successful sales of WFEL and Capula to international trade buyers earlier in the year.

Uncertainty Could Hurt UK Water Investment: Impax

The stability and predictability of water company regulation in the UK by the Water Services Regulation Authority (Ofwat), which is mandated to ensure value for the end consumer, has been a major contributor to attracting private investment into the sector, says specialist investment management house Impax as a prelude to a warning that regulatory uncertainty could harm investment in the sector. Since privatisation in 1989, this stable regulatory framework has enabled sector companies to attract over £108bn of investment ¹.  

Investors in the UK regulated water industry look for visibility and predictability of earnings growth, based on remuneration against each Company’s Regulatory Asset Value (RAV).  The RAV comprises the capital assets of the company which evolve in each review period by factors prescribed by Ofwat for capital expenditure, depreciation and outperformance of historic targets, all of which are inflated by UK retail price inflation. 

The trouble with Scotland is that it's full of Scots…

Mint – Bill Blain’s St Andrew’s Day Morning Porridge  November 30 2012

Late porridge this morning, so I’ll keep it short. Republicans laughing at the Democrats’ opening fiscal cliff gambit, and vice versa. The process has further to run and it’s likely to slow the holiday season markets. Name calling and little of substance to the debate yet.

Bank stocks interesting this morning with UK’s bad boys all lower on Merv’s comments on them needing €50bn in extra capital. But also intriguing that Bankia (just got a massive EU capital bailout) and BPE (just completed rights issue), are also among the worst opening performers.

But on the other hand.. we’ve got Europe’s great and good glad-handing on European Integration. Lagarde saying banking union is a critical need, while Draghi says we’ll get Euro growth by H2 2013. (Can I have a quarter of whatever he has been smoking please?) Even as Draghi prepares us for growth, he’s also saying “Don’t worry, we stand prepared to do anything needed to maintain the Euro”.

Sierra White Paper: Global Monetary Policy Issues



Sierra Investment Management's Frank Barbera recently published a white paper focusing on global monetary policy. He notes that in the past, global central bank policies of money printing usually led to inflation.

However, according to Mr. Barbera:

"…this cycle seems to have very different characteristics that could delay normal inflationary outcomes for an extended period of time. When we view the effectiveness of quantitative easing here in the United States, it is very clear that with each successive round of additional QE by the Fed, the overall impact on capital markets seems to yield steadily diminishing returns."

The piece goes on to ask:

• Is monetary policy is becoming more impotent by the week?
• Is market reliance on the Bernanke and Draghi “put” forging the false hope for this cycle?
• Is this  leading investors to ignore sharp deterioration in underlying fundamentals?


To read the piece in its entirety http://www.geminifund.com/ClientSites/SierraMutualFunds/%28S%28t4a4or12bdzb0gbqulnsqgol%29%29/prior-trends-menu.aspx

Access the piece under "Monetary Policies."

Jungfraujoch Comes To BBC2

I've just learnt that Michael Portillo's great continental rail journey programme will this evening focus on Switzerland and include a trip up to the Jungfraujoch, Europe's highest railway station. 

Well worth watching, I should think. BBC2 this evening (November 29) at 21.00h UK time.

 

The 13th Labour Of Hercules: GMO

James Montier, a member of GMO's asset allocation team, writes to institutional clients in a new white paper on the prospects for preserving and growing capital in a world of slowing growth.



Defining financial repression loosely "as a policy that results in consistent negative real interest rates," Mr. Montier poses the question "…how does a value investor respond to this? It certainly appears as if the assets one would normally associate with capital preservation are expensive.

So can and/or should you substitute other assets such as equities into the role of safe-haven value store?"



The paper is available from GMO's site at:

"The 13th Labour of Hercules: Capital Preservation in the Age of Financial Repression!"
http://www.gmo.com

Culture The Key To Meeting Regulatory Challenge

A new research study released today by Kinetic Partners, the global professional services firm, reveals that 83% of financial services CEOs believe a company’s culture to be the most important factor to get right in order to solve their firms regulatory challenges.  

This figure jumped even higher for Chief Compliance Officers - 91% of whom see culture as the key challenge. Kinetic Partners’ Global Regulatory Outlook research study reflects the views of senior executives within the banking, asset management and hedge fund industries, and includes contributions from Howard Davies and Howard Flight.

Less Impact, Better Potential: SEB On Hedge Funds

SEB, the Northern European financial group, comments on Hedge Funds in the attached article “Less impact from politics = better potential”.  

-   SEB will continue to focus on managers who are free to quickly rotate their portfolios and have less structural exposure and focus on markets. We are avoiding less liquid strategies although we realise there is good potential in Distressed and Structured Credit.

-   Equity Long/Short: We predict that the market will continue to be driven by political developments rather than company fundamentals. The best potential in the Equity Long/Short category is thus fleet-footed strategies like Trading and Variable Net Exposure, where exposures can quickly be adapted to swings in market sentiment.

-   Relative Value: Management styles focused on short-term yields will probably continue to have a difficult time ahead, so we prefer strategies focused on the medium to long end of the yield curve.

-   Event Driven: Companies are finding it increasingly hard to get bank loans, leading them to focus on restructuring their balance sheets. Event Driven managers with exceptionally good expertise in credits and equities thus have the best potential.

  Download Hedge funds copy

None of us have heard of Herman Van Rompuy…

Mint – Blain’s Morning Porridge  November 29 2012

None of us has heard of Herman Van Rompuy… are you sure you haven’t made him up?

(I apologise for lack of porridge yesterday, but must thank my chum Jock Wishart, The Awesome Lunchmaster (aka Lawson Muncaster, publisher of City AM) and Boisdale’s Ranald Mcdonald for THE PARTY OF THE YEAR on Tuesday night. The “Great Scots” dinner is a real occasion, but yesterday was a complete write off. Lesson? Stick to Single Malts. Never touch blends….)

Markets remain highly nervous on the US Fiscal Cliff threat. Yes/No? A writer in FT used a great quote from Winston Churchill to sum it up: “America will do the right thing, but only after exhausting every other option.” If we wander off the edge, all bets off on US recovery next year. But it won’t.. so let’s go with the Bloomberg survey of 862 global investors saying the global economy is in good shape, with the US seen as top pick next year followed by China. Guess what…. Europe is seen offering worst returns next year.

UK 2013: Schroders

Richard Buxton, Head of UK Equities at Schroders, looks ahead into 2013:

“We have already passed the low point for UK equities – below 3500 on FTSE100 twice in the last 12 years - and are in the foothills of a new bull market.”

“Over a decade ago I warned that equities were likely to go sideways for 10-15 years. Not because I anticipated all the headwinds to growth we now face, but because from a starting price-to-earnings (P/E) ratio above 20x, the stockmarket was always going to struggle. Moreover, the pattern of long-term returns from UK equities is made up of extended periods of strong gains and multi-year phases of going nowhere.

“By 1999 we had enjoyed a near 20-year period of double-digit per annum returns. No wonder equity funds were best-selling and pension funds allocated over 80% to equities. There was no talk then of ‘the death of equity’ or ‘the lost decade’. Fast forward to 2012 and the prevailing mood is gloomy. Outflows from equity funds are unrelenting and money continues to pour into bonds. For 12 years, equity investment has delivered lots of volatility and precious little return, which has led a scarred generation of investors to search for ‘safe havens’...”

Impax Asset Management wins Best Fund Management Award

Congratulations to Impax Asset Management for its Best Fund Management Group gong at the Investment Week Climate Change Awards 2012, at the awards ceremony in London on November 27.

These awards, now in their fourth year, are judged by an independent panel of industry experts and are designed to identify those funds and asset management groups which are committed to climate change investment themes through their company’s actions and their investment in fund management talent dedicated to the sector.  This asset class is growing in terms of industry wide assets under management and has gone from being considered by many investors as a niche market five years ago to becoming a mainstream asset class.

Asia 2013: Schroders

2013: A year in Asia – Robin Parbrook, Head of Asia ex. Japan Equities

Asia appears to be relatively resilient in the face of global uncertainty – there are still numerous good investment ideas in the region, particularly in Southeast Asia, where the economies are still developing.

These Southeast Asian markets provide opportunities on the back of strong domestic demand and cyclical pick-up in investment.

Although China’s ‘soft landing’ appears to have come to fruition, a move toward sustainable growth will still prove challenging.

Japan 2013: Schroders

 Japan 2013: A year in Japan – Shogo Maeda, Head of Japanese Equities, Schroders

While the investment case for Japan is sometimes written off by investors as just being the ‘same old story’, we think these investors are missing an increasingly positive angle.

Market valuations remain extremely cheap and Japanese companies are in much better shape than global investors expect.

Global economic momentum is slow, which is a fundamental worry for investors in the Japanese market – externally the biggest influential factor remains US economic growth. Once Congress has reached an agreement and we know the impact of the ‘fiscal cliff’, major uncertainty will be removed from the US economy which should have trickle-down positive effects for Japan.

As Japan is China’s largest foreign supplier of goods, it has been adversely affected by the gradual decline in Chinese growth in 2012. However, 2013 looks brighter as signs of a cyclical recovery are coming through.

US 2013: Schroders

2013: A year in the US – Joanna Shatney, Head of US Large Cap Equities

US companies are well positioned to continue to deliver moderate earnings growth against a backdrop of modest economic growth in the US and globally.

Liquidity provides a strong environment for potential earnings growth and valuations strongly support market upside.

The first quarter of 2013 could be difficult if Hurricane Sandy, fiscal cliff concerns and election-hangover cloud GDP data for Q4 2012, but the US is well-equipped to deal with these challenges and we expect a positive return over the course of 2013.

 

BNP Paribas Securities Services Launches Administration for Alternative Assets in Australia

BNP Paribas Securities Services (BNP Paribas) reports that it has launched an administration service for alternative assets to help Australian institutional investors manage their private equity, infrastructure and real estate investments more efficiently.

The bank says that it has adapted its global fund administration capabilities to the requirements of Australian superannuation funds and insurers in response to increasing demand for greater transparency around alternatives from regulators and investors in Australia.

Greece still needs a long-term growth plan

By Darren Williams, Senior European Economist, AllianceBernstein

Even by the standards of the sovereign-debt crisis, the provisional agreement reached yesterday by euro-area finance ministers and the International Monetary Fund (IMF) on a second Greek rescue package looks like a messy fudge. It is clear that Greece’s euro-area partners are determined to avoid a near-term euro-area exit, but a long-term solution will require a much more effective growth strategy.

The good news is that the latest deal should allow for the release of €34.4bn of funding by the end of the year (€ 10.6bn in state financing and €23.8bn for bank recapitalisation), with a further €9.3bn in the first quarter of 2013, subject to Greece meeting various performance criteria. This should help reduce the risk of a near-term Greek default or euro-area exit.

Please sir, can I have some more…

Mint – Bill Blain’s Morning Porridge  November 27 2012

Greece gets a new fudged bailout. Joy unconfined and bunds down. The consequences if Europe hadn’t been able to agree this latest whoosh deal were just too horrendous to contemplate – Spain, Italy and the rest would have been trashed and the long Draghi summer rally would probably have been unwound. Last night’s deal stays just this side of legal by not granting any new money to Greece, or causing any write-offs for public institutional holders of Greek debt. Fact private investors have already been slayed seems somewhat inconsequential.

But the process highlights the ongoing dangers in Europe. This deal only just got done by stretching the rules to breaking point. EU, National Politicians and the IMF all pressing different agendas… it’s a wonder a solution was found. If the stresses and tensions of calming Europe’s least consequential economy (well, OK, Cyprus is even less important) nearly broke it.. then how is Europe going to cope when one of the important countries starts to fail its bailout tests and asks for more..?

It’s worse than that...he’s dead Jim

Mint – Blain’s Morning Porridge  November 26 2012

I suppose this is what you might call proper rain. Not a fine mist of gently invigorating dampish sky, but great big lumpy clods of solid soggy miserableness digging divots into my skull. Trains cancelled, delayed, wetter and smellier than a wet dog's wet bits, and loads of grumpy commuters. Fantastic.. welcome to another exciting week in the Euromarkets.

Let’s get the downright bleeding obvious stuff out way first. Nothing yet on solving the US debt cliff. Catalunya on the path to potential independence – although a long way to go.  Greek bailout discussions reach chapter 783, but we’ll likely to see some form of buyback/new money solution today. And now the Argentina Holdout US court ruling conumdrum.

Russell In Fixed Income Boost

Russell Investments says it has appointed two people to its globally-located fixed income team.

Adam Smears joins from Old Mutual Global Investors as head of fixed income research and Kevin Dockrell joins from Towers Watson as fixed income research analyst. Both will be based in London and Smears will head up a nine-strong team, including Dockrell, based across London, New York, Toronto, Seattle and Sydney.