CAMRADATA, a leading provider of data and analysis for institutional investors, has published its investment research reports for Q4 2017, charting the performance of investments and asset managers across five asset classes – Global Equity, Diversified Growth Funds, Multi Sector Fixed Income, Emerging Markets Equity and Emerging Markets Debt.
Over three years’ worth of data from CAMRADATA Live (its online manager research platform) at 31 December 2017 was analysed to produce the five reports and key investments trends emerged.
Equity markets continued to rally over the quarter with Japan and Asia ex-Japan stocks leading the charge. Stocks also rose in India, as the government announced plans to recapitalise the state banks.
In the USA Q4 saw the passing of long awaited business-friendly tax reforms and the S&P 500 ended the year with a strong fourth quarter gain as markets rallied on the news. Corporate earnings also finished the year strongly, with large cap stocks outperforming small cap.
In Europe, positive economic momentum continued, though equity markets lagged as investors looked to take profits after the year’s gains. In the UK, the Bank of England monetary policy committee raised interest rates by 0.25% – the first increase in a decade.
Sean Thompson, Managing Director, CAMRADATA said, “The year ended positively for the equity markets, especially in Japan, Asia ex-Japan and India. The USA had a strong economic performance and in Europe there were signs that the uncertainties surrounding Brexit may be easing as an agreement was struck in December to move talks to future trade agreements.
“In fixed income markets, the European Central Bank (‘ECB’) announced the reduction of asset purchases, but extended the programme, which provided a significant boost to bond yields.”
“In emerging markets South Africa was the best performing country, with India and South Korea also generating strong returns over the period. In fixed income, appetite for emerging market debt remains strong as China, Indonesia, Nigeria and Pakistan all issued bonds”, adds Mr Thompson.
Assets under management (AuM), in these Global Equity products, totalled just under $762.6bn at the end of Q4 2017, which is $11.5bn more than it was at Q3 2017
The Global Equity universe continued to see investors reducing their allocation in Q4 2017, which saw outflows totalling -$7.8m. This universe has not seen any positive inflows since Q3 2016.
Despite this loss, some managers are still seeing positive inflows into their products. In Q4 2017, Old Mutual Global Investors (UK) Ltd was ranked as number one in the asset manager inflows table with $2,591m added to their AuM, followed by MFG Asset Management in second place with $1,272m. T Rowe Price Group, Capital Group and AXA Investment Management took the next three spots in this table.
In Q4 2017 nearly 100% of managers produced a breakeven or positive return, which followed the trend in returns from the rest of 2017. The lowest return produced was
-6.71% and the best performing product achieved is 14.61%, giving a spread of 21.32% between the top and bottom performer in just three months.
Likewise, looking at the three-year period, just over 99% of managers achieved a breakeven or positive annualised return, with the range of annualised returns starting from -3.69% and the best performing product achieved 25.83%, giving a spread of 29.52% between the top and bottom performer.
Emerging Markets Equity
Assets under management (AuM), in these Emerging Market Equity products, total just over $553.2bn as at the end of Q4 2017. This is an increase of just over $30.8bn assets from Q3 2017.
In Q4 2017 100% of managers achieved positive returns in the Emerging Market Equity universe. The lowest return produced is 1.05% and the best performing product achieved 12.74%, giving a spread of over 11.69% between the top and bottom performer in just one quarter.
Moreover, over a three-year period, again 100% of managers achieved a breakeven or positive return in this asset class. The lowest annualised return achieved was 2.03% and the highest was 19.42%.
According to the CAMRADATA IQ quant screens for the 3 years to 31 December 2017, the top ranked manager, within the All Cap universe with a style bias of Core, is Artisan Partners Limited Partnership, with an IQ Score of 0.91, for their Artisan Emerging Markets Composite. Other stand out Core products are from Hermes, BlackRock and Principal Global Investors.
Diversified Growth Funds
Assets under management have increased by just under £1.6bn since Q3 2017 and now total £188.7bn as at 31st December 2017. This means the DGF universe has seen a continual growth of the total assets for the past 36 months.
Q4 2017 continued to see an increase in positive performance outcomes within the DGF universe, with 95.7% of products achieving a breakeven or positive return. The lowest quarterly return produced is -1 % and the best performing product achieved 6.29%, giving a spread of 7.29%pa between the top and bottom performer.
Looking at the three-year spread of annualised returns; once again all products achieved a breakeven or positive return. The lowest annualised return produced is 0.65% and the best performing product achieved 14.41%, giving a spread of around 13.76%pa between the top and bottom performer.
According to the CAMRADATA IQ quant screens for the 3 years to 31st December 2017, in the universe of products with an objective of cash plus three to five percent, Threadneedle’s Global Multi Asset Income Fund (T9GMAI) achieved the top position again with an IQ score of 0.85%. Other stand out products came from AB (AllianceBernstein), Aberdeen and Legal & General.
Multi Sector Fixed Income
The Assets under Management (‘AuM’) in the MSFI Absolute Return universe sits at just over £80bn as at 31st December 2017. This is an increase by just under £3.9bn since Q3 2017.
In Q4 2017 MSFI Absolute Return products achieved positive inflows of just under £3.8bn across the universe. This continues the positive trend for inflows with this asset class receiving positive inflows for the last 7 quarters.
T Rowe Price had the largest asset inflows totalling £1,892m, in converted sterling, during Q4 2017. They were followed by Western Asset Management, BlackRock, TCW and Payden & Rygel.
In the MSFI market, just fewer than 66% of products achieved a breakeven or positive return in Q4, compared to 91% of products which achieved a breakeven or positive returns in Q3 2017. The range of quarterly returns in Q4 2017 in GBP products is –1% to 1.93%. For EUR it is -0.97% to 1.94% and for USD it is -2.39% to 1.8%.
Emerging Market Debt
The Assets under Management (‘AuM’) in the EMD universe sits at $250.7bn as at 31 December 2017. This means the EMD universe has seen its assets increase by almost $12.3bn since Q3 2017.
The EMD products continued to see net inflows of just over $11bn across the universe within Q4 2017. Ashmore Group had the largest asset inflows totalling $2,298m during the quarter. They were followed by Investec Asset Management, BlackRock, Franklin Templeton Investments and GAM.
Just over 92% of products achieved a breakeven or positive return in the EMD universe this quarter, which was a drop from Q3 2017 when 100% of managers achieve a breakeven or positive return. This is compared to just fewer than 100% of products achieved a breakeven or positive return over a three-year period.
The lowest return reached in Q4 2017 was -1.56% and the best performing product achieved 3.12%, giving a spread of 4.68% between the top and bottom performer.
The range of annualised returns for the 3 years to 31 December 2017 in USD EMD is -1.23% to 12.87%, giving a spread of 14.1% between the top and bottom performer.
Overall, EMD products in USD have been far less volatile in their distribution of returns than the JPM GBI-EM Global DIV Composite ($) – Total Return Index over the last 3 years. For instance, the EMD Median has achieved monthly median returns in the range of -5% to 5%, whilst the benchmark has ranged from -8% to +10%. This has seen no change from the previous quarter.
Sean Thompson concluded, “Our latest quarterly investment reports paint a largely positive picture for the end of 2017, with equity markets performing well outside Europe and stronger than predicted economic activity in the USA, following the approval of the long awaited tax bill.”
“While in Europe stocks lagged other markets in Q4, economic data remains strong and signs of improving economic growth boosted cyclical stocks. In the UK the FTSE All-Share index rose 5.0% over the quarter, with energy stocks generating the biggest gains.
“However, ongoing Brexit negotiations, the political concerns in Germany after the coalition talks collapsed and concerns over the uncertain political future of Catalonia in Spain will continue to impact the markets in 2018.”
“Investors can keep abreast of issues that are likely to affect the markets using CAMRADATA Live. This tool monitors the strategies of asset managers, keeping investors up to date on what’s happening across hundreds of asset classes and helping ensure they make informed investment decisions,” he added.
France announces loan plan to spur post-COVID business investment
By Leigh Thomas
PARIS (Reuters) – The French government on Thursday launched a new programme to relieve small and mid-sized firms’ strained balance sheets with quasi-equity debt partially guaranteed by the state.
After months of tough negotiations between the finance ministry and EU state aid regulators, firms will be able to tap up to 20 billion euros ($24 billion) in loans and subordinate bonds from early next month, Finance Minister Bruno Le Maire said.
“This will be an unprecedented raising of capital for investment in Europe and it should be a model for other European countries,” he said during a presentation of the programme.
French firms went into the COVID-19 crisis last year already with a record level of debt, and they took out an additional 130 billion euros in state-guaranteed loans from their banks as cashflow collapsed during France’s worst post-war recession.
Under the new programme, the debt will be junior to all claims other than a firm’s equity, it will have a longer maturity of eight years and must be used specifically for investment rather than refinancing existing debt.
The new debt is also more flexible, with a four-year grace period on principal repayments, but will also carry higher interest rates of 4-5.5% to cover the greater risk.
The scheme is innovative as banks will extend the loans to firms and then sell them on to institutional investors such as insurers through private investment vehicles, whose potential losses will be covered up to 30% by the state.
HELPING SMALLER FIRMS
While bigger companies have long had access to the high-yield debt markets, smaller firms in Europe have until now had to rely on shorter-term financing largely from banks, unlike in the United States where more flexible options have long existed.
France has in the past struggled to get a market off the ground for small-firm financing and hopes are high that this time the state guarantee will give an extra boost.
European firms’ heavy debt burden has fuelled concerns among economists and policymakers that they will not have the financial strength to carry out the investments needed for a strong recovery from the coronavirus crisis.
EU competition enforcers cleared the scheme on Thursday after lengthy negotiations to get the right risk-reward balance while not giving French firms an unfair advantage over their European rivals.
The onus will fall on banks to ensure through their client relationships that the loans are extended to firms strong enough to make good use of the funds.
“By taking 10% of the loans on our balance sheets without a state guarantee, that implicates us in the quality of these instruments,” said Credit Agricole Chief Executive Philippe Brassac, who also heads the French banking federation.
The state had originally planned to offer a guarantee of only 20% but had to increase that to 30% to attract institutional investors into the new market.
($1 = 0.8294 euros)
(Reporting by Leigh Thomas; additional reporting by Foo Yun Chee in Brussels, Editing by Gareth Jones)
Bond scares linger, investors look to Powell
By Tom Arnold and Hideyuki Sano
LONDON (Reuters) – Worries about lofty U.S. bond yields hit global shares on Thursday as investors waited to see if Federal Reserve Chair Jerome Powell would address concerns about a rapid rise in long-term borrowing costs.
The spectre of higher U.S. bond yields also undermined low-yielding, safe-haven assets, such as the yen, the Swiss franc and gold.
Benchmark 10-year U.S. Treasuries slipped to 1.453%. They earlier touched their highest levels since a one-year high of 1.614% set last week on bets on a strong economic recovery aided by government stimulus and progress in vaccination programmes.
“Equities and yields continue to both drive and thwart one another,” said James Athey, investment director at Aberdeen Standard Investments.
“Fed speech continues to express very little concern and certainly is not suggestive of any imminent action to curb the rise in yields. The Powell speech today is hotly anticipated, but I fear more out of hope than rational expectation.”
The Euro STOXX 600 was down 0.5% and London’s FTSE 0.6% lower.
The MSCI world equity index, which tracks shares in 49 countries, lost 0.5%, its third day running of losses.
The MSCI’s ex-Japan Asian-Pacific shares lost 1.8%, while Japan’s Nikkei fell 2.1% to its lowest since Feb. 5.
E-mini S&P futures slipped 0.2%. Futures for the Nasdaq, the leader of the post-pandemic rally, fell 0.1%, earlier hitting a two-month low.
Tech shares are vulnerable because their lofty valuation has been supported by expectations of a prolonged period of low interest rates.
But the market is focused on Powell, who is due to speak at a Wall Street Journal conference at 12:05 p.m. EST (1705 GMT), in what will be his last outing before the Fed’s policy-making committee convenes March 16-17.
Many Fed officials have downplayed the rise in Treasury yields in recent days, although Fed Governor Lael Brainard on Tuesday acknowledged that concerns over the possibility a rapid rise in yields could dampen economic activity.
In addition, anxiety is building over a pending regulatory change in a rule called the supplementary leverage ratio, or SLR, which could make it more costly for banks to hold bonds.
“The market is likely to be unstable until this regulation issue will be sorted out,” said Masahiko Loo, portfolio manager at AllianceBernstein. “There aren’t people who want to catch a falling knife when market volatility is so high.”
The market will also have to grapple with a huge increase in debt sales after rounds of stimulus to deal with a recession triggered by the pandemic.
The issue is not limited to the United States, with the 10-year UK Gilts yield on Wednesday touching 0.796%, near last week’s 11-month high of 0.836%, after the government unveiled much higher borrowing.
On Thursday, Germany’s 10-year yield was down 2 basis points to -0.31% after rising 5 basis points on Wednesday, still moving in tandem with U.S. Treasuries.
Currency investors continued to snap up dollars as they bet on the U.S. economy outperforming its peers in the developed world in coming months. [FRX/] The dollar rose to a roughly seven-month high of 107.33 yen.
“U.S. dollar/yen has been on a one-way trajectory since the start of 2021,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia. “The brightening outlook for the world economy is a positive for both U.S. dollar/yen and Australian dollar/yen.”
Other safe-haven currencies were weakened, with the Swiss franc dropping to a five-month low against the dollar and a 20-month trough versus the euro.
Other major currencies were little changed, with the euro flat at $1.2054.
Gold fell to a near nine-month low of $1,702.8 per ounce on Wednesday and last stood at $1,714.
Investor focus on a U.S. economic rebound was unshaken by data released overnight that showed the U.S. labour market struggling in February, when private payrolls rose less than expected.
Oil prices rose for a second straight session on Thursday, as the possibility that OPEC+ producers might decide against increasing output at a key meeting later in the day underpinned a drop in U.S. fuel inventories. [O/R]
U.S. crude rose 0.6% to $61.65 per barrel. Brent crude futures added 0.7% to $64.54 a barrel,
(Additional reporting by Koh Gui Qing in New York; editing by Sam Holmes, Richard Pullin, Simon Cameron-Moore, Larry King)
Analysis: Global bond rout puts BOJ’s yield curve control in spotlight
By Leika Kihara
TOKYO (Reuters) – The Bank of Japan’s success in controlling the shape of the bond market’s yield curve could tempt other central banks to consider deploying similar tactics as they grapple with a rise in borrowing costs that could cripple their economies.
The Japanese central bank has kept bond yields largely pinned inside a narrow range around 0%, since it adopted its yield curve control (YCC) policy in 2016.
The merits of the policy are clear. By shifting to targeting yields, the BOJ could buy fewer bonds than under its massive bond-buying programme many analysts saw as unsustainable.
With a pledge to cap the 10-year Japanese government bond (JGB) yield at zero, the BOJ has kept rises in the benchmark yield at just 17 basis points this year, even as the U.S. Treasury yield spiked 70 points.
“YCC is working quite well. It relieved the BOJ from the burden of having to buy bonds at a set pace,” said former BOJ executive Shigenori Shiratsuka, currently professor at Keio University.
“Major central banks will probably follow in the footsteps of the BOJ,” as keeping rates low would be crucial in helping governments manage the huge cost of combating COVID-19, he said.
Indeed, some central banks are warming to YCC as they hunt for ways to reflate growth with dwindling policy ammunition.
Australia’s central bank adopted YCC in 2020 and defended its three-year yield target with huge bond buying.
The European Central Bank does not conduct explicit YCC but is tying its stimulus more heavily to the yield curve.
ECB board member Fabio Panetta said on Tuesday the recent steepening in the yield curve was “unwelcome and must be resisted,” pointing to the merits of a “firm commitment to steering the euro area yield curve.”
“This has to be as far as any ECB official ever went in terms of YCC commitment,” Pictet Wealth Management strategist Frederik Ducrozet said of Panetta’s comments.
NOT FOR EVERYONE
Japan’s nearly five years of experience with YCC has exposed some of its flaws. The BOJ has said it will look into making its tools more “sustainable and effective”, including by addressing the demerits, when it carries out a policy review this month.
Indeed, YCC could be difficult to maintain and may not suit everyone. The Fed has stopped short of introducing a yield cap, despite studying it for years.
BOJ policymakers concede YCC worked in Japan because of the central bank’s huge presence in the bond market and a dearth of expectations that inflation would pick up.
On the rare occasion the 10-year yield deviated from its target, the BOJ stepped up purchases such as through a “special” operation where it offered to buy unlimited amounts at a set price.
This could be a costly operation in a vastly diverse $18 trillion U.S. Treasury market, where controlling yields could be far more challenging than in the $9 trillion JGB market.
“I won’t rule out the chance of the Fed adopting a two-year yield cap, if interest rates continue to rise and destabilise the stock market,” said former BOJ official Nobuyasu Atago, who is now chief economist at Japan’s Ichiyoshi Securities. “But there’s a lot of uncertainty on whether it will work.”
For now, major central banks see no problem with higher inflation. Fed policymakers consider the recent jump in yields as an “appropriate” reaction to hopes for higher growth.
Even if the rise were to be considered too much, the Fed has an interim step short of YCC, such as buying longer-dated bonds.
Being too successful with YCC comes at a cost. Market liquidity dried up as Japan’s 10-year yield mostly hugged a 20-basis-point band around the 0% target since YCC was rolled out.
(Click here for an interactive graphic of Japan’s JGB yields since early 2016: https://tmsnrt.rs/2May3Ye https://tmsnrt.rs/2May3Ye)
The BOJ will thus discuss ways to allow 10-year yields to deviate more from its target at the March review, sources have told Reuters.
Allowing yields to rise more would help make YCC more sustainable, as vaccine rollouts could drive up economic growth, inflation and long-term rates in the coming months, analysts say.
But if the BOJ allows rates to fluctuate more widely, it risks undermining the credibility of YCC.
“If the BOJ is being forced to allow yields to move at a wider range around its target, it shows that markets are deciding the shape of the yield curve and that there are limits to the BOJ’s ability to control it,” said former BOJ deputy governor Hirohide Yamaguchi.
“It’s hard to control long-term interest rates within a tight range for a long period of time.”
(Additional reporting by Balazs Koranyi in Frankfurt and Howard Schneider in Washington; Editing by Jacqueline Wong)
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