Connect with us

Investing

Fitch Ratings’ Investor Survey Highlights Escalating Sovereign Concerns

Published

on

monica global banking finance

By Monica Klingberg Insoll, Managing Director, Credit Market Research, Fitch Ratings

Fitch Ratings’ quarterly European Senior Fixed-Income Investor Survey, which represents the views of fund managers with combined assets of over USD5.5 trillion, gives an authoritative snapshot of the sector’s views.  The latest survey, for Q2 2012, shows overall sentiment turning more negative as the European Central Bank (ECB)-induced relief of the first quarter is wearing thin.

monica global banking finance

Sovereign Concerns Escalate
Survey respondents expressed a more negative view on fundamental credit conditions for the sovereign sector, with 71% believing these will deteriorate, up from 58% in the previous quarter’s survey.

fitch1Investors were also concerned about sovereign refinancing prospects, with 79% voting it the most challenged sector – an all-time-high. This dissatisfaction resulted in 49% of investors electing developed sovereigns as their least favoured investment choice. This is up from 31% in the last quarter – and is a new high, beating the 46% recorded in Q210 during the midst of the Greek crisis.
The majority (58%) of investors think the eurozone fiscal compact is positive but marginal in solving the crisis, while only 25% regard it as an important policy innovation bringing crisis resolution closer; 17% view it as an irrelevance.

fitch2Banks Fall Out of Favour as Relief Begins to Fade
According to the survey results, the ECB-induced sense of relief still lingers, with only 13% of investors saying they believe the bank segment faces the highest refinancing challenge, down from 22% last quarter and from the high of 49% in Q411 when the sector was ranked higher than sovereigns for the first time.

fitch3

However, the shot-in-the-arm effect is fading, with only 12% of survey participants ranking banks as their top investment choice, down from 27% in the prior quarter and behind high yield and investment grade corporates and emerging market sovereigns. Respondents also turned less bullish on issuance volumes and more bearish on spread developments for the banking sector over the next 12 months.
The survey indicates that European investors appreciate the ECB’s assistance but are concerned that the banking sector will require ongoing support. Respondents’ views on long-term refinancing operations (LTRO) were mixed, but 38% say the actions will need to be repeated as early as next year.

High Yield Optimism
High yield made a comeback in popularity, overtaking investment grade corporates to become the survey participants’ top investment choice. Nearly one quarter of respondents (24%) voted high yield their favoured sector – the highest proportion since the peak 36% in Q111 and up from 14% in the prior survey.
This resurgence was matched by bullish views on issuance and spreads. 42% of investors expect high yield issuance to increase, up from 30% last quarter. Approximately one third of respondents expect spreads to tighten. This is in line with the last survey and slightly higher than the proportion expecting widening.

fitch4

Investors’ outlook for high yield credit conditions remains broadly negative according to the survey results. However, fewer respondents expect conditions to deteriorate: 37%, down from 46% in the Q112 survey.

Strong issuance during the first quarter was boosted by solid fund inflows to the sector although Fitch notes that European investor appetite for high yield tends to be fickle, leading to a cycle of stop-start issuance. A worsening of Eurozone economic and financial system risks could easily bring the European high yield market to another temporary halt. Nevertheless, Fitch anticipates higher quality high yield issuers will be able to continue to price bonds.
The Q212 survey was conducted between 27 March and 4 May 2012. Established in 2007, Fitch Rating’s quarterly European Senior Fixed Income Investor Survey is a leading indicator of investor sentiment that provides valuable insight into the opinions of professional asset managers regarding the state of the European credit markets. The full survey results are available on www.fitchratings.com

Investing

Can Thematic Investing provide investors with growth opportunities in uncertain times?

Published

on

The impact of COVID-19 on the investment market

New whitepaper from CAMRADATA explores

CAMRADATA’s latest whitepaper on Thematic Investing, considers the role this type of investing can play in asset management and explores trends that can permeate society and traverse sectors. The whitepaper includes insights from guests who attended a virtual roundtable on Thematic Investing hosted by CAMRADATA in November, including representatives from CPR Asset Management, Sarasin & Partners, Impact Investing Institute, PwC, Quilter Cheviot, Scottish Widows and Stonehage Fleming.

Sean Thompson, Managing Director, CAMRADATA said, “In these seminal times, thematic investing has the potential to shape how the future unfolds. Yet running a successful thematic fund is no easy feat – it is a bit like navigating unchartered waters trying to identify the trends and the long-term opportunities.

“Trends such as AI and biotechnology are still in their relative early days, for example, and global economies are undergoing dramatic changes. But mapping out certain trends, identifying potential sustainable returns through a unifying thread that spans multiple sectors, could help future-proof investments. “Our roundtable guests considered current key themes, which themes worked well, and which have not and how thematic investors could identify trends with the potential to offer future growth.”

The guests named themes they currently like which included artificial intelligence, China, climate change, clean energy, automation, evolving consumption, ageing, digitalisation, water, waste management, biodiversity, and board diversity.

After discussing themes that have worked or not, the guests looked at total allocation to themed funds, and whether clients might be blinded by themes to the overall risk exposure in their portfolios.

Key takeaway points were:

  • Themes have a habit of coming and going. One guest recognised that automation and robotics, for example, were cyclical, which means that investors will have to think carefully about entry-points.
  • It was agreed that the commodities ‘super cycle’ of the 2000s came about with the economic development of China. Many commodities-based products found their way into mainstream investing, but this is unlikely to happen again.
  • One guest was surprised by some of the themes that interested their customers; with their research showing that Board Diversity was almost the lowest-ranking concern among the ESG choices they listed.
  • There was correlation between environmental impact and social benefits to investing. The theme that concerns the Impact Investing Institute, which is less than two years old, is improved measurement of such relationships.
  • In terms of successful themes, one clear winner due to COVID had been digitalisation.
  • One theme that has not done so well is the Ageing theme focused on older people travelling and enjoying experiences abroad later in life.
  • One guest said their firm used themes for ideas generation, not as a shortcut for portfolio construction. They said themes lead to good ideas, but they then spend at least three months researching a stock, so that the best themes are represented by the best investments.
  • The final point was that there are sensitivities for any global investor in allocating to themes, even the biggest one of all, Climate Change.
  • But on a positive note, one guest added if all stakeholders can resolve their differences on definitions such as impact and ethical investing, then more capital will be readily transferred into opportunities.

The whitepaper also features two articles from the sponsors offering valuable additional insight. These are:

  • CPR Asset Management: ‘Central Banks: leading the path towards Impact Investing’
  • Sarasin & Partners: ‘Theme or fad? How to invest for the long term’

To download the Thematic Investing whitepaper, click here

For more information on CAMRADATA visit www.camradata.com

Continue Reading

Investing

Promises, Promises: Navigating the Reputational Risks of ESG Investment Pledges

Published

on

Why are people investing in music?

By Nir Kossovsky and Denise Williamee, Steel City Re

As the trend towards ESG investment and a low-carbon economy continues, banks are being backed into a reputational corner. Law firms specializing in representing the expanding pool of litigious shareholders are salivating.

On one hand, banks understand the inherent financial risks and challenges involved with making a wholesale move towards a low-carbon economy. The transition to a greener corporate world can’t happen overnight; as long as “brown” assets continue to be profitable, those in bank leadership positions have to balance their green aspirations with their responsibility to shareholders.

On the other hand, while not renewing loans on existing coal mines or fracking sites may improve a bank’s carbon disclosures, it could have social and financial ramifications that disappoint other stakeholders—i.e., causing people to lose their jobs. Still, financial institutions are experiencing pressure from all sides—from ESG investors to social license holders – to divest the fossil fuel industry and adopt drastic “green financing” practices now.

To alleviate these pressures, banks are pledging greener financing initiatives. Almost every large global bank has made some sort of commitment. Goldman Sachs, for example, announced they would spend $750 billion on sustainable finance over the next decade. Bank of America pledged $300 billion.

Bank boards and executives likely don’t fully appreciate the reputational risks posed by the aspirational statements they’re making. They are making promises and raising expectations without the operational or governance systems in place to ensure those expectations will actually be met. Overpromising and increasing the risk of angering and disappointing stakeholders is the very definition of reputational risk.

Banks are in a unique position: integral to every aspect of our economy, well-known brands that work hard to build and retain the trust of their customers and the general public while operating in an environment of intense scrutiny by politicians and regulators at every level of government. Satisfying all the stakeholders calling for greener policies while fulfilling their responsibility to their shareholders is a demanding balancing act fraught with risk. The Business Roundtable pledge, led by JP Morgan Chase CEO Jamie Dimon, and elevating employees, communities, and the environment as stakeholders, was an attempt to strike that balance. Already, though, that pledge is being dismissed by politicians like Senator Elizabeth Warren, who characterized it as an “empty publicity stunt.”

The price of missing expectations is costly, and bank executives and board members could find themselves in a legal hot seat. Federal securities lawsuit filings alleging reputation harm from missed expectations are up 60% over last year, the third year of a rising trend.

This trend stems from SEC regulation S-K that calls for more human capital disclosures, and the Caremark decision that sets the bar for most securities litigation and makes board oversight of mission-critical corporate operations a test of the duty of loyalty. Other cases, like In Re Signet, have made ESG-like pronouncements—historically “immaterial corporate puffery”—now potentially material in the securities arena.

For example, directors’ duty of loyalty were successfully questioned in alleged failures of innovation (In Re Clovis Oncology, Inc., board failure to protect the firm’s reputation for pharmacologic innovation); safety (Marchand v. Blue Bell Creameries, board failure to protect the company’s reputation for food safety); and environmental sustainability (Inter-Marketing Group USA, Inc. v. Armstrong, board failure to protect the firm’s reputation for oil pipeline-related environmental protection).

In other words, aspirational pledges are now being considered by courts with the full weight of a material public disclosure. As wealth managers chase ESG-informed investing and capital markets chase ‘green underwriting’, the plaintiff’s bar chases boards and executives making pledges that appear to be no more than aspirational marketing.

The only way to strike a balance and mitigate these risks is through a robust Enterprise Risk Management (ERM) strategy that’s centered around understanding who your key stakeholders are, what their interests are, and ultimately, what their expectations are. Coincidentally, it is also one of the three key behaviors the world’s largest asset management firm, Blackrock, is demanding of all investee companies in 2021 thus communicating the type of authenticity to its slogan “beyond investing,” that BP failed to accomplish with similar sloganeering a decade ago.

Banks need to create a central intelligence unit with board level oversight to comb through every aspect of the organization to identify stakeholder interests, potential risks and/or exposures. Pledges and communications should be informed by a rigorous and honest self-assessment of the institution’s public filings and operational capacity. Overpromising is costly. ESG pledges must be rooted in achievable goals that a bank’s leadership are confident their institutions can reasonably execute on an operational level. Banks also need to consider transferring or financing risks using the broad range of conventional and parametric insurance products currently available.

Enterprise risk management, when executed properly, will fulfill ESG commitments, reassure stakeholder groups and give marketers, counsel, and investment as well as government relations professionals an authentic story to tell about strong corporate governance. ERM focused on reputational intelligence will provide confidence to ESG funds, institutional investors, bond raters, and government officials alike.

The popularity of ESG investment and chasing ESG ratings is not going to go away, and stakeholder pressures will continue to mount. Investors doubled the size of the ESG sector this year, putting $27.4 billion into ETFs traded in U.S. markets. According to a recent survey conducted by Bank of America relating to ‘Gen Z’—which is just entering the workforce—80% take ESG into account when making their investment decisions.

Bank leadership that is striving to attain the correct balance between stakeholders and shareholders need to lean more into the “governance” portion of the ESG equation; pledges backed by enterprise risk management are the strongest pledges you can make.

Continue Reading

Investing

ESG – Bubble or Bandwagon?

Published

on

Portfolios that a daring young investor may choose

By Josh Gregory, Founder of Sugi

Isaac Newton was a successful investor, but he lost a fortune (£15m in today’s money) in the South Sea Bubble of 1720. When asked about his misadventure, he supposedly replied that he ‘could calculate the motions of the heavenly stars, but not the madness of people’ (presumably, himself included). 

The rise and fall of South Sea stock was one of the earliest and largest instances of a market bubble and crash. Three hundred years later, we’re facing another massive investing trend: sustainable investing. In the last year or so, almost every investment institution has jumped on the sustainability bandwagon. 

It’s now arguably more notable to find an asset manager who hasn’t committed to sustainable, ethical, responsible, impact and/or ESG (environmental, social and governance) investing than one who has. The numbers are telling: in August 2020, assets in global ESG exchange traded funds and products topped $100 billion (£73 billion) globally. 

Demand for sustainable investments has been bolstered by two main factors. Firstly, with climate change firmly on the global agenda and all eyes watching the Biden administration’s transition to power (and the subsequent climate change policy that will follow), ‘greening up’ has never been more of a priority for businesses and individuals. This includes the investment industry, with both retail and institutional investors increasingly demanding that their money has a positive impact on our planet. 

Secondly, since the start of the COVID-19 pandemic reports have continually claimed that ESG funds are outperforming ‘traditional’ investments. No longer is going green cited as a ‘nice to have’; rather, these reports demonstrate the value and resilience of ESG funds to the investor community, increasing demand. Surely, this can only be a good thing? Yes, but only if investors know what they’re buying. 

It’s no secret that ESG investing suffers from complexity, lack of transparency and a lack of any universal standard. Fundamentally, this is why we created Sugi – a new platform enabling retail investors to track the environmental impact of their investment portfolios using clear and objective carbon impact data. 

Josh Gregory

Josh Gregory

Today, ESG terms can lawfully be used to label pretty much anything. Ultimately, this means that the ESG label is not a guarantee of good practice. In fact, an ESG rating is a financial risk metric – the scores calculate the extent to which ESG issues affect a company’s economic value. Many investors, even institutional investors, don’t know how to decipher this. The scores themselves are designed to be used in tandem with portfolio dashboards and other data to make financial decisions. This effectively means that the scores on their own without any context are not of much use to anyone.

This has led to a glut of greenwashing in the sector, where investment products are described as green, ethical or sustainable, but the description is unsubstantiated. And while the top financial performance of ESG funds seems uncontroversial, those digging a little deeper may be surprised at what they find. Many ESG funds are heavily weighted in favour of technology companies, which typically have low carbon emissions. These stocks skyrocketed in 2020 but it’s important to note the context. It was largely due to the COVID-19 lockdowns and had nothing to do with the stocks’ ESG credentials. 

The EU, the UK and the US are all working on their own strict definitions of ESG. This should, in theory, go some way to clarify what investors are getting when they choose an ESG or sustainable investment product. However, this will take a while to implement and there will still not be a globally recognised definition or standard. 

It would seem many people are pouring money into investments when they don’t know what they’re buying. That’s nothing new. But underneath the ESG label lies something meaningful, worthwhile and, above all, valuable for the world in which we live – environmental, social and governance best practice.

The question remains though, is it a bubble? A bubble exists if ESG investments are over-valued (i.e. over-bought). Right now, ESG funds may be in bubble territory because many of the underlying stocks that make up the funds are themselves in a bubble. But does that make ESG a bubble? If it is, when do we call it? 

Historically, all bubbles –whether they be tulips, canals, railways or the internet – no-one knows. And if I knew now, I’d be sunning in the South Seas rather than writing this blog!

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

FSS and India Post Payments Bank AePS Partnership Advances Financial Inclusion in India 1 FSS and India Post Payments Bank AePS Partnership Advances Financial Inclusion in India 2
Finance21 hours ago

FSS and India Post Payments Bank AePS Partnership Advances Financial Inclusion in India

New Delhi, January 12th,2020: FSS (Financial Software and Systems), a leading global payment processor and provider of integrated payment products,...

Seven lessons from 2020 3 Seven lessons from 2020 4
Top Stories23 hours ago

Seven lessons from 2020

Rebeca Ehrnrooth, Equilibrium Capital and CEMS Alumni Association President   Attending a New Year’s luncheon on 31 December 2019, we...

Over a quarter of Brits now have an account with a digital-only bank 5 Over a quarter of Brits now have an account with a digital-only bank 6
Banking23 hours ago

Over a quarter of Brits now have an account with a digital-only bank

The number of Brits with a digital-only bank account has gone up by a percentage increase of 16% Almost 1...

Fintech M&A: the terrible teens? Fintech M&A: the terrible teens?
Business2 days ago

How fintech companies can facilitate continued growth

By Jackson Lee, VP Corporate Development from Colt Data Centre Services The fintech industry is rapidly growing and, in the...

gbaf1news gbaf1news
Technology2 days ago

BNP Paribas joins forces with Orange Business Services to deploy SD-WAN for 1,800 retail sites in France

Co-construction approach ensures business continuity during deployment BNP Paribas has chosen Orange Business Services to deploy an SD-WAN solution in...

Managing Operational Resilience And Safeguarding Data Are Core To Sustainable Digital Financial Services Managing Operational Resilience And Safeguarding Data Are Core To Sustainable Digital Financial Services
Business2 days ago

2021 Predictions: Operational Resilience Takes Center Stage

Breaking down barriers between Risk and Business Continuity By Brian Molk, Fusion Risk Management What a year! Simply put, the global...

Five Workplace Culture Trends of 2021 11 Five Workplace Culture Trends of 2021 12
Business2 days ago

Five Workplace Culture Trends of 2021

5 January 2021 – 2020 – a year like no other – is responsible for driving organisational change, especially workplace...

The Impact of the Digital Economy on the Banking and Payments Sector 13 The Impact of the Digital Economy on the Banking and Payments Sector 14
Banking2 days ago

The Impact of the Digital Economy on the Banking and Payments Sector

By Gerhard Oosthuizen, CTO Entersekt. New banking regulations, digital consumers, the eradication of passwords, contactless technology – these are just...

Is COVID-19 an opportunity for banks to skyrocket their electronic payments Is COVID-19 an opportunity for banks to skyrocket their electronic payments
Finance3 days ago

Be Future-Ready: The Case for Payments as a Service (Paas)

By Barry Tarrant, Director, Product Solutions, Fiserv Over the years, financial institutions have faced a myriad of changes in regulations,...

How to answer interview questions How to answer interview questions
Interviews3 days ago

Mark Wright – No Longer an Apprentice

Just for context, you won The Apprentice and became Lord Sugar’s business partner in 2014 – you set up your...

Newsletters with Secrets & Analysis. Subscribe Now