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HAVE THE YEARS OF PLENTY GONE? FOR SOME ASSET CLASSES THEY CERTAINLY HAVE.

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Alexander Varyushkin

By Alexander Varyushkin

Partner, Head of Asset Management at Third Rome Group (strategic partner of Oracle Capital Group)

In 2015, it will be exactly seven years since the U.S. Federal Reserve (followed duly by other leading central banks) went on an unprecedented free money policy spree in an attempt to lend momentum to the faltering global economy. Most market participants expect the Fed in 2015 to start normalising rates (in the sense that today they are abnormally low). Interest rate futures point towards a 0.5% rise to 0.75% by the end of 2015, moving further up by another 1% to reach 1.75% in late 2016. Economists envisage a somewhat more aggressive scenario with interest rates reaching 1% by the end of 2015 to climb to 2.5% by the end of 2016 and to 3.5% by the end of 2017. Still, while market participants ostensibly expect interest rates to go up, yields on long-term debt securities seem to belie this forecast. Yields on 10-year U.S. Treasuries currently stand at about 2.5%. Supposing short-term yields reach 3.5% by the end of 2017, the current fair yield should be hovering within the 2.8-3.6% range (with lots of reservations regarding the shape of the yield curve). What is the reason for the prices to ignore economic forecasts, and do they really? In our view, there are two possible explanations:

Alexander Varyushkin

Alexander Varyushkin

1) The mismatch between investment horizons of most investors and the terms of the securities they invest in. We mean that several years up until early 2013 were extremely successful for investments in high-quality long-term bonds and some investors have «grown used to» low volatility and excellent yields while others cannot afford to invest in short-term securities due to the near-zero returns they offer.

The famous words by Chuck Prince, the former Citigroup CEO, on the mortgage bond market are extremely appropriate here: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

2) The market does not support the economists’ view and expects the global economy to post slow growth which will prompt monetary authorities to keep in place their lose money policies for longer. Which is essentially sticking to the “Japanese” scenario as far as interest rates are concerned (because on the stock market performance and economic growth fronts it has already proved a failure). Yields on 10-year Japanese sovereign bonds are at 0.52% while inflation over the last 10 years has stuck at near-zero levels. The market for Japan’s bonds has even earned itself the nickname «Widow Maker» as many investors who in the last 10 years bet on higher interest rates and went short have since gone bust. To some extent, this view draws support from the major central banks with the exception of the U.S. Federal Reserve (the European Central Bank and the Bank of Japan), which are moving in the opposite direction and keep loosening their purse strings.

Another explanation could be that on the debt market «lean» years had begun as early as the start of 2013 and it is just that the adaptation to market expectations regarding future monetary policies does not happen instantly. At the beginning of 2013, we knew that over the next 7-10 years yields on investments in U.S. Treasuries (benchmark long-term quality debt securities) would not exceed 1.2-1.5%, translating into near-zero nominal and negative real returns.

Since the start of 2013 investments in long-term U.S. Treasuries have brought investor NIL in the way of return. Slightly riskier investments in quality corporate instruments have yielded about 3% over the last 18 months, which is exactly what one would expect in a «lean-year» period.

We tend to think that the secular bear bond market is already here, that in all likelihood it will not be overaggressive and that the U.S. Federal Reserve will not be aggressive either in tightening its monetary policy. Which means that beta returns are a thing of the past and for the next few years assiduous selection of maturities along with thorough credit analysis should become second nature for investors operating on the debt market.

About Third Rome Group

Third Rome Group (strategic partner of Oracle Capital Group) is an international group of companies, established in 2009. The company provides a broad range of services including asset management, investment consulting, trading, corporate finance, asset and deal structuring services, as well as other solutions based on the concept “Investment bank for private clients”. Third Rome’s top managers are well known to the market due to many years of experience in asset management and financial services. They have earned a reputation as top-notch professionals with impeccable business ethics. They also have experience at leading investment institutions and a proven track record of successful transactions, many of which were ground-breaking in the development of the Russian market. Over the past 5 years, the company has received recognition and 6 prestigious awards for exemplary contribution in the field of investment banking and asset management. Third Rome is in the 2012 Russia’s top 20 Money Managers ranking by Institutional Investor.
http://third-rome.com

Investing

Estate planning for wealthy celebrities or UHNWIs

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Estate planning for wealthy celebrities or UHNWIs 1

By Sean Sheridan, Client Director, ZEDRA Isle of Man

Estate planning often gets pushed aside…sometimes with disastrous knock-on effects for a family. With today’s evolving regulatory environment, future planning can be challenging and often daunting.

Despite inevitable obstacles, there are ways to minimise the burden to enable even celebrities to have future generations enjoying the benefits of their wealth. In this article we explore why estate planning gets overlooked, and why it’s so important to protect prosperity and interests.

It’s easier to put off estate planning than you’d think – even for people like celebrities or UHNWIs who have earned significant wealth. For example, it’s thought that the great Diego Maradona passed away without leaving a Will or other plans for his assets, despite recent years of ill health. There were already reports of a contested estate just weeks after his funeral. Michael Jackson, Prince, James Gandolfini and Philip Seymore Hoffmann all passed away with various issues with their estates, despite having amassed fortunes.

It’s not disorganisation or a lack of desire that stops people planning their estate. In fact, often the last thing people want is to leave family or loved ones having to deal with probate and complex legal affairs at an already difficult time. Many people simply put off estate planning, thinking they will have time later…whenever that is. Alternatively, they may not comprehend how challenging it can be to untangle an intricate estate, and what legal rules there are that surround how an estate will automatically be divided amongst heirs and spouses if forced heirship laws apply. Equally, many people may not know that some loved ones may not get any assets or be looked after if provisions aren’t made in advance.

Privacy

For UHNWI a properly planned estate can also mean more privacy for family at a challenging time. Many HNWI will choose – along with advisors – a structure that will allow for maximum confidentiality and will keep the details of the estate and any beneficiaries private. Information about beneficiaries of an estate becoming public can also make them a target for press or other unwanted attention. As structures which allow for both discretion and succession planning, trusts can be very popular for this reason.

Beneficiaries

Trusts also allow for settlors to stipulate the conditions under which beneficiaries may have access to or be given money from a trust.

Trusts allow the settlor the ability to lay out one or more conditions. For example, a settlor could put aside assets in trust to support beneficiaries but not make all the assets available to them at once. This might be to support good governance or simply to protect beneficiaries from some of the hazards associated with wealth, as perceived by the settlor.

Practically, this means a settlor and their advisors might look at different conditions for a trust’s assets. For example, beneficiaries might only receive a lump sum every 10 years. Alternatively, they might get a monthly pay-out, similar to a salary. The settlor might wish that funds are paid out to beneficiaries for the sole purpose of paying for their college education or to purchase a property.

Corporate trustees like ZEDRA ensure that the settlor’s wishes are met, and the assets of the trusts are used in the way the settlor would like and as laid out in the trust deed.

Planning ahead 

Planning ahead with advisors is vital – especially for anyone with a complex assets and interests that span various geographies may be complex in terms of nature, like IP rights.

Expert advice that’s tailored around an individual’s personal situation is a must, so thinking ahead is crucial. It’s never too early to make sure you’re planning your estate and making sure loved ones or important causes will be looked after when you’re gone.

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Dollar edges lower as investors favor higher-risk currencies

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Dollar edges lower as investors favor higher-risk currencies 2

By Stephen Culp

NEW YORK (Reuters) – The dollar lost ground on Friday as market participants favored currencies associated with risk-on sentiment over the safe-haven greenback.

Risk appetite was stoked by better-than-expected economic data and expectations that U.S. President Joe Biden’s proposed $1.9 trillion coronavirus relief package will come to fruition.

“The dollar’s down against other currencies but not by a whole lot,” said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. “I expect the dollar to be where it is now at the end of the year, and the main reason for that is while I see some signs of improvement in the economy, monetary policy is going to stay where it is.”

“I don’t think the dollar is underpriced or overpriced,” Pursche added.

For the week, the dollar slid about 0.2% against a basket of world currencies, the euro was essentially flat, and the yen lost more than 0.5%. But the British pound advanced more than 1.1% against the dollar, its best week since mid-December.

Bitcoin continues soar to record highs. The world’s largest cryptocurrency was last up 6.6% at $54,961.67, hitting $1 trillion in market capitalization.

Its smaller rival, ethereum, was last up 0.7% at $1,953.28.

The digital currencies have gained about 89% and 1,420%, respectively, year to date, leading some analysts to warn of a speculative bubble.

“One concern I’ve always had (about cryptocurrencies) is how susceptible they are to manipulation,” Pursche said. “But they’re going to continue to gain legitimacy.”

“While it’s great that Tesla made an investment in bitcoin, I’m more intrigued by Blackrock and other major investment firms taking a hard look at cryptocurrencies as a viable investment.”

The Australian dollar, which is closely linked to commodity prices and the outlook for global growth, was last up 1.21% at $0.7863, touching its highest since March 2018.

The New Zealand dollar also gained, closing in on a more than two-year high, and the Canadian dollar advanced as well.

Sterling, which often benefits from increased risk appetite, rose to an almost three-year high amid Britain’s aggressive vaccination program. It had last gained 0.27% to $1.40.

The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.21% to $1.2116.

The yen, gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.

(Reporting by Stephen Culp, additonal reporting by Tommy Wilkes; editing by Jonathan Oatis)

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 3

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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