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Key investment themes revealed at CAMRADATA’s annual Pension Conference ‘Managing Objectives, Maximising Opportunity’

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Key investment themes revealed at CAMRADATA’s annual Pension Conference ‘Managing Objectives, Maximising Opportunity’

Speakers at CAMRADATA’s annual investment conference for the pension fund industry held in the City of London on 19th April revealed five asset classes and solutions that could help pension fund managers protect assets and generate returns this year.

These included real estate income, the opportunities in the Asian markets, the growing interest in real assets and late cycle opportunities in fixed income, plus how a better understanding of behavioural finance could lead to a more acute awareness of market trends.

Natasha Silva, Director, Client Relations at CAMRADATA said, “The roles of all those involved in the management and maintenance of pension funds are expanding continuously against a backdrop of changes to the political landscape and regulation and the need for sustainability.

“The challenge of building genuinely diversified portfolios that deliver growth and income efficiently and on an attractive risk-adjusted basis is like finding the Holy Grail. Our speakers from five leading investment companies presented their views and highlighted exciting opportunities in the traditional and alternative space.”

The five key themes of the conference were:

The Changing Role of Real Estate

Ian Mason, Director and Portfolio Manager of the Real Return Fund at AEW opened the conference discussing the changing role of real estate income in cashflow matching strategies.

He suggested that pension funds seeking cash flow matching strategies could do a lot worse than consider real estate income. He said, “Property is a very simple asset class; if you focus on property fundamentals and buy quality buildings in areas where there is strong occupier demand, then if the market rent goes up, the value goes up.”

The AEW UK Real Return Fund was launched two years ago and as at 31st December 2017 was distributing a 5.3% yield from a portfolio of 35 properties, with a weighted average lease length of over 17 years and 77% of income linked to inflation.

Mr Mason adds, “The strategy offers clear alignment between the Fund and the needs of investors, as well as a foot inside both equity and bond camps: a real asset growth strategy with relatively high-levels of sustainable income, as the hunt for yield continues.”

Behavioural Finance

Stacey Nutt, PhD, Principal, Lead Portfolio Manager, CEO and CIO at ClariVest Asset Management LLC discussed behavioural finance and how their distinctive investment approach is best defined as behavioural.

He said most managers evaluate investment opportunities through one of a number of perspectives, often referred to as their style (value, growth, quant etc) and that decision making is tainted with behavioural bias which can prevent objectivity. This can make diversification in a portfolio difficult as investors are pulled towards scenarios they are comfortable with rather than pushing for alternatives.

Investor behaviour provides an alternative approach. This is a focus on identifying optimal entry and exit points within companies’ fundamental cycles as investors are faced with changing fundamentals, yet heuristically anchor expectations to historical or cross-sectional stereotypes or norms. He also highlighted the importance of self-awareness of bias to help prevent the decision-making process being corrupted.

Understanding how investors behave is key to the firm’s approach. Mr Nutt said, “Across capital markets we can count on the fact that everything changes as fundamentals cycle through time. We can also count on investors reacting inefficiently to this change. There are multiple reasons for this, both incentive based and behavioural.”

Mr Nutt added, “We integrate quantitative tools throughout our investment process to nudge our qualitative decision making towards objectivity and away from our own behavioural biases.”

The Rise of the Asian Consumer

Natalia Mu, Client Portfolio Manager at Mirae Asset Global Investments talked about the opportunities in Asia and the rise of the Asian consumer is the most important opportunity in Asia over the next few decades.

Ms Mu highlighted that main factors encouraging the long-term consumption trend in Asia are demographics, wage growth and government policy.  China is the key growth driver in the region and government policy is underway for transforming the economy to a more consumption led economy.

Ms Mu said Asia can be a game changer in a portfolio to maximise opportunities, despite some investors being wary of the volatility in this region. She highlighted that China has quickly become the world’s largest e-commerce market with more than US$750 billion sales in 2016.

Ms Mu said, “The Asian consumer opportunity is wide ranging and the best way to capture and benefit from this theme involves identifying the nascent developments early on. To do this well, it is important to have a presence in the local market.”

When asked about the risks for the upcoming six to twelve months that may occur to the fund and the Asia consumer market, Ms Mu said, “Our overall outlook is fairly positive as fundamentals continue to show signs of further strengthening. Underlying demand in major markets, such as China and India, appear resilient.

“The main risks would be related to a meaningful deterioration in the current global macro environment such as excessive government/central bank tightening and global geopolitical risks. Given this, we expect 2018 will be a more volatile year; however, we believe the impact on company earnings should be limited for the consumption theme.”

Late Cycle Opportunities

Dan Roberts, Executive Managing Director, Head of the Global Fixed Income Group at MacKay Shields and Steve Cianci, Senior Managing Director at MacKay Shields then discussed late cycle opportunities.

They highlighted that the USA was the first to emerge from the financial crisis and, subsequently, has experienced the longest expansion among major industrial countries. As such they say the US economy is showing signs that are usually toward the latter stages of a normal economic cycle.

However, MacKay Shields does not see an imminent downturn and while risks are increasing, so are opportunities. Its approach is to focus on investment themes that reflect both the maturity and outlook for the economic cycle, as well as the opportunities in sectors and security.

Dan Roberts said, “Our process focuses on identifying and avoiding uncompensated risks that exists in the markets and in individual securities. The key risks we see include technological disruption across a range of industries from energy to retail, together with idiosyncratic risks.

“Portfolio construction can mitigate and manage these risks while identifying pockets of value. Diligent security selection and asset allocation can then exploit these pockets of value in the market that has seen spreads tighten in concert across all asset classes and spectrums.”

The Case for Diversified Real Assets

Finally, Vince Childers, Senior Vice President and Portfolio Manager at Cohen & Steers discussed how listed real assets can potentially combat today’s investment challenges. He highlighted that many investors are focusing on alternatives to diversify beyond traditional equities and fixed income.

However, despite the wide range of real asset exposures available, investors have tended to focus on just one or two categories of real assets – most commonly, real estate and infrastructure – but this approach has its drawbacks.

Mr Childers highlighted the case for blending real assets to smooth out volatility of individual real assets. Also, by focusing only on real estate and/or infrastructure, investors stand to miss out on the prospective complementary attributes of natural resources and the broader commodities complex.

Mr Childers said, “By treating real assets as an asset class and establishing a diversified exposure to all four core categories of real assets – global real estate, commodities, natural resource equities and global infrastructure – investors stand to benefit from the full potential this asset class has to offer.”

Cohen & Steers’ analysis of nearly half a century of data shows that an equal-weighted blend of the four core real assets exhibited three valuable characteristics – diversification, inflation sensitivity and return potential.

Mr Childers added, “While each real asset category has unique fundamental merit, historically no one type of real asset has excelled equally across all three criteria of diversification, inflation protection and returns.

“This absence of a “silver bullet” solution suggests that a diversified portfolio of real assets may help investors better navigate the tradeoffs of individual categories and provide an optimal approach to a real assets allocation.”

The annual ‘Pension Conference, Managing Objectives and Maximising Opportunity’ took place on Thursday 19th April 2018 at Pewterers’ Hall, London EC2V 7DE.

For details of upcoming CAMRADATA events and conferences visit www.camradata.com.

Investing

Is It The Right Time To Invest In Gold?

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Is It The Right Time To Invest In Gold? 1

By Zoe Lyons, Hatton Garden Metals

The current climate is one of uncertainty, so it can be difficult to know what to do with your money, particularly investments. When faced with the decision on what to do with your savings, there are a number of options, but one investment which many have opted for over the years is gold buying.

Purchasing gold can be a great investment. Although the price of which can fluctuate just like anything else, the value of gold has generally tended to increase at a good rate and many prefer it over other saving options. With bank interest rates currently at a low and discussions of negative interest rates, many are opting to purchase gold as a way to earn money on their savings.

So is gold buying right for you? We take a look at some commonly asked questions when it comes to purchasing gold.

Why Should I Buy Gold?

Buying gold is often seen as a good investment due to value increases, so you may be able to make a profit from selling it on if the price of gold increases after you have purchased. The price can fluctuate, so profit is not guaranteed and is based on a number of factors. Looking back over previous years since the 1970s, the value of gold has prospered compared to other investment types, albeit with some dips in value at certain points over the past 50 years.

Buying gold also allows you full control as you are the owner. So you can choose if and when you want to sell.

Buying Gold Vs ETFs

When looking at investment opportunities, you may consider ETFs. An ETF is an Exchange Rated Fund, which when purchased is similar to buying stocks and shares. They can be a good investment, but is it more beneficial than purchasing gold?

When purchasing physical gold you will need to consider where to store it. This can incur charges, whereas with an ETF there is no need for storage, but an ETF can come with admin charges and investment management costs. When you choose to sell an ETF, you may also be required to pay a commission, which are often small amounts, but can add up if you are an active trader. There is also less control with an ETF as the price of which can change and is based on the company’s actions.

Gold Bars Vs Gold Coins

If you do choose to purchase gold, you will be faced with the option of whether to buy gold coins or gold bars. Although similar, they have varying benefits.

  • Gold Coins

The purchase of gold coins are often favoured by those who appreciate the historic value of the coin. Many people collect coins, so an investor may be inclined to pay more if they are a keen collector of such. Many may also pay more for gold coins based on their rarity. These factors can affect the price you pay or sell at, meaning the value of gold coins is not solely deemed by the live price of gold, so you may receive a higher price, dependent on the investor. This allows the price of gold coins to be more fluid than gold bars.

  • Gold Bars
Zoe Lyons

Zoe Lyons

Gold bars are not seen as a collectors item and don’t tend to have historical attachments. Because of this, the price is not influenced by these factors and is based on the weight, purity and the live price of gold at the time of selling or purchasing. This allows for a more accurate estimate of the price of your gold bars.

Where Should I Store Gold?

One of the most frequently asked questions when it comes to gold buying is storage. If you do choose to purchase gold, you will need to consider storage. Just like anything else of a high value, it needs to be stored securely. Simply keeping gold stored at home could be risky. When kept in your property, if not stored in the correct conditions, it is more susceptible to damp and corroding. There is also the possibility that your home insurance does not cover your gold, so if you are burgled, you could lose your investment. Because of this, it is wise to protect your gold with proper secure storage. Look for companies that offer storage abilities that are covered by insurance and be sure to do your research on pricing and look for cost effective storage as the fees incurred can soon add up. You may also want to look for a company that allows you quick and easy access to your gold to ensure you can buy and sell with ease.

Should I Invest In Silver Too?

Although gold is often a more popular investment option, many choose to purchase silver alongside it. The price of silver tends to be much more volatile than the price of gold, for this reason, many see gold as a safer choice. The price of silver will still have an intrinsic value but may be more worthwhile for those looking into long term investment options due to its VAT charges.

Negative Interest Rates

Although it is not a current practice, there has been recent talk of banks in the UK potentially introducing negative interest rates. If a savings account has a negative interest rate, this could mean you are charged for keeping money in the bank. If introduced, this could mean savers lose out. Instead of receiving interest on your savings, you may be charged a rate for keeping your money in the bank.

Could purchasing gold be a better option for your savings? Possibly, but this will depend on how much you have saved and the rates of the negative interest (if they are introduced). They may be minimal, but if you have a large amount in a savings account, this could add up to an expensive charge. If you choose to use your savings to buy gold, you may make a profit upon selling, but you will need to consider costs of storage as well as the chances of the price decreasing in the future.

So, is it the right time to invest in gold? It’s a very popular question. Hopefully the above will give you a bit more insight into gold investing and how it may work for you, but with any investment, there is never a guarantee that it will generate profit, so take careful considerations when diversifying your portfolio.

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Private public investment is more inter-dependant than ever

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Private public investment is more inter-dependant than ever 2

By Konstantin Sidorov, CEO and Founder of London Technology Club

Today, one thing unites the majority of governments around the world: their fiscal position is destitute. COVID 19 has seen an extraordinary, forced expansion in public sector expenditure, which has come just as the world was getting back on its feet following the Global Financial Crisis. The financial strains are already showing and will become more apparent as we move through the pandemic into social and economic recovery.

If you want to understand the impact that the re-focusing of public sector spending is having, then there is no better example than the space economy. In the US and Europe, we are becoming increasingly reliant on the space rockets and space launch companies pioneered by private investors and entrepreneurs.

NASA, that powerhouse and flag bearer for American national pride, is having to partner with the private sector in order to fulfil their missions. Private investors, the likes of Elon Musk, and Jeff Bezos alongside smart use of new technologies have brought the economics of space down and the excitement around what’s possible up. With it comes a whole satellite manufacturing, launch and servicing industry growing to $271bn in revenues in 2019. Of the total revenues in the space economy ($366bn in 2019), government space budgets made up $95bn of that.

Commercial entities, being patiently built and backed by private capital willing to dig deep and progress their own missions has helped fuel the space economy. Many are realising now just how crucial space is for the future of a country’s protection, position in the world and prosperity. In China, India and Russia we still see significant public sector expenditure in space projects as an agent for military and economic expansion. The role of private investors in plugging major gaps in public sector funds and national pride in Western economies is therefore increasingly important.

Private and public investment must be seen as a partnership. We should not forget that Elon Musk’s SpaceX survived from the brink of collapse only because of a ten-figure NASA contract awarded at the last minute. Musk, since then, has looked for public infrastructure contracts to fuel his companies, the likes of The Boring Company winning the contract to build a downtown-to-airport loop, a  government program for high-speed transport in Chicago. Musk proves his products and services work and then secures lucrative government contracts in order to quickly scale which in turn leads to transforming whole industries.

It’s not just space infrastructure where we see this redefinition of the role of public and private finance. The Chinese have invested at least US$160 billion in infrastructure projects as part of the Belt and Road Initiative, creating roads, ports, energy infrastructure and providing aid to foreign governments to create the most ambitious infrastructure project the world has yet seen.

Konstantin Sidorov

Konstantin Sidorov

For Western countries, access to that scale of public finance is not fiscally-possible, a new solution is needed and just as the space race has been redefined by private capital, so will the development of new industries, infrastructure and the reinvigorating of economies facing structural change that has been accelerated by COVID.

Private capital has the huge advantage of being driven by conviction and competence. It can cost-effectively be deployed, fast and targeted with a laser-like focus by entrepreneurs who know exactly what they want to achieve. Private capital, currently, is also in abundance.

In a world which is providing slim returns across multiple traditional asset classes, private capital is being stockpiled and is waiting for the opportunity to be invested for growth. We need private investors to have the confidence to deploy their capital to fuel the system once again.

This new world, post COVID, won’t see public capital replaced. Its role is likely to focus more heavily on health, welfare and critical infrastructure. However private investors will step in where gaps appear. Ten years ago, the scale and ambition of private space companies would have been greeted with snorts of derision and looks of disbelief. Today governments embrace the private capital, and regard the companies that have deployed it as systemically important national assets.

As we look to the future, huge macro trends emerge that demand significant investment: the aging population, the threat of pandemic, the drive to create a sustainable economy and lifestyle, the need to decarbonise, the digital revolution. The list goes on.

Public finance cannot hope to provide the finance and pioneer the bold thinking and accept the risks required to find new solutions that drive us forward in a world of change. That role goes to the private investor and private capital.

For the investors themselves the opportunities are immense, and for society as a whole they are just as big. As we look forward public and private sector needs to embrace private capital. Rather than fearing private investors as locusts who strip organisations and opportunities of profit then fly away, a narrative that gained traction after the last great economic crash. This time we need to see private capital as agents for positive transformation. Private-public partnerships fuelling each other.

Private money is already building rockets that send people and payloads into space, but that isn’t the final frontier for entrepreneurial investors or the societies and economies that benefit from their boldness.

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What should I invest and How do I invest

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What should I invest and How do I invest 3

By Imogen Clarke, The Fry Group

With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.

For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.

If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.

There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?

With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:

  • Equities
  • Bonds
  • Alternatives
  • Cash

Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.

So, how do you decide where to invest?

According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.

The main areas of ESG investing include:

  • Environmental challenges (climate change, pollution, etc)
  • Social issues (human rights, labour standards, child labour, etc)
  • Governance considerations relating to company management

According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”

ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.

As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”

So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?

There are four areas of ESG investing:

  • Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
  • Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
  • Positive screening strategies:when companies meet the ESG goals and are approved for investments.
  • Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.

You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?

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