Archive

from Global Investing:

Three snapshots for Friday

Although the focus has been on Spanish debt auctions this week as this chart shows Italy has much further to go in meeting this year's funding needs.

German business sentiment rose unexpectedly for the fifth month in a row in March, moving in the opposite direction to the composite PMI:

Greg Harrison points out 82% of S&P 500 companies have beaten their Q1 earnings estimates so far. It  is early days but it it continues that would be the highest for at least five years. Is this a sign that the strength in corporate earnings in continuing? The chart below suggests as least part may be due to falling expectations coming into earnings season.

from Global Investing:

Credit rally: Bubble or not?

Corporate bonds are back in vogue this year but how sustainable is it?

Just to highlight how bullish people have become, see following comments from fund managers:

"We do see scope for 2012 to deliver narrower corporate credit spreads and that will be the major positive contributor to fixed income returns this year." - Chris Iggo, CIO Fixed Income, AXA Investment Managers)

"Corporate bonds should be a major source of performance for the bond component of Carmignac Patrimoine (fund) in 2012." - French asset manager Carmignac Gestion

Bank of America Merrill Lynch's performance data as of end-Jan shows high-yield bonds are the second best performing in the bond group with YTD gains of 2.9%, ahead of 10-year Treasuries at 0.8 percent. The best performing is "preferreds", a sort of hybrid bond/equity instrument which returned 4% this year already.

BofA's investment team thinks equities will catch up and outpace bonds over the medium term however, because equities have had secular underperformance, pension funds and other clients are structurally under-positioned in stocks, and relative valuations favourequities.

The bank also warns: "Recent inflows into high-yield funds have been bubble like, with record-setting inflows into HY bonds."

Iggo from AXA is also cautious.

from Global Investing:

Deutsche’s investment themes for 2012

We just finished our three-day Reuters 2012 Global Investment Outlook summit in London, New York and Hong Kong, where prominent money managers have discussed their outlook for next year. (For more click here)

Deutsche Bank Private Wealth Management (whose official was also a guest at the summit) is telling its clients the following 10 investment themes for next year.

1. Safe may not be safe Don’t react to uncertainty by automatically taking refuge in traditional safe havens such as cash, sovereign bonds, real estate or precious metals as they may prove less safe than they appear.

2. Walk before you run Build up holdings gradually, first focusing on “equity lite” type holdings

3. Ready, steady... go? When we get some clarity on euro zone resolution, not only equities and bond markets will start to have a different momentum.

4. Be nimble, but with a safety net Consider resorting to regular, dynamic portfolio rebalancing to adjust to economicand market developments.

5. Reason should dominate emotion Avoid an emotion-driven response that is likely to result in wrong investment decisions, andwrong timing, and make sure that reason always dominates the decision-making process.

from Global Investing:

Healthy flows into money market funds

Despite concerns about contagion from the euro zone, investors injected fresh funds into U.S. mutual funds, including money market funds, latest weekly flow data from Lipper shows.

The week ended Nov 16 saw a net $10 billion inflow into mutual funds, including ETFs, while investors were net buyers of equity funds with flows at $2.8 billion. Equity funds, including ETFs, witnessed their fifth consecutive week of net inflows.

Reflecting jitters over the debt crisis however, investors injected $2.8 billion into taxable fixed income funds and for the second week in a row bought into money market funds to the tune of $2.9 billion.

Despite tensions in the funding market (LIBOR dollar rates were up again and 3-month euro/dollar cross-currency basis swaps hit their widest since December 2008 at 134bps yesterday), money market funds especially in the United States are attracting safe-haven flows. According to flow data from the Investment Company Institute, total U.S. money market mutual funds increased by $6.41 billion to $2.645 trillion for the week ended Wednesday.

So it seems no "breaking the buck" fears are resurfacing just yet.

from Funds Hub:

Morning Line-Up: Thoroughbred, fees, fixed-income funds

News and views on the asset management industry from Reuters and elsewhere:

Investors in Thoroughbred fund granted early exit - NY Times

Yes, you can lose money in fixed-income funds - WSJ

Who's who in the latest insider trading arrests - Reuters

The incredible shrinking fee - WSJ

Smaller hedge funds to enjoy inflows - Financial News

from Global Investing:

Equities — an ‘even years’ curse?

Are global equity markets under an 'Even Years Curse' that sees them underperform bonds in even-numbered years but beat fixed-income returns in odd-numbered ones? After some number-crunching, Fidelity International's' director of asset allocation Trevor Greetham suspects so.

"It's not just hocus-pocus but to do with global inventory levels," he explained at a forum organised by the London-based investment house.

The inventory cycle typically lasts about two years. 'Up' years are good for company profits and equity prices with the inverse true when inventory levels are being drawn down. And over the last decade, Greetham notes, the 'stocking up' years have been odd-numbered calendar years while inventory draw-down years have been even-numbered ones.

Looking at the MSCI All World Equity Index, Greetham found equities generating a 69-percent return over the 12-year period starting from 1998.  Breaking this down into odd and even years, equities went down by 30 percent in even years, and up by 143 percent in odd years.

On an annualised basis, growth was 4.5 percent, down three percent in even years and up 7.7 percent in odd-numbered years.

Compared against the JPMorgan Government Bond Dollar Index, equity returns beat bonds by 13 percent per annum on an average compound basis during odd-numbered years. In the even-numbered years, global stocks underperformed bonds by 15 percent.

from The Great Debate:

A rising tide of capital controls

(James Saft is a Reuters columnist. The opinions expressed are his own)

Easy money in the United States, a falling dollar and growing flows of funds seeking better returns in emerging markets are touching off a new round of capital controls in hot emerging markets, a trend that could accelerate and will at the very least increase market volatility.

It shouldn't be a surprise, really; loose money in the developed world is helping to spur investment into emerging markets, driving currencies up and making local exports less competitive for countries which, unlike China, aren't hitching a free ride as the dollar declines.

Inflation may be a threat for many of these, but with the global economy still struggling, it certainly won't feel that way to policy makers.

Russia on Wednesday joined the list of countries eyeing new measures to stem currency speculation and appreciation. Moscow was careful to say it would not impose actual capital controls, which seek to regulate flows of funds into or out of an economy, but the measures they are considering would have exactly that effect, making it tougher or more expensive for money borrowed abroad to be brought into Russia.

Kazakhstan, which has been intervening actively to slow the ascent of its tenge currency, has introduced legislation allowing capital controls, but so far has not used them.

Indonesia said this week it will consider curbs on foreign holdings of short-term official debt, sending its rupiah into a brief swoon until central banker Hartadi Sarwono damped things down by saying currency moves based on such flows were so far manageable.

from DealZone:

R.I.P. Salomon Brothers

It's official: Salomon Brothers has been completely picked apart.

Citigroup's agreement to sell Phibro, its profitable but controversial commodity trading business, to Occidental Petroleum today puts the finishing touches on a slow erosion of a once-dominant bond trading and investment banking firm.

When Sandy Weill (pictured left) staged his 1998 coup -- combining Citicorp and Travelers, Salomon Brothers was a strong albeit humbled investment banking and trading force. Yet little by little, a succession of financial crises, Wall Street fashion and regulatory intervention has whittled away at the once-dominant firm.

Not long after the Citigroup was formed, proprietary fixed income trading --  once the domain of John Meriwether, was shut down after the Asian debt crisis fueled losses that Weill could not stomach.

The Salomon name disappeared long ago as investment bankers and underwriters were rebranded Citigroup Global Markets.

Now Phibro, the former Philips Brothers that merged with Salomon in the early 1980s, is to be cast off because its energy traders made too much money when the rest of the bank suffered losses and required a $45 billion of taxpayer bailout.

from Funds Hub:

Guard dog shows teeth

You've got to hand it to Cerberus.

While we dutifully write stories about a new beginning for the hedge fund industry, marked by transparency at levels never seen before and fund structures designed to satisfy those burned by the credit crisis, the firm named after the guard dog at the gates of Hades comes up with its own tactic -- lock up investor money for three years.

You might think that this is the last thing investors want, but it has a curious logic.

The biggest complaint about the widespread lock-ups in the hedge fund industry over the last 12 months was the arbitrary nature of them. Just when clients thought 'phew, at least I can pull my money out of XX fund', they found the gate slammed shut on them.

With Cerberus's new model though, investors will have comforting certainty about the status of their money at the firm's hedge funds, and know that they'll need to plunder other sources for cash should the need arise again. We'll have to wait and see if others follow suit, but a widespread adoption of three-year lock-ups could give investors pause for thought and slow the recovery of the industry's asset building.

As an aside, I've just glanced at tonight's copy of the doomed London Paper and spotted some heartwarming fixed-income news to lighten anyone's mood. In the 'Lovestruck' column designed to allow the resurrection of brief encounters in the streets we find the following tortured appeal:

"You work at Bloomberg. Fancy discussing things other than bonds?" - Investment Banker.

from Funds Hub:

Exporting Insight

BNY Mellon Asset Management which today acquired Lloyd's fund management unit- Insight Investment- for 235 million pounds is betting on a boom in liability driven investment (LDI) to boost its coffers over the coming years.

Vice chairman Jon Little told us that Insight's fixed income and absolute return businesses were expected to grow rapidly, but it's Insight's LDI business that seems to have played the decisive role in the deal.

"Over time most pension plans will look at some form of LDI type investment strategy - so this is a huge market for us. And this is not a trend just in the UK. It is an emerging theme in the US, Holland, Germany and Japan," Little said.

The next steps for BNY would be to take Insight's capabilities in LDI, fixed income and absolute returns to clients outside UK.