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Money managers under the microscope

from Global Investing:

Too much correlation

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Globalisation is evident in this graphic put together by James Bristow, a global equities portfolio manager at BlackRock. It shows the correlation between the U.S. S&P stock index and counterparts in Europe, Australasia and the Far East.

Basically, what happens these days on Wall Street is matched everywhere else, or vice versa.

Bond benchmarks go back to the drawing board

Olli RehnWith the euro zone facing a fiscal deficit nightmare, passive bond investors have been forced to think hard about whether following a simple market cap-weighted benchmark is a good idea. Traditional bond indices have the biggest weighting to the largest borrower — so investors end up lending more money to those desperate to borrow it.

“Passive investing in a traditional sense in fixed income doesn’t make a lot of sense,” said Paul Abberley, CEO of Aviva Investors UK. “The market caps of equities broadly correlate with underlying economic growth but it doesn’t work that way with bonds. For example, you would have been steadily increasing your exposure to Greece as they borrowed more and more.”

Got those zombie company covenant lite blues

Zombies 2One of the big drivers of the debt balloon that imploded so spectacularly was the trend for covenant “lite”, which has allowed zombie companies to stumble on long past the point at which it would have been useful for creditors to intervene. This has sharpened the appetite for stronger corporate governance around covenants and persuaded investors that they need to take more of an active interest in what companies are actually doing with their money.

Enter the engaged bond investor – for a long time the domain of equity investors with a social conscience, socially responsible investing (SRI) is now being applied to bond portfolios by asset managers Aviva Investors and F&C.

Hedge funds hit back after ESMT report

As EU countries and the European Parliament thrash out final details of the AIFM Directive on hedge funds, particularly over the treatment of foreign fund managers, two reports lend firepower to those calling for a tougher line to be taken.

In its latest Financial Stability Review, the ECB says the financial crisis showed there are problems associated with hedge funds’ business models and they can add to market stress during volatile periods.

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