Funds Hub
Money managers under the microscope
Manager warns of US government bond bubble
Those investors still gobbling up US government bonds as a nice defensive investment could be in for a nasty surprise, according to James Montier, a member of GMO’s asset allocation team.
Speaking at the CFA Institute’s European Investment Conference in Copenhagen, Montier said there was currently no margin of safety for investing in bonds as yields were just too low. “Rather than being a risk-free asset this could be about to become a return-free risk,” he said. “Historically, when people have bought bonds at these levels they have received a zero return or worse.”
Montier rejected the notion put forward by bond-bugs that the US was heading in the same direction as Japan 10 years ago, as the Federal Reserve has responded much more quickly than the Bank of Japan to fight deflation.
“Everyone loves government bonds at the moment because they have just delivered some incredible 10 year returns, but flows into bond funds are now higher than equity fund flows at the height of the TMT bubble,” he said, sending a shiver up delegates’ spines.
Montier also pointed to another lesson from history – Fortune 500′s “10 stocks to last the decade”, unveiled in August 2000, which included names such as Enron and Nokia. “The average P/E at the time of purchase was 347x,” he said. “Where was the margin of safety? It’s a similar problem today with US government bonds.”
As well as insisting on this margin of safety for investors, Montier proposed several other immutable rules of investing ranging from: “Be patient” to “Be leery of leverage”. Montier prefers cash at the moment to equities and bonds, which he said was was like trying to choose between two ugly sisters. “I’d prefer to hold out for Cinderella,” he said.
Morning line-up: Asian solar, bonds and correlations
News and views on the fund industry from Reuters and elsewhere:
Lands of the rising sun – Reuters
Bonds. Bubble? – Telegraph
Chasing the dream – Reuters
Don’t take it personally.. – Belfast Telegraph
New bid to solve hedge fund rules row – Reuters
Correlation swaps.. – FT Alphaville
Morning Line-Up: Bonds in demand, Newcits help for hedgies
News and views on the asset management industry from Reuters and elsewhere:
Credit Suisse tales stake in hedge fund York Capital - Reuters
Silicon Valley venture fund aims for China deals - Reuters
Investors buy bonds despite bubble fears - Fund Strategy
SEB Enskilda offers one stop shop for hedgies’ UCITS funds - HedgeWeek
from Jeremy Gaunt:
And the investor survey says…
Reuters asset allocation polls for August are out. They show very little change from July, which suggests investors are still cautious and uncertain about what is happening.
One big difference, month-on-month, was a large jump into investment grade corporate debt. Andrew Milligan of Standard Life Investments reckons this may in part have been because sovereign debt rallied so much over summer that returns from government bonds are now too meagre.
Here is the big picture:
Trimming equities in the summer freeze…
Leading investors around the world barely changed their exposure to assets in August, trimming equities slightly in favour of bonds, where they loaded up on top-notch corporates, Reuters polls showed on Tuesday.
Watch the video by clicking the link below:
Morning Line-Up: AIG targets Chinese investors, nuns sue Morgan Stanley, Davies’ new career
News and views on the asset management industry from Reuters and elsewhere:
AIG eyes Chinese investors for AIA stake- FT
Nuns sue Morgan Stanley over bond – WSJ
Ex minister, Stan Chart chairman joins private equity firm – Reuters
CQS upbeat on credit
It’s not often that the bigger hedge fund firms share their market positioning, especially at a time when funds are struggling to find decent investment ideas.
So it’s interesting to see CQS, which runs $7.5 bln, offering its views on credit markets.
The firm upped its risk across investment grade and junk bond markets 3-4 weeks ago, and, despite taking off some bets during the rally, is still positive short-term.
It cites cheap valuations and also the condition of the economy — while many believe a severe double dip has been averted (hence the recent narrowing in credit spreads), this doesn’t mean the economic picture will be rosy. CQS argues growth won’t be strong enought to force up interest rates, meaning bond prices would still be supported.
Vanguard plans UK target retirement date funds
US passive giant Vanguard is planning to bring its target retirement date products to the UK market to target the growing defined contribution (DC) pensions business.
Taking to Reuters at the Fund Forum, Tom Rampulla, managing director of Vanguard UK, said that the firm was currently trying to structure these long term savings products for the UK market, and looking to add key funds to support the offerings.
“We’re trying to construct a glide path and looking to add an inflation-hedge bond fund and a long-dated bond fund,” he said. A glide path describes the way an investor’s asset allocation changes over time as they near their target retirement date. For example, a younger investor might have more equity exposure than bonds, but move more of their savings into bonds as their retirement date nears.
Rampulla said that the DC market wasn’t huge yet in the UK but 80 percent of these DC assets are in the “default” option – generally a balanced fund which is concentrated in equities.
Although Vanguard didn’t initially set out to target the instistutional market in the UK, some 50 percent of its £800 million under management is in this segment, and Vanguard recently appointed David Plumstead to lead the institutional sales business.
It has already received commitments from pension funds, insurers and a Belgian multi-national with a UK retirement plan, with flows mostly into the equity index products.
Beyond the bond fund launches and the roll out of the target retirement date products, Rampulla said he was also looking to add Exchange Traded Funds (ETFs) to the UK range to help support its targeting of the fee-based adviser market.
Morning line up: Public pension review, Private equity, Europe bonds
News and views on the fund industry from Reuters and elsewhere:
Hutton rules ‘nothing’ out in public pension review – FT
European bond volume falls by a third in first half 2010 – WSJ
Private equity deals make a come back in Q2, but short of boom times – Reuters
from Global Investing:
The art of being passive
Hundreds or even thousands of "active" fund managers are competing to add alpha to beat benchmark indexes, be it in stocks, bonds or alternatives.
The market is so efficient, historical performance is no guide to the future. It's nearly impossible to find a reliable method to pick advisers who deliver the best industry returns year in and out. There are also costs, from visible ones such as management fees and custody and administration expenses to "below water" costs such as trading commissions (due to higher turnover), bid/ask spread (price to buy, another to sell) and market impact costs (larger buy/sell orders affecting price).
Given this, is there a point in investing in active funds? What about just diversifing your assets through passive indexes?
This is the philosophy behind London-based fund Frontier Capital Management, run by Mike Azlen.
Azlen told a briefing in his Berkeley Square office this week how a passive approach beats active investment most of the time.
Frontier's fund invests in 8 classes and over 15,000 securities in asset allocation which closely mirrors one by endowment funds such as Harvard and Yale University. Azlen reckons average actuve fund expenses would be around 2.3 percent (or 9 percent for emerging market active funds).
