Global Investing

Inside the Reuters investment polls

The headline news from our Reuters asset allocation polls this month was that not much has changed from December in terms of overall investment positioning, but that there was a decided shift from emerging markets and European stocks to North America.

But buried in the numbers were a couple of other things:

– Bonds are decidedly unpopular among fund managers. The overall global allocation was the lowest since February.

– Bond underweights have also been getting heavier and heavier since summer and now reflect significant bearishness.

– Within bond portfolios, however. U.S. debt was on the up, at levels not seen for at least 12 months. This contradicts the widely held view that Treasuries are losing their appeal.

– High yields are also clearly popular with a shift to “junk” from investment grade.

The Naked Truth

Do independent asset managers perform better than bank-run funds?

Lipper was recently approached to analyse the difference in performance between funds operated by broader financial services companies (banks and insurers) and those managed by ‘pure play’ asset managers.

This research came in the wake of comments made by Peter Hargreaves, founder of IFA Hargreaves Lansdown, who said in September that many funds in the UK run by banks were “seriously crap”.

With the temperature apparently rising, it might be a little foolhardy to enter such a debate. Yet objective analysis is surely where independent fund researchers can best provide a useful contribution. Besides, it might be gettin’ hot in here, but I for one will not be takin’ off my clothes.

Shock! Emerging capital controls may just be working

Do capital controls work?  After years of telling us that they do not, the IMF and World Bank reluctantly conceded last year they may not be all that bad and indeed in some cases they may actually help keep away some of the speculators who have in recent years been pouring into emerging markets.

Developing countries for the most part like foreign capital, indeed they rely on it for development. What they don’t like is hot money — short-term speculative flows which are widely blamed for causing past emerging market crises. So starting from October last year several of them slapped controls on some of this cash. There are signs these may be working.

Take the experience of two large emerging markets, Brazil and Indonesia. Brazil shocked forBRAZIL-MARKETS/eign investors last October with a 2 percent tax on all flows to stocks and bonds. Nine months on, investors are still putting their cash there and Brazil has raked in millions of dollars thanks to the tax. But many fund managers, like HSBC’s Jose Cuervo, who runs a $6 billion portfolio of Brazilian stocks, are buying American Depositary Receipts (ADRS) of Brazilian firms rather than stocks listed in Sao Paulo.  Because ADRs are in dollars and listed in New York, investors are getting exposure to Brazil but sidestepping the tax.  Brazilian firms continue to receive investment but Brazil’s currency is not appreciating  like it was last year. A win-win all around.

from Funds Hub:

Live from the City Oscars 2010

I'll be at the Guildhall in London today for the latest run down of the financial sector's favourite brokers, analysts and fund managers.

Scrambling for debt

Developing countries must be eyeing with alarm the vast amounts of bonds that the euro zone and the United States are planning to sell this year and for years to come. Having borrowed large sums, starting a couple of years back to fund the bailout of  U.S. and European banks, developed economies must now raise the cash to repay the holders of those old bonds  – in market parlance, they need to roll over the debt.

The prospect of rolling such vast sums continuously in the current fragile market must be unnerving to say the least. But what about other countries who too have creditors to pay off — emerging markets in particular?  How will their deals fare if  U.S. and European bonds, seen usually as safer assets,  flood the market and drive up yields?

Not too badly, it would seem. The first reason is a simple matter of numbers. The United States needs to roll over one-fifth of all  its outstanding bills in 2010, — a whopping $1.6 trillion. The euro zone must find 1.3 trillion euros in the coming year — more than the recent Greek aid deal that took them so much time and hand-wringing to finalise.   Emerging markets’ needs are tiny in comparison.  ING Bank reckons they need as little as $75 billion to service their hard currency debt in 2010 and half of this has already been raised.  Should not be a problem, then.

from DealZone:

Sovereign Funds sextuple down

They may be placing smaller bets, but sovereign wealth funds were back with a vengeance in the third quarter.

Global corporate mergers and acquisitions activity involving sovereign wealth funds jumped sixfold to nearly $22 billion in the quarter, with 37 deals completed. Global announced M&A volumes involving state investment vehicles stood at $21.8 billion, up from $3.6 billion in the second quarter, according to our data.

The number of deals more than doubled from 17 in the April-June period. Only two weeks into the fourth quarter, there were five pending or completed deals with a combined value of $164.7 million. At the height of the boom in the first quarter of 2006, sovereign wealth funds sealed 35 deals worth $45.7 billion.

I blame the fund managers

I’ve been building up a couple of dummy funds on Reuters’ new Portfolio tool. Not only is it a welcome diversion from actual work, but it allows me to test the mettle of the fund managers we speak to, and check out the guidance offered by the Lipper Leader fund rankings.

One of my portfolios uses the stock picks and short ideas offered up by the managers we interview for the many FUND VIEW stories which dot the Reuters wire. The other simply picks some of the funds which score highest across the Lipper fund sectors.

In theory, it gives me ample room to lay blame elsewhere when the dummy funds inevitably go belly up and I’m forced into a fire sale of assets to repay my dummy investors with dummy money. In truth though, I’m going to set the asset weightings and decide when to buy and sell so any abject failures will be more fairly laid at my door.

from Summit Notebook:

Tax evaders on the run

  By Neil Chatterjee
    The U.S. has promised it will hunt down tax evaders.
    And it seems tax evaders are on the run.
    DBS bank, based in the growing offshore financial centre of
Singapore, told Reuters it had been approached by U.S. citizens
asking for its private banking services. But when told they would
have to sign U.S. tax declaration forms, the potential clients
disappeared.  
    Swiss banks also approached DBS on the hope they could
offload troublesome U.S. clients to a location that so far has
not been reached by the strong arms of Washington or Brussels.
    DBS said no thanks. In fact many private banks and boutique
advisors now seem to be avoiding U.S. clients.
    Will this spread to other nationalities, as governments
invest in tax spies and tax havens invest in white paint?
    Is this the end of offshore private private banking?

from Summit Notebook:

Geneva is for wealth management

Even for an American who's not wealthy, Geneva has a reputation as a global centre for wealth management - the place the world's rich come to stash their money and (they hope) make it grow.

    But you don't necessarily expect it to be so aggressive -- after all, the rich tend to be demure when it comes to their banking.

    Imagine one reporter's surprise, then, on arriving in the airport in Geneva and seeing bank ads everywhere. Think of the casino adds in Las Vegas's McCarron Airport or the technology ads in San Jose's Mineta Airport: it's the exactly the same in Geneva, only with wealth managers.