Global Investing

Lambs to the slaughter

The mood was not so much one of indignant fury but quiet disappointment in Founders Hall for the Candover AGM yesterday. 

A contrite and clearly uncomfortable chairman Gerry Grimstone took the stand – looking like a schoolboy caught with his hand in the biscuit tin, wishing he could be anywhere else. 

 

He said he had lain awake at night re-examining the decisions that have devastated the share price and brought the company to the brink of sale. And it was easy to believe him. 

 

Company founder Roger Brooke spoke from the floor of his personal hurt and sadness at the damage to the company’s reputation.

 

“I do find it odd that the board was not aware there was a financial crisis,” added his co-founder and past chairman Stephen Curran.  

Terminal problems

If Nigerian banks appear to have suffered disproportionately in the global financial crisis, maybe they have Heathrow Terminal 5 to blame.

Nigerian banks were advertising their services on billboards in Terminal 5 last year, and travelling investors felt it showed the banks were rashly trying to keep up with international investment banks in aiming for a global profile, causing many to sell, a banker specialising in Africa told journalists this morning over breakfast.

“Those adverts were a sign to sell Nigerian banks,” Luca del Conte, executive director in treasury and capital markets at Medicapital Bank said.

Ignoring the drumbeat?

Reuters released its February asset allocation polls today, showing an ever so slight increase in average holdings of stocks. The signficiance, however, was not in the small increase but in the fact that there was no decrease. February has not been kind to riskier investments, with a drumbeat of poor economic news combining with new fears about banks to send global stocks to fresh six-year lows.

Dig inside the various polls — they come from the United States, Britain, Japan and continental Europe — and you find different moods. Three-quarters of U.S. managers polled, for example, made no change at all in their allocations over the month. Europeans, meanwhile, are so gun shy that they are holding more than twice as much cash as their long-term average. Japanese investors were a bit more optimistic than a month earlier, apparently because fears of deep trouble in China are easing.

What it all says is that investors are generally sticking to the sidelines, but are not being particulary spooked by continuing bad news. So is that the bottom? Or maybe familiarity breeds contempt?

Desperately seeking yield

Equities may be having a stop-start kind of month, but investors do seem to be more willing to take on risk than before. The latest numbers from EPFR Global, a tracker of investment flows, show high-yield bond funds raking in the money in the second week of January. A net $766 million flowed into the HY funds tracked by the firm. At the same time, a net $578 million flowed into U.S. municipal bond funds.

The drive behind these flows is a mix of a desperate search for yield and a belief that the risk might well be worth taking. Investment grade corporate debt is considered to be priced at Armageddon levels. That is, the price assumes too much trouble ahead than is likely. This has led, for example, to a monthly record in new bond issuance in January in Europe.

High yield is not pricing in quite as extreme a default rate from a historial perspective. But it is still evidently attractive, hence $3.38 billion in global net inflows over the past seven weeks.

The Wrong Lesson

 

Investors learned the wrong lesson from the dotcom bubble, and ended up blowing another. 

 

That’s the view put forward at the CFA Institute’s conference in Amsterdam by Ben Inker, head of asset allocation at GMO. He believes investors became so enamoured of diversification – which seemed to work like a charm for the large US university endowment schemes – that they ran headlong into risk asset classes and blew a giant risk bubble. 

 

Inker argues that because investors rushed into risk asset classes indiscriminately, they ended up paying for the privilege of taking risk.

How low will hedge funds go?

How bad will hedge funds’ year-end performance figures look?

According to Credit Suisse/Tremont, funds fell 6.30 percent in October after a 6.55 percent drop in September, taking losses for the first ten months to 15.54 percent.

Seven strategies are now nursing double-digit losses, with only two — managed futures and dedicated short bias — in positive territory.

Even global macro, which bets on the likes of global equity markets, world currencies, sovereign debt and commodities, is now back in the red. These funds are down 7.10 percent after substantial losses in September and October.

A riot of a recession

Every month, the financial services company State Street studies the trillions of dollars in institutional investor money it looks after as custodian and tries to gauge where things stand. Over the years, it has come up with a map consisting of five different regimes, or moods, to reflect this. They range from the bullish “Liquidity Abounds” in which investors buy equities and focus on growth, to the uber-risk averse “Riot Point”.

Guess what? Investors moved into “Riot Point” last month after flipping about for four months in the slightly less bearish but still risk averse “Safety First” regime. This essentially means that they gave up in October – which is not a particularly stunning finding given that many stock markets had their worst performance in decades.

So now comes the bad news. In the 11 years State Street has been drawing its map, the longest period of risk aversion as measured by investors being in “Riot Point” or “Safety First” was the nine months between February and October 2001. This almost exactly coincided with the then-U.S. recession.

Star Coffey decides not to go it alone

So star hedge fund manager Greg Coffey has opted to join established firm Moore Capital.

In April, when high-performing, high-earning Coffey resigned from GLG, the market was awash with rumours that he wanted to start up his own firm, pulling in billions from investors.

However, times have changed in the hedge fund industry.

The average fund is down nearly 20 percent so far this year, according to Hedge Fund Research’s HFRX index, while emerging markets funds have taken a particular battering as markets such as Russia and China have fallen.

Fund manager sees ‘once in a generation’ opportunity

rtx9qop.jpgStock markets have fallen so far that they now offer brave, long-term investors a ‘once in a generation’ opportunity, according to LV Asset Management’s Tom Caddick.

While there is little sign of the bad news letting up, stock markets tend to look forward, rather than backwards, and will anticipate a recovery before it happens.

He’s backing up his brave talk by investing his own money in his funds.

However, he warns that while it could feel great in the long-term, don’t expect markets to rise immediately.

Fund manager Insight’s parental problems

rtr220n7.jpgLloyds TSB’s acquisition of HBOS will give it a supersized asset management arm with over 200 billion pounds in assets, but this new funds powerhouse will nevertheless be born somewhat inadvertently.

The combination of Lloyds’ SWIP and HBOS’s Insight will be the biggest active manager – i.e. funds that try to beat markets rather than just match them – in the UK.

Its access to Lloyds and HBOS’s huge branch network will give the funds unit a commanding position in distribution and a big slice of sales to ordinary investors.