REVIEW www.assettv.com • June 2016
Natixis Global Asset Management
David F. Lafferty
Opportunities in a Post-Beta World
PLUS INSIDE:
Thornburg
Steps Ahead of a Looming Liquidity Challenge
HOT SEAT
IndexIQ - Currency Hedged ETFs
REVIEW
Meet the team REVIEW brings to the page many of the best insights we have filmed and broadcast in recent weeks. With hot links direct to videos, it’s possible to mix and match reading and viewing.
Contents
When you watch a video on assettv.com it is logged as a personal CE record that you can use to validate your research and learning. MASTERCLASS is accredited for CE Credits by leading professional associations including the CFP Board, IMCA and CFA Institute.
Neil Jeffery, EVP – Head of Americas neil.jeffery@asset.tv Having worked with Asset TV in the UK since the company’s inception in 2003, in 2012 he crossed The Pond to establish Asset TV Inc. in NY.
Deb Wetherbee, Senior Vice President Sales deb.wetherbee@asset.tv Deb is a seasoned member of the industry bringing her expertise from kasina FRC, Nuveen, and Nvest (now Natixis) to Asset TV Inc. Deb is currently spending most of her free time watching little league games from the sidelines.
Natixis Global Asset Management
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Opportunities in a Post-Beta World
5
David F. Lafferty, Natixis Global Asset Management
Steps Ahead of a Looming Liquidity Challenge
Jason Brandt, Vice President Sales
6-7
Nicholos Venditti, Thornburg
jason.brandt@asset.tv A graduate from Binghamton University, BA, and Pace University, MBA, Jason was one of the first to join Asset TV Inc. He is also the current office champion of Ping Pong and Bowling.
HOT SEAT: Currency Hedged ETFs Salvadore J. Bruno, IndexIQ
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Gillian Kemmerer, Head of Institutional & Alternatives Programming gillian.kemmerer@asset.tv Most recently a hedge fund journalist for Absolute Return, Gillian holds an MSc from the London School of Economics and a BA from Columbia University. She is a competitive archer and sports fanatic.
Courtney Woodworth, Anchor and Producer courtney.woodworth@asset.tv After graduating from Boston College, she started her career as an analyst at Morgan Stanley. After a decade on Wall Street, she joined Asset TV in 2015.
Tad Fabiaschi, Audience Development Manager tad.fabiaschi@asset.tv Tad majored in Economics at SUNY Purchase and in his spare time attempts to play golf on the weekends. He is an F.C. Bayern Munchen fanatic and on weekends divides his time between competitive scuba diving, squash and custom furniture design. He also used to be a Sous Chef for a leading French Michelin starred Bistro.
The LeaderBoard
10-11
Columbia Threadneedle Investments 12-13 Trending on Asset TV
14-15
MASTERCLASS
16-17
SALT Diary
18-19
ETF Channel
20-21
Speaker highlights from our flagship program
Northern Trust Asset Management 22-23 Hedge Funds Channel
24-25
ASSET TV REVIEW IS PUBLISHED FOR INVESTMENT PROFESSIONALS.
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No part of this publication may be reproduced without the prior permission of Asset TV Inc. Information, views and opinions contained in the articles have been compiled from interviews conducted by or hosted on Asset TV with regulated fund managers and other investment professionals. Asset TV Inc. accepts no liability for any loss arising from the use hereof nor makes any representation as to their accuracy or completeness. Whilst every care has been taken in preparing Asset TV Review, neither Asset TV inc. nor the authorities can accept responsibility for any errors it may contain or for any losses from or in reliance upon its contents.
Featured Interview with Jennifer Blanke Global Chief Economist
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SPECIAL FEATURE FROM NATIXIS GLOBAL ASSET MANAGEMENT
MANAGER PERSPECTIVES Evolution of ESG Investing
David Herro, Global Growing Pains
Fund in Focus: Pinpointing Value Opportunities
Jens Peers, CFA® , Portfolio Manager, CIO of Sustainable Equities, Fixed Income, and Impact Investing at Mirova, takes a look at the major shifts and improvements in ESG investing, reasons for its growing popularity, and roles it may now play in portfolio construction.
David Herro – Deputy Chairman, Portfolio Manager and CIO at Harris Associates L.P., an affiliate of Natixis Global Asset Management – discusses the macro environment including global growth and recent market volatility.
Scott Weber and Rhett Carter, portfolio managers at Vaughan Nelson Investment Management, an affiliate of Natixis Global Asset Management, explain their valuation discipline, loss avoidance philosophy, high concentration approach and why trading time for value may make sense.
DURABLE PORTFOLIO CONSTRUCTION RESEARCH CENTER
®
Natixis 2016 Global Survey of Individual Investors
Natixis 2015 Global Survey of Institutional Investors
Natixis 2015 Global Survey of Financial Advisors
Our fifth-annual Global Survey of Individual Investors offers a look inside the expectations of 7,100 investors in 22 countries, providing a clear view into the challenges that may keep them from achieving their goals. John Hailer, President and CEO of Natixis Global Asset Management for the Americas and Asia, discusses findings from our most recent research study.
Institutional investors are at a critical point in the evolution of investment strategy – one in which the need to meet long-term goals is often in direct competition with the need to meet short-term performance pressures. John Hailer, President and CEO of Natixis Global Asset Management for the Americas and Asia, discusses findings from the 2015 Global Survey of Institutional Investors.
From volatility and increased fee pressures to tightening regulations and a rise in automated advice platforms, financial advisors around the world are facing a new frontier of challenges. John Hailer, President and CEO of Natixis Global Asset Management for the Americas and Asia, discusses findings from the 2015 Global Survey of Financial Advisors.
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June 2016 www.assettv.com
REVIEW FEATURED ARTICLE Portfolio Construction Managing Volatility: Alternatives Can Help
OPPORTUNITIES IN ADavidPOST-BETA WORLD F. Lafferty, CFA , Chief Market Strategist
Volatility seems to come out of nowhere, but the reality is it’s always been a factor. The four alternative strategies explored in this animated video may help mitigate volatility in overall portfolios.
®
Understanding the Value of Active Share
Natixis Global Asset Management As we move into the 2nd half of 2016, what are likely to be the dominant capital market themes driving portfolios? Seven years of ultraaccommodative central bank policies have put the squeeze on investors. On one side, low rates have driven equity valuations around the world to elevated levels. P/E expansion as a return driver has run its course. Meanwhile, slow nominal growth – so-called “secular stagnation” – will limit both top line revenues and bottom line earnings. While we aren’t bearish, these factors create a low ceiling for stock returns over the next few years. On the other side, bond market returns are severely limited by paltry starting yields. If central banks eventually triumph over slow growth and deflation, rising rates will only subtract from these already low returns. Falling rates, due to either central bank desperation or global recession, offer little salvation as bond gains would likely be more than offset by equity losses in that scenario.
Broad market beta isn’t dead, but it has gone into hibernation. If beta is hibernating, what are the asset allocation consequences for investors? Investors need to migrate toward alpha. The 60/40 beta portfolio has worked fabulously well since 2009, but we’ve reached the end of the line. Now investors need to look for returns within the index instead of returns on the index. Within equities we still see significant dispersion. There are plenty of dislocations and opportunities, stemming from pessimism in places like energy and financials or euphoria embedded in utilities and consumer staples. Does this mean investors should favor active strategies over indexing? Passive strategies certainly have their place, especially in a world where investors are becoming more sensitive to taxes and fees. However, it does feel like we’ve gone a bit too far. I’m not sure you can have a “bubble” in indexing, but if so,
Visit the Natixis Channel for latest insights: http://bit.ly/1OAmJtB
we’re probably there already. In addition, indexes have their own inherent flaws in that they are cap-weighted and risk-unaware. Smart beta is trying to address these shortfalls, but it’s still beta. In this post-beta world, where are the risks to investors? The biggest risk may be that they end up in the wrong portfolio – one that isn’t consistent with their risk tolerance or objectives. Low return expectations and an uncertain macro environment are forcing many investors into cash and allocations too conservative to generate real returns. Conversely, with super-low yields, the siren song of dividends is luring other investors toward stocks. Stocks may outdistance bonds, but it’s dangerous to shift your risk profile for a few more basis points of yield. Central bank actions have encouraged investors to take on more risk, but that doesn’t mean you have to play along.
Use Active Share to get a better perspective on where performance comes from and to determine how a fund’s holdings overlap, or don’t overlap, with its benchmark.
Risk Budgeting: Importance of Managing Portfolio Risk
Having a budget is an important part of any financial plan. Creating a risk budget will help to manage market volatility and create portfolio balance.
Follow @LaffertyNatixis on Twitter
www.assettv.com June 2016 5
SPECIAL FEATURE
STEPS AHEAD OF A LOOMING LIQUIDITY CHALLENGE
Nicholos Venditti, portfolio manager and managing director at Thornburg Investment Management, shares how he manages around the next potential crisis in fixed income. Is liquidity taking center stage now? Nick Venditti: It’s not always the talk of the town, but liquidity in the fixed income market still looms as a detrimental risk. It could surface overnight, given the right mix of economic scenarios and circumstances.
How did the liquidity challenge arise? Nick Venditti: Income unavailability aside, 2013 was a good time for fixed income investors and municipal investors in particular. Rates kept moving lower, an actual rate hike was years away, the Puerto Rico credit story was still months from spilling itself and there were 10
buyers for every seller. Then, Federal Reserve Chairman Ben Bernanke mentioned tapering. All of a sudden rates shot up to over
3% by year end. Fixed income investors, who had been waiting for the dream to end for some time, began to flee the space the very minute the Fed began discussing the slow end of quantitative easing.
Does today’s muni market feel like 2013? Nick Venditti: Yes. Bond investors are still struggling to find income, but price appreciation is strong, as rates rallied to 1.66% despite the much-anticipated Fed tightening in December. Credit spreads are tight, and although the market is still inundated with Puerto Rico news, general credit appears to be improving.
What is exacerbating the potential liquidity crisis now? Nick Venditti: Several factors. Perhaps most notable are
government regulations. In the past, investment banks would typically act as liquidity providers during market disruptions. Government regulations have effectively reduced the size of the balance sheet of those financial institutions. If we see another liquidity event, banks may be unable, or unwilling, to step in to help stabilize the market. Big banks are starting to reduce human capital as well. Low rates have driven down profitability of fixed income trading desks, leading many of the major players to severely reduce headcount. Lastly, the landscape of fixed income investing has changed since the financial crisis of 2008. The municipal market has always been heavily influenced by the retail investor. Recently, retail ownership in the corporate market has ticked up (see Figure 1).
Could Market Withstand Herd’s Flight from Corporates? (Figure 1) In their reach for yield since 2008, far more retail investors chose corporate bonds (over municipals, agencies/government issues, etc.). If herd mentality holds true, a major market disruption could create an unprecedented liquidity crisis if everyone sells at once.
How do retail investors factor into a liquidity threat? Nick Venditti: Retail investors tend to act in tandem and usually overreact to market disruptions. Any disturbance in the fixed income markets could cause retail owners to hit the sell button at the same time. At that point, banks will be forced to make a relative value decision between corporates and municipals when determining which securities to add to their balance sheets.
Nick joined Thornburg in 2010 as a fixed income research analyst and was promoted to associate portfolio manager in 2011 and portfolio manager and managing director in 2015. Nick earned an MS in finance from Syracuse University, an MA in applied economics from the University of North Carolina - Greensboro, and a BA from Trinity University. For more articles and information about our active approach to fixed income visit www.thornburg.com/fixedincome.
The views expressed by the portfolio managers reflect their professional opinions and are subject to change. Under no circumstances does the information contained within represent a recommendation to buy or sell any security. Thornburg mutual funds are distributed by Thornburg Securities Corporation.
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REVIEW
Source: Federal Reserve, Financial Accounts of the United States, December 31, 2015. GSE = Government Sponsored Enterprises How are you staying ahead of this as a muni fund manager? Nick Venditti: Generally, our duration is down and credit quality is up. While it is impossible to entirely insulate a portfolio from liquidity risk, Thornburg’s global fixed income and municipal investment teams have been making a concerted effort to help protect our portfolios from such an event.
Are you further out on the curve now? Nick Venditti: The market has not been compensating investors to take such risk. Credit spreads, particularly in the municipal market, have remained incredibly tight. Absolute rates
are extremely low and the slope of the yield curve has not been enticing enough to take excess duration risk. As such, we have shortened the durations of most Thornburg fixed income portfolios.
What about moving deeper into non-investment grade? Nick Venditti: Given the excessive costs of taking on more credit risk, Thornburg has been taking it off the table, investing in carefully selected higher-grade credits. This has increased the average credit quality of our portfolio lineup.
Is your strategy making an impact? Nick Venditti: Yes. A derived
benefit of our selective derisking is higher-than-average cash and reserve positions across our fixed income portfolios. This way, we’re structured to meet redemptions that may arise with cash, rather than proceeds from “fire sale” bond trading.
Does Fed policy have an influence on where you look? Nick Venditti: We’re not led by the Fed. We manage our core portfolios to a laddered structure. Generally, laddering involves investing in bonds at staggered maturities so that a portion of the portfolio will always mature each year. As bonds mature, they generate cash to be reinvested or used to meet shareholder liquidity needs.
At its core, active laddering provides a constant source of cash flows as bonds mature each year. Therefore, liquidity in the portfolio is naturally boosted by it.
Is market liquidity still a concern for you? Nick Venditti: Always, because it will affect the markets on a systemic level. But we believe our focus on quality credit research and our actively managed approach to laddering and other fixed income strategies will provide us with the foundation and flexibility to not just weather a liquidity storm but to exploit market dislocations for the benefit of our shareholders.
Past performance does not guarantee future results. Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit thornburg.com. Read them carefully before investing.
www.assettv.com June 2016 7
Take the smart view of currency
HFXI
International exposure with a 50% currency hedge Can you predict future currency movements? No one can. In the absence of strong convictions around the direction of the U.S. dollar, euro, yen, and other global currencies, investors may find the most practical way to address exchange-rate risk is through a balanced, fixed 50% currency hedge.
HFXI
To learn more about IQ 50 Percent Hedged FTSE International ETF and why MainStay means ETFs, call 888-934-0777 or visit IQetfs. Before you invest: There are certain risks of investing in the Funds. The Funds’ shares will change in value, and you could lose money. An investment in the Funds does not represent a complete investment program. The Funds will invest in securities denominated in currencies other than U.S. dollars (foreign currencies), and much of the income received by the Funds will be in foreign currencies, but the Underlying Index and the Funds’ NAV will be calculated in U.S. dollars. Furthermore, the Funds may convert cash in U.S. dollars to foreign currencies to purchase securities. Since the Funds invest in the securities of non-U.S. issuers, the securities may involve risks beyond those associated with investments in U.S. securities. Both the Funds’ ability to track the Underlying Index and Fund returns, in general, may be adversely impacted by changes in currency exchange rates, which can occur quickly and without warning. The Funds use various strategies to attempt to reduce the impact of changes in the value of a foreign currency against the U.S. dollar. These strategies may not be successful. Derivatives are investments whose value depends on the value of an underlying instrument, such as a security, asset, reference rate, or index. Derivatives may be difficult to sell, unwind, or value. The use of a derivative may be more volatile than the underlying direct investment. The performance of the Underlying Index and the Funds may deviate from that of the markets the Underlying Index seeks to track, due to changes that are reflected in the sector more quickly than the quarterly rebalancing process can track. Securities in the Underlying Index or in the Funds’ portfolio may also underperform in comparison to the general securities markets. The strategy used by the Advisor to match the performance of the Underlying Index may fail to produce the intended results. Consider the Funds’ investment objectives, risks, and charges and expenses carefully before investing. The prospectus and the statement of additional information include this and other relevant information about the Funds and are available by visiting IQetfs.com or calling 888-934-0777. Read the prospectus carefully before investing. MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of the mutual fund. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of the IQ Hedge Multi-Strategy Plus Fund. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC.
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REVIEW Watch more HOT SEAT MUNICIPAL BONDS Expert: Bob DiMella, MainStay Investments
HOT SEAT - CURRENCY HEDGED ETFS EXPERT: SALVATORE J. BRUNO, INDEXIQ EXPERT PROFILE
Mr. Salvatore J. Bruno, serves as a Senior Vice President, Head of Research and Product Development at IndexIQ, Inc. Mr. Bruno also serves as the Chief Investment Officer and EVP of IndexIQ, as well as Portfolio Manager of various IndexIQ funds in the fund complex.
What is the size of market or flows into unhedged currency ETFs vs. hedged currency ETFs? Starting in 2014 into the first quarter of 2015, we saw a tremendous dollar appreciation relative to both the euro and the yen. The flows into the currency hedge products actually lagged the performance of the dollar
relative to the yen and the euro. So we saw most of the money start to flow into the 100% currencyhedged products late first quarter into the early second quarter. So investors did not actually get the protection against the rising dollar that they were actually seeking. Since that time, the dollar has traded sideways to actually down relative to those currencies. So those investors that put their money in at that time were actually a little bit behind in the game. Those that did better were not hedged in the period from the second quarter of 2015 through
the current period. So on average, those that were 50% hedged did better than those that got whipsawed and got in a little bit too late on the currency hedge. Why is a 50/50 hedge ratio the only optimal ratio? Currency moves are notoriously difficult to try to time. They can
actually vary both across time periods and across regions within a single time period. If we look at the chart that’s on the screen, we have three different currency hedging strategies: unhedged, 50% hedged, and 100% hedged. If we look in the first panel, we see in the Developed ex North America starting in 2010 with the unhedged outperformed; 2011 the hedged outperformed. That reversed again in 2012 and then reversed again in 2013. So you can see the pattern. Note that the 50% hedge was always right in the middle, neither outperforming or underperforming.
Since the expected return of the market basket of currencies is zero, and there’s a cost to hedge, why should an investor hedge? I think it’s really important to differentiate the time horizons that we’re talking about when we’re talking about the expected return being zero on the currencies. While it may be true in theory that over long-holding horizons that the expected return is zero, most investors don’t have a 30-year holding horizon, and we can see significant volatility in the currencies over these much shorter time periods.
There are three-to-four-year or five-year horizons where the dollar can move very sharply, relative to individual currencies. Even within those time periods, many of the moves are concentrated within the best six or worst six months.
Bob DiMella, Executive Managing Director and Portfolio Manager, sits down in Asset TV’s Hot Seat to answer questions from top financial professionals about municipal bonds.
PENSION RISK TRANSFER Expert: Scott Kaplan, Prudential
Scott Kaplan, Senior Vice President, Head of Pension Risk Transfer, Prudential, sits down in Asset TV’s Hot Seat to answer questions from top consultants and experts about pension de-risking.
INSTITUTIONAL INCOME ANNUITIES Expert: Roberta Rafaloff, MetLife
Roberta Rafaloff, Vice President, Institutional Income Annuities, MetLife, sits down in Asset TV’s Hot Seat to discuss common misconceptions and clear up myths about income annuities.
www.assettv.com June 2016 9
SPECIAL FEATURE
THE LEADERBOARD
The top 10 most watched people in 2016
The power of Asset TV to deliver video research to a network of over 220,000 investment professionals in the U.S. allows them to make better informed investments. Viewers from all major wire-house and broker dealer firms watch for their investment due-diligence and to benefit from an accredited source of continuing education. The Leaderboard represents the most popular industry experts as watched by investment professionals in 2016.
BOB DOLL 01 Nuveen
MEGGAN WALSH 02 Invesco
Bob Doll is a senior portfolio manager and chief equity strategist at Nuveen Asset Management.
Meggan Walsh is a Senior Portfolio Manager and Head of the Dividend Value team for Invesco.
LATEST VIDEO: 1Q ENDED FLAT, MARKETS WENT EVERYWHERE TO GET NOWHERE
LATEST VIDEO: INVESCO INTERACTIVE: A HIGH-CONVICTION APPROACH TO VOLATILE MARKETS
KEVIN HOLT 03 Invesco
SHAUN WURZBACH 04 S&P Dow Jones Indices
Kevin Holt is Chief Investment Officer for Invesco US Disciplines and a Senior Portfolio Manager for the large-cap deep value strategy.
Shaun Wurzbach is responsible for financial advisor channel management globally at S&P Dow Jones Indices
LATEST VIDEO: INVESCO INTERACTIVE: A HIGH-CONVICTION APPROACH TO VOLATILE MARKETS
LATEST VIDEO: MANAGING GLOBAL EQUITY RISK WITH SECTORS
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REVIEW
HEIDI RICHARDSON 05 BlackRock Heidi Richardson is Head of Investment Strategy for U.S. iShares.
LATEST VIDEO: INSIGHT INTO ACTION: US TECHNOLOGY
MARK KIESEL 07 PIMCO Mr. Kiesel is CIO Global Credit and a managing director in the Newport Beach office.
LATEST VIDEO: U.S. RECOVERY: A CONSTRUCTIVE BACKDROP FOR CORPORATE CREDIT
RUSS KOESTERICH 09 BlackRock Russ Koesterich, CFA, JD, Managing Director and head of Asset Allocation, is a member of the Global Allocation team within BlackRock’s Multi-Asset Strategies Group.
LATEST VIDEO: SEEKING SHELTER FROM THE STORM
JASON BRADY 06 Thornburg Investment Management Jason Brady is president and CEO of Thornburg Investment Management. He is responsible for the company’s overall strategy and direction.
LATEST VIDEO: INTERESTING TIMES FOR ACTIVE INVESTORS
ROBERT W. LOVELACE 08 American Funds from Capital Group Robert W. Lovelace is president of Capital Research and Management Company, Inc., part of Capital Group, and serves on the Capital Group Companies Management Committee. He is also an equity portfolio manager.
LATEST VIDEO: CHINA, U.S. TRADE PLACES AS GLOBAL GROWTH ENGINE
DODD KITTSLEY 10 Deutsche Asset Management Dodd Kittsley is the Head of ETF Strategy at Deutsche Asset Management.
LATEST VIDEO: MASTERCLASS: EXCHANGE TRADED FUNDS - FEBRUARY 2016
www.assettv.com June 2016 11
SPECIAL FEATURE
COLUMBIA THREADNEEDLE INVESTMENTS
Latest videos now available on the Columbia Threadneedle Investments Channel
A Reliable Approach to Retirement Income
U.S. Equity Market Outlook
Colin Moore - Global CIO at Columbia Threadneedle
Melda Mergen - Head of Equities at Columbia Threadneedle
“I think people need to focus on the reliability of the income they generate in their portfolio, rather than maximizing the income. We’re all living longer, but it means we need that income to be produced over a longer period of time.”
“Active managers had the opportunity to take advantage of this volatile market by repositioning their portfolios, taking advantage of the price dislocations. Corporate earnings are under pressure, and it’s really a statement of the slowing global growth.”
A Stable Outlook for Municipal Bonds
Building a Portfolio for Volatile Markets
James Dearborn - Head of Municipal Bond Investing at Columbia Threadneedle
Colin Moore - Global CIO at Columbia Threadneedle
“We see our market as being very stable and plateauing at a high level. I think the most important thing for us is that we don’t see a recession in the near future, which would have a negative impact on state revenues.”
“The mistake people make is they assume if they own a lot of things, they’re diversified. What we’ve learned through the last crisis is that a lot of things are diversified when you don’t need them to be, and when you need them to be, they’re not.”
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Introduction to Fixed Income Solutions
James Dearborn - Head of Municipal Bond Investing at Columbia Threadneedle
Fixed Income Solutions - Trading
Anthony Purcell - Head of Municipal Institutional Trading at Columbia Threadneedle
“For our fixed income solutions clients, institutional accounts and our mutual fund shareholders, all of the vast credit and trading resources at Columbia Threadneedle’s investment organization are available for our portfolio managers.”
“Our tier 1 trading desks allow us the ability to structure new issue deals for our clients’ specific needs before those deals hit the marketplace. We also work very closely with smaller and regional dealers to access vital products for those clients in high tax states.”
Fixed Income Solutions – Credit Research
Fixed Income Solutions – Best in Class Technology
Chad Farrington - Head of Municipal Bond Credit Research and Senior Portfolio Manager at Columbia Threadneedle “The credit research team takes ownership of a credit from initial recommendation through ongoing surveillance. In doing so, they allow us the ability to own across all the revenue bond sectors and allow us the ability to own lower investment grade credits.”
David Kennedy - Senior Portfolio Manager, Client Portfolio Manager at Columbia Threadneedle “Technology allows the hardcoding of your specific investment guidelines (risk tolerances, liquidity requirements, etc.) into our trading system. If you have socially responsible investment concerns, it can generate a warning to our portfolio manager.”
VISIT OUR CHANNEL ON ASSETTV.COM WWW.ASSETTV.COM/CHANNEL/COLUMBIA-THREADNEEDLE-INVESTMENTS www.assettv.com June 2016 13
Trending on assettv.com Fixed Income
A Bond’s Eye View of Brazil
Retirement
Investing for Retirement in an Era of Low Yields
Rob Neithart - Portfolio Manager at Capital Group
Nathan W. Thooft - CFA, Co-Head of Global Asset Allocation at John Hancock Asset Management
“Brazil had very poor returns for very good reasons. The possibility that that’s going to change creates an opportunity for very high risk premiums to recede. My hesitation is that there’s a long road ahead and not all assets are pricing in the same degree of opportunity.”
“Individuals in their retirement years are focused on generating a fairly consistent level of return. Whether you get that return from income or from capital appreciation, we’re fairly agnostic to that. Ultimately the tool that we need to have is more flexibility in fixed income.”
Risk Managed Solutions - Fixed Income at Delaware Investments
Top Re-Enrollment Misperceptions
Roger Early - Head of Fixed Income Investments at Delaware Investments
John Galateria - Head of the North America Institutional at J.P. Morgan Asset Management
“We’re of a size where we have the resources that can do indepth research. We also have a presence on Wall Street where we can get the allocations to bonds we’re looking for. But in addition, we’re small enough that we can make a difference in each client’s portfolio.”
“Re-enrollment is the best solution for plan sponsors looking to help participants with their DC plan. Most plan participants are somewhat confused by investment concepts. With re-enrollment, you’re defaulting people who have chosen not to engage at a higher level.”
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Geopolitical
Hugh Hendry Offers Views on Global Monetary Policy
Hedge Funds
Jane Buchan Offers Emerging Manager Outlook
Hugh Hendry - Founder of Eclectica Asset Management
Jane Buchan – Chief Executive Officer of PAAMCO
“The fear of a US recession is way too early. I’m actually seeing a convergence and it makes me rather excited. When I survey the surface of risk assets, I believe that they’re priced for imperfection. For an investor to make money this year, you don’t need a lot to happen.”
“In 1950, private credit as a percent of GDP (household and corporate combined) across all the advanced economies was about 50%. By 2008 it had grown to 170%. That growth in debt is almost entirely explained by a growth in real estate lending.”
Debt, Deflation, and Financial Risks
Pierre Andurand Says Go Long Oil
Lord Adair Turner - Former Chairman of the Pensions Commission and the Committee on Climate Change
Pierre Andurand - Famed Oil Trader and Founder of Andurand Capital
“We’re not huge proponents of stop-losses, we don’t think that’s a prudent way to run a portfolio. But we do think managers need to make sure they keep their feet on the ground and once theses don’t work out, they’re willing to sell the security.”
“I don’t think there was a need for an OPEC meeting because the market already started the rebalancing process. I think we’ll be in a deficit in a few months, and it is going to be structural. So I don’t think we need anybody to cap production.”
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Emerging Markets
Small Cap Investing
Olga V Yangol - PM, Investment Team, HSBC Global Asset Management
Jay Kaplan, CFA - Portfolio Manager, Principal at The Royce Funds
“In local bonds you have two factors: currencies and the yield on local currency bonds. So as the Fed takes their foot off the pedal, that gives some room for EM countries as well to delay potentially hiking their policy rates.”
“If you took the Russell 2000 and divided it between the nonearners and the earners, the non-earners vastly outperformed. If you look at from the middle of 2015 through the end of 2015, complete opposite.”
Target Date Funds
Impact Investing and ESG
“If you take the most conservative glide path, the one that has the heaviest amount of fixed income in the industry and you take the most aggressive glide path, the one that has the heaviest amount of equity in the industry, those are both through funds.”
“I think as a good index provider you want to be driving this conversation, you want to be ahead of the curve, and yet you also want to take their comments and suggestions and their viewpoints and kind of consolidate that.”
Daniel Oldroyd - Portfolio Manager & Head of Target Date Strategies at J.P. Morgan Asset Management
Kelly Tang - Director, Global Reasearch & Design at S&P Dow Jones Indices
VIEWERS BENEFIT FROM THE OPPORTUNITY TO APPLY FOR CE CREDITS RECOGNIZED BY THE CFA INSTITUTE, CFP BOARD AND IMCA. 16
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Asset Allocation Richard Golod - Chief Global Strategist at Provasi Capital Partners
Mid Cap Investing
Derek J. Deutsch, CFA - Managing Director, Portfolio Manager at ClearBridge Investments
“You build that great portfolio from day 1, but then the correlations change 3 months, 6 months…and unless you’re doing the covariance where you’re saying, ‘is that correlation still there?’ where what was a great portfolio today is highly correlated 12 months from now.”
“This may be a market environment now where growth is a little bit challenged, but at the same time we’re seeing lots of companies that are able to demonstrate still very good earnings growth in this environment.”
Exchange Traded Funds
Fixed Income in a Volatile Market
“As people have peeled the onion a bit more, I think that they have come to realize that currencies are for many an unintended exposure, and in many instances, an uncompensated exposure as well; it’s an additional source of risk.”
“Now we’re looking at a Fed who’s talking about maybe 2 rate hikes this year, and that’s possible, but it’s also possible that they don’t actually act because we don’t see the kind of growth they need.”
Dodd Kittsley - Head of ETF Strategy at Deutsche Asset Management
Nicholos Venditti - Municipal Bond Portfolio Manager & Managing Director
www.assettv.com June 2016 17
CONFERENCE REPORT
SALT DIARY BY GILLIAN KEMMERER
One of the biggest events so far this year was the SALT Conference in Las Vegas, so of course Asset TV was there to capture it all. The following are some of the highlights from the event. There is a strange lore that follows the annual SkyBridge SALT Conference, which takes place each May at the Bellagio Las Vegas. I find reporters and some investment professionals scurrying past the casino floor in attempt to take a broad-based temperature check, leaping to conclusions after a few sentences (and meanwhile, thousands of business leaders tuck away in corners as they hunt for their next great investment idea). One bearish statement is made on one podium, and suddenly the headlines
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read “hedge funds brace for recession!” or, better yet, “hedge funds are done!” This year was hardly different. Headlines emerging from the conference suggested sullen faces and defensive pleas for a second chance; one reporter for Business Insider even went as far as to say, “I went to the biggest Wall Street party of the year and everyone was miserable.” Call me contrarian, but I had trouble detecting the armageddon that seemed to emanate from the headlines. The swagger had been toned
down a bit—fewer Saudi Arabian bank IPOs were pitched as no brainers, fewer pinstripe suits (thank god). We saw some public concessions from Wall Street titans— Omega’s Lee Cooperman agrees that fees must come down, and yes, many allocators admitted to playing defense. The flamboyant, large-cap activists were uncharacteristically quiet, while the less-sexy but more “traditional hedge funds” as SkyBridge CIO Ray Nolte called them, took the floor (think structured credit).
Instead of constructing broadbased consensus across 1,800 business leaders (Milton Berg and Don Brownstein could barely agree on the merits of short-term trading), I’ll offer you five interesting sound bites from across the Bellagio. Asset TV had the pleasure of interviewing some of the conference’s most interesting speakers, and we are thrilled to deliver a more in-depth view on many of these topics on the SALT highlights channel.
REVIEW Other Featured Videos Ray Nolte Takes a Fresh Look at Credit
AROUND THE BELLAGIO IN FIVE SOUND BITES: On the low-hanging fruit: “Clearly the banks have exited from the lending markets, so we love small business lending right now,” said Randy Slifka, managing principal of family office Slifka Asset Management. “We think that if we can get one-year paper with an average yield of 12% and a 4% default rate, that represents a part of private credit that’s exceptionally interesting.”
On emerging markets ripe for activist investing: “The ones we like to choose because we believe there are some tailwinds are particularly the Philippines and India,” said Teresa Barger, founder of longonly emerging markets activist shop Cartica Management. “They’re both growing at about 6.5%. The Philippines has a big current account surplus, so we’re not talking about really big devaluations on the horizon for their currency,
which is a godsend. India we believe is reforming, slowly and not as much as we would like, but going in the right direction. They’re most likely going to come out with a bankruptcy law very soon.”
On the traditional 2&20 hedge fund fee structure: “The fees are ridiculous,” Kynikos Associates founder Jim Chanos told reporters at a press conference. “I’m shocked they stayed this high for this long.”
On the winners and losers in the energy market: “Just as all things moved down and there was a lot of concern or lack of confidence in any oil recovery, a lot of good companies traded down into the 30s,” said Leslie Biddle, a partner at Serengeti Asset Management and former head
of global commodity sales at Goldman Sachs. “I think we’re now seeing that on the flip side—a lot of companies who, in this price environment, are going to be very challenged, and we’re seeing those bonds trade inside 7%. There are definitely winners and losers in this, and shorting some of the losers is going to be a good place to spend time in the second half of the year.”
On high-yield and corporate credit: “I think if you look at corporate credit and high-yield, it’d be premature to get too active or too involved there,” said Ray Nolte, chief investment officer of SkyBridge Capital. “I think you need to see more defaults, I think you need to see more credit downgrades…we don’t think you’re getting paid enough at these default rates and at this point in the cycle.”
Ray Nolte, Co-Managing Partner and CIO for SkyBridge Capital provides an update on the credit market and offers his insight on the effect of negative rates.
Leslie Biddle Sees Winners and Losers in Energy
Leslie Biddle, Partner at Serengeti Asset Management provides her insight on the energy sector and offers her prediction for oil prices heading deeper into 2016.
Randy Slifka Sees Opportunities in Lending, Litigation Finance
Randy Slifka, Managing Principal for Slifka Asset Management discusses the returns from Q1 and provides some potential strategies for the rest of the year.
www.assettv.com June 2016 19
Videos available on the ETFs Channel
Current Trends in the US ETF and ETP Space for April 2016 Deborah Fuhr - Partner, ETFGI LLP
“The US ETF industry has reached a new record high of $2.218 trillion. Assets have doubled in just over 4 years, with 1,884 ETFs and ETPs in the current market space with 97 providers listed on 3 exchanges around the world.”
Creating and Redeeming ETFs
The Science of Multi-Factor Investing “GersteinFisher is among the first firms ever to take factor investing from out of the theoretical world, and apply those theories in the real world. The approach we use is called, multi-factor investing. Multi-factor investing is a systematic, rules-based approach. It acknowledges that risk and return should be related, but not all risks are rewarded equally. Certain parts of the financial markets reward investors more than others.”
ETF Channel Update - May 9, 2016
Luke Oliver - Head of ETF Capital Markets at Deutsche Asset Management “ETFs have had a tremendous amount of growth over the last 10-15 years. However, ETFs are structured differently from other investment vehicles. At the heart of this difference in structure is what is called the “creation and redemption” process.”
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“In the wake of the new fiduciary rule issued by the Department of Labor, major inflows are anticipated into low-cost ETFs and index funds. As this rule is phased in over the next two years, brokers will be required to make some significant changes to how they do business.”
REVIEW
Flexible Indexing: Goals-Based ETFs by FlexShares
Regulatory Changes in the ETF Space
Shundrawn Thomas - EVP and Head of Funds and Managed Accounts Group at Northern Trust Corporation
Kathleen Moriarty - Partner at Kaye Scholar LLP
“In this day and age of investing, nontraditional indexing may be favored by many investors over other traditional indexing methods. One nontraditional indexing method is flexible indexing, which is best described as ‘actively designed’ and ‘passively managed’.”
“We certainly will see regulation within the year that has to do with liquidity and derivatives. There’s been a lot of concern about how those things occur in mutual funds as well as ETFs, and there’s been a real proposal for each and a lot of comments going back and forth so I think by the end of the year we may see something, or if not the end of the year, early next year.”
Why Tactical Fixed Income is Different
Increasing Returns through Smart Beta Justin Sibears - Managing Director, Portfolio Manager
“A tactical fixed income approach is more relevant today than it has ever been before. Declining interest rates have benefitted passive fixed income investments, but rising rates make a thoughtful tactical approach more important.”
“People like Warren Buffet over the last 30+ years have been really doing exactly what smart beta tries to do, which is identify companies with risk premium associated with them. What we can learn from that is the way we evaluate smart beta should be no different than the way we evaluate any other type of strategy.” www.assettv.com June 2016 21
NEW CHANNEL ON ASSETTV.COM
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REVIEW
Videos available on the Northern Trust Asset Management Channel
China: Impact on Emerging Markets
Money Market Reform: Shaping the Next Generation of Liquidity Solutions
Bob Browne - Chief Investment Officer
Peter Yi - Director, Short Duration Fixed Income
“For nearly a year now, we in the markets have been concerned about a China hard landing. That concern is no longer justified. The Chinese government’s efforts to stimulate the economy are definitely paying off.”
“As we approach the final phases of Money Market Reform, the industry has spent an incredible amount of time educating investors and refining product sets to shape the next generation of liquidity solutions.”
Live Well, For Life. New Target-Date Funds
Insights into Climate Change
Sabrina Bailey - Global Head of the Defined Contribution Solutions
Mamadou-Abou Sarr - Global Head of ESG Investing
“Plan sponsors face two main challenges. The first is fiduciary risk. The second is that employees are now asking for more advice and guidance than ever before.”
“As an asset manager, I think we have the chance to think about innovation, and that’s what we’ve been doing for a couple of years now. I think the financial sector is already playing a key role in tackling climate change risk.”
VISIT OUR CHANNEL ON ASSETTV.COM WWW.ASSETTV.COM/CHANNEL/NORTHERN-TRUST-ASSET-MANAGEMENT www.assettv.com June 2016 23
Videos available on the Hedge Funds Channel
Jack Inglis - Hedge Fund Industry Update
Hedge Fund Industry Assessment
Jack Inglis, CEO of Alternative Investment Management Association (AIMA)
Amy Bensted - Head of Hedge Fund Products at Preqin
“There is clear evidence that the search is spreading wider for alpha, for talent, for investment opportunity amongst institutional investors where once upon a time, the first entry point was into the very largest names. So that whole process of researching managers is spreading much further.”
“Preqin checks all alternative assets such as private equity, real estate, infrastructure, private debts and hedge funds. We track institutional investors in those funds, the performance of the funds, new funds coming into the market and asset flows into those types of products.”
Doug Haynes Talks Culture, Recruitment and Sophomore Summit
Dermot Keegan Says Fund of Funds are Alive and Well
Doug Haynes - President at Point72 Asset Management
Dermot Keegan - Senior Managing Director at Mesirow Advanced Strategies
“Culture has actually been at the center of our agenda. In turning Point72 into a truly great firm, we let the people define what would make a great firm and defined the values by which we would operate. When you’re investing in a company, you are to some degree, investing in the culture.”
“An area that’s gaining interest and traction that people are interested in, that we’re very interested in, is distressed credit. We think that market’s likely to crack at some stage, so we have certainly been building up capital and clients that are interested in that.”
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REVIEW
Around the World with Mark Yusko
HFA’s Symposium: “Women in Hedge Funds”
Mark Yusko - Founder of Morgan Creek Capital Management
Meredith Jones - Author, Researcher and Alternative Investment Consultant
“The Fed should have raised rates back in 2013 when we had some strength in the economy. Now the economy is slowing down, we have GDP growth slowing, year over year earnings slowing, probably a recession sometime in 2017. It’s a really bad time to be raising short rates.”
“Women invest differently than men due to certain biological, cognitive and behavioral factors and so that creates additional diversification within a portfolio which can help mitigate volatility. And ultimately, if there were more women on Wall Street, could help mitigate volatility in the overall market.”
Anne-Sophie d’Andlau Unpacks Differences Between U.S. and European Shareholder Activism Anne-Sophie d’Andlau - CIAM co-founder “At CIAM, we are basically creating a franchise of doing European-type activism around corporate events. So it’s not about going to change the strategy of a company. It is really about making sure that we’re getting the right price for each of our investments in an offer process, for instance.”
Paul Graham Discusses AlphaGen Energy Wins Paul Graham - CEO of AlphaGen Capital “We have been surprised by the Q1 sell off in markets. I think they’ve been significantly oversold on issues that we thought were already priced into market. Clearly the China issue was at the forefront of investors’ minds, so actually the macro backdrop has been very negative.” www.assettv.com June 2016 25
SEE YOU ON JUNE 13-15, 2016 IN CHICAGO
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REVIEW FEATURED INTERVIEW Other Featured Videos A New Dawn for Brazil?
WORLD ECONOMIC FORUM
Interview with Jennifer Blanke Chief Economist of the World Economic Forum George Soros said on Friday that he is shorting the Asian currencies because a hard landing in China is unavoidable. What is your outlook on the country? I think in general I’m a bit more sanguine on China than many in the financial market. I think even if you look at what happened in the financial market over the last few months, it’s hard to explain. Sometimes the money that’s going into markets are the ones that seem to be having the greatest difficulties. At the same time, if you look at China, yes, debt has gotten very high and that is of some concern, and it really depends on how that unravels over time. At the same time, I think China has a lot more room to grow. The other thing to keep in mind is the fact that 6-7% growth today is equivalent to double digit growth in terms of absolutes just a decade ago. And so, China’s still growing quite fast, regardless of which number you believe. So I don’t really see a hard landing. At the same time, the slowdown in China will be an important wake-up
call to emerging economies and many others that they also have to roll up their sleeves and get to the hard work of reforming and making sure that they’re prepared to develop in a different way than just selling commodities to China. What is your outlook for emerging markets in light of the commodity boom and bust? I’m quite disappointed that a lot of these economies did not make the reforms, not really plow ahead, with what they know needs to be done during the good times. It would have been easier when they had these sort of windfall incomes coming from the commodities boom. What structural reforms are needed in the countries that failed to profit from the benefits of the China-driven commodity boom? They have to really look at their markets and make sure that they’re functioning well and not burdening business creation with so much red tape, ensure that the educational systems are adapted, at least to today’s economy, let alone tomorrow’s economy. These are really big issues.
Now at the same time, they need to be moving up the value chain. The whole idea is that you’re not just selling what you dig out of the ground or what you sort of get out of the field, but that you’re actually doing something with it. Producing chocolate rather than cocoa, things of that nature. I’m hoping that a lot of these economies around the world will actually now face these issues head-on because they can’t wait any longer. Is any particular country or emerging economy getting it right? I think there’s a lot of interesting things happening. Even if you look at Africa that has just recently seen a downgrade in terms of expected growth, there are countries that are doing quite well such as Côte d’Ivoire. Ethiopia continues to grow quite quickly. India, still has quite interesting things happening there with some efforts towards reform. I think if you look all around the globe you’ll find bright spots, countries that are really making that effort.
Capital Group portfolio manager, Carl Kawaja discusses recent corruption investigations in Brazil and how he is assessing the potential for new investment opportunities there.
Troy Chakarun Sees Emerging Markets Debt Demand
Senior Vice President of Voya Investment Management, Troy Chakarun shares his thoughts on where he sees the biggest opportunities in 2016, including emerging market debt.
Emerging Markets May Be Down, But Don’t Count Them Out
Senior portfolio manager of John Hancock Strategic Income Opportunities Fund, Daniel S. Janis III explains where opportunities may exist for discerning investors in emerging markets.
www.assettv.com June 2016 27
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