Key themes from first set of Lausanne Summit speakers
The InvestmentEurope‘s Pan-European Summit 2017 kicked off yesterday afternoon at the Beau Rivage Palace welcoming 73 fund selectors from across Europe.
The first presentations running yesterday and today afternoon featured key strategies from Aberdeen Asset Management, Brandes Investment Partners, Lord Abbett, Nordea Asset Management, Old Mutual Global Investors, RWC Partners and Tokio Marine Asset Management.
Aberdeen’s investment manager Kathy Collins said investors can benefit from the attractive yields and income generation of emerging markets corporate bonds.
These bonds have proved to be an asset class with resilient income generation in the face of commodity shocks, Fed rate hikes and extreme political events in global markets.
The outperformance vs other major asset classes reflects its short duration, as well as the strength of EM corporate fundamentals, where default rates are well below US high yield counterparts.
“EM net leverage remains below US peers, while EM corporate default rate remains muted,” Collins noted.
VALUE OPPORTUNITIES IN EMERGING MARKETS
Brandes Investment Partners’ Christopher Garret also spoke about EM but from a value investing perspective.
Garret noted that, although EM is primarily recognised for growth, this region is an ideal breeding ground for mispricing – which means opportunity for value investors.
After a few “difficult” years, Garret is currently seeing a rebounding in value style during 2017, with “attractive” absolute and relative valuations in EM.
“We see value opportunity in Brazil and Russia due to stronger positive sentiment,” he highlighted.
Brandes’ director Dylan Turner added there is strong academic evidence supporting that EM value stocks have outperformed the EM growth ones.
Lord Abbett’s investment strategist Brian Arsenault discussed high yield opportunities in 2017.
After significant returns in the US high yield market in 2016, many investors are asking if they “missed the rally”.
While we may not see the outsized returns of last year, Lord Abbett’s Arsenault believes the US high yield market can still post respectable returns in 2017.
Lord Abbett’s top down view has helped high yield perform in both up and down markets, as the asset manager tend not to chase alpha by taking duration risk since it “can be tricky”, Arsenault said, adding that his team is managing about 1% of the $1.5trn US high yield market.
Nordea Asset Management’s Henning Padberg spoke about the “overlooked” opportunity in large growing climate and environment stocks due to misperceptions.
While area is no longer driven by subsidies and philanthropic motives, a strong economic incentive is behind the firms offering climate and environment solutions.
Nordea has identified 1,000 companies in a €5trn universe, which means “plentiful opportunities” for stock picking.
Padberg’s team selects a portfolio of about 50 global holdings with firms such as Hexcel, which advanced materials allow planes to be 20% more fuel efficient than similarity sized planes.
“It isn’t a cyclical tend a but long-term strategy,” Padberg noted.
Old Mutual Global Investors’ head of Global Equities Ian Heslop warned investors not to fall into the style bias trap when investing in US equities.
With the new presidency likely to have an expansionary and inflationary effect along with several potential sources of instability ahead, making calls based on macro events and binary outcomes is not guarantee of success with investing in US equities, Heslop said.
“Active managers find it hard to predict the market, only 27% of them outperformed the S&P 500 in 2016,” he noted.
This is why Heslop recommends to apply diversified and rotational investment styles: staying flexible by avoiding style bias.
“We are not focused on macro predictions but on understanding the market to apply the right style,” he said.
CONVERTIBLES SWEET SPOT
RWC Partners’ head of the Team and Lead Portfolio Manager Davide Basile set the case for convertible bonds as a “compelling opportunity” in a higher volatility and rising interest rate environment, if equities are high.
Basile explained 2017 could be a “very exciting” year for convertible bonds: political shifts, yield compression, and a number of other factors mean the asset class is now in a sweet spot.
Convertibles participate with equity markets as they rise and benefit even further in periods of higher volatility, as the fixed income component means they may also provide downside protection when required.
“Investors are surprised of converts’ low volatility and at the same time big spikes,” Basile said.
Following the value rally in the Japanese equity market in the second half of 2016, Tokio Marine Asset Management’s CEO Yasuyuki Kanda looked beyond Japan’s macro story and said the market will shift back to a fundamentals focus where the individual earnings prospects of companies matter more in determining stock price performance.
“Delta points are important to survive as a growth manager in a market such as Japan,” Kanda noted.
Kanda expects the Japanese market in general will be robust with some supporting factors on the backbone of stable politics unlike other developed countries.
Strategies of the remaining assets managers presenting at Lausanne Summit — Baillie Gifford & Co, Ossiam in partnership with Barclays, Principal Global Investors, First State Investments, Eurizon Capital, First Trust Global Portfolios and MFS Investment Management – will be published after the closure of InvestmentEurope’s flagship event.