Frédéric Leguay

(Ostrum AM), an affiliate of Natixis Investment Managers, announces the appointment of Frédéric Leguay as Head of Equities. He will report to Gaëlle Malléjac, Head of Insurance and ALM Solutions at Ostrum AM and member of the Executive Committee.

Frédéric Leguay will be responsible for the equity team within the Insurance and ALM Solutions Department of Ostrum Asset Management. In his new role, Frédéric Leguay will manage a team of seven equity manager-analysts, oversee the equity investment strategy, be in charge of client relations and contribute to the development of this activity in France and in Europe.

With nearly 30 years of experience in the financial sector, Frédéric Leguay has a thorough knowledge of the European equity markets. He holds a Master of Business Administration from the University of Georgia, as well as a diploma from the French Society of Financial Analysts (SFAF). He began his career in asset management at AXA Investment Managers as European Equity Manager in 1991, before joining HSBC Global Asset Management in 2006, first as Head of European Equities – Large Caps, then as Head of European Equities. He was most recently Head of the Equity Department since 2012.

Gaëlle Malléjac, Head of Insurance and ALM Solutions, said: “We are delighted to welcome Frédéric Leguay, whose wealth of experience in asset management and the equity markets is a major asset at the head of the equity team. His appointment reflects our ambition to further develop Ostrum AM’s insurance management and solutions to strengthen our position as a leading player in this market in Europe.”

Composed of four areas of expertise (fixed income insurance, equity insurance, multi-asset insurance and ALM solutions), Ostrum AM’s insurance management and ALM solutions division offers its clients multiple advantages: in-depth knowledge of the insurance ecosystem thanks to a team of 25 dedicated insurance experts, the implementation of responsible, multi-objective and multi-temporal active management, as well as a high quality of service, based on innovative and proprietary management and reporting tools.

The post Ostrum Asset Management appoints Frédéric Leguay Head of Equities Ostrum Asset Management appeared first on AdviserVoice.

Philippe Waechter

Growth has made a comeback but each country already wants to take its own path. Unity is no longer on the cards and the world economy is fast going down a very different road.

During the recovery in 2016 and 2017, the worldwide situation was relatively stable, with no major imbalances, and the central banks cut some slack when required to make it through any bumpy patches. This approach worked fairly well as the pace across the various areas of the world became more uniform, driving growth and trade momentum, and economists were constantly forced to upgrade their forecasts.

Looking to China and the US

The Belt and Road Initiative (BRI) sets out a roadmap for trade with third countries and reflects the country’s desire to shape its trade initiatives as it sees fit in order to limit the risks on its own situation. The logic underpinning this program is not necessarily entirely compatible with the WTO’s approach.

This whole issue is particularly important in light of the United States’ recent decision to implement import duties on steel and aluminum with the risk of knock-on effects worldwide and the danger of fresh imbalances across the globe, especially in Europe which is the primary supplier of US steel imports. The new aspect in the current situation is that the US is now targeting countries traditionally seen as partners, so the logic behind these moves is problematic

These measures will probably lead to an increase in US steel and aluminum production as production facilities in the country are not running on full capacity, and foreign production will be more expensive.

This is actually one of Trump’s arguments: production facilities can run at higher capacity so imports should be restricted in order to promote local production. But it will not be enough to meet all US demand, and prices are poised to rise for downstream sectors in the US, while also leading to lower exports for Europe and pricing pressure for non-US steel and aluminum production, which will no longer be sold across the pond. This will dent these sectors in Europe

This US initiative is also worrisome as it seems to be just one piece of the jigsaw rather than the whole picture. The While House even seems to want to take this strategy even further, apart from for countries that request special conditions and are willing to accept the terms laid out by Washington, which is probably not good news for these countries. This strategy sees the US break with WTO practices, on the grounds that it is supporting its local business interests. This policy will merely serve to further strengthen China’s trade programs

The other aspect of the current US strategy is that it pushes growth up via very aggressive fiscal policy, amidst an economy running on full employment. Generally speaking, when unemployment is very low, the US government’s deficit decreases, which is logical as the two indicators, unemployment and the public balance, provide a reflection of the overall business cycle. The usual regularity of the chart below is set to be disrupted in 2018 by moves from the White House and Congress. Unemployment is poised to remain low but the public deficit will increase, easily rising above 5% and moving towards 5.5% or even 6% and more.

US is adopting inward-looking politics

When Reagan embarked on stimulus moves, the economy was far from full employment, unlike the situation today. So the aim of this approach is not macroeconomic, but rather a strategy to redistribute wealth towards the richest portion of the population, as shown by simulations for the 2018-2027 period, which is the initial duration of this fiscal policy.

This policy is set to shore up domestic demand and further accentuate the external trade imbalance, as already seen over recent months. Pressure will initially emerge on the US market, so we can expect increasing pressure on inflation.To avoid the fall-out from this, the Fed will have to take faster and more decisive action than expected, which means that we can envisage more rate hikes in 2018 (at least four) if it is to curb the imbalances triggered by fiscal policy.

The US economy has not displayed robust growth across the current cycle (beginning in the second quarter of 2009), but this did not trigger long-term imbalances. Growth could have ambled along for quite some time, with monetary policy safeguarding a balance between the various aspects of the cycle, but the White House took a different route, creating a shock on fiscal policy along with a shock on trade via higher customs duties. This is set to lead to higher interest rates from the Fed and a flattening yield curve, as investors will still want to believe in the Fed’s credibility and will not factor a long-term increase in inflation forecasts into long-term rates.

The other consequence is that the Fed will have to normalize monetary policy more quickly than expected, and in order to address this possibility, the ECB will not want to take the risk of informing the market when it will change its monetary strategy. Benoit Coeuré was clear on this point during his interview on French radio yesterday morning, and this reflects the ECB’s dwindling independence as its strategy now hinges on moves from the Fed.

The Fed’s strategy is set to push up the dollar over the months ahead, and the interest rate differential will end up having an impact, especially if the Fed has to step up the pace of rate hikes. Rate hikes will be faster and sharper than expected, so volatility will surge on the equity markets. There is always an 18-24-month lag between the Fed’s rate hike and the increase in volatility, so this will take us to 2019/2020.

The three large geographical areas are no longer taking a coordinated and cooperative approach. The US and China want to set their own rules for international trade, with the danger that they will move away from WTO rules and resume a bilateral strategy all round, which will not be fair for parties across the board. Meanwhile in Europe, the lack of political initiatives raises a lot of questions. Economists put forward solutions but these are just castles in the air if they do not have political support. So the momentum triggered by the recovery has now come to an end and the emergence of a new political order is leading to uncertainty on the world economy’s ability to sustain the pace of growth achieved in 2017 and 2018 so far. The crisis is not over as the political transformation is not complete.

By Philippe Waechter, Chief Economist, Natixis AM

The post Each country for itself appeared first on AdviserVoice.

Jean Raby

Natixis Asset Management, an affiliate of Natixis Investment Managers, will be renamed Ostrum Asset Management from April 3, 2018. Ostrum Asset Management will focus on its core investment capabilities, fixed income, equity and insurance.

A new name for a more defined brand architecture

As part of Natixis’ strategic plan ‘New Dimension’, Natixis Investment Managers, one of the world’s premier asset managers2, has begun a process of aligning its brands. Within this new initiative, Natixis Asset Management, will become Ostrum Asset Management from April 3, 2018.

Jean Raby, Chief Executive Officer of Natixis Investment Managers, commented: “Ostrum Asset Management is our largest affiliate, and its distinct brand name re-affirms its key role in Natixis Investment Managers’ multi-affiliate structure. Ostrum Asset Management’s leading active investment solutions are an integral part of our Active Thinking℠ approach, helping clients to build portfolios to meet their long-term goals.”

New identity, symbol of change

“Ostrum”’s Latin roots pay tribute to the company’s European origins, while its meaning “purple colored” connects firmly to its parent companies Natixis and Groupe BPCE. The logo’s exponential symbol embodies Ostrum’s ambition to expand in partnership with its clients and staff, creating new opportunities in the fast changing asset management industry.

Matthieu Duncan, Chief Executive Officer of Ostrum Asset Management, adds: “Our new brandname Ostrum Asset Management highlights our experience in the financial markets over more than 30 years4, our strong performance track record5 and our investment teams dedication to our clients.”

Refocused range to serve fresh ambitions

A leading fund manager in Europe with assets under management of 324.5 billion euros on behalf of institutional, individual and distributor clients, Ostrum Asset Management is renewing its focus on its long-standing fixed-income experience, its focused equity capabilities and its renowned insurance expertise.

The company will thereby draw on its extensive global investment range of bond funds, with 90% of funds ranked 1st or 2nd quartile by Morningstar. It will also continue to roll out alternative solutions, such as CLOs and private debt on real assets, while bolstering its equity investment expertise, including thematic, small & mid cap and emerging funds.

Lastly, Ostrum Asset Management will use its unique insurance investment management expertise to continue supporting insurer clients via its tailored multi-asset solutions range.

Ostrum Asset Management will rely on Natixis Investment Managers global distribution platform, as well as the Groupe BPCE retail banking networks, to drive its growth.

The post Natixis Asset Management renamed Ostrum Asset Management appeared first on AdviserVoice.

Damon Hambly

Volatility finally roared back to abnormally tame markets, but most institutional investors were already bracing for impact; their efforts to diversify and build durable portfolios should now pay off, according to new survey findings released by Natixis Investment Managers.

78% of institutional investors expected stock market volatility to spike in 2018, and they are making opportunistic allocations to active management and alternative investments in order to meet average long-term return assumptions of 7.2% this year.

Natixis’ Centre for Investor Insight surveyed 500 institutional investors around the world to gain insight about how they are balancing long-term objectives with short-term opportunities and pressures. Seven in 10 investors agreed that the addition of alternatives is important for diversifying portfolio risk. Yet, they see a number of alternative strategies playing distinct roles in their portfolios.

Alternatives to diversify, manage mounting risks, and pursue returns

The survey found that investors continue to turn to alternative investments with 70% of them saying that it is essential to invest in alternatives to diversify portfolio risk and over half (57%) think investing in alternatives is necessary to outperform the broader market.

Damon Hambly, Australian CEO, Natixis Investment Managers, said: “The ‘lower for longer’ environment means we are seeing institutional investors favouring alternative assets as a means of risk mitigation, and accounting for around 20% of the average institutional portfolio. Looking at the Asia Pacific market specifically, institutions were mostly expecting to increase their allocation to all alternatives, with the most popular being private equity, REITs and real estate and infrastructure.”

When asked to match the best alternative strategies with specific portfolio objectives, institutional investors indicated the following:

• Diversification: Institutional investors most commonly cite global macro strategies (47%), commodities (41%) and infrastructure (40%) investments as best for diversification.
• Fixed-income replacement: Top choices for providing a source of stable income as interest rates rise and the 30-year bond bull market ends include infrastructure (55%) and private debt (47%).
• Volatility management: Institutions cite managed futures (46%) and hedged equity (45%) as best suited to manage volatility risk.
• Alpha generation: Traditional markets have generated attractive returns, but institutions see opportunity to outperform. Seven in 10 (72%) cite private equity as their top choice among alternatives for generating alpha. They also see hedged equity (45%) as useful in meeting this objective.
• Inflation hedge: Institutions view commodities (56%) and real estate (46%) as best for inflation hedging strategies.

Damon Hambly, Australian CEO, Natixis Investment Managers said the challenges faced by local institutional investors were consistent with their global peers.

“The return of market volatility is a timely reminder for institutional investors of the need for a consistent approach to portfolio diversification. As allocations decline for the third consecutive year, investors are questioning the benefits of passive strategies, with nearly 60% saying passive investing artificially suppresses volatility and distorts relative stock prices, 57% fearing it creates risk/return trade-offs, and 63% believing it increases systemic risks (63%). As a result, investors are increasingly turning to active managers and alternatives for the tools and flexibility to diversify their portfolios and mitigate risk,” said Mr Hambly.

And while alternative investments can present a range of portfolio risks, 74% say the potential returns of illiquid investments are worth the risk. That said, two-thirds report that solvency and liquidity requirements has created a strong bias for shorter time horizons and highly liquid assets, and hidden risks lurking with the dynamic macroeconomic and regulatory market makes it even more challenging for institutions to balance short-term opportunities and long-term objectives.

Active allocations continue to rise

Over three quarters (76%) of institutional investors say the current market environment is likely to be favourable to active management in 2018. In 2015, the survey found that institutions expected that 43% of total assets would be invested in passive strategies by 2018, but in reality the figure has been far lower, at 32% by 2017, with institutional investors projecting just a 1% increase in the next three years. More than half (57%) of those surveyed also said they expect active to outperform passive over the long term, despite three quarters (76%) saying alpha is becoming harder to obtain as markets become more efficient.

Nine in 10 institutional investors say minimizing management fees is one of the strongest drivers for passive investment strategies, but three quarters (75%) said they were willing to pay higher fees for potential outperformance.

The survey also highlighted a preference for active strategies in order to gain exposure to non-correlated asset classes, with three quarters (75%) citing it as one of the foremost reasons for a preference for active over passive instruments. Similarly, three quarters (75%) prefer active over passive to access emerging market opportunities, while 69% favour active strategies for providing risk-adjusted returns and more than seven in 10 (73%) for providing downside protection.

Damon Hambly commented, “The ‘active versus passive’ debate doesn’t look set to disappear, as institutions have signalled a gradual shift towards active strategies. The traditional arguments about the cost-saving potential of passive products are being challenged. For example, many institutions already see the long-term value of active management, and the access it brings to a broader range of asset classes.”

New attitudes toward ESG investing

Institutional investors have also signalled a more active approach to managing environmental, social and governance (ESG) issues, with three in five (60%) now integrating ESG investing into their approach.

The number of institutions that see alpha to be found in ESG now outweighs the number focused chiefly on risk mitigation, and their convictions about the efficacy of this approach are strong with the vast majority saying that incorporating ESG into investment strategy will become a standard practice within the next five years.

• 59% say there is alpha to be found in ESG investing
• 56% believe ESG investing mitigates risks (e.g. loss of assets due to law suits, social discord or environmental harm)
• 61% agree incorporating ESG into investment strategy will become a standard practice within the next five years

Whereas a year ago, the top reason institutional investors were integrating ESG was because of their firm’s mandate or investment policy, almost half (47%) say the incorporation of ESG is now driven by the need to align investment strategies with organizational values, while two fifths (41%) say the primary driver has been the need to minimize headline risk, a 21% increase on 2016.

“Attitudes towards ESG investing are changing dramatically, with the vast majority of institutions now saying that ESG leads to alpha generation and will become standard practice in less than 5 years,” said Dave Goodsell, Executive Director of Natixis’ Center for Investor Insight. “Institutional investors have witnessed the impact of environmental, social and governance events at numerous companies in recent years and watched as stock values declined right along with corporate reputations.”

Lower rates mean higher liabilities

One of the long-term challenges cited by institutional investors is longevity, with 85% of insurance companies, 78% of corporate pension plans and 76% of public pension plans all challenged to meet their longevity risk.

Institutional investors have had to perform a balancing act over the past 10 years, navigating low interest rates, while facing rising liabilities and an increasingly regulated environment. While in the short term the majority feel equipped to meet their return expectations, there is an acute awareness that finding returns over the long term will be challenging. In light of this, institutions have adopted a long term investment approach, with few making radical defensive moves today.

“Low rates may have helped to boost returns by increasing the value of bond assets held in institutional portfolios, but – at the same time – the low-rate environment has increased the present value of liabilities, exacerbating the pressure to effectively manage liabilities. The prospect of rising interest rates presents a bright spot for a number of institutions, as it would decrease the present value of their liabilities. This is one of the reasons why institutions cite managing duration as their top strategy for navigating a rising rate environment^[1]”, said Damon Hambly.

However, liability management strategies are not a straightforward solution for institutions. Seven out of ten (70%) said they are incorporating liability management into their portfolio strategy and yet three in five still think organizations will fail to meet their long term liabilities despite adopting LDI techniques. Despite the rising popularity of strategies such as cashflow-driven investing, six in ten (60%) say there is a lack of innovation within LDI solutions, while almost two thirds (63%) say decision makers are placing greater importance on achieving short-term performance results, over meeting long-term liability matching objectives.

The post Preparing for a market shift as volatility returns appeared first on AdviserVoice.

Philippe Waechter

The US administration’s partial shutdown marks a first in the country’s history: this is the first time that we have witnessed this type of situation when the same party occupies both the White House and Congress.

It was somewhat different during Barack Obama’s presidency in 2013, as Congress was not in Democrat hands, and looking further back, President Jimmy Carter came up against difficulties in financing his budget with his Democrat majority at the end of the 1970s, but there was no shutdown.

This failure for President Trump and Congress to get along has been the hallmark of the current Republican administration’s first year. The power dynamics between the two institutions ends up creating a puzzling sort of inefficiency. The disagreement of the moment is on the Deferred Action for Childhood Arrivals program, which involves young foreign-born individuals who arrived in the US as children. It turns out that Trump is in favour of a law to welcome them in the end, but the Republicans are unhappy with a bill partly drafted with Democrat agreement.

Beyond the partial and temporary shutdown of the US administration, it is worth making a number of remarks on the Trump administration’s first year as a whole.

The first is a radical change in communication. Specialists on the US economy and society along with many others must now pay particular attention to tweets from the White House as they can provide information on new policies for economy strategy, US diplomacy and any number of other issues.

The second change is the new non-cooperative international politics coming out of Washington, even with close and friendly countries e.g. Mexico, Japan, the UK and even Germany.

This makes international relations bumpy as America is no longer the mainstay around which other countries can unite, but rather a country that does not even try to rally up its usual partners. A new, as yet unclear, balance is emerging for the western world. This can provide Europe with an opportunity to carve out a special role for itself – it is up to Europeans to grab this opportunity.

Trump’s economic model is a zero-sum game: other countries’ gain is the US’s loss. These dynamics must be reversed. It is this very approach that explains pressure from Donald Trump at the start of his term to repatriate manufacturing jobs to the US.

By Philippe Waechter, Chief Economist, Natixis Asset Management

The post US administration partial shutdown marks the first in the country’s history appeared first on AdviserVoice.

Esty Dwek Roditi

The outlooks for 2018 are relatively optimistic, nonetheless, in the interest of a balanced view, here are the 10 biggest risks for 2018:

• Everything is consensus. Very few views (including ours) diverge from consensus – how long can we all be right? If the market is complacent, what happens when it wakes up?
• Growth falters. The main factor supporting the rally (especially in equities), is conviction in ongoing robust global growth. What happens if we start to see cracks in the growth outlook, or if one of the big economic regions starts to falter?
• Central banks tighten. Yes, the market knows the major central banks may remove stimulus at/around the same time. But if central banks turn more hawkish sooner than expected, markets will get scared. And if the ECB runs out of bonds and ends QE before September, it could also spook the bond market, and European HY with it. Last but not least, as liquidity falls, risks of an over-leveraged entity ‘swimming naked’ increase.
• Volatility. We are expecting volatility to gradually rise from extremely low levels, but markets have become somewhat complacent, and if markets suddenly see much more violent swings, the rally could be at risk. And there are plenty of events ahead that could cause higher volatility (see below politics & geopolitics).
• Valuations. No market – be it in equities or bonds – is currently cheap. Stretched valuations could start to weigh on market sentiment, especially if growth shows signs of slowing. Right now, growth is underpinning equity markets, as profitability continues to improve – aka, markets are ignoring valuations because profits are strong – but if the growth support falters, markets may become less sanguine.
• US inflation / Stronger USD. We expect inflation to gradually move up towards 2% in the US, but if this happens faster or higher than expected, USD could appreciate, therefore de facto tightening monetary conditions for rest of world (risk for EM).
• Back up in yields. Long yields haven’t moved much (we ended the year where we started it), and with contained inflation expectations, they aren’t expected to rise much either. But if they suddenly backed up sharply, markets could scare easily. Also, if the yield curve inverts, recession worries could spike (even though there has historically been a long lead time).
• Populism returns. European elections mostly ended with the ‘right’ outcome in 2017, but populism hasn’t vanished. Germany still doesn’t have a coalition (with a strong showing by the far right party), Italy has elections coming, as does Mexico & more. Populism can still impact markets, even though Le Pen is out.
• Geopolitics. Headlines are unlikely to fade: between North Korea, Russia, trade wars, debt ceiling, Brexit, Trump and more, we could still see something bad happen.
  January 2018
• Tech revolution disillusionment. The big tech companies stop being seen as positive disruption / value creators, leading to a reversal in sentiment. Today, the FAANGS are seen a positive for consumers, but if that changes, they could impact the overall market as well.

From Esty Dwek Roditi, Investment Specialist at Natixis Investment Managers

The post The 10 biggest risks for 2018 appeared first on AdviserVoice.

“A real estate downturn in China against the backdrop of a strong dollar will be bad news for commodities prices across the board – both energy (oil, gas, coal) and industrial metals, while a stronger dollar will worsen the external debt service burden for countries with dollar-denominated debt. A number of emerging countries from Latin America to Africa will suffer a squeeze from this external constraint double whammy.

“However, three developed countries also share this twofold feature, which is further aggravated by domestic real estate bubbles: Canada, Australia and New Zealand.

“These three countries are major commodities exporters to China: oil and non-ferrous metals for Canada, iron ore, gas and coal for Australia, and agricultural commodities for New Zealand. The great irony of the situation is that their real estate bubbles were partly fueled by Chinese capital outflows: part of the People’s Bank of China’s foreign exchange reserves was de facto turned into real estate investments in Vancouver, Toronto, Sydney, Brisbane, Melbourne and Auckland.

“Furthermore, Australian and New Zealand banks remain highly dependent on access to US dollar financing, as indicated by the persistence of a positive basis on the cross-currency swap market for AUD and NZD (+20bps) vs. a negative basis (-10bps) for CAD. With external debt of 50% and 40% of GDP respectively, Australian and New Zealand banks are very vulnerable: if the turnaround in the real estate sector that has already kicked off in major cities turns into a market crash, they will be faced with the risk of downgrades from the ratings agencies, which will make it difficult to renew their external debt at a time when the dollar is poised to become a rare commodity on the off-shore markets due to the Fed’s balance sheet pruning.

“In this adverse scenario, Pacific banks would be able to rely on support from public authorities as sovereign debt remains limited (36% of GDP in Australia, 24% in New Zealand). But unlike in 2008, a Chinese credit boom seems unlikely to come to the rescue, and given the weight of external debt, it will be difficult to rely on the exchange rate as the only adjustment variable. A painful adjustment in real variables (recession, unemployment, emigration) would therefore be inevitable.”

Read the market outlook and full editorial Fresh bubbles in the Southern seas.

The post Fresh bubbles in the Southern seas appeared first on AdviserVoice.

David Lafferty

This month, instead of a market rehash, we’ll turn to the ever-popular active vs. passive debate. Our objective is not to argue that one is better than the other – they both have merit within a diversified portfolio of strategies.

Instead, we’ll explore how the growth in indexing is (paradoxically) forcing active managers to up their game – a positive development for investors of all stripes.

While active managers have always competed against each other, they have never had to confront a threat of this magnitude. But in a strange irony, the pressures emanating from cheap passive strategies may ultimately save the active management industry.

As Darwin demonstrated, the most adaptable species are the ones that ultimately survive.

In this case, passive investing is forcing changes to active management that are long overdue. We see five trends that should bode well for active managers who are best able to adapt in the coming years.

#1: Lower Fees, Better Performance

First, and most obvious, indexing is forcing active managers to reassess the competitiveness of their fees. Going forward, active managers will have to better align their fees with their ability to generate excess return. These downward adjustments will, by definition, improve net performance (ceteris paribus). Regulatory changes also play a role. Directives like RDR in the UK and proposed fiduciary rules in the US are forcing fund buyers to purchase lower-cost share classes with many of the extraneous expenses eliminated.

#2: Lean and Mean

On top of improved performance, a closer eye on costs could bring additional benefits. We believe lower fee revenue will result in an era of increased discipline and efficiency for active managers. Over the years, high profit margins across the industry have allowed the focus of active managers to wander. Many overinvested in areas of the business unrelated to generating alpha, but as margins shrink, the days of industry giveaways and boondoggles are likely numbered.

#3: Death of the Closet Indexers

A greater focus on generating excess return will naturally drive managers to create more differentiated portfolios. As early as the 1980s, institutions began to recognize that portfolios could be made more efficient by separating cheap beta from expensive alpha. Today, even retail investors understand the perils of benchmark hugging and overpaying for beta, and are gradually forcing the closet indexers out of business.

#4: Is Anyone Paying Attention to Fundamentals?

A fourth consequence of the growth in passive investing is an increasing misallocation of capital. Counterintuitively, indexing may be creating greater opportunities for active managers as more capital is put on autopilot without regard to asset quality. Today, the majority of indexed assets are simply allocated based on market capitalization (for stocks) or issuance size (for bonds). No distinction is made regarding companies’ fundamentals, valuation, risk, or governance practices. While investors can expect markets to remain reasonably efficient,
the surge in indexed assets can create larger pockets of mispriced securities.

#5: The Perils of Autopilot

Finally, some active strategies stand to gain from one of indexing’s inherent weaknesses: the inability to manage risk. The major market-cap and issuance weighted indexes are fully invested at all times and provide pure beta, delivering all of what the market provides, good and bad. Since 2009 this has been a boon for passive strategies, as global stocks have risen while declining interest rates bolstered bonds.

Wake-Up Call

None of these factors, individually or in aggregate, insures that the average active manager will beat the index or outperform net of fees. However, the pressures exerted by passive indexing are forcing active managers to tackle longstanding sources of inefficiency and underperformance. By setting more appropriate fees and weeding out closet indexers, active strategies should rise in the competitive rankings. Moreover, the wake-up call of the next bear market will force investors to be more discerning about the quality of the assets they own, pushing many of them towards strategies that can better manage risk. Instead of complaining, active managers should embrace the changes occurring in the asset management industry. In the long run, the competitive pressures of passive indexing may save active management.

By David Lafferty, Chief Market Strategist

The post Will passive save active? appeared first on AdviserVoice.

David Lafferty

Since the election of President Trump in November last year, markets have had an on-again off-again love affair with the prospects for comprehensive tax reform.

With both houses of Congress and the executive branch in Republican hands, the stock market, US interest rates, and the US dollar rose dramatically from election day through February. However, as dysfunction emerged within the GOP on everything from healthcare to immigration policy, interest rates fell back and the US dollar weakened.

Through it all, global equity markets have managed to grind higher on stronger economic data. Then, in late September, Republicans released their much-awaited “framework” for tax reform, collapsing individual tax brackets and dramatically reducing corporate rates – much of it paid for by reducing or eliminating specific tax deductions. This gave markets yet another shot in the arm, reminiscent of those first post-election days in November.

$1 trillion deficit hurdle

We believe markets are somewhat naive about what can be accomplished on the tax front. Global investors have largely misunderstood the “Republican Sweep” in Washington to mean that legislative gridlock has been vanquished.

Deep divisions within the GOP call into question what can be accomplished as multiple factions within the party squabble over the details. While core Republicans within the leadership push for lower tax rates, they will be met with intense opposition from a growing caucus of fiscal hawks who are unlikely to sign off on the resulting larger deficits – currently forecast at an additional $1 trillion over 10 years. Even this math is optimistic, given it assumes another trillion in revenue from eliminating the “SALT” deduction for state and local taxes paid.

This is likely to be a non-starter for the 20+ Republican legislators from high-tax states like CA, NY, and NJ. With only a slim margin in the Senate – and zero help from Democrats – any meaningful tax reform must have almost unanimous appeal across these GOP factions.

The current framework, while just a starting point for negotiations, hardly meets this standard. For now, the tax math is devoid of political reality: You cannot simultaneously lower rates, hold the line on deficits, and preserve cherished tax breaks.

Three scenarios for tax reform

At this point, we handicap three possible scenarios: One, a complete breakdown of tax reform resulting in no meaningful change in legislation – à la “repeal & replace” (45%). Two, minimal tax reform in 2018 with only modest reductions in rates (both individual and corporate) and few revenue offsets (45%). And three, a damn-the-torpedoes deficit-swelling tax cut where fiscal hawks acquiesce for fear of being seen as obstructionist going into the mid-term elections (10%).

Given my estimate on the likelihood of these scenarios, equity investors would be wise to base their optimism on the slowly strengthening global economy, rather than the hope of meaningful Keynesian tax stimulus.

By David Lafferty, CFA, Chief Market Strategist, Natixis Global Asset Management

The post Trump takes on US tax system – What’s it mean for investors?  appeared first on AdviserVoice.

Anton Tagliaferro

Natixis has announced the signing of definitive agreements to acquire a majority ownership stake (51.9%) in Investors Mutual Limited (IML) in Australia, which becomes a new affiliate of Natixis Global Asset Management.

With IML, a well-established asset manager with AuM of AU$9.1bn (€6.1bn), Natixis Global Asset Management will achieve its first major acquisition in Australia and increase its exposure to the local retail market and the Australian superannuation industry. In addition, with IML, Natixis Global Asset Management is reinforcing its distribution platform in Australia, following the establishment of an office in Sydney in 2015. This marks an important step in Natixis Global Asset Management’s ambition to expand its presence in Australia and APAC as a whole.

Under the terms of the acquisition, Natixis Global Asset Management will acquire all the shares in IML held by Pacific Current Group Limited (ASX: PAC), along with a portion of the shares in IML held by IML founder Anton Tagliaferro, for up to AU$155m (€103m) in cash. This will give Natixis Global Asset Management an equity stake of 51.9% in IML. The transaction is expected to close in October 2017. The acquisition will be financed out of Natixis’ own funds. The estimated impact for Natixis CET1 ratio is around -15 bps (4Q17).

IML is a well-respected, successful Australian equities value manager created in 1998. It has a long-term, conservative, quality and value based investment style.

IML’s management team will remain shareholders in the business alongside Natixis Global Asset Management

IML Investment Director, Anton Tagliaferro, will continue to run the business, supported by Head of Research Hugh Giddy and other senior leaders. The management team continues to be committed to the business through its significant equity interest in IML.

Under Natixis Global Asset Management’s multi-affiliate strategy, IML will retain its autonomy, investment philosophy and culture, as well as benefit from the support and stability of a global group that specializes in asset management and which has a track record of successful ownership and development of investment management companies around the world. There will be no changes to the way in which IML is run day-to-day, nor to its management.

“We have previously stated that it is our intention to pursue new growth in the Asia Pacific market, and this marks the first acquisition as part of those plans. IML has a strong track record as one of Australia’s most consistently-performing fund managers, and its commitment to investors and reputation in the market will make a significant contribution to the Natixis Global Asset Management multi-affiliate model,” said Jean Raby, member of Natixis Senior Management Committee and CEO of Natixis Global Asset Management.

“The Australian wealth management industry in particular is highly sophisticated, and IML’s views on portfolio construction and risk management align with Natixis Global Asset Management’s Durable Portfolio Construction approach. Moreover, IML shares our core values of consistency, transparency and always putting clients first,” said Fabrice Chemouny, Head of APAC at Natixis Global Asset Management.

“We welcome Natixis Global Asset Management, one of the world’s leading asset managers, as a supportive, long-term shareholder and business partner, and we look forward to providing Natixis Global Asset Management with expertise in Australian equities,” said Anton Tagliaferro, Investment Director at IML.

Natixis Global Asset Management currently has over 20 affiliates, each of which concentrates on the investment styles and disciplines in which they have proven expertise. The multi-affiliate structure is built on a belief in the power of independent thinking, and purposefully maintains the autonomy, investment philosophy and culture of the firms it acquires.

The post Natixis expands its Asset Management presence in APAC with the acquisition of a majority stake in Investors Mutual Limited in Australia appeared first on AdviserVoice.