Insurance firms will not be charged to use CAMRADATA’s Advised Search Service.

Sean Thompson, managing director, CAMRADATA said, “We already provide Assisted Searches and through this new partnership with PiRho we can now offer insurance firms expert advice to help them choose the right manager.

We appreciate every insurance firm is different and their needs and requirements are never the same. Our aim is to help make investment manager searches for the insurance industry a much smoother, easier and more productive process to help them make better informed decisions.”

Nicola Ralston, founder and director at PiRho said, “Manager analysis is one of PiRho’s core competencies. We are delighted to partner with CAMRADATA to bring PiRho’s expertise in qualitative research, backed up by structured quantitative analysis, to assist insurance firms in successfully navigating the manager selection process.”

CAMRADATA’s Assisted Search Service already allows all institutional investors looking to appoint an asset manager, the facility to provide their search criteria, which are then circulated to all the asset managers on CAMRADATA Live.

The provider firm then builds a custom universe unique to the investor; this is uploaded, together with detailed analysis under the investor’s own CAMRADATA Live login, so that they can extract the information and use it to help them decide who they want to meet with and appoint.

When investors use the Advised Search Service, PiRho can provide support at each stage of the process. First, PiRho can assist in setting the search criteria most suited to achieve the underlying investment objective. Once the custom universe has been created, PiRho will provide additional insight to the data and facilitate an understanding of the key performance drivers and organisational merits. At the decision stage PiRho can, if required, provide formal investment advice as to how best to balance the pros and cons of each asset manager’s offering, supporting the insurer in selecting the most appropriate product or portfolio for its investment objectives.

Insurance firms therefore have access to advice from PiRho to guide them on their manager search selection at every step of the way.

The post CAMRADATA launches an advised search service for insurance industry appeared first on International Finance.

Keith Cornelius – Trustee of the American Express UK Pension Fund, Mette Charles – Senior Investment Research Consultant, Alistair Sutherland – Consulting Director, Investment Services Team, Ravi Cheema – Senior Associate, Investment Team, Greg Fedorenko – Vice President, Manager Research and Brendan Maton – Freelance Journalist were the participants at the round table.

The White Paper considers the opportunities offered by Multi-Asset Credit (MAC) and investigates what the future holds for this asset class, both in this current macroeconomic climate and going forwards. Three MAC asset managers, Eaton Vance Investment Managers, Franklin Templeton Investments and Investec Asset Management also provided their own views and insights, helping to illustrate the benefit that can be derived from a Multi-Asset Credit Strategies (MACS) approach.

Sean Thompson, Managing Director, CAMRADATA said, “Global economic growth remains lacklustre and the outlook for inflation highly uncertain. Also, Government bonds are losing their income generating qualities, leaving investors no choice but to look elsewhere.”

“As a result MAC strategies have become increasingly popular over the past few years because of their flexible and diversified approach that makes them attractive to investors investing in this asset class,” adds Mr Thompson.

Key findings from the White Paper

MAC strategies typically offer a higher yield, while offering defensive qualities through dynamic risk management using several different credit asset classes. The strategy seeks to provide a strong income element on a consistent basis that few other assets can provide.

Credit is now seen as the go-to asset class to keep pension funds and insurers in good health. Bundles of mortgages, car loans, High Yield and Emerging Market debt are deemed more attractive on a risk-adjusted basis than holding company shares; and more generous than safer government bonds. As Justin Bourgette, a credit portfolio manager at Eaton Vance comments in the White Paper, “Credit is going to be part of the portfolio because of the attractive risk-adjusted returns.”

It is not just market returns that have caused investors to alter their traditional allocations. The regulation of pension funds and insurers has also supported more exposure to credit.

As Jeff Boswell, Strategy Leader of Developed Market Credit at Investec, points out, “Pension funds are being forced to look for more return by hunting further along the risk spectrum.” That journey brings asset owners to the likes of high yield, leveraged loans, structured credit and private debt, with a vast spectrum of available debt and credit options.

But the variety of opportunities in debt and credit also begs the question of how pension funds and insurers allocate. Do they employ specialist managers for each niche of their liking or do they appoint managers with flexibility to invest in a range of debt markets on a dynamic basis?

Alistair Sutherland, Consulting Director at Deloitte says, “Asset owners say they have the governance to oversee discrete mandates but most don’t. Better to give the discretion to the asset manager and leave them to use the building blocks as they see fit.”  Many at the round table agreed.

Assets under management in MACS have boomed over the past three years. Tom Raftery, Credit Product Manager at Franklin Templeton, added that the popularity of MACS has led to massive product proliferation. “Buyers of MACS are in a tremendous position,” noted Raftery.

Essentially every offering is unique given the range of credit sectors that fit this type of mandate, and the differences in the philosophy, expertise, and/or geographic reach of the managers creating them. “To the extent that their research resources allow, consultants, other advisors, and investors can shop the market for MACS that offer exactly what they want in terms of sector exposure, risk/reward profile, and liquidity,” adds Raftery.

Looking ahead

Looking to the future, the challenge for MACS is establishing their territory. Plenty of pension funds and insurers are currently looking for Alternative Credit managers. Some of the funding will come from Investment Grade portfolios. MACS managers need to win the argument that they can cover the range from IG to Alternatives.

The consultants at the CAMRADATA round table said the variety of MACS meant that they could be appointed in combination to increase diversification. If large bond ETFs and long-dated bond funds get hurt in a rising rate environment, then MACS will put on assets.

However, most MACS themselves have not experienced a period of rising rates; the big question for investors is which type of strategy will better suit the times ahead, when neither businesses nor governments will be able to rely on cheap money.

Sean Thompson, Managing Director, CAMRADATA adds, “The current yield challenges facing many investors undoubtedly require a new way of thinking in terms of asset allocation. While credit has long been a core income generating component of many traditional asset allocation models, the evolution of financial markets, coupled with the complexities of investing in the current environment, have cultivated a different way of credit investing. Our White Paper is therefore, essential reading for investors looking at MAC strategies now and in the future.”

The post ‘MAC strategies have become increasingly popular’ appeared first on International Finance.

Over three years’ worth of data from CAMRADATA Live (its online data platform) on 31^st March 2017 was analysed to produce the reports and some key investments trends emerged in Q1.

Overall, the global equity markets enjoyed a good start to the year, extending last year’s robust performance as investors shrugged off political uncertainty and focused on positive economic data.

Macroeconomic data coming out of the US, continued to be supportive of a growing economy. US equities performed well as the S&P 500 increased a further 6.1% over the quarter, and the Federal Reserve increased base interest rates for the second consecutive quarter by a further 0.25% at its March meeting.

There was a similar growth story in the UK. The FTSE All-Share continued to march upwards and gained a further 4.0% over the quarter amid growth prospects in the global economy. The Bank of England upgraded its 2017 GDP growth projection from 1.4% to 2.0% due to stronger than expected consumer spending following the EU referendum result.

In the Euro market, the period started on a weak note, with negative returns in January, the stock markets picked up as the quarter progressed. The MSCI European Economic and Monetary Union index ended the quarter up 7.2%. Economic data coming out of the Eurozone was largely positive. The European Central Bank updated its 2017 and 2018 growth and inflation forecasts but pledged to keep stimulus in place until next year.

Commenting on the data, Sean Thompson, Managing Director, CAMRADATA said, “A lack of follow-through on protectionist trade policy from the Trump administration supported risk appetite in the emerging markets and the rejection of anti-euro politicians in recent European elections receded fears of political instability and an imminent breakup of the Eurozone, with Eurozone equities delivering robust gains as a result.

“Article 50 was triggered at the end of the period, signalling the formal start of the UK’s process of leaving the EU and an extraordinary period of uncertainty for the UK economy. We expect the impact of this will be in evidence in Q2’s data, as well any fallout from the UK’s general election on 8^th June.”

Thompson also points out that Asia ex-Japan equities had a strong first quarter. And in China, stocks gained strongly and had their best first quarter in over 10 years, fuelled by solid industrial production figures and continued strength in the property market.

Diversified Growth Funds

Assets under management (AuM) in Diversified Growth Funds (DGF) have increased by nearly £5.5bn since Q4 2016 and now total just under £176bn as at 31 March 2017.

DGF products saw slightly less quarterly inflows than the last quarter, standing at £2.7bn across the universe. In fact, it is the lowest amount of inflows seen in DGFs during a quarter since Q3 2014.

Q1 2017 continued to see an increase in positive performance outcomes within the DGF universe, with 97% of products achieving a breakeven or positive return. The lowest quarterly return produced is -1.17% and the best performing product achieved 6.43%, giving a spread of just over 7.6% between the top and bottom performer.

Looking at the three-year spread of annualised returns; all bar one product achieved a breakeven or positive return. The lowest annualised return produced is -1.35% and the best performing product achieved 16.15%, giving a spread of around 17.85%pa between the top and bottom performer.

UK Equities

Assets under management (AuM), in these UK Equity products, now total £165.77bn, providing a £2.41bn increase since Q4 2016. However, the asset class continued to see outflows with £3.18bn having been withdrawn during the quarter. In fact, the last time the UK Equity universe saw a positive net inflow was in Q1 2014.

Although the UK Equity universe saw negative asset flows in Q1 2017, the range of quarterly returns saw 99% of products achieving a breakeven or positive. The lowest quarterly return produced is -0.65% and the best performing product achieved 13.48%, giving a spread of over 14.13% between the top and bottom performer in just one quarter.

The range of annualised returns for the 3 years to 31 March 2017 saw all products achieve a breakeven or positive return. The lowest annualised return for this period is 1.57% and the best performing product achieved 13.77%.

Global Equities

Assets under management (AuM), in these Global Equity products, total $553bn as at the end of Q1 2017, which is nearly $8bn less than it was at Q4 2016.

The Global Equity universe continued to see outflows during Q1, making it the 7th quarter in a row that investors have reduced their allocation in Global Equities. That said some managers have seen inflows this quarter.

Goldman Sachs Asset Management International took the first spot in the asset manager inflows table seeing $1.70bn added to their AuM. Causeway Capital Management LLC came in second place with $1.17bn of inflows followed by Hexavest Inc.; Tweedy, Browne Company LLC and AB (AllianceBernstein).

Q1 2017 saw a significant increase in the number of managers producing a breakeven or positive return with nearly 100% of products achieving this. The lowest return produced is -6.7% and the best performing product achieved is 18.78%.

In comparison, looking at the three-year period, just over 98% of managers achieved a breakeven or positive annualised return, with the range of annualised returns starting from -13.11% and the best performing product achieved 15.1%.

Emerging Market Equities

In Q1 2017 all managers achieved positive returns in the Emerging Market Equity universe, which contrasts with Q4 2016 which witnessed a largely negative range of returns.

Moreover, when looking over a three-year period, 90% of managers achieved a breakeven or positive return in this asset class. The lowest annualised return achieved was -4.31% and the highest was 19.33%, which highlights the importance of the asset manager selection, the style and the size cap decision process in this asset class.

Multi Sector Fixed Income

The Multi Sector Fixed Income (MSFI) market continued to post positive results. The Assets under Management (‘AuM’) in the MSFI Absolute Return universe sits at just over £75.6bn as at 31 March 2017.

In Q1 2017 MSFI Absolute Return products achieved positive inflows of £1.5bn across the universe. This was a slight reduction from the previous quarter which saw £2.3bn of inflows.

TCW had the largest asset inflows totalling £897m, in converted sterling, during Q1 2017. TCW was followed by Insight Investment Management (Global) Limited; BlackRock; Payden & Rygel and Morgan Stanley Investment Management.

In the MSFI market, over 92% of products achieved a breakeven or positive return in the first quarter. Whilst 95% of products achieved a breakeven or positive return over a three-year period, highlighting that the MSFI Absolute Return universe continues to provide positive outcomes

Emerging Market Debt

The Emerging Market Debt products saw net inflows of just over £1bn across the universe, which made Q1 2017 the first quarter in seven quarters to experience positive flows.

Neuberger Berman had the largest asset inflows totalling $750m during the quarter. They were followed by GAM, Goldman Sachs Asset Management International; Franklin Templeton Investments and Amundi.

Nearly 100% of products achieved a breakeven or positive return in the EMD universe this quarter, a dramatic difference from the 5% in Q4 2016. Whereas just under 73% of products achieved a breakeven or positive return over a three-year period.

The lowest return reached in Q1 2017 was -0.63% and the best performing product achieved 9.02%, giving a spread of just over 8.39% between the top and bottom performer.

The range of annualised returns for the 3 years to 31 March 2017 in USD EMD is -4.5% to 9.04%, giving a spread of 13.54% between the top and bottom performer, which highlights the importance of the asset manager selection process in this asset class.

Sean Thompson concluded, “Our quarterly investment reports are essential reading for those looking for critical data and analysis on the latest trends. This year has started off with slightly less volatility than had been anticipated in both the USA and Eurozone, which has been reflected in the largely positive economic data in these markets.

“However, with Theresa May triggering Article 50 on 29^th March the markets may become increasingly turbulent as the results of the negotiations become clearer. Investors and asset managers can stay ahead and monitor the markets through CAMRADATA Live to ensure they make the most informed investment decisions, in what is likely to be a tricky period ahead, particularly in the Eurozone markets.”

The post Good start in 2017 in major equity markets appeared first on International Finance.

In the 12 months to 30^th April 2017, nearly 21,000 searches were carried out in CAMRADATA Live. Over 40 new products were also added to CAMRADATA Live which focused on several different strategies, including Emerging Markets Equity, European Equity, Japanese Equity, European Fixed Income, European Property and UK Property.

In April, the top three most searched asset classes were Global Equities, US Equity and Global Diversified Growth Funds. There was continued interest in Global Corporate Fixed Income too, and this asset class moved up to 7^th place. There was also increased interest in Japanese Equities which moved into the top ten, taking eighth place – up from eleventh last month.

The top searched asset managers were BlackRock in the £50+ Billion AuM, Kames Capital in the £20-£50 Billion AuM and Unigestion SA in the £5-£20 Billion AuM. This was consistent with March.

However, there was a change in the £0-£5 Billion AuM bucket with Momentum Global Investment Management Limited taking top position, ahead of Third Avenue Management LLC, the most searched for asset manager in March.

New faces also appeared in the top five most searched for asset managers in their AuM buckets. These were Comgest and Jupiter Asset Management Limited (£20 – £50bn), SKAGEN Funds and AGF Investments (£5-20bn) and RAM Active Investment at (£0-£5bn).

Sean Thompson, Managing Director, CAMRADATA said, “Our latest snapshot of investment searches puts Global Equity back in the top position after coming in second in March. While the top three searches have been the same over the past few months, this month suggests investors are also looking at different strategies with 41 new products added.”

“Japanese Equities moved into the top ten in April which highlights growing interest in this asset class. This is in line with our last quarterly investment report which showed Japanese Equities was the standout performer in Q4 2016, with the FTSE World Japan Equity Index returning 15.2% in yen terms.”

Adding further he said, “Our monthly snapshots are helping our clients keep on top of the latest investment trends, providing them with key insights and data ahead of our more detailed quarterly investment reports.”

The post CAMRADATA announces top asset class searches for investors in April 2017 appeared first on International Finance.

March 17, 2017: CAMRADATA, a leading provider of data and analysis for institutional investors, has published its latest investment research reports charting the performance of investments and asset managers in Q4 2016 across six asset classes, including Global Equity, Emerging Markets Equity, UK Equity, Diversified Growth Funds, Multi Sector Fixed Income and Emerging Markets Debt.

Over three years’ worth of data from CAMRADATA Live (its online data platform) at December 31, 2016 was analysed to produce the reports and some key investment trends emerged.

The fourth quarter saw bond valuations fall as inflationary expectations picked up and the increase in US interest rates put upward pressure on global yields.

However, most equity markets continued to perform well, particularly in the financial and energy related sectors, and the oil price recovered. US equities performed well over the quarter, with the S&P 500 Index returning 3.8%.

UK equities performed in a similar fashion, the FTSE All-Share Index returning 3.9% over the quarter, reaching an all-time high at the end of the year. European equities also performed strongly over the quarter, the FTSE World Europe (ExUK) Equity Index returning 6.0%.

Commenting on the data, Sean Thompson, Managing Director, CAMRADATA said, “US equities remained buoyant over the fourth quarter, despite uncertainty about the US presidential elections and Trump’s subsequent victory dominating the news agenda. UK and European equities all showed strong performance. In the UK, we saw that fears about the potential negative economic impact of the Britain’s decision to leave the EU have receded, with domestic growth rates exceeding expectations and consumer spending remaining resilient. However, sterling fluctuated over the period, falling sharply in early October after suggestions from the Prime Minister of a ‘hard Brexit’, but it recouped some of its losses after the Bank of England upgraded UK growth projections, and the High Court ruled parliamentary approval was required to start the EU exit process.”

Thompson points out that while Donald Trump’s proposals to boost fiscal spending were largely seen as a positive for the US economy, suggestions of increasingly protectionist trade policies have had a detrimental effect on some Emerging Markets.

Diversified growth funds

DGF products saw the lowest quarterly inflows of 2016 in Q4 2016, standing at £3.3bn across the universe. However, 2016 has the highest inflows overall for the last three years totalling £28.2bn.

Q4 2016 continued to see an increase in positive performance outcomes within the DGF universe, with nearly 68% of products achieving a breakeven or positive return.

Looking at the three-year spread of annualised returns; all bar one product achieved a breakeven or positive return. The lowest annualised return produced is -1.1% and the best performing product achieved 15.97%, giving a spread of around 17%pa between the top and bottom performer.

UK equities

Whilst the UK equity universe achieved positive return in Q4, the asset class continued to see outflows with £2.8bn having been withdrawn during the quarter. In fact, the last time the UK equity universe saw a positive net inflow was in Q1 2014.

Although the UK equity universe saw negative asset flows in Q4 2016, the range of quarterly returns saw just over 90% of products achieving a breakeven or positive. The lowest quarterly return produced is -4.24% and the best performing product achieved 12.34%, giving a spread of over 16.58% between the top and bottom performer in just one quarter.

The range of annualised returns for the 3 years to December 31, 2016 saw all products achieve a breakeven or positive return. The lowest annualised return for this period is 1.28% and the best performing product achieved 12.77%.

Global equities

The global equities report tells a different story. Despite growth and good returns, investors reduced their allocation in the market for the 6th quarter in a row, with outflows during Q4 totalling $1.6bn.

Q4 2016 saw a decrease in the number of managers producing a breakeven or positive return with just fewer than 50% of products achieving this; this is down from 97% in Q3 2016. The lowest return produced is -9.12% and the best performing product achieved is 11.67%.

In comparison, looking at the three-year period, 94% of managers achieved a breakeven or positive annualised return, with the range of annualised returns starting from -9.2% and the best performing product achieved 12.32%.

Emerging market equities

Q4 2016 witnessed a largely negative range of returns in the emerging market equity universe with less than 5% of managers achieving a breakeven or positive return.

Moreover, when looking over a three-year period, only 29% of managers achieved a breakeven or positive return in this asset class. The lowest return achieved was -6.93% and the highest was 15.3%, highlighting the importance of the asset manager selection process in this asset class.

Multi-sector fixed income

The Multi Sector Fixed Income (MSFI) market continued to post positive results. The Assets under Management (AuM) in the MSFI Absolute Return universe sits at just under £76bn as at December 31, 2016. In Q4 2016, MSFI Absolute Return products achieved positive inflows of just under £2.3bn across the universe.

For the second quarter running, Western Asset Management had the largest asset inflows totalling £375m, in converted sterling. BlueBay Asset Management LLP achieved the largest percentage growth, seeing its assets increase by 29.69% over the same period.

In the MSFI market, nearly 77% of products achieved a breakeven or positive return in the fourth quarter. Whilst 97% of products achieved a breakeven or positive return over a three-year period, highlighting that the MSFI Absolute Return universe continues to show positive outcomes.

Emerging market debt

The emerging market debt products also experienced negative flows across the fourth quarter, with net outflows of just under £6.7bn across the universe. This made it the sixth quarter in a row that experienced negative flows. That said, there were some asset managers who saw inflows during the quarter.

Less than 5% of products achieved a breakeven or positive return in the EMD universe this quarter whereas nearly 70% of products achieved a breakeven or positive return over a three-year period.

The lowest return reached in Q4 2016 was -7.35% and the best performing product achieved10.19%, giving a spread of just over 17.69% between the top and bottom performer.

The range of annualised returns for the 3 years to December 31, 2016 in EMD is –6.2% to 10.37%, giving a spread of 16.57% between the top and bottom performer, which highlights the importance of the asset manager selection process in this asset class.

Sean Thompson concluded, “Our investment reports provide critical data and analysis on the latest investment trends. This information is vital given the continued volatility in the markets and the fact that markets are still adapting to the new political and economic landscape in the USA. In Europe, the Brexit negotiations and elections in the Netherlands, France and Germany will also have an impact on global markets.”

The post Good returns for major equity markets in Q4 2016 appeared first on International Finance.

January 30, 2017: The top three challenges for institutional investors in 2017 will be market volatility, the low yield environment and meeting total return objectives, according to research from CAMRADATA, a leading provider of data and analysis for institutional investors.

CAMRADATA’s latest Investment Considerations survey was conducted amongst asset managers, consultants and pension schemes, who shared their considerations about investments, asset classes, asset allocation and financial markets for this year.

Market Volatility was considered their most pressing issue. 84% of respondents said it will impact their investment decision-making this year, a figure which has increased by 21% since the last survey in June. Consultants also identified this as the number one concern for their clients.

Sean Thompson, Managing Director, CAMRADATA, says, “Movements within the financial markets over the past year clearly justify these increased concerns about volatility. Trump’s inauguration as US President, the uncertainty surrounding Brexit and the elections in France and Germany will all have repercussions on the markets. Investors will need to adapt their investment strategies to this new environment and our survey report provides valuable reading, giving an indication of the prevailing attitudes amongst asset managers, consultants and pension schemes.”

The Low Yield environment is another issue consultants and investors agree upon, and one which figures highly in their choices with 73% of investors selecting this as one of their top three issues.

Meeting Total Return Objectives is the third top key issue for investors, although Protecting Capital and Managing Uncertain liabilities are not far behind.

Another growing issue for investors and consultants was Protecting Capital.  When surveyed in April; just over 10% of both consultants and investors saw it as a key issue – however, in November it was seen as a big issue for both consultants (56%) and investors (47%).

Compliance and Regulation; the need for short-term liquidity; and rising interest rates all appeared to be less of an issue to investors currently when making investment decisions.

Asset allocation

In terms of asset allocation, the top asset classes that consultants said their pension clients are invested in are Global Equity and Emerging Markets Equity, all of which received a 100% response rate.

However, this latest research also highlighted disparities between some of the asset classes. For instance, Emerging Market Equity was selected by 100% of consultants whilst only 39% of the pension schemes said they were currently invested in this asset class.

And, with Global Equity, whilst this was one of the most invested asset classes chosen by pension schemes, it was still only chosen by 70% of the schemes; whereas 100% of consultants said there clients were invested in this.

There has been a big drop – from 83% in April to only 27% in December in consultants suggesting their pension clients would be considering liability-driven investment (LDI) strategies over the next six months. However, 30% of pension schemes are still considering LDI as a solution.

Diversified Growth Funds (DGF)/Multi Asset strategies will continue to play a key role this year with around half of consultants expecting their clients to invest in DGFs; as well as pension schemes themselves. Plus, half of the asset managers expect to be marketing this class over the next six months.

The survey also found that the top three asset classes, which investors believe will see the most inflows in the next six months, are DGFs/Multi Asset, Infrastructure; and High Yield Bonds.

ESG criteria

Interestingly, Environmental, Social and Governance (ESG) continues to be a hot topic in the asset management industry, with just over half of all investors and consultants saying they expected asset managers to have ESG criteria integrated in their investment process.

The post Top 3 challenges for institutional investors in 2017 appeared first on International Finance.

January 12, 2017: CAMRADATA, a leading provider of data and analysis for institutional investors, has collated the top 10 global investment trends for 2017 from a range of its asset management clients.

Sean Thompson, Managing Director, CAMRADATA says, “Our asset management clients have predicted that 2017 will be an extremely interesting year for investors. We are in a midst of a sea change in the global environment that will create both opportunities and risks.”

The top investment trends for 2017 from asset management firms:

A year of volatility in global markets

The political uncertainty in both the USA and Europe following the election of Donald Trump, Brexit negotiations and the forthcoming French and German elections are all going to have a big influence on the markets and continued volatility.

According to Mark Burgess, Chief Investment Officer EMEA and Global Head of Equities at Columbia Threadneedle Investments, “2017 will be a year of volatility as markets make sense of the promises and policies that politicians have promoted, and that volatility in markets provides the perfect opportunity for active management.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, believes that Trump’s victory will be the ‘key driver of change’ and that the global economy is starting to heal. “A number of key indicators suggest that the world’s economy has been healing for some time. Monetary policy has played an effective role in this healing process but seems to have reached its limits with negative rates having disappointing effects in Europe and Japan. The baton should be passed to the fiscal authorities and Trump looks set to run ahead with it. Whether other countries will follow suit remains to be seen.”

Interest rate rises and falls

Most companies are predicting interest rate rises in the USA, but a fall in emerging markets.

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Over the next year, global interest rates will likely move in different directions. As the US economy continues to gain steam, rates will likely increase while Europe and Japan appear on track to continue their accommodative policies. On the whole, EM local interest rates continue to fall as inflation remains healthy and growth remains tepid.”

Global inflation on the rise

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Global inflation may rise but will likely remain relatively subdued over the next several years. Due to the lower inflationary pressures, we expect to see lower overall interest rates for EM local bonds where nominal yields offer significant compensation for risk.”

Bonds poised for solid performance

Robert Tipp, Managing Director, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, says, “Between the Brexit vote and the Trump sweep, 2016 was a year of surprises and bumps, but it was a generally productive year for the bond market. And, when we look at 2017, our best guess is that the opportunity in the bond market will once again outweigh the risks and that bonds are poised for solid performance.”

Embracing credit risk

Jan Straatman, Global CIO at Lombard Odier Investment Managers (LOIM), and Salman Ahmed, Chief Investment Strategist at LOIM, point out that in the world of largely low or negative rates, investors should consider increasing their exposure to credit risk through an allocation to corporate credit in 2017.

However, they say investors need to look beyond the higher-rated, investment-grade segment of this market where duration risk is a dominant force.

They comment: “We believe that to increase yield sufficiently, investors should move further down the credit spectrum. In our view, the so-called ‘crossover’ universe, which spans the lower quality investment-grade (BBB) and higher-quality high-yield (BB) rated issuers, provides significant return enhancement relative to investment-grade issuers while not exposing investors to the excessive default risk that is a feature of high-yield debt (rated B and below).”

Growth of global equities

The move into equities is another key trend.

Mark Burgess, CIO EMEA and Global Head of Equities of Columbia Threadneedle Investments, says, “Compared to their longer-term history, equities still offer better value than bonds – though this might change, should the ‘bond bubble’ burst in 2017.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, says, “Higher US rates and a strong US dollar will see markets struggle to make much headway and although equities are our favoured asset class, stronger economic data could see bonds rally and shares fall at some point. In terms of sectors, recent trends look set to continue with cyclically orientated areas outperforming and bond proxies struggling. The prospects for emerging markets remain difficult as dollar strength and rising rates outweigh the benefits of better growth. But 2017 might be the year in which European equities finally outperform, ending half a decade of disappointment.”

Impact of technology

Technology will also have a significant impact in 2017.

According to Richard Turnill, Global Chief Investment Strategist at BlackRock Investment Institute, “Technological change is sweeping through industries, overhauling business models, reducing traditional jobs and limiting inflation. The rapid pace of technological change is causing disruption across industries and displacing jobs − and is arguably fuelling populist politics.”

Advances in artificial intelligence could have an even bigger impact on better-paying white-collar jobs in services industries such as finance. And fossil fuel companies risk being upended by renewables once energy-storage technologies improve.

Tony Kim, Portfolio Manager at BlackRock’s Global Opportunities Group says, “Artificial intelligence (AI) is the new electricity. The big bang is upon us. We have all this data, but we can’t do anything with it. AI is the solution.”

Opportunities for active investors to increase

Mark Burgess, CIO EMEA and Global Head of Equities at Columbia Threadneedle Investments, predicts that 2017 will be an active time for investors, and expects opportunities for discerning investors to increase. “Amid rising political uncertainty, fundamental analysis and expert asset allocation will be critical in order to achieve long term returns. The tide of global QE that had previously lifted all boats will begin to ebb in some regions and flow in others, and in that environment it will make sense to differentiate within and across asset classes.”

Challenges in Asia and Emerging Markets

Burgess predicts challenges for Asia and the Emerging Markets (EMs) that are exposed to the threat that Trump poses with protectionist policies. These include China, Mexico, Colombia, Malaysia, Korea and Thailand.

BlackRock Investment Institute also highlights China and the worries around China’s capital outflows and falling yuan. However, they also say China’s stabilising growth has eased some of the anxiety that rattled investors in early 2016. Nevertheless, there are still challenges ahead as ‘China is attempting a difficult balancing act: prioritising near-term economic growth while tackling debt issues for the longer-term good’.

Emiel van den Heiligenberg, Head of Asset Allocation at Legal & General Investment Management (LGIM), points out one of the key risks for 2017 is a significantly weaker Chinese currency driven by capital leaving the country. “Our base case is that the Chinese will manage a 5% real currency fall at the cost of lower foreign currency reserves and tighter capital controls, particularly given the Communist Party’s power transition in late 2017. We do not expect a sharp slowdown in growth. However, the risk of a faster devaluation is not immaterial and, as we saw in 2016, that would likely lead to weaker global equity markets.”

Major challenges in Europe

John Greenwood, Chief Economist at Invesco Ltd, predicts the challenges in Europe will lead to poor economic growth. The slow progress of bank resolution, the weakness of the European Central Bank’s (ECB) QE programme and the consequent descent into negative interest rates are among the headwinds holding back economic recovery.

He also highlights double-digit unemployment levels, leading to disruptive populist and xenophobic political movements, and referenda or elections in Italy, Holland, France and Germany. “At some stage, one or more of these electorates could overwhelm the governing elites, posing an existential threat to the established order – the European Union (EU) or even the Eurozone. Real GDP growth is likely to remain around 1.5% at best, with inflation falling far short of the ECB’s target of ‘close to but below 2%’.”

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