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Asia-Pac ETFs post fifth straight month of inflows
Asset Management
<p>With China’s economic outlook increasingly going from bad to worse, you’d almost think investors would want to hold off pumping money in the region. Nope.</p> <p>According to London-based research and consultancy firm ETFGI, Asia-Pacific ETFs and ETPs have just posted another month of strong inflows:<br /> “ETFs/ETPs listed in Asia Pacific ex Japan gathered 1.2 billion US dollars in net new assets in October 2015. This marks the 5th consecutive month of positive net inflows. The Asia Pacific ex-Japan ETF/ETP industry had 761 ETFs/ETPs, with 904 listings, assets of US$119.4 Bn, from 115 providers listed on 17 exchanges in 13 countries at the end of October 2015, according to ETFGI’s Global ETF and ETP insights report for October 2015.”<br /> Among the region’s biggest winners in October were Samsung AM, which gathered around $380 million, China AM, which raked in about $230 million, and CSOP/China Southern, which bagged $150 million. Year to date however HSBC/Hang Seng lords above them all with an impressive $5.8 billion in net inflows.</p> <p>Japan seems to be a lot better though, a sign that investors continue to be attracted to the region’s progressively changing business climate:<br /> “In Japan, YTD net inflows were up 121.9% on the record set last year, standing at US$35.0 Bn at the end of October 2015.”<br /> Photo: Charles LeBlanc</p>
China-focused hedge funds are back in the black
Hedge Funds
<p>The Shanghai Composite’s roller coaster performance may have obliterated hundreds of hedge funds, but according to eVestment’s latest Hedge Fund Performance report, those who managed to hold on are now firmly in the green:<br /> “China-focused funds’ 6.48% increase in October brought YTD returns firmly into positive territory for the year, 6.02%. The apparent defensive positioning which helped the universe avoid the severity of the country’s equity market losses in prior months caused the group to miss the majority of October’s large rally, however the universe still holds a significant edge YTD. The S&amp;P China BMI remains in negative territory in 2015, despite October’s 12.47% increase.”<br /> This is great news for Hong Kong, whose predominantly China-centric firms widely outgunned their North American, European, and even their mainland-domiciled peers year to date:<br /> “Products operating out of Hong Kong have outperformed all other regional and country specific fund domiciles in 2015, primarily due to the predominance of China-focused products. The universe has widely outperformed China domiciled products, which in turn have still outperformed Chinese equities.”<br /> Aggregate hedge fund performance however has been pretty dismal compared to the S&amp;P, with the former returning just 1.94% in October while the latter posted an impressive 8.44% return. In fact, not even a single strategy, market, or region focus came close to it, and it only becomes worse if you factor in the SHCOMP’s staggering 10.54% rise in the same time period.</p> <p>Nevertheless, China, Japan, and Russia funds beat the SPX quite handily YTD, returning 6.02%, 5.98%, and 15.27% respectively, so it wasn’t all that bad for the industry.<br /> Photo: Jim Winstead</p>
Deutsche Bank quants explain hedge fund underperformance
Hedge Funds
<p>The market environment for hedge funds in 2015 has been “marked by an acute and prolonged de-risking episode,” a recent quant piece from Deutsche Bank notes. In fact the bank’s “volatility factor,” a measure that approximates high risk and low risk equity performance, reveals the most recent 2015 episode of de-risking was “deeper than that during (second half of) 2014, and its impact on fundamental equity managers was severe,” with its model hedge fund portfolio underperforming the general market by -4.8 percent since June.<br /> Hedge fund underperformance is not a new issue, a commonality in the recent quantitative easing period<br /> Separate analysis highlights a negative gross average monthly negative performance of -0.96 for the Barclay Hedge Fund Index. During this same period, June to October, the S&amp;P 500 delivered an average negative monthly performance of -0.146. This leads to an average monthly divergence between stocks and a hedge fund index of -0.814.</p> <p>The level of underperformance highlighted by Deutsche Bank might not be as significant as one thinks. Using the period of quantitative easing as a benchmark, this is visible when comparing the performance of the S&amp;P 500 Total Return Index to that of the Barclay Hedge Fund Index where investors can witness what is a very different level of performance. In 2014 the S&amp;P was up 13.69 percent versus the hedge fund index, up only 2.88 percent. The return differential resulted in an annual -10.81 percent underperformance by hedge funds, which is actually close to the annualized underperformance by hedge funds in the June to October period cited in the Deutsche Bank study. In other words, the recent underperformance by hedge funds, which are typically correlated to stocks nearly ¾ of the time, exhibited a significant lack of correlation on a price appreciation basis in 2014. The same thing happened in 2013, when the S&amp;P 500 Total Return Index was up 32.39 percent yet hedge funds were up only 11.12 percent, for a massive underperformance of -21.27 percent.</p> <p>In other words, at least when measured during the last several years of what has been called market numbing quantitative easing, the vast average of hedge funds have been significantly underperforming a simple investment in a the S&amp;P 500 index. While the Deutsche Bank report only focused on the June through October period, what they were really touching on is a much wider performance gap issue. The question is, with most hedge funds long only – and long only hedge funds being among the worst performers on the HSBC Hedge Weekly performance ranking – why were hedge funds underperforming by so much?<br /> Deutsche Bank says hedge fund underperformance triggered by volatility factor, which is different than VIX volatility<br /> The significant recent underperformance by stocks since June was triggered, in large part, by exposure to volatility. Just over half the June to October underperformance of Deutsche Bank’s model hedge fund portfolio to stocks, 2.6 percent over five months, is attributable to Deutsche Bank’s volatility factor exposure, the report said.</p> <p>It was almost a year ago that the Deutsche Bank Quantitative Strategy Research department, headed by Allen Wang, created the volatility factor formula, a ratio of “long high risk stocks / short low risk stocks.” In regards to the thesis for hedge fund underperformance, the validity of the measure is, in part, dependent on its record as an indicator of how actual stock market volatility impacts hedge fund performance. This would require testing of the Deutsche Bank volatility measure relative to hedge fund performance and actual CBOE VIX measured volatility.</p> <p>From Deutsche Bank’s perspective it is this volatility factor that “has been a major driver of systematic factor returns during 2015.”<br /> …Standard quantitative factors (styles) have, on average, tilted towards low volatility throughout the year; contributing to a large portion of their returns. Notably, momentum has a strong low volatility exposure which has c
Foundations and endowments suffer in Q3
Asset Management
<p>Foundations and endowments returned -5.23% in the third quarter, the worst performing quarter in four years.</p> <p>Trusts in the 1,500 plan Wilshire Trust universe had a median -4.53% return in the third quarter, down from -0.04% in the second quarter, reports Pensions &amp; Investments. Foundations and endowments were hit the hardest, while Taft-Hartley health and welfare plans performed the best of the group, returning a median -2.79%.</p> <p>Corporate defined benefit plans returned -3.62% and public defined benefit plans returned -4.81%. Taft-Hartley DB plans suffered with -4.81% returns.</p> <p>The second and third quarter of 2015 are the first consecutive negative quarters since 2008 and 2009.</p> <p>The fall in global equities hit all the plans last quarter. Foundations and endowments had average domestic equity allocations of 32.23% and international equity of 12.96%. These investors have had a median return of -1.37%  for the 12 months ending in September.</p> <p>Taft-Hartley health and welfare funds though are notoriously conservative, holding a medium U.S. bond allocation of 56.28%. These funds have also performed the best in the 12 months ending in September, with a median return of 0.43%.</p> <p>&nbsp;<br /> Photo: Emery Way </p>
Prudential Investment changes name with global look
Asset Management
<p>Prudential wants you to know that its investment management business is global.</p> <p>The $947 billion Prudential Investment Management is changing its name to PGIM, effective January 4. Prudential Investment Management currently operates in 16 countries, across a span of asset classes, and plans to expand its global presence.</p> <p>“The PGIM name represents our scale, and our conviction to deliver time-tested, long-term solutions and outcomes for institutional and retail investors,” says David Hunt, CEO of Prudential Investment Management.</p> <p>Prudential Fixed Income will use the PGIM name outside of the U.S., where it is currently known as Pramerica. Prudential Mortgage Capital Company will be known as PGIM Real Estate Finance, and Prudential Real Estate Investor will be called PGIM Real Estate.</p> <p>Prudential Investment Management will also be housed in a new headquarters in Newark, N.J., near the Prudential global corporate headquarters.</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: istock <br /> &nbsp;</p>
AMG buys BlueCrest’s stake in Braga’s Systematica
Hedge Funds
<p>Affiliated Managers Group disclosed it has agreed to buy a majority stake of the equity held by Michael Platt’s BlueCrest Capital Management in Leda Braga’s Systematica Investments. Braga’s venture recently surpassed the assets of her former employer, overseeing $8.8 billion as of Oct. 1, compared with BlueCrest’s $7.9 billion.<br /> Systematica trims ties with BlueCrest<br /> Braga’s venture was spun out of Platt’s firm in January. Platt left JP Morgan Chase to start BlueCrest in 2000, and Braga joined him the following year. BlueCrest was one of Europe’s three biggest hedge funds in the aftermath of the financial crisis. The firm has faded in recent years and sustained billions of dollars in withdrawals after lackluster returns.</p> <p>British hedge fund manager Michael Platt’s firm was once managing $37 billion. In May, New Jersey’s public pension plan sought to redeem its full interest in BlueCrest Capital International, stating that the fund “underperformed expectations.” On the contrary, in May, bucking the price persistence trend, Braga cracked into the top 20 hedge funds.</p> <p>Last month, a person familiar with the matter disclosed that Braga’s BlueTrend fund returned 5.9% in the first nine months of the year. Platt’s biggest fund, AllBlue, invests in Systematica’s BlueTrend fund. AllBlue gained 2.9% this year through October, beating the 1% advance in the Bloomberg Global Aggregate Hedge Fund Index.</p> <p>As part of the deal unveiled Sunday, Platt’s BlueCrest will be selling most of its stake in Leda Braga’s Systematica to AMG. However, the terms of the deal were not disclosed. According to a filing with U.S. authorities, BlueCrest held 25% to 50% of Systematica’s equity, and hence the latest deal would mean the firm would be left with less than 25%.</p> <p>Via S&amp;P CapIQ<br /> AMG’s rapid expansion over the past decade<br /> At the end of September, Affiliated Management Group, Inc., had $619 billion in assets. The firm, which takes equity stakes in investment firms didn’t disclose the size of the stake it was buying. A person close to the firm indicated that the firm typically acquires stakes of between 25% and 30% in alternative-investment firms.</p> <p>AMG announced Sunday that it had agreed to acquire a majority of BlueCrest’s remaining stake in Systematica for an undisclosed amount. Braga and other senior executives will continue to control and hold most of Systematica’s equity. AMG also announced Sunday that it has agreed to buy equity stakes in Abax Investments.</p> <p>According to The Wall Street Journal, the latest deal for the stake in Systematica came about after AMG Chief Executive Sean Healey met Mr. Platt for dinner at 5 Hertford Street, a private club in London’s upmarket Mayfair district, in the spring. Braga said a key recommendation had come from Feldstein, chief executive of BlueMountain Capital Management LLC, who launched his firm out of BlueCrest.</p> <p>Braga indicated that working with AMG will help her make management decisions such as setting rewards for staff to encourage growth and cultivate future leadership.</p> <p>This article was originally published by ValueWalk. <br /> Photo: uberof202 ff<br /> &nbsp;</p>
John Hussman: Pyschological whiplash
Asset Management
<p>Investors have experienced a great deal of whiplash in recent months. After a rapid but relatively contained retreat in August and September, the stock market has rebounded to within 2% of its May record high. Only weeks ago, investors were concerned about economic deterioration. As of Friday, strength in nonfarm payrolls has suddenly convinced investors that a December rate hike by the Fed is all but certain.<br /> From an economic standpoint, my impression is that this whiplash is largely psychological, and has very little to do with any underlying change in economic fundamentals. Instead, it reflects a tendency to respond to all economic data as if it is coincident (reflecting the current state of the economy) rather than carefully distinguishing leading data — primarily new orders and order backlogs, from coincident data — primarily income and production, from lagging data — employment figures, particularly payrolls and the unemployment rate, which are essentially the most lagging data series in economics.<br /> The overall signal we draw from the economic data continues to lean much more toward deterioration than to strength. Friday’s data was undoubtedly a blowout number, at 271,000 new jobs, but it’s important to recognize that payroll data is a lagging, not leading, measure of economic activity. Indeed, extremely high payroll figures often immediately preceded recessions prior to 1990, though we haven’t seen that in recent economic cycles. What’s true most generally is that economic data proceeds in a sequence that moves from financial indicators, to new orders, to production and income, and finally to employment. As I noted in February:<br /> “The combination of widening credit spreads, deteriorating market internals, plunging commodity prices, and collapsing yields on Treasury debt continues to be most consistent with an abrupt slowing in global economic activity. Generally speaking, joint market action like this provides the earliest signal of potential economic strains, followed by the new orders and production components of regional purchasing managers indices and Fed surveys, followed by real sales, followed by real production, followed by real income, followed by new claims for unemployment, and confirmed much later by payroll employment. Stronger conclusions, particularly about the U.S. economy, will require more evidence, but from a global perspective, these pressures are already quite evident.”<br /> An evaluation of this sequence may provide a somewhat more tempered view of economic conditions than Friday’s employment figure, taken by itself, might suggest.<br /> First, recognize that in the context of divergent market internals across a broad range of individual stocks, the kind of whipsaw stock market behavior we’ve seen in recent months has historically been more characteristic of market topping processes than not. One way to measure this whipsaw movement is to examine cumulative absolute weekly percentage changes in the market over the most recent 10-week period. Those familiar with nonlinear analysis will recognize this as a sort of “fractal ruler”; much like measuring the length of a coastline by adding up all of the edges, which capture the irregular shoreline better than simply drawing a straight line. When significant market whipsaws have occurred along with recent overvalued, overbought, overbullish conditions and flagging participation from the broad market, steep market losses have often followed. We observed the same thing in 1973, 1987, 2000 and 2007. Still, a clear improvement in market internals would defer our immediate concerns.<br /> Read more at Advisor Perspectives.</p> <p>Photo: Wally Gobetz</p>
How to avoid the pharmaceuticals fallout with these three ETFs
Asset Management
<p>Investors that closely follow the healthcare sector are most likely familiar with the carnage at Valeant Pharmaceuticals International Inc. (NYSE: VRX). Shares of the controversial pharmaceuticals maker have lost nearly two-thirds of their value over the past 90 days, plaguing some hedge funds and exchange traded funds along the way.</p> <p>On Monday, shares of Mallinckrodt PLC (NYSE: MNK) slid more than 17.4, a decline, triggered by a tweet from Citron Research that read, "At these prices $MNK has signif more downside than $VRX-- far worse offender of the reimb sys - more to follow. VRX can't live in a vacuum."</p> <p>Clearly, Citron expects more downside for Mallinckrodt, another pharmaceuticals favorite among the hedge fund ...</p> <p>Full story available on Benzinga.com<br /> Photo: e-Magine Art</p> <p>&nbsp;</p>
Gaw Capital Partners to launch fifth Asian real estate fund
Asset Management
<p>Hong Kong-based Gaw Capital Partners, known for such hits as acquiring the InterContinental Hong Kong Hotel and developing Vietnam’s tallest skyscraper, is apparently hitting the fundraising circuit for its fifth and largest real estate fund.</p> <p>Mingtiandi reports that the family-run firm plans to raise $1.5 billion for the Gaw Capital Gateway Fund V, a fund, unlike its China-centric predecessors, which will carry a pan-Asian mandate and just $750 million set for mainland Chinese properties.</p> <p>The move apparently comes after regional REPE firms dimmed their outlook on mainland real estate:<br /> “Gaw’s decision to move beyond its traditional base in Hong Kong and mainland China to look for opportunities may reflect the challenges that fund managers are currently facing raising funds for acquisitions in China after a flurry of sour economic news from the mainland.</p> <p>In 2014 Gaw invested a reported $200 million to acquire an office tower in Seoul, South Korea, and that same year purchased the Hyatt Regency in Osaka for a reported $30 million.”<br /> Gaw, according to its website, has raised over $5.2 billion since its inception and now commands over $10.6 billion in capital.<br /> Photo: InterContinental Hong Kong</p>
Hedge funds are dumping gold at a record pace
Hedge Funds
<p>With the Fed practically trapped into producing a December rate hike; investors around the globe are starting to flee precious metals at a rapid pace – and hedge funds seem to be among the biggest sellers, writes FINalternatives:<br /> “Hedge fund managers sold gold contracts during the week ended November 4 by the most since Bank of America Merrill Lynch began tracking their movements in 2006, according to the last edition of the bank’s Hedge Fund Monitor.”<br /> Long positions in gold have apparently been sold off, while holdings in silver and palladium have been largely slashed. Short positions on copper meanwhile have been added to, a move that has not done well for the already-battered copper ETFs.</p> <p>Still though, the report does add that gold may still bounce back, but with one hulking caveat:<br /> “Gold may rally tactically, but remains vulnerable on sizable longs by large speculators, wrote BofAML.”<br /> I wonder how Peter Schiff feels about all this.<br /> Photo: Giorgio Monteforti</p>