Friday 25th July 2014
slib33
FRIDAY ANALYSTS TICKER: July 25th 2014 - According to Adam Cordery, global head of European fixed income, Santander Asset Management, and fund manager for the Santander Euro Corporate Short Term and Euro Corporate bond funds, “Pricing of risk assets doesn’t offer much of a margin for error at the moment. And now Europe is starting to go on holiday, market liquidity may get poorer than normal, and any buys today may well have to be holds until September. It is always interesting to note what yields are required to attract clients to financial products. Twenty years ago, bond funds offering yields of 10%+ could generally attract lots of client interest very quickly. However as rates have come down over the years, so the yields clients demand have fallen. Now 4% seems to be the new 10%, he say. Cordery thinks that unfortunately, investors often want today the yield/risk mix that was available last year, so the products that get launched, sold and bought in size may be more risky than people think. “Products with 4% yield will sell well today, but to get to a 4% yield in Euro you need to invest in a portfolio with an average rating of single-B, and that is far from being risk-free. I get the impression the conventional wisdom today is to think that interest rates must surely go up soon and the main risk to bond portfolios is an increase in bund yields. Because of this many investors are buying short-duration products and floating rate notes, perhaps viewing them as a safe choice, almost like cash. It is possible however that these products may yet prove to have a considerable sensitivity to changes in credit market spreads and/or bond market liquidity, and may prove to be no protection at all.” - Commenting on the RBS share price jump, Dr Pete Hahn of Cass Business School, says “It's hard to tell whether the RBS share price jump today is more about relief or optimism. The former is about fewer fines, fewer losses on loans, and fewer costs in a shrinking business and possibly dividends for shareholders. And there's the rub, owning shares (as opposed to interest bearing debt) should be about optimism and long-term growth in dividends. But from a shrinking business? Few would argue that RBS' retail and corporate bank had efficiencies to be gained and cash flow that might be converted to dividends; yet like most banks, RBS' cost of equity remains stubbornly and appropriately above its ability to provide a return on that equity. For shareholders, current improvements should mean dividends in the medium term but a recognition that RBS may lack any merit for new investment and delivering any long-term dividend growth - not good. While many large retail banks are getting safer, in some aspects, and we often speak of them in terms of moving toward utility type models, banks take risks, are cyclical, face competition, have new business challengers, and are simply are not utilities. Investors shouldn't get ahead of themselves here.” - According to the monthly survey held by the central bank of Turkey, the country’s capacity utilization (CU) rate declined slightly to 74.9% in July from 75.3% in June. Meanwhile, seasonally adjusted (SA) CU also declined to 74.3% from 74.7% in June, writes Mehmet Besimoglu at Oyak Yatirim Research. As for manufacturing confidence, the index declined to 109 from 110.7 in May. On SA basis, the index also edged down slightly to 106.4 from 107.2. SA capacity utilisation was broadly stable in 1H14, averaging at 74.7%. This is the same level with the 2013 average. Despite the political turmoil and volatility in financial markets, activity has been relatively resilient. Export recovery & government spending supported production in 1H. Following the elections, public spending relatively decelerated. The turmoil in Iraq also decelerated export recovery from June. Nevertheless, we still expect 3.5% GDP growth in 2014, writes Besimoglu.

Macro gains offset by equity losses

Friday, 15 June 2012
Macro gains offset by equity losses Hedge funds post declines in volatile May; systematic macro post gains on fixed income http://www.ftseglobalmarkets.com/

Hedge funds post declines in volatile May; systematic macro post gains on fixed income

Hedge funds posted decline in May, with the HFRI Fund Weighted Composite Index posting a loss of -1.6%, says Hedge Fund Research, Inc., the indexation, analysis and research provider for the global hedge fund industry. This marks the third consecutive monthly decline, reducing the year to date gain for the index to 2.5% through May.  “During the volatile month of May, investors reacted to increased European bank and sovereign bond risk and weakening U.S. economic data by aggressively moving portfolios toward less risky exposures,” explains  Kenneth J Heinz, president of HFR. “This

risk-off response adversely impacted certain areas of equity-sensitive hedge fund exposures, while benefitting strategies tactically positioned to insulate portfolios and produce gains resulting from the strong trends and volatile environment which materialised. In the current environment, at some level, every hedge fund is a Macro fund.” 

Mirroring trends across financial markets, hedge fund performance during May was widely divergent across strategies, with macro funds posting their best monthly performance since April 2011, while equity hedge posted its largest decline since September 2011. The HFRI Macro Index gained 1.7% in May, bringing YTD gains to 1.9%, with significant contributions from systematic strategies and positions in fixed income, commodities and currencies, with limited aggregate exposure to equity market volatility. The HFRI Macro: Systematic Diversified Index gained 4.1% in May and has gained 2.9% year to date.

The HFRI Equity Hedge Index posted a decline of -4.1% in the month, paring its year to date gain to +1.8%, with declines across growth, energy and emerging markets strategies only partially offset by short bias funds, which gained over 7%. Event driven strategies fell by -1.4%, paring year to date gains to 3.1%, with weakness in activist, distressed and equity special situations funds. Falling yields and increased volatility failed to offset the impact of credit weakness as Relative Value Arbitrage funds posted a decline of -1.3%, the first decline for this strategy in 2012, narrowing year to date gains to 3.1%, for the global strategy.

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