Wednesday 14th October 2015
NEWS TICKER, OCTOBER 13TH 2015: NEWS TICKER: The Lyxor Hedge Fund Index was down -1.4% in September. 3 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+4.0%), the Lyxor CTA Long Term Index (+2.3%), and the Lyxor L/S Equity Market Neutral Index (+0.4%) were the best performers. In contrast with the sell-off by last fall, the current recovery process is proving more laborious, says Lyxor. Continued soft macro releases, several micro turbulences (VW, GLEN, the US Healthcare) and signs that the Fed might be more concerned about global growth, drove markets to re-test the end-of-August lows. L/S Equity Long bias funds and Event Driven funds were yet again the main victims. Conversely, CTAs, Global Macro and L/S Equity funds with lower or variable bias, successfully navigated challenging times - British payments processor Worldpay Group Ltd priced its listing on the London Stock Exchange (LSE) today at 240 pence per share, valuing the business at £4.8bn in the largest IPO of this year on the LSE. Payments processing giant Worldpay (WPG) managed to list this morning at 240p, right in the sweet spot of an initial 225p-260p marketing rage which was subsequently narrowed to 235-250p. It currently trades +4% at 250p equating to a positive market debut in light of a slower pace of listings The UK company, which qualifies for FTSE 100 inclusion, processes £370bn in payments from 400,000 merchants every year and handles around 40pc of web-based transactions in Europe. Worldpay earlier this year rejected an offer of up to 6.6 billion pounds, including debt, from French rival Ingenico Group SA. Last year Worldpay made an underlying profit of £765m on revenues of £3.6bn. In the first six months of this year, sales rose 13pc to £465.7m, pushing profits up by the same amount to £182.6m. As of the end of September, the London stock market had welcomed 93 flotations raising £5.3bn this year, a significant drop from the £11bn generated from 136 listings in the same period last year - This week’s major London IPOs have had mixed fortunes. and a cooling in appetite for new paper over the last two years. However, motor insurer Hastings Direct (HSTG), which came to market yesterday, could only manage to get its IPO away at 170p which was well below its 180-185p indicated range. Worldpay’s IPO success most likely reflects the global preference for digital and consumer focused firms - The gross return of the SS&C GlobeOp Hedge Fund Performance Index for September 2015 measured -1.56%. Hedge fund flows as measured by the SS&C GlobeOp Capital Movement Index declined 1.13% in October. “SS&C GlobeOp's Capital Movement Index for October 2015 was -1.13%, down from the previous month's 0.62%, reflecting primarily seasonal factors,” said Bill Stone, Chairman and Chief Executive Officer, SS&C Technologies. “Comparing year-over-year flows, the -1.13% for October 2015 was virtually identical to the October 2014 reading of -1.12%, with both inflows and outflows closely in line for the comparative periods. We have been analysing our Capital Movement Index and Forward Redemption Indicator carefully in the wake of recent market volatility. October's results are certainly indicative of overall stability in hedge fund allocations.” - Zurich UK is in talks with its staff over cutting 29 jobs across the administrative and support teams for retail sales as part of a restructuring process. Zurich UK has entered a period of consultation with its support and administrative staff and it is expected 29 jobs will be cut as a result. The decision has been made to realign all Zurich UK's resources to focus on key areas of protection and wealth, and is expected to help the company deliver increased efficiency and co-ordination of services to advisers and their clients. The company has also re-aligned its platform offices in Leeds and Bristol to become the North and South offices, focusing on the two regions instead of two cities – South Africa’s National Union of Mineworkers (NUM) has signalled that there won’t be any agreement signed between the union and the Chamber of Mines (COM), at least until tomorrow morning. As the majority union, representing 72% of employees represented in the coal wage negotiations, the NUM must agree to the latest offer from the mining companies – Anglo American Coal, Delmas, Exxaro, Kangra, Koornfontein, Msobo and Glencore – represented by the COM, if the coal sector strike is to come to an end - APEC’s Energy Ministers from the 21 APEC member economies concluded their meeting on Tuesday in Cebu, the Philippines, by adopting the Cebu Declaration and Instructions, a joint statement on the the region’s energy priorities. Ministers instruct the region’s energy stakeholders to promote and collaborate on initiatives under the theme: “Towards an Energy Resilient APEC Community,” as well as create a task force on energy resilience to implement disaster-proofing of energy infrastructure, introducing energy efficiency technologies, promoting the use of clean energy and improving energy trade and investment in APEC. - Singapore property firm Perennial Real Estate Holdings (PREH) is launching a maiden issue of three-year bonds to the retail market with an annual payout of 4.65 %. Up to SGD150m of the bonds will be offered to the public although some may be re-allocated to institutional and other investors if applicable, PREH said in a statement. DBS is the sole manager and book-runner. The total issue size can be raised to SGD300m if the public offer is oversubscribed. The maiden bond offering further diversifies the firm’s sources of funding, though they have one of the shortest tenures among retail bonds issued by Singaporean companies in recent years. PREH's offer comes after jewellery firm Aspial Corporation's issuance in August, which offered a coupon rate of 5.25% over a five-year tenure - Major Asian bourses edged lower in trading today and major European equity indices fell in early trading, with energy-related shares leading the losses on profit-taking after a fall in crude oil prices yesterday. Continued concerns over China’s economic outlook and the prolonged rout in the commodities markets is beginning to take on more characteristics of a crisis, than simply market corrections. Most Asian markets fell after Chinese trade data signalled weakening global and domestic demand. Japan's Nikkei Stock Average fell 1.1%, Australia's S&P/ASX 200 lost 0.6% and Hong Kong's Hang Seng Index was down 0.5%. Indonesia's JSX fell 2.6% and South Korea's Kospi shed 0.1%. In brighter mode, the Shanghai Composite Index finished up 0.2%, while the Straits Times Index (STI) ended 33.61 points or 1.12% higher to 3032.11, taking the year-to-date performance to -9.90%. The top active stocks today were SingTel, which gained 1.56%, DBS, which gained 0.45, UOB, which gained0.91%, Noble, which gained 9.57%and Keppel Corp, with a 0.13%advance. The FTSE ST Mid Cap Index gained 1.18%, while the FTSE ST Small Cap Index rose 0.90 - The US Federal Reserve staving off a rate rise last month has given the markets breathing space and market focus will hone in on Federal Reserve Bank’s James Bullard, who will give a speech at the annual meeting of the National Association for Business Economics in Washington - According to Eurobank, the Greek government submitted to Parliament yesterday a bill containing the first set of fiscal and structural measures that will permit the disbursement of ca €2bn from the first instalment of €26bn of the €86bn loan agreed in August under the Third Economic Adjustment Programme for Greece. The bill is expected to be voted on late on Friday this week - InvestCloud, Inc, a provider of cloud-based front and middle-office solutions focused on digitizing customer experiences and internal operations for global investment advisors, today announced it has raised $45 million in growth equity funding. The round was led by FTV Capital and will be used to further invest in the company’s state-of-the-art platform and functionality, enhance customer service, and expand the company’s global footprint. Richard Garman, FTV Capital managing partner, has joined InvestCloud’s board of directors -

Latest Video

High yield market: Finding fixed-income firepower

Wednesday, 25 July 2012
High yield market: Finding fixed-income firepower With Fed liquidity helping to drive rates in competing asset classes lower, fixed-income mavens have been understandably buoyed by the comparatively attractive risk-adjusted returns of high-yield corporate bonds. Despite consistently strong credit fundamentals, however, the persistence of worrisome global-macro volatility will likely keep high-yield investors on alert throughout the second half of the year. From Boston, Dave Simons reports.

With Fed liquidity helping to drive rates in competing asset classes lower, fixed-income mavens have been understandably buoyed by the comparatively attractive risk-adjusted returns of high-yield corporate bonds. Despite consistently strong credit fundamentals, however, the persistence of worrisome global-macro volatility will likely keep high-yield investors on alert throughout the second half of the year. From Boston, Dave Simons reports.

While many segments of the bond market have struggled in the face of plum­met­ing interest rates, one area that has been increasingly attractive to income investors has been high yield. Unlike 2011 which saw long-term treasuries outperform US corporate high yield by a six-to-one margin (according to figures from Barclays Capital), the global high-yield market began the current year in top form, with portions of the sector topping 8% as of late May.

With corporations de-leveraging and balance sheets improving, high-yield fundamentals appear to be sound (and include a record low default rate), while new issuance has been largely limited to extending maturities and boosting liquidity.

Though price action is typically impacted by global-macro volatility concerns (particularly with respect to the situation in Europe), the sector’s aggregate yield has advanced approximately 100 basis points since the start of the year, which could help attract even more investors going forward. Accordingly, many observers remain unusually bullish toward high yield corporate bonds and their attractive risk-adjusted returns, and believe these investments will be aided by the central-banking pro-growth monetary policy of the US and EU.

David Leduc Standish Mellon Asset ManagementDavid Leduc, chief investment officer of Standish Mellon Asset Management’s active fixed income division.Credit fundamentals remain reasonably healthy across most sectors, particularly within the US and developed areas, affirms David Leduc, chief investment officer of Standish Mellon Asset Management’s active fixed income division. “We have been a bit lighter on energy given the recent fluctuation in oil prices and other concerns,” says Leduc, “however on balance we’ve liked what we’ve seen.” Earnings have been strong, says Leduc, and the vast majority of companies have been able to secure financing at historically favorable terms, giving them greater flexibility.

As one would expect, the top end of the yield curve has been shaped for the most part by lower-rated issues, with some CCC-rated products approaching the 10% mark. Emerging-markets high yield has garnered significant interest, while European high yield continues to lead the pack on a global basis. “Euro spreads have been consistently higher,” says Leduc, “which helped the sector outperform during the first part of the year.” Navigating the financial space has been tricky, though, says Leduc. “There have been a lot of fallen angels particularly around European bank sub-debt, and we’ve tended to steer clear as a result.” Attractive opportunities in the US include various issues in the lease-finance sector; communications has had its share of good performers, and Standish Mellon has also benefited from positions in the US auto sector, particularly in light of recent upgrades.

Even those with a reduced appetite for risk have seen returns in the vicinity of 4% or higher from certain higher-rated (BB and B) issues. “Some of the smaller names in Latin America and Asia have paid upwards of 60 basis points (bps) higher than their US counterparts, simply because they may have better credit metrics including lower leverage and higher interest coverage,” says Leduc. “While it might not sound like that big a deal, when you have 10-year treasury bonds yielding less than two percent, it does mean something.”

Brian Kinney State StreetBrian Kinney, managing director at State Street Global Advisors (SSgA).The perception that the Fed will keep rates at low, combined with the positive direction of corporate balance sheets, has helped boost comfort levels, says Brian Kinney, managing director at State Street Global Advisors (SSgA). As such, investors are increasingly viewing high yield as a plausible mechanism with which to diversify away from lower-paying government bonds, or to use high yield in part as a hedge against inflation.

“Not only are clients moving into these types of asset classes in greater numbers, they are doing so in a way that they feel will provide them with the most liquidity,” says Kinney. Given the illiquidity licking that many an investor suffered pre-crisis, it’s not that surprising that the vehicle of choice for high-yield entry has often been exchange-traded funds. During the first quarter alone, roughly 25% to 30% of total high-yield inflows arrived via ETFs, with the majority directed toward State Street’s SPDR Barclays Capital High Yield Bond ETF as well as iShares’ iBoxx $ High Yield Corporate Bond ETF (the two funds currently account for an estimated $25bn combined).

Because high-yield ETFs tend to invest in a smaller number of larger, more liquid issuers, there is a bit of a trade-off between liquidity and broad exposure when compared to institutional fixed-income high-yield benchmarks. It’s a sacrifice that many clients have been willing to make, says Kinney. “If you look at the performance of high-yield managers versus the index, on balance the returns haven’t been all that different,” says Kinney. ­“Particularly when you consider the importance of liquidity to investors nowadays, you can see why ETFs have become a legitimate choice for clients in support of high yield.”

Despite the upward trend, managers have been loath to keep the pedal to the medal, given the perpetual ebbs and flows of economic developments both at home and abroad. In contrast to the buoyant first quarter that saw major fund flows into high yield, the economic realities of Q2 subsequently sucked some of the joy back out of the markets; though still north of 5% on an aggregate basis (as of June 30th), corporate high-yield indices have since retraced much of the gains tacked on earlier in the year.

“There could still be a fair amount of volatility into the foreseeable future,” says Leduc, “which is important to keep in mind, particularly when using high yield in accounts that may not be totally dedicated to that asset class. Things have clearly gotten a bit softer in the US during the second quarter, which isn’t all that surprising given the higher-than-average performance we saw during the previous quarter, nevertheless it does bear watching. But there are other things to look out for as well—China’s growth has been slower than the markets had previously expected, and of course Europe continues to struggle with the sovereign-debt problem. So global-growth concerns do remain at the forefront, and even though it’s not our view, should there be a more meaningful pullback in the US economy, that would certainly not be constructive for high yield. While we’re not necessarily building those expectations into our high-yield strategy, it is something we need to be cognisant of as we move forward.”

Still, experts such as Kinney prefer to look at the bigger picture. “The fundamentals story, which is about corporations’ balance sheets, cash on hand, and access to the capital markets is still quite positive,” says Kinney. “If you forget about the spreads and just focus on the absolute yields, you see that corporations are in better shape than they’ve been in years. You also have a very strong technical story in the sense that there is a lot of liquidity in the system right now—and the indirect result of the Fed putting all of this money into the system is that absolute yields in other asset classes have been driven very low. So as a relative-value proposition high yield looks very attractive, particularly in a market that is awash in liquidity and other yields are at their historical lows.”

Despite some suggestions that government regulation has lead to greater inefficiency and the potential for market dislocations, the improved transparency has allowed investors to breathe a bit easier whilst on the high-yield hunt.

“Say what you want about regulation—the fact of the matter is that investors have been able to look at corporate balance sheets and have a much better understanding of what’s actually behind them,” says Kinney. “The ability to analyse and subsequently invest in corporations is probably better than it’s ever been, and that is certainly one of the more positive aspects of the increased disclosure around what corporations are doing with their money. And the high-yield market has really been one of the key beneficiaries of that trend.”

Current Issue

Related News

Related Articles

Related Blogs