Archives » 2006 » Issue 37 (February)

The limited system of open architecture pioneered in Germany has led to successful relationships and proven lucrative for manufacturers

— Donohoe: once in 20-years event

Asset managers and the distributors of their products across Europe have shown a very mixed reaction indeed to the Ucits III directive, and the new powers this gives them in terms of offering a much broader palate of investment instruments.

The German market is currently absorbed by several key talking points. The most crucial is the crisis affecting open-ended real estate funds, some of the most widely held products among retail clients, and most popular among the bank salesmen who push them. Also affecting confidence among fund distributors has been a lack of interest in widely-hyped hedge products and a huge competition from certificates created by investment banks. A more on-going concern has been the efficiency of the guided architecture system pioneered in the German market by Commerzbank and Deutsche Bank.

— Nègre: election outcomes are critical

With European expansion very much on the political agenda, Amsterdam-based Fortis Investments is drawing distributors’ attention to its Turkish equity fund, presenting what the Belgo-Dutch group claims is “one of the last opportunities offered by the EU convergence”.

New research from mutual fund consulting firm Lipper Fitzrovia suggests a growing divergence between trends in active and passive equity funds’ fee levels.

— Jones: UK is a long way from Europe

Depolarisation is seen as an important catalyst of change in the UK savings market, where insurance companies have traditionally been the dominant investment product manufacturers and independent financial advisers (IFAs) the principal distribution channel.

The recent pre-Christmas deal making activity of Fleming Family & Partners (FF&P) and Guggenheim Partners throws into the spotlight the considered value of the investment in multi-family offices. Based on these deals and other MFO activity in the past 12-18 months, it is now reasonable to suggest to large international families that there is a viable private equity play in developing an MFO.

— Ide: ‘having distribution agreements means nothing’

ABN Amro Asset Management’s Julian Ide believes that innovation and flexibility is the key to attracting third-party

business and boosting inflows from a select group of domestic and cross-border distributors. Elisa Trovato reports

“Our priority markets are Germany, the Netherlands, which is our home market, and France” says Mr Ide. “Post the Antonveneta acquisition, Italy will be a major focus of ours.” The final act of this long saga, which saw the Dutch company in competition with Banca Popolare Italiana for the acquisition of Banca Antonveneta, took place at the beginning of January 2006.

— Lacoste: high hopes for absolute return strategies

Crédit Agricole Asset Management, the ?400bn French fund house, predicts a huge renewed appetite for equities as an asset class during 2006. “But investors will be making a careful, conscious decision,” believes Christine Lacoste, the French group’s head of marketing

— Pierri: fine tuning and maintainance in 2006

Pioneer Investments completed the restructuring of its Luxembourg cross-border product range in 2005 in anticipation of two expected trends for the coming year: firstly the rationalisation of distributors’ own product ranges, and secondly the accelerating interest in

— Wilson: keeping the money internal gives us full transparency

There are currently three ways of satisfying demand for absolute return products, expected to increase in 2006, says Simon Wilson, head of marketing at Old Mutual Asset Managers, a specialist boutique backed by FTSE 100 company Old Mutual plc. These solutions are structured products, hedge funds and multi-assets funds.

Distributors and investment product manufacturers both agree that the BRIC markets will prove to be major building blocks in 2006, while absolute return strategies are still a hotly debated topic. Yuri Bender reports on the trends touted for this year; Elisa Trovato profiles the providers

As foreign providers flock to Germany’s mutual fund and investment products industry, the lacklustre performance of heavily-sold open-ended property funds, combined with hostility towards new hedge fund

offerings, may undermine investor confidence, Yuri Bender reports

PWM gathered some top names from all over the investment spectrum to discuss the hot topics affecting fund distribution in Germany, including guided architecture, structured products and property problems

The race is on for the providers of automated systems within individual countries to come up with a pan-European solution. But should they be looking for an all-encompassing system or focus on specific country needs, asks Elisa Trovato

Inertia is often seen as one of the main reasons why third-party distributors and fund providers have not yet adopted automated solutions. EMXCo’s Mr Wright is convinced of this theory. “It takes a while for people to move to the latest technology, because they are used to what they do, they are happy about they do. It is just natural inertia that you get with any technology adoption.”

As the demand for straight through processing in fund administration gains momentum, the integration of the various market-driven platforms has resulted in an increased level of operational complexity for some transfer agencies, who have to find the balance between automation and customisation. Paula Garrido reports

— Lavelle: spreads are not too tight

Providers are convinced that there will be new opportunities within the corporate bond arena in 2006, despite the low volatility in the markets. Simon Hildrey reports

“Going into the new year, the Street celebrates unanimously what is meant to be a ‘reasonably positive’ year for most of the asset classes, except maybe government bonds. In other words risk tolerance nears all time highs. Thus, our balanced portfolio is reasonably well invested in equity markets, whether in Europe, the US or Japan. There are good reasons for stock markets to perform in 2006. That may be the trouble; most markets are priced for perfections and any disappointment could weigh on returns going forward. And, in the shorter run, indices cannot go on at that pace too long.”

December saw a strong run into year-end with high beta working well, most notably in Japan and the emerging markets. For 2006 we choose to stick with overweight in this area, although Japan looks a little stretched in the short term. We also like the look of continental Europe for recovery in 2006 and are happy with our overweight here. 2006 looks tricky for bonds and the mix of flexible funds will be key. We stay underweight as we enter the new year.”

“Bond markets produced modest returns in 2005 but most equity markets ended the year in good heart. The known risks (inflation, interest rates, oil prices) appear under control. However, equity valuations do not suggest optimism. Equities are on around 13-14 times earnings and yield 2-3 per cent with further earnings and dividend growth forecast for 2006. This appears modest given interest rates of 2-4 per cent and low inflation. So, the steady equity mood appears rational rather than complacent.”

“As we still see equities as much more attractive than bonds we remain overweight in stocks, especially in Japan and in emerging markets.

Furthermore we are convinced that the broad diversification of the portfolio, which now comprises equities, bonds, real estate investments and hedge-funds, will continue to pay off. We feel quite comfortable with the current asset allocation and therefore nothing has been changed.”

“For the new year, we keep our positive stance towards equity, supported by sustained growth, low inflation, ample global liquidity and moderate valuations. Inflation is likely to stay low, which means that central banks may not have to become restrictive. The structural forces holding down bond yields may persist and we don’t expect any significant rise in global yields. We also take benefits on our European equity investments in favour of emerging markets, which exhibit a more attractive risk return profile and favour multi-strategy hedge funds.”

“Going into 2006, we maintain our low equity exposure to US managers and instead favour managers in Europe, the UK, Asia and emerging markets, who receive an increased allocation again this month.

In Europe we sold out of Liontrust First Income and added IdB Equity Income to the model portfolio. One of the key aspects of our investment approach is to reduce our reference to the traditional equity markets indices.

IdB Equity Income invests in defensive higher income and/or attractively valued European equities with defensive characteristics.”

Each month in PWM, six top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy