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Big Question: How are you positioned as we head into a global inflationary environment (part III)?

 

– Robert Lee, executive director, Signia Wealth

– 27 March 2017

 

Medium-term pessimism

 

While we acknowledge we are firmly in the midst of a reflationary environment, we are somewhat less sanguine on the medium-term outlook for inflation relative to market expectations, as positive base effects from energy prices begin to drop out of year-on-year headline indices and core inflation indicators globally remain subdued.

To reflect this, we have maintained a relatively balanced position across global rate and credit markets accompanied by several moderate inflation hedges.

Firstly, we remain invested in global sovereign bond markets (albeit with an underweight allocation), have hedged part of our US duration exposure via payer swap options and put options on long-dated US treasury bonds.

Secondly, in the index-linked markets we have small positions in shorter dated US treasury inflation-protected securities and UK inflation-linked gilts.

Finally, over the past year we have built positions in higher yielding assets with attractive levels of real income in US sub-investment grade bonds and emerging market debt – our most recent addition has been to the short dated emerging market high yield sector.

 

To review the full article, click the following link: http://www.investmentweek.co.uk/investment-week/discussion/3007241/big-question-how-are-you-positioned-as-we-head-into-a-global-inflationary-environment-part-iii/page/7





Is it madness to invest in cash? Spectator Money investigates.

– Philippe Pollet, Executive Director

– 11 April 2017

 

Is it madness to invest in cash?  The simple answer is yes, but as with anything to do with investing, it is far more complex than that.

We are living in a world of low returns, less liquidity, tighter regulation, increased competition and globalisation.  When you include the advances in technology, it is clear to see why there has been a reduction in the competitive advantage for many firms, resulting in lower returns for shareholders.

It is therefore understandable that investors worry and wonder about what to do.  Some choose not to do anything and stay invested in cash.  Unfortunately, it has been a difficult time for savers to enjoy any real returns on their savings.  Those waiting for a better, more predictable future to begin investing again have seen the value of capital erode and have suffered significant opportunity costs.

The prospects for fixed income aren’t much better.  In fact, the outlook does not look attractive over the medium to long-term.

At the other end of the scale, equity markets have boomed, reaching historic highs.  This poses its own risk.  How sustainable is this rally, and will it come to an end soon?

With the investment landscape full of potential pitfalls across all asset classes, it is essential to develop a strong framework to think rationally and independently.  Here are four key considerations when thinking about where and how to invest:

 

Think about the risk of losing money first, rather than investment returns

Protecting capital is a key step to building wealth over time.  To understand, control and mitigate the risk of losing capital, you should get to grips with the underlying characteristics of your investments and assess the quality of the assets in your portfolio.

 

Make sure that you get value for money

Even professionals can find it hard to assess the value of an asset; it is the only tangible factor you can use to make sensible decisions.  Understanding the value of an asset relative to its price is an insightful tool to manage your investment decisions independently of market uncertainties.

 

Whatever you do, don’t pay attention to market ‘noise’

Many investors are influenced by things they cannot control, or fully understand, such as the outcome of the next election, a possible increase in the bank rate, exchange rate forecasts or even the oil price.  Listening to this ‘noise’ is disruptive and leads to making a simplistic and often wrong decision.

 

Investing is easier with a long-term view

The compounding of returns at a reasonable rate plays an important role in investment success as wealth creation accelerates over time.  With a longer-term perspective, you will also be under less pressure to worry about short-term volatility in share prices and you will pay l;ess attention to market noise.

There is no getting away from it, cash can be part of an investment strategy and can be considered as part of a portfolio.  But it is utter madness to have th majority of your wealth in cash.  Over recent years it has failed to keep up wit hthe cost of living and this completely contradicts most people’s investment philosophy.

Investing certainties are less obvious than they were, but there are plenty of opportunities.  Whether you are a DIY investor or prefer to leave the investing to an investment manager, you should always apply a mind-set of discipline, cautiousness and patience, keeping the four considerations at the front of your mind.

 

Philippe Pollet is executive director at Signia Wealth.

 

To read the official article, click the following link: https://blogs.spectator.co.uk/2017/04/cash-invest-equity-returns/

 





Digital client battle: six wealth managers reveal their tactics, by Steve Plowman

– 22 March 2017

 

The tech savvy client

 

It has been well documented that wealth managers need to address outdated technology systems if they are to compete in the modern world.

Platforms like Twitter, LinkedIn and Facebook have significantly changed the way in which investors, especially the next generation, engage.

We ask six wealth managers what they are doing to win clients and keep them happy in this new age.

 

Christopher Meurice, associate director,  Signia Wealth Limited, London

 

Relevance, speed and quality are three important facets to bear in mind when attracting new clients today.  Prospective clients lead busy lives and revel in the details of their current projects, which are often not investment related, so creating a broader, more social interaction with them is key.

The digital age has made it easier to communicate directly with clients, allowing us to broaden interactions beyond meetings and phone calls.  Thought-provoking research, interesting articles and fun events can all be brought to the client’s attention more efficiently and keep the wealth manager relevant to their needs.

The second, and perhaps most obvious result of the digital age is the increasing speed of information, which needs to be managed effectively.  Prospective clients can respond well to the added value of quick and concise reporting of the very latest trends.  However, while the speed of data is rising, its reliability is increasingly being questioned, so a new way to attract clients is to provide value in fact-checking and filtering the cacophony of noise in the digital age.

 

Link to article: http://www3.citywire.co.uk/wealth-manager/news/digital-client-battle-six-wealth-managers-reveal-their-tactics/a996470?ref=wealth-manager-most-popular-list#i=6

 





Could Trumponomics revive bond market?

 

– 6 December 2016

– Robert Lee, Executive Director

 

In each conversation held about president-elect Donald Trump there is an overriding theme of unpredictability.  In stark contrast, following a surprisingly conciliatory victory speech on November 9, with the aim of sowing fertile fields for policymaking in congress, the market’s reaction has been far more decisive.

The increasing use of portmanteau words and phrases to timestamp a significant market event or scenario is amusing.  A few of the more popular terms used to describe this latest development include: bond yields have thrown a ‘Trump tantrum’, rising sharply to price in a ‘Trumpflation environment’ induced by extreme open-ended ‘Trumponomic policies’.

‘Trumponomics’ represents an ideological shift – similar to Ronald Reagan’s move to the political right in the early 1980s – with policies designed to stimulate traditional domestic manufacturing and economic activity.  it involves large corporate tax cuts, higher fiscal spending on infrastructure, rising import tariffs and tighter immigration policies; all of which suggest rising inflationary pressures over the medium term in a US economy that is arguably already operating at close to maximum employment and full potential.

Whether delivered predominately via Reagan-style, supply-side economics of Keynesian fiscal stimulus, one thing is clear: rising reflationary expectations accompanied by a stronger outlook for domestic growth is likely to result in a steeper upward path for the fed funds rate and a steeper yield curve.

Bond investors will thus demand higher inflation compensation when allocating funds and making investment decisions.  Also, a persistently large and unfunded fiscal deficit could push bond yields up further by necessitating a higher risk premium across the yield curve.

Could Mr Trump’s anti-establishment victory be the start of a great normalisation process for US yields that has been threatening bond investors for decades?

Whether this interpretation of future Trump policies persists depends on what he says and does in the weeks and months ahead.  If his focus is on pro-growth domestic policies, both breakeven yields (inflation expectations) and term premiums (risk premiums) are likely to continue to rise, albeit at a slower pace.  If the focus is instead on trade barriers and other populist issues such as building a wall, then concerns for the outlook of the US economy are likely to prevail, halting or even partially reversing this recent move.  However, the underlying trend was already in place as both breakeven yields and term premiums were already pointing up before the shock election result for reasons unrelated to Trumponomics.  Therefore yields are unlikely to return to much lower levels from here no matter what Mr Trump says or does, unless the economic outlook deteriorates significantly.

For expansionary fiscal policy to work in a world of heavy debt you need a major force on your side – a central bank willing or forced to buy your debt.

What the Federal Reserve will look like under a Republican administration is also a question that cannot be ignored.  The Republicans and Mr Trump have been very keen to clip the Fed’s wings and rein in its independence, and with Janet Yellen’s current four-year term as chair ending in February 2018 this is a real possibility.  With a new chairperson and closer ties to government, another major reverberation from this election result is that it could trigger a marked change in the global policy order away from pure monetary towards fiscal policy, or a potent mix of both.

If the US were to adopt the latter, both real and financial assets would benefit.  Corporate yields would compress over Treasuries as earnings outlooks improve and an accommodative central bank keeps a lid on volatility.  Under this scenario it is hard to imagine even longer-term inflation levels remaining pinned down under secular stagnation and deteriorating demographic clouds.

Looking beyond inauguration day on January 20 2017, the biggest risk for markets over the next four years will be the execution of Trumponomics.

President Obama’s two terms have seen a shift from an economy on the brink of destruction to one that was, until now, viewed as fully recovered and approaching the maturity phase of its cycle.  The past eight years have seen a US economy growing at an anaemic real rate of 1.3 per cent, and still only 2 per cent if you strip out 2009.

Bond markets are forward looking and usually more accurate than human forecasts, so it can only be hoped that this recent rerating of interest rates is a vote of confidence by the markets for Trumponomics.





Can China make EM great again?

– 20 February 2017

 

“Tear down this wall!”  The infamous words delivered by Donald Trump’s political idol, US president Ronald Reagan, in West Berlin on June 12 1987.  He was urging the then leader of the Soviet Union and emerging world, Mikhail Gorbachev, to dismantle the symbolic protectionist barrier dividing East and West Berlin.

Unfortunately for proponents of globalisation today, protectionism is one political stance that these US presidents differ on, but does the withdrawal of the erstwhile bastion of free markets pose a real risk to emerging market economies and the debt they issue?

Other than building an ambitious and costly 2,000 mile wall along the US-Mexico border, the existential risk to EM from the Trump administration is the threat of higher import tariffs in an attempt to boost the US trade position.

During his campaign, Mr Trump suggested tariffs on China and Mexico of 45 per cent and 35 per cent, respectively.  While it is unlikely these will occur, his recent trade policy appointments suggest we will see restrictions of some kind in 2017, reversing nearly 70 years of trade liberalisation.

One protectionist policy already delivered via executive order is the US withdrawal from the Trans-Pacific Partnership (TPP) free-trade agreement.

Its demise represents a major short-term blow to some countries in emerging Asia – most notably Vietnam and Malaysia – but an opportunity for China, which was not part of the TPP negotiations.

The remaining 11 countries may press ahead with the TPP regardless, but this seems unlikely.  A regional influence expansion is now on the cards for China via the Regional Comprehensive Economic Partnership (RCEP), which includes the whole of Asean, Japan, India, and Korea, but excludes the US.

Declining exports will, therefore, be top of the agenda and, with Mr Trump’s primary focus on US corporate tax cuts and deregulation – more so than his infrastructure spending plan – the competitive edge of EM companies could be eroded.

Perhaps the most serious risk on the horizon for emerging market debt is the combination of US fiscal stimulus and trade protection at this point in the business cycle, which has been extended by the election result.

An injection of fiscal stimulus when the output gap has closed risks a marked increase in domestic price inflation and overheating the US economy in the medium-term, potentially provoking a hawkish reaction from the Federal Reserve.

Combine this with higher import prices from trade tariffs and a border-adjustment tax, rising wages from tighter immigration policies, and a declining trade deficit from increasingly tax-competitive US companies growing their exports – and it is hard to imagine an alternative scenario to an appreciating US dollar pushing the real exchange rate even deeper into over-valued territory.

Most hard-currency EM bonds are denominated in US dollars, so the effects of ‘Trumponomics’ could be far-reaching across the EMD spectrum.  However, although central banks in Turkey and Mexico have been forced to hike interest rates as their currencies have come under idiosyncratic pressures since the turn of the year, there is no evidence yet that concerns over rising US interest rates are forcing other central banks to tighten policy.

On the contrary, Brazil and Chile cut their policy rates in January, highlighting divergence across the asset class.  This has helped EM yield spreads over US treasuries narrow since Mr Trump’s victory as global growth momentum has accelerated to a six-year high, led by an upswing in advanced economies that has become the driving force behind the recent rally in global risk assets.

A sustained recovery in emerging economies, however, will largely depend on the economic and political trajectory of China this year, where stability is expected to lead to prosperity. Under the leadership of Xi Jinping, China is preparing for another ‘selection year’ – the 19th party congress will be held in autumn – giving its leader an unprecedented opportunity to stack top party and government posts with his allies.

He will want stable and healthy economic data going in this event while balancing a transitioning economy, not an easy task, but one made easier by China’s smoothed ‘alternative facts’ to which markets have become accustomed.  Could the early signals from Washington to cease financing the global economy with perpetual trade deficits hinder Mr Xi’s chances, or will Chinese stability and re-acceleration of global growth in 2017 be what it takes to make EM great again?  Only time will tell.





Meet the Investment Influencers: Etienne de Merlis of Signia Wealth

– 24 March 2017

 

In the latest in our series of interviews with some of the industry’s key Investment Influencers, Investment Week talks to Signia Wealth’s Etienne de Merlis.

 

Who are the Investment Influencers?

 

The fund selection and research sectors play a major part in the UK’s asset management industry, but who are the key individuals in these areas?

We have identified them as those who not only control the allocation of fund flows and decide ratings, but are respected by asset managers for the depth of their knowledge, the honesty of their views, their professionalism in analysing and selecting funds, and the responsibility with which they manage clients’ assets.

Over the coming months, we will be meeting these key players and revealing their views on the world of investing and how they are facing the challenges under which we all operate including: more onerous regulation, an uncertain market environment and increased short-termism.

 

This week’s Investment Influencer

 

This week, we meet Etienne de Merlis, CIO of Signia Wealth.

Etienne rejoined Signia in January 2015 – his second stint at the firm, having previously joined in 2011 as part of the investment team, before leaving to set up investment management company Squared Investments.  As CIO, he drives the formulation and development of investment policy.  He is also a member of Signia’s executive and asset allocation committees.

Etienne has 23 years’ investment and financial markets experience, including eight years as a derivatives structurer in Paris and London, and 14 years managing multi-asset portfolios for ultra-high net worth clients at JP Morgan.  There, he oversaw a team of 12 people managing more than $20bn.

 

Investment Influencers in association with Allianz Global Investors

 

The challenges of being a successful asset allocator and fund selector become greater with every market cycle and the way everyone approaches and thinks about these issues is different.

To see and hear how these leading industry practitioners tackle the markets, Investment Week has brought them together in a series of interviews we call the Investment Influencers.

 

To watch the full interview, click the following link:

 

http://www.investmentweek.co.uk/investment-week/interview/3007144/for-mon-am-meet-the-investment-influencers-etienne-de-merlis-of-signia-wealth

 





thewealthnet

– 13 March 2017

 

Carnegie Smyth, Signia Wealth’s Chief Executive is named one of the 2017 PAM Top 40 Under 40.

Now in its 8th year, the 2017 PAM Top 40 Under 40 initiative recognises, introduces and promotes the rising stars of the private client wealth management world in the UK and UK Crown Dependencies.

 

Carnegie Smyth

 

The PAM Top 40 Under 40 began with an open call for nominations.  Once the nomination period was over the entrants were shortlisted based on the strength of their nomination, or nominations.

The final list was drawn up based upon the qualities that the nominees were deemed to have by their nominators.  Other factors taken into account included the reputation or performance of the company that the nominee works for, feedback from the most senior PAM executives, trajectory of promotion/business development success and relative age – younger individuals achieving senior positions at the same time as older peers points to greater future potential.

In addition, PAM Insight used its own experience and knowledge of who is rising to the top quickly, and why.