Brian Bollen's Blog

Fixed Income ETPs Set New Global Record: BlackRock

January global asset flows into fixed income exchange traded products (ETPs) set a new monthly record, attracting $9.1bn in net new assets, according to BlackRock’s January ETP Landscape Report. This helped propel the ETP industry to its best January ever with $34.1bn in net new assets and a total of $1.651 trillion in assets under management (AUM), the firm adds.

Within fixed income, investors sought yield and favoured investment grade bond and high yield ETPs, gathering $7bn of net inflows of the total $9.1bn in fixed income ETPs, it goes on to say.

Looking to the broader ETP industry, BlackRock’s January ETP Landscape Report also found:

Bond To Equity Asset Allocation Shift Ahoy!

Bill Blain’s Morning Porridge – February 8 2012 

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com 

Not really much to say this morning that hasn’t already been said, shouted, telegraphed, drummed or nailed into foreheads regarding the Greek second bailout situation. Greek politicians still playing poker holdout, ECB apparently willing to concede some stuff, Germany saying no new money.. we wibble forwards.. but to what?

If anything happens – we’ll all see it.. Yawn. Whatever agreement is reached will whiff of compromise and will no doubt still be followed by default.

If holders of the March GGBs get a 100% payout I shall eat a hatful of broccoli – and those that know me know that’s a pretty horrendous prospect. 

Crown Castle M&A Loan A Sign Of Things To Come?

Could the recent spurt of mergers and acquisitions activity be a sign that the economic cycle is beginning to move forward? The question is prompted by the news from data provider Dealogic that Crown Castle International signed at the end of January what is being described as the largest acquisition-related facility so far this year.

If that sounds a bit weak, it might be time to recall the nostrum that great oaks from little acorns grow.

The $3.1bn loan has come from a consortium of ten bookrunners led by state-owned The Royal Bank of Scotland. The proceeds, Dealogic continues, are to support the $1.0bn acquisition of NextG Networks and to pay existing debt.

Key Trends In ETF Investment

A version of this article appeared in the FTfm exchange-traded funds supplement on February 6 2012

Market participants identify several key trends in exchange-traded products (ETPs, the umbrella term that includes ETFs and exchange-traded commodities).

Most begin their narrative by revisiting the story of 2011, which Stephen Cohen, head of investment strategies EMEA at iShares, describes as a year of two halves.

The first half saw strong flows into equities. From August onwards there was a major reversal as investors became unusually wary of taking on risk, moving away from emerging market equities in favour of ultra-safe government bonds, to the extent that there was a net outflow from emerging market equities compared with the inflow seen in 2010. ETPs were used to reduce risk, park cash and buy gold, particularly in Europe, where investors assumed a more defensive stance than their counterparts in the US.

“Gold was the big winner in December, with inflows of more than €730m into European-domiciled ETFs,” says Eleanor Hope-Bell, head of intermediary business for northern Europe, at State Street Global Advisors.

The SPDR gold ETF, she says, has already seen net inflows of $1.319bn in 2012, compared with a net outflow of $518m in the whole of 2011; she adds almost as a throwaway line that SSgA's US-domiciled GLD fund is the largest gold ETF in the world with $71bn under management towards the end of January. Defensive sectors outperformed in 2011 and saw mostly modest inflows, she says.

An exception was financials which saw significant inflows in January 2011. “January 2012 seems to be shaping up in a similar fashion, with cyclicals and financials leading the way,” she says. “We have seen good activity and inflows in our SPDR MSCI Financials ETF.” 

The atmosphere today seems more positive, Mr Cohen believes, as the US generates improving economic data. In Europe, the European Central Bank's three-year refinancing facility appears to have stabilised investor confidence by reducing the possibility of an all-out banking crisis.

“Markets have performed very well in early 2012, and ETP flows have reflected that, taking into account statistical and anecdotal evidence,” says Mr Cohen, going on to suggest that the early indicators are that emerging market equities inflows this year could well offset the 2011 outflow. “Bunds and money markets were a big destination for funds, but we are seeing that being reversed now,” he adds.

Income from equities and bonds remains a strong investment theme in his view, with fund raising accelerating in 2012 on the back of the success enjoyed in 2011. iShares itself recently launched an emerging market dividend income fund and has also seen significant flows into European corporate bond, ex-financials. “Corporate credit is an area where investors are focused on yield pick-up,” he says.

US corporate bonds in particular have gathered much interest, delivering not only the desired pick-up but also currency exposure to the US dollar. He describes high yield as 'flavour of the month', reflecting the twin impact of increasing investor confidence and the desire for income. Investors, it would appear, are regaining an appetite for inching along the credit spectrum. “Interest in our high yield fund is very strong,” says Ms Hope-Bell.

Emerging market debt is also gaining in popularity, but perhaps with a bit of twist, if Nizam Hamid, deputy head of ETFs at Lyxor, is correct. “The credit trade has pretty much run its course and investors are focusing on FX trade as the source of yield in emerging market bonds,” he says.

Volatility is emerging as an asset class in its own right, as the market adjusts to the often extraordinary peaks and troughs of recent years, he ventures, and ETFs are a good way to access such exposure inexpensively. “We are seeing a need from clients who are trading, swapping or simply diversifying,” he says.

He is one of a number of market participants who identify diversification as a theme driving ETF growth. Nick Shellard, head of ETF sales at Citi, says that the growing fashion for multi-asset class portfolios sits well with the rise in popularity of ETFs offering exposure to geographies, industry sectors, precious and base metals, soft commodities, as well as oil and gas, fixed income and equities.

Michael Levas, senior managing principal at Olympian Capital Management in Florida, describes as explosive the increasing interest in ETFs. “We are seeing inflows into all asset classes, especially indices, and into currency ETFs.”

A handy summary of the likely future for ETFs is contained in the McKinsey consultancy group report published on the subject in the latter part of last year, on what it describes as 'ETFs' second act'.

Associate principal, Ogden Hammond reiterated and updated the group's view in the preparation of this article. Category specialists will focus on designing specialised passive – and, in time, active – ETF products to satisfy profitable niches of unmet investor demand (he describes the development of actively investing ETFs as the Holy Grail of the ETF industry).

The envisaged niches will include ever narrower slices of international or sector exposure, more exotic commodities, levered or inverse funds, and a wide variety of alternatively weighted indexes. As small to mid-sized ETF sponsors strive to develop unique market positioning and brand identity, many have concentrated on consolidating leadership positions within product categories.

This trend toward increased specialisation will likely continue as ETF sponsors seek to balance their quest to uncover new pockets of investor demand with the need to maintain business focus, cost-effectiveness and a distinctive brand on a crowded ETF product shelf.

As this trend plays out, it could have direct consequences for successful specialists in some larger categories. The McKinsey judgment is that they could become acquisition targets of larger sponsors seeking to augment and diversify product portfolios.

 

Asia Pacific ECM Records Slowest Start to Year Since 2003

By Toshi Noguchi, Dealogic                   

Asia Pacific ECM (equity capital markets) volume stood at just $4.7bn in January 2012, the lowest January volume since 2003 ($1.7bn) and the lowest monthly total since $4.0bn was raised in September 2008. January’s deal count of 84 was also the lowest monthly total since 75 deals were completed in February 2009.

China was the leading Asia Pacific nation in January 2012 with $1.5bn via 16 deals although this was down 87% on the $12.0bn raised in January 2011. Japan recorded one of the steepest decreases in volume with $620m raised in January 2012, down 92% on January 2011 ($8.1bn).

SEB Strengthens Alternative Offering

SEB reports that it has integrated its offering within alternative investments by merging the SEB-owned London boutique Key Asset Management unit with the SEB Alternative Investment Team (AIT) in Stockholm. 

It adds that the new team will be managed by Mikael Spångberg as managing director, Stockholm, and Chris Rule as deputy and chief investment officer, London. The two investment teams, we are told, have worked together informally for the past few years and bring different specialities to the new venture.

You can’t trade politics – but you can use common sense…

Bill Blain’s Morning Porridge – February 7 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

You can’t trade politics – but you can use common sense…

Greece rumbles on. Markets are using it as an excuse to not do very much. We’ve got lots of drivel from politicians, ratings agencies (who should know better) and analysts pontificating how devastating disorderly Greek default will be, and how contagion will sink markets. Please. Get over it. Greece is a painful pustule on Europe’s posterior that’s going to hurt like hell when it’s lanced – but it needn’t be terminal.

That Greece will default is inevitable. Even if every Greek bond holder agreed to a 90% haircut, and received 1% coupon century bonds, I reckon they would still have to default as their economy is in an unrecoverable flat spin with lashings of social unrest as seasoning. General strike today is hardly likely to support another raft of job cuts, hospital closures and wage slashes.

But, I’ll go with the US investment bank that reckons this could be the time to pile into undervalued European stocks – I like the logic: the success of Draghi’s three-year unlimited liquidity and ECB bond buying has provided a solid foundation, and Europe’s markets are poised for more dramatic upside once all the Greek and Portuguese unpleasantness is behind us.

Finadium Hails AssetOps Launch

Independent US research firm Finadium has launched Asset Ops and Strategy, a free website for commentary and analysis on the asset servicing markets for the buy-side.

It says its nhe new site offers daily insights on custody, prime brokerage, cash management, collateral management, securities lending, liquidity and related topics in short, easily-read articles that will appeal to industry professionals.

It adds that articles are written specifically for asset managers, plan sponsors and other institutional investors. The site also posts outside articles that Finadium finds important for the asset holder community.

New Coherence For Sal Naro

Sal Naro, a former co-managing partner of Sailfish Capital, a $4.4bn asset management firm with approximately $2bn in hedge fund assets, is announcing the launch of Coherence Capital Partners LLC.

Naro was most recently a shareholder in and vice chairman of Jefferson National Financial Corp and chief executive officer of Jefferson National Asset Management. The creation of Coherence Capital Partners is the result of a management buyout of Jefferson National’s core insurance unit. He will now be chief executive officer of Coherence, which will be a registered investment adviser.

Olé Elan

Citi reports that its Global Transaction Services business, acting through Citibank N.A., has been appointed by Elan Corporation, a biotechnology company headquartered in Ireland, as the successor depositary bank for its American Depositary Receipt (ADR) programme.

Elan's ADRs trade on the New York Stock Exchange under the symbol 'ELN', with each ADR representing one ordinary share. Elan's ordinary shares are listed on the Irish Stock Exchange.

 

Snow in London, Rest of World cut off...

Bill Blain’s Morning Porridge – February 6 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com 

Embarrassing news from Moscow -  traders have been given severe warnings after coming into work five minutes late. Minus 30 temperatures and 15-metre snowdrifts were considered girly-excuses.

Meanwhile a light dusting of snow and frosty windscreens over the weekend has closed down the UK for the foreseeable future. London tubes have been postponed while drivers wait for their cabins to be heated up.

Feels like the rally is over. This morning’s open looks perilously red -  is it just a pause for breath after January’s spectacular gains, is the thread that holds the Greek Damoclean Sword about to snap, or are markets just tired of all the euro-crap? I suspect the latter. Friday’s strong US jobs report highlights the likely path this year is for recovery outside Europe, making the dismal continent little more than a sideshow.

This morning it's all rumour and sigh as Greece apparently sets a midday deadline for whatever it is they are still trying to agree/approve. You know, I know, we all know.

Allianz Global Investors: Opportunities In High-Yield Corporates

The worsening creditworthiness of governments, whose issues had been deemed risk-free, is affecting the perception of risk related to listed companies and their bond issues according to a new publication from Allianz Global Investors: High-yield corporate bonds. Higher bond yields with reasonable credit risk.

Today, high-yield bonds offer high spreads, greater than those seen at the beginning of 2011. They are also characterised by particularly high volatility, despite the fact that the default rate remains particularly low, which is clearly inconsistent.

Current trailing 12-month default rate in Europe is around 1,6% according to Standard & Poor’s (S&P) and for the next 12 months is expected to be revised upwards to 6% in their baseline scenario (and revised up to 8,4% in a worst case scenario) which is still well below the peaks reached in 2009.

Deutsche Börse/NYSE Euronext: Failure To Cost $220m

By Peter K. Lenardos, Analyst, Pan-European Financials, RBC Capital Markets

As we have reported multiple times this week, the NYSE Euronext/Deutsche Börse merger has been blocked by the European Commission and officially terminated by both companies. Thus, the proposed merger has officially concluded without consummation and no break-fee is payable by either party.

However, we do expect exceptional costs relating to the merger. We expect around $220m in merger-related costs (spread out over five quarters) between the two companies, as is illustrated below:

Rule No 6 – Sell when you first think of it.. Not once everyone else has...

Newedge – Blain’s Morning Porridge – February 3 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Dang – Sarkozy is right.. UK Manufacturing is utter pants. Coldest morning of the year, threatening snow, and the electrics on our new British Range Rover spluttered, died and the damn thing wouldn’t start because it’s a tad chilly. “She-who-wishes-to-be-Mrs-Blain’s” cheapo Fiat 500 jumped straight off the blocks and took off sweet as could be. Lexus next methinks...

Markets waiting for US employment data. Likely to be down slightly at 150k-ish, but not looking for a shocker. Greece rumbles on.. it’s a Mexican standoff as the PSI guys hope the Germans/Troika approve next bailout, which they won’t do till PSI guys cave to larger haircuts. It’s academic. Greece is bust. Get over it.

So let’s think about financials this morning. Since the start of the year we’ve seen the most spectacular rally in bank paper. In Lower Tier 2 benchmark names have risen between 6-10 points - I’ve dropped some representative prices at the bottom - while Tier 1 bonds have generally performed even more strongly.

What’s driven it? Partly it’s on the back of the confidence engendered by the three-year LTROs. Funding solved...thus only upside. Whenever things start to look better for banks then TBTF signals start flashing. (Too Big To Fail is the other side of the chronic mutual co-dependency betwixt banks and sovereigns.)  

SGSS Italy Scoops BSI Mandate

Societe Generale Securities Services in Italy has been appointed by BSI Wealth & Family SIM to provide personalised custody and settlement services.

BSI SIM is a financial intermediary firm entirely controlled by BSI SA, which has been part of the Generali Group since 1998. BSI SA is one of the oldest banks in Switzerland specialised in private wealth management.

SGSS says it was retained by BSI SIM for its recognised expertise and efficiency, in particular its ability to rationalise and optimise post-trading services related to custody and settlement, as well as for its flexibility in adapting its services to clients’ precise needs and objectives.

SGSS adds that in Italy it offers a complete range of securities services including clearing, custody and trustee services, fund administration, liquidity management and transfer agent services. It gained Top Rating in Global Custodian magazine’s 2011 Agent Banks in Major Markets annual survey, the only specialised bank in Italy to gain the top rating in all three categories of the survey.

 

Lost Symbol: Last Langdon?

I did wonder why, after all the hype leading up to its publication in 2009, little more was heard of Dan Brown's The Lost Symbol, follow-up to The Da Vinci Code. Having finished reading it earlier today, I can quite understand why.

I read the first 300 pages on the journey back to the UK from Switzerland on Saturday (January 28). I felt it was the usual poorly written rot, but a page-turner nonetheless, and great fun.

But I came to realise over the next few days that it has several problems, and I think that the world might have heard the last from Professor Robert Langdon. One could almost see Tom Hanks faxing in his performance for the film that was probably on the cards before publication but surely won't be now.

Schroders Shares Top 10 Tips For Successful DC Management

Schroders’ Defined Contribution Team lead by Stephen Bowles, Head of DC, shares its Top 10 Tips for successful DC investment management:

1. Outcome: It's important to focus on the projected level of pension in retirement, rather than short-term fluctuations. This applies to both the investment strategy and the way you communicate to members.

2. Transfer the Risk not the Responsibility: Experience has shown us that members are reluctant to make investment decisions.   It is essential that there is a robust governance framework in place to monitor all aspects of the default investment strategy.

3. Governance: More savers than ever before and an increased focus on the DC market have lead to more interest from the Pensions Regulator and the DWP. Governance guidance is currently provided but we believe regulation will follow.

Robert Mugabe. Nicolae Ceausescu. Allen Stanford. Fred Goodwin.

Robert Mugabe. Nicolae Ceausescu. Allen Stanford. Anthony Blunt. Lester Piggott. That is some line-up alongside Fred Goodwin. A rogue's gallery of dictators, thieves, spies and jailed tax-dodgers.

If you judge a man by the company he keeps, however inadvertently, you won't be thinking very highly of the former chief executive officer of The Royal Bank of Scotland, reduced to the ranks of mere citizenry after being stripped of his knighthood.

No-one can be surprised. Mr Goodwin was tried and convicted by the court of public opinion some time back. It might safely be argued that the only surprise is that he managed to hold on to the honour so long.

But how should we feel today? Has the blood lust been satisfied? Or has the appetite been whetted?

If the latter, who's next? 'Lord' Archer, of open prison fame? Or any of the ennobled cads and bounders who helped themselves to lashings of dosh from the public purse by abusing the Parliamentary expenses system but somehow still cling to their peerage or baronetcy?

My own feelings are mixed. Part of me feels satisfied that an honour that was clearly wrongly awarded for services to banking that turned out to be massive disservices. Part of me feels sad that modern Britain has shown itself to be so utterly vindictive.

It somehow doesn't raise the spirits to think that the day after the Romanian dictator Ceausescu lost his honorary knighthood, he was murdered by a mob of his own people.

Back in the UK, I thought the last Government had outlawed hunting with hounds. Turns out I was wrong...

 

If it’s not the known unknowns that scare us...

Newedge – Blain’s Morning Porridge – February 1 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

If it’s not the known unknowns that scare us, but the unknowns unknowns, why are the known knowns usually the ones that hurt most?

A new Commerzbank senior deal hits the screen. “Markets must be in good shape”, quips Jim. Equity markets have staged their best start to a year since 1994. Markets are awash with too much liquidity at artificially cheap rates. Do I smell an Aero bar? Something sweet, sickly and full of bubbles?

Step back, consider the start of a new month and I reckon it’s a mixed outlook. Lots of no-see-ems are clearly visible on the horizon. Apparently the Gulf is now so chocka of American aircraft carriers, there’s no room for any oil tankers. (I’ve been on board a Nimitz class, and they really are quite impressively fit for purpose.) Everyone knows Greece is bust so why worry when the Bubble finance minister warns of a haircut more than 70% and a 3.625% coupon has been mooted.

Going, Going, Gone? Will The UK Government Cease To Support Systemic Banks?

The question is raised and, of course, answered, by Standard & Poor's, taking as its starting point the stated desire of the UK government to avoid providing support to failing banks in the future.

In the agency's opinion, the government cannot yet walk away from systemically important banks without running the risk of wider systemic contagion.

S&P urges readers to Watch a CreditMatters video (8mins) in which Mark Button, senior director, and Giles Edwards, director, discuss the implications of a curb on governmental support to the UK.banking sector, including why Standard & Poor's continues to factor such support into the current ratings.

Additionally, they discuss the U.K.'s Banking Industry Country Risk Assessment (BICRA), which is the methodology we use to evaluate and compare global banking systems.

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Going, Going, Gone? Will The U.K. Government Cease To Support Its Systemic Banks?