Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Archive | November, 2016

Alderney looks to cash in on Bitcoin

Posted on 29 November 2013 by


The tiny Channel Island of Alderney is launching an audacious bid to become the first jurisdiction to mint physical Bitcoins, amid a global race to capitalise on the booming virtual currency.

The three-mile long British crown dependency has been working on plans to issue physical Bitcoins in partnership with the UK’s Royal Mint since the summer, according to documents seen by the Financial Times.

    It wants to launch itself as the first international centre for Bitcoin transactions by setting up a cluster of services that are compliant with anti-money laundering rules, including exchanges, payment services and a Bitcoin storage vault.

    The special Bitcoin would be part of the Royal Mint’s commemorative collection, which includes limited edition coins and stamps that are normally bought by collectors. It would have a gold content – a figure of £500-worth has been proposed – so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse.

    The hype surrounding Bitcoin has escalated in recent months and its market value has rocketed; the price of a single Bitcoin hit a new peak of $1,242 on Friday on the Mt Gox exchange, established in Tokyo in 2009 as a trading card exchange.

    Critics warn of a speculative bubble although its proponents believe that the currency could be widely adopted as a method of making payments outside the traditional banking system. Ben Bernanke, chairman of the Federal Reserve, and other government officials around the world have said virtual currencies could have benefits if they can be regulated to prevent money laundering.

    In depth



    Increased trading in the decentralised virtual currency has begun to attract the attention of regulators

    Holders of the Alderney Bitcoin would not be able to spend it in stores but would be able to exchange it for a virtual Bitcoin by travelling to the island.

    Alderney hopes that by minting the first physical Bitcoin it will raise its profile as the “go-to” destination for the virtual currency, as it seeks to expand its offshore credentials beyond the online gambling sector.

    David Janczewski, head of new business at the Royal Mint confirmed it had been approached by the finance minister of Alderney to “explore the possibility of manufacturing a physical commemorative coin with a Bitcoin theme”.

    “Discussions have not progressed further and at this stage it remains nothing more than a concept,” he added.

    But the controversy around Bitcoin has made the Alderney plan a sensitive subject. The Treasury, which owns the Royal Mint, declined to comment on the plans. George Osborne, the British chancellor, also holds the title of Master of the Mint.

    The plans have been steered by chairman of the island’s finance committee, and are understood to have the support of Alderney’s president, although they still need to be approved by the island’s 10-member parliament.

    A number of private companies have produced physical Bitcoins, although they are not backed by an official mint. Instead they feature a holographic strip, which is peeled off to reveal the private key then redeemed online.

    How would Alderney’s plan work?

    An independent company will provide the Bitcoins. If the price plunged, neither Alderney nor the Royal Mint would lose anything.

    The company would put the Bitcoins in an escrow account at an agreed price.

    Meanwhile, the Royal Mint would take customers’ orders for its minted Bitcoins and receive money from those coin sales.

    The virtual Bitcoins backing the physical coins would be held in digital storage facilities by Alderney.

    The Mint would issue the commemorative Bitcoin, paying for the value of the gold content itself. Alderney would receive royalties from sales of the coins.

    Coins could be redeemed for sterling at any point in Alderney for the price of a Bitcoin on that day.

    Banking on Bitcoin

    Posted on 29 November 2013 by

    If a small city state had adopted Bitcoin as its national currency, it would now be in the grip of deflation as foreign speculators siphoned away its supply of the virtual currency. Money would be scarce, and prices would fall dramatically. Authorities might try to lift prices but they would lack one of their most powerful tools. Central bankers can create money at will, by printing notes or creating deposits. Bitcoin is based on digital tokens, which are generated at an unalterable rate by cryptographic algorithms running on the computers of volunteers, making it impossible to match supply to demand.

    This is an improbable fantasy. But Bitcoin’s undulating value makes it unsuitable for all but the most limited purposes. Speculators are the keenest acquirers of the currency. For some, it is a way of stashing wealth where authorities cannot find it. Others want to make purchases without leaving an obvious trace. Silk Road, the online contraband emporium that was closed by authorities last month, was one of the few businesses to insist on payment in Bitcoin. But many prices were pegged to the dollar; the virtual money served merely as a way of disguising the flow of hard currency.

      Still, if Bitcoin’s applications are limited, its emergence as a workable means of exchange nonetheless reveals something surprising. Friedrich Hayek argued that the government should cede its monopoly over the money supply, leaving consumers free to choose between competing currencies. It turns out that they were already freer than they thought. Authorities have so far tolerated the virtual currency. Yet the product of the state-owned incumbent has proved more attractive than Hayek expected.

      The experiment is an indication of how monetary systems might change in future. Many believed it impossible to create a form of electronic cash that did not rely on a bank to keep tabs on account balances. Bitcoin proved them wrong. But many are uneasy about reversing the technological accident that has made financial transactions more traceable in the era of electronic banking.

      Some see tamper-proof virtual currencies as preferable to physical ones that central bankers can easily debase. The island of Alderney is in talks with Royal Mint to make physical coins backed by Bitcoins in its electronic vault. But enthusiasts should be careful what they wish for. An unstable price level is dangerous. Removing the steering-wheel is the wrong way to prevent central bankers from driving the economy off the road.

      Weak growth sparks London house price fears

      Posted on 29 November 2013 by

      London Luxury Homes As Property Becomes Haven©Bloomberg

      House prices in prime areas of central London have stalled in November, raising the possibility that the capital’s property boom is diminishing.

      Residential prices in the City, Westminster, Kensington & Chelsea and other central areas such as St John’s Wood rose by only 0.2 per cent in the month, according to Knight Frank, the property consultancy, leading to annual growth of 6.9 per cent – the lowest figure in four years.

      The weak monthly figures, in what has been the hottest part of the property market in Britain since 2009, suggest that London’s house prices will struggle to rise ever higher than other parts of the country for much longer.

        Figures from the Nationwide Building Society show that prices in the capital are almost twice the national average, the biggest differential in at least 40 years.

        On the two previous occasions when London’s house prices were more than 80 per cent above the rest of the UK, the gap shrunk rapidly over the next few years. London house prices fell 31 per cent between 1989 and 1992; and while prices did not fall in the early 2000s, a much bigger boom elsewhere narrowed the gap with the capital.

        After the financial crisis, the capital’s house prices recovered much faster than elsewhere, led by the prime central London market that had the advantages of foreign demand and cash buyers who do not need mortgages.

        Betting against London prices has proved a mug’s game for most of the past 40 years, with the exception of the crash in the early 1990s recession. It is after all, a vibrant capital city with severe limits on new home building.

        But with the prime market slowing down and capital gains tax about to be levied on foreign owners, the Bank of England withdrawing some supports from the mortgage market and the gap with the rest of the country so large, an important question is what could set the London property market back in the style of the 1990s.

        Sentiment turns

        Bubbles burst. To the extent that home buyers in London have been rushing to purchase, for fear of further price rises, a change in expectation of future gains would have a radical effect. Those wanting to purchase property would be willing to wait, while owners would want to offload their stock as quickly as possible. With a change in sentiment, prices can turn very quickly.

        Although there are straws in the wind in prime central London and in properties over £2m, prices in the rest of the capital are still rising fast, but Liam Bailey, head of global residential research at Knight Frank, says there are natural limits even for the plushest homes. “In the long term, price growth above earnings growth isn’t sustainable and even central London can’t expect the performance [of the past four years] to continue”.

        The City becomes unattractive

        Ask bankers in the City of London what keeps them up at night and withdrawal from the EU will be high on the list.

        Given a referendum on membership may happen after the 2015 election, it is worth asking what a serious setback to the City’s status as Europe’s financial capital would do to house prices.

        The last financial crash took its toll on prime central London property, with residential values dropping 24 per cent between March 2008 and 2009 before staging a comeback.

        Another reason foreign investors might tire of London is if the city starts to burst at the seams. Dick Sorabji, director of policy at London Councils, the umbrella group for the city’s 33 boroughs, said: “If we fail to keep up with the infrastructure needs of 100,000 more Londoners every year, as the projections suggest . . . that will slow the growth and damage the city. But I think investors will keep coming.”

        Government policies

        Estate agents operating at the most expensive end of the London market have noticed the weakest area is now for so-called “mansions” above £2m, which have been subject to 7 per cent stamp duty since April 2012.

        If that tax on transactions is having an effect, there are many other threats from government policies that could cause prices to slip.

        An annual “mansion tax” would exacerbate that effect, reducing prices without making London’s prime homes any more affordable.

        For the bulk of London property, what is happening in the prime market is largely irrelevant, but a revaluation of Council Tax bands, the imposition of capital gains tax on foreign ownership of property, further action from the BoE, or a revolution in house building could pull the rug out from under the whole market.

        A sterling crisis

        London property has been described as the new reserve currency for a global elite – but like any cross border investment, it is at the mercy of exchange rates.

        Were the pound to fall rapidly, the values of foreign property purchases in London could be hit, which could cause a stampede for the exit.

        But a currency crisis is a double-edged sword.

        The pound’s slide from 2007 to 2009 – combined with falling house prices – enabled foreigners to snap up “bargains” in London: 50 per cent cheaper in dollar terms in the space of a year and as much as 60 per cent less to someone financing a purchase in yen.

        This prompted a surge in overseas buyers in the prime central London market.

        Experts say the risks of foreign capital flight require vigilance. Andrew Heywood, consultant and editor of Housing Finance International said: “We need to shape that [foreign] investment but avoid doing so in a way that causes an abrupt collapse, which would feed into falling house prices, negative equity, collapse of development and damage to the affordable homes programme through the potential impact on cross subsidy of affordable housing.”


        Ultimately, living in London could become too expensive for “ordinary” families and companies, particularly if the BoE raises interest rates causing a sudden reversal in London property prices.

        Evidence is mounting that the high cost of living in the capital is causing more residents to slide into poverty, defined as having an income less than 60 per cent of the national median.

        This is particularly marked for London’s working poor. Over the ten years to 2011–12, the number of people in in-work poverty increased by 440,000, according to data from the Trust for London, a charity.

        Foreign money pouring into the capital has exacerbated that trend by raising the cost of living and any sudden withdrawal could also be highly damaging.

        New Paif poised for launch

        Posted on 29 November 2013 by

        Kames Capital, the fund manager owned by Dutch insurer Aegon, plans to launch a Property Authorised Investment Fund aimed at retail investors in the first quarter of 2014.

        The fund will be co-managed by David Wise and Alex Walker, who already manage several other property funds aimed at institutions. It will invest mostly in direct property assets, but may also buy real estate investment trusts and property funds.

          Paifs are the fund equivalent of Reits, and are allowed to pay gross dividends from rental income without corporation tax deducted. M&G and Standard Life have already converted some of their existing property funds in to Paifs.

          Four big ideas – and how to trade them

          Posted on 29 November 2013 by

          George Bernard Shaw once said that if you laid all the economists in the world end to end, they still would not reach a conclusion. With that aphorism in mind, the Financial Times recently invited four eminent economists to a debate about the outlook for 2014.

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          This was no ordinary round table. Rather than a moderated discussion about economic technicalities, each panellist was encouraged to come up with the most headline-grabbing, thought-provoking proposition possible, then defend it. The statements may appear improbable, even implausible. But that was the object of the exercise. For most economists, a global banking crisis on the scale of 2008/9 seemed implausible – until it happened.

            There is more on the four “big ideas” in the panels opposite. But could they be turned into an investment strategy? We asked several leading whole-of-market advisers to ponder how to turn the ideas into action.

            Perhaps not surprisingly, given that he coined the term “Brics” in the early noughties, Jim O’Neill’s forecast for better than expected world economic growth is based largely on the continuing economic transformation of China. The middle kingdom’s capital markets are only partly accessible to western investors, and for that reason many advisers are more comfortable recommending a generalist emerging markets fund rather than a single-country product. Several of the best open-ended vehicles in this space are effectively closed to new money; one that is still open is the Lazard Emerging Markets fund, which is preferred by Jason Hollands at Bestinvest.

            Jim O’Neill

            Jim O'Neil

            World GDP will grow at a faster rate in the next 10 years than in the previous 30

            Few emerging markets investors are as experienced as Mark Mobius at Templeton; Mr Hollands likes his Frontier Markets fund while Patrick Connolly, chartered financial planner at AWD Chase de Vere, recommends the Templeton Emerging Markets Investment Trust.

            There was much discussion about China’s transition from a predominantly export-dependent economy to one built around domestic spending. Thematic funds around consumer spending, luxury goods or brands are another way to play this trend. Mr Connolly also considers are single-stock investments such as Unilever, Diageo and LVMH good plays on rising affluence in the developing world. Less spending on fixed assets might mean leaner times for mining and raw material groups.

            James Tuson, investment director at HFM Columbus, has a slightly different take; one way to play faster global growth without taking on the volatility of emerging markets might be the Rathbones Global Opportunities – it has a concentrated portfolio, a bias to small- and mid-caps and low exposure to banks and resources.

            Stephanie Flanders

            Stephanie Flanders

            The UK will be the fastest growing country in Europe for at least the next five years

            The possibility of a stronger-than-expected UK recovery, advocated by Stephanie Flanders, is an easy strategy to play. All the advisers we polled agreed that for maximum exposure to the UK economy, investors need to focus on the mid-cap and small-cap sectors of the stock market, since many FTSE 100 constituents derive most of their revenues from overseas.

            Mr Hollands said the Axa Framlington UK Mid 250 fund is his favourite play on the mid-cap sector – at just £39m, it’s small enough to be nimble. An alternative might be the BlackRock UK Special Situations, managed by the highly regarded Richard Plackett, which has a slightly more flexible mandate; it currently has 28 per cent in smaller companies and 32 per cent in mid-caps, with the balance in larger companies. Another BlackRock fund is preferred by Mr Connolly: the Smaller Companies investment trust.

            Mr Tuson likes the Old Mutual UK Mid Cap fund managed by Richard Watts, on the basis that it is “heavily exposed to the areas Brits do best: housing and shopping”.

            Martin Wolf

            Martin Wolf

            The eurozone will break up

            Where would you invest if you expected the eurozone to collapse, as Martin Wolf predicts? Part of the answer would depend on whether the break-up was disorderly, or the managed departure of a single country. In the case of the former, turmoil on all financial markets would be inevitable and “safe haven” assets would be in demand: the dollar, US Treasuries, Swiss francs, gold and possibly even gilts and sterling (although the UK would surely suffer significantly from a catastrophe on its doorstep).

            “In this environment, the ideal fund will be one where the manager has a huge degree of flexibility in terms of asset allocation and isn’t afraid to make bold asset calls,” said Mr Connolly. One that might fit the bill is Miton Special Situations Portfolio.

            Mr Tuson’s run-for-the-hills option is the Personal Assets Trust, a very defensive fund with high weightings to cash, index-linked bonds and gold. “This would likely serve as a parachute in the event of a ‘black swan’ event,” he says, noting that its premium to net asset value has narrowed lately.

            Once the dust had settled, it might be possible to construct an investment case for some of the peripheral economies; outside the eurozone, they’d be able to allow their currencies to depreciate, thus helping exports. There aren’t many actively-managed funds specialising in such countries, but there is some choice in the passive space. Mr Hollands cites Ireland as the country that has done most to get its house in order; iShares MSCI Ireland Capped ETF might be one way to play this.

            Hélène Rey

            Helene Ray pfeatures

            International capital flows are dangerous and should be controlled

            Hélène Rey’s vision of a world with significantly greater restrictions on the cross-border flow of capital is hard to envisage, and the most tricky of the four big ideas to convert into an investment strategy.

            “In a world when the march of globalisation went into reverse gear, I think I would want my capital parked in the US, still the world’s largest economy and representing over half of global stock markets by capitalisation,” says Mr Hollands, who likes Gartmore’s Gamco US Equity.

            Mr Connolly says restricted capital flow is likely to mean restricted credit, which would be bad for growth-oriented companies. The ideal investments in such an environment might well be big, defensive, income-generating companies – either bought individually or via a fund such as Threadneedle Global Equity Income.

            Mr Tuson highlights the importance of flexibility in a world of changing macroeconomic priorities, and recommends the Jupiter Absolute Return fund. “It has a flexible mandate allowing it to invest wherever it wants whilst also having the tools to profit from declining, as well as rising prices.”

            Spanish lenders can reclassify €30bn DTAs

            Posted on 29 November 2013 by

            Spain's Leading Banks As Economy Struggles©Bloomberg

            The government of Spain has told Banco Santander, BBVA, Caixabank and other domestic lenders that they can reclassify €30bn worth of deferred tax assets as tax credits, in a move that is designed to bolster their regulatory capital ahead of next year’s Europe-wide bank stress test.

            The move, approved by the cabinet on Friday, follows months of intense lobbying by Spanish banking chiefs, who warned that the country’s financial sector was being put at a disadvantage to other European lenders under the existing regime. Italy already gave its banks a similar helping hand in 2011.

              DTAs arise when a bank makes losses or incurs provisions that it can later offset against its tax bill. Under the new Basel III regime, such assets can no longer be counted as regulatory capital – a change that could have forced weakly capitalised lenders to raise billions in additional funding. Tax credits, in contrast, will still count towards a bank’s capital cushion under Basel III.

              The move comes amid a flurry of action by Spanish banks to strengthen their balance sheets through disposals, listings and by raising fresh capital. BBVA last month sold down its stake in a Chinese lender to avoid the penalty that Basel III attaches to large financial holdings.

              Santander and Banco Popular sold their property management arms this month, while Caixabank and the La Caixa foundation have issued shares and exchangeable bonds.

              These measures will be dwarfed, however, by the financial impact of the government announcement made on Friday. Across the sector, Spanish banks have amassed more than €70bn in DTAs, of which about €50bn are linked to their operations in Spain itself – equivalent to 40 per cent of core equity tier one capital.

              In the case of Bankia, the nationalised former savings bank, DTAs account for more than 80 per cent of tangible book value, according to research published this year by N+1, the investment bank. The corresponding figure for Santander, Spain’s biggest bank by assets, was still about 40 per cent.

              Shares in Spanish banks were broadly unchanged on Friday, suggesting investors had mostly priced in the widely anticipated move. Analysts also pointed out that the shift, though welcome, did little to bolster the banks’ underlying financial strength.

              “This is a change in the regulatory treatment of capital. There is no change to the real equity loss absorption capacity of the banks. This does not change a bank’s real ability to withstand losses,” said Daragh Quinn, a Madrid-based banking analyst for Nomura, the investment bank.

              The main benefit of the Spanish move, analysts said, was that it was likely to reduce the regulatory pressure on banks such as Bankia and Sabadell, two lenders that have been particularly reliant on DTAs, to raise additional capital as a result of the Basel III change.

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              Imerman thirsts for Whyte & Mackay whisky

              Posted on 29 November 2013 by

              The former owner of Whyte & Mackay said on Friday he would bid for the Scotch whisky brand if Diageo is obliged to sell it for competition reasons.

              Vivian Imerman, a serial entrepreneur who now chairs Vasari, a London-based private equity firm, expressed interest on Friday in buying back Whyte & Mackay, which he used to run as chairman and chief executive before selling it to United Spirits in 2007.

                Diageo said this week it had told the Office of Fair Trading it was prepared to dispose of most of Whyte & Mackay to allay competition concerns triggered by its acquisition of a stake in India’s United Spirits a year ago.

                “Whyte and Mackay would make an important addition to the portfolio of spirits and beer businesses in Africa and Asia where Mr Imerman has been concentrating his efforts through his company Vasari,” the private equity firm said in a statement.

                It said the brand would complement the firm’s “strategy of acquiring and growing businesses in these regions to take advantage of rapid consumer growth”.

                Diageo, which is waiting for the OFT’s response to its offer, declined to comment.

                Trevor Stirling, analyst at Bernstein Research, estimated Whyte & Mackay could be worth between £450m and £650m. Apart from its own label, Whyte & Mackay produces Scotch for branded companies and supermarkets’ own labels.

                It owns four malt distilleries and one of the seven large grain distilleries in Scotland, based in Invergordon.

                Demand for whisky has accelerated over the past five years, driven by emerging markets. The alcohol accounts for 4 per cent of the global spirits industry but 13 per cent of its value.

                South African-born Mr Imerman and Robert Tchenguiz, the property investor, were estimated to have made £420m in profit from the sale of the Scotch business for £595m to United Spirits.

                Mr Imerman, a former chief executive of Del Monte, the tinned fruit company, hit the UK headlines three years ago in a high-profile divorce from Mr Tchenguiz’s sister, Lisa.

                Passive predictions prove premature

                Posted on 29 November 2013 by

                Looking back at predictions of industry trends and evaluating their worth in later months or years can be a painful exercise, but it can also be instructive in this era of structural change.

                With the spotlight shining on equities, and sales flows into equity funds strengthening, I thought it might be interesting to revisit the somewhat relentless active/passive debate, in the light of a prediction I made in FTfm in January, which related to the expanded potential for low-cost passive funds when investors began to swing back to equities.

                  My precise words were: “Cost has become a key differentiator in the fund selection process and as investors migrate to equities, their allocations to core regional or global products are likely to be weighted towards ETFs [exchange traded funds] or low-cost index trackers.”

                  The migration to core regional equity funds, particularly those investing in European stocks, is under way. It started in July and has been gaining momentum ever since. In the last quarter, European equity funds, including those investing in small and mid-sized stocks, generated net inflows of more than €15bn, compared with small redemptions of €500m in Q2 and €3bn or so of inflows in the equivalent period last year.

                  This latest quarterly volume data deliver two surprises, the first linked to sheer scale. The figure was not only substantial compared with recent periods, it was the best on record. Only in 2006 did sales volumes for European equity funds come close, reaching €13bn during the first quarter.

                  The second surprise brings us back to the active/passive issue and the fact that there was very little evidence in the data to suggest any increased support for passive products.

                  The same data set showed a mere 17 per cent of sales flows were garnered by passive funds, of which just 10 per cent was attributed to ETFs and the remainder to index funds – not what I, nor many other pundits expected.

                  This lack of passive interest also flies in the face of the increasingly vocal comments from fund selectors on their search for lower-cost funds, particularly in relation to beta, or market, exposure.

                  Of course, there is a distortion in the data that requires explanation; the inclusion of small and mid-cap vehicles will inevitably weight the results in favour of the active segment.

                  However, these sectors are modest in asset size and even if we focus on the core European equity sector that accounted for nearly €11bn of quarterly net inflows, the passive share was less than €2bn or 18 per cent of the total.

                  My reluctant conclusion is that the passive steamroller has yet to flatten demand for active funds or, to put it another way, the impact of fees on client portfolios has yet to be felt by European fund selectors.

                  Outside the UK, a ban on commissions is not yet in place (meaning distributors can receive retrocession payments from asset managers for selling their funds), although it is expected sooner or later by many distributors. So is it the case that their retrocession-fuelled decisions are driving investors into high-cost active funds?

                  If true, the UK sales data should have a greater weighting in favour of passives. The comparison is a difficult one to make. UK investors have traditionally treated European equity funds as a marginal, rather than a core, portfolio play. Thus, in the most recent quarter, net inflows into these sectors were just €648m, and index trackers accounted for just 4 per cent of the total. Unfortunately, a measure of ETF activity in the UK is problematic because all ETFs are listed on multiple stock exchanges so it is not possible to know where their sales volumes are derived, nor how much is sourced from UK investors.

                  A better test of UK passive appetite is to look at the groups that are winning business across all equity sectors.

                  In such a ranking, BlackRock was the sales leader in the third quarter with Vanguard ranked a close third. For both groups net inflows were almost entirely devoted to index trackers (excluding ETFs for the
                  reasons explained above).

                  Those groups that feature low-cost tracker offerings clearly have a following but the chase for alpha, or market-beating returns, was still much stronger. In the entire equity space, net sales were €440m but a mere €73m of this was invested in trackers. This suggests that fee scales are not going to be the big driver to passives that many might have expected. It could also mean, of course, that the criteria of fund choice has not changed much, ie it is more to do with the potential to deliver performance than a commission grab by distributors.

                  There is another issue – a matter of speculation rather than measurable fact: investors have been visibly absent from equity funds for so long that their immediate response to market opportunity is to pump up their investments with alpha products to make up for ground they have lost on deposit returns or elsewhere.

                  Possibly the more stable beta component of their portfolios is already in place so the action we are seeing now is in the satellite arena. The fact that small/mid-cap funds have had such a good recent run, seems to support this hypothesis.

                  Any judgment on the issue is probably precipitous but we should not ignore the potential effect of regulation on fees in driving greater demand for passives. It may yet come.

                  Diana Mackay is chief executive of MackayWilliams and publisher of Fund-Radar

                  Q&A: Crowdfunding

                  Posted on 29 November 2013 by

                  What is crowdfunding?

                  One of the dramatic changes that the internet has created on commerce is the ability to make it much easier and cheaper to connect those with something to sell with those with money. Crowdfunding applies this matchmaking process to people with a need for cash and donors or investors.

                    Who is doing this?

                    The two largest crowdfunding marketplaces are New York-based Kickstarter, which focuses on creative projects, and San Francisco-based Indiegogo, which has a wider remit, enabling people not just to put money into creative projects but to donate to charitable causes and take stakes in commercial start-ups. Seedrs, which has its headquarters in London, focuses only on companies seeking equity backing.

                    What is in it for the crowdfunding platforms?

                    They charge a fee, which tends to be a percentage of the amount raised. Seedrs, for instance, has a fee of 7.5 per cent of the total. Kickstarter will apply a 5 per cent fee, plus payment processing fees of 3 to 5 per cent, for successful campaigns. It charges nothing if the target is not hit.

                    Is crowdfunding the same thing as peer-to-peer lending?

                    Not according to those who call themselves this, such as Zopa, Thincats and Funding Circle. Like crowdfunders, these peer-to-peer lenders use the vast reach of the internet to bring together people with money and those that need it. Unlike crowdfunding companies such as Kickstarter and Seedrs, the peer-to-peer lenders are focused on enabling people to lend money, as opposed to investing or donating cash.

                    How do you get involved as an investor/lender?

                    Investors can search the websites for projects using keywords. They then click to make an investment, much as people buying something online after completing a sign in and giving their bank details. Money is taken when the pledges reach the target set by those seeking funding.

                    What kind of return, if any, can you expect?

                    Investing, whether in the conventional sense or through crowdfunding websites, is a risky venture. Even with traditional venture capital financing, investors in start-ups lose their shirt up to 75 per cent of the time according to some studies. Crowdfunding is still in its infancy so there is little data on actual return rates, although angel investing, which is comparable, has been found to produce, on average, an annualised rate of return of 22 per cent.

                    Many people backing Kickstarter projects are donating the money. They may get an early prototype of a product they are backing or some other “reward”, but not an equity stake.

                    Peer-to-peer lending may offer better returns to savers than traditional bank deposit accounts. For example, Ratesetter has been offering a pre-tax five-year fixed interest rate of 5.7 per cent on loans, compared with 3.1 per cent from a conventional savings account, according to the price comparison website Funding Circle, which organises loans for businesses, not individuals, claims to offer an average net return of 5.7 per cent after fees and the bad debt rate.

                    What is the timescale for a return on the investment?

                    Given that crowdfunding is aimed primarily at the very early stage rounds of funding, investors should expect to wait for at least five years until they see any return.

                    How quick can companies raise money?

                    Crowdfunding exercises are usually run over a period of weeks, but campaigns that capture people’s attention can hit their target much more quickly. Kano, the UK-based start-up behind a cut-price computer that is designed to be as simple to build as Lego, raised more than $140,000 in crowdfunding in a matter of hours for its $99 kits.

                    S&P upgrades Spain’s credit outlook

                    Posted on 29 November 2013 by

                    Spanish Vehicle Exports As Euro Area Returns to Recession

                    Glimmers of hope: exports are forecast to rise by more than 5% this year and next

                    Confidence in Spain’s economic recovery received a fresh boost on Friday when Standard & Poor’s revised its country credit outlook from “negative” to “stable” and signalled that it was less concerned about Spanish debt than before.

                    The credit rating agency said it still rated Spanish sovereign debt at triple B minus – only one notch above junk – but that there was now a much smaller chance of a further downgrade in the next two years.

                      “We see improvement in Spain’s external position as economic growth gradually resumes,” said an S&P statement.

                      The change comes weeks after Fitch, another credit rating agency, made a similar move, shifting Spain’s credit outlook from “negative” to “stable”, and adding that the economy was now on a “surer footing”.

                      Both actions reflect growing confidence among analysts and investors that Spain is on a path of slow but stable economic recovery, thanks to a surge in exports and the gradual restoration of competitiveness in the private sector after years of wage restraint and job losses.

                      The recent shift in market sentiment was confirmed last month when the national statistics office said Spain had emerged from more than two years of recession in the third quarter of this year. The Spanish economy was found to have grown 0.1 per cent in the three months to September – a tiny improvement compared with the previous quarter, but a potentially crucial break in the economic trajectory.

                      S&P made clear in its statement that Spain continued to face severe economic challenges, warning in particular of the country’s high unemployment rate and the severe debt problem hanging over the private and public sector.

                      “Domestic demand is weak and constrained by further declines in disposable income due to high unemployment, reduced wages and budget consolidation. In addition, investment activity remains subdued as the private sector deleverages its balance sheets and credit activity continues to decline,” said the agency.

                      The broadly positive stance taken by S&P was mirrored in a research report on the Spanish economy released by Barclays on Friday.

                      “The economy is turning around, unemployment is stabilising, and the internal devaluation appears to be working, as demonstrated by strong export performance and the gains in export shares of world markets,” said the Barclays analysis.

                      “However, the recovery is very mild, and is likely to remain subdued throughout 2014 as the private sector deleverages, fiscal headwinds remain strong and credit conditions remain tight in 2014 and probably in 2015.”

                      The Spanish government believes that the economy will grow 0.7 per cent next year, and will start creating jobs in the first half of 2014. Spain’s unemployment rate stands at 26 per cent – among the highest in the western world.

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