.png?width=200&height=78&name=CH%20Diligence%20(thicker%20line).png "CH Diligence (thicker line).png")
Our briefing for Thursday August 20, 2020:
Aug 20, 2020 2:40:59 PM
- In the United States, as students return to college and university campuses, CNN is reporting at least 15 states have academic institutions with positive cases of COVID-19. Some of the universities reporting cases are The University of Notre Dame, University of Georgia, University of North Carolina and the University of Connecticut. It’s not all bad news though. A Trump administration physician overseeing coronavirus testing is seeing new cases declining, which he attributed to safety protocols such as masks and social distancing. According to data, from Johns Hopkins University, cases over the past week averaged about 47,300, down from a peak average of 67,317 on July 22nd.
- While many countries have been reopening their international borders, Canada has decided to keep its borders locked. The country has three separate orders in place: a ban of foreigners entering from the United States, bans on all other foreigners from visiting Canada – unless travel is considered essential or for work and the third – a 14-day self-quarantine for anyone entering the country. These restrictions in place since March have drawn the ire of travel and tourism groups that argued Canada could have safely reopened its borders. However, with the federal government making a move to postpone parliament until September 23rd after a cabinet shake-up, it doesn’t look like these restrictions will be lifted anytime soon.
- The United Kingdom updated its travel quarantine restrictions on Thursday. The government’s transport secretary said that travellers returning from Portugal no longer have to self-isolate upon return. However, rules have been reimposed on those returning from Croatia or Trinidad and Tobago. As of Saturday, at 4 A.M. those entering the country from those locales must self-isolate for 14 days with even local walks prohibited. Elsewhere in the country, Barclays Bank figures show financial frauds made against UK customers has increased by two-thirds in the first half of the year. The numbers suggest that criminals seized upon the coronavirus lockdown to steal more from savers, noting the most recent cases being reported are criminals targeting customers looking to earn a better return on their cash.
- France’s President and Germany’s Chancellor met on Thursday as Europe struggles with a resurgence of COVID-19 cases. French President Emmanuel Macron and German Chancellor Angela Merkel are seen as the leaders of the European block of countries and are trying to come up with a plan to help curtail the latest spread while not delivering another economic blow. On Wednesday, France reported 3,776 new cases, the largest daily increase in three months, while Germany daily infections were 1,000+ for the third day in a row. Despite this, President Macron said, “we cannot shut down the country, because the collateral damage of confinement is considerable.”
- The World Health Organization’s (WHO) European office said it has begun discussions with Russia in order to try and obtain more information on the country’s touted Sputnik V COVID-19 vaccine. Last week, Russia became the first country in the world to license a coronavirus vaccine, which has already drawn interest from hard-hit countries such as Brazil and the Philippines. However, the vaccine has not yet passed the advanced trials most new drugs go through and although Russian officials claimed the Sputnik V vaccine would provide lasting immunity, they couldn’t provide the proof to back it up. WHO’s Europe director said the agency welcomes all advances in vaccine development but want every vaccine to submit to the same clinical trials.
- Brazil’s Congress has pushed legislation through to make masks mandatory in closed places like commercial establishments, many workplaces, religious temples and schools. By doing so, the Brazilian Senate and Deputies Chamber overturned President Jair Bolsonaro’s veto on such requirements. The Congress also overturned Bolsonaro’s vetoes of a law that allows the federal government to protect the country’s indigenous people.
Covid-19 – Due Diligence And Asset Management
Money Managers Bracing for Upheaval With Stocks Near Record
Brief: Some of the biggest money managers are vexed by the same paradox troubling everyone else: U.S. stocks are near an all-time high, but the world still seems to be falling apart. Any number of looming threats could bring the historic rally in U.S. equities to a screeching halt, top hedge fund and mutual fund managers said. They include uncertainty over school re-openings, the November elections, tensions with China and the effect of monetary policy on inflation. While the S&P 500 has surged more than 50% from its March low, that happened with unemployment in double digits and the federal government struggling to contain Covid-19. The equity rally also has lifted the index’s price-to-earnings ratio to 26, compared with an average of 18 over the past decade. All of this leaves some market insiders wary of calling this a recovery. “There’s this massive disconnect between fundamentals and markets,” said Brian Payne, investment officer at the Teachers’ Retirement System of Illinois. “There’s just too much capital chasing investments, the Fed is flooding markets and that leverage isn’t going to the real economy. As we approach the election and concerns over a ‘blue sweep’ grow, that could be the inflection point where people’s bullish sentiment turns bearish.” Chris Rokos’s multibillion-dollar hedge fund is modestly bullish in the short-term but sees volatility ahead, as the market underestimates the potential for bigger moves over the next couple of months.
UBS Revamps Wealth Structure to Free up Billions for Loans
Brief: UBS Group AG is overhauling the legal structure at its key wealth management unit in a move that will cut costs and free up billions of dollars for lending in higher-growth markets. The project -- known as Rigi after a famous Swiss peak -- will see the bank transfer large customer deposits out of its Swiss entity into the bank’s main UBS AG legal unit, people familiar with the matter said, asking not to be identified as the plans are private. The change will allow the bank to boost loans outside Switzerland, the people said. Rigi partially rolls back measures from the 2008 financial crisis, when Switzerland told UBS to create separate legal entities that would be insulated in the event of a surprise bankruptcy. Moving the deposits would help the bank toward its target of lending between $20 billion and $30 billion a year to wealthy clients outside its home market, the people said. “We are making changes to our legal entity structure in order to improve the overall efficiency of the Group,” a UBS spokesperson said in an emailed statement… In the aftermath of the financial crisis, UBS wealth-management clients who held their money in Switzerland, even if they lived elsewhere, had their funds placed at the bank’s ringfenced local entity. Most international clients with deposits in Switzerland will now be under UBS AG. That will spread deposits more evenly throughout the group and is said to satisfy regulators, one of the people said.
Pandemic Makes Investors Like Hedge Funds Again
Brief: For the first time in years, the plurality of investors plan to put more money in hedge funds, not less. Forty-four percent of hedge fund investors surveyed by Preqin in June said they intended to increase their commitments to hedge funds over the next year — nearly double the proportion from a year ago. This group far outweighs the 28 percent intending to downsize their hedge fund allocations. These findings mark a sharp change from the last four years, when investors were more likely to lower their hedge fund allocations than raise them. “Volatile markets have increased appetite for hedge funds,” Preqin said in its mid-year report on alternative assets. But nearly half of surveyed investors were disappointed by their hedge fund managers’ performance over the last year. Forty-seven percent said their portfolios had performed worse than expected, while just 6 percent reported exceeding them. Despite this, investors were more optimistic about hedge funds than they were about any other alternative asset class. Thirty-nine percent predicted that hedge funds would perform better over the next year, compared to 28 percent who thought hedge funds would perform worse.
Against Recommendations, Advisors are Spending More Time Playing Portfolio Manager
Brief: Financial advisors have been more involved in managing client portfolios since the spread of the Covid-19 pandemic, according to a new report, even though most probably shouldn’t be. The average team potentially capable of creating custom portfolios for clients has an average of nine people and those practices are often supported by a centralized investment group, according to Cerulli. The majority of wealth management practices lack the personnel to properly manage investment portfolios. More than half of all practices, or 55%, rely on their own investment research and portfolio or model construction. But only an estimated 7% are capable of doing that effectively, according to Cerulli Associates, a Boston-based research and consulting firm. TAMPs, or turnkey asset management platforms, which help wealth managers outsource some or all of their investment management responsibilities, have been (albeit, self-servingly) railing against ill-equipped advisors managing portfolios. “That is not where the business is going. And TAMPs are here to really make the advisors way more valuable to the end client, to the investor,” AssetMark CEO Charles Goldman told RIA Intel about the busy but little-known corner of financial services. But a new survey published Wednesday suggests that advisors are generally not heeding the recommendations of researchers and others. Some are relying even less on third-party model portfolios this year.
Baillie Gifford Attracts £1bn Inflows in Record Month
Brief: Giant fund house Baillie Gifford saw its highest ever monthly inflows last month as investors piled nearly £1bn into its funds. Morningstar data, published yesterday (August 18), showed £991m was funnelled into Baillie Gifford throughout July in a sign its growth oriented house-style remained in favour with investors. Within their respective categories, many Baillie Gifford funds were among the very top sellers in the month too, as the asset manager’s popularity continued to grow. Philip Milton, chartered wealth manager at Philip J Milton & Company, said the firm’s popularity stemmed from the fact it had called the performance of US tech investments “so right”. He said: “It’s quite easy really. They are to be congratulated, though they are riding the ever extending index and it becomes more dangerous with every point.” Baillie Gifford was an early investor in US technology companies, backing the likes of Tesla, Amazon, Netflix and Alphabet (Google’s parent company) through a number of its funds. Such companies have boomed in the past few years and, more recently, thrived during the coronavirus-induced lockdown while other companies took a beating.
Convertible Bonds “Thriving” as Coronavirus Caution Looms Over Fragile Market Recovery, says Man GLG
Brief: The convertible bond market is “quietly thriving” in the aftermath of the market shock brought about by the coronavirus crisis, says Man GLG, the long-running discretionary hedge fund management unit of Man Group. Convertibles’ primary market has seen record levels of new issuance this year – particularly in the US - with many first-time issuers entering the fray, while at the same time the asset has cheapened to levels not seen for some years, Man GLG said in a commentary this week. This flurry of activity offers investors “a potentially attractive entry point” into the market, boosting convertible bonds and broadening the opportunity set, according to Danilo Rippa, Man GLG’s head of multi-strategy credit and convertibles, and analyst Chris Smith. After the coronavirus crisis tore through global financial markets, converts are now seen to offer downside risk mitigation, a cheap entry point and improving liquidity, they said. Man GLG’s research noted that during the Q1 market meltdown, global convertibles fell 15.6 per cent, while global equities plummeted 33.6 per cent, with the decline in global convertibles equating to 46.5 per cent the fall in global equities. The subsequent market rally in Q2 saw global convertibles advance 17.5 per cent, as global equities surged 37.5 per cent. As a result, global convertibles were able to capture 46.7 per cent of the move higher in equities.
