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Our briefing for Thursday June 3, 2021:
Jun 3, 2021 4:19:51 PM
- United States President Joe Biden announced on Thursday the plan to share the first 25 million COVID-19 vaccine doses with the rest of the world and the overall framework for distributing at least 80 million doses by the end of the month. As part of the first round, 19 of the first 25 million doses will be shared through the COVAX imitative, which is pushed heavily by the World Health Organization. Approximately six million will be sent to South and Central America, approximately seven million in Asia and the remaining five million to Africa. The other six million of the original 25 million will be sent to North American neighbours Mexico and Canada, along with several other countries. “Strong American leadership is essential to ending the pandemic now, and to strengthening global health security for tomorrow – to better prevent, detect and respond to the next threat,” said President Biden.
- In Canada, the federal government is increasing the fine from $3,000 to $5,000 for air travellers who refuse to quarantine in a government designated hotel for three days once arriving in the country. The news comes one week after a federal advisory panel was actually suggesting to either scrap the hotel quarantine plan altogether or suggested travellers be required to quarantine in a hotel only if they fail to present a credible quarantine plan. The quarantine requirement has been criticized in the past for several reasons including whether or not it actually prevents the spread of COVID-19 and the savvy travellers who found loopholes around it, such as flying into and/or through the United States, and then walking across a land border entry, thus avoiding the hotel quarantine.
- In the United Kingdom, people who were hoping for an overseas trip this summer are upset with the government changing the list of approved destinations. The government updated their list Thursday and moved Portugal, which had been the only viable destination on the green list, to the amber list. This means Britons vacationing in Portugal face a rush to return home before the new rules begin in the early hours of Tuesday June 8th or face a quarantine upon arrival. Other popular destinations such as Spain, Greece, Italy and France never made their way to the green list and remain in the amber category. A spokesperson for British Airways said the following on the latest moves by the government: “The UK has reached a critical point and urgently needs travel with low-risk countries, like the US, to re-start the economy, support devastated industries and reunite loved ones.”
- The European Union (EU) also updated their list of travel restrictions with the UK and United States remaining those that may still need to abide by member states’ quarantine requirements. The EU added Japan to the so-called “white” list of nations for which restrictions will be lifted, joining other countries such as Israel, Australia and South Korea. The EU’s recommendation isn’t legally binding and some member states such as Greece have already accepted visitors able to offer vaccination proof or a negative test, without asking them to quarantine. Spain, too announced as of June 7th, all vaccinated travelers would be allowed to visit, even those coming from countries for which restrictions are still in place.
- Australia’s Victoria state has extended it snap seven-day lockdown into a second week in the city of Melbourne in a bid to contain a strain of the Indian COVID-19 variant. “If we let this thing run its course, it will explode,” Victoria state Acting Premier James Merlino said. “This variant of concern will become uncontrollable and people will die.” The latest outbreak reached 60 as of Wednesday, though the state has been reporting daily cases in single digits since the lockdown was imposed. Victoria state is trying to avoid a repeat of what happened to them last July/August when more than 800 people died from an outbreak and one of the world’s strictest and longest lockdowns were imposed.
- One day after Japan’s top medical adviser told a parliamentary committee the country should not be holding the Olympic Games; the organizing committee president says they are soldiering on. In an interview with the Nikkan Sports newspaper, Seiko Hashimoto said: “We cannot postpone again” The scaled down version of the Games, with no foreign spectators is set to begin on July 23rd. Tokyo, the host city, along with nine other regions remain in a state of emergency due to the pandemic. The postponement of the Games in 2020 cost Japan an extra $3.5 billion USD.
Covid-19 – Due Diligence And Asset Management
The Economic Data is Already Starting to Beat Expectations Again
Brief : One of the big themes of the last year has been that almost everyone has been too pessimistic about the economy and corporate fundamentals. The easiest way to see this is by looking at an economic “surprise index” which attempts to gauge the degree to which the data is beating or missing economists’ forecasts. It’s not a gauge of absolute strength but of relative strength. For about a year now, the Citi Economic Surprise Index for the U.S. has been in positive territory. That means this whole time, despite all the stories about the rebound, and the strength of the recovery and the powerful impact of the fiscal response, economists have been too pessimistic. Only very recently in the middle of May did the white line drop ever so slightly below zero, indicating reality more or less meeting expectations. But now it’s already on the rise again as you can see at the end of the chart. Just today we got better-than-expected ADP labor data, initial jobless claims, Markit PMI, and ISM services. They all beat. Not by huge amounts, but it was across the board.
Impact Investing Shows its True Value During the Pandemic
Brief: LeapFrog Investments, a with Purpose investment firm, reached 221 million people in 35 countries with essential services during the pandemic, according to its Annual Impact Results. Together, LeapFrog’s investee companies were able to reach 16 million more people compared to 2019, at a time when support was profoundly needed. They provided underserved communities with access to a range of healthcare and financial services, including insurance, remittances, diagnostics and telemedicine. At the same time, LeapFrog achieved a 22 per cent uptick in the value of its portfolios over 2020. Across the past decade, LeapFrog companies have grown revenue on average at 26 per cent a year, consistently delivering on the firm’s strategy of Profit with Purpose. Eight in ten, or 174 million, of those reached by LeapFrog companies across Asia and Africa are emerging consumers, defined by The World Bank as living on less than USD10 per day. Over half, or 119 million, are women and girls. Financial services proved a lifeline during the pandemic for families and businesses. LeapFrog’s insurance companies, for example, paid claims totalling USD629 million, an increase of 37 per cent.
Distressed Muni Borrowers Are Still Piling Up in Pandemic’s Wake
Brief: The wave of U.S. municipal-bond distress set off by the pandemic is still spreading even as the economy recovers from the devastation of the outbreak. Eight muni borrowers became distressed last week, lifting this year’s tally to 76, according to Municipal Market Analytics. That puts 2021 on track to exceed almost every year since 2012 in terms of impairments. Only 2020, when the coronavirus caused some of the worst market turmoil on record, was worse. The isolated cases of deterioration in certain smaller, typically lower-rated or unrated issuers stand at odds with the optimism in statehouses nationwide, which have been buoyed by strong tax revenue and federal stimulus. It’s been a banner year for munis, with tax-exempt yields near record lows relative to those on Treasuries. Any defaults have mostly been confined to a corner of the market where businesses borrow through government agencies. “While credit conditions are clearly better than at this time last year, they are by no means fully corrected,” Matt Fabian, a partner at Municipal Market Analytics, wrote in a Wednesday note.
Endowment and Foundation OCIOs ‘Came Roaring Back’ After the Covid-19 Crash
Brief: A year after the Covid-19 market crash, endowments, foundations, and aggressive risk takers have experienced the strongest recoveries, according to outsourced chief investment officers whose clients include major investors across fund types. Out of all outsourced investments tracked by the Alpha Nasdaq OCIO Broad Market Index, endowment and foundation portfolios “came roaring back” with a trailing one-year average net-of-fee returns at 35.8 percent, said Brad Alford, founder of Alpha Capital Management. The “aggressive asset allocation index,” an index that factors in OCIO strategies with a 0 to 20 percent allocation to risk-mitigating asset classes, touted the strongest performance with a 46.3 percent trailing one-year return. The Alpha-Nasdaq indices started in 2019 and aggregate responses from anonymous OCIOs that “represent the broad OCIO market” and “appropriately reflect the nuances across sub-categories, such as plan type and risk profile,” according to this quarter’s report. Index numbers are calculated using reported data from OCIO respondents. In order to be included in the indices, respondents must work with a fund that manages $50 million or more in assets under management. OCIO contributors include J.P. Morgan Asset Management, Verger Capital Management, and NEPC, among others.
March Trading Profits and Inflows Propel Hedge Fund AUM to Record USD4.07tn
Brief: Hedge funds saw USD19.1 billion in new assets flow into the industry in March. Coupled with a USD28.5 billion monthly trading profit, total hedge fund industry assets rose to more than USD4.07 trillion as March ended, a new record high, according to data released by BarclayHedge. Most hedge fund sectors experienced net inflows in March. Fixed Income funds set the pace adding USD6.9 billion to assets, while Sector Specific funds brought in USD5.8 billion, Emerging Markets – Asia funds saw USD5.6 billion in inflows, Event Driven funds took in USD3.0 billion and Multi-Strategy funds added USD2.9 billion. Notable among sectors shedding assets during the month were Emerging Markets Global funds with USD3.8 billion in redemptions, Equity Long Bias funds with USD3.3 billion in outflows and Macro Funds with USD1.7 billion in redemptions. “Easing of lockdown restrictions, optimistic economic forecasts, rising equity and commodity prices and President Biden’s USD1.9 trillion pandemic recovery plan buoyed investors’ optimism,” said Sol Waksman, president of BarclayHedge. “The last time that hedge funds had a losing month was October 2020 when the Barclay Hedge Fund Index declined -0.11 per cent.”
Hedge Funds Opt for Some Days of Remote Work – at Least for Now
Brief: Most hedge funds plan to let their employees work remotely at least one day a week starting in September -- a more flexible approach than Wall Street banks that are already summoning staff back to the office. What many senior managers aren’t saying openly is that such accommodations may not last. A May survey from the Managed Funds Association, whose members include mostly hedge funds with at least $1 billion of assets, found that 80% of firms would offer some sort of hybrid model starting in September. The most popular schedule is three days a week in the office, with remote work on Mondays and Fridays, the trade group said, without providing the percentage of firms signaling a preference for that arrangement. The schedule reflects that “firms understand their workforce wants and needs more flexibility as they migrate back to the office,” said Brooke Harlow, the association’s chief commercial officer. Yet a more nuanced picture emerges from conversations with hedge fund managers, many of whom declined to discuss their plans publicly.
