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The past month or so has been a veritable roller coaster ride for investors. Continuing problems surrounding the defaults in the US sub-prime mortgage market have become more widespread than many commentators first expected. | |  |
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After the outbreak of the subprime crisis and all the contagion and concern that has gone with it, financial markets’ focus has moved to the next key point: will the financial crisis lead to an economic crisis? | | |
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Recent months have seen many European markets achieve new multi-year or all time highs. Corporate earnings have comfortably exceeded the levels achieved in 2000/2001, so valuations have remained quite reasonable. | | |
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Over the period stated, the Strategy held an average short duration in global bonds, which meant a small relative loss of alpha. Meanwhile, the Fund held a small overweight in global equities. | | |
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Back in March we wrote a piece highlighting the similarities with the savings and loans crisis of the late 80s and early 90s. Since March, the gradual unwinding of the financial engineering has continued, and now it looks like it is about to affect the broader economy. | | |
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The recent introduction of new, western style, incentive programs for the management of state owned Chinese listed companies has already had a marked impact on their earnings. | | |
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UK equities corrected sharply in July and August as problems in the US mortgage market sparked turmoil across global financial markets. | | |
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The Indian economist and philosopher Amartya Kumar Sen, in his analysis of the rice famine in Bengal in 1943, concluded that the catastrophic food shortage was not because of a literal absence of rice, but was down to the human propensity to hoard in the face of a perceived future shortage. | | |
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Alexander Kozhemiakin, director of emerging markets at Standish Mellon, answers a number of common investor questions on emerging market local currency debt, and the opportunity it presents to international investors. | | |
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If you have it in your heart, spare a thought for the poor old Japanese carry trader; that nervous and exotic creature who for a long time has been borrowing Japanese yen, investing it in any old thing, and then making lots of money out of it. | | |
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The Mellon Japan Equity Value Fund has performed strongly in recent months, outperforming both its benchmark index and peer group sector. | | |
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Having been away for three weeks, for one reason and
another, it’s been interesting watching the markets as a
neutral observer or, more to the point, the behaviour of
those involved. | | |
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The Fund returned -0.18% for the month of July, outperforming its benchmark index, the FTSE All World, which returned -1.45% (both in US dollar terms). | | |
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The Mellon Asian Equity Fund returned +2.39%* over the month, compared with +4.85%* by the FTSE All World Asia Pacific ex Japan Index and +4.85%* by the Equity Far East Ex Japan Sector, all in US dollar terms. | | |
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Despite the sell-off in global equities towards the end of the month, Asian markets finished in positive territory
for July. The best performing markets were the domestic Chinese markets by far, however, Korea, Thailand and Indonesia also performed strongly. | | |
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Over the month, the Fund continued to struggle against a backdrop of low yielding industrials, and technology stocks outperforming the market. | | |
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The key market event of the month (and continuing into August) has been the dramatic fall in the credit markets. Global equities, which had been up by around 4% mid-month, dropped away by 6% during the second half of the month. | | |
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Equity markets suffered a significant pull back towards the end of July, as concerns about the credit market finally affected investor confidence in the equity markets. | | |
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Despite the sell-off in global equities towards the end of the month, Asian markets finished in positive territory for July. The best performing markets were the domestic Chinese markets by far, however, Korea, Thailand and Indonesia also performed strongly. | | |
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During July, the Fund returned -5.00%, underperforming its benchmark the Russell 1000 Value Index, which returned -4.62%. The bulk of the Fund’s performance loss came from holdings in the financial and energy sectors, while the Fund benefited considerably from its stake in the technology sector. | | |
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Mellon Capital Management believes that currency exposure should be an active decision, not
something to hedge away or passively accept. Active currency management is a core capability at
Mellon Capital, having managed active currency strategies for institutional investors since 1995. | | |
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Underweight positioning in US Treasuries added to performance as interest rate cuts by the Federal
Reserve in 2007 were priced out of expectations. A curve steepener between US 2 year and 30 year
Treasuries was positive for performance as appropriate term premiums were realised in the yield curve. | | |
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With 100% of votes counted, the election result (unofficial as yet) came in as recent polls' had
forecast; in summary the current single-party governing Justice and Development Party ('AKP'),
will again be able to form a single party Government, but with a reduced majority in a three-party
Parliament (see below charts) | | |
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In the second quarter of 2007, Emerging Market (EM)
bonds were unable to maintain the strong momentum of
the first quarter. JP Morgan's EMBI Global Diversified
(EMBIGD) posted a negative return of 1.53% in US
Dollars, bringing year to date performance to just 0.86%. | | |
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The Mellon Asian Equity Fund returned 4.15%* over the month, compared with 4.23%* by the FTSE All World Asia Pacific ex Japan Index and 4.83%* by the Equity Far East Ex Japan Sector, all in US dollar terms. | | |
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In the midst of a serious bout of indigestion in the credit markets, the private equity masters of the universe have announced another mega-deal. | | |
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Mellon Capital’s investment strategies are all quantitative and process/model driven. Mellon Capital’s views and portfolio positions are based on determining the fair value of each investment relative to its asset class, and profiting from their misvaluations as they revert to their fair levels. | | |
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Mellon Capital’s investment strategies are all quantitative and process/model driven. Mellon Capital is a relative value
investor and believes that mispricings within and across global equity, bond and currency markets can be systematically
identified and exploited. | | |
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Markets endured a volatile time in June, ending the month in negative territory. We continued to see merger and acquisition activity, but the potential for interest rates to continue rising caused nervousness amongst investors. | | |
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Over the period, Asia Pacific markets remained buoyant, with most reaching record highs. This was initially driven by firm economic data from key regions such as the US and Europe at the beginning of the month. | | |
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Global equities were down in June, with Germany and Japan's strength countered by US weakness. The appetite for emerging market equities continued to be strong, with the MSCI Emerging Markets Index delivering a +4.3% return, this compares with a -1.1% return for MSCI developed markets. | | |
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Equity markets displayed some volatility in June as the effects of the sharp movement in interest rate expectations were digested by the equity market. | | |
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Over the period, Asia Pacific markets remained buoyant, with most reaching record highs. This was initially driven by firm economic data from key regions such as the US and Europe at the beginning of the month. | | |
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Having negotiated the change in short rate expectations over the last six weeks, the credit markets are now re-focussed on the fall-out from the US sub-prime meltdown. | | |
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Now that we have had some stability in the global bond markets, it is right to ask if there is any value there for investors.The answer to that question really depends upon your agenda. | | |
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Two of our graduate trainees were recently given a project of looking at the unusual strength of the Canadian dollar. What follows are their words and work. | | |
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Alex Stanic, Fund Manager, discusses the Fund's strong performance | | |
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May was yet another strong month for emerging market local currency debt, with the JP Morgan GBI-EM Broad Diversified returning +1.63%... | | |
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It's been difficult to put pen to paper over the past couple of weeks because just at the moment, when the markets seems to be settling down, another leg up in yields occurs (fall in prices) which makes piercing perspectives instantaneously redundant. | | |
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It is typical of the credit market to be looking the wrong way when something happens. Many investors in credit this year (and perhaps for the last three years), have been reluctant bulls invested in increasingly risky assets but with a careful eye on the state of the US economy. | | |
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Newton’s pioneering thematic investment approach identifies themes and trends that are influencing, or are likely to influence economies or stock markets. | | |
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Over the month, the Fund’s C share class returned +0.16%* compared to the return of +0.33%* for the 1-month Euribor benchmark, all in euro terms. | | |
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Asian equity markets remained buoyant over May, despite a correction in the domestic Chinese stock markets after several tightening policies were announced by the PBOC, and after the stamp duty on share transactions was raised from +0.1% to +0.3% as an effort to cool the booming domestic stock market. | | |
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Asian equity markets remained buoyant over May, despite a correction in the domestic Chinese stock markets after several tightening policies were announced by the PBOC, and after the stamp duty on share transactions was raised from +0.1% to +0.3% as an effort to cool the booming domestic stock market. | | |
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Economic data in the UK continued to be robust with GDP growing at an annualised rate of 2.8% in the first quarter. Inflation moderated somewhat from the elevated levels seen in April, however CPI remained at 2.8% and RPI at 4.5% both high enough to cause continuing concern at the Bank of England. | | |
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European markets continued their upward trend in May, driven by merger and acquisition activity, high levels of liquidity and strong corporate earnings being reported for the first quarter of 2007. | | |
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May was yet another strong month for global equity markets (the familiarity of that phrase alone begins to make investors nervous) with the FTSE World Index posting a 4.3% rise (in sterling terms). | | |
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The Mellon Asian Equity Fund returned 3.67%* over the month, compared with 4.87%* by the FTSE All World Asia Pacific ex Japan Index and 5.11%* by the Equity Far East Ex Japan Sector, all in US dollar terms. | | |
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The Mellon US Dynamic Value Fund has performed strongly in recent months, outperforming both its benchmark index and peer group sector. For the year-to-date period the Fund returned +9.54% versus the peer group return of +8.06% for the Equity North America sector and +8.59% for the Russell 1000 Value index (all in US dollar terms). | | |
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For the period 31 March 2007 to 18 May 2007 the Mellon Small Cap Euroland Fund outperformed, returning 6.33% against 4.94% for the benchmark, the Citigroup EMI EuroZone and 3.92% for the peer group sector, the Lipper Global Equity EuroZone Small & Mid-Cap (all in euro terms.) | | |
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So if someone really wants to break the ice at a party, and
get everybody’s attention, then the mere mention of some
information on either (or preferably both) of these subjects
will have a small crowd milling around them in no time. It’s
the only perk of being a global bond manager | | |
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Since 31 March 2007 to 17 May 2007, the Fund has outperformed both its benchmark and peer group sector, rising by 7.62%, compared to 6.48% and 5.51% for the Russell 1000 Value index and the Equity North America sector respectively. | | |
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Local currency emerging market debt has become an increasingly attractive asset class during recent years. Improvement in creditworthiness and the success in fighting hyperinflation on the back of more responsible fiscal and monetary policies have allowed a rising number of emerging market sovereigns to issue local currency denominated bonds. | | |
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Asia is increasingly offering investors an attractive income stream in the form of dividends. With economic growth powering ahead in Asia, dividend yield growth is far outstripping that of developed markets. | | |
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With currency mandates becoming more frequent, this is the time to examine the difficulties encountered by investors in evaluating their effectiveness. | | |
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One of our cherished notions here at Newton over the past six years has been that there will always be a buyer of last resort to bail out the bond markets when the economics go against them for a while. | | |
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In April, financial markets continued to build on March’s positive performance. Despite their positive performance, from a UK perspective overseas markets were held back to some extent by US dollar weakness, which broke through the US$2 level relative to the pound. | | |
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Over the first quarter of 2007, the Fund generated a return of +3.5%*, outperforming the average return of +2.8% for the IMA Global Growth sector and the +2.3% generated by the FTSE World Index, all in sterling terms. | | |
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European markets were very strong over the month, with merger and acquisition activity yet again proving to be a big driver. In particular, speculation surrounded the banking sector with Barclays bidding for ABN Amro. | | |
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April was another strong month for global equity markets with the FTSE World Index posting a 2.5% rise (in sterling terms). This was the strongest month since January 2006. Amongst the major equity markets, Germany was one of the strongest over the month with the DAX 30 up some 7.1%. | | |
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The independence of South America came after the victory of an emerging continent against a dominant foreign force (Spain), and the hard work of the likes of independence leader Simon Bolivar (El Libertador). | | |
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The markets aren’t actually like a roller coaster, it’s just if you let your emotions get the better of you (which is fatal), they can just seem exactly like it. | | |
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Emerging market bond performance continued to be strong into the first quarter of 2007, outperforming first quarter returns of the previous two years. JP Morgan’s EMBI Global Diversified (EMBIGD) returned +2.43% during the quarter, although spreads over US Treasuries were unchanged at 180 basis points. | | |
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There have been some pretty significant currency and interest rate movements in the past year. To be honest, it’s slightly difficult keeping track of the combinations; higher currencies with stable interest rates, higher currencies with lower interest rates, stable currencies with falling currencies etc. | | |
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The last 12 months have been challenging for the Mellon Global Equity Fund, and this was reflected in its underperformance against both its index and peer group. | | |
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Despite periods of volatility, the Asia ex Japan region returned around +5% in April alone. The best performing
markets were the domestic Chinese markets, Indonesia, Korea, India and Malaysia. The worst performers were
Taiwan and the Philippines. | | |
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A lot has been written about the credit markets, and specifically bank lending. The relationship between the US, the vast reserves that control the bond markets (and the US dollar), and the budget deficit in recent years have also been in the headlines. | | |
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It’s fairly clear that there is something wrong within the construction industry of the US. The sum of existing and new homes for sale has just taken another leap upwards, and this should be seen as a natural warning sign that the Federal Reserve will be compelled to cut interest rates in the near future. | | |
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Despite periods of volatility, the Asia ex Japan region returned around +5% April alone. The best performing markets were the domestic Chinese markets, Indonesia, Korea, India and Malaysia. The worst performers were Taiwan and the Philippines. | | |
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Emerging market bonds have had a fairly long period of stability, and spreads have correspondingly come down to historically low levels. But with only 180 or so basis points above US Treasuries on offer, the question generally being asked now is ‘why invest in emerging market bonds?’ | | |
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The defining event over the past month was the turbulence that hit financial markets at the end of February. In the foreign exchange market this was reflected in a sharp appreciation of the Japanese yen against higher yielding currencies. | | |
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The current market focus on sub-prime US mortgages is warranted given the extent of the bad lending practices undertaken last year. But is it just another blip in the liquidity induced risk rally or something more serious? | | |
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What has been happening in the US mortgage market is reminiscent of ‘musical chairs’: At the beginning of the game, everyone is very happy and lively, high on jelly and ice cream. Everyone wants to play the game, and they are all confident of success. | | |
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Emerging market bonds had another good year in 2006, with spreads on the EMBI Global Diversified Index compressing from 246 basis points over US Treasuries to 181 basis points. This led to a return of +9.86%, the market had returned +10.25% in 2005. | | |
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Tuesday 27th February 2007 witnessed a substantial fall in world equity indices, with emerging markets suffering the most. The MSCI emerging markets index fell 3.1%, led by Latin America declining 6.7%. | | |
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Monday’s 9% slump in one of China’s three predominant bourses (the A share market, the others being S and H share markets) induced a worldwide slump in stock market valuations: | | |
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In March, markets rebounded from the sell off at the end of February, and delivered positive returns once again. In terms of currencies, the yen gave up some of its late February gains, gradually weakening during the month, as did the US dollar against sterling and the euro. | | |
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Most of the Asian markets recovered after the sell-off in equities across the globe towards the end of last month. The best performing markets included Indonesia, the Philippines and China. | | |
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Most of the Asian markets recovered after the sell-off in equities across the globe towards the end of last month. The best performing markets included Indonesia, Philippines and China. | | |
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There is clearly an enormous argument being played out in the press between Japan’s central bank, its Ministry of Finance and the Japanese political establishment. | | |
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There are times when fundamental investing doesn’t work and irrational buying takes over. The technology bubble in the late 1990s was one good example. The dinner party analogy works well to describe the evolution of this process. | | |
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Equity markets began February with a strong upward movement and peaked some 3.5% higher than at the end of January. Strong corporate results and a reassessment of inflationary concerns allowed equities to rise. | | |
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Equity markets started strongly in February with companies generally reporting good results for 2006 and encouraging outlooks for 2007. Until the last two days in February UK markets had gained around 4%, but ended the month in negative territory. | | |
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