Tag Archives: BlackRock

After the surprises in 2016, what can we expect for 2017?

Evolution of the main markets in 2016

Did you have fun this year? Well, it was not very bad, because there was some rollercoaster in the stock exchanges: Brexit, the unexpected victory of Donald Trump for the US presidency, the recent rate hike by the Fed, the Italian referendum or the ECB announcement about the cut of the money fuel have been some of the “funny” events for the markets.

We are now at the end of the year with the sight on 2017. What can we expect? Certainly, there are some people who do not believe in financial predictions, because they are usually wrong, as Barry Ritholtz jokes in this post. Others make also fun about it with the outrageous predictions, as Saxo Bank has positioned in the last years.

Others keep on doing some forecast about probable, but not sure, evolutions of the markets. For instance, Black Rock perceives three main trends:

  • Accelerating reflation in US
  • Low returns in investments that will force investors to more risky assets, as equities or alternatives.
  • Dispersion, with a widen gap between winners and losers in the stock markets.

The main risks for Black Rock are related to politics: the Brexit negotiation, the Trump agenda in US or the next elections in France and Germany are some critical points.

The forecasts by Goldman Sachs coincide partially with Black Rock, because the main ideas are: higher growth but higher risks and slightly higher returns.

The list could be longer, but there are some common points: investors perceive that politics will play a big role next year and will influence the market evolution and people will have to move to more risky assets. Monetary policy and currency evolution will also main themes, as they will condition trade and bonds.

Yes, predictions are usually wrong, but we cannot avoid reading them, because, somehow, experts are anticipating probable trends. Investor: Be ready for risky times.

This was the first semester… and these are some clues for the second

These are tough times for investors. We have already commented some of the weird phenomena that we are living in the markets, but the first semester was not easy at all to find good performances. Instability comes from several fronts:

  • EU: the ECB has no clue to solve the current troubles to make money and credit flow. Interest rates are negative, Euribor is also negative and the debt gives no return for investors. In the current unstable and volatile situation, investors prefer to pay instead of becoming profits from Treasury Bonds, specifically German ones. Finally, the black swan appeared: Brexit is there to stay.

Europe global trends in the first semester

  • USA: the Fed shows doubtful and indecisive. Markets have become mad and Mrs. Yellen prefers to delay the more-than-once announced (in Fed gobbledygook) rate hike. The presidential election also opens a new possible black swan, because a victory of Trump could cause another turmoil in the exchanges. The poverty of returns in the US markets is very clear with a figure: S&P 500 has produced positive returns YTD since Easter and its peak was under 4%.

USA global trends first semester

  • Asia: China sets the pace in the continent, but there are hard signs that the economy doesn’t grow as before. Exchanges reflect this low confidence and Shanghai performed erratic since the crash last August. The performance fluctuation band was between -15% and -25% YTD. Japan is also deadlock, because no policy obtains a positive outcome to get over the long economic stagnation of the country. This continent is the weakest for investors.

Asia global trends in the first semester

  • Latam: Although Brazil has experienced a great political crisis, investors acted more confident and the performance moves between 10% – 20% YTD. Mexico also shows a stable evolution in the markets, as the oil price has begun to rise.

Latam global trends in the first semester

This is the past and current situation, but where are the opportunities for the second half of the year? We do not publish forecast, but we can speak about trends.

Some days ago, BlackRock, the main ETF manager, decided to downgrade equities, because “stocks still face several obstacles”. Bank of America published a survey in which investors declared to bet higher for cash, peaking the highest allocation since 2001 in investment portfolios. Gold soared a 25% since January and volatility index VIX rallied this last month after a quiet quarter.

Times are hard to take investment decisions. The best one is no panic. Current volatility has to do with it and decisions under this pressure are usually wrong. Investors play for the long term. These are times to keep calm, avoid sudden changes and smart rebalance your portfolio.

Hybrid advisor: the future mix of humans and technology in finances

Hybrid advisors, the mix between technology and humans

Do you remember Robocop? Yes, that kind of police half machine half human. Paul Verhoeven’s film was very successful at the end of the 80’s last century. That proposal (the fusion between humans and machines) is a possible development in finances, but please do not expect a cyborg in a bank or managing fund office.

The adviser and blogger Michael Kitces proposed the approach to the “cyborg” advisor already last year and repeated it somehow some days ago. Robo-advisors have changed deeply the financial landscape. Algorithms, low fees and thin structure are the main characteristics, but humans still play a role in some robo-advisor models. Let’s look, for instance, Personal Capital or Vanguard Personal Advisor Services, where there is a combination of technology and human advice.

A recent report from My Private Banking points out that this mixed advisor model will grow by 2020 up to 3,700 billion dollars and represent the 10% of the total investable wealth in 2025. On the contrary, pure automated robo-advisors will keep only a 1.6% of the market share. It already mentioned a relevant trend: the white label robo-advisors by technological providers for financial entities.

The robo-advisor phenomenon have shown a more complex evolution than it was expected. At the very beginning, it sounded that machines will substitute everyone in the wealth management branch. However, we are evolving to a mixed landscape where pure automatic robo-advisors (Betterment, Wealthfront) and automated platforms for self-directed investors (as T-Advisor) live together in the markets with entities that have developed their own platforms (as Vanguard did) or bought existing companies (as BlackRock did with Future Advisor) and with cyborg wealth managers.

The market has place enough for several models, but it is true that the changes are focusing in providing a “human touch” to algorithmic solutions. Kitces, as we already mentioned, titled his recent post as: “The B2C Robo-Advisor Movement Is Dying, But Its #FinTech Legacy Will Live On!”. The text explained the difficulties of the pure tech model, but accept the revolution in the sector made by technology. In fact, he underlines that technology isn’t replacing advisors, but increasing the number of them. Wealth managers accepted technology and they are learning how to use it and improve their results. My Private Banking proposes also different approaches and strategies to robo solutions depending on the customer segments.

In conclusion, the financial sector is already aware that robo-advisors are not anymore fashion: they are a stabilised solution in the market and they are real competitors to the classical individual human-to-human relationship in advising. But the sector finally learned. They have forgot the negative opinions and adopted a different view. Technology is an ally and human advisors have to play the battle in this field if they want to survive. The hybrid advisor model is a kind of solution that will complete progressively the wealth-managing sector with the traditional and the pure tech model. Let’s see the trend in the next years and the market share that they will take up.

ETF, the asset revolution has consolidated

Exchange Traded Funds, or ETF by its initials, are the trendy security in the last years. Their assets have doubled in the last five years, as this BlackRock chart shows, although there is a reduction in January 2016, because of the general volatility of the equity markets:

Global ETP assets by year. Source: BlackRock

ETF are there to stay. There will be no reversal. In this short history (although they exists since the end of the 1980’s), there have been a few entities that have specialised in creating and selling these products: iShares by BlackRock, Vanguard and State Street, as the following table shows:

Global ETP providers. Source: BlackRock

But why are ETFs so successful? Why is there an offer from a few to 1,800 different products in so short period of 10 years? Flexibility, low fees and trading like stocks are some of the advantages against traditional mutual funds. Although there are also some disadvantages, investors still look at them as a very attractive asset. The explosion of them as a business contributed to create a long list of specialised media in Internet, because professionals and individuals have been looking continuously for information about them.

The design of an ETF is very different depending the cases: equities, fixed income, money market, commodities… They replicate an index or track a collection of securities or sectors in the known as passive management. After creating the product, there are only some adjustments every certain period, but the product performs independently of the manager.

In T-Advisor, our Watchlist has a long list of ETF categorised by their strategy for our registered users:

T-Advisor ETF Watchlist

It is just an option, but it is interesting to consider because of its price transparency linked with diversification. You invest in a diversified product, that means that you reduce some risks, and you have steady information of the price fluctuation, against mutual funds, whose prices are updated when markets are closed. In costs, they are cheaper than mutual funds. Yes, they are more expensive that a share, but you have to consider the above-mentioned diversification.

This is probably the reason of the success: the combination of the flexibility and transparency of a share and the diversification of a mutual fund. A survey conducted by EY in 2014 already talked about the promising future of ETFs amongst wealth managers and invertors. That future is already here.

Profiling investors: findings from BlackRock surveys

Picture from Investor Pulse in US by Blackrock

BlackRock is the biggest fund manager in the world. In the last years, it has conducted surveys in different countries around the world to obtain the main features from investors. If we take some of the insights, we may find several interesting figures:

  1. Cash is king. It is surprising that cash is the main asset in such proportion. For instance, 59% in LatAm, 63% in US, 51% in Asia, 58% in Spain… and 76% in Germany. In LatAm, 70% plan to add more cash in the next year. That’s quite a lot everywhere. Why investors are still reluctant to invest in other assets? This is a question that the financial and advisory branch has to discuss.
  2. Generally speaking, all are more optimistic than pessimistic about their financial future. Let’s see: 52% in US, 74% in LatAm, 64% in Asia, 54% in Germany. But it is interesting to mention that the rate is only 23% in Japan and 47% in Europe (38% in Spain). In contrast, Indians are optimistic in 81%. These figures show also opportunities. The branch has to bet for more optimistic countries to sell their products and solutions and have to work harder in more pessimistic countries trying to remove former ideas.
  3. What about retirement? Only 59% Americans are saving for it. It is to underline that the proportion is 57% of Gen X (between 37 and 49 years old) and… 60% of millennials (between 25 and 36). Surprisingly, young Americans are saving. That means that they already are target for the branch. The proportion of savers is higher in Asia: 69% average, with peaks in China (74%) and lows in Japan (42%). In LatAm, the percentage is 67%, in Germany, 65%, in Spain, 47%. There is also here a chance for advisory in these countries.
  4. And finally, what is the perception about advisers? 35% of Asians are advised in their finances with a high satisfaction. The proportion falls till 17% in LatAm (likewise very satisfied), 25% in Spain, it is also low in Germany. There is no figure for US, although it is supposed to be higher than in other countries. The chances to grow are also very relevant.

This kind of surveys is interesting to detect the general investor sentiment and find business opportunities for the advisory branch. It is also useful to open a debate about how to reach the customers and discover them the advantages of investing and planning their finances.

Note: Picture from BlackRock Investor Pulse Survey 2014. Page 12.

What can you expect for your investments the second half of the year?

T-Advisor investment opportunities

Tomorrow is the beginning of August, a typical month for holidays. However, investments do not take any rest and markets become more fragile in this month, as there is a decrease in the market volume of operations. While VIX index shows a historical low point in the market volatility, there are some reason to be warned: the crisis in Ucraine and the commercial fight between Europe and Russia, the crisis in Palestine, the end of the QE in US and the chance of an interest rate rise in the middle term or the continuous rumors about a possible turndown in the markets with current peaks.

Experts from different entities agree that the economic recovery is a real fact and the trend will keep on, but investors have to be watchful about the possible developments. Wells Fargo advises an investment strategy taking into account that low volatility does not mean absence of risk. It recommends a diversified portfolio underweighting fixed income and overweighting equities. Fixed income yields are now not interesting, but a tighter monetary policy in the US will push them up.

BlackRock maintains its view as in the beginning of the year. In US, it expects more volatility linked to the Federal Reserve policy evolution. In Europe, the trend is also linked to the ECB, but with other gear: the fight against deflation. Cyclicals, energy and large cap values are some bets. In Asia, the fund manager is bullish with Japan and cautious with China, as it considers that the growth is not sustainable.

The Swiss Julius Baer predicts for the next half a continuation of many of the trends. The general relaxing monetary policy in almost all central banks, a controlled inflation and a moderate economic growth are the basis of the scenario. The bank focuses in two points: European peripheral debt is not interesting anymore, because the risk premiums are low and reached the convergence point; and the company balance sheets in the non-financial sector, as they expanded significantly in the last years and that is a strong argument to invest again in equities instead of corporate debt.

Generally speaking, there are risks as mentioned above, but the outlook is positive mainly for equities in the second half of the year.

ETF flows follow the US hesitations

ETF flows: World map with asset share in areas

ETF industry changes the strength of their inflows following US hesitations and sighs. The QE tapering or not, the debt ceiling, the continuous uncertainty in the American economic policy conditioned last six months for ETF investors.

The effects are clear, because as our chart shows, 70% of assets market share are on Americans hands. BlackRock report on flows last October reveals that the industry counted $24.3 bn since October, 17th, because traders were waiting for a solution in Washington between Rep’s and Dem’s.

Between January and October and compared with the same period of 2012, ETF flows on equities increased in all world areas but emerging markets, where the trend is beginning to change. After a strong start in 2013, there was a shift in the line, stronger in summer. Investors are now attracted by low valuations.

US equity ETF focused on large-cap and mid-cap, with an important contribution of technology and consumer non-cyclicals. Moreover, assets are near $1 trillion, helped by double digits growths and the current records in the S&P500.

In Europe, equity products pushed up after the stagnation in the first half of the year. Flows on Europe reached $7.9 bn in October, a new record after four consecutive months with increases. The better economic outlook and the attractive valuations moved the investors to the Old Continent, rounding 30% in assets growth. In October, this figure surpassed $400 bn. A figure to take into account: Germany accounted almost $3 bn outflows.

Fixed income and money markets have been performing the worst results, with heavy outflows. Also gold summed a hard outflow in October, more than $2 bn.

In any case, US still drive the ETF markets. Not only because 70% assets are in this country, but because current risks, as a not clear Fed monetary policy (with several contradictory statements of its members) or the next debt ceiling negotiations till January, are on the view of ETF managers to decide where to put their money to obtain higher yields.