Fund Times: 11 - 15 May
Barclays to sell BGI; F&C launches property fund targeting distressed UK commercial property; Structural Issues Continue to Affect Sterling Corporate Bond Market; Morningstar UK Investment Conference.
Barclays to sell BGI
It has been widely reported in the press today that Barclays is in talks to sell BGI, its quantitative investment division. This comes on the heels of an agreement to sell its vaunted iShares ETF unit to CVC Capital Partners (although it looks like other bidders are now back in the mix for iShares). Reports indicated that possible buyers for the business include Blackrock and BNY Mellon. BGI uses sophisticated quantitative models to run the majority of its active and tracker funds and is one of the better regarded quantitative houses around the world. BGI has been successful in markets such as the US and Australia. They are not a major player in the UK retail market under their own brand although they are responsible for running a number of active and tracker funds under the brands of other fund distributors.
F&C launches property fund targeting distressed UK commercial property
F&C aims to raise £300m for a new closed-end fund focusing on the distressed UK commercial property market. The fund will be called Devonshire UK Opportunities fund and F&C will aim to “identify and target opportunities across a variety of sectors that have arisen through distressed assets sales”. The fund’s investment minimum is £10m so the focus will be institutional and high net worth investors. Many of the open-ended property funds in the UK retail market ran into trouble in 2007 and 2008 because their open-ended structure meant that investors could redeem, forcing the fund to sell assets under a pressured timetable or at an inopportune time. F&C’s decision to structure the fund as a closed-end product makes sense in this light, though we continue to question the need for property funds for investors who have exposure (usually leveraged) through their own homes.
Structural Issues Continue to Affect Sterling Corporate Bond Market
The IMA (the local fund trade association) this week released the results of a study which unsurprisingly found that disruption in the Sterling corporate bond market is damaging the buy-side of the market (which includes fund managers of corporate bond funds and their investment clients). The damage is largely through wider spreads (trading costs), lack of liquidity and increased uncertainty. These problems have been widely discussed and were acknowledged at the Morningstar UK Investment Conference by Stephen Snowden, fund manager of the Old Mutual Corporate Bond fund. He argued that many bonds have been oversold to irrational levels and while this has been harmful on the downside, he believes it will benefit on the upside as markets return to rationality and investors get the benefit of significant yields on many bonds. There are numerous anomalies in the market at the moment which he is aiming to take advantage of in his fund. Pricing issues have also been a major cause of discrepancy. Some fund groups have elected to use standard pricing feeds such as iBoxx, while other groups use their own pricing. This has resulted in very large performance differentials between corporate bond funds which may reverse as the market recovers. Investors should be aware that this could be to their benefit or detriment depending on which fund they have selected and the pricing methodology used in that fund.
Morningstar UK Investment Conference
A range of renowned fund managers spoke at the Morningstar Investment Conference in London this week. Dennis Stattman, who has managed the BlackRock Global Allocation fund since 1989, opened the conference with his outlook for the global economy. He delivered a persuasive argument that large developed economies such as the US are likely to have slow, intermittent recoveries, whilst emerging markets such as China may lead the way back up, along with a cogent critique of the demand-stimulus policy response of the US Federal Reserve. Following him was Schroders’ Head of UK Equities Richard Buxton who struck a more optimistic tone on UK equities.
JPMorgan emerging-markets chief Richard Titherington also made a strong long-term case for emerging markets, though he did caution against near-term volatility, while Old Mutual's Stephen Snowden gave a refreshingly candid assessment of the UK corporate bond market. Other sessions included a panel debate on Global Equities with Edinburgh Partner's Dr. Sandy Nairn, First State's Perry Winfield, and Investec's Alastair Mundy; a fund-of-funds debate with Chelsea Financial Service's Darius McDermott and Cazenove's Marcus Brookes; Fidelity's Sanjeev Shah on opporunties in UK equities; a stock-picking debate with Artemis's Mark Niznik, River & Mercantile's Dan Hanbury, and Rensburg's Paul Spencer, and the debut of Morningstar's Global Investor Experience study,Morningstar's Global Investor Experience study, presented by John Rekenthaler, CFA.
Morningstar qualitative ratings and reports issued this week
Morningstar issued new qualitative ratings and reports on a number of funds available to UK investors this week, including M&G Recovery, First State Asia Pacific and Fidelity Funds - China Focus. Click here to see the full list.
