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August 2012
Nikko AM Pulse
This information is for professional investors only. Not for
redistribution.For more information, visit
http://en.nikkoam.com/worldseriesfundplatform
WSFP07082012
It is early August and the Olympic medal race is wellunderway.
With China just edging ahead of the US inthe medal count, it has
been a few weeks of amazinghuman triumphs, teenage prodigies, as
well as an upsetor two. For most spectators and the media, all eyes
arefirmly on the gold medals and in recent weeks we toohave seen
investors behave highly selectively and
increasingly focus on the golden top tier returngenerators, with
little interest in settling for less.
As ongoing uncertainty clouds the short, medium andlong-term, we
have seen some UK and Europeanpension funds prioritise de-risking,
while still maintainingan interest in diversifying their sources of
return.Meanwhile risking remains the challenge for hedgefunds and
other active managers whose returns havetrailed markets year to
date, as volatility remainsstubbornly low.
De-risk first , ask questions later
As investment managers grapple with the challenge ofcapital
preservation and, ultimately, return generation inthe current
uneven markets, financial institutions andpension funds are
grappling with regulatory concernsmandating varying degrees of
de-risking. In our recentconversations with UK and European pension
fundinvestors, this requirement and process has beenparamount.
While these trends have been ongoing for many years, itis ironic
that only now, as fixed income continues to
sssssConnecting Asia Across the World
A month ly comment from the investment team of Nikko AMs World
Series Fund Platform.
outperform and some yields on government bonds aretrending into
negative territory, that a widespread shiftfrom equity into fixed
income is underway or pending.While some of the equity allocation
will be populatedwith active or long/short equity substitutes,
manypension funds will shave these allocations meaningfully.Given
the paucity of equity returns today, this shift may
not appear to present much opportunity cost, however itmay be
the case that de-risked portfolios have beenstripped of their
investment return as well.
Going for Gold
Meanwhile, investors are increasingly applying a highbar in
todays manager discussions and are displayingmuch more selectivity
in what they are willing to look at.Perhaps it is the typical
summer hiatus, the fact thatmany have sold in May and gone away or
awillingness to sit on the fence as market uncertaintycontinues to
churn, but skepticism has been high and
interest in new strategies only lukewarm. Largeinstitutional
investors continue to pursue absolute returnmandates of every
description as well as particularly inthe US multi-asset
alternative mandates includingprivate equity, credit and real
estate.
The gold standard is being applied in the choice ofprovider, as
large blue chip names continue to winmandates at the expense of
smaller boutiques.
Risking the problem with not enough risk
The end of summer is a season of back to school andnew
beginnings, and we are continuing to see a wave ofhedge fund
launches with alumni from PershingSquare, Tiger Global and Citadel
among the manygroups starting out.
There are fewer new launches among long only funds,with the
focus more on asset replenishment at this
juncture. Any new products tend to be either highconviction or
income oriented, while in the fixed incomearena, distressed
European credit and real estatecontinue to see new product focus.
The difficult tradingclimate has seen many managers struggle to
generate
interesting returns; we read an interesting commentfrom a large
macro manager about their interest inexamining managers who have
blown up to see ifthere lurks a risk-taking talent they may wish to
hire.
x
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Distributorsnikkoam
x
Nikko AM accesses
global products in linewith demand fromAsian investors,
topackage under theNikko AM brand
Nikko AM manages
specialist Asianinvestment productsfor investors around
the world
Nikko AM +third-party
products are distributedthrough Nikko AMsunrivalled network
~global products toAsian investors
40+Global
Third-Party
Fund
Managers
300+Asian
Distributors
300+Asian
Distributorsnikkoamnikkoam
7/29/2019 Nikko Am Pulse 07-12_final
2/2
August 2012
Nikko AM Pulse
This information is for professional investors only. Not for
redistribution.For more information, visit
http://en.nikkoam.com/worldseriesfundplatform
WSFP07082012
The same manager commented that most people wehire only run
about a third of the maximum risk weallocate them and explained
that hiring a true moneymaker/risk taker is exceptionally hard. For
manyinvestors disenchanted with the current returnenvironment, this
will ring true.
July Manager Positioning
Market performance in J uly was mixed, with solidperformance in
mainstream European and US equitymarkets and another lacklustre
showing from Asia. The
standout story of the month was the staggeringoutperformance of
wheat and corn, as droughtconditions in the US caused those
commodities to riseby 19.9% and 20.2%, respectively.
These developments fuelled concern about creepingsupply side
inflationary pressure alongside some strongrhetoric by Mr Draghi
about the ECBs commitment toshort up the Euro, as well as what one
of our managersdeemed a race to zero of mass quantitative
easingamong central banks.
Market volume remained exceptionally low even bythe standards of
the typically slow summer period andvolatility (as measured by the
VIX) also continued to besubdued. This presented a challenge for
the most activeof managers, particularly equity hedge funds,
whiletraditional strategies performed in line with
theirssssssssssss
This document is for information purposes only and is not
intended to be an offer, or a solicitation of an offer, to buy or
sell any investments. This documentshould not be regarded as
investment advice. In making any investment decision, prospective
investors must rely on their own examination of the meritsand risks
involved.
This document has been prepared and issued by Nikko Asset
Management Europe (Nikko AME), on the basis of publicly available
information, internallydeveloped data and other sources believed to
be reliable. While reasonable care has been taken to ensure that
the information is accurate and anyassumptions made or simulations
used are fair and reasonable, Nikko AME, nor any director, officer
nor employee thereof, shall in any way makeguarantee,
representation or warranty of and be responsible for the accuracy
or completeness of this document. Any opinions expressed in this
documentmay be subject to change without notice. Nikko AME is
authorised and regulated by the Financial Services Authority and is
registered in England No.1803699.Registered address: 1 London Wall,
London, EC2Y 5AD.
Important Information
benchmarks, even if meaningful outperformance waselusive. With
the S&P up more than 10% through thefirst seven months of the
year, passive strategies areholding their own.
Among hedge fund managers, trend followersperformed well.
Meaningful trends manifestedthemselves, especially in soft
commodities (as notedabove), select event driven strategies
performed well(but notably, not in Asia, where spreads continue
towiden, particularly in resource based transactions) andcredit
strategies had a good month. Real estate
strategies whether in the form of REITS or privatefunds continue
to perform strongly, as investorappetite for yield remains
robust.
J uly was a month which saw the passing of a stalwart ofthe
hedge fund industry, the manager and strategistBarton Biggs, who,
in 2006, famously commented onChina We ride the tiger with our
fingers crossed. Hisclear passion for investment and sometimes wry
insightsinto the industry will be missed.
As always we welcome your feedback, questions andcomments.
The Investment Team
Nikko AM World Series Fund Platform
August 2012
If you are a distributor and are looking for a
specialistinvestment solution for your clients, please contact us
aboutour worldwide third-party fund manager research.
E: [email protected]
If you are a fund manager that can add value with
specialistexpertise in strategies which Nikko AM doesnt have
in-house,please contact us we may be interested in appointing you
assub-advisor to a new product launch for our 300
intermediariesacross Asia.
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