Tag Archives: Fixed Income

iShares appoints Brett Olson as head of fixed income EMEA

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iShares, an exchange-traded funds (ETF) platform, have announced the appointment of Brett Olson to the newly-created position of head of fixed income for Europe, the Middle East and Africa (EMEA).

The new role has been created in response to growing long-term demand for fixed income ETFs.

Brett Olson has almost 15 years’ experience in structuring and marketing fixed income securities, primarily with a number of high profile banking organisations.

Prior to joining iShares, he worked as managing director and head of the EMEA teams at Japanese firm Nomura.

Working at Nomura, he was responsible for the sales of asset back securities along with the distribution of illiquid debt instruments.

Brett has also worked at Standard Chartered Bank and had a nine year stint at Lehman Brothers.

The new position has also been set up to respond to the increased range of bond exposures being made available through ETFs.

Joe Linhares, head of iShares in EMEA, said: “Fixed income ETFs have gathered strong assets over the last three years, but we’re now seeing a revolution in demand and in how they are being used. A seismic shift is taking place.

“Institutional investors such as insurance companies are looking to hold more bond ETFs and fewer individual fixed income securities, and at the same time retail investors are learning more about these funds and their benefits, which is further fuelling uptake,” he said.

Brett’s role will consist of co-ordinating iShares’ fixed income initiatives and activities across its product development, sales and capital markets teams, ensuring its fund range provides the access to bond markets that investors need, and that clients receive excellent trading and execution to support.

He will report to Tom Fekete, who also recently joined iShares as head of product development for EMEA and David Heike, global head of fixed income.

Joe Linhares added: “Our focus is on remaining a leading provider of high-quality fixed income ETFs in the region. Brett will play a pivotal role in this effort, leading our fixed income proposition across the business.

“His excellent credentials in fixed income structuring will be particularly valuable as we develop our fixed income product range and engage ever more closely with clients and market participants. We’re excited Brett’s joining us at this critical time in the growth of the ETF market,” he said.

iShares is a global product leader in ETFs with over 600 global funds across equities, fixed income and commodities, which trade on 20 exchanges worldwide.

SICO lists new fixed income fund on Bahrain Bourse

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SICO Bahrain has listed its new SICO Fixed Income Fund on the Bahrain Bourse, following an agreement signed between the company and the exchange.

Launched in April this year, the SICO Fixed Income Fund is an open-ended fund with a minimum investment of $100,000, which will invest in government and corporate fixed income securities, including sukuk. It has a current size of $9.9 million.

The listing brings to 27 the number of funds listed on the Bahrain Bourse. While SICO Bahrain has six other funds listed, this is its first fixed income fund listed and the first managed by a Bahraini fund manager.  

SICO deputy chief executive and chief operating officer Najla Al Shirawi said: “The fund will give investors a unique opportunity to benefit from the growing GCC and Middle East and North Africa (Mena) fixed income and sukuk universe. The primary objective is to generate income and to seek capital appreciation over the medium and long term.”

Bahrain Bourse director Fouad Rashid added: “The bourse will continue to attract and encourage the listing of mutual funds as well as other investment instruments, in order to provide more options for investors.”

With total assets under management of $681 million at the end of June 2013, SICO’s other funds include the GCC-wide Khaleej Equity Fund, the Saudi-focused Kingdom Equity Fund and the SICO Selected Securities Fund, which is the only publicly available mutual fund concentrating on the Bahraini market.

Mena Fixed Income - Get Well Soon

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A swift sell-off in 10-year US Treasuries earlier this year was a catalyst for many Mena fixed income investors to take flight. But has the poor health of Mena fixed income been overstated?

Recently, the US Treasury market sneezed and Mena bonds caught a bit of a cold. Understandably, some clients are concerned, and some commentators are even calling for the death of the patient. However, we believe that that particular diagnosis is somewhat premature and we look forward to the patient making a full recovery.

Is this patient going to continue to deteriorate? To address this question, you have tofirst examine the drivers of the bond market in the Mena region (the ‘risk-free curve’ and credit spreads). For our market, the risk free curve is deemed to be the US Treasury curve. Purists may argue that the US curve is no longer risk free, with the US having lost its coveted ‘triple A’ moniker last year, but the fact is that US Dollar credit is priced off the US curve and there is no credible alternative. All the time that Mena-based entities issue in US Dollars, the market will price off the US Dollar curve.

So what is the outlook for the US curve? Take a look at the 100-year chart of US Treasuries. Those who say it is all over tend to look at this as the defining chart. “Rates have never been lower,” they cry, “the only way is up.” But experience of Japan in the late 90s has taught me that just because something is expensive, it doesn’t mean it will get cheap. What is missing is a catalyst – and I would argue that we have just had the reverse. The yield curve is the term structure of interest rates, and as such mathematically begins with short rates; the very same short rates that the Federal Reserve has just told us will not be moving for a while yet. The short end is therefore effectively pinned at close to zero. The same Fed has also told us that it is going to continue to pump money into the US until they see signs of growth and employment(one of the last things to move). All well and good, but no one seems to have told the banks what to do with the money, so in the absence of a vibrant economy and faced with corporates who do not want to borrow, these funds find their way into financial markets (the money multiplier being currently broken). So the Fed is buying the curve and the money that they put into the hands of the holders of US debt also buy the curve, thus squeezing yields lower and forcing others out of lower yielding assets and into higher yielding assets. Post the last Fed announcement of QE ‘Infinity’, Treasuries have actually rallied. The Japanese experience tells us that rates can, and will, stay low for much longer than people expect.

Mena region bonds have a number of things going for them today, includingabundant liquidity, globally and locally; a regional economy strengthened by a higher than expected oil price and extensive infrastructure and social spending; and credit that remains on the cheap side because of a lack of understanding about the strategic nature of certain credits to the underlying economy and the support that it is likely to receive in the event of a problem.

In this poorly understood, under-allocated and inefficiently researched market, there is still alpha to be captured by managers who are resourced, on the ground, and know their markets and their craft intimately. Expect 5-7% returns in 2013.

NBAD partners with Gemini to launch two Ucits Mena Funds

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The National Bank of Abu Dhabi (NBAD) and Gemini Investment Managers have partnered to launch two new funds on a Ucits IV-compliant platform. The open-ended funds, one covering fixed income and the other equities, will be overseen by Gemini Investment Managers on behalf of the National Bank of Abu Dhabi, and will be domiciled in Ireland.

The NBAD Mena Dividend Leaders fund is being seeded with $60m and the NBAD Mena Bond Fund is being seeded with $100m. The new bond fund will launch on 25 March, and the equity fund will follow two weeks later. Both funds will be targeting an AUM of $1bn over a period of three years.

A further $200m will be transferred into the bond fund over in the next few weeks from the NBAD Cautious Income Fund, subject to regulatory approval from the UAE, according to Stuart Alexander, Gemini Investment Managers’ managing director.

The bond fund will replicate the UAE-domiciled $250m NBAD Cautious Income fund launched in March 2012, and will have a target yield of 6.6%.

Mark Watts, head of fixed income at NBAD, will be the portfolio manager for the NBAD Mena Bond Fund and Saleem Khokhar, head of equities at NBAD will be the portfolio manager for the NBAD Mena Dividend Leaders fund.

“The reason that NBAD has decided on Ucits funds is that the platform has a global call, because you can buy Ucits throughout the Middle East, Europe and the UK. As a result, for fund managers launching a product on to the market, Ucits are more attractive,” Alexander told Mena Fund Manager magazine.

“We are targeting investors from the wealth management intermediary market in the UK,” he added. “In the past, investors would not have looked at these areas to invest in, for the simple reason that the funds were not available – the markets were not developed. However, now they are significantly more developed, with strong high liquidity in these markets.”

MENA Fixed Income: Where do we go from here

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Mena fixed income funds enjoyed strong returns last year, but can this continue in 2013? Usman Ahmed of Emirates NBD Asset Management – winner of Fixed Income Fund of the Year at Mena FM’s recent Performance Awards – outlines the investment case.

Despite the strong run up in bond prices in 2012, fixed income continues to be an asset class favoured by investors in the Mena region, although perhaps viewed with slightly more caution than last year.

There are a number of factors that are present in the market that support the continued growth of this asset class, helping to underscore the rationale for maintaining an allocation to Mena fixed income as part of a global portfolio.

Compelling relative value proposition

First and foremost, the Mena credit proposition still offers value, especially when compared with other emerging market debt issues. Despite the narrowing of spreads, regional sovereigns still trade at a discount to other emerging market credits, even though they exhibit higher credit ratings and stronger balance sheets. As an example, sovereign paper issued by Qatar and the Philippines both offer similar yields, even though Qatar is rated AA while the Philippines is BB+ (a difference of eight notches).

Additionally, when the Mena region is compared to the developed world, yields look attractive: Qatar returns almost 1% more when compared to similarly rated developed market bonds.

Attractive yields

Investors are continuing to search for yield, with that search becoming ever more challenging. Credits in the Mena region still have attractive carry, as evidenced by the funds managed by Emirates NBD Asset Management. A full year dividend payment of 5% was announced in December 2012 for the Emirates MENA Fixed Income Fund and 4% for the Emirates Global Sukuk Fund. Mena issuers are sound from a credit standpoint as a whole, yet are somewhat penalised in terms of the spreads they have to pay in the new issue market, which works to an investor’s benefit.

Strong liquidity and technical factors in the market

The market is still nascent. However, the region has seen a strong pipeline of new issuance in the last few years, with most issues well oversubscribed.There have also been a number of groundbreaking transactions, which highlight the further development of the fixed income market in the region. Issuers are now tapping the debt capital markets regularly as an additional source of funding, creating yield curves across the credit rating spectrum.

Among the recent landmark transactions was the first Tier 1 perpetual issue in the region from ADIB, which was 15 times oversubscribed, with the issue trading very strongly in the secondary market. More recently, the Government of Dubai issued a 10-year Sukuk and its first ever 30-year public benchmark on the same day. The new 10-year issue re-priced the yield curve, and reverse enquiry led to the 30-year issue, which is the first ever “unrated” 30-year public USD benchmark.

The 10-year attracted a record order book of $11bn and the 30-year $4bn, from a high quality and diversified investor base, allowing both issues to price at tight levels. In the current environment of declining deposit rates and relatively cautious investor appetite for equities, we expect to see continued strong appetite for attractively priced issues.

Strong institutional relationships allow the best access to the new issue market. Against the backdrop of this buoyant new issue market, it has been difficult to participate in these issues as a smaller investor. Issues are many times oversubscribed and the smaller investors struggle to obtain adequate allocations. In this climate, institutional investors fare better – the Emirates MENA Fixed Income Fund subscribes to attractive new issues that are selected by the investment team and, due to Emirates NBD Asset Management’s strong institutional relationships, developed over the years, the fund has received favourable allocations. Demand will continue to remain strong, in the Sukuk space in particular, due to a growing Islamic investor base having a somewhat limited universe from which to choose.

Diversifying opportunity set

Ultimately, the regional credit market is still maturing and we expect to see a strong pipeline of issuance from non-financial and non-sovereign issuers over the next few months. This will further broaden the opportunity set for investors across the maturity and credit quality spectrum. While many individual investors find it difficult to analyse the risks and opportunities in the market successfully, a professional fund manager with his experience and team of analysts, is able to do this in a proper and disciplined manner, and invest accordingly.

Conclusion

The Mena fixed income market should continue to offer strong value coupled with low volatility. The Mena fixed income funds managed by Emirates NBD Asset Management have consistently outperformed their benchmarks, with strong absolute returns for the funds over a 12-month period. Although market performanceduring 2012 was impressive, there remain compelling arguments as to why Mena fixed income should still be part of an investor portfolio and why we haven’t seen the last of this growing asset class.

 

Mena fixed income ‘to remain strong’ in 2013

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Mena debt markets performed strongly and consistently in 2012 and will continue to favour the investor next year, according to Mohieddine Kronfol of Franklin Templeton.

Kronfol, who is Chief Investment Officer (Global Sukuk and Mena Fixed Income) at the firm, said that Mena debt had performed particularly well in the second half of 2012, against the backdrop of problems in the Eurozone and a slowdown in China.

“In 2012, performance of Mena debt markets, particularly the GCC, was strong and consistent throughout the year,” wrote Kronfol in a report to investors. “Returns for GCC debt of 11.62%, measured by the Citi MENA Broad Bond Index GCC, are on track to become the strongest since 2009. Regional debt and sukuk markets have also delivered competitive risk-adjusted returns when compared to global fixed income sovereign and credit indexes, namely the Citi World Government Bond and Barclays Capital Global Aggregate Indexes.

“Fundamental improvements across several GCC debt markets as well as resilience to international market turbulence have positioned the asset class to increasingly benefit from international investor demand and be recognized as an attractive and sustainable investment destination.”

The successful restructuring of Dubai Holding bank debt, and the payment of DIFC and JAFZA sukuk maturities, demonstrated the region’s economic strength and boosted investor confidence, he added.

Looking forward to 2013, oil prices and political risks remain factors to concern investors, but the debt dynamics in the GCC remain the strongest in the world, said Kronfol.

“The outlook for hydrocarbon prices are expected to support expansionary fiscal policies and economic growth,” he concluded. “The risk of assuming contingent liabilities is receding while liquidity is improving. Although bond and sukuk prices have rallied and spreads have compressed over the past few years, Mena/GCC debt continues to offer value and remains under-allocated in global, emerging market and regional portfolios. The supply-demand imbalance will therefore continue to favor investors.”