News https://www.la-francaise.com/ RSS La Francaise Group en La Française Tue, 22 Jun 2021 00:36:18 +0200 Tue, 22 Jun 2021 00:36:18 +0200 news-2457 Fri, 18 Jun 2021 14:31:14 +0200 Great Expectations? /en/who-we-are/news/detail/great-expectations/ Investors have been enthusiastic about economic recovery plays including many value equities, but is too much optimism baked into these stock prices? The data shows that investors may have great expectations for this segment of the market, while those companies that continue to grow year in and year out are less in favor.

Performance vs. Fundamentals Year to Date

  • Year to date, value stocks, which tend to have more exposure and leverage to the economy, have outperformed growth stocks, which are generally driven by more secular forces, independent of the economic cycle, such as e-commerce or digital payments.
  • Much of the appreciation in value indices is based on expectations of a revenue and earnings snap-back as the economy recovers from the pandemic. Estimates have been rising for value stocks as a result of the gradual return to normalcy in the economy, but it may surprise investors that revenue estimates have actually been growing faster for the Russell 3000 Growth Index than the Russell 3000 Value Index.
  • In the market’s view, many companies that experienced large revenue and profit declines may see improvements in their fundamentals in the coming months. With that now reflected in stock prices to some degree, investors are left to ponder what comes next. When we consider the next five years, we see slower economic growth but faster secular change driven by innovation, an environment we believe is well-suited to growth stocks.
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news-2456 Fri, 18 Jun 2021 09:06:15 +0200 “What is your outlook on European equity for the second half of 2021?” /en/who-we-are/news/detail/what-is-your-outlook-on-european-equity-for-the-second-half-of-2021/ We are still constructive on European equity markets. Fundamentals remain supportive with vaccination finally getting done, economies on the verge of full reopening and corporate earnings looking great thanks to the very low 2020 comparison. Governments will probably be sluggish to unplug support to the economy, which will translate into an abundance of liquidity – usually positive for equity markets. What’s more, the bravest ones like Mr. Biden’s are even discussing adding stimulus. This will make investors more confident about growth – another positive for equities.

Similarly, central banks have pledged not to remove stimulus for the time being. The Fed's first hike will not happen in 2021 but most probably in the second half of 2022. The ECB will keep buying corporate bonds for the foreseeable future: the first program to be wound down will be the PEPP, which is only made of sovereign debt, not corporate bonds. Firms will therefore continue to enjoy abundant liquidity, another positive factor for Equity markets.

Although they are expensive in the US, valuations in Europe are not stretched, especially if looking at risk premium (earnings yield minus German bunds yield). Lastly, equities have historically been a good inflation hedge, which makes them attractive in the current environment.


Disclaimer

This commentary is intended for professional investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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news-2455 Thu, 17 Jun 2021 11:13:08 +0200 Huawei’s new smartphone operating system: Harmony 2.0 /en/who-we-are/news/detail/huawei-s-new-smartphone-operating-system-harmony-2-0/ by Gun Woo, Senior Analyst, JK Capital Management Ltd., a La Française group-member company When the relations between the US and China started degrading under the Trump administration and Huawei felt the weight of sanctions, one subject appeared particularly problematic for the smartphone maker: its reliance on Google’s operating system, Android. At the time, Huawei had announced it had an operating system (OS) ready should it no longer be allowed to rely on Android, although the company backtracked afterwards to say the said OS was not fully commercially ready and adopted Android’s open-source OS, called EMUI, without GMS (Google Mobile Service) support starting September 2020 when the sanctions came in. Huawei has now released its OS, Harmony 2.0, which will be installed on all the Huawei phones freeing the manufacturer from any engagement to Google within the software system.

The release of the OS is quite remarkable as it shows the ability to replace key pieces of software with home developed quality ones. The Harmony OS system is not based on Unix or Android. It is completely independent. Some functionalities look very similar to some patented features of Android or Apple such as some logics, gestures features, or sequences and there could be patent-related uncertainty in the future, especially in the global market. But this is not overly critical at this stage. The most important element to make Harmony a success will now be the app-developer environment. Many applications will likely not work on this OS. Huawei does put forward its own emulator that can easily convert Android apps into Harmony apps, but users of the iOS emulator for the Android OS know the performance is hardly satisfying. The emulator can mechanically change the language, but it will not give it a nice commercial finish or an ergonomic feel. This is why app developers often need to double the efforts and the costs to release versions of their app for the different platforms. It explains also why, for PCs, there are fewer software available for the Mac OS then there are for the Windows OS. In the gaming world, PlayStation and Xbox are the lead actors competing to bring more game developers to their platform. Relatively smaller players like Nintendo have a hard time competing and need to find their own niche in which to thrive without the contribution of many game developers.

Whether app-developers will start working in the Harmony OS environment is the key question.  It all depends on how many end-users the Harmony OS will attract. If the market is deep enough app-developers will eventually invest to have products made for the platform. Many Chinese consumer-electronics companies such as Midea, Haier, Joyoung, and Fotile, have already agreed to use this OS on their consumer electronic devices like washing machines or ovens. However, smartphone makers like Oppo, Vivo, or Xiaomi have not yet. If they do, at least for the domestic market, the Harmony OS may be a success. 

Huawei’s smartphone shipment has already dropped to 4% of the global market share in Q1 2021, from 20% at its peak. At this level, the challenge to launch an OS is very different. Huawei needs other Chinese smartphone makers to adopt it and they may request Huawei to abandon manufacturing altogether as a requisite for their move. But this would only solve the problem for the Chinese market. Globally, Apple’s iOS and Google’s Android are well implanted, and it is hard to imagine a third OS taking significant market share from them and attracting developers. Harmony may need to be something like Nintendo in the gaming world, a niche player with its own environment, features, followers and reasons for existence. Until then, although we salute the technical tour-de-force to have released a completely new and independent OS, it is not the “Get-out-of-jail” free card Huawei needs. At least not yet.

Source: Counterpoint Technology Market Research
 

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news-2453 Mon, 14 Jun 2021 17:29:29 +0200 Federal Open Market Committee (FOMC) June 15-16 meeting: tapering discussion, new economic and policy rate projections (respectively SEP & DOT Chart) /en/who-we-are/news/detail/federal-open-market-committee-fomc-june-15-16-meeting-tapering-discussion-new-economic-and-policy-rate-projections-respectively-sep-dot-chart/ Obviously, we expect the FOMC to keep the federal funds target range steady at 0-0.25%. We also expect the Committee to maintain a combined $120bn per month pace for asset purchases ($80bn per month for Treasury securities and $40bn per month for agency mortgage-backed securities). However, the latest comments by key FOMC members (Kaplan, Harker) suggest that the FED may launch tapering discussions at the upcoming meeting. During the press conference, we do not think FED Chair Jerome Powell will reveal any clues on the committee ’s debate.  Minutes of the June FOMC meeting will be helpful. Mr. Powell is likely to emphasize that tapering is premature since the Federal Reserve remains far from achieving “substantial further progress” especially after consecutive downside surprises in May and April nonfarm payroll count growth. 

To balance the Fed’s tone, Mr. Powell will reaffirm the dovish forward guidance on rates. Hence, we do not believe that the median forecast for the federal funds rate at the end of 2023 will show a 25bp rate hike.

On economic projections, we believe the FOMC will upgrade growth and inflation in 2021 on the back of positive indicators, published since the last meeting in March. For 2022 and 2023, we do not see material change notably on inflation projections. During the press conference, we think FED Chair Jerome Powell will reiterate that high realized inflation largely reflects transitory factors.

In summary, we believe that the FED will try to keep a balanced communication, that is to keep its accommodative monetary policy stance despite new discussions about gradual tapering.

We do not think this meeting will have a significant impact on rates, but it could lead to a moderately steeper curve in US interest rates.


Disclaimer

This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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news-2451 Fri, 11 Jun 2021 14:06:20 +0200 Barkingly Bullish /en/who-we-are/news/detail/barkingly-bullish/ Are you one of the 12.6 million U.S. households that acquired a new pet in 2020? There has been an explosion in pet acquisitions and there are multiple investment opportunities stemming from the strong and persistent growth of the pet industry.

  • As the chart demonstrates, pets are extremely meaningful to Americans, many of whom consider their pets as members of the family. As a result, pet industry purchases have risen steadily, outpacing overall economic growth. This year’s expenditure is estimated at $110 billion in the U.S., up 6% over the prior year, according to American Pet Products Association.
  • Like any family member, pets require medical care. Recently, vets and emergency animal care have reported surges in patients and difficulty managing the increased volume of animals they see. The veterinary diagnostics market is one of the fastest growing segments of the pet industry at over 9% annual growth. The fast growth is driven by increasing household penetration of pets and our attitudes towards them (millennials take their pets to the vet more than 25% more frequently than baby boomers), and by new technological advancements that pull testing from labs to point of care.1
  • The opportunities in the pet industry abound but we believe the most exciting areas benefiting from the pet boom are medication and wellness product providers, vet diagnostics companies, pet food safety testing businesses and high-end pet foods.

1 Heska 2020 Investor Day.

La Française AM Finance Services, in accordance with the terms of an agreement signed with Alger Management, Ltd, is a distributor of the Alger SICAV in Europe.

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news-2449 Thu, 10 Jun 2021 09:38:51 +0200 Market flash : Inflation surprise /en/who-we-are/news/detail/market-flash-inflation-surprise-1/ Inflation: early signs Inflation is now, one of the main sources of concern within the financial market industry. There is indeed a lot of uncertainties regarding the transitory nature of these inflationary pressures.

For several months now, signs of inflation have increased in our economies. One of the most distinct signs of pressure emerged from the commodities market, currently displaying significant price increases within raw materials. Since the end of 2019 (i.e. before the start of the crisis associated with the pandemic), iron ore has increased by 69%, copper by 61%, and nickel by 21%, and these increases are not limited to industrial metals but also affect agricultural raw materials with wheat and corn increasing by 17% and 60% respectively.

The Real Estate market is in a way very similar, it has pushed wood prices to extreme levels (+229% since the end of 2019…) and central banks to consider measures to limit loan access in countries such as New Zealand and Canada. The strong demand for goods (offsetting the closure of a large part of services) also caused a break in the semiconductor supply chains, leading once more to inflationary tension on several categories of goods (Electronics, second-hand cars, etc.)

So far, energy has been the only commodity that has not shown a huge increase over the period (+3.73%), this is mainly due to a sharp decline in commercial flight demand since March 2020.

Implications in the economy

Consequently to these price hikes, production costs are soaring in our economies (US PPI up 9.5% over 12 months, highest since July 2008) which should have repercussions, at least partially, on consumer prices given the current household savings rate.

Since last April, monetary and fiscal policy measures conducted by central banks and governments have been key drivers of this sudden inflation: rate cuts (for central banks still having this possibility) balance sheet size increases, and extensive fiscal stimulus not seen since the post WWII era. It is reasonable to expect monetary policies to become more restrictive, however, this should be done gradually to not “damage” the recovery, even if it implies taking the risk of being a little too late.

If we add base effects to all of this, which also have and will continue to have positive effects on inflation in 2021, the conclusion seems evident: if there is no inflation now, then there will never be, as everything seems aligned for inflation to rebound strongly. Is inflation going to be on average at levels not seen for 15 years in the main developed economies? We lean in this direction. 

Is inflation a momentary effect?

Nonetheless, the most important question today concerns the transitory or non-transitory nature of this inflation. If we listen to the US Federal Reserve’s speech and if we share its interpretations, then yes, this inflation is transitory, and it is unrealistic to hope for greater structural inflation as long as the labour market remains so far from full employment. 

Indeed, it is very likely that much of the inflation we are currently experiencing is transitory. Second-hand car prices will normalise once supply issues are resolved, base effects will naturally disappear, and the US fiscal stimulus may have reached its limits which will limit the further rise in commodities. On the Real Estate side, the transitory nature of inflation would keep these assets’ rate of return under pressure and support their valuation.
The chart below shows that most of the current inflation is coming from sectors severely hit by the Covid-19 crisis. 

Source: CEIC. Goods and services related to Covid-19: Real estates, Second-hand cars, car rentals, airlines tickets, televisions, toys, computers.


Nevertheless, it seems to us that this reflation theme should continue to persist in the current markets and guide the allocation choices of the coming months, for two reasons.

The first is merely psychological and has to do with the fact that future inflation figures will be high and will most likely remain so until at least the beginning of next year. This has historically had an impact on the investor’s psyche.

The second reason concerns the current uncertainty and the fact that no one knows precisely how the prices of the services currently reopening will evolve or what the exact consequences of this crisis will be, both in terms of the countries’ future development choices (ecological transition, infrastructure, digitalisation, etc.) and their choices concerning the way in which they will be financed (new debt, fiscal rebalancing, etc.). That uncertainty, paired with high inflation figures, should keep guiding the financial markets for at least a few more months.

Asset allocation adjustment
The current environment should lead to changes in asset allocations at least for a while, and this movement is already underway.

In this context, we favour companies that will benefit from an inflationary environment, such as banks, which will see their transformation margins increase, or companies that are rather cyclical (raw materials, energy) and well-positioned within their sector, which will be able to pass on price increases to their customers. In terms of support, we favour equities, High-Yield, subordinated financials and emerging debt. Historically, High-Yield and subordinated debt have performed very well in phases of reflation accompanied by strong growth. Good inflation is a positive phenomenon for corporates and high yielding assets.

This phase should also remain very positive for real assets such as real estate, as rental property holdings allow rents to rise during periods of rising inflation, as they are indexed to indices of which inflation is the main component. This concerns real-estate assets held directly, but also indirectly for real-estate held through funds, particularly SCPIs.

The information contained in this document does not constitute investment advice, an investment proposal or any type of recommendation whatsoever to invest in the financial markets. It is provided solely for informational and educational purposes and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The assessments contained herein reflect the opinions of their authors at the time of publication and are subject to change at a later date. These opinions may differ from those of other investment professionals. Please note that the value of an investment may rise or fall and also that past performance results are no indication of future results. Under no circumstances may La Française Group be held liable for any direct or indirect losses resulting from the use of this document or the information contained therein. This document may not be reproduced, transmitted or distributed to third parties, in whole or in part, without the prior written consent of La Française Group. Published by La Française AM Finance Services, located at 128 boulevard Raspail, 75006 Paris,   France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, nº 18673 X, subsidiary of La Française. La Française Asset Management is a management company agreed by the AMF under the number GP97076 on July 1, 1997. For more information, check the websites of the authorities: Autorité de Contrôle Prudentiel et de Résolution (ACPR) www.acpr. banque-france.fr, Autorité des Marchés Financiers (AMF) www.amf-france.org.

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news-2447 Wed, 09 Jun 2021 10:37:58 +0200 The ECB will hold its quarterly monetary policy meeting on June 10th. /en/who-we-are/news/detail/the-ecb-will-hold-its-quarterly-monetary-policy-meeting-on-june-10th/ Please find below what we expect:
  • We expect the ECB to keep its interest rates at record lows.
  • We expect no significant change in the Pandemic Emergency Purchase Programme (PEPP) and no indication that the program will be wound down before March 2022. In terms of wording, we think that the ECB could commit to “higher” PEPP purchases in Q3 while stressing flexibility during the summer months. Previous wording was « significantly higher », which translates into a modest slowdown in Q3 vs Q2.
  • We expect communication on the potential end to the PEPP to be postponed to September.
  • We expect the inflation and growth outlook to materially change, reflecting the reopening of economies, the vaccination roll-out and higher commodity prices:
    • On the inflation front, the ECB previously estimated that inflation would peak in the last quarter of 2021 at 2%; we expect this figure to be revised higher, to around 2.8%. We expect Ms. Lagarde to insist that inflation pressures will prove to be temporary. 
    • Changes could be less pronounced on the growth side. We expect the ECB to wait for more evidence that growth is really accelerating before revising its 4% 2021 growth target higher. Nonetheless, we expect the ECB to forecast 2021 growth at 4.2%.
  • We also expect Ms. Lagarde to communicate about climate risk and how ignoring climate risk would be dangerous for central banks.
  • Finally, Ms. Lagarde could repeat Ms. Schnabel’s communication regarding rising yields:  “Rising yields are a consequence of investors becoming more optimistic and this is precisely what  we want to see.“
  • We think that the ECB will postpone the difficult decision to September and keep all options open. Thursday’s meeting should be a non-event.

    Disclaimer

    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
     

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    news-2439 Mon, 07 Jun 2021 11:15:40 +0200 Notice: "La Française Rendement Global 2028 Plus" sub-fund of the "La Française" SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2028-plus-sub-fund-of-the-la-francaise-sicav-governed-by-french-law/ We would like to inform you that the management company La Française Asset Management has decided to make a modification to the regulatory documentation of the “La Française Rendement Global 2028 Plus” sub-fund of the “La Française” SICAV concerning the temporary purchase and transfer of securities, the related guarantees as well as the remuneration generated by these transactions. Thus, transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

    As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

    In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

    Finally, the wording of these sections has been revised for greater clarity.

    This modification does not require the approval of the French Financial Markets Authority and will come into force on 10 June 2021. The regulatory documentation will be amended accordingly.

    The other features of the sub-fund remain unchanged.

    We wish to draw your attention to the necessity and importance of reading the key investor information document of the "La Française Rendement Global 2028 Plus " sub-fund, which is available at www.la-francaise.com.

    Potential investors should read all key investor information documents before making any decision to invest.

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    news-2434 Mon, 07 Jun 2021 10:33:11 +0200 Notice: "La Française Rendement Global 2025" sub-fund of the "La Française" SICAV governed by French law. /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2025-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-7/ We would like to inform you that the management company "La Française Asset Management" has decided to make some modifications to the “La Française Rendement Global 2025” sub-fund of the “La Française” SICAV concerning:
  • the temporary purchases and transfer of securities, the related guarantees as well as the remuneration generated by these transactions;
  • the maturity of the securities.
  • Modifications concerning transactions for the temporary purchase and transfer of securities
  • Transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

    As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

    In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

    Finally, the wording of these sections has been revised for greater clarity.

    • The maturity of the securities.

    The sub-fund will now have the opportunity to invest in securities whose maturities may exceed the sub-fund's maturity date by up to one year. However, the average maturity of the portfolio shall not exceed the maturity date of the sub-fund. Thus, this will be specified in the regulatory documentation:

    "The investment strategy involves the discretionary management of a portfolio of bonds issued by private or public bodies. The fund may invest in securities that mature by 31 December 2026, i.e. one year after the fund's maturity. However, the portfolio's average maturity must not go beyond 31 December 2025.

    This modification does not require the approval of the French Financial Markets Authority and will come into force on 10 June 2021. The regulatory documentation will be amended accordingly.

    The other features of the sub-fund remain unchanged.

    We wish to underline the need and importance of reading the key investor information document of the "La Française Rendement Global 2025" sub-fund, which is available at www.la-francaise.com.

    Potential investors should read all key investor information documents before making any decision to invest.

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    news-2430 Mon, 07 Jun 2021 10:18:49 +0200 Market flash: Inflation surprise /en/who-we-are/news/detail/market-flash-inflation-surprise/ Inflation: early signs Inflation is now, one of the main sources of concern within the financial market industry. There is indeed a lot of uncertainties regarding the transitory nature of these inflationary pressures.

    For several months now, signs of inflation have increased in our economies. One of the most distinct signs of pressure emerged from the commodities market, currently displaying significant price increases within raw materials. Since the end of 2019 (i.e. before the start of the crisis associated with the pandemic), iron ore has increased by 69%, copper by 61%, and nickel by 21%, and these increases are not limited to industrial metals but also affect agricultural raw materials with wheat and corn increasing by 17% and 60% respectively.

    Commodities evolution since 2019

    Source: Bloomberg. Evolution of future contract prices (in $)

    The Real Estate market is in a way very similar, it has pushed wood prices to extreme levels (+229% since the end of 2019…) and central banks to consider measures to limit loan access in countries such as New Zealand and Canada. The strong demand for goods (offsetting the closure of a large part of services) also caused a break in the semiconductor supply chains, leading once more to inflationary tension on several categories of goods (Electronics, second-hand cars, etc.)

    So far, energy has been the only commodity that has not shown a huge increase over the period (+3.73%), this is mainly due to a sharp decline in commercial flight demand since March 2020.

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    news-2426 Mon, 07 Jun 2021 09:38:03 +0200 Notice: "La Française Global Coco" sub-fund of the "La Française" SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-global-coco-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-2/ We would like to inform you that the management company La Française Asset Management has decided to make some modifications to the regulatory documentation of the “La Française Global Coco” sub-fund of the “La Française” SICAV concerning temporary acquisitions and transfer of securities, the related guarantees as well as the remuneration generated by these transactions. Thus, transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

    As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

    In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

    Finally, the wording of these sections has been revised for greater clarity.

    This modification does not require the approval of the French Financial Markets Authority and will come into force on 10 June 2021. The regulatory documentation will be amended accordingly.

    The other features of the sub-fund remain unchanged.

    We wish to draw your attention to the necessity and importance of reading the key investor information document of the "La Française Global Coco" sub-fund, which is available at www.la-francaise.com.

    Potential investors should read all key investor information documents before making any decision to invest.

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    news-2421 Mon, 07 Jun 2021 09:22:54 +0200 Notice: "La Française Carbon Impact 2026" sub-fund of the "La Française" SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-carbon-impact-2026-sub-fund-of-the-la-francaise-sicav-governed-by-french-law/ We would like to inform you that the management company La Française Asset Management has decided to make a modification to the regulatory documentation of the “La Française Carbon Impact 2026” sub-fund of the “La Française” SICAV concerning temporary acquisitions and transfer of securities, the related guarantees as well as the remuneration generated by these transactions. Thus, transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

    As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

    In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

    Finally, the wording of these sections has been revised for greater clarity.

    This modification does not require the approval of the French Financial Markets Authority and will come into force on 10 June 2021. The regulatory documentation will be amended accordingly.

    The other features of the sub-fund remain unchanged.

    We wish to draw your attention to the necessity and importance of reading the key investor information document of the "La Française Carbon Impact 2026" sub-fund, which is available at www.la-francaise.com.

    Potential investors should read all key investor information documents before making any decision to invest.

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    news-2417 Mon, 07 Jun 2021 09:11:30 +0200 Notice: "La Française Global Floating Rates" sub-fund of the "La Française" SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-global-floating-rates-sub-fund-of-the-la-francaise-sicav-governed-by-french-law/ We would like to inform you that the management company La Française Asset Management has decided to make a modification to the regulatory documentation of the “La Française Global Floating Rates” sub-fund of the “La Française” SICAV concerning temporary acquisitions and transfer of securities, the related guarantees as well as the remuneration generated by these transactions. Thus, transactions for the temporary transfer of securities (securities lending, repurchase agreements) may now be carried out up to a maximum of 60% of the sub-fund's assets, instead of the 50% maximum as was previously the case.

    As part of these transactions, the UCI will now be able to receive/pay financial guarantees in the form of a transfer of full ownership of securities and/or cash instead of cash only.

    In addition, it has been specified that the entirety of the generated direct and indirect operating costs will be borne by the management company. The share of these costs may not exceed 40% of the income generated by these transactions.

    Finally, the wording of these sections has been revised for greater clarity.

    This modification does not require the approval of the French Financial Markets Authority and will come into force on 10 June 2021. The regulatory documentation will be amended accordingly.

    The other features of the sub-fund remain unchanged.

    We wish to draw your attention to the necessity and importance of reading the key investor information document of the "La Française Global Floating Rates" sub-fund, which is available at www.la-francaise.com.

    Potential investors should read all key investor information documents before making any decision to invest.

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    news-2415 Tue, 08 Jun 2021 07:59:00 +0200 La Française innovates and joins the IZNES platform /en/who-we-are/news/detail/la-francaise-innovates-and-joins-the-iznes-platform/ La Française, a management group with more than 55 billion euros in assets, has joined IZNES, the pan-European investment platform for UCI (Undertakings for Collective Investment) units and Blockchain record-keeping. As a member of the working group since the project’s launch in 2017, La Française has actively contributed to the creation of IZNES and now, following the successful completion of an extensive test phase, has referenced on the platform a first investment vehicle, LF Trésorerie ISR, the group’s "flagship” money market fund with close to 8 billion euros in assets under management (as at 24/05/2021).

    In doing so, La Française is able to offer its institutional clients the option of adopting a new, simplified customer experience. All fund subscription or redemption operations can in fact be carried out in real time. The platform offers a variety of advantages to La Française's institutional investors:

    • Access to a comprehensive product database, with all the features and documents relating to the funds;
    • Ability to view subscriptions and redemptions in real time, with cut-off times very close to those of the prospectus;
    • Access to recordkeeping updated in real time and registered in blockchain, guaranteeing immutability and traceability.

    Thierry Gortzounian, Chief Operating Officer of La Française AM Finance Services declared: “La Française places the client at the heart of its strategy. Following the launch of our own digital distribution platform dedicated to retail investors, La Française continues to innovate in the interest of its investor base and has joined the IZNES platform. We can now offer our institutional clients, in France and across Europe, an alternative subscription channel. We operate in an ever-changing environment and are proud to have participated in this innovative project called IZNES".

    Asset class: Money Market
    Fund and Units: La Française Trésorerie ISR/ I units
    ISIN code: FR0010609115
    Horizon: More than 3 months
    Risk and return profile on a scale of 1 to 7 (7 corresponds to a higher risk and a potentially higher return): 1 (associated risks: discretionary risk, interest rate risk, credit risk, risk of capital loss, counterparty risk)

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    news-2414 Tue, 08 Jun 2021 10:08:00 +0200 La Française’s BCO Regional Award-winning Edinburgh refurbishment project runs for June National Awards /en/who-we-are/news/detail/la-francaises-bco-regional-award-winning-edinburgh-refurbishment-project-runs-for-june-national-awards/ La Française Real Estate Managers’ refurbishment project at 10 George Street, situated within the Edinburgh New Town World Heritage site, was awarded the British Council for Offices’ (BCO) Regional Award for Scotland in the Refurbishment/Recycled Workspace category in 2020. It is now going forward to the National Awards scheduled on June 10, 2021. The British Council for Offices' (BCO) mission is to research, develop and communicate best practice in all aspects of the office sector. The BCO is part of the Property Industry Alliance (PIA) and supports its best practice framework for a responsible real estate industry.

    The asset management project entailed the refurbishment of 10 George Street, bringing it up to modern office standards and creating a flexible design that allows any combination of multiple or single tenancy. The focus of the project was on the intelligent reuse of much of the existing structure and adding 15% of additional space, thus meeting modern office demand in a central location. Previously, the building suffered from poor daylight and an inefficient floorplate.

    Following the retrofit, the building offers a spacious and luminous environment conducive to better collaboration and communication. The replacement of the curtain walling and mechanical and electrical systems has brought the building up to modern energy-use standards by decreasing heat loss and solar gain.

    The installation and optimization of modern equipment, namely Energy Efficient Heat Recovery VRF air conditioning, contributes to controlling energy consumption. The building, given the thermal comfort, acoustic performance, reduction of CO2 emissions, energy monitoring, etc. targets a BREEAM rating of Very Good.

    The project was undertaken on behalf of La Francaise’ client Sampension KP, and the project team included Reiach and Hall as Architect, Buro Happold as structural, mechanical and electrical designers and Cushman & Wakefield as project managers.

    Peter Balfour, Investment Director, La Française Real Estate Managers-UK, concluded, « Keeping in line with our holistic approach, La Française, as a committed investor, paid particular attention to reducing the building’s negative externalities, especially its CO2 emissions, while offering flexible, bright workspace and external terraces with views across the City. We are pleased to have given new life to an obsolete building, making a positive contribution to the urban landscape in a World Heritage location and providing an energy efficient office building.”
    Lyle Chrystie, Director of Reiach and Hall Architects said, “It was a pleasure to support the La Francaise vision to redevelop the building as a new sustainable office. The re-launch of 10 George Street marks the successful completion of the refurbishment of a tired and dated 1990’s office Building in the heart of the Edinburgh World Heritage Site.

    The key measure was the re-invention (instead of replacement) of the tired space which has achieved very significant embodied carbon savings and the new systems have enabled a formerly energy hungry building to now operate in a sustainable way. We are delighted the BCO have chosen to reward the client and our team’s sustainable approach with a regional BCO award and with its current shortlisting for a national award.”
    Environmental and societal challenges are opportunities to reconsider the future. Identifying drivers of change and understanding how they will fashion global growth and ultimately influence long-term financial performance is at the heart of La Française’s mission. The group’s forward-looking investment strategy is built upon this conviction.

    Organized around two business lines, financial and real estate assets, La Française has developed a multi-boutique model to serve institutional and retail clients in France and abroad.

    La Française, aware of the importance of the extensive transformations occurring in our increasingly digital and connected world, has created an innovation platform which brings together the new activities identified as key businesses of tomorrow.
    La Française has 55 billion euros in assets under management as at 31/03/2021 and has operations in Paris, Frankfurt, Hamburg, London, Luxembourg, Madrid, Milan, Hong Kong and Seoul.

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    news-2412 Tue, 01 Jun 2021 12:10:05 +0200 Understanding climate-related risks is not only about forecasting the worst, it is also about knowing what to do when it happens: the Taiwan drought /en/who-we-are/news/detail/understanding-climate-related-risks-is-not-only-about-forecasting-the-worst-it-is-also-about-knowing-what-to-do-when-it-happens-the-taiwan-drought/ by Mu Huang, Middle Office Manager, JK Capital Management Ltd., a La Française group-member company The unexpected Covid outbreak in Taiwan is not the only factor currently troubling the islands’ chipmakers. Taiwan has been facing its worst drought in more than half a century and it is having a more enduring effect on the semiconductor industry and the island’s economy than people initially anticipated. 

    Many of the island’s water reservoirs are currently at less than 20% of their capacity, with water levels falling below 10% for some, including reservoirs that are the primary sources of water for science parks. 

    The water shortage also impacts hydropower generation. Although hydropower only accounts for 2% of Taiwan’s energy generation mix, it is the most ideal energy source to meet sudden increases in energy demand. As the water-power nexus has partially led to rationing, hydropower can no longer be counted on to make up for the excess demand of both commercial and residential users who are now witnessing rolling blackouts across the island. 

    As Taiwan is one of the rainiest places in the world, historically water supply has never been an issue. This was an advantage for chipmakers as advanced semiconductor manufacturing is heavily dependent on a stable supply of high-quality freshwater. As this historical drought hits, the Taiwan government has decided to shut off irrigation across tens of thousands of acres of farmland, in order to prioritise precious water supply for its most important industry, semiconductors. In some cities, the government even started rationing water use by suspending water supplies for two days a week. 

    Meanwhile, the island top chipmakers including TSMC, United Microelectronics and Winbond have also initiated their own contingency plans to deal with the water shortage, including mobilising water trucks. TSMC has ordered over 100 water trucks for USD30m, which may just be the start of an inevitably rising water cost for the company. TSMC’s other contingency plan includes a wastewater treatment plant capable of treating industrial water so it can be reused to make semiconductors. According to the company’s latest sustainability report, it currently uses 156,000 tons of water a day and the treatment plant would be able to generate 67,000 tons of water that would flow back into the chipmaking process by 2024, about 43% of its need. However, the demand for water supply may increase significantly in the future and this may only bring marginal relief. A 200W EUV (Extreme Ultraviolet Lithography) system, which is required for manufacturing 7nm or below chips, requires 1,600 litres of water per minute for cooling down, whereas a conventional DUV (Deep Ultraviolet Lithography) machine which manufactures less advanced chips requires only 75 litres per minute. Therefore, as production focus shifts towards more advanced chips (14mn or below), so will the chipmakers’ needs for water, and in a dramatic way. 

    Despite offering an advanced level of disclosures in terms of ESG (environmental, social & governance) matters, TSMC nonetheless fails to thoroughly assess the potential water supply risk that could lead to operation disruption. In its 2020 CDP Water Security questionnaire, the company found “drought is the primary potential water risk although the likelihood of drought is ‘unlikely’” even though the WRI Aqueduct Water Risk Atlas reveals that many of the company’s foundries are located in medium to high water stress areas. 

    This would certainly not be unique to TSMC as other chipmakers and electronics manufacturing companies in Taiwan may soon experience operation disruptions due to water supply shortages and other climate-driven events. The matter may be worse for them as they have fewer resources and competencies to resolve the issue. 

    This is one of the examples where understanding and analysing a company’s ESG related disclosures is critical as it reveals a significant operational risk. We will continue monitoring the Taiwan drought situation and the contingency plans chipmakers are putting in place for the inevitable future occurrences of similar situations.

    Location of TSMC Foundries Clusters

    Source: WRI Aqueduct Water Risk Atlas – May 2021

    Sources:

    •    BBC
    •    NIKKEI ASIA
    •    The Japan Times
    •    GIZMOCHINA

    disclaimer

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2411 Tue, 01 Jun 2021 12:05:27 +0200 India’s dawn of the digital payment era /en/who-we-are/news/detail/indias-dawn-of-the-digital-payment-era/ by Aravindan Jegannathan, CFA, Senior Equity Analyst, JK Capital Management Ltd., a La Française group-member company Over the past week “Paytm”, India’s third largest e-commerce payments platform announced its plans to go public later during this year with an expected listing date in November 2021 coinciding with Indian festival Diwali. Paytm established itself as a platform for online bill payments and mobile recharge in 2009. It introduced the mobile wallet in 2014. The IPO process is expected to start in late June or early July this year. As per market estimates, Paytm is looking at an estimated valuation of USD25-30bn and expects to raise ~USD2.5-3bn which could potentially make this deal the largest ever capital fund raising in the history of Indian equity markets. 

    The company raised USD1bn in November 2019 in its latest financing round led by T. Rowe Price valuing the company at USD16bn. Paytm's IPO debut is expected to include a mix of new and already existing shares to meet the regulatory requirements. According to SEBI's regulations, 10% of the shares will have to be floated within two years while 25% will have to be within five years. Paytm’s revenues rose by 1.3% to INR36,280mn (USD500mn) while its losses declined by 40% to INR29,420mn (USD405mn) in FY20. 

    As per research firm Bernstein’s pre-IPO primer, Paytm's revenue base is expected to double to USD1bn by FY23 driven by strong growth in non-payments revenue which is expected to grow at 87% CAGR and contribute to 33% of revenues from current 20%. Paytm, a start-up based in Noida is currently backed by investors like Berkshire Hathaway, Softbank Group and Alibaba’s Ant Group. Ant Group is the largest investor in Paytm with a 40% stake.

    As per RedSeer Consulting, a major Private Equity, Internet and Growth Focused advisory based in India, digital payments are expected to grow by 3x from INR2,162tn (USD30tn) in FY20 to INR7,092tn (USD97tn) in FY2025. Within digital payments, mobile payments that currently account for 1% of digital payments at INR25tn (USD34bn) are expected to reach 3.5% of digital payments or INR250tn (USD3.5tn) by FY2025. The total mobile payment users who currently stand at about 160 million are expected to reach to around 800 million users over this period which is expected to create a strong growth opportunity for payment platforms in India. Digital and mobile payments in India have been growing alongside smartphone penetration which has risen from 2% in 2005 to 26% in 2015 and currently at 32% in 2020. This is expected to reach 36% by 2022. 

    We are closely watching the payments landscape in India and will evaluate the investment opportunity at the time of the IPO. We remain optimistic about the growth opportunities within this space while remaining watchful of the valuation and the competitive landscape. As per National Payments Corporation of India (NCPI) data as on February 2021, PhonePe (Walmart) processed 42.5% of all mobile payment transactions, while Google Pay processed 36.1%. Paytm is ranked number 3, accounting for a 14.8% market share, followed by Axis Bank App’s at 2.8% market share and Amazon Pay at 1.9% market share. The NCPI has set out new guidelines for digital payment apps limiting their share in the overall volume of transactions at 30% in a bid to enforce parity in the country’s fast-growing digital payments industry. The new rules, effective from the quarter beginning January 2021, also provide existing players with dominant market shares with a window of two years for compliance, in order to minimise friction for customers as per the regulatory body NCPI which is an umbrella organisation under the Reserve Bank of India.

    Sources:

    https://community.nasscom.in/communities/digital-transformation/fintech/india-digital-payments-2020-launching-the-first-adoption-index-time-is-now.html
     
    https://www.businesstoday.in/current/corporate/paytm-raises-usd-1-billion-to-become-india-most-valued-startup-takes-valuation-to-usd-16-billion/story/390928.html 
     
    https://www.financialexpress.com/industry/digital-payments-market-in-india-likely-to-grow-3-folds-to-rs-7092-trillion-by-2025-report/2063132/ 
     
    https://inc42.com/features/can-fintech-giant-paytm-give-india-its-biggest-ipo/ 
     
    https://www.businesswire.com/news/home/20201110005992/en/2020-Indian-Mobile-Payments-Market-Analysis-5X-Growth-by-2025---ResearchAndMarkets.com 

    disclaimer

    Informative Document for professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2410 Fri, 21 May 2021 14:22:20 +0200 Best of Both Worlds? /en/who-we-are/news/detail/best-of-both-worlds/ Here is a riddle for you: what grows faster in middle age than in its youth? We believe the answer is mid cap stocks. Mid cap companies have historically produced enviable results relative to younger/smaller cap companies (as well as more mature larger cap companies).

    • U.S. mid cap equities have significantly outperformed both large and small caps over the past several decades. We believe this may be because mid cap stocks are in the “sweet spot.” They are beyond the perils of infancy because they may have more seasoned management teams and proven business models yet still are small enough to have more robust revenue growth than large caps.
    • In our view, the middle of the equity capitalization spectrum is a fertile place for active managers compared to the large end when considering its higher active share (87% vs. 73%)1 and scarcer analyst coverage (11 per stock vs. 21)2. This has historically resulted in higher alpha.
    • With mid cap stocks comprising less than one-eighth of U.S. mutual fund and ETF equity exposure, according to Morningstar data, investors may want to consider adding to what may potentially be an investing sweet spot.

    1 eVestment.
    2 FactSet.

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    news-2407 Thu, 20 May 2021 10:28:56 +0200 Does remote working favour office markets in German B-cities? /en/who-we-are/news/detail/does-remote-working-favour-office-markets-in-german-b-cities/ By Virginie Wallut, Director of Real Estate Research and SRI. Remote working, at least two days per week, will no doubt trigger a geographic splintering of the real estate market. B-city markets, recognized for their better quality of life, are likely to attract the workforce of tomorrow.  

    Historically, B-city markets have behaved more defensively and generated more stable returns over the long term. The below graph illustrates how the demand to supply ratio (an indicator of market tightness) has evolved over time. A low ratio indicates an undersupplied market (owner’s market). A high ratio indicates a market where demand may struggle to absorb supply (tenant’s market).


    Supply/demand ratio in selected cities in Germany

     

                                                

    Source : CBRE, PMA, La Française REM Research

    Historically and especially during times of crises, B-city markets have been more balanced, with demand proportionate to supply. This situation is likely due to more restrictive financing conditions for developers in regional markets and therefore to fewer speculative construction projects. B-city property markets are generally speaking better positioned to manage a decrease in demand and absorb more swiftly any oversupply which would be due to the time lag between construction and delivery. In 2020, the overall volume of take-up declined less in B-cities than in A-cities because of their economic fabric. B-city markets are made up of Small or Medium Sized Businesses or Industries (SMEs and SMIs) that are more agile and proactive in their real estate decisions as opposed to larger groups that drive take-up in A-city markets. Furthermore, while supply has increased relatively moderately in B-cities, 5% y-o-y, it has increased more markedly in A-cities, +20% y-o-y. (Source: CBRE) The above graph reveals, however, that the average supply/demand indicator of A-cities does not correctly reflect certain geographic disparities. A-city center locations present the same defensive behavior as B-cities whereas A-city peripheral locations are much more cyclical and exposed to the economic consequences of crises. The lower supply in A-city central locations is undoubtedly due to the scarcity of constructable property rather than to any reluctance on the part of banks to finance development projects. 

    However, quantitative indicators cannot tell the whole story. The health crisis has accelerated the polarization of office markets. Remote working will not cap the demand for office space, but it will create new needs that cannot be accommodated by the existing office stock for technical reasons. On the one hand, we anticipate an acceleration in the obsolescence of certain office assets that no longer meet user demands. On the other hand, we anticipate a high demand for offices that meet the new expectations of users (i.e., offices that are flexible, sustainable and connected, with a wide range of services, improved accessibility, layouts capable of ensuring satisfactory sanitary standards). Only the most modern offices will be able to respond to these new work patterns. More than ever, the quality of assets is essential. However, B-cities are faced with a lack of state-of-the-art offices. At the end of 2020, only 16% of the office stock in B-cities had been built within the past twenty years. (Source: CBRE) This means that 84% of companies currently occupy buildings that were delivered more than twenty years ago and that are in need of major renovation work in order to deploy hybrid organizations.

    In conclusion, by on the ground investment specialists

    We therefore believe that B-city markets present particularly interesting defensive characteristics in the current phase of the property cycle. Mark Wolter, Country Head - Germany and Managing Director of La Française Real Estate Managers – Germany, added, “The wide heterogeneity of the German market is an asset in this context and is increasingly putting a variety of prosperous B-cities into focus.” However, it is essential to assess the characteristics of assets in light of new user habits in order to avoid unwanted downward pressure on rent levels and property valuations that would naturally arise as tenants vacate obsolete office space. Sandra Metzger, Deputy Managing Director of La Française Real Estate Managers – Germany, concluded, “Building quality is key in today’s changing environment. From our experience, tenants are actively searching for highly flexible, modern and sustainable office space, which is still lacking in most German B-cities. This represents an interesting opportunity for value creation.”

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Real Estate Managers. The portfolio management company La Française Real Estate Managers received AMF accreditation No. GP-07000038 on 26 June 2007 and AIFM accreditation under Directive 2011/61/EU, dated 24/06/2014 (www.amf-france.org).

     

     

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    news-2406 Tue, 18 May 2021 09:34:54 +0200 China bucks the global trend by tightening its monetary policy /en/who-we-are/news/detail/china-bucks-the-global-trend-by-tightening-its-monetary-policy/ by Marcus Weston, Fixed Income Senior Portfolio Manager, JK Capital Management Ltd., a La Française group-member company As global markets continue to nervously track rising commodity prices after the US released its blow out April inflation numbers last week (week of May 10), most governments and central banks appear to be showing much less concern. For now, it appears monetary and fiscal policies in most of the world’s major developed economies will remain on the present expansionary course, at least until we see if the current inflation trend does indeed prove to be ‘transitory’ or not. 

    Once again, the notable exception remains China. Unsaddled with the headwind of uncontrolled virus outbreaks and related industrial lockdowns, China has been the first major country to tighten its post Covid financial policies. Last week, this was further emphasised after People’s Bank of China released its April monthly lending and social financing statistics that not only showed a further decline in credit growth for the world’s second largest economy, but a deceleration that exceeded market expectations. Bank loan growth saw an increase of RMB1.28trn that was well below consensus expectations of RMB1.56trn while the Aggregate Financing to the Real Economy (AFRE) which includes loans and bonds saw a net growth of RMB1.85trn (vs RMB2.25trn expectations). Consequently, China’s M2 money supply came down from +9.4% YoY in March to +8.1% YoY in April. It is now back to the pre-Covid levels of 2018/19.

    A credit slowdown has been well flagged. Indeed, China has been on a deleveraging path since 2018 and the reversal last year was only seen as temporary to deal with the initial effects of Covid. Nevertheless, the recent numbers indicate that the return to normalisation is coming faster than estimated. Looking closer into the figures, the recent slowdown in aggregate credit growth has mostly been driven by slower growth in domestic bond issuance which should not come as a significant surprise given the government’s multiple announcements on tighter lending conditions in the SOE (state-owned enterprise) and property sectors. 

    Typically, aggressive policy tightening should raise some concerns in financial markets, particularly for risk assets like equities and High Yield debt which tend to be more sensitive to lending conditions. However, we believe the High Yield bond market’s benign reaction to the data so far does indicate that investors are well prepared for this policy direction. China property bonds have already priced in the tighter lending policies in recent months after the introduction of the “Three-Red-Lines” rules last year. Given the fact that recent balance sheet data suggests this has driven a deleveraging push for many developers, this could prove to be a positive trend over the medium term for bondholders. It should also be remembered the monetary tightening is coming at a time of resilient economic growth in China. Indeed, the Caixin April composite PMI recorded a rebound to 54.7 in April (up from 53.1 in the previous month). 

    China is doing what most global central banks are still avoiding to do which is to tackle rising inflation early and head on. If global commodity price rises prove to be more lasting and less transitory, then China’s asset markets could be well positioned to weather the oncoming market turbulence.
    Sources: Bloomberg, Capital Economics

    Disclaimer

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2405 Mon, 17 May 2021 09:32:10 +0200 Bet on This? /en/who-we-are/news/detail/bet-on-this/ Three years ago the Supreme Court effectively cleared the way for states to legalize sports betting, unleashing a growth industry. Is this an industry on which investors should place their bets? U.S. Online Sports Betting Gross Revenue

    • The U.S. online sports betting industry is still nascent as it becomes increasingly legal in more states. Using some data from around the world, we believe that its potential may be quite large. If the U.S. market were to mature to the U.K.’s or Australia’s gross revenue per adult, the domestic market would ultimately be more than 20 times larger at $24 billion.
    • The sports betting industry worldwide is projected to grow 14% annually over the next several years. However, the fastest growth is forecasted to occur in the U.S., where progress on stateby-state legalization and technological innovations are expected to drive strong growth of 31% annually.1
    • As the industry grows, we believe there is an attractive opportunity for companies that operate sports betting businesses as well as those that provide technology platforms and data to facilitate wagering.

    1 H2 Gambling Capital via Genius Sports Group.

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    news-2404 Wed, 12 May 2021 10:20:53 +0200 Expediting the development of solid-state batteries in Asia /en/who-we-are/news/detail/expediting-the-development-of-solid-state-batteries-in-asia/ By Gun Woo, Senior Analyst, JK Capital Management Ltd., a La Française group-member company Last week (week starting May 3), during its earnings conference call, Murata, a Japanese electronic component maker, announced that it will begin mass-producing all-solid-state lithium-ion batteries, months ahead of its original plan. This is a surprising and amazing accomplishment as many experts expected the technology would take another 3 to 5 years before reaching a commercial stage.

    Lithium-ion batteries are everywhere: in smartphones, notebooks, electric vehicles…. They are easy to recharge and have big energy density – they are way more efficient than nickel-cadmium rechargeable batteries that were used in the previous decade. In terms of energy density, nickel-cadmium was 100Wh/kg when lithium-ion is 300Wh/kg. 

    What Murata announced last week is the beginning of a new era in battery technology: the solid-state battery. Traditional lithium-ion batteries are filled with liquid electrolyte, a highly flammable compound which leads to explosive risks when a battery breaks open. This liquid electrolyte is expected to be replaced with a solid material which will allow batteries to become both smaller and safer.
    The idea of developing solid-state lithium-ion batteries has been around for decades, but the technical barrier that consists in the lack of movement of lithium ions in a solid electrolyte made the application very difficult. However, after years of research, certain companies started to have breakthroughs. QuantumScape Corporation and Solid Power are some of the companies in the US that have attracted a lot of attention from carmakers including Volkswagen, BMW and Ford.

    Certain Asian companies are also emerging as battery innovators. Murata Manufacturing from Japan is one of them. It is now expected to deliver its first commercial solid-state batteries later this year. Those will however be small in size and primarily used in wearable devices. Another company having had breakthroughs is Hitachi Zosen Corp, another Japanese company which recently announced that it was developing a solid-state battery for larger size applications including aerospace and industrial equipment. In China, Qingtao Energy seems to be leading the race. The start-up that was funded by Tsinghua University has deployed a solid-state battery production line in Kunshan, next to Shanghai, and has already unveiled a 300Wh/kg solid-state battery for electric vehicles. Their technology is planned to be commercialised by the end of 2022. 

    We see a lot of potential in this development and are excited to see it come about earlier than expected. Korean company Hansol Chemical, for example, is developing materials used in solid-state batteries and sells the electrode binder material that is used in all types of lithium-ion batteries. 

    The Taiwanese company Chroma ATE Inc. should also stand to benefit as it produces testing equipment for electric vehicle batteries. If the industry standard was to evolve from lithium-ion batteries to solid-state batteries, demand for Chroma’s equipment would see a significant growth as it did when the transition towards liquid lithium-ion batteries took place. 

    The emergence of commercially viable solid-state batteries is a revolution that will transform the global electric vehicle landscape.

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.
     

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    news-2403 Wed, 12 May 2021 09:29:04 +0200 Should Asian dollar bond investors worry about inflation? /en/who-we-are/news/detail/should-asian-dollar-bond-investors-worry-about-inflation/ By Marcus Weston, Fixed Income Senior Portfolio Manager, JK Capital Management Ltd., a La Française group-member company One word that will always send bond investors into a blind panic is “inflation”. Naturally with any fixed return asset, if the value of money declines, so too will the present value of future cash flows over the long term. Compounding this is the ever-present fear that central banks will aggressively tighten policies to contain inflation by raising benchmark interest rates and creating an immediate near term hit on bond price relative value. 

    Since the middle of 2020, such inflation fears have rapidly gathered momentum across the world. The combination of ultra-easy monetary policy from most of the world’s leading central banks, a virus induced suppression of global upstream production for much of the past 12 months and expectations of a rapid rebound in global consumer demand as countries emerge from their COVID lockdowns has created a perfect environment for prices to rise. Adding to thisn a US Federal Reserve that has clearly taken the view that an inflation overshoot should be encouraged, rather than feared, implies inflation pressure is not likely to go away any time soon.

    As a result, global commodity prices are spiking. In the US, steel prices currently trade at three times their historical long run average. (Source: CNN) Copper prices on the London Metals Exchange have increased 30% since the start of 2021 crossing $10,000/tonne for the first time in 10 years and global food prices are surging with the CRB Food Index also up 42% ytd. (Source: Bloomberg) Even oil, a sector that should be negatively impacted by COVID induced travel restrictions is back to its 2019 levels. (Source: Bloomberg) This all spells a serious worry for global fixed income markets.

    In Asia, Investment Grade (IG) bond prices have generally remained resilient in the face of this massive risk. The Markit Iboxx ADBI Index (which is 85% IG) is down -1.1% since the start of the year, but that only takes the Index back to where it was trading last November. (Source: Bloomberg) For the time being, Fed governor Powell’s comforting words of sustained easy monetary policy have clearly supported demand for Asian investment grade dollar bonds. However, one has to wonder how long this can last. 

    For fixed income investors there are two ways to avoid the ravages of inflation. One is to move to shorter duration where any future interest rate hikes would have a much lower impact on prices and secondly is to move down the credit curve into higher yielding assets that are less sensitive to risk free yields and potentially can even benefit from rising prices if their underlying businesses are exposed to commodity sectors. It would seem Asia’s high yield bond market is uniquely suited to such an environment. With an average maturity of 3.5 years, it is the shortest duration bond market in the world. (Source: Barclays Bloomberg Indices) Meanwhile average yields across B and BB rated bonds in Asia trade at a sustained premium to other developed markets. Against the US, the Asian High Yield (HY) bond premium has actually increased in the past year. (Source: HSBC)    

    In China, construction costs for real estate projects average at RMB3,500-4,000/sqm, of which building materials only represent approximately 55-60%. (Source: JKC research based on various company checks) Even within these raw materials, a large proportion is accounted for by cement which has not seen the same degree of price appreciation in China this year compared to other industrial commodities. Given the average selling price of property across the country is over RMB10,000/sqm, land prices still remain the main cost and therefore the main contributor to developers’ margins. (Source: China National Bureau of Statistics) In other words, it is still the government policy of price caps (both in terms of land sales and finished product prices) that largely dictates the financial health of property companies. As we have seen in recent years, the Chinese government has been extremely proactive in real estate policy, but the overarching motive has been to maintain stability in the sector and critically to force developers to strengthen their balance sheets. On this basis, we believe even if raw material prices did start to pressure the sector’s viability, we would expect a rapid policy response, either by relaxing price caps on properties or, more likely, forcing raw material producers to maintain adequate and fairly priced supply. It is also worth remembering that, in contrast to most of the world’s leading economies, China has continued to maintain a tight monetary policy for the past 12 months indicating they are ahead of the curve in dealing with the risk of rising inflation.

    In summary, we do think inflation is a concern for Asian USD bond investors as commodity prices have reached a level where dollar interest rate policy intervention is only a matter of time. Nevertheless, the characteristics of the Asian HY market with its low duration and high carry provides a way to remain exposed to fixed income assets, particularly if one remains at the short end of the maturity curve.

    Informative Document for professional investors only as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.
     

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    news-2402 Mon, 10 May 2021 14:29:02 +0200 The reality problem of Net-Zero ambitions /en/who-we-are/news/detail/the-reality-problem-of-net-zero-ambitions/ by Roland Rott, CFA, Managing Director of La Française Sustainable Investment Research and Head of ESG & Sustainable Investment Research, La Française Group. Why investors should urgently look at corporate climate strategy.

    In the last twelve months, the number of companies that have committed to Net-Zero carbon emissions has doubled again. An estimated quarter of global CO2 emissions and more than half of global GDP are already part of Net-Zero commitments. However, the gap between the ambition to reduce CO2 emissions to zero in the coming decades and the reality is wide. It is still difficult to determine how such voluntary commitments will lead to target achievement. More clarity is desirable here. 

    Greenhouse gas emissions play a major role in global warming. That is why the private sector has long sought to reduce CO2 in the atmosphere through energy efficiency programs and similar initiatives. The urgency of the climate crisis, however, raises the bar significantly. Due to the Paris Agreement in 2015, more and more countries are articulating their ambitions in this regard. For example, six countries have already enshrined their Net-Zero targets in law, five countries have proposed legislation to this effect, 14 countries have developed guidelines, and many more countries are currently considering introducing Net-Zero targets. The EU, for example, intends to be the first continent to become carbon neutral by 2050 through the European Green Deal. 

    Therefore, in the private sector, reducing CO2 emissions has become a strategic goal that goes far beyond the well-intentioned environmental targets of the past. Today, CO2 reduction is already a priority for many companies and their stakeholders – including shareholders and debt providers. That is because the stakes are significant in the upcoming transformation of the economy toward zero-emissions growth: business models are becoming obsolete, new corporate activities are emerging, adaptations are necessary, and each company must disclose its specific response to climate change. 

    Number of companies per year with science-based target (2015-2020)

    However, due to the voluntary nature of the most Net-Zero commitments, companies may state targets without anchoring them concretely in the business plan. What is urgently needed, therefore, are Net-Zero ambitions that are backed up with science-based interim CO2 reduction targets. What business measures will be taken within the company over the next five years to move significantly closer to the Paris Agreement target? A recent study shows that companies that have set themselves short- and medium-term targets are reducing emissions at a much higher rate than the overall economic average.

    Not surprisingly, banks, insurers and asset managers are increasingly being invited to actively manage climate risks and opportunities in their portfolios. However, at present, a well-diversified portfolio can only be as climate-friendly as the average of the companies listed on the market. The new EU Climate Benchmark has therefore defined, for example, as a requirement that the CO2 intensity of the portfolio must be reduced by 7% each year in order to be compatible with scientific climate targets. Therefore, there is a measurement problem as well as an incentive problem. Investors are well equipped to play a critical role in enforcing the CO2 reduction targets of portfolio companies. This is because methods very similar to those used in financial analysis are needed for investors to sanction metrics such as earnings growth, cash flow and balance sheet ratios. The challenge for investors here is to integrate ESG data and climate research insights into the investment process. It is a demanding and meaningful challenge. Armed with this knowledge, a constructive dialogue between companies and investors will also be able to develop. The greater use of AGM voting rights should provide additional incentives for this engagement.

    Looking ahead, it is expected that significantly improved reporting standards will make it easier for the financial sector to set ambitious CO2 reduction targets for investment portfolios. This increases the pressure on portfolio companies to take concrete short- and medium-term measures and, in the competition for capital, to deliver the urgently needed transformation solutions for Net-Zero 2050 already in this decade.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. 

     

     

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    news-2401 Fri, 07 May 2021 14:21:23 +0200 Is Anyone Feeling Wealthier? /en/who-we-are/news/detail/is-anyone-feeling-wealthier/ Americans are feeling more affluent with their increased net worth resulting from strong equity and housing markets, particularly if they have owned real estate and stocks over the past few years. Given estimates of propensity to spend, this increased net worth could lift spending by several hundred billion dollars and potentially benefit the larger economy. Household Net Worth Surges

    • The chart paints a favorable story in the U.S, where aggregate household net worth is approximately $130 trillion and is estimated to have increased in the first quarter by the most in well over half a century.
    • This is being driven by bull markets in American’s two primary assets: 1) home values, which represent approximately $35 trillion in wealth, are up 10% year over year and 2) stocks, which represent a similar amount, are up much more. Of course, this only applies to Americans who are invested in real estate and the stock market.
    • A 20% increase in countrywide net worth would be about $25 trillion. If 2% of that were spent, as research suggests, we could see $500 billion of incremental spending, adding about 2.5% to GDP.
    • At Alger, we believe economic growth will be robust in 2021. We are finding attractive opportunities among high-quality growth, asset light, innovative companies with exposure to recovering end-markets, such as travel and leisure, aerospace, retail, automobiles and energy.
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    news-2399 Thu, 06 May 2021 16:09:00 +0200 All eyes on inflation /en/who-we-are/news/detail/all-eyes-on-inflation/ By François Rimeu, Senior Strategist, La Française AM The course of inflation over the coming months and quarters is one of the most important subjects for the financial markets, with a lot of uncertainty about how long the inflationary pressures that we are currently experiencing will last.

    Indeed, for several months now the signs of inflation have been increasing in our economies. One of the most obvious signs of this is changes in raw material prices: since the end of 2019 (i.e. before the beginning of the pandemic) the price of iron ore has increased by +133%, copper by +58% and aluminium by +33 % , and these increases have also taken place in the agricultural sector with wheat rising by 27% and corn by 54% (Source: Bloomberg). For now, these increases have mainly had an impact on production prices, but it is very likely that companies will try to pass them on to the end consumer, especially considering the currently high level of savings. Real estate markets are also experiencing strong rises in most of the developed economies, for example in the United States or in Germany where prices have risen by +12% over the last 12 months (Source: Bloomberg).

    These effects are mainly linked to the monetary and budgetary measures that have been taken by central banks and governments over the past year, including across the board rate cuts (or increases in the size of balance sheets), and stimulus plans on a scale which is virtually unprecedented in the post-war period. These effects are also due to the Covid-19 crisis, with a sharp increase in the demand for goods in order to make up for the non-availability of many services.

    Coupled with all this, we must also consider the very important base effects that will impact inflation figures both in Europe and in the United States. US inflation is in fact likely to accelerate sharply over the next two months, with underlying inflation expected to approach 4% and "core" inflation of around 3%; if the base effects then subside, “core” inflation (across the board price rises excluding highly volatile elements such as agricultural or energy sector raw materials) should nevertheless remain at around 2.5% up to the end of 2022, i.e. a more than adequate level for the US Federal Reserve. The European situation is different because even if there too we will see base effects pushing inflation to 2% by the end of the year, it should then rapidly fall back to around 1%.

    The final factor is that some sub-components of inflation seem to being showing signs of a rebound over the next few months, e.g., the real estate component (including rents for rental investments) and also, for example, the used car market. Beyond the already high expectations, we must therefore take into account a non-zero probability that the figures may be higher than our current estimates.

    This rise in inflation, coupled with extremely low real rates at the moment, should lead to an increase in US nominal rates over the coming months. We could well see the 10-year American interest rate at 2% within a few months. 

    DOCUMENT FOR INFORMATION PURPOSES. THIS DOCUMENT IS INTENDED FOR NON-PROFESSIONAL INVESTORS AS DEFINED BY MiFID. The information contained in this document is provided for information purposes only and it does not under any circumstances constitute an offer or invitation to invest, investment advice, or a recommendation relating to any specific investments. The specific information, opinions and figures that are provided are considered to be well-founded or accurate on the date when they were drawn up based on current economic, financial and stock market conditions, and they reflect the La Française Group's current opinions regarding the markets and market trends. They have no contractual value and are subject to change, and they may differ from the opinions of other management professionals. Please also note that past performance is no guarantee of future results and that the level of performance is not constant over time. Published by La Française AM FINANCE Services, whose registered office is at 128, boulevard Raspail, 75006 Paris, France, and which is regulated as an investment services provider by ACPR (“Autorité de contrôle prudentiel et de résolution”) under no. 18673. La Française Asset Management is a management company approved by the AMF under number GP97076 on 01/07/1997.
     

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    news-2397 Mon, 03 May 2021 15:16:17 +0200 “All that glitters is not gold” - William Shakespeare /en/who-we-are/news/detail/all-that-glitters-is-not-gold-william-shakespeare/ By Nina Lagron, CFA, Head of Large Cap Equites, La Française AM Well on its way to limiting global warming to well below 2° C, the European Union has put in place ambitious legislative policy to reduce emissions by at least 60% by 2030 compared to 1990 levels. The European Climate law goes further to propose a legally binding target of net zero greenhouse gas emissions by 2050. Further CO2 emission standards for cars and vans (Regulation EU 2019/631) were set by the European Parliament and put into application as of January 1, 2020. In conjunction with this legislation, the European market is bearing witness to a boom in the sale of new electric vehicles. According to the European Automobile Manufacturers Association, sales of new electric vehicles including all-electric and plug-in hybrids jumped 51.8% to 110,630 in Q3 2019 alone. But is it a case of “green-washing” and what are the hidden environmental impacts of electric vehicles? Do low CO2 emission cars really exist? 

    Environmental impacts

    Transport accounted for 24% of global carbon dioxide emissions from energy in 2018 (Source: IEA), of which passenger vehicles (cars and buses) accounted for 45%. Given the potential for reductions and the corresponding impact on global emissions, the development of electric vehicle technology is essential to reaching climate objectives. 

    However, it is important for an informed decision not to be blind sighted by the promise of zero tailpipe emissions for electric vehicles in full electric mode but rather to consider all the associated sources of greenhouse gas emissions resulting from all direct and indirect sources of CO2 pollution production, referred to as Scope 1, 2 and 3 emissions. These include the emissions associated with the manufacture and the extraction, processing and distribution of energy sources (electric power and fuel). A study published in the journal Nature Sustainability (Vol 3 June 2020, Net emission reductions from electric cars and heat pumps in 59 world regions over time) confirmed that electric vehicle technologies were worthwhile expanding, given the CO2 savings over conventional cars. However, the source of electricity has an effect on the emissions of the electric vehicle, which will vary by geographic area and its use of specific energy sources (i.e., natural gas, nuclear, coal, wind…) for electricity generation. For example, in a study conducted by German scientists and presented at the Ifo Institute on April 17, 2019, electric vehicles, when taking into account the production of batteries and the German energy mix, are said to generate even more CO2 than diesel models. Hence, disparities exist depending on the country and energy source.

    Furthermore, the debate intensifies depending on the technology considered and climate conscious consumers should be weary of over-selling. For example, according to a recent study published by Transport & Environment (11/2020) entitled “Plug-in hybrids: is Europe heading for a new dieselgate?”, three of the most popular plug-in hybrid vehicles (PHEVs) sold in 2019 generated 28 to 89% higher emissions than advertised, in optimal test conditions. Whereas PHEVs boast low CO2 emissions that are generally no more than a third of a traditional combustion engine car, those three vehicles tested by Emissions Analytics, commissioned by Transport & Environment for the purposes of the study, all fell short of their promised carbon emissions savings objectives even when starting with a fully charged battery. And the results fell even shorter of objectives when starting with an empty battery, producing up to eight times more in CO2 emissions than advertised.

    New Green Finance regulations could put a halt to manufacturers advertising PHEVs as “sustainable investments” as early as 2026 and hence accelerate the transition to fully electric vehicles, bringing Europe closer to the climate goal. Some proactive EU member states have already excluded PHEVs from tax breaks, which has resulted in a rise in sales of battery electric vehicles (Source: electrive.com, Is this the end of plug-in hybrid sales in the EU). However, it is important not to lose sight of the fact that the transition to electric vehicles does not always result in large greenhouse gas reductions, since electricity generation is not yet decarbonized. An accurate evaluation of Scope 1, 2 and 3 emissions over the full life cycle of the vehicle is necessary to evaluate on a case-by-case basis electric car manufacturers and their ability to contribute favorably and at the desired pace to limiting global warming to well below 2°C. The availability of accurate data to quantify Scope 1, 2 and 3 emissions is key. 

    In conclusion, keep in mind that all that glitters is not all green!

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2395 Fri, 30 Apr 2021 16:45:19 +0200 Housing Starts on the Rise /en/who-we-are/news/detail/housing-starts-on-the-rise/ Each year over half a trillion dollars of new residential construction is put in place, supporting many millions of jobs. Will new construction be a growth engine?

    Source: U.S. Bureau of the Census.
    Notes: Dark blue line is six-month moving average. SAAR is seasonally adjusted annual rate.

    • While housing starts have tripled off of their lows in 2009 after the Global Financial Crisis, they are still not at what we would consider normal levels. Household growth is increasing, necessitating new homes for many Americans; household growth has recently averaged more than 1.5 million units per year. When we also consider teardowns of aging units and increased demand for second homes resulting from the pandemic, we believe materially higher levels of housing starts are sustainable over the long term. 
    • Interestingly, government-sponsored mortgage loan company Freddie Mac recently indicated there is a housing shortage of 3.8 million units, which means the country will have to produce homes above the level of long-term sustainable demand. Despite an uptick in interest rates, homebuilders such as Lennar Corporation report that the housing market remains robust across the country. Moreover, the S&P/Case-Shiller U.S. National Home Price Index has seen an 11% increase year over year as of January.
    • In our view, companies that are positioned to benefit from this trend may include homebuilders, materials businesses, purveyors of home improvement products, retailers that sell homewares and realtors.
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    news-2393 Wed, 28 Apr 2021 09:33:54 +0200 High Yield Market Update /en/who-we-are/news/detail/high-yield-market-update-1/ The past week was marked by a return of risk aversion due to the increase in COVID-19 contamination in Asia, and more specifically in India. However, macroeconomic data remained positive, notably unemployment figures in the US and PMIs in Europe. On the central bank front, the ECB unsurprisingly left its key rates unchanged and stressed that it remains ready to adjust its purchase programmes to prevent an unwarranted tightening of financial conditions. Against this backdrop, the major equity indices declined with the Euro Stoxx 50 and the S&P 500 posting declines of -0.5% and -0.1% respectively. Despite a slight spread widening (+2bps), the Global High Yield index posted a stable performance over the period.

    disclaimer

    THIS DOCUMENT IS INTENDED FOR PROFESSIONAL INVESTORS ONLY WITHIN THE MEANING OF MIFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel et de Résolution (www.acpr.banque-france.fr) as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF (www.amf-france.org) under no. GP97076 on 1 July 1997.

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    news-2392 Wed, 28 Apr 2021 09:30:18 +0200 Sub debt update by Jérémie Boudinet /en/who-we-are/news/detail/sub-debt-update-by-jeremie-boudinet/ Subordinated debt markets were a bit soft this week due to lower activity on the secondary market and slightly lower liquidity, according to our counterparties. In addition, investors were more focused on the High Yield market, which had a huge number of primary issues. On the perpetual debt side, no primary issuances are noted this week, which is not too surprising given that companies are starting to release their Q1 2021 results. Therefore, we note a sluggish performance over the week, in particular on the €AT1s segment which posted a performance of -0.01%. Corporate Hybrids were -0.12% and Insurance subordinated debt was -0.11% during the week.  We find this situation healthy after the strong appreciation over the last two months. 

    Disclaimer          

    Subordinated debt is suitable for professional investors as defined below. Execution only services can only be provided to professional investors. Retail investors are excluded from the positive target market.
    Professional Investors have the following characteristics:

    • Good knowledge of relevant financial products and transactions
    • Financial industry experience 

    Subordinated debt is not suitable for retail investors unless they have professional investment advice AND the investment is for diversification purposes only or have signed a discretionary portfolio mandate.
    THIS DOCUMENT IS INTENDED FOR PROFESSIONAL INVESTORS ONLY WITHIN THE MEANING OF MIFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel et de Résolution (www.acpr.banque-france.fr) as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF (www.amf-france.org) under no. GP97076 on 1 July 1997.

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    news-2390 Tue, 27 Apr 2021 14:09:23 +0200 India, as the country battles with COVID-19 /en/who-we-are/news/detail/india-as-the-country-battles-with-covid-19/ by Marcus Weston, Fixed Income Senior Portfolio Manager & Aravindan Jegannathan, CFA, Senior Equity Analyst, JK Capital Management Ltd., a La Française group-member company Back in June 2020, India’s sovereign credit rating was hit by a double downgrade. First, Moody’s lowered its rating from Baa2 to Baa3 which was not itself a surprise given that the agency had been holding the Indian rating above the level of both S&P and Fitch for the previous three years. But more crucially they lowered the rating outlook from stable to negative. Two weeks later, Fitch lowered its own BBB- India rating outlook, also from stable to negative. These two actions last summer had effectively exposed India and most of its major corporate bond issuers by bringing the Indian sovereign debt on the cusp of a potential downgrade to junk, something the country had not seen since 2007.

    Given that the COVID outbreak was one of the catalysts of the June 2020 rating actions, there has understandably been rising market concern that the catastrophic growth in COVID cases on the subcontinent in recent weeks could now trigger the downgrade of India below its critical investment grade status. Certainly, the humanitarian disaster currently unfolding in the country with an exponential rise in both cases and fatalities is putting a massive strain on domestic public services, while inadequate social distancing in the country combined with the emergence of highly virulent new strains will almost certainly drive a push for aggressive new lockdowns to contain the spread. 

    The country is indeed facing an unprecedented rise in COVID cases: 2.3 million new cases were reported in the past 7 days only. While a resurgence of COVID in India can be seen across the country, large political rallies throughout five Indian states where elections just took place was undoubtedly a contributing factor. So was the celebration of Kumbh Mela, an important Hindu religious gathering often termed as one of the largest gatherings of human beings on the planet that happens once every twelve years.

    Given this terrifying context, anyone would be expecting Indian markets to be in a tailspin. However, market reaction has been extremely muted so far. Since the start of March India’s benchmark SENSEX Index has fallen just below 3% and, as of the time of writing, remains in positive territory for the year. The Bloomberg Barclays USD Credit India index is also positive for the year, an amazing feat considering the move in underlying US Treasury yields since January. In other words, there are very little signs of market nervousness, let alone panic, for either equities or bonds in India.

    Of course, there are structural explanations for this surprising resilience. For many years India has enjoyed a strong “diversification-bid” as foreign investors wanting exposure to Asia have been forced to overweight Indian securities to offset the dominance of China in pan-Asian markets. A lack of new issuance from India certainly justifies this from a bond market perspective. Meanwhile some recent volatility in certain segments of the Chinese bond market including weakness in State-Owned Enterprise bonds and property developer bonds has further increased the attractiveness of India as a regional counterbalance. Nevertheless, the key question is whether the market is being complacent in overlooking the growing risks in the Indian economy as a strong demand for Indian securities still prevails.

    India has had its fair share of market scares in the past. In 2018, the surprise defaults of IL&FS Investment and Dewan Housing Finance triggered a crash in the non-banking financial companies (NBFC) sector. It is perhaps for this reason that NBFCs are one area where there have been some concerns that this segment could be vulnerable if we saw a massive decline of economic activity as a result of the latest COVID spike. However, we believe the current situation is very different to 2018.

    In late 2018, in the aftermath of the IL&FS fiasco, NBFCs struggled to obtain funding due to the overall market sentiment that prevailed. At the time of the IL&FS debacle, mutual funds were the key providers of liquidity to NBFCs, allowing them to roll over their debt. As major mutual funds also got hit by the IL&FS bankruptcy, funding to NBFCs from mutual funds dried up, triggering panic among NBFCs, their shareholders and their bondholders.

    Today the situation is very different. Both mutual funds and NBFCs have learned from the IL&FS crisis. While mutual funds have systematically reduced their exposure to the NBFC space by being very selective on names with good underlying assets, the NBFCs have also diversified their funding sources, typically through the securitisation of their assets. The NBFCs also realised that borrowing on a short-term basis to take advantage of low rates while lending on a long-term basis was not sustainable. The share of non-convertible debentures and commercial papers which accounted for 54 percent of the total NBFC funding in 2018 dropped to 34 percent in 2020. Albeit paying a hefty price, the sector has now evolved into a more sustainable business model with a proper alignment of asset and liability duration. Growth expectations have also tapered down to high single digits from the high teens growth rate it experienced prior to the IL&FS crisis. Investors and banks have differentiated the good ones from the bad ones with respect to the quality of the underlying assets, the liability mix and the credit rating. From a portfolio perspective, we see strong resilience in our NBFC exposure, both in our equity and fixed income funds.

    We ourselves are not dismissing the market risk and we do believe that the Indian market for both equities and bonds could be exposed to some market volatility in the near term, at least until the latest COVID spike is brought under control. However, in the context of a pan-Asian view, we continue to believe that there is still benefit in maintaining exposure to Asia’s third largest economy on diversification grounds, provided single name positions are carefully managed and monitored.

    Meanwhile regarding the sovereign rating itself, Fitch this week affirmed its BBB- investment grade rating for India following a similar action from Moody’s two weeks ago. While the outlook from both agencies remains negative, it has removed one potential near term risk. In their affirmation rationale, Fitch did acknowledge the recent spike in COVID cases but did not think it could derail the economic recovery of the country.  It remains to be seen if Fitch and indeed market valuations are complacent in looking through the near-term headwinds to focus instead on medium term growth. The next few weeks will be critical to assess the real economic impact of the human catastrophe that is unfolding before us.

    Disclaimer

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2389 Tue, 27 Apr 2021 14:05:08 +0200 FED’s cautious optimism: no rush to move, no specific guidance on tapering /en/who-we-are/news/detail/fed-s-cautious-optimism-no-rush-to-move-no-specific-guidance-on-tapering/ The Federal Reserve (FED) is expected to maintain its dovish monetary policy stance at the Federal Open Market Committee (FOMC), April 27-28 meeting. We expect the committee to upgrade its assessment of the current state of the economy after strong incoming data over past weeks (on employment and on sectors most adversely affected by the pandemic) and thanks to the acceleration of the pace of vaccinations. 

    That being said, we expect the Federal Reserve to stay behind the curve notably because of the level of uncertainty regarding the public health crisis. Chairman Powell will reiterate that members need to see “substantial further progress” on both employment and inflation before normalizing policy. 

    We do not expect the FED to change its communication or offer a guidance on the timing of the taper of their treasury & Agency mortgage-backed security (MBS) asset purchases before the second half of the year (June meeting at the earliest, most likely at Jackson Hole symposium in August). Mr. Powell will also emphasize that Quantitative Easing completion is a necessary condition before the Fed considers rate hikes. 

    All in all, we expect a more optimistic tone, but we do not think it will have a significant impact on markets except if Mr. Powell signals that the time to taper is approaching. But again, we do not see that happening at this meeting.


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2388 Mon, 26 Apr 2021 10:25:24 +0200 ESG Is Here to Stay /en/who-we-are/news/detail/esg-is-here-to-stay/ Investors’ increased emphasis on environmental, social and governance (ESG) practices has inspired many companies to make changes that make the world a better place. Will the collective efforts of investors pay off? Weekly and Cumulative Flows into ESG Funds

    • Investors have increased their ESG investments considerably, as shown above. According to Bank of America, $4 of every $10 of global equity inflows go to ESG. Additionally, nearly 80% of the respondents the bank surveyed are interested in considering ESG in their investments while 29% of 1,000 investors in 2020 said the pandemic has made them believe even more strongly that ESG issues are important.
    • Investors worldwide are adopting or considering ESG integration in a number of ways. One is at the asset management firm level. Another involves excluding investments based on their poor ESG scores. Other investors are engaging in thematic ESG investing in companies with strong ESG practices or impact investing in companies seeking to spur specific ESG change. Importantly, some investors are engaging directly with companies to urge them to improve their ESG practices.
    • With academic research suggesting that negative ESG incidents can predict weaker profits and lower risk-adjusted stock returns, investors may be able to do good for society and their portfoliosbat the same time by allocating to ESG-focused investments.1

      1 Simon Glossner, “ESG Incidents and Shareholder Value,” University of Virginia – Darden School of Business, February 17, 2021
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    news-2385 Fri, 16 Apr 2021 15:58:33 +0200 China’s state-owned asset management sector is unsettled by a surprise delay in China Huarong results /en/who-we-are/news/detail/china-s-state-owned-asset-management-sector-is-unsettled-by-a-surprise-delay-in-china-huarong-results/ by Marcus Weston, Fixed Income Senior Portfolio Manager, JK Capital Management Ltd., a La Française group-member company In 1999, following the Asian Financial Crisis, the Chinese government created four nationally owned asset management companies (AMCs), namely China Huarong AMC, China Cinda AMC, China Great Wall AMC and China Orient AMC, to focus on managing distressed debt accumulated in state owned banks. These entities which were each attached to one of the “Big-4” Chinese banks were initially mandated to acquire and rehabilitate non-performing loans in the Chinese financial system leaving their affiliated banks to focus on their core deposit taking and lending role. This “bad bank” model has been seen successfully applied across the world in both developed and emerging countries and has proved to be extremely effective as a policy of economic risk management.

    China Huarong Asset Management Corporation was incorporated in November 1999 under the Ministry of Finance (MoF). In 2000 it began to purchase Non-Performing Loans (NPL) of Industrial and Commercial Bank of China (ICBC). In 2014, the government introduced strategic investors as shareholders of the company and listed China Huarong AMC on the Hong Kong stock exchange in 2015 although, to this day, the China MoF has maintained a majority ownership and policy control of the entity (63% shareholding). 

    As a result of the economic boom after the 2008 financial crisis, NPL growth in China remained relatively contained while other parts of the domestic financial economy such as shadow banking, private equity and tradable securities markets have seen explosive growth. China’s AMC have therefore seen an opportunity and indeed a need to diversify their mandate beyond the core distressed debt management role to maintain growth. No entity has been more aggressive in this trend than China Huarong which has used inexpensive funding in the domestic and international bond markets to rapidly grow its balance sheet. In 2014 just ahead of its listing, the company’s balance sheet total assets stood at RMB600bn, in mid-2020 that number had grown to RMB1.7trn.

    For the most part, the market has remained relatively unconcerned by this growth. The general market assumption that a 60% MoF-controlled financial institution with a central policy role would always enjoy state backing underpinned its investment grade rating. It allowed the company to raise over USD14bn worth of bonds in the dollar bond market alone in recent years. Even a fraud scandal related to Huarong’s Chairman in 2018 has done little to significantly affect market appetite for Huarong bonds. Its aggressive nature has seen the Huarong curve trade wider than other AMCs. As such it has long been thought of as a cheap way to hold China Quasi-Sovereign risk. 

    However, sentiment seems to be changing. As we have previously mentioned on several occasions in our commentaries, in recent years the government has been explicitly trying to change market assumptions about the domestic SOE sector. Specifically, the government wants investors to understand that all government entities would not enjoy a central bailout if they got into financial difficulties. Historically, it was assumed that non-strategic entities held by local governments would be the only ones impacted by reduced support. However, after the surprise default of some central government owned issuers in 2020 including university issuers owned by the Ministry of Education, the market started to realise that the line in the sand had moved. The concept of strategic importance to the economy has become less clear cut.

    On April 1, 2021, China Huarong surprised the market by announcing that its FY20 results would be delayed. Its shares were, and still are suspended as a result. The reason given for the delay is that the auditors need more time to assess a financial transaction that is still being finalised. Given the unusual nature of such a delay, particularly given that Huarong is one of the largest financial institutions of China, this has led to a large amount of rumours and speculation, mostly surrounding a potential restructuring of the company. It is no secret that Chinese policy makers would like to rein in the risk-taking expansion of Huarong and to consolidate its business back to its core distressed debt management roots. Apart from some anonymous “insider” reports, there have been no official announcements of an impending restructuring, let alone what form it would take. The information vacuum has understandably created a huge amount of volatility in Huarong bonds with the curve falling between 20-40pts since the start of the month. The Investment Grade (IG) nature of the issuer and the existence of leveraged positions in the securities have no doubt added to this volatility. Given the widely held distribution of the bonds, this has had a significant impact on China IG market sentiment in April, with related names such as other AMCs and Chinese financial issuers trading weaker throughout the month. 

    What is really behind the Huarong suspension is still unclear. In our view it would not be surprising if the company did announce some major assets write-downs in their balance sheet considering the volatile economic environment. Similarly, we would not be surprised if the company did announce some form of business restructuring to refocus its operations back to its core strengths. Does this imply Huarong really faces the prospect of central government abandonment and a massive write down of its dollar bonds curve? At this stage we see this as unlikely. As much as a “too big to fail’ moniker in China is less powerful than it used to be, the government has bailed out financial institutions that are much less strategically important to the economy over the past few years. We believe the pragmatic policymakers in China are aware of the economic and reputational damage a failure of an entity as large and important as Huarong would have. Nevertheless, until the government or the company comes out with a clarification on the issue, the sector will continue to trade with significant volatility and we maintain a defensive positioning on Chinese SOE’s in the near term. 

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2384 Fri, 16 Apr 2021 15:43:16 +0200 Cybersecurity to the Rescue /en/who-we-are/news/detail/cybersecurity-to-the-rescue/ In the age of remote working, a cybersecurity program is more important than ever. Internet crime is one of the fastest growing security threats, providing a large and growing market for cybersecurity companies. Companies’ Future Cybersecurity Investments as a Result of the Pandemic

    • In the three years prior to the pandemic, nearly 800 million sensitive records were exposed in the U.S., almost triple the number from a decade ago. However, the issue is even bigger now with remote workers accessing an increasing volume of sensitive material from multiple devices. The majority of companies surveyed by Cisco report a more than 25% increase in cyber threats since the pandemic. As a result, many companies plan to increase cybersecurity investment.
    • A cybersecurity program utilizes people, processes and technology to protect against risks. We believe the most promising solutions to protect critical data are those that leverage cloud computing to be scalable and agile. They can efficiently process massive amounts of data using machine learning and artificial intelligence, thus giving cybersecurity programs an edge.
    • The most successful security companies are those that offer a wide array of offerings by either developing their own products or acquiring other companies. The ability to consolidate several platforms with a single vendor is easier to manage, more cost effective and conducive to analyzing data.

     

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    news-2382 Fri, 16 Apr 2021 09:52:51 +0200 Wait-and-see mode in April before the challenging June meeting /en/who-we-are/news/detail/wait-and-see-mode-in-april-before-the-challenging-june-meeting/ We expect the European Central Bank (ECB) to confirm the current monetary policy course during the April 22 council. The ECB will likely confirm the measures taken in March to accelerate the purchase pace under the Pandemic Emergency Purchase Programme (PEPP) knowing that this pace will be reviewed in June with the updated economic forecasts. Financial conditions have not tightened since the previous meeting, but the general council will keep a close eye on the bank lending survey that will be published on April 20th. 

    Christine Lagarde will keep a very accommodative tone because of the subdued medium-term outlook for inflation despite rising near-term pressures. To keep a broad consensus within the board, she is likely to communicate strongly on the flexibility of the PEPP if financial conditions change significantly in the near future. 

    On the near-term economic outlook, the general council will probably maintain a cautious tone because of high COVID-19 infection rates and the associated lockdowns in various European countries. Looking ahead, the ECB might have a more optimistic view as a result of better economic indicators, the ongoing vaccination campaigns and the brighter international environment. 

    As usual, President Lagarde is expected to highlight the key role of the Next Generation EU package and the importance of it becoming operational without any delay.

    Overall, we do not think this meeting will have a significant impact of financials markets.


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2381 Thu, 15 Apr 2021 09:39:00 +0200 Equity Markets continue on their upward trend /en/who-we-are/news/detail/equity-markets-continue-on-their-upward-trend/ Markets continued their way up, with the US leading the way (and trading at all-time highs) and emerging markets lagging. Due to partial profit taking and some jitters due to the slow vaccine rollout outside the US and the UK, the value rotation partially reversed as the Technology sector outperformed while Energy lagged  (S&P +4.1%, Nasdaq +5.1%, MSCI ACWI +3.1%, Eurostoxx50 +1.2%, Stoxx600 + 1.4%, Nikkei +1.2%, MSCI China +0.3%)

    Earnings season kicks off this week and companies have a lot to prove : Contrary to what we usually see, analysts have been continuously revising estimates up since the beginning of the year, highlighting an overall optimism on the recovery. 

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2380 Thu, 15 Apr 2021 09:41:00 +0200 China’s state-owned asset management sector is unsettled by a surprise delay in China Huarong results /en/who-we-are/news/detail/chinas-state-owned-asset-management-sector-is-unsettled-by-a-surprise-delay-in-china-huarong-results/ by Marcus Weston, Fixed Income Senior Portfolio Manager, JK Capital Management Ltd., a La Française group-member company In 1999, following the Asian Financial Crisis, the Chinese government created four nationally owned asset management companies (AMCs), namely China Huarong AMC, China Cinda AMC, China Great Wall AMC and China Orient AMC, to focus on managing distressed debt accumulated in state owned banks. These entities which were each attached to one of the “Big-4” Chinese banks were initially mandated to acquire and rehabilitate non-performing loans in the Chinese financial system leaving their affiliated banks to focus on their core deposit taking and lending role. This “bad bank” model has been seen successfully applied across the world in both developed and emerging countries and has proved to be extremely effective as a policy of economic risk management.

    China Huarong Asset Management Corporation was incorporated in November 1999 under the Ministry of Finance (MoF). In 2000 it began to purchase Non-Performing Loans (NPL) of Industrial and Commercial Bank of China (ICBC). In 2014, the government introduced strategic investors as shareholders of the company and listed China Huarong AMC on the Hong Kong stock exchange in 2015 although, to this day, the China MoF has maintained a majority ownership and policy control of the entity (63% shareholding).
     
    As a result of the economic boom after the 2008 financial crisis, NPL growth in China remained relatively contained while other parts of the domestic financial economy such as shadow banking, private equity and tradable securities markets have seen explosive growth. China’s AMC have therefore seen an opportunity and indeed a need to diversify their mandate beyond the core distressed debt management role to maintain growth. No entity has been more aggressive in this trend than China Huarong which has used inexpensive funding in the domestic and international bond markets to rapidly grow its balance sheet. In 2014 just ahead of its listing, the company’s balance sheet total assets stood at RMB600bn, in mid-2020 that number had grown to RMB1.7trn.

    For the most part, the market has remained relatively unconcerned by this growth. The general market assumption that a 60% MoF-controlled financial institution with a central policy role would always enjoy state backing underpinned its investment grade rating. It allowed the company to raise over USD14bn worth of bonds in the dollar bond market alone in recent years. Even a fraud scandal related to Huarong’s Chairman in 2018 has done little to significantly affect market appetite for Huarong bonds. Its aggressive nature has seen the Huarong curve trade wider than other AMCs. As such it has long been thought of as a cheap way to hold China Quasi-Sovereign risk. 
    However, sentiment seems to be changing. As we have previously mentioned on several occasions in our commentaries, in recent years the government has been explicitly trying to change market assumptions about the domestic SOE sector. Specifically, the government wants investors to understand that all government entities would not enjoy a central bailout if they got into financial difficulties. Historically, it was assumed that non-strategic entities held by local governments would be the only ones impacted by reduced support. However, after the surprise default of some central government owned issuers in 2020 including university issuers owned by the Ministry of Education, the market started to realise that the line in the sand had moved. The concept of strategic importance to the economy has become less clear cut.

    On April 1, 2021, China Huarong surprised the market by announcing that its FY20 results would be delayed. Its shares were, and still are suspended as a result. The reason given for the delay is that the auditors need more time to assess a financial transaction that is still being finalised. Given the unusual nature of such a delay, particularly given that Huarong is one of the largest financial institutions of China, this has led to a large amount of rumours and speculation, mostly surrounding a potential restructuring of the company. It is no secret that Chinese policy makers would like to rein in the risk-taking expansion of Huarong and to consolidate its business back to its core distressed debt management roots. Apart from some anonymous “insider” reports, there have been no official announcements of an impending restructuring, let alone what form it would take. The information vacuum has understandably created a huge amount of volatility in Huarong bonds with the curve falling between 20-40pts since the start of the month. The Investment Grade (IG) nature of the issuer and the existence of leveraged positions in the securities have no doubt added to this volatility. Given the widely held distribution of the bonds, this has had a significant impact on China IG market sentiment in April, with related names such as other AMCs and Chinese financial issuers trading weaker throughout the month. 

    What is really behind the Huarong suspension is still unclear. In our view it would not be surprising if the company did announce some major assets write-downs in their balance sheet considering the volatile economic environment. Similarly, we would not be surprised if the company did announce some form of business restructuring to refocus its operations back to its core strengths. Does this imply Huarong really faces the prospect of central government abandonment and a massive write down of its dollar bonds curve? At this stage we see this as unlikely. As much as a “too big to fail’ moniker in China is less powerful than it used to be, the government has bailed out financial institutions that are much less strategically important to the economy over the past few years. We believe the pragmatic policymakers in China are aware of the economic and reputational damage a failure of an entity as large and important as Huarong would have. Nevertheless, until the government or the company comes out with a clarification on the issue, the sector will continue to trade with significant volatility and we maintain a defensive positioning on Chinese SOE’s in the near term. 
    Note that JKC Asia Bond 2023 fund has no exposure to the AMC sector. We would wait for a lot more clarity on the situation before we would consider picking up investment opportunities in the segment. 
     

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    news-2379 Wed, 14 Apr 2021 16:21:33 +0200 China’s “Three Red Lines” policy initiative drives credit improvement across Chinese HY property bonds /en/who-we-are/news/detail/china-s-three-red-lines-policy-initiative-drives-credit-improvement-across-chinese-hy-property-bonds/ by Eric TSO, Fixed Income Analyst, JK Capital Management Ltd., a La Française group-member company For much of 2020, one of the dominant themes for the Asian HY market was the government’s introduction of the Three Red Lines (or TRL) policy for Chinese property companies. After many years of robust growth in the sector, the government realized that the systemic importance of real estate companies for both the domestic economy and the health of the financial system meant ensuring stability for the sector was a key priority for policy makers. As we previously reported here, the idea behind the TRL initiative was to persuade the sector to improve its balance sheet health and debt coverage capabilities. Three key performance tests were introduced and for property developers to continue to enjoy free access to debt funding markets they would need to bring their financials in line with these metrics. The policy was first announced in August 2020 and therefore the 2H20 earnings reports have given us the first glimpse to how this policy may have actually impacted financial performance and management discipline. Hence this year’s reporting season has given the market significant insight into the trajectory of the sector for the medium term.

    We have closely scrutinized the financial performance of key China HY property holdings in our JKC Asia Bond 2023 portfolio which represent some of the largest and most systemically important property companies in the country. Our conclusion is not only that there has been a clear observable improvement in credit health in 2H20 but that we believe this can be directly linked to the TRL introduction.

    The main idea of the TRL policy was to reduce leverage, improve debt coverage and increase liquidity. The study of our portfolio holdings’ 2H20 results shows some interesting trends. Firstly, there was a strong acceleration in contract sales which is arguably the first leading indicator of operating cash flows. Admittedly contract sales in the sector has been on a growth path for several years, however the rate of growth in 2020 was particularly strong and impressive considering the 1H saw significant disruption from COVID shutdowns.

    A second observation is across the sector we saw a material decline in gross margin.  Of course, margin compression is not normally positive as it generally indicates land prices have risen faster than average selling prices and certainly the depressed performance of property companies’ equity prices in recent months reflects this. However, while historically lower margins would usually cause managements to slow down their contract sales (to protect their profitability), in 2020 this does not appear to be the case. A combination of strong contract sales and lower margin trends together indicates a broad-based acceleration of the liquidation of land banks and prioritization of cash flow over earnings. For credit investors and particularly those holding short duration paper this is positive as it significantly improves near term debt service liquidity. Furthermore, we also saw many developers slow down their new land capex in 2020 again to the benefit of free cash flows.

    So what has been the impact of these trends on the sector’s overall balance sheet gearing and, more importantly, performance against the TRL policy test? As the tables below show, the execution of credit improvement has been broad-based, in our view.  For the first TRL test (Adjusted liabilities / assets) 90% of the companies saw an improvement between June 2020 and December 2020. For the second test (net debt/equity) 81% saw and improvement and for the third test (unrestricted cash/ST debt) 86% saw improvement. In terms of the TRLs themselves - which are measured from green (passing all three tests) to yellow (passing two), to orange (passing one) and red (passing none) – 10 of the 21 companies under our study saw an improvement in ranking by at least one notch and 4 companies (namely Sunac, Powerlong, Ronshine and Hopson) improved by two notches.  It is perhaps unsurprising therefore that March was the first month, since the COVID crisis that rating upgrades in the China property sector exceeded downgrades.

    Admittedly there has been some underperformers, (Yuzhou and China Aoyuan some notable examples) and we have seen some volatility in those bonds as a result. However, over the long term we continue to believe these trends should prove to be credit-positive as they demonstrate the developers’ willingness to follow government policy to reduce leverage in the sector even if it means some short term impact on earnings growth. We also welcome the fact that some of the most highly geared developers in the sector, such as Evergrande, Kaisa, Sunac and Guangzhou R&F have been some of the most aggressive in reducing debt.

    Our positive view has been shared by S&P, who in their recent report “S&P Global Ratings: Chinese Developers’ Discipline is Policy Induced” drew the similar connection between improving debt growth levels and liquidity position to the “Three Red Lines” policy. According to the report, it is projected that more than 90% of developers will be able to fulfil two of the three requirements by the end of 2021, with at least half fulfilling all three of the red lines.

    China property, given its scale and volatility, will always be a highly sensitive sector for Asian HY investors however as the sector has traded cheaply in recent weeks, we continue to see this as an opportunity for the market as fundamentals continue to improve.

    Table 1: Change in “TRL” credit metrics for key property developers in our portfolio (between June 2020 and Dec 2020)

    Portfolio Company

    Change in Adjusted liabilities/assets

    Change in Net debt/Equity

    Change in Unrestricted cash/ST debt

    Evergrande Group

    -1.9%

    -46.0%

    0.11

    China SCE Group Holdings

    -7.7%

    -10.0%

    0.33

    China Aoyuan Group

    -2.0%

    3.0%

    -0.12

    Shimao Group Holdings

    -2.3%

    -5.0%

    0.1

    Future Land Development

    -2.0%

    -4.0%

    0.56

    Guangzhou R&F Properties Co.

    -1.5%

    -47.0%

    0.16

    Sunac China Holdings

    -3.5%

    -53.0%

    0.47

    KWG Group Holdings

    -2.2%

    3.0%

    0.16

    Yuzhou Group

    -1.9%

    18.0%

    -0.15

    Ronshine Group

    -3.9%

    -22.0%

    0.23

    Kaisa Group Holdings

    -4.3%

    -34.0%

    0.54

    Central China Real Estate

    -0.8%

    -21.0%

    0.16

    Times China Holdings

    1.0%

    -7.0%

    0.53

    Logan Group Company

    -6.2%

    -6.0%

    0.4

    Powerlong Real Estate Holdings

    -3.3%

    -6.0%

    0.24

    Agile Group

    1.1%

    -12.0%

    0.14

    Fantasia Holdings Group

    -3.0%

    -4.0%

    -0.14

    Hopson Development Holdings

    -0.8%

    -12.0%

    0.4

    Modern Land (China) Co.

    -1.4%

    -11.0%

    0.09

    Redco Properties Group

    -0.5%

    12.0%

    0.41

    Zhenro Properties Group

    -0.6%

    -7.0%

    0.03

    Source: Citi Research

    Table 2: Change in “TRL” rating for key property developers in our portfolio           
    (between June 2020 and Dec 2020)

    Portfolio Company

    June 2020

    Dec 2020

    Evergrande Group

    Red

    Red

    China SCE Group Holdings

    Yellow

    Green

    China Aoyuan Group

    Yellow

    Yellow

    Shimao Group Holdings

    Yellow

    Green

    Future Land Development

    Yellow

    Yellow

    Guangzhou R&F Properties Co.

    Red

    Red

    Sunac China Holdings

    Red

    Yellow

    KWG Group Holdings

    Yellow

    Yellow

    Yuzhou Group

    Yellow

    Yellow

    Ronshine Group

    Orange

    Green

    Kaisa Group Holdings

    Orange

    Yellow

    Central China Real Estate

    Yellow

    Yellow

    Times China Holdings

    Yellow

    Yellow

    Logan Group Company

    Yellow

    Green

    Powerlong Real Estate Holdings

    Orange

    Green

    Agile Group

    Orange

    Yellow

    Fantasia Holdings Group

    Yellow

    Yellow

    Hopson Development Holdings

    Orange

    Green

    Modern Land (China) Co.

    Orange

    Yellow

    Redco Properties Group

    Yellow

    Yellow

    Zhenro Properties Group

    Yellow

    Yellow

    Source: Citi Research

    ————————————————————————————————————

    Associated risks: capital loss, counterparty, default, liquidity, operational, country-risk-China, Credit, currency, derivatives, emerging markets, interest rate, investment fund, management, market.

    The investment objective of JKC Asia Bond 2023 is to achieve high income, over an investment period of 7 years from the launch date of the sub-fund. Synthetic Risk and Reward Indicator: 4 on a scale of 1 to 7, seven representing the highest risk / rewards profile

    Associated risks: capital loss, counterparty, default, liquidity, operational, country-risk-China, Credit, currency, derivatives, emerging markets, interest rate, investment fund, management, market.

    The investment objective of JKC Asia Bond 2023 is to achieve high income, over an investment period of 7 years from the launch date of the sub-fund. Synthetic Risk and Reward Indicator: 4 on a scale of 1 to 7, seven representing the highest risk / rewards profile.

    Informative Document for professional investors only as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. Prospective subscribers are urged to carefully and independently review the legal and business documentation, including the latest prospectus (which should be read prior to investing), Key Investor Information Document (KIID) and the annual and semi-annual reports, particularly with regards to the risks involved, and to seek appropriate professional advice where applicable (including regulatory and tax aspects) in order to determine the ability of the product to achieve predefined investment objectives. Published by JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

    JKC Asia Bond 2023 is a sub-fund of La Française Lux (a Luxembourg SIVAV). The prospectus of La Française LUX was approved by the CSSF (www.cssf.lu) on 2021-03-05.

    In relation to the investment strategy mentioned in this document, the latest prospectus, the KIID and the annual and semi-annual reports (whose latest versions are available free of charge on www.la-francaise.com or from our local paying agents (see below) have been published containing all the necessary information about the product, the costs and the risks which may occur.

    Spain: Agent, Allfunds Bank SA, Calle de Los Padres Dominicos, 7 28050 Madrid Spain
    Italy: BNP PARIBAS Securities Services, Via Ansperto no. 5 20123 Milan, Italy


    This is a marketing communication. In Switzerland, the representative is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the paying agent is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, CH-8024 Zurich. The basic documents of the funds offered in Switzerland as well as the annual and, if applicable, semi-annual reports may be obtained free of charge from the representative. Past performance is no indication of current or future performance. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units. Please be aware that this communication may include funds for which neither a representative nor a paying agent in Switzerland have been appointed. These funds cannot be offered in Switzerland to qualified investors as defined in art. 5 para 1 FinSA.

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    news-2374 Thu, 08 Apr 2021 14:14:51 +0200 Under scrutiny: China after-school tutoring /en/who-we-are/news/detail/under-scrutiny-china-after-school-tutoring/ by Steve Zhou, CFA, Senior Analyst, JK Capital Management Ltd., a La Française group-member company China’s after-school tutoring sector has been under increased scrutiny from regulators recently. On 27th March, China's Ministry of Education commented that regulating after-school tutoring activities and reducing students' heavy burden resulting from after-school tutoring will be their top priority.  The comment followed the release of China's 14th Five-Year Plan (2021-25) which included regulating the after-school tutoring sector, and, perhaps more importantly it came after President Xi specifically mentioned during the Two Sessions meeting in early March the need to reduce the burden imposed on students by excessive after-school tutoring.  

    More specific policies came in early March as local governments in Chaoyang and Changping, two districts of Beijing, asked after-school tutoring companies operating there to temporarily suspend offline activities. Local authorities also conducted compliance checks of after-school tutoring institutions including teacher certificates. Currently, most of the after-school tutoring institutions have resumed operations but new requirements were imposed on them including having a custodian bank as a third party to hold the advanced payments of students. Tuition fees will only be transferred to the after-school tutoring institutions when students confirm their attendance.  

    The after-school tutoring sector last saw major tightening of regulations in 2018 which focused on the overall quality of the teachings by strictly imposing that teachers be properly qualified, by imposing rules about the design of facilities, by regulating working hours etc… The current ongoing tightening, even though at this stage lacking specifics, focuses more on reducing the excess academic burden on students. More detailed policies are likely to come out in the near future. 

    Such policies are likely welcome as the burden on students has been increasing over the years to get into the country’s top schools and universities. One of the reasons is the system itself which is purely exam-based. Succeeding on the day of the exams conditions the pupils’ future. A recent survey of 4,000 parents by the state-backed newspaper China Education Paper found that 92% enrol their children in extracurricular classes and that half of families spend more than RMB 10,000 (USD1500) each year on such classes. The pressure on children seems to be constantly mounting. Regulating the after-school tutoring sector is certainly one answer but one cannot help to wonder if the reform should not also be focused on the availability of good schools and universities or on the entire selection process that is extraordinarily selective.  
     

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    news-2371 Thu, 08 Apr 2021 08:58:00 +0200 La Française REM confirms its commitment to sustainable investing /en/who-we-are/news/detail/la-francaise-rem-confirms-its-commitment-to-sustainable-investing/ La Française REM has set a goal of reducing CO2 emissions in accordance with the Paris Agreement to actively participate in the fight against global warming Real estate, as a real asset, has a vital role to play in the transition to a more sustainable economy and a greener world. It plays a pivotal role in the fight against global warming and the energy transition. 

    Aware of its responsibility as leader in the open-ended real estate funds market in France (Source IEIF: in terms of capitalization as at 31.12.2020), notably through its real estate portfolio of more than 4,000,000 m², La Française REM is committed to pursuing sustainable development. The active management of its existing portfolio and a selective investment policy aim to offer its investors financial performance and sustainability, synonymous with the protection of the value of assets over time.

     “While the challenges of ESG (Environmental, Social and Governance) might have been considered (very) long term issues to many players just a few years ago, they are now part of a vision compatible with the horizon for holding real estate assets.  The resilience of real estate assets must be anticipated " says Virginie Wallut, Director of Real Estate Research and SRI.

    Following the signing of the Paris Agreement, France defined a roadmap to combat global warming in the National Low Carbon Strategy. La Francaise REM intends to play its part in the national ambition by setting a target of reducing CO2 emissions from its portfolio compatible with a 1.5°C climate trajectory. Thus, it is committed to meeting the regulations in force and preparing for future regulations. 

    The adopted strategy is that of ARC (Avoid, Reduce, Compensate). The best way to limit CO2 emissions is to focus on avoiding them in the first place. If CO2 emissions cannot be fully avoided at a reasonable cost, the remaining volume should be reduced by minimization solutions such as the implementation of energy renovation work, the adaptation of energy systems and the adoption of Multi-Year Work Plans (green MYWP).  As a last resort, compensatory measures  will be  taken to finance carbon capture.

    "To strive to follow a pathway means working now to maintain the value of our assets in the long term" stresses Marc-Olivier Penin, Managing Director of La Française REM who adds "The cost of inaction is increasing exponentially. If actions to improve the sustainable characteristics of assets are carried out regularly while respecting their life cycle, the additional cost remains very marginal compared to the loss in value incurred by assets managed without taking ESG criteria into account."

    And Philippe Depoux, President of La Française REM, concludes “As a long-term investment manager on behalf of third parties, La Française REM pays particular attention to the consequences that its investments will have on the society of tomorrow and therefore on the conditions under which this investment capital can be used."

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    news-2367 Thu, 01 Apr 2021 14:59:03 +0200 Autonomous Driving Is Near /en/who-we-are/news/detail/autonomous-driving-is-near/ n the early 2000s, Google announced that autonomous vehicles (AVs) would be available to the general public in 2017. We’re four years past that target and still waiting. How distant is a future that contains AVs?

    • Consumers have grown more comfortable with the expected safety of AVs in some very large  economies. This bodes well for the future adoption of owned and hired AVs. 
    • AVs are operating as robotaxis (autonomous taxis) in parts of Phoenix and Las Vegas. One major auto company has said it will have AVs by the end of 2021 and a trucking start up plans to test autonomous trucks this year. Furthermore, a rideshare company says it will incorporate AVs into its fleet by 2023. 
    • Personal vehicles are not expected to begin adopting fully autonomous systems until 2030 or later due to the costs associated with this capability. And yet AVs will have major implications. Given that more than three quarters of American workers drive alone to and from work for nearly an hour a day, we believe AVs could save the equivalent of hundreds of billions of dollars annually. 
    • With six million auto accidents and 39 thousand related deaths in the U.S. per year, an Insurance Institute for Highway Safety study estimates that AVs could eliminate a third of crashes by reducing human error and another 40% by eliminating speeding and other violations. Interested investors might consider sensor providers, computing platforms, semiconductors and software.
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    news-2362 Fri, 26 Mar 2021 14:12:06 +0100 The Surprising Cost of Energy /en/who-we-are/news/detail/the-surprising-cost-of-energy/ As technology improves, renewable energy continues to become more affordable. The current cost of various forms of energy may surprise you, with potential implications for your portfolio. Levelized Cost of Energy

    • The so-called levelized cost of energy (LCOE) allows us to compare the costs of various energy sources over the lifetime of equipment that generates power. It provides an apples-to-apples cost comparison per unit of energy output, incorporating not only the ongoing expense of energy generation but the capital costs as well.
    • Solar systems operated by utility companies and wind energy are now less expensive on average than traditional sources of energy such as natural gas and coal. This has changed over time due to advancement in technology, as Lazard estimates the LCOE of wind and solar have declined 27% and 43%, respectively, over the past five years. We believe further declines are likely.
    • We believe that opportunity exists in companies exposed to renewable energy growth such as producers of wind turbine blades, biofuels, inverters, batteries, and companies that install solar equipment.
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    news-2358 Fri, 19 Mar 2021 14:01:07 +0100 Leading Indicator Soars /en/who-we-are/news/detail/leading-indicator-soars/ With large amounts of stimulus and expectations for the pandemic to recede, leading indicators of economic growth are improving. What does that mean for corporate earnings and the stock market? ISM Manufacturing Augurs Significant Economic Growth

    • The ISM Manufacturing Index is considered by many to be one of the best metrics to forecast economic growth. It is based on a survey of U.S. purchasing and supply executives and a reading above 50 indicates that the economy is generally expanding with higher numbers indicating faster growth.
    • Recently, the ISM Index hit its highest level in over 16 years with respondents indicating that manufacturing needed to accelerate. One respondent said, “A sense of urgency is being felt regarding new orders” and another commented “Supply chains are depleted.”
    • Historically, there has been about an 80% correlation between the ISM Manufacturing Index and the S&P 500 earnings per share (EPS) year-over-year change. The index has led changes in earnings by about seven months and we believe its recent elevated level may imply 20%-40% growth in S&P 500 EPS to as much as $200 per share, potentially providing support for the stock market.
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    news-2357 Fri, 19 Mar 2021 10:00:00 +0100 Crash 2020, lessons and perspectives? /en/who-we-are/news/detail/crash-2020-lessons-and-perspectives/ The Covid-19 crisis that we have been experiencing for a year now has had and will continue to have many repercussions The technological transition underway has been greatly accelerated due to the need to find new ways of making our economies function while the de industrialisation that has been in place for decades in most European countries has brought to the fore our dependence on large production centres in emerging countries.

    Beyond these realizations, this crisis has seemingly shattered the Brussels dogma on budget deficits. What the European Central Bank has been raising the alarm about for many years is now a reality with budget support on an almost unprecedented scale. This is true in the vast majority of developed countries, with the United States leading the way. Another dogma that did not survive the crisis is the one concerning the mutualization of debt in the Euro zone.  Indeed, the “Next Generation EU recovery fund” will participate in the European recovery by targeting the areas most affected by this crisis, to the chagrin of certain Nordic countries.

    Thanks to the extremely strong government action (much stronger than at the exodus from 2008), the macroeconomic situation is now clearly improving, with global growth expected at around 6% in 2021. Also in terms of health, the situation is improving with vaccinations whose pace is accelerating, which should allow a gradual reopening of economies between the 2nd and 3rd quarter. And if consumer savings are considered, there is a good chance that these growth forecasts will improve further in the coming months. This good news has logically had a significant impact on the financial markets, with equity markets growing strongly, commodities also rising sharply and bond markets which have seen their rates rise in the last several weeks. 

    The big question today is whether or not the increase in inflation expectations will be sustainable. Inflation will increase sharply in 2021, in tandem with very positive base effects (Q2 in the USA, Q4 in the Euro zone), but beyond the temporary effects, what will the price dynamics be in the service sectors when they reopen? Will the relocation of industries be real and will it lead to inflation? It is difficult to answer these questions today and it is difficult to have a clear opinion on the valuation of breakeven inflation points. 

    In this context, the outlook for equity markets seems favourable to us, with a clear preference for “value” sectors which benefit from the rise in interest rates (including banks). We are more cautious about technology stocks whose valuation levels will be increasingly difficult to justify. We are also cautious about government interest rates and good quality credit because interest rates are still low, particularly in the United States. European bonds should fare better (much less inflationary pressure in the Euro zone, less fiscal stimulus, less growth, etc.). Assets with wide spreads (especially high yield speculative securities) should benefit from the macroeconomic improvement, with a spread tightening effect that will offset the negative effect of the rise in rates. Finally, we are very negative on real American rates: with a growth of 7% in 2021, a fiscal stimulus of 10% of GDP (not counting the one voted on in December) and an emboldened consumer, the Federal Reserve (FED) does not in our opinion need to maintain financial conditions that are so accommodating. 

    Source: La Française AM


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997

     

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    news-2355 Wed, 17 Mar 2021 15:45:33 +0100 Carbon reduction targets : from ambition to impact /en/who-we-are/news/detail/carbon-reduction-targets-from-ambition-to-impact-1/ Listen to Roland Rott, CFA, Head of Sustainable Investment Research about the latest issue of the Carbon Impact Quarterly Report. Why are carbon reduction targets an important topic? Why investors should differentiate between corporate ambition and real-world impact. A view on carbon offsets. Examples of leaders and laggards. The important role of the finance sector in the transition to the net zero economy.

     

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    news-2352 Tue, 16 Mar 2021 14:54:25 +0100 Confirmation of the FED dovish bias: higher rates? No worries! /en/who-we-are/news/detail/confirmation-of-the-fed-dovish-bias-higher-rates-no-worries/ On March 17, we expect the FED to keep its dovish monetary policy bias in particular due to the substantial gap in the labor market. The Federal Open Market Committee (FOMC) is expected to reiterate that its current policy stance is appropriate.

    The FED will continue to monitor financial conditions which remain easy. We do not believe that they will adopt any steps such as WAM (weighted average maturity) extension geared towards capping long-term yields.  Hence, they will likely continue asset purchases at the current pace, at least $80bn of Treasuries and $40bn of mortgage-backed securities (MBS) per month

    In the press conference, Chair Powell will also repeat that the FED is not worried about runaway inflation. He should also stay open to a more active reaction due to the already strong momentum in macro signals, the vaccination roll out and stimulus fiscal bills. Talks around adjustments to its asset purchase program will be the key subject. At this meeting, we believe the FOMC will emphasize tapering is still premature.

    We expect the SEP (Summary of Economic Projections) to indicate better growth notably in 2021 (6% vs 4.2%). Inflation figures could also be revised slightly upwards, especially in 2022, with projections moving up from 1.9% to 2% in 2022 and from 2% to 2.1% in 2023.    

    On the “dot plot” side, we expect the majority of the committee members to position one hike in 2023 vs no hike in December. We do not think markets will overreact following this change considering how front-end pricing has turned hawkish since the FOMC last met.

    All in all, we expect this meeting to be a confirmation of the FED’s dovish bias, which could be slightly negative for longer maturity bonds.

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    news-2349 Mon, 15 Mar 2021 09:44:21 +0100 The Life of a Digital Dollar /en/who-we-are/news/detail/the-life-of-a-digital-dollar/ With the rise of digital payments, the economics of credit and debit transactions has been a hot topic as investors try to figure out the best places to invest in the payment ecosystem. So where does your digital dollar go? Mechanics of a $40 Credit Card Transaction

    • ​​​​​​​When a retailer sells an item for $40 via a credit card transaction, it typically pays out $1 or 2.5%, which is known as the merchant discount. That 2.5% goes to a number of companies, creating a tightknit network of counterparts in the digital payment experience.
    • The financial success of these players is levered to the growth of digital payments, which are increasing significantly faster than the broader economy. The two largest drivers of this growth, e-commerce, i.e., buying goods or services via the internet, and mobile payments, i.e., smartphones used to process transactions using wireless communication or scanning QR barcodes, are increasing at a mid-teens percentage.
    • In addition to these parts of the digital payments ecosystem, we believe that other players stand to reap substantial benefits from growing digital payments such as platform and wallet providers like PayPal and chip providers like NXP Semiconductor. We believe digital payments is a robust corner of the market that may hold many potential opportunities for investors.


    1A credit card issuer might be a large bank.The merchant acquirer, which is the organization that signed up the retailer to a card acceptance agreement, might be a business like Bank of America Merchant Services. The payment processor may be a
    company like Fiserv.

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    news-2348 Mon, 15 Mar 2021 09:37:18 +0100 China policy: the “two sessions” meeting convenes /en/who-we-are/news/detail/china-policy-the-two-sessions-meeting-convenes/ by Guillaume Dhamelincourt, Business Development–Product Specialist, JK Capital Management Ltd., a La Française group-member company dated March 8, 2021 Last week (week of March 1st) the annual “two sessions” meeting started in Beijing. The six-day conference is a high point of Chinese policy with thousands of National People’s Congress (NPC) deputies and Chinese People’s Political Consultative Conference (CPPCC) members converging on Beijing’s Great Hall of the People for China’s largest annual political event. The meeting is usually when many announcements are made, and targets set. This year was particularly important as the 14th Five-Year plan was announced and published during the event. Although the meeting is not over yet, there are several things that can be already commented on.

    The one that caught most commentators’ eyes was the GDP growth target for 2021 announced at “above 6%”. Many thought the practice of announcing GDP targets would be abandoned as the government wants to focus on qualitative growth rather than meeting a hard number, but they were still surprised to see such a low number considering that everyone expects the 2021 GDP to be high, catching up the missed growth of 2020. The loose “above 6%” target likely means the number is less important than the quality of the growth. It may also be interpreted as a signal that no major monetary policy change will be made and little to no stimulus to the economy is to be expected with the Covid crisis now apparently in the rear-view mirror. More indication of this no thrill policy can be seen in the budget. The budget deficit target has been lowered from “at least 3.6% of GDP” in 2020 to “around 3.2%” this year. Meanwhile, the quota for local special bond issuance, which takes place outside the general budget, was lowered from RMB 3.75trn (3.7% of GDP) to RMB 3.65trn (3.4% of GDP). The budget report also ruled out a repeat of last year’s sovereign special debt issuance and social security waivers, which together were worth 2.5% of GDP. All told, this points to fiscal tightening of at least 3.0% of GDP this year.

    On Friday (March 5th), the 148-page summary of the 14th Five-year plan was released. The tradition of the Five-year plans is very important and gives strong indications on future policies as well as the mindset of the leadership. For the first time it did not mention any average growth target for the coming five years, which is more in line with the aim to focus on quality growth as mentioned above and to set the right policies for the long term prosperity of China. As an official summarised the plan: China is aiming to lift its economic, technological, and national strength to a new, higher stage in the next five years, under a sweeping blueprint that puts heavy emphasis on improving domestic economic conditions, boosting technological innovation and national security, while leaving sufficient room to cope with mounting risks and challenges. 

    Security was one of the key new features of the plan with a special section aiming to bolster national security systems and capabilities and setting arrangements to ensure food, energy and financial security. The plan also aims to implement a "dual circulation" development strategy that focuses on boosting the domestic market, enhancing technological self-efficiency and independence with significant increase in R&D, and promoting environmental protection through investments in renewable energy.

    Other noticeable, though expected, elements of the plan aimed at promoting urbanisation with a target of reaching a 65% urban population (Hukou reforms are expected to facilitate it), increasing expected life of Chinese citizens by 1 year, keeping urban unemployment below 5.5% and pursuing the high-quality development of the belt and road initiative.
    Altogether nothing particularly surprising came out from the meeting so far. Only a confirmation of the long-term goals of the Chinese leadership and the means attached to them. Such stability and aim give us confidence in the Chinese market beyond the tumultuous volatility of the recent weeks.

    Source: JKC Internal Research

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2347 Mon, 15 Mar 2021 09:33:09 +0100 A missed payment in Chongqing raises volatility in the LGFV sector /en/who-we-are/news/detail/a-missed-payment-in-chongqing-raises-volatility-in-the-lgfv-sector/ by Marcus Weston, CFA, Fixed Income Senior Portfolio Manager, JK Capital Management Ltd., a La Française group-member company Recently, Asian USD bonds saw a rare event in fixed income markets: The default of an investment grade rated issuer. Chongqing Energy Investment Group (CHQENE), whose USD bonds are rated BBB by Fitch, announced it was late in payment on onshore CNY commercial bills. As a Local Government Financing Vehicle (LGFV) 100% owned by the Chongqing city government, this default exacerbates market speculation that Chinese state-owned entities are seeing reduced support from their government backed shareholders. Unsurprisingly the CHQENE 2022 USD bond price fell sharply after the news while simultaneously creating an increase in volatility across certain segments of the Chinese LGFV and SOE sectors, as market participants try to interpret the evolving policy landscape. It should be noted however that the LGFV sector as a whole remains critical to China’s overall funding landscape particularly in local markets and we believe local government and state-owned entities will remain well supported by government policy.

    In the specific case of the CHQENE it appears the default has been triggered by an isolated dispute between the company and its government parent regarding its energy assets. Earlier this year it was announced the company was being forced to close its Chongqing based coal mines this year as part of the government supply side reforms. Although accounting for only 11% of the company’s assets, this raised uncertainty regarding employee compensation, asset coverage and caused some of its coal-based creditors to demand improved securitisation of their loans. Although CHQENE which, as an LGFV, runs tight balance sheet liquidity has typically enjoyed municipal government support to ensure timely payment of obligations, or at the very least promote refinancing support by local banks, clearly this dispute has created near term uncertainty for the company as it led to the missed payment. At this stage it is not inconceivable that the default becomes resolved in the coming weeks. Chongqing is a financially strong local government, and a company representative has reportedly signaled the issuer will continue to service USD bond coupons until the issue is remedied. However, the often followed playbook of default first and resolve later does not help support market sentiment on the sector in the near term.
     
    This, however, is not a new phenomenon. Since the deleveraging campaign of 2018, Chinese authorities have been regularly sending signals to the market that investors should not assume government backed entities would always receive rapid support at times of stress. Trying to install moral hazard into the local currency bond market, the Chinese government has already allowed some CNY bonds issued by State Owned Enterprises to fail in recent years and we believe this is a continuation of that policy. 

    Source: JKC internal research,

    Informative Document for professional investors only as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2344 Fri, 12 Mar 2021 09:22:03 +0100 The quality approach of La Française Sub Debt reinforced by French SRI Label /en/who-we-are/news/detail/the-quality-approach-of-la-francaise-sub-debt-reinforced-by-french-sri-label/ La Française AM is pleased to announce that its flagship subordinated debt fund La Française Sub Debt – with close to €1 billion in assets under management* – has obtained the prestigious SRI (Socially Responsible Investment) Label, backed by French public authorities and awarded by EY France, a certification organisation approved by French accreditation body COFRAC. La Française Sub Debt is a diversified portfolio comprising approximately 130 subordinated debt securities with an average Investment Grade issuer rating of A- (Source: La Française, as of 26/02/2021), co-managed by Paul Gurzal, Head of Credit, and Jérémie Boudinet, Credit Portfolio Manager.

    The Fund, which falls within the scope of Article 8 of the Sustainable Finance Disclosure Regulation - SFDR, aims to achieve an annualised performance of more than 7% over a recommended investment horizon of more than 10 years through exposure, in particular, to subordinated debt securities with a specific risk profile different from that of conventional bonds and to do so by investing in a portfolio of issuers screened in advance according to Environmental, Social and Governance (ESG) criteria.

    The Fund's management approach has remained unchanged since its inception in 2008 and is based on three fundamentals: liquidity, diversification and quality. Security selection now includes an in-depth extra-financial analysis, carried out by La Française Sustainable Investment Research (the Group's ESG research centre) based on a proprietary model. In consultation with the management team and thanks to a continuous dialogue, the ESG criteria of public and private issuers in the European Union, Switzerland, United Kingdom and Norway contribute to enrich the credit analysis and the selection of issuers. The Fund's historical management strategy remains unchanged, as it is aligned with the ESG selectivity approach implemented since 10 March 2021.

    Jean-Luc Hivert, President and Global Head of Investments, La Française AM, commented, "La Française has been fully committed to sustainable investment since 2008. We believe finance will play a role in this transition, and our strategy is thus to market a range of 100% sustainable open-ended funds by the end of 2022. Obtaining the label for La Française Sub Debt was essential for us and natural for an asset class that is certainly very specific but perfectly reflects La Française AM's long-standing, top-notch expertise in the bond market. This is a new step forward in our commitment to sustainable finance. La Française AM now has 7 labelled funds (equities, credit and money market), underlining our leading position in sustainable strategies, particularly low-carbon strategies, developed in equities, credit and government bonds. We are currently implementing our sustainable strategy across all our asset classes to offer a sustainable multi-asset range."

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    news-2339 Wed, 10 Mar 2021 14:39:00 +0100 Information on Disclosure Regulation - article 6 /en/who-we-are/news/detail/information-on-disclosure-regulation-article-6/ We are writing to you with regard to the application, on 10 March 2021, of Regulation (EU) 2019/2088, known as the "Disclosure Regulation" or "SFDR" adopted by the European Parliament and the Council of the European Union on 27 November 2019, relating to the publication of information on sustainability‐related disclosures in the financial services sector. It concerns the following products: LA FRANCAISE MULTI-ASSET INCOME,LA FRANCAISE PROTECTAUX,LA FRANÇAISE RENDEMENT EMERGENT 2023,LA FRANCAISE RENDEMENT GLOBAL 2022,LA FRANCAISE ALLOCATION, LA FRANCAISE GLOBAL COCO,LA FRANCAISE GLOBAL FLOATING RATES,LA FRANCAISE RENDEMENT GLOBAL 2025,LA FRANCAISE ,RENDEMENT GLOBAL 2028 PLUS,LA FRANCAISE RENDEMENT GLOBAL 2028

    The Disclosure Regulation imposes new reporting obligations on financial actors, inspired by Article 173 of the French energy transition law of 2015 and establishes harmonised rules at European Union level in terms of transparency and communication of non-financial information.

    This regulation requires financial actors to establish: 
    -    the manner in which sustainability risks are integrated into their investment decisions;
    -    the possible adverse impacts of their products and how they are assessed; 
    -    the characteristics of the financial products that they present as sustainable.

    La Française Asset Management, in its capacity as a management company, is bound by the Disclosure Regulation. 

    The application of this regulation entails the classification of the funds managed by La Française Asset Management into one of the three categories detailed below:

    • Article 8: concerns products that promote, among other characteristics, environmental and/or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made apply good governance practices;
    • Article 9: concerns financial products that pursue a sustainable investment objective;
    • Article 6: concerns financial products that do not promote environmental and/or social characteristics and which do not have a sustainable investment objective and do not meet the definition of Articles 8 and 9.

    Regardless of the classification chosen, the pre-contractual documentation of the funds must include a description of the sustainability risks, or explain in a clear and concise manner why their application to the fund is not relevant.

    Sustainability risks are defined as follows: environmental, social or governance event or situation which, if it occurs, could potentially or effectively have a material adverse effect on the value of the investment of the financial product. 

    The management company has identified and actively manages the following sustainability risks to reassure you that their occurrence, and the financial impact should these risks arise, is limited. 

    The management company identifies these risks around three main families:

    1.    Physical risks linked to climate change
    2.    Transition risks linked to climate change
    3.    Risks linked to biodiversity 


    Having taken into account the management process implemented in your fund, we would like to inform you that the classification applicable to your fund, as adopted by the management company, is as follows: Article 6. 

    Therefore, as of 10 March 2021, your fund is managed using an investment process that incorporates ESG factors, but does not promote ESG characteristics, and has no specific sustainable investment objective.

    More information on the inclusion of ESG (environmental, social and governance quality) criteria in the investment policy applied by the management company, the charter on sustainable investment, the climate and responsible investment strategy report, the engagement and exclusion policy can be found at the following address: https://www.la-francaise.com/fr/nous-connaitre/nos-expertises/linvestissement-durable
     

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    news-2328 Tue, 09 Mar 2021 18:43:03 +0100 Sustainability-Related Disclosure: JKC Fund - La Française JKC China Equity - La Française JKC Asia Equity /en/who-we-are/news/detail/sustainability-related-disclosure-jkc-fund-la-francaise-jkc-china-equity-la-francaise-jkc-asia-equity/ Article 10 of Regulation (EU) 2019/2088 Transparency of the promotion of environmental or social characteristics and of sustainable investments on Websites 1. Financial product referred to in Article 8(1) and Article 9(1), (2) and (3): 
    (a) a description of the environmental or social characteristics or the sustainable investment objective; 
    (b) information on the methodologies used to assess, measure and monitor the environmental or social  characteristics or the impact of the sustainable investments selected for the financial product, including its data  sources, screening criteria for the underlying assets and the relevant sustainability indicators used to measure 
    the environmental or social characteristics or the overall sustainable impact of the financial product; 
    (c) the information referred to in Articles 8 and 9; 
    (d) the information referred to in Article 11. 
    The information to be disclosed pursuant to the first subparagraph shall be clear, succinct and understandable  to investors. It shall be published in a way that is accurate, fair, clear, not misleading, simple and concise and in  a prominent easily accessible area of the website. 

    2. The ESAs shall, through the Joint Committee, develop draft regulatory technical standards to specify the  details of the content of the information referred to in points (a) and (b) of the first subparagraph of paragraph 
    1, and the presentation requirements referred to in the second subparagraph of that paragraph. 
    When developing the draft regulatory technical standards referred to in the first subparagraph of this  paragraph, the ESAs shall take into account the various types of financial products, their characteristics and  objectives as referred to in paragraph 1 and the differences between them. The ESAs shall update the  regulatory technical standards in the light of regulatory and technological developments. 
    The ESAs shall submit the draft regulatory technical standards referred to in the first subparagraph to the Commission by 30 December 2020. 
    Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical  standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010.

    This document covers the Sub-funds “La Française JKC China Equity” and “La Française JKC Asia Equity”, two compartments of JKC Fund SICAV. 
    By promoting, among other characteristics, environmental and social characteristics, these sub-funds fall under the definition of Article 8 of regulation (EU) 2019/2088 mentioned above.
    For more information about the two Sub-funds, the prospectus of JKC Fund can be accessed through the following link: https://jkcapitalmanagement.com/documentation/

    Read more, click here

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    news-2327 Tue, 09 Mar 2021 15:12:11 +0100 No new measures, but a very dovish tone /en/who-we-are/news/detail/no-new-measures-but-a-very-dovish-tone/ The ECB will hold its press conference on March 11. The outcome could put the ECB’s credibility at risk. The Governing Council will most likely maintain a very accommodative tone to preserve easy financing conditions and ensure that low rates are passed on to the real economy in order to support the recovery and the convergence of inflation across European countries towards the 2% objective.

    We do not expect new measures.  We do not anticipate that theECB will increase the PEPP (Pandemic Emergency Purchase Programme) envelope (EUR1850bn).

    Mrs. Christine Lagarde is expected to communicate strongly on the ECB’s new mantra, namely “holistic and multi-faceted” approach to judging financial conditions. Despite the slowdown in PEPP purchases, she could signal action to battle the threat of a sharp rise in yields, with all options open. It is likely that she will also reaffirm the importance of the PEPP’s flexibility. 

    Furthermore, the central bank will update their macro-economic projections. We do not expected changes on growth (+3.9% in 2021, +4.2% in 2022). Headline inflation could be revised up significantly in 2021 (+1%) due to recent inflation surprises and the higher price of oil. We do not expect major revisions to the core inflation profile (1.4% in 2023) given the unchanged view on the current degree of slack in the economy.  

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    news-2317 Mon, 08 Mar 2021 14:00:00 +0100 La Française AM aligns its sustainable range of funds with the disclosure regulation /en/who-we-are/news/detail/la-francaise-am-aligns-its-sustainable-range-of-funds-with-the-disclosure-regulation/ 10 March 2021 marks the entry into force of the Disclosure Regulation (Sustainable Finance Disclosure Regulation - SFDR). This regulation, which applies to the marketing of funds in the European Union, lays down the obligations in terms of the publication of information on sustainability in the financial sector in order to provide greater transparency and a basis of comparison for end-investors. In light of these new regulations, La Française AM, a La Française Group asset management company, offers an extensive product range of sustainable open-ended funds. At the end of January, 76% of open-ended funds currently marketed met sustainable criteria. As of 10 March, La Française AM will have made further progress with:

    • 87% of assets (according to assets under management as at 28/02/2021) aligned with "Articles 8 or 9", according to the Disclosure Regulation. 
      “Article 9" products have defined and quantifiable objectives in terms of ESG (Environmental, Social and Governance) risks. These are products with a social or environmental objective, that meet the definition of sustainable investments. For their part, “Article 8” products do not have a specific ESG objective but take ESG criteria into consideration when constructing their portfolios.

    From 10 March 2021, La Française AM investors will have access to better communication on sustainability, as required by the Disclosure Regulation. This additional information will give clients, whether private or institutional, key reference indicators regarding the sustainability of each investment fund.

    La Française AM has set itself the objective of marketing a range of 100% sustainable open-ended funds by the end of 2022. Building upon this first step, the La Française AM is continuing the process of transforming its funds in order to achieve this objective.

    Glossary:
    Regulation (EU) no. 2019/2088 SFDR/Disclosure

    • Objectives-> Establish standardised transparency rules for financial market stakeholders in terms of sustainability.
    • All funds must comply with Article 6 which aims to provide transparency in the integration of sustainability risks
    • Fund classification option:
      > All discretionary management funds or mandates "where a financial product promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices". (Article 8)
      >  All discretionary management funds or mandates "where a financial product has sustainable investment as its objective”. (Article 9)
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    news-2315 Fri, 05 Mar 2021 15:06:51 +0100 The New Normal Could Support Market Leaders /en/who-we-are/news/detail/the-new-normal-could-support-market-leaders/ Barbecue ribs are increasingly finding a spot in aircraft cargo bays and wine is more likely to appear in a local delivery person’s hands. It’s all part of the many surprising twists and turns in the economy resulting from economic shutdowns and stay at home orders implemented to slow the spread of Covid 19. These actions have driven rapid growth for companies like online retailers and home delivery services, as well as remote office and virtual conference technology providers.

    As countries ramp up their Covid 19 vaccination programs, some investors have grown fearful that beneficiaries of the pandemic, such as providers of virtual conference technology or other services that enable social distancing, could experience a deceleration of demand for their products. However, we believe that significant shifts in supply chains, logistics and consumer and business behavior have positioned leading companies for potentially strong growth even after the pandemic is contained and we return to a new normal.

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    news-2306 Wed, 03 Mar 2021 15:23:54 +0100 Chinese property update /en/who-we-are/news/detail/chinese-property-update/ by Steve Zhou, CFA, Senior Analyst, JK Capital Management Ltd., a La Française group-member company According to various local media news, 22 cities in China (including 4 tier-1 cities as well as 18 key tier-2 cities such as Nanjing, Suzhou, Hangzhou, and Xiamen) are expected to split their annual residential land sales in no more than three batches each year through open market auction. These 22 cities are expected to issue the details of implementation of this policy soon and give a clear plan about how the full year land supply will be organised. Prior to this policy, the land supply was done through scattered auctions throughout the year. 

    We believe this policy will change how developers manage their cashflow, as land purchases will be more concentrated within certain timeframes as opposed to being scattered. Developers will need to have enough cash available to take advantage of these
    land banking opportunities each time they occur. The impact will be less for developers that have the most diversified land banks. In general, major developers have 40% of their
    land bank exposed to these 22 cities. 

    The policy will likely bring about a more stable property development sector on the land banking front, as the land banking process will now be more transparent. Large land premiums are unlikely to be as frequent as previously seen. This also fits the central government’s goal to see the land prices stabilise and in turn home prices and market expectations stabilise as well. Nevertheless, good projects in good cities are unlikely to see less land premium as competition for them will remain fierce. Developers with strong balance sheet, superior land market assessment capability and strong management ability will benefit from this policy. 

    On the business side, Chinese property developers reported stellar contracted sales for February 2021, with the top-100 developers’ contracted sales growing by 156% YoY in February 2020, and 64% higher compared to February 2019 (which is a more meaningful measure as February 2020 was impacted by the Covid crisis). For January and February 2021, which eliminates the Chinese New Year effect that either falls in January or in February and therefore distorts monthly year-on-year comparisons, the growth number for the top-100 developers was 102% YoY (2020), and 56% higher compared to January and February 2019.

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    news-2284 Fri, 05 Mar 2021 09:00:00 +0100 Notice: "La Française Rendement Global 2025" sub-fund of the "La Française" SICAV governed by French law. /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2025-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-6/ We would like to inform you that the management company "La Française Asset Management" has decided to make some clarifications to the “La Française Rendement Global 2025” sub-fund of the “La Française” SICAV concerning so-called “hedged”* share categories of the sub-fund, as follows: “H units hedged* against the reference currency of the sub-fund may be over- or under-hedged during certain periods. This may lead to a continued residual exchange risk for these shares in relation to the sub-fund's reference currency. This hedging will generally be provided by means of over-the-counter forward contracts, Fx forward, Fx swaps, but may also include options on currencies or standardised futures contracts."

    *This share class is not authorized to be marketed in Germany

    This modification does not require authorisation from the French Financial Markets Authority and will come into force on 10 March 2021. The regulatory documentation will be amended accordingly.
    The other features of the sub-fund remain unchanged.

    We wish to underline the need and importance of reading the key investor information document of the "La Française Rendement Global 2025" sub-fund, which is available at www.la-francaise.com.
    Potential investors should read all key investor information documents before making any decision to invest.

    The Prospectus, the Key Investor Information Document, the articles of association and the latest financial reports are available free of charge, in paper form at the registered office of the SICAV and at the German paying and information agent BNP Paribas Securities Services S.C.A. Zweigniederlassung Frankfurt am Main.

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    news-2272 Mon, 01 Mar 2021 14:44:00 +0100 Asian Bond Market, February figures and outlook /en/who-we-are/news/detail/asian-bond-market-february-figures-and-outlook/ by Marcus Weston, CFA, Fixed Income Senior Portfolio Manager, JK Capital Management Ltd., a La Française group-member company It was a soft month for Asian USD bonds in February as a sharp steepening of the US Treasury bond yield curve pushed cash prices lower, particularly for long duration paper. While investment Grade spreads did remain largely stable throughout the month and high yield debt saw modest gains, this was not sufficient to offset the underlying curve weakness. The US Government 10-year bond ended the month yielding 1.41% an increase of 34bps compared with the level at the end of January, hitting a 1 year high of 1.53% intra-month. Given short-term rates remained unchanged, this increase was almost fully on account of curve steepening with long duration bonds particularly underperforming. In fact, the 2yr to 30yr yield spread of 210bps has reached its highest premium since 2015 in the past week.
     
    Undoubtedly, inflation concerns have been the main catalyst of the recent curve move with CRB food and industrial metal price indices spiking during the month, hitting multi-year highs in both cases. Similarly, energy prices, as indicated by the Brent crude oil price, jumped 20% in February returning to pre-COVID levels. Given these commodity price gains appear to be largely fuelled by global inventory restocking as western consumers see greater optimism of a post COVID economic rebound, the sustainability of this trend likely remains highly dependent on the success of global vaccine rollouts and suppression of new virus infections. However, while the timing of this virus progression may remain uncertain, clearly less ambiguous is central bank reaction to the latest moves as Fed Chairman Powell on February 24th reiterated his intention to maintain loose monetary policy and QE support for market liquidity. This, in combination with President Joe Biden’s aggressive push of his fiscal agenda, should keep current positive growth drivers in place and corresponding pressure on both the UST and USD markets in the near term. 

    Within Asian IG bond markets, relative performance last month largely reflected duration as long maturity sectors such as Indonesia/Philippines sovereigns, Malaysian/Thai Energy companies and Chinese internet names all saw the biggest declines. Perhaps the one exception was Chinese state oil company CNOOC which helped by the positive oil price move saw a strong rebound in its bonds after weakness in Dec and Jan following the US investment ban. High Yield Bonds outperformed IG although relative performance within HY was mixed as Pakistan, Mongolia and India/Indonesia commodity companies all outperformed while perennial high beta play, Sri Lanka, was once again the biggest drag on the market. Meanwhile within China HY the dominant property sector ended the month broadly flat as high coupon gains across the sector were offset by weakness in a handful of names such as Greenland (GRNLGR), Sichuan Languang (LGUANG) and Rise Sun (Rissun) which experienced softening investor sentiment following the China Fortune Land (CHFOTN) default. 

    Outlook

    In terms of macro fundamentals, the next major focus for the Asian bond market will be corporate earnings season as most regional companies (with the exception of India) report their full year results in March. 2H20 results will give a strong indication on the level of recovery Asian corporates achieved after regional economies reopened following the 1H20 COVID lockdown and whether the strong macro numbers translated into similarly strong performance at the micro level. Separately, for the China property sector it will also be the first chance to observe progress made in improving balance sheets after the introduction of the ‘three red lines’ leverage policy last year.

    Meanwhile, inflation numbers both in and out of Asia will need to be closely observed in March to see the extent recent commodity price spikes have translated into CPI and PPI reports while, as always, COVID case numbers and vaccine rollout progress will be key to predicting the sustainability of this recent sentiment driven rally. 

    Typically, after Chinese new year, the Asian USD bond market sees a significant pick up in new issue volumes, however given the recent sharp increase in long dated treasury yields, this has clearly negatively weighed on issuer sentiment and supply has so far remained lackluster over this period. The longer this continues this may have a corresponding effect on the market as investor demand for a smaller availability pool of new paper should positively impact credit spreads. In our view this should remain favorable for risk positioning down the credit curve, albeit remaining in short duration exposures. 

    Source: Bloomberg
     

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    news-2269 Mon, 01 Mar 2021 14:11:41 +0100 The Importance of Investor Sentiment /en/who-we-are/news/detail/the-importance-of-investor-sentiment-2/ Increased optimism about the economy, excitement for new technologies, such as 5G, the Internet of Things and autonomous driving, and very low interest rates have created enthusiasm for equities. But is investor sentiment too high? Equity Put / Call Ratio

    • Investor sentiment is the highest it has been in many years. As the chart above shows, the ratio of bearish put buying protection relative to bullish call buying bets is the lowest it has been since the technology bubble around the turn of the century.1
    • Additionally, margin debt has surged recently, up 34% in the past year as investors speculate more with borrowed funds. This data, along with increased retail investor involvement in the stock market, supports the notion that investor sentiment leans far more toward the greed end of the spectrum than its fear counterpart.
    • We believe strong investor sentiment should make investors cautious, but it doesn’t preclude solid returns. Take the IPOs of the euphoric late-1990s, for example. After underperforming significantly, they have outperformed over the past two decades. However, there has been great dispersion with some filing for bankruptcy (e.g., eToys) while others have gone on to change how we work and live (e.g., Amazon). The current optimistic environment may ultimately produce similar dispersion and therefore calls for more due diligence. Fundamental, bottom-up research can potentially help investors uncover durable investments that contribute to lasting innovations and identify short-lived sensations to avoid.

    1 A call is an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security
    at a specified price within a specified time. A put is an option contract that gives the owner the right, but not the obligation, to sell
    a certain amount of the underlying asset at a set price within a specific time.

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    news-2261 Tue, 23 Feb 2021 15:19:32 +0100 Investors need to hold companies accountable /en/who-we-are/news/detail/investors-need-to-hold-companies-accountable/ Institutional investors will play a pivotal role in tracking carbon reduction progress. At present, there is no formal enforcement mechanism to ensure that companies deliver on carbon reduction. Target setting and reporting of carbon data is largely voluntary. There is no sanction for a lack of success. Given the short-termism inherent in financial markets, investors should proceed carefully when assessing companies’ long-term climate goals. CEO turnover reached a record high in 2018, with less than 1-in-5 CEOs remaining in their position for 10 or more years[1]. Put differently, four out of five CEOs are not likely to be at their company long-enough to see through their carbon targets to 2030, let alone 2050. This issue is compounded by the lack of verification and accuracy in reported carbon data. Investors need to assess carbon reduction targets with at least the same care and rigour that they do financial targets. 
    Therefore, investors should play an active role in ensuring that companies set and deliver carbon reduction targets. Investors are well-equipped to perform this task. For example, carbon reduction requires capex and questions about capex are typical of meetings with corporate management. Investors increasingly have expertise in integrating environmental data within their investment process. Additional guidance for companies on progress reporting is expected to be released in 2021 by the SBTi (Science-based Targets Initiative) and CDP (Carbon Disclosure Project). The SBTi is currently working on a process to track companies’ progress on their targets. These are positive developments that can help investors overcome some of the challenges of carbon reporting. However, as with financial targets, investors will still need to frequently monitor progress. Carbon footprinting is not sufficient as headline emissions numbers will only give a partial view on what is going on and does not capture the corporate planning for reaching the next milestone. The latter requires ongoing assessment of material developments as well as a clear understanding of the business model.

    Many asset management firms maintain close interaction and engagement with company management. Engagement can also take the form of collaborations like Climate Action 100+. Engagement action could comprise the proposal or support of shareholder resolutions, for example, requesting major oil companies to take the first step and set more stringent targets considering all emission scopes in order to reach Net Zero by 2050. Investors that engage with company management act as enforcement agents in the delivery of carbon reduction. 

    1 PriceWaterhouseCoopers (2019). CEO Turnover at record high, click here

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. 

     

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    news-2260 Tue, 23 Feb 2021 14:47:53 +0100 Tracking Carbon reduction progress /en/who-we-are/news/detail/tracking-carbon-reduction-progress/ The last twelve or so months have seen a flurry of corporate commitments and a huge ramp-up in ambition to reduce carbon emissions. It has been estimated that almost one quarter of global CO2 emissions and more than half of global GDP were covered by Net Zero commitments by June 2020(1). However, the gap between ambition and reality can often be very significant, for example, due to a lack of standards(2). Global warming and the role of GHG emissions is a well-established fact(3). In response, carbon reduction efforts in the private sector have been made for decades. Such carbon reductions were reported, for example, as part of energy efficiency programmes (4). The goalposts have shifted in recent years due to the urgency of the climate crisis. Global warming has gained worldwide attention not least due to the Paris Agreement in 2015. Countries are now strengthening their commitments through setting Net Zero targets. Six countries have enshrined Net Zero reduction in law, five countries and the EU have proposed legislation, fourteen countries have targets in policy documents, while many more are discussing Net Zero targets (5).
    In the private sector, carbon reduction has since become a strategic objective for many businesses and has evolved well beyond the isolated environmental targets of the past. Today, carbon reduction is a priority for many companies and their stakeholders - including shareholders and creditors. Yet, the voluntary nature of most efforts means that targets can be set through arbitrary parameters. What is needed to solve the climate crisis are commitments to reduce GHG emissions that are aligned with scientific global warming scenarios. A study of companies with science-based targets shows that these companies reduce emissions at far greater rates relative to emissions trends in the wider global economy (6).

    1 These estimates include targets set by cities, regions, universities, investors and companies under the ‘Race to Zero Campaign’. See UN Framework Convention on Climate Change (2020). click here 
    2 Financial Times (2020). The problem with zero carbon pledges.
    3 William D. Nordhaus (1976). Economic Growth and Climate: The Carbon Dioxide Problem. Yale University.  
    4 See, for instance, Unilever’s ‘Environmental Performance 2000’ report which shows CO2 reductions from 1995 due to energy saving measures.
    5 See Energy & Climate Intelligence Unit for a detailed breakdown of country Net Zero commitments: click here 
    6 See SBTi (2021). From Ambition to Impact: Science Based Targets Initiative Annual Progress Report 2020.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française.

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    news-2259 Mon, 22 Feb 2021 09:39:45 +0100 This Is What Matters /en/who-we-are/news/detail/this-is-what-matters/ With the proliferation of different takes on equity investing, ranging from algorithmic trading to retail investors utilizing chat rooms, it may be easy to lose sight of one of the first principles of investing. It’s not about what’s hot now–which stock is moving or what technology is most anticipated. It’s about future earnings. Earnings Growth Drives Long-Term Price Appreciation

     

    • Over the past 120 years, the S&P 500’s price has increased 5.3% annually, driven by a 5.0 compound annual growth1 rate in EPS. In other words, 95% of stock market price appreciation has been driven by earnings growth.
    • This relationship reinforces the old quote from Warren Buffett’s mentor, Ben Graham: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” That means that while shifting sentiment may drive variations in stock prices in the short term, long-term changes in equity prices have historically reflected actual corporate results.
    • With news stories about stock prices being driven up based on short interest or other nonfundamental considerations, investors may want to get back to first principles and embrace research and sound decision making. After all, the stock market is the ultimate corporate fundamental weighing machine.
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    news-2257 Wed, 17 Feb 2021 14:31:54 +0100 Green Bonds, what are they all about? /en/who-we-are/news/detail/green-bonds-what-are-they-all-about/ Interview with Marie Lassegnore, Credit Portfolio Manager & ESG Director for Fixed Income and Cross Asset, La Française AM. Why invest in Green Bonds and what are the advantages? 

    The first advantage of green bonds is the visibility over the allocation of capital through the ‘use of proceeds’. The green bonds market has been set up around this use of proceeds element which differs from the ‘general corporate purposes’ of traditional issuance. This allows investors to elect which types of projects they are willing to finance. Not only does this introduce a new power in choosing the types of projects but it also comes with a higher level of transparency over the selection and allocation of proceeds and their underlying impacts (through the dedicated impact reports).

    Since the early days of the green bond market, which was initially only supported by SSAs (Sovereigns, Supranationals & Agencies), the universe only expanded to utilities and banks a couple of years ago. The lack of corporate diversification had long been an obstacle to replicating an allocation to the corporate market, but we think the latest developments will encourage the arrival of new issuers and further reduce the gap with traditional credit indices. 

    Green, Social and Sustainable bonds market: breakdown by sector 

    Source: Bloomberg, La Francaise AM, as at 31/01/2021

    With regards to the valuation of green bonds, the market has definitely shown resilience in times of volatility. We can see it when comparing the levels of spreads between the euro green bond market and the euro investment grade one throughout the COVID market stress period from February to July 2020. The green bond indices have held up much better reflecting a somewhat stickier investor base as well as a stronger underlying credit quality protecting the market from the fallen angels wave. The market has also shown increasing signs of a “greenium” which really differs in magnitude from one issuer to another and is not consistent on all maturities of the same issuer. We think that this is the natural result of a market which is still distorted by a greater amount of demand than available supply.

    Finally, going beyond the technical aspects behind the opportunities to invest in this market, one should bear in mind that the green bond market, and more widely, the sustainable bond market (which includes Social, sustainable, transition and sustainability-linked denominations), has created a new channel of communication between bond issuers and investors. This is not to be undermined as historically bond investors have had little room for engagement with companies given their lack of voting rights. 

    Why the recent interest in green bonds? 

    The reasons behind the recent exponential growth of the market are twofold: the uptick in SSA involvement and the broadening of ESG-labelled debt for corporate issuers. We expect this trend to continue in 2021 and moving forward.

    On the government and government related market, the EU has been a driving force of the recent uptick in SSA issuance with their pandemic related social bond program called SURE (Support to mitigate Unemployment Risks in an Emergency). The EU has already issued more than 50 billion euros out of the 90 billion granted to member states. The very strong demand behind the SURE issuance (latest issuance was 9 times oversubscribed) and the view that the ECB would be a persistent buyer in the secondary market has led to a tightening of EU bonds relative to other SSAs.

    The 2021 funding outlooks from European countries has also shed light on government issuance, with repeat issuers (like France and Germany) coming into this market or newcomers like Spain or Italy.

    The second growth driver comes from the increased adoption of impact bonds by corporates. A wider range of corporate issuers consider raising ESG-labeled capital. Reaching this market has the advantage from the corporate’s perspective, to diversify its investor base, reduce its funding costs risks and message their sustainable strategy. Indeed, fewer green bonds are issued opportunistically nowadays, most of the projects financed by the green/social bonds are part of a much bigger picture of improving the company’s sustainable profile. Another market development which allows the arrival of new issuers, but mainly new industries, is the appearance of Sustainability-linked bonds (SLBs). These bonds are not restricted to use of proceeds but their coupon payment (often the coupon steps up or down) is based on a specific sustainability target. To tie this up with the wider EU green agenda, the ECB has even made those bonds eligible for its buying programs if the targets are environmentally related (usually linked to an emission reduction objective). In our view, this opens the door for companies in carbon intensive industries to finally enter the ‘impact bonds’ market (the first example coming from an SLB issuance from the cement industry).

    Do they really represent an opportunity or just a trend?

    This is clearly not a trend but an opportunity to participate in the growth of what is to become a structural market for decades to come. The European Commission has put everything in place to normalize this market (EU green bond taxonomy and standard) and will drive green finance indirectly through reporting requirements imposed on European investors (committing and disclosing ESG assets, performance and products). The trend is not limited to Europe as major participants of domestic green bond markets are aligning with international standards (specifically China and Russia) and can bring a new range of issuers.

    On the supply side, as explained earlier, corporates have every incentive to catch this train if they do not want to miss the ESG investing wave that is currently ongoing and has shown itself in big numbers in 2020 with investment flows into ESG fixed income funds outpacing the broader market by more than 25% on average. (Source: Bloomberg)

    Finally, as long-term investors are looking to invest in companies that ride and survive cycles while improving their credit profiles, one cannot ignore the necessity to look at the way a company is addressing the sustainability challenge. The pandemic has rightly triggered an awakening in the necessity for urgent societal action. It is not about pretty corporate sustainability reports but about understanding the underlying shifts in consumer demands, the potential threats of the energy and social transition (with the increasing regulatory scrutiny) and how it will affect a business’ future competitiveness. Green, Social and sustainability-linked instruments make it possible to identify those companies that commit themselves to a strategic business transformation while giving us, investors, the tools to challenge them on their ambitions and pace of progress.


    Disclaimer
    This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2256 Wed, 17 Feb 2021 10:23:33 +0100 What is your outlook on gold for 2021? /en/who-we-are/news/detail/what-is-your-outlook-on-gold-for-2021/ Gold has enjoyed an impressive year in 2020 (+25% in dollar terms) thanks to the dramatic monetary and fiscal easing that occurred globally. While we do not anticipate such an impressive performance to be repeated in 2021, we are constructive on the outlook for gold. The first driver is the dollar, which should continue to weaken. This currency is overvalued when we look at its long-term real effective exchange rate. What’s more, the new administration will probably be less aggressive regarding tariffs. The upside on the dollar is therefore curtailed.

    Another positive feature for gold is that many investors, especially on the retail side, worry about an inflation surge. Historically, they tend to buy gold to hedge against it so we could expect additional flows in gold this year.
    Last, monetary policy should remain very accommodative in the US. We do not anticipate a Fed tapering in 2021: the Fed already said it would not react to the inflation surge we will see in the coming months, as it should be temporary.

    Monetary base should therefore continue to rise rapidly, which should help gold to perform well in dollar terms.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2254 Mon, 15 Feb 2021 09:17:28 +0100 Too Hot to Handle? /en/who-we-are/news/detail/too-hot-to-handle/ With rising temperatures and increasing weather events, governments, corporations and consumers are putting more emphasis on sustainable production of all kinds, with important consequences for investors. Global Land and Ocean Temperature Anomalies

    • As the chart above shows, temperatures have been warming for the past several decades. 2020 was the second warmest on record with 2016 being slightly hotter. But the trend is clear: the earth is heating up.
    • According to most scientists, the way forward, of course, is to reduce carbon emissions. This reduction may have to be quite rapid to keep global warming under 2°C. In fact, scientific studies suggest emissions would need to fall by nearly half over the next 20 years to adhere to that cap.
    • Biden recently signed climate-related executive orders, including accepting the Paris Climate Agreement, which could bolster sustainability. Additionally, pandemic stimulus has extended federal tax credits for solar energy investment for another two years, further supporting emissions reductions.
    • We believe companies that may help the world reduce emissions could provide attractive investment opportunities. This includes makers of electric vehicles, companies that produce inverters that convert DC to AC power, manufacturers of wind blades for windmills and even those that produce raw materials necessary for battery manufacturing.
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    news-2252 Fri, 12 Feb 2021 10:33:12 +0100 Carbon reduction targets: from ambition to impact /en/who-we-are/news/detail/carbon-reduction-targets-from-ambition-to-impact/ It has been estimated that almost one quarter of global CO2 emissions and more than half of global GDP were covered by Net Zero commitments by June 2020. However, the gap between ambition and reality can often be very significant, for example, due to a lack of standards. In this report we address that ambiguity.

    Global warming and the role of GHG emissions is a well-established fact. In response, carbon reduction efforts in the private sector have been made for decades. Such carbon reductions were reported, for instance, as part of energy efficiency programmes. The goalposts have shifted in recent years due to the urgency of the climate crisis. Global warming has gained worldwide attention not least due to the Paris Agreement in 2015. Countries are now strengthening their commitments through setting Net Zero targets. Six countries have enshrined Net Zero reduction in law, five countries and the EU have proposed legislation, fourteen countries have targets in policy documents, while many more are discussing Net Zero targets.

    In the private sector, carbon reduction has since become a strategic objective for many businesses and has evolved well beyond the isolated environmental targets of the past. Today, carbon
    reduction is a priority for many companies and their stakeholders – including shareholders and creditors. Yet, the voluntary nature of most efforts means that targets can be set through arbitrary parameters. What is needed to solve the climate crisis are commitments to reduce GHG emissions that are aligned with scientific global warming scenarios. A study of companies with science-based targets shows that these companies reduce emissions at far greater rates relative to emissions trends in the wider global economy.

    This report focuses predominantly on non-financial companies covering Scope 1, 2 and 3 GHG emissions. We also take the perspective of the finance sector, where financed emissions (Scope 3) are key. Banks, underwriters, and investors have an intrinsic motivation to manage climate risks in their portfolios. Looking ahead, we expect that a new set of Scope 3 reporting standards will allow the financial sector to catch up with the non-financial sector in setting carbon reduction targets. This will reinforce the pressure on the corporates held within portfolios to deliver realworld environmental impact through carbon reductions.

    Chapter 1 introduces the common terminology relating to carbon reduction targets and the implications for investors. Chapter 2 examines the economic benefits for companies that reduce GHG emissions and illustrate the steps they need to take in setting a target. Chapter 3 discusses how investors can assess the different aspects of carbon reduction at the company level and the role of investors in holding companies accountable. Chapter 4 showcases examples from different sectors of companies and their ambition to make a real-world impact.

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    news-2250 Wed, 10 Feb 2021 18:11:31 +0100 La Française AM targets a range of 100% sustainable open-ended funds /en/who-we-are/news/detail/la-francaise-am-targets-a-range-of-100-sustainable-open-ended-funds/ La Française Asset Management (LFAM – a La Française Group asset management company) is pleased to announce its ambition to offer a range of 100% sustainable open-ended funds by the end of 2022. This objective is in line with La Française Group's strategy. 73% of LFAM open-ended funds already meet sustainability criteria and seven are labelled (as at 31/12/2020). La Française Group began modelling its unique ESG (environmental, social and governance) approach in 2008 and since then, has achieved significant milestones. The group is currently rolling out its sustainable strategy across all of its asset classes and, as such, will be able to offer a sustainable multi-asset product range.

    La Française Group has invested in the means and resources necessary to achieve these objectives, in particular through its proprietary ESG research centre based in London: La Française Sustainable Investment Research (LF SIR). Its teams have worked on the implementation of innovative methodologies for measuring and forecasting carbon emissions. 

    "We have strong ambitions. Fully committed since 2008, LFAM will continue to meet clients' expectations in terms of sustainable investment through a complete range of solutions representative of all our asset classes", explains Jean-Luc Hivert, Global Head of Investments and Chairman of LFAM. 

    “Our commitment highlights a new juncture in our transition towards sustainable investment. The rigour of our methodologies and the acquired expertise of numerous specialists within the Group are proof of our dedication to transforming La Française AM into a committed stakeholder", adds Laurent Jacquier-Laforge, Global Head of Sustainable Investing, La Française Group.
     

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    news-2246 Thu, 11 Feb 2021 09:00:00 +0100 Roland Rott appointed Head of ESG & Sustainable Investment Research for La Française Group /en/who-we-are/news/detail/roland-rott-appointed-head-of-esg-sustainable-investment-research-for-la-francaise-group/ La Française Group began developing its innovative ESG (Environmental, Social & Governance) strategy in 2008 and has achieved significant milestones since. In 2014, the group established its multi asset ESG research center that has recently been renamed La Française Sustainable Investment Research (LF SIR) . Today, the group is pleased to announce that Dr Roland Rott, CFA, Managing Director of LF SIR, has been appointed 
    Head of ESG & Sustainable Investment Research for La Française Group.

    La Française Group manages over 10 billion euros (as at 31/12/2020) in sustainable investments, all asset classes included. As Head of ESG & Sustainable Investment Research, Roland Rott will continue to work in close collaboration with Laurent Jacquier-Laforge, Global Head of Sustainable Investing for La Française Group, in defining and implementing the group’s ESG strategy. 

    Roland leads sustainable investment research and engagement activities with a team of five ESG analysts. Furthermore, he is responsible for ESG data and methodologies, steering of ESG change projects and engaging in ESG product development and marketing with investment and distribution teams across group entities.
    Roland joined La Française Group in 2016 and was promoted to Managing Director of the ESG research center in 2018. Under his leadership La Française Sustainable Investment Research, located in London, has become the group’s center of expertise in sustainable investment, covering all asset classes: equities, fixed income and real estate securities. 

    Roland Rott, Head of ESG & Sustainable Investment Research for La Française Group, commented, “Moving forward, I will focus on our sustainable investment research and the sustainable investment strategy of La Française group-member entities. Over the past couple of years, the LF SIR team has been instrumental in designing ESG investment solutions and has developed a suite of proprietary ESG and climate risk management tools, which we will continue to expand across all asset classes.”

    Laurent Jacquier-Laforge, Global Head of Sustainable Investing for La Française Group, concluded, “Roland’s appointment to Head of ESG & Sustainable Investment Research for La Française Group ensures consistency in the quality of research provided to our portfolio management teams. Furthermore, Roland’s contribution will be instrumental for successfully transforming La Française AM’s open-ended funds to a 100% sustainable product range by end of 2022.” 

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    news-2242 Tue, 09 Feb 2021 09:27:09 +0100 Are we transitioning to an economy dominated by monetary policy to fiscal policy? /en/who-we-are/news/detail/are-we-transitioning-to-an-economy-dominated-by-monetary-policy-to-fiscal-policy/ By François Rimeu, Senior Strategist, La Française AM The support offered by central banks since the 2008 crisis has been tremendous. 

    It all began in November of 2008 when the US Federal Reserve introduced quantitative easing. Since then, central banks across the globe (European Central Bank, Bank of England, Bank of Japan, etc.)  have launched a series quantitative easing polices of various sizes (QE 2, QE 3…), implemented on a variety of financial assets (Government bonds, corporate bonds, Equities…). Without the monetary support offered by central banks, no one knows how the 2008 or 2011 crises would have evolved. Quantitative easing certainly has flaws, but it has allowed some developed countries to run fiscal deficits without fearing a spike in their long-term interest rates.

    It has been clear for some time that monetary policy has accomplished everything it could. No further large-scale purchases will make a significant difference. The European Central bank has been saying this for years and more recently, so has the US Federal Reserve. 
    Now is the time for fiscal intervention. Actually, it was already the case before the Covid-19 crisis, but it is even more true now. 

    In the coming years, we will probably witness central banks maintaining their lose policy stances and governments running higher fiscal deficits. Before the Covid-19 crisis, governments were somewhat reluctant to run very large fiscal deficits, fearing inflation or a potential inability to repay their debt. Those reasons do not appear to be valid anymore, with inflation below target for the past several years and central banks adjusting their bond-buying programs to adapt to new bond issuance. 

    More importantly, in the current environment, it would be political suicide for any party to pledge a reduction in fiscal spending. Unemployment is high and rising, services businesses are still negatively impacted by the pandemic and uncertainty remains very high. This is not the time to reduce fiscal spending, the population would not understand it, and it could eventually lead to social turmoil, which would be very difficult to handle in the current situation.  
    As of now, nobody knows to what extent we can limit fiscal stimulus. Until we have the answer, loose fiscal policy will continue.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2241 Mon, 08 Feb 2021 18:38:02 +0100 How to Play Economic Dispersion /en/who-we-are/news/detail/how-to-play-economic-dispersion/ It isn’t difficult to understand where Americans have been spending their money throughout the Covid-19 pandemic. Many people have invested in hobbies or fixing up their homes. They haven’t been traveling much, nor spending on leisure or entertainment. We believe some of these lagging areas are due to rebound when a vaccine is widely available, but we believe that it is important to gain exposure to those end-markets with high quality, innovative companies.

    •  Areas such as spectator sports, live entertainment and movie theaters have been hardest hit by pandemic considerations. Games, toys and hobbies, furniture and furnishings and pets and related products have prospered.
    • Some investors believe picking stocks right now is a question of growth vs. value, with value equating to cyclical stocks, i.e., those whose price is affected by macroeconomic or systematic changes in the overall economy. At Alger, we believe value stocks have structural headwinds. Still, we believe there is a sweet spot to be found in growth equities.
    •  We believe the most potential returns lie in gaining exposure to innovative growth companies that are taking market share, have high return on capital and have exposure to some of the markets we think may potentially rebound. Examples of innovative growth companies include, in our view, digital travel platform company Booking.com, commercial real estate information services business CoStar, automobile voice services company Cerence and energy technology company Core Laboratories.

    By Brad Neuman, CFA, Director of Market Strategy, Alger – a La Française partner firm

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    news-2237 Tue, 09 Feb 2021 09:00:00 +0100 La Française collective real estate investment vehicles acquire first The Hague-based asset /en/who-we-are/news/detail/la-francaise-collective-real-estate-investment-vehicles-acquire-first-the-hague-based-asset/ Three La Française collective real estate investment vehicles, represented by La Française Real Estate Managers, have acquired an office building in the central business district of The Hague from an Institutional Investor. The property is located at 69/71 Anna van Saksenlaan, in close proximity to the “Laan van NOI” train station and the A12 motorway.

    The six-storey office building, which was completed in 2003 and recently refurbished by the tenant, offers 9 324 m2 of floor space and 55 indoor (basement) and 52 outdoor parking spaces. The building and its equipment fully integrate sustainability requirements: A-energy label building, ample bicycle storage, electric charging points and a beehive on the roof top.

    The high-quality office property is fully let to FMO, the Dutch entrepreneurial development bank, for their headquarters.

    Jens Goettler, Managing Director of La Française Real Estate Managers - Germany said, “We are delighted to secure a fourth property in Randstad, the central economic engine of the Netherlands. This acquisition is perfectly in line with our investment strategy which associates financial and ESG (Environmental, social and governance) criteria. Located in a city renown for the abundance of its green spaces and rated among the top cities in the Netherlands to offer such a balanced work and life environment, we are confident in the long-term attractivity of the property. Furthermore, Beatrixkwartier is transforming into a mixed-use development with offices, childcare facilities, a health club, a conference center etc. and drawing in a variety of international organizations and large corporates.”

    La Française Real Estate Managers was advised by DLA Piper Netherlands on legal aspects and by Savills Netherlands on technical Due Diligence and as buy-side advisor.
     

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    news-2231 Thu, 04 Feb 2021 09:52:03 +0100 Difficult tasks lie ahead for Mario Draghi /en/who-we-are/news/detail/difficult-tasks-lie-ahead-for-mario-draghi/ Mario Draghi agreed to the request from Italian president Sergio Mattarella to form a government and will now begin discussions with the leaders of the different political parties. The question is obviously if it will change anything for Italy, both in terms of political stability and in terms of future economic developments. 

    Assembling a new coalition will be very challenging, even for someone as respected as Mr. Draghi. Lega and right-wing allies have no interest in helping him, with Mr. Salvini saying he would prefer an election. Will 5 stars agree to collaborate? They have declined a lot in popularity since the Conte led coalition was formed in June 2018 so yes, it is conceivable, but the coalition will not be very stable. In the end, the coalition will rely on the support of a disparate selection of smaller parties and will have at best a small majority in parliament. In the end, it will be the same coalition as Mr. Conte, and difficulties will come back very quickly on how Italy should spend the €209bn it will receive over the next few years from the European Union.

    Italy is required to present its “recovery and resilience” plan to Brussels by April in order to get the first payment and will have to respect some criteria to secure the release of subsequent tranches. Some of those criteria (not fully disclosed yet) will rely on structural reforms like taxation or pension schemes, which is very controversial in Italy and which could lead to the collapse of the newly formed coalition. 

    The task of Mr. Draghi is very difficult to say the least. He will have to use his influence to persuade European partners to ease the different conditions on future disbursements and push for some more lenient reforms domestically. We are not sure that Mr. Draghi will be able to really make a difference over the long term, but he could probably give Italy some stability in 2021.  

    by François Rimeu, Senior Strategist, La Française AM.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2229 Tue, 02 Feb 2021 11:46:24 +0100 Covid-19 resurfaces in China: a very different Lunar New Year ahead /en/who-we-are/news/detail/covid-19-resurfaces-in-china-a-very-different-lunar-new-year-ahead/ by Guillaume Dhamelincourt, Business Development–Product Specialist, JK Capital Management Ltd., a La Française group-member company From the summer of 2020 until the end of the year China has enjoyed a long Covid 19 free period, thanks to its drastic handling of the crisis early on. This allowed the economy to recover and grow while the rest of the world was having hard times getting the pandemic under control. However, over the past few weeks, China has seen a resurgence of locally transmitted infections. It started with some cases in Beijing and it spread to a few provinces where clusters have been reported. Between 2nd and 28th January, more than 2,600 new cases were confirmed in northern China’s Hebei and northeast China’s Heilongjiang and Jilin provinces. This put the authorities on high alert as the timing could not be worse with the Chinese New Year (CNY also called Lunar New Year) holidays starting on 12th February.

    CNY is the most important holiday and most celebrated event of the Chinese calendar. It is a week-long celebration during which families assemble and celebrate. For many of China’s 300 million migrant workers, this is when they do their once-a-year trip back home to celebrate. CNY is often seen as the biggest human migration in the world, year after year. In 2019 it was a total of 3 billion journeys that had been carried out during CNY. It is typically a week of high consumption and often an opportunity to assess the consumer morale.

    But not this year. In light of the spreading infection, the government has recently re-imposed strict lockdown measures on cities/districts that are exposed to virus outbreaks. A number of regions in Northern China have entered into a “wartime mode” since early January 2021. For instance, on 7th January, Shijiazhuang, Hebei’s capital city with 11m residents imposed a lockdown and banned all residents from leaving the city. On 9th January, Xingtai, a city in Hebei province with a population of 7.4m also imposed a lockdown. For policymakers, the virus containment is clearly a much higher priority than economic growth in the near term, and they are now very proficient at mobilising administrative powers to reduce population mobility and to tighten social distancing rules. 

    The State Council issued a call to the public on 25th January for people to “celebrate in place” and avoid non-essential trips during the Lunar New Year period. In addition, interprovincial travellers will have to present a negative Covid-19 test result from the preceding seven days starting 28th January. The cabinet also urged people to practice 14 days of home quarantine upon arrival and not to attend large gatherings. The phrasing of this last part reflects the softer tone taken by the Central government lately as it tries to set up more normalised approaches for virus control to reduce the impact on social and economic activities. But for many localities which do not have the means of a softer approach that larger cities do (mass testing often requires logistics that smaller cities and villages typically do not have), the guidelines given by the Central government often translates into locally-enforced drastic quarantine measures as such smaller cities and towns feel under a lot of pressure to contain any spread.

    With such measures in place, few will attempt to travel. The latest estimates are that only 1.1bn journeys will be taken during this CNY, down from 3bn in 2019 and 1.5bn in 2020 when the first wave was in full strength. The actual number may likely be even lower. The hospitality and transport sectors will no doubt be impacted together with several other discretionary spending areas. On the other hand, industrial activity will be stronger than usual as workers are being asked to remain in their factories at a time when many of these factories are operating at full capacity. Several cities have offered RMB500 to RMB1000 as compensation to each migrant worker who has decided to stay. Furthermore, overtime work during Chinese New Year is typically paid three times more than under normal circumstances. 

    The overall GDP growth of the quarter will likely reflect these exceptional measures. The YoY comparison will also be impacted by last year’s low base.  

    China’s objective remains similar to what it was in 2020: To eliminate all domestic cases, whatever the cost. It is the reason why it is implementing once again aggressive and strict measures with little regard for celebrations, domestic spending or economic growth. The 2020 waves proved this was the right approach for the country as it shortened the length of the pandemic and allowed for a speedy economic recovery. The authorities hope to repeat this success this year.


    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2228 Mon, 01 Feb 2021 18:04:20 +0100 High Yield in 2021 – the positive trend should continue /en/who-we-are/news/detail/high-yield-in-2021-the-positive-trend-should-continue/ By Akram Gharbi, Head of High Yield Investment at La Française AM.
  • US High Yield and EM High Yield expected to develop more strongly than European High Yield; however, uncertainties for EM High Yield to be considered;
  • Fallen Angels, strong “BB+” rated issuers in sectors impacted by Covid-19 and “B” rated issuers in sectors not affected by Covid-19 could offer opportunities
  • High Yield has not suffered as much in 2020 as other asset classes. Even though the positive trend should continue in 2021 on a global perspective, investors have to consider geographical differences. “We favour the US High Yield over European High Yield because we are expecting a strong economic recovery in the US, lower political risks, a larger decline in default rates compared to 2020 and a lower net supply. In EM High Yield we expect the highest total return with attractive valuations in Asian High Yield. However, there are uncertainties regarding the net supply of Asian companies due to significant refinancing needs and the default rates of Chinese companies”, explains Akram Gharbi, Head of High Yield Investment at La Française AM.

    Positive 2021 outlook for High Yield markets and favourable technical signals

    Only 5% of the global Fixed Income market offers 4% yield or higher (Hedged in euros). This includes the High Yield market and the AT1 market. “The main driver for High Yield market flows will remain Investment Grade funds, especially in Europe”, states Gharbi. A 1% increase in EUR Investment Grade funds implies €28 billion of net inflows into High Yield which represents 7% of the total asset class in Europe. “This trend should continue as there is a lag of opportunities to get yield in an environment where the average sovereign rate in Europe is about zero percent”, says Gharbi. 

    The fundamentals are expected to be especially strong in the US and stable in Europe as well as in the EM. “We expect a strong momentum for the US High Yield market with an almost 50% decrease in default rate compared to 2020”, explains Gharbi. The main reason being a strong recovery of the US economy which will most likely not be the case in Europe due to the slow roll-out of the vaccine programmes. The massive government support of European companies which are in difficulty could be a swing factor for default rates in Europe as well. For EM, the situation is slightly different. The default rate should remain stable, but there is a lot of uncertainty. “Asian issuers, especially Chinese companies that are the biggest contributors to the Asian High Yield Index, have a huge amount of debt. The same is true for some Argentinian companies that are one of the biggest contributors to the Latin American High Yield Index (8% on the index). The question is whether there is enough liquidity to roll-out the debt.”... 

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    news-2227 Mon, 01 Feb 2021 14:46:44 +0100 Asia High Yield: Market outlook /en/who-we-are/news/detail/asia-high-yield-market-outlook/ After the frenzy of new issues in January, we expect market activity will slowdown in February as we approach the Chinese New Year break. Furthermore, the recent stabilization of the UST yield curve has likely removed urgency for Asian corporates to rush their bond issuance. This should bring some much needed relief for the Asian bond market which is beginning to show signs of primary market indigestion. 

    With Trump political volatility now somewhat out of the picture, we expect more traditional macro signals to re-emerge as the key drivers for the bond market. In other words, attention will focus back to the interplay of the economy and fiscal/monetary policy. In this regard, COVID remains the greatest sensitivity and clearly much of the COVID vaccine optimism at the start of the  year appears to have been premature as  cases  continue to soar while vaccine rollouts disappoint. While this may pause the recent curve steepening trend, we believe higher UST yields and USD weakness is inevitable given Biden will still want to push forward his fiscal agenda while he maintains  control of the Senate and House. 

    In the Asian region, the key consideration regarding COVID will be the extent to which the Chinese authorities’ suppression of people movement over the Chinese new year holiday  creates a headwind on consumption demand. We are already starting to see some sensitive sectors such as tourism and retail names trade cautiously ahead of the holidays although it is the property sector that will inevitably have the biggest impact on our markets. That said, last year property names demonstrated incredible resilience as recent announcements of full year sales suggest, companies were able still to achieve impressive growth despite lockdowns. In our view, as demand for the sector remains robust it will continue to be government policy that drives bond performance and while recent tightening measures, such as the new three-red-line rule, may raise some concerns on volatility, this is ultimately positive for the stability of the sector, in our view. It is very telling that despite the recent sharp drop in the bonds of large scale issuer CHFOTN, we have not yet seen this translate into a major sell off across the rest of the sector indicating Chinese property bonds remain attractive to domestic investors.

    Disclaimer
    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed. JK Capital Management Ltd. - a limited company - Rm 1101 Chinachem Tower, 34-37 Connaught Road Central - Hong Kong – company number AEP547 - regulated by the Securities and Futures Commission of Hong Kong.

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    news-2226 Wed, 27 Jan 2021 14:47:28 +0100 The Cleanest Energy? /en/who-we-are/news/detail/the-cleanest-energy/ Electric vehicles convert energy to motion three times more efficiently than internal combustion engines do with gasoline. However, charging them requires energy generation that usually emits carbon. But it’s possible we may be able to use hydrogen as a net zero emission fuel for transportation and industrial applications. Over the long term, hydrogen could help reduce carbon emissions and produce attractive investment opportunities along the way.

    • Hydrogen has tremendous potential as a clean fuel. The Fuel Cell & Hydrogen Association estimates that the industry’s revenue could rise to $140B by 2030, multiples of the current level. Additionally, by 2050 that estimate is $750B, accounting for 3.4 million jobs and 14% of
    final energy demand.
    • But what is hydrogen? It isn’t a source of energy so much as an energy carrier like electricity. It is used in industrial applications but has huge potential in transportation. Currently, it is mainly produced from natural gas as so-called gray hydrogen. As a fuel source for trucks and buses, it eliminates tailpipe emissions and significantly reduces overall greenhouse gas pollution as compared to diesel or gasoline. So-called blue hydrogen, which captures carbon from traditional energy production, and green hydrogen, which is produced from wind or solar using electrolysis, can be net zero emission fuels.
    • As the global investment in hydrogen increases by the day, there are more and more industry participants for investors to evaluate, from hydrogen suppliers to electrolyzer manufacturers to fuel cell manufacturers. We believe one interesting supplier is Air Products, which strives to capitalize on the hydrogen opportunity and has been a leader in hydrogen for quite some time.

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    news-2225 Tue, 26 Jan 2021 14:20:48 +0100 FOMC expected to provide dovish message /en/who-we-are/news/detail/fomc-expected-to-provide-dovish-message/ We expect the Federal Open Market Committee to repeat the Fed’s existing dovish message despite recent taper discussions. In our view, Mr. Powell will be very cautious as to how and when to manage the tapering topic after what happened in 2013. 

    Given the recent progress (resilient growth, rising vaccine distribution and fiscal stimulus) on one hand and the worsening public health situation on the other, the communication should be balanced and prudent. The FED will remain focused on reaching its long-term growth and inflation goals. Janet Yellen’s appointment as US Treasury Secretary will probably help future discussions between the Federal Reserve and the government.    

    Lastly, the upcoming FOMC meeting should be a non-event with no new economic forecast and no update on the “dots plot”. We anticipate no changes to the statement and the FED to continue asset purchases at the current pace, at least $80bn of Treasuries and $40bn of MBS per month. 
     

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    news-2224 Tue, 26 Jan 2021 13:40:36 +0100 Shortages in the semi-conductor industry /en/who-we-are/news/detail/shortages-in-the-semi-conductor-industry/ by Gun Woo, Senior Analyst, JK Capital Management Ltd., a La Française group-member company Lately the price of semiconductor chips has been rising due to the imbalance between the limited supply and robust demand. The trend started at the end of 2020 when the Power Management Integrated Circuits (PMIC) supply came under a huge shortage, so much so that even Apple was having trouble sourcing them. Afterwards, DDIC (Display Driver Integrated Circuits) prices started spiking as DDICs are produced in the same manufacturing facilities as PMICs. Some reports showed DDIC prices going up 100% QoQ in Q4 2020, Samsung raised its CMOS Image Sensor (CIS) price by 40% early 2021. DRAM (Dead Random Access Memory) prices also went up more than 20% in January. As for GPUs, they have become impossible to source, even for companies that had standing orders, as no supplier has any inventory. Stories like this can be found for many other types of chips, but why is the semi-conductor market suddenly facing such tight conditions?

    It all stems from the tech sector trade-war between China and the US which started three years ago. The uncertainty of the fast-changing trade environment lead IT companies to delay their capacity expenditure schedules. It does not mean they made no spending but most of the investment during the last 3 years was either maintenance capex or technology investment such as the development of the 7nm or 5nm processes. Barely any investment was done to expand existing facilities, such as the ones doing the 50nm or 60nm processes – precisely the ones producing PMIC, DDIC and CIS. 

    Meanwhile, the demand is still robust. On the smartphone side, Xiaomi, Oppo and Vivo are making big orders to capture the biggest market share in the wake of Huawei’s expected market share loss in 2021 due to US ban. The Covid-19 situation also led to increased demand in the work-from-home segment for servers and PCs. On top of these, a new PlayStation and Xbox were launched last year after 7 years without new products. And all of these are without mentioning the demand for electric vehicles, internet of things, and 5G network upgrades which are growing.

    Although capex for existing technology has increased lately, it is still shy and the capex trough period that preceded was quite long so we expect shortages will continue throughout the year. More and more equipment spending is nevertheless expected in this year by the semi-conductor producers. This trend could be structurally beneficial for equity holdings in the IT sector such as Koh Young and Chroma ATE, as they are the IT equipment suppliers for the semiconductor industry. Leeno Industrial and Hansol Chemical could also benefit from the increased IC production as they supply the consumables and materials to the producers.

    Sources: DRAMeXchange, Digitimes

    Informative Document for professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed.

     

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    news-2222 Wed, 20 Jan 2021 14:45:38 +0100 Why High Equity Valuations Are Justified /en/who-we-are/news/detail/why-high-equity-valuations-are-justified/ The earnings resilience of the S&P 500 has been quite amazing. With equity markets having performed so well in 2020, many of our clients are asking us about valuations and whether they’ve gone too far. We think the answer is no; they have not.  

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    news-2221 Wed, 20 Jan 2021 14:40:01 +0100 The Biggest Balance Sheets /en/who-we-are/news/detail/the-biggest-balance-sheets/ Central bank balance sheet expansion has had huge effects on economies and markets. Will they swell or decline in coming years and what does that mean for investors? Massive Monetary Expansion Supporting Valuations?

    • The balance sheets of the major developed central banks in the United States, European Union, Japan and England have swelled an unprecedented $8 trillion over the past year. This dramatic flood of money makes the $2 trillion expansion during the 2008 Global Financial Crisis look paltry.
    • While we believe multiple factors have driven equity P/E expansion, central bank balance sheet growth and its impact on liquidity and interest rates has played a significant role, in our view.
    • Fortunately for investors, central banks do not appear likely to tighten anytime soon, with Evercore ISI expecting a nearly $3 trillion expansion in global central bank balance sheets over the next year. We believe keeping the spigot of liquidity on should help support equity valuations.
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    news-2219 Wed, 20 Jan 2021 09:19:46 +0100 The ECB should reiterate that “Fiscal policy” is the answer! /en/who-we-are/news/detail/the-ecb-should-reiterate-that-fiscal-policy-is-the-answer/ The ECB will hold its press conference on January 21st. Expectations are very low following December announcements (Pandemic Emergency Purchase Programme - PEPP size increase, new Targeted longer-term refinancing operations - TLTRO terms…), therefore do not expect too much from this event:

    • Mrs. Lagarde will likely keep a very accommodative tone but will not discuss changing the ECB’s monetary policy tools.
    • The recent fall of the Euro vs the US dollar lowers the pressure on the ECB to comment the exchange rate movements. Still, after last year’s appreciation of the Euro, they may reiterate that they will “continue to monitor developments in the exchange rate”.
    • The ECB will most likely not comment on the political “noise” in the Netherlands, Germany or Italy (especially not in Italy).
    • Additionally, the ECB will likely reaffirm that fiscal policy must be the main response to the current economic situation.

    Overall, we do not expect any meaningful market reaction from this ECB meeting.


    Disclaimer

    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2217 Tue, 19 Jan 2021 10:00:00 +0100 La Française collective real estate investment vehicle acquires Cologne-based asset /en/who-we-are/news/detail/la-francaise-collective-real-estate-investment-vehicle-acquires-cologne-based-asset/ A La Française collective real estate investment vehicle, represented by La Française Real Estate Managers, has acquired a mixed-use property in Cologne, Germany from Primus Siebte ImmoInvest GmbH, a group-member company of the project developer WvM Immobilien + Projektentwicklung. The property is located at 310-316 Venloer Str. in the Ehrenfeld submarket, a strong retail location in the greater Cologne area, which is the most important economic center within the North Rhine-Westphalia region. With the Venloer Str. metro station just 170 meters away, the asset is ideally situated and easily accessible. 

    The three-storey mixed-use property, built in 1965 and fully refurbished as of mid-year 2020, offers 30 meters of storefront, 2 824 m2 of retail space, 790 m2 of office space, 482 m2 of storage space and 63 indoor parking spaces (basement level). 

    The property is fully let to three tenants: a food retailer (Rewe Markt GmbH), a drugstore (DM-Drogerie Markt GmbH + Co. KG) and a co-working supplier (Unicorn Workspaces).

    Jens Goettler, Managing Director of La Française Real Estate Managers - Germany said, “Located in a very vibrant and densely populated part of Cologne City, this storefront property, given its unique visibility and access to foot traffic, should offer a stable and secure income to the fund and benefit from demographic changes within the area.”

    La Française Real Estate Managers was advised by Clifford Chance Deutschland LLP on legal aspects and by TA Europe Real Estate GmbH on technical Due Diligence.  The asset was introduced by JLL. 
     

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    news-2214 Thu, 14 Jan 2021 09:25:26 +0100 A Small Opportunity /en/who-we-are/news/detail/a-small-opportunity/ We highlighted the opportunity in small caps in a previous Alger On the Money called Small Caps for the Recovery in the spring of 2020, noting that small caps historically tend to outperform as the economy emerges from recessions. That scenario has transpired with the Russell 2000 outperforming the S&P 500 by 20% since the piece was published on May 13 through the end of last year, but is there more room to run in small caps?

    • Small cap stocks historically traded at a price-to-earnings premium to their large cap cousins.This makes sense to us, given that small cap stocks typically grow faster. However, recently U.S. small cap equities have traded at an unusual discount to large capitalization U.S. stocks.
    • This valuation anomaly comes even though small cap company earnings are expected to grow faster than large cap earnings in both 2021 and 2022.
    • 50 years of history demonstrated that the small size factor has generated nearly 1% of annual outperformance.
    • We believe this setup may help correct the past several years of underperformance of the small size factor. 
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    news-2211 Mon, 11 Jan 2021 09:47:03 +0100 Reshaping of the real estate risk premium: the move towards segmentation of the real estate market /en/who-we-are/news/detail/reshaping-of-the-real-estate-risk-premium-the-move-towards-segmentation-of-the-real-estate-market/ By Virginie Wallut, Director of Real Estate Research and Sustainable Investment at La Française Real Estate Managers Despite the unprecedented shock caused by the health crisis, real estate is still as attractive as ever thanks to a high real estate risk premium, i.e., the difference between the rental yield on real estate assets upon their acquisition and the risk-free rate. With the sovereign bond rate close to zero in Europe, the European real estate risk premium stood at 316 bps (1) at the end of September, which is 68% higher than its long-term average which stands at 188 bps. European monetary policy should prolong the low levels of sovereign rates in 2021, and therefore maintain the attractiveness of real estate.

    A new perception of the risks related to the holding of real estate assets is however emerging and it should lead to the reshaping of the risk premium in a way which is specific to each asset. Consequently, it will no longer be possible to talk of the real estate market as a whole. Significant divergences in trajectories are expected to appear between real estate asset classes and within each asset class.
    Whereas up until 2019 the additional return on secondary assets diminished as the rates of return on core and secondary assets converged (Graph 1), the health crisis should bring a new hierarchy of rates in its wake, highlighting the polarization of the markets between core assets and secondary assets. At the end of the third quarter of 2020, the additional return offered by secondary assets remained at a low level of 50 bps compared to a long-term average of 145 bps.

    (1) Q3 2020 data, PMA  

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    news-2209 Wed, 06 Jan 2021 14:09:58 +0100 China’s energy dilemma: How to decarbonise while keeping up with industrial demand? /en/who-we-are/news/detail/china-s-energy-dilemma-how-to-decarbonise-while-keeping-up-with-industrial-demand/ Recent power cuts prove that doing both simultaneously is not an easy task by Fabrice Jacob, CEO, and Aravindan Jegannathan, Senior Analyst, JK Capital Management Ltd., a La Française group-member company During the last days of 2020, China faced energy blackouts in various provinces for the first time in probably more than a decade. Yiwu and Changsha were among the Chinese cities that imposed power rationing following a surge in power demand as increased demand from a recovery in manufacturing and wintertime heating worsened the supply shortage of power. Multiple cities in Zhejiang, Hunan, Jiangxi, Shaanxi, and Guangdong provinces have imposed limits on off-peak electricity use for factories since mid-December. 

    Week-long blackouts were announced in several parts of Shenzhen. Lighting of multiple landmark structures in Changsha, the capital of southern China’s Hunan province, were turned off during November as Chinese authorities tried to manage power supply. As per media sources, electricity restrictions are expected to be imposed in the eastern province of Jiangsu as well.

    Being one of the first countries to recover from the lockdowns amidst the pandemic, China’s industrial production revived rapidly as exports reached a record high in November 2020, growing at 21.2% YOY. China’s power consumption in November stood at 646.7 billion KWH, a 9.4% YOY growth, the highest in 27 months. In addition, China is going through a particularly cold winter as power consumption exceeded the summer months for the first time in ten years. Despite the shutdown of the economy at the start of the year, power consumption in China grew by 2.5% YOY over the first 11 months of the year.

    While the power blackouts in different parts of China came as a surprise, it also highlights deeper structural problems that the country is facing as it is going through the difficult balancing act of achieving energy security while decarbonising its fuel forms to meet its clean energy targets, two goals that appear to be mutually exclusive as achieving one objective probably has the impact of delaying the other. 

    China in its march towards decarbonisation is aiming at becoming carbon neutral by the year 2060. It has been trying to achieve this goal by modifying its energy mix through an increase of the relative proportion of wind and solar-generated power in its production of electricity. It is also trying to increase the proportion of natural gas which is a relatively cleaner form of fossil fuel. In the recently announced updated national climate targets for 2030, the leadership announced plans to reduce the CO2 intensity of GDP by more than 65% from its 2005 level. The previous target was to cut it by 60 to 65% by 2030. 

    The target for non-fossil energy share which includes renewables and nuclear generated power is to reach 25% of the energy mix compared with an earlier target of 20%. The focus on wind and solar remains strong with an expected increase of ~800 GW over the next ten years as the Nationally Determined Contribution (NDC) targets for installed capacity of wind and solar power generation is to increase it from the current 415 GW by end of 2019 to 1,200 GW by the end of 2030. The share of non-fossil-based energy rose from 12% in 2015 to 16% in 2020. We believe the country is on track to reach 25% by 2030. 

    While China continues to subsidise gas-based power production, it has now largely stopped providing national-level subsidies to wind and solar projects and is implementing reforms to its feed-in-tariff system, moving to replace it with auctions in which wind and solar power must compete on an equal footing with fossil fuels. However, we believe this is not a dampener for clean energy adoption as the rapid fall in panel prices for solar modules is helping the adoption of renewable energy without having to rely on government subsidies as the cost of producing power using renewable energy is fast approaching grid parity. 

    Domestic coal supplies have been squeezed by production halts following a series of mining accidents, a plunge in imports and a broader campaign to cut coal-fired power generation to fulfil the country’s emissions commitments. Curbing coal-based power production without being able to offset the shortfall with alternative energy sources at a time when industrial activity is at its peak has resulted in the current supply shortage situation. 

    The cut in domestic coal supplies has pushed domestic coal price to shoot up from its 52-week low of RMB464/ton on 6th May 2020 to currently surpassing RMB700/ton, well beyond the upper band level of RMB600/ton allowed by the National Development and Reform Commission (NDRC). A coal price in excess of RMB600/ton is considered as a red flag that prompts the NDRC to take measures to cool the price down. The NDRC has now required power operators to coordinate the supply of coal among their power plants and has stipulated that coal purchases should under no circumstances exceed RMB640/ton. Power plants are now under very close scrutiny by the government.

    While China remains focused on increasing its proportion of renewables in the energy mix, such a gradual switch exposes China’s energy security to risks associated with renewable energy such as seasonal fluctuations. For instance, 45% of electricity consumed in the Hunan province is generated from hydropower plants which typically witnesses shortages of water during summer flooding and massive icing amidst the current winter. The situation has only gotten exacerbated as coal supplies from Shanxi and Shaanxi provinces were cut this year following mining accidents. Experts believe that the situation will get even worse in late January as the weather gets colder.

    To make things worse, Beijing has taken strong retaliation measures against Australia. Australian imports, including coal, are now either banned of heavily tariffed after Australia pushed for an investigation into the origin of the coronavirus. Australia also criticised China’s human rights records and the national security legislation recently implemented in Hong Kong. 

    Australian coal accounts for roughly 25% of thermal coal imports. China’s imported thermal coal accounted for about 7% of domestic supply in 2019.  While several Chinese media sources deny any relationship between recent electricity cuts and restrictions on Australian coal imports by arguing that the coal import ratio from Australia is only 2% of total coal consumption, it certainly adds to the ongoing crisis. Lifting the ban could provide some interim relief in the short term. Over the medium term, China can ramp up coal imports from Mongolia, Indonesia and Russia while expanding its local production. 

    Another key issue to address is the pricing regime. While coal prices are driven by the market, electricity tariffs remain under government control. Power generation companies need to keep electricity tariffs at low levels which leads them to be often loss-making as they supply power when the coal price is as high as it is now. Currently, the more power the plants generate, the more money they lose which discourages them from adding coal inventory and from producing more.  Official data reveal that provincewide inventory of coal for power generation in Hunan declined by 18.5% as at the end of November vs last year’s level. Aligning the power tariffs with demand and supply would ensure energy being used in a more efficient way. Currently, Chinese households pay flat subsidised tariffs that are much lower than those paid by industrial users as the pricing system does not reflect the true costs of power generation. As China’s power needs keep on growing, the pricing of power has to be more market-driven. 

    The recent power outages highlight multifarious issues that China needs to address if it wants to march towards energy security and carbon neutrality without having to manage power cuts such as those experienced at present. 

    Conclusion: 

    China shut down several coal mines in the Shanxi province, the coal mining hub of China following 13 accidents in the first 11 months of 2020 that resulted in the death of 26 workers. Coal production in Inner Mongolia that accounts for one third of China’s coal output has also been disrupted with ongoing corruption probes launched during the year regarding the opening of mines over the past two decades. China has also retaliated against Australia for political reasons by blocking the delivery of Australian coal. These measures have resulted in a short supply of coal and a sharp surge in coal prices, coal still accounting for more than 55% of China’s power production. 

    While China is in the process of decarbonising its fuel, it also faces the huge task of achieving energy security which has been supported by fossil fuel. Commenting on the recent outages, China’s electricity council said that China’s overall power supply is adequate while there are short term shortfalls emerging at certain hours in certain regions, hence dismissing that the current outages are a grave concern. 

    While we agree that the current outages cannot be considered as a big issue it serves as a warning bell for China to investigate its energy policy with respect to achieving decarbonisation without compromising its energy security. The current situation clearly highlights how difficult it is for a large industrial developing country to move towards decarbonisation and increase its use of renewable energy while keeping electricity prices low for consumers and safeguarding the financial stability of power producers without which no industrial company could operate.  

    Sources:

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    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed.

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    news-2208 Mon, 21 Dec 2020 11:43:50 +0100 Alger Insights that Helped Our Clients Navigate the 2020 Storm /en/who-we-are/news/detail/alger-insights-that-helped-our-clients-navigate-the-2020-storm/ At Alger. We use in-depth fundamental research to seek attractive investment opportunities among companies with potentiel for gererating earnings growth throughout economic cycles.  

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    news-2207 Mon, 21 Dec 2020 11:30:29 +0100 The Internet Circa 1996? /en/who-we-are/news/detail/the-internet-circa-1996/ The Dow Jones Industrial Average was under 7000 and Mariah Carey, LL Cool J and Alanis Morrissette ruled the music charts; 1996 was a long time ago. But that is how far back we must go in the evolution of the internet to find a comparable point in the growth of the new asset class of “cryptoassets” (e.g., Bitcoin, Ethereum, etc.). If that comparison is fair, we believe there may be considerable growth ahead in cryptoassets.

    Early in Cryptoasset Adoption?

     

     

     

     

     

     

     

     

     

     

     

     

    • In 1996, three years after initial adoption, there were about 75 million internet users globally out of a population of 5.8 billion, implying a penetration rate of 1.3%. In 2020, crypto user penetration is at the same approximate level.
    • According to data from Cambridge University, the compound annual growth rate of cryptoasset users is 70% over the past two years, totaling over 100 million users today. If crypto follows the growth of the internet, the number of crypto users seven years from now would be over 1 billion.
    • Ultimately, the internet has grown to 4.8 billion users. Imagine the potential for crypto if it has a similar growth trajectory.
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    news-2205 Fri, 18 Dec 2020 09:48:42 +0100 FOMC Meeting outcome: Will the average maturity of ongoing bond purchases be extended? /en/who-we-are/news/detail/fomc-meeting-outcome-will-the-average-maturity-of-ongoing-bond-purchases-be-extended/ Please find below what we expect from the upcoming December 16 FOMC Meeting:
  • We expect the average maturity of ongoing bond purchases to be extended even if several regional bank presidents have recently called into question the need to take any further action to support the economy. This is a close call
  • We do not expect the FOMC to link the end of the asset purchases to any kind of event or timing. We note that some participants would like to indicate that Quantitative Easing is not here forever, but we think they will wait for more clarity on the fiscal and virus front before doing so.
  • We expect the SEP (Summary of Economic Projections) to indicate better growth and employment numbers in 2020 and 2021. We doubt the updated numbers will indicate meaningfully higher inflation figures.
  • We expect the “dot plot” to show that a few more participants could anticipate a hike before the end of 2023 but that the median participant will continue to expect no hike throughout the next three years.
  • Overall, we expect long term rates marginally lower and no change on the front part of curve. 


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2204 Thu, 17 Dec 2020 15:39:34 +0100 What to expect for Chinese equity markets in 2021 /en/who-we-are/news/detail/what-to-expect-for-chinese-equity-markets-in-2021/ by Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company As we are approaching the end of the year, it is time for us to stick our neck out and make some predictions for 2021, especially for our key investment universe that is China, which has been a star performer for the second year in a row (MSCI China gained 20.4% in 2019 and so far this year, as at 11th December 2020, another 23.3%).

    The Chinese economy keeps on rebounding fast with a GDP growth in the third quarter of +4.9% YoY. November macro numbers were very strong, and all signs are pointing to another good month in December. But at some point growth will start plateauing as the post-COVID recovery of China has to come to an end. This plateau however may come later than initially foreseen as Europe and the US are fighting a difficult battle against the latest wave of infection. This is having a positive impact on Chinese exports. The same happened in the first half of the year when numerous European factories had to shut down.

    Chinese exports jumped last month, from +11.4% YoY in October to +21.1% YoY in November in USD terms. China’s trade surplus was USD75bn in November (or USD63bn when seasonally adjusted), its highest ever. One can easily draw the conclusion that all the trade tariffs imposed by the US against China did not have much of an impact on Chinese exports, if any at all. 

    This staggering acceleration of exports seen in 2020 and that can be visually observed in the graph below cannot last forever, especially as COVID vaccines will be made available next year and as the world will hopefully return to a steady state. 

    Li Keqiang, the Chinese premier said on 24th November that “[China] wanted to achieve a balance of trade and will absolutely not pursue a trade surplus”. This is telling us that China will likely not prevent its currency from appreciating if there is indeed further upside pressure. 

    Why would the RMB keep on appreciating? And what would be the impact on Chinese equity markets? It largely depends on China’s monetary policy on one hand and on the US’s fiscal policy on the other hand.

    There is no clear consensus among economist when it comes to anticipating China’s monetary and fiscal policy in 2021. A minority of them believes that China should keep on running a loose fiscal policy as the economy needs further stimulation. The COVID crisis is not over, local clusters of infection still appear here and there, and certain sectors are still not fully back on track (transportation, hospitality). 

    Other economists seem to be equally split between those who believe in a status quo of the current monetary and fiscal policy stance and those who argue for China tightening in the first half of 2021. We tend to be more receptive to the latter camp.

    Looking at the latest inflation numbers, we think there are reasons to believe in a forthcoming rise in interest rates. The consumer price index dropped to -0.5% YoY in November, but it was entirely driven by the very volatile price of pork and the high base effect a year ago when China was hit by swine flu. Pork price that is the largest component of the CPI index dropped by 12.5% YoY. In fact, core consumer prices are rising at the pace of +0.5% YoY. The production price index that is an indicator of CPI’s future trend rose by 0.5% MoM in November, its fastest acceleration since September 2018. In other words, despite misleading headline YoY numbers, inflation is indeed picking up in China, and is expected to accelerate further in the coming months. This will give reasons to the Chinese government to raise interest rates in 2021 which will help the trade surplus come down by pushing up the RMB. As an early sign, the Chinese government has already started pouring cold water on the overheating property sector by forcing the most overleveraged developers to sell inventory.
    Why are we highlighting the US’s fiscal policy? Because the left-leaning policies Joe Biden wants to implement and that revolve around the fight against climate change and improving social welfare will most likely deepen the fiscal deficit of the US and be negative for the US dollar and provide further upside pressure on the RMB’s exchange rate. Whether Joe Biden will succeed largely depends on him taking control of the Senate. The answer will come from the state of Georgia on 5th January 2021. If he does, we can expect the RMB to steepen its rise in 2021 and China to attract even more capital, especially as China remains massively under-owned in the vast majority of investment portfolios. 
    The combination of interest spreads between the western world and China being at its widest ever with continued upside pressure on the RMB may push Chinese equities up for a third year in a row. An endless flow of liquidity looking for a home and driven by western Central banks’ unprecedented quantitative easing is the obvious other driver. 
    The MSCI China currently trades at 15.1x 2021 expected earnings when profits in China are expected to grow by 19.3% in 2021 (Source: Bloomberg). 
    Bloomberg consensus for China’s GDP growth stands at +2.0% in 2020 and +8.2% in 2021.

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed.
     

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    news-2201 Mon, 14 Dec 2020 14:03:51 +0100 Home Country Bias /en/who-we-are/news/detail/home-country-bias/ People tend to gravitate to what they know. In investing, this phenomenon is known as home country bias. Americans generally invest in U.S. companies, Europeans invest in their own region and so on. Could this be an easily correctable mistake? Investors Gravitate to Their Own Country

    • While U.S. investors have over $3 trillion of holdings in international stock mutual funds and ETFs, that pales in comparison to the nearly $10 trillion of U.S. equity mutual funds and ETFs that they own. This 74% allocation to U.S. equities stands in stark contrast to the 27% of global GDP that the U.S. economy comprises.
    • The result is that most investors own a disproportionate amount of stock in their home country. For Americans, the biggest underweighting may be in emerging markets, which comprise 40% of global GDP. Markets such as China, India and Brazil are also growing much faster than developed markets with potential GDP growth of 4.4% as compared to only 1.4% for developed markets, according to J.P. Morgan.
    • This may be a good time for investors to address their home country bias given that non-U.S. stocks are trading at a relatively large historical discount to U.S. stocks (see page 18 in Alger’s Autumn 2020 Capital Markets: Observations and Insights). We believe prevailing discounts in non-U.S. equities make them attractive complements to U.S. equities.
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    news-2199 Mon, 14 Dec 2020 09:00:00 +0100 European CoCos, a safe haven ? /en/who-we-are/news/detail/european-cocos-a-safe-haven/ By Jérémie Boudinet, Credit Fund Manager, La Française AM
  •  Yields on global subordinated debt, and especially CoCos, are very attractive in absolute and relative terms; 
  • Banks worldwide benefit from unprecedented regulatory and liquidity support;
  • Risks on European CoCos have never been so low.
  • The impact of Covid-19 is unprecedented in terms of speed and significance. “We have never seen such a sharp shock especially on subordinated debt indices benchmarked in Euro”, says Jérémie Boudinet, Credit Fund Manager, La Française AM. But despite the sharp market correction in March, subordinated debt indices, especially CoCos, have recovered quickly compared to other asset classes and offer very attractive yields. The YTW is 3.98% for EUR-denominated CoCos and 4.88% for USD-denominated CoCos (figure 1). Boudinet expects the rally to continue even in case of worsening macroeconomic conditions.

    Figure 1: Market yields of different types of fixed income instruments

    Sources: Bloomberg, Bank of America. Data as of November 12, 2020. Past returns are not a reliable indication of future results. Indices: 10Y Germany = GTDEM10Y ; 10Y France = GTFRF10YR ; 10Y Spain = GSPG10YR ; 10Y Italy = GBTPGR10 ; Insurance Sub =EB1N ; Corporate hybrids = ENSU ; EUR HY = HE00 ; US HY = H0A0; COCOs =  CCEUTOYC. EM IG Corporate = EMHG. EM Government Debt = JPM EMBIGD

     “Central banks and regulators will stay accommodative which benefits European CoCos. In fact, we are back to pre-2008 regulatory thinking: banks must not die and should be too big to fail”, summarises Boudinet. Furthermore, the investment expert expects further easing.  “There could be more lenient rules for coupon distribution if capital ratios fall below required levels. Regulators in the UK and in the US have already relaxed rules about CoCo coupon payments – so called MDA limits. We expect the ECB to follow through”, says Boudinet. In this environment Boudinet favours EUR-denominated European CoCos because they are the cheapest on average and profit from the stability within the Eurozone. 

    Performance of CoCos versus high yield bonds
    Although we have seen significant volatility during the last few month, liquidity was much better than during former crises. “Even this past March, we were able to sell or buy bonds. In fact, it was more difficult to trade high yield bonds than to trade CoCos”, explains Boudinet. “However, investors should keep in mind that liquidity has been different for CoCos depending on the currency in which they were traded. The performance of USD-denominated bonds has recovered more quickly than EUR-denominated bonds”, states Boudinet. There are three reasons for this development: The broader investment space for EUR-denominated CoCos, an overweight of peripheral European banks (Italian, Spanish, Irish and Portuguese) in EUR-denominated indices and the lower cost of hedging USD bonds. Though the investment expert observes a similar path of recovery for EUR and USD high yield markets, he sees a clear trend towards CoCos. “On CoCos, the last nominal LTM default rate was zero for quite some time while on the high yield side the US high yield issuer-weighted LTM default rate was close to 7% and in EUR it was close to 2%. Liquidity is also different as it is much easier to trade a single CoCo than to trade a single high yield bond as Cocos have higher outstanding amounts.”      
    Hunt for yield continues
    EUR- and USD-denominated AT1-CoCos have outperformed the high yield market while USD-denominated AT1-CoCos recovered faster. Regarding EUR-denominated investment grade bonds the trends are quite similar though. “EUR-denominated AT1-CoCos trade quite wide versus investment grade bonds on a historical basis. We view investment grade bonds as an anchor for the spread.” The hunt for yield will continue because central banks need to stay accommodative. “We have never seen such a high amount of fixed income assets trading with a yield below zero percent”, says Boudinet. Yields are still very low, especially in the Eurozone, while at the same time the ECB is buying investment grade bonds to impact the outlook for yield (figure 2). “In terms of returns, CoCos, and subordinated debt as a whole have impressive results. Because of the accommodative stance, we are sticking with European CoCos, as the macroeconomic impact of Covid-19 remains, and central banks will still limit fixed income market yields.” 
     

    Figure 2: The hunt for yield is set to continue

    Source: La Française, Bloomberg, Citi Research (October 2020). Data as of end-August, 2020, for the graph on the left. Past returns are not a reliable indication of future results.

     

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    news-2196 Tue, 08 Dec 2020 13:55:33 +0100 PEPP and TLTRO announcements widely expected by the market /en/who-we-are/news/detail/pepp-and-tltro-announcements-widely-expected-by-the-market/ Difficult for the ECB to surprise on the dovish side
  • On the PEPP (pandemic emergency purchase programme), we expect the envelope to be increased by around €500bn and the timeframe to be extended from mid-2021 to year-end 2021. The reinvestment horizon could also be extended beyond the current end date of December 2022.
  • We do not expect any merging of the PEPP and the APP (Asset Purchase Programme). Furthermore, we do not expect the APP temporary envelope to be renewed.
  • We expect TLTRO (Targeted longer-term refinancing operations) with attractive terms: LT maturities (at least 3 years), low rates (-1%), tiering multiplier at 8-9x (vs 6x) and maybe some changes on borrowing allowances and lending benchmark.
    - On both the PEPP and the TLTRO, we expect the focus to be on duration more than on intensity of asset purchases.
  • The ECB will also update its macro-economic projections:
    - We could see growth upgrades in 2020 following meaningful upside surprises in Q3 but the outlook for early 2021 has weakened in light of the virus containment measures. 
    - We could see inflation downgrades following the rise in the Euro.
    - Bear in mind that we will also have the 2023 projections for the first time. We expect the inflation forecast by 2023 to be, again, below the objective (around 1.4% core inflation)
  • We expect comment about the strength of the Euro, but there is nothing the ECB can do. 
  • We expect the overall tone to be clearly dovish to maintain favourable financial conditions.
  • Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2195 Tue, 08 Dec 2020 09:43:06 +0100 Dan Chung: Pandemic Boosts Extended Reality Demand /en/who-we-are/news/detail/dan-chung-pandemic-boosts-extended-reality-demand/ Innovation is a relentlessly disruptive force that sometimes grows in surprising places. The technology of extended reality vision and displays, which includes augmented reality (AR) and virtual reality (VR), is a trend that has accelerated as a result of the Covid-19 pandemic in a number of uses in the business world, breaking out of its consumer entertainment and gaming base. Companies such as Microsoft, Facebook and Google are developing platforms for the technology across the business enterprise while semiconductors and other computer hardware within the extended reality (XR) market are projected to grow at a compound annual growth rate of 48.3% over the next 10 years, according to research by P&S Intelligence.

    Manufacturers Embrace AR
    Consider the example of medical ventilators that were in dangerously short supply for treating Covid-19 patients. Governments worldwide launched incentives to ramp up manufacturing of ventilators, but the complex nature of the devices created a shortage of employees with appropriate factory skills to build them, with many companies having only newcomers to the manufacturing of ventilators and expertise only in other non-medical categories, such as building cars.

    The Ventilator Challenge UK, a consortium of Ford, GKN, McLaren, Airbus, Meggitt and Siemens UK, has addressed this issue by creating AR instructions for manufacturing workers who may have never seen a ventilator prior to the pandemic.

    The organization uses Microsoft’s HoloLens headset and PTC’s Vuforia Expert Capture, which supports the creation of content. In developing the digital manufacturing expert, the consortium recorded step-by-step assembly instructions, thereby allowing for the “virtual placement” of a ventilator specialist instead of using an in-person instructor, which could be difficult due to social distancing requirements. The organization is also using Microsoft’s Azure cloud platform for the AR software.

    Well before the Covid pandemic, many industrial companies were exploring and using XR technologies in their service and repair functions. Think of the millions of mechanical components and the electrical equipment that power our electrical grid or a remote power plant. Through AR, field technicians can refer to complex manuals to diagnose and repair equipment while looking at the actual installation and equipment; when assistance is needed, expert technicians can be looped in to consult remotely. The cost savings and efficiency gains are significant.

    Shop from Home with AR
    The adoption of AR in retailing is also accelerating. Rather than being viewed as a convenient way for shoppers to explore products, AR has become a tool to engage customers as stores have been shut down or are reopening with government-imposed restrictions. Additionally, omnichannel retailers, or retailers with both brick and mortar stores and e-commerce operations, are viewing AR as an attractive option for consumers who may be apprehensive about visiting traditional stores or malls. Indeed, a survey by Vertebrae found that 48% of shoppers do not believe it’s safe to shop in stores.

    Seek XR, which provides AR for a variety of industries, is a beneficiary of these concerns, having experienced a 600% increase in usage of its platform through customers’ websites since March.

    Hat retailer Tenth Street Hats and sports sunglass company Goodr are examples of companies embracing XR. They recently turned to Vertebrae to provide AR try-ons of their products. The technology allows users to view themselves wearing different hats and sunglasses, so consumers can avoid entering brick and mortar stores. MAC Cosmetics also launched virtual try-on service by tapping YouCam technology from Perfect Corp., which lets consumers see how they look with various shades of lipstick or eye shadow.

    The Next Stage in Digitizing Health Care
    The health care industry is also being transformed by AR and VR. Telemedicine has already grown dramatically as doctors and patients embrace alternatives to meeting in person, but AR and VR are being developed to expand upon the services that can be delivered digitally.

    XRHealth provides VR-based physical therapy and treatments for hot flashes, memory decline, pain management and mental health, including stress management, and has qualified for Medicare reimbursement. XRHealth launched its first virtual clinic in February with health care practitioners that are licensed in eight states and is working to expand throughout the U.S.

    Extended reality is also being embraced for training, including for doctors seeking to learn new surgical skills. At a time when some states or countries are imposing self-quarantine requirements on visitors from areas with high rates of Covid-19, it is difficult for trainers and trainees to travel to learn new medical procedures. With those concerns in mind, Immertec is promoting its VR Medoptic platform that lets doctors virtually enter surgical rooms to complete training. In addition to eliminating travel requirements, the technology reduces the need for personal protective equipment and eliminates the potential for spreading infections.

    As in past crises and periods of economic upheaval, innovation and adaptation produce positive growth and opportunities for investors. XR is just one example of a technology that is innovating and evolving, even during this period of extreme economic uncertainty. At Alger, we understand that the best investment opportunities are often born of change forced by crisis, creating new secular drivers for the growth of innovative services, products, technologies and companies adjusting to the new conditions in our economy and society.

    disclaimer

    The views expressed are the views of Fred Alger Management, LLC (FAM) and its affiliates as of November 2020. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

    Risk Disclosure: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies earnings and may be more sensitive to their companies’ earnings and may be more sensitive to market, political, and economic developments. Technology and healthcare companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

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    news-2194 Tue, 08 Dec 2020 09:42:04 +0100 Vaccine hopes /en/who-we-are/news/detail/vaccine-hopes/ With Covid-19 cases increasing globally, investors and the rest of society have their hopes pinned on an eventual vaccine. Will the optimism about a vaccine ultimately prove warranted and which investments might benefit?

    • Data from Pfizer and Moderna show their Covid-19 vaccine at over 90% efficacy, above expectations. More recently, AstraZeneca’s data implied 62%-90% efficacy of its vaccine. The FDA would have required a minimum 50% efficacy for introduction to the public, boding well for speedy approval by the regulator. These Covid vaccines’ efficacy ratios are relatively high compared to many others, most notably the flu vaccine.
    • In fact, two thirds of investors surveyed by Deutsche Bank believe this vaccine will get us back to normal “slightly” or “much quicker” than expected. While Pfizer aims to have 50 million doses initially and Moderna 20 million, the U.S. hopes to have enough supply to vaccinate the U.S. population by around mid-year.
    • We believe companies that directly benefit from the production of a vaccine are interesting. However, indirect beneficiaries, those that lie at the intersection of growth and economic reopening, may be more interesting. Many traditional travel-related companies, such as cruise lines, may benefit though they are not attractive to us because they do not meet our long-term growth standards. We think a better way to create exposure to these end-markets would be with digital travel platforms. 

    Alger is committed to sustainability and is a signatory to the PRI.

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    news-2193 Tue, 08 Dec 2020 09:17:03 +0100 Podcast: Ringing in the eCommerce Holiday Season! /en/who-we-are/news/detail/podcast-ringing-in-the-ecommerce-holiday-season/ All of the ecommerce companies are at max capacity. I also think we'll see the holiday shopping period elongated. Senior Analyst Ben Reynolds gives an update on what investors might expect from ecommerce companies during a very busy holiday season.

    ALEX BERNSTEIN: Hello, I’m Alex Bernstein and you’re listening to The Alger Podcast, Investing in Growth and Change.  Alger Senior Analyst Ben Reynolds was one of the first people I interviewed way back in March of this year, when the Covid crisis had just started.  Ben, who covers the tech sector, is usually extremely upbeat.  But at that time – with the unprecedented market turbulation – he told me he felt like he was working out of a foxhole under heavy fire.  Well, here to catch up with me and give me an update on the tech sector, some eight months later, is Ben Reynolds.  Ben, thanks so much for talking with me this afternoon.
     
    BEN REYNOLDS: Thanks, Alex.  Thanks for having me back on.

    ALEX: So, Ben, the last time we talked was right at the beginning of the crisis with –

    BEN: Just twenty minutes of me sobbing, right?

    ALEX: Not quite!  But just going back to that foxhole analogy.  How do you feel now some eight months later?

    BEN: I still feel like I’m in a foxhole, maybe not being shot at as much in relation to COVID, still feel like my companies are being shot at by various government regulatory agencies.  But, look, it’s been constant change all year.  I mean if we walk through it, since the start of COVID, there was effectively indiscriminate selling.  It didn’t matter what the company was, it didn’t matter what industry.  It didn’t really matter, it was just sell it, sell it now, and by the way, if they don’t make money, or have negative free cash flows, sell even further because there’s a chance it could go out of business.

    I think after about a month of that, people poked their heads up and said okay, let’s think about who’s actually going to survive and who’s actually possibly going to thrive in this new world and that’s when you started to see the e-commerce companies, the streaming companies, the companies like that rebound much more quickly than some of the other stocks.  From the tech side, you saw certain software companies and teleconference companies do the exact same.  But everything was sold at first.  And then you had the winners get picked. 

    And now, as we’re getting news of vaccines and it’s sort of a focus back to old economy stuff, we have to be as nimble as possible without losing our growth focus and try to pick the winners that are going to continue to succeed in a post COVID world. 

    ALEX: It seems like the e-commerce sector was one of the beneficiaries of the crisis?  What happened to that sector this year?

    BEN: So, if you go back just to the beginning of the year, so call it January or February before there were any known cases of COVID in the United States.  The economy was actually roaring, and e-commerce was performing well.  Pretty much all my companies, be it e-commerce, or digital advertising, everybody had had a great two months.  

    But when the crisis happened, you saw initially a panic of a couple of weeks, people not really knowing what to do, and then just this seismic behavior shift from going to stores to purchasing things online.  And so much to the point where many of the bigger e-commerce firms couldn’t even fulfill all the demand at the end of March and beginning all the way through April, really.  You had such a large shift of demand and then partially, that was because for a while, in many states, all the stores were closed, right.  You literally couldn’t, besides a grocery store, you couldn’t go somewhere to buy something.  So, things like home furnishings and staples, clothing, et cetera, it all shifted online once people decided they were going to start buying things. 

    You also had stimulus checks come in, really before most of the economy is reopened.  So, you had this influx of money, really only a few places to spend it, and so we saw this massive spike in e-commerce from about 15 percent growth in the first quarter to 44 percent in the second quarter.  And that number would have been higher had these e-commerce companies been prepared for such a spike.

    And then what we saw after that is really the trend is largely sustained.  You obviously had some purchasing, like stocking up behavior right at the beginning of COVID.  But after that, you had really just a strong maintenance of the overall e-commerce growth and it shifted to other categories, so not just food and toiletries, but it went toward clothing, home goods were especially strong with people staying at home and deciding they were going to redecorate or spruce things up, home electronics, all sorts of things like that, really pretty much every category actually saw increasing growth coming out of Q2.  

    And that’s largely sustained; there’s been a few things that have slowed growth.  There was no prime day in July this year, but basically the overall trends have basically maintained even through now, and then we’ve noticed most recently, in November, with this most recent surge, e-commerce growth has actually ticked up again, headed into the holiday season.  So really, I mean, for a crisis like this, we think it’s really the perfect industry to be in, for better or for worst.  

    ALEX: So, you’re expecting a strong holiday season for e-commerce? 

    BEN: So, for the holiday season for e-commerce, I think it’s going to be extremely strong.  I think we have a couple of things, several things in its favor and maybe one thing going against it.  But you have the typical secular trend, right, which is just a shift towards e-commerce in all facets.  And that’s usually about a point of share it takes a year.  

    On top of that, this year, of course, we still have COVID, with rising cases right now, people less likely to go into stores, so that’s been a tailwind.  And we’ve got a third tailwind here that theoretically could reduce maybe overall gift giving but should actually significantly increase e-commerce gift giving.  And that is the fact that few people are going to travel out of state or out of their city to do holiday gathering.  

    Most years, a lot of people will travel to go visit their parents or their kids or whatnot, and you give your gift giving in person.  Now, you may have purchased that gift online or not, but you may not have.  In this case, where people are going to be not traveling to see each other as much as they did in prior years, you basically have to mail a gift if you’re going to give one. And yes, you could go to the store and buy a gift and then take it to the mailbox, but it’s much easier to go on a website, buy it, and have it delivered directly to your parents or your kids or whatnot.  So, I think that’s going to be an extra tailwind for holiday gift giving. 

    I also think we’ll see the holiday shopping period elongated.  It’s really already started.  It really started back with prime day in October and it’s continued and you’re seeing deals across pretty much every e-commerce site right now going straight into the holidays.  So, I think we’ll see a really strong October, November, the actual holiday period, Black Friday, Cyber Monday period might look a little bit weaker just because people bought their gifts earlier this year.

    I think one thing that could hamper the growth is just literally the network and logistics capability of all the carriers.  That could create a problem that people just can’t get their packages delivered in time, but I really think that’s the only issue e-commerce is going to have to slow it down.  So, I actually think e-commerce growth could be faster in Q4 than it was in Q3.  

    ALEX: You don’t think they’re all ramping up their delivery services now? 

    BEN: Oh, they absolutely are.  I mean, everybody is at max capacity.  You’ll see some of the major carriers in uniform, so you know who they are, but they’re in a non-labeled truck because they’ve rented it from U-Haul or somebody.  You’re already seeing that.  So, they’re absolutely ramping it up, but there’s only so many people and only so many trucks.  And these companies don’t build, they don’t build their infrastructure five years out, they try to build it as they need it to go.  So, there could be a problem.  

    So far, I’ve noticed some shipping delays, but nothing egregious. We’ll have to see how it plays out

    ALEX: Within e-commerce, online grocery sales seem to have surged this year. How did that come about?  

    BEN: Yes. So, one of the tailwinds e-commerce has that I think extends the growth into next year, is just the massive ramping in grocery this year.  We believe that online groceries of both delivery and pickup curbside is maintaining triple digit growth essentially since the start of COVID. It bounces around. It’s slowed a little bit, but definitely over 100 percent growth this year.  

    And I think it’s a real sea change. It took the powers that be a decade to get penetration of grocery in an online manner up to just low single digits.  And now we’re just seeing an explosion, because obviously, people are afraid to go to stores. Here’s the thing though. I don’t think people’s behavior on this reverts back next year. I think once they’re used to getting their groceries delivered or picking it up outside, I think that behavior sticks.  They’ll get used to the produce may not being exactly what you wanted to pick, but I don’t think this changes. I think this is a sea change and this is the catalyst really to push grocery penetration, which again, was low single digits into similar penetration as the rest of e-commerce.  

    ALEX: Ben, with some potential vaccines now on the horizon, investors are beginning to consider life beyond Covid.  In your sector, who do think might start to accelerate first?

    BEN: So, a couple of trends as we start to come out of this.  One I think is about to happen, and that’s I think is actually set up pretty well, is cloud computing.  

    But we believe that coming out of this all the companies are going to have to maintain a larger digital presence, they’re going to have to maintain a more remote work presence and they’re going to have to shift towards the cloud, because it’s more scalable, you can scale it up, you can scale it down.  It’s your fixed costs.  These are things that in the COVID world, a lot of companies would like to have.  And so, I think that cloud computing is actually set to accelerate here in the next few quarters because as the new companies come back online, it’s effectively going to accelerate their shift to the cloud.  So, I think that’s going to be a pretty big beneficiary in the coming quarters. 

    Secondly, most of the companies in my space that aren’t event based did pretty well.  But obviously online travel agents and the ride share companies were hit really hard.  I think as we head into next year, obviously, there’ll be lapping the declines, but I think those companies should start to see their fundamentals regain.  And I think in the case of ride sharing, I think they’ll actually see pretty strong growth and probably come back before the online travel agents as far as the fundamentals go.

    As we come out of this, you are going to start to see more mobility, but I think people will be a little shy on returning to mass transit, so I think you’ll be seeing a bigger adoption of ride sharing in bikes and scooters and that sort of thing.  
     
    ALEX: Ben, outside of work, how have you been keeping sane this past year? Have you been doing deep meditation or – 

    BEN: Well, so I haven’t been keeping sane, so let’s just forget about that one.  But no, I mean keeping things to very small groups or no, just the family unit.  That’s been a lot of it in the Reynolds household.  

    ALEX: Ben, thanks so much for talking with me this afternoon.

    BEN: Thanks, Alex.  It’s been great talking to you.

    And thank you for listening. For more Alger Insights, please visit www.alger.com.

    The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of December 2020. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

    Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and economic developments. Technology companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Please visit www.alger.com for additional risk disclosures. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

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    news-2189 Tue, 01 Dec 2020 15:30:29 +0100 The Changing Face of the U.S. Economy: Business /en/who-we-are/news/detail/the-changing-face-of-the-us-economy-business/ by Dan Chang, CFA, CEO, CIO Porfolio Manager

    There is wide experimentation and adoption among businesses right now. We have systems that allow for e-signature, paperless document editing and document approval. Social media is more efficient than ever. I believe it’s important to remember that the digital revolution is not just about technology but also its ubiquity and the comfort of businesses and consumers in using it.

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    news-2187 Fri, 27 Nov 2020 16:47:47 +0100 SRI: the urgent need for action can no longer be overlooked /en/who-we-are/news/detail/sri-the-urgent-need-for-action-can-no-longer-be-overlooked/ by Virginie Wallut, Director of Real Estate Research & SRI and Marc-Olivier Penin, Managing Director, La Française Real Estate Managers The world is changing. Environmental and societal risks are proliferating and so are the initiatives to address them. At La Française our goal is to provide solutions. We are making our contribution to the community of trailblazing stakeholders who are working to improve the resilience of towns and cities and to create the best possible conditions for “living together”. We are adapting our real estate assets in line with the transitions that are needed to tackle climate change and societal challenges so as to ensure that our tertiary-sector and residential assets will be responsive to future trends.

    At La Française we pride ourselves on firm convictions and concrete actions

    Our ESG (Environmental, Social and Governance) convictions are strong and long-established. They are shared by all the entities of the La Française Group at both management board and general management levels. The method of implementing them varies between the different asset classes, and they are backed up by research and expertise centres that discuss the best practices for each specific class of assets. Real estate assets have a special role to play. Through the active management of these real assets, the management company is able to exert a tangible and quantifiable impact. In 2019 the various measures taken enabled La Française Real Estate Managers to reduce the GHG emissions of its portfolio  by 2.5%, on the heels of a 4.8% reduction in 2018.

    Time is running out. The impacts of climate change are accelerating – we're seeing more forest fires, heatwaves, droughts and floods, as well as increased negative effects in relation to health and the erosion of biodiversity. While these issues may have seemed (very) long-term concerns to many stakeholders just a few years ago, they can now be addressed within the same general timeframe as the investment horizon for real estate asset holders. The resilience of real estate assets must be future-proofed. La Française's investment philosophy is to support the transition of its assets under management in order to continuously improve their long-term sustainable positioning. This policy certainly comes at a cost, but if the actions are carried out gradually and at the opportune moment for each of the assets this cost remains very marginal compared to the valuation losses suffered by assets which are managed without taking ESG criteria into account. The gradual tightening of national and European regulations not only promotes the emergence of green added value, it will almost inevitably result in a write-down of non-sustainable assets, which will be classified by most people (tenants and investors) as being unfit for their current use. 

    The changes needed throughout the real estate business

    There is a woeful lack of ESG data in relation to real estate – in particular for the tertiary sector – compared to the availability of data relating to financial assets. Aware of its position as a key player in the French real estate markets due to the extent of its assets under management, La Française Real Estate Managers is working with a number of French and European market organisations to achieve three goals: (i) to highlight the specific characteristics of real estate assets compared to transferable securities (ii) to harmonise the various national and European regulatory approaches so that ESG management is not just synonymous with data reporting, and (iii) to establish common metrics in order to facilitate the comparison of different management companies' approaches. Therefore, after three years of intense reflection within the ASPIM (French association for real estate investment companies) working group, we welcome the publication of the decree extending the SRI label to real estate funds.

     
    In concrete terms, La Française Real Estate Managers has been carrying out sustainability audits alongside technical audits since 2009. The management company relies internally on a team of three people working together within the Real Estate Research & SRI Department. This team works in close collaboration with the Investments Department, which takes ESG criteria into account right from the pre-assessment of assets. The final ESG evaluation phase is analysed and validated by the Real Estate Research & SRI Department.

    This final ESG evaluation phase is entrusted to specialised consultancies which are trained in the use of a tool that has been developed internally by the IT department. This unique tool makes it possible to assess the sustainable characteristics of an asset and its ability to meet future requirements. The consultancies define areas for improvement within the framework of the current ESG management policy and, as applicable, for the obtaining of an SRI label. The asset management teams, when they then take over, are responsible for improving asset occupancy rates, but also for implementing improvement measures that have been identified for each asset during the acquisition phase. The ESG assessments as well as the improvement plans are accessible to all employees via La Française's internal IT platform.

    “Sustainability” is everyone's business

    La Française Real Estate Managers pays particular attention to its central role in uniting all the stakeholders (both external and internal) around its ESG approach. We are making significant efforts to educate those involved with our assets in order to augment the beneficial effects of our approach. Because the use (occupancy) of assets can represent up to 30% of energy consumption/GHG emissions, it is vital to get tenants involved in helping us to achieve our objectives. To this end, La Française Real Estate Managers has developed a tool for collecting and reporting energy consumption data which will benefit not only us as the owner but also our tenants by enabling them to meet the requirements of the tertiary-sector eco-energy plan (e.g. tertiary decree). To give another example, after modifying its electricity supply contracts to secure a 100% renewable energy supply for energy consumption in the common areas of the assets of one of the group's open-ended real estate funds, La Française Real Estate Managers will offer its tenants the opportunity to extend the use of renewable energies to privately occupied areas. Special consideration is being given to residential assets, which present more of a challenge however owing to the multiple tenants and non-professional nature of the occupancy.

    In order to ensure that our suppliers support our approach and to encourage them to adopt a sustainable approach as well, we are putting in place ESG criteria which will serve as a basis for the selection of our service providers. We have explained our sustainability approach which is structured around three key points – reduction of GHG emissions, reintroduction of nature into towns and active engagement in a more inclusive urban environment – to all of our Property Managers so that they can adapt the day-to-day management of our assets accordingly and work with us to achieve these objectives. 

    Internally the idea of extending training to a wide range of employees will be encapsulated in an unprecedented training plan which is scheduled to last for one year and will involve more than 200 employees from 18 different departments (ranging from Asset Management to Human Resources and IT). This plan will be tailored to the participants' individual needs. Another innovation is that this training will be provided on the basis of internally-developed expertise.


    INFORMATIVE DOCUMENT FOR PROFESSIONAL INVESTORS ONLY AS DEFINED BY THE MIFID II DIRECTIVE.
    It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals.
    Published by the portfolio management company La Française Real Estate Managers which received AMF accreditation under No. GP-07000038 on 26 June 2007 and AIFM accreditation under Directive 2011/61/EU on 24/06/2014 (www.amf-france.org).

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    news-2186 Fri, 27 Nov 2020 09:27:40 +0100 La Française Lux-Inflection Point Carbon Impact Global distinguished with FNG-Label /en/who-we-are/news/detail/la-francaise-lux-inflection-point-carbon-impact-global-distinguished-with-fng-label-1/ La Française, an international asset management group with assets under management in excess of €51 billion and a recognized forward looking carbon impact methodology, developed by the group’s integrated sustainable investment research center, is proud to announce that La Française Lux-Inflection Point Carbon Impact Global has received the Forum Nachhaltige Geldanlagen (FNG) two-star Label for sustainable mutual funds, valid for the year 2021. The FNG-Label is the quality standard for sustainable investments on the German-speaking financial markets: Germany, Austria, Liechtenstein and Switzerland. It was launched in 2015 after a three-year development process involving key stakeholders. The sustainability certification must be renewed annually. 
    Successfully certified funds pursue a stringent and transparent sustainability approach, the application of which has been checked by the independent auditor University of Hamburg.

    The quality standard comprises the following minimum requirements:

    • Transparent and easy-to-understand presentation of the fund’s sustainability strategy in the context of the Eurosif Transparency Code and the FNG Sustainability Profile
    • Exclusion of armaments and weapons
    • Exclusion of nuclear power (including uranium mining)
    • Exclusion of coal (mining and significant power generation)
    • Exclusion of fracking and oil sands
    • Exclusion in cases of systematically and / or severe violation of the principles of the UN Global Compact
    • The fund’s entire portfolio is checked against sustainability criteria (social and environmental responsibility, good corporate governance, United Nations Sustainable Development Goals or others).

    La Française Lux-Inflection Point Carbon Impact Global was awarded two out of three possible stars for its particularly ambitious and comprehensive sustainability strategy, which gained it additional points in the areas of institutional credibility, product standards, and selection and dialogue strategies.

    La Française LUX – Inflection Point Carbon Impact Global: The fund aims to contribute to the transition to a low carbon economy while achieving long-term capital growth

    Laurent Jacquier-Laforge, La Française Global Head of Sustainable Investing, concluded, « The FNG label is in our opinion one of the most selective that exist today and we are proud that our investment approach has been recognized with the two-star label. The FNG-Label and French SRI Label, also awarded to the fund, attest to the quality of the fund’s sustainability strategy and will provide guidance in the search for solid, professionally managed sustainability funds.» 

    Disclaimer

    The FNG-Label and French SRI Label may under no circumstances be interpreted as a guarantee of performance or security or an invitation to invest in the fund.
    PROMOTIONAL DOCUMENT FOR NON-PROFESSIONAL INVESTORS AS DEFINED BY MIFID II IN FR, DE & LU. 
    The information and material provided herein do not in any case represent advice, offer, solicitation or recommendation to invest in specific investments. Issued by La Française AM Finance Services, home office 128, boulevard Raspail, 75006 Paris, France, regulated by the “Autorité de Contrôle Prudentiel” as investment services provider under the number 18673 X, affiliate of La Française. Internet information for the regulatory authorities : Autorité de Contrôle Prudentiel et de Résolution www.acp.banque-france.fr, Autorité des Marchés Financiers www.amf-france.org, Commission de Surveillance du Secteur Financier (CSSF) www.cssf.lu.

    The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Where La Française has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions are nonbinding and may differ from those of other investment professionals. La Française Asset Management, approved by the “Autorité des Marchés Financiers” under N GP97076 on July 1st 1997. 

    The group’s responsible investment policy is available here :
    https://www.la-francaise.com/fileadmin/docs/CharteInvestissementResponsableLaFrancaiseEN.pdf
    The group’s transparency code is available at: 

    The prospectus of La Française LUX was approved by the CSSF on 9 March 2020. The SICAV Lux was incorporated on 28/10/1998 (under the name "global strategy"). The sub-fund, La Française Lux-Inflection Point Carbon Impact Global was created in 2015. 
    For more detailed information about the investment fund, please refer to the prospectus and the Key Investor Information Document (KIID), which must be read before any investment. The latest prospectus, the key investor information document and the annual and semi-annual reports are available upon request to contact-valeurmobilieres@la-française.com or in electronic format to our Paying Agent. Said documents have been published containing all the necessary information about the product, the costs and the risks which may occur. Do not take unnecessary risk.

    • Germany: BNP PARIBAS Securities Services S.A. – Zweigniederlassung Frankfurt am Main, Europa-Allee 12, 60327 Frankfurt am Main)
       

     

     

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    news-2184 Wed, 25 Nov 2020 12:06:05 +0100 Investing Beyond FAANG /en/who-we-are/news/detail/investing-beyond-faang/ FAANG: Facebook, Apple, Amazon, Netflix and Alphabet’s Google

    The FAANG companies have created large opportunities for themselves and they continue to successfully exploit them. But we are very excited about this simultaneous wave of innovation that’s reshaping the global economy. Client Portfolio Manager Kevin Collins discusses the recent observation that Alger’s Large Cap Strategies have been underweight FAANG stocks and why that may be beneficial for investors.
     


    ALEX BERNSTEIN: Hello, I’m Alex Bernstein and you’re listening to The Alger Podcast, Investing in Growth and Change.  Innovation and change are typically buzz words here at Alger and never more so than in the past year as we’ve seen the continuing trend of rapid digital transformation. So, we were a little surprised when some of our internal analyses showed that our large cap strategies have actually been underweight FAANG stocks year to date.  Here to clarify why that idea may be important to investors is Alger Client Portfolio Manager Kevin Collins.  Kevin, thanks so much for joining me today.

    KEVIN COLLINS: Thanks, Alex. 
     
    ALEX: So, just to start off, Kevin:  For the investors who don’t know what we’re talking about, what are the FAANG stocks?

    KEVIN: The acronym FAANG stands for Facebook, Apple, Amazon, Netflix and Google. FAANG is a moniker that was coined probably five to ten years ago that represents some of the very largest tech platform companies.  These five stocks comprise about 25 percent of the Russell large cap growth indexes.  And their market share is so large because these companies have created very large opportunities, large markets, to which they sell their products and services.  

    ALEX: Not only have these names come to dominate the markets over the past 20 years, they’ve really changed the direction of our economy.  
     
    KEVIN: Yes, that’s absolutely true, Alex.  And I think that represents the power of aligning with change and it shows you how powerful the opportunity set, or the investment philosophy of investing in Positive Dynamic Change can be, that these companies, many of which are 20 and fewer years old, now represent such a substantial portion of the American economy and stock market.  

    And that speaks to the concept of digitization and the changing nature of the American economy that’s now represented so much more by intellectual property and intangibles than it is in productive brick and mortar type factory production companies. 

    ALEX: So, what you noticed, is that Alger, which has been so focused on change and investing in innovation and has certainly invested heavily in the FAANG stocks at one point or another, has been surprisingly underweight FAANG in our large cap portfolios for some time now? 

    KEVIN: Yes, these companies, their prominence has risen substantially in line with their effect and presence in the economy.  It hasn’t been a surprise though when we talk about the relative exposure in the Alger large cap growth portfolios to FAANG.  Our weightings to these companies through the years have gone from an overweight over the last five years to an underweight currently.  And that’s not because we’re not excited about these companies and their growth prospects, because we could conceivably, in the coming quarters move to an overweight.  

    But currently, we are very, very excited about this simultaneous wave of innovation that’s reshaping the global economy, that’s recasting whole industries.  And those changes include 5G, artificial intelligence, cloud computing, cloud software, genetic-based medicines and testing, e-commerce, autonomous vehicles, electric vehicles and digital payments.  And these innovations are happening across the economic spectrum and all at once.  

    So, we believe no industry is immune and Dr. Ankur Crawford told our clients that this wave of innovation is revolutionary; it’s not evolutionary.  We’ve got a great white paper called The Age of Connected Intelligence that supports that notion.  Patrick Kelly, the co-manager of these large cap growth strategies, for 15 years, he’s witnessed this personally, the evolution of these innovations.  He’s saying that spending on innovations is no longer discretionary.  It is table stakes.  So corporate America is digitizing and board room executives that can’t or won’t digitize, I think they’re jeopardizing their companies’ survival and their own job security.  

    And coronavirus has actually accelerated the adoption of innovations, both in a distributed workforce environment and as we all sit at our homes.   

    ALEX: Kevin, some investors might be wondering–what might be the benefit of being underweight these names?  

    KEVIN: Well, we are active managers and I believe we are discovering very exciting opportunities outside of FAANG.  

    Within the portfolio, we’ve got digital payments companies, 5G wireless carriers.  We have very exciting significant software companies that enable corporate America to turn their data, and you’ve heard the expression “data is the new oil”, into more productive solutions via cloud software that allows these companies to insulate their business from digital entry and competition and technological obsolescence. 

    We also have very exciting semiconductors that support this vast data crunching and the computer power behind that and life sciences tools companies as well, which enable this wave of spending on drug discovery to be employed in a productive fashion and increase the probability of positive healthcare outcomes.  So, we’re very excited by the FAANG companies, but we do see those tremendous opportunities outside of FAANG as well.  So, our current underweighting in these FAANG names is more about the beneficial exposure to other powerful innovators that we just talked about.  

    ALEX: Kevin, can you give us a couple examples of non-FAANG companies that the large cap portfolios might be interested in?  

    KEVIN: Absolutely.  And stocks don’t need to replace FAANG in order to be successful and have a beneficial impact on Alger’s investors.  So, these innovations don’t necessarily have to replace FAANG or become as large as FAANG.  Many of these companies are smaller today by orders of magnitude but we  believe have very bright growth futures and are still large enough to have a sizeable presence in the Alger portfolios.  

    One company, which is a very large telecommunications company, has yet to be even included in the Russell 1000 Growth Index and our bottom up fundamental analysts have identified this company as a primary beneficiary of the dynamic change associated with 5G.  I think they’ve got a unique raw material in the form of their wireless spectrum that allows them an advantage position to grow in this new 5G world.  

    Additionally, I think a life sciences tools company with a leading industry position in tools that are utilized for drug discovery has an avenue of growth ahead of it that is quite attractive.  

    ALEX: And I’m guessing there’s an abundance of names to consider at this point?  Is that right? 
     
    KEVIN: Yes, I think that you’ve encapsulated it quite nicely, Alex, that there is an abundance of opportunity that we see out there.  While FAANG companies typically capture the headlines and garner a lot of attention, many of the companies that we’ve discussed today possess very exciting growth futures and it is our hope that our clients will benefit from their association with them.
       
    ALEX: Do you think we’re likely to be overweight FAANG again, at some point?

    KEVIN: I wouldn’t discount that.  The FAANG companies are quite exciting.  They’ve created large opportunities for themselves and they continue to successfully exploit them.  

    ALEX: Kevin, one last question.  It’s certainly been a long, complicated year for everyone.  How have you been holding up with all of the changes?  

    KEVIN: Well, nearly eight months into my quarantine, I’m still married.  I view that as an accomplishment.  And further, I did get to spend a lot of time with my kids before they went back to school late this summer, so it was nice to reconnect with them over the period of a few months and so it was really nice to be around my family. 

    ALEX: Kevin,great talking with you.  

    KEVIN: Alex, thanks a lot.  It’s always a pleasure to speak with you.  

    ALEX: And thank you for listening.  For more information on Alger large cap strategies and for more of our latest Insights, please visit www.alger.com.

    Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. A significant portion of assets will be invested in technology and healthcare companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Investments in the Consumer Discretionary Sector may be affected by domestic and international economies, consumer’s disposable income, consumer preferences and social trends. Foreign securities involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility.   Short sales could increase market exposure, magnifying losses and increasing volatility. Leverage increases volatility in both up and down markets and its costs may exceed the returns of borrowed securities.  Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Active trading may increase transaction costs, brokerage commissions, and taxes, which can lower the return on investment. Please visit www.alger.com for additional risk disclosures. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

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    news-2178 Mon, 23 Nov 2020 17:03:24 +0100 Investing on the Edge /en/who-we-are/news/detail/investing-on-the-edge/ How do we make the internet faster to support the fast-growing Internet of Things? We need to change the architecture of the internet if we want to support increasingly quick connections. This way we can analyze and respond to the vast amount of data that the growing number of connected devices is producing. The key enabling technology: edge computing. Dollars Spent Worldwide on Edge Computing-Related Services, Hardware and Software

    • Edge computing is about moving resources to the edge of the internet network to enable faster or lower latency communications (latency is the lag between a user’s action and a web application’s response). Rather than wait for content to travel halfway around the world to and from a central data center, edge computing helps put equipment and content in closer proximity to the user.
    • Examples of equipment on the infrastructure edge of the network include regional data centers, where switching equipment, which allows connected devices to share information and communicate, is deployed, as well as access sites that house cellular radio base stations.
    • The global market for edge computing is expected to grow quickly at 12.5% annually over the five years ending 2024 and reach over $250 billion. Drivers of this growth include applications like content delivery/streaming services, augmented and virtual reality, autonomous vehicles and remote monitoring, which allows IT personnel or machines to observe and interact with networked devices.
    • Beneficiaries of the move to edge computing may include content delivery networks, such as Cloudflare. Other beneficiaries may include communications infrastructure companies like wireless

    tower companies, data centers and fiber companies, as well as semiconductor manufacturers.

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    news-2176 Tue, 17 Nov 2020 14:04:57 +0100 Shining Bright /en/who-we-are/news/detail/shining-bright/ There is an increased emphasis on implementing renewable technology and we believe the trend toward solar energy has never looked brighter.The combination of decreasing technology costs and the desire for lower carbon emissions may potentially drive strong solar adoption in the years to come.  Solar Adoption Expected to Continue to Grow Rapidly

     

    • Solar capacity is projected to grow at a double-digit annual rate over the next decade, reaching more than 1.7 million megawatts worldwide. While that encompasses massive growth, it would still be a minority of worldwide installed power capacity, which is currently approximately 8 million megawatts.
    • As with many technologies, the cost of solar energy is falling, leading to increased adoption. According to Goldman Sachs estimates, the cost of solar energy has declined an amazing 68% in the past five years, making it competitive with other energy sources (depending upon geography).
    • Solar penetration is highest in Europe, specifically in Italy and Germany. Japan and Australia are also large adopters relative to the rest of the world.
    • Corporate winners of increased solar energy usage may include companies that produce inverters, which convert DC power to AC power and adjust voltage levels for home use. Additionally, battery makers, which can help users store solar energy and make it more reliable, may also stand to benefit.
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    news-2175 Fri, 13 Nov 2020 15:26:21 +0100 The resumption of the pandemic /en/who-we-are/news/detail/the-resumption-of-the-pandemic/ The resurgence in Covid-19 cases in Europe has prompted governments to adopt new restrictive measures to contain the epidemic and ease pressure on health care services. Thus, France, the United Kingdom, Ireland, Wales and Greece have opted for a second lockdown. Other countries such as Spain, Italy, Belgium and the Netherlands have favored more targeted measures such as the closure of restaurants, bars and advanced curfews.

    Markets reacted negatively to these announcements with European and U.S. stocks declining by 7.5% and 5.6% respectively during the last week of October1. Credit spreads also widened by +30 bps2 and the United States and Europe underperformed (+36 bps and 31 bps respectively).

    What are the market impacts?

    "Can we expect a credit market reaction similar to that of March, with a spread widening of about 550 bps? »
    The current situation is different from that of March 2020 for various reasons.

    Firstly, at the sanitary level:

    • Scientists now have a better understanding of the virus, resulting in faster recovery and discharge times.  
    • Significant progress has been made in developing a vaccine: 13 candidate vaccines are in phase 3 (last phase of approval) and scientists expect results by the end of the year (e.g. Moderna and Astra Zeneca with the University of Oxford 3).

    Then at the economic level:

    • Lockdown measures are more flexible than they were the first time:
      More geographically localized: affect some European countries and not 90% of the world's economies as in March (with the major emerging economies, the United States and Europe)
      - More focused in terms of sector: industry, construction and other sectors are not affected this time around.  
    • Companies have completed most of their refinancing programs for 2020 and Q1 2021. As a reminder, the volume of primary issues on the U.S. High Yield market reached $300 billion since the beginning of the year (twice as much as the average issuance over the last 5 years) and issuances for the High Yield Euro are € 60 billion. Thus, the element of surprise and the risk of a liquidity crisis will be less significant than during the first lockdown4.    
    • Debt repayment over the next two years will be relatively limited in both Europe and the United States, following major refinancing operations and the extension of bond maturities in recent years:
      - In Europe, around € 50 billion of High Yield bonds is due by the end of 2022 (of which € 20 billion in 2021 and 80% on "BB" issuers with easier access to the market), which represents less than 15% of the total European High Yield market size. 
      - In the United States, nearly $170 billion of High Yield bonds are due by the end of 2022 (of which less than $60 billion in 2021 and 50% on "BB" issuers), which also represents less than 15% of the total outstanding US High Yield market5.

    As a result, we estimate that these low maturities with a 2-year horizon (<15% of outstanding in both Europe and the United States) limit the refinancing risk for issuers and consequently the prospective default risk in the European and US High Yield markets. Indeed, despite the impact of the COVID-19 pandemic on the credit ratios of most High Yield issuers, we believe that they will be able to operationally recover over the next two years in order to be able to refinance themselves on the market under better conditions.

    "What about corporate defaults? Will these new sanitary measures have an upward impact on default expectations and thus on short to medium-term spreads (3-6 months)?”

    Impacts from new sanitary measures will depend on two parameters: the generalization of these new measures to other regions/countries in the world and their duration.

    • If the lockdown is of short duration (4/6 weeks) and is not generalized ->  impacts on companies will be relatively small. We anticipate a widening of High Yield spreads from 70 to 100 bps which remains localized in certain sectors (retail, catering, hotel, leisure ...) and without significant impact on default rates in the medium term.
    • If the lockdown is longer than expected (2 to 3 months) and extended to other countries/regions ->the impact on businesses will be greater. Spreads could widen by 100 to 300 bps. The entire High Yield market would then be affected by a more significant increase in default rates in the most sensitive sectors (retail, catering, hotels, leisure ...)

    In conclusion, it is still too early to draw definitive conclusions on the impact of the new health measures in Europe. Uncertainty about the evolution of the pandemic remains high. 

    The health consequences of a second wave will probably be weaker than the first one, thanks to medical progress and the ability of the population and the medical community to better understand the pandemic. 

    On the economic level and the solvency of companies, the consequences on the credit market are not expected to be similar to those of the first wave (+ 550 bps) due to the support already put in place by central banks, the current liquidity situation of companies which have largely covered their cash needs for the end of the year and Q1 2021, and the choice of governments to better target health measures.

    1 Source : Bloomberg, indices Eurostoxx 50 et S&P 500
    2 Source: Source : Bloomberg, BofAML, indice global (HW00), euro (HE00), US (H0A0), 30/10/2020
    3 Source : Bloomberg, 30/10/2020
    4 Source : Bloomberg, 30/10/2020 
    5 Source : Bloomberg, 30/10/2020 

    Our convictions
    At this stage, it is necessary to be attentive to sector exposure, issuer quality and capital structure to be able to deal with the two aforementioned scenarios. 

    Thus, we remain very cautious in our allocation to the sectors that are the most impacted by this pandemic, notably: non-food retail, restaurants, hotels, commercial and tertiary real estate (offices, retail), leisure (travel, games, sports, cinema, theater, amusement parks), air transport and all related sectors (rental, airport services, etc.). 

    We also pay close attention to the quality of the issuers and to our position in the capital structure of issuers operating in these sectors. 

    In these sectors that we consider to be sensitive, we are mainly exposed to Investment Grade/Fallen Angel or BB issuers. Our exposure to pure High Yield issuers is in the form of Senior/Secured bonds. 

    Disclaimer

    Main risks include: capital loss, interest rate, credit risk, default risk.
    COMMENTARY IS INTENDED FOR PROFESSIONAL INVESTORS ONLY WITHIN THE MEANING OF MIFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals.Under no circumstances may La Française Group be held liable for any direct or indirect losses resulting from the use of this document or the information contained therein. This document may not be reproduced, transmitted or distributed to third parties, in whole or in part, without the prior written consent of La Française Group. Published by La Française AM Finance Services, located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, nº 18673 X, subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997. For more information, check the websites of the authorities: Autorité de Contrôle Prudentiel et de Résolution (ACPR) www.acpr. banque-france.fr, Autorité des Marchés Financiers (AMF) www.amf-france.org.

     

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    news-2172 Mon, 09 Nov 2020 17:10:55 +0100 The Internet of Things Has Arrived /en/who-we-are/news/detail/the-internet-of-things-has-arrived/ The Internet of Things (IoT) has been a topic of innovation for some time but now we believe it is more relevant than ever. This explosion in internet-connected devices allows for the transmission of valuable and actionable information. Data Volume of IoT Connected Devices Worldwide

    • Data volume of IoT-connected devices worldwide is expected to quintuple by 2025. Applicationsare extremely diverse; they include industrial monitoring and automation, health care, security, agriculture, inventory management, smart cities (urban areas that use electronic methods and sensors to collect data and derive insights), utility metering and connected cars.
    • When devices themselves are connected to the internet, the potential benefits abound. There are a number of drivers behind IoT spending, including security, data analytics, efficiencies, competitiveness, reliability, customer service, improved return on investment and compliance abilities.
    • Companies that may benefit from enabling IoT include sensor/chip manufacturers, such as Impinj, as well as solution providers utilizing cloud-based approaches, such as Microsoft. In our view, early adopters of this technology may benefit as this new layer of information serves to enhance the productivity of businesses and makes our personal lives more convenient.
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    news-2170 Thu, 05 Nov 2020 16:26:48 +0100 Have economic support measures curtailed risks associated with Additional Tier 1 capital? /en/who-we-are/news/detail/have-economic-support-measures-curtailed-risks-associated-with-additional-tier-1-capital/ By Jérémie Boudinet, Credit Fund Manager, La Française AM In the wake or face of Covid-19, are banks in a financially sound position to cope with deteriorating balance sheet metrics and what are the implications for Additional Tier 1 Contingent Convertibles (CoCos) bondholders? 
    Following the 2007-2008 financial crisis, banks spent over a decade building up their capital buffers until at year-end 2019, it was estimated that globally, banks held approximately US$5 trillion of capital in excess of  Pillar 1 regulatory requirements (Source: Bank of International Settlements, May 2020). Now regulators and authorities are relaxing capital buffer requirements, allowing banks to operate temporarily below the level of several required liquidity and capital buffers (Pillar 2 Guidance, capital conservation buffer, liquidity coverage ratio…). The European Central Bank even asked banks to stop paying dividends or buying back shares until at least the end of 2020, preferring to redirect capital to lending and to support their balance sheets. But there is growing concern about the implications of such a set of measures on AT1 Cocos.

    Is coupon nonpayment a major concern? 
    One could argue that the primary risk looming in the AT1 market is the nonpayment of coupons. We on the other hand would disagree. We believe that there is very little chance that authorities will put pressure on banks to cancel coupons and this is clearly supported by a number of factors including several statements from the European Central Bank’s Prudential Supervisory Board. Andrea Enria, EU Bank Supervisor said, “The ECB doesn’t plan to suspend coupon payments on subordinated bank bonds, even after guiding lenders to suspend dividends to preserve capital.” Additionally, the potential savings associated with suspending coupon payments on AT1 is insignificant compared to the suspension of dividends, whereas the implications of such an action on investor confidence and a bank’s access to financing would be disastrous. This view has been confirmed by the European Parliament in November 2020, which stated in a report about capital buffers that “The coupons on the instruments qualifying as AT1 capital should not be restricted."
    The Q2 and Q3 2020 earnings seasons were also quite reassuring, as almost all European banks have proven that they were able to bolster comfortable and higher solvency ratios than at the end of 2019, thanks to the dividend suspension, prudential easing and national measures on loan guarantees to support the economy. 

    With the benefit of hindsight, we view the European banking sector as being partially “administered” by regulators. Regulators limit dividend distribution and can control banks’ access to unlimited and cheap central bank liquidity in order to cope with the current very-low rate environment. Regulators are also pushing for more consolidation, with significant M&A moves, such as the mergers between Bankia and CaixaBank and UBI Banca with Intesa Sanpaolo. A few years ago, banks were supposed to avoid being too-big-to-fail. Now, the opposite is true, which in our view is positive for the stability of the banking system and, thus, for the continuation of AT1 coupon payments.

    Disclaimer    

    Subordinated debt & Contingent Convertibles are suitable for professional investors as defined below. Execution only services can only be provided to professional investors. Retail investors are excluded from the positive target market.
    Professional Investors have the following characteristics:

    • Good knowledge of relevant financial products and transactions
    • Financial industry experience 

    Subordinated debt & Contingent Convertibles are not suitable for retail investors unless they have professional investment advice AND the investment is for diversification purposes only or have signed a discretionary portfolio mandate.

    THIS DOCUMENT IS INTENDED FOR PROFESSIONAL INVESTORS ONLY WITHIN THE MEANING OF MIFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel et de Résolution (www.acpr.banque-france.fr) as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF (www.amf-france.org) under no. GP97076 on 1 July 1997.
     

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    news-2167 Mon, 02 Nov 2020 17:44:06 +0100 Mind the gap! /en/who-we-are/news/detail/mind-the-gap/ While no one wants to live through a difficult recession, there may be a silver lining. The deeper the decline, the further the economy is operating below its potential. That large gap between economic output during this pandemic and our potential at full employment is quite large, indicating the potential for a long duration of expansion ahead.

    • The output gap measures the difference between actual economic output and potential output. Negative numbers imply the economy is operating below its potential. Positive numbers indicate the economy is operating above its most efficient pace.
    • Historically, U.S. recessions occurred after the output gap turned positive, i.e., the economy produced beyond its potential, which often leads to higher inflation, higher interest rates and eventually slower or negative growth.
    • However, as a result of the Covid-19 economic shock, the U.S. output gap is extremely negative,?indicating that the economy is operating well below its potential and has much room to expand in?our view. In fact, the Congressional Budget Office estimates the gap will be materially negative for?several more years, implying a long period of economic expansion until we reach our potential.
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    news-2165 Thu, 29 Oct 2020 17:02:47 +0100 The US election won’t be a significant game changer /en/who-we-are/news/detail/the-us-election-won-t-be-a-significant-game-changer/ By Nina Lagron, CFA Head of Large Cap Equities While the world is focused on the outcome of the US election, a quick look at the past shows that it does not matter significantly who sits in the White House for financial markets, that are mostly driven by macro and micro realities. 

    But, does politics matter when it comes to sectors?
    Again, the answer is quite straightforward as illustrated by the two times-series which display the performances of various sectors during the Obama and Trump eras. The change of presidents made little difference to S&P’s sector return ranking.

    • Under Obama and Trump, the three best performing sectors were identical: consumer discretionary, technology and healthcare.
    • Also, during both administrations, the two worst performing sectors were financials followed by energy

    This sector breakdown discredits conventional expectations, held at the start of the Trump presidency:

    • At the time, hopes were high in the financial sector that a wave of deregulation would boost returns. Yet, financials finished next to last, again.
    • With all of Trump’s promises to “make America great again”, bring manufacturing jobs home and impose tariffs on “unfair” competition, investors expected the industrial sector to thrive under Trump. However, industrials finished in sixth place, just as they did under Obama.
    •  With a former property developer in the White House, many expected a better performance from the real estate sector. Real estate, despite benefitting from extremely low interest rates, slipped from just short of the podium in the Obama years, to eighth place under Trump.
    • Big Tech, openly hostile to Trump, expected to suffer from a vindicative president unleashing regulatory hell on players, but not much happened.
    • Fossil energy returns were bad in the Obama years, but at least they were positive. In the Trump years, energy was the only sector to deliver negative returns; an unusual outcome under a Republican administration, especially one that proudly cut regulatory burdens for fossil energy extractors.

    The first four points can be relatively simply explained by citing former President Bill Clinton’s “it’s the economy, stupid” i.e. meaning that long-term fundamental macro trends cannot be displaced. However, the last point concerning energy, is worth a more in-depth analysis, in particular from a sustainable investment standpoint:
     

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    news-2163 Tue, 27 Oct 2020 12:24:37 +0100 ECB: Still a wait and see approach ? /en/who-we-are/news/detail/ecb-still-a-wait-and-see-approach/ On Thursday, the European Central Bank is likely to maintain the wait-and-see mode adopted in September and buy time to collect data ahead of the December meeting and the new staff projections. Nevertheless, the risks to the European economic outlook and disparities across countries are rising again with a strong increase in new infections and renewed containment measures. In addition, latest inflation data have been disappointed. 

    Hence, the central bank should signal that it stands ready to provide additional easing if the crisis worsens. We think the ECB will let all the options opened until the next meeting. We also expect Mrs. C. Lagarde to emphasize the importance of the coordination between fiscal and monetary policy and push government to do more to lift the euro area economy.

    All in all, this meeting shouldn’t have material impact on financial markets.
     

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2161 Mon, 26 Oct 2020 15:59:37 +0100 Digital Payments Soar /en/who-we-are/news/detail/digital-payments-soar/ The multitrillion dollar payments market is changing rapidly, providing growth for companies, convenience for consumers and opportunities for investors. As digital payments gain penetration, driven by greater e-commerce and mobile usage, how should investors be positioned? Global Digital Transactions

    • Digital payments comprise digital commerce, i.e., buying goods or services via the internet, and mobile payments, i.e., smartphones used to process transactions using wireless communication or scan QR barcodes. Both operations are expected to proliferate over the next few years, increasing at a compound annual growth rate of 16.5% through 2024.
    • Currently China has the largest volume of digital payments and its lead is expected to widen, driven by mobile payments. Already, mobile payments have penetrated 28% of the market in China compared to only 13% in the U.S.
    • We believe this trend will grow beyond the next few years because of its ease and convenience. Companies that may potentially capitalize on digital payments include payment networks such as Visa or Mastercard, payment processors, the businesses that help complete each transaction on the back-end, hardware companies that make the devices or chips to facilitate digital transactions, and software companies that create the interfaces to accept payments
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    news-2160 Mon, 26 Oct 2020 12:06:51 +0100 Investors shouldn’t only focus on the US election /en/who-we-are/news/detail/investors-shouldn-t-only-focus-on-the-us-election/
  • Alger doesn’t expect major impact on markets
  • We believe innovation and fundamentals are driving markets
  • Regardless of the winner, we believe - cybersecurity and infrastructure expected to profit and pharma to lose
  • The US election and its impact on the markets are currently the subject of heated debate. More than 83% of the Americans state that the election is very important to them compared to 75% in 2016 (Source: Pew Research). However, the election is less important to the portfolio over the next four
    years than investors currently assume, says Brad Neuman, Director of Market Strategy at Fred Alger Management.

    Economic indicators and sympathy values had an impact on US elections in the past
    According to market predictions the presidential debate and the corona illness of the current president have shifted the odds clearly in favour of Joe Biden (65%) instead of Donald Trump (42%) (Source PredictIt as of 4 October 2020). Neuman states that there are some indicators that have emerged from previous presidential elections which allow conclusions to be drawn about the chances of a candidate. First, the economy has historically been a good indicator of whether the incumbent will be re-elected. If the economy is growing and there is no recession in the two years leading up to the election, the incumbent has been the winner (e.g. Barack Obama, George W. Bush, Bill Clinton). However, if there has been a recession in the two years preceding the election, then there has been a change in the oval office (e.g. George H. Bush, Jimmy Carter, Gerald Ford). The US has recently suffered from a recession which means that according to this metric, a change in the Oval Office may be likely. Second, approval ratings of higher than 45% have historically led to re-election but history is ambiguous at 40-45% levels. Currently Donald Trump’s approval rating is at 40-45%. Thus, a prediction is hardly possible. Third, due to the Electoral College system in the United States an incumbent can win the election without winning the popular vote. In 2016 Trump was elected with less than 50% of the popular vote. This is why a focus on the popular vote is not as meaningful as a state-by-state focus. In 2016 there were only four states that determined the outcome (Florida, Michigan, Pennsylvania, and Wisconsin). Donald Trump won these states by 1% or less. This is why such states are “battleground states.” Now they are important, again. Based on current polling, Joe Biden needs to add only three states (Pennsylvania, Ohio and Michigan) to win the election as he is in the lead with 222 votes compared to Donald Trump with 125 votes (Source: Real Clear Politics as of September 2020). 

    Impact of the US election on the markets
    Historically, US equity returns have been higher under a split government (12%) than under a sweep government (9%). Brad Neuman explains that in a split government there is less uncertainty as it is less likely that new legislation will be passed. Investors are prepared and they feel like they know the rules as no new legislation likely will be passed that has an impact on the markets. Though, the odds towards a Democratic sweep (all under one party) is a real possibility in the eyes of the betting market. This means that meaningful legislation like a change in taxes and higher spending would be more likely. Currently, there is growing consensus in both parties that fiscal stimulus, either through lower taxes or higherspending, which results in larger deficits is acceptable and even desirable. Neuman analysed that chances are good that this may benefit the entire stock market more than many expect. As you can see in graph 1 it seems to be the case that especially in 2020 budgets do not matter anymore (e.g. interest rates and inflation will stay low). Higher deficits have been associated with better stock markets returns – more spending on lower taxes have improved corporate earnings. This may benefit the stock market more than many investors appreciate. The proposals of Biden’s group go in the same direction – the spending would be much greater than revenues. According to many economists Biden’s proposals could speed up economic growth by 200 bps. Neuman states that while the two parties may have divergent ideologies, there are also areas of policy commonality that investors should recognize, e.g. lower drug costs, onshoring and infrastructure. Higher income and capital gains tax rates may have a negative impact on equity valuations but much less than economic drivers such as inflation. According to the analysis of the investment specialist, a Democratic government would likely benefit alternative energy and infrastructure-related companies and hurt those in traditional energy as well as health insurance and banking. Neuman is convinced that the market has already priced in a Democratic win and that it differentiates between stocks that would benefit from a Democrat in office compared to those from a Republican in office. But Neuman has also identified certain groups that he believes may win or lose regardless of who is in power. Potential winners on both sides will be small and mid-growth companies, cybersecurity and infrastructure; pharma is a potential loser on both sides.

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    news-2157 Mon, 19 Oct 2020 17:43:37 +0200 Priorities along Party Lines /en/who-we-are/news/detail/priorities-along-party-lines/ The Democrats and Republicans have very different priorities right now, some of which are in direct contradiction of one another. However, there is one area on which both parties are in perfect agreement. How will this impact investors?

    • There is growing consensus in both parties that fiscal stimulus, either through lower taxes or higher spending, which results in larger deficits, is acceptable and even desirable.
    • This may benefit the entire stock market more than many people realize. Historically, budget deficits have helped lift stocks. Higher government spending and/or lower taxes have historically meant higher GDP, which boosted corporate sales and profits. According to data from Strategas, average S&P 500 performance in large deficits has been 17.9% compared to only 9.9% in small deficit or surplus years.
    • This shared interest in deficit spending may help support the stock market regardless of which candidate wins the November election.
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    news-2154 Mon, 19 Oct 2020 15:44:00 +0200 Books La Française LUX - Sustainable Real Estate Securities 30/06/2020 /en/who-we-are/news/detail/books-la-francaise-lux-sustainable-real-estate-securities-31-06-2020/ news-2148 Tue, 13 Oct 2020 11:36:47 +0200 The fourth Sustainable investment and Climate Report /en/who-we-are/news/detail/the-fourth-sustainable-investment-and-climate-report/ Our report underlines our intent to carry out our asset management role in a different way, based on our conviction that only a sustainable investment can be a long-term profitable investment. Our Group has been driven for many years by the ambition to be a responsible investor, to offer our clients profitable solutions that are tailored to their needs and to act in the interest of living well together.

    From its inception in 2008, La Française Group recognised the link between the economic, political, social and environmental worlds; it realised that the winners of tomorrow would be those who are able to anticipate and innovate and that the integration of ESG criteria into investment decisions would be a source of long-term value.

    From the start we built up internal resources, a research centre and experts to deal with an holistic analysis to appreciate the impact that ESG factors have on economic performance. This influence continues to grow stronger and we firmly believe it is more essential than ever to integrate these factors into our decision-making processes. The climate crisis is a reality - we have already consumed a significant portion of our natural resources. On top of this, the COVID 19 pandemic has further strengthened our awareness of social and health issues. These issues represent significant changes that offer opportunities to re-imagine the future and to turn the act of saving into a means of action.

    In this report you will discover how, in a very concrete way, that we are committed to innovation and sustainability ; they drive our investment solutions and allow each one of us to act individually and collectively and to engage.

    Patrick Rivière CEO of La Française

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    news-2147 Mon, 12 Oct 2020 16:49:07 +0200 Will the Election Focus on the Economy? /en/who-we-are/news/detail/will-the-election-focus-on-the-economy/ The upcoming election throws a multitude of conflicting issues into focus. Taxes, tariffs, crime and health care are just a few. One matter that is a concern for both parties is the economy. Will it define the election? History Suggests Recessions Lead to Change in Oval Office

    • According to elections dating back to 1932, the economy is a good indicator of whether the incumbent will be reelected. A recession in the preceding two years has historically indicated a change in the Oval Office.
    • The unprecedented Covid-19 pandemic drove the nationwide business shutdowns that caused this year’s recession. The downturn began in March 2020. Trump motioned to open up local economies as quickly as possible but do voters view those reopenings favorably?
    • The economy continues to recover; the S&P 500 has shrugged off the impact of the pandemic and the unemployment rate has come down. The question of whether Trump is responsible for the recession or mishandled the economy in the face of it remains to be seen in the outcome of the election. 
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    news-2146 Mon, 12 Oct 2020 11:32:54 +0200 Low carbon economy : post COVID green stimulus and sustainable recovery /en/who-we-are/news/detail/low-carbon-economy-post-covid-green-stimulus-and-sustainable-recovery/ It is largely known that each economic crisis represents a deep breath for the planet, but this comes at the expense of companies'financial health, employment, wages, social well-being, global growth, and the list can go on. However, who says crisis calls a cycle which loops with a recovery: when the deep breath in which greenhouse gas have dropped is offset by the new emissions related with the kickstart of the economy. For instance, CO2 emissions decreased by 1.4% the year after the 2008 financial crisis but they increased by 5.1% in 2010 when the economy activity started to recover

    But awareness has evolved since the last global crisis, particularly since 2015 after the COP21 meeting leading to the Paris agreement. This was a huge step towards a new paradigm, in which the possibility of having a more ecological way of producing became a real target and in which quantifiable goals were set down. Today’s society is fighting against the Covid-19 pandemic and its negative economic implications.

    The Covid-19 crisis has been very brutal, unprecedented, and striking in its worldwide spread. While most of the world’s population was in lockdown in their homes, we followed the terrifying news of this pandemic spreading fast, impacting the lives of millions of families, and putting pressure on many countries health’s infrastructure capacity. Yet we also noticed the unexpectedly fast, positive impacts on the environment: clean air and clear skies thanks to airborne particulate matter levels dropping in big cities.

    Indeed, during lockdown, coal consumption has dropped massively as electricity demand fell and according to the IEA, we have seen the largest worldwide decline in coal consumption since World War II. Overall, 2.6billion metrics tons of CO2 will not be emitted as we expect global energy demand to drop by -6% in 2020 which is seven times worse than what we saw following the 2008 crisis.

    Today, policymakers may see this pandemic as an opportunity to integrate the environment into the economic recovery and finally set down new rules in order to kickstart the economy, while integrating and considering the impact it may have on the planet. We will focus on the stage of this progress and whether we can combine economic recovery with the investments necessary to limit global temperatures from rising.

    1 – What would a sustainable recovery look like?
     

    No one yet knows the full extent of the COVID induced crisis and its impact on our economy and society. The current consensus however is that, without significant intervention and internationalcooperation, our GDP growth outlook is not going back to positive territory by the end of the year nor by the end of 2021. But further away from the cold economical aspects of this crisis, the health and social hazard is as threatening. The health care helplessness, the rise of unemployment and further increase in inequalities is at the heart of the concern. The environment is today the only area which has benefited from this pandemic.

    One could think that climate change emergency might be put to the background with the pressing issues to address. That is exactly what should not happen. We have had the tremendous opportunity to curb CO2 emissions and if we managed to crystallize this into a structural drop, we would still have a chance to reach our Paris Agreement objectives.

    A – Fiscal stimulus mechanisms available

    The International Energy Agency, which monitors and forecasts energy demand and related emissions to support international discussions around climate mitigation (like the UN Conference of Parties on Climate Change -COP-), has published an exceptional report in the midst of the COVID-19 crisis, to address the idea of a green recovery linked to the economic one, when governments around the world are thinking about their stimulus packages.

    The report named “Sustainable Recovery” finds that the spending need of the plan envisaged would be of roughly $1Tn per year over the next 3 years. As stated in the report, “this represents about 0.7% of global GDP today, and includes both public spending and private finance that would be mobilized by public policies. The public spending required would be equivalent to less than 10% of fiscal expenditure in recovery plans announced to date; after the 2008-09 financial crisis, green measures accounted for around 16% of total stimulus measures”.

    Governments, depending on their political wing or current economical state, could choose different levers to implement a recovery plan:

    • Traditional targeted government spending
    • Financial incentives such as subsidies, grants and loans
    • Tax incentives whether through a tax relief or burden
    • Recovery through the labor market: job creation, hiring incentives, reconversion programs
    • “Green Strings attached”: conditions entangled with government support
    • Not a fiscal stimulus measure, but a potential global game changer: Carbon pricing mechanism

    The means are manifold and so diverse that there is no unique route to THE ultimate solution, but the green stimulus should be readily implementable to boost consumption, preserve and create new jobs while contributing to greenhouse gas emissions reductions.

    B – Possible recovery

    The immediate response to the crisis has been through Central Banks intervention. They have lowered interest rates and ensured liquidity and access to the capital market for companies (through quantitative easing programs such as the e1,350bn PEPP – Pandemic Emergency Purchase Program- from the ECB).

    From a company standpoint, in economies where central banks have the above monetary power, this helps decreasing cost of capital and improves the economics of new, capitalintensive, projects such as large-scale renewable energy development or large-scale sustainable infrastructures. But it mainly favors companies of such a size that they can access capital markets.

    For the smaller companies, banks are expected to help pass down the stimuli. Indeed, part of the ECB’s easing mechanism is to facilitate liquidity access for the financial sector as well as alleviate the capital requirements burden.

    But governments’ interventions need to be more sector specific and access all layers of the economy. Here is a snapshot of the most carbon intensive sectors and what developments would currently be available to them with existing technologies, as indicated in the IEA Sustainable Recovery report.

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    news-2144 Fri, 09 Oct 2020 10:34:22 +0200 Responsible Investment labels: welcome to the jungle! /en/who-we-are/news/detail/responsible-investment-labels-welcome-to-the-jungle/ By Perrine Dutronc, Sustainable Investing Specialist, Groupe La Française. There is no common definition of “sustainable finance”, which leaves ample room for interpretation when referencing sustainable investments. 

    Sustainable investment strategies can be based on environmental or social themes like climate change or human capital, exclusions based, best in class, best in progress or future potential progress…

    Sustainable investments can also differ largely in terms of objective and allocation. Amidst the variety of terminology: sustainable, responsible, SRI (Socially Responsible Investing), ESG (Environmental, Social, Governance), green, climate, eco, transition, most investors are ill-equipped to understand the growing responsible investment offer.

    Labels have been developed to answer that lack of clarity and make sustainable financial products easier to understand. They attest to the quality of the process.

    But labels cannot streamline what is already fragmented. Moreover, they are viewed as a tool to influence standards, regulations and potentially a future European ecolabel. Many EU countries are now racing to be at the forefront, so they can impose their view of responsible or green investments and set the standard.

    Across Europe, we have inventoried no less than nine different labels and 800 labelled funds in a total universe of 60,000 funds (as at Dec. 31, 2019). Though that represents just 1% of the total market, the number of labelled funds doubled in a single year. 

    Of the nine labels, five can be qualified as ESG (Environmental, Social and Governance) and four as “Green”. However, the boundary between ESG and Green labels is blurry. For example, the ESG labels include the “E” of environment and therefore also examine green criteria whereas the Green labels require a minimum of ESG criteria/standards. Between both types of labels, it is a question of proportion and focus rather than a fundamental distinction in the approach, as illustrated in the following below. 

    In the jungle of labels, two, the French “SRI label” and the Belgian “Towards Sustainability”, are leading the pack, with approximatively 300 labelled funds each, representing close to three-quarters of the total number of labelled funds and 90% of the total assets under management of labelled funds.
     

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    news-2138 Tue, 06 Oct 2020 09:52:48 +0200 This november, don't choose /en/who-we-are/news/detail/this-november-don-t-choose/ Many investors are now studying polls and trying to guess who will win the presidential election so they can position their portfolios strategically. But what does history say about investing based on politics?

    • Investors would not have been well served by choosing to invest alongside only certain political parties. Since 1968, which many people consider the beginning of the modern political party alignment, portfolios that were invested only during either Republican or Democratic presidencies have dramatically underperformed a buy and hold strategy.
    • Historically, the best performing portfolio is one that bought stocks and held them throughout Democratic and Republican administrations. An investment of $10,000 invested irrespective of which party controlled the Oval Office outperformed the “partisan” portfolios by over a million dollars.
    • We rarely look back on stock market returns and attribute them to political parties. Investors may potentially benefit from history’s lesson: get out and vote at the polling booths with your pens but don’t vote with your portfolios. 
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    news-2131 Tue, 29 Sep 2020 09:33:05 +0200 Deep transition through innovation /en/who-we-are/news/detail/deep-transition-through-innovation/ By Apolline Brilland, Analyst / Portfolio Manager - Global Equities, La Française AM. ZEROe – paving the way to large scale decarbonization in the aviation industry

    "Flygskam" or Flight shaming' is a Swedish-born movement that calls for curbs to air travel due to its environmental impact. And the movement is gaining traction. The number of passengers who flew through Swedish airports dropped by four percent in 2019 due to a notable decline in domestic traffic according to Swedish state-owned airport operator Swedavia. This movement which has spread across Europe in line with the Friday for Future movement, might be seen as anecdotal, but it highlights how consumer behavior impacts global warming. Consumers are becoming more and more climate conscious and we believe that sustainability will play an increasing role in user behaviour. 

    Whilst globally, transport of all sorts, including road travel, contributes to around one fifth of all emissions, the aviation industry represented a total of 1Gt of CO2 emissions worldwide, the equivalent of about 3% of total global CO2 emissions from fossil fuel combustion1.  However, due to evolving consumer habits and increasing intercontinental mobility, emissions from air travel have grown rapidly over the past decades. 

    Currently, climate conscious travelers have only two choices: fly or not fly (and use an alternative means of travel). However there have been interesting initiatives in the airplane construction industry over the past decade which have led to the first developments of electric planes, mostly focused on relatively small carriers and so far allowing for only very short distances. 

    Harbour Air’s Seaplane to e-plane initiative made its commercial maiden flight last December. Equipped with a magniX 750-horsepower fully electric propulsion system, this 6 passenger Havilland Beaver marks the start of a new era in aviation: the electric age. However, the weight of the batteries and the long charging times make battery driven planes unsuitable for larger range flights or passenger numbers over ten.

    With electric aviation still decades away from becoming mainstream, Airbus has been working for years on a hydrogen / fuel cell powered propulsion system, more suitable for larger capacities. In February 2020, La Française’s equities investment team had the opportunity to talk to Guillaume Faury, CEO of Airbus, at an Industrial Conference about opportunities for large scale decarbonization in the aviation industry.

     * Source International Energy Agency, 2019

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    news-2130 Tue, 29 Sep 2020 09:13:31 +0200 WFH /en/who-we-are/news/detail/wfh/ Working from home or WFH used to be frowned upon in some industries. But no more. One of the most powerful, lasting changes of the coronavirus pandemic may be increased WFH. The investment implications could be significant.

    • Many business leaders are embracing work from home, driven by a newfound appreciation of the productivity benefits of having employees work remotely. A recent Microsoft study found that with the remote work environment, employees are working four hours more per week. In fact, Schroders, a large multinational asset management firm, announced it that it is permanently adopting flexible working in order to provide a “huge shot in the arm” for the firm’s productivity. The chart above shows many companies will be implementing similar strategies. Already, Twitter, J.P. Morgan and Shopify have made comparable moves.
    • People whose job involves handling or using information are finding working from home preferable to being in the office in many cases. The benefits of reduced commuting, more flexible schedules, casual attire and more time with friends and family are the big drivers, according to a recent survey from Clutch.
    • Companies impacted positively from this potential long-term trend include cloud platforms, desktop virtualization software, collaboration tools and cybersecurity solutions. Those on the losing side may include office real estate investment trusts, which could see rent and occupancy pressures persist in the future.
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    news-2128 Fri, 25 Sep 2020 14:00:30 +0200 A strong performance for the Chinese economy /en/who-we-are/news/detail/a-strong-performance-for-the-chinese-economy/ by Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company The recent Macro numbers released by the Chinese government over the past two weeks have surpassed estimates made by macroeconomists and have contributed significantly to the very strong appreciation of the RMB against all other major currencies.

    Industrial value-added has accelerated from +4.8% YoY in July to +5.6% YoY in August. Over the same time frame, capital spending rose from +6.0% YoY to +7.6% YoY, property investments from +11.6% YoY to +12.1% YoY, and retail sales have turned positive for the first time since the COVID-19 outbreak and rose from -1.1% YoY to +0.5% YoY. Sales of properties and cars have risen spectacularly to the point that China has introduced very strict measures to force property developers to deleverage their balance sheets, pushing one of the largest, Evergrande, to cut its selling prices across all its projects by 30% to reduce its debt, the steepest discount it has ever offered.

    This strong activity at the time when the rest of the world is still struggling with the economic impact of COVID-19 has led to a very strong growth in import volumes (+9.5% YoY in August) but also in a drop in import value (-2.1% YoY in August, down from -1.4% YoY in July) as a result of a strong drop in global commodity prices over the past twelve months. Exports on the other hand kept on surging, up from +7.2% YoY in July to +9.5% YoY in August, still driven by masks and medical equipment, but also because many emerging countries that could be seen as manufacturing alternatives are still in lock-down or some form of lock-down (Indonesia, Thailand,  India, Philippines) whereas China has resumed all industrial activities. This has led to a trade surplus of over USD50bn per month, a level it only reached once, in 2015. Capital Economics now forecasts the current account in 2020 to reach a surplus of USD360bn, or 2.5% of China’s GDP. Our readers will remember that the community of economists was forecasting China to record a current account deficit this year prior to the outbreak of COVID-19.

    As an anecdote, we came across a statistic that is an illustration of China’s consumption rebound: According to the Federation of the Swiss Watch Industry, Swiss watch exports fell 11.9% YoY to CHF1.34bn in August despite exports of watches to China having risen by +44.9% YoY in August, reaching CHF211.6m. 

    Another data point we wanted to share and that also relates to consumption, and more specifically to the hospitality sector is as follows: China’s biggest hotel operator, Shanghai-based Huazhu Group that operates more than 6000 hotels and 600,000 rooms under 25 different brands (including Novotel, Mercure and Ibis for our French readers) reached an occupancy rate of 69% during the second quarter of the year, a level that is comparable to its pre-pandemic level. During the same quarter, Marriott International Inc. had a global occupancy rate of 14% and Hilton Worldwide International Inc. 22%.

    The logical impact of a current account surplus hitting new highs is a strong appreciation of the RMB, the Chinese currency, that gained 2.8% against the euro over the past four weeks, 5.8% against the USD since the end of May and 2.9% against the yen since the end of July. 

    Source of figures: Bloomberg

    Informative Document for professional investors only as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report.

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    news-2121 Thu, 24 Sep 2020 09:00:00 +0200 La Française collective real estate investment vehicles acquire third Amsterdam asset /en/who-we-are/news/detail/la-francaise-collective-real-estate-investment-vehicles-acquire-third-amsterdam-asset/ Three La Française collective real estate investment vehicles, represented by La Française Real Estate Managers, have acquired, on an off-market basis, an office building in the city of Amsterdam from Avignon Capital. The property is located at 16 Danzigerkade on the IJ waterfront in the dynamic Houthavens area, the up and coming “live-work” creative hub in the northern part of the central business district of Amsterdam. The area promotes mixed-use zoning with soon to be 2.700 residential dwellings and aims to be recognized as a sustainable and climate neutral zone within Amsterdam. 

    The six-storey office property, completed in 2018, offers 6.812 m2 of floor space and 55 parking spaces (of which 49 are indoor) and is fully let to five tenants including an advertising agency, a distributor of timepieces, an instant film camera manufacturer and distributor, a coworking space supplier and a full-service production company. 

    Jens Goettler, Managing Director of La Française Real Estate Managers - Germany said, “We are delighted to secure a third property in Amsterdam with such efficient and flexible office space. Houthavens, where most of the stock is already let, is one of the few areas in Amsterdam City where new developments are still possible. This investment is perfectly in line with our ESG real estate strategy which favors acquisitions in mixed-use developments.”

    La Française Real Estate Managers was advised by Houthoff on legal aspects and by Savills Netherlands on technical Due Diligence

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    news-2120 Mon, 21 Sep 2020 11:37:22 +0200 Winning the Game /en/who-we-are/news/detail/winning-the-game/ Electronic gaming has come far since early home computer games such as Donkey Kong and PAC-MAN emerged in the 1980s. Today’s games have been developed to run on a wide array of platforms and technologies and include features such as location-based capabilities, augmented reality and multiplayer features. Can investors win at this game?
     

    • Gaming is a growing industry. That is especially true this year during the coronavirus pandemic. With more people staying home, worldwide gaming growth has accelerated dramatically, more than doubling from 5% last year to an estimated 11% this year, according to Statista.
    • Mobile gaming has been growing rapidly with more people spending more time on their phones. There are about 1.5 billion mobile gamers globally, spending about $35 per year per person. Additionally, console gaming could see a resurgence as the next generation of consoles comes out later this year.
    • Free-to-play games with in-game transactions (e.g., to buy supplies or capabilities) is a fast-growing segment of the industry. Fortnite is a good example with an estimated 350 million users, up from 125 million two years ago, generating a forecasted $5 billion in revenue this year.
    • Investors can gain exposure to gaming in several different ways. The large platform companies that operate app stores generate billions of dollars of high-margin revenue from mobile games–with mobile gaming revenue on Apple’s App Store and Google Play exceeding $35 billion in the first half of this year alone, according to SensorTower. Outside the U.S., companies like Tencent have huge gaming franchises. Additionally, content developers like the big game publishers have been not only producing profitable hit titles, but they have been finding new ways to monetize their user base.
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    news-2119 Mon, 21 Sep 2020 11:28:22 +0200 Euro stimulus has broad implications for investors /en/who-we-are/news/detail/euro-stimulus-has-broad-implications-for-investors/ The unprecedented levels of stimulus launched worldwide to combat the recession triggered by economic shutdowns and stay-at-home orders to contain the COVID-19 pandemic have garnered much attention from investors and the media. The impact from the more than $11 trillion in fiscal stimulus and massive amounts of central bank liquidity will aid many suffering economies and people. Among all the programs launched, one of the most interesting is the European Union’s (EU) 750-billion euro Recovery Fund, part of a broader “Next Generation EU” recovery effort. This Next Generation stimulus package marks an inflection point for the region and is likely to have far ranging consequences, including:

    • Greater unity among EU countries
    • Narrowing the valuation discount between European equities and other developed market equities
    • Advancing initiatives outlined in the Green Deal
    • Accelerating digitization across the EU

    Stimulus Proposal Passes Important Hurdles
    After intense negotiations, the 27 EU member states in late July agreed to a stimulus plan of 750 billion euros or $875 billion, which is equivalent to approximately 4% of 2019 EU gross domestic product (GDP). A key difference from previous stimulus initiatives is that funding will be provided to countries as a mix of grants (390 billion euros) and loans (360 billion euros) rather than just loans. The recovery fund will be financed through bonds issued by the European Commission with maturities of up to 30 years and backed by future contributions of EU members. The majority of the grants will be distributed from 2021 to 2023 to the member states depending on their specific national recovery plans. Of the 360 billion euros in loans, countries are expected to begin repayment in 2027 based on the amount received, with the entire debt settled by 2058. The stimulus plan calls for the 390 billion euros of grants to be repaid initially by the EU from funds received through a new tax on plastic waste, with a future focus on green and digital taxes.

    Cash will be directed to countries based on need rather than contributions made to the EU budget, thereby supporting countries that were the hardest hit economically by the pandemic and also having high debt levels and limited financial flexibility. Under the current plan, countries including Italy, Spain, Portugal and Greece will be among the largest beneficiaries and will be able to access funds financed by the European Commission’s triple A rating instead of their own lower ratings.

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    news-2117 Mon, 21 Sep 2020 09:00:00 +0200 Notice: "La Française Rendement Global 2028" sub-fund of the "La Française" SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2028-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-1/ Following an analysis of the current condition of the target markets, the management company has decided that it would be in the interests of shareholders to reduce the minimum amount of assets under management below the level at which the fund is invested in money market securities. As a consequence, the fund will be invested in money market securities until the amount of assets under management reaches 5 million euros rather than the previous level of 7 million euros, in order to allow shareholders to benefit from the current market conditions market.

    This change will come into force on 25 September 2020.

    The other features of the sub-fund remain unchanged.

    We wish to remind you of the need and importance of reading the key investor information document for La Française Rendement Global 2028, which is available at www.la francaise.com.

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    news-2110 Thu, 17 Sep 2020 09:18:00 +0200 La Française streamlines its real estate division /en/who-we-are/news/detail/la-francaise-streamlines-its-real-estate-division/ La Française, international asset management group with total assets under management of 50 billion euros as at 30/06/2020, has streamlined its real estate division, which represents close to 25 billion euros in assets under management, a figure that has increased four-fold over the past ten years. In the wake of COVID-19, La Française Real Estate Managers is pursuing and accelerating its development. The asset manager has recorded close to 900 million euros in fundraising YTD as at 30/06/2020 and closed 17 acquisitions, for a total investment volume of c.a. 930 million euros. More recently, the asset manager finalized the acquisition of two office buildings, in London and Amsterdam. Despite the challenging global environment, La Française Real Estate Managers is actively reinforcing its investment teams and overall infrastructure in order to successfully meet the needs of its clients, which have increasing appetite for real estate.

    Moving forward, all real estate activities will be marketed under a single brand, La Française Real Estate Managers, replacing La Française Real Estate Partners International in the UK and in Germany. Additionally, two sub-divisions have been created and will co-exist to better serve the diverse needs of its investor base:

    • The Institutional division, under the supervision of David Rendall, currently Managing Director of La Française Real Estate Partners International and soon to be named Managing Director of La Française Real Estate Managers, is responsible for adhoc real estate investment solutions specifically designed for institutional investors on Core/Core+, Value Added and Opportunist strategies. He is supported by a team of qualified investment professionals who have expanded their expertise beyond the three primary European real estate markets (France, Germany and the UK, including Ireland) to include Luxembourg, Netherlands and Belgium:
       
      • Jens Goettler, Managing Director, La Française Real Estate Managers-Germany

    Jens Goettler has accompanied the group in its international expansion since the opening of the Frankfurt based real estate investment center in 2014. Just six years later, under his responsibility, the group has experienced considerable expansion and is now dealing out of Frankfurt, Hamburg and more recently Munich. The German branch is thus capable of covering the seven primary German office markets (Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart) from these three strategic locations.

    • Peter Balfour, Director of Investments, La Française Real Estate Managers-UK

    Peter Balfour has been working hand in hand with Jens Goettler and David Rendall for fifteen years and was present at the founding of the group’s real estate investment center in London in 2014.

    • Leslie Villatte, newly appointed Director of Investments and Institutional Real Estate Business Development - France Leslie Villatte recently joined La Française Real Estate Managers and will be working in close synergy with her foreign counterparts, Jens Goettler and Peter Balfour.
       
    • The Retail division, under the supervision of Marc-Olivier Penin, Managing Director of La Française Real Estate Managers, covers all real estate investment solutions and services specifically targeting retail investors, including the group’s wide range of French collective real estate investments vehicles. La Française Real Estate Managers is in fact the leading manager of French collective real estate investment vehicles in terms of capitalisation (Source: IEIF as at 30/06/2020) and has collected 670 million euros YTD (30/06/2020) in such vehicles.
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    news-2108 Mon, 14 Sep 2020 18:04:48 +0200 The FED, expected to clarify the impacts of the average inflation target on its monetary policy. /en/who-we-are/news/detail/the-fed-expected-to-clarify-the-impacts-of-the-average-inflation-target-on-its-monetary-policy/ Here is what we expect from the September 16th FOMC meeting:
  • They will leave rates unchanged;
  • The SEP (summary of economic projections) is likely to show upward revisions to growth and employment forecasts.
  • However, median projections will still show an unemployment rate modestly above the longer-run rate and inflation just below 2% even at the end of the forecast horizon in 2023.
  • The dot plot is likely to continue to show a baseline of no rate hikes through the end of the forecast horizon, though we do expect a few participants to show hikes by 2023.
  • The Fed is likely to clarify its guidance by signaling that future rate hikes will be linked to reaching an average inflation target of 2% as discussed at the Jackson Hole Summit. In our opinion, they have left a lot of work undone, including a description of how they will use their tools to achieve their goal.
  • Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2106 Mon, 14 Sep 2020 11:38:15 +0200 It’s All Happening /en/who-we-are/news/detail/it-s-all-happening/ Wireless carriers across the globe have already launched or will soon launch 5G networks that will likely revolutionize how we use mobile devices, a vital component of nearly every business model. 5G is poised to overhaul the technology sector and drive economic growth. How might this take shape?

    • We are on the precipice of a sea change in wireless communication technology. Given that mobile broadband is such a prevalent technology with over six billion subscriptions worldwide and it is critical to how society functions, any change in technology is impactful. 5G, or the fifth generation of wireless technology, will likely be adopted in scale over the next several years. As the chart above shows, 5G could account for nearly two billion mobile subscriptions by 2024. Developed Asia and North America are expected to see penetration rise fastest.
    • 5G will provide significant benefits relative to existing 4G technology. They include faster speeds, increased capacity, much lower latency and more efficient spectrum utilization.1 5G will enable the Internet of Things (IoT). IoT means devices operate with constant internet connection, which may help drive health care applications that work off of the real-time monitoring of patient details. IoT may also help drive autonomous driving applications that require communication between entities on roadways, such as cars and traffic lights.
    • Investors can gain exposure to 5G in a variety of ways. Tower companies may benefit from increased demand for wireless infrastructure to power 5G deployments. Companies that produce 5G chipsets are likely to see strong volume growth. Wireless carriers may see increased demand for new data services. Finally, smartphone vendors may see a robust replacement cycle that boosts shipments, as consumers feel the desire to upgrade to the latest technology.

     

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    news-2101 Wed, 09 Sep 2020 16:14:00 +0200 What options does the ECB have left to stimulate recovery? /en/who-we-are/news/detail/what-options-does-the-ecb-have-left-to-stimulate-recovery/ The ECB will hold its press conference on Thursday September 10th. Here is what we expect:

    • They will update their macro-economic projections. We do not expect material changes (ECB projections are already low), however we believe that they could lower both their GDP and Inflation forecasts, hence sending a dovish signal to the market.
    • The Euro has rallied significantly over the summer, which is boosting the case for more monetary stimulus (especially with very low inflation and core inflation). Even if we do not anticipate the announcement of such actions, Mrs. Lagarde will have to introduce potential actions before year-end. What are the ECB’s options?
      • Policy makers know that their “words” can have an effect on markets, so they may “talk” about the Euro in the context of monetary policy. Mentioning that the strength of the euro is an issue for the ECB, is an easy and cheap way to intervene. But if that does not work, it can put the ECB’s credibility at risk.
      • Asset purchases: They could increase the size of the current programs, merge them, increase the length…
      • The ECB could communicate that cutting the deposit rate is an option, perhaps coupled with new TLTRO (or better terms) in order to counterbalance the negative effects on banks.
      • The ECB could also announce a higher inflation target or flexibility regarding a potential inflation overshoot. However, to be efficient, the ECB has to be credible, which is not the case anymore on the inflation front.

    The ECB is in a very difficult situation: very low core inflation, negative headline inflation, appreciating Euro…Historically speaking, these developments would have led to a very dovish and immediate response from the ECB. The issue here is that the ECB is almost out of options: they could cut the deposit rate, but what would be the impact of going from -0.5% to -0.6%? They can increase the size of the programs, and they will at some point, but again, the impacts on inflation and the Euro are not obvious. The ECB may be worried about the appreciation of the Euro and very low inflation, but that does not mean it can do much about it.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2095 Fri, 04 Sep 2020 15:56:10 +0200 Rethinking style diversification /en/who-we-are/news/detail/rethinking-style-diversification/ Investors frequently blend value and growth stocks with other assets, such as bonds and real estate, to potentially improve the risk and return profiles of their portfolios. Since the performance of different types of assets or investing styles may not be correlated, the impact upon a portfolio of certain securities declining in value may possibly be offset by other securities generating gains. We believe that prudent diversification is important but based on the results of the past 10 or more years, we think the role of value equities in potentially improving a portfolio’s risk and return profile should be reevaluated.

    The issue is particularly timely because investors have made substantial investments in value stocks. Of the approximately $9.3 trillion in U.S. equity mutual funds and exchange traded funds, only $2.9 trillion is allocated to pure growth equities with the remainder of assets being allocated to value or blended portfolios, according to Morningstar data.

    The strong emphasis on value investing, however, has yielded disappointing results. During the past 10 years, diversifying into value equities would have achieved the opposite goal of diversification—a portfolio with both lower absolute returns and a less attractive risk and return profile. Value equities dramatically underperformed during the 10-year period, a result, in part, of various flaws in the value “philosophy” in our view. First, there is a reliance on valuation metrics, which are often based on outdated accounting practices that form the foundation of the definition of “value.” Second, and more importantly, investing according to “value” metrics tends to fail to appreciate the fundamental drivers of a company’s business. Value companies may be the victims of “dynamic change” in our economy and their industries. As a result, investors in the value style category often are heavily skewed toward companies with legacy business models and stagnant management and product strategies.

    Value investors thus become investors in areas such as brick and mortar retailing, print and TV advertising companies or oil and gas energy that in the real world, where business fundamentals of growth and innovation come first (not financial valuation metrics), are becoming victims of change: the disrupted not the disruptors. We believe this dynamic change is being accelerated by the Covid crisis as well as other ongoing trends and will continue to hurt the performance of value stocks.

    “La Française is the privileged distributor in Europe of ALGER SICAV's sub-funds. La Française AM Finance Services is in the process of finalizing an agreement with Alger Management Ltd, whereby La Française AM Finance Services is authorized to distribute Fred Alger Management Inc. products in Europe.”

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    news-2089 Thu, 03 Sep 2020 09:00:00 +0200 La Française announces the appointment of Philippe Depoux as Chairman of la Française Real Estate Managers /en/who-we-are/news/detail/la-francaise-announces-the-appointment-of-philippe-depoux-as-chairman-of-la-francaise-real-estate-managers/ La Française is pleased to announce the upcoming appointment of Philippe Depoux as Chairman of La Française Real Estate Managers, in a move aimed at further developing the group's real estate strategy. He will take over from Marc Bertrand and will also become a member of the Executive Board of the La Française group. These appointments will be submitted at the next Supervisory Board meetings of the two entities as of 30 September 2020.

    By refocussing its business on real estate and financial assets, La Française is placing real estate - which currently represents 50% of total assets under management - at the heart of its development strategy. Over the past ten years, the Group's real estate assets have more than quadrupled to reach 25 billion euros, thanks to its proven leadership in France and its international expansion. La Française intends to pursue and speed up this development in an asset class that has become crucial for all investors against the current backdrop of persistently low interest rates and in the wake of the COVID-19 pandemic, which has created a new wave of investment challenges. 

    A graduate of Sup de Co Rouen (NEOMA), Philippe Depoux, 58, has spent the bulk of his career since 1986 in the world of French and international institutional real estate. Initially responsible for acquisitions, sales and appraisals at GAN Immobilier, GROUPAMA Immobilier, and subsequently Global Head of Transactions at Axa REIM, he became CEO of Société Foncière Lyonnaise in 2006, and assumed the same role at GENERALI Immobilier France in 2009 and Gecina in 2013. Since 2017, he has been the Managing Director of Compagnie Lebon. Director of the IEIF, the Club de l'Immobilier and the NGO PUI, Philippe Depoux has been awarded four Pierres d'Or over the course of his career.

    In joining La Française, Philippe Depoux will continue to develop and diversify the group's real estate offer under a single brand, "La Française Real Estate Managers" in France and internationally. He will oversee all real estate business line activities as well as the Group's innovation platform and will represent La Française when dealing with real estate market authorities. 

    “It is an honour for me to join La Française. This highly reputed group has successfully developed a real estate business geared towards excellence and strength under the leadership of Marc Bertrand, a friend whose work I hold in the utmost regard. I am eager to use my experience working for La Française and its shareholder in order to continue and accelerate its growth in real estate", says Philippe Depoux. 

    As part of this new governance, Philippe Depoux will be supported by an experienced management 

    team:

    • Marc-Olivier Penin, Managing Director, La Française Real Estate Managers, in charge of real estate for private clients, notably including the Sociétés Civiles de Placement Immobilier (SCPI);
    • David Rendall, newly appointed Managing Director, La Française Real Estate Managers, in charge of the management of real estate mandates specifically for institutional clients on Core/Core+, Value Added and Opportunist strategies.

    “Marc Bertrand has worked for the Group for over 20 years and has broadened the scope of its real estate expertise. In particular, he has provided a professional and pragmatic approach to this development and I would personally like to thank him for the commitment he has displayed throughout these years. The arrival of Philippe Depoux is a major milestone for our Group. I am convinced that his knowledge of the various real estate sectors and his international experience will enable us to draft a prosperous new chapter for La Française and its real estate activities", states Patrick Rivière, Chairman of the La Française Group Executive Board.
     

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    news-2087 Thu, 27 Aug 2020 10:36:38 +0200 The EU Taxonomy. Transitioning our way out of the climate crisis /en/who-we-are/news/detail/the-eu-taxonomy-transitioning-our-way-out-of-the-climate-crisis/ By Nina Lagron, CFA, Head of Large Cap Equities, La Française AM. The EU taxonomy is a tool to help investors understand whether an economic activity is environmentally sustainable, and to navigate the transition to a low-carbon economy. Setting a common language between investors, issuers, project promoters and policy makers, it helps investors assess whether investments are meeting robust environmental standards and are consistent with high-level policy commitments such as the Paris Agreement on Climate Change.

    In December 2019, the European Commission presented the European Green Deal, an overarching framework and program of actions to transform the European economy. A key component of the Green Deal is the proposed ‘Climate Law’ embedding a legal commitment for the EU to achieve climate neutrality by 2050. The EU put a more ambitious strategy on adaptation to climate change on the table, building from the 2013 strategy and the adaptation current key targets are at least 40% cut in greenhouse gas emissions (from 1990 levels), at least 32% share for renewable energy and at least 32.5% improvement in energy efficiency – but more ambitious targets are currently being considered.

    Other core components of the Green Deal are strategies and actions on supplying clean, affordable and secure energy, biodiversity, zero pollution, a circular economy and sustainable food production. These overarching objectives are addressed through financial and real-economy policy, across the public and private sectors.

    The adoption of the Taxonomy Regulation in June 2020 marks the final step of the legislative process for creating the world’s first green classification of sustainable economic activities.

    By re-orienting private sector investments to green technologies and businesses, this piece of legislation will serve as guidance for the EU to reach climate neutrality by 2050.

    It transforms the European Green Deal into an actionable roadmap for investors to be in line with the COP 21 targets and therefore it aims to decarbonize high emitting sectors and grow low carbon sectors.

    The EU taxonomy is one of the most significant developments in sustainable finance and will have wide ranging implications for investors and corporates in the EU and worldwide.

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    news-2086 Tue, 11 Aug 2020 13:51:27 +0200 Hong Kong China Bond Connect – How to get exposed to the second largest bond market in the world /en/who-we-are/news/detail/hong-kong-china-bond-connect-how-to-get-exposed-to-the-second-largest-bond-market-in-the-world/ by Eric Tso, Fixed Income Analyst, JK Capital Management Ltd., a La Française group-member company History of Bond Connect
    In May 2017, the People’s Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) jointly announced the Bond Connect initiative, with the program officially commencing on 3 July 2017. Like the Stock Connect, it aims to provide mutual market access for bond investors between Mainland China and Hong Kong, allowing foreign investors to gain access to the RMB denominated domestic bond market. Currently, only Northbound Trading (i.e. overseas investors buying/selling Chinese onshore bonds) is allowed.

    Prior to Bond Connect, the channels for overseas investors to participate in China’s onshore bond market were limited in scope and had their own restrictions. They include QFII, RQFII and China Interbank Bond Market. With Bond Connect being the fourth channel, it aims to enhance operational efficiency for overseas investors, particularly regarding account opening and trade settlement. Another aim for the Bond Connect was to encourage potential inclusion of China onshore bonds into major global indices. This was achieved in 2019 when Bloomberg included Chinese Government Bonds and policy banks bonds into the Bloomberg Barclays Bond Index (with a 6% weighting) as well as JP Morgan which included several highly liquid Chinese Government bonds into several bond indices. 

    Overview of Bond Connect: How does Bond Connect work?
    Under Bond Connect, investors send settlement instructions to the Hong Kong Central Moneymarkets Unit (CMU), which acts as the nominee holder of these securities and settles with onshore clearing houses. 

    As such, overseas investors do not have to open an onshore account but instead are allocated a CMU account number for the settlement process. The CMU can provide certificates as proof of investors’ bond holdings which are recognized by PBoC. 

    To buy and sell bonds, investors need to send a request for quote (RFQ) to selected participating onshore dealers on offshore trading platforms (e.g. Bloomberg or Tradeweb) and subsequently lift/hit the most favourable price quote. These offshore trading platforms are connected to the onshore trading platform CFETS (China Foreign Exchange Trade System). Once a trade is completed, CFETS sends the trade information to two onshore central securities depositories: Shanghai Clearing House (SHCH) and China Central Depository & Clearing Co. Ltd. (CCDC) 

    The funding currency can be either offshore Renminbi (CNH) or foreign currencies. Investors can choose to exchange foreign currencies or CNH for onshore Renminbi (CNY) using prevailing exchange rates through offshore banks. Note that the repatriation currency should always be the same as the funding currency...
     

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    news-2085 Mon, 10 Aug 2020 09:11:00 +0200 Portfolio Insights: Alger Dynamic Opportunities Strategy /en/who-we-are/news/detail/portfolio-insights-alger-dynamic-opportunities-strategy/ Greg Adams and George Dai recently provided a portfolio update for clients in the Alger Dynamic Opportunities strategy. The call was hosted by Tyler Foster, a senior vice president and director of business development in our distribution organization. Please note, this transcript is from a call on July 22, 2020 and it has been edited for clarity and brevity.

    Tyler Foster: Thank you for joining us. I’m joined by Greg Adams and George Dai today, two portfolio managers on the Alger Dynamic Opportunities strategy.

    Today's call will follow a Q&A format, which I will moderate, and we will have a couple of segments when we take questions from the audience.

    George is senior managing director & co-chief investment officer. He
    also serves as an analyst for the Weatherbie team, covering diversified business services, health care, and technology. George has been at Weatherbie for almost 20 years.

    Greg is senior vice president, portfolio manager, and director of quantitative and risk management at Alger. Greg has been with Alger for nearly 15 years and has over 30 years of experience.

    And with introductions now covered, let's kick things off and dive into the conversation. Greg, our first question goes to you. Can you provide your views of the long/short equity asset class as a whole and how you see Alger’s strategy fitting in among its peers in the alternatives category?

    Greg Adams: The equity long/short category has a number of different flavors, from pure quantitatively driven strategies to more macro driven ETF-based strategies. Alger Dynamic Opportunities is a classic fundamental, research driven equity long/short strategy.

    The strategy comprises two roughly equal sleeves. The Weatherbie team, which is George along with Josh Bennett and Dan Brazeau, manages one sleeve and focuses on small and smid cap names. The Alger team, which is myself and Dan Chung, our firm's CEO and chief
    investment officer, manages the other sleeve, and we have more exposure to mid and large cap names. The net result is a fairly all-cap portfolio...
     

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    news-2084 Thu, 06 Aug 2020 14:23:52 +0200 Crisis Drives Investable Behaviors /en/who-we-are/news/detail/crisis-drives-investable-behaviors/ The coronavirus has impacted all of our lives, created new behaviors and shifted old patterns at work and at home, some of which will last even after the virus recedes. How can investors use these new trends to their potential advantage?

     

    • The chart demonstrates how various activities and habits have changed in three large economies since the start of the coronavirus pandemic. Respondents in Germany, the U.K. and the U.S. have clearly stayed at home more. They have also visited stores less, shopped online more and worked from home more.
    • Many of these new behaviors are investable. E-commerce, digital payments and cloud computing driven by work and entertainment at home are some of the areas that investors may wish to consider.
    • With e-commerce still a minority of total retail sales and cloud computing accounting for less than half of company workloads, we believe these trends may have much further to go even after the pandemic ends. Potential beneficiaries of their growth may include e-commerce platforms where small firms can sell products and vertically focused online retailers that concentrate their business in one area. Additionally, we believe digital payment providers and networks, as well as cloud computing platforms and their infrastructure providers, may potentially benefit.
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    news-2083 Thu, 06 Aug 2020 14:16:41 +0200 Where to turn post Covid-19? /en/who-we-are/news/detail/where-to-turn-post-covid-19/ By Gilles Seurat, Multi Asset Fund Manager, La Française AM In a post Covid world, there are plenty of unknowns, especially about the virus itself: when will we develop a vaccine, will the world face a second wave, etc.? These are all very sensitive topics that continue to drive investors’ risk appetite – each news article referencing a vaccine is literally cheered by financial markets. Unfortunately, it is extremely difficult to get an edge on these issues – even doctors seem puzzled.

    However, there are some things we do know that can contribute to building our asset allocation.

    Governments seem to be spending as much money as possible. Deficits are widening to record highs: for 2020, -9.6% forecasted for the Eurozone as a whole, -17.4% for the US, -13% for the UK. (Source: Bloomberg) And it looks like this is only the beginning. Just as central bank quantitative easing has been extended/increased multiple times, governments will probably spend more in the future if growth disappoints.

    Today’s spending clearly translates into a significantly higher debt to GDP ratio tomorrow. This extra debt will have to be paid back eventually, and it will certainly weigh on future growth. This means monetary tightening is not an option, as governments just will not be able to afford higher rates.

    Before the COVID-19 crisis, we already considered that rates were capped due to long-term trends such as digitalization and ageing populations. Now, the picture is even clearer: get used to negative yields, because they are here to stay. In the current context, long-term Australian government debt, where the yield curve is steep, is an option.  

    Currencies are also affected. The US dollar has lost its shine – carry is now minimal with deeply negative real interest rates. This bear trend means that inflation expectations will continue to recover from the deeply depressed levels we observed during the crisis. We are therefore positive on breakeven inflation in Europe and in the US.

    Regarding risky assets such as stocks, there is an ongoing tug-of-war between terrible economic performance and dramatic fiscal and monetary easing. However, investor positioning gives us a clearer signal regarding investor sentiment. While investor sentiment has improved, it remains relatively weak compared to historical data: cash levels are high, systematic strategies such a “volatility targeting” funds are running low levels of risk and even the hedge fund beta relative to the S&P500 is on the low end of the range. To us, this means that the “pain trade” is higher for risky assets, which all other things equal, are bound to creep higher. We favor financial subordinated debt (AT1s), as well as corporate credit (both investment grade and high yield). Bonds have underperformed derivatives during the crisis and therefore have room to catch up. In the periphery of Europe, we follow closely Greek bonds, which exhibit an attractive risk/reward profile and are now purchased by the ECB in the PEPP.

    In equities, our preference goes to large caps which have suffered far less than their small cap peers. The bear dollar trend should mean better returns, on a currency hedged basis, from US stocks.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
     

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    news-2082 Wed, 05 Aug 2020 16:53:02 +0200 Teleworking: A Short-Term Solution to the Detriment of Innovation /en/who-we-are/news/detail/teleworking-a-short-term-solution-to-the-detriment-of-innovation/ by Virginie Wallut, Director of Real Estate Research and Sustainable Investment at La Française Real Estate Managers The health crisis will bring about changes in the real estate market and more specifically with regards to office space, expediting the obsolescence of some assets that cannot comply with new conventions. 

    The COVID-19 lockdown has validated the possibility of teleworking. However, teleworking has its limitations for employees and business development. From the employee's perspective, there is nothing more unequal and exclusive than a company where everyone works at home at their computer confined to their own living and housing conditions. 

    With respect to businesses, looking at teleworking simply from the financial aspect and only considering cost savings as a result of fewer workspaces, takes away from the office’s main role of business development. Looking at the first teleworking analyses following the lockdown lifting, standard operations gain in productivity in the short run whereas innovation, the brainchild of tomorrow, becomes more problematic. Advocating 100% teleworking is akin to having a short-term outlook on business development. 

    COVID-19 has shifted the teleworking balance. Whereas employees had asked for it in the beginning, some businesses would now like to impose teleworking on their employees. We believe that it is possible and even probable that legislation in France will impose employer compensation for their employees. Under current legislation, businesses cannot impose teleworking. Employees must be compensated if they refuse to telework. Owing to a lower number of rented office spaces, cost reductions would be partially offset by teleworking compensation.  

    We predict that a proliferation of businesses will set up a hybrid system to combine on-site work with teleworking. Many components would play a key role in the attractiveness of office assets. The office should make employees and clients want to come in and thus:

    • Be a unifier. Embody the corporate identity/culture for employees and clients and a powerful symbol that creates a sense of belonging;
    • Be comfortable and abundant in services in order to create an experience, encouraging employees to feel at home and want to come back to the workspace;
    • Be a hyper-communication spot. Workspaces must be flexible and reconfigurable, increasing possibilities for employees to work and communicate with each other

    Office assets must facilitate teleworking, i.e.:

    • Offices must be central, accessible, and close to intermodal transit hubs.
    • Offices must be connected to give each employee equal access to information (those working on site and those teleworking).

    Despite current fears of physical distancing, the attractiveness of major cities in terms of economic opportunities, connections, and social relationships will determine demand in the long run. Ongoing shifts in cities prior to COVID-19 will continue to bring about change in quality of life and sustainable features in cities and buildings. 


    THIS COMMENTARY IS INTENDED FOR NON-PROFESSIONAL INVESTORS WITHIN THE MEANING OF MIFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Real Estate Managers was approved by the “Autorité des Marchés Financiers” under N GP07000038 on June 26th 2007, approval (i.e. the Carte professionnelle) granted by the Paris Ile-de-France “Chambre du Commerce & de l’Industrie” under CPI N 7501 2016000 006 443 – Transactions on Buildings and Business Assets and Real Estate Management.

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    news-2080 Tue, 04 Aug 2020 15:54:44 +0200 The Opportunity in Small and Mid Cap Stocks /en/who-we-are/news/detail/the-opportunity-in-small-and-mid-cap-stocks/ Amy Zhang, CFA Executive Vice President Portfolio Manager Amy Zhang recently provided a portfolio update for clients in the Alger Small Cap Focus and Alger Mid Cap Focus strategies. To kick off the call, Alger’s Market Strategist Brad Neuman, CFA, shared his insights on the markets and economy. The call was hosted by Matt Goldberg, a senior vice president and divisional manager in our distribution organization.

    Please note, this transcript is from a call on July 8, 2020 and it has been edited for clarity and brevity.

    Matt Goldberg: Welcome to today’s call with Alger on the topic of small and mid cap investing with Amy Zhang, who is the portfolio manager of both the Alger Small Cap Focus and the Alger Mid Cap Focus strategies. And in addition to Amy and myself, we’re also joined by Alger’s Director of Market Strategy Brad Neuman. He’s instrumental in helping to create our intellectual capital and he works extensively with our portfolio managers and analysts.

    Brad Neuman: Thanks, Matt. I’m going to give a brief update about where we are in the economic outlook and why we’re excited about small and mid cap stocks. So the U.S. economy is obviously in a deep hole right now. But we believe it is recovering albeit not as fast as some Asian countries like China. U.S. GDP was down 5% in the first quarter. And it’s estimated to decline about 30% here in the second quarter.

    However, I believe in May, we technically exited the recession that we now know began this past February. Retail sales grew 18% in May month over month. The unemployment rate declined in May and June from 15% to 11%. And manufacturing grew in May and likely grew further in June. Additionally, housing has been improving with a large homebuilder just this morning reporting record sales for June up stunning 94% year over year.

    Now, I know that a lot of investors are concerned with the resurgence and new virus case growth and what it may mean for the economic outlook. The interesting thing is that we’re seeing new cases well correlated with mask use. Early adopters of mask policy, such as Delaware, Maryland, New Jersey, New York and Pennsylvania, had fared better than others that have not mandated mask policies.

    In fact, new cases per million people were recently reported to be only 65 in states where patrons and employees were required to wear masks in certain businesses and more than double that, or 149 new cases per million, in states where masks were not mandatory. More recently, California, Nevada and Texas have instituted mandatory mask policies as well as areas of Arizona and Florida providing some hope that cases will flatten out.

    For a broad market perspective, it does look expensive on traditional metrics. But we believe that when factoring in low interest rates and a higher free cash flow generation of companies today relative to earnings, that makes stocks look much more reasonable. But we’re not here to talk about the broad stock market. We’re here to talk about the outlook for small and mid cap stocks and of course Amy Zhang’s portfolios specifically. But let me give you some highlights.

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    news-2079 Tue, 04 Aug 2020 15:44:10 +0200 To the Rescue /en/who-we-are/news/detail/to-the-rescue-1/ During recessions, real personal income typically declines or stagnates. But during the current recession, U.S. personal income has risen. What is driving this and what are the implications? Despite a Severe Recession, Income Has Risen

    • Recessions have historically been marked by weakening income. During the Global Financial Crisis, U.S. real disposable personal income per capita fell nearly 1% over a year and a half. However, during the current recession, it has risen a robust 6%.
    • The growth in income has been driven by unprecedented fiscal stimulus. Government social benefits have surged, adding over $2 trillion in annualized income to U.S. pocketbooks. This has easily offset the less than $1 trillion-decline in wages and salaries.
    • Real personal income per capita is typically a good economic benchmark because as people earn more, they spend more and vice versa. However, many consumers have not spent the government assistance they recently received. That may be due to the economy having been shut down. As a result, the savings rate, which was 8% last year, jumped to an average of 28% in April and May.
    • We believe the increase in personal income and the savings rate bodes well for future consumption. Given that consumption is over two thirds of U.S. economic activity, this data lays the foundation for a potentially significant rebound in GDP in the coming months.
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    news-2077 Mon, 03 Aug 2020 14:18:01 +0200 In hindsight, what were the winning and losing investment strategies during lockdown? /en/who-we-are/news/detail/in-hindsight-what-were-the-winning-and-losing-investment-strategies-during-lockdown/ By François Rimeu, Senior Strategist, La Française AM Following closely Central Bank policies and understanding the true power of their actions is what made the difference. Facing a major global recession, central banks have unleashed almost unlimited funding, pushing nominal rates even lower and increasing inflation expectations. Central banks wanted, and still want, to push real rates even lower. 

    Looking back at the winning investment strategies over the past six months, they are all consistent with a very low real interest rate environment.

    Winning investment strategies:

    • Precious metals, with gold and silver skyrocketing; historically, there is a strong negative correlation between gold/silver and real interest rates.
    • Equities: when real rates drop, financial conditions improve which is generally positive for equities but there are significant discrepancies depending on the sector. The sectors that outperformed were those with a “long duration” bias such as high growth stocks and those with a tech / healthcare bias. The correlation between the P/E ratio of the technology sector and real rates is above 90%, meaning that investors are willing to pay more and more when real interest rates decrease.
    • Developed government bond markets (including peripheral bonds) and investment grade bonds, thanks to central bank actions.

    Losing investment strategies:

    • Equity markets again, with the hospitality, aeronautics, financial and energy sectors underperforming. The underperformance of financials was partly due to the very dovish monetary policies of central banks.
    • Some emerging sovereign debt markets, i.e.  Ecuador, Argentina for example with a limited ability to raise capital on financial markets.
    • At present, the lower-rated high yield bond segment has not yet normalized, as opposed to the better-rated high yield segment.
    • The US dollar, at least compared to G7 currencies. For years, the positive interest rate differential between the US and other developed countries has contributed to the strength of the dollar. However, with central bank stimulus, the gap has narrowed, pushing the US dollar to drop. 

    Disclaimer

    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2071 Mon, 27 Jul 2020 14:23:57 +0200 FOMC meeting, nothing new but stay tuned for Jackson Hole /en/who-we-are/news/detail/fomc-meeting-nothing-new-but-stay-tuned-for-jackson-hole/ The FOMC will be meet this coming July 28th and 29th. Here is what we expect:

    • Dovish forward guidance, reaffirming that rates will be held low for a long period of time.
    • The Fed will confirm the continued expansion of their balance sheet at the current pace and conserve flexibility.
    • They will maintain their support to credit markets.
    • They will not increase their accommodative stance: Uncertainty remains high, but the economy has recovered faster than most economic forecasts (Retail sales, employment, etc.).
    • They will reaffirm their opposition to negative rates.
    • They will not implement yield-curve control. The topic is still under discussion, but we believe Fed members will prefer to wait for more macro-economic clarity before acting.
    • They will communicate that their strategic review on inflation is still ongoing but provide no further information. The Jackson Hole conference (August 28) might be a good place to introduce some of the conclusions. 

    All in all, it should be a non-event for financial markets.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
     

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    news-2068 Thu, 23 Jul 2020 10:56:07 +0200 COVID will have brought some good too! /en/who-we-are/news/detail/covid-will-have-brought-some-good-too/ Interview with Marie Lassegnore, Credit Fund Manager, La Française AM Has the coronavirus pandemic had any impact of environmental issues?

    While most of the world's population was confined to their homes, we witnessed catastrophic news related to the pandemic. However, we also witnessed the positive impacts of lockdown on the environment: cleaner air and clearer skies due to lower levels of airborne particles in major cities.

    According to the International Energy Agency, global demand for energy is expected to fall by 6% in 2020, seven times the drop experienced following the crisis of 2008. Lower demand and global awareness about air pollution (and health implications) are two factors that will inevitably lead to the end of the coal era.

    Indeed, during containment, coal consumption dropped because of the decrease in demand for electricity; some countries no longer required back-up power capacity. We are witnessing the most significant fall in demand since World War II (IEA, Global Energy Review, 30/04/2020). The United Kingdom went two months without coal (between 11 April and 15 June); the longest period ever recorded, according to the National GRID ESO. And the United States has used more renewable energy. By way of comparison, 10 years ago in the United States, 50% of electricity was generated by coal (Bloomberg New Energy Finance).

    This trend is expected to continue as the operating costs of renewable energy decrease. 


    How can government regulation regulate carbon emissions? 

    The governments of the world's 50 largest economies have committed over $12 trillion in emergency aid for the health crisis. So far, only $54 billion have been spent on post-carbon economic priorities. A sum which could be considered as moderate, but which nevertheless represents as a positive sign. (Bloomberg New Energy Finance).

    In France, for example, the €7 billion in aid granted to Air France is subject to environmental commitments, including a cut in the number of domestic flights, which can be substituted by rail. The development of the aeronautics sector will have to be in line with the growing consumption of alternative fuels in order to achieve carbon neutrality.

    Another example is Canada where the government announced the creation of 10,000 jobs in its oil industry to carry out clean-up operations of inactive wells and thus support their environmental objectives. Canada has also put in place funding opportunities for large companies in exchange for energy transition actions. 

    In China, the $800 billion stimulus package will largely finance new infrastructure such as electric vehicle charging stations, 5G and rail systems. The package also includes a $1.4 billion plan to promote electric vehicles.

    Closer to home, and in response to the COVID crisis, the European Commission has adopted a €750 billion recovery package called "Next Generation EU" in addition to the long-term budget (2021-2027) of more than €1,000 billion. The package includes grants to help the countries and companies most affected by the crisis. Grants will be awarded for specific projects and on condition that the investments do not undermine the climate and environmental objectives set out in the Green Deal. If the plan is ratified by the European Parliament, 30% of the aid, i.e. more than €500 billion, will be allocated to the fight against global warming and the achievement of energy transition objectives. This is a very positive dynamic for the future deployment of green assets in Europe. Currently, the Green Deal accounts for around 25% of the EU budget, enabling the financing of clean transport, the renovation of buildings and the development of renewable energies. 

    PROMOTIONAL DOCUMENT. THIS COMMENTARY IS INTENDED FOR NON-PROFESSIONAL INVESTORS WITHIN THE MEANING OF MIFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by the author are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2066 Wed, 22 Jul 2020 16:44:27 +0200 Is this time different ? /en/who-we-are/news/detail/is-this-time-different/ EM EQUITIES, LOOKING FORWARD The lens of history combined with an understanding of how economies across the globe are changing can provide valuable insight for emerging markets (EM) investors seeking long-term capital growth. EM have historically rebounded strongly after periods of crisis. The repetition of this pattern, in its initial phase, appears to have started during the first half of this year with EM equities rallying in response to growing optimism about the potential containment of Covid-19.

    Whether this optimism continues is hard to predict, with many epidemiologists anticipating increasing numbers of new Covid-19 cases as economies continue to re-open. Nevertheless, we believe the first half of 2020 reinforces our thesis that EM often repeat a pattern over long-term periods in response to crises. In this commentary we explore this pattern and explain how economic changes in developing countries may bode well for EM equities.

    Emerging Markets Rally After Dropping Dramatically

    The MSCI Emerging Markets Index dropped approximately 33.9% from January 17 to March 23 in response to fears over an anticipated global recession resulting from the pandemic. While the decline was similar to that of the S&P 500 and MSCI EAFE (Europe, Australia and the Far East, or developed markets ex U.S.), several EM countries experienced sharper falls with Brazil and Russia declining more than 50%. After reaching a low in late March, the MSCI Emerging Markets Index rebounded 31.2% as of June 30. With the pandemic still expanding rapidly in many
    developing countries–specifically Brazil and India–but appearing to moderate in the U.S. and other developed countries, the S&P 500 and MSCI EAFE indices outpaced EM, generating 38.5% and 31.5% returns, respectively, as of June 30.

    Understanding Market Cycles

    The pattern of EM securities rising more sharply than the U.S. and other developed markets (DM) after a major crisis is not unusual. For EM, a crisis can cause investors to flock to the safety of the U.S. dollar, treasuries and other safe havens, such as the Swiss franc. During the stampede, certain EM assets–equities, debt, and currencies-can experience reduced marketability and liquidity, thereby exacerbating price declines. Additionally, many developing countries are leveraged to global growth and trade flows and are reliant on external funding and direct investment. These factors, in turn, can reinforce negative news regarding global growth and other factors, which sustains a negative feedback loop.

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    news-2065 Wed, 22 Jul 2020 16:19:38 +0200 There are no shortcuts /en/who-we-are/news/detail/there-are-no-shortcuts/ In the media and the investment marketplace, we often hear about “valuations.” The statistics quoted are invariably multiples of earnings, sales or a similar measure. These figures are often invoked to support a bullish or bearish thesis. But are these metrics meaningful? They may be insightful for the market in aggregate, but for growth companies and particularly for small growth companies, they can be misleading. We argue that returns for these kinds of companies are driven much more by fundamentals than shorthand valuation metrics.

    Lazy Valuations

    What passes for “valuation” on factsheets and investor commentaries is nothing more than an abbreviated version of real analysis. The intrinsic value of a stock is the net present value of all its future cash flows. Shorthand valuation metrics like price-to-earnings (P/E) have major drawbacks. First and foremost, they are static and only look at a snapshot in time. For mature companies that don’t grow, that may be just fine, but for small and medium-sized high-growth companies, P/E multiples are often inflated as companies grow in step-functions. Concur, which provides expense management, travel and invoice software, is an example. In the decade before it was bought by SAP, its average P/E was over 50x, but that turned out to be justified as its earnings per share quadrupled, driving a 30% annualized return in its stock price.

    Second, valuation metrics should and do vary widely based on the quality of the businesses. We define quality as the level and sustainability of the return on invested capital that businesses may generate. The former is impacted by a company’s value proposition to its customers and its business model while the latter is driven by competitive advantage.

    Lastly, the amount of debt a company has may dramatically impact a metric like P/E as investors pay less for more highly leveraged companies because of heightened risk, all else being equal.

    In addition to being impacted by growth, quality and risk, P/E multiples are also impacted by accounting. Growth companies recognize a much greater proportion of their investment for the future in the income statement than old-economy companies. This is because investment in intangible assets like research and development on software algorithms or new drugs are expensed, serving to depress earnings. By contrast, investments in tangible assets like property or plant and equipment are capitalized and hit income slowly over time.

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    news-2062 Mon, 20 Jul 2020 14:06:43 +0200 Opportunity in Dispersion /en/who-we-are/news/detail/opportunity-in-dispersion/ While the daily headlines may have us believe that the economy is one entity moving in one direction at any given time, the reality is different. The economy comprises many different businesses in various industries that are experiencing divergent trends, potentially providing opportunities for investors. Corporate Sales Dispersion Has Jumped

     

    • Researchers at the Federal Reserve, Stanford and the University of Chicago have recently developed a statistic that measures the level of sales dispersion within the economy. The greater the difference between firms that are growing and those that are shrinking, the higher the statistic rises. In the current pandemic, it is over five times as high as its three-year average.
    • This dispersion is something we see in our research at Alger. Even within an industry like multiline retail where store closures are surging and companies are fighting for their lives, some companies with strong value propositions, such as Ollie’s Bargain Outlet, are still able to grow their sales in this environment. Additionally, various e-commerce businesses are experiencing exploding growth.
    • As the tide goes out on economic growth and innovation accelerates, the corporate winners and losers are more differentiated than ever, potentially providing a fertile environment for stock pickers.

     

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    news-2061 Wed, 15 Jul 2020 14:19:04 +0200 Too soon for the ECB to tighten financial conditions /en/who-we-are/news/detail/too-soon-for-the-ecb-to-tighten-financial-conditions/ No major policy changes are expected at the upcoming ECB meeting.
  • No change in the Pandemic Emergency Purchase Programme (PEPP). Expectations have been building about a potential increase, later this year, in the size of the PEPP, but recent communication by ECB members (Isabel Schnabel, François Villeroy de Galhau) may mean that an expansion of the PEPP is not warranted. This might require careful communication from Mrs. Lagarde between now and the end of the summer to avoid tightening financial conditions.
  • No change on the Quantitative Easing (QE) side, but QE expansion might be needed later this year if the ECB does not increase the size of the PEPP. 
  • The ECB could start buying “fallen angels”, especially after the latest bank lending survey which showed tightening credit conditions for households. That being said, communication has not been very strong on this subject recently (only Mr. Panetta has recently spoken of it). Therefore, it would come as a surprise if the ECB decides to include junk-rated debt into its purchase programme. Nevertheless, it is a possibility.
  • No change on the deposit rate.
  • Overall, this ECB meeting should be a “non-event”. Macro-economic and inflation figures have been bouncing back a bit more quickly than expected, but it is way too soon for the ECB to tighten financial conditions.
     

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    news-2058 Mon, 13 Jul 2020 08:54:55 +0200 La Française collective real estate investment vehicle acquires a second UK asset /en/who-we-are/news/detail/la-francaise-collective-real-estate-investment-vehicle-acquires-a-second-uk-asset/ A La Française collective real estate investment vehicle, represented by La Française Real Estate Partners International, has acquired its second UK asset from Pencross Assets Limited. The property is located at 17-18 Haywards Place EC1, which is considered to be a prime Clerkenwell location in close proximity to Farringdon Thameslink and London Underground station. The station is shortly to be enhanced by the opening of the Elizabeth Line (Crossrail), becoming one of the few stations in London to provide an interchange between the north / south Thameslink service and the Elizabeth Line, as well as the London Underground network through the Circle, Hammersmith & City and Metropolitan Lines.

    The warehouse style building was subject to a back to shell refurbishment and extension in 2018 and now provides 11,000 sq.ft. of grade A offices across six floors. The property is fully let to four tenants.

    The agreed purchase price was £15.56m and purchase reflects a net initial yield of 4.22%. Crossland Otter Hunt represented La Française Real Estate Partners International and Cyril Leonard represented the Seller.

    David Rendall, CEO of La Française Real Estate Partners International said, “We are delighted to secure a second property in the UK so quickly after the acquisition of 90 Bartholomew Close in April 2020.”

    Peter Balfour, Investment Director of La Française Real Estate Partners International - UK said, “17-18 Haywards Place follows the theme of focusing on buildings that are attractive to modern occupiers and which benefit from improvements to the transport infrastructure in London.”

    About La Française Global Real Estate Investment Managers

    The real estate activities of La Française have been united under the brand La Française Global Real Estate Investment Managers (GREIM). This umbrella brand covers La Française REM, La Française Real Estate Partners and La Française Real Estate Partners International.

    La Française REM is the French leader in collective real estate investments in terms of capitalisation (as at 31/12/2019, IEIF). A specialist in third-party investment and asset management, it is present across all French real estate markets. It has also developed a platform for real estate mandates, offering dedicated solutions for institutional investors with investment strategies ranging from Core/Core+ to Value Added and Opportunistic within the La Française Real Estate Partners structure.

    La Française Real Estate Partners International provides a complete investment management service in both direct and indirect real estate investments for a wide range of international clients across continental Europe, the UK and Asia. It operates from offices in London, Frankfurt and Seoul. The platform is a recognized specialist in core and core-plus real estate investment strategies throughout Europe.

    La Française GREIM has close to €25bn in assets under management (as at 31/05/2020) and offers a complete range of tailored real estate solutions to investors across the globe.

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    news-2054 Thu, 09 Jul 2020 09:18:56 +0200 As the US Presidential campaign heats up, what can be expected on the markets front /en/who-we-are/news/detail/as-the-us-presidential-campaign-heats-up-what-can-be-expected-on-the-markets-front/ By François Rimeu, Senior Strategist, La Française AM The Covid-19 crisis has put President Trump in a somewhat difficult situation, which has led some people to question his chances of reelection in November. Indeed, considering what President Trump has accomplished during his term in favor of the corporate sector, there is good reason to worry if some of the measures he put in place were to be cancelled in the event of a Biden victory. But is it that simple?

    Just as important to consider is how congress will be divided.

    Let us consider some of the main features of Mr. Biden’s project:

    • Raise taxes on corporations, from 21% to 28%, and wealthy households; 
    • Increase the minimum wage (from $7.5 to $15 an hour);
    • Provide $1,700bn in funding for infrastructure and Green New Deal.


    In the event of a Biden win, there would no doubt be less political tension across the world, which would be positive.

    As far as financial markets are concerned, a Biden win is associated with both positive and negative market impacts. At the time of writing this article, the global perception is that Biden’s program would have a negative impact on equity markets (both in the US and Europe). The main point being that higher corporate taxes could have, according to market estimates, a -20% impact on US equities over his term due to lower earnings. (Source: JPM)

    However, for Biden to be able to adopt his program after his election, he will have to obtain a clear majority at congress, otherwise, republicans will most likely block it. As of now, in our opinion, the most likely scenario and the one that markets are currently pricing is a Biden victory with no majority. This scenario is not negative for equity markets, it is broadly neutral but leaves Biden very little room for maneuver.  Even if the Democrats sweep the US presidential election, it remains to be seen how much of those corporate tax reversals will be implemented: Biden’s program was structured before Covid-19 and given the current economic context, business recovery and job growth are likely to be prioritized. 

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, an invitation or a recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française AM are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2053 Wed, 08 Jul 2020 16:18:55 +0200 New PM on Weatherbie Specialized Growth /en/who-we-are/news/detail/new-pm-on-weatherbie-specialized-growth/ Alger is thrilled to announce that Edward Minn, CFA, has been added as a portfolio manager on the Weatherbie Specialized Growth strategy. Here he discusses the team’s approach to research and investing, including investing in a software company that has been critical during the pandemic.

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    news-2051 Mon, 06 Jul 2020 17:08:18 +0200 All this liquidity needs to find a home /en/who-we-are/news/detail/all-this-liquidity-needs-to-find-a-home/ by Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company The very strong performance of Chinese equity markets in June did not come to us as a total surprise. The measures taken by the Chinese government to prevent any "second wave" of coronavirus from hitting the economy were drastic and, admittedly, efficient. We saw how entire neighborhoods of Beijing were put in full lock-down in the middle of June when approximately 100 new cases were identified in the vicinity of a food market. 

    More recently, the Anxin county of Hebei province that is located 150km from Beijing completely locked down its 400,000 residents after only 18 new cases were reported. 

    The prevailing rule across Asia has been to re-open the local economies without letting people in and out of any country. Borders remain tightly sealed with quarantine procedures being strictly enforced for returning nationals. Even within the small triangle that consists of Hong Kong, Macau and Shenzhen where we are based, there is no sign that borders will reopen anytime soon despite none of these three cities having had new cases for weeks, if not months. 

    This policy seems to have worked well, judging by the macro numbers, China being at the forefront of the recovery alongside Taiwan and Korea: The official manufacturing PMI of China rose from 50.6 in May to 50.9 in June, beating the Bloomberg consensus of 50.4. The non-manufacturing PMI showed the same trend, up from 53.6 in May to 54.4 in June (Bloomberg consensus was 53.5). The Caixin manufacturing PMI also showed an acceleration in the turnaround in June with a 51.2 reading, up from 50.7 in May (the Bloomberg consensus was 50.5). Industrial production was 4.4% higher in May 2020 than it was in May 2019, industrial profits were 6.0% higher than they were a year ago. Retail sales were still 2.8% lower in May 2020 than they were in May 2019, but it was still a marked improvement from the -7.5% recorded in April. It is widely expected that the June sales numbers will show an increase year-on-year as the pace of recovery is accelerating.

    As the macro picture of China is improving, we expect to see a positive spill-over effect on the rest of Asia as trade resumes. China will most likely play once again its role of economic locomotive for the region. 

    The only country under our coverage that remains worrying is India where the number of new Covid-19 cases keeps on rising day after day, in sharp contrast with all other countries of Asia. Furthermore, military tension in Ladakh, at the border of China and India, left at least 20 soldiers dead earlier this month and opened up a new period of tension between the two countries at the worst possible time. The macro outlook of India is dire with Moody's now anticipating a -3.1% drop in GDP this calendar year while Crisil, the Indian subsidiary of S&P is anticipating a 25% drop in GDP for the April to June quarter.  

    Back to China, the macroeconomic picture is one reason for the outstanding performance  of Chinese markets this month. The other reason is the injection of liquidity by western Central banks that is finding its way towards emerging markets. According to Bloomberg, foreign investors were net buyers of mainland Chinese "A" shares (listed in Shanghai and Shenzhen) to the tone of USD7.4bn in June. We believe this flow of liquidity will not stop here as China is actively opening its financial markets to foreign investors - banks and insurance companies can now have their own 100%-controlled operations in China. 

    As onshore financial markets open up wider, we expect MSCI to increase further its weighting of A shares in its indices. By moving step by step, so far MSCI has only included 20% of what it ultimately wants to include in A shares, thus leaving room for five times more weighting in all its global and emerging markets indices.

    The ongoing quantitative easing by the Fed and the ECB is not going to end anytime soon despite being already truly mindboggling: As the Covid-19 keeps on spreading in the West, even more liquidity injection is to be expected. To put numbers in perspective, Gavekal, a macroeconomic research firm, calculated that the current Covid-19 program of government spending by the United States, already adding up to USD3.7 trillion, is equivalent in today's dollars to almost 4 times the cost of the Vietnam war, 24 times the cost of the entire Apollo space program by NASA and 20 times the cost of the Marshall Plan that rebuilt Europe after World War II. 

    All this liquidity needs to find a home at a time when interest rates are either negative or close to zero across developed countries. Emerging markets, and especially Chinese markets that run particularly deep, are the logical beneficiaries, together with luxurious properties and collectible items. 

    Having adopted a prudent fiscal and monetary policy during the Covid-19 outbreak, PBoC kept Chinese interest rates at an attractive level: a 10-year Chinese government bond currently yields 200bps more than its US equivalent and 330bps more than its German equivalent.

    Finally, the Hong Kong market saw a strong bout of activity during the month of June with the listing of Netease and JD.com. These two companies acted in a pre-emptive way ahead of the possible forced delisting of their ADRs from the New York Stock Exchange, alongside all other Chinese ADRs that the US Congress wants to see delisted. This is potentially USD1.5 trillion of market value spread over approximately 250 companies that are likely to be transferred from New York to Hong Kong, Shanghai or Shenzhen within the coming two to three years. *

    Source of Figures: Bloomberg

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. These opinions expressed by the author may differ from those of other investment professionals. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. JK Capital Management Ltd. is a limited company regulated by the Securities and Futures Commission of Hong Kong, with its registered office at Rm 1101 Chinachem Tower, 34-37 Connaught Road Central, Hong Kong.

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    news-2046 Wed, 01 Jul 2020 16:11:26 +0200 Dangerous Debt? /en/who-we-are/news/detail/dangerous-debt/ Even before the coronavirus pandemic, global debt stood at record levels. Now with fiscal stimulus pouring in around the world, debt is surging. What are the implications?

    • Worldwide debt reached $191 trillion at the end of 2019, according to the Bank for International Settlements. That represents 6% year-over-year growth and pushed global debt-to-GDP to 243% from 233% as compared to the prior year. U.S. debt hit approximately $55 trillion or 254% of GDP, including the government, corporate and household sectors.
    • These debt levels are increasing rapidly given the global fiscal response to coronavirus, which Cornerstone Macro estimates at over $11 trillion. For the U.S., this debt issuance along with large deficits may cause government debt to expand quickly, with Goldman Sachs estimating that U.S. federal debt held by the public relative to GDP will hit 150% by 2030, up from 79% in 2019.
    • While the absolute levels of debt paint a bleak picture, debt service (the amount of interest and principal amortization) relative to income looks more manageable. For example, according to the Bank for International Settlements, U.S. household and corporate debt service relative to income is below the 20-year average; the same is true in Italy, the U.K., Spain and Japan. Overall, debt expansion is likely to slow as stimulus dries up, weighing on economic growth rates. This will potentially put a premium on companies that can outgrow the industries in which they compete in a lower growth environment.
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    news-2045 Wed, 01 Jul 2020 15:44:28 +0200 The Disparity Between Winners and Losers /en/who-we-are/news/detail/the-disparity-between-winners-and-losers/ By Brandt Blimkie, Vice President Analyst Alex Bernstein :  Hello, I’m Alex Bernstein and you’re listening to the Alger Podcast, Investing in Growth and Change. At Alger, many of our recent thought leadership pieces have focused on the wide disparity between the types of companies that are winning and losing in the current market environment, and the role that tech might play with those companies. To try to understand this disparity a bit more, I’m talking with Alger Tech Analyst Brandt Blimkie. Brandt, thanks so much for joining me this afternoon.

    Brandt Blimkie :  Thanks, Alex.

    Alex :  Brandt, can you tell me a little about this disparity between companies?

    Brandt :  So, there are certainly beneficiaries and losers in this environment. There are companies that are helping transition the economy to work from home, the digitization of different aspects of our work. Think of online grocery delivery or e-commerce, videoconferencing so we can hold this conference online with different salespeople. So, there are companies that are benefiting in this environment as well as companies that are struggling, certainly the ones that are struggling are ones with more physical locations based on physical foot traffic where maybe people are more reluctant to travel. So, there’s certainly been a discrepancy in those who are benefiting in this environment from those who are getting hurt.

    Alex :  Where are you seeing some of the biggest discrepancies?

    Brandt :  So, there’s a discrepancy right now, we think, between high growth tech companies and value tech companies. We think the discrepancy is pretty wide in terms of valuation. And this is not just recent with COVID-19 – but over the last five to ten years we’ve seen just this big discrepancy between value tech and growth tech as the winners have become larger and the losers and laggards have continued to trail. Now, a lot of legacy tech that is considered value tech, some of those companies are levered. Some of those companies have products that are in secular decline, and so the argument to invest in one of those companies is that the economy is going to recover smoothly, and then these products, these companies, won’t have leverage issues, liquidity issues, and so the valuations are too cheap for where they’re trading. That’s contrasted with some of the higher growth software companies and other tech companies that are benefitting in this environment. Where the debate now is, are these priced too high for fundamentals that could eventually slow once the economy recovers? For example, will we use as much videoconferencing if everybody goes back to work? Have we purchased as much security products as we need to secure our employees? Will we need as many of those services if we return to a normal, or are we just going to be in a “new normal” where we’re utilizing just more of those services going forward?

    Alex :  And what do you think the answer to that is?

    Brandt :  I think this is another time in our economy where we’re seeing significant structural changes take place, and certainly a lot of companies we talk to, particularly in the tech space, are talking about more efficient ways of doing things, now that they found that it’s actually not that bad having their employees work from home. Now, we’ll have to see if once the economy reopens if that holds true, but right now companies are saving significantly on travel costs. That’s made it more efficient for salespeople to talk to the customers and sell products if they don’t have to get on a plane to talk to the customer. They can land a deal of similar value and you’ve significantly increased the value delivered to your company. It might be harder to land that deal over a videoconferencing tool. So, I think that part of the equation still remains to be seen.

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    news-2043 Fri, 26 Jun 2020 15:06:31 +0200 An exceptional rebound /en/who-we-are/news/detail/an-exceptional-rebound/ Following a historic fall, both in terms of duration and magnitude, an equally exceptional rebound has been observed on the markets. While this rebound initially disconcerted many investors because of its decorrelation with the real economy, it is now well explained and understood.

    Two months ago, we were in a situation where the rating agencies, which had been largely criticized for the slow adjustment of their ratings in the wake of the 2008 crisis, took the opposite stance and massively downgraded companies in record time and without any distinction.

    Rating agencies assessed the impact of the crisis on business fundamentals before central banks and governments announced their accommodative measures.

    As a result, rating agencies, and part of the market, anticipated an extremely large number of upcoming defaults. For example, in March, S&P Global Ratings stated that the default rate for high-yield bonds was heading towards 10% over the next 12 months, more than triple the 3.1% rate that was recorded at the end of 2019. Similarly, Fitch Ratings1 forecasted a 17% default rate for the US energy sector.

    Over the last month, however, markets have been able to refine this analysis and recognize that the picture has fundamentally changed. This exceptional situation has had an equally exceptional response, never observed throughout previous crises:

    • Central Banks, which had taken four years to react to the 2008 crisis, injected substantial amounts of liquidity into financial markets to contain the situation.
    • Governments put aside public deficit concerns to help national companies and preserve employment.
    • At the same time, the month of May, which was particularly eventful with a large number of high-yield companies releasing their Q1 results, gave investors a little more insight into the situation of the second quarter and reassured them about the financial health of many highyield companies.

    1Source: Bloomberg, March 2020

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    news-2038 Tue, 23 Jun 2020 18:24:00 +0200 Covid-19 : Real Estate market assessment /en/who-we-are/news/detail/covid-19-real-estate-market-assessment/ By Virginie Wallut, Director of Real Estate Research and Sustainable Investment at La Française Real Estate Managers 1. As a result of lockdown and Coronavirus, have you witnessed any liquidity issues in the real estate markets or with certain sub-asset classes? 

    Property markets are decoupling. On the one hand and with regards to the prime office segment, logistics and residential real estate, we have not witnessed any liquidity issues. On the contrary, since the end of lockdown and judging by the first wave of tenders, transaction activity is robust and reflects strong investor sentiment and appetite for this income generating asset class. Low interest rates for even longer should support a strong rebound in investment activity and ensure the liquidity of these segments.

    On the other hand, and with regards to the retail sector, hotels, secondary office assets, liquidity can be challenging due to uncertainties surrounding future cash flows. However, we think that less intense competition on these assets could make room for opportunistic plays. 


    2. How do you assess the situation in the office market?  Is remote working having any tangible effects on the market? 

    Prior to lockdown, central locations were suffering from supply shortages as evidenced by vacancy rates of less than 3% in central business districts such as Paris, Lyon, Berlin, London and Hamburg. Thereafter during lockdown, these markets, given their fundamentals, were in a favorable position to absorb the temporary drop in demand. 

    The sanitary crisis simply accelerated workplace trends that in fact had emerged in recent years. However, we do not believe in the benefits of remote work on a permanent long-term basis. Some companies see remote working as an opportunity to cut costs. We however believe that any savings could be outweighed by a decrease in productivity and the implications of potential new legislation that could modify the compensation of remote workers. 

    We believe that companies will have to define flexible work policies that associate physical presence in the company office and remote working. In this case, offices would:

    •  Be places of hyper communication with vast and multiple collaborative spaces; office space would be modular and flexible; 
    • Be centrally located and easily accessible from the new living spaces of employees, and
    • Be hyper connected so as to provide all employees (present physically or working remotely) equal access to information.

    At La Francaise, we have developed a range of solutions that allow companies to gain in flexibility, i.e. space solutions capable of welcoming a varying number of staff.


    3. Are there regional positive or negative trends that emerged or gained in momentum due to the Covid-19 lockdown?

    The financial viability of tenants should become the primary indicator of risk assessment in commercial real estate leasing.

    The Covid-19 lockdown has generated many uncertainties regarding the future rental flows of retail and hotel assets, which make their pricing difficult and requires specific expertise.

    In the office sector, some markets are expected to fare better than others due to the diversification of their economies. For example, given its diverse user base, the Grand Paris region appears better positioned than other markets that are dependent on the automobile or aeronautics industries.


    4. ESG is playing an increasing role in illiquid asset classes, what about the real estate market?

    ESG is everywhere and initiatives to harmonize methodology and make everyone's approach more transparent are multiplying across Europe. In France and for La Française, the SRI label seems a particularly interesting initiative because our investment philosophy is not to exclude assets with the lowest ESG scores, but rather to help these assets manage their transition and ultimately improve their sustainability credentials. 

    Real estate is a particularly interesting asset class for ESG because, unlike liquid asset classes, the asset owner actually controls the underlying real estate asset and can therefore make the greatest impact.


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Real Estate Managers was approved by the “Autorité des Marchés Financiers” under N GP07000038 on June 26th 2007, approval (i.e. the Carte professionnelle) granted by the Paris Ile-de-France “Chambre du Commerce & de l’Industrie” under CPI N 7501 2016000 006 443 – Transactions on Buildings and Business Assets and Real Estate Management

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    news-2037 Wed, 24 Jun 2020 10:15:44 +0200 Tensions flare at the China-India border /en/who-we-are/news/detail/tensions-flare-at-the-china-india-border/ by Aravindan Jegannathan, Senior Analyst, JK Capital Management Ltd., a La Française group-member company Over the past week, the border tensions between China and India in the Ladakh region reached a new high that had not been witnessed in decades. It was reported that at least 20 Indian soldiers were killed in a face-off with Chinese troops at the Galwan Valley near Ladakh with a similar number of Chinese troops reportedly killed during the clashes. The Ladakh border dispute is one of the oldest disputes India has had with China, dating back to the 19th century. It has continued to remain contentious since the formation of Independent India in 1947. 

    To give some historical context, border reconciliation talks happened in 1960 between the then Chinese Premier Zhou Enlai and Indian Prime Minister Jawaharlal Nehru and ended up in a failure. It was followed by the Indo-China war in 1962 when China asserted its control over Aksai Chin which borders Ladakh, the Line of Control (LAC) acting as the separating line. It is an uninhabited high-altitude wasteland crossed by the Xinjiang-Tibet Highway with the border running 3500 kilometers long. 

    The current tensions are due to Chinese troops crossing the Line of Control and moving into the Indian territory according to the Indian army. The Chinese foreign ministry spokesman said India had crossed the border twice, "provoking and attacking Chinese personnel, resulting in serious physical confrontation between border forces on the two sides". The LAC is poorly demarcated. The presence of rivers, lakes and snowcaps makes the lines shift and soldiers on either side frequently come face to face which makes this region highly sensitive. The recent construction of roads by India in Ladakh is also said to have increased Chinese aggression as India’s decision to develop infrastructure in that region seems to have infuriated Beijing.  

    Confrontations along the border have remained tense since May, resulting in some physical scuffle that developed into the current stage. At present the situation continues to remain tense and India’s defense minister is said to have changed the rules of engagement with the Chinese at LAC, empowering the Indian army field commanders to use firearms under ''extraordinary'' circumstances. As revealed by Indian army sources on late Monday night (22nd June) both armies were blocked in top-level military talks to discuss the Galwan face-off and other points of dispute that lasted for more than 11 hours. 

    While the situation continues to remain edgy, we believe there is a high likelihood that it dies down and not escalate into something big given that India is battling a recession amidst Covid-19. A war at this juncture would be unbearable. 

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report.

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    news-2034 Thu, 18 Jun 2020 09:31:00 +0200 Notice: La Française Rendement Global 2025 sub-fund of the La Française SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2025-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-5/ The measures to support the economy implemented by the central banks in the wake of the health crisis reinforce the management company in the conviction that the rates will remain low for a long time. The measures to support the economy implemented by the central banks in the wake of the health crisis reinforce the management company in the conviction that the rates will remain low for a long time. In this context, the Fund's maturity strategy in the high-yield bond markets continues to be widely acclaimed.

    The management company, after analysing the conditions on the target markets, considered that it was in the shareholders' interest to extend the Fund's marketing period by 3 months in order to take advantage of the potentially attractive yield levels that they offer.

    The Fund will thus be closed for subscription on 30 September 2020 and not 30 June 2020.

    This change will come into force on 24 June 2020.

    Other sub-fund characteristics remain unchanged.

    We wish to remind you of the need and importance of reading the key investor information document for La Française Rendement Global 2025.

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    news-2031 Mon, 22 Jun 2020 11:03:56 +0200 Simulation Enhances Product Cycles /en/who-we-are/news/detail/simulation-enhances-product-cycles/ How are manufacturers able to deliver high quality products on rapid timelines, even as products become increasingly complex and the world experiences an unprecedented pandemic? One way is through the adoption of software simulation.

    • Software simulation is the process of imitating real-world phenomena based on computer algorithms. The simulation market is expected to grow 12% - 15% annually through 2026. Manufacturing companies are increasingly using sophisticated simulation software to reduce time-tomarket, improve the quality of products and lower costs. Not only are companies using software simulation in product design, but also in ideation and manufacturing.
    • The increasing complexity of products is the key driver of growth in simulation. To reduce the disastrous consequences of improperly functioning products, higher levels of simulation are needed to ensure products work safely, reliably and as intended.
    • During the Covid-19 pandemic, research and development budgets are likely to be constrained and simulation will allow manufacturers to get more impact from tighter budgets. Simulation can give engineers the ability to evaluate multiple design options in parallel, making it more cost efficient. Additionally, simulation often eliminates the need for expensive physical testing.
    • Consumers will benefit from enhanced, more elaborate products and faster product lifecycles. Investors can consider opportunities among the companies providing this novel technology.
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    news-2030 Tue, 16 Jun 2020 11:00:00 +0200 American Express enters the Chinese RMB payment market /en/who-we-are/news/detail/american-express-enters-the-chinese-rmb-payment-market/ By Guillaume Dhamelincourt, Business Development–Product Specialist, JK Capital Management Ltd., a La Française group-member company Last week American Express received the approval from the Chinese authorities to start bank card clearing services in China. The US company became the first foreign payments network to be allowed to process RMB transactions in China. The license was granted by People’s Bank of China, China’s central bank, to American Express’s China joint venture, Express (Hangzhou) Technology Services. Under the terms of the approval, the company must start operations within 6 months.

    In 2018 China’s bank card clearings was a USD 27tr market with USD 8.4tr of online transactions. Express (Hangzhou) Technology Services intends to operate both online and offline payment transactions, but it will probably be far from easy. Competition will be tough for the new entrant. On the physical card side China UnionPay already dominates the market. In the online space, American Express’s JV partner LianLian Group is a relatively small player in China’s third-party mobile payments industry where WeChat Pay and Alipay have more than a 90% combined market share. Fees will also be a challenge as they are much lower in China than they are anywhere else. The card-clearing fee rate is 0.065% for domestic banks and the acquiring fee rate ranges from 0.5% to 1%. American Express typically charges between 1.4% and 3.5% in the US so it will have to sacrifice its margins if it wants to gain a meaningful market share in China. (Source: Bloomberg.com)

    The approval is part of phase one of the US trade deal signed earlier this year by the US and China in which China made a commitment to open up its USD 45tr financial markets to foreign firms. Other US card companies may soon follow American Express. Mastercard received its initial approval in February while Visa’s progress has been slower. The opening envisaged under the phase one deal does not limit itself to payments as it also includes insurance, asset management and investment banking services.

    Some cynics will say that opening now the payment market to foreign companies is not a big sacrifice for China since this market is already well developed and dominated by local players. Nevertheless, the same is often true when Chinese companies want to set foot in the US. 


    China’s openness to business is more than just a posture. The country is moving towards opening up its financial markets and is fast changing rules accordingly. For instance, since 1st January 2020 any foreign insurance company can set up business in China through wholly owned subsidiaries, no longer needing a local partner.

    When it comes to new bond issuances and IPOs in Hong Kong, we can already see that international banks, and more specifically American banks, have the favour of state-owned issuers.

    This trend goes beyond financial markets as China has been welcoming US investors in many sectors - Tesla having built a large factory to cater to the local market is a good example - and Foreign Direct Investment from the US into China remains strong. At the same time, measures taken by the US administration against Chinese investments on US soil have led to a collapse of such investments. 

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report.

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    news-2029 Fri, 19 Jun 2020 10:40:11 +0200 Stay Focused on the Long Term /en/who-we-are/news/detail/stay-focused-on-the-long-term/ When stocks suffer a significant decline in near-term earnings or cash flows, not unlike the current period, investors may instinctively worry about whether they should sell. However, cash flow modeling demonstrates why you may want to hold on to a quality portfolio for the long term.

     

    • The chart above demonstrates that a hypothetical investment whose earnings or cash flows decline 40% in the first year may not see a large reduction in value over a long-term time horizon.
    • This scenario could potentially play out this year, as earnings in 1H20 are under significant stress for many companies. In our view, this data shows that focusing on high-quality companies— ones that we believe have durable business models that produce stable long-term cash flows in the long run and have strong management teams, competitive advantages and innovative products—may overcome short-term earnings or cash flow stress.
    • While a significant decline in aggregate earnings can be scary and potentially move stock prices violently, we believe that a portfolio of strong companies may retain its value over time as the market recognizes the stability of companies’ cash flows in the long term. 
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    news-2026 Tue, 16 Jun 2020 17:37:39 +0200 Dispersion Is the Great Alpha Generator /en/who-we-are/news/detail/dispersion-is-the-great-alpha-generator/ By Brad Neuman, CFA Senior Vice President Director of Market Strategy When we listen to the TV or read on the internet about the economy, it is almost always in aggregate terms. Here are some recent headlines:

    America’s Awful Economy In The First Quarter Was Even Worse Than We Thought (CNN)

    For Economy, Worst of Coronavirus Shutdowns May Be Over (Wall Street Journal)

    Good Economic News is Coming and That’s Bad (Bloomberg)

    But the economy isn’t one entity moving in one direction at any given time. It comprises many different businesses in various industries that are experiencing divergent trends. In other words, it has winners and losers.

    Can there really be winners in a catastrophic environment like the coronavirus pandemic with soaring unemployment and precipitously declining spending?  Yes, there are companies bursting at the seams with growth, companies that cannot hire fast enough and  cannot keep up with their orders.

    Hiring Amidst Mass Layoffs?
    Everyone knows the economic picture has been atrocious this year with over 20 million jobs lost, according to the Bureau of Labor Statistics.i But just as the aggregate economy sheds jobs, some companies are hiring. Over 2 million jobs have been lost in the retail industry but WalMart plans to hire 150,000 individuals, Amazon 100,000, and Lowe’s 30,000.ii The transportation industry lost nearly a million jobs but Instacart plans to hire several hundred thousand employees.iii This is part of the reallocation of resources in the economy as e-commerce and big box retail share gains accelerate. However, research suggests that the biggest driver of dispersion is not industry exposure but idiosyncratic or firm-specific factors. For example, in the restaurant industry hundreds of thousands of restaurants are under financial duress while stronger restaurants, like Wingstop, have been able to achieve double-digit same-store sales growth during the pandemic.
    There is a way to quantify the changing fortunes and churn within the economy—the so-called job reallocation rate measures the shifting employment opportunities across firms.iv The statistic looks at the sum of expected job gains at companies that expect to hire plus job losses at companies that expect to fire, relative to aggregate employment. The higher the number is, the more reallocation of human resources exists. In the current economic environment, the job reallocation rate is the highest it has been in years as the dynamic U.S. economy shifts jobs to those sectors and companies benefitting from demand trends, and takes jobs away from business models that may be failing (see figure 1)

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    news-2025 Tue, 16 Jun 2020 17:17:20 +0200 The Resilience of the Consumer /en/who-we-are/news/detail/the-resilience-of-the-consumer/ By Leeanne Su, CFA Vice President Analyst Alex Bernstein: Hello, I’m Alex Bernstein. And you’re listening to The Alger Podcast: Investing in Growth and Change. In our last couple of podcasts, we’ve been looking at some of the industries and sectors that have been hit harder during the COVID-19 crisis, and where investors might look within those industries for opportunities. Today, we’re turning to the Consumer Discretionary sector and speaking with Alger Analyst

     Leeanne Su: Thanks, Alex

    Alex: And Leeanne, you actually joined Alger just a few months before this crisis started?

    Leeanne: Yes, pretty much. I think I started working from home in early March. So, yes about half the time  I’ve been here I’ve been remote.

    Alex: Leeanne, the Consumer Discretionary sector was doing well at the beginning of the year, when all of this
    began. How did you react when you first heard of the virus?


    Leeanne: So, we had seen this happening I guess in China starting in February with some of the companies I follow. I think initially people underreacted to the risk of COVID spreading to the rest of the world.
    So I think initially we were just very concerned about our companies with exposure to China, and then as the virus began to spread, we looked across our coverage and really tried to figure out, okay, if things get bad in the U.S. and they would get bad in Europe, which companies will be the most impacted? Who could actually be some of the winners? That’s how we went about it. 

    Alex: And your sector was hit pretty hard.

    Leeanne: The consumer sector was hit particularly hard by the COVID disruption, so we still see attractive opportunities out there, companies that have lagged in terms of the share price recovery.

    Alex: Can you tell us about some of the opportunities you’re seeing in your sector?

    Leeanne: So, ecommerce obviously has been one of the big winners during the disruption. What we see generally is a lot of these trends that have been occurring for a few years now, the disruption only accelerated it, and that’s an example with ecommerce.
    For instance, we had an investment in a tech company that essentially operates as an operating system to help merchants set up ecommerce businesses and run their online platforms and, in addition to that, the company also provides payment services, shipping and fulfillment.
    What we saw was, as brick-and-mortar retailers and restaurants and service businesses started having to shut down their physical locations, there was a rush to sign up for online accounts and set up their storefronts digitally. So, these companies who facilitate ecommerce and provide software-priced services have seen a really strong sign-up in terms of customer growth. So that’s one way we’ve been playing the theme.

     

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    news-2024 Tue, 16 Jun 2020 15:47:57 +0200 Could the dollar lose its status as World Currency? /en/who-we-are/news/detail/could-the-dollar-lose-its-status-as-world-currency/ By François Rimeu, Senior Strategist, La Française AM. Tension in the Unites States is palpable. As the Covid-19 death toll continues to rise and anti-racism protests are held across the country, investors are asking a question: is it plausible that the dollar lose its status as the World Currency? François Rimeu, Senior Strategist, La Française AM, provides insight:

    For the USD to collapse, investors would have to believe that a viable alternative exists. And at the present time, we just do not see a currency strong enough to play that role. The next most popular currency after the USD is the EURO. However, as of the end of 2019, the EURO only represented 20.54% of the official foreign exchange reserve vs 60.89% for the USD. This breakdown has been more or less stable over the last 20 years, so there is no “momentum” in favor of the EURO. Some parties have suggested the Bitcoin as an alternative to the USD, but we strongly disagree with that option as there is no transparency, no central bank, high volatility, etc. 

    Additionally, countries like China and Japan, that are in a position to make the USD weaker given their excessive holdings in USD, are not keen on doing so as they are big exporters to the United States.  They are however slowly diversifying their economies, but it will require time to achieve economic decoupling with the US. 

    That being said, we could see the value of the USD decreasing over the medium term given the general economic context:

    • The USD is currently judged expensive if judging by classic metrics, i.e. Real Effective Exchange rate;
    • The United States is running a persistent current account deficit, which is negative for the USD.
    • Real interest rates have been steadily decreasing in the United States, touching zero in March 2020;
    • Market positioning appears to be long the USD.


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, an invitation or a recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française AM are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2023 Tue, 16 Jun 2020 11:24:22 +0200 ALGER Sicav-Alger Small Cap Focus Fund /en/who-we-are/news/detail/alger-sicav-alger-small-cap-focus-fund/ By Amy Zhang, CFA, Senior Portfolio Manager, Alger, a La Française partner firm 1. You were able to master the crisis well with your fund. What measures had you taken to avert a "deeper fall"?

    Since the beginning of the year, I felt as though the COVID-19 virus could spread to the U.S. Also, I felt this could be the “year for health care.” To that extent, I positioned the portfolio in a very defensive way and in a more recession-resilient sense, looking for company specific drivers that are idiosyncratic, that I believe may not be affected by macro. I was proactive and raised more cash before the correction in March, which enabled me to take advantage of volatility based on risk/reward potential.

    2. Even before the crisis, the Healthcare sector was already a key component of the portfolio. Did you give this sector an even higher weighting during the crisis?  If so, which companies are you currently focusing on in particular?

    Our largest sector weighting is still health care, which has been since the end of last year, as I thought this would be the year for health care, even before the pandemic. Diagnostic companies continue to do well, and medical devices company will be the fastest to snap back in our opinion. Specifically, we have some companies that are part of the solution doing diagnostic testing for COVID and flu testing. One example that is one of our top holdings is Quidel Corporation. Quidel is a diagnostic testing company that has a very broad platform, but really specializes in respiratory testing and the bulk of that is flu testing. They also launched COVID-19 testing recently. Overall I believe we are very well positioned with our healthcare holdings as they are both defensive and high growth, with strong fundamentals.

    3. The fund has been performing at a high level since its launch. What do you do better than other fund managers who invest in US small caps?

    I think our strong performance is a testament of our unique investment process which is very resilient, as we demonstrated outperformance both in the up market and down market. It’s an alpha generation strategy and I believe our greatest strength is stock selection with in-depth bottom up research. We invest in companies that we believe have the potential to save lives, reduce costs and improve efficiency and productivity for corporate America. A common theme of our holdings is innovation and turning data into actionable information. Our major themes include aging population for high quality health care, humanization of pets, cloud computing, 5G, automation e-commerce. We also constantly try to unearth new investment themes. I think anything that's levered to digital transformation will continue to do well in the “new normal” environment. 
     
    Another unique aspect of our strategy is that we invest in what we believe are high growth and high financial quality companies that are less economically sensitive and driven by long term secular growth. I think growth will be more scarce in this market because many companies are having negative growth. We look for companies with durable revenue growth that can continue to expand margins because we are long term and for us, it's about still investing in compounding over 3 to 5 years and beyond. We invest in what we believe are exceptional small companies that have potential to become exceptional large companies. We let our winners run so they are compounders over the years. 


    Disclaimer:
    Associated risks include: exchange rates, volatility, market fluctuations, political, social and economic risks, currency risk, risks associated with investing in smaller, newer issuers, capital risk loss

    PROMOTIONAL DOCUMENT FOR PROFESSIONAL INVESTORS ONLY AS DEFINED BY MIFID II. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments. Past performances do not guarantee future performances. Investment products referenced in this presentation are not directed at and suitable for all types of investors. Potential subscribers are requested to carefully and independently assess the legal and commercial documentation provided and notably the risks entailed and the fees. Investors are to make their own risk analysis and not rely solely on the information that has been provided to them. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  Where Alger has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Issued by La Française AM Finance Services, home office 128, boulevard Raspail, 75006 Paris, France, regulated by the “Autorité de Contrôle Prudentiel” as investment services provider under the number 18673 X, affiliate of La Française. 

    The prospectus of Alger Sicav (Luxembourg SICAV) was approved by the CSSF on April 17, 2020. The management company is La Française Asset Management. La Française Asset Management is a management company authorized by the AMF under the number GP97076 on July 1, 1997.
    In relation to the investment fund mentioned in this document, the latest prospectus, the KIID and the annual and semi-annual reports have been published containing all the necessary information about the product, the costs and the risks which may be incurred. The latest versions of these documents are available at: www.la-francaise.com, www.fundinfo.com, with our paying agents: BNP PARIBAS Securities Services, Via Ansperto no. 5 20123 Milan, Italy; Allfunds Bank SA Calle Estafeta 6-Complejo Plaza de la Fuente, Edificio 3, La Moraleja, Spain;; Erste Bank der oesterreichischen
    Sparkassen AG, Graben 21, 1010 Vienna Austria.

    This is an advertising document. The state of the origin of the fund is Luxembourg. In Switzerland, this document may only be provided to qualified investors within the meaning of art. 10 para. 3 and 3ter CISA. In Switzerland, the representative is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the paying agent is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. box, CH-8024 Zurich. The prospectus, the key information documents or the Key Investor Information Documents, the articles of association, as well as the annual and semi-annual reports may be obtained free of charge from the representative. Past performance is no indication of current or future performance. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units

    Internet information for the regulatory authorities Autorité de Contrôle Prudentiel et de Résolution www.acp.banque-france.fr, Commission de Surveillance du Secteur Financier www.cssf.lu 
     

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    news-2022 Fri, 12 Jun 2020 17:58:49 +0200 Flash Subordinated Debt /en/who-we-are/news/detail/flash-subordinated-debt/ What is the outlook after the rebound? Subordinated debt issued by banks, insurance companies and non-financial companies has logically been very strongly impacted by the health and economic crisis of recent months, but has seen its valuations recover significantly in recent weeks, as per the equity and high-yield bond markets.

    On closer inspection, the picture is becoming more complex, however, with various issues relating to subordinated structures: suspension of coupon payments, exercise of call options, changes in banking regulations and legislation.

    Here we consider current market valuations, as well as issues specific to subordinated bonds and the
    fundamental trends of issuers.

    Change in total return, normalized as at the end of 2014, of the iBoxx subordinated debt indices (total
    return; in %)


    Sources : Markit, Bloomberg, La Française AM. Data as at June 10, 2020.

    As can be seen on the above graph, the performance of subordinated debt indices was quickly and heavily affected by the spread and consequences of Covid-19. Additional Tier 1 (AT1, also known as CoCos) bank bonds suffered an unprecedented 29% decline between February 21 and March 19, compared to -16% for subordinated insurance debt, -15% for non-financial corporate hybrid debt and -11% for Tier 2 bank debt over the same period (iBoxx € indices taken as a reference). The significant underperformance of the AT1€ is due to several factors, including a "High Beta" characteristic compared to other segments, higher exposure to Italian and Spanish issuers and massive repricing of the issues according to the call probability of the securities. However, during this period, we once again observed that CoCos remained more liquid in times of stress than other subordinated debt segments, and even more liquid than parts of the Investment Grade segment, despite their potentially more volatile nature.

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    news-2020 Wed, 10 Jun 2020 15:45:55 +0200 Asian Emerging Market USD credit: Liquidity vs Fundamentals /en/who-we-are/news/detail/asian-emerging-market-usd-credit-liquidity-vs-fundamentals/ By Marcus Weston, Portfolio Manager, JK Capital Management Ltd. a La Française group-member company In the second week of March this year, global credit markets went into a tailspin. As the reality of the COVID pandemic began to dawn on global investors culminating in the ominous headline that even actor Tom Hanks had contracted the virus, bond markets panicked sending the US investment grade bond market into a 6.3% drop in 10 days (as per the Bloomberg Barclays Indices), the sharpest price drop since the 2008 financial crisis. After tinkering with monetary and fiscal policy in the preceding weeks, the US acted finally decisively on March 15th with Fed chairman Powell announcing a 100bps cut in interest rates to zero and the launch of a new aggressive QE program with reportedly ‘no limit’ on its scale. With subsequent announcements of further large scale fiscal and monetary programs across the developed world, the global bond market effectively set its floor. 

    For Asia credit investors the critical question was to what extent such stimulus might translate into demand for Emerging Markets (EM) bonds? Although the Fed’s aggressive bond buying program would not be extended for foreign issuers, previous rounds of QE had clearly shown such liquidity injections often translate into a melt up scenario for EM credit. Complicating the matter in 2020, however, was that the cause of the market crisis, i.e. the COVID outbreak was still highly unpredictable. As the disease ravaged developed market economies in March and April there remained much uncertainty to what extent the outbreak would affect poorer countries with weaker healthcare systems and more fragile external liability positions. Indeed these fears were realized in April and May as, despite a stabilization of the virus in many developed countries, the outbreak significantly accelerated in EM with Brazil, Russia and India, in particular, showing an alarming growth in infections. Leading data indicators also pointed to a severe impact on EM domestic economies with India for example posting an astonishing service PMI number of just 2 for April. 

    In such an environment, one could naturally expect a bifurcation of the market with wealthy developed countries, bolstered by huge monetary stimulus significantly outperforming their poorer EM cousins with further saber rattling from the US over China’s alleged blame for the virus further dampening EM sentiment. In reality however, EM markets did the opposite with the Bloomberg Barclays dollar EM bond index gaining 7.3% over April-May compared to a 6.9% gain in US corporate bonds. Within Asia, EM sensitive countries like Indonesia and India outperformed to an even greater extent with bonds issued by the ravaged Indian economy, gaining as much as 10.9% over the same two month period. Of course not all EM performance can be celebrated with Argentina defaulting in May while closer to Asia, low rated Sri Lankan bonds massively underperformed the rebound. However a key lesson remains the continued trumping of liquidity over fundamentals and just as US stock markets have rallied to record highs during a period of economic and civil unrest so Asian bond investors should be careful not to ignore the stimulus train which has once again superseded economic reality.

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. JK Capital Management Ltd. is a limited company regulated by the Securities and Futures Commission of Hong Kong, with its registered office at Rm 1101 Chinachem Tower, 34-37 Connaught Road Central, Hong Kong.

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    news-2019 Tue, 09 Jun 2020 16:37:56 +0200 Quo Vadis "After the rebound" /en/who-we-are/news/detail/quo-vadis-after-the-rebound/ By Nina Lagron, CFA, Head of Large Cap Equities, La Française AM. The health crisis is gradually easing in the Western world, in the United States and particularly in Europe where the situation is drastically improving. With regard to the economy, the damages caused to the private sector are evident in most segments.

    However, the interventions of historic magnitude conducted by central banks and governments supported markets and enabled a significant recovery of all risky assets. The losses recorded in 2020 on the main equity indices are not comparable to those of major economic crises. This rebound is evidently supported by the inflow of liquidities, but also by the substantial decrease in interest rates in the US, and by the conviction that central banks and government will not limit the scope of their interventions to deal with the current situation and potentially upcoming corrections.

    This ‘’macro’’ approach will now need to be confirmed by the real economy and constitutes, in our view, a new phase of the financial aspect of the Covid-19 crisis.

    A financial crisis of historic proportions – phases I to III 
    Equity markets recorded their sharpest fall, with a 33.8 % drop on the € MSCI World Net TR between 19/02/2020 and 23/03/2020 . 
    Significant interventions by central banks helped stabilize the financial markets, which strongly recovered (most significant rebound ever observed, +43.5% on the € MSCI World Net TR between 23/03/2020 and 08/06/2020) once investors were convinced that government support packages were sufficient to save the economy.


     

     

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    news-2017 Tue, 09 Jun 2020 10:14:17 +0200 FOMC meeting: Market expectations may be too high and there could be a negative reaction, rising US long-term rates. /en/who-we-are/news/detail/fomc-meeting-market-expectations-may-be-too-high-and-there-could-be-a-negative-reaction-rising-us-long-term-rates/ The Federal Reserve will hold its FOMC meeting this coming Wednesday June 10th. Please find below what we expect:
  • The target range for the federal funds rate is likely to be left at 0 - 0.25%. Fed members have expressed several times their opposition to negative rates.
  • No change regarding the IOER (interest on excess reserve). 
  • No yield Curve control announcement: If it the committee’s intention to make such a meaningful announcement, we believe that their communication would have been a lot stronger and clearer. But we also think that they will leave this option open for upcoming meetings.   
  •  A worsening of macro-economic projections with a very prudent tone, continuing to note “considerable risks” to the outlook. The inflation forecast will be below target (2%) until end of 2021 at least. 
  • A dovish “dots plot” with a median dot showing no hike before the end of 2022. This is a “close call”.
  • A “wait and see” approach regarding unconventional monetary policies. We believe they would like to wait until September and for more macroeconomic clarity before committing to any new stimulus plans.
  • We have the feeling that market expectations are maybe a bit too high on this event and we would not be surprised to witness a negative market reaction on US long term rates (rates higher) during / after the committee. 


    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française AM are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-2015 Mon, 08 Jun 2020 10:33:42 +0200 As the US electoral campaign heats up, more market volatility to be expected /en/who-we-are/news/detail/as-the-us-electoral-campaign-heats-up-more-market-volatility-to-be-expected/ by Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company Is Donald Trump a paper tiger? This is the growing sentiment in Asia as we are witnessing his daily diatribe against the Chinese government which looks more and more like an electoral strategy to defeat Joe Biden in November than anything else. The growing aggressivity towards China, which contrasts strikingly with a lack of reaction by Beijing makes us wonder what action Trump can take against China that would hurt China enough to make it yield to Trump’s requests? And by the way, what is Trump asking from China? It is far from being clear, other than reforming its political system which, obviously, is wishful thinking. 

    One action taken in May targeted Huawei. However, the sanctions taken against Huawei had been flagged well in advance to the point that the company had plenty of time to stock up the US chips it needs to produce 5G telecom equipment. Given the damages that China and the US can do to each other if China was to react to the Huawei sanctions by banning all exports to China of US chips, we believe an agreement will likely be reached before Huawei runs out of US supplies. The fact that Huawei’s chip maker TSMC announced on the same day that it would build a $12bn fab in Arizona to manufacture chips, including most likely chips destined to Huawei, is not a coincidence. Beijing had threatened for months to roll out a list of “unreliable entities”, i.e. US companies that it was prepared to blacklist from China, and used state-controlled newspapers to whisper the names of Boeing, Apple, Cisco and Qualcomm. 

    Facing adversity from the US administration, China’s strategy is, interestingly, to adopt an open-arm policy towards US corporates. Indeed, US Foreign Direct Investments (FDI) into China are quite systematically approved and have remained remarkably stable at approximately USD15bn every year. A good example is Tesla that opened in October last year its USD5bn Shanghai factory with substantial financial incentives provided by the Shanghai municipality. On the other hand, Chinese FDI unsurprisingly collapsed from USD46bn in 2017 to USD5bn in 2019. 
     
    On the Hong Kong issue for which Beijing decided this month to promulgate a National Security law, the reaction of the Trump administration was also very vociferous, but lacking substance. Punishing Hong Kong, where 1200 American companies operate, and its 7 million inhabitants who, if anything, are more victims than perpetrators would miss Trump’s real target that is China. And hitting directly at China could backfire on the US should China take actions against US interests on its soil. In other words, China is not Iran or North Korea. China and the US need each other more than they ever did, which is the reason why we do not subscribe to the theory widely spread by media these days of a new Cold War between the two countries. 

    If Trump wanted to inflict real pain on China, there is, in our view, only one decision to make: Cut off all Chinese banks from the US dollar system. This would have a catastrophic impact on China and the Chinese economy, and it would most likely trigger a global crisis, if not a real war. As long as Washington hard-liners do not even mention this “nuclear” option, we see the ongoing anti-China rhetoric as nothing more than electoral gesturing.

    In other words, between now and November, we anticipate more and more such noise and market volatility as the US electoral campaign heats up. Nevertheless, the geopolitical context is not going to influence our bottom-up investment approach, nor will it distract us from the macroeconomic analysis we do of each country within our universe. And on that front, the post-COVID recovery is underway. Car sales in China in April were up 4.4% YoY in April and are expected to have grown by double-digit in May. Property sales in April were only down 2.1% YoY in volume, basically back to their level a year ago. During the annual National People’s Congress China announced a RMB4tn fiscal stimulus package that will bring the total financial package to approximately 4% of GDP, roughly similar to what it had been during the Global Financial Crisis of 2009. In his closing speech Li Keqiang, China’s premier made it clear that monetary stimulus was to be expected through cuts in interest rates and acceleration of credit growth. Large banks are requested by the Central government to lend 40% more this year to small and medium enterprises than they did last year. 

    Outside of China we saw interest rates cut in May by 25bps in Korea (down to 0.50%) and by 40bps in India (down to 4%). We were surprised by the Indonesian Central bank’s decision to keep its interest rates unchanged at 4.5% despite the impact COVID-19 is having on the economy. This was perhaps the reason behind the strong rebound of the rupiah. The currency gained 3.3% against the USD in May, bringing its gain over the past two months to 10.7%.  

    Source of Figures: Bloomberg

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. JK Capital Management Ltd. is a limited company regulated by the Securities and Futures Commission of Hong Kong, with its registered office at Rm 1101 Chinachem Tower, 34-37 Connaught Road Central, Hong Kong.

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    news-2009 Wed, 03 Jun 2020 12:01:11 +0200 Resilience in the face of a crisis should be anticipated /en/who-we-are/news/detail/resilience-in-the-face-of-a-crisis-should-be-anticipated/ The Covid-19 outbreak has changed perceptions of sustainability risks, broadening the conversation beyond just climate-related risks and their growing significance over time. Given the immediacy of their impact, health risks have become a major topic of debate. Surely, this newly sparked interest in the social aspects of ESG serves as confirmation that the resilience of our cities is a matter of concern for everyone. Resilience to a crisis cannot be fully known in advance, but it can – and should – be anticipated. As an asset manager with a long-term investment approach, we carefully consider the consequences that our investments may have on tomorrow’s society.

    Our responsibility is not only to manage real estate investments, but also to create the conditions for a shared future, notably bringing about the transition needed in the face of climate change and other key societal challenges.

    Real estate gives our cities their material structure and forms the very essence of urban society. It can be both the problem and the solution. To deliver returns which are both useful and long-lasting, La Française has drawn up a roadmap with social and environmental levers as the driving force at the heart of its strategy.


    We have set three clear priorities for our real estate division:

    • To reduce greenhouse gas emissions by promoting large-scale adoption of renewable energy and limiting our ownenergy consumption in accordance with the new requirements set out in the décret tertiaire (regulation relating to energy consumption reduction in the tertiary building sector in France).
    • To bring nature back into our cities in order to mitigate the adverse impact that ever-increasing human activity has on biodiversity and ecosystems– the probable cause of the current Covid-19 pandemic and previous cases of zoonotic diseases.
    • To make cities more inclusive by fostering the principle of “Living Together”, upon which any democratic society should be built.

    At La Française, our investment philosophy is not to exclude assets with the poorest ESG performance, but rather to help these investments manage their transition and ultimately improve their sustainability credentials. We make decisions to engage based on our assessment of the asset’s capacity to adapt and innovate, welcoming new work styles.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Real Estate Managers was approved by the “Autorité des Marchés Financiers” under N GP07000038 on June 26th 2007, approval (i.e. the Carte professionnelle) granted by the Paris Ile-de-France “Chambre du Commerce & de l’Industrie” under CPI N 7501 2016000 006 443 – Transactions on Buildings and Business Assets and Real Estate Management.

     

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    news-2008 Wed, 03 Jun 2020 11:28:11 +0200 Upcoming ECB meeting: Will it be a buy the rumors sell the facts event? /en/who-we-are/news/detail/upcoming-ecb-meeting-will-it-be-a-buy-the-rumors-sell-the-facts-event/ The European Central Bank will hold its press conference on Thursday June 4th Please find below what we expect:

     

    • We expect no change in the deposit rate.
    • We expect the size of the PEPP to increase from € 750bn to €1000-1250bn. This decision is the most important as markets may interpret it as a confirmation of the central bank’s independence. The size of the PEPP is important but communication will be decisive.
    • We expect to have some details about reinvestments coming from the PEPP. One could say that the PEPP is not a long-term instrument (contrary to typical QE) and that purchases should not be reinvested forever, but we do not think it is the ECB’s intention to send such a “hawkish” message considering current uncertainties.
    • We expect the ECB to include fallen angels in the PEPP; it is a close call.
    • We do not expect TLTRO terms to be changed; the tiering multiplier will remain as is. 
    • We expect macro-economic projections to be revised downwards, as already indicated by Mrs. Lagarde last week. 

    Following speeches from Mr. Villeroy and Mrs. Lagarde, market expectations have dramatically risen over the last 10 days, so it might be a “buy the rumors, sell the facts” central bank event but positioning still appears to be on the low side so we would lean towards a moderately bullish response from markets.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-2007 Tue, 02 Jun 2020 10:31:42 +0200 Small Caps for the Recovery /en/who-we-are/news/detail/small-caps-for-the-recovery/ How can investors position themselves to potentially profit from an eventual stock market recovery? We believe that small caps may outperform their larger peers on the way up.

     

    • Small caps have historically led market recoveries. Looking at the past three recessions from the market low and forward twelve months, the Russell 2000 Index has risen about 38% while the S&P 500 Index has only returned 22%, as indicated in the chart above.
    • While small caps have dramatically underperformed year to date as investors have sought out the relative safety and liquidity of larger caps, their valuations have become depressed, making them potentially attractive.
    • Small caps have underperformed so much that while they typically trade at a premium to large caps, they currently trade at a discount. That discount is the lowest it has been in two decades based on price-to-trailing earnings.
    • Investors seeking to play offense in the eventual recovery may want to consider high-quality small caps.
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    news-2006 Fri, 29 May 2020 15:24:58 +0200 Hong Kong and its National Security law: the view of a Hong Kong based fund manager /en/who-we-are/news/detail/hong-kong-and-its-national-security-law-the-view-of-a-hong-kong-based-fund-manager/ by Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company The recent events in Hong Kong are making headlines and have become a political tool in the hands of the Trump administration. Trying to stay as rational as possible, we wanted to share our views as a fund manager on the ground. 

    Let’s start with the background. The National People’s Congress (NPC), the legislative body of China, is about to promulgate a National Security law to become part of the Basic Law, the mini-constitution of Hong Kong. The National Security law’s purpose is to criminalise acts of sedition, secession, treason and terrorism, which is something that most sovereign countries have in their own constitution. For instance, in the U.S., treason is covered by Article III, Section 3 of the U.S. Constitution, and sedition by Title 18 of the U.S. Code of Laws. The reality in Hong Kong, however, is that when Chinese and British negotiators drafted the Basic Law, it was agreed and written black on white in Article 23 that the Hong Kong government would have to pass such a law after the handover of Hong Kong in 1997. A first attempt in 2003 to do so failed following large scale protests, and the matter was postponed sine die. In other words, twenty-three years after the handover, the city still does not have any law in place to arrest and put on trial anyone accused of such acts. 

    In mid-2019, the Hong Kong government took the initiative to draft a controversial extradition bill which led to severe chaos in the streets of Hong Kong, even after the proposed bill was finally shelved. During that period, some protesters openly fought for Hong Kong to become independent from China, some of them carrying the U.S. and British flags. The street violence also kept on escalating with some extremists taking possession of firearms and ammunitions and manufacturing explosives. Since then, many in Hong Kong were expecting the Hong Kong government to re-open the Article 23 issue to introduce a law against sedition, secession, treason and terrorism. Without warning, Beijing initiated the process during its annual NPC meeting.
     
    The method Beijing chose may look abusive as it is a promulgation by the NPC, the legislative body of China, and not the work of the Hong Kong legislature. But Beijing actually used a specific provision of the Basic Law (Article 18) that allows the NPC to bypass the Hong Kong legislature under “special circumstances”. 

    Some may argue that the timing of Beijing’s initiative is terrible. The riots in 2019 already had a devastating impact on the Hong Kong economy. Mainland Chinese tourists all but disappeared. Shopping malls and luxury shops suffered tremendously, and so did hotels, restaurants and all businesses that relate to tourism. Then came COVID-19, and with it came the lockdown of Hong Kong borders and the total obliteration of whatever business related to tourism was still alive in Hong Kong. Bringing to life the Hong Kong Security Law issue now could be seen as a provocation by Beijing that contributed to the U.S.-China relationship reaching new lows that had not been seen for decades. 

    We would argue that the timing for promulgating a National Security law was actually well chosen. The Hong Kong economy is already on its knees after nine months of chaos followed by COVID-19. The U.S.-China relations are in tatter, things can hardly get worse. And the Hong Kong general public is in dire need of long-term stability. As to the impact on the Hong Kong economy of this National Security law, we are, surprisingly, optimistic. We would argue that the recent move made by Beijing, however controversial it is, will gradually bring back the confidence in Hong Kong that mainland Chinese investors had lost over the past year. By imposing its National Security law on Hong Kong, Beijing is reducing the risk premium attached to Hong Kong assets by providing better visibility over the future of the city, and it will hopefully bring back mainland Chinese investors and tourists who have been conspicuously missing for the past 18 months.

    So what next? 

    The question of what will happen to Hong Kong after 2047 when the ‘One Country, Two Systems’ framework reaches its expiry date is haunting a lot of people. We don’t have a crystal ball, but we certainly do not subscribe to the conclusion Mike Pompeo drew which is that “Hong Kong has lost its autonomy”. Today Hong Kong still has its own judicial system, its own currency, a hard border with China, free press and no internet censorship. The Commissioner of China’s Ministry of Foreign Affairs in Hong Kong said earlier this week that the new National Security law “will not change the legal system in Hong Kong, nor will it affect the independent judicial power, including that of final adjudication, exercised by the judiciary in Hong Kong.” Let’s hope this will prove to be an accurate statement.

    The Trump administration is now threatening to remove the special status that Hong Kong had been enjoying since 1992, whereby Hong Kong is treated differently from Mainland China. Our view is that the measures to be taken will be symbolic more than anything else: Exports from Hong Kong to the U.S. that are not re-exports from China and that were exempted from U.S. tariffs until now represent less than 3% of Hong Kong’s GDP and consist mainly of postal and logistic services. Any other action taken against Hong Kong would first and foremost hurt Hong Kong people, which is not necessarily the objective of the White House, let alone the impact any measure may have on the 1200 American companies that have operations in Hong Kong.
    Another positive we see for the city is the potential listing in Hong Kong of Chinese companies currently listed in the U.S.  The Trump administration and the U.S. Senate have recently targeted Chinese companies listed in the U.S., forcing them to delist should they not comply within three years with U.S. accounting rules or not being able to prove that they are not controlled by the Chinese government. Alibaba has shown the way and has recently obtained a secondary listing in Hong Kong. We believe it is a matter of time for the other 146 Chinese companies listed in the U.S. with a total market capitalisation in excess of USD1.3 trillion to follow the trend and move their primary listing to Hong Kong, and ultimately delist from New York. As long as the capital account of China remains closed, the Hong Kong stock market will remain the best way to get access to the most prominent companies China has to offer. If anything, the unique position that the Hong Kong stock market enjoys will only be reinforced by the moves made recently by the Trump administration and by the U.S. Senate. This has been the driving force behind the share price of the Hong Kong Exchange which has outperformed the Hang Seng Index by 26% since the start of the year.
     

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report.

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    news-2005 Fri, 29 May 2020 11:37:48 +0200 The game is on /en/who-we-are/news/detail/the-game-is-on/ By Nina Lagron, CFA, Head of Large Cap Equities, La Française AM. ESG as alpha providers during crisis-ridden environments. 
    ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. The SRAS-CoV2 crisis is the ultimate Litmus test for companies whose managements have integrated ESG factors. These so-called extra-financial factors are actually at the heart of the strategies of many corporates. Any organization taking a holistic approach to value creation is already on a long transformational road making it more flexible. It is hence more apt to absorb short-term shocks. Thus, any black swans can be weathered much better given already integrated flexible forward thinking. Corporates integrating ESG factors are more agile and light on their feet. 

    During the recent downturn of the equity market, strong ESG companies outperformed their peers during bearish as well as bullish markets. Admittedly, the time horizon is short, and we should be weary of generalizations. However, at year end, it will be interesting to reflect on 2020 performance.

    One might imagine that mainly technical factors such as sector biases played a role in the pronounced outperformance since the beginning of 2020. However, even when neutralized for sector biases, high-scoring ESG corporates outperform within most sectors.

    Regionally, the outperformance is more pronounced outside Europe, notably in the United States, where the inclusion of extra-financial factors is more recent and hence less mainstream.  Differences in social and environmental regulations between Europe and the United States may lead as well to more noticeable differences between companies with above-average ESG standards.

    During bearish markets, it was, in our view, mostly the strength in Social & Governance factors which led to this relative robustness: the strong management of Human Capital allowed for seamless employee protection and a reorganization process and in consequence minimized disruption. Investors felt that these companies could reopen more quickly than their peers. 

    Simultaneously, strong governance led to communicating transparently with investors and taking responsibility vis-à-vis their stakeholders. Investors were reassured and had greater visibility. 

    Many observers were surprised when high-scoring ESG companies outperformed their peer groups during the bull markets - especially as cyclical stocks outperformed defensive stocks.  

    At the trough of the market, a window of opportunity opened for ESG stocks and investors took advantage of the drop in share prices to redirect flows to ESG investments they might have missed, partly explaining the strength of the rebound thereafter.  It might be utopic to believe that the world after the crisis will be radically greener than the world before. However, if a significant proportion of government stimulus is directed towards sustainable infrastructure and e-mobility it is plausible. The climate crisis has not been put on hold by the current pandemic. To the contrary, it is now considered to be an even greater threat to Humanity. 

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    news-2003 Wed, 27 May 2020 09:55:13 +0200 The latest US sanctions against Huawei: Our analysis /en/who-we-are/news/detail/the-latest-us-sanctions-against-huawei-our-analysis/ by Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company On 15th May, the Trump administration slapped Huawei with further sanctions that are meant to restrain Huawei from selling products that are using its own chips, or to be more precise chips designed by its own design house subsidiary HiSilicon. From now on, any company anywhere in the world that designs or manufactures chips for Huawei and that is using either US equipment or US software to do so needs to obtain a licence from the US government before it can proceed. And most likely this licence will never be granted as an official “presumption of denial” is the starting point of the licensing process.


    Chipmakers including the largest of all, TSMC from Taiwan, all use US equipment, and some of these machines, such as those made by Applied Material, Lam Research or KLA-Tencor, do not have foreign competition. It is the same situation for Electronic Design Automation software that are necessary for design houses such as HiSilicon to design chips. This software can only be bought from Synopsys or Cadence Design Systems, two American companies.


    Is Huawei going to disappear as a result? Quite certainly it will not.


    On the chip making side, HiSilicon can always decide to replace its long-term partner TSMC with Chinese manufacturers to produce the chips – SMIC and Hua Hong Semiconductor are the first names that come to mind. Although their technology is still not as advanced as TSMC’s, we believe these manufacturers can adopt a “multiple-patterning technology” that does not require US-made equipment to deliver 12 nanometre chips (12nm) or 10nm chips that would still be acceptable for Huawei phones. It is true that the chips would not be as performant as the current top-of-the range 7nm chips produced by TSMC, however this is exactly what Intel is currently doing as it has extensively adopted the multi-patterning process at 10nm. It will still slow down Huawei’s current semiconductor speed by approximately 20-30%. In addition, the yield and capacity of Chinese semiconductor factories such as SMIC and Hua Hong are still far from being optimum, which means the cost of production might end up being higher than what it is now with TSMC as the manufacturing partner. 


    But in the end, Huawei will still be able to deliver the chips and the phones it currently sells, without using any US technology.


    Interestingly, on the same day that the Trump administration announced its latest batch of sanctions against Huawei, TSMC announced that it will invest $12bn over 2021-2029 to build a factory in Arizona, with production to start in 2024. The fact that this announcement was made on the same day is certainly not a coincidence. Our understanding is that TSMC negotiated a deal with the US government to build chips for Huawei on US soil and under strict supervision by US regulators. Whether these chips will be designed by HiSilicon or by an independent design house is a matter of speculation at this stage. But it is certainly a smart way for TSMC not to lose the Huawei smartphone chip business that represents 8% to 10% of its total sales. In other words, notwithstanding the fact that Huawei stocked up a lot of chips designed by HiSilicon and made by TSMC prior to the sanctions being announced, we believe the smartphone business of Huawei will be only slightly affected, if at all, by the latest move made by the Trump administration.


    Unfortunately, the other division of Huawei that is responsible for telecom equipment, the so-called High Performance Computing division, may not be as lucky. 
    This is the largest such company in the world. It competes with Nokia, Ericsson and with Samsung Electronics to make network equipment using 4G and 5G, and it is known for offering the most performant technology. This is the division that Trump wants to kill for fear of security breaches. It is the one that the Chinese government will defend at all costs at it is literally the flagship of Chinese know-how. The central processing units that are made (once again) by TSMC are not as sophisticated as they could be for smartphones as miniaturisation is not an issue for telecom equipment. However, these 5G machines need other chips that are only made in the US. Baseband processors are one of these bottlenecks that Huawei managed to circumvent by launching last year its own 5G baseband processor, named Tiangang and manufactured by TSMC, but TSMC uses American equipment to produce them. It is public information that TSMC and those absolutely critical US chip makers (such as Broadcom, Qualcomm, Marvell) have already provided inventory to Huawei that should last until 2021. This is when Huawei will be cut off from its critical suppliers if no agreement can be found between the US and China until then and will have to stop making 5G communication equipment.


    How has China reacted? It has threatened to take reciprocal actions against some carefully-selected US companies. Global Times, a mouthpiece of the Chinese government, has indicated that Beijing was considering banning the sale in China of all products made by Qualcomm (representing 48% of its total sales), Cisco (3%), Apple (17%) and Boeing (17%) if the US administration was to pursue on its path.

    This is the latest chapter of a story that has already created major headaches for chipmakers both in Asia and in the United States. Very likely there will be many more chapters to come.

    Informative Document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report.

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    news-1999 Mon, 18 May 2020 15:22:44 +0200 Property sales are rebounding strongly in China /en/who-we-are/news/detail/property-sales-are-rebounding-strongly-in-china/ By Sabrina Ren, Portfolio Manager, JK Capital Management Ltd, a La Française group-member company As we expected, Chinese property sales are on the rebound. Industry data show that as of 3rd May, the largest 36 cities’ weekly sales in volumes were inching back to pre-COVID-19 levels while property prices were showing remarkable resilience. As for the top 36 property developers, their pre-sales growth bounced back on a weighted-average basis to +2% in April 2020 versus April 2019. High-profile developers including Shimao, Logan, Jinmao, Yuzhou and Greentown have all announced year-on-year sales growth in April that were in excess of 40%. We expect this sales rebound to continue over the next two months given a strong pipeline of new projects launches. Meanwhile, the land market also continues to benefit from a strong momentum. According to China Real Estate Index System (CREIS), total residential land transactions in 300 cities grew by 142% month-on-month and by 24% year-on-year in value terms, which evidences how optimistic the largest property developers are about the outlook for the sector. 


    For the past twenty years, some of the most frequent questions we have been asked related to the Chinese property sector and its myth. Books have been written on this topic. We have argued for a long time that the property sector was one of the most misunderstood sections of the Chinese economy for reasons that largely revolve around the level of regulatory interventionism implemented by the Central government, by local authorities, by the Central bank and by the financial regulator that oversees the banking system. Still, we want to reiterate that the structural growth of the sector since the housing reform in the mid-late 1990s reflected the unleashed substantial pent-up demand for private residential housing, rapid income growth and ongoing urbanization which leads to rising land values. The Chinese housing market is not ONE market but hundreds of them. Therefore, a nationwide property bubble does not exist even though regional imbalance happens from time to time. e.g. undersupply in cities with population inflows and simultaneous oversupply in others. It is also worth noting that as the Chinese middle-class rises, housing has become not only a living space but also an asset class. With a high savings rate and limited investment channels, wealthier Chinese see housing as a means of storage of value, which inevitably leads to concerns about speculation. The savings rate for urban residents in China was 37.1% in 2019, while that of migrant workers was 30.2%, and 22.5% for rural residents according to data gathered by Texas A&M University. These are among the highest savings rates in the world. As a result, the Chinese government which repeatedly emphasizes that “housing is for living, not for investment” put in place Home Purchase Restrictions (HPRs) back in 2010 to curb investment demand. These HPRs vary from city to city and are frequently amended to balance supply with demand. At the moment, we see China’s property market as being largely healthy with momentum picking up post-COVID-19.

    Sources: Citi research, CREIS – May 2020

    Informative document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation, or a recommendation to invest in specific investments. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assume any liabilities (including any third-party liability) in respect of any errors or omissions on this report. 

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    news-1993 Wed, 13 May 2020 09:44:42 +0200 The Supervisory Board of La Française Group has appointed Patrick Rivière as Chairman of the Executive Board and has adopted a new governance structure /en/who-we-are/news/detail/the-supervisory-board-of-la-francaise-group-has-appointed-patrick-riviere-as-chairman-of-the-executive-board-and-has-adopted-a-new-governance-structure/ At its meeting on 11 May 2020, the Supervisory Board of La Française Group appointed Patrick Rivière to replace Xavier Lépine as Chairman of the Executive Board. After 20 years with the Group, Xavier Lépine had decided to leave the Group to pursue personal projects, following an internal consultation process that began several months ago, in agreement with the management of Crédit Mutuel Nord Europe. The Supervisory Board has also adopted a new governance structure with the appointment of two new members to the Board. Marc Bertrand and Philippe Lecomte have thus joined Pascale Auclair on the Executive Board of La Française Group.

    As part of this new governance, Patrick Rivière, who until now held the position of Chief Executive Officer, has set up a strong management team that is more committed than ever to ensuring the Group’s success. 

    • Pascale Auclair, a member of the Executive Board since May 2018, retains her duties as Corporate Secretary of the Group and is also in charge of Research and Sustainable Investing for the Group under the new governance framework. She will continue to act as spokesperson for the Group on regulatory issues and represent the Group vis-à-vis all professional associations and market bodies. 
    • With over twenty years of experience in the Group, Marc Bertrand will steer all activities relating to real estate, including the innovation platform, which is in close synergy with the real estate business line and brings together the new activities, identified as key businesses for the future. He will represent La Française in all real estate market bodies. 
    • Since joining La Française Group in 2012 to develop the Group's international expansion, Philippe Lecomte, will take responsibility for extending the Group, both in France and abroad, while retaining responsibility for the international distribution platform. He will also be in charge of synergies with Group affiliates. He will steer the Group’s entire product range as well as its external communication.

    These appointments came into effect on 11 May 2020.

    This re-organisation comes in the wake of strong growth in 2019, with inflows of €5.6 billion. It will help the Group develop its multi-boutique model, which is now structured around two core business lines – real estate and financial assets – and an international distribution platform. 

    Despite the severe turbulence caused by the health crisis, La Française Group intends to pursue its ambitious development targets for 2020. All Group management and sales teams will continue to offer both clients and partners the same high-quality service.


    Eric Charpentier, Chief Executive Officer of CMNE declared: “I would like to thank Xavier Lépine for his valuable cooperation over all these years as well as his outstanding contribution to the Group’s expansion and his enthusiasm as a developer. I welcome the appointment of Patrick Rivière and the new management team, who will be able to best respond to the current developments and successfully continue the expansion of La Française Group.”


    Patrick Rivière stated: “Alongside Xavier Lépine, we have worked hard for over 12 years to help make the Group one of the leading European companies based on distinctive, high-added-value expertise. The Group is turning a new page, entering a new era during a time of crisis that affects us all. With this new governance framework and the refocusing of the Group’s activities over the past two years, I am convinced that our expertise in terms of real assets, credit, quantitative asset management using the Risk@Work model and sustainable investment, and the unwavering support of our teams, will be needed now more than ever to meet the needs of our clients and partners. This is a challenge that Pascale, Marc, Philippe and myself are prepared to face in these unprecedented times”.

    Marc Bertrand:  a graduate of the EDHEC business school in 1992, Marc started his career in 1994 as a financial controller in the real estate department of GAN Insurance. He joined UFG in 1999 in charge of management control. Marc then quickly took on both functional and operational roles, alternating between Group CFO and Financial Director of the real estate business unit. Marc has been in charge of the real estate activities of La Française Group since 2014, initially working in tandem and then on his own. In late 2019, the real estate business of La Française amounted to over €23 billion and had about 140 employees.

    Philippe Lecomte: with a post-graduate degree awarded by the University of Economic Science in Caen in 1991, Philippe started his career as Head of Institutional Clients when INVESCO was launched in Europe. After being in charge of development in Western Europe at INVESCO, he took over General Management at SCHRODERS in France in December 2003. Two years later, he was appointed Head of Global Financial Institution in London and joined the Executive Committee (Europe) at SCHRODERS. He joined La Française Group in 2012, in charge of the Group’s commercial development. 

    Pascale Auclair: a graduate of the IFSA business school in Lyon, Pascale started her career in 1983 at Société Générale as a bond fund manager and then at BAFIP, Cheuvreux de Virieu. In 1992, she joined Groupama where she was head of fixed income investment. Then, in 1994, she was involved in the creation of the subsidiary dedicated to the management of the Group's assets and the development of activities for external clients. In 1998, Pascale Auclair took responsibility for bond and diversified management teams. Later, in 1999, she was appointed to the executive board of Groupama Asset Management and then became Deputy Managing Director. In 2006, she joined LFP Investissements as Head of Investment Management and then, when the company merged with UFG Group in 2010, she was appointed Head of Investment Management and Managing Director of LFP, a securities asset management company within UFG-LFP Group, which later became La Française Group. Pascale Auclair was appointed Corporate Secretary of La Française Group in 2018.


    Patrick Rivière: a graduate of the IFSA business school, he started his career in 1983 at Cholet Dupont before joining Fimagest in 1985. Following the takeover of Fimagest by Générale de Banque in 1996, Patrick was appointed Chief Executive Officer of Générale de Banque Asset Management. Following the acquisition of Générale de Banque by Fortis, Patrick became CEO of Fortis I.M.  (1998-1999). In late 1999, Patrick joined Invesco, where he worked for nine years as Chief Regional Officer for Invesco Continental Europe, and then Chairman of the Executive Board of Invesco AM SA and CEO of Invesco AM SA. In 2008, Patrick joined La Française Group as Managing Director.

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    news-1989 Wed, 06 May 2020 15:09:53 +0200 Grand Re-Opening? /en/who-we-are/news/detail/grand-re-opening/ Declining new coronavirus cases in the U.S. and federal guidelines for lifting stay-at-home restrictions are allowing many states to commence or plan for gradually re-opening their economies. While we take no position on how fast states should lift restrictions and note that this is a very fluid situation, the aggregate opening cadence does have important economic implications. Percent of U.S. Population Not Under Stay-at-Home Restrictions

    • The chart above shows estimates of how much of the U.S. is not or will not be under stay-athome restrictions in the coming months. The trough occurred in April. However, with many states having seen large declines in new cases, states are increasingly lifting their limitations on working and recreation.
    • Many investors and health professionals are concerned about a second wave of infections. The risk of a resurgence is difficult to quantify. However, we can look to Europe, where some countries have started to ease restrictions or will be easing restrictions in the next couple of weeks. Alger’s investment team is actively monitoring the European situation to determine whether a resurgence occurs as well as the pace and pattern of an economic recovery in Europe as an important signal for the U.S.
    • The current “U” shaped re-opening provides some optimism for potential economic improvement as many people look to get back to work and restart their daily lives and routines. As investors, we at Alger are less focused on the shape of this curve, which is ultimately difficult to predict, and more focused on those innovative themes that we believe are durable through the current economic crisis as well as the eventual recovery.
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    news-1986 Mon, 04 May 2020 14:22:30 +0200 Is the worst behind us? /en/who-we-are/news/detail/is-the-worst-behind-us/ By Fabrice Jacob, CEO JK Capital Management Ltd., a La Française group-member company based in Hong Kong The worst seems to be behind us. The number of newly infected people has started receding in most countries around the world, hospitals are no longer the scene of apocalyptic chaos, respirators and face masks are in good supply, and everyone is now talking about deconfinement and when the reopening of the global economy will take place. China is ahead of the curve on that front. What is happening in China could well be used as a template for what to expect elsewhere. Despite the country being reopened (even though travelling from one province to another is under strict control), Chinese people remain very cautious. Traffic in public transportation is limited. Train stations are mostly empty. Property sales and traffic jams that are typical activity indicators have plateaued after starting to rise in March. Restaurants are half occupied, shopping malls are seeing traffic cut by half when compared to pre-COVID levels, and fast-food restaurants are busier on weekdays than they are over weekends. As an example, Yum China which operates Kentucky Fried Chicken across the country, is now running special promotions only on Saturdays and Sundays. Only 64% of surveyed people visited a restaurant over the month of April.

    Quite clearly, people remain very wary of a second wave of infection, and no one would blame them: The province of Heilongjiang saw a sudden resurgence of the outbreak in April that sent shivers across the country. Factories are all at work and producing as guided by the Central government, which prioritized the reopening of the economy, but the order books are not full as overseas clients remain in lockdown. We are seeing signs of inventories piling up as a result. Shopping mall owners waived rents when cities were in shutdown, but this is over now, and foot traffic remains sparse. The Central government waived all social security payments, and local authorities waived all taxes while providing subsidies to companies that could not operate during the shutdown, but this is also over. 

    As such, we believe the results of listed companies for the second quarter might be almost as bad as they were for the first quarter, even though China has reopened for business. To get back on its feet, China needs the coronavirus situation to be decisively under control around the globe, and foreign economies to reopen. Before these two conditions are fulfilled, it is our view that the Central government will not announce any powerful fiscal stimulus or any aggressive cut in interest rates. It would be a waste of ammunition. 
     So far fiscal measures have been a piecemeal of isolated efforts adding up to only 3% of GDP. So-called “helicopter money” was limited to certain cities and strictly focused on consumption such as the city of Nanjing giving away $45m of restaurant coupons to its 8.8m citizens (or less than $6 per person). Therefore, it is critical for China that Europe and the United States reopen as soon as possible to kick-start demand for Chinese products. This is when China will most likely decide to act forcefully on the monetary and fiscal fronts, with the positive impact one can expect on stock markets. 

    The good news is that this reopening is scheduled to take place in May, arguably in phases. The bad news is that millions of people who have already been let go (as in the case of the United States) or are about to lose their job when furlough comes to an end (as in the case of Europe) are not going to spend money on discretionary items. The recovery will, therefore, take a long time. It is also likely that many companies will review supply chains as the virus outbreak made them realize that their dependence on China is too risky. But this will not happen overnight as countries like Taiwan, Vietnam or Cambodia simply do not have the workforce that is required to replace Chinese labour, while India does not have the necessary infrastructure. Any changes to China-centric supply chains will most likely be at the fringe, in our views, especially for electronic consumer goods.

    In the meantime, we stick to our view expressed earlier this year that we will end 2020 with Chinese equity indices being higher than they were at the start of the year. Chinese equities have outperformed all developed markets last year and are again outperforming this year. We believe that a significant portion of the considerable amount of cash that is being printed through quantitative easing by the Fed and the ECB will be invested in Chinese equities and Chinese bonds. The country offers abundant market liquidity, a combination of sound monetary policy with positive real interest rates, a stable currency backed by a neutral current account balance and large FX reserves, a weighting in MSCI indices that keeps on rising, an economy that can withstand the current turmoil thanks to the demand of its rising middle class, and, above all, political stability.

    Moving away from China, we see two very different pictures when we look at North Asia and in South Asia. North Asia (ex-China that is covered above) consists of South Korea and Taiwan. From a pandemic perspective, these two regions did remarkably well in controlling the spread of the virus. They are often cited as role models. Taiwan (23m people) has only had six fatalities even though there has never been any lockdown, only drastic measures requiring a high sense of individual discipline. For the record, Hong Kong, where we are based, is in a very similar situation with 7m people, four fatalities only, no lockdown, closed borders and stringent social distancing measures implemented based on a remarkable sense of self-discipline. 
    From a business perspective, Taiwan and Korea are looking reasonably good: Their almighty tech sector driven by TSMC, Samsung Electronics and SK Hynix, is not showing much sign of a slowdown. These three companies have announced their Q1 numbers and their outlook for the full year, which surprised analysts in a very positive way. These three companies being dominating forces in the chip and memory sectors, they are a critical barometer for the entire tech industry. It is not a surprise to us that these markets have been outperforming emerging markets year-to-date alongside China.

    In South Asia, the picture is very different. India is in a worrying situation. The fiscal deficit of the central government was already 3.7% of GDP last year, and 7% of GDP when consolidating all states’ deficits. The government’s think tank is pushing for a stimulus package equal to 5% of GDP, but it seems to have fallen on deaf ears. So far, the only relief package provided by the government was $23bn, or 1% of GDP, which we see as being a drop in the ocean. The standard view among economists is that the Modi government is well behind the curve when it comes to taking actions and decisive measures. The Reserve Bank of India looks almost frozen at the wheel and has been looking like this for two years already, ever since the non-banking financial companies’ crisis (or NBFC) started with the bankruptcy of IL&FS. The coronavirus outbreak has only exacerbated this observation.
    In South-East Asia, we would like to highlight the differences we see between two countries that, from a distance, may look similar: Thailand and Indonesia. 

    Thailand is already suffering extensively from the coronavirus as tourism has all but evaporated. Tourism was 11.5% of the GDP of Thailand in 2019 but had ramifications across many sectors of the economy. Three fiscal stimulus packages equivalent to 13% of GDP were announced recently, adding up to the 2.6% fiscal deficit the government had already budgeted before these stimulation measures. It is not a surprise that the Thai baht has depreciated by 7.1% against the USD year-to-date. But what concerns us the most about Thailand is the long-term impact of the coronavirus on the airline industry, and more specifically the ongoing demise of budget airlines that the pandemic triggered and which the tourism industry of Thailand benefitted greatly from. Without budget airlines bringing cohorts of tourists, holiday resorts in Thailand may look very different going forward.

    In Indonesia, approximately half of the country is in lockdown. However, the Indonesian version of lockdown is not a drastic one: People can live a normal life in their villages despite these villages being under strict access control for outsiders. Bank Indonesia, the central bank, has managed to give reassurance to foreign investors who are critically important since they control 32% of the country’s sovereign debt. The central bank has embarked in a quantitative easing exercise equal to 3% of its GDP, has cut its Required Reserve Ratio for banks, and most importantly has entered into a USD60bn swap agreement with the US Fed. This was enough for the rupiah to appreciate by 10% in April after having depreciated by 17% in the first quarter of the year. These are decisive measures that give us confidence in the long-term path of the Indonesian economy.

     

    Promotional document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assume any liabilities (including any third-party liability) in respect of any errors or omissions on this report. 

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    news-1985 Mon, 04 May 2020 09:10:40 +0200 Unprecented crisis... Exceptional responses /en/who-we-are/news/detail/unprecented-crisis-exceptional-responses/ The Covid-19 crisis will unquestionably have major economic impacts. Unlike previous crises, the world is facing a slowdown and numerous health uncertainties which will impede a rapid return to normality. Various segments of our economies will remain lastingly affected. The IMF now expects a global recession of 3% in 2020 and a rebound of 5.8% in 2021. Each month of confinement erases 3% of global growth and we do not expect a strong rebound in Q2. At this point, only China and India would narrowly avoid a recession. For several developed countries, the rebound will not allow a return to Q4 2019 levels, particularly because productive investment of companies, whose financial leeway will remain very limited, will be durably impacted by the containment measures.

    To a lesser extent, there is some concerns regarding the level of consumer confidence in governments’ post lockdown sanitary measures, the deteriorated state of the labour market and, consequently, the resumption of normal consumption behaviours. Faced with these impacts, which for the time being are hard to quantify(the forecast are regularly revised downwards given the extension of the confinement period and a further deteriorating balance of risks), governments as well as central banks have acted quickly and strongly, in a coordinated manner, and will continue to adjust their bailouts to best preserve employment and protect companies.

    Macroeconomic analysis by region

    In the United States, the contraction in GDP in the second quarter is thus expected to reach -35% on an annual basis, with retail sales and industrial production in March recording their worst month since 1992. The latest PMI figures released on 23/04 show a crisis of an, immediate magnitude greater than that of 2008. The composite PMI came out at 27.4, the lowest figure since these indicators have been calculated. Growth in 2020 is expected to be around -6% and rebound to almost 5% in 2021. 

    With regard to U.S inflation, a drop of 100 and 200 bps in core and headline inflation respectively in 2020 is plausible. The amplitude is substantial and notably results from the high level of correlation between this index and the price of oil, which has been free-falling; It also stems from the decrease in flight prices in march (the virus halted the airline industry). Nevertheless, this sharp fall in inflation will most likely be followed by a strong rebound, triggered by an increase in price levels across the aforementioned sectors.

    In the Eurozone, PMI surveys recorded the sharpest fall in their history in March and are expected to fall even further in April: Italy is the most affected country, followed by Spain, France and to a lesser extent Germany and Ireland. The shock is expected to be much stronger than in 2008. GDP growth is estimated at around -7% for the year 2020 (rebound of 5% in 2021), which we believe is consistent with the leading indicators and, as a result of sectoral biases such as the weight of services in GDP, the Eurozone will ultimately be more impacted than the United States.

    In this period of confinement, the consumer inflation basket has been totally transformed, to the benefit of food and to the detriment of leisure for example. However, the European Institute of Statistics ‘’Eurostat’’ recommends that national institutes do not amend the weights of the various goods and services which constitute this basket, and ensure that obtaining a price for each product, regardless of the information channel, remains a priority. Core inflation is expected to gradually fall to 0.5%, due to the decrease in the price index of the services sector, which will only be partially offset by food inflation; while we estimate that headline inflation will fall into negative territories from next month, for a period of one year. Inflation is expected to return to pre-crisis levels from April 2021 onwards.

    The situation is significantly different in China since the confinement was ended as early as March (with the exception of Hubei and Wuhan, epicentre of the pandemic). The contraction in GDP in the first quarter thus stands at -6.8% yoy, a figure which must be analysed with some level of scepticism as difficult to reconcile with the macroeconomic data available to us. The deconfinement in this region, preceding that of developed countries, indicates that the recovery will be long and very gradual. Thus, retail sales fell by 16% YTD (as at the end of March 2020), highlighting the difficulty of Chinese consumers to return to a normal life. In addition, the collapse in global demand will hinder the recovery of the Chinese industrial activity for several months.

    Emerging countries are particularly affected because of the conjunction of the health crisis, the slowdown in world trade, and the historic fall in commodity prices.

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    news-1979 Thu, 30 Apr 2020 09:05:00 +0200 Notice: La Française Rendement Global 2028 sub-fund of the La Française SICAV /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2028-sub-fund-of-the-la-francaise-sicav/ We hereby inform shareholders of the La Française Rendement Global 2028 sub-fund that the management company, La Française Asset Management, has decided to implement a net asset adjustment mechanism linked to swing pricing, with a triggering threshold for this sub-fund. This change will come into force on 4 May 2020.

    Other sub-fund characteristics remain unchanged.

    We would like to emphasise the need and importance of reading the key investor information document of the La Française Rendement Global 2028 sub-fund, which is available at www.la-francaise.com.

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    news-1977 Tue, 28 Apr 2020 17:45:58 +0200 FOMC meeting expected less eventful, Powell to reject negative rates /en/who-we-are/news/detail/fomc-meeting-expected-less-eventful-powell-to-reject-negative-rates/ With several communiques per week, the Fed has been exceptionally active in terms of communication since the last FOMC meeting held on March 15. Its primary preoccupation has been to ensure the continuous flow of credit into the real economy and that financial markets operate normally. Its primary preoccupation has been to ensure the continuous flow of credit into the real economy and that financial markets operate normally. In a nutshell, the Fed is buying more aggressively than ever, diversifying the composition of purchases and lending dollars in the US and to foreign central banks; all of these measures are undertaken in a virtually unlimited manner.
    Since the Fed has acted between meetings in such a bold way, we expect it to take a step back at this formal FOMC meeting which we expect will be less eventful.
    However, they could tweak the FOMC statement:

    • Forward guidance could be strengthened: the Fed could easily commit to not raising rates until a defined date such as 2021-year end. In the coming quarters, we expect the Fed to embrace Yield Curve Control just as Japan and Australia have done. However, stronger forward guidance would be the logical next step, before opting for Yield Curve Control.
    • It will probably comment on the Libor-OIS spread, which has started to tighten from very stressed level thanks to its measures. It could announce some extra measures to help money markets, or at least commit to pumping in more liquidity if the spread does not tighten fast enough.

    In the Q&A, Mr. Powell will likely continue to reject the prospect of negative rates. We must admit that according to our experience in Europe, the impact of negative rates on the banking sector has been far from positive! 


    Disclaimer
    This commentary is intended for non - professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1972 Fri, 17 Apr 2020 09:58:45 +0200 La Française collective real estate investment vehicle acquires first UK asset /en/who-we-are/news/detail/la-francaise-collective-real-estate-investment-vehicle-acquires-first-uk-asset/ A La Française collective real estate investment vehicle, represented by La Française Real Estate Partners International, has acquired its first UK asset from the joint venture formed between Helical PLC and The Baupost Group, L.L.C. The recently developed office and retail property is located at 90 Bartholomew Close in the City of London, between St Paul’s and Farringdon underground stations. The property is multi let to 6 tenants from a range of sectors.

    The property, certified BREEAM Excellent, was developed by Helical PLC and completed in 2018 as part of the first phase of its mixed-use urban quarter, known as Barts Square. Originally a linoleum factory, it was rebuilt behind a retained Victorian façade and provides 24,000 sq.ft. of grade A offices across six upper floors and a retail unit of 6,400 sq.ft on ground and lower ground levels.

    The property has unrivalled connectivity due to the proximity of three key transport hubs: St Paul’s (Central Line), Barbican (Circle, Hammersmith & City and Metropolitan Lines) and Farringdon (Elizabeth Line). It is also close to Culture Mile, a new cultural area formulated around three development projects including Smithfield Market, the Centre for Music and Beech Street.

    The agreed purchase price was £48.5m and purchase reflects a net initial yield of 3.9%. JLL represented La Française Real Estate Partners International and Ingleby Trice and Fineman Ross represented the Seller.

    David Rendall, CEO of La Française Real Estate Partners International, said, “We are delighted to secure the property and grow assets under management in the UK. This follows the recent completion of an office development by La Française Real Estate Partners International at 10 George Street in Edinburgh on behalf of a Danish client.”

    Peter Balfour, Investment Director of La Française Real Estate Partners International – UK, said, “90 Bartholomew Close marks the milestone of our first acquisition in the UK on behalf of La Francaise funds and signifies the intention to grow our assets under management in the UK real estate market. We are pleased to have purchased a key building in Helical’s Barts Square estate and anticipate good growth prospects associated with the completion of new developments nearby. 90 Bartholomew Close makes a good addition to our group’s portfolio of €23 billion in assets under management.”

    Gerald Kaye, CEO, Helical, commented, “Despite operating in a constrained environment, the timing of this sale reflects my firm belief that the attraction of good quality London real estate for international capital will continue. 90 Bartholomew Close is an integral part of the Barts Square estate as it forms a recognisable landmark ‘gateway’ to the newly created public realm and retail offering.”

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    news-1970 Thu, 16 Apr 2020 17:26:16 +0200 High Yield Market update /en/who-we-are/news/detail/high-yield-market-update/ To date, the number of people who tested positive for Covid-19 is close to 2 million and the death toll exceeds 120,000 worldwide. Social distancing measures seem to be bearing fruit with a slowdown in the spread of the virus in Europe and even in the United States, which is becoming the most affected country. The situation in some emerging countries is still concerning as Turkey, India and Brazil could see a rapid increase in new cases and deaths. Europe and the United States are now examining strategies to lift lockdown restrictions, and it seems that resuming normal activities will take months, if not quarters.

    WHAT COULD BE THE ECONOMIC CONSEQUENCES OF THIS HEALTH CRISIS?
    The assessment is made even more difficult by the nature of this unprecedented shock as well as governments’ inability to put a timetable on the loosening of restrictions. As confinement extends, the predictions regarding the severity of the recession worsen. For 2020, the IMF average growth forecasts stand at -3% globally, -7.5% in Europe, and -3.2% in the United States. For 2021, it anticipates global growth to reach +4.7% in Europe and in the United States, and +5.8% globally1.

    The world will undoubtedly enter a severe recession. Social welfare systems along with political decisions will affect the degree to which public debts will absorb the shock, but households and firms will not be spared.

    CENTRAL BANKS
    Central banks are going beyond the actions taken throughout previous crises. Spectacular measures have notably been initiated by the Fed, which has increased its secondary market corporate credit facility. The initial investment of $ 20 billion in primary and secondary markets was thus increased to $ 75 billion.

    - Bonds rated BBB- / Baa3 as of March 22, 2020 and whose ratings have been downgraded to BB- / Ba3 are now eligible for purchases by the Fed.

    - High Yield ETFs, which were initially excluded, are now eligible if the fund's objective is to gain exposure to the US High Yield bond markets. This announcement, albeit not eliminating the risks of default of fragile American companies (B and CCC), remains very positive for the credit market as it alleviates the major risk of deterioration of BBB (“fallen angels”) issuers and will limit the probability of a global increase in default rates.

    THE HIGH YIELD MARKET IS UNDER PRESSURE
    Risky assets are severely penalized by the current crisis and in particular the High Yield market which is very dependent on macroeconomic data and on issuers’ solvency. Spreads on the global HY index2  have widened by more than 400 bps since the beginning of February. The emerging and US High Yield markets were more significantly impacted, with spreads widening by 430 bps and 550 bps respectively. Furthermore, the lowest rated issuers (B and below) were naturally more affected, with spreads widening by more than 500 bps for the "B" segment vs 380 bps for the "BB" segment.

    The inversion of the curves, along with the expected rise in default rates, also accentuated the underperformance of short-term bonds compared to long-term issues. This inversion of the curves also applies to BB and Investment Grade issuers.

    The Fed’s recent pledge to buy high yield bonds led to a substantial increase in valuations. 

    Source: IMF, April 2020. 
     BofAML, April 2020 La Française Rendement Global 2025 is a sub-fund of the LA FRANÇAISE SICAV

     

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    news-1959 Tue, 14 Apr 2020 17:58:17 +0200 Notice to shareholders of La Française LUX Multistratégies Obligataires (The “Sub-Fund”) /en/who-we-are/news/detail/notice-to-shareholders-of-la-francaise-lux-multistrategies-obligataires-the-sub-fund/ We are writing to inform you of the decision of the board of directors of the Company (the “Board”) to temporarily apply swing pricing to the Sub-Fund with effect as from the 15 April 2020 (the “Effective Date”) and until further notice. 1. Reasons for the application of the Swing Pricing
    The current market environment is unprecedented, with liquidity severely impacted and a strong contraction in liquidity (in particular on some bonds), resulting in respect of the prices of instruments traded by the Sub-Fund in an important gap between the real prices and those displayed by suppliers.

    Under these exceptional circumstances, and for the purpose of preserving the best interests of the shareholders of the Sub-Fund and ensuring their equitable treatment, the Board has resolved to apply swing pricing mechanism to the Sub-Fund as further detailed below.

    2. Practical information
    Swing pricing aims to protect existing or remaining shareholders of the Sub-Fund from the dilution's effects they may suffer as a result of subscriptions, redemptions and/or conversions of shares in or out of the Sub-Fund. Further details on the swing pricing mechanism can be found in section “SHARE PRICING” of the Prospectus.

    The applicable swing factor (expressed as percentage of the net asset value) shall not exceed 2%. The swing pricing threshold is set at 5%.

    The application of the swing pricing will be continuously reviewed and will be lifted as soon as it is no longer required, taking into account the best interests of shareholders of the Sub-Fund. Shareholders will be informed about the lifting of the application of the swing pricing via separate notice.

    If you require further information, please do not hesitate to contact La Française Asset Management or your financial adviser.

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    news-1958 Tue, 14 Apr 2020 17:53:19 +0200 Notice to sharehoders of La Française Lux – Multi Asset Income (The “Sub-Fund”) /en/who-we-are/news/detail/notice-to-sharehoders-of-la-francaise-lux-multi-asset-income-the-sub-fund/ We are writing to inform you of the decision of the board of directors of the Company (the “Board”) to temporarily apply swing pricing to the Sub-Fund with effect as from the 15 April 2020 (the “Effective Date”) and until further notice. 1. Reasons for the application of the Swing Pricing
    The current market environment is unprecedented, with liquidity severely impacted and a strong
    contraction in liquidity (in particular on some bonds), resulting in respect of the prices of instruments traded by the Sub-Fund in an important gap between the real prices and those displayed by suppliers.

    Under these exceptional circumstances, and for the purpose of preserving the best interests of the shareholders of the Sub-Fund and ensuring their equitable treatment, the Board has resolved to apply swing pricing mechanism to the Sub-Fund as further detailed below.

    2. Practical information
    Swing pricing aims to protect existing or remaining shareholders of the Sub-Fund from the dilution's effects they may suffer as a result of subscriptions, redemptions and/or conversions of shares in or out of the Sub-Fund. Further details on the swing pricing mechanism can be found in section “SHARE PRICING” of the Prospectus.

    The applicable swing factor (expressed as percentage of the net asset value) shall not exceed 3%. The swing pricing threshold is set at 5%.

    The application of the swing pricing will be continuously reviewed and will be lifted as soon as it is no longer required, taking into account the best interests of shareholders of the Sub-Fund. Shareholders will be informed about the lifting of the application of the swing pricing via separate notice.

    If you require further information, please do not hesitate to contact La Française Asset Management or your financial adviser.

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    news-1957 Tue, 14 Apr 2020 17:08:03 +0200 Notice to shareholders of La Française Lux – JKC Asia Bond 2023 (The “Sub-Fund”) /en/who-we-are/news/detail/notice-to-shareholders-of-la-francaise-lux-jkc-asia-bond-2023-the-sub-fund/ We are writing to inform you of the decision of the board of directors of the Company (the “Board”) to temporarily apply swing pricing to the Sub-Fund with effect as from the 15 April 2020 (the “Effective Date”) and until further notice. 1. Reasons for the application of the Swing Pricing
    The current market environment is unprecedented, with liquidity severely impacted and a strong contraction in liquidity (in particular on some bonds), resulting in respect of the prices of instruments traded by the Sub-Fund in an important gap between the real prices and those displayed by suppliers.

    Under these exceptional circumstances, and for the purpose of preserving the best interests of the shareholders of the Sub-Fund and ensuring their equitable treatment, the Board has resolved to apply swing pricing mechanism to the Sub-Fund as further detailed below.

    2. Practical information
    Swing pricing aims to protect existing or remaining shareholders of the Sub-Fund from the dilution's effects they may suffer as a result of subscriptions, redemptions and/or conversions of shares in or out of the Sub-Fund. Further details on the swing pricing mechanism can be found in section “SHARE PRICING” of the Prospectus.

    The applicable swing factor (expressed as percentage of the net asset value) shall not exceed 5%. The swing pricing threshold is set at 1%.

    The application of the swing pricing will be continuously reviewed and will be lifted as soon as it is no longer required, taking into account the best interests of shareholders of the Sub-Fund. Shareholders will be informed about the lifting of the application of the swing pricing via separate notice.

    If you require further information, please do not hesitate to contact La Française Asset Management or your financial adviser.

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    news-1955 Tue, 14 Apr 2020 16:41:48 +0200 Notice to shareholders of La Française Lux – Absolute Emerging Debt (The “Sub-Fund”) /en/who-we-are/news/detail/notice-to-shareholders-of-la-francaise-lux-absolute-emerging-debt-the-sub-fund/ We are writing to inform you of the decision of the board of directors of the Company (the “Board”) to temporarily increase the swing factor applicable to the Sub-Fund as foreseen in the general part of the Company’s prospectus (the “Prospectus”) with effect as from the 15 April 2020 (the “Effective Date”) and until further notice. The Prospectus currently foresees that the Board may apply swing pricing for the Sub-Fund but that the adjustment (i.e. swing factor) will not be larger than 2% of the net asset value. The Prospectus also foresees that the Board can raise this percentage when necessary to protect the interests of the shareholders.

    The current market environment is unprecedented, with liquidity severely impacted and a strong contraction in liquidity (in particular on some bonds), resulting in respect of the prices of instruments traded by the Sub-Fund in an important gap between the real prices and those displayed by suppliers.

    Under these exceptional circumstances, and for the purpose of preserving the best interests of the shareholders of the Sub-Fund, the Board has resolved to increase the swing factor (expressed as percentage of the net asset value) applicable to the Sub-Fund to up to 3%. The swing pricing threshold is set at 5%.

    The application of the increased swing factor will be continuously reviewed and will be lifted as soon as it is no longer required, taking into account the best interests of shareholders of the Sub-Fund.

    If you require further information, please do not hesitate to contact La Française Asset Management or your financial adviser.

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    news-1954 Tue, 14 Apr 2020 16:22:35 +0200 Notice to shareholders of La Française Lux – JKC Asia Bond (The “Sub-Fund”) /en/who-we-are/news/detail/notice-to-shareholders-of-la-francaise-lux-jkc-asia-bond-the-sub-fund/ We are writing to inform you of the decision of the board of directors of the Company (the “Board”) to temporarily apply swing pricing to the Sub-Fund with effect as from the 15 April 2020 (the “Effective Date”) and until further notice. 1. Reasons for the application of the Swing Pricing
    The current market environment is unprecedented, with liquidity severely impacted and a strong contraction in liquidity (in particular on some bonds), resulting in respect of the prices of instruments traded by the Sub-Fund in an important gap between the real prices and those displayed by suppliers.

    Under these exceptional circumstances, and for the purpose of preserving the best interests of the shareholders of the Sub-Fund and ensuring their equitable treatment, the Board has resolved to apply swing pricing mechanism to the Sub-Fund as further detailed below.

    2. Practical information
    Swing pricing aims to protect existing or remaining shareholders of the Sub-Fund from the dilution's effects they may suffer as a result of subscriptions, redemptions and/or conversions of shares in or out of the Sub-Fund. Further details on the swing pricing mechanism can be found in section “SHARE PRICING” of the Prospectus.

    The applicable swing factor (expressed as percentage of the net asset value) shall not exceed 5%. The swing pricing threshold is set at 1%.

    The application of the swing pricing will be continuously reviewed and will be lifted as soon as it is no longer required, taking into account the best interests of shareholders of the Sub-Fund. Shareholders will be informed about the lifting of the application of the swing pricing via separate notice.

    If you require further information, please do not hesitate to contact La Française Asset Management or your financial adviser.

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    news-1953 Tue, 14 Apr 2020 16:06:40 +0200 Notice to shareholders of La Française LUX – Euro Inflation (the “Sub-fund”) /en/who-we-are/news/detail/notice-to-shareholders-of-la-francaise-lux-euro-inflation-the-sub-fund/ We are writing to inform you of the decision of the board of directors of the Company (the “Board”) to temporarily apply swing pricing to the Sub-Fund with effect as from the 15 April 2020 (the “Effective Date”) and until further notice. 1. Reasons for the application of the Swing Pricing
    The current market environment is unprecedented, with liquidity severely impacted and a strong contraction in liquidity (in particular on some bonds), resulting in respect of the prices of instruments traded by the Sub-Fund in an important gap between the real prices and those displayed by suppliers.

    Under these exceptional circumstances, and for the purpose of preserving the best interests of the shareholders of the Sub-Fund and ensuring their equitable treatment, the Board has resolved to apply swing pricing mechanism to the Sub-Fund as further detailed below.

    2. Practical information
    Swing pricing aims to protect existing or remaining shareholders of the Sub-Fund from the dilution's effects they may suffer as a result of subscriptions, redemptions and/or conversions of shares in or out of the Sub-Fund. Further details on the swing pricing mechanism can be found in section “SHARE PRICING” of the Prospectus.

    The applicable swing factor (expressed as percentage of the net asset value) shall not exceed 2%. The swing pricing threshold is set at 5%.

    The application of the swing pricing will be continuously reviewed and will be lifted as soon as it is no longer required, taking into account the best interests of shareholders of the Sub-Fund. Shareholders will be informed about the lifting of the application of the swing pricing via separate notice.

    If you require further information, please do not hesitate to contact La Française Asset Management or your financial adviser.

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    news-1952 Tue, 14 Apr 2020 10:40:01 +0200 The Opportunity in Correlations /en/who-we-are/news/detail/the-opportunity-in-correlations/ When investors are anxious and fearful, they often make wholesale decisions to raise cash or reduce risk. These types of actions often cause correlations among securities to increase, potentially creating opportunities for investors.

    • When investors indiscriminately sell (or buy) equities, correlations among stocks rise. The chart above shows that during the recent pandemic-related panic, correlations soared to the highest level that we have seen in at least a quarter of a century.
    • When stocks are moving in sync with each other, some may be mispriced. Attractive stocks may go down with lower quality stocks as investors eliminate the good with the bad.
    • Investors may want to consider this a good opportunity to “trade up” in quality and buy the companies with the best management, strongest competitive advantages and most innovative products or consider allocating to active managers who may be able to pick winners from the carnage.
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    news-1946 Fri, 03 Apr 2020 09:14:31 +0200 What could be the economic cost of this health crisis? /en/who-we-are/news/detail/what-could-be-the-economic-cost-of-this-health-crisis/ Government and central bank stimulus packages have prevented market dislocation.
  • Liquidity remains a major issue and adversely impacts valuations
  • We remain cautious in the equity and emerging markets and favour investment grade corporate bonds and financial subordinated securities.
  • COVID-19 ASSESSMENT

    To date, the health situation has been evolving without much surprise. Although some scepticism concerning the current state of the epidemic in China is necessary, it seems that Europe, especially Italy and Spain, drew the necessary conclusions from the Chinese situation. The United States is now preparing adequately to face the peak of the epidemic within the next two weeks.

    WHAT WILL BE THE ECONOMIC CONSEQUENCES OF THIS HEALTH CRISIS?                    
       

    For economists, it is time to assess the cost of the crisis, its impact on the balance sheet of banks and that of businesses, sector by sector, and of course on public deficits. These estimates, as well as the impact on households via the unemployment rate, are to be modelled according to the budgetary stimuluses already announced as well as the social shock absorbers which vary enormously from one country to another. The scenarios anticipate a global recession in 2020 despite a vigorous economic rebound between April and July, depending on the speed of deconfinement of each country. The forecasts are between -2.7% and -4.5% for the Euro zone, -2% and -6.4% for the US, between + 1.5% and 0% for China which would result in negative global growth in 2020 of approximately -2.5% on average1.
    From a political point of view, in the euro zone, the speed of budgetary commitments has been beneficial, but we may regret that the euro zone seems to have once again missed a chance to evidence real cohesion. We anticipate that the stimulus packages will go beyond recent announcements and we can only hope for some large scale coordinated actions, which could mark a turning point in terms of European coordination

    CENTRAL BANKS’ INTERVENTION

    The intervention of central banks will have been effective in avoiding the total dislocation of the markets. They evidently remain fragile and liquidity is persistently very low in most asset classes, from those typically characterized as illiquid to certain government debt markets, such as Italian or Spanish debt on which transactions of a few million euros are still difficult to execute.

    WHAT IS THE RIGHT POSITIONING? 

    After the shock, the forthcoming period will require the valuation of each asset class according to the specific consequences of the crisis. It seems to us today that the rebound in the equity markets, which in the United States far exceeded the lows of December 2018, is excessive. We also continue to be cautious about emerging countries, which will continue to be affected by various adverse factors. On the credit market, we favour the financial subordinated debt market as well as the Investment Grade segment on which the primary market is reopening and offers real opportunities, as it was the case in January 2009 at the end of the crisis financial.

    Completed by Jean-Luc Hivert, Chief investment officer of LFAM, on April 1st, 2020 

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    news-1942 Wed, 01 Apr 2020 09:35:05 +0200 There is no Planet B /en/who-we-are/news/detail/there-is-no-planet-b/ global health crisis is spreading exponentially – how far, and for how long, no one knows – in a world where both economic activity and financial markets are globalised. Only one thing is certain: the situation we find ourselves in is unprecedented, and everything we say or do could turn out to be right or wrong, depending on the health parameters, then the policy parameters, currently unknowns. In concrete terms, the flight-to-quality concept has not quite panned out this time. The German Bund has also plummeted amid fears of budget deficits and the 'bazooka' support policy implemented by the ECB. This suggests that the zero long-term rate policy could end if not enough investors bite. Maybe now is the time to accept refuge as the place where people find their tribe, where they feel accepted. As such, refuge becomes temporary and relative. As it goes for the health, so it goes for financial markets.

    This major crisis is a speeded-up version of the scenario we thought would unfold over the next 15 years. Lest we forget, when climate scientists warned us in the 2000s about the consequences of climate change in 2100, political and economic decision-makers were close to zero on the sensitivity scale. The preference for the present was "humanly, economically, and politically" dominant; a present value, mathematically speaking, of close to 0: (1+3%)ˆ-100 = 5% [where 3% is the very-long-term nominal rate of return]. Since COP21, climate scientists have
    managed to convince politicians of the climate emergency by referring to 2030, inferring a present value that then jumps from 5% to 65% or (1+3%)^-15. From this abrupt acceleration in present value, either by becoming "ethically" aware or by simply anticipating that the game now in development will have new rules, economic players (in a growing majority) are incorporating these parameters into their strategy. The energy transition and the environmental transition (relocation, short supply circuits, local preferences, etc.) are becoming essential questions. If you recall, the cost of this transition, at least the carbon side, is estimated by the IPCC at €50 per tonne of CO2, or €2 trillion in investments each year, equivalent to 2% of world GDP! Based on this, we have said that such financing would require managing long-term interest rates so they stay low for a minimum of five years, and more likely close to 10 years – long enough for the first investments to turn a profit and for inflation to rear its head (as globalisation has had the beneficial effect of driving the price maker concept right down). By the same token, in the developed countries, the social unrest spurred by globalisation is questioning democracies more and more, and the "S" measures that are part of SRI and ESG seem much too anaemic to resolve inequalities which have sometimes become intolerable (in 40 years, consumer prices have risen 3.5 times and the French minimum wage 4 times, but residential real estate prices have risen 10-fold in in-demand areas and the MSCI total index has increased by a factor of 33).

    In mediating between short-term economic yield in a given competitive environment and sustainability, the two major challenges for businesses are organising a new, partially "deglobalised" supply chain and, more broadly, complexity in reframing the concept of productivity and capital efficiency, now that the ultimate Corporate purpose is no longer solely profit.

    Except in its sudden and universal onset, the health crisis fits into the same rationale of externalities that, in this case, had never been factored into economic arguments, financial equilibrium, or political agendas... And its present value is 100!

    The worst-case scenario must be considered, if only because it will be included as an assumption in government decisions so that it can be avoided. In concrete terms, over the first two quarters of 2020, global production will crumble by 30-40%, and if things do pick up in the third and fourth quarters, global production will be down 20% for the year as a whole.

    However long this health crisis lasts and however far it reaches, it is not much of a risk to assert that "whatever the cost", the States and the Central Banks will do their part to support their people and their economies, but also that economic and social models will be thoroughly overhauled. As to the climate emergency, which would involve complex trade-offs between the "relative" urgency, its cost, and the loss of competitiveness among domestic and international competitors depending on how sensitive they are (by dint of their national regulations; see climate sceptics and other Trumpian mindsets), it now seems certain that health-related externalities will be recognised on an entirely different scale, challenging the "old-world" models.

    "I’m afraid of the clean slate, but also of its opposite: that fear passes in vain, without leaving a trace behind it. " Paolo Giordano (Contagions)

    While it is highly likely that the measures to ensure liquidity will be effective, the next question will be solvency; then orders and business capital, though, paradoxically, the widespread efforts at support may give a leg up to free riders, i.e. businesses or sectors that would no longer have a place in this new world, resulting in high inflation and ultimately a major social and political crisis.

    The response has been massive, both from the Central Banks and from the States, but the fundamental question that remains is, how differently will our economies be organised, on the other side of this crisis?

    Can we accept the idea that, once the health crisis is over, we will be in a new era, and that we will be moving into a wartime economy, where, just as at the start of the '40s in the United States, the industrial base must be structurally realigned: as such, the increase in healthcare spending that was taken as bad news, and the increase in auto sales as good news, would no longer be the right formula? While the soldiers on the front lines are those with the highest added value?

    The “S” in ESG must from now on include healthcare: though we often ran into trouble mathematically quantifying the social in ESG, what is now clear is that healthcare will dominate the approach, just as much as the environment.

    Still, while this health crisis creates an immediate and worldwide drop in demand and supply alike, and if it seems plausible that the global organisation of overconsumption will not carry on as it was, the essential question is, what will replace it?

    While today, all governments (and Central Banks) are adopting a policy of support for their economies through extraordinary fiscal and/or monetary policies, not all countries are in a position to do so in any lasting way – specifically within Europe, where many States, and not just the smaller ones, were already deep in debt.

    This new economy will prioritise healthcare: health, the services that revolve around it, food, sanitation, education, artificial intelligence and, more generally, virtual (rather than physical) travelling, which presumes converting a portion of industry whenever possible, just as in a wartime economy, and revaluing the social model to benefit these populations.

    The issue of the S standing for Solidarity is becoming the essential question!

    In an optimistic view, even though it is desired by the Secretary-General of the OECD and many economists, we can hope that States will implement a Green New Deal and a worldwide Marshall Plan in the interest of solidarity in establishing the new world “of relocation and decarbonisation" and even if we are incapable right now of quantifying the cost of such adaptation (including the socialisation of the financial consequences of the crisis), there are two fundamental departures from previous crises: there has been no physical destruction and, since the crisis is not financial or economic in origin, if the health crisis does not last too long, the majority of States will have succeeded in limiting the damage in terms of business failures. The recovery would be costly but timelimited, the colossal cost being the cost to transform our economic and social models.

    In an approach that is, at this stage, sadly more realistic, we can reasonably expect that after the health crisis, stimulus plans will be highly nationalistic, with a very marked priority for the short-term, considering, quite mistakenly, that the climate change problem has been partially solved because of the drop in consumption, changed behaviours and relocations that will occur. Deglobalisation, which is already a matter for debate, will accelerate by necessity, but the answers will often be nationalistic, keeping local economies afloat (including nationalising airlines and other key employment segments, depending on the country). Many already debtridden States will use up their last resources supporting their population in the short term, and overall the "system" will end up even more depleted. In Europe, the "nationalist" stance of Germany, which has announced its stimulus plan and, so far, refused to set up a Europe-wide Marshall Plan / New Deal, is the perfect example.

    It is true that the differences in social systems by country can only result in different treatments, at least initially. France has a strong protection system (unemployment and partial employment), while at the other extreme of the developed countries, in the US, the jobless rate will soar from 3 to 20% of the active population, with weak protections in place – and a jump in weapon sales, because, well, you've got to make a living.

    Clearly it is too soon to tell which way the scales will tip – utopia or dystopia? In the best possible scenario, the shock of the health crisis creates a virtuous circle in the long term, with a sharp redirection of our economies towards an approach where negative externalities (health, environment, society) are factored in when organising the way the global economy works (relocation, decarbonisation). In the worst possible scenario, national pride carries the day, Europe and its single currency shatter, long-term interest rates spike for lack of long-term investors,
    short-termism has drained financial resources, and the planet surely but (somewhat more) slowly keeps heating up, due to a lasting and virtually global recession as a result of the combination of these factors.

    Somewhere between these two extremes, which is most likely, we must hope that the economic transition that will ensue has enough impact so that the delay we will be facing in the environmental transition is manageable. For if there is an environmental crisis, we have no States, no Central Bank and no Planet B.

    So the answer lies mostly in the hands of the States, the Central Banks (as well as the people), and solely in their ability to adopt a form of solidarity that, from the outset, looks less optimal for the State that supports the other States; in other words, in their ability to invest together in the medium term. Historically, there are examples of long-term challenges, but rarely short-term (including, recently, that mask-buying business).

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    news-1940 Tue, 31 Mar 2020 17:35:53 +0200 How will the post Covid-19 world look like? /en/who-we-are/news/detail/how-will-the-post-covid-19-world-look-like/ The 2019 YE stock market rally came to an abrupt halt only a few weeks into the year of the Rat when enthusiasm about a political and economic normalization was douched by the spread of a new corona virus: Covid-19 halted literally overnight first the Chinese economy and then the rest of the world. As we write, close to 3 billion people1 are under a stay at home order, over half a million have been officially tested positive2 and over 24,000 have died3. No vaccination or effective early stage drug are in sight. The stock market has reacted with the most abrupt selloff ever due to the depth, breadth and magnitude of the health crisis as well as the lack of visibility of its duration. The response of the Central Banks and governments has been as well unprecedented: literally unlimited means are put to work to support every single lever of the economies around the planet. Interest rates levels have been pushed even lower and have hence enhanced the long-term attractiveness of the equity market. Despite the severity of the crisis and the lack of visibility as to its duration, we believe to have identified some sectors which could benefit from the current meltdown and the post Covid-19 world.

    The graph below illustrates the relative outperformance of sustainable companies during the downturn:

    High-emitting companies underperform globally (excluding the energy sector)

    Source: Inflection Point by La Française. March 23rd, 2020. The Carbon Factor is defined as Carbon Intensity = Carbon Emissions Scope 1&2 in tCO2e divided by revenues in euros. Within each ICB super-sector we take the top 10% of carbon intensity and compare to the rest of the market. MSCI ACWI excluding oil & gas sector.

    While we cannot be sure yet about the long-term performance impact of the crisis, this early finding is encouraging and corroborates our findings that sustainability and climate change consciousness play a significant role in influencing stock valuations.

    Written on March 26 2020 by Nina Lagron, CFA, Head of Large Cap Equities

     

    1Source: The New York Times, March 26,2020. 2Source: Forbes, March 26,2020. 3Source: BBC, March 27, 2020

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    news-1936 Fri, 27 Mar 2020 16:53:10 +0100 La Française and sustainable investing /en/who-we-are/news/detail/la-francaise-and-sustainable-investing/ by Roland Rott, Managing Director of Inflection Point by La Française & Perrine Dutonc, Groupe La Française Advisor. .    How can ESG criteria enrich financial analysis? 
    ESG criteria complement the financial analysis by adding different perspectives to the financial statements. In particular, they shed light on environmental, social and governance issues not traditionally covered by financial analysis. They enrich the analysis for three reasons: (i) a time horizon geared towards the long term, (ii) an attempt to capture the impact of externalities and pending regulatory change, and (iii) a framework for assessing intangible assets like human capital, customer loyalty or brand value. Depending on sector- and company-specific circumstances these additional factors have the capacity to significantly alter the outcome of the financial analysis, for example, through revised revenue forecasts, margin assumptions, asset valuations or discount rates.

    .    What changes will the new European regulation imply for fund managers and investors? 
    New regulation if applied to all EU countries will level the playing-field between the different actors and provide a common understanding of sustainable finance, green activities or SRI funds. However, so far there are many different attempts to push forward national definitions instead and influence the EU regulation. So hopefully down the line, the outcome will bring clarity and a more harmonised approach, but this is not what we are observing today. While we support the need for harmonised regulation at the EU level, we are mindful of the unintended consequences in terms of limiting innovation and the regulatory burden on fund managers and investors.

    .    Will fund managers be required to have a portion invested under ESG criteria? 
    Funds managers will not have the obligation to invest a portion according to ESG criteria but there will be a push on the demand side from clients, and most probably a request from regulators to explain why they do not factor in ESG considerations.

    .    How can SRI change the investment world in the next five years?
    Sustainable Investment can make a crucial change by shifting capital to sectors needed in a low carbon economy world and away from the most carbon-intensive ones. Climate change is the number one real-life topic for SRI to make a measurable impact.  Including ESG criteria massively into investment decisions will help to foster the just transition needed across the world. Therefore, we expect that the investment world will fully embrace Sustainable Investment in order to remain relevant for society. The current sanitary crisis is a massive and immediate inflection point with a global reach. Sustainable investing gives more chance to assess the future impact of negative externalities that must be integrated when assessing a corporate strategy. 

    Disclaimer
    This commentary is intended for non-professional investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Inflection Point by La Française Ltd, a company incorporated under English law and registered under number 08773186.

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    news-1934 Fri, 27 Mar 2020 10:18:01 +0100 La Française Multistratégies Obligataires, Best performing fund over 5 and 7 years in Rates Long/Short category /en/who-we-are/news/detail/la-francaise-multistrategies-obligataires-best-performing-fund-over-5-and-7-years-in-rates-long-short-category/ This year’s Hedge Fund Journal’s Ucits Hedge Awards celebrated the industry’s top performing managers. La Française Multistratégies Obligataires, co-managed by Maud Minuit and François Rimeu, was awarded for the third consecutive year best performing fund over 5 and 7 year periods in the Rates Long/Short Category. Best performance is defined as the best risk adjusted return applying the Sharpe Ratio.

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    news-1921 Tue, 24 Mar 2020 17:39:32 +0100 Update on the impact of the coronavirus crisis on fixed income and equity markets in Asia /en/who-we-are/news/detail/update-on-the-impact-of-the-coronavirus-crisis-on-fixed-income-and-equity-markets-in-asia/ by Fabrice Jacob, CEO of JK Capital Management Ltd., based in Hong Kong Asian bonds suffered severe price falls last week as a wave of de-risking swept across global markets. As cases and fatality rates of the COVID-19 virus began to accelerate across the world and the majority of western developed economies began to implement aggressive lockdowns of their populations, the stark reality of the economic impact of disease began to take root. The Asian USD bond asset class which had managed to trade through the initial China outbreak with a degree of relative stability and even outperformance in February and early March, began to see a significant pick up in volatility last week following the sharp asset price devaluations in US and Europe. Concerns over the potential unwinding of leveraged hedge funds positions exacerbated the situation, particularly in the US where large ETF exposure to the US bond market resulted in a significant increase in indiscriminate selling of both high yield and investment grade bonds. Meanwhile the ability of sell side institutions to provide market liquidity buffers has been severely limited on the account of Dodd Frank rules, imposed in the wake of the 2008 financial crisis. Unsurprisingly, in such an environment, fixed income assets have begun to see their prices meaningfully diverge from fundamentals and despite signs of a stabilization of the virus outbreak in China, any outperforming sectors in Asia have unfortunately provided little relief from a global bearish sentiment and liquidity driven sell off.

    However, it should be noted that, however tragic the news flow appears now, markets will ultimately find their floor when the virus inevitably stabilizes, particularly given the massive levels of monetary and fiscal stimulus at virtually every major financial hub in the world. In one encouraging sign in the Asian high yield market, we have started to see announcements of corporate bond buy backs and while these bids have so far come at significant discounted valuations, this trend proved to be one of the key catalysts of driving eventual market stabilization during the similar market crash of 2008. With poor liquidity dominating through global credit markets, as evidenced by extremely wide bid/offer spreads, maintaining a strict focus on corporate fundamentals and maintaining dispassionate stance asset price valuation will ultimately prove to be a key determinant in navigating these extremely challenging times.

    The situation is slightly better on the equity front as the main equity markets across the Asia region have remained highly liquid. The A share market of China (Shanghai and Shenzhen) is outstanding in this regard, outperforming very significantly the rest of the world so far this year. It is worth remembering that the A share market is largely domestic-driven (foreign participation remains in the single digits), and that China is ahead of the world in fighting the coronavirus. The Chinese government managed to re-open approximately 80% of its economy after more than two months of lock-down and is focused now on economic stimulation. As Bloomberg put it in an article on 23rd March, “China is swimming in cash with cheapest funding since 2006”, which is in sharp contrast with the situation in the US where the yield gap between US commercial paper and risk-free rates is at its highest since the 2008 global financial crisis.

    Hong Kong, Taiwan and Korea have also remained very liquid as local investors in these markets (both retail and institutional) tend to be very cash rich. They are attracted by what they might perceive as being a once-in-a-decade buying opportunity. In other words, any foreign investor who wants to sell any of these markets will probably find a local buyer. The stability of the Chinese RMB and of the Taiwanese dollar are other reasons why these two markets are relative safe haven.

    It is in South East Asia (India, Indonesia, Thailand, Malaysia, Philippines) that the situation is more complicated as the currencies of these countries have suffered strong bouts of depreciation over the past few days, triggering intense selling pressure from overseas investors without much of a local bid. A number of companies in these markets went limit-down day after day, and saw their trading suspended as a result, even though an oil price at $22 a barrel should be a reason for them to celebrate. These markets could be described as being totally dislocated, valuations being meaningless. This explains why China funds are typically outperforming Asia funds these days.

    The critical question on everyone’s mind is whether we are going to see a second wave of outbreak in China. Unfortunately, the situation in Korea, Singapore and Hong Kong has deteriorated over the past few days as nationals of these countries came back home from Europe, brought back the disease and disregarded quarantine discipline.

    However, the situation in China seems to be under control, and that is the most important news for the rest of the world that is watching closely as it stands on the edge of a precipice.

     

     


    Promotional document for non-professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. The information and material provided herein do not in any case represent advice, offer, solicitation or recommendation to invest in specific investments. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. 

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    news-1920 Tue, 24 Mar 2020 14:49:50 +0100 What kind of sectors could benefit from the coronavirus crisis? /en/who-we-are/news/detail/what-kind-of-sectors-could-benefit-from-the-coronavirus-crisis/ By Nina Lagron, CFA, Head of Large Cap Equities, La Française AM. 1.- What kind of companies or sectors do you think could benefit from the coronavirus crisis?


    We believe that the most significant long-lasting effect will be felt in the technology sector as digitalization is going to play a major role in the post Covid-19 world.
     
    We believe hyperscalers, data center providers, communication infrastructure software providers, cybersecurity, digital gaming and other streaming entertainment companies, online education and the outdoors to indoors movement players are the main beneficiaries of the current confinement period. 

    2.- Why do you think they will benefit?


    The current sanitary crisis will have long lasting effects on how work is organized. During the current confinement period corporates are forced to operate with a close to 100% work-from-home setup. Until recently in many countries work from home was still not deployed largely. 

    As the confinement period gets longer the communication and collaborative software infrastructure needs to be more comprehensive, and more specific/customized. 

    We believe that the normalization out of the confinement will be very slow and gradual and corporates will continue to work for many months offsite. Once this modus operandi has proven to be resilient during the crisis period corporates might allow workers who have requested to work from home for many years to continue to work off site. 

    Software companies that allow collaborative work will see significant growth which should last over the long term. 

    This move to the home office as the new norm will increase the demand for cloud space from which the hyperscalers as well as the data center providers should benefit. 

    Cybersecurity will become even more important in this setup as absolutely all exchanges of information are done via online applications.

    Gamers are currently discovering streamed games and the switch towards streaming and mobile gaming is certainly going to be accelerated and growth should be strong over the medium-term period.  

    The entire entertainment sector’s move to digital apps is being accelerated as well: downloadable books, podcasts, audiobooks and off course movie streaming are seeing massive tailwinds. Our guess is that a significant proportion of new subscriptions to streaming services will not be cancelled after the crisis as convenience and user experience prevails  

    The current confinement period allows for a formidable real-life laboratory for online education across all classes and ages. Until now, online education was rather a tool for university level education. Now it is even deployed for primary schooling. Whilst face to face teaching can never be entirely replaced, more digital applications will be deployed in the future. 

    Last but not least many consumers are trying to reproduce indoors what they usually love to do outdoors. Typically, within sports this outdoors to indoors move via IOT will create a whole new way of doing sports and communicating about it.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1914 Mon, 23 Mar 2020 09:44:12 +0100 Notice: La Française Rendement Global 2025 sub-fund of the La Française SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2025-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-3/ We hereby inform shareholders in the La Française Rendement Global 2025 sub-fund that the management company, La Française Asset Management, has decided to implement a net asset adjustment mechanism linked to swing pricing, with a triggering threshold. This change will come into force on 24 March 2020.

    Other fund characteristics remain unchanged.

    We wish to underline the need and importance of reading the key investor information document of the La Française Rendement Global 2025 sub-fund, which is available at www.la-francaise.com.

    The Prospectus, the Key Investor Information Document, the articles of association and the latest financial reports are available free of charge, in paper form at the registered office of the SICAV and at the German paying and information agent BNP Paribas Securities Services S.C.A. Zweigniederlassung Frankfurt am Main.

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    news-1912 Fri, 20 Mar 2020 16:52:44 +0100 Beyond the uncertainties /en/who-we-are/news/detail/beyond-the-uncertainties/ Revaluating our strategy today, to prepare the post – crisis As in previous crises, the current environment is not necessarily conducive to risk taking. However, we believe in dedicating our efforts to calmly evaluate current valuations and identify the opportunities which, as we all know, when adequately seized in these troubled times, often constitute the drivers of tomorrow's performances.

    Certain markets are showing signs of capitulation: hence the current valuations of Additional Tier 1 and HY seem low relative to their fundamentals.

    Without underestimating the major economic impacts of this crisis, the stimulus programs announced by governments and the measures put in place by the European Central Bank are likely to reassure. The ECB's March 18 announcements are further proof of this. interventionism rather than ‘’laissez faire’’ is now being advocated to revive the economy as quickly as possible, and the banking sector clearly constitutes an essential transmission channel to the real economy which will have to be preserved at all costs.
    European banks have been evolving for more than a decade in an environment characterised by heightened prudential regulation, which has substantially favoured the strength of balance sheets to the detriment of shareholders. With very favourable capital levels, they also evidence very cautious risk management which will leave no room to the infamous "moral hazard" concern, if the institutions were to strengthen the accommodative measures.

    Therefore, the financial subordinated debt market clearly constitutes a strong conviction for us on the credit market because of current valuations and extremely low levels of credit risk on the sector.
     

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    news-1908 Thu, 19 Mar 2020 09:45:01 +0100 Grocery innovation /en/who-we-are/news/detail/grocery-innovation/ People worldwide are worrying about the coronavirus and potentially stocking up on groceries. With all this attention on food retailers, it’s important to note that the grocery industry made few consumer facing innovations during the 25 years leading up to 2017. In 2017, however, Amazon acquired Whole Foods and everything changed; now grocers—small and large—are making technology improvements and harnessing the power of the internet.

    • The trend of buying groceries and prepared food online is expected to grow considerably over the next few years. When Amazon acquired Whole Foods, shockwaves surged through the industry and the incumbent large brick and mortar grocery chains realized they needed to innovate in order to survive.
    • One major initiative is click and collect, which allows customers to order groceries online or via a mobile app and then pick up the groceries pre-bagged curbside at the store. Our research indicates that in locations where this service is available, up to 8% of sales are from click and collect, with half of that figure being new business. The incumbents are also launching home delivery.
    • Amazon is developing two new grocery initiatives. Amazon Ultrafast offers grocery delivery within one or two hours. Amazon also now has two dozen Amazon Go stores; they are smaller, bodega-like stores with no checkout counter. Customers simply scan their app and pick up what they require.
    • For consumers, this new wave of innovation is a major benefit. For investors, the tectonic shift to grocery sales online presents opportunities and hazards. Historically, success in this space meant strong real estate and merchandising among other things. Going forward, success will likely be driven by innovation. In our view, those who are not innovating quickly will lose while those companies introducing new products and services to increase convenience for customers are likely to win.
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    news-1907 Tue, 17 Mar 2020 11:28:00 +0100 Covid-2019 – Communication La Française Group /en/who-we-are/news/detail/covid-2019-communication-la-francaise-group/ Recent actions taken by several European countries in the fight against Covid-19 and last night’s announcement by President Macron placing France in lockdown, signify a new stage in the crisis. To our investors and business relations, La Française would like to convey our commitment to providing quality asset management services un-interrupted.

    In accordance with professional obligations and standards, La Française has a business continuity plan that has been regularly updated and tested. Moreover, all La Française employees are equipped with the necessary equipment to work from home in the best possible conditions.

    As of today, all La Française employees are working from home. 

    With the IT organization and cyber security that we have put in place, we are pleased to inform you that even in such turbulent market conditions, we are able to ensure the continuity of our activities in asset and fund management. 

    All phone numbers remain unchanged and function. During lockdown, remote communication methods are the only option. Please do not hesitate to contact us for further information. 

    Please rest assured that La Française is taking all possible action to ensure the continued operation of its business activities. 

    We send you and your loved ones our best regards. We wish you health and serenity.
     

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    news-1904 Wed, 18 Mar 2020 09:46:33 +0100 COVID-19: liquidity management is essential /en/who-we-are/news/detail/covid-19-liquidity-management-is-essential/ In light of the rapid spread of the epidemic, European countries have confined people to their homes
  • Economies will slow down
  • Financial markets are on the verge of collapse
  • Central banks and government will implement measures to boost the economy, but it is too soon to determine whether those will be sufficient
  • In this complex environment, liquidity management is essential
  • ENTERING UNCHARTED TERRITORY…
    Governments and citizens from western countries have clearly entered uncharted territory. It took Europe a few weeks to realize that it was going to experience the unprecedented experience of severe containment, on the scale of a large part of its population. The health battle to control the spread of the virus and contain the human toll has no other alternative.

    WHAT ARE THE CONSEQUENCES?
    Financial markets are taking a major hit, proportional to the current economic uncertainties. The economy will be almost completely shut down for the weeks to come and impacts on growth, households and businesses are extremely difficult to estimate.

    IS THE CRISIS SIMILAR TO 2008?
    This crisis is radically different from 2008 but it will also lead to a global recession. Political and financial responses of last week and this weekend do not allow us to refine our figures on this point, however we can have a confirmation of the commitment of states and central banks in the management of this economic crisis. Central banks, sometimes hesitant by nature, will quickly point out that their interventions have no limit in terms of size. Moreover, measures to support economy announced by major European countries are already important, others will come and we already know that national budgets will be used massively to offset the recessive effects of this crisis.

    As in any unprecedented situation, the uncertainties are major for the economy. Financial markets need to take this into account and the result is colossal volatility. But markets are also concerned about liquidity risk, which can sometimes be more dangerous than the economic risk itself. The combination of these two risks implies very low visibility in financial markets, regardless of the asset classes considered.

    For our part, beyond the unchanging objective of protecting the performance of our funds, we are now paying particular attention to this liquidity risk on our whole range.

    Completed by Jean-Luc Hivert, Global Chief Investment Officer of LFAM, March 16, 2020

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    news-1901 Thu, 12 Mar 2020 09:24:54 +0100 Positive effect of ECB measures could be short-lived in light of coronavirus contagion /en/who-we-are/news/detail/positive-effect-of-ecb-measures-could-be-short-lived-in-light-of-coronavirus-contagion/ Expectations are high for upcoming ECB meeting. Following the massive volatility spike in financial markets over the last two weeks and the major tightening in financial conditions, expectations are very high for the Thursday ECB meeting. The negative impact of coronavirus on GDP growth is still very difficult to estimate, but European growth could turn negative this year. In that context, this ECB meeting is very significant for financial stability in Europe going forward. Here is what we expect:

    • We expect the ECB to cut deposit rates from -0.50% to -0.60%, but in the current situation this is not the most important change; we would not be overly surprised if the ECB were to keep rates unchanged.
    • We expect an increase in asset purchases, most likely at a monthly pace of 40-50bn € for at least 6 months, with a strong wording highlighting the possibility to go further if needed.
    • We expect those asset purchases to be skewed towards corporate bonds.
    • We expect TLTRO conditions to be improved relative to existing terms with targeted measures for small and medium enterprises (SMEs). The tiering multiplier could also be increased. 

    All in all, we think that market reaction could be positive for credit and peripheral spreads BUT this could be very short-term. Given the current level of uncertainty and the development of the coronavirus crisis in different countries (France, Spain, Germany, the United States..), the impact of the ECB could prove to be short lived. 
     

    Disclaimer
    This commentary is intended for professional investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1900 Mon, 09 Mar 2020 18:23:24 +0100 The worst configuration since the 1930s for the oil market /en/who-we-are/news/detail/the-worst-configuration-since-the-1930s-for-the-oil-market/ At the time of writing, the price of oil is down -18% since Friday’s close and following the decision of Saudi Arabia to start an oil-price war. In terms of demand / supply chock, this is maybe the worst configuration for the oil market since the 1930s. The IEA said today that there is already a surplus of about 3.6 million barrels a day and we estimate this oversupply could rise to more than 5 million barrels a day during the second quarter.
    Consequences: 

    • Very negative for shale oil producers in the US; we estimate their breakeven price to be between $45 and $50. The December 2020 future is currently trading at $37, meaning that most producers will not be able to survive should the price remain close to those levels. Consequently, this is also very negative for US high Yield with US High Yield Energy companies representing around 12% of the segment.
    • Very negative for break-even inflation expectations obviously.
    • Very positive for G7 bonds: This is one of the main reasons of the sudden drop is G7 rates today.

    Over the medium-term, we can also see some positive effects, especially for European countries importing most of their oil consumption.
     

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    news-1899 Thu, 05 Mar 2020 11:16:40 +0100 FED's emergency rate cut /en/who-we-are/news/detail/fed-s-emergency-rate-cut/ The FED delivered an emergency half-percentage point interest rate cut Tuesday in a bid to protect economic expansion from the threats of the coronavirus; it is the first emergency rate cut since October 2008. Our analysis is that this move is premature:

    • We are not yet capable of accurately estimating the impact of the coronavirus on the global economy. For the time being, the only worrying figure came from China with the Manufacturing PMI at 35. The other economic numbers are more or less in line with expectations and show no weakness.
    • Prior to the rate cut, financial conditions were tightening but markets were not collapsing, meaning that the FED could afford to wait for their meeting on March 18th to act and have more visibility.
    • Even if rates are higher in the US than in other developed countries, the FED does not have a lot of ammunition, so it should use it more carefully.
    • Additionally, last week central bankers were communicating that they were experiencing  a supply shock and that the response should be fiscal and not monetary. And now, the FED has done just the opposite.

    This action is a confirmation of what we learned in 2018: Mr. Powell is mainly driven by market pricing and the behavior of equity markets. We would be surprised if the Fed does not deliver what the market is now expecting on March 18th, which is another rate cut of 50bps. 

    The consequences are negative for the US Dollar, positive for emerging markets (but if we are heading to a global recession, it will not save them) and very positive for US rates.

    Disclaimer
    This commentary is intended for professional investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-1897 Thu, 05 Mar 2020 10:00:00 +0100 Innovation First /en/who-we-are/news/detail/innovation-first/ What should investors prioritize when evaluating equity investments? Election results? Fed policy? Trade wars? There is reason to believe that analyzing which companies are most innovative may be a winning investment strategy. Innovative Companies Have Consistently Performed Well

     

    Data has indicated that innovation is accelerating across many areas of the economy. As a result, new products and services are diffusing through society faster, disrupting businesses at a greater pace. Companies investing the most into research and development have been outperforming.

    • Domestically focused companies that should have benefitted from trade barriers and the corporate tax rate reduction have actually underperformed.
    • In the long run, investing in innovation can triumph over short-term policy decisions. History shows that there were areas of innovation and growth throughout recessions, depressions and panics over the past 150 years (see Alger on the Money “The Resilience of Innovation”).
    • Investors may want to consider secular growth companies irrespective of exogenous factors.
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    news-1896 Mon, 02 Mar 2020 14:50:00 +0100 Coronavirus: Financial markets destabilisation /en/who-we-are/news/detail/coronavirus-financial-markets-destabilisation/ The Coronavirus epidemic has put a stop to the particularly favourable environment for risky assets since the end of 2018.
  • In addition to the human impact, this crisis will have severe short-term economic consequences. The key to determining possible market scenarios, will be to evaluate the extent to which this crisis will be hampering economic activity.
  • In this environment of uncertainty, it is necessary to act with caution and to give priority to liquid assets until the market fully considers the impacts of this epidemic.
  • Financial markets remained stable as long as the epidemic was contained within the Chinese territory but reacted negatively when global spread appeared inevitable. Beyond the health risk, the market reaction reflects expectations of lower global growth and severe downward adjustments in corporate profits.

    The unprecedented nature of this crisis makes economic and financial projections complicated.

    Beyond health developments, there are only a few concrete economic elements to rely on today:

    • The first economic indicators incorporating the effects of the epidemic were published this weekend. The Chinese PMI thus stands at 35.7, well below expectations but more importantly, at levels unseen since 2008. It is in line with a very severe scenario of instant contraction of Chinese growth. Probably around -4%.
    • Asian SME indexes published on March 2 do not show any collapse. However, this is due to the very recent development of the epidemic, and more substantial slowdown are to be anticipated throughout the second quarter.
    • In Europe and in the United States, indicators do not yet reflect the consequences of the epidemic. It will be important to monitor the production components, as well as inventory levels and procurement lead times

    The medium-term political consequences may be significant as each government will be accountable for its management of the crisis. Inadequate crisis management will have to be defended. We consider some of the political aspects to be particularly impactful for financial markets:

    • Monetary action, possibly concerted action by central banks, including the FED and ECB. This will be possible only when health information begins to translate into tangible economic data. Central banks will then be able to react to any disruption in financial markets through announcements targeting liquidity, new TLTRO, large-scale asset purchases and even rate cuts. However, they will not be able to avoid the forthcoming economic downturn.
    • A significant budgetary response. This may take longer to implement on a large scale, particularly in Europe because of governance issues. 
    • Finally, markets could re-evaluate the likelihood of Donald Trump's non-re-election, which has so far been very low. Some elements of Democratic programs may then require applying an additional risk premium to U.S. equity markets.

    Perspectives. China is currently most likely in recession and there are strong credible scenarios of global slowdown along with significant uncertainties concerning the length of this slowdown. The "U"-shaped growth scenario, with uncertainty concerning the dynamics of the recovery, is already projected by some industrialists such as BASF for whom the slowdown will occur throughout the second quarter of 2020.

    We consider that equity markets, and to a lesser extent bond markets, have for the time being only partially priced the economic and human damages of the situation and that visibility regarding the evolution of market conditions will remain low.

    Meanwhile, we should probably anticipate negative information to be released, whether it is about the spread of the virus or the economic trend, which would prevent markets from rebounding durably to pre-crisis levels. It is therefore necessary to remain cautious on risky assets.

    Assets and liquid hedges should also be preferred. Indeed, the rebounds in bear markets are often very violent and political announcements may require rapid adjustments to the exposures.

    Jean-Luc HIVERT Chief Investment Officer, Achieved 2020 | 03 | 02

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    news-1886 Tue, 25 Feb 2020 14:00:00 +0100 2019, a year of strong growth for La Française Group driven by real estate and international development /en/who-we-are/news/detail/2019-a-year-of-strong-growth-for-la-francaise-group-driven-by-real-estate-and-international-development/ La Française records inflows of €5.6 billion. As at 31/12/2019, the Group posted more than €69 billion in assets under management for third parties and reaffirms the advantages of its multi-boutique model to meet the new challenges of asset management. A clear vision of today’s challenges 

    In the global context of strong changes linked to environmental and societal challenges, in 2019 La Française reaffirmed its position as a responsible player by structuring its approach around the creation of a dedicated transversal department. It thereby proves its commitment to participating in international efforts which aim to direct capital towards financing the energy transition and reducing greenhouse gas emissions. As a responsible asset manager, La Française is convinced that it is essential to integrate these major changes. These are all opportunities to reconsider the future, by identifying new performance levers, so that savings becomes a means of taking action. This is the approach of La Française Group, made possible thanks to its extra-financial research center Inflection Point by La Française. 

    A full range of complementary expertise: the multi-boutique model

    The Group began 2020 with a streamlined structure, organised around two pillars, real estate and financial assets. It is thereby pursuing its ambitious development, thanks to a multi-boutique strategy ensuring complementary expertise and a solid foundation to the Group, all of which is leveraged by an innovation platform, which brings together the new activities identified as key businesses of tomorrow. La Française will continue to develop investment solutions based on its flagship expertise and its entrepreneurial and innovative initiatives such as the development of its BtoC platform, Moniwan, or Newtown Square and its eco-working concept.

    Xavier Lépine, Chairman of the Board of Directors of La Française Group, concludes, "The year 2019 was marked by a number of successes for La Française Group. We will pursue our development strategy in 2020, a year which promises to be full of challenges. The low interest rate environment, pension reforms and civil society’s awareness of climate issues will fundamentally change the asset management industry. The strength of our model, our commitment and that of our employees in terms of social and environmental responsibility place La Française Group in a good position to respond favorably to new challenges.”

    Focus on the Group’s results 
     
    A record year for the Real Estate pillar 
     
    La Française's “real estate” pillar posted €3.7 billion in gross inflows in 2019, 16% more than in 2018, bringing its total real estate assets to €23.6 billion as at 31/12/2019. 32% of 2019 inflows in real estate come from foreign investors, mainly from Asia. 
     
    The low interest rate environment favored investments in real estate. The European market continues to attract institutional investors as evidenced by the co-acquisition of Crystal Park in Neuilly-sur-Seine with Samsung Securities, the signing of the joint venture with the CMNE and CPPIB (Canada Pension Plan Investment Board) for the development of Foncière du Grand Paris and the co-investment in D-Square in Luxembourg alongside South Korean investors. Xavier Lépine points out, "This is proof of the installation of La Française as a key player for foreign investors: South Korea, which was the second largest investor in France in 2019, has entrusted nearly half of its transactions to the Group." The mandates signed in 2019 represent nearly €2 billion in inflows for La Française and the first weeks of 2020 confirm this trend, particularly with the signing of a mandate with PFA, the Danish pension fund. 
     
    Retail investors favored collective real estate investment vehicles in 2019, and La Française benefited greatly from this interest thanks to a complete and diversified range allowing it to reach a historical record of gross inflows with more than €1.2 billion. The attraction for unit-linked life insurance contracts suggests good prospects for La Française and its real estate offering in 2020. 
     
    Thanks to its European investment platform with management centers in Paris, Frankfurt and London, La Française signed €4 billion in acquisitions on behalf of retail funds and mandates and sold €330 million, in a dynamic European market, particularly in France with the volume of commercial real estate transactions reaching €38.6 billion (Source: CBRE). The most emblematic acquisitions included:  

    • The Watt in Courbevoie (92), offices;
    • The M in Paris (17th), offices;
    •  The Smart’Up in Chatillon (92), offices;
    • The 6B in Lyon (69), offices;
    •  The Identity 2 in Rennes (35), offices;
    •  The World Rugby House in Dublin (Ireland), offices;
    •  The Steag in Essen (Germany), offices;
    • Ansgari Haus, Bremen (Germany), offices and retail;  
    •  The Baxter Building in Amsterdam (Netherlands), offices;
    •  The Babel Community, co-living building in Marseille (France). 

     
    A Financial Assets pillar driven by strong international development 
     
    La Française’s “financial assets” pillar posted some €2 billion in net inflows, bringing its assets in securities under management to almost €46 billion, 34% of which on behalf of foreign investors. 

    With the integration of Veritas, Germany has become La Française’s second market and represents more than 12% of the group’s assets under management. The Risk@Work quantitative multi-asset model developed by Veritas is now integrated into the management process of several French funds. Management synergies are emerging and the “carbon” investment strategy, developed by La Française AM with its extra-financial research center Inflection Point by La Française, is now an integral part of a number of quantitative funds, managed by its German subsidiary, La Française AM GmbH. 
     
    Two of the Group's credit funds exceeded the symbolic mark of USD1 billion under management on 31/12/2019, confirming the appeal to investors of La Française AM's bond solutions. During 2019, La Française launched three new fixed-maturity funds, one with a low carbon credit strategy.  The group now offers investors a range of solutions enabling them to position themselves on promising strategies linked to limiting the rise in global warming. 
     
    LFIS’ assets under management increased by 6% in 2019 to €14 billion. Growth was driven by strong fund performance across the range as well as inflows into LFIS’ premia range of funds from a broader scope of clients including from Australia and Canada. 2019 also saw momentum for LFIS’ multistrategy Perspective approach and the launch of a number of new strategies expected to drive growth going forward. 
     
    Specialized in identifying and investing in management companies and technology start-ups on behalf of French and international institutions, NewAlpha recorded net inflows of more than €200 million, bringing its AUM to €2.2 billion. 

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    news-1885 Thu, 20 Feb 2020 10:45:22 +0100 Semiconductor Economies of Scale /en/who-we-are/news/detail/semiconductor-economies-of-scale/ The global semiconductor industry, which represents over $450 billion of annual sales, operates very differently from most other areas of technology. We believe the semiconductor industry enjoys a concept we call “continuous economies of scale.” This means that the larger companies become, the more their protective barriers to entry strengthen and the more their margins rise. Average Semiconductor Company Operating Margins

    • Average semiconductor company operating margins have increased from 13.7% in 1Q06 to 16.2% in 3Q19.
    • In semiconductors the slowing of Moore’s Law1 causes advances in speed or capability to require more engineering capital. This capital hurdle prevents venture capital-backed startups from creating cost-competitive products to compete against larger incumbents.
    • The investment required to produce cutting-edge silicon, a primary ingredient in semiconductors, is additive. Years of capital expenditures—on equipment, buildings and chip architecture need to be aggregated to determine the total cost of replicating a product. We think the barriers to entry created by this capital intensity can last multiple decades.
    • We believe the leaders in subsectors of semiconductors—especially in capital intensive areas like foundry—offer the potential for strong, long-term returns for tech investors. Additionally, we believe continuous economies of scale will continue to consolidate the semiconductor industry by removing subscale companies, increasing barriers to entry and improving pricing power, which should together reduce the industry’s cyclicality and improve long-term margins.

     

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    news-1881 Mon, 10 Feb 2020 10:12:24 +0100 Outlook 2020 /en/who-we-are/news/detail/outlook-2020/ From a fundamental standpoint, the global environment would benefit from interest rates remaining low on a more or less permanent basis. As such, the search for yield continues, including with respect to riskier assets.
  • Convergence towards potential growth is expected for a number of countries in 2020, with the balance of risks to the downside  
  • Hopes for a fiscal stimulus, prompted by the new leadership of the SPD in Germany and a big question mark over the USA’s ability to deliver a new tax plan before the November elections will - if they are fulfilled - put pressure on interest rates
  • The central banks, and in particular, the Fed, which relaunched refinancing operations in September - as did the ECB - look set to maintain an accommodative stance and flood the markets with liquidity
  • The recent pause in the Fed’s rate cutting programme is unlikely to be reversed, but should mean fewer rate cuts by the main emerging country central banks in 2020 (there were several in 2019)
  • In the current environment, with the USD and oil price stable, inflation should remain low in 2020
  • In the developed countries, the slowdown/manufacturing recession is still in place, and labour market performance will be key to monitoring the risk of contagion to the services sector: convergence towards potential growth is expected for a number of countries in 2020, with the balance of risks to the downside. The rise in the household savings rate alongside a steady level of consumer spending

    is a warning to be taken seriously: if this turns out to relate to precautionary savings (negative interest rates, pension reform), these will not be used to fund future spending. Protectionism will remain an important theme before the US elections, and even though tensions appear to have eased in recent weeks, it will continue to weigh on growth, the investment outlook and market volatility. The central banks will continue to factor this omnipresent threat into their balance of risks.

    With monetary policy looking likely to remain accommodative for some time to come, there are two opposing camps in the market:

    • Its virtuous effects have confused many market participants in terms of their ability to respond to the slowdown in global growth and lower inflation than deemed desirable.
    • Conversely, some investors still believe that its benefits will eventually feed through to growth in 2020.

    In our view, there are limits to what monetary policy can do, and ECB members have said as much. Fiscal policy needs to do more, especially as the message from Mario Draghi, when relaunching the asset purchase programme for an unlimited period, was to create long-term, low-cost refinancing conditions for governments. However, this will take time. Hopes for a fiscal stimulus, raised by the new leadership of the SPD in Germany and a big question mark over the USA’s ability to deliver a new tax plan before the November elections will - if they are fulfilled - put pressure on interest rates.

    With Brexit continuing to fuel uncertainty in 2020, the focus will be on the fiscal stimulus, probably more so than in the eurozone. Japan has already announced a stimulus plan. The central banks, and in particular, the Fed, which relaunched refinancing operations in September - as did the ECB (which had in fact never stopped) - look set to maintain an accommodative stance and flood the markets with liquidity.

    This was the case before and after the summer of 2019 for most insurance companies: the sharp fall in rates had a major impact on their solvency ratios that the regulators were keen to stabilise, if not increase. This led the insurers to increase the maturity of their IG* credit and peripheral debt purchases, and the banks to do the same to cover their asset/liability duration gap. These massive flows serve to limit any major tension on rates, particularly in Europe, as well as the compression of peripheral debt or IG credit risk premiums. And so, the search for yield continues, including with respect to riskier assets.

    At the end of 2019, the indicators seemed to be showing that the economic growth of emerging countries had turned the corner. The economic forecasts suggest that 2020 growth will be close to 2019 levels; quarterly performance does not point to a significant recovery. Growth in China is likely to slow slightly between 2019 and 2020. This stabilisation of growth nonetheless remains subject to geopolitical tensions, progress being made in resolving the China- US tariff war, and the continuation of accommodative policies by the central banks. The recent pause in the Fed’s rate cutting programme is unlikely to be reversed, but should mean fewer rate cuts by the main emerging country central banks in 2020 (there were several in 2019). These still have some room for manoeuvre given their current inflation levels, which are generally within central bank targets. In the current environment, with the USD and oil price stable, inflation should remain low in 2020. The results of legislative elections (presidential and local) in Argentina, India, Ukraine, South Africa, Turkey and Romania, etc. have altered expectations for future economic policy, such as in Argentina, with the defeat of Mauricio Macri and the return of the Peronists to power, and in Ukraine, with the election of Volodymyr Zelensky and the arrival of a pro-reform government.

    The major social tensions in recent months, in response to economic inequality, budget austerity, corruption and the deprivation of liberty have ramped up pressure on governments, and the repercussions for economic and fiscal policy will be seen in some countries in 2020.

    Fiscal stimuli could also play a role in the economic recovery, but remain limited in countries with a solid financial base (low debt, deficit under control, major domestic refinancing). Lastly, we continue to be positive on emerging IG* debt in hard currency.

    *IG: Investment Grade

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    news-1873 Thu, 06 Feb 2020 10:34:43 +0100 Notice: La Française Rendement Global 2025 sub-fund of the La Française SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2025-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-2/ We would like to inform the shareholders of the La Française Rendement Global 2025 sub-fund that the management company has deemed it in the interest of the shareholders to extend the Fund’s marketing period by 3 months to continue taking advantage of the opportunities it presents. The Fund will thus be closed for subscription on 30 June 2020 and not 31 March 2020.

    This change will come into force on 12 February 2020.

    Other fund characteristics remain unchanged.

    We wish to underline the need and importance of reading the key information document for investors in the La Française Rendement Global 2025 Fund, which is available at www.la-francaise.com.

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    news-1871 Tue, 04 Feb 2020 11:06:30 +0100 2020: Real Estate Market outlook /en/who-we-are/news/detail/2020-real-estate-market-outlook/ 2019 was an excellent year for the real estate market thanks to lower interest rates and limited supply. 2020 should see an extension of the real estate cycle with persistently low rates, further cuts and new pockets of rent increases. In the investment market, real estate assets will continue to attract capital thanks to their resilience due to a comfortable real estate risk premium. Further yield compressions are expected in all asset classes except retail. After a fall of around 100 bps in the first nine months of 2019, prime office yields, in Europe, in 2020 are expected to decline further by at least the same amount. The alternative asset class (hotels and operated residential assets) should attract a growing number of investors as they provide diversification thanks to strong fundamentals that are uncorrelated to local economic cycles. As competition is increasing and supply is dwindling, many investors are looking abroad to increase their supply pipeline. Retail could gain new traction as the price correction movement continues.

    However, rising uncertainties and slowing economic growth in the euro zone should lead to a change in investors’ risk appetite, given the very low remuneration for risk.

    The occupier market will have to integrate the influence of social values on the spaces we use, notably the blurring lines between work and life, the development of new smart services and the need for flexibility. The office letting market, which slowed down in 2019, should land smoothly in 2020. The new year should see demand return to more conventional volumes and a real dichotomy between central and peripheral locations. Pockets of value creation persist thanks to expected rent increases in markets where supply tensions are increasing. The development of areas where the tertiary sector is part of an urban mix offers many opportunities.

    2020 will see the tightening of environmental regulatory obligations with the ongoing discussion on of the EU taxonomy and the implementation in France of the “decret tertiaire” which set-up an obligation to reduce energy consumption of tertiary building by 40% by 2030.

    Residential should offer good performances driven by the phenomenon of metropolization and the decline in the home ownership rate. The best performing assets will be those that respond to demographic changes: a more urban population with a growing number of seniors and an acceleration of the de-cohabitation phenomenon. Many initiatives should be launched to improve the solvency of households, which remain a focus of attention in most major European cities.

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    news-1868 Mon, 03 Feb 2020 15:52:55 +0100 The coronavirus and its potential impact on the economy and on markets /en/who-we-are/news/detail/the-coronavirus-and-its-potential-impact-on-the-economy-and-on-markets/ Commentary by Fabrice Jacob, CEO of JK Capital Management Limited The optimism we showed when we started the year just a few weeks ago was derailed by the new coronavirus that spread out of Wuhan since the last days of December. For having lived in the epicentre of SARS when this virus hit in 2002/2003, we remember vividly the situation on the ground, what we did with the portfolios at that time and what happened once it was all over. Unfortunately doing a parallel comparison between 2002/2003 and today would not be entirely appropriate.
     
    Starting with the virus itself, it looks like it is spreading much faster than SARS but is also far less lethal (2.2% vs 9.6% fatality rate), even though both belong to the same family of viruses. The people it has killed are almost all located in Hubei province. There has only been eight fatalities outside of Hubei, and only one outside of China. Many patients have already been cured and sent back home.
     
    Other differences are worth highlighting: Seventeen years ago Chinese people were not traveling much within China, let alone overseas. There was no social media and not much internet connectivity within the country. Information did not disseminate fast. Today it is the opposite.
     
    Seventeen years ago the Chinese government refused to face reality and tried to hide the situation as long as it could, until it could no longer. Today it wants to show the world that it is pro-active by dealing with it forcefully. One can only be impressed by the decision to lock down 56 million people, preventing virtually anyone from entering or exiting the province of Hubei, which explains why so few people have died outside of that province. Overseas it looks a bit like a competition has started between governments and corporates for who will do the most to show the world that it is taking forceful measures to bring its citizens and employees back home and prevent contamination, even if these measures could be seen as being tantamount to overkilling. And of course media love it as they bring a dose of sensationalism that can only fuel a sense of hysteria which, in turn, filters through financial markets.
     
    Unfortunately the short-term impact on the Chinese economy might be much more severe than it was in 2003, simply because the entire country is literally paralysed by the measures taken by the government at all levels. The Chinese New Year holiday was extended by ten days (so far) in 14 provinces that are responsible for 69% of China’s GDP. Similar measures that impact the supply side of the economy were never taken during SARS. 
     
    In other words GDP growth will be hit not only by a steep drop in consumption, but also by a steep drop in production, and that is new. If this extension of holiday was to be prolonged, it would be reasonable to expect a ripple effect on all countries that rely heavily on imports from China. As a result we expect the fall in GDP growth in Q1 2020 to be very significant. The February manufacturing PMI numbers will be atrocious (the January ones [50.0 for the official index, 51.1 for the Caixin index] were calculated before the lockdown). Looking at the bright side, SARS disappeared as mysteriously as it appeared after a few months. We can hope that the same will happen this time, especially given the strict lock down measures taken in Hubei province that had not been implemented in 2003. It is then our base case that activity will resume as fast as it has dropped, with the backlog of orders pushing for lots of overtime in factories.
     
    Our previous base case was that China would not stimulate its economy this year for the simple reason that it did not have any reason to as long as its growth was following a moderate declining slope. Today the situation looks quite different. Kickstart a rebound and stimulate the Chinese economy through a combination of monetary policy and personal subsidies awarded to those who are currently taking the brunt of the economic blow is a scenario that could easily gather supporters within the Standing Committee of the Politburo, even if it leads to a short-term pick up in the overall system leverage and a sudden deterioration of China’s fiscal deficit. It is certainly a scenario that we would not discount too rapidly and that would make a strong positive impact on markets. It would be all the more relevant that the global economy is in a slowdown mode and that China is facing additional headwinds from the US administration.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The information contained herein is issued by JK Capital Management Limited. To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. JK Capital Management Ltd. Is a limited company regulated by the Securities and Futures Commission of Hong Kong, with its registered office at Rm 1101 Chinachem Tower, 34-37 Connaught Road Central, Hong Kong.

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    news-1866 Thu, 30 Jan 2020 10:00:00 +0100 Cheaper than you think ? /en/who-we-are/news/detail/cheaper-than-you-think/ Many investors now view stocks as relatively expensive because the often cited price-toearnings ratio is above historical averages. But we believe that viewpoint dismisses low interest rates. World Equity Risk Premium Indicates Stocks Are Relatively Cheap

     

    Low interest rates may be very impactful to valuations. One way to factor in interest rates is to look at the return demanded by investors above the risk-free rate, also known as the risk premium. The higher the risk premium demanded by investors, the cheaper stocks are, as indicated above.

    • Global equity risk premiums are close to the highest they have been in two decades, including the Global Financial Crisis. We believe this indicates that investors are demanding to be compensated handsomely for the risk they bear.
    • In our view, there are only three ways equity risk premiums can decline to more historically typical levels: 1) higher interest rates 2) higher stock prices 3) lower projected earnings. While higher interest rates and lower projected earnings are certainly risks, the current equity risk premium may make these risks worthwhile.
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    news-1863 Mon, 27 Jan 2020 15:10:18 +0100 La Française presents its new carbon fund solution. /en/who-we-are/news/detail/la-francaise-presents-its-new-carbon-fund-solution/ Marie Lassegnore, Credit Manager/Analyst, presents our new carbon maturity fund solution. Discover through this video what the carbon budget is, how we measure the transition of companies and more specifically the nature of their carbon emissions and what our methodology of company trajectory is.

    La Française Asset Management has more than 20 years of experience in maturity funds and manages nearly €2bn in this strategy.

     

     

     

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    news-1858 Fri, 24 Jan 2020 10:04:24 +0100 Our views on the latest events surrounding the Wuhan coronavirus. /en/who-we-are/news/detail/our-views-on-the-latest-events-surrounding-the-wuhan-coronavirus/ Commentary by Fabrice Jacob, CEO of JK Capital Management Limited By now everyone has heard about this new coronavirus that originated a few weeks ago in the city of Wuhan, the capital city of Hubei in Central China (the 6th largest city of China with 11 million people including 2 million migrant workers) and that has led to the shutdown of the city’s airport, the train station, the subway network, the ferry pier and all bus stations to avoid further virus spread.

    The purpose of this communication is not to repeat what is already covered by western newspapers, but to highlight what most likely has not been disseminated out of China, which is the reaction of the private sector to this situation. We are flagging these private initiatives as they are new to us and as we believe they reflect to some extent the recent evolution of Chinese society in terms of social responsibility as the country is gradually becoming less individualistic, in our views. Specifically, the following announcements were made by various companies over the past 24 hours:

    • In response to the rise in mask prices and out-of-stock situations caused by the new coronavirus pneumonia epidemic, mainstream e-commerce platforms including Taobao [Alibaba], JD.com and Pinduoduo collectively stated that masks sold by platform merchants are not allowed to see their prices rise.
    • Eleme and Meituan, the two largest food-delivery companies have announced having taken anti-epidemic prevention measures in delivery and have suspended delivery services to some hospitals in Wuhan.
    • Taobao Ticket and Maoyan, two cinema ticketing online platforms are providing free cancellation of all movie tickets in Wuhan during the Chinese New Year holiday
    • Cainiao Logistics and Tmall Supermarket [both subsidiaries of Alibaba] will guarantee the supply of various protective supplies such as masks, disinfectant, hand sanitizer, etc. to 300 cities over the Chinese New Year holiday. Cainiao Logistics has already distributed nearly 10,000 masks, thousands of sulfur soaps and other preventive materials to staff including front-line distribution staff in Wuhan.
    • From January 22 to January 31, Amap, an Alibaba company, the Google map of China with car-hailing feature among many other valued-added services embedded, will refund all ordinary bookings and transfer bookings in Wuhan (no limit to the starting and ending points, including round-trip airport and train station) if such bookings are cancelled.
    • Meituan, Ctrip and Fliggy, three online travel platforms provide a free cancellation policy for bookings of hotels, tickets and cars in Wuhan during the Chinese New Year holiday
    • D Logistics has launched an emergency plan to ensure uninterrupted logistics services in nearly 300 cities and thousands of districts and counties during the Chinese New Year holiday, with priority given to orders designated by medical institutions.

    We also want to highlight that even though it’s still difficult to gauge the impact of the Wuhan coronavirus, the Chinese government is much more prepared to handle similar situations. They have learned from the lessons during SARS in 2002-2003 and understood the cost of staying in denial. As such, we don’t give any credit to market rumours that the Chinese government intentionally covered up the reality for the sake of saving face this time again, as it has started being suggested by certain media.
    As far as Hong Kong is concerned, two persons have been identified so far and sent to hospital. Hong Kong having been at the epicentre of the SARS outbreak of 2002/2003, local health authorities are quite likely well trained to handle the situation should it deteriorate. Other than spotting an increasing number of people wearing masks in the street, life is normal.

    Disclaimer
    This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The information contained herein is issued by JK Capital Management Limited. To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. JK Capital Management Ltd. Is a limited company regulated by the Securities and Futures Commission of Hong Kong, with its registered office at Rm 1101 Chinachem Tower, 34-37 Connaught Road Central, Hong Kong.

     

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    news-1857 Thu, 23 Jan 2020 10:39:17 +0100 Due to weak bank lending survey, ECB should keep its policy unchanged and maintain the downside risk bias. /en/who-we-are/news/detail/due-to-weak-bank-lending-survey-ecb-should-keep-its-policy-unchanged-and-maintain-the-downside-risk-bias/ On ECB strategic review, we expect to gather some more information which could be either hawkish or dovish. We expect no change in terms of ECB policy on January 23rd:

    • The latest macro-economic figures point toward stabilization and forward looking sentiment indicators have improved over the last six weeks. We expect the ECB to acknowledge this but we think they would need more evidence before describing risks as “balanced” vs “skewed to the downside” currently, especially with latest lending survey which shows softening loan demand (index is negative for the first time since 2013);
    • Inflation figures  came broadly in line with previous market expectations, meaning that nothing new is to be expected on this front;
    • Mrs. Lagarde will formally launch the ECB’s strategic review; at this stage, the scope is expected to be quite broad. We expect President Lagarde to give details on the organization of the review and to explain how external stakeholders such as academics and civil society may be involved. Please find below the potential topics that could affect financial markets:
      - The ECB’s objective is currently only related to inflation; they might signal that this objective could be reviewed;
      -  They could shift to a symmetric inflation target => dovish;
      - They could include owner occupied housing in an alternative measure of inflation => hawkish;
      - They could include climate change in their review => hawkish:
    • We expect the ECB to leave the tiering multiplier unchanged, but we do see potential increases in 2020.

    We do not expect this meeting to have a material impact on financial markets.


    Disclaimer
    This commentary is intended for professional investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1850 Tue, 21 Jan 2020 10:00:00 +0100 La Française, mandated by PFA for a French senior housing portfolio /en/who-we-are/news/detail/la-francaise-mandated-by-pfa-for-a-french-senior-housing-portfolio/ La Française is pleased to announce the signing of a mandate with PFA, a leading Danish pension fund, for the acquisition and management of a senior housing portfolio. The mandate will be launched with an initial equity investment of €100 million and have a geographic focus on France. PFA has seized the opportunity to invest in an asset class where demand currently exceeds supply; the available stock of senior housing in France is only able to accommodate a small percentage of the population aged of 75 years and older, a growing and solvent segment. PFA has found in La Française a partner of choice to deploy their senior housing real estate strategy. La Française has a  longstanding expertise in the senior housing market with already over €330M assets under management through a separately managed account and commingled fund, representing 18 senior housing facilities. 

    The properties of the senior housing portfolio will be acquired as forward purchases (VEFA) and will initially be sourced across France.

    “We are pleased to invest in a strategic asset class, that offers the advantage of residential properties with an attractive risk-return profile and a strong societal impact. We are pleased to work with such an experienced investor as La Francaise to deploy our long-term real estate approach,” says Michael Bruhn, Managing Director of PFA.

    “This partnership with a major institutional player (PFA), enables La Française to accelerate its strategic positioning in senior housing, a sector on the rise, that not only satisfies a structural societal demand, but that is also in line with the group’s sustainable investment approach,” declared Marc Bertrand, Chairman of La Française Real Estate Managers.

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    news-1848 Thu, 16 Jan 2020 15:05:21 +0100 La Française fixed maturity high yield credit fund: La Française Rendement Global 2025 surpasses US$1 Billion mark /en/who-we-are/news/detail/la-francaise-fixed-maturity-high-yield-credit-fund-la-francaise-rendement-global-2025-surpasses-us-1-billion-mark/ La Française is pleased to announce that in just over two years following its creation(1), La Française Rendement Global 2025 has reached €958 million (US$1.075 billion) in assets under management. The fixed maturity fund is a diversified global portfolio of 160 high yield debt issuers with an average rating of B+ and an average net yield2 of 3.48% (Source: La Française, as at 31/12/2019). The fund is managed by Akram GHARBI, Thibault CHRAPATY, Gabriel CRABOS and Jaafar IBARAGHEN. La Française AM currently manages close to €8 billion in credit.

    Twenty years and €2.3 bn of investment experience are wrapped into La Française Rendement Global 2025, a discretionary fixed maturity global high yield fund. The investment strategy is designed to mitigate interest rate and credit risks while still delivering a potentially attractive rate of return. In terms of credit risk, the large investment universe covers a wide spectrum of countries and issuers, including Emerging Markets. La Française has a selective approach in an environment where credit quality remains reasonable but where selection is key because of the potential rise in defaults, particularly in cyclical sectors due to the trade war and the global economic slowdown. The strategy is a combination of carry and arbitrage in the event of new market opportunities or an increased default risk on one of the issuers held within the portfolio.

    Akram Gharbi, the fund manager, maintains that investors, against the backdrop of a low interest rate environment, have little alternative but to look at more dynamic segments such as high yield. “With the exception of a rise in defaults in the US in 2015/2016 because of oil & gas turmoil, the global default rate for high yield bonds has been below 3% per year over the last 10 years (Source: Bank of America Merrill Lynch). High yield is one of the few asset classes to continue to offer an attractive relative return. The relative success of the fund, judging by net inflows, is the results of the pertinence of the investment strategy in today’s low interest rate environment.”

    La Française Rendement Global 2025 entails certain risks including the risk of capital loss, interest rate risk, default risk relating to issuers of debt securities, etc.

    1 The sub-fund (La Française Rendement Global 2025) originates from the merger absorption of the La Française Rendement Global 2025 mutual fund created on 30 August 2017, with an identical strategy and absorbed on 5 December 2018.

    2 after deduction of running and hedge fees
     

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    news-1845 Wed, 15 Jan 2020 18:26:08 +0100 2020, unlikely a repeat of 1995 /en/who-we-are/news/detail/2020-unlikely-a-repeat-of-1995/ By Jean-François Jolivalt, Multi Asset Fund Manager, La Française AM French protests and transport strikes against the government’s planned pension reforms have been ongoing for more than 40 days now, without precedent in France's recent history. It is not the first time that the country is paralyzed by a nationwide transport union blockage. Recent protests echoed the ones of late 1995, which were also spurred by proposed pension reforms. Back then, the French national statistics bureau, INSEE, estimated that the impact of social unrests was a reduction in GDP of about 0.2% for the last quarter of 1995. At the time, the Paris region was especially affected as were a number of sectors: telecom, energy, education and health. 1995 strikes resulted in lower consumer spending and production disruption.

    Today’s concerns about downside risk to the French economy are legitimate. Paris has borne the brunt of the economic slow-down with restaurants, tourism and retail stores suffering the most, especially around the critical Christmas period. Strikes are for sure weighing on consumer confidence. However, the population has adapted to the situation thanks to e-commerce, remote working, carpooling and car sharing, which are all services or alternatives that are now widely accepted and available.

    Business surveys and other advanced French economy indicators are holding up, especially when compared to other European economies. Despite the global manufacturing slowdown, French economic data does not point to any major drag on the industrial sector. Germany, however, is feeling the pain. Additionally, the latest Ernst & Young industrial barometer named France as the most attractive country in Europe.

    French Finance Minister, Bruno Le Maire, recently commented that transport strikes would have little impact on growth and employment; an analysis we share. Overall, we expect 4Q19 GDP to grow approximately +0.3%. A compromise between the French government and reformist unions was found last week. This latest development is a positive step and paves the way to an end in the strikes. However, if both parties fail to reach an agreement and protests continue, growth could remain tilted to the downside with more clouds on the horizon.

    Disclaimer
    This commentary is intended for NON-PROFESSIONAL investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-1843 Thu, 16 Jan 2020 09:17:00 +0100 The Wealth Creator /en/who-we-are/news/detail/the-wealth-creator/ Seen from the long arc of history, the rate of change has been accelerating. This holds important implications for society and investing, and it has significantly affected the United States’ economic output over the past couple of centuries.

    • Over the long term, real GDP growth per capita has been accelerating. From 1650-1800, real GDP per capita grew 0.5%. From 1800-1950 it grew 1.4% and from 1950-2019 it grew 1.9%, nearly four times more than it did during the earliest period stated.
    • The increasing speed of innovation is paramount to this growth in GDP as we have discussed in the past (see Alger whitepaper “The Enduring Force of Innovation”). This accelerating pace of innovation is present in computer chips as made famous by Moore’s law and also in wireless telecommunications, energy, information storage and artificial intelligence.
    • While global economic growth may be slower than it was a few years ago, the underlying trend built on innovation is strong and may likely point to material progress in disruptive developments over the next couple of decades, as the new technological revolution marches on (see Alger white paper “A New Era Emerges: The Age of Connected Intelligence”).

     

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    news-1842 Mon, 13 Jan 2020 15:29:10 +0100 Geopolitical uncertainties & oil prices /en/who-we-are/news/detail/geopolitical-uncertainties-oil-prices/ by Jean-François Jolivalt, Multi Asset Fund Manager, La Française Geopolitical uncertainties have come back to the table after American killing of top Iranian general Qasem Soleimani. Oil and Gold surged on the news. The price of a barrel of Brent, the benchmark for northern European oil, came close to $70, flirting with the 2019 peak (Source: Bloomberg). Gold is back to $1550 per ounce, its highest level since 2013 (Source: Bloomberg). It also translated into a typical bid for safe-haven assets such as the Yen and government bonds which all rallied the following day. 

    This latest development in US-Iran relations follows last September’s attacks on Saudi ARAMCO facilities and on other Saudi energy infrastructures attributed to Iran. Markets were spooked, expecting disruptions in oil supply from the top producing region. A few days after US strikes were announced, Iran retaliated sending rockets on an Iraqi military base. This Wednesday, US President Trump publicly downplayed the whole situation looking to de-escalate hostilities with Iran. 

    At this stage, oil market fundamentals have not changed. Excess supply, thanks to the US shale-drilling boom and weak growth in global demand, is still our base case. In other words, oil should keep flowing abundantly. This should limit price increases. In this context, these dramatic events should have no major impact on the global economy. Our baseline economic scenario for 2020 is one of a mild pick-up with a slow and steady growth, low inflationary pressures and accommodative monetary policy.  

    Having said that, recent oil market volatility is occurring against the backdrop of increasing energy prices over the past several months. The primary reasons behind this move are:
    1/ Markets are pricing out a number of tail risks, especially those related to Brexit and the US-China trade war dispute; 

     2/ Better economic data around the world suggests that a recession is no longer in the cards. Like any other risky asset, oil increased in tandem in a so-called optimism/reflation trade. 

    The way forward is however still uncertain as further tensions cannot be ruled out. Any escalation could certainly trigger a sharp increase in oil prices which would ultimately weigh on the global macro outlook. This supply-side driven price increase should decrease global capex, hit consumer demand and impact oil importers, especially EM countries with current account deficits. This scenario could bring significant deflationary pressure given reduced demand. It could lead to a strong central bank response and rates would likely continue their way down. 


    Disclaimer
    This commentary is intended for NON-PROFESSIONAL investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1840 Mon, 13 Jan 2020 12:10:29 +0100 Climate Risk And The Finanial Sector /en/who-we-are/news/detail/climate-risk-and-the-finanial-sector/ Climate risk is a key issue of concern in financial circles, and this is probably just the start; however, it is significant that two recent reports were published at around the same time by influential French organisations. While the Bank of France (BdF) bulletin for September-October was entitled "Climate change: what are the risks for the financial sector?", a Finance for Tomorrow (F4T) report ("Climate risk in finance - concepts, tools and methodologies") also came out in September, with the aim of helping the very many sector participants likely to be concerned about the management of climate risk in finance.

    And we shouldn't forget two other reports that were published this summer by the IPCC, on the link between climate change and agriculture, and on the oceans and the cryosphere, plus the various announcements and commitments made between the G7 in Biarritz and Climate Week NYC, and the Green Deal set out by the new President of the EU Commission.

    The climate risks have now been clearly identified, and there are three types: physical risk, transition risk and liability risk. The tools for analysing these risks mainly use one of two methods:

    • A tool for measuring CO2 emissions: the carbon footprint
    • Tools for assessing the risks: the green/grey components, financial impact indicators, indicators of alignment with a 2-degree scenario and risk exposure ratings

    At present, although the understanding of transition risk is improving all the time, liability risk remains a blind spot, while physical risk is rarely perceived as a potential threat.

    However, the key element in climate finance lies in the appropriation of metrics and internal analysis. It is essential that climate risk is managed as a traditional financial risk, and that companies have in-house expertise to enable them to decipher and analyse data and refine their methodologies. Governance bodies should therefore be recognising the importance of climate risk as part of traditional risk management, and reflecting it in their corporate strategies. It is no longer appropriate for this risk to be discussed or assessed by isolated experts outside the information systems of financial sector players. Climate finance must be at the heart of what we do.

    To read the Bank of France bulletin
    To read the F4T report

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    news-1835 Mon, 06 Jan 2020 10:59:24 +0100 Oid conference Report /en/who-we-are/news/detail/oid-conference-report/ How can the real estate sector adapt to a 2-degree or even a 4-degree world? The OID (Green Building Observatory) tackled this subject as part of the 11th conference of the Real Estate & Outlooks cycle, which was held at the La Française headquarters, in partnership with Plan Bâtiment Durable (a sustainable building organisation) and the Paris City Council.

    The conference was introduced by Laurent Jacquier-Laforge, Global Head of Sustainable Investing – La Française, and hosted by Gérard Degli-Esposti, Director of Real Estate SRI and Chairman of the OID.

    The talk was given during the first session by Catherine Larrère, the philosopher and emeritus professor at Paris’s Sorbonne University, who approached this complex subject from the perspective of environmental ethics, citing an extract from “The Spirit of Laws” by Montesquieu (1689-1755).

    This step back in time enables us to reframe the issue of the relationship between humanity and nature. Catherine Larrère invites us to reflect on this relationship. Today, the whole Earth system has been impacted by industrial societies because the creations of humanity outlive them (Henning Mankell). Climate change is the eventual result, not because it was what we sought, but because it was something we hadn’t thought about.

    The period in which humans have had the biggest influence on nature (the Anthropocene) will have consequences that continue beyond the extinction of humanity (such as radioactive waste, climate change, the erosion of biodiversity, etc.).

    Living differently on the earth

    Knowing what to do is not enough, we need to know how to do it, and the work of philosophers may help us in this task. For a long time, our approach has been to conquer, dominate and discipline nature through power, exploitation and destruction...but do we have to turn our backs on the past completely? How can we include nature in morality?

    Our existence is short (the time of humans, of economies and politics), while nature endures.

    An appropriate period is one that corresponds to both the lifespan of humans and of nature; and the right approach is to consider humanity as part of nature, and no longer talk about humanity AND nature.

    Talking about nature with respect is not enough because the creations of humanity interlock with nature and outlive them. The question is: what will be our legacy?

    The ethics of nature cannot be separated from the ethics of humanity. While the actions of humans have made us vulnerable to nature, we now needs to engage in a more moral relationship with nature by developing environmental ethics and ethics of care: living differently on the earth.

    This philosophical introduction was followed by a roundtable discussion with the participation of Jérôme Duvernoy, (Observatoire National sur les Effets du Réchauffement Climatique), Jérôme Gatier, (Plan Bâtiment Durable) and Stéphanie Chevallier (Nexity).

    A review of the outlook for the climate set out by Jérôme Duvernoy put the increase in temperature in France at +1.5°C since 1900, with, in 2050, 50% of urban forests at a high risk of fire and a water shortage of 3 billion m3. This was followed by the presentation of an innovative urban redevelopment project that takes account of the natural environment and the sharing of examples of good practice.

    The second section of the conference focused more on climate modelling and adaptation solutions, looking at past changes in the climate, future trends and ways to apply these to the construction of buildings going forward.

    You can find videos of the conference on the OID’s YouTube channel.

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    news-1832 Mon, 30 Dec 2019 10:30:50 +0100 The transition pathway initiative /en/who-we-are/news/detail/the-transition-pathway-initiative/ Analysing the alignment of companies with a 2-degree scenario On 26 November, the La Française Zero Carbon Club received a visit from Nadine Viel Lamare, Director of the Transition Pathway Initiative (TPI)*. This is an initiative that La Française supports and is happy to promote.

    After COP 21, institutional investors had a problem to solve: how to analyse portfolios from the perspective of keeping global warming within 2° and identify companies with practices and policies that are in line with the Paris climate accords? With no tools available to them, some of these investors decided to get together and create one, based on the following key principles:

    • To provide a free tool that can be used by all investors, including the very smallest
    • To be transparent with regard to data, methodology and results
    • To use only public data
    • To build robust sector methodologies in partnership with a prestigious academic institution: the London School of Economics (LSE)

    As a result, the Transition Pathway Initiative was launched at the start of 2017. The methodology it adopted analyses companies on two criteria:

    1. Management Quality: the quality of companies’ governance, strategy, objectives and structures, assessed using the same 19 questions for all sectors covered

    2. Carbon Performance: how companies’ carbon performance now and in the future might compare as measured against different targets: the Paris Agreement, the 2-degree scenario and the below 2-degree scenario. If a company has not published targets, then the current trend in CO2 emissions is projected into the future

    The overall carbon performance results analysed over 8 sectors and 190 companies, including the world’s largest carbon emitters, show the size of the task still to be done...just 16% of the companies analysed are in line with increases in temperature of 2° or less. This figure rises to 30% when the companies aligned with the Paris Agreement are included, which we know will lead us to something approaching a 3-degree world.

    The TPI’s aims are ambitious, as it looks to cover more sectors (air and sea transport in the coming weeks), extend the number of companies analysed to include small caps and selected non-listed companies, and lastly, assess government policies in order to incorporate an assessment of sovereign debt.

    Now that we have properly understood that our world is changing, and that global warming and its societal consequences, in terms of access to food and migration, and therefore, the political consequences, mean that we need to produce and consume differently, we must all be able to manage our reductions using criteria other than just financial ones. There is a real need for new standards that are available to everyone, so that climate and social issues can be included in economic and financial scenarios. In this respect, the TPI provides a vital, high-quality resource, which is also used by "Climate Action 100+".

    The TPI tool is available free of charge to everyone from the debutant to the professional investor, and the initiative’s website provides all the information needed to understand how to use it. Why not take a look, and search for a sector or company on the TPI website today!

    * Nadine Viel Lamare was previously Head of Responsible Investment for Swedish pension fund AP1, for around 10 years

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    news-1822 Fri, 20 Dec 2019 11:02:36 +0100 We need hope ! /en/who-we-are/news/detail/we-need-hope-1/ On 24 October, the third One Planet Summit was held at the French Ministry of the Economy and Finance (Bercy) in Paris. The theme of this year’s event, which was set up to mobilise funding for projects fighting climate change, was “blended finance”. Blended finance refers to the use of public investment in projects to attract private capital by reducing risk. "We need hope!" This was the message in the introduction given by Brune Poirson, France’s Secretary of State to the Minister for the Ecological and Inclusive Transition. Following a trend that has been taking shape in recent months, attention has shifted to the oceans, agriculture and biodiversity. We are no longer only talking about energy and the climate, since, as Jennifer Morris, President of Conservation International underlined: “the best way of reducing our carbon emissions is nature itself. It represents 30% of the solution, but only receives 2% of the investment". In the conclusion to the summit, Brune Poirson set out a very clear map for all the finance professionals and politicians present: "We need to get some nature-related projects up and running by next year".

    Meanwhile, in Chile, Ecuador and Lebanon, anger is mounting. The issue of purchasing power is also the cause of protests in Iraq, Venezuela and Spain, where demonstrators - along with the gilets jaunes in France - are calling for profound change in our societies. The ecological, financial, political and societal transition must be a fair transition that everyone can support, whatever their place in society. We mustn’t lose sight of the fact that we live on a planet where, in 2018, the 26 richest billionaires owned as much as the 4 billion poorest people*.

    However, there was some good news from the UN Climate Action Summit that took place in New York on 23 September:
    - Moscow announced it had signed a decree for Russia to ratify the Paris Climate Agreement
    - Following announcements from Austria, Chile, Italy, Japan and East Timor, 66 countries have now joined the Carbon Neutrality Coalition
    - A coalition aimed at protecting biodiversity was presented by 19 companies, including
    a number of agri-food giants
    - Amazon has undertaken to target carbon neutrality by 2040

    For its part, La Française has continued to engage with its partners over the months. Nature was also a key theme of the conference held by the OID (Green Building Observatory) at the La Française offices, which was introduced by Gérard Degli Esposti. This event featured a talk by the philosopher Catherine Larrère exploring the links between humanity and nature (a brief summary is shown on page 2 of this newsletter).

    Still on the subject of nature, the La Française online distribution platform Moniwan is responding to the concerns of some and raising the awareness of others by planting trees for each SCPI subscription. Planting trees is a good way to decarbonise, because little by little, small trees become big forests with long-term decarbonisation potential. It’s also a fantastic way to foster biodiversity and support local economies, and these are all steps in the right direction. So let’s carry on reducing our carbon footprint where we can and plant trees to offset what we can’t reduce!

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    news-1817 Thu, 19 Dec 2019 10:00:00 +0100 This May Surprise You /en/who-we-are/news/detail/this-may-surprise-you/ While negative headlines concerning impeachment in the U.S., economic growth and trade wars have dominated market news recently, the S&P 500 is currently having its second best year over the last 20 years. As investors approach the home stretch of 2019, it’s time to take stock of the year in equities. YTD Returns at the End of Each November

    • Alger foresaw potentially robust equity returns for 2019 in our Winter Capital Markets presentation. We noted that strong returns typically follow large declines in valuations and that in years following double-digit declines in price-to-earnings (P/E), the S&P 500 has historically averaged 19% returns. Indeed the S&P 500 P/E multiple had its second largest decline in three decades in 2018 when it plunged 21%.
       
    • During 2019, the market’s P/E rebounded more than 20% while next 12-month earnings expectations grew modestly. In our view, the driver behind the P/E expansion was increased
      confidence that the economy would avoid recession in the near term. The Fed moved from tight monetary policy in a difficult economic environment to a more accommodative policy that has helped boost economic metrics such as mortgage applications and industrial activity (as measured by Purchasing Managers’ Indices).
       
    • While the market’s P/E now appears elevated relative to history, we believe valuations look more reasonable with respect to low interest rates and stronger free cash flow generation as a result of the changing economy and changing business models (see Alger On the Money “Evaluating Valuations”). As a result, a strong year may not preclude future gains.
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    news-1808 Fri, 06 Dec 2019 11:27:00 +0100 La Française REPI completes sale of Thales office campus in Stuttgart-Ditzingen on behalf of Samsung SRA /en/who-we-are/news/detail/la-francaise-repi-completes-sale-of-thales-office-campus-in-stuttgart-ditzingen-on-behalf-of-samsung-sra/ After a five-year holding period, La Française Real Estate Partners International, acting on behalf of Samsung SRA, has completed the sale, via a share-deal, of the office campus situated on Thalesplatz in Stuttgart-Ditzingen, Germany to an investment vehicle managed by Antirion, an independent Italian asset management company. For Samsung SRA, this is the first sale of a German office property. The office campus, comprised of four buildings and a multi-storey car park, offers ca. 58,000 m² of lettable area and is currently let on a long-term lease to Thales Immobilien Deutschland GmbH. Thales Group is a market leader in the fields of aerospace, security and transportation.  

    The seller was advised by La Française Real Estate Partners International, the law firm Ashurst, Colliers International Deutschland GmbH and BNP Paribas Real Estate GmbH.

    Jens Goettler, Managing Director of La Francaise Real Estate Partners International - Germany said: “This was one of SRA’s first acquisitions in Germany. It was also one of the  very early transactions completed on behalf of South Korean investors in the market. Today, South Korean investors are an important and established part of the investor community and are very active in the country. The 5-year business plan has now been completed with the successful sale of the asset. The market interest in this quality property with a long lease to a strong covenant, located in a prosperous location in the Stuttgart region was strong. With Antirion, we found an investor with a long-term view and a great partner for the tenant.”
     

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    news-1803 Thu, 05 Dec 2019 10:23:53 +0100 Disruption on the Menu /en/who-we-are/news/detail/disruption-on-the-menu/ While online restaurant ordering platforms are in their nascent stage, users of the technology are steadily climbing and there is reason to believe that these platforms will continue to take share from take-out and dine-in purchases. Given the transformative nature of online food delivery, investors may want to closely watch its proliferation. Use of Online Restaurant Ordering Platforms Has Surged Over 150% in U.S.
     

     

    • Since 2017, online restaurant ordering platforms, such as Uber Eats, GrubHub and Doordash, have grown over 150% in usage in the U.S.
    • These platforms are growing because they are more convenient for customers and dramatically expand restaurant selection by offering customers broader choices. By reducing the cost of delivery operations, these platforms have expanded delivery options from just pizza or Asian restaurants to nearly every cuisine imaginable. As a result, online restaurant ordering platforms are becoming a habit for many consumers.
    • Online restaurant ordering platforms are also amassing significant amounts of data about ordering trends that they can potentially use to create virtual restaurants. These “ghost kitchens” have  no real storefronts and can be created inside empty warehouses near urban centers; they can change menus daily to adapt to customer tastes. Equipped with ripe data from the platforms’  ordering history and flexibility to constantly change menus, virtual restaurants could become  serious competitors to traditional restaurant locations.
    • It will be interesting to observe how the dynamic between traditional restaurants and online  restaurant ordering platforms plays out as both increase their business at the hands  of technology.

     

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    news-1801 Thu, 12 Dec 2019 10:30:00 +0100 La Française Sub Debt surpasses US$1 Billion in Assets under Management /en/who-we-are/news/detail/la-francaise-sub-debt-surpasses-us1-billion-in-assets-under-management/ La Française is pleased to announce that La Française Sub Debt has reached €923 million (US$1,017) in assets under management. The fund is a diversified portfolio of approximately 150 subordinated debt securities with an average rating of BB (Source: La Française, as at 30/11/2019) and is co-managed by Paul Gurzal, Head of Credit who joined La Française in 2008, and Jérémie Boudinet, Fund Manager. Overall, La Française AM manages €1,4 billion in subordinated debt instruments.

    The track record of Paul Gurzal, manager of the fund since its creation in 2008, and Jérémie Boudinet is especially notable and attracting attention among European professional investors. The fund has registered €230 million in net inflows since past January. La Française Sub Debt has a recommended investment horizon of more than 10 years and had a cumulative net performance since inception (20/10/2008) of 124% (30/11/2019), considerably outperforming the performance objective of 112%. The annualized performance of the fund over the same period was 7.54% compared to its annual objective of 7%.

    Paul Gurzal remains positive on the outlook for subordinated debt and commented, “Subordinated debt is an alternative to High Yield bonds. They enable investors to build exposure to financial and non-financial companies which in our selection process are mostly Investment Grade-rated. Subordinated bonds carry structural risks but can add a better “carry” component to fixed income portfolios, as their average yields remain largely positive.”

     

    Paul Gurzal holds a “AAA” Citywire Fund Manager Rating for his rolling risk-adjusted performance for the period running from 30/11/2016 to 30/11/2019 (Source & copyright: Citywire)

    The C-share class of the Fund had a net performance YTD as at 30/11/2019 of 13.88% and over the last ten calendar 12-month periods of: -6.45% (2018), +13.42% (2017), +5.8% (2016), -0.60% (2015), +9.11% (2014), +11.2% (2013), +35.33% (2012), -24.99% (2011), +4.89% (2010), +28.87% (2009). (Source: La Française AM) It should be noted that an investment in the Fund entails certain risks including the risk of capital loss, interest rate risk, risks arising techniques such as derivatives, etc.

     

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    news-1799 Wed, 04 Dec 2019 15:09:49 +0100 A triptych approach for reverse stress testing of complex portfolios /en/who-we-are/news/detail/a-triptych-approach-for-reverse-stress-testing-of-complex-portfolios/ Pascal Traccucci, Luc Dumontier, Guillaume Garchery and Benjamin Jacot present an extended reverse stress test (ERST) triptych approach with three variables: level of plausibility, level of loss and scenario. Any two of these variables can be derived, provided the third is given as input. A new version of the Levenberg-Marquardt optimisation algorithm is introduced to derive the ERST in certain complex cases Introduction: the case of ARP portfolios
    Academic theory has been mined to support the development of investment solutions containing an ever-increasing number of factors. Over the last decade, academics and practitioners have shown traditional asset classes offer limited diversification, especially in market downturns. In response, they have delved into modern portfolio theory (MPT) to identify the microeconomic factors that are the backbone of alternative risk premia (ARP) solutions. The ARP 1.0 approach combines 10–15 different long/short portfolios capturing standard investment styles such as value, carry, momentum, low risk and liquidity across a broad range of traditional asset classes. For further diversification, the ARP 2.0 approach combines up to 30 strategies by including investment banking-style premia likely to use instruments with quadratic profiles.
    Many risk management frameworks cannot properly account for nonlinear profiles and assess the risk of loss associated with combining an unusually high number of strategies. Specifically, historical value-at-risk is an instantaneous risk indicator and does not correspond to a clearly identified scenario; hence the need for complimentary stress tests. To build a stresstesting
    tool, the dataset must be simplified, and historical or predefined scenarios are used without quantifying their plausibility. Thus, parametric VAR imposes dependence on a model to benefit from an analysis framework in the form of a VAR and a sensitivity of this VAR to all the parameters of the model. This requires several numerical problems to be addressed, especially in case of quadratic profit and loss (P&L). This article presents an innovative approach: the extended reverse stress test (ERST), following on from the work of Breuer et al (2009) and Mouy et al (2017). This approach is able, with low technical costs,1 to deliver two of three parameters, provided the third is given as input. The three parameters are scenario, level of plausibility and level of loss (see figure 1). The result is a more meaningful risk measure and one that corresponds to a clearly identified scenario.
    In what follows, S is defined as a scenario. It is a vector with length n, which equals the number of risk factors to which the portfolio is exposed. In addition, the covariance matrix of the risk factors will be denoted by...

    1 Using an algorithm derived from the Levenberg-Marquardt one to deal with complex problems.

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    news-1797 Fri, 29 Nov 2019 12:03:47 +0100 Subordinated debt report /en/who-we-are/news/detail/subordinated-debt-report/ Geopolitical risks seem to be taking a break. Fears of a hard Brexit are receding, and the Trade War is tempered by a resumption of negotiations. In this environment, and despite the continued macroeconomic slowdown, sovereign bonds rates have appreciated. The Subordinated Debt and Investment Grade markets are currently buoyed by the expectation of the start of the CSPP (Corporate Sector Purchase Program of the ECB) in early November, and by the positive earnings season for banks confirming the well-established trend towards a reduction in non-performing loans and the refocusing of activities to optimize capital. To give some examples, Caixa Geral de Depositos completed the sale of its Spanish subsidiary to Abanca while Santander got rid of its Puerto Rican business. On a general basis, we believe the rating agencies are slightly behind in their assessment of these balance sheet improvements, particularly in Spain, Portugal and Ireland.

    In this context, AT1 CoCos have significantly outperformed other subordinated debt segments since the beginning of the year for fundamental reasons. Indeed, the banking sector is one of the few sectors that has reduced its financial leverage, even though, as it was to be expected, this reduction in the leverage imposed by regulators has not been without consequences for the profitability of the sector and equity shareholders. On top of this, AT1s benefited from less sensitivity to rate movements and a higher spread component than many other sectors.

    THIS DOCUMENT IS INTENDED FOR PROFESSIONAL INVESTORS ONLY AS DEFINED BY MIFID II. 
    It is provided solely for informational and educational purposes and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It cannot constitute investment advice or an offer, invitation or recommendation to invest in certain investments or to adopt an investment strategy. The opinions expressed by the La Française Group are based on current market conditions and are subject to change without prior notice. These opinions may differ from those of other investment professionals. Please note that the value of an investment may rise or fall and also that past performance results are no indication of future results. Published by La Française AM Finance Services, located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, nº 18673 X, subsidiary of La Française. La Française Asset Management is a management company agreed by the AMF under the number GP97076 on July 1, 1997. For more information, check the websites of the authorities: Autorité de Contrôle Prudentiel et de Résolution (ACPR) www.acpr. banque-france.fr, Autorité des Marchés Financiers (AMF) www.amf-france.org. 

     

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    news-1787 Thu, 21 Nov 2019 09:29:23 +0100 An Illuminating Innovation /en/who-we-are/news/detail/an-illuminating-innovation/ Is the U.S. seeing environmental gains from innovation today? We believe it is. Historically, electricity usage has been highly correlated with GDP growth, but this has not been true of late. Innovation has been a powerful contributor to dampening growth in electricity demand.  

    • Annual electricity consumption per capita increased steadily for many years. The three-year moving average peaked in 2007 and has since declined 5%, even though the three-year moving average of GDP per capita increased 9% over the same time frame.
    • While the U.S. consumer has more appliances and devices needing electricity than ever before, electricity use has declined. Why? One innovation stands out: LED (light-emitting diode) lighting. LEDs use a semiconductor to convert electricity into light. Unlike incandescent bulbs, which release 90% of their energy as heat, LEDs use much less energy and are thus more efficient than other lighting types.
    • LED bulbs cost less in terms of bulb life and last 25 times as long as traditional bulbs. As a result, they can reduce both energy consumption and replacement expenses. According to the U.S. Department of Energy, LED lighting may result in energy savings of 40% by 2030 based on use in residential, outdoor, commercial and industrial settings. LED bulbs also prevent more garbage from entering landfills.
    • What other innovations may benefit the environment? One candidate is electric vehicles that may serve to reduce CO2 emissions, which are currently in need of some innovative help (see Alger On the Money “Emission Mission”).
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    news-1781 Tue, 12 Nov 2019 09:00:00 +0100 Unitholder notice - La Française Sub Debt /en/who-we-are/news/detail/unitholder-notice-la-francaise-sub-debt/ Unitholders of the Fund La Française Sub Debt are hereby informed that as of 15 November 2019, the Fund's regulatory documentation will be amended. As of this date, callable and puttable rate products will be set out in the legal documentation. Callable and puttable bonds will thus be added to the list of securities with embedded derivatives in the Fund prospectus.

    Other characteristics of the mutual fund remain unchanged.

    We wish to underline the need and importance of reading the key information document for investors in the “La Française Sub Debt”, which is available at www.la-francaise.com.
     

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    news-1774 Tue, 12 Nov 2019 09:00:00 +0100 Unitholder notice - La Française Convertibles Dynamique /en/who-we-are/news/detail/unitholder-notice-la-francaise-convertibles-dynamique/ Unitholders of the Fund La Française Convertibles Dynamique are hereby informed that as of 15 November 2019, the Fund's regulatory documentation will be amended. As of this date, callable and puttable rate products will be set out in the legal documentation. Callable and puttable bonds will thus be added to the list of securities with embedded derivatives in the Fund prospectus.

    Other characteristics of the mutual fund remain unchanged.

    We wish to remind you of the need and importance of reading the key investor information document for “La Française Convertibles Dynamique”.
     

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    news-1772 Thu, 07 Nov 2019 14:38:00 +0100 Investing Wisely /en/who-we-are/news/detail/investing-wisely/ Investors consider a range of issues that may drive their performance: asset class selection, style allocation and manager and/or security selection among others. However, many investors may not realize a significant driver of their performance may be related to their own decision making about when to buy and sell, particularly in investments that may have the most upside potential.

    • The chart above shows the amount investors have underperformed equity funds over a decade because of poor timing, segmented by the volatility of the underlying funds. While investors only modestly underperformed less volatile funds, they dramatically underperformed more volatile funds. The takeaway is that when investors make buy and sell mistakes with their investments, they may suffer greater losses because of greater volatility. 
    • One reason investors may have historically underperformed the actual asset classes, funds or securities in which they invest is bad timing decisions. Investors may buy too high and sell too low, often missing out on the upside potential of their securities. 
    • Fortunately, there are methods for mitigating behavioral biases and making better decisions. 
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    news-1770 Wed, 30 Oct 2019 17:15:47 +0100 Sustainable development goals: Sustainability-driven growth /en/who-we-are/news/detail/sustainable-development-goals-sustainability-driven-growth/ The International Monetary Fund reported in october that the world economy is in a “synchronized slowdown” and downgraded its 2019 growth outlook to 3%. This is the slowest pace since the financial crisis. Growth in 2020 is projected to improve modestly to 3.4% but is expected to be “precarious”. Within this macro environment there are multiple long-term sustainable growth opportunities that are embodied in the UN Sustainable Development Goals. The asset management industry will play a key role in delivering these global goals. La Française has a long-standing commitment to sustainable investing and is strongly positioned to capture the related sustainable growth opportunities.

    • The SDGs are the globally accepted sustainability framework
    • They aim to address the world’s biggest challenges by 2030
    • The private sector has a key role to play
    • Asset managers can leverage the sustainable growth opportunities driven by the SDGs

    INTRODUCING THE SDGS AND THEIR APPLICATION TO ASSET MANAGEMENT
    A shared blueprint for peace and prosperity for people and the planet:
    The UN 2030 Agenda for Sustainable Development becomes increasingly relevant to asset managers as the industry itself embraces sustainable investing. At the heart of the 2030 Agenda are the Sustainable Development Goals (SDGs). The goals most clearly define the broader objectives of society. Their underlying ambition is to offer a shared blueprint for peace and prosperity for people and the planet. This is a blueprint for sustainable investment. Recognising this, the Principles for Responsible Investment has put the SDGs at the heart of its strategy.

    There are 17 SDGs with a total of 169 targets and 232 progress indicators across all goals. The goals – environmental, social and economic – are comprehensive in addressing the most critical global challenges: poverty, inequality, climate change, environmental degradation, prosperity, peace and justice. A core focus of the SDGs is developing nations and lower income groups. However, after assessing the individual targets of the SDGs, we believe that there are many opportunities for global businesses to address the goals through their products and services.

    The role of the private sector:
    The SDGs superseded the Millennium Development Goals in 2015 when they were adopted at a landmark United Nations summit in New York. All 193 member states ratified the SDGs at the UN General Assembly. Delivering these goals will require a huge mobilisation of capital. It is estimated that between $3.3-4.5 trillion is needed annually to achieve the goals, with a funding gap in developing countries of $2.5 trillion.(1) The private sector has a major role to play in supporting the goals. However, this should be viewed as an opportunity, rather than an obligation.

    Sustainable growth opportunities:
    The SDGs are the globally accepted sustainability framework. They also represent secular macro risks and growth opportunities that institutional investors must pay attention to. For example, the SDGs could open up $12 trillion of market opportunities by 2030 through food and agriculture, cities, energy and materials, and health and well-being alone. This could create 380 million new jobs.(2)
    Seeing the SDGs in terms of Sustainability-Driven Growth is an effective way of ensuring that asset managers align themselves with the current global sustainability agenda.

    (1) United Nations Conference on Trade and Development (2014)
    (2) Business & Sustainable Development Commission (2017)

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    news-1769 Tue, 29 Oct 2019 15:28:52 +0100 Rate cut and wait and see approach /en/who-we-are/news/detail/rate-cut-and-wait-and-see-approach/ FOMC preview
  • The market is currently pricing a very high probability (92%) of the Fed cutting rates. Historically speaking, the Fed has always delivered with such high probability and we see no reason why it would be different this time. 
  • We expect few changes regarding the wording of the accompanying statement, reaffirming they “will act as appropriate to sustain economic growth”.
  • Since the last FOMC meeting, US economic data signaled a deceleration in terms of activity with the ISM non-Manufacturing index heading lower, payroll growth slowing and disappointing retail sales.
  • On the international front however, geopolitical tensions have eased. Brexit risk has diminished and US- China trade talks have progressed. However, we think uncertainty remains too high for the Fed to acknowledge this in its statement.  
  • All in all and considering recent moves, we think US rates could be marginally lower after the FOMC meeting.
     

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    news-1765 Tue, 22 Oct 2019 18:13:27 +0200 Until the end, M. Draghi should remain dovish /en/who-we-are/news/detail/until-the-end-m-draghi-should-remain-dovish/ M. Draghi, who will attend the last Governing Council meeting of his eight-year term as ECB president on October 24, should reiterate that monetary policy alone cannot resolve everything and that since inflation is still too low, fiscal policy should play a bigger role. The risk balance should remain the same and M. Draghi will certainly communicate about downward revision risks in upcoming economic forecasts in December: indeed, according to the minutes of the latest ECB meeting we believe growth forecasts are too optimistic, especially given prolonged uncertainties like the ongoing trade war and Brexit.
    Many measures, already announced during September’s press conference, will be implemented in the coming weeks. M. Draghi will probably come back on dissensions among the ECB members, as some of them expressed publicly their skepticism about the new bond-purchase program and the inflation target and suggested to include goals other than inflation or to define a range around the ECB inflation target.
    In conclusion, we expect M. Draghi to be dovish until the end of his mandate.


    Disclaimer
    This commentary is intended for professional investors only within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1764 Thu, 24 Oct 2019 09:30:00 +0200 Can There Be Winners in a Trade War? /en/who-we-are/news/detail/can-there-be-winners-in-a-trade-war/ The U.S. and China trade war has disrupted markets this year and is causing meaningful change in global supply chains. While it is straightforward to identify countries that have gained from the conflict, singling out the companies that may thrive amid this turmoil requires deep research.

    • The U.S.-China trade war is having significant, tangible results with year-over-year (YOY) U.S. imports of Chinese goods down over 13% and U.S. exports to China down over 6% YOY. Chinese imports have been negative on a YOY basis for six straight months.
    • While imports from China have been decreasing, other countries, such as Japan, the Philippines, Korea, Taiwan and Vietnam, have all increased exports to the U.S. on a YOY basis. In fact, these five countries in aggregate have increased their exports to the U.S. more than 8% in the last 12 months.
    • American companies are already adjusting their supply chains in case the trade war becomes a long-lasting conflict. 42% have said they expect to get materials normally sourced from China from a different provider in the next year, according to a recent survey by Bain & Company, and 81% have indicated that escalating trade tensions have affected their current business operations.
    • Some people believe only those multi-nationals with flexible supply chains may have the ability to successfully mitigate the impact of increased tariffs. Identifying these companies necessitates diligent research. However, those corporations that operate in the digital sphere, such as new media, cloud computing and enterprise software businesses, may be impacted less than those that deal in physical goods, e.g., industrials and materials companies.

     

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    news-1761 Thu, 17 Oct 2019 16:04:37 +0200 SICAV de Cristal – Kristallenfondsen 2019 Awards Ceremony, Belgium Oct. 9, 2019 /en/who-we-are/news/detail/sicav-de-cristal-kristallenfondsen-2019-awards-ceremony-belgium-oct-9-2019/ Fred Alger Management Inc and Senior Portfolio Manager Amy Zhang, proud receivers of the Best Sicav Award - Small and Mid-cap category at this year’s Sicav de Cristal ceremony, organized by La Libre Belgique and De Standaard.  Accepting the award on behalf of Amy Zhang, Andrea Bertocchini, Head of Northern Europe, Benelux and Italy.

    Past awards and rankings are not indicative of future performance or awards/rankings. 

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    news-1758 Wed, 16 Oct 2019 10:39:53 +0200 Eco-Working Reinventing Workspaces /en/who-we-are/news/detail/eco-working-reinventing-workspaces/ Newtown Square, a subsidiary of La Française group, offers flexible workspaces and coworking spaces for entrepreneurs and intrapreneurs. This new activity was launched this summer and it has a different approach: eco-working. Eco-working enables anyone to bring a project to life while offloading aspects that are potentially harmful to their plans. The concept of individual ecology is only meaningful if we can consider the working environment as being ‘healthy’ for users, like in the saying “healthy body, healthy mind”. That’s where eco-working comes in.

    To make its project a success, Newtown Square has a multi-step plan to build its workspaces on solid, sustainable foundations. 

    Its first goal is an environmental commitment. Banning the use of plastic and paper in everyday life is a very ambitious challenge.  We cannot avoid packaging on a fruit salad bought at the local supermarket for lunch or on a parcel delivered to our workstation, but we can rethink many of our everyday habits. At Newtown Square, this starts first thing in the morning in the shared kitchen area. We choose a cup or mug before making a cup of eco-friendly zero-pesticide tea or coffee. We can avoid printing more than we need to by checking the printing quota assigned to each workstation each month. The plastic badges used to enter the building have been replaced by Filtdesk, a free app developed by a French start-up that users can install on their smartphone.

    The second goal covers quality of life and well-being: making the workspace pleasant, welcoming and user-friendly. This objective led the teams in charge of the project to design responsible workspaces by limiting their environmental impact. Nearly all lights use LEDs with light switches – just like at home – so users can switch lights on or off as required. This also makes individuals aware of their energy use. The office furniture is comfortable and attractive, sourced second-hand from the circular economy. All the plants at Newtown Square had a previous life in hotels, restaurants or offices. We have taken them in and look after them each day.

    A number of services are also committed to socially responsible initiatives.  For example, working with local businesses or choosing partners that have ethical commitments. Maintenance teams are all employed by our partner on permanent contracts and they only use 100% natural products.

    These projects and their different “Impacts” represent part of the journey. Newton Square and its members have undertaken to make changes to the working environment to make it healthier. Other projects are planned, the most symbolic of which is the offsetting of co-working workstations’ carbon emissions by planting trees in the Ile-de-France region. We are continuing to make progress in our journey towards the transition.

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    news-1748 Wed, 02 Oct 2019 10:54:41 +0200 Back to work with commitment /en/who-we-are/news/detail/back-to-work-with-commitment/ While we enjoyed our holidays in the sun, news on the climate was not good this summer. The IPCC, which is generally restrained in its remarks, published two alarming reports – one on the link between climate change and land use and another on the state of our oceans and glaciers. Weather conditions over the summer were clearly not normal, be it in France – where 
    87 departments have water restrictions, 41 of which at crisis levels – or around the world, with unprecedented wildfires in the Amazon and Africa and Hurricane Dorian. 

    The signatories of the COP 21 climate agreement – which in itself did not go far enough – have fulfilled few or none of their commitments and we are hearing more and more bad news. The climate is making the headlines in our daily newspapers, on the radio and on TV news. It also joined the agenda at the G7 summit in Biarritz where the world’s leaders brought attention to the Amazon wildfires and the dangers that come from destroying the Earth’s lungs, calling on President Bolsonaro to take action and offering their help.

    Climate news – bad news – has reached the French National Assembly, where Valérie Masson-Delmotte was at last able to present the IPCC’s latest special climate report dating from last October – thanks to Greta Thunberg! 

    The climate also came up at the annual conference organised by the Medef (French employers’ organisation), both intentionally (because it was part of the conference theme: “Our Future(s)”) and unintentionally (when students addressed the conference with their Manifesto for an Ecological Awakening). 

    The Statement of the Purpose of a Corporation issued by the powerful Business Roundtable in the United States, which suggests moving away from the extreme focus on shareholders, shows that bad news can also raise awareness and bring about change in society. We in France in general and at La Française in particular wholeheartedly support this change.

    It is with this in mind that we are continuing to organise our activities to make our commitment even more visible and effective, for example with the appointment of Laurent JacquierLaforge as Global Head of Sustainable Investing. Laurent will be responsible for embodying and promoting La Française group’s commitments to responsible investing in all its areas of expertise, both internally and outside the group. He will draw on Inflection Point by La Française, our group’s ESG research centre located in London. 

    The group is fully aware of the need to raise awareness, because change can only come about with widespread support. So, in early September, taking advantage of the PRI*, which La Française sponsored, we organised a roundtable on impact investing followed live and streamed online. The keynote introduction was given by Eric Salobir and the conference included a speech by Valérie Masson-Delmotte (IPCC). It covered 3 topics: The Grand Paris project – the impact of metropolises; Roadmaps for measuring the transition; Raising awareness to raise the impact. The presentations are now available on our BlueRoom.
     

     

     

     

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    news-1745 Thu, 03 Oct 2019 10:00:00 +0200 Undiscovered Gems /en/who-we-are/news/detail/undiscovered-gems/ Historically, small cap equities have attracted fewer Wall Street research analysts than large cap equities. The scarcity of small cap coverage creates opportunities for investors and portfolio managers who are committed to doing in-depth research on these companies. Smaller Companies Flying

     

    • For a number of reasons, analyst coverage of public companies has generally narrowed over the years as a result of a greater number of independent research firms covering a shrinking pool of public companies. However, this narrowing has led to increased coverage of larger cap companies at the expense of small cap companies. Specifically, in 2003 there were eight more analysts on average covering a large cap stock than a small cap stock. Today, the average large cap company is followed by 22 analysts, while the typical small cap company is followed by just 7 analysts.
    • The result of small cap companies receiving less coverage by Wall Street analysts is that portfolio managers who conduct in-depth proprietary research may have a better chance of identifying undiscovered opportunities. This may be one reason why over the 20-year period ended June 30, 2019, managers in the small cap category produced an average annualized three-year excess return that was 168 basis points greater than that of the large cap category.1
    • There does not appear to be an end to the trend of Wall Street allocating more resources to large caps compared to small caps; therefore the opportunity for small cap portfolio managers (and the underlying shareholders) appears just as bright today as it did 20 years ago.

    1 Callan, Active vs. Passive Report, Second Quarter 2019. Large cap equity style managers vs. Russell 1000 and Small cap equity style
    managers vs. Russell 2000.

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    news-1743 Tue, 01 Oct 2019 10:01:34 +0200 La Française Real Estate Partners International acquires office property(1) in Dusseldorf (Germany) /en/who-we-are/news/detail/la-francaise-real-estate-partners-international-acquires-office-property-1-in-dusseldorf-germany/ La Française Real Estate Partners International, on behalf of a La Française collective real estate investment vehicle, has acquired from a Revcap / Kriton JV an office property located at, Am Seestern 5, in an established office submarket of Dusseldorf, Germany. The building is well located and is easily accessible via public transportation. The asset was built in 2002 and underwent extensive renovations that were completed this year. The six-story building offers ca. 10,400 m2 of office space and about 270 indoor parking spaces. The office set-up is flexible, and the space is ideal for multi-tenant use. Currently, the building is fully let to two tenants: a leading global information and communications solutions provider and a manufacturer of high-grade refractories for high temperature industrial processes.

    Jens Göttler, Managing Director for Germany, La Française Real Estate Partners International, said: “We are delighted to add a quality German investment to our portfolio. With Germany’s third largest airport, Dusseldorf is easily accessible and consequently attracting a high level of foreign investment. Additionally, as Germany’s sixth ranking city for its quality of living, Dusseldorf is prospering. These are all factors that should contribute favorably to the valuation of the property and support tenant demand.”

    La Française Real Estate Partners International was advised by Norton Rose Fulbright on legal aspects and by TA Europe GmbH on technical Due Diligence.

    1This is an example of an investment held within the portfolio. It is not indicative of future investments and does not fully reflect the composition of the funds.

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    news-1734 Tue, 24 Sep 2019 15:29:58 +0200 La Française Lux-Sustainable Real Estate Securities awarded Austrian Ecolabel for Sustainable Investments, Umweltzeichen /en/who-we-are/news/detail/la-francaise-lux-sustainable-real-estate-securities-awarded-austrian-ecolabel-for-sustainable-invest/ La Française, building on multiple years of real estate investment experience, launched in 2017 an actively managed sustainable listed real estate investment strategy, La Française Lux-Sustainable Real Estate Securities. The fund managed by La Francaise Forum Securities (SG) Pte Limited, now with more than a two-year track-record, has been awarded1 by the Austrian Ministry of Sustainability and Tourism the selective Ecolabel for Sustainable Investments, Umweltzeichen.

    The Austrian Ecolabel, Umweltzeichen, was established in 1990 by the Austrian Ministry of the Environment and distinguishes non-food products with high ecological and social quality. The sustainable funds / investments category exists since 2004 and was created in response to an increasing demand from retail and institutional investors for SRI investments. Awarded funds undergo the rigorous due diligence imposed by the official auditors Sustainability Model that filters funds according to specific exclusion criteria, incompatible with the principles of sustainability, and stakeholder and product criteria.

    Jana Sehnalova, CEO of La Française Forum Securities (SG) Pte Limited - and Global Portfolio Manager of La Française Lux-Sustainable Real Estate Securities commented, “La Française Forum Securities is committed to responsible investing globally within the listed real estate sector, thus providing a solution to investors with a real desire to participate in the sustainable economy. The award of the Ecolabel is a testament to a rigorous sustainable process, focused on the combination of qualitative and quantitative analysis of ESG (environmental, social and governance) factors. We are pleased with this acknowledgement and we will continue to strive to generate performance on behalf of our investors with a positive impact on the sector and the world we live in.” 

    Through a combination of ESG (Environmental, Social and Governance) and financial analyses, La Française Lux-Sustainable Real Estate Securities, comprised of forty to sixty lines, invests primarily in global real estate companies with solid ESG characteristics and that offer long-term capital growth perspectives. The investment universe of La Française Lux-Sustainable Real Estate Securities includes some 350 global real estate companies that undergo a rigorous ESG rating process. Only the top ESG performers are retained for the “alpha pool” from which the investment manager (La Française Forum Securities SG Limited) picks stocks with above average risk adjusted return expectations.
     

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    news-1729 Wed, 18 Sep 2019 12:24:31 +0200 Notice: La Française Rendement Global 2025 sub-fund of the La Française SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-rendement-global-2025-sub-fund-of-the-la-francaise-sicav-governed-by-french-law-1/ We would like to inform the shareholders of the La Française Rendement Global 2025 sub-fund of the following changes:
  • The sub-fund will no longer have to possibility to invest in callable and puttable interest rate products; 
  •  
    These changes came into force on 19 September 2019. 
    Other fund characteristics remain unchanged.
    We wish to remind you of the need and importance of reading the key investor information document for La Française Rendement Global 2025, which is available at www.la-francaise.com.
     

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    news-1723 Wed, 18 Sep 2019 11:58:43 +0200 Notice: La Française Global Coco sub-fund of the La Française SICAV governed by French law /en/who-we-are/news/detail/notice-la-francaise-global-coco-sub-fund-of-the-la-francaise-sicav-governed-by-french-law/ We would like to inform the shareholders of the La Française Global Coco sub-fund of the following changes:
  • The net asset adjustment mechanism (swing pricing) has once again been included in the sub-fund's legal documentation. 
  • Following the change of investment vehicle on 7 December 2018, the description of the mechanism no longer appeared. However, shareholders of the La Française Global Coco fund were informed that the transfer from a joint ownership of transferable securities (mutual fund) to a company structure (SICAV) had no impact on the investment strategy. 

  • These changes came into force on 19 September 2019. 

    Other fund characteristics remain unchanged.

    We wish to remind you of the need and importance of reading the key investor information document for La Française Global Coco, which is available at www.la-francaise.com.
    The Prospectus, the Key Investor Information Document, the management regulations and the latest financial reports are available free of charge, in paper form at the registered office of the SICAV and at the German paying and information agent BNP Paribas Securities Services S.C.A. Zweigniederlassung Frankfurt am Main.
     

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    news-1721 Wed, 18 Sep 2019 10:14:26 +0200 The Opportunity in Saas /en/who-we-are/news/detail/the-opportunity-in-saas/ The software industry is in the midst of a multi-year secular shift toward software as a service (SaaS) Innovation in cloud infrastructure and networking technologies over the last 10-15 years has enabled an increasing number of new and innovative SaaS companies to come to market. In our view, this shift from on-premise license models to SaaS could last for many years to come. 

    • Spending on SaaS is expected to increase from from 20.9% of total software spend in 2017 to 28.7% in 2023. Cloud-based SaaS software is deployed over a network and paid for by customers with a recurring subscription fee. An example of SaaS is customer relationship management software that allows businesses to collect information on leads, prospects and customers on a single online platform, enabling users access anywhere and more highlytargeted client experiences.
    • The advantages of SaaS include lower initial costs, pay-as-you-go pricing, greater functionality and access to more frequent upgrades. SaaS users do not have to maintain their own infrastructure to run these applications.
    • SaaS company investors may realize increased financial visibility because revenue is comprised  of recurring subscriptions, higher renewal rates and potentially higher margins relative to  non-SaaS companies.
    • We believe investment opportunities are most apparent in SaaS companies that serve large  addressable markets, offer disruptive and differentiated technologies, and have sustainable  competitive moats and efficient go-to-market models with compelling unit economics.
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    news-1720 Mon, 16 Sep 2019 16:26:00 +0200 25bps rate cut but a dovish surprise will be hard to achieve. /en/who-we-are/news/detail/25bps-rate-cut-but-a-dovish-surprise-will-be-hard-to-achieve/ Please find below our expectations regarding the upcoming FOMC meeting on September 18th:
  • We expect the Fed to cut rates by 25bps. 
  • The decision to cut is however unlikely to be unanimous with George and Rosengren likely to dissent once again.
  • The 2019 median dot will be worth watching and it is likely to be at 1.875%, meaning no more cuts this year. 
  • Language won’t likely change significantly, with reiteration of “act as appropriate” and “mid cycle adjustment.” 
  • Economic forecast: 
    - GDP: 2019 growth will likely stay at 2.1% (carry-over effect of 1.94% growth at end of Q2);
    - Inflation: 2019 core PCE will likely stay at 1.8%. 
  • REPO: it has been one of the main topics this week; the Federal Reserve may deliver a 30bps IOER cut in order to keep the effective Fed Fund rate within the target range.
  • All in all, we see US rates and the US dollar slightly higher following the FOMC.

    Disclaimer
    This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1715 Mon, 16 Sep 2019 11:54:23 +0200 La Française acquires off-market fulfillment centre in North Rhine Westphalia on behalf of South Korean investors /en/who-we-are/news/detail/la-francaise-acquires-off-market-fulfillment-centre-in-north-rhine-westphalia-on-behalf-of-south-kor/ La Française acting on behalf of Samsung Securities and KB Securities has completed the acquisition of a c. 150,000 sqm modern and purpose-built e-commerce fulfillment centre located in Rheindahlen, Monchengladbach in the Rhine Ruhr region of Germany. The property benefits from a long term lease to Amazon and represents one of their largest and most technologically advanced fulfillment centres in Europe. The property combines robotic technology with the skills of more than 1,000 strong workforce. 
     
    Located in an economically vibrant region of Germany and at the heart of European logistics network, the property consists of logistics facilities across 3 floors, office space, training centre and canteen areas alongside a dedicated car park building of more than 1,000 spaces and 180 trailer bays. The construction was completed in July 2019. 
     
    The property was acquired in a share deal on an off-market basis from the developer, Ixocon Immobilien GmbH & Co. KG. This acquisition represents the first logistics investment concluded by La Française on behalf of South Korean investors. For Samsung Securities, this is the third collaboration with La Française following the acquisition of the Belgian headquarters of a leading renewable energy supplier in Brussels (North Light and Pole Star assets) and the recently announced €691 million acquisition of the Crystal Park office campus located in Paris. 
     
     

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    news-1712 Wed, 11 Sep 2019 12:06:37 +0200 Don’t miss one of the most entertaining events of the year : ECB meeting! /en/who-we-are/news/detail/don-t-miss-one-of-the-most-entertaining-events-of-the-year-ecb-meeting/ Widely expected a couple of weeks ago, the relaunch of QE now seems less certain. A lot of questions will have to be answered at the upcoming ECB meeting, which promises to be one of the most entertaining events of the year! Please find below what we expect:
  • Rate cut: It is a close call between a rate cut of 10bps and 20bps; we would tend to lean towards 20bps; QE: There will be a
  • QE announcement, but we might not have all the details and it might be delayed (starting December 1st for instance
    • Public debt (PSPP): Yes, we think QE will include government debt but the share of QE it represents will be smaller than in previous QE programs. They will have to raise issuer limits first to avoid technical constraints;
    • Corporate debt (CSPP):  It is perhaps the easier aspect to forecast; Yes, QE will include corporate bonds.  Different working papers from the ECB conclude that CSPP not only helped large corporates, but also eased credit conditions for SMEs via the loan channel;
    • Size: Something around 20-30bn€, with a large share or private debt. We think they will not go full size as it might put Mrs. Lagarde in a difficult situation should the economic situation worsen;
    • Open ended or not: No, but 12 months minimum.
       
  • Tiering: We think further rate cuts will be accompanied by tiering, to avoid a heavy hit to the banking sector. We could be surprised by the details;
  • Forward guidance: We expect the ECB to reinforce its forward guidance policy: 
    • They might link forward guidance to achieving their inflation target (without mentioning a level);
    • Or they can link it to the asset purchase program (as was the case with former QE programs).
       
  • Economic forecast: 
    • They could cut their Euro area GDP forecast by 10bps both in 2019 and 2020;
    • They could cut their Euro area inflation forecasts by 10bps both in 2019 and 2020.
  • Uncertainty seems high nowadays so we might witness significant volatility following the ECB meeting and consequently we have trimmed down our risk budget. But all in all, we do not think the ECB will underdeliver considering current market expectations.


    Disclaimer
    This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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    news-1707 Tue, 10 Sep 2019 12:14:11 +0200 Carbon Impact Analysis: the key to Successful Investment in the Energy Transition /en/who-we-are/news/detail/carbon-impact-analysis-the-key-successful-investment-in-the-energy-transition/ Sustainable investment keeps growing: 34% from 2016 to 2018 reaching 30 trillion dollars in assets. Impact investing grew by 79% and sustainability themed investing grew by 269% over the same period(1). La Francaise is well placed to take advantage of this growing trend thanks to the Equity and Fixed Income carbon-impact strategies. Both rely on a proprietary carbon impact methodology:

    •  Sector materiality
    • Carbon footprint
    • Operational carbon assessment
    • Carbon impact assessment of products and services
    • Forward-looking assessment with the low carbon trajectory models

    HOW ALIGN OUR PORTFOLIO WITH THE 2° C WARMING SCENARIO

    A 2° C carbon budget:
    The International Energy Agency (IEA) has estimated a global carbon budget, or cumulative carbon emissions, which can be emitted from 2014 to 2100 to keep global warming below 2° C. This carbon budget is then allocated to the sectors of the economy (agriculture, buildings, industry, transport, power and others). Each sector gets its own emissions reduction path to reach the 2° C levels based on certain technology assumptions.
    The coverage:
    La Francaise has developed its own low carbon trajectories (2° C aligned) for eight industries(2) and three more(3) will be ready by the end of the year.
    The confidence corridor:
    We analyse companies’ targets, strategy, capex, opex and other initiatives and determine a confidence corridor, which depicts our estimated companies’ emissions trajectory. This allows us to forecast the company’s performance versus the 2° C pathway. 
    Portfolio alignment:
    We then add up each holding’s performance versus the low carbon pathway for the respective sector to measure where our portfolios stand in the 2° C transition and how the portfolio managers could invest in each sector to support the low carbon economy.

    (1) The Global Sustainable Alliance
    (2) Electric Utilities, Autos, Airlines, Steel, Cement, Aluminium, Pulp & Paper and Oil & Gas.
    (3) Shipping, Railroads, Freight.

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    news-1706 Tue, 10 Sep 2019 11:55:21 +0200 Climate Change and its Effects on the bond Market /en/who-we-are/news/detail/climate-change-and-its-effects-on-the-bond-market/ Climate change is a reality that affects us all. We are both the victims and the perpetrators of this environmental phenomenon. As a committed investor with strong convictions, we seek to actively participate in the energy and ecology transition essential to the preservation of our planet as we know it. We aim to direct assets under management towards opportunities presented by this transformation, while protecting them from related risks.
  •  In 2015, the average temperature on Earth had increased by around + 1 °C from the 20th century average (1).
  • The frequency of extreme climate events has multiplied by more than 7 since 1960(2).
  • This resulted in more than 1.7 million deaths and 4.4 billion injuries from 1998-2017.
  • Over the same period, the economic impact amounted to $2,900 billion, 251% higher than in the previous 20 years(3).
  • The bond risk premium does not currently integrate climate risk. This risk is explained differently for each industry. For the oil industry, for example, “stranded assets” represent a major risk. A Carbon Tracker study that analyses the CAPEX of 72 oil exploration and production companies shows that in a world aligned with the demand for a + 1.75°C scenario, $1.6 trillion in assets(4) could be economised. This would cancel out their value in the balance sheets of the companies that hold them.

    Faced with the necessity to accelerate the financing of the transition, we have seen the green bond market emerge. This market has grown exponentially over the past four years following the adoption of the concept by industrial and financial issuers. These bonds are issued in relation with projects to invest in renewable energy, high-quality environmental real estate and the financing of “green” projects by banks. 

    However, not all industry sectors have issued bonds on this market. When an industry's main activity is structurally a high consumer of fossil fuels, access to this market is more difficult. Nevertheless, we should not exclude these sectors from the transition, as they form the cornerstone of a profound revolution in energy and the economy. They are actors in the transition and we seek to identify the companies that are investing in their transformation to finance them via the bond market. 

    This graphic illustrates the carbon emissions emitted by a company for a single production unit. As you can see, successive investments in new, cleaner technologies and production assets will help to lower their consumption and improve their energy efficiency. 

    Thanks to climatologists, we know that we have a carbon emissions budget that cannot be surpassed if we want to limit the temperature increase to 2 degrees by the end of the century. We can therefore use companies’ detailed analyses to evaluate how their strategy and their investments might impact their trajectories.


    (1) GIEC AR5 report, 2014
    (2) EM DAT database
    (3) https://www.unisdr.org/2016/iddr/IDDR2018_Economic%20Losses.pdf
    (4) Carbon tracker, “2 Degrees of Separation: Company-level transition risk”, July 2018 Update

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    news-1701 Mon, 09 Sep 2019 09:08:10 +0200 Responsible and climate strategy /en/who-we-are/news/detail/responsible-and-climate-strategy/ Find the datavision of the main figures of the La Française responsible and climate strategy.

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    news-1699 Thu, 05 Sep 2019 14:47:13 +0200 Jean-Luc Hivert, appointed Global Head of Investments of La Française AM /en/who-we-are/news/detail/jean-luc-hivert-appointed-global-head-of-investments-of-la-francaise-am/ La Française changes the organization of its fund management team and appoints Jean-Luc Hivert, currently Managing Director of La Française AM, as Global Head of Investments of La Française AM. He will thus assume the role of CIO for all the securities asset classes covered by La Française AM. With more than twenty years of experience in asset management, Jean-Luc Hivert relies on a team of approximately forty professionals organized by division.

    On equity management, following the appointment of Laurent Jacquier-Laforge as Global Head of Sustainable Investing for the La Française Group, Nina Lagron is appointed Head of Large Cap Equities.

    The other asset classes are under the responsibility of:

    • Odile Camblain le Mollé - Head of Multi Management & Private Wealth, 
    • Jérôme Fauvel - Head of Small Cap Equities,
    • Paul Gurzal - Head of Credit, 
    • Maud Minuit - Head of Fixed Income & Cross Asset, 
    • François Rimeu - Deputy Head of Cross Asset & Senior Strategist.

    Jean-Luc will also be supported in his new functions by Joel Konop, who is appointed COO (Chief Operating Officer).

    Patrick Rivière, Managing Director of La Française concludes, "Jean-Luc’s cross-asset skills coupled with his professionalism will make it possible to optimize synergies within the management team of La Française AM and to pursue the development of innovative solutions with high added value for the benefit of our customers.”

    Jean-Luc began his career in 1997 at Vega Finance and then at Cyril Finance as Convertible Bonds Manager. He joined La Française des Placements in 2001. As Co-Head of Fixed Income Management, Jean-Luc innovated and contributed to the launch of the fixed maturity fund concept, one of La Française's "key differentiation factors" to this day.

    He holds a DESS in "Finance" from the University of Paris VI (1996), a MIAGE - "Computer Methods Applied to Business Management" (1995) and a MASS in "Applied Mathematics and Social Sciences" from the University of Paris XII (1993).
     

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    news-1697 Thu, 05 Sep 2019 14:11:33 +0200 Laurent Jacquier-Laforge, appointed Global Head of Sustainable Investing of La Française Group /en/who-we-are/news/detail/laurent-jacquier-laforge-appointed-global-head-of-sustainable-investing-of-la-francaise-group/ Resolutely mobilized for the transition to a sustainable economy, La Française appoints Laurent Jacquier-Laforge as Global Head of Sustainable Investing. He will be the reference for all parties, internal group or external, and embody La Française’s commitment to sustainable investment relative to all the group’s areas of expertise. Laurent will be supported by Inflection Point by La Française, the group’s proprietary extra-financial research center, based in London. 

    Achieving the group's medium-term development objectives, depends on its ability to successfully position itself on the European market and offer sustainable investments solutions, covering all asset classes, that simultaneously generate value, meet ESG standards and have a positive impact on climate change.

    "Beyond its corporate commitments, La Française has chosen to integrate the consequences of climate, ecological and demographic risks into its investment management. To do so, we rely on our extra-financial research center, the development of impact solutions and the integration of impact measurement into our economic scenarios. Our objective is to offer investment solutions that meet the expectations of investors who are eager to participate in a more sustainable economy," explains Laurent Jacquier-Laforge.

    "Taking into account environmental and social issues is crucial. The appointment of Laurent Jacquier-Laforge and the creation of a dedicated team are further proof of our determination to become an asset manager committed to a world undergoing profound change. It is vital to promote impact management in order to converge the expectations of society in general and investors. This is our conviction and the key role we must play. " emphasizes Xavier Lépine, President of La Française Group.

    Laurent Jacquier-Laforge began his career in 1985 as Head of Equity Research at CCF and then at Svenska Handelsbanken Markets. After several experiences with investment management firms such as CDC Ixis Asset Management and Fortis Investments, Laurent was appointed Head of Equities at Scor Global Investments in 2008. He spent four years there before being appointed Head of Equities at La Banque Postale Asset Management. Laurent joined La Francaise in 2014 and was appointed CIO Global Equities of La Française AM in 2017. Since he joined La Française, Laurent has transformed the equity fund range by integrating a responsible dimension, according to a methodology developed by Inflection Point by La Française, the group's extra-financial research company. 

    Laurent Jacquier-Laforge holds a DESS-DEA degree in Economics from the University of Paris X Nanterre. Laurent is a member of the SFAF ((the French Society of Financial Analysts).

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    news-1694 Thu, 05 Sep 2019 10:00:00 +0200 La Française Real Estate Partners International acquires a mixed-use property in Bremen (Germany) /en/who-we-are/news/detail/la-francaise-real-estate-partners-international-acquires-a-mixed-use-property-in-bremen-germany/ La Française Real Estate Partners International, on behalf of a La Française collective real estate investment vehicle, has acquired a mixed-use (office and retail) property located at 65-71 Obernstraße, a prime retail location in Bremen, Germany. The modern and fully refurbished asset, Ansgari Haus, is centrally located and easily accessible by public transportation. The building was constructed in 1988 and underwent extensive refurbishment in 2014 and 2018. It has a total floor area of 5,700 sqm and is fully let to multiple tenants. Among the tenants of the five-storey property are the coworking space provider Spaces with 3,200 sqm on five floors including a roof terrace and the fashion house AppelrathCüpper, leading premium fashion retailer for women´s wear and lingerie, using 2,400 sqm of retail space spread over three floors.

    The Hamburg project development company QUEST Investment Partners was the seller of Ansgari Haus in Bremen. Confidentiality has been agreed concerning the purchase price. In July 2017, QUEST Investment Partners acquired the part of the Bremer Carrée that had been vacant for years and renamed it Ansgari Haus. With the modernisation and new letting, QUEST Investment Partners is giving the city centre of Bremen new positive impetus.

    Jens Goettler, Managing Director for Germany, La Française Real Estate Partners International, said: “Bremen is the 10th largest city in Germany and is undergoing a positive development. Its thriving harbor activity attracts companies and people from across Germany and abroad, which supports the local economy and creates demand for both office space and services. We were also convinced by the strong inner city which is visited by a substantial and growing number of tourists.” 

    The Ansgari Haus is located in one of the most frequented areas of Bremen. “The two well-known main tenants will make a significant contribution to revitalizing the city center and provide new positive impetus," said Jan Rouven Künzel, Managing Partner of QUEST Investment Partners.

    La Française Real Estate Partners International was advised by Norton Rose Fulbright on legal aspects and TA Europe on technical aspects. QUEST Investment Partners was advised by Hansa Partner Rommel & Meyer on tax aspects and by Jebens Mensching PartG mbB on legal aspects. Jones Lang LaSalle accompanied the sales process.
    About QUEST Investment Partners

    QUEST Investment Partners is a real estate project development and investment company with offices in Hamburg and Berlin. QUEST focuses on investments in commercial and residential properties with upside potential in top locations of major German cities. In retail developments the focus is on good inner-city locations in German metropolitan regions. The QUEST team has extensive experience in the development of high-quality real estate projects and continuously aims at increasing the real estate values of its shareholders and investors. QUEST’s shareholders are the managing directors Theja Geyer and Jan Rouven Künzel as well as the investment holding company of the Hamburg entrepreneur Erck Rickmers who is invested in real estate, equity investments and shipping.  
     

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    news-1692 Thu, 05 Sep 2019 10:39:00 +0200 An overlooked Asset Class? /en/who-we-are/news/detail/an-overlooked-asset-class/ Over three quarters of all U.S. equity fund assets are in large capitalization stocks with the next largest allocation being small cap stocks. With those two categories making up more than 90% of fund assets, are investors missing an opportunity? SMid cap stocks, a hybrid of small and mid cap equities, may be an overlooked part of the market capitalization spectrum, given they have historically offered what some believe to be the best of both the small and large cap worlds. SMid Capitalization Stocks have Outperformed

     

    • Over the past 20 years, U.S. SMid cap stocks have outperformed both their large and small cap counterparts. Given their smaller size (the weighted average market capitalization of the Russell 2500 is about $6 billion), some believe it is no wonder that they have been able to produce higher returns than large caps. But how have SMid caps beaten small caps?
    • One reason why SMid caps have outperformed small caps may be their capacity for further growth after surviving the perils of infancy, which may ensnare smaller companies. Additionally, SMid cap companies may be mature enough to enjoy better access to capital and often may have more seasoned management teams than small caps. At the same time, SMid caps may possess upside potential through M&A or other growth initiatives that can move the needle more easily than for large caps.
    • Another potential benefit of U.S. SMid caps has been their ability to post strong performance without undue volatility. The standard deviation of SMid caps over the past 20 years has fallen between those of small caps and large caps, allowing SMid caps to drive a better Sharpe ratio than both large and small caps.
    • As investors strive for higher returns in a low-return world, they may want to allocate more capital to SMid caps, a potential sweet spot on the market capitalization spectrum.

     

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    news-1688 Fri, 16 Aug 2019 12:07:44 +0200 Worried about a recession? /en/who-we-are/news/detail/worried-about-a-recession/ When it comes to framing risk, especially in a recessionary environment, it is important to understand U.S. history. Gauging expected earnings in a difficult economic environment is key to understanding risk in investments. Look for stocks where fundamentals may prove resilience

     

     

    • During the 12 months following the past two U.S. recessions (2001 and 2008), the aggregate of the S&P 500 Growth Index held steady while the S&P 500 Value Index companies experienced sharp EPS (earnings per share) losses.
    • Historically value stock earnings have been more impacted by economic volatility. Conversely, growth stocks have previously benefitted from steady earnings during difficult economic environments.
    • Because the earnings of growth stocks have previously proven more resilient than those of value stocks, investors should consider their Growth vs. Value weightings should they believe a U.S. recession is on the horizon. These past two recessions have shown the strength of Growth equity earnings.

     

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    news-1686 Tue, 13 Aug 2019 11:28:19 +0200 Carbon Impact analysis : The key to successful investment in the energy transition /en/who-we-are/news/detail/carbon-impact-analysis-the-key-to-successful-investment-in-the-energy-transition/ Sustainable investment keeps growing: 34% from 2016 to 2018 reaching 30 trillion dollars in assets. Impact investing grew by 79% and sustainability themed investing grew by 269% over the same period (1). La Francaise is well placed to take advantage of this growing trend thanks to the Equity and Fixed Income carbon-impact strategies. Both rely on a proprietary carbon impact methodology:

    • Sector materiality
    • Carbon footprint
    • Operational carbon assessment
    • Carbon impact assessment of products and services
    • Forward-looking assessment with the low carbon trajectory models

    How to align our portfolio with the 2° C warming scenario

    A 2° C carbon budget

    The International Energy Agency (IEA) has estimated a global carbon budget, or cumulative carbon emissions, which can be emitted from 2014 to 2100 to keep global warming below 2° C. This carbon budget is then allocated to the sectors of the economy (agriculture, buildings, industry, transport, power and others). Each sector gets its own emissions reduction path to reach the 2° C levels based on certain technology assumptions.

    The coverage

    La Francaise has developed its own low carbon trajectories (2° C aligned) for eight industries(2) and three more(3) will be ready by the end of the year.

    The confidence corridor

    We analyse companies’ targets, strategy, capex, opex and other initiatives and determine a confidence corridor, which depicts our estimated companies’ emissions trajectory. This allows us to forecast the company’s performance versus the 2° C pathway.

    Portfolio alignment

    We then add up each holding’s performance versus the low carbon pathway for the respective sectors to measure where our portfolios stand in the 2° C transition and how the portfolio managers could invest in each sector to support the low carbon economy.

    The low carbon trajectory modelling in the automotive sector

    We created low carbon trajectories for the automotive sector, which is one of the highest emitting sector through its products usage. Transport is responsible for around 30% of global GHG emissions. Our pathways are based on Tank-to-Wheel emissions. In other words, these include downstream emissions. The chart below shows the three main pathways calculated(4) for the automotive sectors. This example of Volkswagen indicates where the company stands compared with these pathways. In our opinion, the historical trend (2014-2018) has been slightly disappointing compared with some of its European peers such as Renault and PSA. However, Volkwagen’s strategy should allow them to catch up to the 2° C trajectory.

    Conclusion

    La Française is well placed to take advantage of the energy transition by offering dedicated investment products to its clients. These products are based on a proprietary carbon impact methodology that incorporates current as well as forward-looking assessments. These allow the portfolio managers to always be well positioned to support the low carbon transition through their investment decisions.

    (1) The Global Sustainable Alliance
    (2) Electric Utilities, Autos, Airlines, Steel, Cement, Aluminium, Pulp & Paper and Oil & Gas.
    (3) Shipping, Railroads, Freight.

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    news-1682 Thu, 01 Aug 2019 15:23:04 +0200 First rate cut since 2008 ; future rate cuts will depend on the trade war /en/who-we-are/news/detail/first-rate-cut-since-2008-future-rate-cuts-will-depend-on-the-trade-war/ Please find below our thinking about last FOMC:
  • The FOMC announced the first rate cut since 2008 => this quarter point decrease was widely expected.
  • They also announced the end of the balance sheet unwind, two months before the initial plan => Not 100% expected, slightly dovish
  • Mr Powell suggested this move was a small adjustment meant to help economy weather uncertainty (coming mainly from the trade war)
  • Both Rosengren and George voted against Wednesday’s decision => not expected, slightly hawkish
  • Mr Powell didn’t look comfortable when questioned about future rate path ; He said it is not “the beginning of a long series of rate cuts” but he didn’t say “it is just one”. 
  • We don’t read this FOMC as particularly hawkish as Mr Powell almost precommit to as least a second rate cut before year end. At the end, the decision will depend on the evolution of the trade war and macro-economic data, which is no news to us.


    Disclaimer
    This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1680 Wed, 31 Jul 2019 11:48:00 +0200 Streaming Changes the Game /en/who-we-are/news/detail/streaming-changes-the-game/ Streaming video products take multiple forms: short internet clips, subscription-based services, such as Netflix, traditional content providers and gaming software. Today approximately 200 streaming video services exist but the top four companies dominate the marketwith the number one provider garnering a 70% share of homes. In fact, many homeowners stream content from multiple sources.

     

    • 70% of U.S. homes have some sort of streaming subscription and 40% of homes utilize multiple streaming subscriptions. The average U.S. household has three streaming services and consumes 54 hours of content per month. Currently the top four video streaming providers are Netflix, Google, Amazon and Hulu.
    • The emergence of streaming video technologies has been disruptive to the traditional media ecosystem but incredibly positive for the consumer. Rather than being tied to a traditional television on a regular weekly schedule, streaming video platforms enable consumers to watch the content they want, when they want it, on any device. As a result many people are eliminating their cable or traditional television services.
    • The future appears bright for the leading streaming providers and their infrastructure partners (internet providers and telecom companies), which may present attractive investment opportunities.

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    news-1678 Fri, 26 Jul 2019 16:27:10 +0200 Very dovish statement with potentially a rate cut and a QE announcement in September. /en/who-we-are/news/detail/very-dovish-statement-with-potentially-a-rate-cut-and-a-qe-announcement-in-september/ The ECB meeting on July 25th was interesting. Please find below the main points:

    • No move on deposit rates, in line with our expectations. Still, slightly hawkish stance considering previous market pricing.
    • The ECB mentioned in the statement that:
      • The key ECB interest rates will remain at their present or lower. The change of the forward guidance was widely expected.
      • They changed their inflation target, talking about the symmetry in the inflation aim. Even if it may not have a significant impact over the short-term, this is an important modification, and a very accommodative one.
    • They were examining options such as a tiering mechanism and new net asset purchases. Again, this is very dovish.
    • It seems that a consensual decision might be difficult to reach in September; Mr. Draghi failed to prove that he had the full support of the Governing council. 

    The overall tone is very dovish, and more dovish than we anticipated (taking about symmetry in inflation, mentioning QE in the statement), but no precise information was given. The September meeting will be a very important one with potentially a rate cut (with a tiering mechanism) and a formal announcement of a new purchase program. 

     

    Disclaimer
    This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

     

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    news-1673 Tue, 23 Jul 2019 09:53:04 +0200 Making the link between financial and climate risks /en/who-we-are/news/detail/making-the-link-between-financial-and-climate-risks/ Climate Value at Risk and scenario analysis On 10 May in London, around 20 investors(1) from 11 countries, including La Française, that had participated in a UNEP FI pilot working group on the implementation of recommendations for climate reporting(2) shared the results of their analysis and case studies on the impact of different climate scenarios on their portfolios. The “Changing Courses” report, download here was presented and discussed at the afternoon launch event, in the presence of 300 people and after introductory speeches from the CEO of Aviva UK Life, Angela Darlington and Sarah Breeden, Executive Director at the Bank of England.

    Intended to be a tool enabling other investors to gain a better understanding of how to make the link between financial risks and the climate, it provides an overview of methodologies for analysing climate scenarios, then concentrates on the methods used by the pilot working group and tested by investors in order to assess the impact of climate change on their portfolios. It also sets out a number of case studies shared by the 20 original investors and summarises their feedback.

    For La Française, participating in this working group has enabled us to remain at the cutting edge of climate finance. As investors, we are exposed to climate risks and opportunities in our portfolios, as the companies in which we invest need to adapt during this transition period towards a low-carbon economy. And measuring the resilience of our portfolios to climate change is a key and complex challenge, based on multiple assumptions that project the impact of climate change on the various companies in a dynamic and forward-looking way. This is an exercise that has so far been too difficult and therefore somewhat out of reach, as the methodologies are in their infancy
    and need further work.

    That is why we have partnered with other major investors within the working group to share our issues and further our discussions in a structured and meaningful manner. During the test phase for the new Climate Value at Risk (CVaR) tool developed by Carbon Delta, we were able to discuss the assumptions made by Carbon Delta and, as a group, challenge them. We then used this tool to analyse some of our portfolios against various climate scenarios. Although the results still require improvement, the Climate VaR sheds new light on the risks to the climate by taking into account transition as well as physical risks, by including forward-looking elements via the patents filed by companies, and lastly, by enabling the selection – which we think is essential – of a range of climate scenarios based on projections of temperature increases of 1.5°, 2° or 3°. It is an innovative tool that will enhance our fundamental analyses, and which we plan to use in the future in managing our portfolios as one of the elements in our analysis of the resilience of companies to climate change.

    We hope that the “Changing Courses” report will bring what we have learnt to a wider audience of investors who share the same concerns and serve to increase the harmonisation of corporate climate reporting, thereby helping investors.

     

    (1) Addenda Capital, Afore Citibanamex, Aviva plc, Bentall Kennedy, CDPQ, CDL Group, City Developments Limited, Desjardins, DNB Asset Management, Investa, KLP Kapitalforvaltning, La Française Group, La Salle Investment Management, Link, M&G Prudential, Manulife Investment Management, Nordea Asset Management, Norges Bank Investment Management, Rockefeller Capital Management, Storebrand Asset Management, TD Asset Management
    (2) Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), www.fsb-tcfd.org

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    news-1672 Mon, 22 Jul 2019 17:56:28 +0200 The ECB will keep all options open, but now is the time to communicate, not act /en/who-we-are/news/detail/the-ecb-will-keep-all-options-open-but-now-is-the-time-to-communicate-not-act/ The next ECB meeting is scheduled for July 25th. Please find below what we expect:

    • We expect a change in forward guidance with policy rates “at present levels or lower” and an extension to September or December 2020, preparing the market for potential rates cut in September.
    • We expect no change in deposit rates. 
    • We expect the governing council to keep all the options open before the September meeting including:
      • Potential rate cut; 
      • Aier deposit system;
      • A new round of quantitative easing. 
    • We don’t expect mention of symmetry of the ECB’s inflation objective, but this topic could be discussed during the Q&A.

    The language should stay very accommodative, in line with recent declarations at Sintra. We do not expect notable market reaction considering current market pricing already reflecting dovish expectations

     

     

    Disclaimer
    This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997. 

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    news-1669 Thu, 18 Jul 2019 12:40:00 +0200 Gene Tech Opens Doors /en/who-we-are/news/detail/gene-tech-opens-doors/ Your genes determine more than your eye color or your physique. The propensity of you or your offspring to develop certain diseases is highly influenced by genetics. The good news is research into the genome, your complete set of genes, has started to drive huge medical breakthroughs and new drugs are regularly approved for people with rare genetic conditions. As a result investment opportunities up and down the genomic food chain are plentiful.

    • The cost of sequencing the human genome has declined considerably since 2001. According to Illumina, the premiere provider of genetic analysis technology, its goal is to reach a $100 cost sometime in the future. To date over 1.5 million genomes have been sequenced and studied.
    • Next-generation sequencing (NGS), which allows for analysis of the genome, is reducing the costs of treatment and improving the accuracy of diagnosis and the efficacy of treatment. As NGS advances, the research and development of drugs and diagnostic tools continue to accelerate.
    • Gene analysis is a priority worldwide. In the U.S. the All of Us study is geared to find genetic links to diverse diseases. Additionally, over 40 countries internationally are also analyzing the gene sequences of their citizens. These discoveries will spur even more research into diseases that can be targeted.
    • Investment opportunities exist in medical tools companies that are discovering the links between genes and medical conditions, testing companies that identify genetic abnormalities and bi