Khuram Chaudhry, Merrill Lynch’s chief European quantitative strategist reveals the firms predictions for the coming year. Elisa Trovato reports

UBS Wealth Management has embarked on a new initiative to

use an IFA distribution channel as it attempts to increase its

footprint in the UK, writes Elisa Trovato

A lack of faith has led wary German investors to switch their money away from mutual funds into less risky stategies. Yuri Bender reports

The thundering herd has charged again, less than a year after BlackRock, although this time the deal is more explicitly a domestic US private client initiative. The bull’s $1.8bn (e1.36bn) purchase of San Francisco-based First Republic Bank is based on an offer of $55 in cash and stock per First Republic share, which represents a 44 per cent premium over market valuation at the time the deal was announced.

New trends in fund and wealth management in Germany will be the focus of a forthcoming conference organised by PWM magazine and sponsored by BearingPoint, global management and technology consulting firm.

According to CEO Alain Clot, one of SGAM’s proudest achievements is its alternatives wing. He is now looking to capitalise on the inroads made by targeting institutions with a convergence between classic fund management and a boutique mentality. Yuri Bender reports

The differing interests of industry players with regard to the automation and standardisation of fund transactions has seen a general lack of activity. However, with increased volumes it now seems that the time for action is near, writes Elisa Trovato

The fund industry is growing fast. During the period from January 2005 to September 2006, international fund centres like Luxembourg and Dublin have shown a percentage increase of total net assets of 57 and 58 per cent respectively, compared to 27 per cent for Europe. Statistics show that the majority of this growth comes from net inflows. In Luxembourg, for example, 65 per cent of assets have come from cash inflow, as opposed to market appreciation. But with the consolidation at distributor level, and the growing number of funds of funds and multi-managers, assets are rising faster than accounts. As a consequence, the average transaction size is increasing and so is the risk of processing large transactions manually, observes Paul O’Neil, head of European shareholder services at State Street.

Hedge funds develop deep roots

Hedge funds are here to stay. Not only are larger numbers of institutional investors committing to this sector but hedge fund investment techniques are increasingly being adopted by traditional asset managers.

Those who are cautious about hedge funds voice concerns about risk levels, lack of transparency, low liquidity levels and high fees, but the attractions of high returns and low correlations are highly persuasive. Therefore, it is important when selecting a manager to find one who offers education about the strategies employed and explains their investment approach clearly.

For those investors who have taken the plunge, risk remains a key focus. However, rather than being a concern, they are actually employing hedge funds to mitigate the risk in their portfolio. In Mercer Consulting’s 2006 global survey on funds of hedge funds investing, investors who have made investments into hedge funds have done so to either provide: “an equal combination of portfolio risk reduction and return enhancement or primarily for risk reduction”

In addition, having sampled these strategies, 53 per cent of respondents expected to increase their allocations over the next two years, with the median hedge fund allocation expected to increase from 5 per cent to 7.8 per cent over the same period. Thus what should we understand before considering an allocation?

Fund platforms within the mutual fund market are all the rage in the UK as they offer the opportunity for having investments available in the same place. However, the concept has now evolved into that of a ‘tax-wrap’, as Elisa Trovato reports

With an increased appetite for risk, equity was the favoured asset class by private banks in 2006 in spite of the market correction in May. For the coming year, Maxime Jouret of BNP Paribas’ Retail Platform believes that private banking clients will look to cross-asset products in their quest for outperformance

UK equities have been supported by merger and acquisition activity, which shows no sign of letting up. Bidders are encouraged by the attractive gap between the cost of borrowing and the earnings yield of the market, and there has been a noticeable increase in appetite for 'real' assets, writes Frances Hudson

Commentators may have an eye on a large cap resurgence, but small and mid cap stocks still lead the way when it comes to big returns, and many believe there is more gas in the tank, says Simon Hildrey

“Over the last month, our balanced portfolio has benefited from several bets such as European equities and corporate/emerging high yield. We have further noticed a strong momentum of the total return strategy managed by Crédit Agricole, CAAM Dynarbitrage VaR 20, which benefits from good shape of the US dollar versus the Canadian one.

We maintain our under-sensitive strategy on governmental fixed income, which has protected the fund from a strong correction on bonds since the beginning of December.

This bet has been recently confirmed by the last US growth figures for the fourth quarter and the FOMC Rate decision to keep them unchanged.”

“We have ended our equity overweight across all regions and sectors due to the deteriorating technical situation that has become visible in most major markets. In reaction to this we focus more on absolute return strategies in our fund selection strategy, both on the equity as well as on the fixed income side. The increase of our alternative investment holdings is fully in line with our overall strategy. We have therefore added a new multi-asset fund.”

“Risk continued to be rewarded in January with higher beta markets in Asia and sectors like technology running strongly which suited out geographic bias. Similarly, equities made money while bonds fared less well, suiting our split of allocations, further aided by a strong performance within bonds from Credit Suisse Target Return. After a another strong month, we have chosen to return our equity bond split to neutral 50:50, trimming the Blackrock MLIF US Flexible fund and adding to the aforementioned Credit Suisse Target Return on account of its total return objective.”

“In January we did not change our portfolio, it remained overweight in equities relative to bonds taking advantage of the rally in the global equity market. We continue to believe that equity valuations are appropriate even if there are some concerns about a potential slowdown in the global market.

Currently we are monitoring other equity funds in the European area to diversify our exposure with some bets on specific countries.”

“We made a number of strategic changes to the portfolio this month. We did not make any changes in the allocation to equities, fixed income or alternatives, which remain broadly the same.

We sold our holding in the Thames River Global Bond fund, increased our allocation to convertibles which now make up 27 per cent of our fixed income exposure and also increased the allocation to ABN Amro and PIMCO fixed income funds.

We also made a number of changes in our equity holdings. We sold our position in the Odey Pan European fund to consolidate our European holdings and to increase our allocation to the US. The US now represents 20 per cent of the equity exposure.”

“Our balanced portfolio remained broadly unchanged last month. Indeed, the trends in place on major markets remain broadly intact. Investors keep scratching their heads in search of reasons to worry. Where the consensus was expecting some kind of landing (hopefully of the soft kind), what we get are sound figures so far, generally stronger than previously expected. Thus, in this context, our portfolio remains mainly invested on one of the cheapest areas around: Europe. One fifth of the equity portfolio is on US markets. The fixed income portfolio has managed to produce positive returns in January, while interest rates were trending up.”

“No significant changes since our last comments. Our current portfolio positioning is based on a global expansion scenario with only a modest slowdown in a context of low inflation. Asset prices should continue to be supported by the favourable liquidity environment. Equity valuations are reasonable in most markets. From a strategic point of view, we believe equities should continue to be the main beneficiary with most other asset classes offering less potential for capital gains. From a tactical point of view, the probability of a correction increases, as no significant drawdown has been seen on the developed equity indices since August.”

“Our portfolio is fairly balanced between bond and equity. The disappointing returns of the euro government bonds drove us to a wider diversification within the bond portfolio. For this reason on one side we invested in bond funds with a total return approach, and on the other side we invested in bond markets outside the euro area, such as as the Sterling area or the ABS market. The equity component of the portfolio is invested in a wide range of themes and fund styles, from property in Asia to renewable energy. Our preferences go towards global themes with a moderate overweight on Europe.”

“Since November, expectations for economic growth have stabilised, as the damage from the housing fallout in the US has so far been contained. Fears of growth sliding away have abated, deferring hopes of rate cuts. Further falls in oil prices late last year will lead to lower inflation rates, while cheaper fuel will also boost consumer incomes and give relief on corporate margins. So, the growth-inflation mix prospectively looks better than a few months ago, an environment more favourable for equities than bonds. However, equities have already rallied and could be vulnerable to profit-taking in the short term.”

Each month in PWM, nine top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

According to Tom Isaac of Citigroup, much of the budget and human resources within private banks are taken up by MiFID preparations, when they are needed for a core competency rethink. Alison Ebbage reports