Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Quantitative Analysis

<ul>
<li>Spain Financials ownership has surged from under 25% of global active funds a year ago to 32% today, leapfrogging Italy, Canada and the Netherlands to rank 8th globally.</li>
<li>The rotation is heavily one-sided: 47 funds entered the sector over 12 months, outpacing closures four-to-one, with BBVA and Santander absorbing the bulk of new buying.</li>
<li>Spain Financials sits in the top-right quadrant of the Ownership Cycle grid, signalling both elevated long-term positioning and strong short-term momentum — underweights remain a growing active risk.</li>
</ul>


Spain Financials ownership has surged from under 25% of global active funds a year ago to 32% today, leapfrogging Italy, Canada and the Netherlands to rank 8th globally.
The rotation is heavily one-sided: 47 funds entered the sector over 12 months, outpacing closures four-to-one, with BBVA and Santander absorbing the bulk of new buying.
Spain Financials sits in the top-right quadrant of the Ownership Cycle grid, signalling both elevated long-term positioning and strong short-term momentum — underweights remain a growing active risk.


Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul class="">
<li>We take a contrarian bullish view on microfinance bank <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> , despite the AMLO headwinds, and a cautious stance on <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a>
</li>
<li>AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues</li>
<li>Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a>; we believe, on a medium-term view, these concerns may be overdone</li>
<li>We would be cautious on the Mexican big cap banks, and especially <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term</li>
<li>We are neutral on <a href="https://www.smartkarma.com/entities/24776" target="_blank" data-smartkarma-citation="entities:24776:1">Grupo Financiero Inbursa-O (GFINBURO MM)</a>  and <a href="https://www.smartkarma.com/entities/27672" target="_blank" data-smartkarma-citation="entities:27672:1">Banco Santander Mexico-B (BSMXB MM)</a> , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure</li>
</ul>


We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance on Grupo Financiero Banorte-O (GFNORTEO MM)

AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues
Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially Gentera SAB De CV (GENTERA* MM EQUITY); we believe, on a medium-term view, these concerns may be overdone
We would be cautious on the Mexican big cap banks, and especially Grupo Financiero Banorte-O (GFNORTEO MM) ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term
We are neutral on Grupo Financiero Inbursa-O (GFINBURO MM)  and Banco Santander Mexico-B (BSMXB MM) , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure


Mexican Banks AMLO Effect; Less Bad than Feared?

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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<div class="content-highlight">Turkish exposures are manageable, but pressure on profits is likely.</div><hr>Turkey's rapid economic growth was fuelled by a surge in credit, with Turkish banks increasing their lending books by 22% per year over the past eight years. Foreign-currency loans make up 36% of the lending book of Turkish banks, while Turkish banks rely on foreign exchange borrowings and deposits for nearly half of their funding. The recent collapse in the value of the Turkish lira threatens to topple this house of cards.Our base-case scenario is that the Turkish economy goes through a phase of painful rebalancing during which it weans itself off its reliance on foreign funding. The profitability of Turkish banks will be under substantial pressure over the medium term, and they might require capital and funding support. <a href="https://www.smartkarma.com/entities/21251" target="_blank" data-smartkarma-citation="entities:21251:1">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> and <a href="https://www.smartkarma.com/entities/21234" target="_blank" data-smartkarma-citation="entities:21234:1">UniCredit SpA (UCG IM)</a> count on Turkey for 14% and 10% of earnings, respectively, and have the most to lose under this scenario. We recently cut our fair value estimates for BBVA and UniCredit by 20% and 18%, respectively, partially due to the lower contribution we anticipate from Turkey over the medium term.We believe it is extremely unlikely that a Turkish affiliate of a European bank will fail (which would require the parent to write off its exposure), as the Turkish affiliate banks can count on liquidity and capital support from their European parents. However, it is exactly this implicit support that drives our downside scenario. We are concerned that the European banks will support discounted capital calls to keep their Turkish affiliates afloat and safeguard their full Turkish exposure. European banks that provide significant liquidity and funding support to their Turkish affiliates will have even less of an option to walk away from their investments, given the magnitude of their exposure. UniCredit especially stands out in this regard: While its equity participation in <a href="https://www.smartkarma.com/entities/25062" target="_blank" data-smartkarma-citation="entities:25062:1">Yapi Ve Kredi Bankasi As (YKBNK TI)</a> is equal to 5% of its consolidated equity, we estimate that funding and liquidity support increases its full Turkish exposure to as much as 20% of its equity.Analyst: Johann Scholtz, CFA

Turkish exposures are manageable, but pressure on profits is likely.Turkey's rapid economic growth was fuelled by a surge in credit, with Turkish banks increasing their lending books by 22% per year over the past eight years. Foreign-currency loans make up 36% of the lending book of Turkish banks, while Turkish banks rely on foreign exchange borrowings and deposits for nearly half of their funding. The recent collapse in the value of the Turkish lira threatens to topple this house of cards.Our base-case scenario is that the Turkish economy goes through a phase of painful rebalancing during which it weans itself off its reliance on foreign funding. The profitability of Turkish banks will be under substantial pressure over the medium term, and they might require capital and funding support. Banco Bilbao Vizcaya Argentari (BBVA SM) and UniCredit SpA (UCG IM) count on Turkey for 14% and 10% of earnings, respectively, and have the most to lose under this scenario. We recently cut our fair value estimates for BBVA and UniCredit by 20% and 18%, respectively, partially due to the lower contribution we anticipate from Turkey over the medium term.We believe it is extremely unlikely that a Turkish affiliate of a European bank will fail (which would require the parent to write off its exposure), as the Turkish affiliate banks can count on liquidity and capital support from their European parents. However, it is exactly this implicit support that drives our downside scenario. We are concerned that the European banks will support discounted capital calls to keep their Turkish affiliates afloat and safeguard their full Turkish exposure. European banks that provide significant liquidity and funding support to their Turkish affiliates will have even less of an option to walk away from their investments, given the magnitude of their exposure. UniCredit especially stands out in this regard: While its equity participation in Yapi Ve Kredi Bankasi As (YKBNK TI) is equal to 5% of its consolidated equity, we estimate that funding and liquidity support increases its full Turkish exposure to as much as 20% of its equity.Analyst: Johann Scholtz, CFA

European Banks: Little Delight From Turkey

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Macroeconomics

<div class="content-remarks">
<blockquote>‘Despite the local market looking historically cheap after collapsing 60% in USD terms since the coup attempt, Turkey remains a key external funding crisis tail risk next year. The TRY is still in freefall and with just $35bn in FX reserves, the central bank has limited firepower to intervene although it will raise rates further.’</blockquote>
Weekly Insight - December 5th, 2016
<blockquote>‘As covered in recent months, EM FX had become a momentum led carry trade…Turkey’s overall stock of private sector debt has jumped from 33% of GDP in 2007 to 70%, while it saw the biggest rise in its financial sector debt/GDP ratio of 39 countries tracked by the IIF last year. The banking system’s loan-to-deposit ratio has risen to a record high of 120% as the sector has gone on an offshore borrowing spree to grow its domestic loan book. Total FX-denominated debt for Turkey hit almost 70% of GDP last year, far ahead of Argentina…the country has a persistent structural imbalance between domestic savings and investment and needs to attract foreign capital flows equivalent to 20-25% of its GDP every year, in order to cover both its large current account deficit and the rollover of existing debt. It seems the only way of achieving this as global liquidity tightens is for Turkish assets to become cheap enough to become competitive given the political risks – we’re probably not there yet.’ </blockquote>
Weekly Insight - May 17th, 2018
</div>


‘Despite the local market looking historically cheap after collapsing 60% in USD terms since the coup attempt, Turkey remains a key external funding crisis tail risk next year. The TRY is still in freefall and with just $35bn in FX reserves, the central bank has limited firepower to intervene although it will raise rates further.’
Weekly Insight - December 5th, 2016
‘As covered in recent months, EM FX had become a momentum led carry trade…Turkey’s overall stock of private sector debt has jumped from 33% of GDP in 2007 to 70%, while it saw the biggest rise in its financial sector debt/GDP ratio of 39 countries tracked by the IIF last year. The banking system’s loan-to-deposit ratio has risen to a record high of 120% as the sector has gone on an offshore borrowing spree to grow its domestic loan book. Total FX-denominated debt for Turkey hit almost 70% of GDP last year, far ahead of Argentina…the country has a persistent structural imbalance between domestic savings and investment and needs to attract foreign capital flows equivalent to 20-25% of its GDP every year, in order to cover both its large current account deficit and the rollover of existing debt. It seems the only way of achieving this as global liquidity tightens is for Turkish assets to become cheap enough to become competitive given the political risks – we’re probably not there yet.’ 
Weekly Insight - May 17th, 2018


Turkey Crisis Reflects Dollar Liquidity Peak...

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* Following up on his sweeping cabinet changes on Tuesday, July 10, 2018, President Erdogan has also accelerated his push to engineer a full blown economic and banking crisis; *  Banks are highly likely to be under pressure to relax lending controls with the threat of banking sector zombification now on the visible horizon;  and  * With Turkish contagion risks flashing red, the current lunacy in Turkey is likely to further reduce emerging market appetite.<h2>Investment Summary </h2>President Erdogan has…

* Following up on his sweeping cabinet changes on Tuesday, July 10, 2018, President Erdogan has also accelerated his push to engineer a full blown economic and banking crisis; *  Banks are highly likely to be under pressure to relax lending controls with the threat of banking sector zombification now on the visible horizon;  and  * With Turkish contagion risks flashing red, the current lunacy in Turkey is likely to further reduce emerging market appetite.Investment Summary President Erdogan has…

Spain

Banco Bilbao Vizcaya Argentaria, S.A. attracts deposits and offers retail, wholesale, and investment banking services.  The Bank offers consumer and mortgage loans, private banking, asset management, insurance, mutual funds, and securities brokerage services.  It operates in Europe, Latin America, United States, China and Turkey.

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Banco Bilbao Vizcaya Argentari (BBVA SM)

Spain Financials: Surging Higher

Spain Financials are the fastest-rising country/sector exposure in the global active universe, with ownership surging to 32% of funds and both...

Steven Holden

Mexican Banks AMLO Effect; Less Bad than Feared?

We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance...

Boost Research

European Banks: Little Delight From Turkey

Turkish exposures are manageable, but pressure on profits is likely.Turkey's rapid economic growth was fuelled by a surge in credit, with Turkish...

Morningstar, Inc.

Turkey Crisis Reflects Dollar Liquidity Peak...

‘Despite the local market looking historically cheap after collapsing 60% in USD terms since the coup attempt, Turkey remains a key external...

Sean Maher

Turkey - Legging Down

* Following up on his sweeping cabinet changes on Tuesday, July 10, 2018, President Erdogan has also accelerated his push to engineer a full blown...

Thomas J. Monaco

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