BNP Paribas Asset Management

‘Smart beta’ sounds like an oxymoron. How smart can it be to continue using the same strategy in such fickle markets? A portfolio manager calling on all his skills (‘alpha’) in analysing market environments (the source of ‘beta’) should be able to outperform an unchanged algorithm, right?

The fifth plenum of the 18th Communist Party Congress concluded on 29 October 2015. One headline outcome was the abolition of the one-child policy, a major step towards better-balanced demographics. However, for us, the most significant announcement was the annual GDP growth rate target of at least 6.53% in the next five years to meet the government’s goal of establishing a “moderately prosperous society”.

In our view, diversified multi-factor approaches exposed to value, low risk, momentum and quality premiums with a strong focus on risk management offer better value for the management fees an investor pays than off-the-shelf smart beta indices.

In the five years from FY 2010 (the financial year ending in March 2010) to FY 2014, foreign portfolio investors (FPIs) purchased close to USD 90 billion in Indian equities, providing steady support to the market. Over the same period, domestic investors were net sellers of an estimated USD 7.4 billion in Indian equities (according to CSLA, September 2015), taking equities as a proportion of total Indian household assets down from 4% to only 2.2%.

Following the disappointing report on US non farm payrolls on 2 October, financial markets came in off the ledge in the first full week of October. Global equities, commodities and emerging market currencies posted their strongest week in several years.

How can we reduce the carbon footprint of portfolios? Over the last year, this issue has been gaining momentum in the international financial community, particularly through initiatives such as the Montréal Carbon Pledge, which BNP Paribas Investment Partners signed in May 2015.

On 29 September the Reserve Bank of India (RBI) cut its key policy repo rate by 50bp to 6.75%. While the rate cut was expected, its size – 50bp rather than the usual, more pedestrian 25bp – is surprising. In our view, the RBI took advantage of the favourable inflation outlook to ‘front-load’ a rate cut and help accelerate the Indian economic recovery in a context of slowing global growth.

Social investment is about investing in companies that have a positive social impact on people. It’s about socially-minded businesses that seek to strengthen people’s skills and capacities so as to help them participate fully in their working and social lives. The main areas they are involved in include education, services for dependent people, training, job-search assistance and rehabilitation.

The meeting on 16-17 September 2015 of the Fed’s monetary policy committee, the FOMC, had been awaited anxiously by markets. Ever since early 2014 the Fed has flagged the possibility of a rate hike by mid-2015, which would be the first hike in nine years and would come after almost seven years of zero official interest rates.

During August investors dusted off their research reports about China as well as text books on how a large economy makes the tough transition from investment/export-led to service/domestic demand-led growth. It would appear that Chinese authorities intend to move away from a managed currency peg to a more ‘market-based’ exchange rate, in line with the IMF’s guidance on SDR (special drawing rights) basket eligibility.