BNP Paribas Asset Management

Understanding the factors that support or weaken a pension fund’s funding ratio is important since it forms the basis of crucial policy decisions including the allocation to risk sources in the investment portfolio. In part 1, we argued that funding ratio risk was an important metric and could produce valuable insights. In part 2, we argue that a more detailed grasp of the sources of economic risk could help the portfolio manager adjust the allocation as and when required.

Understanding the factors that support or weaken a pension fund’s funding ratio is important since it forms the basis of crucial policy decisions including the allocation to risk sources in the investment portfolio. In part 1, we argue that funding ratio risk is an important metric and can produce valuable insights. In part 2, we will argue that a more detailed grasp of the sources of economic risk can help the portfolio manager adjust the allocation as and when required.

Studies and analysis of samples taken in the core of polar ice layers show that over the last 800,000 years the level of concentration of atmospheric CO2 has ranged between highs (of about 300 parts per million (ppm)) and lows (of about 170 ppm)! The highs of 300 ppm were reached on several occasions – 130,000 thousand years ago, 240,000 years ago and 330,000 years ago.

In her recent speeches at the City Club of Cleveland, Ohio (on 10 July 2015) and at the semiannual testimony before the US Congress (on 15 July 2015), Federal Reserve (Fed) Chair Janet Yellen reiterated that a rate increase—“lift-off” in market parlance — is likely this year, while also stressing yet again that this decision will be data-dependent. According to Yellen, the labour market, one of the two focal points of Fed policy, remains weak as high levels of part-time work and low labour force participation rates persist.

Normalising monetary policy – it’s been a long time coming…

In this post we provide background information on the policy choice facing the Federal Reserve with regard to an increase in official interest rates and the current outlook.

This week’s chart of the week comes from the 85th annual report of the Bank for International Settlements (BIS), an institution which acts as a central bank for the central banks.

One-third of the food the world produces is wasted. In Europe, 50% of the food produced goes uneaten. Each year, the 27 European Union member states generate over 89 million tonnes of food waste – that’s 179 kilos per person. According to the EU, by 2020 this figure will have risen by 40% to 126 million tonnes. Worldwide, the figures are alarming too. One-third of the world’s food is lost or wasted at a cost of some USD 1 trillion.

As much as our investment strategy group would like to stop talking about the situation in Greece, it still garners some of our attention. Alexis Tsipras seems to be taking Oscar Wilde to heart, wanting us to continue talking about him and Greece when in fact it should have little to do with our thoughts on investment positioning. Much like a car accident in the other lane on the highway, we cannot seem to look away. Even though we know we should keep our eyes on our side of the road and focus on our driving, we cannot help but look at the wreck.

In the first half of 2015, investors faced a favourable environment, with crude oil prices far below the USD 110 a barrel level to many of us had become accustomed, a euro/US dollar exchange rate of USD 1.05 to USD 1.15 and – last but certainly not least – the announcement in January by the ECB of a full-blown programme of asset purchases (‘quantitative easing’). Reflecting the significance of this macroeconomic news (and the long-awaited signs of an economic recovery), valuations in many asset markets rose to historic highs – if they didn’t exceed them!

The idea that outperformance comes more easily to a fund manager managing portfolios with a larger Active Share is in fact the result of small-capitalisation biases. When such biases are excluded, Active Share has no predictive value for a manager’s performance. The size of a portfolio’s Active Share depends heavily on the composition and structure of the fund’s benchmark and a persistently large Active Share may reflect a strong bias to small-cap stocks or an excessive number of non-benchmark assets in a portfolio. We believe Active Share tells investors nothing about the systematic and unsystematic exposures in a portfolio. It should therefore be used in conjunction with other indicators.