Financial Times Europe - 19.10.2019 - 20.10.2019

19 October/20 October 2019 ★ FT Weekend 15

MARKETS & INVESTING

B I L LY N AU M A N— NEW YORK

Teekay Shuttle Tankers’ attempt to
float a green bond has partially run
aground with investors balking at
the notion that a company specialising
in oil tankers can qualify for
eco-friendly financing.

The Bermuda-headquartered company,
which owns one of the world’s largest
fleet of ships that transport oil from
offshore drilling sites, issued its green
bondthis month.
It was seeking between $150m and
$200m to finance the construction of
four new fuel-efficient tankers but fell
short, raising just $125m.
The cool reception comes despite the
fact that the bond qualifies for a tax
incentive from the Norwegian govern-
ment. The bond was brought to market
by Danske Bank, Nordea, SEB and DNB
Markets and pays a igher coupon thanh
the market average for high-yield debt.
Teekay’s struggle to raise capital is a
rarity in the green bond market, which
has been especially hot this year. Global
issuance has been on arecord-setting
pace nd many of the securities cominga
to market have been oversubscribed by

investors. The fundraising shortfall was

largely attributable to investors being

“skittish” over the notion that Teekay

could be considered green, said Maria

Christina Dikeos, head of global loans

contributions at Refinitiv. “Looking at

this, [investors] were like ‘hold on, we

are actually funding tankers which will

fundamentally enable a company to

transport fossil fuels’,” she said.

Teekay’s sale highlights an ongoing

struggle to define terms in the world of

sustainable finance. The London Stock

Exchange announcedlast week hat itt

was tightening its standards on green

bonds and the EU is working to publish

anofficial taxonomy o helpt efined

different types of sustainable assets but

there is currently no et of rules.s

“Because there is no industry stand-

ard, anyone can issue a bond and call it

green or sustainable,” said Ray Dhirani,

head of corporate stewardship, finance

and extractives atWorld Wildlife Fund.

In the case of Teekay, the bond was

rated as “light green” by Cicero, a sus-

tainability analytics company.

To qualify for the green bond label,“

the assets financed by the green ondsb

must show significant impact,” said

Nina Ahlstrand, head ofsustainable

finance at DNB Markets. “What quali-

fies as green is not necessarily, nor

should it be, binary.”

Many investors want reen financingg

to beavailable ut their reluctance isb

rootedin the non-green nature of

Teekay’s business, arguedJames Rich of

Aegon Asset Management. “Just

because you’re shipping more effi-

ciently does not change the fact you’re

selling a product that’s contributing to

global greenhouse gas emissions.”

Commodities

Oil tanker group’s green bond triggers

scepticism and fundraising shortfall

C O L BY S M I T H— NEW YORK

Strategists say the recent steepening of

the US yield curve might be shortlived,

warning that it could invert again if the

Federal Reserve fails to deliver enough

interest rate cuts to soothe investors

and stave off a slowdown.

Investors worry about an inversion of

the yield curve — in which shorter term

rates are higher than longer term ones —

because of its power as an economic

indicator. The curve has inverted before

every recession of the last half century.

Fears of a downturn eased this month

after a widely watched portion of the

yield curved turned positive following

months of inversion.

Thursday’s yield on the three-month

Treasury bill was 8 basis points lower

than that for the benchmark 10-year

bond — after being as much as 51bp

higher.

The two-year Treasury yield was 16bp

lower than that on the 10-year after

inverting earlier.

Investors grew more optimistic as the

US and China reached a tentative trade

truce and Brexit negotiators moved

closer to striking a deal with their EU

counterparts over Britain’s relationship

with Europe.

The Fed’s announcement last week

that it wouldbuy $60bn of Treasury

bills er month to help ease cash short-p

ages in the overnight lending markets

also helped pull short-term yields lower,

analysts said.

But Scott Mather, a managing director

at Pimco, said the forces that drove

longer dated yields above those on the

short end of the curve — the “mini-deal”

with China, as he described it, and the

Brexit eadlines — could reverse andh

the bond market could revert to where it

was a few months ago.

Kathy Jones, chief fixed income strat-

egist at Charles Schwab, said much

hinged on theFed. “The signal from the

inverted yield curve was that Fed policy

was too tight,” she said.

She warned that the yield curve could

re-invert if the Fed failed to deliver on

the interest rate cut widely expected at

the end of the month. Traders were cur-

rently pricing in an 82 per cent probabil-

ity the Fed will trim its benchmark pol-

icy rate another quarter-pointthen — its

third cut this year — with at least one

more cut expected in 2020.

Splits have deepened since the sum-

mer between Fed officials over the

future path of monetary policy, with

Esther George, Kansas City Fed

president, and Boston’s Eric Rosengren

pushing back on the need for cuts in the

face of fresh US economic data that does

not scream, “oh, we need a big rate cut”,

said Ms Jones.

Given this rift and the Fed’s past reluc-

tance to ease aggressively, Matthew

Hornbach, the global head of interest

rate strategy at Morgan Stanley, said the

recent steepening of the yield curve

should be viewed with “caution”, as the

Fed was unlikely to provide enough

accommodation to appease investors.

“If the market is pricing in two more

25bp cuts over the next year, the Fed

needs to deliver more than that,” he

said. “Nothing to me suggests the Fed is

going to be more aggressive.”

Fixed income

Fears over US yield curve inverting

again if Fed fails to deliver rate cut

‘The signal from the

inverted yield curve

was that Federal Reserve

policy was too tight’

Teekay owns one of the world’s

largest fleet of ships transporting oil

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R O B I N W I G G L E S WO RT H

In a small basement office near Portman
Square in London, wedged between the
Grazing Goat pub and the Red Sun
Chinese restaurant, a handful of egg-
heads are attempting to code a robotic
Warren Buffett.
The small team at start-up Havelock
London has an ambitious mission — to
mesh computer science with the Sage of
Omaha’s “value investing” principles.
Havelock was founded last year by the
former chief investment officer of Win-
ton Capital Management — one of the
biggestquantitative hedge funds n thei
industry with $23bn in assets. But the
start-up is ploughing a different furrow
from most other algorithmic investors.
Instead of trading in and out of stocks
at a moment’s notice, or trying to ride
hot market themes like Winton,
Havelock’s chief executive Matthew
Beddall wants to build a system more
akin to a computer-powered private
equity firm, going deep into a small
number of companies.
Paraphrasing Mr Buffett’s mentor, the
famed value investor Benjamin
Graham, he said quants typically try to
make money out of the market’s short-
term “voting machine”.
Havelock, on the other hand is
attempting to profit from the market’s
longer term “weighing machine”.
“Traditionally, quants are a mile wide
and an inch deep — we try to be a mile
deep and an inch wide,” said Mr Beddall,
who spent 17 years at Winton, latterly as
chief investment officer. “With the rise
of quantitative investing, the market’s

attention span has shortened and short-

ened. We want to build better models to

value businesses.”

Quants have been in the ascendant

over the past decade with algo-powered

hedge funds like Renaissance Technolo-

gies,DE Shaw, Two Sigma and Bridge-

water enjoying inflows as much of the

rest of the industry struggles.

Half of last year’s top 20 hedge funds,

ranked by thefees paid o managers,t

were primarily quantitative — and

several of the remainder use at least

some strategies based on algorithms.

Even traditional mutual fund groups

likeFidelity,T Rowe Price nda Capital

Group re spending huge sums on tech-a

nology n an attempt toi enhance the

abilities f their portfolio managers.o

The results are not always good with

the solid performance mostly concen-

trated in the biggest funds. Only 11 per

cent of US equity quant funds have man-

aged to beat their benchmarks this year,

according to Bank of America.

Some analysts said that, with quants

increasingly mining real-time feeds of

alternative data — such as credit card

sales, app downloads, satellite images,

social media chatter and mobile phone

geolocation — the entire investment

industry is speeding up.

The catch is that the profitability of

many of these signals tends to decay

rapidly, forcing funds into a never-end-

ing hunt for new ones.

However, that may have opened up

richer opportunities for investors with a

longer term horizon, said Savita Subra-

manian, head of US equity and quantita-

tive strategy at BofA in New York.

She estimated that valuations explain

nearly 90 per cent of the S&P 500’s

returns over a 10-year horizon — better

than any other factor that the bank’s

analysts pored over.

There is little evidence that average

turnover and holding periods are chang-

ing significantly, said Yin Luo, a senior

strategist at Wolfe Research. But he

agreed that there may be rich pickings

in longer term strategies. “It’s much less

crowded,” he said. And this is what

Havelock wants to exploit.

Mr Beddall joined Winton immedi-

ately after graduating from the Univer-

sity of Southampton with a BA in math-

ematics and computer science, and it

was Winton founderDavid Harding

who first introduced him to the value

investing principles of the Berkshire

Hathaway chief.

Havelock’s six employees currently

track 38 companies and are adding just

one company a month, they said, to

ensure analytical rigour.

The investment group builds models

to value these businesses using a combi-

nation of human judgment and algo-

rithmic analysis and, once the model is

constructed, Havelock trades largely on

autopilot. The £14m fund was launched

in August 2018 and has returned 5 per

cent since then, roughly double the gain

of the MSCI World index over that

period. Fees for investors are capped at

0.99 per cent of assets a year.

Havelock was satisfied with the initial

performance but admitted itsvalue-

oriented approach ad been a headwindh

in a market that prefers faster growing

but pricey companies.

Value investors prefer cheaper stocks,

either measured by earnings or assets

versus their share price. “Buying expen-

sive stocks doesn’t make much sense at

this point but it’s the most expensive

things that have done the best over the

past 12 months,” said Mr Beddall.

Combining the systematic investing

approach of quants with a longer term,

deep-research value investing style is

tricky. Quants said it was much easier to

use statistical sciences to predict near-

term performance of a security —

whether over a day or a millisecond —

than over the next year, given the vast

amount of factors that influence a com-

pany’s performance.

But Mr Beddall remained optimistic

that combining these two approaches is

feasible. “It’s not impossible, it’s just a

little harder,” he said. “If you look at

what Buffett’s done, he looks at what

companies might be worth, rather than

what they’re going to do in the next

quarter.”

Algo-powered Havelock tries

to replicate famed investor’s

principles with longer strategy

‘With the

rise of

quant

investing,

the market’s

attention

span has

shortened’

Warren Buffett

is renowned for

his successful

‘value investing’

approach

Nati Harnik/AP

Asset management. uant fundsQ

Buffett bot aims to crack

the value investing code

R O B I N W I G G L E S WO RT H— OSLO

Fidelity is ramping up its cryptocur-

rencycustody usiness, hoping to profitb

from the scarcity of big, regulated insti-

tutions in the chaotic orld of digitalw

assets, according to Abigail Johnson, the

investment group’s chief executive.

The Boston-based financial group,

which has $2.8tn of assets under man-

agement, announced the launch of

Fidelity Digital Assets last autumn,

promising “enterprise-quality custody

and trade execution services” for hedge

funds, family offices and financial advis-

ers dabbling incryptocurrencies.

Fidelity started adding clients in the

first quarter and is engaged in a full roll-

out of its custo dy and trading

services for digital assets — a boon to

what is a fragmented and complicated

industry, Ms Johnson told theFinancial

Times in a rare interview.

“If you’re either interested or techni-

cally adept, then it’s not really that big of

a deal but, compared to everything else

that you do in terms of financial rela-

tionships that you have with either a

bank or a brokerage firm... it’s just

more nascent. It’s just not developed.”

Ms Johnson, chief executive of the

group since 2014,sees Fidelity’s crypto-

currency custody service as abig selling

point, pointing to stories of thumb

drives lost and holders passing away

without sharing their digital keys with

relatives. “There are people out there

with significant amounts of wealth in

cryptocurrencies, probably bitcoin,

and they’re looking for somebody to

hold those coins for them because in the

event of their passing.. you’ve got to.

have a plan to be able to get those coins

to somebody else,”Ms Johnson said.

Coinbase, a crypto currenc y

exchange, already stores billions of

dollars worth of digital assets on behalf

of its customers. Last year, it also

launched its owncustody business orf

third parties. But Coinbase “is still a

company that most people had never

heard of and they don’t have the existing

relationships with the independent

advisers”, said Ms Johnson.

Fidelity Digital Assets has filed an

application to operate as a limited-

purpose trust company with the New

York State Department of Financial

Services, which would enable it to serve

an even broader range of institutions.

Fidelity’s experiments in cryptocur-

rencies and blockchain, the technology

that underpins bitcoin, were initially

“just for fun”, Ms Johnson said.

The company explored several poten-

tial avenues, even setting up a small bit-

coin mining operation in 2014 that cost

$200,000.Eventually, Fidelity settled

on custody as the best launching pad.

Ms Johnson was confident valuablea

business could be built. “It’s not going

away. As long as the value is there,

people will look to preserve that value.”

Crypto asset

Fidelity ramps

up digital

currency

custody arm

‘It’s not going away. As

long as the value is there,

people will look to

preserve that value’

Growth stocks have trounced value stocks over the past decade

Indices rebased

Source: Refinitiv



     

MSCI World Value

MSCI World Growth

OCTOBER 19 2019 Section:Markets Time: 10/201918/ - 18:07 User:stephen.smith Page Name:MARKETS1, Part,Page,Edition:USA , 15, 1