Koos Henning, chairman of the evening, opens the night at Klasse Theater Tilburg. As an economist at the ‘vereniging van effectenbezitters’ he is an expert on Dutch stocks and funds. A man worthy of leading a discussion on investments by some of the leading experts in their respective field. And the discussion quickly starts as the first two speakers discuss active versus passive management. “Active managed funds will be gone in 25-30 years” – John C Bogle This is the controversial quote San Lie, head of equity research at Morningstar Benelux, uses to start the evening. A quote by the founder of Vanguard group, an investment management company that manages over $3 trillion in assets. But is he right? According to San Lie he might very well be. An astonishing 99% of recently raised money in the United States is currently flowing in to passively managed funds such as ETF’s. Of course this does not mean active management has died out. Not at all actually, since two third of the total money is still invested in active funds. However passively managed funds are catching up quickly. Very low risk and almost guaranteed performance is the driver behind this. However this trend has only set in in the United States, Europe is lagging behind. In emerging markets actively managed funds are even still leading. But is this necessarily a bad thing? The second speaker of the evening, Simon van Veen, doesn’t think so. Simon van Veen is a senior portfolio manager for BNP Paribas global high equity fund and the Parvest Europe high dividend equity fund. He claims that by using an ETF you are setting yourself up for guaranteed underperformance. As an active manager for his dividend equity fund he is continuously looking for companies with a history of dividends above 3%. The reasoning behind this fund is that dividends are sticky which makes management more disciplined and that only stable, sustainable companies with large free cash flow can issue this constantly. But as he notes there are pitfalls. Sure Nokia looked stable and sustainable just a few years ago, but who are the leading companies now? Samsung and Apple. And can you determine whether cash flows are truly sustainable? Those of banks sure looked to be, but the recent financial crisis has shown otherwise. After a short break, Ben Steinebach, head of investment strategies at ABN AMRO MeesPierson, talks about quantitative easing in the United States and Europe. The European economy is moving forward due to the low oil price and quantitative easing in Europe starting March 2015. The United States started this program in 2009 and has seen growth since then. But how should an investor allocate their funds with this in mind? Ben thinks equities are still attractive, suggesting an overweight position in Europe and emerging markets. The improving economic outlook, rallied by QE, and the increasing sentiment in emerging markets should push returns. He also suggests the underweight position in the US equities due to the strong rally of the US market the past few years and the higher P/E ratios compared to the Europe and emerging markets. Are you a sheep or are you a navy seal? Hans Betlem, Chief investment officer at IBS Capital Management, asks the audience this question as he starts his discussion on active versus passive management. “Forget the needle, buy the haystack” – John C Bogle Another famous quote by the founder of Vanguard. But is he right? He is not according to Hans Betlem. Some people can outperform the index! But only 19% of active managers did so in 2014. You have to be creative as Hans showed us with an example. If you had continuously invested in the 25 lowest ev/ebita stocks in the MSCI world index you would have structurally outperformed the index year after year. As Hans quoted Mark Owen, former navy seal, you have to be comfortable being uncomfortable. An excellent investor has different strategies, the ability to control their emotions and make clear probability weighted investment decisions. And what we are at Asset | Accounting & Finance? Navy seals of course!
Should we fear the “Grexit”?
Faces-Online editors Mike and Jeroen spoke with Mr Loman, senior economist, and Mr Weernink, economist at the Rabobank headquarters in Utrecht. They talk about the current events surrounding Greece and the impact a possible “Grexit” might have on the Eurozone as a whole. Furthermore they discuss the risk investors, financial institutions and politicians face surrounding Greece and give us insights in the daily life of an economist at Rabobank. Could you tell something about yourself and the career paths you chose? Loman: I have studied economics at the VU University Amsterdam and international relations at the University of Amsterdam and started my career as an economist at the Dutch ministry of Foreign Affairs. A few years later, I started working as an economist at Rabobank. In my first years at Rabobank I focused on country risk, in particular in Russia and in South America. Country risk deals with all type of risks Rabobank runs that are related to the country where a particular debtor is based. Right now, I divide my time predominately between financial sector related issues, such as the European Banking Union and the plans to form a European Capitals Market union, China and several other topics such as QE in the Eurozone. Weernink: Being an economist at Rabobank is my first job. I have studied economics at the University of Amsterdam with a specialization in international economics. In addition, I have done an internship at the Dutch Finance ministry. My main focus is on Germany and the Eurozone. We analyse both structural and thematic issues and also the economic cycle. Besides this country focus, I also spend a large amount of my time on forecasting and developing scenarios for stress testing purposes. What does a normal working look like at the Rabobank? Obviously, every working day is a different one. We are part of a research department, so we sometimes spend complete days behind our computer screens. Once you have been part of the team for a longer time, you tend to have meetings within the Rabobank. From time to time, we also give lecture talks at for example local banks and customers. We also make field trips to the most important countries. On one of our last trips we went to China. We visited our local offices, after all, they are often a very useful source of information. We also meet many economic experts both from within and outside the financial industry. Do you expect the so-called “Grexit” to happen? It’s not the basis scenario of Rabobank. However, the risk has not disappeared totally, as negotiations are ongoing and uncertainty surrounding Greece remains. Often, politicians use rhetoric to please domestic audiences. Behind closed doors, the tone spoken is more moderate and politicians are still looking for compromises. Of course, a lot still has to happen with respect to the Greek situation. The last deal has postponed the deadline for a new bailout by four months. This implies there is more time to put through reforms and to close the current aid program successfully. At the same time, much risk remains. Within Syriza, the ruling political party, influential members are starting to argue whether the current policy is too pro-European and too much in contrast with the plans promised during election times. An example is the fact that the Greek minister of Energy does not want to privatize some companies, even though this was previously agreed on with the Institutions formerly known as the Troika. In addition, the risks at the European level are steadily growing as well. For example, Angela Merkel has more and more difficulties explaining to the Germans why they are still helping out the Greeks. This problem is worsened by the choice of words in the debate by Greece and their continued demand to receive Second world war reparation payments from Germany. Even though Greece is only a minor part of the total European economy, the Greek crisis has been a leading cause of the European crisis. Going forward, this means that solving the Greek problems will play a key role in Europe’s economic recovery. A positive thing is that politicians do still all agree on the importance of keeping the Eurozone together. In case the “Grexit” would happen, what would be the consequences for the other countries within the Eurozone? Uncertainty is the main problem; no one knows what will exactly happen after Greece exits the Eurozone. The direct effects will be easier to cope with than in 2012 given that Europe has taken many measures to lower the contagion risk of a possible “Grexit’’. The indirect effects can however still be severe. Investors will realize that the Eurozone membership isn’t irrevocable, as there is a possibility to leave the union. This brings back an implicit currency risk for investors. Also the risk on bank runs and capital flights will increase. For example, a saver in a Southern European country would probably prefer to transfer his money to a German bank account. In case of an exit of the euro, the deposits will then be in a hard currency instead of the own new currency that will probably depreciate heavily after an exit. Obviously, many risks remain for Greece as well. After a possible “Grexit”, one can expect a new economic shock before the economy starts to recover. The expected accompanying strong depreciation of the currency would imply that the Greek citizens will have to accept a loss of international purchasing power, while the Greek government cannot raise any money on international capital markets. Moreover, the Greek debt will still be denoted in Euros, while the new currency will depreciate sharply. This makes the debt burden even more unsustainable, so a sovereign default will be inevitable. According to the European conventions, the only way to exit the Eurozone is to also exit the European Union. This means that Greece will also lose access to internal markets. This, of course, depends on politics. One can think of a solution in which Greece will
Interview with Dirk Hoozemans
Mike and Jeroen spoke with Mr. Hoozemans, Director at Robeco Asset Management and specialist in the energy sector. He talks about the current and future developments in the energy sector and how ESG is becoming increasingly important for companies and investors. The interview is especially focused on the cause and effects of the recent drop in oil price. Could you tell us something about yourself and your career? My name is Dirk Hoozemans and I’m 37 years old. I am part of the Robeco Global Equity team and the team invests in developed markets worldwide. I studied econometrics at Tilburg University and after my graduation, I started as a Junior Portfolio Manager at Robeco in Rotterdam. The first two years I was in the Junior Program, where I did several internships learning the ins and outs of valuation and investment. After these two years I started in the Rotterdam-based North-American equities team. When Robeco switched from region-based investment teams to sector-based investing, I started looking at the energy and utilities sectors. Currently I am the specialist in the field of oil, gas and alternative energy within the Global Equity team. What does a normal working day look like? First, I take my daily train, commuting from Utrecht to Rotterdam. On the way to Rotterdam I read my incoming emails from colleagues, companies, analysts and economists. Every day is different. Basically, I analyze energy and utility companies with the aim of identifying outperformers in the space. Herein I rely on my own analysis and modelling but I am also in close contact with sell-side analyst from large brokers such as Morgan Stanley and Merrill Lynch. I also meet with analysts and companies who come to the Robeco office in Rotterdam on a regular basis to discuss investment ideas and developments in the sectors I cover. Management teams will meet with investors to discuss their growth strategy and the outlook for profits, cash flows, share buybacks and dividends. Besides meeting people in Rotterdam I often attend industry conferences and from time to time I visit oil companies in for example Houston to discuss the latest developments in the industry and seek investment candidates for the Robeco portfolio. Events such as the recent drop of the oil price or the Swiss central bank suddenly announcing it will no longer hold the Swiss Franc at a fixed exchange rate with the Euro, bring a lot of volatility but also make every working day a different (and interesting) one. You also worked in the Boston and Hong Kong branches of Robeco. Are there many differences in your daily tasks and the business culture as compared to Robeco Rotterdam? My daily tasks are basically the same but from a slightly different angle. Our subsidiary in Boston, for example, takes more of a value-investing approach. Our Hong Kong office on the other hand focuses on the fast-growing Asian markets; quite a different approach. In our Rotterdam office, we run global equity products: here we invest in global emerging markets and global developed markets but we also run our more thematic trends investing portfolios and our quantitative portfolios, based on econometric models, from Rotterdam. You hold the title of Chartered Financial Analyst. Does this give you any advantages within your daily tasks? Personally, I appreciated the CFA program greatly. As an econometrician, I was mainly trained in (quantitative) finance, modelling and statistics, but not so much in reading and interpreting balance sheet data. The CFA program was useful in getting more familiar with accounting, but also with alternative investments and fixed income instruments – which as an equity investor you obviously see little of on a daily basis. The CFA curriculum takes three years and is basically a sort of compressed master degree; some of it is repetition, some of it is new but it definitely broadens and deepens your knowledge and understanding of financial markets. Of course, the program is updated often, bringing old topics up to date and introducing new ones. Nowadays, at Robeco juniors are required to have passed CFA level 1 and 2 upon leaving the two-year junior trainee program. What is your opinion about OPECs decision to keep oil extraction at a steady level? I had expected this decision, but it still brought about a huge shock in commodity and equity markets. At the moment, there are three things happening. Firstly, non-OPEC oil extraction is growing at a rapid rate; especially unconventional or shale oil production in the United States is showing unprecedented growth. Secondly, global GDP growth is lackluster as Europe is facing problems while growth in China not at the high levels it was last decade. And finally, the dollar has been very strong, which often implies that investors sell dollar-denominated commodities. Many American oil producers had expected that OPEC would lower production quota, but by keeping production steady and focusing on market share, the oil market is now in oversupply and hence prices have dropped significantly. Note that OPEC extracts oil at a cost of some ten dollars per barrel, while in the US oil is produced at a cost of between fifty and sixty dollar per barrel. Consequently, decreasing oil prices will first hit US producers, who will have to slow down drilling to bring supply and demand back in balance in the oil market. How does the drop in the oil price influence your daily work? When the oil price decreases, future cash flows will be lower causing stocks to decrease as well. For us, as investors, it is mainly our task to focus on high quality companies. These are mostly companies producing at a low break-even point. You will notice shifts in the value chain of your investment portfolio. We will therefore invest less in suppliers, while investing more in larger integrated companies. On the other hand, this low oil price and its consequences will be an important point of discussion within our teams. One of the possible consequences is that consumers will have more money