CONTINUED LOWER YIELDS IN 2018 – AN ALTERNATIVE THAT PROVIDES A SOLUTION FOR INSTITUTIONAL INVESTORS SEEKING ATTRACTIVE YIELDS TO KEEP UP WITH LONGER TERM LIABILITIES

The forecast for many institutional investors around the world this year is that it will be even more difficult to achieve fixed income security yields to help meet their target returns. Even though short-term rates are going up, intermediate and longer-term rates are expected to continue at historically low yields meaning that investors who focus on such debt instruments must urgently look for alternative assets to fill their unwavering demand for yield with lower volatility.

According to Neuberger Berman’s Fixed Income Strategy Committee’s recent report, “interest rates across the curve are expected to remain well below historical levels in 2018 and beyond, in keeping with post-crisis trends. As such, the search for yield will continue to drive investors toward creative fixed income solutions and into corners of the financial markets to which exposures have been limited or even nonexistent.” In particular, they state that “With persistently low yields and ever-evolving global regulatory standards, insurance companies are continually tasked with identifying creative solutions in an effort to support their liabilities and contribute to overall profitability.” Corwin (Cory) Zass, Founder and Principal Consulting Actuary of Actuarial Risk Management in Austin, Texas says that over the last year his firm has received calls inquiring about longevity-based investments. Zass states “at the moment, outside of certain catastrophic mortality bonds, there are few debt instruments betting on mortality events, so an opportunity exists for a properly designed offering underpin with the likes of life settlements or structured settlements.” Zass cautioned that the law of large numbers is important (in terms of persons) and that mortality events do not follow a strict path. As for ideal buyers of such instruments, Zass further said, “life insurers already have expertise with mortality and need yield”.

London listed innovative alternative asset specialist Alpha Growth plc, (LSE: ALGW, http://www.algwplc.com), has developed a hybrid security collateralized by US life settlements, providing an attractive risk yield over a 10-year term with minimal correlation, compared with other fixed income and asset classes. It is called a High Yield Return (HYR) security – a debt equity hybrid investment, coupled with prudent risk management and high-quality supporting collateral that provides diversity and safety in return.

Alpha Growth plc developed HYR after surveying financial institutional investors who were highly regulated and generally disciplined in their investment methodology. The target audience was insurers looking for an offering with minimally correlated returns and higher predictable cash flows; yet with minimal impact on their regulatory capital requirements. After conducting a thorough review of the detailed HYR model that included various stress testing, a big four accounting firm mandated with reviewing the Solvency II implications and other items, concluded that regulated insurers under Solvency II could generate Matching Adjustment (MA) compliant assets with significant capital saving from HYR compared to an equivalent BBB bond.

Alpha Growth plc is a financial advisory business providing specialist consultancy, advisory and supplementary services to institutional and qualified investors globally in the multi-billion dollar market of longevity assets – specializing in acquiring, packaging and selling a serial of U.S. life

settlement-based securities. A typical profile of these assets consists of US-insured individuals who typically are of senior age with at least some medical impairments. According to the Life Insurance Settlement Association, “A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit. A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured.” The original policy owner is legally monetizing his/her life insurance contract to a willing buyer with the sale proceeds used for many different reasons, including long term care expenses and unexpected medical costs.

Credit Suisse Investment Outlook for 2018 states that they expect one of their supertrends to be the “Silver Economy – Investing for Population Aging, The key demographic trend of the next decade or longer. Focus on: Senior lifestyle; Old-age diseases; Real estate / Senior housing; Life insurance / Asset managers.”

Alpha Growth plc believes the equity and bond markets are at a crossroads, the appetite for debt securities that can keep pace with inflation, and with a large wave of post WWII U.S. Baby Boomers with life insurance just moving into senior ages, that the supply and demands of the marketplace appears finally ready for the HYR solution.

Disclaimer
Zakmir.com is a purely journalistic website – Zak Mir is a member of the National Union of Journalists. There is no intention here of providing financial advice. It is recommended you seek an independent professional opinion before deciding whether or not to take any action with regard to anything written here.

 

2018: How Multiple Bubbles Are Bursting Simultaneously

So many people bears / pessimists and all round doomsters have got it wrong over the past decade in terms of there being a bond market collapse, a stock market meltdown, a real estate slump, and even a crypto currency collapse, that one certainly feels the odds of being correct now in early 2018 are rather healthy.

DJ30M5

The Diving Dow

Helping the doomsters at the moment is the way that the “traditional” time for a stock market crash is in the last years of a particular decade – at least 1929 and 1987, so 2018 has a good ring to it.

Things seem so fraught currently, that  one is rather reminded of a kid jumping up and down on a sheet of bubble wrap, with things going pop all over the place.

Indeed, this must be a source of consolation for the “high brow” macro bores of mainstream finance TV who have been wittering on about the bond market being the leading indicator of an economic collapse.  Year after year it failed to happen even though the long end of the yield curve was said to be inverted, the alleged configuration that warns of absolute disaster.

But of course what these bores missed out on was the way that the bond market since the advent of QE has been a totally manipulated and artificial one, a market that has no relationship to anything other than itself. As we all know, markets are manipulated by either central bankers, insiders, or money launderers. Sometimes all three at the same time…

So that bond waffle was a false signal – until now, like the proverbial stopped clock. Bubble asset prices also did not / have not meant anything either, as if you have near zero interest rates you will obviously have prices in the clouds, and markets so easy that Coco The Clown could be a canny stock trader, or property tycoon. Witness the CEO bonuses of the UK housebuilders.

We have seen all of this Bubblemania for many years – and particularly evident (so I am told) at the kind of dinner parties I am persona non grata. Indeed, you really know when you are near the top when almost nobody around the table loses in a particular market, apart from missing out.

This was most graphically illustrated in 2017 – The Year of Crypto. It made the Dotcom Bubble look like a minor boom. However, it may not be able to resist the kind of gravity that made many of the early tech plays part of the 99% Club, whether that is Bitcoin itself of some of the later fly by night pretenders to the crown.

And there is more, much more. Where to begin? Here in the UK former smug star fund manager Neil Woodford and his “kiss of death portfolio” has turned into a smug falling star fund manager. But one would in his defence suggest that it is not he that necessarily did anything that wrong. It is that the 10 year post Global Financial Crisis sugar rush has finally run its course, throwing many perfectly healthy babies (Carillion / Provident Financial?) out with the bath water.

One of the signs that there is a sea change or a trend change is when the markets become unfair or unlucky, after being suspiciously easy. Rather than questioning too much it is best to shift your cash out quickly.

This logic may already be in force for the UK housing market, or perhaps more particularly its engine, the London property market. Here Zoopla / Rightmove / Purplebricks algorithms may have been marking up prices by a nominal few percent every quarter.

Unfortunately, hot air gave way to carbon monoxide fumes a while back, especially after George Osborne’s parting hand granade of stamp duty and landlord tax hikes. The question now is where the housing market really is on a marked to market basis? This may be revealed if panic in the stock market spreads into the wider world.

What can be said with a reasonable degree of certainty ( not just off the back of a 1,000 point decline in the Dow, or the Trump Tax Cuts being the last dose of the mad sugar rush bailout of 2008) is that given that there are multiple bubbles simultaneously bursting the chances of us being let off the hook with a false sunset are minimal.

On a less serious note, given the way that almost every other commentator has shot their bolt prematurely on a collapse, there seems to be every chance of correctly pinning the tail to the donkey on this occasion. Or at least, not making an embarrassing faux pas.

The M&A Contenders List 2018: Update 1

 

M&A Markets Blog: January 30  2018

As promised on January 2, we are reviewing the M&A Contenders List. It is a shame that the closed shop of journalism (and indeed finance) is operational here for this website, otherwise more people would be aware of this website. The usual protocol is that a source is cited if it contains novel / scoop information. One wonders why this is not happening for Zakmir.com?

But hopefully one or two people have found the information useful. I have annotated each situation with a brief note describing where we are now. All comments refer to what has happened SINCE the beginning of the year update here.  As is evident, the results have been quite good, with four clear wins.

UK

Capital & Counties (CAPC) –  A bid situation according to The Sunday Times

Shire (SHP) – waiting, although low share price lessens timeframe of developments. This is because for January there have been more biotech deals done than ever before.

Vectura (VEC) – volatile, but still in play as a contender.

 

Europe

Temenos Group (TEMN) – Softbank looking, Sunday Times.

 

US

Blackhawk Network (HAWK) – bid received.

Bunge (BG) – Subsequently mentioned in WSJ, another approach from “another party” not Glencore, which was ADM

Global Blood Therapeutics (GBT) – up 50% on drug approval. Bid yet to come?

A new M&A Contenders List will be issued shortly, so watch this space.

Turnaround Situations: Daily Mail (DMGT), Kier (KIE), Smith & Nephew (SN.)

Although there is normally more to be gained from identifying minnows that are in recovery mode, for some strange reason today we have the larger companies looking as though they can offer technical traders something out of the ordinary.

Daily Mail:

For instance, in the case of my favourite intellectual publication, Daily Mail, the stock of the sidebar of shame group has not only started to fill the recent chart gap above 627p, it has moved through the 50 day moving average at 621p with some force. The implication is that while there is no break back below the 50 day line the upside here could be as great as the top of a rising August price channel at 750p over the next 1-2 months.

dmgt

Kier:

Kier is not normally a stock for the fast money, but with the latest bear trap gap up reversal through the 50 day moving average at 1.051p we have a situation which is clearly in play. The view at this point is that an end of day close above the 50 day line should give the shares enough momentum to travel at least up to the post September resistance zone at 1,200p plus on a 1 month timeframe.

KIE

Smith & Nephew:

By rights sleepy Smith & Nephew should have been gobbled up by a proper international player years ago – Johnson & Johnson or such like. However, the management at the company seem to be happy to hold on limpet like to their presumably rather well paid gig, and the company trundles along not exactly blowing the doors off in terms of extracting shareholder value. But at least there has been a bullish falling wedge breakout this week, with the implication being that provided there is an end of day close back above the 50 day moving average at 1,290p,  a return towards the best levels of the past year through 1,400p could be seen over the next 2-3 months. At the same time one rather wishes that this group was back in the frame as a M&A candidate…

SN