2Q17 Investment Strategy - Covenant Capital · 1. Promote full employment. Policy tool: Supply of...

2Q17 Investment Strategy:The return of the Fed-i

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Stewardship - the careful and responsible management of something entrusted to one's care.

Recap last quarter outlook: “It’s the end of QE as we know it (and I feel fine)”

Key messages:

• Global economy hits escape velocity. Inflation risk rising.

• QE ends and interest rates to rise from hereon

• Macro-analysis favours equities versus bonds.➢ MSCI World Equities Index +6.4%, JPM Global Bond +1.5%.

• Search for income has become complicated.➢ Be careful of overleveraging on bond investment and adopt a buy

and hold approach.

➢ Avoid government and long duration bond. UST20 years -0.6%.

➢ Prefer combination of high dividend equities and high yield bonds for income.

EM Debt High Yield +2.8%; World Dividend Equities +3.2%

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Recap: “It’s the end of QE as we know it” ideasThe Good and the Not-so-Pretty

✓The Good: • Reflation trade:

➢ Buy European banks: +14.2%• Dividend ideas with corporate event angles:

➢ China Unicom +14.9%, M1 +7.7%

• Finding income through capital-structures: ➢ GAM Star Credit Opportunities Fund: +5.1%

• Anti-consensus (C4) trade:➢ Buy GBP/USD: +3.6%

X The Not-so-pretty : • Reflation trade:

➢ Buy Japanese Banks ETF: -2.1%.

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What is macro-economic analysis?

How does that affect central bankers’ reaction function?

What these mean to your portfolio allocation?

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Audience of none or audience of many?

What is macro-economic analysis?

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• In simplest term, macro-economic analysis is the attempt to gauge the strength of the economy ie GDP.

GDP = Consumption (consumer spending)

+ Investment (production and capital spending)

+ Government spending

(fiscal policy and government regulations)

+ Trade flows

(global demand, competitive advantages,

FX differentials)

What is macro-economic analysis?GDP – Consumption component

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• Employment and wages are the main determinants.

• US, UK at NAIRU now.

Significant healing of employment globally

US and UK at NAIRU now

Euro NAIRU is 8.5%

NAIRU = Refers to the level of unemployment below in which inflation will start to rise


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• Even adjusting for participation rate, US unemployment is close to pre-2008 GFC.

• Europe will hit NAIRU by year end.

US unemployment rate in longer context Europe hits NAIRU by year-end

Hits NAIRU 2 years ahead of ECB forecast


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• More job openings than applicants; should pressure wage growth.

• In Japan, ageing demographics limits labour pool. Important to have more people joining the workforce.

Women power in JapanEvery 2 job openings only 1 applicant


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• US wages forecast to increase to 3.3% by 2017.

• Slide in Europe wages has stopped.

US wages growth is highest since 2004 Euro wage growth to pick up this year

Our forecast of 2% by early 2018 is one year ahead of ECB


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• Retail sales in US and Europe have picked up.

• Inventory situation improving augurs well for future production.

What is macro-economic analysis?GDP – Investment and Production component

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• 1Q17 PMIs average readings are stronger than 2016 and in some regions stronger than 2013-2015 average.

• Hard data indicating the best quarterly pick up in industrial production in 5 years.

1Q17 IP +4.5%

What is macro-economic analysis?GDP – Investment and Production component

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• Improvement in profits, especially EM and commodities sectors, in full force.

• Rising profitability and confidence are spurring a return in fixed assets investments.

Capex reversing 4 years of declineHigher profits, higher confidence

What is macro-economic analysis?Government spending

• Fiscal expansion in 2017-18 vs contraction since 2010.

• Trump’s fiscal plan at risk but forecasters have not model that in 2017/2018 numbers.

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Fiscal stimulus turned positive in 2017-2018

Contractionary fiscal policy

Expansionary fiscal policy

What is macro-economic analysis?Net trade flows

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• Trade flows finally seeing a revival after torrid decline post GFC.

• Port throughout and freight forward volume collaborating; up strongly since Oct last year.

Canton Fair and China Port revival Global freight volume strongest in 3 years

What do all these mumbo jumbo means?GDP upgrades ensued

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• GDP upgrades abound.

• So has inflation; surprising the upside.

Upgrades in GDP; first time in 3 years Inflation upgraded and suprising as well

What do all these mumbo jumbo means?GDP upgrades, so has EPS

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• Top-down upgrades in GDP feeding into bottom-up upgrades in earnings.

26.00

26.50

27.00

27.50

28.00

28.50

29.00

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

15/11/2016 15/12/2016 15/01/2017 15/02/2017 15/03/2017 15/04/2017

EPS Revision Momentum

EPS

2017 MSCI World EPS Revised upwards since start of the year

Central Banks Reaction FunctionRole of a Central Bank

It’s raison d’etre:

1. Promote full employment.

2. Keep inflation at bay.

3. In recent times, prevent systemic risk

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Its policy tools:

• Supply of money including Quantitative Easing

• Cost of money via benchmark rates

• Macroprudential measures (Loan-To-Value on mortgage, risk-weighted capital appropriation)

Central Banks Reaction FunctionSupply of money

1. Promote full employment.

Policy tool: Supply of money including Quantitative Easing.

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• Unemployment rate globally has dropped by more than half from peak.

• US, UK have reached NAIRU; Europe by end of this year.

• More jobs than applicants in Japan.

• China is creating 1mn pa more jobs in the last 3 years than it did ten years ago.

• FED stopped QE in Oct 2014 and have recently talk about unwinding balance sheet.

• ECB reduced QE purchase and will stop QE by end of year.

• PBOC has increase liquidity requirement for small-medium size banks, reined banks off-balance sheet assets.

Facts Supply of money reduced

Central Banks Reaction FunctionCost of money

2. Keep inflation at bay

Policy tool: Cost of money via benchmark rates.

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• FED to raise rates 3x 2017 and another 3x 2018.

• ECB will need to raise rates by 2Q18 vs market’s 4Q18.

• PBOC has increase its special lending facilities rates thrice this year. SHIBOR risen 130bps since start of year.

• BOJ yield control will fail.

Inflation of the rise Cost of money increasing

Central Banks Reaction FunctionPrevent systematic risk

3. Prevent systematic risk.

Policy tool: Impose counter-cyclical macro-prudential measures.

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• Australia: Higher standards and stress-testing. In Mar, they warn they will do more.

• Singapore: TDSR, ABSD

• China: Increase banks’ capital requirement of some assets.

• HK: Reduce LTV and increase DSR

Australia home price has doubled since 2006 Macro-prudential measures

Portfolio Implications

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We are here now

Source: Covenant Capital

▪ Equities – Overweight.

Prefer Europe, EM, Neutral Japan and Underweight US

➢Buy reflationary ideas:➢European banks (SX7EEX.GY), Daimler.

➢Long technology Amazon, LAM Research

➢ Buy value-oriented equities managers:➢Asia ex-Japan: DCG Asia Value Fund

➢Europe: JO Hambro European Select Value Fund

➢Buy income ideas: ➢Fraser Logistic Trust

➢Keppel DC Reit.

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Asset Allocation –Overweight Equities, Underweight Fixed Income,

Neutral commodities and Long EUR/USD

▪ Fixed Income – Underweight.

Invest in fixed income asset classes and managers that will benefit when rates rises.

➢Leveraged loans manager: NN’s Voya Floating Rate Fund.

➢Global credit specialist: GAM Star Credit Opportunities Fund.

➢Bonds that benefit in Reflationary zone: HSBC, Banco Santander and Micron.

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Neutral commodities and Long EUR/USD

▪ Commodities – Neutral.

➢Buy Gold due to concern of market under-estimating inflation risk.

➢Buy Asia steel futures.

➢Buy Copper but wait for better entry.

▪ Currency – Long EUR, GBP against USD.

➢Long Euro/USD as we forecast stronger than expected growth, market under-estimating inflation risk and ECB will be tightening ahead.

➢Long GBP/USD. Anti-consensus trades.

▪ Alternative Investment - Unchanged

Looking for uncorrelated returns to equities and bonds.

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Neutral Commodities and Long EUR/USD

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Covenant CapitalA comprehensive service offerings

for all your wealth matters

More than 150 years of cumulative experience, average of 16 years

What’s the differences between Global Anchor vs Global income?

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Global Anchor Portfolio Mandate Global Income Portfolio

Total Return Primary Objective Income Generation

Moderate Risk/Return Profile Low

7-9% Return Target 4-6%

70%Maximum Equity

Exposure40%

YES Alternative Investments NIL

Quarterly Liquidity Monthly

NIL Regular Income 1%/Quarterly

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• Covenant Capital is a Singapore based independent wealth manager committed to assist ourclients to be better stewards of their assets. We are a registered fund management companyregulated by the Monetary Authority of Singapore.

• As a holistic wealth manager focused on long term wealth preservation and accumulation,Covenant Capital provides tailored investment solutions as well as wealth and estate planningadvice for our clients.

• The alignment of interests of clients with our wealth advisors is the fundamental tenet of ourbusiness. We ensure this long-term fiduciary symbiosis through the following:

– We earn predominantly via a fee based solely on the state of our clients’ wealth. Our clientsare our only paymaster, not a bank or a broker.

– We employ an open architecture approach using the best of breeds fund managers,insurance and estate planning services. We are able to select the best as well as the mostefficient cost structure for our clients.

– We are not restricted to a single house view and instead have access to street-wide researchto deliver the an independent and unbias prognosis for our clients in an increasinglychallenging and changing world.

– Every member of the founding team are stake owners of the firm which means we areintricately linked to our clients’ well-being both financially and personally.

• We prided ourselves to be different from other wealth managers as our core team are largelyinvestment-focus folks with a combined of more than 80 years of investment management, privatebanking, trading and analysis experience.

Covenant Capital: Organizational Chart

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Edwin Lee CFA, CAIA - CEO

o Edwin Lee has 17 years of experience in the financial industry. He started his careerwith Salomon Smith Barney (SSB) in 2000 and over the course of 12 years with SSB,his team provided comprehensive investment advice to individual and institutionalclients. This included the development of clients’ Investment Policy Statements andAsset Allocation Strategies, investments in fixed income, equities & their relatedderivatives. As the key manager for the team’s discretionary multi-asset classportfolios, he oversaw the team’s portfolio decisions including the use of options tohedge as well as generate income. He then spent 2 years with DBS as a privatebanker, advising both HNW and UHNW individuals and families before crossing overinto the independent wealth management space. Before co-founding CovenantCapital, he was with Swaen Capital, a leading independent asset manager based inSingapore, leading the global asset allocation portfolio management team and wasinstrumental in fund raising as well.

o Edwin graduated from the Nanyang Technological University's Nanyang BusinessSchool in 2000 with a Bachelor of Business Studies (Honours - 2nd Upper) degree,majoring in Financial Analysis. He obtained the Chartered Financial Analyst (CFA)designation in 2003 and the Chartered Alternative Investment Analyst (CAIA)designation in 2007. He is a member of the CFA Institute, CFA Singapore and theCAIA Association. While in SSB, Edwin was one of the few consultants in the regionholding the Consulting Group’s Senior Investment Management Specialist title.

o In his earlier days, Edwin was an avid badminton player and ranked 3rd in theNational School’s Individual Games. He was also the captain of his school badmintonteam and he led the team to retaining their 16th consecutive title as NationalChampions. He now enjoys mountain biking, running and adventure sports in hisfree time. Edwin also serves as a board member of a local church and is currentlyholding the appointment of Officer Commanding in his military unit.

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o Edward Lim: Edward has 22 years of financial industry experience including last20 years in various investment management roles. He has been an investmentmanager for the last 16 years including last decade running absolute returnmandates. As the CIO of Covenant Capital, he is responsible for the firm’s overallinvestment strategy as well as managing Covenant Asia Equity Absolute ReturnFund.

o Prior to forming Covenant Capital with Edwin, Edward was the CIO of SwaenCapital, a leading independent wealth manager based in Singapore. He washeadhunted to start up Tokai Tokyo’s first asset management firm outside ofJapan in Singapore where he also served as their CIO and was responsible forrunning their Asia ex-Japan equities absolute return fund. He was the Head ofAsia Equities in TRG, a leading global emerging markets macro hedge fund andalso led the Long/Short Strategy group in Citigroup Principal Equities Strategiesbased out in Asia. Before he joined Citigroup, Edward held dual roles as SeniorPortfolio Manager and the Head of Research for BNP Paribas Asset Managementin Asia. Edward started his investment career as an investment analyst withCitigroup Private Bank and DBS Vickers Research.

o He is a CFA charter holder since 2001 and graduated with a Magna-cum-laudeHonors, BBA from the University of Oklahoma.

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Edward Lim CFA- CIO

o Tay Kian Ngiap: Kian Ngiap has more than 10 years of financial industry experience whichentails a wide spectrum of middle and back office experience including fund administration, investment and finance accounting, day-to-day settlement and reconciliation issue resolution. As the COO of Covenant Capital, Kian Ngiap is responsible for managing the Company’s compliance and operations roles.

o Before Covenant Capital, Kian Ngiap was with a boutique hedge fund since its inception and was part of the inaugural team where he built his knowledge and experience for 5 years. He then moved on to become an Account Manager for the World’s largest fund administrator, Citco Fund Services for 4 years. His contributions in Citco included onboarding new businesses to the firm and increased profitability for his Clients. He then moved to Swaen Capital and played a key role in the establishment and oversight of the Covenant Asia Equity Absolute Return Fund operations. Additionally, he also played an instrumental role in improving workflows, tightening processes and keeping Operations and Compliance policies relevant to the market conditions.

o He was part of the pioneer batch of students from Singapore Management University and graduated with a Bachelor of Business Management, majoring in Finance and Accounting and is still participating in the school’s Alumni activities.

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Tay Kian Ngiap- COO

o Richard Lee : Richard is a veteran in the wealth management industry spending over 40 years in the finance industry. Prior to joining Covenant Capital, he was working for Citigroup as a wealth adviser since 1994. He has also overseen the strategic development and business operations of one of the key team in that business unit.

o He joined the finance industry back in 1975 as a fund manager for Chartered Unit Trusts. From 1976 to 1994, he has held various positions with international financial institutions such as Bache Halsey Stuart Shields, Lehman Brothers and Salomon Smith Barney, providing investment services and managing investment portfolios for institutions and high net-worth private clients.

o Richard graduated from the University of Singapore in 1972 with a Bachelor of Social Science (Honours) degree majoring in Economics.

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Richard Lee –Senior VP Relationship Manager

Soon Kay Hock CFA –Senior Portfolio Manager

o Soon Kay Hock: Kay Hock has more than 30 years of experience in the investment industry.

o He started his career with Overseas Union Bank in 1986. He was an economist for the first 2 years before becoming a portfolio manager handling both institutional and private clients’ funds for the next 8 years.

o In 1995, he joined Singapore MRT Limited where he managed their investment portfolio. He was responsible for setting the investment policy, asset allocation and the execution and monitoring of the investments. Besides managing the in-house funds, he was also responsible for the selection and monitoring of external asset managers.

o In January 2001, he joined Citigroup Global Markets as a financial consultant. He held the position of Senior Vice President and Senior Investment Management Specialist. His responsibilities include prospecting, servicing, advising and managing private clients’ portfolios. A major part of his business was managing clients’ money on a discretionary basis. He continued his practice for more than 16 years until August 2016 when he left to join Covenant Capital.

o Kay Hock is a graduate of National University of Singapore with Bachelor of Arts degree and an Honors degree in Economics. He has also been a CFA charter holder since 1992.

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o Edward Pang: Edward joined Covenant Capital in 2017. He brings along over 20 years of experience in asset management and investment advisory. His clients included executives of Fortune 500 companies, philanthropists, charitable and non-profit foundations as well as regional insurers and asset management companies.

o Edward started his career in wealth management in 1997, in Seattle, with Smith Barney as a portfolio management associate, where he and his team managed in access of US$400 million for individuals and institutions.

o In 2001, Edward moved to Laird Norton Trust Company and its subsidiary – Wentworth Hauser and Violich. There, Edward advised family clients of the Laird Norton family office, as well as foundations and private wealth clients, on their investment mandates. He also served as the WHV’s Telecommunication and Information Technology Services analyst.

o Subsequently, in 2006, Edward returned to Singapore and rejoined Citi Smith Barney as a financial advisor. Over a period of 10 years, Edward managed discretionary mandates, and advised both private and institutional clients around the region.

o Prior to Covenant Capital, Edward was a Director at Havenport Advisors, the private wealth division of Havenport Asset Management.

o Edward graduated with a BA in Business Administration from the University of Washington and a MBA from Imperial College, University of London. An avid sportsman, Edward continues to play and mentor students as part of Oldham Water Polo Club and volunteers at Singapore Water Polo Management.

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Edward Pang–Senior VP Relationship Manager

Shaun Fonseca –VP Relationship Manager

o Shaun Fonseca : Shaun Fonseca has 6 years of experience in the financial industry. He started his wealth management career with Morgan Stanley Smith Barney, Australia, where he won the Henry Morgan Award 2011, a Morgan Stanley Smith Barney Country Award. While in Australia, Shaun also worked at the Apeiron Global Macro Fund and the Department of Queensland Transport and Main Roads, where he assisted the team in the economic modeling and forecasting of a multi-million state government research project.

o In 2012, Shaun moved back to Singapore and joined Citigroup Global Markets Asia Limited, where he advised and provided investment solutions to HNW and UHNW individuals across multi-asset classes. While at Citigroup Global Markets Asia Limited, Shaun took the lead in collaborating with some of the biggest hedge funds in the world to educate HNW & UHNW individuals on hedge funds strategies and was instrumental in fund raising as well.

o Shaun graduated from Queensland University of Technology with a Bachelor of Business majoring in Finance and Economics and is currently pursuing a Certificate in Fintech with The Massachusetts Institute of Technology.

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o Damien Long: Damien has 20 years of financial industry experience including last 10 years in investment analysis and investment management roles focusing on value-investment and concentrating in South East Asia markets.

o In his current role, he supports the CIO as an Investment Analyst for Covenant Asia Equity Absolute Return Fund and is part of the idea generation core of the investments team.

o He had a dual role of Fund Manager and Business Development with Aegis Portfolio Managers Pte Ltd who specializes in investing in “multi-baggers” in small mid cap investments in Asia ex-Japan. Damien was responsible for generating investment ideas and conducting due diligence on companies in the Consumer and Lifestyle, Food and Beverage, Oil and Gas and Healthcare Sector.

o Before he joined Aegis, Damien was Product Manager for Investment and Insurance products at an international bank. He started his career as a Credit Analyst and Relationship Manager at a local bank.

o He is a Certified Financial Planner (“CFP”) holder since 2006 and graduated with Distinctions, BSc from Indiana University at Bloomington.

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Damien Long CFP –Investment Analyst

o Josh Le: Josh Le has 9 years of experience in financial industry spending the last 6 years in portfolio management and trading. He began his career with Bank of America Merrill Lynch in 2008 and subsequently joined Star Financials, a trading firm, and Conrad-Ottess Private Asset Management, a Singapore-based family office. He oversaw Long Short portfolio as well as Long only and Momentum portfolios in Conrad-Ottess. Alongside Edwin Lee, he co-manages the Global Anchor Portfolio in Swaen Capital.

o Josh graduated with a Master of Financial Engineering from Nanyang Technology University, Bachelor of Electrical Engineering from National University of Singapore and obtained Cert. of Computational Finance from Carnegie Mellon University. Josh is also a CFA charterholder.

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Josh Le CFA, MSc in FE

Associate Portfolio Manager

o Christine Ho has 20 years of private and institutional client customer service and operations experience. Over the years, she served more than 15 senior financial consultants supporting them in various aspects of client engagement, trade and operational support. As the operations analyst with Covenant Capital, she supports the team’s operational & administrative needs.

o She started her financial career as a secretary with US securities brokerage firm Kidder Peabody, Hong Kong, in 1993 and an operations assistant with Paine Webber, Hong Kong, in 1995. In 1996, she followed the team to join Salomon Smith Barney Hong Kong Limited in 1996 and Citigroup Global Markets Asia Limited, Hong Kong as Senior Sales Associate in 2002. In 2003, she relocated to Singapore and settled down with her family.

o She continued her senior sales service role with Citigroup Global Markets Singapore Private Limited until Sept 2014. She worked across business , functional and regional lines to provide clients with integrated solutions that meet their needs.

o Tight follow-up and swift response are hallmarks of her work with a keen focus on understanding clients and exceeding their expectations. She is an excellent team player and effective in backing up teammates. Operational seamlessness and continuity in servicing accounts with teammates are key.

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Christine Ho –Operations Analyst

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Sherlyn See –Operations Analyst

o Sherlyn See: Sherlyn began her career as an auditor in a public accounting firm, RSM Singapore for two and a half years. RSM Singapore is a member of RSM International ranked as world’s 6th largest accounting and consulting network. As the operations analyst with Covenant Capital, she supports the team’s operational & administrative needs.

o She performed statutory audits for group audits and reviewed consolidated financialstatements within tight reporting deadline. She also assisted in SGX listedcompanies and non-profit organizations audits which also involved identifyingcontrol weaknesses of companies.

o Sherlyn is a graduate of Nanyang Technological University (NTU) with Bachelor ofAccountancy. She is also an Associate Member of Institute of Singapore CharteredAccountant (ISCA).

Contact us

• E-mail:

• [email protected]








• Address: 31 Club Street #02-02 and #03-02, Singapore 069468

• Contact : (65) 6819 0860

• Fax: (65) 6819 0850

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mailto:[email protected]









Disclaimer

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Disclaimer: This is a not a marketing or offering document. Notwithstanding anything contained in this document, this document does not constitute, and no recipient of this document may treat the same as, an offer, solicitation or invitation for the sale and purchase of any securities, instruments or any other properties AND the information contained in this document shall not form the basis of any offer or contract. These materials do not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in any jurisdiction.

This document is provided for information purposes only and is specifically for accredited and qualified investors. Nothing in this document shall constitute investment advice. None of Covenant Capital Pte Ltd. or its subsidiaries nor any of their respective directors, officers, employees, agents, contractors or advisers (collectively, the “CC”) makes any representation or warranty as to the truth, accuracy or completeness of this document (including statements of opinion or expectation) or as to the achievement or reasonableness of any past performance or any future projections, estimates, prospects or returns or any of the assumptions underlying them made nor shall any of them have any liability (whether arising from negligence or otherwise) for any representations (expressed or implied) contained in, or for any omissions from, this document or for any written or oral communications transmitted to the recipient (or its advisers or representative).

No person has been authorized to give any information or make any representations other than that contained herein, and any information or representations not contained herein are not authorized by any member of the CC and must not be relied upon. The delivery of this document at any time shall not, under any circumstances, imply that there has been no change in any matters described herein since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. In furnishing this document, CC does not undertake any obligation to provide the recipients with access to any additional information or to correct any inaccuracies in or update this document.

Composite performance results have been calculated by using time-weighted returns. Performance results are total return and include the reinvestment of all income. Performance results are Net of fees and reflect the deduction of actual management fees charged and transaction costs. Past performance does not guarantee future results and other calculation methods may produce different results. Results are based on fully discretionary accounts under management.

2Q17 Investment Strategy - Covenant Capital · 1. Promote full employment. Policy tool: Supply of...

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