TheChek News Flow

* EDP Raised to Overweight at JPMorgan; PT 4 euros

* Getinge Raised to Hold at SEB Equities; PT 143 kronor

* Norma Raised to Outperform at MainFirst; PT 40 euros

* U.K. Stocks ‘Investable Again;’ Morgan Stanley Favors Small Caps

* Overweight Swiss Banks, But More Cautiously, Citi Says; Baer Cut

* Danone Rating Estimates Cut at RBC as Conviction Evaporates

* Sandvik Ratings Upgraded by Citi, SEB Analysts After 3Q Earnings

* *EUROPEAN CONSUMER STAPLES CUT TO UNDERWEIGHT AT MORGAN STANLEY

* *EUROPEAN BANKS UPGRADED TO OVERWEIGHT AT MORGAN STANLEY

- US-China Trade War will certainly give a 'big haircut' to the global economy

- There is a limit to what central bankers can do.

- There is a limit to how far and how deep you go into negative territory [regarding interest rates].... ,but we are not at that bottom at this point in time

Former Brevan star to assume oversight of all trading after lacklustre returns

Chris Rokos, the former star trader who made headlines when he broke away from Brevan Howard seven years ago, is shaking up the way his firm manages its $9.2bn in assets as performance lags some of its nearest rivals.

Mr Rokos, one of the biggest names in so-called “macro” trading, had been running 70 per cent of the money at Rokos Capital Management, with the remainder allocated between nine specialist portfolio managers. Those managers individually placed bets in areas such as interest rates, foreign exchange, equities, credit and commodities.

Following the shake-up, Mr Rokos will assume oversight of all trading and will allocate money to different trade ideas, the firm said. The new structure should allow the firm to make bigger bets on attractive positions, without being restricted by the size of an individual manager’s trading book.

Investors in Rokos Capital Management — launched in 2015, after Mr Rokos settled a lawsuit with his former colleagues — had questioned why the managers were overseeing nearly a third of the firm’s assets when they were paying for exposure to the founder. He had generated billions of dollars at profits at Brevan Howard, and was the “R” in the Brevan acronym.

Mr Rokos has been frustrated with the fund’s performance, said a person familiar with his thinking. The fund is up 6.7 per cent through the end of September, compared to rivals including Brevan Howard, which is up 7.5 per cent, and Kirkoswald Capital, which has made double-digit gains.

Rokos Capital was up 20 per cent in 2016, but has posted lacklustre returns over the past two years.

“He’s very much middle of the pack and he doesn’t want to be — he wants to be exceptional,” said the person familiar with Mr Rokos’s thinking.

The move will “maximise the efficient deployment of capital and best capture the value to the overall fund of its product specialists,” a spokesman for the fund said. “This adjustment forms part of RCM’s ongoing efforts to manage fund capital as efficiently as possible in order to maximise returns for investors.”

Now all of the managers will be part of a core team under Mr Rokos.

“Trading strategies will be consistent with the economic views of the fund as determined by Mr Rokos, informed by RCM economic research and market analysis,” the spokesman added.

Rising costs and falling investor confidence are forcing wealth managers to consolidate

Last week was a rough week for private client investment advisers and wealth managers. The unending vacillations over Brexit capped the final throes of Neil Woodford’s investment fund empire, eroding already weak investor confidence.

Shares in Rathbone Brothers, the adviser to the moderately affluent with a history dating back almost 300 years, fell almost 10 per cent following a five-yearly strategic update that underlined past, present and future challenges for it and other money managers.

Shares in bigger rivals Hargreaves Lansdown and St James’s Place, both well-known backers of Mr Woodford even when his performance flagged, were comparatively steady. So, too, were shares in AJ Bell, the Woodford-backed fund supermarket business that floated on the market last December. But the market’s reaction to Rathbone’s update — unfortunately timed within days of Mr Woodford’s defenestration — is telling.

The “large-scale collapse” of such “a very prominent fund manager . . . will understandably dent investor confidence”, AJ Bell told Small Talk. But it hopes only for a short while. Mr Woodford is, after all, just one of thousands of fund managers running thousands of funds, it said.

Last week, Paul Stockton, who only joined as chief executive of Rathbone this year, blamed “weak investor sentiment” and uncertainty for the customer outflows that weighed down growth in funds under management. He acknowledges Woodford’s fall will spark scrutiny. But he thinks investor uncertainty is less to do with Woodford than collywobbles over global growth and Brexit.

Ditto, says Brewin Dolphin’s Robin Beer. He believes “the uncertainty surrounding Brexit will have a bigger effect than Woodford”.

Still, the Woodford debacle will, and should, press down on money managers’ shoulders — even those like AJ Bell, Rathbone and Brewin that screened Woodford funds out of their portfolio picks years ago.

Woodford’s fall exposed the humbug of those in the industry who lionised him as a computer-beating, stockpicking genius who proved single-handedly that active managers can beat index trackers for long periods.

Critics have focused on calling on regulators to look at fund supermarkets’ tip sheets and best buy lists. These may not be advisory, but they helped mass affluent investors select funds and are widely blamed for sucking billions into Woodford funds.

More broadly, the fiasco underscores the dilemma facing savers who need advice on financial planning, but who — following scandal after scandal in financial services — are wary of the quality of advice and reluctant to pay for it.

That is as true of the rich who have been loyal customers of brokers like Rathbone for generations. In the past, few clients would have questioned the layers of commissions and fees charged by stockbrokers and intermediaries. Now, with the encouragement of the Financial Conduct Authority, they are pushing back on charges and demanding a better and bigger service for their money.

Broker bosses saw the squeeze coming. They have been racing to buy up rival clients lists and expanding into adjacent areas of financial planning and money management services.

Since its last strategic update in 2014, Rathbone has increased assets under management from £25bn to £49bn by picking off smaller peers. So, too, has Brewin Dolphin. Last year, Quilter bought Aim-quoted Lighthouse, lifting its headcount of financial planners to close to 4,000 to match St James’s Place. Last month, Tilney said it was in advanced talks to join forces with Smith & Williamson. Next month, Lloyds Banking Group launches its joint venture Schroders Personal Wealth, with plans to undercut prices and double assets under management to about £25bn within five years.

Last week, though, Rathbone showed starkly what can happen once the acquisitions stop. Even if the brouhaha over Woodford proves a short-term one and the uncertainty over global growth and Brexit clears, it will struggle to lift revenues. Meanwhile, its costs and spending — whether on regulation, IT or hiring and training staff — will carry on rising. Operating margins, which have historically been a juicy 30-plus per cent, will fall to nearer 25 per cent, it said.

Analysts promptly lowered earnings expectations for the next couple of years by up to a tenth. The company’s market value, which a few years ago was worth 3 per cent of assets under management, has fallen to 2.5 per cent. It seems all too likely that at the next quinquennial update, Rathbone’s shares will be worth closer to 2 per cent.

One of Europe’s most influential hedge funds in radical shake-up of its portfolio

Lansdowne Partners, one of Europe’s biggest and most influential hedge funds, is betting that financial markets are on the brink of a reversal that will see a big fall in “idiotic” bond prices, a slump in technology stocks and a revival in UK equities.

The firm, which manages about $15bn in assets and takes long-term bets on stocks, is predicting a major shake-up in the dominant market trends of the past several years, said a person close to the firm. While markets have long been supported by central bank stimulus, Lansdowne now expects governments to issue more debt to fund spending, which could upset bond prices and some of the best-performing stocks of recent years.

The portfolio overhaul is likely to mean a significant increase in Lansdowne’s exposure to UK equities, the person said. For Lansdowne’s flagship Developed Markets fund, that would mark something of a return to its roots as a UK-focused fund, before it took on a global mandate in 2012.

“It’s pretty clear [Lansdowne] thinks things are different,” the person said. “Governments are going to spend a ton of money to boost economic prospects, which will reduce political risks and which will lead to risk-free rates [yields on the safest government bonds] rising.” Yields rise as prices fall.

Lansdowne declined to comment.

While Lansdowne changes its bets on individual stocks from time to time, such a wide-ranging rejig of its outlook is rare.

The firm, whose flagship fund run by Peter Davies and Jonathon Regis has made an annualised return of 10 per cent since it launched in 2001, is closely watched by many rival hedge funds. However, Lansdowne is also one of the most publicity-shy in the hedge fund sector and does not disclose its biggest bets even to its investors.

The portfolio shift, which has not previously been reported, comes as fund managers across Europe grapple with the phenomenon of negative-yielding government bonds and faltering economic growth.

While many investors believe subdued inflation rates and European Central Bank bond-buying will keep yields very low for the foreseeable future, others think bond prices look vulnerable.

“Bond prices are idiotic. They’ve reached stupid levels,” the person close to Lansdowne said. “You can’t justify buying something on a negative yield, given governments have the opportunity to issue more.”

Risk-averse investors’ hunt for bond-like securities has also driven defensive stocks — companies less vulnerable to economic booms or busts — to very high levels. The gap between defensives and cyclical stocks is now “at least equal in magnitude to that seen in the late ’90s tech boom,” the person said, adding that defensives are likely to fall.

However, the big drivers of investor behaviour over the past decade — central bank intervention and political risk — could be about to change, triggering an unwind in some of the biggest trades of the past decade.

Political risks could lessen, the person said, for instance in the US-China trade war and Brexit, over the coming quarters.

Lansdowne also expects governments to start issuing more bonds to pay for higher spending. This could not only stimulate economic growth but also push up bond yields.

The firm is now betting that cyclical and cheap so-called value stocks, which have underperformed faster-growing stocks for years, will start to do well. “Value stocks are super, super cheap,” the person said.

Lansdowne is also changing tack on technology stocks, which have enjoyed a stellar run over the past decade. Having sold positions in Amazon and Google last year, the fund is now betting that some tech stocks will fall.

Lansdowne is “moving from long to short in technology [as] valuations are super-high,” the person said. Shorting means betting on falling prices. “Would you buy Facebook …now? No,” the person added.

Lansdowne has long been considered the gold standard of equity hedge fund investing, although performance has been sub-par in recent years. This year the Developed Markets fund is down 5.3 per cent, whereas the S&P 500 index has gained more than 18 per cent.

The firm also expects to increase its position in UK stocks significantly, if political risks recede. That is a contrarian call, when the FTSE 100 is hovering around the level it was at the end of 2016. However, Lansdowne thinks companies are run in a much better way than 10 or 15 years ago and have stronger balance sheets.

“UK companies are significantly mispriced,” the person said. “The UK economy is structurally in a very good position. If you compared UK and US unemployment, it would be difficult to differentiate the two, and yet the narratives are radically different.”