BusinessDay 22 Aug 2018

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Wednesday 22 August 2018 @ FINANCIAL TIMES LIMITED Bill Gross’s bond fund hit by wave of investor redemptions Legendary manager now oversees $1.2bn, compared with $300bn during peak Owen Walker Bill Gross, once renowned as the world’s top fixed-income manager, has seen his fund fall in value by 40 per cent this year as investors abandon the onetime “bond king” following an extended period of weak performance. Investors have withdrawn $834m from the Janus Henderson Global Unconstrained Bond fund, which now manages just $1.2bn, according to Morningstar, the data company. The latest outflows mark a fresh low point for a manager who once controlled a $300bn bond fund, the world’s largest, when he was employed by Pimco. “It is not surprising that he has not been able to attract the staggering levels of money he managed at Pimco,” said Randy Waesche, chief executive of Resource Management, a financial advice group. “Investors do not flock to funds that consistently lose money.” Mr Gross’s fund has now dropped to last place in Morningstar’s non-traditional bond fund category after recording negative returns of 6.5 per cent in the first seven months of the year. Bond funds have been ravaged this year as investors have fled in response to rising interest rates. Several top-selling funds from 2017 have haemorrhaged cash in the first six months of the year. It is unclear how much of the What has been labelled the most hated bull market in US history is poised to become the longest. As of Wednesday’s close, the benchmark S&P 500 will have gone 3,453 days without a drop of 20 per cent or more, the decline typically associated with a bear market. That would put this rally past the length of the 1990-2000 one. Investors cite several factors behind the staying power of the latest bull run, including the depths from which the current rally began in the brutal aftermath of the financial crisis and the anaemic nature of the economic recovery. “That has caused interest rates and the Fed to be so much more accommodative for so much longer than other bull markets that it has helped to elongate it,” said William Smead, chief investment officer at Smead Capital Management. With central banks’ stimulus, rather than white-hot economic growth, fuelling the rise from the FINANCIAL TIMES C002D5556 COMPANIES & MARKETS $1.2bn Mr Gross manages is on behalf of external clients. He personally invested $700m in the fund when he started running it four years ago. Mr Gross has been on the wrong end what he has called the “trade of the year”, betting that German government bond prices would fall as US Treasurys rise. His fund also lost more than 3 per cent in value on a single day in May as fixed-income markets were rocked by the Italian financial crisis. Dick Weil, who recently become sole chief executive of Janus Henderson, this month told CNBC that Mr Gross had “made some bad bets”. Mr Weil, a former Pimco executive who was instrumental in bringing Mr Gross to Janus Capital in 2014, said at the time: “He believes still in his basic presumption that inflation is not going to get out of control. And so he hasn’t lost faith in his fundamental view. But he’s been wrong and wrong badly in the short term. And he’s accountable and we’re accountable for that.” Mr Waesche added: “Mr Gross will be remembered as one of many talented investment advisers that did well for a time, but ultimately lost to the vagaries of the market.” George Soros was one of Mr Gross’s early backers at Janus, but pulled $500m from the fund in 2015 as losses began to mount. Janus Henderson did not immediately respond to a request for a comment. The fund’s flows and performance data were first reported by Ignites, an FT news service. US bull market poised to become its longest S&P 500 is set to have gone 3,453 days without a drop of 20% or more Nicole Bullock post-crisis lows of March 2009, investors have been reluctant to embrace this Wall Street bull. “It has been the most hated bull market of all time — no one has ever wanted to believe in it,” said Barry Gill, head of active equities at UBS Asset Management. “A large part of the market has had that scepticism, largely driven by the unorthodox amount of monetary stimulus.” Gains for shares of technology companies, particularly the Faangs, have led the market in recent years. Investors betting on Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet have reaped outsized rewards as their products and services became more integrated in people’s everyday lives over the past decade. While the 2009-2018 bull market may become the longest, it is far from being the most lucrative. On an annualised basis, the gain would be about 16.5 per cent, compared with an average of 22 per cent for bull markets calculated by S&P 500 Dow Jones Indices and 35.5 per cent for the 1932-1937 rally. Investors have been waiting for the president to bash a strong dollar Roger Blitz BUSINESS DAY A3 Wang Shouwen, China’s vice-commerce minister, is leading a delegation to Washington this week to discuss US-China trade relations © Reuters Federal Reserve now firmly a target of Trump’s ire Since November when Donald Trump nominated him as Federal Reserve chair, Jay Powell must have expected the president to criticise his performance. So the US president’s view, expressed in a Reuters interview on Monday, that he was “not thrilled” about rising interest rates, should be no surprise. “I’m a low-interestrate person,” said Mr Trump on the campaign stump in May 2016. Nor is it surprising that the president’s views on monetary policy are inconsistent. He often denounced the Fed over quantitative easing. In February 2016, Mr Trump said low interest rates were creating a “big, fat, juicy bubble”. Mr Powell might not be losing any sleep over the comments, but markets are — the dollar weakened. Rabobank analyst Jane Foley suggested two reasons: “the power of the president’s words” and a fall in the Fed’s credibility. The first is well known, even if investors should by now be anaesthetised to the president’s frequent IG Index, Europe’s largest online trading website, appeared in court on Tuesday to fight a claim that it encouraged a UK businessman to place “risky” trades that were “against his best interests”, wooing him with hospitality and gifts. Peter Quinn, a Manchesterbased businessman, is suing IG after he lost at least £2m making spread bets via IG between 2010 and 2014. Spread bets allow traders to borrow money to bet on the price movements of underlying assets such as shares or currencies, without having to own them. Inexperienced traders can lose a lot of money through spread betting, making it the focus of a recent regulatory clampdown. Mr Quinn has accused IG of failing to adequately test the appropriateness of the products for him fulminations. The second preys on something that was always in investors’ minds when the president appointed Mr Powell — just how much of an influence would Mr Trump bring to bear on an institution whose independence is prized? Given the number of institutions Mr Trump has sought to undermine — from the FBI to the Department of Justice — it was surely only a matter of time before the Fed became a presidential target. His intervention promises to enliven coverage of Mr Powell’s speech at the central bankers’ symposium at Jackson Hole in Wyoming, on Friday. But the impact will be more long-lasting because Mr Trump’s remark was not a one-off. Investors have been waiting for the White House to jawbone lower the ever-stronger dollar, which has been propelled higher by expectations of tighter Fed policy into 2019. Not lost on investors in the Reuters interview were disparaging comments about the renminbi when he first opened his account with no previous spread betting experience, or at any later date. According to his claim, IG staff also “induced” him to continue spread betting after he had started to suffer big losses and demonstrated a “propensity to gamble”, by gifting him wines and inviting him to racing events for example. IG denies any wrongdoing, saying in court documents that any damage suffered by Mr Quinn was “wholly caused and/or contributed to by [his] negligence” when he chose to place the bets of his own accord. According to IG’s defence, Mr Quinn understood the risks he was taking and underwent a proper “onboarding” assessment. This included signing a customer agreement and agreeing that he had read the company’s risk disclosures. Giving evidence on Tuesday, Bridget Messer, IG’s chief commercial officer, told the court it and the euro being “manipulated” lower. Analysts were musing about how Mr Trump was probably looking beyond the midterm elections to his own re-election campaign to paint the Fed as just another establishment bad guy, so that when stock markets do fall and the economy turns down the president can deflect the blame. It clearly suits the president to create confrontation. Each time the Fed chair speaks publicly, investors and analysts will zero in on any attempt by Mr Powell to stiffen his central bank’s independence backbone. Which is why Gregory Perdon of Arbuthnot Latham expects Mr Powell to seek the moral high ground and “try to avoid at all costs a public bickering with the president. It would be very unFedlike to get into a spat.” Mr Powell would prefer investors also avoided distractions to focus on data in order to determine whether his interest rate policy stacks up. His problem is that the president has sowed a seed of doubt in their minds. IG Index fights claim it encouraged ‘risky’ trades Customer sues after losing at least £2m making spread bets between 2010 and 2014 Hannah Murphy was not IG’s duty to stop a client “who understands the risks [and] knows what he’s doing” from trading based on “whether or not he is a bad or a good trader”. She said that Mr Quinn had not undergone a further appropriateness test at a later point when his account was upgraded, but that he would have passed this had he done so. While the company invited Mr Quinn to events and lunches, this also did not break any rules, IG said. Peter Hetherington, chief executive of IG, attended the hearing on Monday and Tuesday. Mr Quinn is claiming at least £2m in losses and damages in the civil case, which comes weeks after European regulators introduced tough restrictions on trading sites. The rules include reductions in the amount traders can borrow to increase their bets, as well as a ban on offering traders bonuses or other benefits if they open accounts.
A4 BUSINESS DAY C002D5556 Wednesday 22 August 2018 FT ANALYSIS Air pollution: Why London struggles to breathe The UK capital was a pioneer in limiting cars, but it is now almost as dirty as New Delhi or Beijing Leslie Hook and Steven Bernard don. But in terms of nitrogen dioxide, which inflames lungs and is linked to shorter life expectancy, London is nearly as bad as the Chinese and Indian capitals — and much worse than other developed cities such as New York or Madrid. This is despite dramatic shifts in transport policy with increased cycling and a congestion charge helping to reduce the number of vehicles on the roads in central London by 25 per cent in the past decade. Yet despite its pioneering schemes, road works, cycle lanes and the rise of private hire vehicles has slowed traffic to a crawl. “These are the trenches,” says Simon Birkett, a banker-turned-aircampaigner who founded Clean Air London, a non-profit organisation. “If you cannot tackle this problem, which is much more tangible for people, you can forget about other Four years ago Sophie Power was walking along Marylebone Road, thinking of the son she was pregnant with at the time. The buses, lorries and cabs clogging the central London thoroughfare make it one of the most polluted places in the UK. “I wondered how to protect him,” she says, pointing to a study that found children in polluted areas develop stunted lung capacity that is 8 to 10 per cent smaller as a result. “The pollution inevitably has an impact,” she says. Although London’s air often appears clear to the naked eye, the city has suffered from illegal levels of air pollution since 2010, with particularly dangerous levels of nitrogen dioxide, which comes mainly from diesel vehicles. This summer’s unusually hot and sunny weather has caused surges in ozone — produced when sunlight reacts with nitrogen dioxide — that have prompted multiple pollution warnings. While cities such as Beijing or New Delhi usually attract more headlines, the stubborn air pollution in London shows just how intractable the problem can be. Under some measures, such as extremely small air particles, the smog in New Delhi and Beijing is much worse than Lonproblems,” he says, pointing out that climate change is much more complex. With the growing amount of research and political attention focused on air pollution, experts sometimes draw analogies to the way the Great Smog of 1952 radically changed how the city thought about its air. “We are in a similar moment now,” says one local official. “It’s not as visible, but because the particles are so small, the actual health effects can be more significant.” Shirley Rodrigues, London’s deputy mayor, says the city has reached a “tipping point” in terms of taking action. “It’s not only [because of] the thousands of deaths brought on early, but also the pernicious, chronic illnesses that are costing the health service a lot of money,” she says. “It is affecting quality of life.” The slowest bus routes in London This urgency has been compounded by a series of lawsuits in which judges ruled the government was not doing enough to comply with the EU’s legally binding air pollution limits. Part of the reason for the shift is that a lot more is now known about how air pollution impacts human health: In London air pollution contributes to more than 9,000 premature deaths each year, according to a study by King’s College. This month researchers at Queen Mary University of London found that even very small amounts of pollution were linked to changes in heart structure. Ms Power’s concern about her own exposure to air pollution led her to launch an air filtration company, Airlabs, which has created pilot clean air zones at bus stops and in schools. Her second child, just three months old, has a personal air filter inside his pram. While London’s air monitoring stations show that pollution has been slowly improving in recent years by most measures, Ms Power points out that individual exposure can be much worse than the monitors suggest. “Overall, the picture in London is not getting materially better.” Sadiq Khan, who became mayor in 2016, has made fighting air pollution a key priority, with a new ultra-low emission zone for central London and a commitment to spend £800m on air quality initiatives over five years. Government modelling suggests that London air will not comply with legal limits until 2025. Car journey times in Central London are double the rest of the capital To understand how London’s air got so bad in the first place, look no further than Upper Thames Street, which stretches from London Bridge toward Blackfriars, near the riverbank. As fitness-minded runners jog by, a stream of slow-moving traffic, mostly lorries and vans delivering to the city, stops and starts ahead of a set of traffic lights. At an office building on the corner of Thames Street and Cousin Lane, the vials and tubes of the monitoring station protrude from an entrance. The data they gather show the highest pollution in all of London, with nitrogen dioxide levels exceeding critical levels more than 120 times last year. (The legal limit is 18 times a year.) The City of London, the traditional financial district which is distinct from the Greater London Authority that covers the entire metropolis, is home to two of the five worst hotspots on this measure. City officials blame the Square Mile’s combination of medieval street design, high buildings, and persistent pollution from vehicle emissions. As in the rest of London, the congested traffic and diesel vehicles are two key culprits. “A lot of the pollution that we breathe on the streets around us, and the hotspots, are caused by diesel vehicles in London,” says Gary Fuller, the King’s College scientist who developed the London Air Quality Network of monitoring stations. London among the most polluted cities in the world by nitrogen dioxide When London missed the binding air quality EU limits that came into force in 2010, it was largely due to diesel vehicles, Mr Fuller says, because they emitted higher levels of nitrogen dioxide in the real world than in lab tests. The legacy of diesel, initially billed as a cleaner fuel because it produces less carbon dioxide, has plagued other European capitals such as Madrid and Paris. In London, congestion has compounded the effect of the diesel fumes. Traffic speeds in central London average eight miles per hour on weekdays — a figure that has decreased in recent years. Although the total number of vehicles entering central London has fallen by about 30 per cent since the congestion charge was introduced, the number of private hire vehicles entering central London — where they are exempt from the charge — has more than quadrupled over the same period. “The medieval road system, if you look at the layout and the size of the roads, they were originally designed for horse and cart,” says Ruth Calderwood, City of London air quality manager. Road works, private hire vehicles and online delivery vans have all contributed to the congestion problem, according to Transport for London, which is considering whether to extend the congestion charge to private hire vehicles. The stop-and-go nature of congested traffic exacerbates vehicle emissions, which are often highest when a vehicle is accelerating. Political inaction has also played a part. But in the years since then, air pollution has not always been a high priority. When Boris Johnson was mayor, between 2008 and 2016, he scrapped an extension of the congestion zone, and delayed plans for a low-emission zone. Mr Khan, himself an asthma sufferer, has put pollution higher on the agenda. The congestion charge has been augmented by a T-charge on the most polluting vehicles (“T” stands for toxicity). That will be replaced next year by an “ultra-low emission zone” charging older vehicles. Since the beginning of the year, all new single-decker buses are zero-emission, and new taxis must be hybrid or electric. By some measures London’s air compares favourably with other cities But even as the new ultra-low emission zone penalises polluting vehicles, some environmental advocates say a more nuanced road system is needed, one that charges cars according to how much they drive, where they drive, and how much they emit. “We are sitting on a bit of a health time bomb here,” says Caroline Russell, a member of the London Assembly for Britain’s Green party. “We really need to be making sure people see how much better our lives could be if we had a less car-dependent transport system.” London’s NO2 levels are gradually improving Brexit could present a further challenge for London’s fight to clear its air, because EU laws have until now provided the strictest air quality standards that the UK is obliged to meet. Last month, a clean air bill was introduced in the House of Lords that would make clean air a human right, and mandate that air quality be taken into consideration with all new government policies. “The concern post-Brexit is that if that falls away, there is a real risk that ambition will fall away even further on this issue,” says Katie Nield, a lawyer with ClientEarth, a non-profit group. In May, the Department for Environment, Food and Rural Affairs released a draft clean air strategy that described air quality as the “largest environmental health risk” in the UK.
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BusinessDay 22 Aug 2018

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