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SPIVA® U.S. Scorecard - Year-End 2016

S&P Global Platts

Energy: What to Watch in 2019

S&P Global Ratings

S&P Global Ratings' Global Outlook 2019

S&P Global Ratings

Next Debt Crisis: Will Liquidity Hold?

S&P Global Platts

Turning Tides: The Future of Fuel Oil After IMO 2020


SPIVA® U.S. Scorecard - Year-End 2016

Summary

  • Starting with this scorecard, we will report the relative outperformance or underperformance of actively managed funds against their respective benchmarks over a 15-year investment horizon. The longer time horizon provides a complete market cycle to measure the effectiveness of managers across all categories.
  • Given that market conditions can impact managers’ performance from year to year, we also added rolling three-year relative performance figures from 2003 through 2016, calculated on a semiannual basis across major domestic and international equity categories.
  • The U.S. equity market finished 2016 on a strong run. Even though the S&P 500® , S&P MidCap 400® , and S&P SmallCap 600® all posted 10% losses by mid-February 2016, the indices rallied back to finish the year on a positive note, posting 11.96%, 20.74%, and 26.56%, respectively. Approximately one-half of the year’s total return for the S&P 500 and S&P MidCap 400 came within the last two months of the year, while almost two-thirds of the S&P SmallCap 600’s gains came from the same period.
  • During the one-year period ending Dec. 31, 2016, 66% of large-cap managers, 89.37% of mid-cap managers, and 85.54% of small-cap managers underperformed the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, respectively. These figures are on par with the one-year performance figures reported in June 2016, with the exception of large-cap managers, who faired relatively better.
  • Figures over the five-year period did not change significantly from the SPIVA U.S. Mid-Year 2016 Scorecard.1 During the five-year period ending Dec. 31, 2016, 88.3% of large-cap managers, 89.95% of midcap managers, and 96.57% of small-cap managers underperformed their respective benchmarks.
  • Given that active managers’ performance can vary based on market cycles, the newly available 15-year data tells a more stable narrative. Over the 15-year period ending Dec. 2016, 92.15% of large-cap, 95.4% of mid-cap, and 93.21% of small-cap managers trailed their respective benchmarks.
  • During the same 15-year period, large-cap value managers fared better than their growth counterparts.
  • International markets finished the year on a positive note. Global large caps, as measured by the S&P Global 1200, and emerging markets, as measured by the S&P/IFCI Composite, both rallied throughout the year to end with gains of 8.89% and 10.79%, respectively.
  • Across all time horizons, the majority of managers across all international equity categories underperformed their benchmarks.
  • In December 2016, the U.S. Federal Reserve raised the interest rate for the second time in a decade. Managers investing in intermediate- and short-term credit fared the best over the oneyear period, with only 19.75% and 26.61% underperforming, respectively. The same trend held through the five-year period. The 10- and 15-year periods proved to be difficult for all credit managers.
  • Trends seen at mid-year 2016 continued throughout the remainder of the year. Spreads continued to narrow, which tested high-yield bond market managers. More than 94% of managers in this category ended the one-year period lagging the index’s performance of 17.13%.
  • The continued strength in the high-yield bond market had a positive spillover effect to the leveraged loan sector. The S&P/LSTA U.S. Leveraged Loan 100 Index posted a gain of 10.88% year-over-year. This outperformance proved difficult for actively managed senior loan funds over the one-year period, with nearly 82% of funds underperforming the benchmark.
  • Funds disappear at a significant rate. Over the 15-year period, more than 58% of domestic equity funds were either merged or liquidated. Similarly, almost 52% of global/international equity funds and 49% of fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.


Energy: What to Watch in 2019

Highlights

S&P Global Platts Analytics Issues Two Special Reports

Pricing across the global energy markets will face headwinds in 2019, with a weaker and more uncertain macroeconomic framework deflating price formation in general, according to two special reports just issued by S&P Global Platts Analytics. Such headwinds will require the industry and portfolio managers to take a big-picture approach.

See the Executive Summary of the S&P Global Platts Analytics special report 2018 Review and 2019 here. Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here.

"One of the key lessons learned in 2018, painfully by some, is that market sentiment can shift violently without much change in fundamentals, requiring a steady, holistic perspective," said Chris Midgley, global head of analytics, S&P Global Platts. "It is clear that this volatility will remain a feature across the energy markets in 2019, particularly as IMO 2020 nears."

Particularly blustery headwinds are in store for markets where prices finished 2018 at elevated levels, and well above costs, such as North American natural gas and global coal. However, if the supply side can adjust to the reality of slowing demand growth, energy prices can find support. For natural gas liquids (NGLs), the ongoing logistical constraints at the US Gulf Coast are likely to manifest on continued price volatility, particularly for ethane and liquid petroleum gas (LPG), over the next year despite strong global demand.

LPG, such as propane and butane and used in transportation fuel, refrigeration, heating and cooking, is rapidly facing US export capacity constraints, especially along the US Gulf Coast. For LPG feedstock propylene, there is clear potential for high volatility globally over the next 12-18 months.

Analysts at S&P Global Platts see weakening prices of Henry Hub natural gas. The slowdown in US demand growth will exceed that of supply. But if winter temperatures prove to be colder than normal, near-term prices will need to move higher to bring on enough supply to replenish depleted storage levels.

For global liquefied natural gas (LNG), it will be end-user-backed LNG demand that faces particular struggle to cope with the speed and force of new supply entering the market in 2019. Non price-responsive demand in Asia will be easily met and JKM spot physical prices (reflecting LNG as delivered into Japan, Korea and China) will sag next year.

Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here. Among the 22 key take-away themes:

  • NGL supply growth will strain the North American energy system
  • Saudi Arabia will need to be nimble to balance 2019 oil supply
  • US oil supply limited by pipelines
  • Oil demand slowing: trade war, industrial slump
  • 2019 LNG supply additions largest since the Qatari mega-trains
  • US gas supply growth to exceed demand growth even with LNG exports
  • Global solar growth slowing
  • Shipping disruption looming - IMO 2020
  • New Russian gas pipeline advantage over Ukraine
  • US coal demand to decline again in 2019
  • Growth in new refineries and complex capacity likely to weigh on refinery margins especially in Asia

Year 2019 will certainly be one of transition for crude and refined oil products as it will lead into 2020 when roughly three million barrels per day of high-sulfur fuel oil must be “destroyed” (including enhanced usage of HSFO in power generation) due to the International Marine Organization (IMO) mandate of eco-friendly shipping fuels in use at sea. A similar amount of middle distillate/low sulfur fuel must be created (by refinery changes and by running more crude oil. The increase in refinery capacity between now and 2020 is large, but mostly needed to cover normal demand growth. Expect prices of light sweet crudes to be bid up in 4Q19.



S&P Global Ratings' Global Outlook 2019

 A deep dive into S&P Global Ratings’ insights on the credit outlook for 2019 and what are the risks and vulnerabilities to look out for.

Access all the Global Outlook
Read More


Next Debt Crisis: Will Liquidity Hold?

Highlights

Crisis. The next global downturn is unlikely to be as severe as 2008-2009 given that contagion risk from higher government and Chinese corporate leverage is limited (see section 1).

Transmission. We’re watching market movements on U.S. speculative-grade (e.g. “cov-lite”) and Chinese corporates (section 2). Global capital flows could amplify investor reaction in these segments.

Ratings. Notwithstanding a low interest rate environment, higher leverage has seen issuer ratings trend down globally over the past decade (see sections 3, 4 and 5).

Mar. 12 2019 — Will the next financial crisis be as bad as 2008-2009? Global debt is certainly higher and in many cases riskier than a decade ago. Nonetheless, the likelihood of a widespread investor exodus is contained, in S&P Global Ratings’ view. The increased debt is largely driven by advanced-economy sovereign borrowing and domestic-funded Chinese companies, thus mitigating contagion risk.

That’s not to say there is no vulnerability. A perfect storm of realized risks across geographies and asset classes could trigger a systemically damaging downturn. This downside scenario reflects an increased reliance on global capital flows and functioning secondary market liquidity.

It also reflects bottom-up risks, given that many speculative-grade corporate borrowers have obtained financing on reasonably good terms for much of the past decade. In looking at 11,947 corporates, we find the proportion of companies having aggressive or highly leveraged financial risk has risen slightly, to 61%. While defaults in recent years have been low, this could change.

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Turning Tides: The Future of Fuel Oil After IMO 2020

This report provides a thorough introduction to the IMO's sulfur cap on marine fuel, its impact on markets and what to expect from the new regulatory framework. Aiming to provide market-leading insight and analysis, S&P Global Platts outlines the regulation's impact on refiners and shipowners, analyzes how markets will adapt, and offers birds-eye view on how it could affect the environment.

The IMO’s lower sulfur cap is set to take away the bulk of marine fuel oil demand from the start of next year. Most shipowners and operators will switch to burning new low-sulfur bunker blends, meaning an almost overnight shift of 3 million b/d of demand.

The change poses a tough challenge to fuel oil producers, and prices are  expected to drop dramatically towards the end of 2019. Ships fitted with scrubbers to clean their emissions on board are set to benefit from this drop in their fuel bills, but only a small fraction of the global fleet are expected to invest in the systems by 2020.

LNG producers can expect to see some new demand for their product as an alternative marine fuel. But the IMO’s greenhouse gas strategy may hold back interest in LNG bunkering beyond the 2020s.

The global refining industry is investing in new units aimed at reducing fuel oil output and maximizing middle distillate production. Russian fuel oil exports in particular have fallen dramatically over the past two years.

But new sources of fuel oil demand can be expected to emerge in the coming years, partly offsetting the decline in marine demand. Saudi Arabia has already increased fuel oil consumption for power generation and its water desalinization plants, and Bangladesh is expected to become another key consumer.

2020 will not be the end of the road for fuel oil. A century after its first move to widespread adoption in shipping, fuel oil still has a significant role to play in the oil industry.

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