The path will be uneven and choppy, the governor warns
Employer reimbursements of up $500 not a taxable benefit if related to Covid-19
Panellists at the Toronto Global Forum share their investment approaches for uncertainty
Market hurdles have accelerated ETF flows
- By: Katie Keir
- October 26, 2020
October 26, 2020
Funding the fight against global warming – Investment Executive
It finds that meeting the commitments made under the Paris Agreement to limit global warming will require a fundamental transformation of the global economy, requiring much greater investment.
The overall estimate of US$100-trillion to US$150-trillion worth of new investment translates into at least US$3 trillion to US$5 trillion of investment per year, which would be between five and eight times higher than current levels, the report said.
To generate this sort of investment, “the price of carbon must rise to fully price in emissions,” it suggested.
Moreover, the report said that climate finance needs aren’t linear, meaning that a lack of action now will translate into even greater investment needs in the future.
Given the scale of the challenge, the report called for coordinated action by the government and the private sector to significantly grow the climate finance market, with a view to developing the financial and risk management tools that are needed to catalyze investment.
“The unprecedented call to action aims to help mitigate substantial mis-pricing and potential financial stability risks which would undermine the long-run ability of the financial system to direct finance to fully support the Paris-aligned transition,” the GFMA said.
The paper also sets out the role for capital markets firms and other market participants to facilitate the transition, while continuing to serve investors and clients.
“[T]o meet the targets set out in the Paris Agreement, we need to act quickly to build a high-functioning market structure that can facilitate a significant increase in the level of investment in the climate transition,” said Steve Ashley, GFMA chairman and head of the wholesale division at Nomura, in a release.
“It’s important to note that, while the banking and capital markets sector stands ready to facilitate change, we need the support of policy-makers and the wider private sector to create the incentives to make this work,” he said. “We hope this report will act as a call to action.”
PIMCO Municipal Closed-End Funds Announce Changes to Non-Fundamental Investment Policies – GlobeNewswire
NEW YORK, Dec. 04, 2020 (GLOBE NEWSWIRE) — PIMCO California Municipal Income Fund (NYSE: PCQ), PIMCO California Municipal Income Fund II (NYSE: PCK), PIMCO California Municipal Income Fund III (NYSE: PZC), PIMCO Municipal Income Fund (NYSE: PMF), PIMCO Municipal Income Fund II (NYSE: PML), PIMCO Municipal Income Fund III (NYSE: PMX), PIMCO New York Municipal Income Fund (NYSE: PNF), PIMCO New York Municipal Income Fund II (NYSE: PNI) and PIMCO New York Municipal Income Fund III (NYSE: PYN) (each a “Fund” and, together, the “Funds”) announced that, effective February 2, 2021, each fund will revise its non-fundamental investment policies such that each Fund (i) may invest up to 20% of its total assets in securities that generate income subject to the federal alternative minimum tax (“AMT Bonds”) (the “AMT Policy Revision”) and (ii) may invest up to 20% of its net assets in municipal bonds that are rated Ba or B or lower by Moody’s Investors Service, Inc. (“Moody’s”) or BB or B or lower by S&P Global Ratings (“S&P”) or Fitch, Inc. (“Fitch”), or that are unrated but determined to be of comparable quality by PIMCO Investment Management Company, LLC (“PIMCO”) (the “Lower-Rated Investments Policy Revision”), as described in further detail below.
Each Fund will effect the AMT Policy Revision by amending and restating its non-fundamental investment policies as follows, effective February 2, 2021:
|Fund||Current Policy||Amended Policy Effective February 2, 2021|
|PCQ, PCK and PZC||Under normal market conditions, the Fund will invest substantially all (at least 90%) of its net assets in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund’s portfolio manager to be reliable), is exempt from federal and California income taxes. The Fund will [at all times]1 seek to avoid bonds generating interest potentially subjecting individuals to the alternative minimum tax.||Under normal circumstances, the Fund will invest at least 90% of its net assets in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund’s portfolio manager to be reliable), is exempt from regular federal and California income taxes (i.e., excluded from gross income for federal and California income tax purposes but not necessarily exempt from the federal alternative minimum tax). Subject to its other investment policies, the Fund may invest up to 20% of its total assets in investments the interest from which is subject to the federal alternative minimum tax.|
|PMF, PML and PMX||Under normal market conditions, the Fund expects to be fully invested (at least 90% of its net assets) in tax-exempt municipal bonds. The Fund will [at all times]1 seek to avoid bonds generating interest potentially subjecting individuals to the alternative minimum tax.||Under normal circumstances, the Fund expects to invest at least 90% of its net assets in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund’s portfolio manager to be reliable), is exempt from regular federal income taxes (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax). Subject to its other investment policies, the Fund may invest up to 20% of its total assets in investments the interest from which is subject to the federal alternative minimum tax.|
|PNF, PNI and PYN||Under normal market conditions, the Fund will invest substantially all (at least 90%) of its net assets in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund’s portfolio manager to be reliable) is exempt from federal, New York State and New York City income taxes. The Fund will [at all times]1 seek to avoid bonds generating interest potentially subjecting individuals to the alternative minimum tax.||Under normal circumstances, the Fund will invest at least 90% of its net assets in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund’s portfolio manager to be reliable) is exempt from regular federal, New York State and New York City income taxes (i.e., excluded from gross income for federal, New York State and New York City income tax purposes but not necessarily exempt from the federal alternative minimum tax). Subject to its other investment policies, the Fund may invest up to 20% of its total assets in investments the interest from which is subject to the federal alternative minimum tax.|
Each Fund will effect the Lower-Rated Investments Policy Revision by amending and restating its non-fundamental investment policies as follows, effective February 2, 2021:
|Fund||Current Policy||Amended Policy Effective February 2, 2021|
|PCQ, PCK, PZC, PMF, PML, PMX, PNF, PNI and PYN||The Fund may invest up to 20% of its net assets in municipal bonds that are rated Ba/BB or B or that are unrated but judged to be of comparable quality by the Fund’s portfolio manager.||The Fund may invest up to 20% of its net assets in municipal bonds that are rated Ba/BB or B or lower or that are unrated but determined to be of comparable quality by PIMCO.|
PIMCO, each Fund’s investment manager, recommended the proposed changes to the Fund’s Board of Trustees as being in the best interests of each Fund. PIMCO believes these policy revisions will provide each Fund with the increased flexibility to invest in AMT Bonds and non-investment grade securities and accordingly, greater access to potentially attractive investment opportunities.
Investments by the Funds in AMT Bonds may expose the Funds to certain risks in addition to those typically associated with municipal bonds. Interest or principal on AMT Bonds paid out of current or anticipated revenues from a specific project or specific asset may be adversely impacted by declines in revenue from the project or asset. Declines in general business activity could also affect the economic viability of facilities that are the sole source of revenue to support AMT Bonds. In this regard, AMT Bonds may entail greater risks than general obligation municipal bonds. For shareholders subject to the federal alternative minimum tax, a portion of a Fund’s distributions may not be exempt from gross federal income, which may give rise to alternative minimum tax liability.
Investments by the Funds in lower-rated securities, including high yield securities, may cause the Funds to be exposed to increased risks associated with such securities, including but not limited to, an issuer’s inability to make timely principal and interest payments and higher risk of default. Lower-rated securities may fluctuate more widely in price and yield and may fall in price during times when the economy is weak or is expected to become weak. These securities also may require a greater degree of judgment to establish a price and may be difficult to sell at the time and price a Fund desires. Issuers of securities that are in default or have defaulted may fail to resume principal or interest payments, in which case a Fund may lose its entire investment. The creditworthiness of issuers of these securities may be more complex to analyze than that of issuers of investment grade debt securities, and the overreliance on credit ratings may present additional risks. In addition to the risks inherent in lower-rated securities, for purposes of weekly asset coverage testing required for the Funds’ outstanding auction rate preferred shares, the lower-rated securities may be discounted more than higher-rated securities.
A discussion of the Funds’ investment strategies and associated risks will be included in the Funds’ next annual report to shareholders for the year ending December 31, 2020.
The Funds’ daily New York Stock Exchange closing market prices, net asset values per share, as well as other information, including updated portfolio statistics and performance are available at pimco.com/closedendfunds or by calling the Funds’ shareholder servicing agent at (844) 33-PIMCO. Updated portfolio holdings information about a Fund will be available approximately 15 calendar days after such Fund’s most recent fiscal quarter end, and will remain accessible until such Fund files a Form N-PORT or a shareholder report for the period which includes the date of the information.
PIMCO was founded in 1971 in Newport Beach, California and is one of the world’s premier fixed income investment managers. Today we have offices across the globe and 2,800+ professionals united by a single purpose: creating opportunities for investors in every environment. PIMCO is owned by Allianz S.E., a leading global diversified financial services provider.
Except for the historical information and discussions contained herein, statements contained in this news release constitute forward-looking statements. These statements may involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the performance of financial markets, the investment performance of PIMCO’s sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions and government regulations, including changes in tax laws. Readers should carefully consider such factors. Further, such forward-looking statements speak only on the date at which such statements are made. PIMCO undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2020, PIMCO
1 The bracketed language does not apply to PCQ, PMF or PNF.
Federal Realty Investment Trust Stock Can Still Grow By 40% – Forbes
We believe that Federal Realty Investment Trust stock (NYSE: FRT) has an upside potential of 40% in 1-1.5 years, once the consumer demand improves and the retail sales recovers to the pre-Covid level. FRT trades at $90 currently and it has lost 30% in value year-to-date. It traded at a pre-Covid high of $126 in February and is 28% below that level now. Also, FRT stock has gained 35% from the lows of $67 seen in March 2020, after the multi-billion dollar stimulus package announced by the U.S. government which has helped the stock market recover to a large extent. The stock is lagging the broader markets (S&P 500 is up about 65% since the March bottom), as investors are concerned about a drop in the rent collections rate of Federal Realty Investment Trust.
The company owns a portfolio of commercial properties near densely populated areas with affluent communities – where retail demand exceeds supply. Due to the Covid-19 pandemic and lockdown restrictions, retail businesses have suffered significant losses, leading to a drop in FRT’s rent collection rate. The same was evident from FRT’s cumulative revenues for the first three quarters – down 12% y-o-y. That said, its carefully selected properties at highly desirable locations are likely to ensure higher demand for its retail assets. Further, most of them are open-air facilities, which are considered comparatively safer than malls. Despite some growth in FRT stock since late March, we believe that the stock has room for growth in the near future provided there is no sudden uptick in the Covid-19 cases leading to further lockdown restrictions. Our conclusion is based on our detailed analysis of Federal Realty Investment Trust’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
2020 Coronavirus Crisis
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 64% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how FRT and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in the S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of the S&P 500 index
- 1/1/2010: Initial recovery to levels before the accelerated decline (around 9/1/2008)
Federal Realty Investment Trust vs S&P 500 Performance Over 2007-08 Financial Crisis
FRT stock declined from levels of around $91 in October 2007 (the pre-crisis peak) to roughly $41 in March 2009 (as the markets bottomed out), implying that the stock lost as much as 55% of its value from its approximate pre-crisis peak. This marked a slightly sharper drop than the broader S&P, which fell by about 51%.
However, FRT recovered strongly post the 2008 crisis to about $68 in early 2010 – rising by 65% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
Federal Realty Investment Trust’s Fundamentals in Recent Years Looked Strong
Federal Realty Investment Trust revenues grew 26% from $744 million in 2015 to $935.8 million in 2019. Similarly, the company’s adjusted net income increased from $209.7 million to $345.8 million over the same period. The company’s Q3 2020 revenues were 11% below the year-ago period due to lower rental income. On the same note, its EPS figure decreased from $0.84 to -$0.41 mainly driven by an impairment charge of $57 million.
Does Federal Realty Investment Trust Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
Federal Realty Investment Trust’s total debt increased from $2.7 billion in 2016 to $4.5 billion at the end of Q3 2020, while its total cash increased from $23.4 million to around $863.3 million over the same period. The company generated around $268.4 million in cash from its operations in the first nine months of 2020, and if its cash situation further worsens, it might be difficult for the company to weather the crisis.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-October 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment.
Keeping in mind the trajectory over 2009-10, this suggests a potential recovery to around $126 (40% upside) once economic conditions begin to show signs of improving, provided its debt condition doesn’t deteriorate any further. This marks a full recovery to the $126 level Federal Realty Investment Trust’s stock was at before the coronavirus outbreak gained global momentum.
What if you’re looking for a more balanced portfolio instead? Here’s ahigh quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
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