Artificial Intelligence is Everywhere

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Artificial intelligence everywhere
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The capabilities of artificial intelligence are advancing with the investment focus expanding from computing power to include additional layers of the technologies used to build web or mobile applications. As a result, we are finding more opportunities to invest in stocks of companies that are leaders or beneficiaries of AI.

In our new paper Artificial intelligence is everywhere, we provide an overview of the AI theme and how it is enabled by cloud computing and foundational science and technologies including semiconductors1. It touches on some of the recent advancements as well as the risks and challenges of developing and using AI.

AI is supported by foundational science and technologies such as:

  • Cloud computing: Essential for training and hosting AI models
  • Internet of Things: Collects data necessary for AI applications
  • Semiconductors: Provide the computing power for AI
  • Cybersecurity: Protects AI systems and data
  • Renewable energy: Helps ensures sustainable power for energy-intensive AI operations.

Use cases for AI are expanding rapidly and include code generation and documentation  for developers; automating customer requests; summarising medical reports and simplifying sales and marketing workflow. Such applications improve productivity and efficiency.

Recent advancements in AI technology include making new large language models capable of complex reasoning and problem-solving; making user interactions with AI models more intuitive; and the arrival of next-generation semiconductors to support AI training and inferencing2.

Harnessing the cloud

Cloud computing with advantages including lower costs, scalability, enhanced security and access to advanced technologies provides the necessary infrastructure and resources for AI development and deployment. Thus, investment in digital infrastructure is crucial for supporting AI initiatives. This includes datacentres, networking equipment, and storage systems. There is also growing demand for cooling systems, energy efficiency, and renewable energy sources to power AI datacentres.

The three major US cloud service providers grew cloud revenue by more than 30% over the last four years, surpassing USD 180 billion in combined revenue in 20233. Despite this, there is still a long growth runway: only about 20% of total workloads has migrated to the cloud.

Cloud service providers, large enterprises and government entities are investing heavily to build and equip the datacentres required to support AI initiatives. Our outlook for investments in digital infrastructure over the next several years is positive.

Today, most of the capital investment is focused on computing power, driving demand for semiconductors. Providers of server computers and other datacentre equipment are seeing robust growth. Some of the focus is likely to shift in favour of investment in networking and storage equipment to support training and inferencing of large language and other AI models.

We expect the long-term returns of developing and deploying AI technology to be attractive. Companies that expand beyond the infrastructure layer and create new applications or services are likely to see higher returns on investment. However, the high cost of components is a key variable.

 

Key investment opportunities

Here are the main areas:

Developers: companies creating AI innovations; cloud service providers training and hosting AI models; semiconductor companies

Foundational technologies: high bandwidth memory and networking chips; semiconductor capital equipment and materials suppliers; foundries; providers of networking and data storage systems; providers of energy efficiency and alternative energy solutions, such as cooling and solar panels

Data providers: companies with proprietary data sets that can be used to train AI models and provide competitive advantages

‘Beneficiaries’: Companies leveraging AI to improve products and services.

Challenges and risks

These include stricter regulations, for example, on copyright and data rights slowing innovation and demand for AI infrastructure.

There is also a need to avoid bias, produce accurate outputs, and ensure that real content can be distinguished from fake information.

Finally, AI systems and data need to be protected from cyberattacks.

Conclusion

Arguably, artificial intelligence is the most significant technology theme since the dawn of the internet age.

As AI technology advances and becomes more pervasive, we believe the investment opportunities among publicly traded equities are broadening. Capitalising on the positive trends while avoiding potential pitfalls will require an active approach to investment management.

 

Opinion article by Pamela Hegarty and Derek Glynn, BNP Paribas AM

The Rise of Small and Micro Caps: Investors Will Increase Their Allocation Over the Next 12 Months

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Small and micro-cap investments

A global study by New Horizon Aircraft reveals that fund managers are increasingly interested in small and micro-cap stocks. The report, based on a survey of fund managers from the U.S., Canada, Europe, the Middle East, and Asia, with a total of $82.4 billion in assets under management, concludes that 76% of respondents anticipate that institutional investors’ exposure to small and micro-cap stocks will increase in the next six to twelve months. Furthermore, one in three (34%) fund managers believes allocations could increase by 25% or more.

For retail investors, the trend will be similar: 83% of surveyed fund managers expect retail investors to increase their allocation in the next six to twelve months, with 52% indicating that the allocation could rise by more than 25%, and one in eight (12%) suggesting that exposure to small and micro-cap stocks could increase by more than 50%.

“One in three fund managers describes the current level of institutional investor exposure to this type of asset as underweight, with 21% of respondents describing the allocation to micro caps as slightly underweight and 11% describing it as extremely underweight. The current level of exposure is described as overweight by 4% and 23%, respectively. A similar outlook is seen with retail investors, with fund managers describing the allocation of this group to small and micro caps as underweight (32% and 27%, respectively) and as overweight (17% and 13%, respectively),” the report notes.

In the opinion of Brandon Robinson, CEO of Horizon Aircraft, this analysis shows that fund managers believe institutional and retail investors’ exposure to small and micro-cap stocks is lower than it should be. “However, with anticipated interest rate cuts and expected improvements in market conditions, fund managers foresee investors significantly increasing their allocation to small and micro-cap stocks. As the economy recovers, small and micro-cap companies may have greater growth potential than large-cap companies due to their smaller revenue bases and agility in seizing opportunities. This has historically made them more attractive to investors driven by the potential for high returns and accelerated earnings growth in the coming 12 months,” he explains.

The Growth of Active ETFs Is Unstoppable: Their Assets Have Reached $1.05 Trillion Globally

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Crecimiento de los ETFs activos

The ETF market shows great strength worldwide, as do actively managed ETFs, which achieved assets of $1.05 trillion as of the end of September, surpassing the previous record of $1.01 trillion set at the end of August 2024. This figure indicates that assets have increased by 42.5% so far in 2024, rising from $737.06 billion at the end of 2023 to $1.05 trillion.

According to ETFGI, flows show that this type of vehicle recorded net inflows of $26.50 million in September, bringing total inflows for the year to $240.14 billion. “This year’s record cumulative inflow of $240.14 billion is followed by cumulative net inflows of $113.80 billion in 2023, and the third-highest record was $106.90 billion in 2021. This was the 54th consecutive month of positive net inflows,” the report states.

Additionally, the report highlights that in the United States, where actively managed ETFs can use semi-transparent or non-transparent models, only 52 of the 1,659 actively managed ETFs use a semi-transparent or non-transparent model, representing only $14 billion of the $791 billion invested in these strategies.

In light of this data, Deborah Fuhr, managing partner, founder, and owner of ETFGI, notes: “The S&P 500 index rose 2.14% in September and is up 22.08% so far in 2024. The developed markets index, excluding the U.S., increased by 1.26% in September and is up 12.53% in 2024. Hong Kong, with a rise of 16.51%, and Singapore, with a rise of 7.43%, saw the largest increases among developed markets in September. The emerging markets index rose by 7.72% in September and is up 19.45% in 2024. China, with an increase of 23.89%, and Thailand, with an increase of 12.43%, registered the largest gains among emerging markets in September.”

As of the end of September 2024, according to ETFGI data, the global actively managed ETF/ETP industry included 2,962 ETFs/ETPs, with 3,679 listings, assets of $1.05 trillion, offered by 485 providers across 37 exchanges in 29 countries. By strategy type, globally focused equity ETFs saw net inflows of $15.49 billion in September, raising cumulative net inflows for the year to $139 billion, surpassing the $76.15 billion in cumulative net inflows in 2023. Meanwhile, actively managed fixed-income ETFs attracted net inflows of $10.19 billion in September, bringing cumulative net inflows to $86.36 billion, significantly more than the $36.20 billion in 2023.

A substantial portion of these inflows is attributed to the top 20 active ETFs by new net assets, which collectively captured $12.75 billion in September. The BlackRock Flexible Income ETF (BINC US) led with the highest individual net inflow, capturing $1.58 billion.

Fundamentals or Market Sentiment: The Ongoing Gold Rally, Under Debate

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Debate sobre el rally del oro

Gold prices have hit new highs. Midweek, the ultimate safe-haven asset reached $2,753 per ounce, marking a 33% increase for the year. According to experts, geopolitical tension stemming from the Middle East explains this surge.

At the start of the week, Ned Naylor-Leyland, gold investment manager at Jupiter AM, noted that the recent rise in gold prices was primarily due to futures contracts rather than physical demand or central bank purchases. “This is a crucial distinction as it highlights the nature of the gold market and how the dollar price of the yellow metal is driven not by physical trends but by futures market activity.”

He also pointed out that gold has gained prominence as central banks seek a buffer against the financial stability risks posed by rising geopolitical tensions, as well as events like the global financial crisis and the coronavirus pandemic. “Around one-fifth of above-ground gold reserves are held by central banks,” Naylor-Leyland added.

In contrast, Carsten Menke, Head of Next Generation Research at Julius Baer, believes this price surge has more to do with market sentiment than fundamentals. “The impressive rally in gold continues, with prices surpassing $2,700 per ounce last week. When looking for factors driving this rally, it appears to be mainly momentum and market sentiment. The position of short-term speculative traders and trend followers in the futures market recently reached one of the highest levels on record. Such extreme euphoria is typically a warning signal, as it shows a certain detachment of prices from fundamental factors,” Menke argues.

He explains that the U.S. dollar and U.S. bond yields have risen again as expectations for rate cuts have tempered. As a result, he notes that already moderate inflows into physically-backed gold products have slowed even further. “Gold buying in Asia remains weak, as indicated by Chinese imports, physical deliveries, and domestic price premiums. India’s gold imports have also normalized after high volumes in response to a surprising cut in import duties,” the Julius Baer expert added.

Short-Term Outlook

Despite this debate over the drivers behind gold’s price growth, there is a consensus on its positive short-term outlook. Marcus Garvey, Head of Commodities Strategy at Macquarie, agrees that gold’s “practically steady” rally continues, once again outperforming other assets. “While recent gains have not been explosive, the pace has been faster than estimated in our base scenario in September, when we updated forecasts, projecting an average price of $2,600 per ounce in the first quarter of 2025, with potential to advance toward the $3,000 per ounce level,” he indicates.

Macquarie maintains that challenging budget outlooks across developed markets are now a key feature of the bull market.

“Clearly, the upcoming U.S. elections contribute to uncertainty in this area. The scope and potential effectiveness of stimulus measures from Chinese authorities remain unclear, but if they succeed in significantly boosting the domestic equity or real estate markets, or both, it could dampen Chinese demand for gold,” Garvey argues.

“We continue to see a solid fundamental outlook for gold,” says Menke, explaining, “A further cooling of the U.S. economy and the prospect of lower interest rates in the U.S. could attract more Western investors to the market. The same applies to the U.S. presidential elections, which are reportedly prompting gold purchases by major investors who believe that, regardless of who reaches the White House, the U.S. dollar will be under pressure due to rising fiscal deficits.”

Finally, Julius Baer adds that Chinese investors and the People’s Bank of China should also return to the gold market. “For the former, it’s about the persistent weakness of the economy despite recent support measures. For the latter, it’s the low proportion of gold in its foreign exchange reserves and ongoing geopolitical tensions, especially with the U.S. In this context, short-term pullbacks are likely to be seen as buying opportunities,” Menke concludes.

Securitization and alternative assets: New opportunities for portfolio management

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Nuevas oportunidades en securitización y activos alternativos
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In the current climate of economic uncertainty, market volatility, and increasing geopolitical risks, portfolio diversification has become a priority for asset managers. Traditional strategies based on equity and bond investments have proven insufficient to mitigate the inherent risks of financial markets. Alternative assets emerge as a critical tool here, providing managers with new diversification opportunities to enhance portfolio resilience and profitability, FlexFunds highlights.

Alternative assets encompass investments in real estate, private equity, infrastructure, private debt, commodities, art, and collectibles, among others, characterized by their low correlation with traditional assets. This makes them an attractive option for managers and investors seeking to reduce portfolio volatility and mitigate the adverse effects of economic cycles.

In a high-inflation, high-interest-rate scenario, managers need to explore opportunities outside traditional markets. Alternative assets offer stability and potential returns, helping safeguard investment value during uncertain times. David Elms, head of diversified alternatives at Janus Henderson Investors, highlights that, during periods of economic transition, alternative investments can generate long-term returns independent of equity or fixed-income markets, particularly in bearish conditions.

Today, portfolio managers are increasingly turning to asset securitization to optimize their diversification strategies. This tool enables converting illiquid assets into tradable securities, facilitating distribution among investors. For managers, this approach opens up access to assets that would otherwise be unattainable due to their illiquid nature.

Securitization not only improves the liquidity of underlying assets but also provides an additional source of diversification. According to the II Annual Report of the Asset Securitization Sector by FlexFunds and Funds Society, portfolio managers are more familiar with securitizing traditional, tangible assets such as real estate projects, loans and contracts, and stocks.

One of the main advantages of alternative assets is their ability to generate absolute returns—i.e., positive returns regardless of market conditions. Portfolio managers incorporating these assets into their strategies aim to minimize economic cycle dependency by diversifying their investments into areas less correlated with equity or fixed-income markets.

In line with this, and based on a survey conducted by FlexFunds and Funds Society to over 100 investment and portfolio management experts, the most sought-after assets for securitization include real estate projects, loans and contracts, stocks, bonds, and mutual funds, as shown in Figure 1.

Source: II Annual Report of the Asset Securitization Sector 2024-2025

Figure 1: Assets of greatest interest for securitization

 

In addition to diversification and risk mitigation, alternative assets provide access to sectors undergoing growth and economic transformation. According to the same report, the most common types of alternatives that managers include in their portfolios are detailed in Figure 2.

 Source: II Annual Report of the Asset Securitization Sector 2024-2025

Figure 2: Alternative product in the portfolio

 

However, investing in alternative assets also entails challenges that must be managed carefully. The lower liquidity of these assets, as well as their opacity and lack of regulation in some cases, can increase risks. To mitigate these, rigorous due diligence and an experienced management team are crucial to understanding each alternative investment’s unique characteristics.

From a manager’s perspective, integrating alternative assets into investment strategies represents both an opportunity and a responsibility. The challenge lies in identifying suitable assets that align with investors’ objectives and risk profiles. The selection of these assets should be accompanied by constant portfolio review and adjustment, considering market fluctuations and emerging opportunities.

In this context, FlexFunds, as a leader in designing and issuing investment vehicles (ETPs), facilitates access to international markets, especially in a financial environment where diversification through alternative assets is key. With its securitization program, FlexFunds offers managers the ability to:

  • Issue ETPs at half the time and cost of other alternatives available in the market.
  • Securitize multiple asset classes, including alternatives.
  • Facilitate distribution of alternative assets across banking platforms worldwide via Euroclear.
  • Streamline capital raising from international investors.
  • Simplify the onboarding and subscription process for investors, compared to traditional alternative asset subscriptions.

For further information, please contact one of FlexFunds’ experts at contact@flexfunds.com

Four Secular Trends That Offer Long-Term Certainty Amid Short-Term Volatility

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Tendencias seculares en medio de la volatilidad

“Putting money back to work” was the theme under which Oddo BHF AM recently presented its macroeconomic and market outlook in Madrid for the next four months. Laurent Denize, the firm’s Chief Investment Officer, led the presentation, focusing on three concepts investors should consider to capitalize on market trends: rotation, duration, and carry.

Denize clarified that Oddo’s stance aligns largely with market consensus, with a few nuances. Their outlook comprises four key points: a soft landing for the global economy, a continuation of the gradual trend toward disinflation seen over recent quarters, further interest rate cuts from the Federal Reserve and the ECB, and an increase in geopolitical risk, especially in the Middle East and in the lead-up to the U.S. presidential elections in November. However, Denize emphasized that the elections’ outcome is less concerning than the U.S. fiscal deficit, which he deemed “worrisome.” He also highlighted Germany’s risk of deindustrialization due to its anti-nuclear policy and growing reliance on Chinese imports, and France’s political instability and high government deficit, leading to significant tax hikes.

In this context, how can investors safeguard their portfolios? “We’re seeing that flows and market positioning are increasingly important,” Denize commented, pointing to the concentration in markets like the U.S. He believes that “valuations appear attractive, but EPS expectations are unrealistic,” which could lead to a rapid rotation.

Denize describes a landscape of rising volatility, declining liquidity, and investor indecision, yet with rich valuations across many market segments. He suggests these factors explain “the significant yield discrepancy between fixed income and equities,” arguing that “bond positioning doesn’t make sense” given the anticipated curve normalization. “We need to look for duration where it’s cheap, and today, that’s in equities, not debt,” he concluded.

Betting on Secular Trends

To navigate this environment, Oddo recommends focusing on secular investment trends. Denize points to the rise of artificial intelligence (AI) as the first such trend, noting its impact on capex could be pivotal: “We see a valuation gap between less capital-intensive companies and those investing heavily in AI. Interest is shifting from semiconductor manufacturers to software.” He anticipates that AI will drive further growth in trends like reindustrialization and robotics as a means to counter demographic shifts.

Two other secular trends noted by Denize are the growth of the healthcare sector—partly due to AI and scientific advances that enable better diagnostics and new drug discoveries—and the green economy. Specifically, Denize predicts “a rally” in green energy, driven by electrification over other energy sources, and stated, “The market is being very complacent about changes in the energy mix.”

The final secular trend mentioned by Denize is the emergence of new consumption patterns, tied to the widespread adoption of new payment methods. Oddo also anticipates a recovery in the luxury sector by 2025.

Due to these trends, Oddo recommends a defensive positioning for the coming months, favoring stocks tied to utilities, real estate, basic consumption (such as food and beverages), and construction, as they are well-positioned to benefit from both the rate-cut cycle and the trends in electrification and energy transition.

The Quarterly Flows in the European ETF Market Indicate That We Are on Track for Another Record Year

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Flujos trimestrales en el mercado europeo de ETFs

The European ETF industry is on track to reach record numbers in 2024, according to the latest market report from Morningstar. According to its data, the third quarter of the year recorded inflows worth €63 billion, a considerable increase compared to €53 billion in the second quarter. Additionally, assets under management grew by 5.7% during this period, surpassing the €2 trillion mark for the first time. “This increase marks a new quarterly record. Cumulative flows in the first three quarters of 2024 totaled €161 billion, surpassing the 2023 total and the previous annual high of €159 billion recorded in 2021. With one quarter still to account for, 2024 is set to be a record year for the ETF industry in Europe,” Morningstar indicates.

José García-Zárate, Associate Director of Passive Strategies at Morningstar, explains that the European ETF market closed the third quarter with a historic record of €63 billion in net inflows. “Surprisingly, with one quarter still to go, year-to-date cumulative flows have reached €161 billion, surpassing the previous annual record of €159 billion set in 2021. Assets have exceeded the €2 trillion mark for the first time,” he notes.

García-Zárate highlights that most third-quarter flows were directed toward equity strategies, especially U.S. large-cap stocks. “We have observed a substantial increase in interest in equally weighted ETFs in the S&P 500 following market volatility in August. This phenomenon suggests that some investors are concerned about the high concentration in technology stocks in capitalization-weighted indices. There was also an increase in demand for U.S. small-cap ETFs as investors look for tactical opportunities in the context of the interest rate cut cycle, moving away from large-caps. On the other hand, active ETFs, which have gained significant attention, attracted €4.8 billion, representing 7.7% of all ETF flows during the quarter. Although this segment is experiencing triple-digit organic growth rates, it still starts from a very low base: active ETFs represent only 2.2% of total assets in Europe.”

Key Trends

In terms of trends, Morningstar’s report shows that most assets, €1.42 trillion (71%), remain invested in equity strategies. In fact, these strategies captured €41 billion in the third quarter, slightly above the €40 billion in the second quarter. One of the most notable figures is that U.S. large-cap equities remain the most popular market exposure, although there has been a significant increase in interest in ETFs following equally weighted indices, especially the S&P 500. “These ETFs have gained popularity as a risk management tool amid concerns over excessive market concentration,” the report highlights.

Fixed-income ETF assets closed the quarter at €427 billion, accounting for 21.3% of the total. According to Morningstar, bond ETFs attracted €18.8 billion in the third quarter, up from €11.4 billion in the second quarter. “Investment-grade corporate debt ETFs and fixed-maturity bonds were favored, while inflation-linked bond strategies saw outflows,” the report indicates.

Meanwhile, ESG ETFs captured €7.5 billion in the third quarter, compared to €5 billion in the second quarter. According to the report, this increase was driven by a rise in flows toward ESG bond ETFs, while flows into ESG equity ETFs remained practically unchanged at €3.6 billion. “Flows into ESG strategies represented 12% of total ETF flows in the third quarter, up from 9.4% in the second quarter,” the report states.

Finally, active ETFs captured €4.8 billion in the third quarter, slightly above the €4.7 billion in the second quarter, representing 7.7% of all ETF flows during the period. “Strategic beta ETFs recorded net inflows of €3.2 billion in the third quarter, led by equally weighted equity strategy ETFs, while thematic ETFs saw outflows of €1.6 billion in the third quarter, with the largest outflow recorded in the energy transition ETF subgroup,” the report notes as other notable trends. One constant trend is the leadership of iShares, which topped the provider rankings in the third quarter with quarterly flows of €24 billion, followed by Amundi with around €8 billion, Xtrackers with €7.5 billion, and Vanguard with €7 billion.

Santander AM Integrates Its Alternatives Business Into a Single Platform Led by Carlos Manzano

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Integración del negocio de alternativas de Santander AM

The changes and restructuring at Santander Asset Management (SAM) continue. The asset manager has decided to merge its operations with the alternative investment platform and appoint Carlos Manzano as the head, who will report directly to Samantha Ricciardi, head of the firm, according to Bloomberg and confirmed by Funds Society.

In May 2023, the bank launched its alternative asset manager, Santander Alternative Investments (SIA), appointing Luis García Izquierdo as CEO and Borja Díaz-Llanos as CIO. The asset manager communicated this integration of businesses and the appointment of Carlos Manzano, who replaces Luis García Izquierdo, to its employees via an internal memo. These changes come after the appointment of Javier García Carranza as head of Asset Management, Private Banking, and Insurance at Santander in May of this year.

Manzano’s new responsibilities are not the only recent developments at the company. The asset manager has made additional changes. Marcos Fernández has been appointed Chief Operating Officer of the division, and Antonio Faz has been named head of Legal, while Alfonso Castillo, Global Head of Private Banking, has relocated to Madrid from Miami.

Additionally, the bank has selected Jaime Rodríguez Andrade to launch its new Santander Retirement Services business.

Other recent changes include Adela Martin, currently Head of Private Banking in Spain, who was appointed last month as Head of Business Globalization for the wealth management and insurance division, and the hiring of Víctor Allende, formerly of CaixaBank, to lead client advisory services in the private banking division.

Public Debt Investors Adjust Outlook on Rate Cuts

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Ajustes de perspectiva en deuda pública

The disparity in views seen in the updated September dot plot regarding the official rates’ positioning at the end of 2024 has become more turbulent this week.

While the median projection suggests up to three additional rate cuts (with nine bankers projecting 4.375%), there are seven others who only see two cuts. On the extremes, one banker anticipates cuts of up to 1%, which balances the two more conservative members who believe only a 0.25% reduction may be necessary from now until December.

This lack of clarity within the U.S. central bank has become more evident this week. Mary Daly of the San Francisco Fed, who supported the unexpected decision to review the Fed Funds by 0.5%, sees no immediate reason to suspend plans for monetary policy easing.

Nevertheless, calls for a more cautious approach are growing. Among them, Lorie Logan (Dallas) and Jeff Schmid (Kansas) have shared their thoughts this week. Schmid explained: “Although I support reducing the restrictive stance of monetary policy, I would prefer to avoid exaggerated moves, especially given the uncertainty about the final direction of monetary policy and my desire not to contribute to financial market volatility.”

Similarly, Neel Kashkari (Minneapolis) favors a slow approach toward the neutral rate (R*, estimated around 3% according to the projections). Productivity improvements in the U.S., a significant increase in the workforce (largely due to immigration since 2021), and structural recovery in consumption following the deleveraging after the subprime crisis could justify an R* higher than suggested by the Fed’s model (Laubach-Williams-Holston). If this is the case, a 0.5% cut, along with six other cuts expected by economists through 2025, could risk overheating the economy.

Even the private sector calls for restraint. In an interview with Bloomberg, Brian Moynihan, CEO of Bank of America—after pointing out that the Fed has been behind the curve since 2022—called for prudence in adjusting the cost of money. He noted that the risk of “moving too fast or too slow (in adjusting official rates) is now greater than six months ago.”

And the market has not stayed indifferent. As we noted last week, bets—whether naturally or strategically—show increasing positive inertia for the Republican candidate, impacting public debt investors’ confidence, who continue refining their expectations regarding rate cuts. As seen in the chart, the correlation between Trump’s winning odds and U.S. Treasury bond yields has risen significantly.

Kamala Harris leads by 1.8 points in the polls, while in 2020, Joe Biden held a ~7-point lead over Trump. Harris also trails Biden’s 2020 performance against Trump and Hillary Clinton’s (2016) performance in swing states (Michigan, Wisconsin, or Georgia).

Additionally, Trump clearly leads in voting intention among white, lower-education voters in these swing states, a relevant factor. Interestingly, despite declining unemployment, multiple surveys reveal that 60%-70% of respondents from different social groups (women, African Americans, independent voters, non-graduates…) believe the economy could be doing better, likely because real wage growth remains negative in many swing states.

To be fair, the macroeconomic outlook (with the Atlanta Fed’s GDPNow forecast pointing to 3.4% growth this quarter and unusual September employment data) also plays a role. According to Polymarket, the probability of a “red wave” scenario consolidating Republican power in the White House and both houses of Congress is now at 45% and continues to rise. Realistically, Trump only needs to secure 12 of the 27 House seats in play for Republicans to take control.

The recent adjustments in stock, public debt, and gold prices, among other assets, mirror the patterns observed in 2016, indicating that investors are attempting to anticipate the November election outcome, already factoring in a potential Trump victory.

The fall in Treasury bond prices is logical. Under Harris’s plan, despite higher corporate tax rates, other initiatives—such as expanded social programs and tax credits—would significantly raise the deficit. Estimates suggest her policies could increase public debt by $3.5 trillion to $8.1 trillion by 2035, pushing the debt-to-GDP ratio from the current 102% to 133%.

Trump’s tax cuts, though unlikely to bring the rate down to 15%, would further widen the deficit, with estimates ranging from $1.5 trillion to over $15 trillion by 2035. His plan, especially with corporate tax reductions and potential tariff-based policies, would significantly cut federal revenue, making it harder to contain public debt growth. At best, tariffs could generate around $1 trillion in revenue, and efficient government administrative cost management another $2 trillion.

However, the most likely scenario remains a divided Congress, which would make it very challenging for either candidate to implement the more aggressive version of their fiscal agenda. While Trump could independently raise tariffs (60% for imports from China and 10% for others) without Congressional approval, this would effectively act as a tax increase, impacting household consumption and ultimately having a deflationary effect (similar to the Smoot-Hawley Act in 1930).

On the other hand, employment data continue to show a gradual decline in labor market activity. Caution is necessary, as too much emphasis should not be placed on September figures; a recent example of investor sentiment shifts occurred in early August. October data may be difficult to interpret due to hurricanes (Helena and Milton) and seasonal hiring for the holiday season. Seasonal adjustments may not suffice, and the data could undergo significant revisions. Additionally, real-time indicators show trends in job openings that don’t align with official figures.

In contrast to the equities market, net speculative positions in U.S. 10-year bond derivatives have been aggressively reduced. This pessimistic sentiment is also evident in JP Morgan’s survey on duration positions and BofA Merrill Lynch’s survey among investment fund managers, who have rapidly scaled back their exposure to interest rate risk, as shown in the chart.

The T-Bond yield has over-discounted the macro surprise index’s upswing, which is nearing a turning point.

With official rates at 5%, and likely 4.75% in two weeks, the upward path for the T-Bond’s IRR should not exceed 4.8%. If a slowdown scenario—like in August—returns, we could quickly revisit the ≤3.5% zone. In a soft landing scenario, and if the terminal rate ends up above the dot plot estimate (~3.5%–3.75% vs. 2.875%), with a term premium of 0.2-0.4, yields would remain near current levels (~3.7%–4.2%), making the 12-month return distribution attractive, approaching 4.4%–4.5%.

More Risk-Averse, Higher Returns, and More ESG-Oriented: How Women Invest

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Cómo invierten las mujeres: más retorno y enfoque ESG

As women’s participation in economic activities grows and their income potential rises, female investors are becoming an increasingly significant force in wealth management. Supporting this trend, about one-third of global wealth is now in the hands of women, with nearly half of it in the U.S., where women control over $10 trillion in assets.

By 2030, the U.S. baby boomer generation will invest over $30 trillion in financial assets, an amount approaching the annual U.S. GDP. Meanwhile, in Western Europe, women own around one-third of managed assets. This wealth growth is also reflected in the percentage of female millionaires and billionaires worldwide, which continues to reach record levels. In 2000, there were only four women on the list of the world’s 100 wealthiest people, but by 2024, this number had reached 15.

“As women become wealthier, their investment opportunities expand, amplifying their importance as investors and equipping them with the right tools and resources. A 2019 report estimated that by 2025, 60% of the UK’s wealth would be in the hands of women, who often take control of family wealth when their husbands pass away,” notes DWS in its latest report.

In Asia, the total wealth of women, excluding Japan, was estimated at $13 trillion in 2019 and is expected to reach $19 trillion this year, making the region the fastest-growing in women’s wealth. “This also means that by the end of 2023, women in Asia are expected to own more wealth assets than women in any other region outside North America,” the asset manager states.

In Asia, women’s investments gain greater importance in cases of divorce or separation, as women are more financially dependent on men than in other parts of the world. In China, over 80% of urban women aspire to become more financially independent, showing a stronger motivation than men for financial empowerment, according to a recent survey. Other surveys show that women expect to become financially independent at 37, four years earlier than men. Additionally, 82% of women surveyed in another study expressed a desire to better control their financial situation.

Investor Profile

Given these facts, there’s no doubt about the potential of women as investors. However, what obstacles do they face? According to academic literature, one of the main factors is risk attitude, as women are more risk-averse than men.

“A 2018 study by Falk et al. showed that, when conditioned on other factors, women are significantly less risk-tolerant than men worldwide. This aligns with similar research by Dohmen et al. in 2011, which found that among the adult German population, not only are women generally more risk-averse than men, but this attitude toward risk is consistent across all aspects of life—sports, driving, financial matters, career, and health—even after controlling for various demographic and economic factors,” DWS explains.

The second notable characteristic is that women not only have the potential to invest more, but their investments also tend to yield higher returns over a 10-year period. The report suggests that several factors may explain these differences, including lower transaction volumes, holding onto investments during market downturns, using stop-loss orders, and more closely following financial advisors’ recommendations compared to men.

Third, the report notes that women aim to align their investments with their goals and are more inclined toward social and environmental objectives. In fact, UBS’s Investor Sentiment Survey highlighted that 71% of women consider sustainability in investment decisions, compared to 58% of men.

“This trend is also evident among investment funds; private equity firms that are at least 50% women-owned are 6.8% more likely to pursue impact investments focused on specific environmental or social factors, according to a study by academics from the UK, Ireland, Belgium, and the U.S. Regarding environmental and social goals, a study found that poverty, healthcare, and climate change were among the top priorities for women,” the report concludes.

Looking at the Industry

What about the industry? According to the report, in the global asset management sector, about 1 in 8 fund managers is a woman. “That proportion has not changed significantly in more than a decade, even as teams have grown and more professionals have joined the sector. In 2022, only about 12.5% of U.S.-based portfolio fund managers were women, nearly unchanged over the past 10 years, while only about 26% of over 10,000 U.S. funds were managed by a team that included at least one woman,” the report states.