Milan Will Host the 0100 Conference Mediterranean, a Key Event for Private Equity and Venture Capital Investors

  |   For  |  0 Comentarios

Preparations are underway for the upcoming 0100 Conference Mediterranean, which will be held in Milan from October 28 to 30. This event for European and global private equity and venture capital investors is a unique opportunity to connect with over 400 limited partners (LPs) and general partners (GPs) from leading industry firms such as 500 Global, AltamarCAM, Astorg, Ardian, Balderton, Banco BPM Vita, Golding Capital Partners, Dawn Capital, EIF, H.I.G. Capital, Iris Capital, LocalGlobe, Lunelli Holding, Merseyside Pension Fund, Morgan Stanley, National Bank of Greece, Octopus Ventures, Paladin Capital Group, Tikehau Capital, Unigestion, VenCap, among others.

With a comprehensive agenda, attendees will enjoy activities over three days at iconic locations such as Palazzo Mezzanotte, Palazzo Reale, Palazzo Giureconsulti, Cracco in Galleria, and others. Additionally, there will be numerous networking opportunities, including the opening night, VC cocktail reception, and PE networking dinner to foster impactful connections.

During the sessions, participants will have the chance to connect with over 100 leading fund leaders from across Europe and beyond, with a special emphasis on the Southern European region. According to the organizers, the event is intentionally designed on a small scale to ensure audience control. “Typically, 80% of our attendees are decision-makers such as partners, VPs, and directors,” they assure. You can check the list of attendees to date at this link.

Another attractive feature of this event is the targeted audience, with 30% of investors focusing on private equity, 44% on venture capital, and 26% on both asset classes. “With an audience comprising 30% LPs and 45% GPs, you are sure to connect with the right people,” the organizers highlight.

Register to participate in the event and access tickets for the conference with a 15% exclusive discount for Funds Society readers using the code FS15, by clicking here.

BlackRock Bets on Japan, AI, Quality Companies, Emerging Markets, and Europe

  |   For  |  0 Comentarios

BlackRock has focused on the real economy in its investment strategy for the second half of 2024. This was acknowledged by Javier García Díaz, Head of Sales for Iberia at BlackRock, during the firm’s presentation of its outlook for the second half of the year.

“We are in interesting times with challenges and opportunities for investors,” said García Díaz, who admitted that the firm shows a preference for risk “but with control” and that one must be alert to the opportunities that will emerge in this new economic regime. “Resources are currently being invested in major economic forces, such as artificial intelligence or deglobalization, which generate winners and losers,” he said.

The bet on the real economy is reflected in the opportunities the firm sees in data centers for artificial intelligence, “which will grow between 60% and 100% in the coming years”; also in the energy transition, with needs amounting to $3.5 trillion, and the reconfiguration of supply chains. “The real economy is gaining ground over the financial economy, benefiting infrastructure and industry,” the expert noted.

Risk, according to García Díaz, should be “tactical,” and it’s a good time to invest, characterized by below-trend growth, above-average inflation data, high debt, and elevated interest rates.

The equity positioning – an asset that has been performing well this year due to technology and good corporate earnings – focuses on Japan, artificial intelligence, quality companies, emerging markets – albeit selectively – and, tentatively, Europe.

1. Japan: The country is favored, according to the BlackRock expert, by a more favorable monetary policy, an economic recovery, healthy inflation, and structural reforms for shareholders and investors. “We advise allocating 10% of the total portfolio to Japan,” said García Díaz.

2. Artificial Intelligence: “We continue to overweight this sector and increase our conviction,” said the expert, who relies on the strong profits of these companies. “We believe we are still in a very early stage of AI; tech companies are investing heavily, and in future phases, telecommunications, healthcare, and finance will incorporate AI into their development, eventually permeating the real economy,” he assured. García Díaz revealed that AI will add 1.5 percentage points per year to the US GDP in the future.

Opportunities in this sector, according to the expert, are in data protection and cybersecurity; infrastructure such as data centers, semiconductors, and cooling; and finally, energy, due to the high consumption of this technology.

However, he also disclosed risks such as the capacity of the electrical grid to meet energy demand; regulation, or potential bottlenecks in the supply and production of metals necessary for artificial intelligence, like copper.

3. Quality Companies: Companies with healthy balance sheets and investment capacity are BlackRock’s main targets. These are abundant, according to the firm, in technology and the luxury sector.

4. Emerging Markets: The position García Díaz advises in emerging markets is “selective,” with India as the main protagonist, following the recent elections won by President Narendra Modi. “There has been volatility in the Indian market, but we value its young population; there is strong investment in supply chains, and there is a flow of equity ETFs into the country,” he said. His bet on India includes not only the stock market but also the country’s fixed income.

5. Europe: The firm’s positioning in Europe is still “tentative.” In this region, there are notable aspects, according to García Díaz, such as a better situation in the banking sector; the automotive industry weighs less in the indexes than in the past, and international companies are now better. “We are cautiously optimistic: we prefer banks, healthcare, and luxury in Europe,” the expert affirmed.

In fixed income, the firm overweights US short-term bonds and is increasing duration in European fixed income, considering that the ECB has already lowered interest rates and that inflation in the US remains elevated. The positioning is neutral in credit – both investment grade and high yield – while being selective with emerging markets, again favoring India as the preferred market.

Alternative markets are another of BlackRock’s bets due to the strong expected growth: in the coming years, assets will double. This growth, according to the expert, would come from easier access to such assets through products like Eltifs, technological improvements, and the progressive reduction of listed companies – since 2009, there are 20% fewer companies on global stock exchanges. “It’s a clear bet, as demonstrated by BlackRock’s last two corporate acquisitions: the GIP investment fund and the private markets data provider Preqin.”

Venture Capital Investment Grew by 16% in the First Quarter Due to the Funding Needs of AI Companies

  |   For  |  0 Comentarios

The latest study by Bain & Company reveals that venture capital investment reached $89 billion globally (spread across more than 4,600 transactions) during the first quarter of 2024, representing a 16% increase compared to the last quarter of 2023. The consulting firm notes that generative artificial intelligence (AI) continues to dominate the venture capital landscape, given that large language models have a high need for funding.

According to the report, the United States led this growth, with a 72% increase compared to the previous quarter, driven by investments in technology, AI, energy, and healthcare. China also recorded a quarter-on-quarter increase of 13%, mainly due to the automotive and AI sectors. In contrast, Europe experienced a 28% decline in funding due to macroeconomic uncertainty and the technical recession in the United Kingdom.

The average size of venture capital deals increased across all funding stages. Early-stage investments grew by 43%, while seed-stage deals rose by 17%. In late-stage deals, the increase was 21%. Bain & Company particularly highlights the growth of Series B stage deals – when companies seek to expand their market reach – driven by sectors such as AI, renewable energy, and healthcare.

Additionally, the study indicates that while the number of Corporate Venture Capital investors remained stable, the deals funded by these investment vehicles increased significantly in the first quarter of 2024. This growth was particularly notable in the early-stage and seed stages, especially in sectors like energy, AI, and healthcare.

Alvaro Pires, partner at Bain & Company, adds: “More and more non-tech private equity firms are joining the generative AI trend. LG Technology Ventures, CVS Health Ventures, and Capital One Ventures led this activity globally in the past year. Moreover, we have observed significant growth in the collaborations these companies establish with some startups to incorporate generative AI into their customer experience.”

Flexibility, Costs, and Above All, Innovation: The Weapons of ETFs to Gain Weight in Portfolios

  |   For  |  0 Comentarios

The advance of the ETF industry seems unstoppable. Increasingly, these products are detaching from the traditional conception of passive investment and are being considered management instruments with growing weight due to their efficiency. The question is whether, as an investment vehicle and thanks to their constant innovations and evolutions – including actively managed ETFs – they will ultimately displace traditional mutual funds in portfolios.

At the recent IMPower Incorporating Fund Forum held in Monte Carlo (Monaco), several experts shared their perspectives and participated in a debate analyzing the growth of ETFs and their potential and innovations. During a breakfast at the forum, Deborah Fuhr, Managing Partner and Co-founder of ETFGI, highlighted the multiple benefits of ETFs and their broad asset coverage, which has led them to reach record assets close to $13 trillion. Therefore, it is an industry to watch closely, analyzing its evolutions and opportunities.

Their acceleration has been enormous, partly supported by their flexibility and their advancement beyond pure passive investment: “They can also be active instruments. We have realized that ETFs are a very useful, extremely transparent, and flexible wrapper. Since their inception, ETFs have evolved from a market-capitalization-based vehicle to a very flexible one, and that is one of the reasons for their explosion. And, from a distribution standpoint, it is also seen much more simply than 10 years ago,” added Howie Li, Global Head and ETFs LGIM.

The Retail Investor’s Bet

“The ETF is a very transparent and efficient vehicle, ideal for making investment decisions and accessing different trends (AI, megatrends, sustainability, digital assets…), which explains its growth and adoption first by institutional investors and now by retail investors,” said Marie Dzanis, Former CEO, EMEA, Veteran CEO.

In fact, this is one of the major changes explaining their success: the adoption by retail investors, especially in the U.S., also due to the tax benefits in the country, but it is also happening in Europe, particularly in markets like Germany or the United Kingdom. “Retail investors are used to buying individual stocks, and that buying experience can extend to the purchase of a fund, which attracts the retail sector,” added Li.

Innovation and Actively Managed ETFs

This growing appetite has also led firms to move into a space they were not in a few years ago. “Many firms are entering the ETF industry, and one way to do this is by converting mutual funds into ETFs with index structures,” recalled Fuhr.

The development of proprietary indices to follow, or new active management structures based on indices, within an ETF wrapper – more transparent and cost-effective – is driving the ETF industry’s growth to unprecedented levels and reviving the debate not just between active and passive investment but about the best instrument for portfolios.

“The debate has gone beyond active versus passive management and is now focused on ETFs versus other investment vehicles,” said Philippe Uzan, Deputy CEO – CIO Asset Management at iM Global Partner.

“I would separate ETFs from the active vs. passive investment debate: ETFs are the result of industry innovation, the most efficient instrument for investing, for institutional and individual investors. If I have to choose between active or passive investment, it will all depend on the market context,” said Mussie Kidane, CIO, North America Advisors at Pictet.

The expert went further, noting that “in the United States, actively managed ETFs are leading market innovation and development, offering immediacy, transparency, and tax advantages. A traditional fund investor has to pay, but ETFs offer near-zero fees, and this is changing the industry’s playing field.” In his view, traditional funds represent a “dying industry in the U.S. while many investments are being built in ETF format” due to their efficiency. The expert argued that when there is a highly efficient instrument, supported by innovation, it can “kill” other instruments: “The amount of innovation happening in the U.S. in the world of ETFs is incredible,” he continued.

Controversial statements not all experts agreed with, especially professionals working on the European side: “I agree that ETFs have advantages in the U.S. that do not exist in Europe, but if they arrive, they could be a preferred instrument,” said Uzan. However, in his opinion, “the fund industry is changing, not dying. Those who do not change are the ones who die,” he defended.

Sustainability and Crypto

Debates at the forum also touched on ETFs as a way to access sustainable investments: “The issue of sustainability is stronger in Europe than in the U.S., but it cannot be denied. We have moved from an exclusion perspective to looking at companies’ behavior metrics and seeking ESG leaders, but in recent months, the focus has been on how this will work from a transition perspective, and the industry has realized it will take years and that the role of traditional companies cannot be denied. It will be acknowledged, and sustainable solutions will evolve,” commented Li.

Another significant innovation in this industry is ETFs that provide access to digital assets and cryptocurrencies through “solid and regulated structures.” Experts recalled that the launch of the first spot bitcoin ETF was the most successful in history.

Fixed Income Catch-up

The innovation in the ETF world is undeniable, but there are also advances regarding traditional assets: Tim Edwards, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices (S&P DJI), provided a statistic: the majority of indexed funds are still in the equity space, and the total amount of equity worldwide invested through indices is about 20%, compared to 2% for fixed income. However, fixed income indexed vehicles are growing faster, he noted.

Uzan highlighted the difficulties managers have in beating the indices and yet defended that “fixed income is still a great territory for active management.” In his opinion, one of the keys for active managers is not to stick to or restrict themselves to a single investment category but to look at the entire investment universe. For other experts, vehicles that replicate indices have value in the most liquid areas of the asset, such as government or investment-grade corporate debt, while active management can apply to other segments of this market.

Is This Portfolio Rebalancing Movement Sustainable?

  |   For  |  0 Comentarios

The attempted assassination of Donald Trump increased his lead over Joe Biden by 7 points (from 60 last Saturday to 67 today) according to betting houses. In the average polls compiled by RealClearPolitics, it has remained much more stable, rising from 47.2 to 47.4.

Although gauging the impact that the assassination attempt may have at the polls next November is mostly a matter of speculation, there is a clear effect on sentiment reflected in the bets of Americans (PredictIt, Polymarket), consistent with historical precedents such as the attacks suffered by Teddy Roosevelt in 1912 or Ronald Reagan in March 1981, which were not very long-lasting.

The adjustment of perspectives at the political level and in the macroeconomic sphere following the digestion of macro data, which point to a reasonable moderation in the pace of expansion (confirmed by the surprising retail sales figures) and the return of the disinflationary trend in price indices, are justifying a repositioning of institutional investors’ portfolios. Gold has hit a new high, the yield curve has steepened, and stock market bets are being reassigned.

With uncertainty in the geopolitical and international trade spheres on the rise and the monetary policy cycle declining, the rotation from megacap companies to small and mid-cap companies has gained momentum in recent sessions, as demonstrated by the 12% lead of the Russell 2000 over the Nasdaq in the last five days. This is a mark not seen since April 2001 (against the S&P 500, the movement has no historical precedent) and leaves the technology and communication services sectors trailing in terms of profitability in a global context.

These price movements show that investors support the idea that interest rate cuts, which could be larger than the market anticipates, will sustain this cycle for a little longer to the benefit of companies that have suffered the most from the 2022-2023 monetary tightening cycle.

However, to confirm this thesis, we will need to see not only a turning point in monetary policy (U.S. small caps are ~3x more leveraged in Debt/EBITDA than large companies and more dependent on variable-rate bank loans) but also a recovery in EPS, which is not assured if, as we think, the cycle is more likely to be ending than extending.

The publication of second-quarter results will provide information in this regard, but as we see in the chart and according to SME surveys, it is unlikely that high-yield credit spreads will support the excessive price increases of the past few sessions for much longer.

Behind the momentum in small-cap prices, we find the hot money of retail investors who have rushed en masse to buy ETFs and the gamma short positions of traders. As we can see in the table, and consistent with what we explained above, in the last 5 days there have been net purchases worth more than $4 billion in the Russell 2000 ETF and notable increases in other ETFs associated with a recovery in economic activity (industrials, financials), gold, and the equal-weight S&P 500 ETF, which dilutes the influence of tech megacaps.

In summary, an excessive gap between large-cap indices (S&P 500 and Nasdaq) and small-cap indices (S&P 600, Russell 2000, Russell 2500), in the context of June macro data supporting the soft landing scenario (employment, retail sales, industrial production, inflation), has led to a shift in the rhetoric of several Fed members and investors’ perceptions of interest rate trends (adding a -0.25% adjustment to their expectations from a week ago, moving the first cut from November to September).

The coincidence, moreover, with the increased likelihood of a “red wave” in the November presidential elections and Trump’s choice of a vice president who will not discomfort him at all, has led U.S. fund managers and retail investors to rush to buy cyclical/value/small-cap stocks while unloading what has risen the most (growth/semis/AI).

The question is: Is this portfolio rebalancing movement sustainable? Given the uncertainty about which scenario will prevail in 8-12 months (with a higher probability for a slowdown/mild recession than for a soft landing in our opinion), it is difficult to make a forecast with conviction.

The retail sales figure, which posted the strongest rise in three months in June, one of the catalysts for what happened this week, seems actually taken out of context: the inertia in EPS and sales revisions for consumer companies (Nike, Pepsi, Delta, Chipotle, Starbucks) in the U.S. has accumulated 10 consecutive weeks of downward adjustments. We recently commented in this column on how lower-income households have been more concerned about their finances and are concentrating their spending on essentials and moving towards store brands.

The savings rate as a percentage of disposable income is below 4%, and credit card and consumer loan delinquencies have skyrocketed. Similarly, according to the U.S. Consumer Behavior Study compiled monthly by Bank of America, credit card spending contracted by 0.5% in June, and the series has shown a negative trend since February. Additionally, the labor market will continue to cool in the coming months.

The update of the “Beige Book,” which at first glance supports the soft landing scenario (less inflation, growth moderation), also provides a perspective that contrasts with the retail sales data.

Of the 12 Fed districts participating in the compilation of the Summary of Current Economic Conditions (or Beige Book), 5 point to flat or declining activity this time: three more than in the previous report. The report also shows moderation in labor demand and more selective hiring by employers. And, in line with our comments and the Bank of America document’s conclusions, most districts report an increase in discount campaigns by retailers in response to more price-sensitive consumers, focusing mainly on essential goods and willing to buy lower-quality but cheaper products.

Regarding the Fed’s plans, it is very likely that cuts will begin in September (the market assigns a 95.5% probability). The yield curve is steepening, which is implicitly favorable for value themes, cyclical bets, and small businesses. The trend towards the 2% inflation target will become more evident as service prices continue to moderate and the housing cost components of CPI/PCE more clearly reflect the decline in rental costs in the market.

There could even be a positive surprise in the amount of cuts by the end of the year (3 instead of 2?), but this would come with a more pronounced deterioration in the labor market, negatively affecting credit and therefore harming small caps. Moreover, if history is a guide, the bullish momentum of these types of stocks following Trump’s unexpected victory in 2016 did not take long to deflate.

As for Trump’s return to the White House, it is the most likely bet, but things can happen between now and November. The announcement of Joe Biden’s departure (and his replacement on the ticket by Kamala Harris, accompanied by Ray Cooper, Mark Kelly, or Andy Beshear as vice-presidential candidate) could happen in a matter of days, following the sharp turn in the polls after the debate and the fundraising collapse on the Democratic side.

Clearly showing this, polls give Trump a two-point lead in Virginia, a traditionally Democratic stronghold that Biden easily won in 2016 (+10 points). With Biden’s departure, undecided Democrats about his ability to lead the country for another four years could support another candidacy, diluting the potential for large Republican majorities in the House and Senate.

And regarding the betting advantage, it has almost vanished (from 69 to 62), in line with what happened in 1981 after the attempted assassination of Ronald Reagan (3/30/1981).

Although Trump would still be the favorite, it is possible that the market is exaggerating the benefits a new mandate would bring to investors. Trump has learned in the past four years that inflationary policies have severely damaged his opponent’s image. Additionally, his 2016 victory was a surprise, whereas it is now partially priced in.

Then, the prospects of rising inflation were one of the main causes of the “bear steepening,” which would initially favor portfolio repositioning; this time, the cycle is much more mature, and disinflation prevails. Finally, the room for fiscal aggression is significantly reduced: debt-to-GDP is at 99% (76% in 2016), and interest payments on GDP are almost triple (3.1% vs. 1.4%).

Extending the 2016 TCJA tax cuts will have a lower fiscal multiplier than Biden’s expansive plans (IRA, CHIPs, infrastructure). If he manages to impose his project of a 10% tariff increase on imported goods, it will initially

drive up inflation and benefit domestic demand (small caps), but it will eventually be a deflationary measure.

Despite everything, for those looking to jump on the small business bandwagon, it is important to note the differences between the indices: S&P 600 offers more quality, while Russell 2000 has more dynamite.

 

 

Capital Group Expands Its Fixed Income Team in Europe

  |   For  |  0 Comentarios

Capital Group has bolstered its investment capabilities by hiring Álvaro Peró Gala as Fixed Income Investment Director. According to the asset manager, Peró will be integrated into the team of investment specialists to bring Capital Group’s fixed income offering to retail and institutional clients across Europe.

Additionally, he will be part of the client teams for the Iberian Peninsula and U.S. offshore, supporting local clients as a fixed income expert, bringing his investment experience and bond market knowledge. He will be based in London and report to Scott Steele, Head of Fixed Income Asset Class in Europe and Asia.

He joins from PIMCO, where he held the position of Vice President and played a significant role in expanding both the retail and institutional business within the firm’s distribution network in Iberia. At PIMCO, he also worked with the global wealth management team in London, focusing on global financial intermediaries and family offices. Before PIMCO, Álvaro honed his consulting experience in various industries, including the banking and energy sectors. He also holds an MBA from INSEAD.

Following this appointment, Mario González, Head of Business in Iberia and U.S. offshore at Capital Group, stated, “It remains a constant priority for us to ensure that our clients always receive first-class service with access to well-researched investment opportunities.”

In González’s opinion, the Iberia and U.S. offshore markets hold strategic importance for Capital Group. “We are delighted to welcome Álvaro as we work closely together to offer our fixed income capabilities to investors throughout the region,” he said.

Álvaro Peró Gala, Fixed Income Investment Director, commented, “I am thrilled to join a company with a differentiated investment process, a solid track record of achieving robust results, and over 50 years of fixed income investing history. Despite economic uncertainties, the global fixed income market offers considerable potential. I look forward to meeting with clients to provide them with Capital Group’s global fixed income products and solutions to help them achieve their long-term investment goals.”

Julius Baer Appoints Stefan Bollinger as CEO

  |   For  |  0 Comentarios

After an “exhaustive” search, Julius Baer has announced that the Board of Directors has appointed Stefan Bollinger as the new CEO. According to the announcement, Bollinger will begin his new role at Julius Baer on February 1, 2025.

Stefan Bollinger is currently co-head of Private Wealth Management for Europe, Middle East, and Africa (PWM EMEA) at Goldman Sachs in London. He is also a member of the European Management Committee and the Global Wealth Management Operating Group. Under his leadership over the past five years, the PWM EMEA business more than doubled its assets under management.

Bollinger has three decades of experience in financial markets, having held various roles in trading, structuring, sales, treasury, and wealth management. Throughout his career, he has been based in Hong Kong, London, Luxembourg, New York, and Zurich. Stefan Bollinger joined Goldman Sachs in 2004 and has been a Partner for 14 years. Prior to joining Goldman Sachs, he worked at J.P. Morgan in London, although he began his career at Zürcher Kantonalbank.

Following this announcement, Romeo Lacher, Chairman of Julius Baer, stated: “We look forward to welcoming Stefan Bollinger to Julius Baer. He has an excellent track record in global banking and wealth management. He was instrumental in expanding Goldman Sachs’ presence in Asia, Europe, the Middle East, and Africa. Stefan led and built outstanding businesses, most of them at the intersection of wealth management and capital markets. His experience combines a comprehensive understanding of risk, products, and how to deliver value to global wealth management clients through building scalable, client-centric businesses. He brings a unique combination of leadership, client and people skills, along with solid technical knowledge and functional experience to Julius Baer. Under Stefan’s leadership, we will strengthen Julius Baer as the leading pure private bank and create the best conditions for sustainable growth. Our priorities to achieve this are to create value for clients and shareholders in everything we do, strengthen and ensure cutting-edge risk management, and foster a culture of excellence.”

For his part, Stefan Bollinger mentioned his excitement about joining Julius Baer and added: “I look forward to working closely with the Board, the management team, and everyone at Julius Baer to capitalize on its unique strengths and shape the next chapter of client-centricity, risk management excellence, and sustainable growth.”

The arrival of Bollinger in February 2025 will mean that Nic Dreckmann, who has been the interim CEO of Julius Baer, will step down from these functions. “On behalf of the Board of Directors, I want to thank Nic Dreckmann for serving as interim CEO at a decisive moment. Nic and his team have done an exceptional job leading Julius Baer during a challenging time, with great focus on our clients and delivering solid results. Nic will continue to lead the Group until Stefan’s arrival and ensure a smooth transition. After the transition, we look forward to having Nic continue as a member of the Executive Board,” stated Lacher.

Markets at Highs: What Will Come First, a Correction or a Rotation?

  |   For  |  0 Comentarios

In the equity market, historical highs can evoke mixed feelings. According to investment firms, historically, bull markets have lasted much longer than bear markets, reaching new highs in each cycle and creating opportunities.

For example, following the earnings presentation of U.S. banks, the good results reflect the positive state of the sector in the last quarter before expected rate cuts in September by the Fed and ECB. However, the equity markets saw sales gain momentum due to bans on exporting advanced technology to China for AI development. “Thus, stocks like Nvidia and ASML suffered losses close to double digits, dragging down major indices: the S&P 500 lost 2% over the last 5 days compared to -4% for the Nasdaq and -4.3% for the Euro Stoxx 50, while the Ibex 35 fell only 1.45% due to its lower tech weight,” notes Portocolom’s investment team.

Edmond de Rothschild AM’s latest analysis indicates that recent U.S. political events have reinforced the large rotation underway since inflation data was released a few weeks ago. “Investors are replacing large-cap companies with small caps, tech stocks with energy and real estate, and growth with value,” they note.

“With the momentum of energy stocks, the U.S. market continues to reach new highs, diverging from the sideways movement of the European stock market, which has not reached new highs since April. Issues in China are affecting Europe’s main sector, leaving it behind in stock market gains,” explain Activotrade.

When the market hits a new high, investors might conclude that the market has peaked and they’ve missed the opportunity. According to Capital Group, nothing could be further from the truth. “Over long periods, markets have tended to rise and reach multiple highs in a cycle,” they note.

Everyone knows that market declines are inevitable and can happen at any time. But according to Capital Group, history has shown that periods when markets hit new highs have offered an attractive entry point for long-term investors. “Since 1950, whenever the S&P 500 index has reached its first all-time high in at least a year, the average equity return has been 17.1% in the following twelve months. Except at the start of the 2007 financial crisis, an investor would have gained in all these periods,” explain Capital Group.

“That’s why we focus on themes like globalization, productivity, and innovation, which drive growth significantly. We will face market declines, but these have not changed the long-term trajectory. Hence, I usually advocate for market appreciation,” adds Martin Jacobs, equity manager at Capital Group.

According to Yves Bonzon, CIO of Swiss private bank Julius Baer, the market’s performance has been good so far this year, and it seems the bears have capitulated for the sake of their careers. “Consequently, it wouldn’t take much to reset the greed (bullish sentiment) and fear (bearish sentiment) indicator back towards fear. The risk/reward ratio for the second half of the year is the least attractive we’ve seen in a long time. To be clear, we still believe the main trend is bullish. Therefore, we are trying to protect against an intermediate correction in a bullish trend,” states Bonzon.

For Julius Baer’s CIO, the narrative is now shifting towards a healthy rotation but not immediately. “Although still to be seen, we are not convinced of the likelihood of a swift and convenient shift towards a much broader U.S. equity bull market where the equally weighted S&P 500 suddenly outperforms its market-cap weighted counterpart. In other words, the economy may enjoy Goldilocks-like conditions, but markets are rarely so kind. We doubt the Goldilocks scenario for equities, with a broad market rise, began last Thursday,” he argues.

Another sign that a sustainable rotation has not yet begun is the disappointing performance of European and Chinese equities. “If such a rotation is underway, European and Chinese equities do not seem to be benefiting from it. We believe the odds of a correction are higher than those of a sustainable rotation. We cannot overlook the disturbances that likely would have flooded the U.S. if the assassination attempt on former President Trump had succeeded,” he asserts.

Second Half Outlook

According to DPAM, we are in an atypical cycle characterized by persistent economic growth amid restrictive monetary policy, causing concern for both bulls and bears. “The balance between disinflation, growth, interest rate hikes, and long-term secular themes continues. Bulls currently have the upper hand, as evidenced by the new market highs,” notes Johan Van Geeteruyen, CIO of Fundamental Equity at DPAM.

In this context, Van Geeteruyen believes that investors have yet to react and prefer large caps until economic stability improves, with monetary tightening also affecting small caps. “We believe the best strategy is to accumulate positions gradually, as several catalysts, such as ECB rate cuts, improved macroeconomic conditions, and low positioning, suggest an imminent shift. The recent improvement in flows, with the return of U.S. investors, could also be a strong catalyst,” he notes.

According to their forecasts, the market expects growth recovery in 2024 and 2025. They believe the composite PMI has risen above 50, thanks to the strength of the services PMI, and the manufacturing PMI has improved from 45 at the beginning of the year to over 47. This turning point historically indicates an imminent superior performance of small caps, which are sensitive to economic improvements but have been at recessionary valuation levels for over two years.

“We remain neutral on the U.S. due to valuation issues but lean towards overweighting Europe. We avoid underweighting the U.S. due to its dynamism and safe-haven status. Factors supporting our overweight position in Europe include improving macroeconomic indicators, increased business confidence, a resurgence in business activity, attractive capital distribution, and undervalued AI dissemination,” points out Van Geeteruyen.

Schroders Capital Launches Pilot Project for Tokenization to Invest in ILS

  |   For  |  0 Comentarios

Schroders Capital has announced the launch of an innovative pilot project designed to enhance the investment and management of insurance-linked securities (ILS). This pilot has been a collaboration with the global reinsurance company Hannover Re.

The project is part of Schroders’ commitment to innovation and leadership in digital assets, following their participation in the Monetary Authority of Singapore’s “Project Guardian” last year and the issuance of the first digital bond in sterling by the European Investment Bank.

The initiative with Hannover Re, tested internally by Schroders, has successfully tokenized reinsurance contracts and traded them on a public blockchain platform using smart contracts. Each token represents a stake in a portfolio of reinsurance contracts, demonstrating how ILS funds could invest through a digital ecosystem in the future.

According to the investment firm, tokenizing these contracts has allowed, with constant oversight from investment professionals, the automation of many time-consuming processes. For instance, the investment process has been streamlined by automating subscriptions and reducing settlement times.

Additionally, by integrating key data sources for catastrophe insurance into smart contracts, payments to the appropriate recipient are automatically triggered if specific natural disasters, such as hurricanes or earthquakes in the U.S. or windstorms in Europe, occur.

The pilot project has also shown the potential to improve the customer experience by increasing accessibility, allowing tokens to be held in investors’ digital wallets alongside their other digital investments. The use of a public blockchain has also enhanced transparency while maintaining proper governance and controls.

Earlier this year, Schroders Capital announced that its ILS team now manages over $5 billion in funds as client demand continues to grow. The ILS team is part of Schroders Capital’s Private Debt and Credit Alternatives (PCDA) business, which was launched last year and manages over $30 billion in assets.

“The success of this pilot project highlights the immense potential to increase transparency, streamline investment processes, and enhance the customer experience in the reinsurance sector. It paves the way for a more interconnected and efficient digital ecosystem, and we look forward to exploring the broader application of this technology to more investment scenarios and clients,” said Stephan Ruoff, Co-Head of Private Debt and Credit Alternatives at Schroders Capital.

Henning Ludolphs, Managing Director of Retrocession and Capital Markets at Hannover Re, added, “This pilot project has been a great opportunity to understand the capabilities of blockchain technology when applied to the reinsurance market. With solid governance and integrated compliance, the pilot also demonstrated that the regulatory and operational risks surrounding blockchain are similar to those of other market transactions. While it is an emerging technology, we foresee greater appetite for such investments in the future, and this pilot prepares us well to evolve our approach and generate more retrocession capacity through a different source.”

Innovation is a key aspect of Schroders Capital’s strategy, and the findings from this project will be used to explore further tokenization opportunities in the reinsurance market. Additionally, the company recently unveiled the launch of the Generative AI Investment Analyst platform, designed to accelerate the analysis of large volumes of data.

Biden Gives Up for Reelection but Policy Proposals Will Remain Key, Experts Say

  |   For  |  0 Comentarios

The day starts digesting the big news of the weekend, Joe Biden’s withdrawal as a candidate for the U.S. presidential election in November, with the dollar slightly falling and Treasury bonds rising, while European stocks recover from their worst week of the year. From a political perspective, experts point out that the upcoming Democratic Party convention in August will be decisive in determining who will replace Biden. From a market and economic policy perspective, they suggest that few changes are expected.

In the opinion of Matt Britzman, Senior Equity Analyst at Hargreaves Lansdown, operators around the world will try to figure out what Biden’s withdrawal from the U.S. election campaign means for the markets. “U.S. stock futures will open higher, but with just three months to go before the election, this is uncharted territory, and markets usually don’t like uncertainty. Besides the general nervousness, investors might expect the sectors that have received a boost from the so-called Trump trade to pull back a bit now that he faces an unknown opponent. This includes sectors like energy, banks, and bitcoin, as they are expected to receive support from a Trump administration. A prudent pullback wouldn’t be a surprise, but Trump remains a clear favorite, so don’t expect significant changes for now,” says Britzman.

Currency markets, for example, have ignored the political events in the U.S., and the news of Joe Biden’s withdrawal from the presidential race and his support for Vice President Kamala Harris is having little impact on the market in the early hours of the Asian session. According to Eurizon, currency markets are usually calm in the summer months, and this week there will be few important data releases or political meetings to stir them. Attention will be on the dynamics of intervention and stop loss in the Japanese yen, as well as any details that may arise regarding monetary policy in a hypothetical second Trump term. In terms of data, Wednesday will bring the July PMI business activity index, an updated reading of the main economic trends (especially the apparent slowdown of the U.S. economy). U.S. GDP growth in the second quarter (Thursday) and PCE inflation (Friday) will complete the week.

Candidate Question

Gilles Moëc, Chief Economist at AXA IM, argues that it doesn’t matter who the candidate is because the problems are the same. “Beyond the name of Biden’s replacement, the key issue for us is how different the rival’s economic platform will be from Biden’s. With limited time to produce a new agenda and, in any case, a decent level of consensus throughout the Democratic Party on economic issues, we wouldn’t expect many changes. We note that Kamala Harris herself and most of the natural alternatives are closely associated with the Biden administration or the mainstream Democrats,” he explains.

In the opinion of Paul Donovan, Chief Economist at UBS GWM, “politicians matter less for economies than they think.” Instead, he believes markets react if the probabilities of policies change. “What matters is who the Democrats choose as their candidate; if that choice significantly changes policy proposals; if the probabilities for the presidential and congressional elections change. It will take time to get information on any of these points,” says Donovan.

For Marisa Calderon, President and CEO of Prosperity Now, so far, Biden’s economic policies have not been bad. “President Biden came into office at a time of deep economic insecurity for many Americans. The pandemic had caused incalculable damage to the nation’s labor market and created the threat of greater systemic inequality and a potentially larger wealth gap between different communities. However, his track record to date tells a different story. With the highest job growth ever seen in the United States, his policies have helped the country get back to work. We are inspired by his track record of successes in the White House, and we look forward to continuing to work with his administration for the rest of his term to drive sound and equitable economic policy that works for all Americans,” says Calderon.

Political Proposals

In this regard, what policies are relevant? In Moëc’s opinion, regarding international trade, any Democratic candidate would likely pursue a fairly strong “anti-China” policy anyway. “Biden did not repeal the special tariffs imposed by Trump, and with public opinion harboring negative feelings about China—the Pew Center polls suggest that more than 80% of U.S. citizens have a negative view of the country—rolling back the Chinese export machine has become uncontroversial in Washington,” he says.

According to him, “the key difference with Trump would still be the treatment of imports from other suppliers, which in the event of a Democratic victory in November would spare European exporters from a smaller but still painful version of the trade war against Beijing.”

He also argues that any Democratic candidate would likely maintain Biden’s focus on industrial policy, with a continuation of the CHIPS Act and the IRA, with sustained support for the U.S. transition to net zero. “In fiscal matters, much of the savings any Democratic candidate would consider would come from allowing some of the tax cuts implemented by Trump in 2017 to expire, at least those that benefit the highest-paid individuals,” he adds.

Another relevant policy is immigration. According to Moëc, “any Democratic candidate would probably commit to reducing entry flows, but in any case, the impact on the working-age population dynamics would be less than if Trump’s hardline agenda prevails.”

The Chief Economist of AXA IM believes the situation remains fluid, but his thesis is that even with Joe Biden out of the race, it is Donald Trump who would still present the agenda with the most tangible impact on the markets, given its inflationary aspects (brutal repression of immigration, widespread increases in customs tariffs, accommodative fiscal policy). “In any case, the likelihood of any Democratic president also enjoying a majority in Congress is small, which would reduce their ability to direct the economy. The ‘Trump Trade,’ which has recently supported the dollar and put a floor under long-term interest rates despite rate cut expectations, is likely to remain active,” he concludes.

On the other hand, analysts at Edmond de Rothschild AM highlight that markets were buoyed by the Trump-Vance campaign’s promises to provide budgetary and regulatory aid to the U.S. economy. “However, the current economic conditions are very different from those that existed when Donald Trump came to the presidency in 2016. Interest rates and the public deficit are now much higher, so the winning candidate will have less room to maneuver. The economy rebounded in 2017 after slowing down in 2015-16, but the next president will face a slowdown,” they explain.

Focusing on the implications of a second Trump presidency, Elliot Hentov, Head of Macro Policy Research at SSGA, highlights that it would be logical to expect a considerable fiscal expansion in the event of a Republican sweep, with a more modest fiscal boost in the case of a divided Congress. In his opinion, there are three relevant focuses: energy, trade, and security.

“In trade, almost certainly there would be tariff increases, with a disproportionate share being imposed on Chinese imports, but other countries would also be affected. In energy, Trump is likely to amplify U.S. efforts to increase energy exports, which could increase global supply and help contain prices, benefiting net energy importers. And in foreign/security policy, a Trump presidency would likely continue extracting greater security commitments from U.S. allies, notably in Europe,” adds Hentov.