Generative AI in the Insurance Market Could Generate Over $50 Billions

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The international consultancy Bain & Company has published a study on the impact of generative artificial intelligence (AI) in the insurance industry, highlighting that this technology could increase company revenues by up to 20% and reduce costs by up to 15%, creating an opportunity for over $50 billion in annual economic benefits.

According to the report, the early use of generative AI in insurance will enable a transformation in distribution, covering four areas. First, its implementation will help agents produce content faster, reduce low-value interactions, and provide guidance to improve customer relationships.

Additionally, having an always-active virtual assistant will expand agent availability and assist customers with product comparisons and digital purchases.

This also opens up the possibility of large-scale hyper-personalization, where conversations, content, and offers will better respond to individual customer needs. Finally, combining structured and unstructured data will provide new insights and assist in risk identification. According to the consultancy, the application of generative AI will boost productivity, adjust workforce size, increase sales through more effective agents, and reduce commissions.

For individual insurers, the technology could increase revenues by 15% to 20% and reduce costs by 5% to 15%. However, Bain concluded that any change must be applied responsibly, recommending that insurers implementing this digital tool should focus on experimentation, learning, and change management.

The Global ETFs Sector Breaks Records with 1,063 New Products Listed in the First Seven Months of the Year

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Lanzamiento de nuevo ETF de First Trust
Pixabay CC0 Public Domain

The ETFs industry continues to break records, according to ETFGI, an independent analysis and consulting firm specializing in these vehicles. The latest achievement is a historic high of 1,063 new products listed in the first seven months of the year. This figure surpasses the previous record of 988 new products listed in the first seven months of 2021.

After accounting for 314 closures by the end of July, there has been a net increase of 749 products. This exceeds the previous record of 988 new ETFs listed at this point in 2021.

In terms of distribution of new launches, a total of 363 ETFs were listed in the United States, while 341 were in Asia-Pacific (excluding Japan), and 171 in Europe. The highest number of closures also occurred in the United States (104), followed by Asia-Pacific (excluding Japan) with 85 closed funds, and Europe with 56.

A total of 281 providers contributed to these new launches, spread across 39 exchanges worldwide. There have been 314 closures from 107 providers on 24 exchanges. The new products include 461 active ETFs, 374 equity ETFs, and 104 fixed-income ETFs.

Chart 1: Inflows and closures of new products in the global ETF sector

The 1,063 new products are managed by 281 different providers. iShares recorded the highest number of new products with 56, followed by Global X ETFs with 41 new launches, and First Trust with 29. Additionally, these products are managed by 281 different providers. Once again, iShares is the provider with the most new product launches, with 56, followed by Global X ETFs with 41, and First Trust with 29.

Chart 2: The Top 15 Providers of New Launches

Source: ETFGI, ETF issuers and exchanges.

When analyzing the listing activity of new products in the first seven months of the year from 2020 to 2024, ETFGI observes that the global ETF industry has seen a significant increase in the number of new launches, rising from 591 to 1,063.

In 2024, the United States and Asia-Pacific (ex-Japan) recorded the largest launches, with 363 and 341 new products, respectively. Latin America registered the fewest launches: only 8.

The United States, Asia-Pacific (ex-Japan), Canada, and Japan have shown the peak of launches in 2024 with 363, 341, 121, and 26 respectively. Europe reached its highest number of launches in 2022, with 266, while Latin America recorded a total of 22, both in 2022 and 2021. Finally, the Middle East and Africa reached 51 launches in 2021.

Chart 3: New Listings in the First Seven Months of the Year in the Global ETF Industry: 2020 to 2024

The number of product closures by the end of July 2024 decreased in all regions compared to the same period in 2023. This year, the United States and Asia-Pacific (excluding Japan) recorded the highest number of closures, with 104 and 85 respectively. Meanwhile, Japan and Latin America had the lowest number, with only two closures each in these regions.

Social Media: A Hurdle for Wealth Managers and Financial Advisors

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Pixabay CC0 Public Domain

According to a report by Ortec Finance, wealth managers and financial advisors are influenced by social media activity when discussing valuations and stocks, which sometimes hinders their ability to provide professional advice to clients. This is affirmed by 95% of the respondents in the firm’s survey.

Of these, more than eight in ten (82%) say they are increasingly influenced by this factor, and more than one in ten (13%) are highly influenced. Only 4% say they are not particularly swayed by social media activity around the stock market and equities, and just 1% say they are not influenced at all.

Additionally, 93% of wealth managers and financial advisors believe that social media noise about the stock market and specific stocks makes it harder for them to provide professional advice to clients due to how clients react to this noise or the impact it has on advisors and wealth managers.

“Despite the many benefits that social media brings, our research shows that the noise surrounding it is an obstacle for many financial advisors and wealth managers. With a younger generation increasingly turning to social media as their source of information for everything from politics to DIY, they are also using it as a source of financial advice. However, our research shows that social media is having a negative impact on many financial advisors and wealth managers, as well as hindering their ability to provide solid professional advice to clients,” explains Tessa Kuijl, Managing Director of Global Wealth Solutions at Ortec Finance.

Powell: “The Time Has Come for policy to adjust”

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Federal Reserve Chairman Jerome Powell announced this Friday at the Jackson Hole symposium that the time for monetary policy tightening has arrived, but the pace will depend on macroeconomic data.

“The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Powell said according to the speech published by the Fed.

The head of the federal monetary authority reviewed the evolution of the country’s macroeconomic situation since the pandemic and assured that the Fed will do “everything in our power to support a strong labor market while continuing to make progress toward price stability.”

With appropriate moderation in monetary policy, “there are good reasons to believe that the economy will return to 2% inflation,” he said. Powell also emphasized the importance of maintaining the strength of the labor market at the same time.

“The current level of our official interest rate gives us ample room to respond to any risks we may face, including the risk of further unwanted weakening of labor market conditions,” he explained.

At the 2024 annual symposium entitled “Reassessing the Effectiveness and Transmission of Monetary Policy”, the president addressed the presidents of the Fed’s divisions in each state. He provided explanations as to why the measures implemented in recent years, including rate hikes to control rising prices, had been taken.

In this regard, Powell analyzed the behavior of inflation from the peak during the pandemic to the current decline.

The onset of the pandemic quickly led to shutdowns in economies around the world, which meant a time of radical uncertainty and severe downside risks. Additionally, the Fed chairman recalled the government and congressional assistance, such as the passing of the CARES Act.

“At the Fed, we used our powers in unprecedented ways to stabilize the financial system and help prevent an economic depression,” he emphasized.

However, Powell assured that pent-up demand, stimulus policies, pandemic-related changes in work and leisure practices, and additional savings associated with restricted service spending contributed to a historic increase in consumer spending on goods.

“That’s how inflation arrived. After being below target throughout 2020, inflation surged in March and April 2021. The initial inflation burst was concentrated rather than widespread, with extremely large price increases for scarce goods like motor vehicles,” he asserted, later insisting that this situation indicated a transitory inflation regime.

“The Transitory Inflation ship was full, with most analysts and central bankers from advanced economies on board. The common expectation was that supply conditions would improve reasonably quickly, that the rapid recovery in demand would run its course, and that demand would rotate from goods to services, reducing inflation,” he commented.

However, in June 2022, inflation reached its peak of 7.1 percent, forcing the Fed into a rate hike rally throughout 2023 and part of this year.

After this review, Powell concluded by assuring that “the pandemic economy has proven to be unlike any other, and much remains to be learned from this extraordinary period.”

Jackson Hole: More Focus on Monetary Policy Tools than on Interest Rates

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Central banks are taking a break from their respective monetary policy meetings in August, but the markets are not entirely devoid of news related to the activities of these institutions. The Jackson Hole Central Bankers Symposium (Wyoming, United States) is the summer’s key event to observe potential decisions in the meetings scheduled for the remainder of the year.

From Thursday, August 22 through Saturday, August 24, senior central bank officials from around the world will share their views on the state of the economy. A significant part of the market is also waiting for clues about the next steps in interest rates.

The main event will take place on Friday, with the appearance of U.S. Federal Reserve Chairman Jerome Powell. All eyes are on him, considering that the U.S. monetary authority has yet to lower interest rates like other institutions.

Bank of America notes that Fed chairs “tend to keep a low profile at Jackson Hole” and that the easiest course for Powell “would be to repeat his July message.” The firm has reasons to believe this will be the case this time, as last week’s economic data delivered a “clear” message: inflation is low enough for the Fed to start cutting, but not so low as to focus solely on its employment mandate. “We remain convinced that the Fed will cut twice this year, in September and December,” the firm asserts, adding that a shift in language from July “would suggest that the committee is ‘very close’ or ‘close’ to the point where monetary policy easing is likely.”

Meanwhile, George Curtis, Portfolio Manager at Vontobel, points out that the data known so far “points to a slowing economy, but one that is still growing,” and expects Powell to highlight this on Friday. “We don’t believe he will rule out a 50 basis point cut, especially considering that another labor report will be released before the September meeting,” he says, but admits that his baseline scenario remains a 25 basis point cut.

There could also be market reactions, as Federal Reserve officials have not changed their tone since the weak non-farm payroll data that triggered mass selling. “There’s a possibility that equities could continue to retreat to mid-July levels.” The S&P 500 equity index has erased its losses for the month, and credit spreads have almost done the same. However, government bond yields remain near their monthly lows, so “either Powell validates this more bearish view, or government bonds will give back some of their recent gains,” Curtis asserts.

David Kohl, Chief Economist at Julius Baer, does not expect many clues at this meeting either. He anticipates that this year’s symposium will offer fewer insights into the path of interest rates and focus more on the appropriate tools for monetary policy. “The return to the trade-off between price stability and maximum employment makes the arguments for cutting rates much clearer, as long as inflation is falling and unemployment is rising,” argues Kohl, who notes that recent positive economic data supports a gradual reduction in interest rates.

The expert points to the event’s title – “Reevaluating the Effectiveness and Transmission of Monetary Policy” – to infer that there will be a debate on the appropriate tools for guiding monetary policy. “This includes the appropriate interest rate, the level or range of inflation, and the amount of liquidity the Federal Reserve wants to provide to financial markets,” he explains.

At the same time, Kohl does not expect much in terms of what is most interesting for financial markets: the trajectory of official interest rates in the coming months. “We expect the scope and pace of monetary easing to depend more on economic data than on the fundamental issue of monetary policy debated at the symposium,” says the expert, who, on the other hand, sees “much clearer” arguments in favor of cutting rates now that falling inflation is accompanied by rising unemployment. Kohl anticipates a 25 basis point cut at each of the upcoming FOMC meetings through the end of the year.

For James McCann, Deputy Chief Economist at abrdn, Powell’s speech at Jackson Hole could signal “that rate cuts are on the horizon, but the speed and extent of the easing remain uncertain.” Given the current moderation in inflation and the cracks appearing in the labor market, the Federal Reserve may prioritize attempting a soft landing by reducing the restrictive nature of monetary policy, according to McCann. He believes it is likely that Powell will indicate the start of an ongoing easing cycle, “setting the stage for rate cuts at each of this year’s remaining meetings.” And while he acknowledges that the good news for the Federal Reserve is that last week’s data from the U.S. confirms that the economy is not heading for an imminent recession, he also notes that U.S. monetary policymakers will have a better perspective on the recent health of the labor market when the Quarterly Census of Employment and Wages benchmark revisions are released this week.

Jean-Paul van Oudheusden, market analyst at eToro, is also aware that these speeches at Jackson Hole have “sometimes” hinted at significant changes in monetary policies. In this case, he expects Powell to highlight the success in controlling inflation and prepare markets for a potential rate cut in September in a speech where he will not take questions. “Although speculation about a 50 basis point cut has increased, July’s CPI data – which largely met expectations – does not currently support an adjustment of such magnitude,” the expert explains, adding that the actual magnitude of the rate cut “will likely depend on August’s labor market data, which will be released in two weeks.”

Guy Stear, Head of Developed Markets Strategy at Amundi Investment Institute, is convinced that the Fed will cut rates three times before the end of the year and could suggest as much at the Jackson Hole symposium. “We expect the Fed to cut rates by 75 basis points between now and the end of the year, with successive 25 basis point cuts at each Fed meeting, and we expect its chairman to continue signaling that the first rate cut is planned for September,” argues Stear.

However, the expert does not rule out the possibility that investors might be disappointed by comments referencing the stickiness of inflation. “If the U.S. two-year yield were to rise back to 4.2%, from its current 4.05%, it would be a good opportunity to increase long positions at the front of the U.S. curve,” he concludes.

ECB

Although Powell will be in the spotlight, ECB President Christine Lagarde will also command market attention. This is the view of Martin Wolburg, senior economist at Generali AM – part of the Generali Investments ecosystem – who expects a rate cut from the European monetary authority, in line with what the Federal Reserve might do.

“The ECB made no changes at its June meeting, as expected. However, the Governing Council considered that the inflation outlook was in line with its forecasts, and the rhetoric on wage growth seemed less concerning in June,” explains Wolburg, who also recalls that at that time, Lagarde herself stated that “what we do in September is totally open.” The expert is aware that July’s inflation data clearly provides some ammunition to the “hawks,” but he expects the “reduction” process to continue, with quarterly cuts in official interest rates of 25 basis points, “until the deposit rate reaches 2.5%.”

China Leads the “Brand Value” of Banking Entities Worldwide

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The total brand value of the world’s top 500 banks has doubled in a decade, according to the latest edition of the Brand Finance Banking 500 2024 ranking. The combined value of the 500 most valuable banking brands in the world has reached a record high of €1.35 trillion ($1.44 trillion), nearly double what it was a decade ago, according to Brand Finance’s sector report.

Notably, China dominates this ranking, with its entities occupying the top four positions: ICBC, China Construction Bank, Agricultural Bank of China, and Bank of China. The report indicates that Chinese banking brands have appreciated in value, retained the top four positions, and increased their brand value.

“The Chinese banking sector shows remarkable recovery, with the four major banks far ahead of their U.S. counterparts. ICBC (Industrial and Commercial Bank of China) remains the most valuable banking brand in the world for the eighth consecutive year, with a brand value of €67 billion. China Construction Bank, Agricultural Bank of China, and Bank of China occupy the second, third, and fourth positions, respectively,” the report states.

Another trend evident in the evolution of this ranking is that local banking brands prove to be stronger than global ones: BCA, from Indonesia, stands as the strongest banking brand in the world, and regional African operators score high in brand strength. In contrast, the brand value of Russian banks continues to plummet.

For U.S. banks, it is notable that they have experienced a slight decline of 6.6% in terms of brand value. Despite this, Bank of America retains the title of the leading U.S. banking brand for the fourth consecutive year, ranking fifth overall with a value of €34.8 billion. Meanwhile, Wells Fargo, which ranks sixth overall, has narrowed the gap with its U.S. competitor, with a 5% increase, reaching a brand value of €33.4 billion.

Commenting on these results, David Haigh, Chairman and CEO of Brand Finance, stated: “As the world’s leading banking brands reach new heights, Chinese megabanks continue to dominate at the top of the brand value ranking. Another key finding from our market study is that local banks are increasingly eclipsing their larger counterparts in brand strength. Dominant brands thrive in unique markets with limited competition, while banks that expand into multiple markets can successfully increase their brand value but risk diluting their strength.”

Regarding these trends, Brand Finance’s market study indicates that local and regional banks are performing as well as, and in many cases better than, banks with a global presence in terms of positioning their brand in the hearts and minds of customers.

For example, BCA of Indonesia is the strongest banking brand in the world, with a score of 93.8/100 in the Brand Strength Index (BSI) and an elite AAA+ rating. Three African brands, Equity Bank, First National Bank, and Kenya Commercial Bank, along with Romania’s Banca Transylvania, are among the five strongest brands in the world, all with AAA+ ratings.

Finally, regarding movements within the ranking, only 11 of the top 50 countries experienced declines in aggregate value, led by Russia (69%), Nigeria (28%), and Malaysia (20%). “As expected due to the international sanctions imposed on Russia, the country’s two largest brands—Sber and VTB—are at the forefront of those that have seen the largest percentage drops in brand value, with declines of 64% and 91%, respectively,” the report notes.

US Equities: A Long-awaited Mean Reversion Seems Likely

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Pixabay CC0 Public DomainAutor: Mojca-Peter from Pixabay

U.S. equities continued to rise in July, driven by a cooler-than-expected June CPI report that sparked a rotation from big tech and growth stocks to small-cap and value stocks. While it is too early to determine if this shift will be sustained, a long-awaited mean reversion seems likely, especially after the significant gains by the “Magnificent Seven” stocks over the course of the past 18 months.

Given the numerous factors influencing the stock market outlook, such as the upcoming U.S. election and interest rate changes, perhaps investors are starting to be mindful of the current market concentration. We have previously highlighted that just seven stocks account for nearly one-third of the S&P 500’s weighting and were responsible for over 50% of the index’s calendar year’s gains. Slower economic growth, a cooling labour market, and reduced consumer spending are potential factors that could increase market volatility, potentially benefiting investors who maintain a diversified portfolio.

On July 31, the Federal Reserve kept interest rates steady for the eighth consecutive meeting and have not yet indicated if a rate cut is anticipated to happen in the next meeting in September. Fed Chair Jerome Powell reiterated that the Fed will continue to reassess conditions meeting by meeting and that they are willing to hold rates steady as long as needed. On a positive note, inflation continues to cool and has made progress toward the Fed’s 2% target. The next FOMC meeting is scheduled for September 17-18. In July, the Russell 2000 Value significantly outperformed the S&P 500, yet still lags in year-to-date performance by over 500 bps. We anticipate a favourable environment for smaller companies as post-peak rates and necessary consolidation in certain industries such as media, energy and banking should lead to a more robust year.

 

Merger Arbitrage performance in July was bolstered by deals that closed, deals that made notable progress in receiving regulatory approvals, and a general firming of deal spreads following a period of heightened volatility. Amedisys (AMED-$98.05-NASDAQ), which agreed to be acquired by United Health for $101 cash per share, agreed to divest a package of care centers owned by Amedisys and UNH to home health operator Vital Caring in an effort to assuage the U.S. Department of Justice’s concerns about geographic overlap between the companies and shares reacted positively on optimism about the deal. Following a strategic review process, trade show operator Ascential plc (ASCL LN-£5.71-London) agreed to be acquired by Informa for £5.68 cash per share, with additional proceeds from a future asset sale. We crystallized gains on Westrock Co. (WRK-NYSE), Equitrans Midstream (ETRN-NYSE), Olink Holding AB (OLK-NASDAQ), Cerevel Therapeutics (CERE-NASDAQ) and Hibbett Inc. (HIBB-NASDAQ), among others. We remain optimistic about our ability to generate absolute returns going forward, and with first half M&A activity increasing 18% to $1.5 trillion, we expect to continue finding attractive investment opportunities.

In July the convertible securities market saw breadth expand, with a long overdue rotation out of mega cap tech into small cap. This trade was beneficial to many of the companies in the convertible market. While we believe there is room for this rotation to continue over a longer time horizon, we remain focused on companies with strong underlying fundamentals where we expect the convertible to provide asymmetrical exposure over time. Additionally, after months of postponed rate cut expectations, we are starting to see some data that suggests that easing financial conditions are imminent. This led to a bid in many holdings that would benefit from a lower rate environment, particularly in the Utilities sector, where we have been increasing our holdings.

 

Opinion article by Michael Gabelli, managing director at Gabelli & Partners 

Global Polarization: The Hidden Face Behind Gold’s Record Highs

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Gold is now trading above $2,500 per ounce, showing signs of potentially breaking its historical highs again. Its value as a safe-haven asset shone brightly in the first weeks of August following the volatility shock experienced by the major equity markets, causing gold to rise after several downward sessions. Now that this “scare” has passed, what could continue to drive its valuation?

In the opinion of Charlotte Peuron, equity fund manager at Crédit Mutuel Asset Management, the increase in gold’s price to $2,400 per ounce has been driven by Western investors through gold ETF purchases and a more favorable financial environment for gold.

According to her outlook, given the downward trend of the dollar against other currencies and the real U.S. interest rates, the upward trend in gold is expected to continue.

“The upward trend in gold prices dates back to 2022. Three factors explain this movement: sustained demand for jewelry; investment in physical gold (coins and bars) by Asian investors; and massive purchases by central banks in emerging countries, particularly China, who wish to diversify their foreign exchange reserves and thus reduce their exposure to the U.S. dollar,” explains Peuron.

For James Luke, a commodities fund manager at Schroders, additional factors include changes in geopolitical and fiscal trends that are paving the way for sustained demand for gold, and gold miners might be poised for a significant recovery.

“Geopolitical and fiscal fragility—trends directly linked to demographic shifts and deglobalization, which, along with deglobalization, characterize the new investment paradigm that we at Schroders have dubbed the 3D Reset—combine today to forge a path toward a sustained and multifaceted global drive for gold supplies. In our view, this could trigger one of the strongest bull markets since President Nixon closed the gold window in November 1971, ending the U.S. dollar’s convertibility to gold,” he argues.

Towards a Polarized World

One of the most interesting reflections made by Luke is that the strength of gold reflects the shift towards a more polarized world. “The escalating tension between the United States and China, and the sanctions imposed on Russia following the invasion of Ukraine in 2022, have driven record gold purchases by central banks as a monetary reserve asset,” says the Schroders manager.

Currently, the $300 billion in frozen Russian reserve assets clearly demonstrate what the “weaponization” of the U.S. dollar—or in other words, the dollar’s hegemony—can truly mean. In his opinion, the massive issuance of U.S. Treasury bonds to finance endless deficits also raises questions about the sustainability of long-term debt. Furthermore, he notes that central banks—China, Singapore, and Poland, the largest in 2023—have been paying attention, although record purchases have only increased the share of gold in total reserves from 12.9% at the end of 2021 to 15.3% at the end of 2023.

“From a long-term perspective, central bank purchases clearly reflect the evolution of global geopolitical and monetary/fiscal dynamics. Between 1989 and 2007, Western central banks sold as much gold as they practically could, as after 1999 they were limited by gold agreements that central banks reached to maintain order in sales.

In that post-Berlin Wall and Soviet Union world, where U.S.-led liberal democracy was on the rise, globalization was accelerating, and U.S. debt indicators were quite quaint compared to today’s, the demonetization of gold as a reserve asset seemed entirely logical,” he explains.

However, he clarifies that the 2008 financial crisis, the introduction of quantitative easing, and emerging geopolitical tensions were enough to halt Western sales and quietly attract emerging market central banks to the gold market, averaging 400 tons annually between 2009 and 2021. According to Luke, “these are significant figures, less than 10% of annual demand, but not seismic.”

On the other hand, he warns that the more than 1,000 tons of gold—accounting for 20% of global demand—purchased by central banks in 2022 and 2023, a pace that continued in the first quarter of 2024, is potentially seismic. “It seems entirely plausible that the current tense dynamic between established and emerging powers, combined with the fiscal fragility looming not only over the reserve currency issued by the U.S. but over the entire developed economic bloc, could trigger a sustained move towards gold,” he argues.

In this context, and to put it bluntly, his main conclusion is that “the gold market is not large enough to absorb such a sustained move without prices rising significantly, especially if other global players also try to enter more or less at the same time.

Investors Remain Optimistic, but Volatility Shock Leads them to Increase Cash in Portfolios

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Despite the market correction in early August, investor optimism has not been affected. According to BofA’s monthly manager survey, 76% continue to expect a soft landing and a Fed action, now, of four or more cuts to ensure that this expectation of a soft landing is met.

However, the survey picks up that global growth expectations in the August survey fell sharply by 20% compared to July, in fact a net 47% of respondents expect a weaker global economy in the next 12 months. “Growth expectations and risk appetite declined in recent weeks due to the yen volatility shock and weak July employment data,” notes the BofA survey.

As a result, investors increased cash levels again for the second consecutive month, rising from 4.1% to 4.3%. “Our broader measure of FMS sentiment, based on cash levels, equity allocation and economic growth expectations, fell to 3.7 from 5.0 last month,” the firm notes.

As for monetary policy, 55% of investors believe that globally it is too restrictive, the highest figure since October 2008. In this regard, they point out that investors’ belief that policymakers should ease quickly is driving expectations of lower rates, which is why 59% expect lower bond yields, the third highest figure on record (after November and December 2023). Bond yield expectations are also lower, a sentiment that has been increasing month-over-month.

Coupled with monetary policy expectations is the conviction that a “soft landing” of the economy will be achieved, a conviction driven by the likelihood of lower short-term interest rates. Specifically, 93% of FMS investors expect lower short-term rates 12 months from now, the highest figure in the past 24 years.

Asset Allocation

When it comes to talking about allocation within investors’ portfolios, the survey shows that in August investors rotated into bonds and out of the equity market. “The allocation to bonds increased to 8% overweight from 9% underweight. This is the highest allocation since December 2023 and the largest monthly increase since November 2023. In contrast, the allocation to equities fell by 11%, which is the lowest allocation since January 2024 and the largest monthly decline since September 2022. Notably, in absolute terms, 31% of FMS investors said they were overweight in equities, down from 51% who said so in July.

“In August, investors increased allocation to bonds, cash and health care and reduced allocation to equities, Japan, the Eurozone and materials. Investors are more overweight in healthcare, technology, equities and the U.S., and more underweight in REITs, consumer discretionary, materials and Japan. Relative to history, investors are long bonds, utilities and healthcare and are underweight REITs, cash, energy and the Eurozone,” BofA notes.

Finally, two curious tidbits of information left by this month’s survey is that the largest regional equity allocation was to the U.S., while the allocation to Japanese equities experienced the largest one-month drop since April 2016. “As a result, global managers’ allocation to U.S. equities relative to Japanese equities increased to the highest level since November 2021,” the survey concludes.

 

Appetite for Sustainable Funds Returned During the Second Quarter of the Year

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In the second quarter of 2024, the global universe of sustainable funds—which includes open-end funds and ETFs—received $4.3 billion in inflows, compared to the $2.9 billion in outflows experienced in the first quarter of the year. Does this mean that investors are returning to sustainable funds?

“The outlook for global ESG fund flows is starting to improve. We began the year with outflows, but this has since changed, with money returning to the sector. European ESG funds have gathered more than $20 billion so far this year. Across the pond, investor appetite for ESG funds remains moderate, with continued outflows, but these were smaller than those seen in the previous two quarters,” explains Hortense Bioy, Head of Sustainability Research at Morningstar Sustainalytics.

The report indicates that calculated as net flows in relation to total assets at the beginning of a period, the organic growth rate of the global sustainable fund universe was 0.14% in the second quarter, a slight improvement from the 0.01% rate in the previous quarter. “However, the aggregate growth of sustainable funds lagged behind the broader fund universe, which with $200 billion in inflows, recorded an organic growth rate of 0.4%,” the report notes.

To put this in context, the Morningstar Global Markets Index achieved a 2.6% gain in the second quarter, while fixed-income markets, represented by the Morningstar Global Core Bond Index, fell 1.2%. “Europe represents 84% of global sustainable fund assets, and the United States maintained its status as the second-largest market. With total assets of $336 billion, it held 11% of global sustainable fund assets, reflecting the distribution observed three months ago,” the report states.

Specifically, European sustainable funds raised $11.8 billion, compared to the $8.4 billion recorded in the previous quarter. The report also noted a reduction in outflows in Japan, while sustainable funds in Asia continued to attract new net money.

Lastly, it highlights that product development continued on a downward trajectory, with only 77 new sustainable fund launches in the second quarter of 2024, “confirming the normalization of sustainable product development activity after three years of high growth during which asset managers rushed to build their sustainable fund ranges to meet the growing demand from investors,” the report indicates.