The Scenario of EdR AM for the Second Half of the Year: “Nearly Ideal” Economic Environment and New Political Obstacles

  |   For  |  0 Comentarios

Edmond de Rothschild AM unveiled in its investment outlook for the second half of 2024 that the scenario investors will face in the latter half of the year will be marked by a “nearly ideal” economic environment but also by new political obstacles.

The economic environment is more favorable than expected for capital markets for three reasons, according to the firm. Firstly, disinflation continues its course, despite its non-linear trajectory and the fact that the last phase of disinflation normalization is the most challenging to execute. Additionally, labor shortages in the United States have finally begun to ease, supported by a significant influx of immigrants. Lastly, the economic scenario is influenced by interest rate cuts that have begun in Switzerland, Canada, and Europe. Edmond de Rothschild AM assures that “they should start before the end of summer in the United States, knowing that the Federal Reserve, despite all the surprises in terms of inflation, has ruled out the option of another rate hike.”

In this environment, experts remind us that historically, equity markets have recorded positive – and often solid – returns during economic landing periods preceding a first rate cut in the United States. The prospect of monetary easing, starting from decent levels, continues to suggest that the Fed will effectively manage the slowdown and avoid a recession.

Benjamin Melman, Global CIO of Edmond de Rothschild AM, states that observing the returns recorded so far this year, “it seems that history repeats itself, which reinforces our conviction that, given the strength of the global economy, it makes sense to remain well-exposed to equities.” The expert admits that since the beginning of the year, he has been tactically oscillating between neutrality and overexposure, but also that when the Fed first lowers its benchmark rates, “we will have time to review the economic outlook and adjust our main allocation decisions,” though for now, “confidence prevails.”

Can Political Turmoil in France Become a European Financial Crisis?

If the “Rassemblement National” party wins or in the case of a “fragmented Parliament,” it is possible – though unlikely – that the new French government will embark on a spending program that expands the deficit, according to EdR AM. They emphasize that this situation “will not prevent Brussels from opening an Excessive Deficit Procedure,” and that “credit agencies could continue downgrading France’s rating.”

The OAT-Bund spread could widen a bit more, according to the firm, “but a major crisis seems avoidable, especially if the prospect of reducing the deficit is postponed and not buried if Brussels and Paris reach a mid-term agreement.” A favorable scenario could even be imagined in the case of a “fragmented Parliament” and a new political reshuffle, which could lead to an alliance between “governmental” parties of the left, center, and right, allowing the country to continue its initial commitment to reducing the public deficit.

So far, European assets have benefited from an increasingly favorable combination of factors: a stronger-than-expected economy, ongoing disinflation, and a European Central Bank that has taken the reins of monetary policy. Furthermore, the proximity of the U.S. elections is causing a wait-and-see attitude across the Atlantic. However, Edmond de Rothschild AM’s investment teams have chosen not to overweight European assets, waiting for the unstable political balance in France to become clearer, with its implications for Europe.

U.S. Presidential Elections

While the re-election of President Joe Biden would not have significant repercussions on capital markets, the return of Donald Trump to the White House is expected to have implications, according to the firm. Firstly, it would be negative for long-term sovereign bonds due to an inflationary policy involving crackdowns on immigration and plans to deport 11 million undocumented immigrants, as well as new import taxes and a fiscal policy that would not reduce but rather increase the country’s significant public deficit.

However, it would be positive for equities, “especially thanks to the return of a deregulation policy and plans to renew the tax cuts he initiated in 2016, including a possible reduction in corporate tax.” However, the firm notes that while it is difficult to assess the pressure that would be exerted on long-term rates, if long-term yields were to rise too quickly, “it would have adverse effects on equity markets.”

Investment Policy for the Second Half of the Year

Melman recalled that a year ago, the economy posed many questions, “as disinflation remained timid and in the United States, a recession was feared.” However, he now admits that political difficulties were quite contained at that time. “Since then, the issues have reversed. While the economic environment now seems quite promising, it is being overshadowed by political problems. The only constant has been the continued deterioration of the geopolitical environment. This means that there may be some volatility, triggered by French political turmoil or the potential return of Trump to the White House. The good news is that markets can sometimes overreact to political crises, and this can create some attractive opportunities.”

Consequently, Edmond de Rothschild AM’s investment teams are confident in both equities and fixed income. Regarding the latter, they are considering reducing their exposure to long maturities, but as late as possible, to take into account the U.S. elections. In fact, if the economic slowdown materializes quickly in the United States, “all fixed income markets would benefit.”

Within equity markets, while major geographical decisions (United States vs. Europe) will be largely determined by the aforementioned political issues, the investment teams have a preference for Big Data and Health, and for European small-cap companies, which trade at very attractive valuations given the more favorable economic environment and the monetary easing that has already begun.

In fixed income, Edmond de Rothschild AM continues to favor carry strategies and hybrid debt (both corporate and financial) and plans to increase its exposure to emerging debt once the Fed’s pivot signal is strong enough.

Assets in UCITS and AIF Funds Doubled Over the Last Decade to Reach €20.7 Trillion

  |   For  |  0 Comentarios

The European Fund and Asset Management Association (EFAMA) has published its annual Fact Book on the behavior and main trends of the European investment fund industry, as well as a general review of regulatory developments in the 29 European countries. One of its main conclusions is that in the last decade, assets in UCITS and AIFs (alternative investment funds) have doubled, reaching €20.7 trillion, demonstrating the industry’s robustness.

“This year’s Fact Book shows that UCITS are delivering good returns with declining costs, attracting both European and foreign investors. While this is good news for the financial well-being of those investors, there are still too many European households not reaping the benefits of investing in capital markets. This is a crucial year of change within EU institutions, with a clear recognition by lawmakers that we need to further encourage retail investment to address the pension gap and support economic growth. To achieve this, we need decisive actions that simplify investment, reduce bureaucracy, and bring us closer to a Savings and Investment Union,” says Tanguy van de Werve, Director General of EFAMA.

Among the data collected in the report, it is noted that net sales of fixed-income UCITS in 2023 were greatly influenced by the evolution of interest rates. Net inflows were driven by the pause in central bank rate hikes and expectations of rate cuts in 2024. It also highlights that inflows into money market funds were mainly driven by short-term interest rates. In contrast, multi-asset UCITS funds experienced their first net outflows in ten years.

One of the trends identified in the report regarding UCITS funds is that large vehicles are gaining more importance in the European market. “UCITS funds with less than €100 million represented less than 4% of the total net assets of UCITS in 2023, with a market share that is gradually decreasing. At the same time, the share of funds with more than €1 billion in net assets is increasing,” the report indicates.

According to the document, the share of US equities in the allocation of equity UCITS has increased significantly. Specifically, it doubled from 22% to 44% in the last decade. EFAMA explains, “This is because US equity markets outperformed Europe, particularly large US tech stocks.”

The Appeal of UCITS Funds

One reason European market funds are attractive is their costs, which, according to EFAMA’s report, have been gradually decreasing. In fact, between 2019-2023, the average cost of long-term active UCITS decreased from 1.16% to 1.06%, while UCITS ETFs dropped from 0.23% to 0.21%. “This trend is expected to continue, driven by greater transparency in fund fees and intensified competition among asset managers,” they indicate.

According to EFAMA, foreign investors are an increasingly significant group of EU fund buyers. Evidence of this is that, in the past five years, foreign investors purchased an annual average of €276 billion in EU investment funds. In comparison, €174 billion were sold cross-border within the EU, and €196 billion were bought domestically.

Additionally, EU retail investors continued to buy funds in 2023 but shifted their focus to bonds. “Given the reluctance of banks to increase interest rates on savings accounts, national governments in countries like Italy and Belgium successfully attracted domestic retail savers by offering bond issues with higher yields,” the report indicates.

In general terms, the average annual performance of all major types of UCITS was positive. Equity UCITS delivered an average of 14.2%, multi-asset UCITS generated 8.7%, bond UCITS 5.7%, and money market funds 3.3%. “With an EU inflation rate of 3.4% for the year, most UCITS proved to be an excellent investment option in 2023,” EFAMA adds.

Sustainable Investment

Something that caught EFAMA’s attention is that sales of sustainable funds slowed down. “Net sales of dark green Article 9 SFDR funds declined compared to 2022. Conversely, Article 6 funds (without a sustainability focus) saw a shift, attracting €41 billion in net inflows. These trends were mainly driven by the growing popularity of ETFs, as most ETFs are Article 6,” the report indicates.

New York Remains the World’s Richest City in 2024

  |   For  |  0 Comentarios

New York, the San Francisco Bay Area and Tokyo are the three wealthiest cities in the world, according to the latest report by Henley & Partners.

“The document offers a fascinating view of the changing face of global wealth, revealing a landscape where investment migration programs have emerged as a powerful tool for high-net-worth individuals looking to capitalize on the world’s most promising cities,” highlights Juerg Steffen, Chief Executive Officer of Henley & Partners.

The report shows the clear leadership of the United States, with 11 cities within the ranking of the world’s 50 richest cities. At the top is New York, with an astonishing 349,500 millionaires, followed by the Northern California Bay Area (305,700) and Los Angeles (212,100). “China also has a notable presence, with five cities in mainland China and seven cities if we count Hong Kong (a Special Administrative Region of China) (143,400) and Taipei (30,200). Beijing (125,600 millionaires), Shanghai (123,400), Shenzhen (50,300), Guangzhou (24,500), and Hangzhou (31,600) have seen significant increases in their millionaire populations over the past decade,” points out Steffen. In his opinion, this dynamic reflects broader changes in the global economy, where the United States maintains its traditional strongholds, while China’s rapid urbanization and growing technological prowess play an increasingly important role in wealth creation.

Focusing on the table, New York leads with 349,500 millionaires, 744 centimillionaires (with investable wealth of over $100 million), and 60 billionaires who, together, surpass $3 trillion, which is more than the total wealth of most major G20 countries. Hot on its heels, in second place, is the Northern California Bay Area, which includes San Francisco and Silicon Valley. “The Bay Area has enjoyed one of the highest wealth growth rates in the world, increasing its millionaire population by a massive 82% over the past decade, and now hosts 305,700 millionaires, 675 centimillionaires, and 68 billionaires,” notes Steffen.

Regarding Tokyo, which topped the group as the world’s richest city for a decade, it has suffered a 5% decrease in its resident high-net-worth individual (HNWI) population over the last ten years, and now ranks third with just 298,300 millionaires. Notably, the city-state of Singapore has risen two places to fourth in the global ranking after an impressive 64% increase in millionaires over the past 10 years, and it seems likely to soon overtake Tokyo as the richest city in Asia. Widely considered the world’s most business-friendly city, Singapore is also one of the top destinations globally for migrating millionaires: approximately 3,400 high-net-worth individuals moved there in 2023 alone, and the city now boasts 244,800 millionaire residents, 336 centimillionaires, and 30 billionaires.

The Decline of London

London, the world’s richest city for many years, continues to fall in the rankings and now occupies fifth place with only 227,000 millionaires, 370 centimillionaires, and 35 billionaires, a 10% decrease over the past decade. In contrast, Los Angeles, home to 212,100 millionaires, 496 centimillionaires, and 43 billionaires, has risen two places over the 10-year period to sixth place, enjoying a remarkable 45% growth in its wealthy population. Paris, the richest city in continental Europe, maintains its seventh place in the ranking with 165,000 millionaire residents, while Sydney climbs to eighth with 147,000 HNWIs, after experiencing exceptionally strong wealth growth over the past 20 years.

“The 24% gain in the S&P 500 last year, along with the 43% rise in the Nasdaq and the staggering 155% rebound in Bitcoin, have boosted the fortunes of wealthy investors. Additionally, rapid advancements in artificial intelligence, robotics, and blockchain technology have provided new opportunities for wealth creation and accumulation. However, even as new opportunities arise, old risks persist. The war in Ukraine, which has seen Moscow’s millionaire population drop by 24% to 30,300, is a stark reminder of the fragility of wealth in an uncertain and unstable world,” adds Steffen, who considers a key factor driving growth in the world’s richest cities to be the strong performance of financial markets in recent years.

China’s Millionaire Boom

China has established a notable presence in the latest ranking of the world’s 50 richest cities, with 5 cities in mainland China on the list and 7 cities if we include Hong Kong (a Special Administrative Region of China) (with 143,400 millionaires) and Taipei (30,200). Beijing (125,600 millionaires) is ranked in the Top 10 for the first time after a 90% growth in its millionaire population over the past decade. Although Hong Kong has dropped four places over the 10-year period to ninth in the ranking, Shanghai (123,400), Shenzhen (50,300), Guangzhou (24,500), and Hangzhou (31,600) have seen significant increases in their millionaire populations.

Andrew Amolis, head of research at New World Wealth, explains that Shenzhen is the world’s fastest-growing city for the wealthy, with its millionaire population soaring by 140% over the past ten years. “Hangzhou has also seen a massive 125% increase in its number of high-net-worth residents, and Guangzhou’s millionaires have grown by 110% over the past decade. When it comes to potential wealth growth over the next decade, cities to watch include Bengaluru (India), Scottsdale (USA), and Ho Chi Minh City (Vietnam). All three have enjoyed exceptional growth rates of over 100% in their resident millionaire populations over the past ten years.”

As for the Middle East, Dubai easily takes the crown as the region’s richest city, with an impressive 78% growth in its millionaire population over the past 10 years. Currently ranked as the 21st richest city in the world, it is very likely that this modern wealth magnet will enter the Top 20 in the coming years. Although Abu Dhabi, the oil-rich capital of the United Arab Emirates, has yet to secure a spot in the Top 50 ranking, growth rates above 75% make it a likely contender in the future.

While no African or South American city features among the world’s 50 richest cities, the report identifies several rising stars that could well join the ranks of the world’s leading wealth centers in the near future. Nairobi, Kenya’s bustling capital, now has 4,400 millionaires, a 25% increase over the past decade, driven by its thriving tech ecosystem and growing middle class. Cape Town, South Africa’s stunning coastal jewel, has enjoyed a 20% increase in millionaires, making it the country’s preferred city, now home to 7,400 of them.

World’s Most Expensive Cities

Monaco, arguably the world’s top safe haven for the super-rich, where average wealth exceeds $20 million, is also the world’s highest-ranked city in terms of per capita wealth. More than 40% of the Mediterranean principality’s residents are millionaires, the highest proportion of any city globally. It also tops the list of the world’s most expensive cities, with apartment prices regularly exceeding $35,000 per square meter.

New York City ranks second, with prime real estate prices averaging $28,400 per square meter, followed by London ($26,500 per m²), Hong Kong ($25,800 per m²), Saint-Jean-Cap-Ferrat in France ($25,000 per m²), and Sydney ($22,700 per m²).

Dominic Volek, group head of private clients at Henley & Partners, says that 7 of the world’s 10 richest cities are in countries that host investment migration programs actively encouraging foreign direct investment in exchange for residency or citizenship rights. “You can secure the right to live, work, study, and invest in major international wealth hubs such as New York, Singapore, Sydney, Vienna, and Dubai through investment. Being able to relocate yourself, your family, or your business to a more favorable city or having the option to choose from several different cities around the world is an increasingly important aspect of international wealth and legacy planning for private clients. The more jurisdictions a family can access, the more diversified their assets will be, the lower their exposure to regional and country-specific risks, and the greater the opportunities they will be able to enjoy. Similarly, cities and countries can use investment migration as an innovative funding mechanism to attract the world’s wealthiest and most talented to their shores,” concludes Volek.

AXA IM Repositions its Metaverse Fund to Cover a Broader Spectrum and Include Artificial Intelligence

  |   For  |  0 Comentarios

AXA Investment Managers (AXA IM) has announced the renaming of its AXA WF Metaverse fund to AXA WF AI & Metaverse, effective July 2, 2024. According to the company, this decision reflects the expansion of the fund’s investment universe to include the broader realm of artificial intelligence (AI) and the growth opportunities it offers as the AI revolution extends beyond the boundaries of the metaverse.

Commenting on the fund’s name change, Tom Riley, Head of Global Thematic Strategies at AXA IM Equity, explained that the management company “firmly” believes that the synergies between AI and the metaverse offer unprecedented opportunities, while also noting that the AI revolution extends beyond the metaverse. “While the existing companies in our portfolio have been at the forefront of AI innovations, by expanding our investment universe to include the broader AI environment, we believe we could capture even more exciting opportunities. By selecting one of the most significant themes of our generation, the fund can appeal to investors seeking exposure to this fast-moving sector and its growing set of credible long-term growth opportunities. The rise of AI and its possibilities have increasingly made it clear that its evolution is not just a trend or a parallel development, but a powerful accelerator of the metaverse,” Riley commented.

The management company highlights its established expertise in technology and disruptive technology, managing around 6 billion dollars in assets within these themes. The Metaverse strategy was launched in 2022 as part of AXA IM’s commitment to identifying and capturing the growth potential of disruptive technologies for its clients. The AXA WF AI & Metaverse fund will continue to be co-managed by Pauline Llandric, a technology portfolio manager, and Brad Reynolds, a technology portfolio manager, both based in London.

Asset Allocation for the Second Half of the Year: What Do International Asset Managers Prefer?

  |   For  |  0 Comentarios

After analyzing the perspectives that asset managers have for the second half of the year, it’s time to ask them about the asset allocation they prefer. We start from a market context that is still anticipating central banks to cut interest rates, especially the Fed. The fact that they have lowered market and investor expectations in this regard has created quite a bit of dispersion in identifying which assets should not be missed from now until December.

According to Dan Scott, head of multi-assets at Vontobel, the second half of the year presents some positive aspects: the resilience of the US consumer, China’s fiscal stimulus, and the incipient recovery of the eurozone contribute to a moderate but steady economic expansion that is likely to continue until the end of 2024.

“However, these positive prospects are not without risks. One of our main concerns is whether interest rates will remain too high for too long, ultimately causing some disruption. In the US, an increase in delinquencies on credit cards and auto loans is already being observed. The continued increase in provisions for bad loans related to the US commercial real estate sector is also a clear indicator that cracks are gradually appearing and will require a policy response,” warns Scott.

Fixed Income

This period of waiting concerning central banks makes one of the most complex allocations to make in fixed income, where durations and maturities have become key tools for investors. In this regard, Kevin Thozet, a member of Carmignac’s Investment Committee, highlights that in public debt, maturities up to two years are favored. “Longer-term rates could yield less, given the optimistic trajectory of disinflation and the increase in public debt at a time when monetary authorities are trying to make safe cuts and reduce their balance sheets. In credit markets, premiums are not far from previous or historical lows,” says Thozet.

According to the Carmignac expert, historically, the combination of low bond yields and low credit spreads has been disadvantageous for the asset class, but the current higher-yield environment means that credit spreads act as a boost to investor returns and a cushion for volatility.

“Fixed income investors were too exuberant about rate cuts earlier this year, but now that markets are not aggressively predicting cuts, fixed income yields are more attractive,” says Vince Gonzales, portfolio manager of the Short-Term Bond Fund of America® at Capital Group. In his view, bonds remain fundamental as economic growth slows and can provide a strong counterbalance to stock market volatility.

Additionally, Gonzales adds that “given the recent tightening of corporate bond spreads, we are seeing better opportunities in higher-quality sectors with attractive yields, such as securitized credit and agency mortgage-backed securities (MBS).” According to his view, mortgage bonds with higher coupons are especially attractive. “These bonds are unlikely to be refinanced before maturity, given current mortgage rates of around 7%,” he notes.

On the other hand, Jim Cielinski, Global Head of Fixed Income at Janus Henderson, acknowledges that the fixed income market is currently very different from a few years ago: “Yields are at levels that typically pay well above inflation and offer the prospect of capital gains if rates fall. Those seeking attractive yields can start here. We see solid prospects for both healthy income and some additional capital appreciation in the next six months.”

According to his stance, they prefer European markets to US ones, as they believe the relatively weaker European economy offers more visibility of a lower rate trajectory. “With an economic backdrop of resilient but moderate growth in the US, a revival of the European economy, and less pessimism about China’s economic outlook, there is a chance that credit spreads will narrow. Among corporate sectors, we continue to prefer companies with good interest coverage ratios and strong cash flow, and we see value opportunities in some areas that have been disadvantaged, such as real estate equities,” says Cielinski.

Additionally, the expert acknowledges that credit spreads as a whole are close to their historical levels, which he believes leaves little room if corporate prospects worsen. “With this in mind, we see value in diversification, especially towards securitized debt, such as mortgage-backed securities, asset-backed securities, and collateralized loan obligations. In this case, misconceptions about these asset classes, combined with the aftermath of rate volatility, have made spreads and yields offered appear attractive. Yields in the securitized sectors are more attractive in historical terms, and they are more likely not to be affected by a more severe slowdown,” he concludes.

Don’t Forget Equities

Wellington Management argues that their position is to continue overweighting equities. “The global economy is growing steadily, and the risk of recession has faded, with strong and continuous US economic growth and an increasing momentum of global growth. Although disinflationary pressures have stalled in recent months, especially in the US, we still believe that rates have peaked in this cycle and expect a relaxation of monetary policy in the next 12 months,” explains Wellington Management’s multi-asset strategy team.

Consequently, they add, this makes them prefer the US and Japan over Europe and emerging markets. “We consider the former as our main developed market due to the macroeconomic context and our confidence in the potential of AI to continue underpinning earnings growth. We have a moderately overweight view on Japan and remain skeptical of a material improvement in China, given the real estate and consumer confidence issues,” they add.

“Conditions appear favorable for US and Japanese equities to extend their good streak. The solid growth and healthy earnings of the former, coupled with the structural drivers and corporate reforms of the latter, partly justify the increased valuations in these regions, but not entirely; thus, especially in the US, we are going beyond the hottest areas of the market to uncover opportunities. Mid-cap stocks offer solid long-term growth potential at reasonable prices and should also withstand higher rates,” adds Henk-Jan Rikkerink, global head of Solutions and Multi-Assets at Fidelity International.

For its part, abrdn has also increased its conviction in developed market equities, which will benefit from interest rate cuts and solid corporate fundamentals. “The Japanese equity market remains particularly interesting, as its companies are increasingly focusing on shareholder profitability thanks to a cultural shift in buybacks and corporate governance in general. The Japanese market has exposure to a variety of companies well-positioned to benefit from demand for both artificial intelligence and the green transition. We also find European and British equities interesting, given the recovery in activity, valuations, and (at least in the case of the UK) the potential return to a more stable political environment,” says Peter Branner, Chief Investments Officer at abrdn.

On the other hand, Branner believes that Chinese equity valuations seem attractive but face the country’s real estate market problems. “The Indian market should benefit from strong growth and structural reforms, but Narendra Modi’s reduced government majority may limit the scope of the country’s reform agenda, and valuations already discount a lot of good news,” adds the CIO of abrdn.

Alternatives and Currencies

Finally, Branner acknowledges that they have improved their view of the alternatives segment after two years of underweighting. “Rate cuts, limited supply, and strong rental growth mean that the valuation adjustment is largely complete. Structural factors favor the residential sector, data centers, and logistics,” he highlights.

Fidelity International Updates Its Sustainable Investment Framework and Creates Three Major Categories

  |   For  |  0 Comentarios

Fidelity International has revised its sustainable investment framework to adapt to changes in this field, in line with client needs and environmental, social, and governance (ESG) regulations. As the management company reminds us, sustainability is an essential element of Fidelity’s active investment approach.

The company has a robust investment analysis methodology that incorporates sustainability into its fundamental analyses and integrates its proprietary sustainability ratings with insights generated by its equity, corporate debt, macroeconomic, and quantitative analysts to obtain a comprehensive view of the companies and markets it studies.

They explain that this framework has been designed to complement the company’s overall investment approach and provide clients with greater clarity and transparency. Within this revised framework, which will be applied starting from July 30, 2024, Fidelity has created three major categories: ESG Unconstrained, ESG Tilt, and ESG Target.

Regarding these categories, they explain that ESG Unconstrained comprises products that seek to achieve financial returns and may or may not integrate ESG risks and opportunities into the investment process. “The products in this category apply the exclusions that Fidelity has adopted for the entire company,” they clarify.

In the case of the ESG Tilt category, it comprises products that seek to generate financial returns and promote environmental and social characteristics by favoring issuers with better ESG performance than the benchmark index or the product’s investment universe. Additionally, products in this category adopt the exclusions from the ESG Unconstrained group and apply others, such as tobacco production, thermal coal mining, thermal coal power generation, and certain public sector issuer exclusions.

Thirdly, in the ESG Target category are “products that seek to generate financial returns and prioritize ESG or sustainability as a key investment objective, such as investing in ESG leaders (issuers with superior ESG ratings), sustainable investments, sustainable themes (such as climate change or transition), or complying with impact investment standards. Products in this category are subject to the reinforced exclusions mentioned earlier and may apply others.”

On the occasion of this announcement, Jenn-Hui Tan, Director of Sustainability at Fidelity International, stated: “We have long been committed to sustainable investing and have continued to evolve our approach and capabilities in line with client needs and ESG regulations. Integrating sustainability into investment analysis and portfolio construction is part of our core process of identifying the drivers of long-term value creation. The objective of our revised framework is to facilitate the creation and maintenance of a consistent, transparent, and practical range of investment capabilities that cover changes in client needs and regulation. We believe this framework appropriately combines a robust approach to sustainability with a flexible approach that can accommodate different investment styles, asset classes, and client preferences.”

New Trends in Private Markets

  |   For  |  0 Comentarios

The growth of private markets has so far been primarily driven by the demand from institutional investors such as sovereign wealth funds, insurers, or pension funds, among others. However, various experts from M&G Investments note the expansion of the topics of conversation around private markets, as well as a greater interest in different forms of access to them, such as through impact strategies. “There are three major changes in this market that are too significant to be ignored: the size of the opportunity set, the increase in the number of geographies, and the very definition of what private assets are, which has broadened,” says Ciaran Mulligan, CIO of Investment Management and Oversight and co-director of M&G Life’s Treasury and Investment office.

Opportunities by Segments

The global financial crisis marked a turning point for private markets from a credit origination perspective, transferring much of the prominence held by banks to more agile players in the market. Emmanuel Deblanc, CIO of Private Markets at M&G Investments, states that to operate in private markets, “size and having a good name are important, because they inspire confidence in banks, which has a multiplier effect in making banks feel comfortable with underwriting assets.”

The expert also notes that the investment ecosystem has evolved, exemplified by the presence of many infrastructure funds now having their own financing teams, enabling them to attract flows beyond banking. He also observes that the role of banks has evolved, now acting more as facilitators than in the past, advising on transactions without necessarily taking positions on their balance sheets.

Deblanc adds that the emergence of large structural investment themes is also affecting this investment universe, specifically citing the climate transition: “It will provide key growth for this asset class, allowing access to thematic investments in energy and social infrastructure.” “Investments in energy transition open up a significant investment charge by risk and volume; we are seeing much faster growth than expected five years ago, accelerated by the geopolitical events of recent years,” adds the expert.

Regarding private credit, Deblanc states that the investment universe has expanded and matured significantly, though it remains an “inefficient, very complex market where understanding the local context is necessary.” Ciaran Mulligan adds to these observations the increase in capabilities in Europe and, to a lesser extent, in emerging markets, where professional investors like M&G are beginning to consider the possibilities presented by this universe through leveraged loans, direct lending, and corporate debt. The expert clarifies that the investment horizon is crucial for investing in this asset class, with a recommended duration of 15 to 25 years. With this in mind, operations “will take into account that debt levels will increase in the future.” Specifically for M&G, the private credit investment strategy focuses on companies with revenues between 40 and 100 million euros, considering it a segment with less activity.

Structured credit is the last segment Deblanc cites, particularly in the ABS segment. The expert recalls that this is a market with “fewer players because it is a complex asset in a closed market,” but in return, it offers the possibility of a differential with additional points of profitability. The expert observes that capital requirements have increased, a trend accelerated by the collapse of Silicon Valley Bank, opening new opportunities for investors in “a very sophisticated market segment.”

M&G Investments manages 84 billion euros in private assets, with the largest segment being real estate, with over 39 billion.

A Transition Phase

Deblanc does not see systemic risk in private markets and considers the current environment, where global GDP will move between 2% and 3% and there is no excess demand, to be benign for this investment universe. That said, he notes that the market is undergoing a transition phase, as the large gap that used to exist between buyers and sellers is narrowing. This is a trend he believes will accelerate from the fourth quarter of 2024, leading to increased dispersion among managers: “Good managers will become more visible,” he concluded.

Neal Brooks, Global Head of Product and Distribution at M&G Investments, admits that the growth of the private assets market has slowed in recent months due to the ‘higher for longer’ environment, but he expects demand to remain to the point that he anticipates the total investment universe to reach 13 trillion dollars by 2028, primarily in three areas: infrastructure, private equity, and private debt. Brooks speaks of growing appetite from clients, but also from governments and regulators, which he believes will open up markets by allowing access to a larger number of companies. This growth, according to the expert, will occur at the expense of other vehicles traditionally used to gain exposure to these markets, such as hedge funds.

Finally, Brooks highlighted the importance of the current moment in terms of developing product strategies that are accessible to a wide range of investors, noting that currently, 80% of companies with over 100 billion in revenue are not publicly traded. This is compounded by the increasing trend of public companies being delisted to become private again. M&G is advancing in developing new structures to facilitate this access, for example, through the launch of ELTIFs. “Financial education is very important; clients themselves are aware that they need it to help them allocate their capital correctly,” Brooks concluded.

Santander AM to Appoint Pablo Costella as New Head of Fixed Income in Latin America

  |   For  |  0 Comentarios

Santander AM, the asset management division of Banco Santander, is set to appoint Pablo Costella as the new Head of Fixed Income for Latin America as part of a broader plan to modernize operations in the region through centralization, according to information published by Bloomberg.

Costella, who previously served as the Director of Global Fixed Income at BICE Inversiones Asset Management, will replace Alfredo Mordezki, who is based in London and will leave the Spanish entity after 14 years, according to sources within the company consulted by Bloomberg.

Costella’s appointment, based in Chile, is part of a broader reorganization by Banco Santander, aiming to relocate asset management positions for Latin America within the region rather than placing them in other parts of the world. Last year, Santander AM appointed Héctor Godoy to lead the Latin American Equity division, also from Chile.

Santander AM, led by Samantha Ricciardi since February 2022, has focused on attracting new institutional clients and aims to grow in alternative investments with private debt and infrastructure funds. Santander AM manages 226 billion euros in assets under management.

The investment fund business is part of the wealth management and insurance division, headed by Javier García-Carranza, who replaced Víctor Matarranz in May.

Allfunds Appoints Paola Rengifo as Head of Global Operations and Miguel Ángel Treceño as Chief Data Officer

  |   For  |  0 Comentarios

Allfunds strengthens its team with two new hires to continue optimizing performance and efficiency in its global operations. According to the WealthTech B2B platform for the fund industry, Paola Rengifo joins Allfunds as Global Head of Operations and Miguel Ángel Treceño as Chief Data Officer (CDO). Both will be based in Madrid and will report to Antonio Valera, COO of Allfunds.

“The appointment of Paola and Miguel Ángel further demonstrates our commitment to attracting leading talent that fosters internal collaboration and seeks synergies that benefit our clients. Allfunds aims to continue leading the transformation in the wealth management industry; with the support of our advanced technology and growing team, we are confident in our ability to remain a key partner for our clients, exceeding their expectations in a constantly evolving environment,” highlighted Antonio Valera, Chief Operating Officer of Allfunds.

As the new Global Head of Operations, Paola Rengifo will be tasked with optimizing the global operational structure through innovation, automation, and the pursuit of synergies, in close collaboration with the technology area. Rengifo has 32 years of experience in the financial sector with JP Morgan Chase & Co., with international responsibility. Throughout her career, she has specialized in the analysis and implementation of corporate strategies with a particular focus on platforms, products, and resources. She has been a member of the Technology and Innovation Advisory Board of the Santalucía Group and is currently a member of the Council for Innovation and Good Governance (CIBG) in Spain.

Miguel Ángel Treceño joins the team as Chief Data Officer (CDO). In this newly created role, he will focus on digital transformation and maximizing the use and value of data at Allfunds. Treceño has over 20 years of experience in financial services and wealth management, having worked at Credit Suisse, Santander, JP Morgan Chase & Co., and Citibank. At Citi, he led a global team responsible for the data strategy, architecture, and investment program for its Wealth Management Banking, Lending, and Custody platform from New York.

The New Popular Front Surprises in the French Legislative Elections: The Deficit Remains a Focus for the Markets

  |   For  |  0 Comentarios

The left-wing coalition, New Popular Front, unexpectedly won the second round of the French legislative elections, and instead of clearing up the market uncertainties triggered by President Emmanuel Macron’s call for elections, it has refocused investors’ concerns on France’s fiscal deficit and its impact on financial markets.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, sees three potential outcomes. Firstly, a technocratic government, composed of technical experts rather than politicians. However, he considers this scenario unlikely. The second scenario points to a government formed by moderate parties (Socialist Party and Together for the Republic, the coalition of President Emmanuel Macron’s allied parties). This option also seems to have limited prospects. Haefele notes that under Article 12 of the French Constitution, the President of the Republic can only dissolve the Assembly again within a 12-month period.

A third option could be Macron appointing a prime minister from the party with the most seats in the National Assembly, which, after Sunday’s elections, is the New Popular Front (NFP). While it is customary for the president to appoint a prime minister from the majority party, there is no legal obligation to do so. A confirmation vote in parliament is not required, but in practice, the prime minister needs the support of the majority due to the parliament’s power to overthrow the government with a vote of no confidence.

This option, however, will have economic consequences. In Haefele’s opinion, “an NFP government would likely attempt to roll back recent pension and unemployment reforms, increase the minimum wage, and not pursue fiscal consolidation. We believe that the NFP’s program, if implemented as proposed, could lead to a significant deterioration of the already high budget deficit.”

The election results will undoubtedly impact the markets. Haefele assures that “an indecisive parliament is probably the best scenario for European equities,” and given that European stock indices barely changed in early trading, “it suggests that the outcome was not surprising.”

However, he considers this the best result of the second round, adding, “volatility may remain high”: political uncertainty remains elevated in France, and the elections have heightened focus on France’s precarious debt situation, with high levels of public debt and budget deficits, according to the expert. Therefore, he expects a certain political risk premium to persist compared to a month ago, and that the market rally will be limited to the very short term, “as foreign investors are likely to continue viewing Europe’s political backdrop as uncertain.”

In fixed income, UBS clarifies that due to possible political paralysis, limited visibility on political/regulatory decisions, and the potential for new negative ratings actions on French sovereign debt, “volatility in French assets will remain high.” Therefore, with limited upside potential in French bonds, the firm sees better opportunities in countries with more stable debt trajectories.

In currencies, Haefele notes that the impact on the euro is likely to be limited but also sees nuances. If the left forms a government and implements its strategy, “the euro/dollar exchange rate is likely to fall below 1.05, given the expansive fiscal implications of the party’s manifesto at a time when France is likely to face an Excessive Deficit Procedure.” If a government composed of moderate parties is formed, the euro should remain close to 1.08, in his opinion.

According to Alex Everett, Investment Manager at abrdn, the election result “has brought some relief in France” in the eyes of the markets, as Marine Le Pen’s National Rally “convincingly lost its coveted absolute majority,” but he notes that the surprising result of the left-wing coalition “leaves a complicated power struggle” in the country. “Now that a parliament without a majority seems very likely, markets can take comfort in this ‘less bad’ outcome. All things being equal, a significant increase in French debt is not expected. Compromise politics implies few changes from now on, smoothing the excesses of any party,” says Everett.

However, the expert acknowledges that “once the dust settles, the stalemate of a divided parliament will prove more damaging than initially thought.” At this point, he points to France’s budgetary problems, which have not disappeared: “The September 20 deadline to present a credible deficit reduction plan is approaching. Macron’s attempt to force unity has further fueled discord. We are skeptical about achieving significant budgetary progress and continue to underweight France compared to its European counterparts,” he asserts.

Peter Goves, Head of Developed Markets Sovereign Debt Analysis at MFS Investment Management, is clear about the French legislative election results: “Divided politics, less political visibility, and more mid-term uncertainties.” In the short term, “a ‘rainbow coalition’ or a ‘caretaker government’ are feasible. Certainly, it’s not the most politically acceptable outcome, but it’s also not the least favorable for the market,” he asserts, maintaining his short-term range of 70-90 basis points for the spreads between French and German bonds. Behind these market doubts are “relations with the EU, which may be far from benign, especially in an EDP context,” and he advises selling on the upticks in spreads.

For his part, Kaspar Koechli, Economist at Julius Baer, also observes that the absence of an absolute majority from the far right or far left in the National Assembly “keeps fears about the implementation of spending-driven fiscal policy changes limited and practically unchanged since the first round.” However, he is aware that the fixed income market may remain somewhat uneasy about a potential left-wing government, “which might lean more towards spending and question fiscal consolidation efforts in its next budget project for 2025, necessary for the resumption of the EU Stability and Growth Pact.”

With ongoing political uncertainty and an unclear timeline for forming a new government, “we are likely to see a breakdown of the recent tightening of spreads that occurred after the first round last Sunday, following the shock of the announcement of early elections that caused a spread rally,” according to Koechli. Moreover, he notes that while the euro has remained range-bound, “it is awaiting more clarity and is likely vulnerable to news from the French fiscal front.”

“In the long term, the events of recent weeks are problematic from an EU perspective. A strong EU needs a strong France almost as much as a strong Germany. With an increasingly unclear political situation in both countries, the EU project will need a new push. As a desk, the general opinion was to reduce exposure to French assets when President Macron announced his early elections, reflecting increased uncertainty. With the French elections nearing their end, the consensus is more inclined towards identifying investment opportunities. However, our bias towards globally relevant companies rather than those more focused on the domestic sphere will remain a feature of our thinking,” adds Jamie Ross, Portfolio Manager at Janus Henderson.

For now, the market reaction has been mixed, given the prevailing uncertainty. “The 10-year OAT-Bund spread is slightly narrower at 65 basis points. French and European equities opened the week positive (around +0.5% late morning); and the euro opened slightly lower but has already recovered those losses (EUR/USD at 1.0840),” highlights Vincent Chaigneau, Head of Research at Generali AM, part of the Generali Investments ecosystem.