The fixed income market has started 2025 with intensity.
For this reason, MFS IM wants to share the vision of Pilar Gómez-Bravo, MFS Co-CIO of Fixed Income, on the opportunities in this asset class through a new webcast. Additionally, the expert will also discuss her perspective on how fixed income environments differ between the U.S. and Europe, why duration exposure varies across regions, and where they see investment opportunities on a global scale.
The online event will take place next Wednesday, February 26, at 9:30 AM(EST), 2:30 PM (GMT), and 3:30 PM (CET). If you cannot attend live, a replay link will be sent to registered participants.
If you would like to attend, you can register through this link. You may also submit your questions in advance via email: webcasts@mfs.com
Pilar Tavella, Head of Macro Research & Strategy at Balanz
In the dynamic world of asset management, Pilar Tavella, Head of Macro Research & Strategy at Balanz, has built a solid career based on her passion for economics and markets. In this exclusive conversation for the Key Trends Watch initiative by FlexFunds and Funds Society, Pilar shares her vision on the current challenges, growth opportunities, and the impact of economic programs on the evolution of the Argentine market.
Regarding the biggest challenges, Tavella points out that one of the main aspects of her role is translating complex macroeconomic analysis into clear investment strategies. “The key is to stay ahead of the market, evaluate what might perform better or worse than expected, and anticipate how markets will react to these dynamics.” According to her, this becomes especially relevant in a highly volatile environment where macroeconomic conditions are constantly shifting.
As for the development of Argentina’s financial market, she stresses that macroeconomic stability is fundamental. “If the decline in inflation is sustained, we will see the emergence of a more sophisticated and diversified market. This will allow investors to consider medium-term strategies beyond dollarization or hedging against shocks.” In her view, consolidating stability is essential for this growth.
Performance of the Argentine government’s economic program
Tavella acknowledges significant progress in the Argentine government’s economic program, highlighting the faster-than-expected fiscal consolidation and inflation containment. “The government has managed to avoid an inflationary spiral through fiscal discipline and monetary prudence, along with popular support that has been crucial in this process.” However, she notes that the sustainability of these policies will depend on maintaining political commitment and long-term credibility.
The main anchors of the economic program are fiscal and political stability. The combination of these two factors, along with tangible results, has allowed the government to build credibility—an additional stabilizing factor.
A sustained fiscal surplus is particularly noteworthy, as Argentina has struggled to achieve this consistently in the past. This progress, combined with an administration that maintains political stability despite implementing adjustments, is an uncommon scenario. Historically, such coherence was only achieved after deep crises, such as in 2001, but this time, it is occurring with a moderate recession of approximately -2.5%, she explains.
“The fiscal surplus acts as an anchor because it creates expectations of continuity. It wouldn’t be effective if perceived as temporary. The government’s commitment, demonstrated through actions like vetoing laws and accelerating fiscal consolidation, reinforces this perception of stability. In essence, the combination of a sustained fiscal surplus, political stability, and growing credibility underpins this program and gives it strength,” she adds.
Regarding negative effects, she acknowledges that recession is one of the inevitable consequences, “although it has been shallower and shorter than anticipated.” However, the biggest challenge lies in the sustainability of the real exchange rate. While exchange rate appreciation reflects macroeconomic improvement, excessive appreciation could put pressure on the balance of payments.
Growth and inflation scenarios for 2025
Pilar Tavella is optimistic about the near future, forecasting a shallower recession than expected in 2024 and a cyclical growth of 5% in 2025. “The recovery is happening faster than expected, thanks to factors such as fiscal consolidation, real income recovery, and credit growth.”
Regarding inflation, she projects a significant decline, with annual levels between 25% and 30%, always considering that external shocks remain a risk in Argentina. The main challenge for Argentina’s economic program is to consolidate stability and move towards a more flexible and sustainable exchange rate and monetary framework. This requires reducing sovereign risk to facilitate corporate financing and allowing a gradual easing of foreign exchange controls.
Argentina needs to accumulate net reserves, which are still negative, and avoid excessive exchange rate appreciation, she emphasizes. Transitioning to a more flexible model would improve reserve prospects and make inflation reduction more sustainable. A first step would be to normalize the current account by adjusting the export framework so that more foreign currency flows into the official market.
She adds that current conditions—low monetary issuance, reduced inflation, and peso constraints—allow for a gradual liberalization of foreign exchange, prioritizing capital flows over stock adjustments. While the political context may have an impact, concrete steps toward a more flexible and sustainable framework are expected in 2025.
Asset rally
The recent rally in Argentine assets has been primarily led by local investors, particularly in bonds and equities. This contrasts with previous periods when foreign investors played a larger role, though their current lower exposure may be due to past negative experiences in the Argentine market. The challenge now is to attract external capital again to expand the recovery.
For 2025, the expert highlights Argentine sovereign bonds as a key bet. Despite their positive performance, they still have room for appreciation, especially if the country progresses toward regaining market access. In equities, following an exceptionally strong performance, she suggests a more selective approach, prioritizing sectors with higher growth potential.
“To attract greater interest from foreign investors, it is crucial to improve the outlook for international reserve accumulation. While there is confidence in the government’s ability to meet short-term debt payments, challenges will increase in the medium and long term when maturities accumulate,” she states.
She concludes that a solid agreement with the International Monetary Fund (IMF) and a gradual easing of the exchange rate framework would be key steps. These measures would help build confidence in the sustainability of the balance of payments and Argentina’s ability to accumulate sufficient reserves in the future.
Interview conducted by Emilio Veiga Gil, Executive Vice President at FlexFunds, as part of the Key Trends Watch initiative by FlexFunds and Funds Society.
The 2025 Annual Meeting of the World Economic Forum took place this week, with world leaders emphasizing regional reforms and the application of artificial intelligence. The event was not immune to the words and actions of Donald Trump. In fact, several sessions included discussions and reflections on the potential economic effects of the new U.S. administration.
For example, during Tuesday’s session, European Commission President Ursula von der Leyen responded to growing threats of tariff policies and anti-climate measures from the U.S. president. According to Banca March analysts, Von der Leyen reaffirmed the European Union’s commitment to remaining an open bloc willing to cooperate with international partners, advocating for an open approach in contrast to U.S. protectionism.
“She described the bloc’s strategy, which will be based on negotiation, while also stressing the importance of defending the EU’s principles, interests, and values,” they noted.
Banca March also highlighted that several international financial executives spoke during the sessions, pointing out a competitive advantage for U.S. banks due to their more lenient regulations. The CEO of Italian bank UniCredit stated that American banks are the real competitors. JP Morgan noted that Trump has created a very pro-business environment. The Vice President of BlackRock argued that Europe needs a wake-up call on regulation. In contrast, the CEO of UBS took the opposite stance, opposing widespread deregulation for large banks.
Regarding other industries, the CEO of pharmaceutical company Novartis downplayed concerns about Trump’s stance on vaccines and other health policies, calling such worries “exaggerated.”
Environmental Commitments
One of the most significant announcements was the creation of the world’s largest tropical forest reserve, the Kivu-to-Kinshasa Green Corridor Reserve, which will protect over 550,000 square kilometers of forest across the Congo River Basin.
“This historic and unprecedented initiative will not only transform our natural landscapes but also improve the livelihoods of millions of our citizens,” said Democratic Republic of Congo (DRC) President Félix-Antoine Tshisekedi Tshilombo. He added that the project goes beyond environmental preservation, incorporating economic development as well.
Meanwhile, Malaysian Prime Minister Anwar Ibrahim expressed optimism about ASEAN’s future and Malaysia’s role in it.
“The spirit of collaboration and solidarity among ASEAN leaders is unique,” he said, highlighting the regional integration in green energy that has contributed to Malaysia’s rise as a high-tech manufacturing hub.
He emphasized that while the U.S. remains Malaysia’s largest individual investor, its economic ties with China are expanding.
“We don’t go to war or make threats; we discuss, we get a little angry, but we focus on economic fundamentals and move forward,” Anwar stated.
AI and Technology
UN Secretary-General António Guterres issued a strong warning about two growing global threats: the unchecked expansion of artificial intelligence and the climate crisis. He described these issues as unprecedented risks for humanity, requiring immediate and unified action from governments and the private sector.
On AI, Guterres acknowledged its immense potential but cautioned against leaving it unregulated. He emphasized the need for international collaboration, referencing the UN’s Global Digital Compact as a framework for responsible digital technology use.
“We must work together to ensure that all countries and people benefit from AI’s promise and potential to support social and economic progress,” he said.
He also urged the private sector not to backtrack on climate commitments and called on governments to deliver on their promise to introduce new, economy-wide national climate action plans this year.
Meanwhile, Spanish Prime Minister Pedro Sánchez called for a reform of social media governance across the EU to combat disinformation and cyberbullying.
He urged for stronger enforcement of the Digital Services Act and the expansion of the European Centre for Algorithmic Transparency’s powers.
“The values of the European Union are not for sale,” he emphasized, calling for increased funding to research social media algorithms and ensure that Europe’s brightest minds address this critical challenge.
Geopolitics and International Relations
The Davos meeting coincided with the implementation of the ceasefire between Israel and Hamas.
Palestinian Authority Foreign Minister Varsen Aghabekian expressed cautious optimism, stating:
“Optimism is not an option; it is a necessity.”
She added that she hopes the ceasefire will lead to a more sustainable peace. Addressing the humanitarian crisis in Gaza, she stressed the need for immediate aid and long-term planning.
“We must ensure that aid reaches the people,” she insisted.
Meanwhile, weeks after the sudden collapse of Bashar al-Assad’s regime, Syrian Foreign Minister Asaad Hasan AlShaibani outlined the new government’s plans.
“We will not look to the past. We will look to the future. And we promise our people that this misery will not happen again,” he declared.
He pledged to respect women’s rights, reject sectarian divisions, and called for the removal of remaining sanctions.
“Thousands are returning to Syria and need to help rebuild the country. We are turning a new page… Syria must be a nation of peace.”
In a discussion with CNN’s Fareed Zakaria, Iranian Vice President for Strategic Affairs Javad Zarif expressed hope that a second Trump presidency would reconsider its withdrawal from the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, which Trump abandoned in 2018.
He suggested that a new Trump administration might take a more serious, focused, and realistic approach regarding the cost of withdrawing from the agreement.
“In terms of deterring Iran, [the withdrawal from the JCPOA] has failed. It has imposed significant economic costs on the Iranian people. Of course, the Iranian government is suffering, but the Iranian people—especially the most vulnerable—are suffering the most,”Zarif stated.
This surge was driven by an increase in the number of large-scale transactions. In total, five deals exceeded $5 billion, compared to two in 2023 and one in 2022. North America remains the largest market, accounting for 65% of global deal value, while Europe and Asia-Pacific represent 22% and 12%, respectively. Deal volumes remained stable relative to historical levels, with a wave of activity in North America and Europe offsetting a 49% decline in deal volume in Asia-Pacific since 2023. These are some of the key findings from Bain & Company’s Global Healthcare Private Equity Report 2025.
For Cira Cuberes, partner at Bain & Company, the private equity market in the healthcare sector made a strong comeback last year, largely due to an influx of large-scale transactions, particularly in the biopharmaceutical space. “We also observed a resurgence of deals in the health technology sector. Looking ahead to 2025, we expect LPs to continue backing mid-market fund managers due to their strong returns and sector expertise. The smartest strategy for investors will be to focus on opportunities arising from spin-offs and incorporate value creation principles into their due diligence,” she commented.
In Europe, deal volume surpassed the peak reached in 2021, driven by a concentration of smaller deals in the first half of the year. The biopharmaceutical and medical technology sectors were two of the key drivers in 2024, as companies acquiring assets in these industries can easily expand them across the regions in which they operate. Bain remains optimistic about the European market, citing strong acquisition volume growth and a stabilizing macroeconomic environment. The firm anticipates continued momentum in deal activity and sees potential for more mega-deals.
The biopharmaceutical sector continues to lead healthcare deals in terms of total value, thanks to several major transactions in 2024. Despite the record deal value in biopharmaceutical buyouts, global deal volume in the biopharmaceutical tools and life sciences sectors declined by 5% and 10%, respectively, since 2020 in terms of compound annual growth rate (CAGR). Several factors contribute to this trend, including the struggle between buyers and sellers to align sale prices and a reduction in pharmaceutical services spending following a sharp decline in U.S. biopharmaceutical private equity funding.
Healthcare IT Dealmaking Rebounded in 2024
Several factors contributed to the resurgence in healthcare IT deals. First, providers—facing financial pressures and changes in reimbursement models—are investing in core systems to boost efficiency. In response, private equity firms are increasingly investing in assets that support workflow improvements. Additionally, payers—seeking to enhance payment integrity—are investing in advanced analytics. At the same time, biopharmaceutical companies are modernizing clinical trial IT infrastructure to accelerate and improve drug development in an environment of tighter funding and stricter regulatory requirements.
Four Trends Reshaping the Healthcare Private Equity Landscape
Mid-market funds continue to innovate: Historically, healthcare-focused mid-market funds have outperformed the broader market, benefiting from ongoing innovation and evolving investment strategies. They have also managed to sustain both asset acquisition and exits since 2020, even as the broader healthcare buyout market struggled. This strong performance has led to robust fundraising. Since 2022, mid-market funds with healthcare exposure have raised approximately $59 billion, exceeding fundraising levels from the previous three years by about 40%. While they have traditionally focused more on provider assets, mid-market private equity firms have expanded their scope to include healthcare IT and provider services while maintaining a strong presence in biopharma and medical technology.
Spin-offs unlock value in a competitive market: Despite year-to-year variability in deal activity, healthcare spin-offs have followed an upward trajectory since 2010, driven by a combination of public companies aiming to enhance shareholder value and private equity firms eager to acquire high-value assets. Successful spin-offs allow public companies to improve margins, focus on revenue growth, and reduce leverage and complexity. They also create opportunities for private equity firms to acquire overlooked assets with significant value-creation potential under new ownership. Given the reduced level of sponsor-to-sponsor deals since the 2022 peak, the combination of spin-offs and corporate deals has attracted a diverse range of investors looking to deploy capital into scalable healthcare assets with strong value-creation potential.
Maximizing exit value is a strategic imperative: Private equity exit deal volume in healthcare remained low in 2024—41% below its 2021 peak—as high interest rates and valuation mismatches between buyers and sellers extended holding periods and limited funds’ ability to return capital to their LPs. Historically, multiple expansion has driven nearly half of total deal returns, but this lever is unlikely to sustain returns to the same extent in the coming years. To execute a successful exit strategy, sellers must take an objective view of asset performance and trajectory while having a plan for future value creation. Buyers who integrate value-creation principles into their pre-acquisition diligence gain a competitive advantage.
Asia-Pacific investment has evolved: Private equity firms are expanding their investments beyond China in the Asia-Pacific region, where deal value has grown at an approximate 21% CAGR since 2016. However, deal volume in the region has declined significantly since 2023 due to a slowdown in Chinese transactions, a shift in deal volume to India, Japan, and South Korea, and increased competition from strategic players eager to pursue M&A. India, in particular, is emerging as a compelling alternative to China for dealmaking, given its expanding middle class—driving healthcare demand—and strong economic growth. Japan and South Korea are also seeing accelerated deal volume, fueled by favorable macroeconomic factors and an aging population with increasing healthcare needs.
“We are optimistic about the outlook for private equity in the healthcare sector in 2025, especially as deal multiples begin to stabilize, enabling better alignment between supply and demand, and as a growing base of tradable assets presents new opportunities. Lower interest rates in the U.S. and stable economic growth in regions like Japan and India indicate favorable investment conditions. Looking ahead, the accumulation of assets in private equity portfolios, along with increasing LP pressure for liquidity, suggests an imminent rise in sponsor exits,” concludes Cira Cuberes, partner at Bain & Company.
Over the past decade, pension funds have increased their investments in private assets to enhance returns through the illiquidity premium. However, they are now reconsidering the potential liquidity risks associated with this strategy. According to a new global survey conducted by Ortec Finance, a specialist provider of risk and return management solutions for pension funds, nearly 18% of pension funds report not having enough liquidity to withstand adverse scenarios.
The study, conducted in the United Kingdom, the United States, the Netherlands, Canada, and the Nordic countries, surveyed senior executives from pension funds managing a total of $1.451 trillion in assets. It found that, in addition to the 18% reporting insufficient liquidity, another 62% believe they have enough liquidity for most scenarios but acknowledge that extreme situations could pose challenges. In contrast, only 20% say they have no liquidity concerns.
Fund managers identify both short- and long-term risks, with long-term liquidity risk being the primary concern among respondents. About 60% cite this as the main risk facing the funds they manage, while 25% consider short-term liquidity risk to be the most significant. Only 15% believe that short- and long-term risks are roughly equal.
The increase in exposure to private assets is part of the reason behind liquidity concerns, particularly among defined benefit (DB) pension schemes. Among the managers surveyed, 80% reported that unfunded commitment risk represents either a significant or moderate threat to the DB pension industry over the next three years. Overall, 25% of managers believe that unfunded commitments beyond the control of pension portfolio managers pose a significant risk, while 19% do not consider it a risk.
Despite these liquidity concerns, 58% of respondents state that liquidity is already well managed, and 28% believe other risks are more pressing. Meanwhile, 10% consider liquidity risk a priority, while 4% say it is not a major concern.
“Our study highlights the liquidity challenges facing pension funds, particularly given the unpredictability of projecting unfunded commitments and capital calls. To address this issue comprehens
Pension Funds Increase Private Asset Exposure but Face Growing Liquidity Concerns
Over the past decade, pension funds have increased their investments in private assets to enhance returns through the illiquidity premium. However, they are now reconsidering the potential liquidity risks associated with this strategy. According to a new global survey conducted by Ortec Finance, a specialist provider of risk and return management solutions for pension funds, nearly 18% of pension funds report not having enough liquidity to withstand adverse scenarios.
The study, conducted in the United Kingdom, the United States, the Netherlands, Canada, and the Nordic countries, surveyed senior executives from pension funds managing a total of $1.451 trillion in assets. It found that, in addition to the 18% reporting insufficient liquidity, another 62% believe they have enough liquidity for most scenarios but acknowledge that extreme situations could pose challenges. In contrast, only 20% say they have no liquidity concerns.
Fund managers identify both short- and long-term risks, with long-term liquidity risk being the primary concern among respondents. About 60% cite this as the main risk facing the funds they manage, while 25% consider short-term liquidity risk to be the most significant. Only 15% believe that short- and long-term risks are roughly equal.
The increase in exposure to private assets is part of the reason behind liquidity concerns, particularly among defined benefit (DB) pension schemes. Among the managers surveyed, 80% reported that unfunded commitment risk represents either a significant or moderate threat to the DB pension industry over the next three years. Overall, 25% of managers believe that unfunded commitments beyond the control of pension portfolio managers pose a significant risk, while 19% do not consider it a risk.
Despite these liquidity concerns, 58% of respondents state that liquidity is already well managed, and 28% believe other risks are more pressing. Meanwhile, 10% consider liquidity risk a priority, while 4% say it is not a major concern.
“Our study highlights the liquidity challenges facing pension funds, particularly given the unpredictability of projecting unfunded commitments and capital calls. To address this issue comprehensively, funds should focus on scenario modeling and stress testing. Modeling capital calls and private asset distributions can help funds understand their potential liquidity constraints in worst-case scenarios over the next five, ten, or twenty years,” says Marnix Engels, Managing Director of Global Pension Risk at Ortec Finance.
Edouard Carmignac had the opportunity to have lunch with the now-president Donald Trump 20 years ago. It was a business lunch where the founder, president, and CIO of Carmignac Gestion gained a good understanding of the character of the then-businessman, which has helped him assess how his second, non-consecutive term as U.S. president might unfold: “Donald Trump, for his flaws, can be criticized, but we must acknowledge that he has a formidable instinct. In a world seeking growth but that is globalized and where traditional models no longer work, his approach has an impact.” Although the president and CIO admitted that some of Trump‘s promises “include extreme proposals that may sometimes seem radical,” he also stated that “boldness and leadership are needed because the old paradigms are no longer sustainable.”
These remarks were made by Carmignac at the annual forum organized by his firm in Paris for clients and the media, which this year also marked the 35th anniversary of the firm and its flagship fund, Carmignac Patrimoine.
One of the major investment-related topics Edouard Carmignac addressed in his speech was the shift in the global political order, where he was particularly critical of countries with left-wing governments: “The classic redistribution models, which worked well in the past, are now exhausted. Resources cannot continue to be redistributed if there is no way to generate them. That is why European models face resistance and need to reinvent themselves with efficient governance.” However, despite these challenges, Carmignac maintained an optimistic outlook, asserting that “there is potential” for greater growth in Europe, and expressed confidence that European governments would gradually shift towards more conservative and right-wing positions, beginning with Germany after the elections scheduled for February.
Carmignac cited another example of a global leader, Javier Milei, with whom he had a one-hour meeting. Among the topics they discussed were economics and their shared views on the Austrian School of Economics. “I was impressed by his intelligence and his knowledge of economics. He has an unwavering determination to change Argentina and move it forward, which will have an impact not only on his country but also on South America,” Carmignac emphasized.
Among the investment themes for 2025 that Carmignac Gestion is monitoring, Edouard Carmignac highlighted that “a technological revolution is underway,” though he preferred to call it “augmented intelligence” rather than artificial intelligence. “We are witnessing a transformation that is just beginning, and those who invest in it will find great opportunities.” Regarding cryptocurrencies, he took a more cautious stance, instead emphasizing the importance of “continuing to invest in projects with real value and long-term sustainability.”
Outlook for 2025
Raphaël Gallardo, chief economist at Carmignac Gestion, provided a more detailed and specific analysis of key themes the firm is monitoring this year, positioning their funds accordingly. He began by discussing the current situation in the U.S., particularly the difficult paradox facing the new Trump administration, which has promised continued economic growth while avoiding inflationary pressures.
Specifically, Gallardo identified three factors affecting U.S. growth: the high deficit (above 6%), which will constrain budget decisions; the sustainability of the wealth effect experienced by households in recent years, driven by rising financial asset prices, which Gallardo questioned; and, related to the previous two, the evolution of interest rates, which he believes “will determine the budgetary margin,” as each movement in the cost of money directly impacts stock market valuations and real estate assets while also absorbing up to 20% of U.S. household incomes.
According to the chief economist, Trump has four key levers to navigate this challenge: reducing public spending through the newly created Department of Government Efficiency (DOGE), led by Elon Musk; promoting deregulation, particularly in artificial intelligence; implementing tariffs; and lowering oil prices by flooding the market with more barrels, which would require negotiations with Saudi Arabia and even Russian authorities, potentially leading to a resolution of the war in Ukraine.
On the other side of the world, Gallardo discussed China’s “obsession with trade surpluses,” arguing that its export figures are inflated due to the country ramping up shipments in 2024 ahead of new U.S. tariffs. Gallardo believes Xi Jinping‘s government is currently at an “impasse,” as it attempts to mitigate the negative impact of the real estate sector on the economy while trying to “set a consumption floor without altering the economic model.”
Regarding a potential new trade war between the U.S. and China, Gallardo sees multiple factors at play. He anticipates another shift in trade rules between the two nations—though he notes that Trump, unlike in 2018, is not being as aggressive with tariffs this time. He also cites other influences, such as the war in Ukraine and the ongoing fentanyl trade between the two countries.
Finally, Gallardo argues that the EU can play a key role in this historic rivalry in three ways: first, by becoming a better client for the U.S., particularly by increasing demand for American goods and services in the defense and gas sectors; second, by coordinating with the U.S. to decouple China’s technological advancement, creating a competitive advantage; and third, by leveraging deregulation within Europe to impact U.S. companies, such as enforcing stricter regulations on digital giants.
The growth of the ETF segment in the European fund market has raised a new question: Is a simple average sufficient to compare the sectoral performance of active versus passive UCITS equity funds? This is the question that the European Fund and Asset Management Association (EFAMA) has sought to answer in its latest edition of Market Insights, titled “The Sectoral Performance of Active and Passive UCITS: Is a Simple Measure Enough?”
Although past performance does not guarantee future returns, recent literature has shown that funds with better historical performance attract more capital inflows. In recent years, passive funds have gained popularity due to their lower costs and their tendency to report higher average net returns than active funds. “However, the debate over which group of funds delivers better performance is more complex than it seems,” EFAMA acknowledges.
According to EFAMA, fund performance is typically reported by showing a simple or weighted average of the gross or net returns of all funds within a given category. “This is generally measured within a broad fund category, such as all active or passive funds, or the total universe of funds. This approach does not take into account the diversity of funds in terms of issuers, types of securities, geographical exposure, currency, and industry sectors, and consequently, the diversity in fund performance,” EFAMA explains.
To address this, EFAMA analysts have compared the net performance of different categories of UCITS equity funds over the past ten years (2014–2023). The analysis shows that in 2023, the average net return of active UCITS equity funds was 13.1%, while that of passive UCITS equity funds reached 16.7%, “suggesting that passive UCITS outperformed,” EFAMA states in its report.
When analyzing the distribution of average annual net returns of active and passive UCITS equity funds in 2023, it is observed that two years ago, in 2023, many active funds achieved returns as strong as passive funds, while many passive funds had lower returns than active ones. According to EFAMA, “the observed returns depend on various fund characteristics, such as the industry sector or geographical exposure, regardless of whether a fund is active or passive.”
Key Findings
“Our analysis reveals significant differences in the average net performance of sectoral equity funds, with neither active nor passive funds consistently outperforming the other,” says Vera Jotanovic, Senior Economist at EFAMA.
Meanwhile, Bernard Delbecque, Senior Director at EFAMA, explains that given the high diversity among investment funds, “retail investors should seek professional advice before allocating their savings to specific equity funds, ensuring that their choices align with their individual investment goals and preferences.”
In this regard, one of the main conclusions reached is that “significant differences in net performance are observed among UCITS equity funds across various industry sectors, for both active and passive funds.”
Additionally, it is concluded that while passive equity funds generally outperform active equity funds when comparing net returns across the entire universe of equity funds, this pattern does not consistently hold across all sectors.
It is also extrapolated that some active funds outperform passive funds, and vice versa, depending on the industry sector, the year, and the time horizon, “demonstrating that no category consistently delivers superior performance,” EFAMA notes. Finally, the report warns that its findings remain robust even after accounting for return volatility.
According to Vanguard’s Investor Pulse survey, American investors continue to maintain a predominantly positive outlook for the new year, following a clearly optimistic 2024. In fact, they expect a market return of 6.4% in 2025 and 7.6% over 10 years, and they also indicate that the U.S. GDP will grow by 4%. These positive forecasts coexist with a certain sense of economic uncertainty, which translates into inflation expectations of 3.2% and a more moderate short-term GDP growth.
In the history of this survey, Vanguard notes that 2024 was the most optimistic year for investors. Throughout last year, investors’ return expectations for the next 12 months remained above 6%, reflecting a high and sustained level of optimism. Looking ahead to 2025, the survey shows that investors continue with this level of optimism and currently expect the market to deliver a 6.4% return. For the next 10 years, investors expect the average annual market return to be 7%.
“Investor optimism reached a new level of stability in 2024 and remained there throughout the year. However, it seems that investors have adjusted their short-term economic outlook in the last few months of 2024. This could reflect people’s concerns about growth resulting from the increasing complexity of the current economic environment,” notes Xiao Xu, an analyst at Vanguard Investment Strategy Group.
U.S. Economy
A striking conclusion is that investors’ expectations for average GDP growth in the U.S. over the next three years softened throughout 2024, despite the strong economic growth recorded during the year. According to the survey, although growth expectations remain in a fairly optimistic range, the rebound from the June 2022 low may have come to an end. Specifically, the GDP growth forecast for the next 10 years remains high at 4%.
Lastly, inflation expectations throughout 2024 hovered around 3%, a level above the Fed’s 2% policy target but consistent with overall inflation during the year, according to Vanguard. With a reported uptick in inflation in recent months, the median inflation expectation rose by 0.2% at the end of 2024, meaning investors expect inflation to be 3.2% in 2025.
“Investors remain cautiously optimistic about the stock market and the economy heading into 2025. They are bullish on growth but bearish on inflation,” says Andy Reed, head of Investor Behavior Analysis at Vanguard.
Do investors believe the Fed will be able to bring inflation down to its 2% target by the end of 2025? Since June 2024, we have asked survey participants to estimate the likelihood of different inflation scenarios in the U.S. over the next 12 months. In the second half of 2024, investors increasingly believed that inflation would remain above the 2% target, with their probability assessment rising from 65% in August to 70% in December.
In December 2024, investors estimated a 15% probability that inflation would exceed 6% within 12 months, significantly higher than the 9% probability they had projected back in August. Similar to professional forecasts, including Vanguard’s economic and market outlook, uncertainty surrounding potential trade policies may be a key factor on many investors’ minds.
According to Alessandro Tentori, CIO for Europe at AXA Investment Managers, two factors will drive fixed income performance this year: “On one hand, a relatively contained duration management approach, with a defensive stance on U.S. bonds and a hint of optimism on European bonds; and on the other hand, a strategy inclined toward taking credit risks, including high yield, especially in the U.S. market, supported by both macroeconomic analysis and corporate balance sheets.”
At Neuberger Berman, they believe that after several years in which fixed income markets were primarily driven by central bank policies, this year attention will likely shift more toward fiscal actions: the policy and revenue decisions of the new Trump administration, as well as those of other governments that are redirecting their priorities or facing financial pressures.
“Since the arrival of COVID-19, investors have largely focused on central banks for clues about fixed income performance—from the implementation of zero-rate policies and financial liquidity provisions to sustain the global economy during the pandemic, to the adjustments made to counter rising inflation in 2021 and 2022, and the widely anticipated start of the current monetary easing cycle. With inflation continuing to decline, we are entering a period of gradual central bank rate cuts,” explains Neuberger Berman’s market outlook report.
Key Investment Ideas
Experts at Wellington Management see this as a moment to take advantage of bond market divergence. They acknowledge that caution will set the tone for 2025, a year in which sovereign bond yields could help investors offset potential interest rate volatility. “High levels of nominal growth worldwide provide a starting point that should cushion the impact of a potential global economic slowdown. At this moment, we do not foresee a recession or, consequently, an increase in rating downgrades and defaults. We also believe that high-yield securities currently offer adequate compensation for investors amid rising volatility. However, the exception to this rule is the long end of the yield curve, where longer-maturity bonds are struggling due to supply dynamics, inflation expectations, and higher nominal growth,” they explain.
Tentori also notes that in 2025, investors should not only consider the effects of duration, credit, and currency risk but also the trajectory of monetary policy. “This has been a key factor in fixed income portfolio construction, particularly during the period of Quantitative Easing. It could once again prove crucial to performance in the near future, especially amid policy divergence between the ECB and the Federal Reserve,” he says.
Aegon AM focuses on asset-backed securities (ABS), arguing that in an environment driven by sentiment and fundamentals, ABS should be favored. “Falling interest rates are positive from a fundamental perspective, though they may reduce the coupon of floating-rate products like ABS. However, growth and inflation expectations have undergone significant shifts over the past two years, as have interest rate outlooks in many markets. ABS investors are less affected by changes in interest rate expectations since the carry of these instruments depends primarily on the short end of the yield curve. As curves remain inverted, the current yield is about 80–90 basis points higher than the yield to maturity,” they argue.
A segment that Felipe Villarroel, partner and portfolio manager at Vontobel, finds particularly attractive for portfolios this year is corporate credit. “One of the main reasons we believe credit will continue to outperform sovereign debt in the medium term is corporate fundamentals. Everyone knows that corporate bond spreads are tight, and we expect some volatility over the next 12 months. However, if the macroeconomic outlook remains reasonable (i.e., no recession) and corporate finances stay strong, we see no clear reason to expect a significant increase in defaults,” Villarroel argues.
The Strength of High Yield
After high-yield bonds outperformed investment-grade bonds in 2024, managers seem to continue favoring them. According to Bloomberg data, higher-yielding assets—such as high-yield bonds, leveraged loans, and emerging market hard currency debt—outperformed investment-grade bonds for the fourth consecutive year. Specifically, U.S. cash high-yield bonds posted an 8.19% return, compared to 1.25% for investment-grade bonds.
In this regard, analysts at Loomis Sayles, an affiliate of Natixis IM, note that the fundamental outlook remains solid, supported by a positive earnings environment and a resilient U.S. economy. “Currently, the high-yield risk premium is at the narrowest end of its historical range, even considering the generally positive economic backdrop. The good news is that we anticipate relatively moderate credit losses this year, with defaults likely to stay around 3%. Overall, we believe high-yield bonds will remain an attractive place for carry, though investors should temper their total return expectations,” they argue.
Invesco expands its product range with the launch of the Invesco S&P 500 Equal Weight Swap UCITS ETF, a fund designed to replicate the performance of the S&P 500 Equal Weight Index using a synthetic structure. According to the asset manager, the benchmark index is built from the S&P 500 Index, assigning the same weight to each company in the index instead of the standard method of weighting companies by market capitalization.
“This is the world’s first Equal Weight ETF with synthetic replication. For investors seeking exposure to the S&P 500 Equal Weight Index, Invesco now offers both physical and swap-based ETFs, allowing investors to choose their preferred replication method,” the firm stated.
According to Invesco, demand for Equal Weight strategies has continued to rise since Mega Cap stock prices hit multi-decade highs and began to appear overvalued. This trend has been particularly noticeable in U.S. equities, where S&P 500 Equal Weight ETFs have attracted more than $10 billion in net inflows since July 2024. The top 10 stocks in the S&P 500 Index still represent 37% of market capitalization, keeping concentration at historically high levels.
Unlike existing products in the market, the Invesco S&P 500 Equal Weight Swap UCITS ETF aims to replicate the performance of the S&P 500 Equal Weight Index through swap-based replication. The ETF will hold a basket of high-quality stocks and achieve index returns through swap agreements with major financial institutions. These swap counterparties will pay the ETF the index return, minus an agreed fee, in exchange for the returns of the ETF’s held stock basket.
Following this launch, Laure Peyranne, Head of ETFs Iberia, LatAm & US Offshore at Invesco, stated: “We are excited to start the new year with an ETF that combines two areas of Invesco’s expertise. We are a global leader in equal-weighted equity exposures, a rapidly expanding area whose demand surged significantly in 2024 and which we now offer through our solid and highly efficient swap-based structure, developed over 15 years ago. We have the world’s largest synthetic ETF, and now investors can benefit from the same advantages for their exposure to the S&P 500 Equal Weight.”
Peyranne also noted that when a Europe-domiciled ETF uses synthetic replication on certain core U.S. indices, it is not required to pay taxes on dividends received.
“This allows us to negotiate better terms with our swap counterparties, including receiving the gross return of the index, which is an advantage over a physically replicated ETF that typically pays a 15% to 30% tax on dividends. In the case of the S&P 500 Equal Weight, given current dividend levels, this translates to an approximate 20 basis point improvement,” she explained.
Invesco has committed to the swap-based replication model, maintaining an uninterrupted track record of over 15 years and accumulating more than $65 billion in assets across its swap-based ETF range. Its product lineup includes the Invesco S&P 500 UCITS ETF, which, at $39 billion, is the largest swap-based ETF in the world, according to the company.
This latest launch also expands the firm’s Equal Weight offering by adding the Invesco S&P 500 Equal Weight Swap UCITS ETF to its existing Invesco Nasdaq-100 Equal Weight UCITS ETF and Invesco MSCI World Equal Weight UCITS ETF.
