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The Victory of Trump and Its Effects on Emerging Markets

Financial markets in emerging countries have mostly reacted as expected to the victory of Donald Trump and a likely Republican win. As the U.S. dollar strengthened, most emerging market currencies weakened, with the Mexican peso and currencies of Asian manufacturers being the most affected. Once details about the scale and timeline of tariffs become clearer, we expect emerging market currencies, particularly the Chinese yuan and Mexican peso, to weaken further.

Chinese equities fell as anticipated, but the market is also awaiting details of fiscal measures expected to be announced on Friday. The rise in U.S. interest rates has dominated the yields on emerging market credit. We continue to expect emerging market credit spreads to widen in the short term.

Currencies

Emerging markets began reacting as more clarity emerged about the result. Overall, initial reactions were as expected: by midday Central European Time, most emerging market currencies had weakened against the U.S. dollar. Yesterday, the Chinese yuan fell by 1.3%, settling at 7.18, while the Mexican peso dropped 2.8%, reaching 20.66.

Asian currencies experienced widespread declines, especially those most exposed to trade with the United States: 1.2% for the South Korean won, 1.3% for the Malaysian ringgit, and 1.7% for the Thai baht. As expected, the effects were more moderate for the Indian rupee (0.2%) and the Indonesian rupiah (0.6%). Since Brazil is one of the few emerging markets that could potentially benefit from possible trade wars due to China’s retaliations, the Brazilian real gained 0.65%.

Equities and Credit

Chinese and Mexican stocks fell as expected due to the prospect of a potential trade war. The Hang Seng Chinese Enterprises Index dropped 2.6%, while the MSCI Mexico Index fell 1.6% this morning. A stronger U.S. dollar in the coming weeks would continue to exert downward pressure on emerging market currencies and equities.

U.S. interest rates rose nearly 20 basis points to 4.44%, affecting emerging market credit behavior yesterday morning. Emerging market corporate credit spreads appeared to move very little, suggesting that the market has not yet fully priced in potential tariffs. However, some of this may reflect a delay in spot bond pricing, so a complete market reaction might take another day. Since China represents about 25% of the asset class and Asia excluding China accounts for another 25%, we expect further widening in the short term.

Awaiting China

The market is also awaiting details on China’s fiscal measures, expected at the conclusion of the Standing Committee of the National People’s Congress on Friday. A broad issuance quota with flexible issuance timing would be seen as positive for the Chinese market. Nevertheless, a 60% tariff could likely reduce Chinese growth by one percentage point from our baseline 2025 forecast of 4.5%. The Chinese government would need to take bolder measures to support the economy to offset the headwinds posed by tariffs.

Asset Managers Consider Sustainability, Regulation, and Technology Key Pillars in the Evolution of Their Business

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asset managers sustainability regulation technology

Regulation, sustainability, technology, and new investment products are some of the factors driving the consolidation wave currently affecting the global asset management industry. These insights are highlighted in the latest study by the Thinking Ahead Institute (TAI), in partnership with WTW, which surveyed the world’s 500 largest asset managers, collectively reaching $128 trillion USD at the end of 2023.

According to the report, regulation—55% of companies experienced an increase in regulatory oversight—and sustainability are fundamental aspects transforming their business. For example, 66% of the surveyed firms reported a rise in client interest in sustainable investments, including voting, while 73% boosted resources allocated to technology and big data, and 55% to cybersecurity. Additionally, 47% increased the representation of minorities and women in senior positions.

In business terms, 56% of the surveyed companies reported an increase in their range of product offerings, while 27% noted a decline in aggregate investment management fees, and 15% experienced a moderate increase.

When it comes to sustainability, investment firms believe the effort starts internally. While this approach has been widely integrated regarding environmental sustainability, it has not been as prevalent in terms of governance. One key area of focus for asset managers has been increasing the presence of women within their companies and industry.

“Among the 79 asset managers who provided data on workforce diversity, an average of 24% of senior management positions are held by women, who represent 41% of the total workforce. Women and minority groups still have relatively low representation in senior leadership roles, despite a slight increase since 2022,” the report notes.

Environmental Commitment

If we focus solely on environmental aspects, it becomes evident that the commitment to net zero emissions by 2050 has been adopted by much of the industry. “A net zero commitment is a pledge by a company, country, or organization to reduce their greenhouse gas emissions to the point where the amount emitted is balanced by the amount removed from the atmosphere. The goal is to achieve ‘net zero’ carbon emissions by a specific target year, meaning that any emissions produced are offset through actions like carbon capture, reforestation, or purchasing carbon credits, resulting in no net increase of greenhouse gases in the atmosphere. This is a key strategy to combat climate change and limit the rise in global temperatures,” the report explains.

In this regard, the commitment of asset managers varies by region. For example, although the Americas region has the lowest proportion of companies with ‘net zero’ commitments, it holds the largest share of assets. Considering only those companies with ‘net zero’ targets for their portfolios, the committed assets stand at 18% in EMEA, 13% in the Americas, and 3% in APAC.

Additionally, according to the document, specific country regulations in Spain (90%), Netherlands (82%), United Kingdom (80%), Switzerland (80%), France (79%), and Germany (77%) drive high adoption rates. Other notable mentions include Japan (90%) and Australia (71%), both with ‘net zero’ commitments for 2050 supported by policies and strategies rather than legally binding mandates.

The Use of AI

Lastly, the report offers a brief overview of the integration of artificial intelligence (AI). According to the survey, AI enhances decision-making, increases efficiency, solves complex problems, and offers scalability. In fact, as AI technology continues to advance, its role in industry transformation will become even more critical.

This sentiment is reflected in the responses of the surveyed companies: 64% of firms classified from Japan and South Korea invest in AI, while 82% and 72% of firms classified from India and Japan use AI. Additionally, approximately half of the companies using AI incorporate it into their investment processes (20% overall).

Economic Transformation and the Risk of Trump: The “Nuts” Behind the Political Noise in Germany

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economic transformation risk Trump Germany

While a new political shift focuses on the U.S., in Europe, the spotlight is on the instability triggered in Germany following the coalition government’s breakup due to disagreements on addressing economic weakening, with possible early elections looming.

According to analysts from Banca March, divisions have surfaced among the three parties making up the government: the Social Democratic Party (SPD), the Greens, and the Liberal Party (FDP). “The first two political forces advocate for suspending strict fiscal rules that limit debt increases to raise public spending and support a struggling industry. In this context, Chancellor Scholz (SPD) dismissed the Finance Minister (FDP) for opposing a relaxation of fiscal policy, along with other liberal ministers—Justice, Education, and Transport,” they explain.

For these experts, the chancellor does not have the authority to call early elections, but there is a mechanism known as a “vote of confidence.” “This would allow parliament to vote on January 15 to determine whether to maintain support for the chancellor. If approved, the government would continue with the SPD-Green alliance. However, Scholz is unlikely to reach a majority in the vote, which would require him to ask the German president to dissolve parliament. From then, early elections would have to be held within 60 days, by mid-March,” they add.

Beyond the Political Issue

Clearing away political noise, Stefan Hofrichter, Head of Global Economics and Strategy at Allianz GI, believes Germany needs a structural reorientation. “For years, the country and its companies relied on low energy costs, China as an export market, and the U.S. as a security guarantor. However, the current situation has changed: Russia is no longer a reliable energy source, China faces economic difficulties and has become a competitor in several industrial sectors, especially automotive, and defense spending requires a significant increase. All of this affects growth prospects,” Hofrichter explains.

The Allianz GI economist goes further, indicating that the country needs a clear economic transformation. “A little over 20 years ago, the country achieved successful restructuring with the ‘Agenda 2010.’ Then known as the ‘sick man of Europe,’ Germany became a leading global exporter. Today, we also have a significant advantage: public debt is low, allowing room to finance private sector stimuli,” he adds.

On the fiscal front, experts see it as likely that Germany will face new U.S. demands for higher military spending in the coming years, potentially exceeding the NATO target of 2% of GDP, supported by the special €100 billion fund created in 2022.

“However, additional defense spending will be challenging to accommodate despite Germany’s fiscal space, with forecast average fiscal deficits of 1.2% of GDP over the next few years and a debt ratio expected to fall below 60% by 2029. This reflects Germany’s lack of budget flexibility due to debt brake provisions. The need for increased public investment, for defense, but also for the green transition, could lead to new debates on debt brake reforms, the potential use of off-budget funds, or shifting at least part of the spending to the European level,” notes Eiko Sievert, Public Sector and Sovereign Analyst at Scope Ratings.

Impact of Trump 2.0

In his view, “the country needs a stable, reform-oriented government to respond to potential political shifts from the newly elected U.S. President Donald Trump, which will impact Germany’s trade, fiscal, and defense policies. In this sense, Sievert explains that the United States, Germany’s second-largest trading partner after China (A/Stable) and the largest individual destination for its exports, is expected to impose higher import tariffs, posing a significant setback for Germany’s export-dependent economy.

“Almost 10% of German exports were destined for the U.S. in 2023, the highest share in more than 20 years. Meanwhile, the share of exports to China fell from a historic high of 8% in 2020 to 6% in 2023, partly reflecting increased competition in the Chinese manufacturing sector, particularly in automotive,” comments Sievert.

The expert warns that Germany also remains heavily dependent on imports from China, accounting for 11.5% of total imports in 2023. “The rise of global protectionism and the growing risk of a trade war between the U.S. and China will test the resilience of German supply chains in the coming years,” says the Scope Ratings expert.

Impact on Assets

At DWS, they expect a limited market reaction, although it could provide a tailwind for equities and a slight headwind for fixed income. According to the Allianz expert, the state of German equities reflects some of the structural challenges facing the country’s economy, such as high fiscal pressure (compared to international standards), bureaucracy (which affects many G7 countries, not just the U.S.), high energy costs (especially compared to the U.S. and China, although German prices have returned to pre-Ukraine war levels and align with the European average), a shortage of skilled labor (also linked to bureaucratic barriers), and insufficient investment, both public and private.

In this sense, they consider that German equities, like European equities, do not present a high valuation level. “Over a ten-year horizon, we expect returns aligned with the long-term average, despite moderate earnings growth. Meanwhile, German public debt remains the central pillar of euro-denominated public debt,” comments Hofrichter.

Regarding the yields on the German Bund, DWS points out that they have been trending downward since early summer, influenced by declining inflation figures and weak economic data. However, since early October, they have not escaped the rise in U.S. Treasury yields.

“It is likely that the main drivers of German bond yields will continue to be economic prospects, inflation developments, and, in the short term, the pace of interest rate cuts by the European Central Bank (ECB). We believe it is unlikely that the prospect of a government change will push yields up, as additional spending could be expected. Over the next 12 months, we continue to anticipate a decline in German public debt yields and a slight steepening of the yield curve,” conclude DWS representatives.

From 2016 to 2025: Decoding the Impact of the Trump 2.0 Administration

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If you turn on the TV, don’t worry, we haven’t gone back to 2016. Although Donald Trump is once again in the White House, the global context and market trends are different, so, according to investment firms, his impact will also have different nuances.

It’s true that, for now, as Banca March experts remind us, U.S. stock markets have celebrated Trump’s return to power with gains particularly concentrated in the financial sector (6%), industrials (4%), and discretionary consumer goods (3.6%), as well as companies with greater exposure to the domestic economy, such as small-cap companies (5.8%). However, they note that regionally, it didn’t sit well with European and Chinese markets.

“On the other hand, U.S. sovereign bonds are pricing in Trump’s plans: higher fiscal deficit and less contained inflation with the introduction of new tariffs and a reduced labor supply due to stricter immigration. As a result, the long end of the sovereign yield curve was most affected, with a price drop in the U.S. 10-year note, which led to a yield increase of +16 basis points, pushing interest rates to the highest level since July and causing curve steepening to the highest level in almost two years. In this case, the term premium between the 3-month bill and the 10-year bond is almost nil (-13 basis points). In Europe, bonds reacted cautiously, looking more at the economic burden of a more restrictive trade relationship with the world’s leading power,” add Banca March analysts.

The First Winners

As Marc Pinto, Head of Americas Equities, and Lucas Klein, Head of EMEA and Asia-Pacific Equities at Janus Henderson, recall, during the 2016 elections, the S&P 500 index gained nearly 5% from the day before the presidential election until the end of the year, in what became known as the “Trump rally.” They expect a similar trend this time.

Considering market reactions, Arun Sai, Multi-Asset Strategist at Pictet AM, explains that U.S. stocks, the dollar, and Bitcoin are recovering, while U.S. Treasury bonds have sold off in anticipation of lower taxes, deregulation, and higher inflation. “This is an extension of the previous days and weeks, as investors had largely positioned for a Republican presidency. The rallies in riskier assets imply some relief that the worst-case scenario of a contested election was avoided,” Sai says.

The expert warns that the impact of U.S. presidential elections on asset prices generally begins to fade after a couple of months, which will bring more clarity on who the true winners of a Trump 2.0 era are. “However, Sai explains that there are areas where Trump’s policies are likely to have a more lasting effect. “His plans to raise tariffs on imports from China and other countries could significantly, though not drastically, reduce U.S. earnings by around 7%, some of which may be offset by tax cuts. The impact may not be uniform across sectors, with discretionary consumer goods, basic consumer goods, and industrial sectors most affected. Tariffs and trade frictions do not bode well for emerging markets, although a non-recessionary cycle of monetary easing creates an attractive macroeconomic context for them,” he notes.

He also believes corporate debt spreads could widen. “The overall picture favors U.S. equities and the dollar, especially banks, which may benefit from higher debt yields and possible deregulation. But it is negative for non-U.S. equity and fixed-income markets, particularly emerging market debt,” Sai states.

The Potential Losers

According to Fidelity International, Trump’s return to the presidency will bring significant changes to U.S. economic policies, with the most immediate and important being his trade policy proposals, especially tariff use, where the president has considerable executive authority. While they don’t expect Trump to implement all his trade proposals right away, they do anticipate that he’ll use them to set policy direction and negotiate better deals, possibly with a more gradual approach.

“We believe China, Europe, and Mexico, which have the largest trade deficits with the U.S., are the most vulnerable regions. Trump’s policies also focus on imposing stricter controls on immigration, which could curb labor supply and reverse recent disinflationary trends. It will be essential to closely monitor his rhetoric and any subsequent action,” says Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International.

Meanwhile, Niamh Brodie-Machura, Co-CIO of Equities at Fidelity International, notes that they’re closely watching two areas: “One is the part of the global market that could be affected by higher tariffs, so we’ll see what the Trump administration finally articulates. On the other hand, China has not yet launched a significant fiscal stimulus, so Beijing has room to take steps to counter the impact of a tariff hike on global trade and demand. This could have broad implications for a range of assets, from Chinese stocks to the dollar and U.S. Treasury bonds. The second is that, while reflation should benefit businesses, it only does so as long as it doesn’t overheat. We saw this in the post-COVID period, and there’s a risk we may find ourselves in that situation again.”

Lastly, the expert at Pictet AM adds: “Federal debt will increase sharply. If Trump implements a 10% universal tariff, this could be very negative for U.S. Treasury bonds. As for oil and gas, Trump is a strong supporter of U.S. production and is anti-renewables, but it’s unlikely that higher domestic energy supply will bring fuel prices down significantly, as oil demand will remain strong for longer. However, the effect may be inflationary.”

Geopolitical Implications

During Trump’s first term, one of the most repeated words was volatility, as he became the president who governed through tweets, especially in matters affecting the international arena. According to Thomas Mucha, Geopolitical Strategist at Wellington Management, Trump’s first administration is not a perfect analogy for assessing what kind of U.S. foreign policy to expect in the next four years, given that—unlike the first time—there’s now the biggest war in Europe in decades, the biggest conflict in the Middle East in decades, escalating military tensions in the Taiwan Strait and the South China Sea, and a rapidly fracturing global order with China/Russia/Iran/North Korea aligned against the U.S./NATO/Japan/South Korea/Australia, along with the increasingly negative implications of climate change for national security.

Mucha expects a more “transactional” and “robust” approach to U.S. foreign policy, meaning a greater reliance on bilateral negotiations, with less emphasis on long-term strategic implications (a significant departure from the more multilateral approach of the Biden administration), and an accelerated focus on defense/national security across the board.

“There will also be greater use of U.S. economic power as leverage on the geopolitical stage, meaning significantly higher tariffs on China but also on some allies in Europe and the Indo-Pacific, and a greater emphasis on U.S. energy production and export. Additionally, we expect a wider range of potential outcomes in Ukraine, including increased U.S. pressure on the Zelensky government to negotiate an end to the conflict, as well as a tougher U.S. stance toward Iran, with fewer restrictions on Israeli military policy in the region,” explains Mucha. Another important point for this Wellington Management expert is that Trump 2.0 could open the door to U.S.-China negotiations on several key geopolitical issues, including Taiwan.

Implications for Investors in Equities

According to Janus Henderson experts, we will see the first measure of the new government early next year, when lawmakers must reach an agreement to raise the debt ceiling (the total amount of debt the U.S. can accumulate, as determined by Congress) or risk the country defaulting on its obligations. Meanwhile, the Tax Cuts and Jobs Act of 2017—enacted under Trump, which reduced tax rates for individuals and businesses—will expire at the end of 2025.

“In this sense, we could see episodes of volatility if a Republican term translates into extreme measures. Trump, for example, has proposed not only extending the 2017 tax cuts but increasing them, which could further inflate an already substantial federal deficit. He has also promised to impose tariffs of up to 60% on imports, which could fuel inflation and push Treasury yields higher. And markets that could be impacted by trade policies, such as China, could weaken,” acknowledge Marc Pinto, Head of Americas Equities, and Lucas Klein, Head of EMEA and Asia-Pacific Equities at Janus Henderson.

Experts remain cautious and acknowledge that this reality will have nuances. “Policy does not always align with campaign rhetoric, and even among Republicans, there are divisions on key issues. Therefore, we encourage investors to focus on the major themes that have proven to be the primary drivers of markets recently. These include innovation in healthcare, productivity growth through artificial intelligence, and the rise of new manufacturing centers in emerging markets. Ultimately, these and other trends, which seem likely to persist in the coming years, could have a more lasting impact on stock performance than any election,” they conclude.

Active ETFs vs. Active Mutual Funds: What Is the Big Revolution?

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The recent rise of exchange-traded funds (ETFs), particularly active ETFs, has become a popular vehicle for investors. While initially associated with passive investing, offering investors market index exposure at low costs, the emergence of active ETFs represents a blend of active management strategies within the ETF structure.

Active ETFs are rapidly growing in terms of assets under management (AUM), creating competition with established active mutual funds in the investment world. This article explores the concept of active ETFs, highlighting their advantages, disadvantages, and key differences from active mutual funds, to provide a comprehensive perspective on their role in investment portfolios.

Definition and Growth of Active ETFs

Active ETFs are a relatively recent innovation in the ETF market. Unlike passive ETFs, which track a benchmark index such as the S&P 500, active ETFs allow portfolio managers to actively select and manage a basket of securities in real time.

The goal is to outperform a benchmark index or achieve a specific investment objective rather than simply replicating market index returns. The flexibility of active ETFs enables managers to make adjustments based on market conditions or specific security information, similar to active mutual funds.

The growth of the active ETF market has been remarkable. According to data from TrackInsight and PwC, active ETFs have grown at a compound annual growth rate (CAGR) of 51% over the past decade, significantly outpacing passive ETFs in terms of capital inflows.

Advantages of Active ETFs

Lower Costs Compared to Active Mutual Funds: One of the main advantages of active ETFs over active mutual funds is their lower cost ratio. Mutual funds often have management fees, 12b-1 fees, and other operational costs, while active ETFs offer lower overall costs to investors. According to JPMorgan research, this cost advantage is a key driver of active ETF popularity.
Trading Flexibility: Active ETFs offer significant flexibility in trading. Unlike mutual funds, which are priced at the end of the trading day, ETFs trade on an exchange throughout the day, like stocks. This allows investors to react to market events in real-time, entering or exiting positions based on intraday price movements.
Tax Efficiency: Active ETFs tend to be more tax-efficient than mutual funds due to their unique structure and the in-kind creation and redemption process. This process allows ETFs to avoid selling securities to meet redemption requests, often triggering capital gains taxes in mutual funds.
Transparency: Most active ETFs are required to disclose their holdings daily, providing investors with full transparency into the fund’s portfolio. This level of transparency surpasses that of traditional active mutual funds, which typically disclose their holdings quarterly.

Disadvantages of Active ETFs

Potential for Underperformance: Despite their flexibility and the potential for active management to outperform the market, active ETFs, like any actively managed product, carry the risk of underperformance. Fund managers may fail to generate alpha, particularly in volatile or highly efficient markets.
Higher Costs than Passive ETFs: While active ETFs are generally more cost-effective than active mutual funds, they tend to have higher costs than passive ETFs. This is because active management requires more research, operations, and oversight.
Limited History and Fewer Options: Compared to mutual funds and passive ETFs, the active ETF market is still relatively young. While there are now hundreds of active ETFs, they represent a small fraction of the broader ETF universe, and their track record of returns is significantly shorter than that of mutual funds.
Due Diligence: Selecting a passive ETF requires a certain level of analysis to understand the tracking method used to replicate exposure to its respective index; however, the objective is relatively simple: a good replication technique seeks to minimize tracking error and reproduce the index’s performance.

For active ETFs, the objective is different: like active mutual funds, their goal is generally to outperform the benchmark, which involves a degree of tracking error (TE) and active participation, requiring investors to attain a high level of understanding of the algorithm behind it, its strengths, and, most importantly, its weaknesses.

In the following chart, the Tracking Error (TE) is shown for a sample of 195 active ETFs domiciled in the U.S., organized by strategy (market capitalization, factors, thematic, and sector), with a clear differentiation in terms of active participation and TE: the majority of active ETFs referencing market capitalization were at the lower end of the TE spectrum (some below 2%).

Most factor-referenced ETFs had a TE in the 2% to 8% range. Thematic-referenced active ETFs showed the highest TEs. The generally high TE level of these active ETFs suggests that they provided active risk beyond their key investment style.

An additional consideration to keep in mind is the distribution of both product types (funds and active ETFs). Unlike mutual funds, active ETFs do not require a distribution agreement, reducing the time and cost from discovery to implementation in portfolios and generally do not provide kickbacks to advisors who use them. This can have indirect implications depending on the type of license the distributor chooses.

For U.S. Registered Investment Advisors (RIAs), assuming no advantages in risk-adjusted returns between comparable active ETFs and mutual funds, active ETFs may be preferred over mutual funds if they present lower management fees. This is due to the fact that compensation for managing clients’ portfolios under an RIA license is typically based on a percentage of assets under management (AUM) and additional fees or commissions, including kickbacks, cannot be charged. In contrast, under a brokerage model in the U.S., mutual fund formats may be preferred as this license allows for transaction-based commissions and kickbacks.

For non-resident clients (NRCs) in the U.S., unlike passive ETFs that may have dual registration and listing on different exchanges (e.g., Nasdaq and SIC), active ETFs currently do not permit dual registration, eliminating a key tax advantage compared to passive vehicles.

Smart Beta vs. Active Management: Key Differences

While active ETFs represent the intersection of traditional active management and the benefits of ETFs, smart beta strategies offer a hybrid approach distinct from both passive index tracking and full active management. Smart beta ETFs aim to capture the benefits of factor-based investing, targeting specific investment factors such as value, momentum, size, or quality.

These strategies seek to enhance returns or reduce risk by adjusting portfolio weights based on certain rules or criteria, rather than relying on typical market-cap weighting used by passive ETFs.

Rule-Based Approach vs. Manager Discretion

One of the main distinctions between smart beta and active management is the degree of human discretion involved. Smart beta strategies are typically rules-based, following a predetermined methodology that selects and weights securities based on factors such as volatility or dividend yield. While these strategies offer the potential for higher returns than traditional passive indices, they are not managed actively in the same way as active ETFs, where managers make discretionary decisions on what securities to buy or sell based on market conditions.

Cost Structure

Smart beta ETFs tend to be more cost-efficient than fully active ETFs, as they do not require the same level of active research, trading, and portfolio turnover. However, they are often more expensive than purely passive ETFs due to their sophisticated portfolio construction and factor analysis. In contrast, active ETFs generally have higher fees due to the need for ongoing management and oversight.

Transparency

Smart beta ETFs are highly transparent, as they follow a consistent set of rules for portfolio construction, making their positions and strategy predictable. Investors can easily understand the factors driving performance. On the other hand, active ETFs are less predictable, as the portfolio manager has the discretion to frequently change positions based on market conditions.

Potential to Outperform the Benchmark

Both smart beta and active ETFs aim to outperform a benchmark index, but their approaches differ. Smart beta strategies rely on biases toward certain factors to achieve higher returns, while active ETFs depend on the skill and judgment of the manager.

The potential for benchmark outperformance in active ETFs is greater if the manager can consistently identify undervalued assets or anticipate market trends. However, smart beta strategies offer a more systematic and disciplined approach to capturing excess returns.

Conclusion

Active ETFs and smart beta strategies offer innovative alternatives to both passive ETFs and traditional active mutual funds. Active ETFs provide the benefits of active management, liquidity, and tax efficiency, making them an attractive option for investors seeking flexibility and potential outperformance. However, they also come with higher costs and the risk of underperformance. On the other hand, smart beta represents a middle ground between active and passive investing, offering a rules-based approach targeting specific investment factors, while remaining more cost-effective than full active management.

When deciding between active ETFs, smart beta, and active mutual funds, investors should carefully consider their investment goals, risk tolerance, and preferences regarding costs, transparency, and flexibility. Each vehicle has its unique advantages and limitations, but the rise of active ETFs and smart beta strategies reflects the growing demand for customized and cost-effective investment solutions in today’s dynamic market environment.

JP Morgan AM Launches the UCITS Version of Two of Its Active ETFs from the Equity Premium Income Range

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J.P. Morgan launches UCITS version of ETFs

JP Morgan Asset Management brings to the European market two of the top-performing active ETFs in the North American market. Specifically, these are the JPMorgan US Equity Premium Income Active UCITS ETF and JPMorgan Nasdaq Equity Premium Income Active UCITS ETF, which are part of their actively managed Equity Premium Income ETF range in UCITS form. The asset manager has announced that both vehicles have begun trading on the London Stock Exchange.

Additionally, they note that these two active ETF strategies come on the heels of strong demand from U.S. investors since their launch in the U.S. “Specifically, as of October 24, the JPMorgan US Equity Premium Income Active ETF is the largest actively managed ETF in the world, with $36.6 billion in assets under management; and the JPMorgan Nasdaq Equity Premium Income Active ETF, with $17.6 billion under management, is one of the fastest-growing active ETFs in the U.S.,” they highlight.

By launching the UCITS version of these funds, the JPMAM Equity Premium Income UCITS ETF range now consists of three funds: the JPMorgan Global Equity Premium Income Active UCITS ETF, launched in December 2023, and the two newly listed in Europe. “Each ETF aims to offer investors consistent monthly income and the potential for equity market appreciation, with lower volatility, by combining active equity portfolios with options,” the asset manager adds.

Regarding these funds, the manager explains that both leverage a fundamental bottom-up analysis process to build higher-quality, lower-beta equity portfolios relative to their respective benchmark indices—the MSCI World in the case of the first fund, and the S&P 500 in the case of the second. The Nasdaq Equity Premium Income Active ETF utilizes a proprietary process based on more than 40 years of accumulated experience and data by J.P. Morgan, creating a portfolio fundamentally linked to the Nasdaq 100.

Each ETF applies an index options strategy, where the investment team, led by Hamilton Reiner, sells weekly options on the index, using the premiums to generate income. The premiums received from these option sales are distributed monthly, along with the dividends received from the underlying equities included in each ETF.

According to the asset manager, this process results in an Equity Premium Income range of income ETFs, designed to reduce downside exposure by giving up some future market upside participation in exchange for current income. By selling options weekly, the ETFs can adapt to changing market conditions. For example, when volatility increases, each ETF has the potential to provide higher income, offering investors protection against price fluctuations.

“We are delighted to expand our Equity Premium Income UCITS range with the launch of JEPI and JEPQ. These innovative and market-leading strategies, which have been in high demand in the U.S., offer investors an attractive solution to achieve their income and total return goals with reduced volatility. Over the past five years, we have worked closely with investors to build stronger portfolios with Equity Premium Income strategies, and we are pleased to now share this expertise and these unique solutions with our clients who require these vehicles in UCITS form,” says Travis Spence, Global Head of ETFs at J.P. Morgan Asset Management.

Fidelity Expands Its Range of Actively Managed Sustainable ETFs With Two New Fixed-Income Funds

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Fidelity amplía su gama de ETFs sostenibles

The actively managed ETF market continues to experience strong growth. The assets managed by these products have grown by 50% so far this year, totaling nearly €50 billion in the region. In response to increasing demand, Fidelity International (Fidelity) has expanded its range of actively managed sustainable ETFs with the launch of two new fixed-income ETFs.

According to the asset manager, these funds are the Fidelity Sustainable EUR High Yield Bond Paris-Aligned Multifactor UCITS ETF and the Fidelity Sustainable USD High Yield Paris-Aligned Multifactor UCITS ETF. Both have begun trading on Xetra and will soon be listed on the London Stock Exchange, SIX, and Borsa Italiana. These new vehicles complement the Fidelity UCITS II ICAV – Fidelity Sustainable Global High Yield Bond Paris-Aligned Multifactor UCITS ETF, launched in November 2022, which already holds $800 million in assets. Additionally, both ETFs are classified under Article 9 of the Sustainable Finance Disclosure Regulation (SFDR).

Supported by Fidelity’s quantitative, fundamental, and sustainability analysis, these funds invest primarily in a portfolio of high-yield, lower-credit-quality (sub-investment-grade) corporate debt from global issuers. Their objective is to generate income and capital appreciation, aligning with the long-term goals of the Paris Agreement by limiting carbon emissions exposure within their respective portfolios, according to Fidelity.

The funds are structured and adjusted using Fidelity’s proprietary multifactor model, based on its extensive quantitative analysis of fixed-income and data. According to the asset manager, this model aims to systematically generate alpha throughout the market cycle while preserving the essential characteristics of the asset class. It is designed to achieve superior returns by investing based on quantitative signals (factors) to identify outstanding issuers, while applying strict considerations regarding transaction costs.

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Why Does Japan’s Latest Election Result Cause Nervousness in the Markets and Political Uncertainty?

| For Amaya Uriarte | 0 Comentarios

Impacto de elecciones en Japón en los mercados

Although the market and investors are focused on next week’s election in the U.S., these are not the only relevant elections we have witnessed this past week. Three days ago, the Japanese went to the polls, resulting in a new political landscape: the Liberal Democratic Party, a conservative party, lost the elections and with it its majority in the House of Representatives. According to experts, this electoral setback does not signify the fall of the coalition government, but it does introduce a degree of political uncertainty, leading to market volatility.

This situation, combined with the divergence in monetary policy between the United States and Japan, has driven the volatility of Japanese equities. “Japanese equities have been very volatile over the past three months. Initially, the divergence between U.S. and Japanese monetary policies led to a swift unwinding of yen carry trade positions (where investors borrow in yen and invest in higher-yielding foreign assets) and a sharp appreciation of the currency. Later, uncertainty around domestic politics became the main driver of equity market volatility, culminating in the call for early general elections last Sunday, October 27,” note experts at Schroders.

Starting with the election result on Sunday, Kaspar Köchli and David A. Meier, economists at Julius Baer, explain that the reprimand of the Liberal Democratic Party (LDP) has introduced an uncommon element of uncertainty into Japanese politics. “With expectations for more aggressive policies declining, the Japanese yen further weakened against the U.S. dollar, in line with our non-consensus view, while the Bank of Japan (BoJ) is likely to maintain its stance a little longer,” they state.

To understand why the election result equates to market volatility, Julius Baer economists explain that with Prime Minister Ishiba committed to staying in office, it is likely that a minority government will be formed, led by the current coalition and with some opposition parties (such as the Innovation Party and the Democratic Party for the People) cooperating on an ad-hoc basis.

“Although the election result is unlikely to bring about significant changes in fiscal and monetary policy, the reduction in the coalition’s administrative power could pressure for increased fiscal spending, as proposed by some opposition parties. These proposals include cash payments for low-income households, which Ishiba has already announced, and extended subsidies for electricity and gas, according to Komeito’s manifesto. A reduction in the consumption tax could also be considered until real wage growth is more stable,” they add.

However, RBC BlueBay expects that financial markets may remain somewhat unstable due to political uncertainty in Japan. From its perspective, this will have little impact on the economy or the Bank of Japan (BoJ). “The initial indications suggest that the upcoming round of spring wage increases, known as Shunto, could again exceed 5%, in a context of high corporate profitability and continued labor shortages,” notes the firm. From this point of view, RBC BlueBay continues to see the BoJ on track to raise interest rates in January or December. In fact, it believes the latter option may be gaining strength with the yen under some pressure in recent days.

Japan at a Political Crossroads

As Janus Henderson recalls, capital markets reacted unfavorably to policies implemented by the DPJ between 2009 and 2012. “Therefore, the prospect of opposition parties like the CDPJ coming to power has raised concerns about possible market risk aversion. Conversely, if the LDP remains in charge, the capital market could gradually focus on identifying undervalued assets and recognizing strong corporate performance,” explains Junichi Inoue, head of Japanese equities at Janus Henderson.

In Inoue’s opinion, as Japan faces political instability, the need for a strategic response, particularly one that addresses concerns of low-income groups, is becoming increasingly evident. “The country now stands at a crossroads, contemplating three possible paths forward: forming a coalition government with an opposition party, navigating the complexities of a minority government, or seeing the Constitutional Democratic Party of Japan (CDPJ) lead a coalition with other opposition entities. Given the significant policy discrepancies among these opposition parties, the likelihood of a unified opposition seems slim,” he points out.

According to his analysis, a decision on the new government framework is expected within a month, amid market instability. “Since August, market trends have been unpredictable, and this trend is expected to persist until a stable government is established,” warns the expert.

The BoJ and its Monetary Policy

When analyzing the Bank of Japan’s (BoJ) monetary policy, investment firms agree that the gradual increase in interest rates in a context of rising inflation will largely remain unchanged. “Although political uncertainty may influence the timing of rate hikes, the BoJ can afford to wait given the low risk of inflation surging. We expect the BoJ to keep rates on hold this week and for the governor to avoid giving strong signals about a hike in December, as we anticipate the next hike only in March,” acknowledge Julius Baer economists.

In Lazard Frères Gestion’s view, conditions are favorable for the Bank of Japan to continue normalizing its monetary policy, reinforcing its confidence that deflation has ended: “In Japan, GDP is growing at a moderate pace, but this is against a backdrop of a population declining by 0.5% per year. This means that per capita GDP continues to grow at a good pace. Business confidence among companies most exposed to the domestic economy is also buoyant. Wages are rising at the fastest pace in the past thirty years, which has not prevented corporate profits from rising significantly. Inflation has returned to positive territory,” they hold regarding their view of the country.

Köchli and Meier, from Julius Baer, focus on the fact that the further decline in expectations for aggressive policies further weakened the yen after it had already experienced a decline just a few weeks ago with Prime Minister Ishiba’s retreat from his comments on the preference for a BoJ adjustment. “This is happening against a backdrop of yen strengthening due to the recent unwinding of carry trade positions. We have been skeptical of this strength due to the persistent divergence in monetary policy and consider our non-consensus forecast confirmed, with policy being only one component, albeit the least important. We maintain our 12-month target for USD/JPY at 160,” they state.

In this regard, Gilles Moëc, chief economist, and Chris Iggo, CIO Core Investment Managers at AXA IM, point out that markets expect the BoJ to raise another 25 basis points or so over the next year. “U.S. interest rates will remain more than 300 basis points higher than those in Japan next summer, based on current market forward prices. In real terms, U.S. short-term rates will remain around 1%, while Japanese short-term rates will remain negative by approximately the same amount,” they conclude regarding the divergence between both monetary institutions.

The Fed Is Expected to Pursue a 25 Basis Point Rate Cut Regardless of the Election Outcome

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Expectativa de recorte de tipos por la Fed

Although all eyes are on the vote count in the U.S. to confirm Donald Trump’s victory, the market faces a relevant event between today and tomorrow: a new Fed meeting. According to investment firms’ assessments, a new 25 basis point cut is expected, given macroeconomic data showing a strong economy and declining inflation.

For Allianz GI, the Federal Reserve surprised the market by starting its rate-cutting cycle with a larger-than-expected 50 basis point reduction. In the opinion of Michael Krautzberger, Global CIO of Fixed Income at Allianz Global Investors, with this move, the Fed signaled a significant shift in its monetary policy strategy, once again prioritizing employment, which is one of its two main responsibilities, along with price stability, under its dual mandate.

“The projections from the September Fed meeting showed a median forecast of additional 50 basis point cuts by the end of the year and another 100 basis points in 2025. The forward rate markets have largely reflected this outcome, with a terminal rate for this cycle around 3.5%. Thus, these Fed measures have increased, at least for now, the likelihood of a soft landing in the U.S. in 2025, although historically, this is a rare outcome,” explains Krautzberger.

Experts agree that the labor market slowdown and moderation of inflationary risks allow the Fed to continue gradually reducing its policy rate. “The FOMC will likely continue lowering its target for the federal funds rate, as the current target range of 4.75%-5% remains quite restrictive. After a bold initial 50 basis point cut, the FOMC indicated that it would proceed gradually and be data-dependent. Current data fully justifies a 25 basis point cut at Wednesday’s meeting. Future data, and particularly any shifts in economic policy in light of the U.S. election results, will determine whether the Fed continues with 25 basis point cuts after the November meeting and brings rates to a more neutral level of 3.5% by mid-2025,” adds David Kohl, Chief Economist at Julius Baer.

25 or 50 Basis Points

According to Benoit Anne, Managing Director of the MFS Investment Management Investment Solutions Group, the Fed still has work ahead. Anne acknowledges that current macroeconomic conditions allow the Fed to begin the anticipated easing cycle but notes it might be too early to celebrate. In fact, Anne observes lingering anxiety following recent labor market developments, signaling limited room for further deterioration before recession risks become a major concern again.

“We are far from reaching the goal, namely, a federal funds rate starting with a 3 and not a 5. This week, the market seems divided between the possibility of a 25 or 50 basis point cut, with a 36 basis point cut already priced in. Our Chief Economist, Erik Weisman, leans toward a 25 basis point cut this month, although he believes the Fed should opt for 50, but it seems like a difficult decision. The 25 basis point move appears reasonable, as the Fed may want to avoid any action that might be perceived as panic-driven. Ultimately, we believe persistence and stability in future rate cuts, while maintaining flexibility for more aggressive policy if the macroeconomic context deteriorates, is crucial,” he argues.

Bank of America is more assertive, predicting a 25 basis point cut: “We expect the Fed to cut rates by 25 basis points at its November meeting. The FOMC statement should change little, except for policy action language and the new target range. We also do not anticipate major shifts in Chairman Powell’s message. He is likely to downplay much of the October labor data weakness but may highlight downward revisions to August and September payrolls as cause for concern. The November meeting should not be a major event; elections have far greater implications for markets overall, and even for the Fed’s policy path.”

In their latest report, the institution notes that since the Fed is unlikely to deliver any surprises in November, attention should quickly shift to Powell’s signals for the December meeting. “Once again, we expect Powell to emphasize data dependence and provide limited forward guidance. While we see rising risks for the terminal rate, it is likely too soon for Powell to open that door,” states Bank of America.

Uncertainties Ahead

However, Christian Scherrmann, U.S. Chief Economist at DWS, believes uncertainties remain. “In particular, we remain cautious about inflation prospects. Since labor market weakness seems to be more a product of data quality and volatility, inflationary pressures—while receding—remain a significant factor. We also believe demand remains sensitive to lower interest rate expectations,” Scherrmann points out.

Another source of uncertainty is yesterday’s elections. According to the DWS economist, there is a high probability of no clear picture of who will be president and what Congress will look like. “With all these uncertainties, central bankers still have to fly with an eye on the economy, and we expect data dependence to be the central message of the press conference, likely with a slightly hawkish tone. But with current interest rates still well above what can be considered neutral, the Fed certainly has room to maneuver at the November and December meetings. For the December meeting, it may be harder to determine if we will see another cut or if the Fed will pause in normalizing monetary policy. By then, at least, we should have a clearer idea of what to expect from lawmakers.”

In this regard, Michaël Nizard and Nabil Milali, managers at Edmond de Rothschild AM, add: “We must remain alert to the risk to the Fed’s independence, given Trump’s stated desire to interfere in the institution’s decision-making, although it will be difficult for him to challenge Jerome Powell’s presidency before his term ends in 2026.”

Additionally, Roger Aliaga-Díaz, Vanguard Global Head of Portfolio Construction and Chief Economist Americas, reminds that the central theme of economic and market outlooks for 2024 was that interest rates above their pre-pandemic levels are here to stay. In his view, this implies that for the Fed, the neutral rate—the projected level of interest rates that theoretically keeps the economy in equilibrium without overheating or overcooling—is higher than in the previous decade.

“We consider factors such as rising structural fiscal deficits and an aging population to conclude that the nominal neutral rate hovers around 3.5%. I would expect the Fed to raise its estimate even further through 2025. As the Fed lowers its target for the federal funds rate from the current range of 4.75%-5% over the coming months, it will ease its grip on an economy no longer facing the imminent threat of runaway inflation. Finding the right balance in the pace of rate cuts is the toughest task for any central bank. Moving too slowly increases the risk of a hard landing; moving too fast raises the risk of rekindling inflation. Naturally, the Fed has focused intensely on finding a middle ground or a soft landing,” Aliaga-Díaz comments.

What Do Voters Prefer?

Finally, it is difficult to fully separate this Fed meeting from yesterday’s elections. Deborah A. Cunningham, Chief Investment Officer of Global Liquidity Markets at Federated Hermes, notes that voters would prefer to avoid a central bank move this week, but the significant cut essentially demands some action to preserve credibility. “If they reduce the target range by a quarter point, as we expect, they could keep rates stable in December before easing again in January, continuing a cut/no-cut pattern for several meetings,” she explains.

In her view, the presidential elections are creating significant disruptions, but regardless of who wins, inflationary policies are likely to be enacted. “This meeting is more decisive for the front end of the yield curve. Interestingly, the uncertainty stems as much from the Fed’s 50 basis point cut in September as from the analysis of recent data. While Fed Chairman Jerome Powell is unlikely to have any regrets, some policymakers may lament the size of the cut, based on the flurry of speeches and appearances since then,” argues Cunningham.

Trump Returns to the White House, and the Market Repeats the 2016 Script, With Increases in Equities and a Stronger Dollar

| For Amaya Uriarte | 0 Comentarios

“This will be America’s golden age, it’s an incredible victory.” With these words, Donald Trump, the Republican Party candidate, declared himself the winner of the U.S. presidential elections. Without the official count having ended, Trump reportedly garnered 267 electoral votes compared to the 224 of his Democratic opponent Kamala Harris. Additionally, the Republicans have taken control of the Senate and aim to maintain their slim majority in the House of Representatives.

As expected, following such a significant event, markets have reacted quickly. According to Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson, futures indicate an increase of over 2% in the S&P 500 and 1.7% in the NASDAQ. “However, the most notable parts of the U.S. market are the S&P Midcap 400 and Russell 2000 indexes, with futures showing gains of over 4% and 5%, respectively,” notes the manager.

In his view, perhaps the most surprising result so far is the strength of stock markets outside the U.S. “European and Japanese equities are performing well, and the decline in China is perhaps less than many feared, despite the incoming President’s threats to global trade. The U.S. dollar is generally strengthening as markets consider the potential impact of new import tariffs and further discounted Federal Reserve cuts. U.S. Treasury yields have risen sharply due to both evolving interest rate expectations and the possibility of higher inflation,” explains Blackbourn.

Regarding what to expect next, the Janus Henderson manager considers it likely that markets will begin to think about how rhetoric translates into policy and scrutinize every statement over the coming months for clues. “With the widespread view that both parties will continue running budget deficits, it seems likely that the U.S. economy will remain hooked on fiscal stimulus. The effect this will have on the Fed may take some time to clarify, as the FOMC will be reluctant to consider anything until there is greater political clarity. Markets will have to wait to see if the Federal Reserve is willing and able to address a hot economy,” he adds.

In the opinion of Gordon Shannon, manager at TwentyFour AM (Vontobel boutique), so far markets are repeating the 2016 script following Trump’s victory: equities are rising, while long-term U.S. Treasury bonds are retreating due to expectations of fiscal expansion. “I believe the focus will shift to the inflationary implications of tariffs and immigration control. The Federal Reserve has avoided making comments so far to appear neutral and protect its independence, but its reaction to these policies is key to understanding where asset prices are headed,” Shannon states.

For Stephen Dover, Head of Franklin Templeton Institute, the biggest beneficiaries will be sectors and industries that welcome a more business-friendly regulatory environment, including fossil fuel energy companies, financial services, and smaller-cap companies. “On the other hand, the fixed income market is selling off strongly, with ten-year Treasury yields approaching 4.50%. Fixed-income investors are reacting to the likelihood that tax cuts will not be accompanied by significant spending restraint. The fixed income market also anticipates higher growth and potentially higher inflation. This combination could slow or even halt the Fed’s anticipated rate cuts,” adds Dover.

Finally, Martin Todd, senior manager of Global Sustainable Equities at Federated Hermes, believes the immediate market reaction has been one of relief. “On the eve of the election, there was great concern about the possibility of a prolonged and tightly contested election, given how close the polls were. There are many different opinions on which sectors, business models, and geographies are winners or losers under a Trump administration and a ‘red sweep.’ But this depends heavily on the time frame. Understanding the medium- to long-term implications for equities is incredibly difficult, given the many second-, third-, and fourth-order (and so on) consequences of each policy announcement,” Todd argues.

Currency movements

Since yesterday, a segment of the market appeared to lean towards his victory, although investment firms acknowledge that what remains important is how proposed policies are implemented and the power balance between the Senate and Congress. According to Ebury, yesterday’s massive emerging market currency sell-offs and the dollar’s rise were a prelude to Trump’s likely victory.

“The markets are not only positioning for a comfortable Trump win in the Electoral College but also for the prospect of a Republican-controlled Congress, which is key to determining the incoming president’s ability to push for policy changes within the U.S. government,” Ebury analysts note.

Experts from the firm add that “we are witnessing massive emerging market currency sell-offs as investors price in higher U.S. tariffs, elevated geopolitical risks, and greater global uncertainty under a Trump presidency.”

As in 2016, the biggest loser of the night so far has been the Mexican peso, which has fallen more than 2% against the dollar. Meanwhile, according to Ebury, Central and Eastern European currencies are also being significantly affected amid fears over European security, while many Asian currencies closely tied to China’s economy are trading down more than 1% overnight.

“The major currencies seem to have found some footing for now, and the dollar’s upward movement has perhaps been a bit more contained relative to expectations. However, we wouldn’t be surprised to see another episode of dollar strength as European markets open and final results confirm what appears to be a historic election victory for Trump and the Republican Party,” predict Ebury analysts.

Assessing the results

“The question of a Trump victory will be decided in the House of Representatives election, where Republicans are also leading. Voters likely punished the Democratic presidency of Biden due to high living costs, a legacy of the coronavirus pandemic, concerns about Middle Eastern policy, and a perception of Harris’s unclear profile, which failed to garner voter support despite a strong economy,” explains David A. Meier, economist at Julius Baer.

In the opinion of Samy Chaar, chief economist and CIO at Lombard Odier in Switzerland, if Republicans control both chambers of Congress and the White House, we could expect a more dynamic U.S. economy, with growth above potential and inflation higher than the Federal Reserve’s target.

“It is likely that interest rates will also exceed pre-election expectations. The race for the House of Representatives will determine whether campaign promises can be fully implemented. A divided Congress would impose some limits on the President. The issue of tariffs is key for global trade and Fed easing prospects,” states Chaar.

For the Lombard Odier economist, this has major implications for financial markets: “Macroeconomic fundamentals remain a driver for investments. We foresee that high-yield credit and gold will perform well. Global equities, including U.S. stocks, also have potential upside over the next 12 months as earnings rise and margins remain high. In the U.S. market, the financial, technology, and defense sectors are expected to perform well under a Trump administration.”

According to the Julius Baer economist, betting markets have massively tilted in favor of a Trump victory, with implied odds approaching 90%, while the prospect of a Harris victory has almost dropped to zero. “Markets are pricing in the greater likelihood of a Trump victory, with the U.S. dollar strengthening beyond the euro/dollar 1.08 mark and currencies from economies potentially impacted by higher tariffs falling,” he adds.

Implications of a Trump administration

Investment firms are already evaluating the impact of Trump’s return to the White House. For example, David Macià, director of Investments and Market Strategy at Creand Asset Management in Andorra, believes that the most relevant market implication is the promised tax cuts, which should initially boost economic growth, stocks, and the dollar. “Trump’s policies are inherently inflationary and expand the already high deficit, so market-traded interest rates are also expected to rise. The aggressive tariff hikes promised by the Republican candidate should weigh on companies that export to the U.S., especially if they do not have factories on American soil (many European companies may suffer initially). The weight these companies have on European indexes suggests they may again lag behind,” states Macià.

Creand AM sees the potential for stocks to continue on an upward trajectory. “The American economy remains unusually strong, and unlike when he won in 2016, markets now know exactly what to expect. The starting point is the only obstacle, as valuations are high, but this has little correlation with short-term price behavior,” adds the firm’s representative.

For Johan Van Geeteruyen, CIO of Fundamental Equity at DPAM, investors can look to cyclicals (financials, energy, etc.) and certain technology companies as possible beneficiaries, while tariffs and geopolitical tensions pose risks to specific sectors. “Ultimately, Trump’s policies may foster a favorable environment for U.S. equities, especially if deregulation, domestic manufacturing, and fiscal policies create incentives for growth. However, headline risks—ranging from fiscal uncertainties to trade disruptions—could create periods of volatility, affecting both domestic and global markets,” Geeteruyen notes.

Finally, according to a summary by Blair Couper, CIO at abrdn, in the long term, a Trump victory is likely to mean a laxer regulatory environment, an escalation in trade tariffs, and potential attempts to repeal components of the Inflation Reduction Act (IRA). According to abrdn’s expert, it is also likely that the share prices of U.S. companies with supply chains in China will react negatively, while domestic manufacturing and small and medium-sized U.S. companies may perform better.

“With President Trump at the helm, the U.S. also faces elevated inflation risks due to these policies, so we are likely to see a reaction from interest-rate-sensitive sectors and a strengthening dollar. Sectors such as financials (i.e., banks) could perform well if rates remain elevated for a longer period. While areas like real estate and growth stocks could be negatively impacted by longer duration, this may be offset by a generally positive market outlook driven by his policies, so we still need to see whether these sectors are negatively impacted or not,” Couper concludes.