The Securities and Exchange Commission (SEC) announced settled charges against two investment advisers, Delphia and Global Predictions, for making false and misleading statements about their purported use of artificial intelligence (AI).
The firms agreed to settle the SEC’s charges and pay $400,000 in total civil penalties.
“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC Chair Gary Gensler. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
According to the SEC, Delphia, Toronto-based firm, made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process.
According to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” In addition, the order finds that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.
In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “expert AI-driven forecasts.” Global Predictions also violated the Marketing Rule, falsely claiming that it offered tax-loss harvesting services, and included an impermissible liability hedge clause in its advisory contract, among other securities law violations.
Without admitting or denying the SEC’s findings, Delphia and Global Predictions consented to the entry of orders finding that they violated the Advisers Act and ordering them to be censured and to cease and desist from violating the charged provisions. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000.
The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert about artificial intelligence and investment fraud.
Photo courtesyMurat Kalkan, BBVA Global Wealth Advisors Director
BBVA Group has announced the creation of BBVA Global Wealth Advisors in Miami. The new service aims to serve high net-worth Latin American clients and complement the international wealth management service already offered in Switzerland and Spain.
Initially, the service will be available to non-US resident clients from Latin America who are interested in having an international investment advisory solution in the United States. To qualify for the service, clients must bring assets under management of at least $500,000.
BBVA Global Wealth Advisors clients will have access to non-discretionary portfolio management services, advisory and wrap fee accounts, and other investment options, the press release said.
“The opening of BBVA Global Wealth Advisors in Miami will allow us to advance the integration of the local and global capabilities of BBVA’s wealth management, enhancing the value proposition for our clients,” said Jaime Lázaro, Global Head of BBVA Asset Management & Global Wealth.
Murat Kalkan, Head of BBVA Global Wealth Advisors, added: “Establishing our own US-based investment advisory service for the Group’s high net worth clients is a critical component to our value proposition in our service to these clients.”
BBVA Asset Management & Global Wealth is the unit that coordinates the asset managers, investment advisors, and private banks of the BBVA Group globally.
VanEck, a global investment manager with a focus on providing innovative investment strategies, is pleased to announce a reduction in the management fees for two of its fixed income exchange-traded funds (ETFs), effective immediately.
The management fee for the VanEck Intermediate Muni ETF (ITM) has been lowered from 0.24% to 0.18%, while the management fee for the VanEck Fallen Angel High Yield Bond ETF (ANGL) has been reduced from 0.35% to 0.25%. These adjustments reflect VanEck’s commitment to offering competitive pricing and enhancing value for investors.
“As part of our regular review of our pricing strategy, we are delighted to lower the management fees for these ETFs,” said Ed Lopez, Head of Product at VanEck. “Lower fees add to the value proposition of these ETFs, along with efficient access to targeted opportunities in the fixed income space that we believe are compelling right now within an income-oriented portfolio.”
ITM seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE Intermediate AMT-Free Broad National Municipal Index, which is intended to track the overall performance of the U.S. dollar denominated intermediate-term tax-exempt bond market. ANGL seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE US Fallen Angel High Yield 10% Constrained Index, which is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market and that were rated investment grade at the time of issuance.
The US ISM services index shows that business activity and new orders are performing well, but companies are increasingly focused on trimming their workforce. The employment component of the index has dropped into contraction territory, indicating a potential risk of job losses in the coming months.
However, with inflation pressures looking less worrying, the Federal Reserve should have the flexibility to respond, said James Knightley, Chief International Economist, ING Bank in a new report for ING Bank.
The ISM services index for February came in at 52.6, below the consensus forecast of 53.0. However, business activity and new orders improved to 57.2 and 56.1, respectively, indicating expansion in these areas. Employment, on the other hand, dropped to 48.0, the second sub-50 print in the past three months, and the six-month moving average is also below the 50 line.
The relationship between the ISM services employment index and the monthly change in nonfarm payrolls has historically been strong, but in 2023 and into 2024, they have had an inverse relationship. With job loss announcements seemingly picking up and the quit rate falling, it does appear that the jobs market is cooling.
Prices paid fell back in the report, which is a positive sign given the recent strength in core inflation readings. The ISM indices and GDP growth, indicating that the economy may not be as robust as GDP alone suggests. Nonetheless, there is little sign of employers taking an axe to jobs, and the Federal Reserve should have the flexibility to respond to any potential job losses.
The full report can be found on the ING Group site.
The US economy’s resilience and US inflation’s resistance to swiftly return to the US Federal Reserve’s target means we remain overweight equities and neutral bonds.
We retain our view that economic growth will slow later in the year, but the timeline is stretching. Corporate profits remain buoyant and the Fed is clearly indicating an aversion to premature monetary easing. So where a few months ago we felt that bond valuations were attractive we now think they’re fair; the near -term prospects for equities, meanwhile, remain encouraging. As Fig. 2 shows, earnings among the world’s listed companies have been responding positively to improving US economic data.
Fig 1. Monthly asset allocation grid
March 2024
Source: Pictet Asset Management
Our business activity indicators show that the US economy is stronger than we’d previously envisioned and is one reason why we remain overweight global equity.
If US consumers continue to spend much more than they save – the US savings rate is currently running at 3-4 per cent of disposable income compared to a historical 7-10 per cent – both growth and inflationary pressures could remain elevated for some time. Inflation looks likely to linger as price rises within services sectors remain high and conditions in the labour market are still tight.
On balance, though, we think consumer and business spending will eventually fade, converging towards the other already weak parts of the US economy, like the residential sector.
In contrast with the US, the euro zone has been flirting with recession for the past few months due to weak manufacturing activity. Growth should pick up, however, as the post-Covid supply shock and impact of the Ukraine war both lessen. Elsewhere in Europe, the UK economy is flat, with construction activity struggling and the hitherto tight labour market starting to loosen. On top of that there are signs that inflation expectations are starting to pick up, hampering the Bank of England’s ability to cut interest rates.
Japan’s economy is also starting to splutter. Retail sales are contracting, as are machinery orders. And industrial production is still very weak. Nonetheless Japan’s is still expected to grow near its long-term potential while its long period of deflation is finally over.
Strengthening the case for being overweight equity are our liquidity indicators. These show a short-term increase in the supply of liquidity from both central and private sector banks. Even the Swiss central bank has started to shift from quantitative tightening to easing. But it’s not certain the easing will gather pace. Signs from the Fed are that its central bankers view the risks of waiting a little longer to cut rates as smaller than the risk of cutting too soon and then having to reverse course.
As for private credit, banks are beginning to ease lending standards. It’s early days yet, but the direction is clear. The question, though, is of magnitude.
Elsewhere, the Chinese central bank has accelerated its modest pace of easing policy, but it remains alert to any potential foreign exchange instability, which is likely to limit how far it goes. For now, it is focused on targeted credit provision.
Fig. 2 – Looking up
Global equities earnings momentum vs US ISM New Orders
Source: Refinitiv, IBES, Pictet Asset Management. Data from 15.02.1999 to 26.02.2024.
Our valuation indicators show equities trading at their most expensive levels since December 2021. With US equities trading at multiples of 20.5 times earnings – considerably higher than the 10-year average of 17.5 – there appears to be little headroom for the market to add much to its gains. Still, corporate earnings have been solid and consensus analyst projections for 2024 are now reasonable considering the continued resilience in global growth. Bonds are marginally more attractive, with US government bonds at fair value and inflation-protected Treasuries also trading at reasonable levels. Gilts look attractive too, albeit vulnerable to news from the upcoming budget.
Our technical indicators show that equities are supported by a strong trend while bonds are less so and Chinese bonds look overbought.
Investor positioning data paints a less positive picture for riskier assets, however.
Risk sentiment among professional investors is firmly in bullish territory according to market surveys, with fund managers having cut their cash positions and turning their most overweight on equities for two years. Moreover, portfolio flows into equity and bond funds have been strong while those into money market funds have slowed. All of which suggests there is less scope for the market to extend its rally.
Piece of opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist.
Photo courtesyDavid Nicholls, portfolio manager at Global Emerging Markets Sustainable de East Capital.
According to David Nicholls, portfolio manager of East Capital’s Global Emerging Markets Sustainable fund, emerging markets are, in many ways, the most obvious destination for sustainable investment: investing in line with the UN Sustainable Development Goals. Given his experience, in this interview we wanted to discuss with him the complex issue of investing sustainably in these markets.
In this context, is there a difference when talking about emerging markets in Asia, Europe and Latin America?
While the investment backdrop for these regions is indeed very different, the sustainability integration process remains constant – finding good quality companies that are managing well their material sustainability impacts across their value chains. Generally, we find that Latin America and Europe are a bit more sophisticated in their disclosure, but we always look beyond the glossy sustainability reports and more at how companies are actually run, because what really matters is what companies are doing, not what policies they have or how they report.
How does the fund manager deal with this issue in the investment process of its funds and in particular of this fund?
We believe that by far the most useful way of assessing a company’s sustainability profile is to be on-the-ground, meet management in their offices and ask the tough questions. Often a one-hour meeting will tell us more than reading pages and pages of sustainability disclosure ever would. We also try never to give companies the benefit of the doubt, if we have concerns, we engage with management and encourage them to address these issues.
We do our own assessment, we do not buy external ESG data and scores, and we apply a forward-looking lens when analysing the practices and standards. We also look at the ownership of companies, we believe that KYO “Know Your Owner” is an important part of our work, especially when we invest in entrepreneurs-led companies.
Do you think this myth that “it is difficult to invest sustainably” is slowing down European investors’ interest in emerging markets?
It is more likely that the exceptionally poor performance of China in recent years (especially compared to the US) has turned investors away from emerging markets rather than concerns about sustainable investing.
Having said this, we have received feedback from various investors that the huge wave of downgrades of peer funds from Article 9 (the highest level of sustainability) to Article 8 or even Article 6 has led to questions about the validity of the concept of “sustainable investing”. However, we believe that investors such as ourselves who remain at Article 9 have robust processes and detailed disclosure that clearly documents this.
In Europe we read that the energy transition is a great investment opportunity under ESG criteria, is the same true for emerging markets?
This is a great question because historically we have generated significant alpha by investing in the energy transition in China, a market which controls over 90% of the entire solar value chain. Unfortunately, we are now seeing quite alarming overcapacity in the Chinese solar sector, as well as in batteries and even electric vehicles, which has driven down margins and prices. This is great to support the demand, with solar panel prices down 50% from their peaks in Q3 2022, but less good for investors. As a result, we currently have little direct exposure to the energy transition, although we do see some value in some very niche areas with large moats, such as smart meter manufacturers.
Where do you see the main investment opportunities for 2024 within emerging markets? What geographies, types of companies or sectors do you prefer?
Our approach is to remain broadly country neutral in our allocation, so that we can focus on stock picking within countries, our active share has always been very high. Having said this, the most exciting opportunities in the emerging markets universe, are to be found in countries like India and Indonesia, which offer strong structural growth for many years to come.
Of course, the “elephant in the room” is China. Its weight in the benchmark (MSCI EM Index) has fallen from 44% to 26% over the past four years due to underperformance, but China remains the largest country. We believe much of the bad news is priced in, given the extremely low valuations. Here we have a balanced portfolio of high-quality exporters whose revenue streams are uncorrelated to the domestic economy (for instance Africa’s largest mobile phone seller), as well as bottom fishing in some bombed-out stocks; for example, we bought a fintech company trading at 1.5x PE with a 15% dividend yield at the beginning of the year.
What type of strategies do you recommend for investing in emerging markets and why?
A core part of our investment philosophy is that emerging markets remain highly imperfect and are thus fertile grounds for active on-the-ground investors like us. For example, five of our eight core team members are based in Asia and this support that we aren’t afraid to deviate from the usual emerging market names. We believe sustainability is an important lens, even if just to give a “quality bias” to the portfolio, though the ability to remain dynamic and react to the constant change takes precedence.
Given the current macro context, what can this type of strategy bring to investors’ portfolios?
The perception amongst investors we have spoken with recently is that this type of strategy offers a huge option value if China starts to rerate, something we saw in November 2022 when China returned 60% in three months. We would, however, argue that it is a bit more nuanced than this, and that the strategy offers exposure to high quality, exciting companies in fast growing economies, while maintaining the potential upside to benefit if China does rerate.
Mutual fund assets decreased slightly in January 2024, but still managed to have their best month for flows since January 2023, according to the latest issue of The Cerulli Edge—U.S. Monthly Product Trends.
Meanwhile, ETF assets reached a new all-time high, with a notable division of flows between active and passive ETFs. However, commodities and allocation ETFs had a particularly bad month, shedding 2.5% and 2.3% of assets due to flows during the month, respectively.
The uncertain economic, monetary, and political outlooks, as well as increased emphases on tax awareness and ESG considerations, are driving high-net-worth (HNW) wealth management firms to improve their strategic asset allocation services in many ways.
Integrating customization and optimization tools, such as direct indexing, into wealth managers’ standard asset allocation service offerings is increasing firms’ ability to provide their clients additional value.
Implementing more bespoke investment solutions and private market investment access to clients at scale increasingly requires intermediaries to have a robust account aggregation and performance reporting ecosystem.
The trend towards customization and private market investments is becoming increasingly important in the HNW wealth space. As clients demand more personalized and tailored investment solutions, wealth management firms must adapt and innovate to meet these needs.
By providing access to private market investments and implementing customization tools, firms can differentiate themselves from their competitors and provide added value to their clients, concludes the report.
This issue of The Cerulli Edge-U.S. Monthly Product Trends analyzes product trends through January 2024, including mutual funds and exchange-traded funds (ETFs), and explores the product and service offerings being adopted by high-net-worth (HNW) practices.
The report highlights that mutual fund assets declined by just $10 billion to $18.5 trillion in January, due to the small effects of both net outflows and market developments. However, in terms of flows, this was their best month since a year ago January 2023.
In addition, ETF assets grew by 0.6% in January thanks to net flows of $43.5 billion, and reached a new all-time high. The split of flows between active and passive ETFs was notably tight at $20.9 billion and $22.7 billion, respectively. Commodity and allocation ETFs had a particularly bad month in January, with losses of 2.5% and 2.3% of assets by flows for the month, respectively.
On the other hand, the uncertain economic, currency and political outlook-as well as increased emphasis on tax awareness and ESG considerations-are prompting high-net-worth (HNW) wealth management firms to enhance their strategic asset allocation services in many ways.
In this context, Cerulli highlights that the integration of customization and optimization tools (e.g., direct indexing) into wealth managers’ standard asset allocation service offerings is increasing the ability of firms to provide their clients with additional value. The implementation of more customized investment solutions and access to private market investing at client scale increasingly requires intermediaries to have a robust ecosystem of account aggregation and performance reporting.
Credit Sesame published the results of a comprehensive study on the financial literacy and well-being of younger generations, particularly their understanding of credit and other personal finance matters. In the age of viral trends and digital consumption, Gen Z is rewriting the financial script, proving that their credit story is far from conventional.
A new survey, conducted by OnePoll on behalf of Credit Sesame, illuminates the complicated love affair between Gen Z and credit, challenging stereotypes and ushering in a new era of financial consciousness.
Amidst the TikTok craze, the survey unveils a startling revelation: 92% of Gen Z prioritizes a credit score of 750 or higher over the allure of tens of thousands of social media followers. This shift in priorities challenges preconceptions, painting a portrait of a generation that understands the impact of a robust credit history on their financial well-being.
Amongst other findings, a survey of 500 Gen Z and 500 millennials conducted by OnePoll on behalf of Credit Sesame revealed:
66% of respondents believe that their credit score is a good measure of their financial health.
One-third believe that age-old myth that checking your credit score will affect it and 19% couldn’t correctly match the definitions of debit and credit.
42% of respondents would rate their understanding of how credit scores work as “average to poor.”
82% of respondents admit they struggle to keep up with their friends’ saving and spending habits (35% of millennials struggle “very much” vs only 24% of Gen Zers).
Credit card debt is impacting younger Americans’ larger goals, such as buying a house (35%), taking a dream vacation (29%) and saving for retirement (28%).
44% of respondents said they would leave their bank due to poor customer service, compared to only 15% for failure to reduce their carbon footprint.
Credit scores have been the gold standard for creditworthiness for decades, yet the traditional credit scoring methods have long been a source of confusion for consumers, made evident by the survey results showing 42% of respondents rating their understanding of how credit scores work average to poor. Credit Sesame breaks down the barriers for everyone to build better credit scores, especially people with low or limited credit history, commonly seen amongst young people working to establish strong financial health.
Despite some of these knowledge gaps, Gen Z and Millennial respondents are abiding by age-old and wise money mantras, such as “time is money” (52%), “save for a rainy day” (46%) and “never spend money before you have it” (42%).
The study also underlines the difference between the two generations surveyed. Millennials reported opening their first bank accounts at 21 plus applying for their first credit cards and starting to pay rent around the age of 23. Meanwhile, Gen Z respondents started opening bank accounts and credit cards earlier, at 19 and 20, respectively. This notable drive to start their financial journey younger aligns with valuing peer experiences and collective wisdom on social media platforms like TikTok and YouTube over traditional authority figures in finance of generations past. Interestingly though, one in 10 of Gen Z said they do not currently have a credit card or credit score.
The survey also indicated that in-person banking and the use of cash seems to be going out of style: 43% of respondents prefer to bank online with 28% admitting they either “always” or “often” feel judged for banking in person. Similarly, 28% of Gen Z respondents “always” or “often” feel judged when using cash to pay, with more than a third of millennials sharing the same sentiment.
A recent survey by BMO Real Financial Progress Index has found significant disparities between men and women when it comes to concerns about cost of living and inflation.
Over the past three months, 61% of women expressed concern about the cost of living, compared to 54% of men. Similarly, 59% of women voiced concern about inflation, compared to 52% of men.
The survey also found that women are more likely than men to identify certain expenses as barriers to making real financial progress. Specifically, family-related expenses and monthly bills are more likely to be seen as obstacles by women (24% vs. 21% of men and 38% vs. 30% of men, respectively).
The BMO Real Financial Progress Index finds that more women than men say they share financial responsibilities with their partners, such as setting financial goals for the family (68 percent of women compared to 57 percent of men) and managing day-to-day finances like paying bills (50 percent of women compared to 44 percent of men).
Additionally, women are more likely to experience financial anxiety when it comes to keeping up with monthly bills (67% vs. 60% of men).
Overall, women are also more likely to be concerned about their financial situation, with 44% saying their concerns have increased over the last three months, compared to 35% of men.
Furthermore, women are less likely to feel in control of their finances, with 82% of men saying they feel in control compared to 71% of women.
Despite recent strides made by women in terms of pay, education, and workplace representation, these findings suggest that there are still ongoing challenges when it comes to achieving financial security and long-term wealth.
This article has been prepared with information from BMO, to see the full report of the firm click on the following link.
