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Public Debt Investors Adjust Outlook on Rate Cuts

The disparity in views seen in the updated September dot plot regarding the official rates’ positioning at the end of 2024 has become more turbulent this week.

While the median projection suggests up to three additional rate cuts (with nine bankers projecting 4.375%), there are seven others who only see two cuts. On the extremes, one banker anticipates cuts of up to 1%, which balances the two more conservative members who believe only a 0.25% reduction may be necessary from now until December.

This lack of clarity within the U.S. central bank has become more evident this week. Mary Daly of the San Francisco Fed, who supported the unexpected decision to review the Fed Funds by 0.5%, sees no immediate reason to suspend plans for monetary policy easing.

Nevertheless, calls for a more cautious approach are growing. Among them, Lorie Logan (Dallas) and Jeff Schmid (Kansas) have shared their thoughts this week. Schmid explained: “Although I support reducing the restrictive stance of monetary policy, I would prefer to avoid exaggerated moves, especially given the uncertainty about the final direction of monetary policy and my desire not to contribute to financial market volatility.”

Similarly, Neel Kashkari (Minneapolis) favors a slow approach toward the neutral rate (R*, estimated around 3% according to the projections). Productivity improvements in the U.S., a significant increase in the workforce (largely due to immigration since 2021), and structural recovery in consumption following the deleveraging after the subprime crisis could justify an R* higher than suggested by the Fed’s model (Laubach-Williams-Holston). If this is the case, a 0.5% cut, along with six other cuts expected by economists through 2025, could risk overheating the economy.

Even the private sector calls for restraint. In an interview with Bloomberg, Brian Moynihan, CEO of Bank of America—after pointing out that the Fed has been behind the curve since 2022—called for prudence in adjusting the cost of money. He noted that the risk of “moving too fast or too slow (in adjusting official rates) is now greater than six months ago.”

And the market has not stayed indifferent. As we noted last week, bets—whether naturally or strategically—show increasing positive inertia for the Republican candidate, impacting public debt investors’ confidence, who continue refining their expectations regarding rate cuts. As seen in the chart, the correlation between Trump’s winning odds and U.S. Treasury bond yields has risen significantly.

Kamala Harris leads by 1.8 points in the polls, while in 2020, Joe Biden held a ~7-point lead over Trump. Harris also trails Biden’s 2020 performance against Trump and Hillary Clinton’s (2016) performance in swing states (Michigan, Wisconsin, or Georgia).

Additionally, Trump clearly leads in voting intention among white, lower-education voters in these swing states, a relevant factor. Interestingly, despite declining unemployment, multiple surveys reveal that 60%-70% of respondents from different social groups (women, African Americans, independent voters, non-graduates…) believe the economy could be doing better, likely because real wage growth remains negative in many swing states.

To be fair, the macroeconomic outlook (with the Atlanta Fed’s GDPNow forecast pointing to 3.4% growth this quarter and unusual September employment data) also plays a role. According to Polymarket, the probability of a “red wave” scenario consolidating Republican power in the White House and both houses of Congress is now at 45% and continues to rise. Realistically, Trump only needs to secure 12 of the 27 House seats in play for Republicans to take control.

The recent adjustments in stock, public debt, and gold prices, among other assets, mirror the patterns observed in 2016, indicating that investors are attempting to anticipate the November election outcome, already factoring in a potential Trump victory.

The fall in Treasury bond prices is logical. Under Harris’s plan, despite higher corporate tax rates, other initiatives—such as expanded social programs and tax credits—would significantly raise the deficit. Estimates suggest her policies could increase public debt by $3.5 trillion to $8.1 trillion by 2035, pushing the debt-to-GDP ratio from the current 102% to 133%.

Trump’s tax cuts, though unlikely to bring the rate down to 15%, would further widen the deficit, with estimates ranging from $1.5 trillion to over $15 trillion by 2035. His plan, especially with corporate tax reductions and potential tariff-based policies, would significantly cut federal revenue, making it harder to contain public debt growth. At best, tariffs could generate around $1 trillion in revenue, and efficient government administrative cost management another $2 trillion.

However, the most likely scenario remains a divided Congress, which would make it very challenging for either candidate to implement the more aggressive version of their fiscal agenda. While Trump could independently raise tariffs (60% for imports from China and 10% for others) without Congressional approval, this would effectively act as a tax increase, impacting household consumption and ultimately having a deflationary effect (similar to the Smoot-Hawley Act in 1930).

On the other hand, employment data continue to show a gradual decline in labor market activity. Caution is necessary, as too much emphasis should not be placed on September figures; a recent example of investor sentiment shifts occurred in early August. October data may be difficult to interpret due to hurricanes (Helena and Milton) and seasonal hiring for the holiday season. Seasonal adjustments may not suffice, and the data could undergo significant revisions. Additionally, real-time indicators show trends in job openings that don’t align with official figures.

In contrast to the equities market, net speculative positions in U.S. 10-year bond derivatives have been aggressively reduced. This pessimistic sentiment is also evident in JP Morgan’s survey on duration positions and BofA Merrill Lynch’s survey among investment fund managers, who have rapidly scaled back their exposure to interest rate risk, as shown in the chart.

The T-Bond yield has over-discounted the macro surprise index’s upswing, which is nearing a turning point.

With official rates at 5%, and likely 4.75% in two weeks, the upward path for the T-Bond’s IRR should not exceed 4.8%. If a slowdown scenario—like in August—returns, we could quickly revisit the ≤3.5% zone. In a soft landing scenario, and if the terminal rate ends up above the dot plot estimate (~3.5%–3.75% vs. 2.875%), with a term premium of 0.2-0.4, yields would remain near current levels (~3.7%–4.2%), making the 12-month return distribution attractive, approaching 4.4%–4.5%.

More Risk-Averse, Higher Returns, and More ESG-Oriented: How Women Invest

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Cómo invierten las mujeres: más retorno y enfoque ESG

As women’s participation in economic activities grows and their income potential rises, female investors are becoming an increasingly significant force in wealth management. Supporting this trend, about one-third of global wealth is now in the hands of women, with nearly half of it in the U.S., where women control over $10 trillion in assets.

By 2030, the U.S. baby boomer generation will invest over $30 trillion in financial assets, an amount approaching the annual U.S. GDP. Meanwhile, in Western Europe, women own around one-third of managed assets. This wealth growth is also reflected in the percentage of female millionaires and billionaires worldwide, which continues to reach record levels. In 2000, there were only four women on the list of the world’s 100 wealthiest people, but by 2024, this number had reached 15.

“As women become wealthier, their investment opportunities expand, amplifying their importance as investors and equipping them with the right tools and resources. A 2019 report estimated that by 2025, 60% of the UK’s wealth would be in the hands of women, who often take control of family wealth when their husbands pass away,” notes DWS in its latest report.

In Asia, the total wealth of women, excluding Japan, was estimated at $13 trillion in 2019 and is expected to reach $19 trillion this year, making the region the fastest-growing in women’s wealth. “This also means that by the end of 2023, women in Asia are expected to own more wealth assets than women in any other region outside North America,” the asset manager states.

In Asia, women’s investments gain greater importance in cases of divorce or separation, as women are more financially dependent on men than in other parts of the world. In China, over 80% of urban women aspire to become more financially independent, showing a stronger motivation than men for financial empowerment, according to a recent survey. Other surveys show that women expect to become financially independent at 37, four years earlier than men. Additionally, 82% of women surveyed in another study expressed a desire to better control their financial situation.

Investor Profile

Given these facts, there’s no doubt about the potential of women as investors. However, what obstacles do they face? According to academic literature, one of the main factors is risk attitude, as women are more risk-averse than men.

“A 2018 study by Falk et al. showed that, when conditioned on other factors, women are significantly less risk-tolerant than men worldwide. This aligns with similar research by Dohmen et al. in 2011, which found that among the adult German population, not only are women generally more risk-averse than men, but this attitude toward risk is consistent across all aspects of life—sports, driving, financial matters, career, and health—even after controlling for various demographic and economic factors,” DWS explains.

The second notable characteristic is that women not only have the potential to invest more, but their investments also tend to yield higher returns over a 10-year period. The report suggests that several factors may explain these differences, including lower transaction volumes, holding onto investments during market downturns, using stop-loss orders, and more closely following financial advisors’ recommendations compared to men.

Third, the report notes that women aim to align their investments with their goals and are more inclined toward social and environmental objectives. In fact, UBS’s Investor Sentiment Survey highlighted that 71% of women consider sustainability in investment decisions, compared to 58% of men.

“This trend is also evident among investment funds; private equity firms that are at least 50% women-owned are 6.8% more likely to pursue impact investments focused on specific environmental or social factors, according to a study by academics from the UK, Ireland, Belgium, and the U.S. Regarding environmental and social goals, a study found that poverty, healthcare, and climate change were among the top priorities for women,” the report concludes.

Looking at the Industry

What about the industry? According to the report, in the global asset management sector, about 1 in 8 fund managers is a woman. “That proportion has not changed significantly in more than a decade, even as teams have grown and more professionals have joined the sector. In 2022, only about 12.5% of U.S.-based portfolio fund managers were women, nearly unchanged over the past 10 years, while only about 26% of over 10,000 U.S. funds were managed by a team that included at least one woman,” the report states.

In the U.S. Elections, the Devil Is in the Details: Deficit, Result Disputes, and Volatility Through 2025

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The U.S. presidential election campaign is intensifying. Early voting has already begun, including in some of the key swing states that could be decisive. International asset managers recognize that investors worldwide are analyzing how this close race might impact markets.

“As expected, Vice President Harris’s policies are quite similar to those of President Biden. This suggests that if Harris wins, investors could anticipate a certain level of continuity in the current political and economic environment. Conversely, former President Trump has hardened his stance, reinforcing his ‘America First’ approach. If he wins, we could see a sharp shift towards higher tariffs, deregulation of key sectors, stricter border control, and a more independent foreign policy,” summarizes Greg Meier, Senior Economist at Allianz Global Investors.

The Deficit Issue

So far, we’ve examined what sets the candidates apart and how different election scenarios might affect investors, but we must also consider what unites Harris and Trump. According to a report by Natixis CIB, both Harris and Trump are expected to be big spenders, proposing policies that will further worsen the long-term fiscal outlook. “Harris’s policies provide some revenue offsets but will result in slower growth and less investment. Trump’s fiscal policies will encourage growth but will increase inflationary pressures and worsen the debt outlook,” the study notes.

Joseph V. Amato, President and Chief Investment Officer—Equities at Neuberger Berman, agrees that neither candidate appears willing to tackle the U.S. debt sustainability issue, which he considers crucial. “There seems to be little appetite to cut spending on defense or social security benefits—two of the three largest federal budget items, the third being interest expenses,” he says.

According to Amato, the Penn Wharton Budget Model garnered attention with its estimate that Harris’s tax and spending proposals would add $2 trillion to the primary deficit over the next decade, while Trump’s proposals would add slightly over $4 trillion.

“Economic projections show only a modest difference in each candidate’s deficit over the next five years. Generally, Harris’s proposals reflect a deficit-neutral redistribution from corporate and high-income taxpayers to lower-income taxpayers. Trump’s proposals show a slight reduction in the deficit, assuming that tariff revenues offset lower taxes. Again, a divided government is expected to moderate the impact of either president’s proposals and slightly improve debt prospects,” he explains.

According to Alvise Lennkh-Yunus, Director of Sovereign and Public Sector Ratings at Scope Ratings, unless the winning presidential candidate’s party secures a majority in both the House and Senate, the U.S. will face another debt ceiling crisis in early 2025.

“Both Democrats and Republicans show little appetite for containing or even reversing the government’s expansionary fiscal policy. Harris’s proposed policies would raise the deficit by $1.2 to $2 trillion over the next 10 years, while Trump’s could increase it by $4.1 to $5.8 trillion. Although these estimates are uncertain, it’s clear neither candidate has a concrete plan to consolidate U.S. public finances,” says the Scope Ratings expert.

Contestation and Limbo

Lombard Odier agrees with most analyses that this election represents the biggest political risk factor for markets. “The close contest between the Democratic and Republican candidates has raised the chances of a contested result after the November 5 election. We believe the race is too close, though our baseline assumption is that the Senate will be Republican and the House of Representatives will be controlled by the winning party. While the vote should yield a clear result, a contested outcome remains a possibility,” they explain.

Few analyses have explored the implications of a contested election. Lombard Odier points out that there have been five contested presidential elections since 1800, the last in 2000. “There are three potential resolutions for a contested vote: Supreme Court intervention, the Electoral Count Reform Act of 2022, or a ‘contingent election.’ All three are open to legal debate. In 2000, the Supreme Court halted a Florida recount, handing the presidency to George W. Bush. Today, the Court would likely avoid deciding who sits in the White House,” they say.

In fact, the S&P 500 fell nearly 12% from Election Day to mid-December after the Bush/Gore election in 2000, though many factors were in play. “But history suggests that once the result is known, a ‘welcome rally’ for the new president is likely,” notes Neuberger Berman’s representative.

In a “contingent election” scenario, the House would elect the next president, while the Senate would select the vice president. “Any electoral dispute in Congress would have to be resolved before January 20, 2025, when the current president’s term ends. This would be problematic, especially if Kamala Harris, as Senate President, were to cast a deciding vote. If Congress cannot decide on a candidate, the Presidential Succession Act stipulates that the Speaker of the House, Republican Mike Johnson, would serve as acting president,” adds Lombard Odier.

Consequently, the firm expects that any political limbo following the November 5 vote and through 2025 would provoke market volatility and negatively impact U.S. assets. “After the 2000 election, U.S. Treasury yields rose 75 basis points between the election and year-end, while gold gained 3%, despite declines in U.S. equities and the dollar index. In a clearer victory for either party, our views on the expected effects on asset classes are outlined in the following table,” they conclude.

A Paradoxical Backdrop

Experts agree that the U.S. has enjoyed the strongest post-pandemic recovery among developed economies. However, in the view of Raphaël Gallardo, Chief Economist at Carmignac, this long expansion has entered a slowing phase as the “adrenaline” from massive COVID-related stimulus fades, a strong dollar weighs on manufacturing, and high real interest rates needed to curb inflation have suppressed demand in interest-sensitive sectors like construction and real estate.

“Consumers continue to drive growth, but despite low unemployment, most dynamism increasingly comes from the wealthiest quintiles, which benefit from continued wealth effects in an already expensive stock market. An aging population, rising social transfers, and subsidies for the energy transition have also widened the fiscal deficit to levels unheard of outside recessions, wars, or pandemics (7% of GDP),” Gallardo explains.

According to Gallardo, this is the paradox of this election: “After eight years of outperformance by the U.S. economy and a stellar stock market, voter frustration with the state of the economy has shaped the platforms of the two main candidates. The next administration will inherit an economy more vulnerable than recent trends suggest, and thus the populist measures both candidates advocate could have outsized repercussions on financial markets.”

For Gallardo, the real “elephant in the room” is that, regardless of the outcome, “these elections could alter the engine of an economy that has been the envy of the world for decades.”

Technology and Healthcare Stand Out Among Small and Mid-Cap Offerings

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Tecnología y salud entre pequeñas y medianas ofertas

Identifying high-quality small and mid-cap companies with strong management teams and sustainable competitive advantages is essential for investors, according to the Fiera Apex report. The healthcare and technology sectors can offer “an attractive combination of high growth potential and manageable risk,” the asset manager’s report states.

Healthcare

Driven by prolific innovation, demographic tailwinds, resilient demand, and solid fundamentals, healthcare among small and mid-cap companies holds one of the greatest long-term growth potentials, according to experts.

Within the biotechnology subsector, significant opportunities can be found in companies focused on addressing unmet medical needs with de-risked clinical assets and substantial upside potential in the market.

Prescription drug spending in the U.S. exceeds $400 billion annually and continues to grow. However, current therapies approved by the Food and Drug Administration (FDA) address only a fraction of defined diseases, reflecting vast and untapped total addressable markets (TAM) awaiting solutions.

“Thanks to their focus on R&D and ongoing advances in life sciences technology, small and mid-cap biotech is poised to deliver numerous short-term breakthroughs across the spectrum of human health, from major causes of death such as heart disease and cancer to rare orphan indications like Huntington’s disease and muscular dystrophy,” the research adds.

Meanwhile, annual healthcare spending in the U.S. currently stands at about $4.5 trillion—17% of GDP—with approximately “a quarter considered waste,” Fiera Apex experts note, attributing this to issues such as inadequate diagnostics and treatments, administrative complexity, and other coordination failures.

Technology

In the tech sector, moving nearly $5 trillion, small and mid-cap firms also stand out, focusing on areas like cloud computing, artificial intelligence, and digital transformation.

Within AI, significant opportunities exist in companies that address the need to control, monitor, and process large volumes of complex data.

As the number and complexity of applications grow with cloud computing and AI, there are opportunities in companies leveraging AI to boost innovation and productivity among professionals. Companies positioned in this space are in the early stages of addressing vast market opportunities.

“We seek companies that can seize the opportunity to replace legacy point solutions with these innovative platforms. This opportunity is especially appealing when considering large industries in the early stages of modernization, such as construction and public administration,” the firm’s researchers say.

As cloud computing evolves into the dominant form of computing in the coming years, there is an opportunity to adopt platforms with modern functionality and data integration, the report concludes.

North America Dominates the Global Fund Industry: The Region Accounts for 61% of Assets Under Management

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Dominio de Norteamérica en la industria de fondos

According to the latest study by the Thinking Ahead Institute (TAI), associated with WTW, assets under management (AUM) by the world’s 500 largest asset managers reached $128 trillion at the end of 2023. Although levels from 2021 were not reached, the annual growth of 12.5% already marks a significant recovery following the previous year’s correction, when AUM dropped by $18 trillion in 2022.

The study highlights the evolution in active and passive management, showing that, for the first time, passive management strategies account for more than a third (33.7%) of assets under management among the top 500 asset managers, though nearly two-thirds continue to be actively managed.

In terms of asset class allocation, there is notable growth in private markets. Equity and fixed income, however, remain the predominant asset classes, totaling 77.3% of assets under management—48.3% in equities and 29% in fixed income. This represents a slight 0.2% decrease from the previous year as investors continue seeking alternatives such as private equity and other illiquid assets to achieve higher returns.

“Due in part to the performance of American equities as a driver of returns, North America experienced the highest growth in assets under management, with a 15% increase, followed closely by Europe (including the UK), which recorded a 12.4% rise. Japan, however, saw a slight decrease, with a 0.7% drop in AUM. As a result, North America now accounts for 60.8% of the total AUM among the top 500 managers, reaching $77.8 trillion at the end of 2023,” the report explains.

Consequently, U.S. asset managers dominate the top of the ranking, holding 14 of the top 20 positions and representing 80.3% of assets in this group. Among individual asset managers, BlackRock remains the world’s largest, with total assets exceeding $10 trillion. Vanguard Group holds the second spot with nearly $8.6 trillion, both far ahead of Fidelity Investments and State Street Global, ranked third and fourth, respectively. Among the managers with the most notable rises in the past five years are Charles Schwab Investment, which climbed 34 spots to reach 25th place, and Geode Capital Management, which rose 31 spots to 23rd. Canada’s Brookfield Asset Management also advanced 29 positions, reaching 31st place.

“Asset managers have experienced a year of consolidation and change. While we’ve seen a return to positive market performance, there have also been significant transformative factors,” says Jessica Gao, director of the Thinking Ahead Institute.

The report’s findings indicate that macroeconomic factors have played a key role, with high interest rates in 2023 exerting various pressures across asset classes, geographies, and investment styles. The study explains that as rates begin shifting toward a reduction phase, equity markets are again delivering positive returns, driven by growth expectations. Future uncertainties are centered on geopolitical events and several major national elections.

Raúl Mateos, APG Leader for Continental Europe, notes that asset managers face significant pressure to evolve their investment models: “Technology is essential, not only for maintaining a competitive edge but also for meeting client needs and expectations, as well as responding to the growing demand for more customized investment solutions. These demands are challenging traditional industry structures. In this context, we have seen notable successes among independent asset managers compared to many of those tied to insurers and banks.”

Regarding specific geographies, Mateos points out that in the past decade, we’ve seen a rise in AUM globally; however, Spain’s market share has declined over this period, from managing 1.5% in 2013 to 0.6% in 2023. “We need to go down to 99th place to find a Spanish representative, Banco Santander, with a total of $239.49 billion, leading the list of ten Spanish managers that include entities like CaixaBank, BBVA, and Mapfre. Moreover, assets managed under ESG criteria grew by 15.5% in 2023, reaching 29.6% of ESG investments within portfolios, marking the highest level in the past three years. This trend shows that ESG criteria are increasingly being integrated into asset selection, demonstrating a growing focus on the impact of our investments on the world,” he concludes.

“This is Actually a Good Time to Be Invested in Fixed Income, But Investors Need to Be Thoughtful”

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“This is actually a very good time to have a substantial allocation to fixed income after the normalization of two years ago.” These words are from Christian Hoffmann, head of fixed income and a portfolio manager for Thornburg Investment Management. Hoffmann recently sat for an interview with Funds Society to offer insights into the current market environment.

Hoffmann has been operating for 20 years in the industry. He likes to put facts in context for a better understanding of market conditions. For instance, he says that it is important for investors to understand that their fixed income portfolio won’t necessarily operate like they did in the 2010s or even in the same way it’s done for the past 40 years: “I think it’s important to always challenge historic correlations and regressions because the world is never exactly the same. This is a very good time to be invested in fixed income, but in a thoughtful way, and in a way that might challenge some investor assumptions.”

Hoffmann also throws out a warning: “Reinvestment risk is real, particularly as we see declining short-term rates.” So, to his point, this is “certainly an environment where taking some duration is favorable.” Thornburg considers its Strategic Income and Limited Term Income Funds to be suitable strategies to help investors navigate this complex market, depending on an investor’s risk tolerance and their long-term needs.

What is your outlook for the Fed’s new rate cutting cycle?

I still think that the market is probably looking for too much, especially as we’ve seen a slightly uncomfortable inflation print and certainly uncomfortable jobs numbers. We’re also heading into not just an election and some potential volatility and uncertainty, but also what is likely to be more noisy numbers owing to job strikes, hurricanes, and other exogenous events. The Fed has talked so much about data dependence that it’s hard to imagine why they feel the need to cut it all now. The argument would be, we’re in restrictive territory, we believe inflation is going in the right direction. The job market seems okay, but we want to protect it. The reaction function is based on data dependency, so I think the market should be concerned and recognize this needs to be more restrictive than we originally planned. I think it’s unlikely that we will see another 50-basis point move.

What should fixed income investors expect going forward?

We are living in a period of very high-interest rate volatility and actually very low spread volatility in credit. This environment should position investors to be somewhat cautious and thoughtful because the premium for taking risk is quite low relative to history at this point in the cycle. It also means a more opportunistic and tactical approach is warranted, given a lot of uncertainty around the economic path forward, on inflation, interest rates, monetary policy and on the fiscal side as well. I think it’s a good idea to have some dry powder because it’s unlikely we experience a lot of additional tightening from here.

It’s also important to point out that most people in financial markets have grown up in a zero-interest rate world. Zooming out and looking at the longer course of history, that’s a very abnormal period related to history. We had a gigantic reset, as we’ve shifted from a zero-interest rate world to something that looks a lot more normal now, so investors can again get income from a fixed income portfolio and achieve some ballast with a diversified portfolio relative to other risk assets.

Where are you finding opportunities in credit?

In volatile markets, there are more opportunities. But in the past couple of years, we’ve been very constructive on both agency and non-agency MBS. We feel good about home prices, so that’s led to opportunities in the non-agency space. But even in the agency space, credit risk is all but out of the picture. Historically, convexity risk has played a part, given that those securities traded near par, and investors were compensated with additional income. But given those prices had suddenly sold off, investors still have nice income as well as a lot of protection as it relates to pay downs and potential price appreciation. Several buyers in terms of the large banks exited the space, and the Federal Reserve unwound its balance sheet and created a supply-demand mismatch which offered an opportunity for investors like us. It could go tighter, but not much tighter: 10 basis points, possibly 30.

Are markets underestimating geopolitical risks?

We see a lot of complacency in the market right now. I think there’s probably too much focus on the Fed and not enough on global markets. The Chinese economy is clearly challenged and has issues, and the measures announced by its government tend to be a bit choppy, uncertain and hard to telegraph. There’s also tremendous geopolitical uncertainty in the Middle East, China and Russia. The market has been sanguine about them so far. When investors no longer feel sanguine, they tend to move to a more defensive position. A recession isn’t necessary to have risk assets misprice, because assets look through the future and to future expectations. All the market needs is fear to see credit spreads reprice.

Are you worried about the path of the fiscal policy and the possible outcomes after the elections?

It’s certainly a close election, and the likely best outcome for markets is some kind of split government. That said the two candidates both espouse policies and actions that I think an economist would not be particularly happy about, from Trump’s rhetoric about wanting more of a say in in central bank policy, which is, frankly, anathema to how the Federal Reserve has always been run in this country and I think should be a point of concern. Another problem is that neither candidate seems particularly interested in fiscal discipline. Government spending continues to increase, and that has been in a very good economic environment. So, we certainly worry about what that might look like in a less good economic environment. That could also mean that the bond reaction function operates a bit differently relative to the past. If we find ourselves in a bad environment, and people are also worried about the fiscal situation and monetary discipline, bonds might be less of a safe haven and people might move into cash or gold.

First Trust Announces the Launch of a New ETF

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First Trust Advisors (“First Trust”) announced the launch of a new ETF, the First Trust New Constructs Core Earnings Leaders ETF (FTCE) (the “fund”), according to a statement obtained by Funds Society.

“The fund seeks investment results that generally correspond to the price and performance (before the fund’s fees and expenses) of a stock index called the Bloomberg New Constructs Core Earnings Leaders Index,” the firm’s release states.

New Constructs determines core earnings by reviewing company reports and identifying non-core and non-recurring gains and losses through its proprietary rating system, using a combination of technology and expert analyst review.

Additionally, FTCE provides exposure to companies that are part of the Bloomberg New Constructs Core Earnings Leaders Index (BCORE). BCORE uses a quantitative approach to select the top 100 companies from the Bloomberg 1000 Index (B1000) with the highest earnings quality, based on Earnings Capture. A positive Earnings Capture reflects stronger business fundamentals and may present an investment opportunity, the statement adds.

“The rise in valuations has been a key driver of returns in the current bull market, while earnings growth has been more moderate. Consequently, for the bull market to continue, we believe investors may focus more on stocks with the potential to deliver high-quality, repeatable earnings,” said Ryan Issakainen, CFA, Senior Vice President and ETF Strategist at First Trust.

Meanwhile, Allison Stone, Head of Multi-Asset Products at Bloomberg Index Services Limited, commented, “It’s exciting to work with First Trust and see how our differentiated approach to earnings analysis is available to investors through an ETF. We’ve combined Bloomberg’s leading data and research with New Constructs’ analysis to create the index with a fresh perspective on the true earnings of companies.”

BECON IM and New Capital Announce That Their Series of Fixed Maturity Bond Funds Has Raised 400 Million Dollars

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Becon IM y New Capital lanzan fondos de bonos

BECON Investment Management, in partnership with New Capital, announced on Monday the close of the fifth issuance of Fixed Maturity Bond Funds, significantly surpassing initial expectations, according to a statement.

“With this latest issuance, which raised 65 million dollars, the total for the five series exceeds USD 400 million, consolidating both firms’ positions as leaders in the fixed-income market for Latin American and US Offshore investors,” the statement adds.

Fred Bates, an executive at BECON IM, highlighted the success of the FMP series, affirming that “we are committed to continuing to launch new products and share classes that are relevant to our clients in the US Offshore and Latam markets. New Capital is a highly dynamic firm with the ability to quickly adapt to investors’ needs.”

Juan Fagotti, also an executive at BECON IM, emphasized the depth and diversity of New Capital’s product offerings, underscoring the importance of providing tailored solutions for each investor profile.

“Each of the five fixed maturity funds, with maturities staggered from 2025 to 2029, has been marked by a rigorous and diversified investment strategy focused on active bond selection, geographic diversification, and active risk management,” said representatives from BECON IM.

“The success of this fund series reflects the growing demand for fixed-income products among investors in Latin America and the US Offshore market. In an environment of low-interest rates and high uncertainty, investors are seeking investment alternatives that combine stability and potential returns,” they added.

In addition to the Fixed Maturity Bond Funds, New Capital offers the New Capital USD Shield Fund (a short-duration, high-quality fixed-income fund) and the New Capital Global Value Credit Fund (a fund focused on relative value corporate bonds, designed for investors with a longer-term investment horizon and tolerance for a higher level of risk).

HSBC Mexico Launches a Balanced Fund in Dollars

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HSBC Asset Management Mexico has launched the HSBCMDL Multi-Asset Balanced Fund in Dollars, “an option designed for investors seeking diversification and a global portfolio referenced in U.S. dollars without actively seeking exposure to Mexican assets,” according to the firm.

According to the institution, the fund’s primary goal is to generate long-term returns by investing in dollar-referenced global debt and assets.

The HSBCMDL Fund invests in equities from developed and emerging markets, treasury bonds, and other global debt instruments, providing diversified exposure to the world’s leading economies with a focus on dollar-denominated assets.

The investment process follows HSBC Asset Management’s global guidelines and focuses on active risk and performance management, adapting to changing market conditions to optimize the asset mix over time.

Antonio Dodero, Executive Director of HSBC Asset Management Mexico, explained, “The launch of the HSBCMDL Fund addresses the growing need for investment solutions that align with local market expectations. This new offering also strengthens HSBC Asset Management Mexico’s relationship with clients seeking innovative financial products.”

HSBC also reported that the fund’s availability is 24 hours after execution, with a recommended minimum holding period of three years. It is aimed at both individuals and corporations and operates Monday through Friday from 8:00 to 13:30 (Mexico City time). Various fund series are available to accommodate the specific needs of each investor type.

The HSBCMDL Multi-Asset Balanced Fund in Dollars offers global exposure across various asset classes and geographic regions, with a balanced portfolio of approximately 50% in equities and 50% in debt. The fund’s active management allows investors to benefit from opportunities presented by the global economic environment.

Additionally, investment in pesos with a dollar reference allows investors to capture both financial instrument returns and exchange rate movements. It’s important to note that the fund does not invest in Mexican assets, except for occasional short-term peso cash positions or those implied in collective investment instruments.

“The ideal investor profile includes individuals or entities looking to diversify their portfolio with foreign investments, seeking dollar exposure, and who can tolerate exchange rate fluctuations. This profile also includes those preferring professional management of their investment, with assets distributed according to global market conditions, focusing on a balanced mix of equities and debt,” Dodero explained.

HSBC Mexico provides further information on the fund through its official HSBC Asset Management Mexico page

EJE Investment Aims to Win Over Chilean Investors With Section 8 Real Estate Assets in Miami

| For Amaya Uriarte | 0 Comentarios

(cedida) Patricio Eskenazi, socio de EJE Investments

EJE Investment, a young international real estate advisory firm, aims to attract Chilean investors with Section 8 subsidized rental properties in Miami. With the Chilean real estate market going through a crisis, local investors are searching for different vehicles to secure rental income, which EJE believes can be found in U.S.-based assets.

“In Chile, the appetite for the real estate market is negative,” highlights Patricio Eskenazi, a partner of the firm, in an interview with Funds Society. “But that doesn’t change the fact that people love investing in real estate, because it’s a very solid asset,” he adds, with tangible guarantees and monthly cash flows.

When people invest in real estate domestically, they can do so directly or through a fund that invests in this asset class. In contrast, foreign investment has a broad range of funds available but high entry barriers for direct purchases.

“Why did people invest in an apartment in Independencia or Huechuraba and not in Miami? The simple and obvious answer is that it’s what was accessible and what they knew how to do,” he says. On the other hand, although investors hear about good opportunities in Miami, they don’t know how to access that market.

Along these lines, Eskenazi highlights that EJE Investment provides comprehensive advisory services, including legal matters, investment structuring, and a network of service providers in the United States, without holding client funds.

This means support throughout the entire process: buying the houses, negotiating, hiring a manager, arranging bank loans, legal procedures for registration, tax advice for structuring a company in one of the two jurisdictions, etc.

For clients, the partner explains, “we leave them receiving rents.” Moreover, he emphasizes that clients do not need to set foot in the U.S. to acquire the asset or obtain financing, as there are banks specializing in loans to foreigners.

The Appeal of Section 8

EJE Investment’s approach is anchored in a particular mechanism that, according to Eskenazi, offers a more attractive investment profile: the Section 8 subsidy, a government program aimed at people who have difficulty paying the full rent.

“It’s much more profitable and much safer,” explains the professional, with less risk of non-payment since “you receive two payments: one from the tenant and another from the U.S. government.”

On average, the U.S. Treasury pays around 80% of the property’s rent, with the remaining 20% covered by the family. In some cases, this portion can reach 90% or even 100%, reducing the portion of cash flow at risk of non-payment by the tenant.

Additionally, Eskenazi notes that these are more profitable businesses since houses rented by families with Section 8 subsidies rent for 20% to 30% above a non-subsidized rent.

“If you buy one of the houses we’re always buying, at $440,000, you’ll rent it in the private market for around $2,400 or $2,500. But if you rent it to a family with Section 8, you’ll rent it for about $3,000,” illustrates the partner at EJE.

Regarding assets, the firm works with all types of residences, including houses, apartments, and townhouses, which are already built. The average age is between 10 and 15 years, he notes.

Although they don’t rule out evaluating opportunities in other markets, the Chilean firm is focusing on Miami for now, where they see many opportunities. “For now, we’re set for a good while in Florida,” says Eskenazi, adding that this area is more familiar to Latin American investors.

In the first half of the year, representatives from the real estate investment firm traveled to Kansas and found attractive investment opportunities, but people find it more challenging to venture into that city compared to Miami.

Expanding Access

“We’ve done extremely well, and we started less than a year ago. That’s because people who had bought something here in Chile realized that the rents aren’t very good,” explains Eskenazi. Part of the interest also comes from a segment that traditionally hasn’t had access to this sector: people outside the high-net-worth circle.

The largest portfolios in the Chilean market have been participating in this business for years with a different dynamic. “The institutional world and larger investors seek very large investment sizes,” explains EJE’s partner, adding that this justifies mobilizing the necessary resources to structure the investment.

EJE’s model, meanwhile, offers access to investors who can invest around 3,000 UF, equivalent to around $123,000. The cheapest property costs 6,000 UF ($246,000), but half covers the down payment, says Eskenazi.

In the range between that amount and the band of $30 million to $50 million, “there’s been a lot of interest,” says the professional, with higher-net-worth investors purchasing multiple assets.

“We started with the high-net-worth segment, but a lot of people who wouldn’t be considered high-net-worth in the Chilean industry have reached out,” adding that “you don’t need to be high-net-worth to buy a house.”

The backdrop is that “investment alternatives in Chile are quite limited now,” according to the executive. In this context, two trends work in favor of EJE’s model: the rise of alternative assets in Chile and the outward flow of local investments abroad.

For now, the firm plans to continue focusing on Chilean clients. In the future, when they seek new markets, they anticipate doing so alongside local partners familiar with specific legal frameworks and who can instill trust through local familiarity.

Origin Story

The search for different investment opportunities brought together the four partners who founded EJE Investment last year.

Eskenazi comes from the financial industry, where he is a familiar face. Alongside a 20-year career, which includes positions in Itaú Chile’s private banking, MCC Inversiones, Banco Penta, and the family office Monex Inversiones, according to his LinkedIn profile, the executive is a panelist on the economic radio program “Más que números.”

Seeing that the local Chilean market was “bad,” he began looking for foreign alternatives, leading him to meet brothers Rodrigo and Jack Jaime. Rodrigo has a 17-year real estate career, including the development and construction of six buildings for Chile’s largest senior housing operator, and a diploma in Real Estate Law from the Universidad de los Andes. Jack also has studies in this field and holds the CIPS (Certified International Property Specialist) designation from the National Association of Realtors in the U.S.

According to Eskenazi, the Jaime brothers had been investing in Section 8-related individual assets in Miami on their own for over 10 years when they met. Then, the idea arose to leverage their collective expertise into a service for others. “If the market is so large and deep, and we can buy a house every three to five years, why not do it for clients as well?” he illustrates.

While formulating what would eventually become EJE Investment, they concluded that a key ingredient was guiding investors through the entire process, “taking the client by the hand.” This led them to bring on a fourth partner to handle legal and tax advisory: attorney Patricio Escobar, a tax law specialist who led the Tax and International Transactions practice at EY in Miami—where he lives—and Boston.