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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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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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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.

Brazil, Mexico, Argentina, Chile, and Global Markets: Initial Reactions to Trump’s Victory

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As dictated by the unpredictability of these times, the U.S. elections had an outcome that almost no one expected: a clear victory for one party and an elected president within 24 hours of voting. The U.S. stock market and Bitcoin surged, while Latin American currencies and the price of gold fell.

Republican Donald Trump will be the President of the United States for the second time. For the new term, analysts anticipate tax cuts (as per the campaign promise), an increase in the public deficit (a consequence of the former), a likely rise in inflation, higher interest rates, and, if Trump’s proposed tariff increases are enacted, greater protectionism.

In Latin America, the main impact of Trump’s victory would be a dollar appreciation and the resulting devaluation of local currencies.

Mexico, the country that could be most affected

Mexico’s President Claudia Sheinbaum congratulated the U.S. President-elect and sent a reassuring message to her fellow citizens: “There is no reason for concern… there will be a good relationship.”

The Mexican Stock Exchange (BMV), which initially opened with a sharp negative adjustment of 2.65%, breaching the 50,000-point support level, has recovered and by the afternoon was trading near the previous close (down 0.03%, standing at 50,816 points); meanwhile, the peso stood at 20.25 units per dollar. Analysts attribute the recovery in Mexican markets, in part, to Wall Street’s momentum.

During his campaign, Trump promised to impose tariffs ranging from 25% to 100% to pressure the Mexican government to curb migration and drug flow across the border. “If this threat materializes, it would severely impact Mexico’s exports, investment in the country, job creation, and economic growth,” said Gabriela Siller Pagaza, Head of Analysis at Banco Base, in a morning report to clients.

“However, it’s important to remember that Trump doesn’t always follow through on his threats, and the market knows this. Therefore, the peso’s depreciation the day after the elections (2.59%) is less than what was seen when he won his first term (8.30% in 2016). This suggests that the market sees risks but considers these threats as part of his negotiation strategy, which he may not necessarily fulfill to the letter,” the expert added.

In Brazil, the Ibovespa drops, and Google toys with investor nerves

The re-election of Donald Trump triggered an immediate 1.3% drop in the Ibovespa, Brazil’s main stock index, although by Wednesday afternoon, losses had moderated to 0.65%.

According to Bradesco, Trump’s victory and the expectation of higher global interest rates add uncertainty to Brazilian public debt and put pressure on the real. “This is why the fiscal adjustment package becomes even more important,” explains Fernando Honorato, Chief Economist at Bradesco.

Despite the initial reaction of the stock market, the dollar rose by 0.5%, reaching 5.78 reais. However, many Brazilians were misled by an incorrect exchange rate on Google, which showed the dollar rising to 6.19 reais.

This rate would have been a historic high if not for one detail: Google, which relies on data from Morningstar, showed an incorrect figure for several hours before correcting it. The tech company later informed the press that the cause of the error was unknown.

Timing is everything, and Trump’s re-election coincides with a critical day for the Brazilian market, as the government prepares to unveil a new spending cut program. Market reactions could intensify if the proposal fails to meet investors’ expectations. The government aims to reach a zero deficit next year.

Lula’s criticism of Trump ages poorly. The Brazilian President, previously known for his diplomatic pragmatism, quickly congratulated the U.S. President-elect, praising his victory.

“Democracy is the voice of the people and must always be respected. The world needs dialogue and joint efforts to achieve more peace, development, and prosperity,” said Lula, who recently compared Trump to a Nazi and publicly supported Kamala Harris in recent weeks.

Milei, exultant

Argentine President Javier Milei has always been direct in his support for Trump and expressed satisfaction with the Republican’s victory. Argentina is outside the international financial system, and the electoral change’s consequences could involve greater openness from the IMF in ongoing debt negotiations.

“For Argentina, the immediate impact should be marginal, given that government policy will remain unchanged. Dollar-denominated bond prices should be dragged down somewhat by high-yield, where we should see downward pressure, but they may benefit from the perception of a ‘Trump trade.’ A weaker currency and lower commodity prices are slightly negative factors, but the impact so far has been mild, and bonds should be more than offset by Milei’s affinity with President-elect Trump, which could be useful in future negotiations with the IMF, increasing the chances of more support,” states Max Capital in its daily analysis.

Javier Timerman, Managing Partner of Adcap Grupo Financiero, stated, “Donald Trump’s policies are not favorable for Argentina because they focus on protectionism, tax cuts, and the worsening of the fiscal deficit, which will lead to higher interest rates because the Federal Reserve will become much more restrictive regarding the possibility of an overheated economy and the return of inflation. In a high-interest rate and protectionist scenario, we will see a rise in the dollar globally, a drop in commodities due to the rising dollar, and that will affect Argentina.”

“On the positive side, we could say that the Trump-Milei relationship may unlock some type of disbursement, but it is also necessary to consider that the U.S. will likely contribute less to multilateralism, and surely the multilateral organizations from which Argentina needs funding will be underfunded,” added Timerman.

Chilean stock market rises

The Trump effect was felt in financial markets from the session’s early hours. The dollar jumped initially, climbing over 20 pesos—equivalent to a more than 2% appreciation compared to the previous close— reaching over 976 pesos, although the effect moderated as the hours passed. Still, the exchange rate closed the day at 960 pesos per dollar, representing a daily increase of 0.4%.

The local stock market also rose. Although the first few minutes of trading on the Santiago Stock Exchange saw a slight drop, the S&P IPSA benchmark closed with a 0.83% expansion, echoing global market growth and reaching near 6,580 points.

Among the most traded stocks of the day, LATAM Airlines rose by 1.7% and Cencosud by 1.5%, along with advances in Bci, Banco de Chile, and Santander, which climbed by 2.2%, 2.1%, and 1.8%, respectively. The largest gains, however, were in international platform shares, led by double-digit jumps in Wells Fargo and Bank of America, as well as in ETFs like Kraneshares’ CSI China Internet and iShares Bitcoin Trust.

General market notes

This Wednesday, the Dow Jones saw its largest gain in two years, reflecting enthusiasm for both Trump’s victory and the rapid resolution of the electoral contest.

One of the initial market shocks was the drop in gold, the asset that, globally, had dominated gains in 2024: “Gold sharply declined following Trump’s victory in the United States, which caused the dollar to soar. Remember that the dollar and gold typically have an inverse correlation, putting pressure on gold. At the same time, political uncertainty eases somewhat now that we know who the next U.S. president will be, reducing the appeal of gold as a safe-haven asset,” said Alexander Londoño, Market Analyst at ActivTrades.

Bitcoin’s all-time high: “As the preliminary results pointed to Donald Trump as the winner of the U.S. presidential election in the early hours of November 5, Bitcoin, the undisputed benchmark of the global crypto market, reached a new all-time high, surpassing $75,350,” according to the firm Bitso.

According to the New York Times, crypto companies supported Trump with about $130 million in campaign donations: “It paid off,” says the newspaper.

One of the big winners on election day was Elon Musk, one of Donald Trump’s most prominent supporters. On Wednesday, Tesla’s stock surged by up to 15%.

A ‘Co-Pilot’ for the Fed and Other Possible Future Applications of AI

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AI's future applications in financial markets

Is the current enthusiasm for the impact of artificial intelligence (AI) justified? According to Alison Porter, portfolio manager at Janus Henderson Investors, the question should not focus solely on how AI may influence the business model of technology companies but rather on a broader view that transcends the stock markets themselves: “Technology is not just an economic driver. It is the center of the economy and will drive major changes in the economy and politics,” she stated.

Porter was one of the speakers at the Madrid Knowledge Exchange forum, recently offered by Janus Henderson to its clients. During her presentation, she emphasized the importance for managers and other professional investors to “understand the anatomy of technology,” as she believes that a deep knowledge will be indispensable not only for determining asset allocation and portfolio risk assessment but also “for reflecting how they think about the global economy.”

How to Approach the Emergence of AI?

The expert explained that the explosion of AI has inaugurated the fourth major wave of technological innovation in history. Although she considers that we are still in the early stages of this wave, she makes several key observations about where we might be headed. The first comes from a historical perspective, noting that previous waves of innovation have had two common patterns: they emerged after periods of economic shock, as a way to find new solutions to past problems (Porter places the beginnings of this fourth wave in the 2020 pandemic) and result in technologies that are cheaper, faster, and have greater reach across different layers of the economy, with a predominantly deflationary impact in the long term.

The second observation relates to how Porter believes investors should approach investing in AI, as she considers that its future evolution is tied to three factors: data, demographics, and productivity. Regarding data, Porter emphasized two aspects: data quality and the ability to interpret it. She presented an example of effective AI use with the possibility of a “co-pilot (virtual assistant) for the Fed,” which would help the central bank interpret unemployment data, as these are estimates. “The data we depend on must be reliable. The better the data, the better the information derived from it,” Porter insisted, concluding: “AI could help the Fed achieve a soft landing.”

On the topic of demographics, the portfolio manager highlighted the progressive aging of the population in most nations around the world, not only in developed countries but also in emerging markets like China or Brazil over the next 20 years. Porter pointed out that it is estimated that by 2030, 75,000 jobs will be lost in Japan due to population aging. The expert notes that the gradual increase in the aging rate and the dependency ratio will have implications for “social security, healthcare systems, and even debt issuance.” Therefore, she asserts that AI can help improve productivity in countries exposed to this mega trend. Consequently, Porter believes that a key aspect investors should focus on to benefit from the development of AI is “identifying where new capital is being allocated in each wave of technology.”

EBW Capital and AIS Financial Group Sign a Strategic Alliance for Latin America and US Offshore

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EBW Capital and AIS Financial form strategic alliance

EBW Capital, a London-based placement agent, and AIS Financial Group, an independent private boutique with offices in Latin America and Central America, have signed a strategic cooperation agreement to enhance their presence with investors in Latin America.

The agreement will focus primarily on investors from Uruguay, Argentina, Chile, Panama, and US Offshore, according to information accessed by Funds Society.

“We are delighted to have signed this strategic partnership with EBW, helping to further extend their reach into Latin America. We are confident that the region will turn towards these assets in the near future, and with our vast network of clients and EBW’s extensive experience in alternatives, we believe this partnership combines the best of both worlds for our investors: excellent service and the most attractive range of products,” commented Juan Ballester Molina, Director of Funds at AIS Financial Group.

EBW Capital works with leading global asset managers covering institutional investors in Latin America, with a focus on the real estate and credit sectors.

“We are excited to have the opportunity to collaborate with AIS Financial Group and look forward to jointly expanding our footprint in Latin America and US Offshore,” commented Frank Pauls, Senior Partner at EBW.

Monogamy Prevails in the Relationships Between Clients and Advisors, but There Are Also Third Parties Causing Discord

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Monogamy in client-advisor relationships

Breaking up with a financial advisor can be difficult for many investors, much like ending a relationship, despite the fact that legally making this change is straightforward and often facilitated by the new advisor.

The fear or intimidation surrounding the prospect of a change, along with uncertainty about whether better options exist, are key factors fueling “investor inertia,” concludes the research by Dynasty Connect shared by the financial advisory network.

The annual survey of high-net-worth investor sentiment was conducted with 1,000 investors who currently work with financial advisors, each with a minimum of $500,000 in assets under management.

Of those interviewed between July 5 and July 15, 2024, 29% began working with their financial advisors within the past four years, and 27% within the past nine.

However, just over half (52%) of respondents have only ever worked with one advisor, 25% have voluntarily changed advisors once, and only 17% have done so twice.

While the main reasons for changing advisors are no surprise—such as investment performance, the advisor’s retirement, or company relocation—it is noteworthy that 30% of respondents cited “meeting a new advisor who impressed them more” as inspiration to start anew.

Personality, fit, fees and fee structure, and lack of contact with their advisor were other key drivers for change, the study adds.

“The majority of people have worked with one or two financial advisors at most, making it difficult to know when to switch,” said Tim Oden, Chief Growth Officer at Dynasty Financial Partners.

Oden added that if investors “are not receiving the attention or results they expected, they owe it to themselves and their family’s future to seriously consider other options.”

Overall, the Dynasty Connect survey revealed that younger clients and those with fewer investable assets are more likely to change advisors.

Relationships Need Care Like Plants

In general, 59% of respondents cite an advisor’s ability to understand their specific needs as key to finding a suitable one, while a relationship breakdown is often due to disappointment in performance or service.

Methods for changing financial advisors reflect generational and technological shifts. Younger investors are more likely to consult databases and online search tools, while older clients often rely on referrals from other investors.

Are You Ready for a Relationship?

While 45% of respondents cite tax planning as a service offered by their financial advisor, only 28% value that feature. The survey illustrates that inconsistencies in valued services mean personalized offerings are key to the long-term success of the client-advisor relationship.

The vast majority of Dynasty Connect Survey respondents value financial planning above all, while the importance of other aspects of their client/advisor relationship depends on their unique needs or circumstances.

Sometimes Being Single Can Be an Option

Overall, surveyed investors expressed confidence that their advisors could support them through key life transitions; however, the rating of “great confidence” decreased in portfolio structuring and market events.

48% of respondents mention potential conflicts of interest due to the advisor’s firm earning money directly from the investment products in which their money is invested. According to the results, younger clients are more likely to distinguish potential conflicts of interest.

Finally, the relationship with children can be more challenging. 41% of respondents’ adult children do not work with their financial advisor, and 34% are likely not to do so in the future.

“The multigenerational opportunity is evident; however, adult children are clearly hesitant to work with the same advisor as their parents,” the research report concludes.

Dynasty Connect is an outsourced front office and growth engine for firms in the Dynasty network, dedicated to supporting their organic and inorganic growth efforts by identifying, qualifying, nurturing, and referring high-quality leads, both end clients and advisors interested in joining firms in the Dynasty network, according to company information.

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.