UCITS Equity Funds vs. Their ETF Version: How to Properly Compare Returns?

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UCITS funds and ETF performance
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The growth of the ETF segment in the European fund market has raised a new question: Is a simple average sufficient to compare the sectoral performance of active versus passive UCITS equity funds? This is the question that the European Fund and Asset Management Association (EFAMA) has sought to answer in its latest edition of Market Insights, titled “The Sectoral Performance of Active and Passive UCITS: Is a Simple Measure Enough?”

Although past performance does not guarantee future returns, recent literature has shown that funds with better historical performance attract more capital inflows. In recent years, passive funds have gained popularity due to their lower costs and their tendency to report higher average net returns than active funds. “However, the debate over which group of funds delivers better performance is more complex than it seems,” EFAMA acknowledges.

According to EFAMA, fund performance is typically reported by showing a simple or weighted average of the gross or net returns of all funds within a given category. “This is generally measured within a broad fund category, such as all active or passive funds, or the total universe of funds. This approach does not take into account the diversity of funds in terms of issuers, types of securities, geographical exposure, currency, and industry sectors, and consequently, the diversity in fund performance,” EFAMA explains.

To address this, EFAMA analysts have compared the net performance of different categories of UCITS equity funds over the past ten years (2014–2023). The analysis shows that in 2023, the average net return of active UCITS equity funds was 13.1%, while that of passive UCITS equity funds reached 16.7%, “suggesting that passive UCITS outperformed,” EFAMA states in its report.

When analyzing the distribution of average annual net returns of active and passive UCITS equity funds in 2023, it is observed that two years ago, in 2023, many active funds achieved returns as strong as passive funds, while many passive funds had lower returns than active ones. According to EFAMA, “the observed returns depend on various fund characteristics, such as the industry sector or geographical exposure, regardless of whether a fund is active or passive.”

Key Findings

“Our analysis reveals significant differences in the average net performance of sectoral equity funds, with neither active nor passive funds consistently outperforming the other,” says Vera Jotanovic, Senior Economist at EFAMA.

Meanwhile, Bernard Delbecque, Senior Director at EFAMA, explains that given the high diversity among investment funds, “retail investors should seek professional advice before allocating their savings to specific equity funds, ensuring that their choices align with their individual investment goals and preferences.”

In this regard, one of the main conclusions reached is that “significant differences in net performance are observed among UCITS equity funds across various industry sectors, for both active and passive funds.”

Additionally, it is concluded that while passive equity funds generally outperform active equity funds when comparing net returns across the entire universe of equity funds, this pattern does not consistently hold across all sectors.

It is also extrapolated that some active funds outperform passive funds, and vice versa, depending on the industry sector, the year, and the time horizon, “demonstrating that no category consistently delivers superior performance,” EFAMA notes. Finally, the report warns that its findings remain robust even after accounting for return volatility.

U.S. Investors Expect Returns of 6.4% for This Year

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U.S. investors and expected returns
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According to Vanguard’s Investor Pulse survey, American investors continue to maintain a predominantly positive outlook for the new year, following a clearly optimistic 2024. In fact, they expect a market return of 6.4% in 2025 and 7.6% over 10 years, and they also indicate that the U.S. GDP will grow by 4%. These positive forecasts coexist with a certain sense of economic uncertainty, which translates into inflation expectations of 3.2% and a more moderate short-term GDP growth.

In the history of this survey, Vanguard notes that 2024 was the most optimistic year for investors. Throughout last year, investors’ return expectations for the next 12 months remained above 6%, reflecting a high and sustained level of optimism. Looking ahead to 2025, the survey shows that investors continue with this level of optimism and currently expect the market to deliver a 6.4% return. For the next 10 years, investors expect the average annual market return to be 7%.

“Investor optimism reached a new level of stability in 2024 and remained there throughout the year. However, it seems that investors have adjusted their short-term economic outlook in the last few months of 2024. This could reflect people’s concerns about growth resulting from the increasing complexity of the current economic environment,” notes Xiao Xu, an analyst at Vanguard Investment Strategy Group.

U.S. Economy

A striking conclusion is that investors’ expectations for average GDP growth in the U.S. over the next three years softened throughout 2024, despite the strong economic growth recorded during the year. According to the survey, although growth expectations remain in a fairly optimistic range, the rebound from the June 2022 low may have come to an end. Specifically, the GDP growth forecast for the next 10 years remains high at 4%.

Lastly, inflation expectations throughout 2024 hovered around 3%, a level above the Fed’s 2% policy target but consistent with overall inflation during the year, according to Vanguard. With a reported uptick in inflation in recent months, the median inflation expectation rose by 0.2% at the end of 2024, meaning investors expect inflation to be 3.2% in 2025.

“Investors remain cautiously optimistic about the stock market and the economy heading into 2025. They are bullish on growth but bearish on inflation,” says Andy Reed, head of Investor Behavior Analysis at Vanguard.

Do investors believe the Fed will be able to bring inflation down to its 2% target by the end of 2025? Since June 2024, we have asked survey participants to estimate the likelihood of different inflation scenarios in the U.S. over the next 12 months. In the second half of 2024, investors increasingly believed that inflation would remain above the 2% target, with their probability assessment rising from 65% in August to 70% in December.

In December 2024, investors estimated a 15% probability that inflation would exceed 6% within 12 months, significantly higher than the 9% probability they had projected back in August. Similar to professional forecasts, including Vanguard’s economic and market outlook, uncertainty surrounding potential trade policies may be a key factor on many investors’ minds.

Duration, Corporate Bonds, and High Yield: The View of Active Fixed Income Managers

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Corporate bonds and high-yield strategies
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According to Alessandro Tentori, CIO for Europe at AXA Investment Managers, two factors will drive fixed income performance this year: “On one hand, a relatively contained duration management approach, with a defensive stance on U.S. bonds and a hint of optimism on European bonds; and on the other hand, a strategy inclined toward taking credit risks, including high yield, especially in the U.S. market, supported by both macroeconomic analysis and corporate balance sheets.”

At Neuberger Berman, they believe that after several years in which fixed income markets were primarily driven by central bank policies, this year attention will likely shift more toward fiscal actions: the policy and revenue decisions of the new Trump administration, as well as those of other governments that are redirecting their priorities or facing financial pressures.

“Since the arrival of COVID-19, investors have largely focused on central banks for clues about fixed income performance—from the implementation of zero-rate policies and financial liquidity provisions to sustain the global economy during the pandemic, to the adjustments made to counter rising inflation in 2021 and 2022, and the widely anticipated start of the current monetary easing cycle. With inflation continuing to decline, we are entering a period of gradual central bank rate cuts,” explains Neuberger Berman’s market outlook report.

Key Investment Ideas

Experts at Wellington Management see this as a moment to take advantage of bond market divergence. They acknowledge that caution will set the tone for 2025, a year in which sovereign bond yields could help investors offset potential interest rate volatility. “High levels of nominal growth worldwide provide a starting point that should cushion the impact of a potential global economic slowdown. At this moment, we do not foresee a recession or, consequently, an increase in rating downgrades and defaults. We also believe that high-yield securities currently offer adequate compensation for investors amid rising volatility. However, the exception to this rule is the long end of the yield curve, where longer-maturity bonds are struggling due to supply dynamics, inflation expectations, and higher nominal growth,” they explain.

Tentori also notes that in 2025, investors should not only consider the effects of duration, credit, and currency risk but also the trajectory of monetary policy. “This has been a key factor in fixed income portfolio construction, particularly during the period of Quantitative Easing. It could once again prove crucial to performance in the near future, especially amid policy divergence between the ECB and the Federal Reserve,” he says.

Aegon AM focuses on asset-backed securities (ABS), arguing that in an environment driven by sentiment and fundamentals, ABS should be favored. “Falling interest rates are positive from a fundamental perspective, though they may reduce the coupon of floating-rate products like ABS. However, growth and inflation expectations have undergone significant shifts over the past two years, as have interest rate outlooks in many markets. ABS investors are less affected by changes in interest rate expectations since the carry of these instruments depends primarily on the short end of the yield curve. As curves remain inverted, the current yield is about 80–90 basis points higher than the yield to maturity,” they argue.

A segment that Felipe Villarroel, partner and portfolio manager at Vontobel, finds particularly attractive for portfolios this year is corporate credit. “One of the main reasons we believe credit will continue to outperform sovereign debt in the medium term is corporate fundamentals. Everyone knows that corporate bond spreads are tight, and we expect some volatility over the next 12 months. However, if the macroeconomic outlook remains reasonable (i.e., no recession) and corporate finances stay strong, we see no clear reason to expect a significant increase in defaults,” Villarroel argues.

The Strength of High Yield

After high-yield bonds outperformed investment-grade bonds in 2024, managers seem to continue favoring them. According to Bloomberg data, higher-yielding assets—such as high-yield bonds, leveraged loans, and emerging market hard currency debt—outperformed investment-grade bonds for the fourth consecutive year. Specifically, U.S. cash high-yield bonds posted an 8.19% return, compared to 1.25% for investment-grade bonds.

In this regard, analysts at Loomis Sayles, an affiliate of Natixis IM, note that the fundamental outlook remains solid, supported by a positive earnings environment and a resilient U.S. economy. “Currently, the high-yield risk premium is at the narrowest end of its historical range, even considering the generally positive economic backdrop. The good news is that we anticipate relatively moderate credit losses this year, with defaults likely to stay around 3%. Overall, we believe high-yield bonds will remain an attractive place for carry, though investors should temper their total return expectations,” they argue.

Mexico Would Face a Sharp Slowdown if the U.S. Imposes Tariffs

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Amid the likely implementation of tariffs by the United States and Mexico’s strong economic dependence on the world’s largest economy, Mexico will be the most affected economy in Latin America. The impact would be so significant that its GDP could grow only 0.6% in 2025, according to Moody’s Analytics, through its Director of Economic Analysis for Latin America, Alfredo Coutinho.

Moody’s Analytics indicates that the impact on the Mexican economy would mainly result from a slowdown in the volume of exports and imports in the coming months. This would be a natural consequence of a deterioration in Mexico’s trade relationship with its main commercial partner due to a protectionist economic policy like the one U.S. President Donald Trump plans to implement.

“As a result, we estimate that the Mexican economy would lose around one percentage point of growth in 2025. Therefore, we expect the country to grow only 0.6% this year. Without a doubt, it will be the most impacted country in Latin America,” said Coutinho.

Impact of Tariffs: A Multiplier Effect

The imposition of tariffs by Trump, scheduled for February 1, unless negotiations between the two nations prevent them, would have a multiplier effect on the Mexican economy, making their consequences even more significant.

“In addition to affecting foreign trade, tariffs could lead to higher inflation and currency depreciation, which in turn would force the central bank to tighten its monetary policy to counteract these effects,” said Coutinho.

Moreover, an additional economic impact of the tariff imposition would be on investment flows and the arrival of foreign companies to Mexico, a phenomenon known as nearshoring, due to rising production costs.

“The tariff and protectionist policy of the U.S. government will have an effect on investment flows resulting from the relocation of companies, not only from the United States but also from other parts of the world, particularly Asian companies looking to enter the Mexican market,” he explained.

Additionally, new investments were already under threat due to recent constitutional reforms in Mexico, particularly the Judicial Power reform and the elimination of autonomous agencies, which weaken the checks and balances in the country’s governance.

Latin America Will Hold Strong

Despite the risks and uncertainties posed by the new U.S. policies, Alfredo Coutinho acknowledged that the Latin American economy is in a good position to face 2025.

Coutinho highlighted that countries such as Peru, Brazil, Uruguay, Chile, Colombia, and Mexico led the advancement of the Latin American economy during 2024. “Mexico’s case was significant because it went through another year of slowdown, but this was not surprising due to the change in government,” he noted.

Moody’s Analytics forecasts that Latin America will grow 2.1% in 2025, with Argentina leading the region with an expected GDP growth of 3.9%—a very positive outlook considering the country’s long history of economic slowdowns and recessions over the past decades.

2024 Was a Year of Moderate Declines in Home Sales in Florida

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At the end of 2024, the Florida real estate market recorded a 1.9% decline in sales compared to 2023, according to Florida Realtors.

However, the real estate market continued to show an increase in new listings for both single-family homes and condos/townhouses, a rise in inventory levels for both property categories, and a stabilization of median prices for existing single-family homes, as well as condo and townhouse units, according to the latest housing data released by Florida Realtors®.

Closed sales of existing single-family homes across the state at the end of the year totaled 252,688, a 1.9% decrease compared to the end of 2023, according to data from the Florida Realtors research department, in collaboration with local real estate boards and associations.

Regarding existing townhouses, a total of 94,380 units were sold statewide in 2024, representing a 10.5% drop from 2023. Closed sales can occur 30 to 90 days or more after sales contracts are signed.

Modest Declines and Price Stability

“In general, Florida’s housing market in 2024 saw mostly modest declines in sales and little change in home prices,” said Brad O’Connor, Chief Economist at Florida Realtors.

Despite some fluctuations in mortgage rates, they remained high relative to recent years, added O’Connor.

Additionally, he noted that the most significant changes in 2024 were the widening performance gap between the single-family home market and the condo/townhouse market, as well as the overall increase in inventory levels.

December Sales Helped Year-End Transactions

O’Connor pointed out that December’s closed sales for single-family homes helped boost year-end transactions.

“This strong performance brought us to nearly 253,000 closed single-family home sales statewide for the year, which is just under 2% below the 2023 total of nearly 258,000 sales but also marks the lowest annual sales we have seen since 2014,” he said. “There was little variation across the state in 2024, as most counties saw only small year-over-year decreases,” he explained.

The statewide median sale price for existing single-family homes at year-end was $420,000, a 2.4% increase from the previous year. Meanwhile, the statewide median price for condos and townhouses was $320,000, reflecting a slight decline of 0.8% compared to the prior year. The median price represents the midpoint—half of the homes sold for more, and half sold for less.

December 2024 Market Trends

Although year-end sales were lower than in 2023, December showed stronger performance for single-family homes, with closed sales increasing 12.8% compared to December 2023. In contrast, condo and townhouse sales declined by only 0.5% year-over-year, according to Florida Realtors data.

The statewide median sale price for existing single-family homes in December was $415,000, reflecting a 1.2% increase from the previous year. Meanwhile, the statewide median price for condos and townhouses was $315,000, a 4.5% drop from the previous year’s figure.

Invesco Launches an Equal Weight U.S. Equity ETF with a Synthetic Structure

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Invesco and synthetic ETFs
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Invesco expands its product range with the launch of the Invesco S&P 500 Equal Weight Swap UCITS ETF, a fund designed to replicate the performance of the S&P 500 Equal Weight Index using a synthetic structure. According to the asset manager, the benchmark index is built from the S&P 500 Index, assigning the same weight to each company in the index instead of the standard method of weighting companies by market capitalization.

“This is the world’s first Equal Weight ETF with synthetic replication. For investors seeking exposure to the S&P 500 Equal Weight Index, Invesco now offers both physical and swap-based ETFs, allowing investors to choose their preferred replication method,” the firm stated.

According to Invesco, demand for Equal Weight strategies has continued to rise since Mega Cap stock prices hit multi-decade highs and began to appear overvalued. This trend has been particularly noticeable in U.S. equities, where S&P 500 Equal Weight ETFs have attracted more than $10 billion in net inflows since July 2024. The top 10 stocks in the S&P 500 Index still represent 37% of market capitalization, keeping concentration at historically high levels.

Unlike existing products in the market, the Invesco S&P 500 Equal Weight Swap UCITS ETF aims to replicate the performance of the S&P 500 Equal Weight Index through swap-based replication. The ETF will hold a basket of high-quality stocks and achieve index returns through swap agreements with major financial institutions. These swap counterparties will pay the ETF the index return, minus an agreed fee, in exchange for the returns of the ETF’s held stock basket.

Following this launch, Laure Peyranne, Head of ETFs Iberia, LatAm & US Offshore at Invesco, stated: “We are excited to start the new year with an ETF that combines two areas of Invesco’s expertise. We are a global leader in equal-weighted equity exposures, a rapidly expanding area whose demand surged significantly in 2024 and which we now offer through our solid and highly efficient swap-based structure, developed over 15 years ago. We have the world’s largest synthetic ETF, and now investors can benefit from the same advantages for their exposure to the S&P 500 Equal Weight.”

Peyranne also noted that when a Europe-domiciled ETF uses synthetic replication on certain core U.S. indices, it is not required to pay taxes on dividends received.

“This allows us to negotiate better terms with our swap counterparties, including receiving the gross return of the index, which is an advantage over a physically replicated ETF that typically pays a 15% to 30% tax on dividends. In the case of the S&P 500 Equal Weight, given current dividend levels, this translates to an approximate 20 basis point improvement,” she explained.

Invesco has committed to the swap-based replication model, maintaining an uninterrupted track record of over 15 years and accumulating more than $65 billion in assets across its swap-based ETF range. Its product lineup includes the Invesco S&P 500 UCITS ETF, which, at $39 billion, is the largest swap-based ETF in the world, according to the company.

This latest launch also expands the firm’s Equal Weight offering by adding the Invesco S&P 500 Equal Weight Swap UCITS ETF to its existing Invesco Nasdaq-100 Equal Weight UCITS ETF and Invesco MSCI World Equal Weight UCITS ETF.

USA (No) Go Home: Trump Returns to the White House and Americans to Their Offices

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Trump and economic policies
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The new U.S. president, Donald Trump, took office on January 20 and has since made his mark with key policy decisions. Among the various orders he has announced and signed is the directive for federal workers to end remote work.

“The heads of all executive branch departments and agencies must, as soon as possible, take all necessary steps to end telework arrangements and require employees to return to in-person work at their designated locations full-time, provided that department and agency heads make exemptions as they deem necessary,” Trump stated in a memorandum published in the local press.

In the fiscal year 2023, 43% of federal civilian workers teleworked “routinely or situationally,” according to the Status of Telework in the Federal Government Report to Congress from December, prepared by the U.S. Office of Personnel Management (OPM).

While Trump‘s directive may take longer than expected to fully implement due to practical or financial reasons, some companies have already begun taking the initiative.

For example, JP Morgan announced to its employees that they must return to the office five days a week starting in March, ending a hybrid work-from-home policy that was implemented during the pandemic.

Some office locations still lack the capacity to accommodate a full return of all employees, and the bank will confirm where it is feasible by the end of the month, according to a memo confirming a Bloomberg News report from mid-January.

“We know that some of you prefer a hybrid schedule, and we respectfully understand that not everyone will agree with this decision,” committee members said in the memo, as cited by AdvisorHub. However, the company argued that they believe “this is the best way to run the business.”

More than half of the bank’s nearly 300,000 employees already work in the office five days a week. For those affected by the new policy, JP Morgan said it would provide at least 30 days’ notice before requiring a full-time return. The option to work from home “based on life events” will remain available, according to the bank’s communication.

Last year, Amazon.com Inc. ordered its employees to return to the office five days a week starting in January, but the company had to delay that timeline for thousands of workers due to space constraints in some cities. Other companies have had to remind employees to comply with in-office requirements.

Elon Musk and Vivek Ramaswamy, who were at the time nominated to lead Trump‘s newly created Department of Government Efficiency, pointed out that having a full-time return-to-office mandate was an invitation for many to resign.

“Requiring federal employees to be in the office five days a week would trigger a wave of voluntary departures that we welcome,” they wrote in The Wall Street Journal, as cited by CNN.

Insigneo Welcomes Alejandro Rubinstein as Senior Vice President in Miami

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Insigneo and Alejandro Rubinstein
Photo courtesyAlejandro Rubinstein & Jose Salazar

Alejandro Rubinstein has joined Insigneo as Senior Vice President. Based in the Brickell office in Miami, he will focus on providing advisory and brokerage services to clients in the United States, Chile, Colombia, and Peru, according to a statement issued by Insigneo,.

Rubinstein, who brings more than 25 years of experience in international markets, comes from Merrill Lynch. His expertise in global financial services and focus on customized solutions for clients aligns with the company’s strategy, the press release said.

“I’m excited to be part of Insigneo’s innovative culture, where expertise and creativity combine to deliver outstanding client experiences,” said Rubinstein.

As Senior Vice President, he will leverage Insigneo’s platform of resources and services to expand his business and develop financial strategies tailored to his clients’ needs, the firm adds.

“We are pleased to have Alex join the Insigneo team,” said Jose Salazar, Market Head of Miami. “His experience in international markets complements our robust platform of services and resources. We look forward to growing together and developing his business.”

Ida Liu Announces Her Departure from Citi Private Banking

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Ida Liu and Citi Private Banking
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Citi will lose its Global Head of Private Banking, Ida Liu, as the executive announced in a LinkedIn post.

“After nearly two decades at Citi, including the privilege of serving as Global Head of Citi Private Bank, I have made the decision to leave the firm and embark on the next chapter of my professional journey,” Liu posted on LinkedIn.

The expert, with more than 25 years of experience, joined Citi in 2007, where she held various positions until her most recent role as Global Head of Private Banking, according to her LinkedIn profile.

“Great careers are defined by embracing new challenges and opportunities, and this is the right time to leverage my global experience, leadership expertise, and passion for growth in bold and exciting new ways,” added the executive of the U.S. bank.

In addition to Citi, Liu worked at Merrill Lynch (1999-2004) and Vivienne Tam (2004-2007).

BlackRock Launched a New Bitcoin ETF on Cboe Canada

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BlackRock y Bitcoin ETF
CC-BY-SA-2.0, FlickrPhoto: ankakay . Moneda Asset Management Announces US$100 Million Investment from CPPIB Credit Investments Inc.

The ETF industry started 2025 on the right foot. Among the standout news at the beginning of the year is that asset manager BlackRock launched a new Bitcoin exchange-traded fund (ETF) on Cboe Canada, according to information from the Canadian stock exchange released earlier this week. The announcement was confirmed in a statement issued by BlackRock itself.

This Canadian fund, registered as the iShares Bitcoin ETF, will trade under the same symbol, IBIT, as BlackRock’s U.S. product. Additionally, shares denominated in U.S. dollars will trade under the symbol IBIT.U, according to the stock exchange.

“The iShares fund offers Canadian investors a way to gain exposure to Bitcoin while helping eliminate the operational and custodial complexities of holding Bitcoin directly,” said Helen Hayes, Head of iShares Canada at BlackRock.

The ETF is designed to provide Canadian investors access to BlackRock’s primary U.S. spot Bitcoin fund, iShares Bitcoin Trust (IBIT). It will invest all or most of its assets in IBIT, according to a statement from Cboe Canada.

Likewise, this fund will join a dozen other Bitcoin ETFs already trading on Canadian exchanges, according to sources at Nasdaq.

According to figures from BlackRock, its U.S. IBIT ETF has become the world’s most popular Bitcoin fund. Since its launch in January 2024, this fund has recorded over $37 billion in net inflows.

As recently as November, U.S. Bitcoin ETFs surpassed $100 billion in net assets for the first time, according to data from Bloomberg Intelligence. It is expected that Bitcoin ETFs will attract approximately $48 billion in net inflows this year.