UCITS Funds See 10 Billion Net Outflows While AIF Funds’ Net Sales Increase in June

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The European Fund and Asset Management Association (EFAMA) in its latest Investment Funds Industry Fact Sheet, which provides net sales of UCITS and non-UCITS for June 2016.  28 associations representing more than 99 percent of total UCITS and AIF assets provided us with net sales data, highlights that:

  • Net inflows into UCITS and AIF totaled EUR 14 billion, compared to EUR 52 billion in May.
  • UCITS experienced net outflows of EUR 10 billion, down from net inflows of EUR 41 billion in May. 

 

  • Long-term UCITS (UCITS excluding money market funds) recorded net outflows of EUR 10 billion, compared to net inflows of EUR 24 billion in May.  Equity funds experienced a turnaround in net flows, from net inflows of EUR 3 billion in May to net outflows of EUR 21 billion in June.  Net inflows into bond funds decreased from EUR 14 billion in May to EUR 8 billion in June.  Multi-asset funds also recorded lower net sales in June: EUR 2 billion compared to EUR 5 billion in May.
  • UCITS money market funds experienced net outflows of 0.5 billion in June, compared to net inflows of EUR 17 billion in May.  Cyclical end-of-quarter withdrawals of money market funds explain this development.
  • AIF recorded net inflows of EUR 24 billion, compared to EUR 11 billion in May, with all AIF categories recording the same or higher levels of net sales.
  • Net assets of UCITS decreased by 1.9% to EUR 8,135 billion in June, and AIF net assets decreased by 0.1% to EUR 5,224 billion.  Overall, total net assets of European investment funds decreased by 1.2% in June to stand at EUR 13,358 billion at the end of the month. 

Bernard Delbecque, Senior director for Economics and Research at EFAMA commented: “UCITS equity funds suffered a severe drop in net sales in June due to the uncertainty created by the UK’s Brexit vote.  Interestingly, AIF equity funds and practically all AIF categories saw their net sales increase in June.”

 

PIMCO: Disruptive Regulation – A Secular Investment Opportunity

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PIMCO: la regulación disruptiva supone una oportunidad de inversión secular
CC-BY-SA-2.0, FlickrPhoto: RufusGefangenen, Flickr, Creative Commons. PIMCO: Disruptive Regulation - A Secular Investment Opportunity

“Reforms may create opportunities to capture economic profits being ceded by banks” say Christian Stracke, global head of the credit research and Tom Collier, product manager – alternative investment strategies at PIMCO, in their latest insight.

It’s been nearly a decade since the global financial crisis prompted an onslaught of regulations intended to abolish excessive risk-taking and make the financial system safer, they remember. “Yet the implementation of reforms – and their disruptive effect on financial business models – will peak only over the next few years.” They state.

As Dodd-Frank and Basel regulations come into force and a further wave of regulatory reform is announced, they believe banks will exit more non-core businesses, specific funding gaps will become more acute and dislocations between public and private markets will become more frequent. “Each will create investment opportunities for less constrained and patient capital to capture economic profits being ceded by banks.”

The experts highlight that banks are facing higher capital requirements, higher loss provisioning and higher compliance costs – pressures that they believe will prompt banks to exit more non-core businesses. “The result, we believe, will be more acute funding gaps and more frequent dislocations between public and private markets – all of which will create investment opportunities for less constrained and more patient capital.”

You can read the full article in the following link.

BlackRock’s Funds are Now Allowed to Lend Money to Each Other

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The U.S. Securities and Exchange Commission has allowed BlackRock‘s mutual funds and money-market funds to borrow up to a third of their assets in total – or up to 10 percent of assets without posting collateral.

BlackRock’s “InterFund Program” is an internal program in which funds with excess client redemptions could temporarily borrow money from other BlackRock funds with extra cash.

Other firms such as Vanguard Group and Fidelity Investments have already been allowed to use similar schemes. Besides providing more flexibility, the firm explains that borrowing through the program could be less expensive than using credit lines for the borrowing fund and give higher returns than money market instruments to the lending fund.

In its June application, BlackRock noted that “At any particular time, those Funds with uninvested cash may, in effect, lend money to banks or other entities by entering into repurchase agreements or purchasing other short-term money market instruments.  At the same time, other Funds may need to borrow money from the same or similar banks for temporary purposes, to cover unanticipated cash shortfalls such as a trade “fail” or for other temporary purposes.” Specifying that “certain Funds may borrow for investment purposes; however, such Funds will not borrow from the InterFund Program for the purposes of leverage.”

Lord Abbett also filed an application for interfund lending in 2015.

Steve Georgala, CEO at Maitland: “Growing Demand From our LatAm Client Base Has Provided an Opportunity for us to Open Up our First LatAm Office”

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With four decades of experience and a presence in 12 countries, Maitland is familiar with the global advisory and fund management needs of private and institutional clients. As its business dedicated to Latin American clients grew, the need to provide a regional base for the team composed by Benjamin Reid, Head of Business Development and Client Management for Latin America, and the Client Relationship Managers Camila Saraiva and Pedro Olmo, became apparent.

In May, the company opened its first office in Miami, a perfect candidate as headquarters for its Latin American business, as many of Maitland’s Latin American clients have some kind of presence or connection with that city.

Next 15th of September, there will be a cocktail reception to celebrate the opening of the new office and give an opportunity to meet the team behind Maitland. The event will be attended by Steve Georgala, the group’s CEO, who will travel from London to attend the evening.

Steve joined Maitland in 1985 in Luxembourg, after completing his law studies in South Africa and starting his career with Webber Wentzel law firm in Johannesburg. In December 1996, he moved to the Paris office, where he remained until he moved to the London office in 2009. Since 1987, he has been a partner of the firm, and the CEO since 2006. In an exclusive interview with Funds Society, Steve talks about the challenges of the industry and how to prepare to face them.

What sets Maitland apart from other providers in your space?

Firstly, Maitland is a private company owned and run by management and staff – making us truly independent. We are not controlled by any parent and equally we do not have any controlling interest in a bank or prime brokerage business. Secondly, all of our many global operating companies are integrated to provide a single operating platform. This ‘one-firm’ approach solution across all of our service lines permits us to deliver comprehensive solutions to our diverse client base.

Forty years ago, we started out as a small law firm in Luxembourg advising international private, corporate and fund clients. Our growth over the decades has been largely organic – accommodating for our clients’ developing needs. For example, many of our high-net-worth private client relationships are with directors of corporates for which we did structuring work, who approached us to assist them in their personal capacity.

We’ve kept our business tightly aligned with client needs so that any acquisition made has been carefully considered from a strategic and resources point of view, rather than growth for growth’s sake.

Second, our people set us apart. We are a family of over 1,300 employees globally, representing legal, accounting, administration and technology professionals throughout multiple jurisdictions. Some who have been with Maitland from the start are still serving the same clients or later generations of early clients.

In the case of the Maitland LatAm team, Benjamin Reid has been with Maitland for almost four years serving our Brazilian and LatAm client base – both private client and institutional. Prior to joining Maitland, Benjamin was involved in the set-up and roll-out of LatAm desks at BOA Merrill Lynch, RBC and HSBC. At Maitland, Benjamin has built out the LatAm business methodically; hiring native Brazilians Camila Saraiva and Pedro Olmo who as a result of their legal backgrounds fully understand our clients’ offshore multi-jurisdictional requirements.

We’ve kept our business tightly aligned with client needs so that any acquisition made has been carefully considered from a strategic and resources point of view, rather than growth for growth’s sake.

Tell me more, why now? Why did you open an office in Miami in 2016?

As the LatAm business grew it soon became obvious that Benjamin needed to relocate to be closer to our clients. Many of our LatAm clients have some form of presence in or connection with Miami.

Benjamin, Pedro and Camila have made sure our offering is properly tailored and relevant to the LatAm market. Take for example our institutional and private client accounting product for companies and funds which was developed specifically using local knowledge. Our teams across the globe (USA, Canada, London, Luxembourg and South Africa) understand the cultural differences and nuances that make LatAm clients different to those from North America, Europe and Africa.

As we have built the products needed by our clients, firmed up staffing needs and shored up our operational platforms, 2016 proved to be the perfect time to launch our presence in this part of the globe.

What are the challenges and how are you prepared to handle them?

Challenges we face are the same as the rest of the industry – stricter and frequent regulatory changes, the need to keep up to speed with technology that supports such regulatory changes and ensuring we are always ahead of the curve. As a mid-size provider with a niche advisory and fund administration focus, we have made our mark by investing in best-in-breed technologies and top talent to provide tailored solutions and swift turn-around times.

Two challenges that became an opportunity to apply our knowledge and expertise are FATCA and CRS (the OECD’s Common Reporting Standard). Our comprehensive FATCA offering encompasses responsibilities starting with our advisory team recommending the most favorable FATCA registration strategy through to tax authority reporting. Working closely with clients to identify their individual and unique situations is what Maitland does best. For example, certain structures may give rise to surprising or unnecessary reporting. We help identify the correct classifications that may impact the way in which and by whom entities are managed or operate. This in turn can impact the reporting which upon review may make room for choices that also address the client’s legitimate concerns about their privacy. Our comprehensive CRS solution is similar to the FATCA solution.

How do you see Maitland fitting in and what are your long-term goals?

Our mission is to be the go-to firm for clients who want a partner that has firm roots, a strong understanding of LatAm and provides a conduit to tailored solutions and multi-jurisdictional offerings through Cayman, BVI and Luxembourg, for example. 

Our long-term goals have not changed over 40 years – we embrace complex situations to provide simple solutions. We work as teams to build long-term relationships with our clients.

With the Maitland team now here in Miami to serve clients directly and provide them with access to our worldwide, ‘one-firm’ expertise, we are happy to call Miami another corner of our home.

Eric Varvel appointed President and CEO of Credit Suisse Holdings USA

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Eric Varvel appointed President and CEO of Credit Suisse Holdings USA
Foto: Harvey Barrison . Credit Suisse nombra a Eric Varvel presidente y CEO de su operación en Estados Unidos

Credit Suisse Group announced recently that Eric Varvel is appointed President and CEO of Credit Suisse Holdings (USA), in addition to his current responsibilities as Global Head of Asset Management. The bank also announced that Tim O’Hara will be succeeded by Brian Chin, currently Co-Head of Credit, as CEO of Global Markets. Brian Chin will join the Executive Board of Credit Suisse Group AG. These changes are effective immediately.

Urs Rohner, Chairman of the Board of Credit Suisse said: “Eric Varvel will provide critical continuity at Credit Suisse Holdings (USA), with his extensive background in investment banking and his proven leadership skills in various key roles as a former member of the Executive Board.”

Tidjane Thiam, CEO of Credit Suisse said: “I welcome Eric Varvel to the role of President and CEO of Credit Suisse Holdings (USA). Eric is one of the firm’s most accomplished professionals, adding considerable experience and expertise to the role. Over his 25-year career at Credit Suisse, Eric has held a number of senior positions including: CEO of Asia Pacific, CEO of the Investment Bank, and CEO of Europe, Middle East and Africa. He also served on the Executive Board for six years from February 2008 to October 2014. Eric will continue to lead our Global Asset Management activities in addition to this new role. I look to Eric to provide our bank with leadership, insight, governance and accountability as we develop our franchise in the United States, maximize its potential and deliver significant value to our clients.”

“I am confident that these management changes that I have proposed and that have been approved by the Board of Directors of Credit Suisse Group AG will drive a continued improvement in the performance of our bank.”

 

Two Distinct Ways To Diversify With European Equities

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Dos formas distintas de diversificar con renta variable europea
CC-BY-SA-2.0, FlickrPhoto: Carl Aufrett (left), Emmanuel Bourdeix (centre) e Isaac Chebar (rigth), portfolio managers at Natixis. Two Distinct Ways To Diversify With European Equities

Growth and portfolio diversification potential – along with attractive valuations, euro vs. US dollar and accommodative monetary policy – are reasons why investors may find European equities attractive. Consider these two distinct equity approaches provided by Natixis Global Asset Management.

High-conviction European equity investing

Award-winning European specialist boutique DNCA Finance has followed a consistent investment process based on fundamental active management for more than 15 years. Their philosophy remains focused on high-conviction European securities with an eye toward long-term risk-adjusted returns.

Seeking value across European companies

European Value team manager Isaac Chebar believes DNCA’s rigorous stock selection through fundamental analysis across all market capitalizations is a key differentiator for the firm. 

“Consistency in the investment process throughout various market environments, in-depth analysis and special attention to volatility control is integral to our success,” said Chebar. Being benchmark agnostic and focused on mid- and long-term performance is critical, too.

Growth momentum in European equities

European Growth team manager Carl Aufrett thinks European equities remain one of the most attractive asset classes. “We take a highly active approach to find attractive growth potential among quality companies. Most of the companies we follow, we believe, have little or no correlation to the European economic cycle and tend to follow more independent growth trends,” said Auffret. These companies are European, but they generate a large amount of their sales internationally.

More information on DNCA’s high-conviction value and growth approaches can be accessed at www.ngam.natixis.com.

Low volatility European equity investing

Seeyond employs an active model-driven approach that seeks to capitalize on risk to create value.  Its minimum variance approach is an investment style designed to provide equity market exposure but with less risk than the overall market by investing in low volatility stocks.

“We believe uncertain market conditions are driving a growing demand for minimum variance equity strategies,” said Emmanuel Bourdeix, head of Seeyond and Co-CIO at Natixis Asset Management. These minimum variance strategies focus on investing in low-volatility stocks that have little correlation to each other. They typically therefore have lower volatility than the market capitalization-weighted indices used by many investors. “I think many investors would be surprised that the most volatile stocks have typically underperformed the least volatile stocks over time,” said Bourdeix.

Low volatility doesn’t mean minimal returns

According to traditional portfolio theory, taking less risk by purchasing low-volatility stocks should reduce performance. But Seeyond’s research shows that low-volatility stocks have generated about the same long-term returns as the main indices, but with far less volatility. Why is that? “We believe this anomaly is directly linked to the bias in the financial behavior of equity investors. They tend to overpay for the ’glamour stocks,’ overpaying for discovering the next big tech name or rising star, at the expense of the so-called ’boring stocks.’ And typically, over a full market cycle, these low-volatility stocks tend to outperform the overall equity market.”

With volatility capable of rising at any time, it’s important to remember that there are ways to make the equity component of portfolios more resilient.

For more on Seeyond’s low-volatility approach to European equity investing, go to www.ngam.natixis.com.

*Seeyond is a brand of Natixis Asset Management, operated in the U.S. through Natixis Asset Management U.S., LLC.

Risks: Equity securities are volatile and can decline significantly in response to broad market and economic conditions.

In Latin America: This material is provided by NGAM S.A., a Luxembourg management company that is authorized by the Commission de Surveillance du Secteur Financier (CSSF) and is incorporated under Luxembourg laws and registered under n. B 115843. Registered office of NGAM S.A.: 2 rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. The above referenced entities are business development units of Natixis Global Asset Management, the holding company of a diverse line-up of specialized investment management and distribution entities worldwide. The investment management subsidiaries of Natixis Global Asset Management conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions.

In the United States: Provided by NGAM Distribution, L.P., 399 Boylston St., Boston, MA 02116. Natixis Global Asset Management consists of Natixis Global Asset Management, S.A., NGAM Distribution, L.P., NGAM Advisors, L.P., NGAM S.A., and NGAM S.A.’s business development units across the globe, each of which is an affiliate of Natixis Global Asset Management, S.A. The affiliated investment managers and distribution companies are each an affiliate of Natixis Global Asset Management, S.A.

This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary. The views and opinions expressed may change based on market and other conditions.

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Global Private Credit Market Growing Rapidly

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Tres factores clave que podrían determinar el rumbo de los mercados de deuda privada
CC-BY-SA-2.0, FlickrFoto: 401(K) 2012. Tres factores clave que podrían determinar el rumbo de los mercados de deuda privada

The global private credit market, an alternative source of financing for small and medium sized enterprises, is flourishing, with institutional capital supporting increased lending in Europe in particular, according to a report by the Alternative Credit Council (ACC), a private credit industry body affiliated with the Alternative Investment Management Association (AIMA), and Deloitte, the business advisory firm.

The private credit market has grown from $440 billion last year, to $560 billion today. The research, Financing the Economy 2016, found that institutional capital is boosting lending in Europe and much of this growth has been driven by demand from European businesses. However, the US still remains the largest private credit market, both in terms of overall assets under management, and new assets raised in 2015.

The research is the second paper to be published by the ACC and Deloitte, and is based on a survey of alternative lenders, representing assets under management totalling $670 billion, of which $170 billion is allocated to private credit strategies.

Stuart Fiertz, the Chairman of the ACC and President of Cheyne Capital, said: “As the recovery from the financial crisis continues, business innovation and demand for credit shows no signs of slowing. Alternative lenders are primed and ready to continue to fill the lending gap, but this is not necessarily at the expense of the traditional lenders. We see a cooperative relationship occurring between banks and alternative asset managers.”

Spanish Revenge: Their Bonds Yield Lower Than Their Italian Counter-Parts

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La revancha de España: su deuda cotiza por debajo de la italiana
CC-BY-SA-2.0, FlickrPhoto: Live4Soccer. Spanish Revenge: Their Bonds Yield Lower Than Their Italian Counter-Parts

Amongst the 3 things Pioneer Investments’ European Investment Grade Fixed Income team talked about recently was Spain.

In the last 16 of the recent Euro 2016 football championships, Italy gained revenge for a 4-0 drubbing in the Euro 2012 final by beating Spain 2-0.

Tipped as one of the pre-tournament favourites, Spain’s exit prompted the departure of their coach Vicente Del Bosque and led to concerns that it might have been the end of a golden era for Spanish football that saw them win Euro 2008, the World Cup in 2010 and the Euro championships again in 2012. “However, Spain’s footballing woes are being offset by a stellar out-performance in European bond markets,” says Tanguy Le Saout, Head of European Fixed Income, Executive Vice President at Pioneer.

Having traded as high as 20bps above similar-duration Italian sovereign bonds at end-March 2016, Spanish 10-year government bonds now yield over 20bps lower than their Italian sovereign counter-parts. “Why has this happened? ” Asks Le Saout. “We think there are a couple of reasons”

Firstly, he believes the Spanish economy is experiencing relatively rapid growth. Q2 GDP was revised higher to 0.83% quarter on quarter, suggesting that an annualised growth rate of 3% is on the cards for 2016. That would make Spain the 3rd fastest growing region in the Eurozone after Ireland and Slovakia.

Secondly, he mentions Spain has made much better progress in consolidating and recapitalising its banking industry than Italy.

Thirdly, Spanish banks were large sellers of Spanish government bonds in 2015 in order to reduce their large existing exposure, whilst Italian banks did not undertake the same action with respect to their holdings of Italian government bonds. “But since the start of 2016, Italian banks have been buying non-domestic Eurozone sovereign paper, and especially Spanish government bonds.”

Finally, according to the Pioneer expert, “the political situation had been looking a bit clearer in Spain, with the incumbent PP party accepting the conditions set out by a smaller party (Ciudadanos) for forming a coalition. That coalition would still fall short of an overall majority but a minority government could potentially be formed, ruling out the possibility of a third election within 12 months. Y Viva Espana.” He concludes.

Hedge Fund Industry Sees Net Outflows of $34bn Through H1 2016

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Using data from its Hedge Fund Online product, Preqin estimates that there were net outflows of $34bn over the first half of 2016; the majority of outflows ($20bn) occurred in Q2 2016. As a result, as of 30th June 2016 the hedge fund industry represented a total of $3.11tn in assets under management, down from $3.14tn at the end of 2015.

Among leading hedge fund strategies, credit and equity strategy funds suffered the greatest outflows in H1, totalling $26bn and $25bn respectively. By contrast, CTAs increased their AUM by 11% over the first half of the year, recording the greatest inflows of any strategy ($17bn). Additionally, a surge of investor capital committed to multi-strategy funds in Q1 helped the strategy offset small net outflows in Q2, to register overall H1 inflows of $11bn. Other Key H1 2016 Asset Flow Facts:

  • Investor Appetite: 17% of investors plan to increase their exposure to discretionary CTAs in H2 2016, the highest proportion of any strategy, while just 3% plan to invest more in event driven strategies and funds of hedge funds. Only 9% of investors plan to cut their exposure to activist funds, the lowest of any strategy.
  • Impact of 2015 Performance: Those funds that performed better in 2015 were more likely to see inflows in Q2 2016; 43% of funds that made gains of more than 5.00% in 2015 recorded Q2 inflows, compared to less than a quarter (23%) of those that suffered losses of 5.00% or more through the year.
  • Asset Flows by Fund Size: A higher proportion of hedge funds larger than $1bn recorded inflows (35%), than those smaller funds (32%). However, a higher proportion of larger funds also recorded outflows, with 44% recording losses compared to 40% of smaller funds.
  • Asset Flows by Location: The greatest proportion of funds based in Europe saw inflows over Q2, with 35% seeing net inflows and 38% recording outflows. In contrast, only a quarter of firms based in North America registered inflows, while 44% saw net outflows of investor capital.

According to Amy Bensted, Head of Hedge Fund Products at Preqin “Growing concern from investors regarding the recent performance of the hedge fund sector has manifested as two consecutive quarters of net outflows, taking the total size of the industry to approximately $3.1tn as of the end of H1 2016. Despite most leading hedge fund strategies witnessing outflows over the course of the first half of 2016, there were some bright spots, notably CTAs and multi-strategy funds, indicating that investors are seeing value in some areas of their hedge fund holdings in 2016. Performance, along with fees, looks set to be a key driver of change in the industry over the rest of 2016. Managers will be hoping that the recent run of better performance from March -July 2016 may help win back the favour of investors, and help the industry gain fresh capital inflows in the second half of the year.”

You can read their report in the following link.
 

“Slow Growth Angst” Key Driver Behind Five-Year Return Forecasts For Investors

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“La angustia del crecimiento lento” es la base para las expectativas a cinco años de Northern Trust
CC-BY-SA-2.0, FlickrPhoto: Ferrous Büller . “Slow Growth Angst” Key Driver Behind Five-Year Return Forecasts For Investors

Northern Trust expects most investments to generate single-digit positive returns over the next five years, predominantly due to slow economic growth and persistent low interest rates.

This Slow Growth Angst – one of six key themes profiled in Northern Trust’s annual five year market outlook – is a key driver behind the company’s return forecasts for global investors of 5.8 percent for global equities and 2.1 percent for investment-grade bonds.

“While we expect markets may be volatile at times, we remain convinced the global economy is in a narrow and slow growth channel,” said Northern Trust Chief Investment Strategist Jim McDonald. “Current regulatory and fiscal policies have greatly restricted the boom-bust cycles and, although the risk of a recession increases, if one does materialize it should be shallow due to a lack of economic excesses and financial system stability.”

Despite these subdued, yet positive, projections, Northern Trust believes the three-month German Bunds and Japanese Government Bonds will turn in negative returns during the next five years.

“Developed economies overall will continue their slow pace, expecting annual real economic growth of 1.4 percent over the next five years, and the outlook for emerging economies remains similarly subdued,” said Wayne Bowers, chief investment officer for Northern Trust Asset Management in Europe, Middle East and Africa and Asia-Pacific. “Ultimately, while concerns over slow growth are further impeding global growth, investors need to resist becoming bearish during market weakness or bullish when the economy appears strong and instead scrutinize any future dramatic swings – positive or negative.”

In addition to the theme of “slow growth angst”, Northern Trust has identified five more themes expected to shape the global markets over the next five years including:

  • Stuckflation – with supply easily matching slow-growing demand, inflation remains “stuck”
  • Market cycles in a cycle-less economy – current regulatory and fiscal policies have significantly reduced the odds of a boom-bust cycle
  • Technological turbulence – populist-influenced politicians’ view of technology will create a bumpy path for adoption 
  • Costs of ultra-low rates – the costs of ultra-low rates may now outweigh the benefits, but central bankers may have no choice except to continue
  • Populist roulette – the rise of populism in response to voter dissatisfaction leaves markets unsure of what to expect from the political arena