Fiscal Policy, Public Debt, and Yield: The Pending Debates in the Fixed Income Market

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Photo courtesyMarco Giordano, Investment Director at Wellington Management

In the view of Marco Giordano, Investment Director at Wellington Management, much has been said about monetary policy and little about fiscal policy. In his opinion, the shift in focus is key: “We are at a moment when, unless we experience an oil shock, major central banks are more focused on narrative than on action. By contrast, fiscal policy is going to be much more active. We will enter a phase in which we must understand the fiscal policies of different countries in order to understand the fixed income market and monetary policy.”

In the current context marked by geopolitics and the conflict between the U.S. and Iran—with rising oil and gas prices as the main consequence in markets—for Giordano, the real inflation risk lies in the potential reaction of governments to an inflationary shock. “Right now, it is the price of oil that could lead us into an inflationary shock, but for me what matters is the impact of the measures countries take in response to such a shock. That is, a repeat of what we saw in 2022, with governments approving large-scale measures without specific targets and increased public debt issuance, in the face of inflation above 2%,” he explains. In this regard, the Investment Director at Wellington Management believes that investors are not taking this interpretation of inflation into account and are not preparing their portfolios.

Public Debt: Where to Issue on the Curve

According to his analysis, this increase in public deficit has coincided with significant deleveraging by households and companies, which has greatly changed opportunities in the fixed income market. “In terms of public debt, it is true that there is potential differentiation between countries. And this is happening at a time when, as long as inflation remains around 2%, it will be difficult for central banks to intervene and absorb that debt. However, the most interesting question is the next step: at what point will markets demand an adjustment in public spending, and how will they do so? For me, this is the elephant in the room for the fixed income market,” says Giordano.

In this regard, the Investment Director at Wellington Management points directly to the U.S. In his view, the country has a structurally very high deficit—consistent with a period of negative growth—at the end of the current economic cycle, which has been very long. “I would say this is possible for several reasons, but the main one is that the United States always plays by different rules because its currency is the global reserve, so there is always persistent demand for dollar-denominated assets. Proof of this is that, for now, markets continue to absorb U.S. Treasury issuance,” he notes.

One trend observed by Giordano is that governments are becoming aware of investor demand for issuance at different points along the yield curve and are adjusting their issuance accordingly. “Although we are seeing structurally higher issuance by governments, the reality is that they are adapting their issuance so that its impact is lower, and they are also seeking other pools of capital to absorb that issuance. This trend represents an opportunity for investors because it implies significant potential differentiation between countries. Until recently, there was not as much polarity or differentiation between issuers, whether in public debt or credit debt; but now, with higher interest rates, there is increasing differentiation between issuances,” he explains.

Credit: Sustained Demand for Yield

In his view, as a result of rising sovereign yields, credit market spreads have tightened; however, demand for credit—both high yield and investment grade—has been considerable. In his opinion, this is not complacency but rather persistent demand for yield. “Many portfolios globally have been underweight fixed income, so they have seen credit as a good entry point given its attractive valuations, across all types of investors, whether institutional, retail, domestic, or international,” he explains.

Although he acknowledges that in the current environment there is some “vulnerability to potential exogenous shocks,” he believes that possible corrections in the credit market are more related to a process of “adjustment” toward more normalized levels. At the same time, he argues that we are beginning to see greater dispersion across sectors: “If we look at the MOVE index (Merrill Lynch Option Volatility Estimate) in 2025, we see that there has been less and less volatility in fixed income markets, which is somewhat counterintuitive. With more geopolitical and macro noise and volatility, there should be more market volatility, yet in 2025 it has been somewhat the opposite. However, from January, and more strongly in February, we began to see greater dispersion across sectors and issuers, generating new opportunities for investors.”

In his review of fixed income, Giordano offers a final message: “Fixed income has returned to portfolios, but in a completely different environment, where the 60/40 portfolio no longer works and where we are seeing greater presence of other assets, such as digital assets or private markets.” Despite this new context, Giordano believes that fixed income remains a key asset for navigating uncertainty. “It is clear to everyone that portfolios must be diversified, but what matters here is that the wide range of assets offered by fixed income allows for income generation while also protecting capital,” he concludes.

Franklin Templeton Strengthens Its Capabilities for the Offshore Market

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Photo courtesyJoseph Arrieta, Senior Sales Executive, and Angelita Fuentes, Internal Wholesaler at Franklin Templeton

Franklin Templeton has announced the appointment of Joseph Arrieta as Senior Sales Executive (External Wholesaler) for the Northeastern territory, and Angelita Fuentes as Internal Wholesaler in Miami, with immediate effect. Both will report to Marcus Vinicius, Head of US Offshore, as part of the firm’s strategic reinforcement in this segment.

These additions underscore the firm’s commitment to expanding its presence in the U.S. offshore business, one of its main drivers of global growth. This segment has become a key strategic pillar, serving an increasingly diverse and sophisticated international client base through a cross-border model that connects investors with global opportunities.

In his new role, Arrieta, based in New York, will be responsible for leading offshore coverage of the Northeastern United States territory, including key financial centers such as New York, Boston, Chicago, and Toronto. He will work closely with Jack Leung, Internal Wholesaler, based in Florida. The professional has more than eight years of experience in wholesaling, with a track record across domestic, intermediary, and offshore channels.

For her part, Fuentes joins as Internal Wholesaler in Miami, where she will collaborate with Dolores Ayarra, Senior Sales Executive, and Rafael Galíndez, VP, Sales Executive. From this position, she will support the coverage of banks, wire houses, and independent advisors in key markets such as Florida, Texas, San Diego, and Arizona.

“The U.S. offshore market is a strategic priority for Franklin Templeton and a key driver of our future growth. As clients seek to consolidate relationships with a smaller number of partners capable of offering comprehensive solutions across all asset classes, we continue to invest in talent and capabilities,” said Marcus Vinicius.

Prior to joining, Arrieta developed much of his career in the offshore segment, including his time at Voya Investment Management following the alliance with Allianz Global Investors, where he covered private banks and independent channels in the U.S. and Puerto Rico. Previously, he worked at Allianz Global Investors, expanding his coverage from the United States to Latin America, and at firms such as Oaktree Capital and Hudson Edge Investment Partners.

Fuentes brings more than 20 years of experience in wealth management, banking, and international markets. She joins from Voya Investment Management, where she focused on the offshore business. Previously, she held roles as VP and financial advisor at Investment Placement Group and built a long career at Truist Bank, where she worked with high-net-worth Latin American clients. She also has international experience in the real estate sector in Belize.

For Javier Villegas, Head of Iberia and Latin America at Franklin Templeton, “the addition of Joseph and Angelita significantly strengthens our team. Their experience and deep understanding of the offshore environment will be key to strengthening client relationships and continuing to drive growth in the region.”

With these appointments, Franklin Templeton continues to advance its global strategy of strengthening its Global Client Group, aligning resources and capabilities to provide a more integrated, efficient, and client-focused service across public and private markets.

Three Forces, One Destination: The Complexity of Today’s Fixed Income

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Pilar Gómez-Bravo, co-CIO de Renta Fija de MFS Investment Management
Photo courtesy

Global fixed income is going through an extraordinary period due to the simultaneity of reinforcing factors: an energy shock that has yet to stabilize, stickier-than-expected inflation, and private credit that has grown faster than the system can absorb. That is the diagnosis presented by Pilar Gómez-Bravo, Co-CIO of Fixed Income at MFS Investment Management, at a meeting with investors in Miami.

The executive shared a document titled “The Three Body Problem: A Pragmatic Approach to Investing in 2026,” which describes an environment of persistent volatility and rising risks. “Central banks, which were expected to diverge, are no longer going to do so. Basically, they are not going to do anything. And hopefully they won’t, because if they do, they could break the balance,” she explained.

The market environment, then, is marked by a common denominator: three forces colliding at the same time, generating a pattern of instability that is difficult to anticipate.

Energy: the shock that moves faster than monetary policy

The energy component is the most immediate and the most political. Gómez-Bravo reviewed the historical record: shocks of 139% during the invasion of Kuwait, 58% after the war in Ukraine, 28% in Syria, and a recent 79% linked to the escalation with Iran. While these episodes “tend to be short-lived,” their effects on inflation are immediate.

The sensitivity of the global market, she explained, is concentrated in a few geographies: Asia receives nearly 90% of the crude that flows through the Strait of Hormuz, and Europe remains highly dependent on gas. A prolonged shutdown would have uneven but profound consequences. “Trump may control the narrative, but Iran controls the physical supply of oil. If there is no physical supply, every day counts and it is difficult to control prices,” she emphasized.

The risk, she said, is that a supply shock derived from the conflict ends up turning into a growth shock. “If this lasts beyond four weeks, markets will begin to price in growth problems, not just inflation,” she warned.

Inflation: a much less linear slowdown

The second vertex is inflation persistence. Although some data show improvement, the pace of adjustment remains slow. In the United States, the short end of the curve is the only segment anticipating a stronger impact from the conflict, while the long end remains anchored.

The MFS expert’s presentation highlights that fiscal policy continues to be expansionary, with high deficits across all major developed economies. This is compounded by an unprecedented wave of corporate capex, driven by the artificial intelligence ecosystem and major digital infrastructure providers.

This massive investment push also has financial implications. Gómez-Bravo put it bluntly: “The problem arises the day they fail to meet earnings expectations and have to refinance all that debt.” She added a reflection that summarizes her view: “Why should I finance AI companies? Let shareholders do it—they are the ones who receive the upside.”

Today, she explained, the market is still absorbing record issuance without difficulty: hyperscalers could reach $400 billion in new debt this year, approximately half of net investment-grade supply. But the challenge lies not in the present, but in sustainability: “Today there is no problem—there is capacity to absorb all AI supply—but in two or three years there could be a financing problem.”

Private credit: rapid growth and early signs of stress

The third body in collision is private credit, whose growth has been so rapid that it is beginning to generate its own side effects. Global banks have increasing exposure to non-depository financial institutions, and several markets are showing patterns previously seen ahead of periods of stress.

Gómez-Bravo was clear in quantifying the risk: “If the default rate in private credit rises from 4% to 8%, and you only recover 50%, all illiquidity premiums disappear.” This potential deterioration coexists with other concerning factors:

  • Easing of underwriting standards.
  • Growth in PIK toggle structures, which capitalize interest instead of paying it.
  • Increasing risk among private brokers financing hedge funds with leverage.
  • 5% redemption limits in retail funds, which can amplify mass outflows.

Three lenses to analyze the cycle

The MFS presentation emphasized that current analysis must rely on three simultaneous pillars—fundamentals, valuations, and technicals—because none on its own provides a complete picture.

  • Fundamentals: it is not just about inflation—it is fiscal policy, energy, and a credit constraint that “is already tightening financial conditions.” As Gómez-Bravo summarized: “It is the market that is doing the Fed’s job.”
  • Valuations: spreads remain extremely tight relative to history, even after recent widening. For the firm, discipline is therefore key: defining clear thresholds. In Gómez-Bravo’s words: “Remember those thresholds to think about when to start adding risk… and thus maintain discipline.”
  • Technicals: positioning is cautious, albeit heterogeneous. Dispersion remains contained, making security selection more relevant.

Where to look? The pragmatic approach of MFS

MFS’s strategy for the coming months combines flexibility with prudence:

  • Neutral to slightly long duration in some markets.
  • Tactical exposure in Brazil, Uruguay, Peru, Korea, and South Africa.
  • Hedging of Latin American currencies “because they are the first to suffer.”
  • Underweight in technology, except for specific names.
  • Ongoing evaluation of opportunities in BDCs and industrial sectors with strong fundamentals.

“The advantage and disadvantage of fixed income is that it is mathematics: in the long term, if there are no defaults, yield is what you get,” the asset manager stated during her remarks. And a warning for investors seeking simplification: “This is a market for active managers, not for passive strategies that depend on stable trends.”

The three-body problem

The metaphor that gives the report its name is no coincidence. The system described by Gómez-Bravo—energy, inflation, private credit—functions like a three-body system: each movement affects the others, and the equilibrium is inherently unstable. The MFS manager summarizes it this way: “We are not facing independent shocks, but rather a dynamic system where moving one piece disrupts the rest.”

Nothing happening today appears definitive. Inflation is not yet defeated, private credit has not fully revealed its true risk profile, and the energy shock has not reached its floor. The underlying message—implicit throughout the Miami event—is to combine rigorous analysis with the ability to react: to understand that apparent stability is just that—apparent. And that as long as these three bodies continue to move, the investor’s task will be to navigate their dynamics without losing sight of the whole.

Thornburg Appoints Albert Maruri as Offshore Sales Director in the U.S.

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Photo courtesyAlbert Maruri, Offshore Sales Director in the U.S. at Thornburg

Thornburg Investment Management (Thornburg) has announced the expansion of its international distribution team after the assets of its UCITS platform doubled over the past 12 months, increasing from $316 million to more than $645 million as of March 31, 2026.

According to the firm, this growth reflects rising global demand for active management strategies offered through the UCITS structure, which remains a preferred vehicle for international investors seeking “differentiated, high-quality investment solutions.”

To support this momentum, Thornburg has appointed Albert Maruri as Offshore Sales Director in the U.S., further strengthening the firm’s distribution capabilities in international wealth markets. Based in Miami, Maruri will work closely with financial advisors and intermediaries serving non-U.S. investors, expanding access to Thornburg’s investment strategies in key offshore markets.

In addition, for the United Kingdom, Europe, and certain international markets, the asset manager has appointed Andrew Paterson as Director of Business Development for the UK/EMEA. Based in the firm’s London office, he reports to Jon Dawson, head of the UK office, and will focus on deepening relationships with institutional clients and intermediaries in the region.

Following these two appointments, Jonathan Schuman, Head of International at Thornburg, stated: “Building long-term relationships is fundamental to how we grow internationally. By expanding our local presence in key markets, we are better positioned to work closely with our clients, understand the evolution of their needs, and connect them with Thornburg’s high-conviction investment strategies.”

UCITS platform

According to the firm, these appointments come at a time when Thornburg’s UCITS platform continues to gain traction among investors. The firm’s five UCITS strategies have recorded sustained inflows and strong investment performance, with the Equity Income Builder fund being one of the main drivers of recent growth, reflecting strong demand for global income-oriented solutions.

For the firm, this momentum follows a series of enhancements to Thornburg’s UCITS range, including the launch of new share classes, fee reductions, and the reclassification of certain strategies under Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR). Taken together, these initiatives have improved accessibility for European investors while reinforcing Thornburg’s commitment to active management, an investment philosophy independent of benchmarks and focused on long-term results.

“The UCITS platform represents a key pillar in Thornburg’s long-term international growth strategy, as the firm continues to expand its global presence and serve clients across an increasingly diverse set of markets,” they noted.

Mark Mobius: Conviction in Emerging Markets Dressed in a Light-Colored Suit

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Photo courtesy

With a brief message on his social media profile, the circle of Mark Mobius announced his passing at the age of 89. The renowned emerging markets investor always stood out for grounding the conviction of his investment ideas in miles traveled and hours of meetings, as well as for his elegant and impeccable light-colored suit.

Throughout his career, we had the opportunity to listen to him and interview him on various occasions, enjoying anecdotes from his travels, discovering new companies in emerging markets, and catching his enthusiasm. Our first encounter with him was at the end of the 1990s. Markets were dominated by the formation of the dot-com bubble, globalization, market turbulence, and the birth of the euro. However, his message was compelling, and his defense of emerging markets showed no cracks.

According to Alicia Jiménez, managing partner, director, and co-founder of Funds Society, and with more than 30 years of experience in the sector, Mobius was above all a brilliant mind. “Over the following two decades, I had the pleasure of listening to him in countless presentations, both in Europe and in the United States, but it was during Javier Villegas’s tenure as director of the Miami office of Franklin Templeton when, at some point between 2015 and 2017, I had the pleasure of speaking with him for an hour about his career. On that occasion, Mobius was already nearing eighty, possibly already there, and his extraordinary memory stood out: he spoke about those exotic markets as if he had lived in them for years, knew their economies, companies, and politics inside out, and explained everything with astonishing naturalness,” she recalls.

In these meetings, he made it clear that his favorites were frontier markets and insisted on the importance of private markets for the coming decade. “Now, in retrospect, I understand much better the scope of his vision. I remember leaving that terrace in Miami Beach where we shared a soft drink under the shade of palm trees, thinking that I had just been with a prodigy of nature. Rest in peace,” she adds.

Emerging markets with conviction

Repeatedly, our senior team and, consequently, our readers had the opportunity to learn about his view on emerging markets. In this regard, Mobius always argued that they were undervalued and key to future growth, especially by focusing on sectors such as consumer, technology, and financial services. As he maintained, emerging markets are where the real growth of the world lies, as they bring together such important trends as favorable demographics, an accelerating urbanization process, significant expansion of the middle class, and a rapid advancement of digitalization and technology. However, he always insisted that the greatest market risks were not economic—since he saw clear potential in these countries after years of reforms—but rather those linked to unexpected regulatory changes, corruption, and the lack of protection for minority shareholders.

In our last interview with him, published in November 2023, Mobius reminded us that the key to his success lay in holding meetings, meetings, and more meetings with the management teams of the companies he considered interesting, as well as getting to know their facilities and work philosophy. As the so-called “Indiana Jones of emerging markets investing” told us, walking the streets and sharing in everyday life is the best way to discover investment opportunities in these markets. An approach he always combined with financial scrutiny and the study of the fundamentals of each of the companies in which he invested or that caught his attention.

One of the main messages he conveyed in his interviews was that emerging markets had undergone significant evolution that seemed to go unnoticed by investors. “In the 2000s, everything revolved around commodities and telecommunications, with companies featuring very simple business models taking the lead. At that time, technology represented less than 5% of the emerging markets universe, and now technology-oriented companies account for more than 30%. There is much more innovation and unique brands coming from emerging markets, so companies need to be analyzed differently,” he stated passionately.

His legacy: AUM and philosophy

Mobius began to become an industry reference starting in 1987, when he held the position of Executive Chairman of Templeton Emerging Markets Group. From then on, his career was a true phenomenon, culminating in 2024 when he founded his own firm: Mobius Investments.

“Mobius was widely regarded as one of the first emerging markets investors, known for traveling extensively and developing first-hand knowledge in markets often overlooked by global investors. John Ninia, partner at Mobius Investments, and Eric Nguyen, partner at Mobius Investments, will assume leadership responsibilities. The firm will continue operating without changes to its investment approach or daily operations,” they stated at Mobius Investments when announcing his passing.

It is difficult to estimate the amount of assets Mobius managed throughout his career. It is known that he oversaw funds exceeding $50 billion in assets under management. For example, during his key period at Franklin Templeton, the emerging markets group he led grew from approximately $100 million to more than $40 billion. Some sources even suggest that he managed over $50 billion in emerging market portfolios.

Although he leaves emerging market investors without one of their leading figures, his legacy includes key messages such as: “You have to go where the growth is” and “Patience is key in emerging markets.” But above all, he leaves fund managers with his main life lesson: “Walk the path, go there, and meet with company executives before investing.”

From Luxembourg: The Strategic Role of Continuation Funds in European Real Estate – Bridging the Valuation Gap

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fondos de continuación inmobiliarios
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The Continuation Fund Mechanism

In a typical continuation transaction, the general partner (GP) proposes transferring one or more assets from a selling fund into a continuation vehicle, allowing existing limited partners (LPs) to choose whether to cash out, roll, or blend both options. This dual role—acting as both seller and buyer—inevitably introduces conflicts, which must be proactively managed through robust processes, clear documentation, and independent oversight.

From our perspective, we observe that seamless fund administration, depositary oversight, transfer agency, corporate secretarial, valuation governance, and transparent reporting form the backbone of any successful GP-led continuation transaction. Proper investor services provide the neutral structure that certifies net asset value (NAV) quality, evidences valuation independence, operates election mechanics, and maintains transparent, standards- aligned reporting. In our experience, these aspects convert perceived conflicts into demonstrable fairness, especially when valuations are already under scrutiny.

Governance Architecture and Conflict Management

Governance architecture is central to credibility. Early Limited Partner Advisory Committee (LPAC) engagement and clear conflict-management protocols are essential. The Institutional Limited Partners Association (ILPA) recommends addressing conflicts, managing recusals, and reviewing disclosure packages and process fairness. Practically, this means early briefings, disclosure of alternatives considered, and a documented rationale focused on maximizing value for all LPs, not solely for those electing liquidity.

Independent fairness or valuation opinions now form a best-practice standard. Even though the U.S. SEC's 2023 private-fund adviser reforms were vacated in June 2024, the regulatory signal is clear: adviser-led secondaries require independent price checks and transparent relationships with opinion providers. Many sponsors circulate such opinions with the election pack, alongside relationship disclosures—a good-governance habit that investors should deem as standard practice.

Valuation Governance Frameworks

Valuation governance becomes especially critical when dealing with assets subject to uneven price discovery—such as office buildings or niche retail properties. The updated INREV Property Valuation module (effective January 2024) provides a comprehensive framework for roles, responsibilities, and transparency that complements the INREV NAV and Reporting modules. Aligning policies to these standards ensures consistency in presenting economic NAV and reconciling it from IFRS, while also incorporating sustainability factors that can materially influence value.

At the asset level, valuations should comply with RICS Valuation – Global Standards (Red Book) and IVS 2025, emphasizing data quality, documentation, model governance, and ESG.

Operational Design and Execution

Operational design must reflect this complexity. Dedicated project tracking for rolled interests, new secondary capital, and any stapled commitments is essential. Equalisation rules must mirror the fund constitutional and governance documents, capturing fee holidays or preferred-return resets and preventing performance cross-contamination between legacy and continuation cohorts.

Investors should be mindful of model carry resets, accrual releases, and fee waivers for rolling investors, with full alignment to ILPA guidance on transaction-cost allocation between selling fund, continuation vehicle, and exiting investors.

Execution Playbook

A disciplined execution playbook transforms complex continuation processes into predictable operations. Early in the project, both the GP and fund administrator analyse the strategic options and define valuation scope, appraisal terms and candidate opinion providers.

During the go/no-go phase, investor services teams coordinate preparation of investor packages, including historical performance data, proposed price-setting methodology, conflict disclosures, fee and waterfall redlines, structural diagrams, and updated INREV reporting bridges.

Following LPAC review and LP’s consultation, at closing, asset transfers are executed, consideration settled, accounting journals posted, Annex IV reports updated, and the first continuation-vehicle reporting pack issued. Lessons learned are recorded in the governance log, converting a one-off transaction into a repeatable capability.

Common Pitfalls and Risk Mitigation

Common pitfalls—inconsistent valuation perimeters, unclear treatment of fees and expenses, weak election controls, and oversight delays—can undermine pricing integrity. Reconciling asset scopes early, coding fee allocations into the administration engine, enforcing two-person verification, and mapping depositary responsibilities mitigate these risks. In a valuation gap environment, process reliability is synonymous with value protection.

Ultimately, a well-run continuation fund enables every investor—whether rolling or exiting—to trace how pricing was determined, how conflicts were identified, addressed and managed, and how economic NAV reconciles across accounting and industry frameworks. ILPA-aligned transparency, RICS/IVS-compliant valuations, and INREV-consistent reporting, delivered through disciplined operations, build investor confidence that fairness has prevailed, even amid valuation uncertainty. 

Invesco Focuses on Family Offices to Grow in America

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super peso and the World Cup
Photo courtesyÍñigo Escudero, Head of Southern Europe & Latin America at Invesco

Invesco is driving its business in the Americas through two levers: a new structure and a strategic agreement with LarrainVial. Currently, the firm oversees $35 billion across the US Offshore and LatAm markets, with Íñigo Escudero, Head of Southern Europe & Latin America at Invesco, as its key figure in the region.

Initially, the firm managed the US Offshore and LatAm markets separately, but after expanding his responsibilities and being appointed head of the Southern Europe business as well, Escudero made a significant decision: to merge both regions. “It was a decision that made sense because the link between both markets is enormous. In US Offshore we have been operating for more than fifteen years and benefit from the great work that Rhett Baughan, Head of US Offshore Distribution at Invesco, has been doing. There, we have grown considerably over the past five years and have around $6 billion in US Liquidity, which possibly makes us the largest international asset manager in liquidity. For LatAm, we have Begoña Gómez, who until now was responsible for LatAm for Active, and will now also take on the US Offshore segment; as a result, Baughan will report directly to her. Finally, for the ETF segment, Laure Peyranne, Head of ETFs for Iberia, Latin America, and US Offshore, will continue to lead the business,” explains Escudero.

To understand this structural change at Invesco, it is necessary to consider its second growth lever: the expansion of its strategic agreement with LarrainVial. For more than 18 years, Invesco has collaborated with the Chilean asset manager on distribution throughout Latin America. Until last year, the agreement with LarrainVial included $9.2 billion in UCITS mutual funds and $15.6 billion in Invesco ETFs, but with the expansion of their alliance into the US Offshore channel for Invesco’s UCITS products, the growth potential is much greater.

“Many firms approached us to work together and grow in the US Offshore market, but we felt it was not yet the right time for us. However, following our growth in recent years and LarrainVial’s evolution, we saw that now was the ideal moment to expand our collaboration for several reasons: their expertise, their team of professionals, and our relationship of nearly twenty years,” Escudero highlights.

A structure for growth

These two decisions have resulted in a clear structure ready to generate growth across both active and passive segments. As Escudero clarifies, “Rhett will primarily be responsible for relationships with platforms in the US Offshore market; that is, he will focus on where fund selection decisions are made and will work to ensure that as many Invesco funds as possible are included on key lists. His work is complemented by that of LarrainVial, whose extensive experience and network will help us ‘unlock’ and deliver products to investors.”

The firm recognizes that the growth potential is greater in the US Offshore market, which—like the Latin American market—is expected to grow at faster rates than the rest of EMEA markets. “When discussing growth, it is important to note that US Offshore and LatAm are somewhat different markets,” Escudero explains: “As we are structured, LatAm is primarily institutional clients—pension funds, central banks, and authorities—while only 10% is represented by private banks and family offices. With our expanded distribution agreement with LarrainVial, we believe this will change and that we will be able to achieve significant growth in the family office and private banking segment. Moreover, many family offices also have a presence in US Offshore; and this is another segment where we want to grow. This growth would also bring significant business diversification, which is another of our objectives.”

The firm sees a significant growth opportunity in this segment, especially considering that the family office industry in Latin America is approaching $100 billion, of which more than 55% is invested in US Offshore products. “We are talking about between $55 billion and $60 billion in business. The nuance is that each country is different and has a distinct configuration, which is why local knowledge is so important. For example, in Mexico, 90% of US Offshore investments are in ETFs, whereas in Chile ETFs represent only 30%, in Colombia 10%, and in Peru 25%,” Escudero notes.

Regarding growth targets, Escudero avoids giving a specific figure but acknowledges that their outlook for LatAm and US Offshore is to grow “at higher rates than other similarly mature markets, such as Spain or Italy.” He adds: “For US Offshore, we aim to at least double assets over a five-year period.”

From advisory to the investor

Given the firm’s broad product range, the mantra for this growth, according to Escudero, will be “to continue offering the investment solution that best fits each investor, market, and country.” As he acknowledges, advisors are the key piece in aligning these investment solutions: “Unlike what we see in other European regions, in the Americas the decision about fund selection lies with private bankers, which requires a very strong and close commercial network.”

As for investor demand, he believes that despite trends, the essence has changed little. “We are dealing with clients who have fairly diversified portfolios and who quite like multi-asset funds, such as our Global Income strategy. Sometimes they prefer to build their own mix and combine fixed income and equity funds in their portfolios, or opt for model portfolios (MPS), which have recently become popular,” he notes.

Among the trends he observes in this market, Escudero highlights generational change. According to his experience, “new generations demand new communication channels, but they remain traditional investors who seek returns and security for their capital.”

A Guide to U.S. Municipal Bonds for UCITS Investors

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estrategia de inversión de GVC Gaesco
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The state of New York issued the first municipal bond in history in 1812 to finance the construction of a canal. More than two centuries later, this market exceeds $4 trillion, with more than 60,000 issuers and a very low default rate. With yields around 5% and strong exposure to infrastructure—most issuances finance public-use assets such as airports, hospitals, water systems, or universities—this asset class remains one of the least covered by international investors, who represent only 3% of the market.

The BNY Mellon US Municipal Infrastructure Debt fund marks nine years since the launch of its UCITS version. Over this period, it has outperformed the US Aggregate index, U.S. corporate debt, and even Treasuries. This performance reflects both the market’s higher structural carry and increased international demand.

Jeffrey Burger, one of the five co-managers of BNY’s municipal bond strategy—a firm with a presence in this market since 1933 and $40 billion under management in this segment—recently visited Spain to explain the potential of this asset class. “The municipal bond market is the primary mechanism for financing infrastructure in the United States, both historically and today,” he notes. It is also a public, transparent, and liquid market that offers “returns and risks typical of fixed income, compared with private credit.”

How does the municipal bond market differ from other U.S. public debt markets?

It is a result of the structure of the U.S. system of government, divided into three levels: federal, state, and local. Below the federal government—which includes Congress, the President, and the Supreme Court—there are 50 states and thousands of local entities, as well as nonprofit institutions such as universities. From its inception, the U.S. model sought to limit the role of the federal government and distribute responsibilities. By design, it does not assume most infrastructure investment.

Why is the private sector less involved in infrastructure in the U.S.?

The country’s size makes it difficult to achieve economies of scale and limits potential returns for the private sector. This is compounded by regulatory differences between states, as well as geographic, climatic, and social factors. In this context, municipal bonds tend to behave like natural monopolies, which contributes to their low default rate. Defaults are exceptional, such as the case of Detroit in 2013.

Why is this asset class under-researched outside the U.S.?

Until 1986, all municipal bonds were tax-exempt for U.S. investors, which reduced their appeal for foreign investors. After that year’s tax reform, some became taxable. The tax treatment depends on how the funds are used: issuances for public services are typically tax-exempt, while those with economic return potential may be taxable. For international investors, this creates an opportunity: bonds with the same credit quality can offer higher yields in their taxable version, with no tax impact for foreign investors.

How do municipal bonds compare with Treasuries?

High federal debt—$38 trillion—has led some investors to seek alternatives within U.S. public debt. In this regard, municipal bonds offer higher spreads, better credit quality, and diversification. Unlike the federal government, states cannot run budget deficits. In addition, municipal bonds primarily finance infrastructure tied to revenue-generating assets, not current spending. Another key difference is amortization: municipal bonds typically repay both interest and principal, whereas federal debt is regularly refinanced. This fiscal discipline reduces default risk. Currently, they offer around 85 basis points of spread (OAS) and, with similar duration to Treasuries, yields comparable to corporate debt with lower credit risk.

What is the bond selection process like?

The team consists of 23 professionals, including 10 analysts specialized in municipal credit. Their objective is to identify relative value, detecting bonds that are undervalued or overvalued based on their fundamentals. This analysis allows them to generate alpha versus the index. The historically low default rate in investment grade reinforces this approach. The team is complemented by five senior managers and a specialized trading group. Exclusive specialization in this segment is one of the main differentiators of the platform.

How is the strategy currently positioned?

The fund maintains a duration of seven years, but with a beta of between 0.65 and 0.70, implying lower volatility than the index. This is partly due to the investor profile, mainly high-net-worth U.S. investors with buy-and-hold strategies, and the presence of call options, which reduce effective duration. The strategy prioritizes revenue bonds, backed by specific income streams from assets such as airports, water systems, or educational institutions, with mechanisms that ensure debt service coverage.

The portfolio has significant exposure to education and healthcare, particularly in high-quality issuances. In higher education, uncertainty around international students has increased yields. In healthcare, reduced subsidies have pressured the sector, creating opportunities in hospitals less dependent on public support, located in higher-income areas or playing an essential role in their communities.

Infrastructure, ‘Oshikatsu,’ and Defense: Three Themes for Continuing to Invest in Japan

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temáticas para invertir en Japón
Photo courtesySimon Morton-Grant, Client Portfolio Manager of the CT (Lux) Japan Equities Fund at Columbia Threadneedle Investments

Japan has shifted from behaving like an equity market where investors focused on companies with low margins and high capex to one centered on efficiency and return on capital, where governance has become the cornerstone of this transformation. “The underlying story in Japan is extremely attractive,” says Simon Morton-Grant, Client Portfolio Manager of the CT (Lux) Japan Equities fund at Columbia Threadneedle Investments.

The expert, who recently visited Spain, highlighted the multiple growth catalysts his firm currently sees in this market: first, efforts to continue increasing shareholder returns (ROE) remain in place, with a new record for share buybacks in 2025; second, the country is once again posting positive growth, and after deep reforms in recent years, the TOPIX index has become a reflection of that growth; third, Japanese household savings amount to around $14 trillion, and half of that money is held in cash, leading the firm to expect—in a context of rising inflation—that part of those savings will flow into equity markets to avoid loss of purchasing power; fourth, the expert highlights the willingness of the new government to continue deep political and economic reforms to further stimulate national growth. For these reasons, the expert is clear: “Any point of weakness from here on could be a good entry point to invest in Japan’s long-term structural growth story.”

Is the rise in geopolitical risk due to the Iran conflict affecting the Japanese stock market in any way?

We want to make it clear to our clients that disruptions around the Strait of Hormuz have the potential to impact the global economy. Japan imports more than 90% of its crude oil from the Middle East, although it makes virtually no direct imports from Iran. We believe that, for now, this situation remains contained in Japan’s case, as it has several measures to mitigate these effects. First, it has oil reserves equivalent to 245 days—one of the highest coverages among developed economies, roughly eight months—which provides a short-term buffer. Second, Japanese authorities have estimated that oil prices would need to reach and remain at $175 per barrel for a prolonged period for Japan to enter a recession; currently, we are far from that level. Even if it were reached, it would need to be sustained for some time.

This is therefore a risk that must be monitored. However, the team has just returned from Japan and, in meetings with companies—at a time when this situation was already beginning to unfold—firms believed they could pass on increased costs to consumers without materially affecting margins. It is an evolving conflict and should be closely watched for changes, but at current levels we do not see a cause for excessive concern.

Can movements in the Japanese yen significantly impact Japanese companies, especially exporters?

It should be noted that we are not macroeconomic specialists. That said, we believe that if the yen were to exceed 160 against the dollar, the government or the Bank of Japan could intervene. Within the 140–160 range, the environment remains relatively comfortable for Japanese equities. Moreover, the historical correlation between a rising Japanese stock market and a weakening yen has diminished in recent years. Japan is no longer necessarily a bet on a weak yen. The economy now has more growth drivers: domestic companies are contributing to earnings growth and, therefore, to index performance, something that was not the case 10–15 years ago, when exporters were the main engine. In the portfolio, we have a natural hedging mechanism: a weak yen benefits exporters, while a strong yen favors domestic businesses.

Sanae Takaichi plans to deepen Abenomics. How could this affect your asset class?

We do not usually pay much attention to changes in prime minister, but in this case it is relevant. She is a potentially transformative figure who breaks with the traditional profile of Japanese political leadership and maintains a strong pro-growth focus. She is an heir to Shinzo Abe’s legacy: expansionary fiscal policy, accommodative monetary policy, and significant fiscal stimulus. We believe her economic and reform agenda could boost the market and open a new phase of growth in Japan. In addition, the new governing coalition has a clear pro-growth bias and supports decentralization, shifting part of the economic weight from Tokyo to other regions such as Osaka. This could increase the value of land and assets in those regions and foster greater economic dynamism.

Another key element is her industrial policy and the associated investment opportunities. Takaichi prioritizes increased spending on artificial intelligence, semiconductors, nuclear reactivation, defense, and economic security. These areas form a new universe of opportunities under the current administration. She has also managed to unify the party, attract younger support, and consolidate a stable political base—crucial for implementing meaningful reforms.

Where do valuations currently stand?

Compared to historical averages, valuations have increased slightly over the past year. However, the higher multiples often highlighted in the media are heavily influenced by large-cap and more expensive stocks. Looking at the TOPIX index, around 35% trades below book value, indicating that many attractive opportunities still exist. In relative terms, while U.S. valuations are above their historical average, Japan remains cheaper, especially in a context of rotation away from U.S. exceptionalism.

Where are you finding opportunities?

Historically, Japan has been associated with automation, a highly sought-after sector. However, following a recent visit, the team has identified new areas of interest. First, infrastructure renewal. Two growth drivers coexist: on one hand, more visible sectors such as artificial intelligence or electric vehicles, with strong demand but higher cyclical sensitivity; on the other, the replacement of infrastructure built during the late-1980s bubble. The latter represents structural, stable, long-term demand, especially in construction.

Second, the so-called “oshikatsu” economy, or fandom economy, where consumers follow athletes, actors, or content creators. This phenomenon, particularly relevant among Generation Z, creates opportunities in merchandising and digital platforms. Third, economic security and defense. The new government is adopting a firmer foreign policy stance, and increased defense spending as a share of GDP opens opportunities in shipbuilding, cybersecurity, and other segments.

Of course, we remain exposed to companies linked to robotics, a structural trend in Japan, which accounts for approximately 50% of the global industry.

What risks are you monitoring?

One of the main focuses is public debt. Although the debt-to-GDP ratio is around 200%, 90% of the bonds are held domestically, which provides stability. In addition, high tax pressure and a near-zero deficit reinforce sustainability. By comparison, the U.S. or China have deficits of around -6%. The second risk is geopolitical, particularly in the relationship between Japan and China. While tensions exist, we do not anticipate structural deterioration, given the significant global impact it would have. Finally, the Middle East remains the main short-term risk. Oil price developments will be key, as they could trigger inflationary or energy tensions in Japan.

Do you expect a rebound in inflation in Japan?

It is possible in the current context, but levels remain manageable. The Bank of Japan postponed a rate hike initially expected in March, likely to April or May. Even if rates reach 1% or 1.25%, monetary policy would remain accommodative. We believe the Bank of Japan is in a normalization process, not a tightening cycle. At current inflation levels, companies can pass costs on to consumers without significant impact. This reflects a structural shift in Japan toward a virtuous cycle of wage growth and inflation, which could be positive for the economy, economic policy, and markets.

The New Wave of ETFs Points to the Formation of Small Bubbles

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Pixabay CC0 Public Domain

Exchange-traded funds have transformed the world of investing. The number of ETF launches reached a record in 2025, with more than 1,000 new funds coming to market. However, recent launches have become “more specialized, less diversified, and more expensive,” according to a Morningstar analysis.

According to the firm, the growing number of these specialized ETFs has revealed a “concerning” trend: rather than solving real problems, many are simply riding dominant trends.

This often happens after the underlying stocks have already delivered strong short-term returns, according to Morningstar, which adds that “the irony is that these ETFs tend to come to market at, or near, the peak of a narrative, when valuations are inflated and return expectations are less optimistic.”

The result is that investors end up holding speculative portfolios with high fees. These ETFs “amplify the hype around underlying themes and can contribute to the formation of small bubbles.”

Historically, similar ETF launches have clustered in periods when specific themes performed well, often accompanied by narratives about how those themes would “change the future.” One example is ESG-focused ETFs, which went through this phase in 2021. ETFs linked to artificial intelligence and cryptocurrencies have taken center stage since 2025.

Rather than being grounded in solid investment principles, most of these launches have been timed to capitalize on the enthusiasm surrounding a particular theme.

The Performance Problem

Because many thematic ETFs are launched near market highs, they often face a difficult path from day one. Years of analysis across multiple market cycles show that thematic ETFs tend to lag the broader global equity market after launch, largely because “they are expensive and their valuations at inception are already inflated,” the firm notes.

Morningstar observes this pattern in several recent periods. In 2021, 38 new ESG-focused ETFs were launched following a strong 2020. As of February 2026, only 21 of those 38 vehicles remain. “This high closure rate could be attributed to inconsistent or disappointing performance, an inability to attract new investors, or both factors.”

In 2025, 70 new ETFs focused on digital assets and cryptocurrencies were launched. Some simply track the price of cryptocurrencies such as bitcoin, solana, XRP, ethereum, or dogecoin. Others take already “inherently volatile” cryptocurrencies and add leverage or options that alter their risk/return profile.

The firm notes that these launches followed a couple of exceptional years for cryptocurrencies: bitcoin surged 150% in 2023 and 125% in 2024. However, “investors in more recently launched ETFs in this theme were unable to replicate those spectacular returns,” as bitcoin reached its peak in October 2025 and has since fallen by nearly 50%.

Meanwhile, diversified benchmark indices continued to post steady gains. “In the long term, the combination of poor timing, volatility, high fees, and lack of diversification tends to result in underperformance compared to ETFs that track the broader market,” the firm states.

Concentration and Limited Diversification

Although thematic ETFs may appear diversified at first glance, they are often far more concentrated than investors realize. Most of these vehicles include only a handful of stocks, compared with broad market indices that contain between 500 and more than 5,000 securities, according to Morningstar.

Of the 1,117 ETFs launched in 2025, only 182 had more than 100 holdings in their portfolios. This means that approximately 84% of newly launched ETFs are considerably more concentrated than many investors believe. In addition, nearly 46% of the 1,117 ETFs launched in 2025 held fewer than 10 securities.

“Concentrated portfolios magnify the impact of stock-specific risk and make fund performance disproportionately dependent on a small group of volatile stocks,” the firm notes. It also points out that thematic ETFs with many holdings “may have achieved that diversification by including stocks that have little connection to the concept being marketed to investors.” As a result, the concept can become too diluted, and the ETF may not actually provide the exposure it claims.

Higher Fees and “Mini-Bubbles”

Fees have also started to move in the “wrong direction”: ETFs launched in 2025 had, on average, higher expense ratios than more established funds. Moreover, the firm finds no evidence that these higher costs translate into benefits for end investors.

The rise in expense ratios is largely due to the growth of actively managed ETFs. Of the 1,117 ETFs launched in 2025, 943 do not track any index and would be considered actively managed. The equal-weighted average expense ratio for this group stood at 76 basis points. The common denominator among these recent launches appears to be “high fees, limited diversification, and unjustified complexity.”

When the enthusiasm surrounding these products fades, the correction can be swift and severe. Valuations begin to normalize, triggering sharp declines in the underlying stocks. ETFs focused on small, speculative securities can exacerbate these price drops as fear and selling pressure increase. This often coincides with a wave of ETF closures, as funds that once attracted investors during the boom struggle to remain economically viable once performance weakens.

Ultimately, many investors are left with losses that could have been avoided had they focused on sound principles rather than chasing returns. Ironically, trying to get rich quickly is often the slowest way to build wealth.

What Investors Should Do

Narrative-driven cycles are nothing new, according to Morningstar, as markets have experienced them before and continued to thrive. The keys to long-term success have not changed: diversification remains the first line of defense, helping to reduce stock-specific risks inherent in narrow themes.

Fees also deserve close attention: higher expense ratios require stronger performance to justify the cost. Thematic ETFs have a weak track record, and most fail to outperform the global market.

It is advisable to maintain a healthy degree of skepticism when certain themes dominate headlines: trends that capture media attention and then become the target of a new ETF often signal that the narrative has already been fully priced into the market.

In conclusion, the firm notes that the growing variety of ETFs demands greater scrutiny than ever from investors. “They must look beyond the ‘ETF’ label and evaluate what they are actually buying.”

They also recommend considering the number of holdings in the portfolio, the economic fundamentals behind the narrative, the fees relative to alternatives, and whether recent performance reflects solid fundamentals or temporary enthusiasm. “The idea is to avoid the pitfalls of narrative-driven ETFs and focus on strategies with a solid foundation,” as “ETFs remain powerful tools when used with the same care and discipline that defined their initial success.”

Therefore, in a market environment where innovation is abundant and enthusiasm spreads quickly, “thoughtful decision-making remains the most reliable safeguard.”