Back to school arrives in the US and after a tumultuous August, the market is looking to recover the losses of Black Monday on the promise of a rate cut by the Fed.
With the S&P 500 adding another 6% last month and accumulating 17% year-to-date with rate cuts just around the corner the J.P. Morgan Private Bank investment team offers an analysis of three principles to consider in the portfolio.
1. Know your toolkit: Each asset has a role to play
“If you’re looking to get top marks this year, having the right school supplies is likely the first step. From the trusty pencil to the elegant protractor, to the almighty graphing calculator, each item has a purpose. Your portfolio is no different. Whether it’s cash, stocks, bonds or alternative investments, each asset has a distinct role to play—and they work together to achieve your long-term goals,” the experts said.
Each investment has its own particularity:
Cash:Everyone needs cash. From filling up the car tank to paying the down payment on a house, cash is king. Many also think of cash as a safe haven or even a source of income when interest rates are high. But cash is not designed to beat inflation. This means it’s equally important to think about how much you really need to have, and how much, if any, you can redirect to other types of investments to meet your goals.
Bonds: Bonds Fixed income securities can provide investors with a degree of stability. The coupon payments distributed over time by bonds, in addition to repaying the initial loan amount, assist in reducing the uncertainty and volatility present in a portfolio. The principal risk associated with bonds is the possibility that the issuer will default on its repayment obligations. However, historical data indicates that defaults in investment-grade debt have been exceedingly rare. For instance, default rates for corporate bonds have remained at approximately 2.5% since the Great Financial Crisis, while those for municipal bonds have remained below 0.1%. Additionally, fixed income is expected to outperform cash and inflation, and it also tends to exhibit less volatility than equities.
Stocks: Owning a stock entails a stake in a company and its future performance, including both positive and negative outcomes. Stockholders typically benefit from earnings growth and dividends paid by companies to reward shareholders. Since 1991, earnings and dividends have contributed almost all of the 3,205% total return for the S&P 500. Changes in valuation have driven less than 5% of the total return. Over time, equities are typically the engine of capital appreciation for portfolios, and they can provide the highest expected return, but this is accompanied by higher volatility.
Alternatives and real assets: Hedge funds, private equity, private credit, and other real assets, such as real estate and commodities, can provide distinctive exposure to portfolios and enable investors to access more targeted exposures. Such an approach may potentially enhance returns while reducing volatility, but it may also entail the risk of longer-term investment lock-in.
“While each has a distinct role to play, the ultimate key to notching consistent returns over the long haul is diversification across asset classes and, of course, staying invested,” the experts advise.
2. Maintain a long-run mindset
Beyond having the right supplies, the next step to being teacher’s pet is having the right mindset. For investors, a long-run mindset, in particular, can help pave the way for success, the analysis says.
Recent volatility is a prime example that over the short term, different assets can have a wide range of possible outcomes. That said, history tells us that over the long term, the possibilities can be much more certain.
“So even though markets can always have a bad day, week, month or even year, history suggests investors are less likely to experience losses over longer periods—especially in a diversified portfolio. Above all, keep the time horizon of your goals in mind. A bucketing approach can be helpful to determine how and where to invest your money over various time periods,” the text adds.
3. It’s about time in the market, not timing the market
The next step on the road to valedictorian is staying out of trouble. Discipline can help us avoid falling victim to bad habits. For investors, one of the worst habits to have is trying to time the market.
Since the start of the year, we have seen the S&P 500 make almost 40 all-time highs. When market levels are elevated, it may lead some investors to feel like it is too late to get invested, which often keeps them on the sidelines in the hope of a pullback While we did see an -8.5% drawdown from July highs, trying to get the timing just right is a dangerous game to play.
For other investors, market pullbacks do not feel like an opportunity. Instead, the fear associated with them and the ensuing volatility may push them out of the market, causing them to miss the rebound on the other side.
The article by J.P. Morgan Private Bank can be found at the following link.
Advisors are increasing allocations to ETFs as they become more comfortable with the product and its use across a broader range of asset classes, according to the latest edition of The Cerulli Edge-U.S. Monthly Product Trends.
According to the study, which analyzes ETF flows up to July 2024, nearly all advisors (90%) use the product in some way.
On the other hand, while active managers can add value, 61% of advisors agree or strongly agree that it is difficult to identify active managers who consistently outperform the indices.
Hybrid RIAs advisors allocate the highest percentage of assets to actively managed ETFs across all channels, and numerous asset managers are dedicating resources to expanding their product range to include more active ETFs.
In July, mutual fund assets grew by $332 billion (1.7%) over $39.5 billion in total net outflows, representing an organic growth rate of -0.2%.
Total asset growth for 2024 is $1.6 trillion, despite total net outflows of $175 billion.
Additionally, during July, ETF assets grew by $329 billion (3.6%), with $119 billion attributed to net inflows, marking their second strongest month in history.
In 2024, ETFs assets have increased by $1.4 trillion (16.8%), with total net flows of $526 billion, representing an organic growth rate of 6.5%, concludes the report.
Harbor Capital Advisors, Inc. (“Harbor”), an asset manager that curates a suite of actively-managed ETFs, mutual funds, and collective investment trusts, has added the Harbor Active Small Cap ETF (Ticker: SMLL) to its growing lineup of ETF offerings.
“SMLL is an actively managed ETF that invests in a blend of growth and value small cap companies. It seeks to offer what we believe is a cost-effective, transparent, and tax-efficient way for advisors to access the small cap blend space with an active strategy positioned to capitalize on the asset class’s inherent inefficiencies and wide dispersion of returns,” the statement says.
Why SMLL?
“Small caps are top of mind for Harbor as we believe they have the potential to offer attractive returns over the coming cycle,” said Kristof Gleich, President & CIO at Harbor Capital Advisors. “Glenn sits squarely in the bullseye of what we’re trying to achieve at Harbor. He is a proven, committed, skilled active manager who has decided to break away and create his own boutique, honing decades of experience and knowledge he has accumulated at a larger firm. An active approach and commitment to finding companies he believes have a sustainable competitive advantage can serve as a compelling allocation for advisors who seek to capture some of the potential returns available to small cap investors.”
Harbor’s Active Small Cap ETF (SMLL) invests only in businesses with sustainable competitive advantages run by competent management teams that are good stewards of capital with a track record of success. Candidates for inclusion in SMLL must also trade at a discount to their intrinsic value.
Harbor’s Active Small Cap ETF gives access to a tenured investment manager and process with total expense ratio of 80 basis points.
Yael Malik has joined BlackTORO GWM in Miami for the role of Chief Commercial Officer.
Malik’s background in investment banking, corporate finance and asset management is critical to BlackTORO, said Gabriel Ruiz, president and CIO of the firm.
With more than 30 years of experience in the financial market, She held leadership positions in major financial institutions such as BACS Banco de Crédito y Securitización S.A., where she served as Investment Banking Senior Vice President, and Consultores Asset Management S.A. where she served as Managing Director.
In these companies, she had prominent roles in the different investment teams in which he participated and led the structuring and execution of complex financial transactions of equity and debt, says the statement accessed by Funds Society.
Her experience also includes participation in international primary market transactions, where she led more than 20 international debt issuances valued at more than $5 billion, the firm’s information adds.
“We are very excited to have Yael join our management team at BlackTORO. Her experience in investment banking and asset management and her ability to develop business relationships will be instrumental in delivering comprehensive service excellence to our clients and driving the growth of our firm in Latin America and the United States,” said Ruiz.
Malik holds a Bachelor’s degree in Administration from the Universidad de Buenos Aires and a Master’s degree in Finance from Universidad Torcuato Di Tella. She also holds CFA Level II certification and has earned Next Board certification in Women Corporate Directors at UCEMA.
“I am honored to join such a talented and experienced team, and I am excited to contribute my knowledge and experience to the company’s continued growth in its core business areas,” concludes Malik.
Photo courtesyJuan Ramón Caridad García, Head of Strategic Clients para Iberia y Latam de Pictet AM.
Pictet Asset Management, the institutional asset management and fund management division of the Swiss Pictet Group, has made two key appointments for the Iberian and Latin American markets, under the supervision of Gonzalo Rengifo Abbad, who has been its General Manager in Iberia and Latam since 2002.
As announced, Juan Ramón Caridad García is joining the Pictet AM team as Head of Strategic Clients for Iberia and Latam, reporting to Gonzalo Rengifo from the Madrid office. Additionally, Lorenzo Coletti Perucca has been promoted to Head of Iberia, taking on the responsibility for the Iberian market, while Tiago Forte Vaz becomes Head of Latam, responsible for the Latin American market. Coletti joined Pictet AM in 2001 as Sales Director for the Italian market and has been in Spain since 2005, while Forte Vaz joined in 2013 to develop business in Portugal and Brazil.
Meanwhile, Patricia de Arriaga Rodríguez, who began her career in 1984 and joined Pictet AM in 2006, will remain with the company as Deputy General Manager in Spain until the end of 2024, and later as Senior Advisor for key clients until her retirement in 2025.
Following Caridad’s appointment, Gonzalo Rengifo Abbad, General Manager in Iberia and Latam, stated: “This is a new transversal role aimed at facilitating a differential service in the various markets of Iberia and Latam and enhancing global synergies. Juan Ramón fits perfectly into the team, as he shares our values of responsibility, entrepreneurial spirit, and long-term thinking.”
Caridad has 25 years of experience. Until last May, he was Managing Director and Head for Iberia & Latam at GAM Investments. Caridad holds a degree in Economics and Business from the Autonomous University of Madrid and a postgraduate degree in Business Analysis and Valuation from the London School of Economics and Political Science. He is the Academic Director of the Master’s in Finance and Alternative Investment at Bolsas y Mercados Españoles and Co-Director of the I3 program at Instituto de Empresa. Additionally, he is a trustee of the FIDE Foundation.
Rengifo also highlighted that “Patricia will continue to contribute to the business with her extensive experience, deep knowledge of Pictet AM’s investment strategies and capabilities, and close relationship with clients. She has helped multiply the business in the Spanish market to €8.91 billion as of March 2024, making it one of the top ten international asset managers in our country. Among her wide range of achievements, she has been instrumental in successfully advancing thematic investments as well as financial education through various initiatives over the years.”
According to the firm’s head for Iberia and Latam, “these appointments underscore Pictet AM’s commitment to experienced professionals to drive growth and establish itself as a leading partner for institutional investors in the Iberian and Latin American markets.”
The Fed Board announced in a statement the final individual capital requirements for all large banks.
The margins, which will take effect on October 1, are the result of the stress test conducted earlier this year, the Fed explained.
The capital requirements for large banks are based on the results of the Board’s stress test, which provides a risk-sensitive and forward-looking assessment of capital needs.
The Tier 1 capital requirements of each bank’s common equity, which is composed of several elements:
The minimum capital requirement, which is the same for each bank and is 4.5 percent;
The stress capital buffer requirement, which is based in part on the stress test results and is at least 2.5 percent; and
If applicable, a capital surcharge for the largest and most complex banks, which is updated in the first quarter of each year to account for the overall systemic risk of each of these banks.
If a bank’s capital dips below its total requirement announced today, the bank is subject to automatic restrictions on both capital distributions and discretionary bonus payments.
Also, the Board announced that it had modified the stress capital buffer requirement for Goldman Sachs, after the firm’s request for reconsideration. Based on an analysis of additional information presented by the firm in its request, the Board determined it would be appropriate to adjust the treatment of particular historical expenses incurred by the bank in the stress testing models’ input data, due to the non-recurring nature of those expenses. As a result, the bank’s stress capital buffer requirement has been adjusted to 6.2 percent from a preliminary 6.4 percent.
The Board is focused on continuously improving the stress testing framework. To that end, the Board will analyze whether to revise regulatory reporting forms to better capture these types of data and to explore possible refinements to certain model components, the memo concludes.
Latina women in the U.S. contributed $1.3 trillion to the Gross Domestic Product (GDP) in 2021, representing a growth of over 50% in a decade, according to the U.S. Latina GDP Report.
The research, funded by Bank of America, is the first of its kind and highlights the “significant and growing economic contribution of the country’s Latina female population.”
Led by academics Matthew Fienup, Ph.D., from California Lutheran University, and David Hayes-Bautista, Ph.D., from the Geffen School of Medicine at UCLA, the report found that the GDP of Latina women in the U.S. grew at a rate 2.7 times higher than that of non-Latinas between 2010 and 2021.
Currently, the GDP of Latina women is larger than the entire economy of the state of Florida, the report adds.
“This exciting body of work captures the positive growth and contributions that multigenerational American Latinas have been making to the U.S. economy and confirms that Latinas are a driving force. We see a similar momentum reflected in our overall business, as well as many of the same key drivers found in our own research,” said Jennifer Auerbach-Rodríguez, Head of Strategic Growth Markets and Client Development at Merrill Wealth Management.
Following the compilation of the U.S. Latina GDP and in metropolitan areas, this new report brings much-needed attention to the contributions of Latina women in the U.S. and reveals that Latinas outperform their gender and ethnic peers in key economic measures, including record levels of Latina labor force participation, educational attainment, and income growth, Fienup commented.
Iñigo Urbano, Santander Private Banking International
Iñigo Urbano has relocated from Miami to Santander Private Banking International’s office in Dubai.
“After more than a decade with our team in Miami, we are delighted to welcome Iñigo Urbano Zumalacarregui to our new Branch in DIFC where he will join the team as Executive Advisor,” the firm announced Wednesday on LinkedIn.
The portfolio manager, who worked for 13 years in Santander’s discretionary management division in Miami (2011-2024), is moving to Dubai for the new office led by Masroor Batin.
Throughout his 20-year career, Urbano has worked at Credit Suisse (1999-2002), Fortis (BNP Paribas) between 2003 and 2009 as a senior portfolio manager. He later worked at Seguros RGA for two years before joining Santander, according to his LinkedIn profile.
In December 2023, Santander Private Banking announced, through an internal memorandum, the opening of an office in Dubai led by Masroor Batin, the former Head of Middle East and Africa at BNP Paribas Wealth Management, in line with its interest in expanding its business in the United Arab Emirates.
In this context, the entity continues to strengthen its Dubai team. Among those who joined before Urbano’s relocation are Jacques-Antoine Lecointre, Kamram Butt, Mustafa Asif Mahmood, and Fady E. Eid.
The international consultancy Bain & Company has published a study on the impact of generative artificial intelligence (AI) in the insurance industry, highlighting that this technology could increase company revenues by up to 20% and reduce costs by up to 15%, creating an opportunity for over $50 billion in annual economic benefits.
According to the report, the early use of generative AI in insurance will enable a transformation in distribution, covering four areas. First, its implementation will help agents produce content faster, reduce low-value interactions, and provide guidance to improve customer relationships.
Additionally, having an always-active virtual assistant will expand agent availability and assist customers with product comparisons and digital purchases.
This also opens up the possibility of large-scale hyper-personalization, where conversations, content, and offers will better respond to individual customer needs. Finally, combining structured and unstructured data will provide new insights and assist in risk identification. According to the consultancy, the application of generative AI will boost productivity, adjust workforce size, increase sales through more effective agents, and reduce commissions.
For individual insurers, the technology could increase revenues by 15% to 20% and reduce costs by 5% to 15%. However, Bain concluded that any change must be applied responsibly, recommending that insurers implementing this digital tool should focus on experimentation, learning, and change management.
In recent years, the financial industry has seen significant advancements driven by technological innovation. These advancements have not only occurred in sectors like medicine and telecommunications but have also transformed capital markets, as a recent research from FlexFundsshows. The creation of new financial instruments, such as money market funds, inflation-protected securities, REITs, and zero-coupon bonds, has energized market activity and generated new business opportunities.
One of the most notable innovations is Exchange-Traded Products (ETPs), which include Exchange-Traded Funds (ETFs) and Exchange-Traded Notes (ETNs). These products allow portfolio managers to access a wide range of underlying assets, opting for different investment strategies.
Investment vehicles (ETPs) have had a significant impact on portfolio management, facilitating greater diversification, accessibility, and customization. Some of the key impacts are:
Diversification: Investment vehicles, such as mutual funds and ETFs, allow investors to access a wide range of assets, sectors, and geographies. This facilitates portfolio diversification, reducing overall risk.
Access to specialized markets: Through investment vehicles, portfolio managers can access specific markets or strategies that might be difficult to reach directly, such as emerging markets, technology sectors, or alternative strategies.
Cost reduction: Many investment vehicles have contributed to cost reduction in portfolio management, making investment more accessible to a larger number of people.
Customization: With the wide variety of vehicles available, portfolio managers can build investment strategies more aligned with the specific goals and risk profiles of their clients.
Liquidity: ETPs offer liquidity, allowing managers to adjust their portfolios quickly in response to market changes.
Innovation in strategies: The development of more sophisticated investment vehicles, such as thematic funds or sustainable investment funds, has enabled portfolio managers to implement more innovative strategies aligned with current trends.
Depending on the strategy’s objective, the ETP structure can vary, facilitating the inclusion of alternative and less liquid assets in investment portfolios.
FlexFunds has been a pioneer in implementing asset securitization programs, which facilitate the issuance of investment vehicles that allow for the securitization of multiple investment strategies, thereby increasing liquidity by facilitating access to a greater number of international investors. Additionally, FlexFunds’ solutions allow for the repackaging of any type of asset into an ETP in an agile and cost-efficient manner, providing portfolio managers with an effective tool to bring their strategies to market faster and at lower costs than conventional funds.
The role of NAV in ETP management
A crucial aspect of ETP management is the Net Asset Value (NAV), which represents the intrinsic unit value of investment vehicles such as ETFs and ETNs. NAV provides transparency to investors, allowing them to track the value and performance of their investments. FlexFunds ensures that the NAV of all ETPs issued under its program is distributed through leading price dissemination platforms, such as Bloomberg, Refinitiv, and Six Financial.
The calculation of NAV is based on three main components: total assets under management (AUM), accumulated liabilities, and units outstanding. The frequency of NAV updates depends on the liquidity of the underlying assets and the fund’s investment strategy. For example, funds investing in liquid assets may have a daily updated NAV, while those investing in illiquid assets may update their NAV on a monthly basis.
The integration of products like ETPs into investment strategies has transformed the financial industry, offering new opportunities for both investors and asset managers. Securitization programs, such as those developed by FlexFunds, provide effective tools for diversifying portfolios and optimizing asset distribution. By acting as the NAV calculation agent and facilitating the issuance of ETPs, FlexFunds positions itself as a strategic ally for asset managers looking to expand and consolidate their investment funds.
