The Assets of the Global ETF Industry Reached 12.89 Trillion Dollars in May

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New record for the ETF industry. The assets of these vehicles worldwide reached 12.89 trillion dollars at the end of May, according to data compiled by ETFGI, an independent research and consulting firm specializing in ETFs. A snapshot of the global ETF industry in May 2023 shows there are 12,313 products, with 24,729 listings, from 752 providers listed on 80 exchanges in 63 countries.

“The S&P 500 index increased by 4.96% in May and has risen by 11.30% so far in 2024. The index of developed markets excluding the U.S. increased by 3.62% in May and by 6.09% so far in 2024. Norway and Portugal saw the largest increases among developed markets in May. The emerging markets index increased by 1.17% during May and has risen by 4.97% so far in 2024. Egypt and the Czech Republic saw the largest increases among emerging markets in May,” notes Deborah Fuhr, managing partner, founder, and owner of ETFGI.

In terms of flows, during May, there were 126.32 billion dollars in inflows, bringing the total inflows to 594.19 billion dollars during the first five months of the year. Equity ETFs reported inflows of 64.73 billion dollars, and fixed-income ETFs reported inflows of 32.93 billion dollars during May. Commodity ETFs also stood out, reporting inflows of 768.14 million dollars.

Active ETFs, which have gained great popularity in both the U.S. and European markets, captured 27.53 billion dollars in May, accumulating 125.11 billion so far this year, a new record compared to 2023.

“The substantial inflows can be attributed to the top 20 ETFs by new net assets, which collectively gathered 51.59 billion dollars during May. Leading this ranking is the SPDR S&P 500 ETF Trust (SPY US), which gathered 8.99 billion dollars, the largest individual net inflow,” notes ETFGI. Vanguard S&P 500 ETF, iShares Core S&P 500 ETF, Invesco QQQ Trust, and iShares iBoxx $ High Yield Corporate Bond ETF complete the top five positions in this ranking.

Northern Trust Strengthens Its Team for Foundations and Institutions in the Southeastern Part of the U.S.

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Northern Trust announced on Wednesday that John Coates has joined Foundation & Institutional Advisors (FIA) as Senior Vice President and Senior Portfolio Advisor in Miami, where he will provide investment solutions to the firm’s foundation, endowments, and non-profit institutional clients.

Coates was a Senior Portfolio Advisor for PNC Institutional Asset Management for nine years, where he also managed relationships with corporate and non-profit clients, providing «intellectual leadership, training, and insights on their investment and retirement assets,» according to the statement.

Before PNC, he was a Portfolio Manager at Franklin Templeton Investments, where he co-led global and international equity SMA accounts.

Earlier at Franklin Templeton, he was also a portfolio manager with the Templeton Global Bond Managers team, where he managed global short-duration fixed income mutual funds. Under his management, the funds achieved first-quarter performance rankings within their respective S&P Micropal universe, the statement adds.

«John brings extensive experience in global investment management, with deep knowledge of multiple asset classes, acquired over nearly 30 years in the investment industry,» said Darius A. Gill, National Practice Executive of FIA.

Coates holds an MBA from Florida Atlantic University and a bachelor’s degree in Finance and Management from Florida State University. He holds CFA and CAIA certifications. He is a member of the CFA Society of Miami and South Florida, as well as CAIA Miami. He completed the Leadership Broward leadership development program and co-chairs the Socially Good Committee.

Lakpa Expands Its Network in Mexico Through an Alliance With Banorte

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(SU WEB) Grupo Financiero Banorte

About five months after debuting in the first-tier banking segment in Mexico, Lakpa continues to expand its networks in the country. The newest addition is Banorte Casa de Bolsa, with which the fintech recently signed a commercial alliance aimed at strengthening its offerings.

According to Matías Correa, founder and CEO of the tech firm, this agreement gives Lakpa’s clients access to the investment products and platform of the Mexican brokerage firm, part of the prominent Grupo Financiero Banorte. Additionally, they will have access to the products the bank can offer.

The executive highlights that the alliance enhances the proposal of the Chilean-origin fintech, offering more investment alternatives for its clients. On the flip side, he adds, «We expect to bring clients to Banorte,» which he describes as «a highly recognized group at the national level.»

With this signing, the company now has six commercial alliances in the Latin American country. In January of this year, they sealed their first agreement with a first-tier bank by signing with Scotia Wealth Management. They also have partnerships with Actinver, GBM, Invex, and Finamex.

Correa moved to Mexico in 2022 to lead the expansion of the Chilean firm in the country, which has been growing since then. Now, the executive reports that the fintech is on track to close its first year of operations there with 150 million dollars in assets under advisement. Additionally, he adds, they expect to increase the number of investment advisors and referrers from the current 18 to 30 by the end of the year.

European Football: Strong Investments From Funds Provoke Suspicion

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The Euro 2024 kicks off today, June 14, with the opening ceremony and the inaugural match between Germany and Scotland. But the beautiful game will be in the spotlight not only for the goals but also for the significant investments it attracts. In short, many things are happening in football both on and off the field, according to an analysis by Preqin.

While the ball rolls in Germany, Manchester City, the champion of England, has taken legal action against the English Premier League (EPL) over rules concerning clubs’ commercial deals with companies linked to their owners. This move could “drastically alter the landscape of professional football,” according to a recent publication by the London Times. Manchester City is owned by Sheikh Mansour of Abu Dhabi through his City Football Group, in which the international private equity firm Silver Lake also has a significant stake.

In an era where fund managers have become key players in sports, complex financial ties are increasingly common. However, external ownership is not welcome everywhere.

Last year, Advent International, Blackstone, CVC, and EQT were interested in buying a €1 billion stake in the broadcasting rights of the German Bundesliga. But the DFL Deutsche Fußball-Liga abandoned the deal in February amid widespread fan protests that included chocolate coins and fireworks tied to remote-controlled cars. CVC already owns a stake in the broadcasting rights of France’s Ligue de Football Professionnel.

Germany remains an outlier, partly because its clubs are protected from full shareholder takeovers. In England, Clearlake Capital holds a stake in Chelsea. Newly promoted to the EPL, Ipswich Town received £105 million for 40% of its capital from Ohio-based Bright Path Sports Partners in March.

Everton, a Premier League club, recently saw a potential deal with 777 Partners fall through. This Miami-based company’s investments in European football include Genoa, Sevilla, and Standard Liège.

RedBird Capital Partners (AC Milan, Toulouse, and Liverpool), based in New York, recently raised $4.7 billion to invest in sports, media, and financial services. Like the 24 national teams competing in the Euro 2024, their goal is to succeed in the world’s greatest sport.

Tiffani Potesta Joins Voya IM as the New Head of Distribution

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Voya Investment Management (Voya IM) has hired Tiffani Potesta as the new Head of Distribution, who will join the company on July 8. She will be based at the New York headquarters and will report to Matt Toms, CEO of Voya IM.

In her role, she will be responsible for overseeing all aspects of distribution for Voya IM’s institutional and intermediary businesses, including defining the strategic direction in national and international sales, distribution strategy, product positioning, client service, and relationship management.

«We are pleased to announce that Tiffani will be joining Voya IM to lead our Distribution team. Tiffani brings a wealth of experience across multiple facets of the industry, and I am confident that her expertise will benefit both our clients and Voya. We look forward to Tiffani’s leadership as we continue to strengthen our distribution of investment products and services globally across institutional, sub-advisory, and intermediary channels,» said Matt Toms, CEO of Voya IM.

Potesta has over 20 years of experience in the asset management industry, where she spent most of her career designing and implementing business and distribution strategies, ensuring asset longevity, mitigating risks, and fostering revenue and client diversification. She joins Voya IM from Schroder Investment Management North America, where she held various leadership positions, most recently as Chief Strategy Officer and Head of Distribution. Previously, she held account management roles at Deutsche Bank, First Eagle Funds, and Allianz Global Investors.

The Fed Insists on Higher Rates for Longer and Aims for Only One Cut In 2024

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Yesterday’s meeting of the U.S. Federal Reserve (Fed) went as expected, with no changes to interest rates yet, but it did convey some clear messages. One of the most relevant was that the Fed sees less need and urgency to ease its monetary policy but still leaves the door open for cuts this year. The key point is that, in the short term, it expects inflation figures higher than anticipated at the beginning of the year, although its long-term projections still show inflation returning to 2%.

“Central bankers delivered a seemingly aggressive surprise at the June FOMC meeting. The updated median projection for the federal funds rate, or dot plot, now indicates a single rate cut by the end of the year, compared to three expected in March. This change of opinion was likely due to a slight improvement in inflation expectations for this year and next,” says Christian Scherrmann, U.S. economist at DWS, regarding his overall view of yesterday’s meeting.

Regarding this change of opinion, Jean Boivin, head of the BlackRock Investment Institute, points out that the Fed has done this several times before, so they don’t give much weight to its new set of projections. “Powell himself said he doesn’t consider it with high confidence, emphasizing the Fed’s data-dependent approach. Regardless of the Fed’s forward guidance, incoming inflation surprises, in any direction, will likely continue to lead to significant revisions in policy expectations,” he explains. Boivin believes that given the lack of clarity from central banks on the path forward, markets have become prone to reacting strongly to individual data points, as we saw again today with the post-CPI jump in the S&P 500 and the sharp drop in 10-year Treasury yields.

For Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable AM, Powell’s message was very balanced. “Although the dot plot shifted upwards, and most officials do not expect any cuts or only one this year, they are also very aware that maintaining a restrictive policy for too long could unduly harm the labor market and the economy. So far, the labor market is much more balanced, which should allow for a downward trend in inflation,” he argues.

What does this mean?

In the opinion of David Kohl, chief economist at Julius Baer, the updated summary of economic projections suggests that only one rate cut in 2024 and higher rates in the long term are appropriate. “The increase in inflation forecasts and the maintenance of growth expectations confirm the view that the FOMC wants to keep interest rates high for longer. The latest U.S. inflation figures, which were surprisingly low, were well received and increase our confidence that the Fed will cut its benchmark rate at its September meeting. We expect the Fed to pause from then and cut rates once more in December in response to a cooling labor market and easing inflation.”

For Kohl, the appropriate path for the federal funds rate has changed significantly for 2024: “Four FOMC participants do not see the need for rate cuts in 2024, seven advocate for one rate cut, and eight for two rate cuts.” This means, as he explains, that the median projection for 2024 has moved towards one rate cut and a preference for cuts in 2025. “The longer-term rate projection has increased, confirming the view that the FOMC wants to keep interest rates high for longer. The adjustment of the long-term rate path is an important acknowledgment that the U.S. economy is withstanding higher interest rates much better than feared,” says the chief economist at Julius Baer.

This view is also shared by James McCann, deputy chief economist at abrdn. “In reality, the median FOMC member now expects only one rate cut in 2024, compared to the three expected in March. This change in stance is likely due to higher-than-expected price growth in early 2024, which forced FOMC members to revise their inflation forecasts upwards once again. However, yesterday’s lower-than-expected CPI inflation surprise was much more encouraging, and with most members divided between one or two cuts, we wouldn’t be surprised to see the market continue to flirt with the option of multiple rate cuts this year,” adds McCann.

Alman Ahmed, global head of macro and strategic asset allocation at Fidelity International, emphasizes that during the press conference, Chairman Powell stressed the importance of incoming data flow, especially on the inflation front. “We have seen the Fed completely abandon any dependence on forecasts to set its policy, so we continue to expect it to maintain its current data-dependent approach,” he notes.

Forecast on rate cuts

In Ahmed’s opinion, his base case is that there will be no cuts this year, but “if inflation progress continues during the summer months or labor markets begin to show some signs of strain, the likelihood of one increases,” he explains. That said, he adds: “The U.S. economy continues to hold up, and yesterday’s release was affected by vehicle insurance components and airfares, meaning the bar for starting cuts remains high.”

Conversely, from Julius Baer, Kohl points to September, followed by another cut in December, and gradually reducing the official interest rate in 2025 with three more cuts. “The latest U.S. inflation data, which surprised to the downside in May, increase our confidence in a rate cut at the September FOMC meeting, while further cooling of the labor market in the second half of the year should motivate another round of policy easing at the December meeting,” he argues.

According to Scherrmann, more time will be needed for the term «progress» to move from the press conference to the post-meeting statement, where it would serve as a definitive signal for a first rate cut. Meanwhile, he believes the Fed must avoid scenarios like those in the fourth quarter of 2023, when financial conditions experienced unnecessary easing due to rising rate cut expectations. “Given the inconsistencies observed during the June meeting, we conclude that this goal has been successfully achieved for now: markets have discounted slightly less than two cuts in 2024, a slight decrease from pre-meeting expectations. As we connect the dots, we are likely to agree with this assessment,” defends the DWS economist.

Fed vs. ECB

In the opinion of Wolfgang Bauer, manager of the fixed income team at M&G Investments, these days we are witnessing a strange «mirror world» between central banks. “After the ECB cut interest rates and revised up its inflation forecasts last week, the Federal Reserve did exactly the opposite. Just hours after the release of surprisingly low inflation data, the Federal Reserve decided to keep interest rates at current levels and, more importantly, revised up its dot plot, indicating that it would only cut rates once this year. The Federal Reserve’s caution is likely to help the ECB hawks delay further rate cuts for now. Although the economic situation in Europe is different from that in the U.S., it seems unlikely that the ECB will proceed with monetary policy easing while the Federal Reserve remains on hold,” comments Bauer.

From eToro, they believe that this latest update also underscores that the Fed does not feel pressured to lower rates, as other G7 central banks (such as the BoC and ECB) have recently done.

Fixed Income and Technology: Alternatives to a Strong Economy That Delays Interest Rate Cuts

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From left to right: Tiago Forte Vaz, María Camacho and David Hayon | photo: Funds Society

The Rise of Artificial Intelligence and Central Bank Rates in the U.S. and Europe open opportunities for investments in both technology and Fixed Income, said experts from Pictet and Edmond de Rothschild at an event in Montevideo.

The experts, Tiago Forte Vaz, CFA, Head of Intermediaries at Pictet for Uruguay, Brazil, Portugal, and Argentina, and David Hayon, Head of Sales Latam at Edmond de Rothschild Asset Management, commented on the macroeconomic scenario, agreeing that the U.S. economy is strong, which is delaying interest rate cuts.

«The resilience of the U.S. economy is noteworthy. Even Fed members weren’t this optimistic. There was talk of a recession. Rate cuts were expected, and everyone was wrong,» commented Hayon.

Forte also emphasized that inflation is the most important issue to address and noted, «The year started optimistically, but central banks didn’t adjust until September.» The expert added that this is a significant risk as the Fed «lost credibility and is willing to tolerate a greater slowdown to avoid inflation.»

Hayon, for his part, supplemented the comment by explaining that Europe has more control over inflation but will try to align rate cuts with the U.S. to avoid generating inflation.

Geopolitical Risks

Both experts said that «it is impossible not to talk about geopolitical risks.» It is a latent conflict that could escalate, commented Forte.

However, Hayon tempered this by stating that they do not believe Europe will intervene militarily in the conflict. «We don’t imagine French troops in Ukraine,» said Hayon, adding that it is believed «the conflict will be played out in negotiations to achieve an end to the conflict and avoid escalation.»

Another geopolitical risk is that 70% of the population will have elections this year. Among the most notable countries are the U.S., India, Mexico, and Russia. «This environment creates tension and uncertainty that is difficult to diversify at the portfolio level,» added Forte.

The event, moderated by María Camacho, founding partner and director of strategy at LATAM ConsultUS, also included time for strategy presentations.

Pictet: Artificial Intelligence, Bubble or Opportunity?

Forte began by asking the audience, consisting of financial advisors from the Montevideo industry, whether it is still a good time to invest in Artificial Intelligence (AI).

The regional representative emphasized the concept that technology is overvalued in the present and undervalued in the future. Forte added that it is expected that spending on technology as a percentage of GDP will double.

He also noted that although the world has already been revolutionized by AI technologies, they are still in an early stage. However, «it is growing at an exponential rate.»

Regarding investment challenges, he mentioned the tension over semiconductors between China and Taiwan and «sufficient opportunities» in public markets for these strategies.

Edmond de Rothschild: Fixed Income Still Attractive

From Edmond de Rothschild, Hayon highlighted the importance of fixed income, especially in developed markets.

The expert pointed out that although spreads have narrowed significantly, total returns are good due to high rates and warned, based on the rate context explained, that there is still time to invest in these assets and achieve very good returns.

He also commented on the benefits of subordinated fixed income. Hayon emphasized the possibility of buying hybrid bonds, where the investor buys bonds with the security of investment grade but with the yield of high yield. «Buying subordinated debt from banks and insurers will pay well,» he elaborated.

During the presentation of the EDR SICAV Millesima select 2028 investment strategy, the expert highlighted the high risk of losing reinvestment when in cash.

Today, rates can provide good returns over a year, but fixed income exceeds that return over four years.

When and How: The Great Debate on Interest Rate Cuts in the U.S.

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The latest macroeconomic data confirm the robustness of the U.S. economy, presenting a significant debate for the U.S. Federal Reserve (Fed). From today until Wednesday, the Fed will hold its meeting, according to asset managers, with all the necessary ingredients: updated labor market and inflation data; economic projections; various perspectives within the FOMC; and Jerome Powell’s press conference. What should we pay the most attention to?

According to Erik Weisman, Chief Economist and Portfolio Manager at MFS Investment Management, perhaps the most important thing will be whether the Fed considers the April consumer inflation figures to be low enough to mark the start of a weakening trend. «The Fed has indicated that it needs to see several consecutive months of significantly more controlled inflation before beginning to cut interest rates. It is unclear whether the April data on the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) meet these criteria. This may be clarified during the press conference,» he notes.

Secondly, Weisman adds, «Another interesting point is the long-term dots, which indicate what the Fed considers its nominal neutral policy rate. Last quarter, the long-term median dot increased for the first time in a long time. Most market participants believe that the nominal neutral long-term Federal Reserve funds rate should be considerably higher.»

Cristina Gavín, Head of Fixed Income and Fund Manager at Ibercaja Gestión, believes that over the past few months, the Fed has been moderating its discourse regarding the path of rate cuts. «The most interesting thing, as with the ECB, will not be the announcement of maintaining the intervention rate, but Powell’s subsequent speech, where he will assess the country’s economy and what we can expect for the second half of the year. It is most likely that he will emphasize the need to be patient and wait for more convincing data to begin the rate-cutting process,» Gavín argues.

Main Forecasts

According to DWS, the big debate is about how much and how the Fed will cut rates. «Monetary policy is clearly restrictive from the labor market perspective. However, current inflation metrics do not yet justify a cut. It is no surprise that the Fed sees balanced risks and maintains close vigilance, as well as an open mind about incoming data,» argues Christian Scherrmann, U.S. Economist at DWS. The asset manager believes that in the real world, full of complexity and measurement errors, chaining the Fed to a single policy rule has always seemed like a bad idea. «But arguably the other extreme is even worse: letting elected politicians directly interfere in rate-setting, instead of having an independent central bank publicly committed to a stable framework and accountable for achieving its monetary policy goals,» they state.

«After strong employment data on Friday, expectations regarding rate cuts have cooled, and the market now only prices in one and a half cuts by the end of the year. Since the Fed is not expected to cut rates this week, the summary of economic projections should also reflect that the Committee has reduced its forecast for cuts this year. That is where the focus will be. We believe the dot plot will place the median reference rate closer to 5% by the end of the year, compared to the previous 4.6%. We will also be attentive to the language the FOMC may use to describe its growth and inflation outlooks,» says John Velis, Macro Strategist for the Americas at BNY Mellon IM.

According to Enguerrand Artaz, Fund Manager at La Financière de l’Echiquier (LFDE), market actors’ forecasts for the Fed’s trajectory have rarely been so disparate: some still predict a first cut in July and several more in the coming months, while others do not expect any cuts in 2024. «However, the U.S. is perhaps the country that could offer more visibility soon. Indeed, April inflation data were reassuring after negative surprises in the first quarter; price increases are now only driven by a few components that have little correlation with demand; growth was slightly below forecasts in the first quarter, and the labor market is slowly deteriorating, so the economic outlook, if confirmed, could outline a well-marked path for the Fed,» Artaz notes.

For the Head of Fixed Income and Fund Manager at Ibercaja Gestión, there have been voices that even ruled out cuts for this year. However, her forecast is that «in 2024 we will see a shift in the Fed’s monetary policy bias, with the first cut occurring after the summer. From there, and as long as price developments show a downward trajectory, we would bet on another intervention rate cut by the end of the year, once electoral uncertainty is behind us,» she argues.

Meanwhile, Deborah A. Cunningham, Chief Investment Officer of Global Liquidity at Federated Hermes, notes that despite the warnings at the May meeting, they do not anticipate a rate hike and expect one or two cuts for the remainder of the year. «One thing to note is that the idea of the Fed avoiding rate cuts in September to avoid appearing to interfere with the general elections, foregoing rate action when the data justifies it, could also seem politically motivated,» she explains.

«Canada and the Eurozone have started the cycle of rate cuts in developed markets, following the trend of emerging markets. But it is likely that this week Jerome Powell will confirm that the U.S. will arrive late to the party, as the Fed is not expected to cut rates before September, at the earliest. Global fixed-income investors are already benefiting from rate cuts, while those only exposed to the U.S. will have to keep waiting,» concludes Brendan Murphy, Head of Fixed Income, North America, at Insight (part of BNY Mellon IM).

Data Flows

According to Gilles Moëc, Chief Economist at AXA IM, the market will focus on the new «dot plot» from the FOMC this week. «We expect a change in the median forecasts to two cuts this year, compared to three in March. There is a risk that it will be reduced to just one, but we believe this would eliminate too much optionality, as it would send the message that the Fed cannot cut before the elections,» he explains.

In his opinion, market prices for the Fed changed drastically again last week in response to higher-than-expected job creation data in the U.S. in May, according to the Establishment survey (+272K, compared to a consensus of +180K), accompanied by faster wage increases (+4.1% on a three-month annualized basis, well above April’s 3.0%). Before the publication, two rate cuts were almost fully priced in for December (48 basis points), with 22 basis points already in September. «After the publication, the market was only pricing in 14 basis points of cuts in September and a total of 34 for December. But more than the directionality, it is the confusion that, in our opinion, is the main ‘message’ of the recent data flow from the U.S.,» he nuances.

In this «data fog,» Moëc sees it likely that the Fed’s forecast of its trajectory will be the focal point of this week’s FOMC meeting. «We believe the median of FOMC voters will forecast two cuts in 2024—which happens to be our base case—compared to three in March. Of course, there is a debate around the possibility of maintaining only one cut in the framework, but we believe this would send too harsh a message, indicating that the Fed has given up on cutting before the elections (a solitary cut for 2024 would be interpreted as no easing before December), which we believe would leave the Fed with very little optionality. While time is running out, we still see the possibility that the data flow will clear up enough over the summer to allow the central bank to begin removing some restrictions in September,» he concludes.

In the opinion of Raphael Olszyna-Marzys, International Economist at J. Safra Sarasin Sustainable AM, slower economic growth and a more balanced labor market should reduce inflationary pressures. In his view, the problem is that inflation will take time to return to its target, requiring a gradual approach to monetary policy easing. Nevertheless, given that the labor market has returned to where the Federal Reserve wants it, some Fed members will point to the risk of waiting too long. He believes that the Fed’s new projections could point to two rate cuts this year, but the distribution seems likely to tilt downward.

«The distribution of market participants’ expectations for the federal funds rate at the end of the year will likely shift to the right (a higher official interest rate). While the median ‘dot’ could point to two cuts this year, we believe a greater number of officials will forecast that the official interest rate will only be cut once or not at all this year. Overall, the slower-than-expected progress of inflation could limit the speed and promptness with which the Fed wants to cut rates,» argues Olszyna-Marzys.

While Europe Changes Course, the Markets Focus on the Key Event of the Week: the Fed Meeting

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The European Parliament elections have yielded three clear conclusions: far-right parties with an anti-establishment nuance have gained influence; a centrist majority persists; and the results have significantly impacted local politics in France and Belgium. The market’s immediate concern, however, remains on the upcoming decisions by the U.S. Federal Reserve.

According to the initial official results published by the European Parliament, far-right political groups have increased their presence. Nevertheless, the European People’s Party (EPP) emerged victorious with 191 seats, followed by the Socialists and Democrats (S&D) with 135 seats, and the Liberals (Renew) with 83 seats. These results have prompted a snap election in France, as President Emmanuel Macron dissolved the National Assembly and called for legislative elections later this month, and the resignation of Belgian Prime Minister Alexander de Croo, both due to their parties’ losses and the rise of more extreme right-wing parties.

According to Gilles Moëc, chief economist at AXA Investment Managers, the results of the European elections were not expected to trigger a significant shift in the EU’s stance. «Although the overall political space of the major parties is shrinking, the European Parliament has a long tradition of cooperation among the main groups – center-right, liberals, and social democrats – which, based on the national results seen so far, will likely maintain a comfortable majority of the seats together. It may be more difficult to reach the necessary compromises, and changes in public opinion will need to be considered, but a radical change of course is not to be expected. However, the decision of the French president to dissolve the National Assembly, the lower house of the French Parliament, in response to the European vote, changes the perspective,» he says.

Regarding Macron’s decision, Lizzy Galbraith, a political economist at abrdn, explained that «while these elections won’t affect Macron’s presidency, they might force him to work with opposition parties in Parliament, complicating his legislative agenda». Axel Botte of Ostrum AM highlighted the uncertainty in France, questioning whether the far-right RN could secure a majority government, potentially leaving Macron’s centrist party as the viable option.»In any case, these elections are extremely important with a view to the upcoming presidential elections in 2027

According to Mabrouk Chetouane, head of global strategy at Natixis IM Solutions, «the economic and financial consequences of this political thunder are already palpable» in France, where the main stock index, the CAC 40, opened with sharp declines, reflecting market operators’ concerns about the visibility of the French economy’s trajectory. «Reform plans could be abruptly halted by the likely formation of a coalition, which would result in a coalition government in a context where the state of public finances leaves no room for maneuver for the future government. France, a pillar of the eurozone, could find itself in a possible deadlock. This would reduce investor visibility, increase national stock market volatility, and raise the cost of debt… A deleterious trio that would temporarily deter foreign investors from French markets,» Chetouane points out.

Where is the Market Looking?

Against this new political backdrop, the markets are currently calm and focused on what they consider to be the key event of the week: the monetary policy meeting of the U.S. Federal Reserve. The crucial question is whether the Fed will announce its first rate cut of the year this Thursday, following the ECB’s rate cut last week.

To understand what the Fed might do, it’s essential to look at the data. “The latest U.S. employment data gave mixed signals. The ratio of job openings to unemployed workers fell to 2019 levels, suggesting a relaxation in labor market tension. However, the strong growth in non-farm payrolls and the 0.5% increase in average hourly earnings for production and non-supervisory workers could indicate wage inflation pressures. This week’s CPI could help clarify whether the U.S. is enjoying a Goldilocks moment of slowing inflation combined with resilient employment or if inflationary pressures persist,” says Ron Temple, head of market strategy at Lazard.

According to Javier Molina, senior market analyst at eToro, following the latest data on the state of the U.S. economy, the Fed faces significant challenges in achieving its 2% inflation target, given the solid performance of the economy and labor market. “At the next Federal Open Market Committee (FOMC) meeting on June 12, it is unlikely that the Fed will change its guidance on future rate cuts given the lack of confidence in the sustainability of the current disinflationary trajectory,” Molina notes.

Meanwhile, Paolo Zanghieri, senior economist at Generali AM, part of the Generali Investments ecosystem, recalls that in recent weeks, members of the Federal Open Market Committee (FOMC) have called for more patience in easing policy, which will likely result in an upward revision of the median appropriate level for the federal funds rate by year-end. “Our baseline scenario remains two rate cuts (in September and December), with a single cut as the second most likely scenario. More important for long-term rates, the FOMC is likely to continue raising its estimate of the long-term neutral interest rate, an indicator of the level at which the easing cycle will stop. The current median of 2.6%, which corresponds to a real rate of 0.6%, is well below what most analysts think: market-based estimates are consistent with a rate above 3%.”

Implications for Investors

According to Reto Cueni, economist at Vontobel, the election results show a strengthening of far-right «anti-system» parties in Europe, but they have not exceeded expectations. This means the centrist majority remains intact in the European Parliament, likely securing more than 55% of the total votes, while green parties across Europe have lost parliamentary seats.

In his view, this has three implications for investors. Firstly, Cueni notes that this centrist majority provides stability in a Europe facing high geopolitical uncertainty. “For now, this is positive news for investors. However, in the coming weeks, it will be seen if the centrist parties can work together and elect a centrist president of the European Commission for the new five-year term,” he asserts.

Secondly, Cueni believes that the shift towards right-wing «anti-system» parties, which politically oppose the «Green New Deal» and prioritize national security and border control, demonstrates a change in Europe’s political focus. “Investors need to pay attention to the presentation of the programs of the candidates for the next EU presidency, scheduled for mid-July, to understand the parties’ agendas and the political momentum in Europe,” he advises.

Lastly, Cueni adds that the early parliamentary elections in France will increase uncertainty about the political course of Europe’s second-largest economy. Given that the country’s political system makes foreign and defense policy largely a presidential prerogative, “the uncertainty about France’s future cooperation in Europe and geopolitically remains controlled, at least until the spring of 2027, when the next French presidential elections are scheduled.”

Views on the European Elections

Experts from investment firms had already warned that there could be a greater presence of the far right, as some polls had predicted. Nicolas Wylenzek, a macroeconomic strategist at Wellington Management, noted before the elections that these could accelerate a shift in the EU’s political priorities, which could have potentially significant implications for European equities. However, he clarified that this adjustment would depend on several factors, such as the composition of the European Commission, changes in the political landscape of member states, and international events like the war in Ukraine and the U.S. elections.

“While a reduction in administrative burden could be clearly positive for EU companies, I consider the overall shift to be marginally negative. Reforms that promote greater integration, such as banking union and capital markets union, would strengthen the resilience of the EU economy and facilitate growth, while allowing and encouraging the immigration of skilled labor could be important to help limit inflation and improve trend growth,” he explained.

Similarly, John Polinski, vice president and fixed income portfolio manager at Federated Hermes, recently pointed out how the 2024 European Parliament elections could result in the first center-right coalition in the EU, with the European People’s Party joining forces with the European Conservatives and Reformists and Identity and Democracy. According to Polinski, this change could moderate environmental and migration policies and alter spending and debt dynamics within the EU. “We believe a political shift to the right will have a moderate effect on European fixed income markets in the short term. But in the longer term, a change could significantly affect the markets, especially concerning cross-border mergers and acquisitions, and industrial, ESG, and fiscal policies,” he asserted.

Lastly, Felipe Villarroel, a manager at TwentyFour AM (a Vontobel boutique), offered a clear reflection on not being swayed by today’s headlines: “In our opinion, the macroeconomic consequences are unlikely to be as significant as some of the headlines following the elections might suggest. While it is very likely that the average MEP will shift to the right, that does not mean that macropolitics will change drastically. Without a doubt, there will be microeconomic consequences for sectors heavily affected by climate policy, for example, if some policies are reversed. But we tend to think that most macroeconomic variables and aggregate company data, such as leverage or default rates, will not change too much as a result of the elections. The most disruptive theoretical macroeconomic impact would be a scenario in which European integration is questioned. Even if the far right achieves a massive victory next week, they will not have nearly enough seats to seriously threaten this. There may be incendiary headlines after the elections, but we believe that from a macro perspective and fixed income portfolio management point of view, the headlines will not translate into facts.”

9 out of 10 Financial Advisors Invest in Private Equity, According to Survey

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Hamilton Lane conducted a survey of 232 professional investors worldwide, in which over 90% reported allocating their clients’ capital to private markets.

The study, accessed by Funds Society, adds that nearly all financial advisors (99%) plan to allocate part of their clients’ portfolios to this asset class this year.

Additionally, 52% reported planning to allocate more than 10% of their client’s portfolios to private markets, while 70% of advisors plan to increase their clients’ allocation to this asset class compared to 2023.

Advisors cited performance and diversification as the primary reasons for the increased interest in private markets.

Regarding their own knowledge of private markets, 97% of advisors claim to have advanced knowledge. However, the report notes that their clients may not be as well-informed.

«The survey revealed that advisors recognize their clients believe alternative assets can benefit their portfolios but are not sufficiently informed about this asset class,» explains the Hamilton Lane report.

For example, 50% of advisors rate their clients’ knowledge of private market investments as beginner or having little to no knowledge of the asset class and needing basic education, despite their high interest in the asset class.

Only 4% of advisors rated their clients’ knowledge of private markets as advanced, meaning they understand the asset class well and feel confident discussing details, trends, and products in private markets.

«The conclusion of this survey is that as interest in private markets grows, there is a clear need for more education,» says Steve Brennan, Head of Private Wealth Solutions at Hamilton Lane.

When advisors were asked what tools and information about private markets they would find useful in their practice, they cited education, thought leadership, and events as the top three ways to improve their clients’ knowledge of the asset class.

The online survey was conducted from November 27 to December 22, 2023. Among the 232 respondents from around the world were private wealth firms, RIAs, family offices, and other professional advisors from the U.S., Canada, Latin America, EMEA, and APAC.

To view the full report and its conclusions, click on the following link.