Asset Managers

Equity markets in Europe fell sharply on Thursday. It was even the worst trading day of the year, with declines of the major indices from 1.7 to over 2 percent. The reason: investors are afraid of an economic slowdown and overvaluations. At the same time, analysts dived into the European Central Bank (ECB) minutes, which they found “extremely vague”.

Investment services in the Netherlands are the cradle of a true, possibly EU-wide revolution in finance: following in the footsteps of asset owners, such as pension funds, the major banks are replacing investment funds with so-called mandate solutions in their client portfolios.

The European Commission has identified six key areas to raise its ambitions in the field of sustainable finance. One of them is sustainable finance. To this end, it has drafted a regulation to establish a European standard for green bonds (EUGBS).

This proposal will be a voluntary standard available to all issuers to help finance sustainable investments. Green bonds are already being used to attract financing in sectors such as energy production and distribution, resource efficiency in housing and low-carbon transport infrastructure.

Since the outbreak of the Covid crisis, institutional investors have been increasingly looking towards sustainable funds. However, risk management is proving a major challenge, according to a study by asset manager Schroders.

Despite the huge cost in terms of human lives and economic damage of the corona crisis, European Fund and Asset Management Association (EFAMA) summarises the performance of the European fund industry as ‘resilient’. 

This was reflected in the Brussels-based organisation’s 2021 Factbook, published this month. It outlines the most important European trends currently affecting the fund industry. 

Sustainable equity funds invest in a wide range of assets, not just expensive ‘growth’ companies, as is widely assumed, according to Maximilian Anderl, manager of the UBS Equity European Opportunities Sustainable fund.

“Data from external parties are insufficiently transparent to be able to rely fully on in ESG investments. Moreover, the scores of these parties are often based on information and performance from the past. Particularly in the case of sustainability, a tool must help investors look ahead.”

The cost of implementing banking sector regulations has risen by an annual average of 16% since 2015 says a recent study by the the Luxembourg Bankers Association (ABBL) and major accounting firm EY.

Capital Group economist Robert Lind is a bit short on calling the current inflation surge temporary and sees faster-than-expected central bank intervention as the biggest risk to the bull market. He also has strong views on Sino-US trade relations and holding bonds in a portfolio.

Inflation uncertainty

Long-term interest rates will continue to rise, as will inflation. And the correlations between German government bonds and equities will become positive again. That’s a tough sell for the management of multi-asset portfolios. Fortunately, there are alternatives such as swaps and floating rate notes. And value stocks are preferred in an environment of rising interest rates and inflation.