Chris Iggo

The current peace deal may be fragile, but markets need it to be genuine. If inflation and interest rate risk moderates, bond returns could potentially be sustained at a healthy level, and equities could continue to be driven by earnings exuberance.

The post Markets look beyond geopolitics as AI and rate hopes drive returns  appeared first on AdviserVoice.

Chris Iggo

Shock, adjust, continue

The Iran war started more than three months ago now. Investors spent a lot of time in March trying to define different scenarios and predict how the global economy and financial markets would react to a quick conflict; a prolonged one; or a total breakdown of functioning energy markets.

Three months on, where are we? Dated Brent – the main benchmark for crude oil – is currently trading at under $100 per barrel. It has averaged roughly $94 per barrel since the war started – double the average of the preceding three-month period.

That has been enough to send retail and wholesale energy prices higher, evidenced in inflation data across numerous economies. It has also been responsible for a move in forward interest rates – one-year; one-year forward US dollar and sterling rates (i.e. expectations for one-year rates in a year’s time) are 80-90 basis points higher than they were on 27 February; in the euro market the increase has been 60-70bp.

Stunning returns

None of this is new though. Most of the market re-pricing happened quickly. The expectation has increasingly become that a deal will be done to end the conflict, even if one has not yet been reached.

Since the end of March, returns have been positive. Fixed income assets have registered positive total returns, except US Treasuries and Japanese government bonds. Holding emerging market debt, subordinated and sub-investment grade credit and even long-duration European government bonds and gilts has been rewarded.

Interest rate expectations have even eased back. It looks as though the European Central Bank will raise rates at its 11 June meeting, but the US Federal Reserve and the Bank of England are expected to remain on hold this month.

Equity performance has been stunning. Technology stocks have led the way. The US SOX semiconductor index has achieved a total return of 79.6% since 31 March. The AI theme has become even stronger, with technology and semiconductor companies reporting strong revenues and market enthusiasm for such stocks undiminished.

That will be tested in the coming days and weeks by the success or otherwise of anticipated initial public offerings from SpaceX, OpenAI and Anthropic. Media speculation suggests that, along with Alphabet looking to raise $80 billion in new equity, these deals could raise more than $200 billion.

The AI theme has overwhelmed the Iran war’s potential negative risks. Those risks remain but markets are betting a deal to end the conflict and allow energy markets to start rebalancing is imminent.

Market based volatility indicators like the VIX and the equivalent measure of option volatility in the US Treasury market (the MOVE index) have been well behaved since mid-April.

Credit spreads are within touching distance of late February levels. In the currency markets, the dollar is trading about 1.5% stronger versus the euro and at a similar rate against sterling. Markets have been extremely resilient.

As I noted two weeks ago, the concerns about long-term government bonds have not been borne out by recent performance. For all the hysteria about gilts, the over 10-year index delivered a total return of 1.53% between the end of March and the end of May, with 73bp of that coming from income.

Gilt market performance might change after the Makerfield parliamentary by-election on 18 June, but higher yields are an enticing element of return for investors.

Deals, deals, deals

Market resilience is down to two factors; a deal to end the Iran conflict always seems to be close to hand; and the AI trade and its continued call for investors to allocate more capital.

Meanwhile, the global economy stutters on, with the latest round of purchasing manager surveys suggesting we are far from a sharp downturn in global activity.

Indeed, the US ISM manufacturing index hit a four-year high in May, driven by strength in new orders which reflects all the kit being made to build data centres and the associated infrastructure.

FIFA peace deal

I suspect President Trump would like a deal with Iran agreed before the World Cup starts next week (remember, Iran is supposed to participate). Global attention will be on the US, and the optics would be much better if Washington could tout a peace deal before Mexico and South Africa get the competition underway.

The amount of global investment capital being dedicated to AI is mind-boggling and it is not surprising that many are questioning whether it is a bubble. Certainly, public equity markets are going to be even more concentrated in technology stocks once this mega-IPO round settles. Some disruption to equity prices is possible as these re-allocations take place to accommodate this record level of new equity issuance.

This week’s news from Broadcom – revenue forecasts underwhelmed the market – reminds us that not all players can be winners. At the same time, the world can’t make enough chips, and capital expenditure continues to drive growth (especially in the US).

And the winner is…

We said at the beginning of the year that resilience was a key investment theme. So far, the global economy has remained resilient. Markets have too. Yields have reset higher but there has been no wave of defaults in credit, nor any market dislocations from investors assigning higher risk premiums to government debt.

The valuations of the AI companies planning to float, once they have gone public, will be a real test of whether this resilience persists for the rest of 2026.

By Chris Iggo, Chief Investment Officer

Performance data/data sources: LSEG Workspace DataStream, ICE Data Services, Bloomberg, BNP Paribas AM, as of 4 June 2026, unless otherwise stated). Past performance should not be seen as a guide to future returns.

The post Resilient to bubbles and bullets  appeared first on AdviserVoice.

Ramkumar Rasaratnam

Quant investing is entering a new era heralded by AI, according to AXA Investment Managers (AXA IM), which this year celebrates 40 years of quant equity innovation.

Launched in 1985, Equity QI was among the first to bring disciplined, systematic decision-making to equity investing, driven by AXA IM’s proprietary factor-based framework.

As investment data grows in scale and complexity, AXA IM is focused on harnessing the power of artificial intelligence (AI) and natural language processing (NLP) to accelerate insights, deepen analysis, and enhance model precision within the Equity QI fund.

The fund’s track record in systematically integrating ESG criteria has been recognised through industry awards, including Best Quantitative Solutions Manager and Best Use of AI at the Institutional Asset Management Awards 2025^[1], and Responsible Investments (ESG) category at the Fund Manager of the Year Awards 2024^[2].

Ramkumar Rasaratnam, CIO Equity QI at AXA IM, who visited Australia last week to meet with investors, said, “After 40 years, quant has proven its resilience and adaptability, but its greatest era lies ahead, as technology, sustainability, and systematic thinking converge to shape the future of investing.”

Since launching, AXA IM’s Equity QI strategies have thrived by continually evolving its quant platform, expanding beyond traditional factors such as momentum, quality, and volatility, systematically integrating ESG, and adopting advances in computing power and risk management.

“One of the reasons we’ve performed strongly in this space is that we recognised early the value of investing heavily in AI. That early commitment has positioned us strongly today, enabling us to capture opportunities of scale, systematically embed sustainability factors, and help investors achieve financial outcomes while staying aligned with long-term values.”

Quant strategies aim to offer resilience in volatile markets by identifying opportunities in dispersion and mispricing, while advances in AI and computing power enable investors to analyse vast datasets with unprecedented speed and scale.

“With AI and big data, we can now identify signals at a scale and speed previously unimaginable. What once took a month to analyse can now be done in a week, enabling us to capture opportunities and manage risk more effectively – giving investors a faster path to potential returns.”

“As we mark Equity QI’s 40-year milestone, the firm remains steadfast in its mission to deliver resilience, consistency, and opportunity for investors worldwide. The transformative impact of AI and big data is ushering in a new chapter, where signals and opportunities can be captured with greater speed, transparency, and discipline.”

———-

Notes:
[1] Source: Insurance Asia News’ Institutional Asset Management Awards 2025
[2] Source: Financial Newswire/ SQM Research’s Fund Manager of the Year Awards 2024

The post AXA IM celebrates 40 years of quant investing, embraces AI evolution appeared first on AdviserVoice.

Chris Iggo

Recession proof (?)

Recent global equity market price momentum has been strong despite ongoing policy uncertainty, escalated military conflict in the Middle East, and lower consensus economic growth forecasts. A US recession – a scenario which might lead to a significant shift in asset price performance – remains a low probability event. A lot of observers find this puzzling. Since the pandemic, real disposable income growth has been anaemic in aggregate (less than 1% per year compared to 2.8% annualised over the past 50 years). There has been a considerable tightening of monetary policy which has made life more difficult for borrowers – the average 30-year mortgage rate is at 6.75%, compared to 3% before the Fed raised rates. On top of all that, consumers are paying higher prices for imported goods.

More or less equal

The US is an extreme. The Gini coefficient is a measure of income inequality with a coefficient of zero indicating perfect equality and 1, absolute inequality. The World Bank provides an income inequality estimate based on the Gini methodology and a scale of 0-100. For 2023 the measure was estimated at 41.8 for the US. Countries with a higher measure (greater inequality) include places like South Africa (63.0), Brazil (51.6) and Turkey (44.5). Those with lower measures (more equality) included the UK (32.4), France (31.2) and Norway (26.9). With more income equality, a shock to real incomes (like the energy price shock in Europe in 2022) tends to have a broader and more aggregate impact. Germany’s decline in real GDP since 2022 is in part explained by this, although there are clearly other factors. The current US budget proposals, if anything, will merely entrench further income inequality, keeping the US economy highly leveraged to financial markets and the ability to sustain super profits in technology. In an unequal society, a rising tide does not necessarily lift all boats, but in a more equal one, a sudden deluge can sink them all. The policy model in Europe’s socially-democratic environment tends to address inequality and the challenge is to balance that with stimulating growth. In the US, the policy model tends to boost growth but paper over the inequality with populist promises.

Momentum is positive

Most of the time we are not in recession and the positive feedback loop in the US supports strong equity returns and economic growth. The accumulation of that is a stock market with much higher valuations than anywhere else, aided by its own positive dynamics attracting money in from the rest of the world. Latest readings for a measure of equity index price momentum, based on one-month and three-month changes, puts US indices towards the top of an international comparison (22 different indices) with only Korea and Israel topping the US. This measure recently turned lower which may indicate some underperformance of global equities for a while – subject to sentiment of course, which appears forgiving to policy shenanigans.

But valuations are rich

I’ve talked a lot about valuations and in our market strategy at AXA IM we always try to balance the impact of valuations, with macroeconomic factors, sentiment and technical influences on the market. Often, it is the case that valuations are high for certain asset classes because the macro (or broader fundamentals such as profits and leverage) is also positive. I looked at a range of valuation metrics for rates, credit and equities and calculated normalised scores for them relative to their distribution over the last 25 years – real rates, curves, credit spreads, price-earnings (PE) ratios and dividend yields. Not surprisingly, there are few assets flashing cheap. The cheapest ones are mostly UK – equities, long-end government bonds, real rates and overall credit yields. But when we think about the macro backdrop to the UK – Brexit, anaemic growth, persistent inflation and fiscal deterioration – it’s no wonder sterling assets are cheap. Away from the UK, European equities (dividend yields) and real rates score reasonably well.

Politically pricey

No surprise either for what flags as very expensive – US equities and credit spreads in general. Exceptionalism is priced in, with earnings per share growth required to be even higher than current analyst consensus forecasts to justify the current price-earnings multiple (never mind allowing the PE to revert to its longer-term average). The current political push to lower taxes and regulation favours a return to capital rather than to labour, extenuating income inequality and raising the firepower of those higher income cohorts. It’s uncomfortably hard to see how this all stops. Recessions have always led to lower profit margins and earnings, but the US seems to have become more resistant to recessions. Meanwhile, the rest of the world is dogged by sluggish growth, structural brakes on investment and innovation, and political systems that are weighed down by debt. The US is also becoming fiscally burdened, but the constraints are less because the rest of the world finances the US and in return the leveraged, socially unequal machine continues to generate growth. I don’t understand why Trumpism wants to throw sand in the machine.

Trump and market concerns (again)

However, this week’s round of tariff threats and Trump’s consistent attacks on Fed Chairman Jerome Powell, could backfire on the US. Inflation break-evens are starting to move higher – the five-year/five-year inflation swap rate has continued to move higher, the dollar is weakening again, even Bitcoin is testing new highs. The minutes from the Fed’s June 17-18 meeting clearly articulate the broad concerns about inflation moving higher, even if the tariff impact is temporary. Investors should be concerned that after supporting a budget which will add trillions to the US’s outstanding debt, President Donald Trump is pressuring the Fed to cut rates to reduce the cost of financing that debt – something which economists call “fiscal dominance”. The risk is higher yields, a weaker dollar, higher inflation, and eventually, credit and equity valuation corrections. Long credit is a very strong consensus, and as a Bloomberg article suggested this week, more and more of that is being expressed in a leveraged way through the credit default swap index market. The risk of an extended move – e.g. around tariffs or the Fed – is rising. After strong risk momentum, it might be time for tactical investors to potentially take a more cautious approach again.

Performance data/data sources: LSEG Workspace DataStream, ICE Data Services, Bloomberg, AXA IM, as of 10 July 2025, unless otherwise stated). Past performance should not be seen as a guide to future returns.

By Mr Chris Iggo, Chief Investment Officer, Core Investments

———–

All figures, as at end of December 2024.
Notes:
[1] All ETF data as at 31 May 2025 – source: ETF Book
[2] JP Morgan Global Government Bond Index / ML Global High Yield Index / Source: FactSet as at 26 June 2025 in US dollar terms
[3] LSEG Workspace DataStream, ICE Data Services, Bloomberg, AXA IM, as of 26 June 2025
[4] S&P 500, Nasdaq close at record highs, cap best quarter in over a year | Reuters
[5] LSEG Workspace DataStream, ICE Data Services, Bloomberg, AXA IM, as of 26 June 2025

The post The ‘Gini’ is out of the bottle appeared first on AdviserVoice.

Chris Iggo

Exchange-traded fund (ETF) investors have faced a significant increase in global economic uncertainty in 2025. But while the market backdrop of the past six months has been beset by volatility, we believe there are reasons for ETF investors to be optimistic for the months ahead.

Certainly, there has been plenty to contend with: Middle East tensions which have significantly escalated; America’s AAA credit rating loss; the decline of so-called ‘US exceptionalism’; and the trade war, with sweeping new tariffs unveiled on 2 April – ‘Liberation Day’.

The global geopolitical and economic discourse has become confrontational, and this creates uncertainty for ETF investors. However, as this trade war evolves – and while it is certainly a macroeconomic shock – the reality is perhaps less harsh than the rhetoric.

Away from the noise, markets are generally in good shape – bonds are delivering steady income to investors while equities have also enjoyed solid gains, especially in Europe and Asia.

ETF market powers on

The febrile environment has not diminished investors’ appetite for ETFs. The UCITS ETF market continues to experience record growth, with $277bn in inflows in 2024 – while 2025 is on track to hit a new high after reaching $145bn as of the end of May.^[1]

Within this, there has been robust demand for equity ETFs, especially European and global equities, as investors seek diversification amid the ongoing uncertainty.

Investor demand within fixed income ETFs also continues to evolve. The asset class represents some 25% of UCITS ETF assets under management but flows are increasingly directed toward actively managed strategies – overall active ETF assets under management have soared by 24% annually since 2015, and inflows surged from $7bn in 2023 to over $19bn in 2024. This momentum is continuing in 2025, with $9bn in flows already recorded.

Bonds on track

Year to date, global bond returns have been mostly positive – government and high yield bonds are each up 7%.^[2] Fears over fiscal stability and inflation have caused concerns, but this has not altered the fact that they are delivering income to investors. For all the talk about bond market jitters, benchmark yields remain in well-defined ranges.

But US government actions have weakened trust; ETF investors want greater compensation for holding US assets – hence the rise in US Treasury bond yields relative to those of other countries. In fact, on most dimensions, risk premiums are increasing. While none of the bond market moves have been particularly dramatic, ETF US Treasury investors may be impacted by ongoing relative underperformance.

At the very least, unless cuts to federal spending can be meaningful, ETF investors will be faced with significant new and refinancing issuance from Washington in the next few years.

However, corporate risk premiums have remained stable, reflecting the US economy’s underlying strength. In that respect corporate credit appears to be relatively sound. For now, any perceived deterioration in the US government’s creditworthiness has had little impact on corporate borrowing. Issuance remains healthy and demand is strong, and in our view, credit as an asset class remains on relatively stable ground.

Equities hold their nerve

What may be of more concern is the equity market – especially in terms of valuations. In the US, the S&P 500 and Nasdaq have once again hit fresh peaks.^[4]  The cyclically adjusted price-to-earnings ratio is almost back to record highs, and the stock market capitalisation/GDP ratio is as high as it has ever been – both indicators that the stock market could be seen as overvalued.

However, US-listed companies have on the whole reported strong earnings recently, and forecasts for earnings growth are still in double digits for this year and next.

The economy is not in recession and there is plenty of liquidity in money market accounts. Additionally, technology is moving quickly and given the rapid growth in artificial intelligence applications, this could be a source of exceptional growth and productivity booster in the US and beyond.

Compared to the US, risk-adjusted returns look more attractive in other regions and the realignment of global trade and political alliances could herald an improved relative performance in Europe, Asia – because of China – and other emerging markets in the years ahead. Year to date the MSCI Asia and MSCI Europe indices have achieved impressive returns of 13% and 22% respectively.

Looking ahead

The current geopolitical and economic outlook is fraught with concern. ETF investors have enjoyed very good returns from equities and credit markets are again generating decent income.

Markets are likely to see more volatility in the weeks and months ahead. Macroeconomic risks, which have been dormant since late April, are re-emerging. This largely reflects the fact that a lot of the economic data has hinted at resiliency. Employment growth, despite having slowed, remains positive.

The world is changing but market capitalism is not dead; it is just that the mechanisms are being shaken up. That creates uncertainty. But fundamentals are still solid for global ETF markets and the level of US confrontation should eventually recede. The VIX volatility index is at 16 and the one-to-five-year ICE Corporate Bond index is yielding 4.5% – both look good value.^[5]

As such, balanced, diversified ETF portfolios with a solid exposure to income flows from credit, and earnings growth from technology, should potentially continue to enjoy gains.

By Chris Iggo, Chief Investment Officer, Core Investments

———-

Notes:
[1] All ETF data as at 31 May 2025 – source: ETF Book
[2] JP Morgan Global Government Bond Index / ML Global High Yield Index / Source: FactSet as at 26 June 2025 in US dollar terms
[3] LSEG Workspace DataStream, ICE Data Services, Bloomberg, AXA IM, as of 26 June 2025
[4] S&P 500, Nasdaq close at record highs, cap best quarter in over a year | Reuters
[5] LSEG Workspace DataStream, ICE Data Services, Bloomberg, AXA IM, as of 26 June 2025

All figures, as at end of December 2024.

The post ETF investors enjoy bullish momentum despite global uncertainty appeared first on AdviserVoice.

Chris Iggo

Investors await clarity on US policy

US policy uncertainty and its outlook implications remain front and centre. In the case of adverse outcomes, US assets remain most at risk, given the threats to growth, inflation and interest rates.  Markets reflect this with US equities and long-duration bonds underperforming in 2025. Over the summer there could be more policy clarity.  Investors should be prepared for a meaningful level of import tariffs and a budget that underscores medium-term fiscal sustainability risks. In fixed income, short-duration strategies have endured less drawdown and delivered positive year-to-date returns. Resilient fundamentals should help sustain credit assets’ performance with limited interest rate risk. Being at the centre of the trade war; US and greater China equity indices have performed poorly. Few countries are exempt from trade risks but equity markets with the lowest valuation multiples should fare better as uncertainty persists. The UK, Canada, Australia and Eurozone have the lowest drawdown risks given current valuations.

Central bank policy: Same shock, different answer

The pandemic reminded us that monetary policy is not well equipped to face economic asymmetries. For decades, the standard model has somewhat dodged the supply side issues in the economy, prioritising demand stabilisation instead. While the European Central Bank’s (ECB) Strategy Review will supposedly address this key issue, responses may vary. The Federal Reserve (Fed) is confronted with a US trade policy asymmetric shock, although the consensus was already expecting higher inflation and slower US GDP growth even before Liberation Day. In contrast, the ECB is facing a symmetric shock, i.e. slightly lower growth and inflation, which is easily manageable with standard tools. Therefore, the Fed’s reaction should differ from the ECB’s, at least in theory: Fed policymakers should carefully weigh costs and benefits of targeting price stability rather than full employment and vice versa. Against this background, markets believe that both the Fed and the ECB are likely to continue cutting rates during 2025.

Foreign flows into US credit: A pause rather than reverse

Concerns over foreign investment in US dollar credit have recently emerged, driven by the deflation of US exceptionalism narrative and the substantial appreciation of Taiwan’s dollar. A flood in US dollar supply, alongside limited demand drove the move, as investors returned to home equity markets and exporters repatriated deposits. Data shows that historically there has been no structural relationship between the US dollar and foreign investors holdings of US corporate bonds. Instead, other factors play an important role in driving foreign demand, such as global savings supply and limited competing domestic investment alternatives. For Asian investors, challenging foreign exchange (FX) hedging costs are not new, however US dollar credit purchases from life insurers could ease if they’re faced with headwinds to sell US dollar-denominated policies. Increasingly so if local investors think the dollar is overvalued, and more losses could be ahead. Equally, an FX hit to earnings could constrain insurers’ ability to continue to deploy capital into US dollar credit.

By Chris Iggo, Chief Investment Officer, Core Investments

The post Uncertainty continues to dictate outlook appeared first on AdviserVoice.

Chris Iggo

The global geopolitical and economic discourse has become confrontational. This creates uncertainty for investors. Sentiment is volatile. Away from the noise, net market returns are nothing special. The trade war, whichever way it evolves, is a macroeconomic shock but the reality is less harsh than the rhetoric. Year-to-date equity market returns are positive, and some markets are up a lot. Meanwhile, overly dramatic concerns about government bonds have not altered the fact that bonds are delivering income to investors. Balanced portfolios are doing all right. Keep the poise, ignore the noise.

Fight, fight, fight

The US administration’s prevailing philosophy is to restore the American greatness concept. That implies a confrontation towards those that are perceived to be preventing this greatness from manifesting – foreign governments and institutions, immigrants, and those that have pursued a progressive policy agenda domestically. For markets, the most important manifestation of this confrontational approach has been trade policy and the attempt to reshape the global trading system in America’s favour. By now we are familiar with the unorthodox and unpredictable way the agenda is being pursued, and how this creates volatility in investor sentiment and market prices. For the near future, the US will keep fighting for better outcomes on trade, will back a budget that widens the Federal deficit, and pursue defunding research in areas such as social equality, health and climate risk that do not align with the MAGA agenda. The risks of self-inflicted economic damage are clear.

Sentiment

How will we know when America is great again? It is unrealistic to assume that the Administration will settle for less than the blanket 10% tariff, with other specific sectoral and China focussed taxes. A confrontational approach by the Administration is likely to be the modus operandi, at least until the mid-term Congressional elections in 2026. As such, investor sentiment is likely to be volatile and markets are likely to be directionless.

Domestic versus foreign

There are likely to be differences in sentiment towards investing in the US between domestic and foreign investors. Antagonism towards the rest of the world is core to the agenda. The antagonism surely feeds into asset allocation decisions regarding US assets, as the US loses empathy internationally. The policy approach creates uncertainty around US economic fundamentals such as growth, corporate profits, inflation, interest rates, and the dollar. On balance it tilts investors to more of a home country bias.

It is the politicians, not the CEOs

It is not corporate America that is causing the uncertainty, it is political America. US markets are expensive but have demonstrated strong earnings, forecasts for which are still in double digits for this year and next. Markets are supported by domestic investors where sentiment does not seem to be as bad (there will be some sympathy with the MAGA agenda). There is no recession, there is plenty of liquidity in money market accounts and technology is moving quickly. Some element of US exceptionalism remains in the stock market. Balance and diversification are the key for foreign investors. A lower desired level of exposure to the US market given valuation and the other macro risks may be the result but it does not mean the US is a no-go.

Fixed income trendless

The key risk to Treasuries is that higher coupons on newly issued debt are going to be needed to attract additional buying as deficits get bigger. This pushes up market yields and pushes down prices on existing bonds, leading to negative price returns in bond portfolios. For foreign investors in US bonds there is also a fear that the real value of their holdings could be eroded by higher US inflation and an even weaker dollar. Despite the unorthodox streak running through Washington, there has been no suggestion that they are going to monetise the debt and inflation away the problem of fiscal sustainability. US Treasury Secretary, Scott Bessent, for one, recognises that the inflation of 2021-2023 was driven to some extent by the Fed’s balance sheet policies super-charging quantitative easing. That is not a policy choice today. However, it is safer to stay in short-duration fixed income strategies given the volatility of yields at the long end of the curve. Short-duration credit in investment grade and high yield remains a sweet spot in this uncertain world.

Risks are higher. Risk premiums are higher. Further episodes of intense market volatility (with the Pavlovian responses from the commentariat) are likely. The world is changing but market capitalism is not dead; it is just the mechanisms are being shook-up. That creates uncertainty. But fundamentals are still solid for global markets and the level of confrontation from the US Administration will recede eventually. As such, long-term returns from balanced, diversified portfolios with a solid exposure to income flows from credit, and earnings growth from technology, should continue to see wealth grow.

By Chris Iggo, Chief Investment Officer, Core Investments

The post Keep the poise, ignore the noise appeared first on AdviserVoice.

Johann Ple

AXA Investment Managers forecasts that green bond issuance will soar to US$600 billion in 2025, driven by supportive regulation, evolving market dynamics, and surging investor demand for credible ESG-aligned investments.

The spike in the global issuance of green bonds marks an important commitment to improved efforts in striving for sustainable public and private practices.

“The unprecedented growth in green bond issuance is a testament to the collective commitment of global markets towards a sustainable future. The current trajectory reflects a growing emphasis on transparency as well as the drive to direct capital towards the net-zero transition,” says Johann Ple, Fixed Income Portfolio Manager at AXA Investment Managers.

“The green bond market has shown increasing momentum in recent years, breaking new records with $447 billion in issuance in 2024. This dynamic has propelled the Green, Social, and Sustainability (GSS) bond market to surpass 2023 by 17%.”

The euro remains the dominant currency in the space, accounting for 60% of new green bond issuances.

While participation from emerging markets has dipped from 10.4% to 6.5%, this could reflect faster growth in other regions, particularly in Europe and Asia. Similarly, the US issuer share has fallen to 8.5%, contributing to a marked decline in USD-denominated green bonds.

Navigating the US ESG backlash

“Despite the current ESG backlash in the US, sustainable investments continue to grow boosted by the Inflation Reduction Act. However, rather than issuing explicitly labelled green bonds, many US corporates are choosing to incorporate sustainability objectives into their broader financing strategies,” says Johann Ple.

This dynamic has alleviated the past scarcity of issuance the market had experienced in some segments, creating a green premium, or ‘greenium’. However, as the green bond market has expanded significantly, this premium has largely dissipated. Today greeniums tend to emerge more on a case-by-case basis rather than across sectors, reinforcing the value of an active and selective approach to green bond investing.

China’s first sovereign green bond

A major development this year was the launch of China’s first sovereign green bond, marking the beginning of a broader surge in Asian issuance.

“As sustainable finance continues to mature, especially with strengthening regulatory frameworks and government support across Asia, we expect the region to become a key engine of growth following Europe,” Ple explains.

Green bonds in modern portfolios

Over the past eight years, the green bond sector has outperformed[1] the global aggregate universe six times out of eight due to a good mix of credit and sovereign debt. The trend points to an asset class that is fast shedding its niche status and offering investors broad diversification.

Initially, corporate issuances were concentrated in utilities and financials, but they have progressively broadened to include real estate, telecommunications, and transportation.

Blind spots in sustainable finance

While green bonds have aligned more closely with conventional bonds in terms of duration and ratings, key differences remain. The market is more concentrated in euro and dollar currencies and has greater exposure to credit, resulting in tracking errors of up to 200 basis points versus global aggregate benchmarks.

Ple adds, “We believe there is a simple way to allocate to green bonds while addressing this dilemma. We’ve found that by combining green bonds with US Treasuries improves performance correlation and reduces tracking error versus a global aggregate universe.”

This offers a liquid, low-cost way to bridge the gap with conventional markets.

The future of green bonds

Australia is making significant strides in the green bond market.

“Australian issuers are becoming more active, using sustainability and green bonds, with a steadily growing number of issuers and an increasing AUD to Australian issuances ratio,” notes Johann Ple.

This development is expected to attract more green capital to Australia and support the government’s 2050 net zero commitment.

Green bonds are among the most effective tools for supporting the transition to a low-carbon economy, an essential factor behind the sector’s rapid growth.

“Whether investors choose a tailored strategy or a blended approach, they can tap into the green bond universe through solutions that are both innovative and accessible,” concludes Johann Ple.

The post Green bond issuance to hit record US$600 billion in 2025 appeared first on AdviserVoice.

Chris Iggo

Markets are back to where they were before 2 April. Economists thought a recession was a sure bet but are not so convinced now. Investor sentiment – or at least market momentum – has been very positive. The thing is, we don’t know quite how the macroeconomic outlook has changed. It is surely worse in terms of growth and inflation, at least for a while. But US equity markets are back to their valuation highs. It’s that time of year that evokes the old saying “sell in May and go away”. Or at least tilt towards credit.

Fear or greed – Investors will have had differing experiences during the last six weeks. Those who did nothing will have done fine. However, if investors took the rational decision to reduce equity weightings and, specifically, reduce US exposure, the results will have been mixed given the voracity of the equity market rally since 9 April. The market timers will have done best if they were able to sell on the tariffs and buy on the pause. Being closely tuned into the particular modus operandi of the Trump Administration will have helped.

Tariffs up, growth down – I’m not sure that I have seen such swings in sentiment amongst market participants and economists. Based on what we know today, tariffs are going to be historically high. This will impact trade flows, supply chain dynamics and business planning. American companies relying on imported consumer goods for resale or industrial inputs will be paying higher prices and still might not have the certainty they require to plan output and investment, or the ability to maintain profit margins. China might be celebrating a ‘win’ over the US, now that Trump has taken down tariffs, but they are still going to be high. This will affect Chinese exporters’ volumes with potential negative implications for employment and output, not to mention raising US consumer prices.

In our macro, valuation, sentiment and technical framework for assessing asset return prospects, the macro outlook is worse than it was. The only meaningful factor that has improved is sentiment, driven by announcements of “trillions of dollars” of deals done by Trump. Sentiment is fickle though. It could turn sour when the reality of weakening economic data becomes evident.

US equities are very expensive again. Those with sympathy for the MAGA ambitions and methods could believe US exceptionalism will continue to deliver high returns, with strong capital inflows representing a willingness to hold and increase dollar holdings amongst investors in the rest of the world. Recent events might cast some doubts on those assumptions. Perhaps selling semiconductors and airliners to the Gulf will supercharge the US expansion for another few years.

Bonds are ok – In the bond world, yields are still attractive, especially in credit. Looking at where credit indices are compared to their 20-year history, yields are generally in the third quartile of their distribution, while spreads are in the second quartile. Credit spreads are modestly expensive, but yields are on the cheaper side of average given where we are in the monetary cycle. US and UK credit markets offer the most attractive yields and returns in both markets should benefit from central bank easing over the next year.

Between two and three – Bond investors will have some concern about inflation. But the news has been good recently. It still looks like it will be difficult to get inflation to, or below, 2.0% with annual inflation rates seemingly stable at current levels in the US, Eurozone and the UK. There is also upside risk from the tariffs. Having some inflation-linked bond exposure alongside other higher yielding assets could be helpful to portfolios, capturing inflation accrual and some potential benefit from lower real rates as global monetary easing continues.

Value versus value creation – I think there is more uncertainty for investors and the global economy to face. A decade ago, the US was about the same as the UK. Now it is twice as valuable relative to GDP. Since the global financial crisis, the ratio has gone one way, with a slight interruption to the trend during the pandemic.

Various policy puts from the US government and the Federal Reserve; the monetisation of fiscal expansion; and the rapid growth of the technology sector have created the exceptional rise in equity valuations, helped by the confidence that the rest of the world had in investing in the US. Now the market is very expensive, and perceptions might have changed. There has not been enough time since the tariff debacle for the real economic data to show whether any damage has occurred. Anecdotal evidence suggests there has been some. It might be time to “sell in May” just in case this does come through.

By Chris Iggo, Chief Investment Officer, Core Investments

The post A turnaround or more uncertainty – where to next for markets? appeared first on AdviserVoice.

Marco Morelli

AXA Investment Managers (AXA IM) has released its 2024 Stewardship report, reaffirming its commitment to long-term value creation through active stewardship. The report outlines AXA IM’s ongoing efforts to drive responsible investment practices, support the transformation of investee companies and deliver long-term performance for clients.

“As a responsible asset manager, we see stewardship as a powerful lever to encourage corporate behaviours that align with long-term value creation. It is through consistent engagement that we seek to build trust, drive accountability and support transformation where it is most relevant. At the same time, we have a responsibility towards our clients. Through our investment decisions, we aim to give them exposure to companies driving positive transformation, while seeking to reduce the risk of stranded assets.

Our approach remains pragmatic. We aim to anticipate change, adapt to new dynamics, and help convert emerging challenges into long term opportunities. And we do so with a clear conviction : that active stewardship is a full part of delivering on our fiduciary duty and positioning our clients for success.” said Marco Morelli, Executive Chairman of AXA IM.

Understanding the Interdependance of Risks

Although sustainable investing continued to grow in 2024, its pace slowed amid market volatility[1]^{[1],/sup>.  Sustainability may seem deprioritised just as the consequences of global warming and other systemic risks become more evident. These risks, often interconnected, must be addressed holistically.}

Corporate Governance: the Bedrock of Sustainable Performance

Effective governance is essential for embedding climate, environmental and social considerations into corporate strategies. In 2024, governance was the focus of 25% of AXA IM’s engagements with objectives and 22% overall. Notably, 42% of climate change-related engagements with objectives in 2024 also involved corporate governance issues.

For instance, AXA IM engaged with a Chilean retail distribution company^[2], initially focusing on sustainability commitments. However, significant governance issues arose regarding resource allocation. By addressing both themes, the engagement accelerated progress across the board.

The Climate-Biodiversity Nexus

Climate change drives biodiversity loss by disrupting ecosystems. Declining biodiversity reduces environmental resilience and exacerbates environmental degradation and vulnerability to climate risks. In 2024, over 56% of AXA IM’s biodiversity-related engagements with objectives also addressed climate issues.

In one case, AXA IM engaged with an Italian telecommunications company^[3] to integrate biodiversity and water risks into its supply chain strategy. The company has since committed to setting nature-related goals and improving sustainability targets.

Social Impacts of Climate Change

Climate change disproportionately impacts vulnerable populations, exacerbating inequalities and potential social unrest. Addressing climate change effectively requires equitable policies that account for these social implications.

In 2024, 22% of AXA IM’s climate-related engagements with objectives also addressed social issues and has sought to raise awareness around this link. AXA IM engaged with a Spanish utility firm^[4] to assess its “just transition^[5]” strategy. Insights from this dialogue contributed to AXA IM’s framework for investor engagement on “just transition”.

Strengthening Stewardship Through Transparency and Tailored approaches

Enhanced Transparency

AXA IM acknowledges that whilst interest in investors’ approach to engagement and voting continues to grow, varying frameworks and approaches to stewardship can complicate understanding and comparisons. To enhance transparency, AXA IM improved its disclosures by clearly outlining its voting decisions on ESG shareholder proposals, adding cases studies to engagement reports, and incorporating new metrics in its 2024 Stewardship report. This approach aims to clarify AXA IM’s escalation process and the influence of engagement on voting decisions.

Active Investment Teams

AXA IM’s investment teams actively engage with companies and collaborate with responsible investment specialists, providing company specific insights and in return integrating the insights obtained during the engagement into investment decisions. In 2024, AXA IM began tracking engagements involving investment teams to highlight their role in stewardship efforts.

On-boarding AXA IM Prime and AXA IM Select

Tailored engagement policies were launched for AXA IM Prime and AXA IM Select to embed best practices in additional asset classes. From 2025, each business unit will define how engagement is integrated into investment selection and monitoring, in line with AXA IM’s overarching principles.

Looking Ahead

In 2025, AXA IM will continue to engage with investee companies:

• Climate: 2025 marks the third year of the “Three Strikes and You’re Out” policy.
• Companies identified as climate “laggards” in 2022 have since improved their climate strategies have been removed from the list. Two companies will face divestment this year due to insufficient progress while others will face escalation during the AGM season, potentially including votes against the Board.
• Biodiversity:  Deforestation remains a key concern. AXA IM will urge stronger commitments and improved transparency from issuers. For  companies that have strengthened their commitments, the focus will shift to implementation. Additional themes include regenerative agriculture, circular economy and water management.
•  Social and Just Transition:  Issues such as modern slavery, living wages, public health, and working conditions will gain prominence. The Corporate Sustainability Reporting Directive (CSRD) is expected to enhance data comparability. Active ownership in this area will help improve reporting practices.
• Corporate Governance: AXA IM may withhold support in 2025 if sustainability disclosures lack quality and external assurance. Boards are expected to understand sustainability assurance processes and ensure transparent, rigourous provider selection. AXA IM has also instroduced new expectations for directors’ tenure and Board refreshment.

2024 key figures

• AXA IM conducted 550 engagements with 426 entities, of which 42% were engagements with objectives.
• 32% of engagements with objectives are in progress or have achieved success milestones in 2024, reflecting AXA IM’s long-term efforts.
• 35% of AXA IM’s engagements were conducted at board of C-suite level, allowing direct feedback to decision-makers, thus increasing the chances of meeting engagement objectives.
• Climate change remained AXA IM’s largest engagement theme, representing 41% of its engagements.
• Biodiversity (17%), human capital and human rights (8%) remain key engagement themes.
• AXA IM voted a total of 54,550 proposals at 4,929 meetings, representing 98.2% of the meetings that could be voted at.
• The opposition rate stands at 14.95%, with at least one vote against cast in 60% of the meetings where AXA IM voted. The highest level of opposition remains for board issues (37% of votes against management), followed by executive remuneration (25% of votes against).

To read AXA IM’s 2024 Stewardship report, please click here.

The post Navigating an evolving landscape of interconnected risks: the role of active stewardship in AXA IM’s fiduciary duty appeared first on AdviserVoice.