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No time  to yield

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CIO VIEWS. **Sonal Desai**, Ph.D. Chief Investment Officer, Franklin Templeton, Fixed Income

Two driving forces are now simultaneously pushing in the direction of higher long-term real interest rates. While investors and commentators often tend to conflate the two, I think it is useful instead to distinguish them clearly. They are rising investment, and persistently large fiscal deficits.

A new trend toward stronger investment has emerged and is likely to endure for the next several years, driven by a number of important priorities: (a) there is a need to make up for past under-investment in infrastructure, including traditional infrastructure as well as digital infrastructure. The American Society of Civil Engineers’ latest report assigns a failing grade to overall US infrastructure (not for the first time);¹ (b) rising geopolitical tensions necessitate an increase in defense spending across Western countries; (c) growing interest in the potential of Artificial Intelligence calls for new investment in the necessary hardware (notably semiconductors), software and energy; (d) the green energy transition requires more investment to boost the role of renewables; and (e) manufacturing companies need to continue to invest in new technologies, which includes making supply chains more resilient.

Not all of this will result in rapid gains in productivity. For example, while the green energy transition is a very important goal,
a lot of the required investment will not increase productivity growth in the short and medium run. Because it consists of replacing existing capital, it increases current economic growth via higher expenditures, but it does not raise productivity—much like rebuilding existing structures after they’ve been destroyed by a hurricane. The economist Jean Pisani-Ferry, in a recent report for the French government, has estimated that in fact investment in the green transition will likely reduce productivity growth by a quarter percentage point per year for the next several years. (The report also warns that the green transition increases inflation risks over the next decade).²

However, the bulk of investment should over time result in faster productivity growth (the acceleration in US productivity during 2023 already gives hope, even if the weak first quarter of this year counsels caution). Faster productivity growth should in turn drive faster real economic growth, reversing one of the key arguments of the Secular Stagnation theory,³ and implying a higher equilibrium interest rate in the long run.

Moreover, for a given level of savings, stronger investment also eliminates or reduces the “savings glut,” again pointing to higher real interest rates. The government has and will carry out some of this, and investment is therefore often mentioned in the same breath as wider fiscal deficits. But the two need not go hand in hand. Governments could offset stronger public investment with a reduction in less productive public spending (or with higher taxes). Moreover, a significant portion of governments’ investment often turns out to be ineffective at raising productivity—the private sector has consistently been a much better allocator of capital.

The United States has experienced a persistent loosening of fiscal policy that goes well beyond the country’s public investment efforts. Therefore, quite separately from lifting investment, persistent large fiscal deficits now play their own important role in shaping the outlook for interest rates. The US government has been running a massively loose fiscal policy for a very long time now: The US fiscal deficit has averaged close to 8% of gross domestic product (GDP) for the last six years. It averaged just under 6% of GDP during 2022-2023 even as economic growth boomed, and the Congressional Budget Office (CBO) projects the deficit to average 5.5% of GDP for the next five years and then to rise further into the future. As a consequence of persistent large deficits, the debt stock has risen sharply.

A decade ago, publicly held federal debt was about 70%; now it is close to 100% of GDP and will keep rising rapidly if deficits remain as large as the CBO forecasts.

The need to fund large fiscal deficits year after year means a lot of pressure on bond supply. For a given level of demand, this tends to push bond prices down and interest rates up. Moreover, a large fiscal deficit, growing debt and high interest rates create a vicious spiral that makes it harder and harder to reduce the deficit. Currently, non-defense discretionary expenditures account for less than one-sixth of the US budget (15% of total expenditures). Interest expenditures meanwhile keep rising—they averaged just 1.5 % of GDP in the last 10 years. The CBO projects that they will average 3.5 % of GDP for the next 10 years, more than double, and will grow larger than non-defense discretionary spending by 2025. This would leave very few resources for education, infrastructure investment, transportation, homeland security and the like.

And, the underlying CBO forecasts are probably conservative: They assume that the interest rate on federal debt will remain under 3.5% over the next decade. To put this assumption in perspective, consider that through the 1990s up to the eve of the global financial crisis (GFC)—in other words before the more recent period of ultra-loose monetary policy—the interest rate on US government debt averaged close to 6%. If the average interest rate on debt were to rise even just one percentage point above the CBO assumption (still well below the pre-GFC average), within 10 years interest expenditures would be more than double their current level.

Any way you cut it, bringing the US budget deficit under control will require very serious efforts, which in my view seems implausible in the current political climate. Meanwhile, loose fiscal policy will likely continue to put upward pressure on interest rates.

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I have been arguing for some time that equilibrium real interest rates are likely much higher than the markets and the Federal Reserve (Fed) still seem to assume—with the neutral fed funds rate above 4% rather than at the Fed’s current forecast of about 2.5%, and 10-year US Treasury yields correspondingly higher. The confluence of loose fiscal policy and a rising investment trend can only strengthen my conviction in this higher interest rates outlook.


[1] Source: “2021 Report Card for America’s Infrastructure.” American Society of Civil Engineers, 2021.

[2] Source: Pisani-Ferry, Jean and Mahfouz, Selma. “The economic implications of climate action.” Republique Francaise. November 2023. There is no assurance that any estimate, forecast or projection will be realized.

[3] Secular Stagnation theory suggests that an economy can experience persistent low GDP growth, low interest rates, and high long-term unemployment due to a deficiency in aggregate demand.


On My Mind The twin roots of rising rates

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Author: Kate Lin, CAIA

Last week, we tested a strategy with two [Chinese equity indices](https://sg.morningstar.com/sg/news/211963/does-the-rhyming-%e2%80%9csell-in-may-go-away%e2%80%9d-work.aspx), and talked about how it timing the market makes you lose out on gains over the long-term. The modeling of index returns concluded that botching a market-timing decision does sacrifice a period of (strong) returns. It proved our point – time in the market is better than timing the market.

Tom Lauricella, Editorial Direct for Professional Audience at Morningstar, explains that [ineffective market-timing](https://www.morningstar.com/articles/972119/3-charts-that-show-why-investors-should-stay-the-course-throughout-market-turmoil) efforts can result in a significant opportunity cost and show the effects of missing the one best month on an annual return. “Although successful market-timing may improve portfolio performance, it is very difficult to time the market consistently,” says Lauricella, adding that the long-term gains from US stocks have been demonstrated to offset short-term losses.

Even worse, poor market timing means you give up the chance to gain more from the compounding of reinvested gains, therefore the net effect in an investment strategy is negative when compared to a portfolio that stays the course.

**What is Compounding?**

In a short answer, staying the course is the key to allow the compounding to work out. But what exactly drives compounding. Let’s start with what’s known as the ‘compound interest’ formula:

**End value = Initial value of capital*(1+Rate of change)Time**

1.  Initial Capital determines how much in absolute terms you can gain at a certain rate for a period of time.
2.  Rate of Change or the rate of investment return defines at what pace the initial and reinvested capital is to compound.
3.  Time Horizon defines for how many time periods your assets compound itself.

Put simply, compounding can be explained as the money (or returns) your portfolio earns each year, and then both your initial capital and your returns of previous years earn returns, leading to a point where you have a much larger capital pool. That means, the larger each of the equation’s components (on the right) is, the bigger your total capital would snowball into overtime.

It’s clearer in a side-by-side line graph that plots four scenarios. First, we let the base case (purple line) be a portfolio with a starting capital of $10,000. The portfolio invests in assets at the end of Year 0 that could generate an average of 10% each year and remains the same for the next 35 years.

For each of the remaining three lines, only one variable is adjusted in illustrating the outcome upon a shortened time horizon, a lower rate of return and a smaller capital to start in the equation.

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With all else equal, beginning with capital in half means the portfolio will grow at the same rate but arriving at the exact 50% in the end value of the base case.

By contrast, when axing the investment horizon and the rate of return by half, what you afford is a return far less than just half of the base case. Shortening the investment horizon gives up the sessions that the portfolio can compound, while a smaller investment return simply flattens the curve by a large extent. Both result in merely 20% in end value as compared to the base case.

With a view to long-term performance, we go back to the base case of our data simulation and assume that in each calendar an investor adds 10% and 20%, in this case $1,000 and $2,000, to their portfolio (shown as dotted lines).

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We find that upsizing the total portfolio value on a regular basis takes advantage of the compounding, enabling the portfolios to notch high absolute returns. This is for those who don’t have a large pot of starting investment capital, say at the early stage of their careers. Instead of sitting on cash to save up a sizable amount in some time, it is worth considering starting small to let the compound work. Expanding the capital base can come later by building up a disciplined top-up mechanism to your portfolio.

Indeed, the stock market is seen as a risky investment if you look at it for the short term. Data have shown proof that long-term returns have outsized short-term fluctuations and have triumphed over the risk of missing the one best month on an annual return by betting in and out. In practice, trying to call the trough and the peak of the market prices is distinctly tricky. The strategy involves a great deal of knowledge and luck. For individual investors who lack experience and time in technical research analysis, market timing would then be primarily driven by biases like loss aversion or herd mentality, which may cause some investors to end up buying high and selling low. Staying the course will bear fruit if you endure the time with discipline.

 

 

*©2021 Morningstar. All rights reserved. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided as of the date written, solely for informational purposes; and subject to change at any time without notice. This content is not an offer to buy or sell any particular security and is not warranted to be correct, complete or accurate. Past performance is not a guarantee of future results. The Morningstar name and logo are registered marks of Morningstar, Inc. This article includes proprietary materials of Morningstar; reproduction, transcription or other use, by any means, in whole or in part, without prior, written consent of Morningstar is prohibited. This article is intended for general circulation, and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. Morningstar Investment Management Asia Limited is licensed and regulated by the Hong Kong Securities and Futures Commission to provide investment research and investment advisory services to professional investors only. Morningstar Investment Adviser Singapore Pte. Limited is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Either Morningstar Investment Management Asia Limited or Morningstar Investment Adviser Singapore Pte. Limited will be the entity responsible for the creation and distribution of the research services described in this article.*

How Your Money Works for You

How To Build Wealth ft. Earn Your Leisure

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##### By Monica Defend, Head of Amundi Institute 

There’s a growing global consensus on the urgent need to combat climate change. But governments’ uncoordinated reactions to energy price spikes in the past year showed that a successful and orderly transition to a greener economy is far from guaranteed. A ‘disorderly’ transition, driven by disjointed policy actions therefore weighs more heavily on our baseline scenario for our capital market assumptions, our long-term asset class forecast and strategic allocations for the year. Limiting the rise in temperatures over the net zero 2050 horizon is the shared endgame, but disruptive themes will likely profoundly affect the real economy and financial markets.

In the near term, the energy transition could provoke bouts of inflation due to higher carbon and commodity prices. But we believe price pressures won’t be persistent. A more lasting impact may be seen from a shift away from fossil fuels, technological changes, and initially lower productivity. This could dent domestic demand and may mean economic growth is more subdued in the medium to long term.

Central banks will likely be cautious about running down their balance sheets, but aggressively use short-term interest rates to counteract inflationary swings. Monetary policy will try to prevent debt levels from becoming explosive, while keeping long-term rates under control. Central banks’ balance sheets will therefore stay well above pre-Covid levels. Sectors that are most closely linked with the green transition should be the biggest beneficiaries from policymakers’ support - a sort of ‘green’ quantitative easing.

Recycling carbon tax revenues into climate-related activities that help households and firms may also offset part of the transition’s negative impact on growth. This could translate into higher future productivity, while helping to mitigate social costs and pushback from the most vulnerable parts of the population. Managing the social costs will likely be key to the transition, as the effects of climate change are felt unevenly across communities.

A more inclusive growth model could be promoted by rebalancing the national share of income towards labour, without significantly affecting the economy. Higher wages will compress corporate profit margins. But higher disposable income will buoy household consumption and should help to support companies’ revenue.  We estimate that a 7% increase in the labour share of income deriving from higher wages can be accompanied by less than a 10% decrease in cumulated profits over the next 20 years in most developed countries.

New legislation aimed at decarbonising energy supply will affect emerging and frontier economies the most, while more developed and less carbon-intensive economies will cope by diversifying the composition of their exports. Investment plans should therefore accompany the phasing-out of fossil fuels in countries and sectors where their legacy is strongest.

In our view, investors should therefore factor in the implications of a shift towards a net zero world, driven by new policies, technology, and changing consumer preferences. The climate transition presents both risks and opportunities for investors, and energy transition themes will remain in the limelight for the foreseeable future. 

In an era of more urgent but less coordinated transition, we expect equity returns will be lower over the next ten years than in the past decade. But emerging markets, particularly Chinese and Indian stocks, may offer interesting opportunities, while the US remains favoured among developed markets. From a sectoral perspective, we believe the leaders in the green transition will be favoured together with Information Technology, and the outlook for value investing looks positive.

After a lost decade, bonds are returning to their long-term trend. This is reviving their role as a potential portfolio risk diversifier, although we anticipate higher volatility given greater uncertainty and a weaker economic outlook. Investment grade credit could benefit from higher government bond valuations.  Emerging market bonds can offer higher yields, but might be challenged by potentially higher default rates.

Real and alternative assets, as well as commodities, will also be crucial, in our view, for building inflation-resilient portfolios. Private equity, particularly in the US, tops our expected returns ranking while, on a risk-adjusted basis, global private debt is favoured. Hedge funds also may offer an appealing profile, having the lowest risk across the spectrum of real and alternative assets, and appealing returns. Real estate and infrastructure are vulnerable to the impact of climate-related events, but are appealing from a diversification standpoint, which may be key to targeting higher returns in an environment of higher risks.


A rocky net zero pathway calls for a new approach to portfolios

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Wealth managers are allocating more client capital to private assets. We look at the reasons so many are doing so, and specifically why they’re doing it now.

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**James Lowe**
Sales Director, Private Assets and Investment Trusts

Private client wealth managers have had robust arguments for allocating to private assets for some time. By 2021 four in five UK wealth managers had invested a portion of clients’ money in private assets.¹

These allocations are typically made in pursuit of enhanced performance and diversification, arguments that historic data continues to support. But other factors, such as the emergence of new vehicles for private asset investments, and the declining number of publicly-quoted companies, are also driving the trend.

Investors are also watching the investment landscape shift and assessing how resilient portfolios will be to a much altered environment. Of the major themes unfolding – like artificial intelligence and the renewable energy transition – many require private capital backing.

### How robust are the return and diversification arguments?

Past performance for numerous private asset classes compares favourably with liquid investment types, like traditional equities and bonds, over longer investment horizons.

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Crucially, private markets also have a history of performing differently to liquid markets.

Measuring how different investments move relative to one another – the correlation – is crucial to creating meaningful diversification. Again, data indicates that private assets can contribute to portfolio diversification.

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### What do the numbers mean?

A correlation of 1.0 (technically the “correlation coefficient”) means two assets move in exactly the same way. Smaller numbers indicate lower correlation.

James Ellison, Head of Private Assets Data Insights at Schroders Capital, explains:

“Private market investments offer a compelling means of diversifying a portfolio. The correlation between private asset classes and public markets is lower - as shown by the table. This allows them to provide diversification benefits by moving independently of the public markets.

“As well as behaving differently to public markets, they tend to behave differently to each other; well-balanced private asset portfolios can help mitigate risk. Additionally, the investment strategy itself can create further diversification, such as private equity investing in the lower mid-market.”

### New investment vehicles offer institutional-style private asset exposure for wealth managers and their clients

The above explains the familiar attractions of private assets for both advisers and their clients.

But what about the “why now”? What has changed?

Even for those with private market allocations, the overall share of portfolio remains low. The Investment Association found that private market investments comprised an average of 5% of UK wealth managers’ assets under management in 2021² . By comparison, our own research indicates that institutional investors had allocated 14% of their portfolio to private assets the same year³.

This discrepancy is in part because institutional investors have had access to a much broader range of solutions, structures and private asset managers. The options for individual investors, advised or otherwise, has been limited.

In the UK, individual investors have been able to use investment trusts for exposure and little else. However, ongoing growth and development in the private asset industry is changing things.

The long term asset fund (LTAF) has been spearheaded by UK regulator the Financial Conduct Authority (FCA) as a “new category of open-ended authorised fund designed to invest efficiently in long-term assets.”

The FCA created a new regulatory regime in 2021 to realise the LTAF structure.

LTAFs were initially designed to put pension capital to work supporting the UK’s long-term economic growth and the transition to a low carbon economy. New developments mean advised and discretionary investors will also be able to invest in LTAFs.

Widening the LTAF scope means more options in the UK authorised funds ecosystem, providing another access point to private markets for investors. We expect the LTAF to be a complementary tool to existing private asset structures – like investment trusts - offering new flexibility in how UK investors will be able to meet their objectives via private market investments.

### Public markets offer shrinking opportunity to access growth investments

While access has improved for private markets, options in public markets have continued to narrow.

The number of listed companies has been falling for years, and not just in the UK. The trend has been echoed in major markets around the world.

In 1996 there were over 2,700 companies on the main market of the London Stock Exchange. At the end of 2022 this had collapsed to 1,100, a 60% reduction. There has been a near-75% fall in the number of UK-listed companies since the 1960s.

Germany has shed more than 40% of its public companies since 2007 and the US has experienced a 40% drop since 1996.

One of the most striking effects of this decline is that the stock market now provides exposure to a dwindling proportion of the corporate universe. This is not just a UK issue: in the US, for example, fewer than 15% of companies with revenue over $100 million are listed on the stock market³ . Ordinary savers are largely deprived of the opportunity to invest directly in the rest.

Investors who focus solely on the stock market are missing out on a large and growing part of the global economy. Where they can, investors will need to explore private asset options to capture the growing private investable universe.

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The decline is another powerful reason for investors’ increasing interest in private market allocations.

#### In the coming weeks, we will delve into more questions around LTAFs, how they will work, and how wealth managers might seek to incorporate them for private clients.

Sources:

[1] Source: The Investment Association, [Weaving private assets into wealth portfolios: Evolving structures to meet evolving needs](https://www.theia.org/sites/default/files/2021-12/IA_Goji_WhitePaper_PrivateAssetsinWealthPortfolios_Dec2021.pdf)

[2] Source: [Schroders, Schroders Institutional Investor Study 2022](https://mybrand.schroders.com/m/4eae38eb5825b0ed/original/SIIS22_Global-Private-Assets-Report_v11.pdf)

[3] Ibid


Private assets for wealth management clients: why, and why now?

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### 2023 in recap and expectations for 2024
The year 2023 has been marked by a series of surprises, from the slowing of China's recovery to US Treasury yields reaching 16-year highs, followed by a year-end rally alongside the Federal Reserve's (Fed) dovish pivot. Additionally, global political tensions have heightened due to the two ongoing wars. Simultaneously, the Fed's cash rate exceeding 5%¹ has led to record inflows into money market funds, diminishing the appeal of traditional bond strategies.

Looking forward to 2024, the global economic outlook suggests that returns on rates and credits will likely outpace those on cash, with a greater role for duration in portfolios. The once looming threat of Inflation to bond investments seems to have dissipated. Some of the record influx into money market funds could reverse, coupled with imminent rate cuts.  The Fed's dovish shift has also instilled optimism regarding a soft landing for the U.S. economy (see Figure 1). As the easing cycles broaden, credit growth is anticipated to rise accompanied by a decline in the debt service burden, propping up overall economic growth. Additionally, the easier funding conditions should mitigate distressed risks, which is conducive for the spread sectors.

**Figure 1: FOMC's Fed Funds Rate forecasts at Sep 23 and Dec 23 meetings (median values)**
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### Asia local currency bonds outlook

In the Asian context, our outlook has become more optimistic for both duration and currencies. Asia appears poised for a soft landing in 2024, with inflation slowing to align with central bank targets, and growth moderating without a collapse. Falling global bond yields could lead to greater capital inflows, and an easing in oil prices has produced further disinflation. Barring unforeseen supply-side shocks, we anticipate most headline CPI figures to return to Asian central bank targets by the end of 2024 as demand-pull inflationary pressures ease. Resilience is expected from large economies like India, Indonesia, China while North Asian technology exporters, particularly Korea and Taiwan, may benefit from AI-related semiconductor demand and an inventory restocking cycle.   

Easing cycles have kicked off in parts of LatAm as well as in Central and Eastern Europe (CEE) and this is set to further broaden to Asia. We expect regional central banks such as Indonesia to spearhead the rate cut cycle in the region. However, the timing of these monetary policy adjustments will depend on factors such as foreign exchange stability, geopolitical conditions, and the pace of the Fed's easing trajectory. There is a leaning towards earlier rate cuts, given the Fed's recent dovish pivot. Given the sharp rally in rates going into the end of 2023, we approach the addition of duration with caution. Our strategy is to capitalise on opportunities to extend duration at more favourable levels, anticipating a potential retracement in Q1 2024.

On China, we anticipate front-loaded policy support in the first half of 2024, leading to a stronger growth impulse during that period, followed by a relatively weaker growth trajectory in 2H 2024. Our expectation is that the Chinese government will aim for a GDP growth target of "around 5%²," relying on fiscal policy as the primary driver of growth support, but we deem the probability of aggressive policy stimulus as low.  Additionally, we project that monetary policy will remain largely accommodative, featuring modest easing measures such as Reserve Requirement Ratio (RRR) cuts and expected 10 basis points interest rate reductions, complementing pro-growth fiscal initiatives. With continued policy focus on the supply side suggests the domestic demand-supply imbalance may persist as a key challenge for the Chinese economy. The consequence of such imbalance has led to deflationary pressures, particularly on the consumer side, which may linger on, although 2024 CPI inflation rate is anticipated to show modest improvement, partly due to base effects. 

In the realm of currencies, we anticipate the potential for USD weakness against Asian currencies in 2024. Our preference leans towards regional currencies that exhibit improving current account balances, including the Malaysian ringgit, Thai baht, and the Korean won, along with those experiencing foreign inflows, notably the Indonesian rupiah and Indian rupee. While maintaining a positive sentiment, albeit less pronounced, we project the Singapore dollar and renminbi (RMB) to conclude the year in a middle-of-the-pack position, attributed to their expensive valuations and comparatively lower yields.

### Singapore bonds outlook

Likewise in Singapore, we anticipate a more favourable blend of growth and inflation in 2024. The initial half of the year is poised to experience an upswing in inflation, attributed to increases in GST, carbon taxes and other price increments including water and transportation fare. Nevertheless, a subsequent easing of inflation is probable in the latter half as the labour market undergoes a cooling phase. Turning to economic growth, Singapore's GDP is projected to increase in 2024 relative to 2023, primarily due to a turnaround in the manufacturing sector, despite a tempering in the momentum of tourism and domestic demand stemming from the post-COVID reopening theme.

In our baseline projection, we expect the SGD NEER to hold steady throughout 2024. While earlier-than-anticipated Fed cuts could mitigate the likelihood of additional tightening measures by the Monetary Authority of Singapore (MAS) to some extent, the prospect of MAS easing remains unlikely, given the still elevated core inflation. In other aspects, Singapore Government Securities (SGS) yields are anticipated to continue tracking US Treasuries, although we forecast SGS to outperform due to more manageable supply conditions. Unlike the supply shortage experienced in the first half of 2023, the long-dated SGS supply is better distributed throughout 2024. Consequently, we anticipate the SGS yield curve to steepen and normalise during the year. 

In other sectors, SGD swap spreads have exhibited a significant tightening in Q4, and we anticipate a partial retracement in Q1. Our preference remains for SGD credits over SGD statutory board bonds to enhance carry. Furthermore, we anticipate a redirection of some of the significant inflows into Monetary Authority of Singapore (MAS) bills in 2023 towards the SGD credit markets in 2024. Concurrently, the bond supply may be slow to catch up, creating a potentially favourable environment for credit investors.

### Asian credit outlook

In the landscape of Asian credit in 2024, several compelling factors continue to shape opportunities. That includes expectations of a faster pace of Fed cuts will likely drive further search for yield amongst fixed income investors. The positive performance in 2023³  and the still attractive carry, especially when compared to yield levels over the past two decades, are also likely to support fund flows. Some of the substantial funds directed to money markets in 2023 may shift towards credit markets. Simultaneously, the return of supply is anticipated to be gradual. Banks, eager to extend loans, combined with mostly lower local funding rates, might contribute to a delay in matching USD supply with the growing demand. The overall expectation is that net issuance across Asia will be negative in 2024, keeping technicals favourable. With primary market activity subdued, investors will need to turn to the secondary market, as demand makes a comeback.

Fundamentally, most defaults in the Asian high-yield space are believed to be behind us. The default rate in 2024 is widely expected to be lower than that of 2023, reigniting risk-taking and investor confidence (see Figure 2). Strong domestic liquidity in 2023 have facilitated Asian high-yield corporations to smoothly refinance bond maturities, a trend expected to persist in the new year. Broadly, the easier funding conditions should mitigate distressed risks, creating a favourable environment for high-yield investors. 

#### Figure 2: Asia HY defaulted amount and default rate – expected to decline further in 2024

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Turning to the investment-grade market, US Treasury moves are anticipated to dominate returns in 2024. The year-end rally in US Treasuries has surpassed many Wall Street predictions for the end of 2024, revealing how the "Christmas" rally has caught analysts off guard. Current swaps market pricing indicates an expectation of around 150bps⁴  of rate cuts in 2024, potentially starting as early as March, contrasting with the Fed's dot plot projecting a 75bps rate cut in the same period. Similarly, we hold the view that the Christmas rally may have been overly exuberant, given our assessment that sustained declines in US Treasury yields are limited without evidence of a major slowdown in the US labour market. 

Consequently, we anticipate that US Treasury yields are likely to retrace from some of the aggressive rate cut pricing, particularly as activity data is unlikely to exhibit significant deterioration in the near term. We perceive limited risk-adjusted reward in extending duration at existing levels and would look for higher yields to consider adding duration, with room for the yield curve to steepen in 2024.  In this setting, our strategy is to optimise carry, particularly within the investment-grade space. We have deliberately kept some powder dry, refraining from operating at elevated risk levels in both credit and duration.  In our view, there remains an opportunity to augment risk, capitalising on the active primary issuance market in Q1 2024 and the potential pullback in US Treasury yields.

Looking further into 2024, as confidence about the relative resilience of the US economy builds, the yield curve is expected to steepen. Long-end yields could rise due to the possibility of US economic resilience and concerns about US Treasury supply re-emerging. Additionally, the year is set to bring a distinct change as the Bank of Japan (BOJ) is poised to phase out its negative interest rate policy, amidst at a gradual pace. This strategic move from the BOJ is likely to exert upward pressure on US Treasury yields, adding a significant dynamic to the evolving financial landscape.

Sector-wise, going into longer duration investment-grade USD debt such as China TMT and Indonesia quasi-sovereigns may deserve a fresh look, given the imminent Fed rate cuts. We are also drawn to the BBB bloc within the investment-grade space, anticipating potential spread compression against single A in 2024. Within the financial sector, bank senior bonds appear expensive, leading us to prefer subordinated debt. Additionally, we find the valuation of Asian non-bank financials to be attractive.

We are also actively seeking diversification in Developed Asia markets such as Japan and Australia particularly in Tier 2 financials. Our interest also extends beyond Asia to non-Asian exposure, such as in the Middle East economies, notably Qatar, Saudi Arabia, UAE, though we remain mindful of the rich valuations and geopolitical risks. We also have a favourable outlook for high-yield issuers from the large economies of Indonesia and India due to robust domestic demand and favourable onshore funding conditions. The Macau gaming sector is also on our radar, benefiting from a faster-than-expected revenue recovery. However, we acknowledge the consensus and crowded nature of these trades, placing a heightened emphasis on diversification. While remaining cautious in the China high-yield real estate sector due to the disappointing housing sales and the possibility of a prolonged property downturn.

### Summary

In summary, as we enter 2024, we are cautiously optimistic. We foresee a promising backdrop for returns in Asian rates and credits, given factors such as the softer stance on inflation, potential rate cuts, and the Fed's dovish posture. Our focus on Asia underscores opportunities amid potential capital inflows and accommodative policies. In the broader Asian credit landscape, we foresee positive prospects driven by anticipated Fed cuts and a gradual return of supply. 

Crucially, we maintain a watchful eye on potential risks that could reshape our outlook for 2024. On the positive side, we are closely monitoring upside risks, such as a more robust policy response from China aimed at stimulating growth, a swifter disinflationary trend surpassing the expectations of major central banks, potentially prompting earlier and more rapid rate cuts. Equally vital are the downside risks that are within our purview. These include uncertainties surrounding election outcomes, particularly the US election, and delayed effects stemming from previous rounds of aggressive (monetary) policy tightening, potentially resulting in unexpected pockets of financial stress. Another significant concern is the potential disruption to global markets as the Bank of Japan exits from negative interest rate policy.

¹ The Federal Reserve raised the Fed Funds Rate to between 5.00 % - 5.25% at its May 4 2023 meeting. The Fed Funds Rate is 5.50% as at Jan 19 2024.

² Fullerton estimates, January 2024.

³ The JPM Asian Credit index gained 7.0% (in USD terms) in 2023.

⁴ Source: Bloomberg, January 2024


Navigating Asia’s Fixed Income Markets in 2024

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Author: Valerio Baselli

Looking at the market today, it's easy to forget where we were at around 15 months ago. Many of the market declines of the past decade or so, including the stock market crash of 2008, are fast becoming faded memories for most of us. But it is the investors who endured these difficult times came out in perhaps the best shape, and as is often the case, those who had the nerve to stay invested were richly rewarded.

And yet, the decision about whether to change your investment strategy or sell a fund is usually not clear-cut, even in hindsight. After the dust has settled on a decision and the investment has performed well or poorly, the “right” answer is wholly dependent on the individual. Selling criteria are not a one-size-fits-all list that fit every investor, but there are some situations when selling is particularly ill-advised. Christine Benz, director of personal finance at Morningstar, picks these three key examples.

**Poor Short-Term Performance**
 
It’s almost never a good idea to sell a fund based on weak performance alone, especially over the short-term. You might have been tempted to sell in last year's market sell-off for example, but we now know the Covid crash was the shortest in history. Instead, if a fund is lagging its peers or an index, your first move should be to investigate why that is. It could be that the manager is simply sticking with an investment strategy that happens to be out of favour, as has been the case with many value-leaning funds in recent years. But weak performance may also be a sign that something more serious is afoot - Morningstar's own research has found that many active funds fail to beat the market over the long-term.

Researching an investment’s fundamentals can be time-consuming, which is why you don't want to get too caught up in investigating short-term bouts of underperformance. Most funds, especially those that are using truly active strategies, will trail their peers at times, often for very good reasons and sometimes for a few years or more (that could be the case with some perfectly solid, defensively positioned funds during a market rally, for example).

Instead, save your energy for checking up on funds when they've underperformed over longer stretches of time or in a period when you would have expected them to perform well. If, for example, you selected a fund because of its low-risk tendencies, but it lost far more than its peers in 2020, that's a legitimate reason to ask whether something about its strategy changed or its risk controls weren’t what you thought they were. And even if the fund isn’t bad, it may not be a good fit in your portfolio.

**Inconsistent Performance**

On a similar vein, investors often get themselves worked up when a fund’s relative returns are inconsistent on a year-to-year basis. Sure, it can be comforting to see a fund land in its category's top half like clockwork—and a small handful of funds has actually managed to generate return rankings that have been remarkably consistent from year to year.

But holding all of your funds to that standard would cause you to kick out some fine offerings that, while not consistent performers on a calendar-year basis, are consistent where it counts: they employ their strategies with discipline and don't waver, even if the market isn't rewarding them in the near term.

It's also important to remember that a calendar year is a fairly short and arbitrary time period, and a fund that has looked erratic over January-December time periods may appear perfectly consistent when measured over a different 12-month time frame—say, from April to March of each year. Investors shouldn't get too hung up on year-to-year performance consistency when deciding what to hold in their portfolios. Looking at annualised returns can be a better way to judge long-term performance, as these smooth out good and bad periods to indicate what average return an investor has received each year. 

**Macroeconomic News**

Macroeconomic news - whether it's the direction of interest rates, rising inflation or GDP growth in China and India - often appears right alongside news about the market's trajectory. And it's true that what's in the headlines has the potential to move the markets up or down on a daily basis, or even over longer time frames. The trouble is that by the time a certain news item makes its way into the headlines, other market participants have already digested it and priced it in.

If you decide to sell your fund based on that news, you're likely to be too late. Instead, a better tack for investors, at least as it relates to their portfolios, is to keep their heads down and focus on factors that they can control: their savings and spending rates, the quality of their investment holdings, and the total costs they pay for those investments. There is much virtue in tuning out the noise when it comes to managing your portfolio.





*©2021 Morningstar. All rights reserved. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided as of the date written, solely for informational purposes; and subject to change at any time without notice. This content is not an offer to buy or sell any particular security and is not warranted to be correct, complete or accurate. Past performance is not a guarantee of future results. The Morningstar name and logo are registered marks of Morningstar, Inc. This article includes proprietary materials of Morningstar; reproduction, transcription or other use, by any means, in whole or in part, without prior, written consent of Morningstar is prohibited. This article is intended for general circulation, and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. Morningstar Investment Management Asia Limited is licensed and regulated by the Hong Kong Securities and Futures Commission to provide investment research and investment advisory services to professional investors only. Morningstar Investment Adviser Singapore Pte. Limited is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Either Morningstar Investment Management Asia Limited or Morningstar Investment Adviser Singapore Pte. Limited will be the entity responsible for the creation and distribution of the research services described in this article.*

3 Bad Reasons to Sell a Fund

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Author: Valerio Baselli

Jordan Belfort's legendary story can teach some useful things to keep in mind to avoid ending up like his former scammed clients

Oscar-nominated movie The Wolf of Wall Street starts with Jordan Belfort complaining that the year he turned 26, he made $49 million - because it was three shy of a million a week.

The work, based on a true story, also sparked a bitter controversy in the US between the association representing more than 1,500 victims defrauded by Belfort and the director Martin Scorsese. Indeed, the movie falls short when it comes to portraying the victims of Belfort’s scams.

Who knows how many people, leaving the cinema, have imagined themselves in the shoes of the young broker who became a billionaire in the early 90s? Beyond the golden patina of unbridled – and even a little irritating – luxury sported by the character played by Leonardo DiCaprio, shrewd investors should have left the room with some lessons well engraved in their minds. It is Belfort himself (who today holds seminars on sales strategy, one for Morningstar Australia in 2009) in his numerous essays and articles, written after prison, to point out these points, among others.

So here are seven lessons from the Wolf of Wall Street:

1. Be Wary of No-Name and Small-Time Operators
It is better not to entrust your money to an unknown broker or a consultant not affiliated with any consulting firm. There are serious professionals among the smallest, just as there are bad apples even in companies with a great tradition, but relying on someone who with no career track record or who you do not know well is a big risk to take.

2. Don't Stop at Their Own References
If you do decide to work with a little-known broker of consultant, you need to at least be sure you can trust who will manage your money. You cannot stop at the references passed by them directly, use independent ones.

3. Information on the Company Must be Solid and Clear
Before taking a decision it is always good to do some research. Reputable advisers do everything in the open and it should not be difficult to retrieve information or confirmations on the way they behave and do business. Those who advertise only on performance but remain opaque about everything else, starting with their investment process, are suspicious. If they have even a partially shady reputation, run the other way.

4. Ethics: Once Lost, Gone Forever 
When it comes to money, there's no in-between. If you pass the limit once, there is no turning back. “I didn't start out ethically bankrupt. I sold my soul a little bit at a time. I crossed over to the dark side through a series of tiny imperceptible steps,” says Belfort in his autobiography.

5. Beware of “Exclusive Groups”
The oldest technique in the world is to flatter: “My clients are exclusive, but you can be part of them.” Bernard Madoff did exactly that.

6. If it Seems Too Good to Be True, it Probably is 
Everyone is looking for the easiest and shortest way to reach their goal, and finance is no exception. When someone offers you a method or conditions that are too good to be true, you need to ask yourself twice as many questions and do twice as much research. Again, the mind-boggling returns offered by Madoff for years are a perfect example.

7. Financial Conduct Authorities Have Their Limits
Regulatory and supervisory authorities are very important, but blindly relying on them is still a bit naive. Investors must be the first controllers of themselves and the operators they deal with.

Particularly worrying in this sense is the testimony of Belfort on the controls suffered for years by the Security and Exchange Commission. “The agency itself is just all wrong. It's understaffed and under-capitalized. It needs to be dismantled and rolled into a more effective government agency” – he says – “In the Stratton Oakmont days, the SEC sent four teams of investigators to us in two years. They were kids. They would come in and they knew nothing about the securities business. Back then I went to great lengths to make my activities appear legitimate. We'd give them tens, hundreds of thousands of trading tickets, and while they were busy looking for the smoking gun, we made mountains of money.”



7 Lessons From the Wolf of Wall Street

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###### By Georgi Mitov 

In this article we explore the complex hurdles that active portfolio managers encounter and how portfolio optimization is a crucial component of their daily routines.

Portfolio optimization stands as a core component within an active manager's strategic framework to consistently outperform benchmarks. This is a complex process aiming to balance risk, returns, and compliance with diverse constraints. These constraints cover a range of practical conditions, including sector delineations, asset allocation thresholds, and limits on position sizes. This process is truly multifaceted, grappling not only with a variety of restrictions, but also selecting between various objectives.

The objective could be to minimize risk, maximize return, or enhance risk-adjusted returns, typically using utility-based optimization or Information Ratio (IR) approach.

**Utility-based optimization**, rooted in the Markowitz framework, emphasizes risk-return trade-offs. This method employs a utility function, typically defined as the expected return of the portfolio minus a risk-aversion coefficient multiplied by variance. This can be mathematically expressed as:

![01-utility-ezgif.com-webp-to-jpg-converter.jpg](/uploads/01_utility_ezgif_com_webp_to_jpg_converter_a90c18449a.jpg)

Where E[Rp] is the expected return of the portfolio, Var[Rp] is the variance (or risk) of the portfolio returns, and λ is the coefficient of risk aversion (the higher the λ, the more risk averse the investor).

On the other hand, the **Information Ratio**, another measure of risk-adjusted return, focuses on maximizing the ratio of active return to tracking error. The Information Ratio (IR) is defined as follows:

![02-information-ratio-ezgif.com-webp-to-jpg-converter.jpg](/uploads/02_information_ratio_ezgif_com_webp_to_jpg_converter_fb2de3757f.jpg)

Where E[Rp - Rb] is the expected active return—that is, the difference between the portfolio return Rp—and the benchmark return Rb, σ(Rp - Rb) is the standard deviation of the active return, also known as tracking error.

One critical aspect of portfolio optimization involves limiting the number of assets in a portfolio. While it might seem counterintuitive to restrict potential investments, managing too many assets can dilute a portfolio's effectiveness.

This might lead to higher costs, reduced diversification benefits, and a deviation from the investment strategy. However, optimizing portfolios, especially for max IR, becomes more challenging when there are cardinality constraints. (e.g., constraints on the number of assets).

Many optimization tools lack support for solving maximum IR problems with cardinality constraints. As a workaround, active managers sometimes replace the IR with utility function defined as a difference between active return and tracking error.

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While this simplifies the problem, it's a paradox—they seek to improve IR while optimizing based on another metric, which could affect their strategy, since those two optimization problems are not equivalent and those could result in different allocations as we shall see below.

To highlight the difference between Max Utility and Max IR optimization, we will define both optimizations within the FactSet Portfolio Optimizer (FPO). Following this, we'll conduct various analyses within the FactSet Programmatic Environment. For these analyses, we'll utilize the available FPO, Portfolio Analysis (PA) modules, and a comprehensive range of Python-based visualization tools.

Consider an optimization setup utilizing the Russell 1000 as a benchmark and an investment universe of identical stocks. We will introduce the following constraints, all of which aim to emulate the practical limitations encountered in portfolio management: sector and asset relative weights must fall within -3% to 3%, a maximum of 150 assets, a minimum of 20 assets, and a minimum weight threshold of 0.05%.

The alpha definition is derived from one of the Quant Factor Library analyst sentiment factors: QFL_PTGT_EST_REV(0,75D). That sentiment factor is based on Price Target Estimate Revisions with 75-day consensus window.

In Figure 1 below, we illustrate the solutions for Max IR optimization (represented as a blue point) and Max Utility optimization (represented as a red point), alongside the entire Efficient Frontier. The Efficient Frontier is the result of the Min Tracking Error optimization with a lower limit on the active return, considering all other weight and cardinality constraints as defined previously.

**Figure 1: Efficient Frontier**

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It can be observed that both solutions are situated on the Efficient Frontier as anticipated, however, they significantly differ from each other. For instance, the Max IR portfolio achieves an Information Ratio (IR) of 0.575, while the Max Utility portfolio only reaches an IR of 0.442.

Let's delve into deeper analysis of the two portfolios, examining sector and risk factor exposures.

As depicted in Figure 2, the sector exposure of both Max IR and Max Utility portfolios displays significant variations in their active sector weights. Max Utility seems to have a stronger preference for the Communication Services, has higher weightings in Real Estate, and is more underweight in Information Technology compared to the Max IR portfolio.

A marked difference is observed in the Materials sector, which is considerably more favored by Max IR. In consumer sectors, Max IR is more weighted to Consumer Staples, in contrast to Max Utility, which is more weighted to Consumer Discretionary.

In terms of Healthcare, Energy, and Industrials sectors, both portfolios are underweighted to varying degrees, with Max IR being more underweight in Energy and less so in Healthcare.

To wrap it up, distinct sector preferences between Max IR and Max Utility clearly highlight the differences between their individual investment strategies.

**Figure 2: Sector Exposure**
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Next, we compare the risk factor exposures of the two portfolios (Figure 3). The Max IR and Max Utility portfolios both show different exposures to various factors in comparison to the benchmark.

Looking at the two portfolios, Max IR and Max Utility, we see some key differences in their investment approaches across several risk factors such as Dividend Yield, Momentum, Liquidity, Size, and Volatility.

Specifically, Max IR tends to place less emphasis on Dividend Yield, indicating a less conservative focus on immediate income generation from dividends. It has a stronger preference for Momentum, showing it favors stocks with more upward price trends. In terms of Liquidity, Max IR leans into investments with more Liquidity.

On the other hand, Max Utility shows a different picture. It has a more noticeable tilt towards larger companies. However, it has a slightly negative exposure to Liquidity.

Both portfolios, along with their benchmark, showcase an aversion to volatility. That reflects a more conservative stance toward market uncertainties.

**Figure 3: Risk Factor Exposure**
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Again, we conclude that in relation to their exposure to risk factors, the two portfolios display significant differences. That reaffirms our thesis: These are two different optimization problems that, in most instances, lead to significantly different optimal portfolios—despite their objectives seeming similar in terms that both risk and return coefficients in both cases are one.

In conclusion, choosing the appropriate objective function is of utmost importance in portfolio optimization. Access to sophisticated solutions that offer such functionality is invaluable for active managers navigating the intricacies of investment decisions in today's dynamic financial landscape.



Why Choosing the Right Objective Function Matters: How to Achieve Maximum Information Ratio With Portfolio Optimization

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### Inflation erodes savings
European households allocated an additional €3tn in cash deposits between 2016-21, which accounts for around 38% of their total financial wealth. While bank deposits increased significantly since 2016, the real purchasing power of this collective has actually gone down!

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*Figure 1 – Amundi Institute on EFAMA Market Insights data, ECB and European commission June 2022. 2022 estimate based on European Commission’s spring 2022 estimation of inflation in the European Union for this year (6.8%).*

At the end of 2022, the cumulated loss in purchasing power since 2016 has been estimated at €1.4tn. It appears investing for income is becoming a top priority in the current economic and financial market backdrop. However, we believe that for investors looking to maintain their purchasing power or generate income from their savings, inflation presents a meaningful challenge.

### The drivers of inflation
The sharp increase in inflation we experienced over the past year and a half was driven by a combination of factors. Covid-19 played a significant role by triggering supply disruptions as the pandemic initially took hold, followed by a surge in demand as restrictions were ultimately lifted. The war-induced energy crisis only further exacerbated the inflationary conditions.²

While we believe that inflation may be on a decelerating path going forward³, we expect it to remain elevated compared to the pre-Covid-19 status quo. [Click here for more insight into the drivers behind inflation](https://www.amundi.com/globaldistributor/Local-Content/Amundi-Convictions/Inflation-remains-above-Central-Banks-targets).

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*Figure 2 - Source: Amundi Institute on IMF data and forecasts. Latest data and forecasts available as of 14 November 2022.*

### A historic market response presents a significant opportunity 
Spiking inflation combined with high uncertainty across the economic, market and geopolitical environment may lead to a historic response in financial markets. In 2022, both the S&P500 index and the 10-year US Treasury bond market simultaneously posted double-digit negative returns for the first time in the last 100 years⁴.

While such downturns can be detrimental for many investment portfolios, they could present opportunities as well. In particular, yields have risen across the board - offering a potentially appealing entry point. This is especially true for bonds, but also for cross-asset allocations that may benefit from a range of opportunities across assets (e.g. government bonds, corporate bonds, emerging market bonds, equities). Notably, yields in these classes have risen considerably relative to the last decade.⁵

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*Figure 3 - Source: Amundi Institute, Bloomberg. Data is as of 16 December 2022. Govt bond average= average of 2 government bond indexes yields for US and EMU (from JPMorgan GIB US and EMU Indexes); Equity average = average of 3 Div. Yield from the S&P Aristocrats, MSCI Europe High Dividend and MSCI EM High Dividend Indexes, Cross-asset = average across yields from 10  indexes (the 3 equity indexes, the 2 govt bonds,  2 IG & 2 HY credit indexes for Europe and US (from Bloomberg Barclays) and 1 EM bond index (the J.P. Morgan EMBI Global Diversified Blended).*

### Restoring the balance with higher yields
As inflation rises and general market uncertainty abounds, many investors may be forced to reconsider their investment portfolios. Investors that rely on income from their investments can look to target higher income opportunities to meet their needs and provide resilience in the face of inflation.

Consider an investor with a portfolio value of €100,000 who aims to withdraw €3,000 on an annual basis (inflation-adjusted, and with no further capital appreciation).⁶

If inflation is at 2% and income yields stand at 3.5%, this investor can maintain their income goals for 18 years before dipping below the original €100.000 mark.

However, if inflation rises to 5% and the income remains unchanged… the portfolio value will fall below €100.000 in 8 years, and draw-down to €0 in 29 years!

In order for investors to sustainably maintain their income goals and general standard of living, a higher income yield is needed to counter-balance theeffects of inflation. Crucially - the longer the period of inflation persists, the more important this consideration becomes.⁶

### The problem spawns the solution
The historically negative market response to inflation has, at the same time, generated the solution for income investors. At a time when protecting one’s income and savings with high yields are most relevant, the steep drops in bond and equity markets have arguably created one of the best income opportunity backdrops in the last decade⁵.

Amundi provides a wide array of relevant inflation-resilient income opportunities across a variety of investment horizons⁷ to capitalize on the current market environment.

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Sources:

1. Amundi Institute on EFAMA Market Insights data, ECB and European commission June 2022. 2022 estimate based on European Commission’s spring 2022 estimation of inflation in the European Union for this year (6.8%)
2. Amundi Institute, Inflation is here to stay, as of 7 April 2022
3. Amundi Institute on IMF data and forecasts. Latest data and forecasts available as of 14 November 2022.
4. Amundi Institute, Global Financial data. Data is as of 31 October 2022. Past performance is no guarantee of future results.
5. Amundi Institute, Boomberg. Data is as of 31 October 2022.
Govt bond average= average of 2 govt bond indexes yields for US and EMU (from JPMorgan GIB US and EMU Indexes); Equity average = average of 3 Div. Yield from the S&P Aristocrats, MSCI Europe High Dividend and MSCI EM High Dividend Indexes, Cross-asset = average across yields from 10 indexes (the 2 govt bonds + 2 IG & 2 HY credit indexes for Europe and US (from Bloomberg Barclays) and 1 EM bond index (the J.P. Morgan EMBI Global Diversified Blended).
6. Amundi Institute for illustrative purposes. The simulation assumes that the annual withdrawal rises in line with inflation, no capital appreciation and that the portfolio capital increases at the income rate.
7. Amundi Institute, as of November 2022


Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of end of November 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 18 January 2023
Doc ID: 2680853




Discover how income could act as a possible source of resilience

Saving and Investing are two terms that are often used interchangeably, but they are actually different tactics that go hand-in-hand to help you reach your financial goals. Savings typically are intended for a rainy day or short-term goals, while investing involve an asset purchase that you believe may generate a return over time. Watch the video to learn more.

The Difference Between Saving and Investing

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Insights

Why Choosing the Right Objective Function Matters: How to Achieve Maximum Information Ratio With Portfolio Optimization

Discover how income could act as a possible source of resilience

How to

How Your Money Works for You

3 Bad Reasons to Sell a Fund

7 Lessons From the Wolf of Wall Street

Videos

The Difference Between Saving and Investing

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Schroders investIQ: Mutual funds