Americans unleashing pent-up savings could drive up inflation and rattle parts of the market, JPMorgan’s chief strategist says

GettyImages 1310342539
Americans have built up savings during COVID that could be unleashed.

US consumers unleashing their pent-up savings in a huge wave of spending could drive up inflation and rattle some parts of the stock market, JPMorgan Asset Management’s chief strategist for Europe has said.

Karen Ward said in an online presentation this week that JPMorgan estimates Americans have built up extra savings worth around 8% of US GDP during the COVID-19 pandemic, when their spending options have been limited.

Ward, a former top economic advisor to the UK’s finance ministry, said she thought most of this would be unleashed in a spending spree. When combined with Joe Biden’s $1.9 trillion stimulus bill – worth around 9% of GDP – that is likely to push inflation higher, she said.

“I’m not talking about runaway inflation of the 70s,” she said. “But I just think the risks in my view are more skewed towards inflation averaging 3% over the next 10 years, rather than inflation averaging 1% over the next 10 years.”

Core personal consumption expenditure inflation, the Federal Reserve’s preferred measure, stood at an annualized 1.5% in January.

Ward said that a rise in inflation was likely to generate volatility in parts of the stock market as investors reacted to the new situation. She added that confusion around the Fed’s new tolerance of higher inflation and employment would also create uncertainty.

Economists expect the US economy to boom in 2021, following the worst contraction since World War II in 2020. Yet they are divided on what this means for price levels, which is a key question for markets, given the importance of inflation to assets’ values and returns.

Whether or not inflation rises persistently “is the big question that nobody knows the answer to,” said Nasdaq chief economist Phil Mackintosh.

Rising growth and inflation expectations have already pushed bond yields sharply higher, with investors demanding a bigger return to account for price rises.

The move up in yields shook many investors in February and March. The tech stocks that did so well during the pandemic fell sharply, as bonds and stocks that are set to do better from strong growth and inflation started to look more attractive.

Ward said she thought bond yields would rise further as inflation picked up, and would probably generate further volatility in some parts of the market on the way.

The JPMorgan strategist said the Fed’s new mandate to tolerate higher inflation and employment may also cause problems.

“Not only do they want to reach full employment, but they also want inclusive employment. So what exactly does that mean?” she said. “I think that has the potential to generate us some volatility.”

Yet, she said the global stock market as a whole was unlikely to be majorly troubled because stronger growth should support companies’ earnings.

Many analysts believe inflation will remain low, however, that is partly because unemployment is set to remain higher than it was before the crisis in the medium term.

The Fed itself has signaled it does not think inflation will be damaging, with chair Jerome Powell reiterating that message on Thursday.

Jan Hatzius, Goldman Sachs’ chief economist, predicted in a note on Monday that US inflation would remain “well below the Fed’s 2% target, consistent with an economy that remains well below full employment.”

He added: “All this has increased our confidence that Fed officials will be able to stay the course in exiting only very gradually from their highly accommodative stance.”

Read the original article on Business Insider

BestInvest calls out the top 5 worst performing asset management firms, with Invesco taking pole position for the sixth time running

worried trader
the funds must have underperformed the benchmark by 5% or more over the entire three-year period of analysis to make the list.

  • BestInvest, an online investment platform, just released their twice-yearly “Spot the Dog” report.
  • The report analyses the worst-performing funds across different sectors.
  • These are the five firms that had the most assets under management in the list.
  • Visit the Business section of Insider for more stories.

Even the biggest names in asset management can get it wrong and BestInvest just called out some of the top losers.

In its twice-yearly ‘Spot the Dog’ report, the online investment service names and shames the top underperforming funds and firms, and Invesco has topped the list for the sixth time in a row.

“The top slot in Spot the Dog continues to be held by Invesco with 11 funds totalling £9.2 billion. Four of these funds are Tibetan Mastiff-sized beasts,” the report said.

However, the report, which doesn’t win any popularity contest among fund managers, does note that Invesco’s number of funds that made the list has fallen this time.

What is a ‘dog fund’?

So how does BestInvest identify the funds that fall into this somewhat cruel category using two filters?

First, it filters by fund universe to identify “those that have failed to beat the benchmark over three consecutive 12-month periods,” the report said.

The benchmark chosen by BestInvest is determined by the sector the fund, designating one that operates in an index that “represents the overall movements in the market that the fund operates in,” it said.

This highlights those that have consistently underperformed and allows the research to remove those that “may simply have had a short run of bad luck,” it added.

Secondly, the funds must have underperformed the benchmark by 5% or more over the entire three-year period of analysis.

The Kennel Club

These are the firms with the most assets under management, which made the list because of their “dog funds”:

1. Invesco

For the sixth time running, Invesco has landed the top “dog” spot, with 11 funds making the list, worth £9.2 billion in total. Admittedly, this is down from 13 funds valued at £11.4 billion from the last report.

Two of the firm’s funds were repeat offenders on the list: Invesco’s UK Equity High Income and UK Equity Income funds, delivering -21% and -19% respectively over a three year period compared to the benchmark.

But, in the firm’s defence these funds were only recently handed to new managers, “who are now tasked with turning them around,” the report said.

Moreover, Invesco has gone through a broad shakeup over the last year after the appointment of a new chief investment officer, Stephanie Butcher.

“This is clearly a work in progress,” the report added.

2. Jupiter

The UK-based firm Jupiter leapt up the rankings from ninth to second place in this report following its July 2020 acquisition of Merian Global Investors, making it “rescue home for two sizeable beasts,” the note said

The now enlarged group oversees 8 “dog funds”, totalling £4.1 billion of assets. The biggest of these is the Merian North American Equity fund, which has seen a -14% return in the last three years compared to the benchmark.

3. St. James Place

St James’s Place’s (SJP) in-house fund range has frequently “lurked near the top spot in the hall of shame” and sits in third position with four funds totalling £4 billion, the report said.

The number of SJP funds that made this edition has halved since the last with the SJP UK High Income fund, previously managed by fallen star Neil Woodford, escaping the shaming.

The SJP Global Smaller Companies fund was one of this edition’s biggest losers in the Global sector, coming fifth in that particular list and trailing the benchmark by -32%.

4. Schroders

Schroders took this edition’s fourth place after it number of funds to make the list rose to 11, with an increase of £4 billion in asset.

Three of the Schroder’s included are managed by its QEP team, the report highlight, who use a “systematic, data driven investment process.”

Both the Schroder European Recovery and Global Recovery funds – which target undervalued companies – made the list, underperforming the benchmark -22% and -33% respectively. These, and the firm’s income funds investing in the US, Europe and globally, struggled in the 2020 environment where ‘growth’ stocks significantly outperformed.

These growth sectors include technology and communications services which have been the biggest ‘COVID-winners’, like video-conferencing software Zoom and EV company Tesla.

Therefore, growth strategies largely left funds targeting undervalued companies or dividend-generating businesses lagging in the dust during 2020.

However, if the global economy recovers as most banks are forecasting, these ‘recovery’ or ‘value’ plays could catch-up, making significant gains.

Of note, the report excluded the £3.3 billion ‘dog fund’ managed by the firm in its joint venture with Lloyds Bank.

5. JPMorgan Asset Management

JPMorgan’s inclusion in the top five came down solely due to the JP Morgan US Equity Income fund with its huge  £3.2 billion in AUM, which fell -27% below the benchmark, the report said.

Unfortunately for JPMAM, the fund has been underweight technology stocks in a period when companies like FAANG and tech cult names like Tesla have been market leaders, as many tech companies do not pay dividends.

But, like Schroders, this could turn around if value sectors like Banks and energy – which are the main dividend payers – catch up on any economic recovery.

Read the original article on Business Insider