NEWS
17 Jul 2026 - Why a softer June CPI may not mean the RBA is finished
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Why a softer June CPI may not mean the RBA is finished Seed Funds Management July 2026 (2-minute read time) |
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Australia's June labour-force figures will be released on Thursday, 23 July, followed by the June CPI figures on Wednesday, 29 July. Together, these releases will be closely examined for evidence as to whether inflationary pressures are easing sufficiently to allow the RBA to conclude that its monetary-policy tightening cycle is complete. A comparatively benign June inflation result should not, in our view, be taken as confirmation that the RBA has finished tightening. The June period continued to benefit from the full temporary reduction in fuel excise, but that support was partially withdrawn from 1 July and is scheduled to be removed entirely in August. We think that renewed tensions in the Middle East and higher global oil prices will add a further source of upside risk. Together, these factors could produce a noticeable rebound in petrol prices and subsequently feed into freight, aviation, food distribution and broader business costs during the September quarter. More importantly, Australia's inflation problem is not confined to energy. Persistent pressure remains across housing, rents, construction, insurance, utilities, health, education and other labour-intensive services. Weak productivity growth continues to keep unit labour costs elevated, while government spending that remains excessive relative to the economy's available capacity is adding to demand, intensifying competition for scarce labour and materials, and offsetting some of the restraint being imposed on households through higher interest rates. Against this backdrop, we believe markets should be cautious about drawing strong conclusions from a single softer CPI release. Unless underlying and non-tradables inflation show a sustained and broad-based decline, a June lull may prove temporary. We think the unemployment figures will also need to demonstrate more than a marginal softening in labour-market conditions before materially changing that assessment. The two July releases will provide important new information, but we doubt they are likely to settle the monetary-policy outlook in isolation. We believe the RBA is likely to require a continuing sequence of weaker inflation and employment data before concluding that inflation has been contained. Against this backdrop, we see the current market confidence that the rate-increase cycle is complete appears premature, particularly while underlying inflation remains persistent and several identifiable sources of renewed price pressure are still working through the economy. |
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Funds operated by this manager: Seed Funds Management Financial Income Fund - Incl Franking , Seed Financial Income Fund Active ETF (ASX:SFIF) |
17 Jul 2026 - Rethinking the competitive advantages of AI-exposed companies
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Rethinking the competitive advantages of AI-exposed companies Janus Henderson Investors July 2026 (6-minute read) Human cognitive labor was once scarce. With artificial intelligence (AI), it's abundant. Research Analyst Ian McDonald explains through three company examples that illustrate why investors need to follow where that scarcity is being relocated.For decades, investors have relied on a familiar set of labels to evaluate competitive advantages: network effects, switching costs, data moats, brand, talent. These frameworks still describe real economic forces, but they were built for a world where human knowledge work was expensive and organizational effort took time. With the advent of AI, that assumption is now breaking down. AI is not going to eliminate every competitive advantage. It is, however, forcing investors to look more carefully at what makes a moat durable, and in many cases the answer has changed. Every moat rests on some form of scarcity, which is a resource or capability that is constrained and hard to replicate. That scarcity does not disappear as technology advances; it relocates. Where it lands helps determine which companies can sustain their edge and which will have to adapt. A pattern that repeats This is not the first time technology has shifted where scarcity lives. In the late 1990s, finding information was the bottleneck. Google indexed the web and made search effectively free. Scarcity moved to attention and distribution, which is why the next generation of dominant businesses were ad networks and platforms. In the 2010s, owning and managing servers was the constraint. Cloud computing made infrastructure elastic and metered. Scarcity migrated to power, cooling, chips, and physical capacity - a shift that still underpins much of today's investment case for utilities and infrastructure. Now we are in a third cycle. AI is absorbing the bottleneck of human cognitive labor. Routine analytical work that once took a person hours can now be completed by an AI agent in minutes. The former scarcity is moving toward three areas: judgment that requires human discretion, trust in the form of verification and accepted standards, and the physical inputs required to scale AI systems. Exhibit 1: New technology finds a scarcity bottleneck in the economy, absorbs the hard part, and makes the formerly scarce resource cheap and abundant. Then scarcity moves. Wherever it goes, the competitive advantage follows.
Cheaper to do, not cheaper to check An academic paper1 published earlier this year by researchers Christian Catalini, Xiang Hui, and Jane Wu offers a useful economic framework for understanding this shift. Their core argument is that the cost to automate a task is falling rapidly, but the cost to verify the result is not falling nearly as fast. Tasks that can be clearly defined, checked by a machine, and repeated cheaply is approaching zero marginal cost. That covers much of what companies have historically paid junior analysts, entry-level engineers, and consultants to do. Verification is different: Someone must still confirm the output is correct, accept liability for it, and resolve disputes when the stakes are real. Those costs stay sticky, and in some cases rise, since more AI-generated content increases demand for content that can be trusted. That distinction between generating an output and verifying it has meaningful investment implications. If a company's core advantage rested mainly on work AI can now do cheaply, that advantage may be eroding. If it rested on trust, accepted standards, or physical scarcity, it may be getting stronger. Three outcomes: Collapsed, moved, strengthened Building on these ideas, one way to think about how AI is impacting competitive advantages is to sort companies into three categories based on what happened to their core scarcity. Scarcity collapsed. Chegg, the education technology company, built what appeared to be a classic data flywheel: More students generated more questions, which produced more answers, which attracted more students. But the real scarcity was not the database; it was the human work of taking a textbook problem, explaining it clearly, and making it searchable. Once AI made that kind of reasoning abundant, the accumulated content was no longer the advantage. In some respects, it may have even become training material for the models competing with it. This illustrates a risk worth watching: If a company's data is essentially stored human cognitive work and a model can reproduce the same utility at lower cost, the advantage can unravel quickly. Scarcity moved. eBay's moat was traditionally described as liquidity-driven network effects: More buyers attract more sellers, and vice versa. That is still partly true, but it bundles together very different layers of value. For commodity goods, AI agents could potentially search across multiple marketplaces, compare prices and reviews, and route a buyer to the best deal regardless of where they started. That layer faces pressure over time. But eBay also has categories built on items that are physical, unique, and irreplaceable, such as collectibles, vintage goods, and rare parts. These items either exist or they do not - they cannot be generated by a model. And in a world of increasing synthetic content, the ability to verify a physical item's authenticity could become more valuable. The moat hasn't disappeared; Rather, it is shifting from generic discovery toward unique supply and authentication. Scarcity strengthened. Axon, the public safety technology company, may be the clearest example in this category. AI can make transcription, tagging, report writing and evidence review cheaper. But none of that undermines Axon's core asset: an authenticated chain of custody that tells courts, prosecutors, and municipalities that a piece of evidence is real, preserved, auditable, and admissible. In a world filling up with synthetic video, synthetic audio, and AI-generated claims, that kind of trust becomes more valuable, not less. Whereas Chegg sold explanations into a world where explanation became abundant, Axon sells authenticated evidence into a world where authenticity is becoming scarcer. Look under the hood The practical implication is clear: Now is the time to check in on the state of companies' competitive advantages. AI does not need to impact next year's earnings to affect today's valuation; it only needs to shorten how long the market expects a company's advantage to last. That repricing is already underway across application software, information services, marketplaces, and platform businesses. But it is often too blunt, treating every moat in a category as equally vulnerable when the underlying scarcity differs significantly from one company to the next. The old moat vocabulary is not dead. Network effects are real. Switching costs are real. Data advantages are real. But they are a starting point, not a definitive answer. The work now is to look underneath them; identify whether the scarcity that supported the advantage has collapsed, moved, or strengthened; and judge durability accordingly. That is where our research is focused. 1 Catalini, Christian and Hui, Xiang and Wu, Jane, Some Simple Economics of AGI (February 24, 2026). MIT Sloan Research Paper, available at SSRN: https://ssrn.com/abstract=6298838 or http://dx.doi.org/10.2139/ssrn.6298838 |
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Funds operated by this manager: Janus Henderson Australian Fixed Interest Fund , Janus Henderson Conservative Fixed Interest Fund , Janus Henderson Diversified Credit Fund , Janus Henderson Global Natural Resources Fund , Janus Henderson Tactical Income Fund , Janus Henderson Australian Fixed Interest Fund - Institutional , Janus Henderson Conservative Fixed Interest Fund - Institutional , Janus Henderson Cash Fund - Institutional , Janus Henderson Global Multi-Strategy Fund , Janus Henderson Global Sustainable Equity Fund , Janus Henderson Sustainable Credit Fund All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information. |
16 Jul 2026 - Emerging Markets: How AI exports are powering Korea's next investment opportunity
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Emerging Markets: How AI exports are powering Korea's next investment opportunity Pendal June 2026 (2 minutes read time) |
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IN ONE of the more unusual current developments in emerging markets, South Korea is experiencing a powerful export surge driven by global demand for artificial intelligence infrastructure, yet the Korean won continues to trade close to its weakest levels in decades. South Korea's latest trade data confirms the strength of the current semiconductor cycle. Exports reached a record US$87.8 billion in May, rising 53 per cent year-on-year and comfortably exceeding expectations.1 Semiconductor exports increased by 169 per cent.1 The benefits are increasingly extending beyond semiconductors, with non-semiconductor exports gaining momentum and manufacturing activity reaching its strongest level in more than five years. This has transformed Korea's external accounts. The current account surplus rose from 1.8 per cent of GDP in 2023 to 6.6 per cent in 2025 as semiconductor exports recovered sharply.1 Semiconductor surge tipped to offset energy price dragThe Bank of Korea expects the semiconductor boom to more than offset the economic drag from higher energy prices stemming from tensions in the Middle East. Under normal circumstances, such a combination of strong exports, rising corporate profitability and large external surpluses would be expected to support a stronger currency. Instead, the won has continued to weaken. In our view, this reflects the dominance of capital flows over trade flows. Korean investors have become substantial buyers of overseas assets, particularly US equities. Domestic savings are increasingly being deployed overseas, while a growing share of the foreign currency revenues generated by Korean exporters are being retained offshore rather than repatriated and converted into won. As a result, sizeable trade surpluses have coincided with persistent capital outflows. Vast dollar earnings not being converted back to Korean wonThe result is the emergence of "DRAM dollars", analogous to the petrodollars generated by major energy exporters. Korea's semiconductor sector is generating vast dollar earnings, but an increasing share of those proceeds is not being converted back into won. At the same time, strong performance in overseas equity markets and a weaker won have reinforced the attractiveness of foreign assets for domestic investors, creating a self-reinforcing cycle of capital outflows. The won is cheap, but not outrageously so. In its 2025 External Sector Report, the International Monetary Fund (IMF) concluded that Korea's external position in 2024 was broadly consistent with medium-term fundamentals and desirable policies. In particular, the IMF noted Korea's need to run a large current account surplus in order "to build precautionary savings to meet aging-related needs and an orderly deleveraging of private debt".2 Since that assessment, the real effective exchange rate has fallen by a further 8 per cent, while semiconductor exports and current account dynamics have strengthened. How we are positioningThe portfolio remains substantially exposed to the beneficiaries of the AI investment cycle, including Samsung Electronics and SK Hynix, both directly and indirectly. We remain heavily underweight the rest of the Korean market, where the transmission of semiconductor success into broader earnings growth is less certain. We also remain underweight the won given the export exposure already embedded within our holdings. Nevertheless, the combination of a large current account surplus, strong export momentum and increasingly attractive valuation suggests that the medium-term outlook for the Korean currency is becoming progressively more favourable. Sources: 1Bloomberg 2IMF |
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Funds operated by this manager: Pendal MicroCap Opportunities Fund , Pendal Sustainable Australian Fixed Interest Fund - Class R , Pendal Focus Australian Share Fund , Pendal Horizon Sustainable Australian Share Fund , Regnan Credit Impact Trust Fund , Pendal Sustainable Australian Share Fund , Pendal Multi-Asset Target Return Fund , Barrow Hanley Concentrated Global Share Fund , Pendal Active Balanced Fund , Pendal Active Conservative Fund , Pendal Australian Equity Fund , Pendal Australian Long/Short Fund , Pendal Australian Share Fund , Pendal Dynamic Income Fund - Class R , Pendal Fixed Interest Fund , Pendal Global Emerging Markets Opportunities Fund - Wholesale Class , Pendal Global Property Securities Fund , Pendal Government Bond Fund , Pendal Imputation Fund , Pendal MidCap Fund , Pendal Monthly Income Plus Fund , Pendal Property Investment Fund , Pendal Short Term Income Securities Fund , Pendal Smaller Companies Fund |
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This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com |
15 Jul 2026 - Emerging markets income equity: the billion-dollar questions
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Emerging markets income equity: the billion-dollar questions abrdn June 2026 (Reading time: 5 Mins) In a market often defined by volatility and headlines, what actually drives sustainable income in emerging markets (EM)? Reflecting on the evolution of our EM income equity strategy -- which we have managed since 2012 -- and the recent milestone of the latest investment vehicle launched in 2024 topping US$1 billion in assets, lead portfolio manager Matt Williams tackles nine key questions about the drivers of outcomes, the enduring principles behind the approach and the reasons why the outlook for EM remains compelling. What defines your approach to managing an EM income equity strategy?Our starting point is simple: markets regularly misprice company fundamentals. We aim to identify those gaps by forming our own long-term view of cash flows, earnings, and returns, and comparing that with what is already reflected in valuations. Looking back, what moments or themes stand out most?The rapid emergence of generative artificial intelligence (AI) has been a defining theme. Rather than focusing solely on companies building AI systems, we have increasingly targeted those helping to monetise the technology through real-world applications --such as wireless connectivity chipmakers, semiconductor designers and memory manufacturers. What aspects of the investment philosophy have remained constant since strategy launch and why do they still matter?Our philosophy has not changed. We believe cash flow gives one of the clearest and most reliable indicators of business quality, which is why we describe our approach as 'follow the cash flow'. It helps us test management narratives and focus on companies with sustainable fundamentals. Where has the approach evolved as the strategy has matured?While the underlying philosophy has remained consistent, the framework around it has evolved over time. We introduced a pod-based structure almost a decade ago to reinforce accountability and improve portfolio construction discipline. What are the key lessons from managing an EM income strategy across different market environments?One key lesson is the value of balance. The approach combines dividend-growth businesses with high-dividend companies, rather than relying on one style. That helps deliver a more resilient return profile across the cycle. What role has income played in shaping returns and resilience since the strategy's launch?Income has contributed to the overall performance of the strategy since its inception in 2012. We seek to provide a yield that is typically higher than the benchmark. Importantly, income also helps smooth the return profile. It can provide a component of total return, while longer-term investments play out. We believe that income is generated by companies with strong cash flows and disciplined capital allocation, and that it can be sustained rather than cyclical. How do investors typically use EM income strategies in portfolios and has that changed over time?Investors can use EM income equity strategies as a core EM allocation, complemented by more thematic or higher-growth satellite exposures. This reflects demand for a more balanced return profile within what can be a volatile asset class. What investor feedback has resonated most as the strategy has grown?Investors consistently highlight the discipline and repeatability of the approach. They also value the scale of our research platform, with around 50 investment professionals across seven global locations providing local insight and access to management teams. Looking ahead, where do you see the most compelling opportunities and the key risks?Despite recent geopolitical tensions, we remain constructive on emerging markets. The structural drivers behind the current cycle are intact, including rising global capital investment, the build-out of data centre infrastructure, increased defence spending, decarbonisation, and supply-chain diversification. Emerging markets are playing a central role in many of these areas. Final thoughtsThe strength of our approach lies in its consistency, focus on cash flow, and balanced portfolio construction. As EM continues to evolve, maintaining this discipline remains central to how we seek to navigate opportunities and risks over the long term.
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Funds operated by this manager: abrdn Sustainable Asian Opportunities Fund , abrdn Emerging Markets Equity Fund , abrdn Sustainable International Equities Fund , abrdn Global Corporate Bond Fund (Class A) |
14 Jul 2026 - New Funds on Fundmonitors.com
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New Funds on FundMonitors.com |
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Below are some of the funds we've recently added to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research, platform availability, and news & insights. |
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| VanEck Australian Subordinated Debt ETF (ASX:SUBD) | ||||||||||||||||||||||
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13 Jul 2026 - Infrastructure in focus: A hard-wearing HALO in infrastructure
10 Jul 2026 - 2026 Midyear Investment Outlook
9 Jul 2026 - Equities outlook: Balancing AI's promise and near-term macro risk
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Equities outlook: Balancing AI's promise and near-term macro risk Janus Henderson Investors June 2026 (8-minute read) Head of EMEA and Asia Pacific Equities Lucas Klein and Head of Americas Equities Marc Pinto discuss how uncertainty around the artificial intelligence (AI) buildout and geopolitical conflict may allow investors to capitalize on price dislocations within these and other, underappreciated, themes, creating opportunities for excess return. Two developments have framed global equity markets in 2026: The continuation - and perhaps surprising strengthening - of the AI infrastructure buildout and the outbreak of hostilities in the Middle East. As evidenced by numerous stock indices having reached record highs in the second quarter, the market is largely embracing the former while shrugging at the latter in the hopes that the associated energy price shock will be short lived. Given the degree to which equities are reacting to these unfolding events, one could be forgiven for thinking that there is little point in fighting consensus by seeking differentiated, company-specific views that go against the prevailing narrative. We, however, believe current market and corporate dynamics are more complex than what's reflected in the headlines. It is, after all, in periods of persistent macro risk and seemingly one-way trades that investors can capitalize on price dislocations within underappreciated themes and individual securities, which can often lead to excess return opportunities over the long term. To be sure, market concentration and persistent inflation are factors investors cannot ignore. And our sentiment is more cautious than it was six months ago. But financial markets are the aggregation of thousands of companies and millions of transactions, and they are constantly absorbing new information about the corporate, economic, and geopolitical environment. While uncertainty has risen, in our view, a complicated and rapidly evolving environment creates opportunities for investors to be proactive by positioning portfolios for the future. The AI buildout: From strength to strength In late 2025, two questions hung over the AI theme: Was the scale of the infrastructure buildout too much too soon, and when could hyperscalers expect monetization from their massive investment? Fast forward six months and those many of those concerns have been assuaged. Demand at every stage of the AI value chain exceeds supply. This includes backlogs for the most advanced graphics processing units (GPU) and end users lining up to access hyperscalers' newest models. This latter development is resulting in revenue growth that exceeds most analysts' expectations. The upshot is one of the strongest earnings revisions cycles in decades. Exhibit 1: Equity earnings upgrades In contrast to the last three years, when earnings were revised downward even in the categories below - with the Magnificent 7 being the exception - 2026 earnings estimates have been materially upgraded over the past five months.
Source: Bloomberg, Janus Henderson Investors, as of 29 May 2026. U.S. large-cap growth represented by the Russell 1000 Growth Index; Semis represented by the S&P 500 Semiconductors Sub-Industry Index; Developed ex-U.S. represented by the MSCI EAFE Index. The expanding capabilities behind the voracious demand for these models is underpinned by a wider-than-expected set of technical inputs. In this year's most telling example, AI inference has been shown to require an underappreciated number of central processing units (CPUs) and memory chips, resulting in significant bottlenecks for these components. This revelation comes on the heels of hyperscalers' race to procure sufficient energy to power their data centers. As AI models become even more sophisticated and further permeate the global economy, we expect additional bottlenecks to emerge. This presents an opportunity for investors to apply deep industry knowledge to identify constraints early and position portfolios accordingly. Another potential AI-related development investors should be mindful of is a repeat of the type of disruption that recently roiled the software industry. As use cases are applied to other industries, we expect additional events like this to occur, as disruption is the tradeoff for reaping the productivity gains promised by AI. But as with the software episode, once the possibility of disruption is recognized, the market often reacts quickly, selling first and asking questions later. This elevator down, stairs up mentality can create opportunities in oversold stocks whose underlying businesses could prove resilient to, if not fortified by, AI. The global economy has been through periods of profound technological change before, although perhaps not at the scale or velocity exhibited by AI. These early days are being led by AI enablers - infrastructure companies and models architects. Investors are anxious to see evidence of productivity gains leading to earnings growth across sectors - via AI enhancers and especially end users - but, at present, any margin expansion would be dwarfed by the AI hyperscalers' historic revenue generation. The long shadow of higher energy prices A tenuous ceasefire and front-month Brent crude futures roughly 20% off their crisis highs have caused many market participants to hope that the economic impact of the Middle East conflict will be short lived in most regions. We believe this will prove too sanguine of an outlook. Even if a lasting cessation of hostilities can be achieved - and that is far from certain - we expect energy prices, and thus global inflation, to remain elevated for much of the rest of the year. The knock-on effects of such an outcome would be far ranging. Foremost, consumption and corporate margins in regions highly dependent on energy imports would suffer. Europe and much of Asia are at the top of that list. And while U.S. consumption remains steady, we are already seeing signs of stress in the value segment. With gasoline prices above $4 per gallon, every dollar going into a tank is one less available for other categories. Even without oil surging past $100 per barrel, the steady headwind of elevated gas prices could weigh on consumers during the important holiday travel and back-to-school seasons. Exhibit 2: Inflation biting in the eurozone and U.S. The duration of energy-driven inflation in the eurozone and U.S. will largely determine how consumers adjust their buying patterns and when - and to what degree - these regions' respective central banks will have to react with policy adjustments.
Source: Bloomberg, Janus Henderson Investors, as of 8 June 2026. The duration of high energy prices is likely to be the swing factor in the future trajectory of monetary policy. Entering the year, most major central banks were on track to cut rates to support a late-cycle economy. Now, market-implied estimates indicate the Bank of England and European Central Bank could raise rates up to two and three times, respectively, by the end of the year. And given their inflation mandate, they would have to do this despite already flagging economic prospects. While the U.S. may not be compelled to raise rates as quickly (if at all), its economy is unlikely to receive the hoped-for tailwind of lower interest rates. Not only would this diminish households' ability to benefit from lower borrowing costs, but it also undermines our earlier expectation for an equity market broadening, partly premised on typically leveraged small caps enjoying more favorable financing terms. Europe: One step forward, two steps... Higher interest rates will continue to be a headwind for the eurozone. Another comes in the form of economic reforms progressing more slowly than anticipated. The holdup is found in the banking and regulatory reforms aimed at making the European marketplace more competitive. In contrast, by necessity, the defense component of the banks and tanks initiative continues to move forward. Major European countries, chiefly Germany, recognize the need to fortify their defense capabilities, including domestic arms production, and are willing to run deficits to fund them. The Trump administration's continued ambiguity toward the North Atlantic Treaty Organization likely makes European defense an enduring theme, regardless of how the Ukraine conflict turns out. Much of our earlier favorable view on European markets was based on the potential for pro-business reforms. But another factor was the considerable discount at which European stocks have traded to their American counterparts for the past several years. That discount has narrowed considerably over the past 18 months, diminishing the argument that value alone was a reason to consider European exposure. Exhibit 3: European equities discount to U.S. stocks With Europe's valuation discount to the U.S. narrowing, the next boost for the continent's stocks will have to come from substantive pro-business reforms rather than arguing that equities are cheap.
Source: Bloomberg, Janus Henderson Investors, as of 29 May 2026. When looking at European economic conditions in isolation - including lower exposure to the AI theme - one can conclude that the region's stocks trade at a discount to the U.S. for a reason. That, however, ignores the fact that a large portion of European earnings are derived from either exports or European multinationals' global operations. In this respect, European exposure continues to represent a viable method to access attractive investment themes and global earnings streams. China finding its footing? After an extended period of tepid stock performance and worrisome economic developments, China has shown signs of progress. Part of the reason is the central government inching away from its emphasis on national service at the expense of a company's economic priorities. Beijing is again recognizing that a less encumbered private sector acting in its own commercial interest can improve a nation's economic position and social outcomes. This is most evident in innovation-centric fields like AI, biotechnology, and electric vehicles (EV). The country still must work though the vestiges of its housing overhang, and the government's typical reflex in these instances is to lean into exports. This is, in fact, part of China's current strategy in the wake of U.S. tariffs. To compensate for duties, exports have increased to other emerging markets, where some components invariably find their way to the U.S., but under more favorable terms. A star of corporate China continues to be its commanding position in EVs and batteries, both of which have gained footholds in markets across the world. Balancing the secular and the cyclical A market repeatedly eclipsing record highs on the back of a handful of AI-related companies is no reason in itself to be circumspect about stocks' prospects. This year's gains are, after all, rooted in solid fundamentals, namely materially higher earnings revisions. Still, equities' swagger belies some uncertainty. What sector will AI disrupt next, and how will corporate managers - and investors - react? Although there have been larger episodes in the past, how will the market absorb the initial public offering pipeline, including those of major AI platforms? Lingering inflation and potentially more restrictive monetary policy are legitimate headwinds. Granted, the U.S. stock market does not look entirely like the U.S. economy - with consumption being a much larger share of the latter - but stress from higher energy prices could eventually impact the purchasing decisions of higher-income households. High-end consumption remains strong, but in perhaps a nod to any workplace dislocations AI may cause, will that be enough to carry the broader U.S. economy? These are issues policymakers and investors must monitor as AI becomes more prevalent. There are invariably winners and losers in periods of rapid technological transition. Even within tech, there will be both. The analytical potential of AI could create even more winners in biotech innovation as models tackle the complexities of medical sciences. Over the remainder of 2026, the market will have to balance two opposing forces. On one side, the possible cyclical headwinds of a prolonged military conflict, inflation, and higher interest rates may very well weigh on near-term economic growth. On the other, the secular theme of AI could live up to its promise of being a force multiplier for global productivity. Neither of these trends is on a set path, and each will likely deliver unexpected developments, and thus bouts of volatility, along the way. IMPORTANT INFORMATION Aerospace and defense industries can be significantly affected by changes in the economy, fuel prices, labor relations, and government regulation and spending. Artificial intelligence ("AI") focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm. Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments. Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets. Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole. Consumer Price Index (CPI) is an unmanaged index representing the rate of inflation of the U.S. consumer prices as determined by the U.S. Department of Labor Statistics. Dividend Yield is the weighted average dividend yield of the securities in the portfolio (including cash). The number is not intended to demonstrate income earned or distributions made by the portfolio. Inflation: The rate at which the prices of goods and services are rising in an economy. The Consumer Price Index (CPI) and Retail Price Index (RPI) are two common measures. The Magnificent 7 stocks include Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft, and NVIDIA. Monetary Policy refers to the policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. MSCI EAFE® (Europe, Australasia, Far East) Index reflects the equity market performance of developed markets, excluding the U.S. and Canada. Price-to-Earnings (P/E) Ratio measures share price compared to earnings per share for a stock or stocks in a portfolio. Russell 1000® Growth Index reflects the performance of U.S. large-cap equities with higher price-to-book ratios and higher forecasted growth values. S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance. S&P 500 Semiconductors Sub-Industry Index® tracks the performance of the semiconductor and semiconductor equipment manufacturers listed on the S&P 500. STOXX® Europe 600 Index represents large, mid and small capitalization companies across 17 countries in the European region. Volatility is the rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility the higher the risk of the investment. |
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Funds operated by this manager: Janus Henderson Australian Fixed Interest Fund , Janus Henderson Conservative Fixed Interest Fund , Janus Henderson Diversified Credit Fund , Janus Henderson Global Natural Resources Fund , Janus Henderson Tactical Income Fund , Janus Henderson Australian Fixed Interest Fund - Institutional , Janus Henderson Conservative Fixed Interest Fund - Institutional , Janus Henderson Cash Fund - Institutional , Janus Henderson Global Multi-Strategy Fund , Janus Henderson Global Sustainable Equity Fund , Janus Henderson Sustainable Credit Fund All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information. |
8 Jul 2026 - The hidden danger of leveraged ETFs
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The hidden danger of leveraged ETFs Marcus Today June 2026 5-minute read I think that ETFs are a wonderful invention. They enable retail investors to get exposure to international markets, sectors and themes. Brilliant stuff and obviously has been a huge success. But success has many fathers, and huge success has many players. Competition is fierce for ETF dollars. These fund managers want your money. The fees are low (part of the attraction), so you need lots of dollars to make it work. The same infrastructure is required to manage $1bn as $100m. The same models and mechanisms. But competition can be fierce. As a result, they come up with ever more exotic themes, ever more exotic sectors and, worst of all, leveraged ETFs. These can include SNAS or LNAS. These offer leverage of around 2-2.5 times the index move. But when things get weird, worrying is the level of leverage that some providers offer in other markets. Korea is a case in point. When leverage turns against youIt is only fabulous when the market goes up, and leverage magnifies the underlying index moves. It is a bit like an option position. As the market goes up, the sellers of these ETFs are getting shorter and shorter due to the leverage. So they have to keep buying to stay hedged. This pushes the market higher and higher. The trouble is that when things unravel, they tend to unravel quickly. The market makers get longer as it goes down, and so have to rebalance and sell. Couple that with the pain from investors, and it can cascade lower. The Korean market has a huge level of leverage with new products in Samsung and SK Hynix. That is why we saw a 10% fall in the KOSPI yesterday. It feeds on itself. Even the regulator that approved these highly leveraged products has said maybe it wasn't his greatest idea! That is a stark admission. That is something that is supposed to be said in an "inside" voice! Nomura estimates leveraged ETFs now broadly generate about $9 billion of rebalancing demand for every 1% move in the market.
Korea set off the US sell-off. Everything is connected after all. At their May launch, the 16 ETFs tracking the chipmakers in Korea had combined assets of US$3bn. To date, these have ballooned to more than US$9bn. What is also troubling in all this leverage is that they are very popular with retail investors who may not be that experienced in risk management. Just rolling the dice to get rich or die trying! Up until recently, it has worked. Until recently. Leverage is a wonderful thing when it is going well. When it turns, it can be a very sub-optimal experience. And it can unwind the popular trades very quickly. That's what we are seeing at the moment. Those crowded trades unwound at breakneck speed.
The real cost of the AI boom I wrote yesterday about the AI issue. That is the cost of it. It is huge. There is probably going to be a trillion dollars chucked at it this year. That requires a payback. Companies that embrace AI have to see the returns because it is expensive. And do you need a hammer gun to knock in one nail? Does "free" ChatGPT do the job, or do you need advanced Claude models to run your business? And if you are paying a fortune for your AI bots and models, do you need humans? Low value human capital. Like the reverse of the Taco Kid ad. You can't have both. What is the point? It is like buying a designer dog and then wishing you had a rescue one! If you only want one dog, that is. The goal is to save money and be more productive. The big tech stocks have gone from being massive holders of cash to issuing debt and equity to pay for all the spending! That is a significant change to the models. From cash hoarders to Shirley Bassey stocks. Big spenders. I use ChatGPT; I am not a complete Luddite, but for my requirements, it does a pretty good job. I am not into just posting AI stuff. It is nice to think about things. What does compute actually cost?The concern I have is how much does "compute" cost? Does it just become a commodity? The big spenders want you to use it more and more, in more and more sophisticated ways. Tokens, tokens everywhere and not a brain to think! If you invest $1 trillion, you would like to see a return. A pretty good one. Especially as you are not sure how long the chips will last and how quickly you will have to upgrade. Then there is the question of open-source Chinese AI models, which are vastly cheaper and sometimes free. Will the Chinese do to the tech models what they have done to German car makers? Going the way of the Dodo! Does anyone know the cost of a "compute token" in a year? What about five years? As they say, investing in resource stocks is risky because you don't know what iron ore prices will be in five years. Yet they are still investing $1 trillion a year! Is this another period when the markets have lost their minds? Irrational exuberance. Vale Greenspan. He called it. |
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