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CNBC
13-07-2025
- Business
- CNBC
Coming to a 401(k) near you: Private market assets
Apollo Global Management CEO Marc Rowan told attendees at an investor conference last month that the day will soon come when private assets are accessible in Americans' retirement accounts. "I would expect at some point, in this administration's history or in the future, to be able to sell private markets into the 401(k) system," Rowan said on stage at the Morningstar Investment Conference in Chicago, Illinois, where the convergence of private and public markets was a major theme. Those comments come as no surprise from the billionaire CEO, who has long stressed the growing importance of private markets in investing. However, the idea is reaching a tipping point. Private market exposure in 401(k) plans was considered permissible in 2020, when the Department of Labor under the Trump administration issued an information letter indicating it could be appropriate for defined contribution plans under certain conditions. The guidance was later affirmed by the Biden-directed agency. But its presence is starting to expand. Asset managers and plan sponsors have created products for retirement vehicles in which Americans collectively hold roughly $8.7 trillion in assets, according to data on 401(k)s at the end of the first quarter of 2025 from the Investment Company Institute . In June, BlackRock, the world's largest asset manager, said it's launching a 401(k) target date fund in the first half of 2026 that will include a 5% to 20% allocation to private investments. In May, Empower, the country's second-largest retirement plan provider, said it's joining asset managers such as Apollo to start allowing private assets in some accounts later this year. Those developments come amid a broader push under Trump's second term in office to expand the definition of "accredited investors" to allow more people to invest in private markets through their 401(k)s. Within the retirement plan industry itself, the conversation is reaching a fever pitch. Bonnie Treichel, chief solutions officer at Endeavor Retirement, said, "If you're at retirement plan-related conferences right now, this topic is all the rage, so to speak." Similarly, Fred Reish, a partner at law firm Faegre Drinker said: "It's not just out there somewhere on the horizon, I would say that's in the immediate future." How it works The strategies created for 401(k)s thus far will be coming in the form of pooled investments such as collective trusts, or managed accounts overseen by professional investors, instead of standalone investments assessed by individual employees. Adding private assets to target date funds, which automatically adjust allocations based on a retirement date, is one option that's growing in popularity in the industry. The structure of those investments are meant to address some of the regulatory concerns around the assets, which have traditionally been excluded from 401(k)s even as they were embraced by pension funds and university endowments. The treatment stems from the perception that private investments have risks such as a lack of transparency, which raises predatory concerns, as well as higher fees and long lockup periods. The 2020 Labor Department information letter also attempted to address those concerns, outlining that investments into private assets made within 401(k)s must be done with prudence, or held to the standard of a person who is "familiar with such matters," without which a company or an asset manager can open themselves up to legal ramifications. "If fiduciaries make a bad investment, not bad an outcome, but bad both in outcome and bad in that they didn't really vet it properly, they can be sued, and they can be personally liable for damages," said Reish, who specializes in the Employee Retirement Income Security Act of 1974 (ERISA) that governs employee retirement plans. "So, not just the company, but also each individual member of the plan committee. Each of those officers and managers that serves on the plan committee can be personally liable. That's frightening." Intel, for example, had a lawsuit dismissed earlier this year by a federal appeals court in San Francisco after a yearslong dispute over its use of alternative assets in its retirement plans. Additionally, what that could also mean is that larger plan sponsors, which have the internal capabilities to vet private investments, could move faster to integrate privates into a 401(k) plan, rather than smaller companies. The case for privates Still, there are several reasons for the excitement around private assets in 401(k) plans. Proponents point out that the investable universe has shrunk over the last three decades, roughly halving to about 4,000 companies from more than 8,000 back in the 1990s, according to the Center for Research in Security Prices. At the same time, the dominance of the largest public companies grows increasingly pronounced with each passing year. CRSP found that the market cap of the top 10 companies accounted for 35% of the total market in 2024, more than double what it was before 2020. Meanwhile, more companies are staying private for longer. The decision helps executives build their businesses away from the glare of regulatory scrutiny or responsibilities to shareholders, but also makes it harder for investors to get in on the ground floor of the next Microsoft or Apple. Thus, the argument goes, private assets will give investors exposure to a market that looks markedly different from what it had in the past — even if it requires locking up capital for longer periods of time at greater cost and greater risk. Still, there are many who worry the risks far outweigh any benefits, calling private investments far too opaque for plan sponsors to do appropriate due diligence. "Being private does not make it better. It makes it less liquid," Apollo's Rowan told investors at the Chicago conference. "Our job is to deliver excess return."
Yahoo
11-07-2025
- Business
- Yahoo
The case for investing in emerging markets, despite underperformance
In an industry known for its veritable alphabet soup of acronyms, the lower or even vanishing usage of "BRIC" — that's Brazil, Russia, India and China — is a sign of the times. Amid "a state of deep outflows" in mutual funds and ETFs tied to emerging markets, research firm Morningstar retired its BRIC category last year because "those strategies were relics of an age when the hot investment theme was the growth" in those countries and South Africa, Morningstar Indexes Analyst Dan Lefkovitz wrote in the firm's second-quarter magazine. The substantial underperformance of emerging markets compared to U.S. stocks in the past 15 years reflects the complete opposite scenario from 2000 to 2009. In that time, U.S. stocks had a "lost decade," while emerging markets were providing "an oasis of strong returns," he wrote. As one tangible yet ironic example of the completely different landscape, it's common to see ripoffs of Pop Mart's Chinese toys in New York's Union Square today, according to John Dance, the portfolio manager for Fidelity Investments' Emerging Markets Fund. About 20 years ago, knockoffs of American goods were prevalent in China, he noted. Dance and other portfolio managers speaking in a panel at last month's Morningstar Investment Conference acknowledged the complexity of investing in emerging markets, whether in terms of their current low returns at the macro level or the inevitable political factors involved with the asset class. If President Donald Trump's ongoing trade negotiations aren't causing some volatility on a particular day, any number of unforeseen events could do so. READ MORE: Billions flood into active ETFs in hunt for cheap emerging market stocks As Dance put it, there is always "something going on somewhere," and "I'm pretty used to losing sleep as a consequence." Still, he and other investing experts argue that international holdings offer diversification and potential for outsize returns with the right level of granular expertise tapping into, say, China or India. At the macro level, popular demographics dictate that developing economies will give rise to more consumers and investors worldwide in the future. "I'm trying to look at where those transitions are happening," Dance said. "There are buckets of opportunity there, and you just have to get the magnifying glass out and do the work on the ones that make sense." Morningstar data comparing indices covering more than 3,500 stocks in over 20 countries to one tied to U.S. equities display why active management remains so important to emerging markets. From March 2010 to this past March, the emerging markets index had a gross return of just 81%, while Morningstar's U.S. index jumped by 515%. On the other hand, the emerging markets index notched a gross return of 156% between January 2000 and December 2009, while the U.S. stocks lost 1%. So the emerging markets may be undervalued today: They're trading at a price-to-earnings ratio of 14, but U.S. stocks' P/E is 24. The "structural story around emerging markets remains intact," Morningstar Investment Management Chief Investment Officer Philip Straehl said in comments included in Lefkovitz's analysis. "Emerging markets represent 80% of the world's population and nearly 70% of the world's GDP growth but only 10% of the total global equity market cap. A burgeoning middle class continues to develop in emerging markets and should prevent interesting opportunities for investors, albeit with higher volatility." READ MORE: The top 20 emerging market funds of the decade The panelists echoed that view, with some caveats of their own. After a time of "almost hyper-globalization," no one can say for sure "how far the reversal will go" and affect the economy and particular companies in places like India, Vietnam, Mexico and China, noted Lisa Thompson, an equity portfolio manager with Capital Group, the parent firm of American Funds. India represents "one of the true great emerging market growth stories out there," but investors should be price-sensitive in "a real stock-pickers' market" in that country, Thompson said. In fact, the trade uncertainty and other political trends in China are adding to that trend. "China is very complex," Thompson said. "There are ways to get exposure to the growth in China, there are ways to minimize exposure and you can choose companies wisely." For financial advisors and their clients, one other takeaway is the simple fact that "things do change," said Rohit Chopra, a portfolio manager and analyst with Lazard Asset Management. He noted that, "What sometimes the market takes as given often doesn't prove to be right." That means investors need an expert-level research focus on the most relevant information in every country, which could amount to political subtleties and monetary policies affecting the performance of, say, a bank in Turkey. "No moment in emerging markets is a dull one," Chopra said. "That gives us the ability to have conviction around where some of the mispricing or some of the anomalies exist." Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
03-07-2025
- Business
- CNBC
Wall Street heads into the new week bracing for longer trade negotiations as deadlines come up
The clock is running out on key trade deadlines, but investors have resigned themselves to negotiations that will likely continue over the long haul as equities trade at all-time highs. The 90-day reprieve from President Donald Trump's "reciprocal" tariffs on most U.S. trading partners ends on Tuesday. The deadline for the U.S. and the European Union to reach a deal to prevent a 50% levy on EU imports is also set to end Wednesday. But most investors are expecting the Trump administration will likely roll forward negotiations. In recent days, the White House called the July trade deadlines "not critical," adding to confidence the administration isn't planning on implementing the most draconian tariffs it announced back in April. Investors are awaiting news out of ongoing discussions with the European Union, Japan and India, among others. Meanwhile, the 90-day reprieve for China, a major question for investors, isn't set to end until August. "I think that that's probably the most likely course," said Thomas Browne, portfolio manager at Keeley Teton Advisors. "We may get an announcement here or there, but I think by and large, I would not look for things to be settled completely." .SPX YTD mountain S & P 500, year to date Stocks ended the shortened trading week Thursday with solid weekly gains that lifted the S & P 500 and Nasdaq Composite to fresh record highs. Both benchmarks advanced more than 1.5%, while the Dow Jones Industrial Average climbed over 2%. Still, the expectation remains that the equity market will get more rocky as the deadlines approach, especially if investors are underestimating Trump's willingness to put into effect sharper levies. Many are confident the effective tariff rate will wind up somewhere closer to 10%, a historically high level that nevertheless is better than a rate north of 25% that investors fear would result in outright recession. Coming into the year, the effective tariff rate had averaged 2.5%. "The markets are now going to focus on July 9, because that's where we're going to get the revelation around the different tariffs," Rick Rieder, chief investment officer of global fixed income at BlackRock, told attendees at the Morningstar Investment Conference in Chicago on June 25. "People think it's going to be 10% tariffs, I think, are underestimating. I think it's going to be 15%." In particular, the Vietnam agreement this week added to those worries of higher tariffs. The 20% duty the U.S. will apply to Vietnamese imports is below the 46% rate Trump originally proposed in April, but higher than the hoped for 10% baseline. That could be worrisome for future deals with other emerging markets nations. "What we learned from the Vietnam deal is, if anything, the tariffs are going to go up from here , not down," Sebastian Raedler, head of European equity strategy at Bank of America, told CNBC's "Europe Early Edition" on Thursday. Meanwhile, other deals that have been struck are hardly frameworks for future agreements. In May, the U.S. reached a deal with the U.K. that will keep a 10% tariff on U.K. imports, a deal one expert called a "small win" given that the U.S. already has a trade surplus with the nation. That will make it hard to replicate with countries where America has a large trade deficit. To date, trade arrangements around the world are at various stages of completion. CNBC reported Wednesday that European officials are now saying their best hope is for striking a "political" deal before the July 9 deadline, which can then be worked out at a later stage. Still, so long as tariffs are not so high they will lead to outright recession, the consensus goes that the equity market can absorb steeper tariffs — even if the broader economy struggles. BlackRock's Rieder, for example, said a higher tariff rate would further erode the U.S. dollar and add to near-term inflation pressure. Nevertheless, he remains confident the stock market will quickly move past any volatility. Stocks could also get a boost from Trump's federal spending bill if it passes. The bill, which has returned to the House after passing the Senate Tuesday , is up for a final vote before heading to the president's desk. Even so, investors are starting to get more worried about the stock market over the near term. Many are pointing out that the S & P 500, which has returned to record highs, is now fairly valued at a time when event-driven risks have yet to abate. The broader index is trading at 23 times forward earnings. Barclays strategist Stefano Pascale this week was one of several strategists this week warning clients about "froth" in the market. Week ahead calendar All times ET. * July 8-9 Tariff deadlines Monday, July 7 Tuesday, July 8 6 a.m. NFIB Small Business Index (June) 3 p.m. Consumer Credit (May) U.S. Treasury Auction 3-year note Wednesday, July 9 10 a.m. Wholesale Inventories final (May) 2 p.m. FOMC Minutes U.S. Treasury Auction 10-year note Thursday, July 10 8:30 a.m. Continuing Jobless Claims (06/28) 8:30 a.m. Initial Claims (07/05) U.S. Treasury Auction 30-year bond Earnings: Conagra Brands , Delta Air Lines Friday, July 11 2 p.m. Treasury Budget (June) — CNBC's Sophie Kiderlin contributed to this report.
CNBC
28-06-2025
- Business
- CNBC
Gabelli Funds highlights the AI stocks to buy as craze continues
The trillion-dollar investment cycle into generative artificial intelligence is only just beginning, and is already starting to pay off, according to John Belton, portfolio manager at Gabelli Funds. Tech companies are set to invest roughly $1 trillion in capital expenditures into AI infrastructure over the coming years, causing some investors to worry the businesses may be spending too much for not enough payoff. In 2025 alone, Google parent Alphabet, Amazon, Meta Platforms and Microsoft are planning to spend as much as $320 billion combined on AI technologies and data center buildouts. However, early signs suggest investors have yet to grasp the full potential of generative AI, given that some initial investments are already starting to bear fruit, according to Belton. "This is a trillion-dollar investment cycle," Belton told attendees during a panel on AI at the Morningstar Investment Conference in Chicago. "Adoption and usage is really only now starting to hit this very steep part of the so-called S-curve, another two and a half years after the launch of ChatGPT." "The largest investors in AI infrastructure are generating the most attractive returns today," he said. The portfolio manager of the Gabelli Growth Fund has significant exposure to the "Magnificent Seven" companies, with Microsoft, Nvidia and Amazon being its top three holdings. This year, the fund has outperformed, sitting in the top 12% of funds in its category, according to Morningstar data . Yet, there are two reasons to remain confident in the potential for AI, Belton said. Specifically, the cost of the technology is coming down, while its capabilities are improving, meaning the number of use cases for companies is growing. Belton said AI capabilities are already superior to human capabilities across a wide range of disciplines, including reading comprehension, science and math. "As AI is becoming cheaper and more capable, the vision is that it's just going to be used in more and more corporate productivity initiatives," Belton said. "And it's going to be used as in many cases, a labor replacement across enterprises, in all different sectors, in all different parts of the enterprise." Some examples include using AI to cut supply chain costs, or to generate revenue across marketing and operations departments. Meta Platforms , for example, is already using AI for targeted advertisements, a change that has helped the tech company boost sales. Meanwhile, tech companies such as Alphabet and Microsoft have recently divulged that AI is already generating roughly 30% of their internal database, suggesting the role of a software engineer and developer will change. Other use cases are still emerging, including AI used in autonomous vehicles such as at Tesla , as well as drug discovery in health care. Given this, here are some of the companies that can tap into AI potential, Belton said. NOW YTD mountain ServiceNow shares year to date ServiceNow is one holding with a roughly 2% weighting in the Gabelli Growth Fund. The enterprise software firm sells agentic technology to help companies to automate their businesses. Agentic revenue is already tracking close to 10% next year, Belton said, adding it's a small but promising sign of a "big, exciting" new area for growth. Broadcom shares are another holding that has exposure to the AI theme. The stock is up more than 16% this year, and is a consensus buy on the Street, according to LSEG. GE Vernova and Applied Materials are two other holdings that can benefit from the AI theme, according to the investor. AVGO YTD mountain Broadcom shares year to date.
Yahoo
27-06-2025
- Business
- Yahoo
The Debate Over Private Assets in ETFs Heats Up
Private assets have drawn investor dollars with their promise of a higher rate of return in exchange for illiquidity. Putting those assets in a daily, liquid vehicle has drawn skepticism from some in the exchange-traded fund industry. The other concern is transparency. Private assets can be opaque, and that lack of visibility also runs counter to the basic model of an ETF, which is being able to always look at the fund's holdings. With an increasing number of new ETFs being launched that hold securitized collateralized loan obligations (CLOs) and the SPDR SSGA IG Public & Private Credit ETF (PRIV), which owns direct loans, debate over these private-asset funds will continue. Dave Nadig, an independent ETF expert and a skeptic of putting private assets in ETFs, said that while investors can think about these private-credit-type ETFs as being run by experienced active bond managers, it comes down to trust that the managers understand these bonds. 'I'm not anti-private credit in these vehicles, but you are making an enormous trust bet,' he said. Nadig spoke at the Morningstar Investment Conference in Chicago on Thursday. Joanna Gallegos, co-founder and COO at BondBloxx, which issues the BondBloxx Private Credit CLO ETF (PCMM), said there's investor demand for private assets as public markets become more correlated. 'What we hear from clients is that they want access to the income-producing side of private assets,' she said. She added that, at the current stage of ETF innovation, CLOs are natural fits. In PCMM, each of the CLOs it holds have independent ratings and CUSIPs where investors can see the price. 'Here's a space … in private credit that should be very natural for you to understand how to assess what you're buying. It should be simple to see the risk characteristics of its return and its yield,' she said. Nadig concurred but said his concern is with funds such as PRIV, where Apollo Global Management is sourcing the direct loans for State Street. 'Ask yourself, why do you think you're getting the best of X, whether it's the triple-A-rated best of best or whether it's junk-bond equivalents. I think that's a real problem,' he said. Nadig added he's happy to see the conversation about how to structure private assets in ETFs. The challenge is going to be helping people understand how these funds fit into a portfolio. Gallegos said every ETF is an evolution of a new process, pointing to how people were concerned with emerging market ETFs were launched in the early | © Copyright 2025 All rights reserved Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
