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Tuesday 28 June 2022
June 2022 | As we depart an era of low inflation and easy access to capital and enter a period marked by higher inflation, higher commodity prices, and higher interest rates, we believe the market has already begun to rotate out of the narrow cohort of mega-cap growth stocks that have been leading the market. We believe active managers may benefit from this shift as excessive concentration levels in US equities unwind, providing greater market breadth.
01 | Changes in market concentration may serve as a tailwind for active equity managers who underweight the largest five stocks for diversification reasons.
02 | Due to their flexibility and ability to diversify – as well as a shift toward value and away from growth - active equity managers could outperform passive approaches for the next several years.
03 | Active managers that integrate environmental, social and governance (ESG) factors into their analysis may also have an additional edge in this environment, as equity flows into ESG portfolios are increasing.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of June 28, 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 US 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. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.
The double bear markets (in equities and long-term bonds) have nearly adjusted to the end of easy money and the ongoing rising inflation. We are shifting focus from fears of inflation to the deceleration of growth. Earnings expectations have room to go down, and the dollar rally could continue.
Dramatic price action has taken place over the past weeks in equities and bonds, following hot inflation prints, central bank actions and rising concerns over economic growth. Against this still highly volatile backdrop, investors should stay diversified and avoid adding risk as the market repricing, although advanced, is not over yet. This is the time to move towards high-quality areas and resilient business models that can preserve margins.
High inflation, the ongoing conflict in Ukraine, slowing economic momentum and the COVID-19 lockdowns in China are causing volatility in the markets. This is happening at a time when forward earnings multiples have contracted from the levels seen last year, amid higher inflation and rates expectations. Increasing stagflationary risks and still-present geopolitical tensions suggest investors should maintain or even increase hedges.
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