This week's interesting finds

This week in charts

Corporate bond ownership

Global Corporate Bond market, by issuance currency

Sector inflows and outflows

Large cap inflows

Europe-focused equity fund flows

Europe-focused equity fund inflows by year

Growth expectations - S&P 500 Index vs. S&P/TSX Composite Index

FTSE250 Index vs. MSCI World Index

Dividend yield by region

U.K. mergers & acquisitions

Private equity sits on US$1 trillion amid uncertainties, M&A stalls, PwC says

Private equity firms are holding about US$1 trillion in unsold assets, PricewaterhouseCoopers (PwC) said on Wednesday — capital that, in a typical market environment, would have been returned to investors.

High interest rates in the United States, President Donald Trump’s on-again, off-again approach to tariff policy, and geopolitical uncertainties have eroded company valuations and contributed to firms holding onto portfolio firms far longer than expected.

The capital tie-up is playing a role in the slowdown in dealmaking. Mergers and acquisitions, a key barometer of global economic health, have stalled this year.

Despite entering 2025 with high hopes for an M&A rally under Trump, deal volume and value have remained largely flat year-over-year, with 4,535 deals totaling $567 billion through May, PwC said. 

Private equity firms, which deploy LP capital into businesses across industries, currently have $3 trillion invested in 30,000 companies, according to PwC, with 30% held for longer than five years.

That is above the traditional timeline by which funds expect to have a profit on their investments.

So, now, PE firms need to be creative to squeeze profit from assets - often bought at peak prices, said Liz Crego, PwC’s industry markets leader. That includes selling a small portion of a business that can be more valuable as a separate entity, she said.

A more uncertain market has also led to a decline in cross-border deals to 16.9% of total activity, down from 18.7% in 2021. China-related deals, in particular, face heightened scrutiny and strategic reevaluation, PwC said.

Cautiously optimistic

The initial public offering (IPO) market has shown signs of life, with 31 traditional IPOs raising $11 billion through May. While April saw a pause due to tariff shocks, activity resumed in May and June, with fintechs like Chime, valued at $18.4 billion at its Nasdaq debut, leading the charge. 

Special purpose acquisition companies (SPACs) are also making a modest comeback, with over 50 of those publicly traded shell companies created to raise capital through IPOs.

To unlock the $1 trillion held by PEs, the recession cloud over the U.S. would have to recede, Washington would need to provide clarity over tariffs and interest rates must decline, Smigel said.

Nevertheless, PwC expects M&A activity to improve in the coming quarters, with pressure from the LP funds looking for returns and as assets are repriced.

This week’s fun finds

Several EdgePoint partners from Québec came to visit and brought presents – locally made hot sauces from Britannia Mills. They were très épicées, but more importantly they were also délicieuses.

• Chaude Boucane (Hot Smoke) – a smoky sauce

• La Déraillée (The Derailed) – flavourful and creamy, with a hint of mustard

• La Grande Faucheuse (The Grim Reaper) – featured on Hot Ones, it’s Britannia Mills’ hottest sauce. The main ingredient are the Carolina reapers that give it its name. Not the hottest we tasted, but the hint of maple syrup saves us from the heat

How to Get Rid of Sunburn Fast, According to Dermatologists

So you got too much sun and didn’t apply (or reapply) your SPF. Now you’re wondering how to get rid of sunburn fast so you can get some relief for the lobster red, irritated skin. As diligent as we all are about wearing sunscreen, sunburns do happen, even to the best of us. Though you can’t get instant relief from a sunburn, there are plenty of ways to help your skin heal as painlessly and quickly as possible, according to our experts, board-certified dermatologists Flora Kim, MD, and Amy Ross, MD, and honestly, that counts for something.

This week's interesting finds

This week in charts

S&P 500 Index valuations vs. their historical average

U.S. vs. global equity price returns

U.S. stock market value relative to GDP

U.S. value stocks vs. growth stocks

Japanese share buybacks

EV/EBITDA since 2005

European equities cash deployment

Corporate bond spreads

U.S. bond and equity correlation

U.S. Aggregate bond index duration vs. High Yield corporate bond duration

Automotive sales by region

As Companies Abandon Climate Pledges, Is There a Silver Lining?

Peter Ford has seen the promise—and the pitfalls—of corporate climate pledges up close. The 40-year-old Briton recently spent five years at Hennes & Mauritz AB trying to cut emissions from the Swedish fashion giant’s vast supply chain, from Cambodian sewing lines to Vietnamese dye houses. He met with hundreds of suppliers, pushed for energy efficiency upgrades and urged the elimination of coal boilers. And to its credit, H&M invested about $200 million a year in these efforts and recently reported a 24% cut in its supply chain emissions.

But Ford isn’t celebrating. “As an industry, it’s not working out yet,” he says bluntly. Apparel emissions are still growing—and could expand an additional 30% this decade, according to McKinsey & Co. While a few brands are doing a lot of work, Ford says, most of the industry “would much rather sit there and wait for things to happen.” That mismatch isn’t unique to fashion. From airlines to banks to retailers, the story is the same: Over the past few decades, more than 4,000 companies have made big climate pledges, but results are scant, and emissions continue to rise.

Worse, we’re now seeing a retreat. In the past year companies around the world have been canceling their climate commitments, some only a few years old. BP Plc is pulling back on renewables and drilling more oil. Coca-Cola Co. and PepsiCo Inc. abandoned or weakened promises they made in 2021 to slash their use of new plastics. Big banks such as Wells Fargo & Co. and HSBC Holdings Plc walked back various plans to reduce their emissions. Walmart Inc. admits it’s behind on its climate targets, while FedEx Corp. says it will likely miss its goal to go electric on half of its delivery truck purchases by 2025. This corporate retrenchment has been particularly acute in the US, where the Trump administration has been busy rolling back climate regulations and withdrawing from international treaties such as the Paris Agreement.

It’s a troubling trend for anyone who prefers life on a hospitable planet. We’re currently on pace to add about 3C (5.5F) of warming this century, which is expected to throw the planet into turmoil with diminished food supplies, wiped-out marine life, brutal heat waves and crippling droughts. But even with those grim prospects, some experts argue that this corporate backpedaling might come with a silver lining. That’s because it could force investors, lawmakers, academics and the broader public to reckon with the fact that voluntary corporate action was never going to stave off climate disaster. This could bring sharper attention to corporate political activities, where even self-proclaimed responsible businesses obstruct regulations needed to phase out fossil fuels and boost clean alternatives.

For years companies have suggested their pursuit of sustainability would naturally follow their quest for profits. Walmart framed its eco-pivot in 2005 as a way to reduce waste, cut costs and promote goodwill. PepsiCo’s then-chief executive officer, Indra Nooyi, put it more elegantly a few years later, when she said using less water and energy isn’t corporate benevolence but rather a way to lower your bills and fatten your margins.

There’s an element of truth to this: Some climate-friendly endeavors, including swapping out lightbulbs and putting up solar panels, quickly pay for themselves and enhance the bottom line. But most projects required to achieve deep decarbonization, such as decommissioning coal boilers or using cleaner fuels, cost gobs of money, and no one knows when or if they’ll ever be cheaper than their dirtier alternatives. As long as these measures remain voluntary, they won’t happen at anywhere near the scale or pace that’s needed. And companies will be free to renege on their promises.

Unfortunately, most companies have talked a big game on climate while working to block or water down the very policies that could drive real progress. Take the US airline industry. Despite skyrocketing emissions, most carriers have vowed to eliminate their planet-warming pollution by 2050. A key part of the plan is to use vastly more sustainable aviation fuel. But this currently accounts for about 0.3% of their total fuel use. Airlines are quick to point out that cleaner fuels cost about two or three times more than conventional jet fuel, and they can’t boost these purchases without putting themselves at a disadvantage to others that keep using cheaper, dirtier fuels.

This, of course, highlights the need for regulation to make sure first movers aren’t punished in the market. In Europe, regulators have stepped in, mandating 2% cleaner fuel now and 6% by 2030. But US carriers vigorously oppose rules like these, including a recent California proposal that would have regulated jet fuel for flights in the state. After airlines questioned the state’s authority to set such rules, California backed off and instead joined the companies to cheer a toothless “voluntary and nonbinding” agreement to increase the use of cleaner fuels.

When asked about these glaring misalignments, companies frequently argue that they rely on trade groups to advocate on a wide range of issues, such as taxation and trade, and that they don’t always agree on every position. This claim doesn’t pass muster with Bill Weihl, who says he used to make the same argument back when he ran sustainability efforts for Facebook. “It’s a weak excuse,” says Weihl, who has since launched ClimateVoice, a nonprofit that pushes companies to support climate policies. “They’re choosing to kick the can down the road so they can get lower taxes and deregulation.”

When it comes to policy positions, who’s putting their money where their mouth is? Advocates point to packaged-goods maker Unilever Plc as one of the rare companies moving in the right direction by regularly examining the climate work of trade groups to which it belongs. In its most recent review, from April, Unilever found that eight of 26 groups were misaligned with its views on climate policy—including the Confederation of Indian Industry, which has pushed for lower petrol taxes and more energy from gasified coal. Importantly, the report also spells out the steps Unilever plans to take to address this misalignment, including potentially leaving groups that continue to obstruct climate action. Any company claiming to be serious about climate should follow Unilever’s lead with this kind of rigorous examination and public reporting.

Clearly regulations are the most effective way to shift this mindset and force companies to pour money into much-needed climate projects. Businesses, however, have gone mute as President Donald Trump wades into their industries to annihilate various climate rules, which will pour billions of extra tons of planet-warming gases into the atmosphere. But there are other ways to pressure a company into speaking up and doing the right thing, including rallying its often large numbers of employees who feel strongly about leaving a livable planet for their children.

This week’s fun find

Mysteriously Perfect Sphere Spotted in Space by Astronomers

Our Milky Way galaxy is home to some extremely weird things, but a new discovery has astronomers truly baffled.

In data collected by a powerful radio telescope, astronomers have found what appears to be a perfectly spherical bubble. We know more or less what it is – it's the ball of expanding material ejected by an exploding star, a supernova remnant – but how it came to be is more of a puzzle.

This week's interesting finds

This week in charts

Foreign investment in U.S. fixed income assets

Momentum crowding still at extremes

Sector contribution to 2025 EPS growth estimates

Forward price-to-earnings ratios by geography

MSCI U.S. price-to-earnings decline during past recessions

MSCI Japan Index price-to-book relative to MSCI World Index

Share of domestic equity ownership and valuations

Share of U.S. firms using AI by sector

Housing vs. rental affordability

Big investors shift away from US markets

The US president’s erratic trade policy has shaken global markets in recent months, sparking a sharp sell-off in the US dollar and leaving Wall Street stocks lagging far behind European rivals this year.

Trump’s landmark tax bill, which is forecast to add $2.4tn to Washington’s debt over the next decade, has also increased pressure on US Treasuries.

The move away from US assets has pushed up European markets at the expense of their US counterparts and has been signalled by surveys of big institutional investors’ allocation decisions. A poll of fund managers published by Bank of America last month showed the biggest underweight in the US dollar in nearly two decades.

As institutional investors review the extent of their holdings in the US, Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, said recently it would reduce its exposure to the country — currently 40 per cent of its portfolio. It plans to increase investment in the UK, France and Germany. 

US stocks have recouped the losses that followed Trump’s announcement of the duties on April 2. But the S&P 500 remains less than 2 per cent up this year, compared with 9 per cent for the Stoxx Europe 600 index.

The dollar is close to a three-year low — down 9 per cent this year — even though Trump has retreated on many of the tariffs he initially announced.

Investors say that the global dominance of the US economy and the depth of its capital markets mean it will remain the premier destination for global investment.

However, many are questioning whether more than a decade and a half of inflows and outperformance — which pushed the US share of global equity market value to around two-thirds by the start of this year — is headed into reverse.

Some investors question whether smaller, more fragmented markets in Europe and Asia offer a meaningful alternative.

This week’s fun find

World’s First Mass-Produced Flying Car Prototype Unveiled

Eager teens reaching driving age in the next few years may be able to take their inaugural spin in a car … in the sky. The world’s first mass-produced flying automobile prototype has been unveiled, and we’re ready for a ride.

Created by Slovakia-based company Klein Vision, the AirCar production prototype made its public debut May 8, after making its insider debut at the 2025 Living Legends of Aviation Awards Ceremony in Beverly Hills late last month. At the event, Morgan Freeman and John Travolta presented the car’s inventor, Stefan Klein, with a Special Recognition Award for Engineering Excellence.

This week's interesting finds

17th annual Cymbria Investor Day

This year the Investment Team talked about the importance of identifying change in the businesses they invest in. The discussion includes analysis of past opportunities and the ways they believe they can continue to find new ones in the future. 

Click here to watch the video. 

This week in charts

U.S. data center gas demand

Historical asset bubbles

U.S. government & corporate debt

Days working from home, per week, by country

S&P 500 Index median stock short interest

U.S. equity index price-to-earnings valuations

S&P 500 Index forward price-to-earnings valuations

S&P 500 Index defensive sector allocation

U.S. value stocks vs. international value stocks

U.S. manufacturing employment

UK confirms powers to force pension funds to back British assets

Rachel Reeves has confirmed she will create a “backstop” power to force large pension funds to back British assets, as she vowed to unleash more than £50bn of investment in domestic infrastructure, housing and fast-growing businesses.

The chancellor hopes creating pension “megafunds” with more than £25bn in assets, coupled with a voluntary accord with industry to boost allocations to private assets, will reverse long-term falls in investment in the UK.

It is the first time the Treasury has publicly confirmed it will legislate to create a backstop power to mandate pension funds on their investment strategy — a move condemned by the Conservatives.

Reeves’ allies say she believes the power will not be needed and that reforms in the new pensions legislation — plus a “Mansion House accord” with the industry — would deliver the desired results.

At the heart of the reforms is a requirement for all multi-employer defined contribution pension schemes and local government pension scheme pools to operate at a “megafund level”, similar to those in Australia and Canada.

The Treasury argues that the megafunds, managing at least £25bn in assets, will drive more than £50bn of investment in big UK infrastructure and other British assets. This will then drive higher returns for savers, most of whom are covered by DC schemes.

However, after pushback from some industry participants to plans presented last autumn, the Treasury said schemes worth more than £10bn that are unable to reach the minimum size requirement by 2030 will be allowed to continue operating, as long as they can demonstrate a clear plan to reach £25bn by 2035.

The UK has about 60 multi-employer DC pension schemes, with combined assets forecast to reach £800bn in five years.

Meanwhile, under a Mansion House accord signed this month, 17 of the UK’s largest pension providers have pledged to invest at least 5 per cent of their default funds in private British assets by the end of the decade.

The Treasury said the Mansion House pact would release £25bn for UK investment by 2030, while a similar amount would come from local investment targets from local government pension schemes.

Reeves’ aim is to reverse a sharp decline in domestic investment from UK pensions funds, which the Treasury said had fallen from more than 50 per cent of DC assets in 2012 to roughly 20 per cent in 2023.

Blanc said this month that forcing funds to buy UK assets would not be “the right thing”, adding: “It’s like using a sledgehammer to crack a nut.”

Shadow chancellor Mel Stride said: “By pressing ahead with their plans to mandate pension-fund investments, Labour is crossing the Rubicon into directing the public’s savings. This is an extraordinary over-reach.”

This week’s fun find

Take a Nostalgic Dive Through a Visual Cassette Tape Archive

The cassette tape, invented in 1963, entered the market with a lukewarm reception as it competed with reel-to-reel and 8-track technologies. The suitability for recorded music along with its portability eventually put it on top of its competitors, and sound quality continued to improve in the 1970s. By the following decade, the cassette was a favorite among consumers, overtaking vinyl and continuing to dominate until the 1990s, when CDs superseded the technology.

This week's interesting finds

This week in charts

U.S. mobile traffic

Liquefied Natural Gas (LNG) demand

LNG imports by region

Electrification

U.S. 10-year Treasury yield since 1790

Reserve currencies

Hedge fund net flows into Industrial stocks

Growth in total employment - Magnificent 7

U.S. and Euro area banks bond holdings - Share of total assets

High-yield fund flows

Bond spreads

Average tariff rates

Researcher demographics

The Japanese government bond market is in trouble

The Japanese government bond market was already having a bit of a springtime nightmare, but a poor auction of 20-year debt earlier this week has sent long-end yields soaring to their highest levels ever.

The 40-year Japanese bond now yields nearly 3.7 per cent, up a full percentage point just since the beginning of April. That hurts. If the duration of the bond is, say, 20 years, investors have lost almost 20 per cent in just a few weeks. In a high grade government bond. That sort of thing just isn’t supposed to happen in the developed markets; bonds are supposed to be the safe asset class.

The Japanese yield curve is upward sloping — in fact, the steepest yield curve in the developed world. That means longer maturity bonds should have higher yields. And yet, the 35-year JGB now yields over 100 bps more than the 40-year one, simply because it is less liquid and “off-the-run”. That kind of glitchy pricing is pretty stark evidence of the evaporating demand for longer-term Japanese debt.

Japan’s fiscal problems are well known, of course. The country has had a massive debt burden for many years. Its credit rating is three notches below the US even after the recent US downgrade. Prime minister Shigeru Ishiba called Japan’s fiscal position “worse than Greece’s” — presumably referring to the Greece of the European sovereign debt crisis (Greece is in OK shape right now). None of this is new.

But several things have changed recently.

First is inflation. Headline CPI in Japan is now 3.6 percent, and has been above 2 per cent for over three years. That means that a 30-year bond yield at 3.15 per cent is still below inflation, or negative in real terms.

Second, Japanese insurers have virtually stopped purchasing very long-term bonds, to satisfy new economic solvency ratios introduced recently.

Third, long-term fiscal concerns are rising. The US is pressuring Japan to spend 3 per cent of GDP on defence (from the current 1.6 per cent). The ruling coalition is considering a supplementary budget, while the opposition is pushing for a consumption tax cut. No one seems to be talking about less spending and raising more tax revenues.

Perhaps the most important change is from the Bank of Japan. The central bank still owns a staggering 50 per cent-plus of the Japanese government bond market. But with deflation now in the rear view, the BoJ has started quantitative tightening — allowing its existing bond holdings to slowly hit the market. And as this one massive buyer has become a net seller, Japanese bond yields are normalising — aka rising.

Global bond markets are clearly paying attention. US Treasuries shrugged off the Moody’s downgrade, but since Tuesday the 30-year US Treasury yield has risen almost 20bp — the highest level since the 2008 crisis — to well over 5 per cent after dismal auction yesterday. As a result, US mortgage rates are back above 7 per cent.

There has been no data to speak of, and the tax bill that just passed the House contained no new surprises for the market. The main driver of the US bond move seems to be what is happening 7,000 miles away in Tokyo. In fact, the long end of pretty much every major bond market is getting caned in a broad-based duration crash. 

Japan bulls will point out that the last few weeks are not a repudiation of Japan Inc — and they’re right. No one is fleeing the yen, and the Nikkei is still up for the year in dollar terms. The economic impact is limited by the fact that most Japanese debt — mortgages, corporate debt, etc — is issued in shorter bonds.

But. . . Japanese policymakers are now at serious risk of losing control of the long end of the Japanese yield curve, absent imminent and forceful intervention. And if that happens, it’s bad news for everyone.

This week’s fun finds

Nothing brings people together more than great food and even better company culture. The moai hosted by TJ from the Trading team (with an assist from his better half Tiffany), was no exception. The sausages, schnitzel sandwiches and Detroit-style pizza was simple, satisfying and exactly what we needed to end the week. 

The world’s longest train journey is epic — but nobody’s ever taken it

The mountains of northern Laos are beautiful, but tough to negotiate. By car, it can easily take 15 hours to drive the 373 miles (600 km) of winding roads that separate the capital Vientiane from the town of Boten on the Chinese border.

Since December 2021, there’s a far straighter, much faster alternative: the brand-new high-speed Laos-China Railway (LCR) measures just 257 miles (414 km) between Boten and Vientiane, and fast trains cover that distance in three and a half hours.

The line is a marvel of engineering: It includes no fewer than 75 tunnels, which make up 47% of its total length, and 167 bridges, accounting for a further 15%. By all accounts, the views — outside of those tunnels — are spectacular. But the LCR is more than a scenic extension of China’s Belt and Road Initiative. For train enthusiasts around the globe, it is the final piece of a much grander puzzle — for this stretch is also part of the longest possible train journey in the world.