TheChek News Flow

DAX:

MDAX:

SDAX:

The 26-year-old slugger jilted the Yankees and agreed to a 15-year contract with their crosstown rival that shatters every conceivable economic record in the game

Juan Soto knew he liked playing in New York after spending the past year crushing baseballs in the Bronx. He just wasn’t sure if he loved it enough to remain a New York Yankee.

So Soto decided to venture out onto the free-agent market to discover what he wanted most in life. When he met Steve Cohen, the billionaire hedge-fund manager who owns the New York Mets, he found his answer: more money than any athlete has been given in the history of professional sports.

Soto, one of the game’s elite sluggers, has agreed to a 15-year contract with the Mets worth a mind-boggling $765 million, with escalators that could increase his total compensation to over $800 million. It’s an unprecedented figure for a once-in-a-generation talent that shatters every conceivable economic record.

In the process, Cohen sent a resounding message that quickly reverberated across an industry in shock at the extent of his largess. Under his leadership, the once-hapless Mets are more than just the powerhouse of New York—they are now the pre-eminent destination for the brightest stars in baseball.

The proof is that Cohen outbid the Yankees, an organization not accustomed to losing out on players for financial reasons, least of all to their crosstown rival in Queens. The Yankees’ final offer was $760 million over 16 years, or an average annual value of $47.5 million, a person familiar with the matter said. With Cohen and the Mets, Soto got $51 million.

Upon first glance, the raw numbers suggest that Soto’s payday with the Mets barely surpassed the 10-year, $700 million pact that Shohei Ohtani signed with the Los Angeles Dodgers last December. But that doesn’t tell the entire story. Ohtani chose to defer the overwhelming majority of his salary, significantly changing the calculation. The commissioner’s office considers the true value of Ohtani’s contract to be roughly $460 million, after accounting for inflation.

Soto and his agent, Scott Boras, blew past Ohtani by so much that the two deals hardly belong in the same conversation. Soto’s new contract with the Mets, which won’t become official until he passes a physical, contains no deferrals at all. Soto has the right to opt out after the 2029 season, unless the Mets agree to pay an additional $40 million over the life of the deal, raising the overall haul from $765 million to $805 million.

What’s remarkable about Soto’s historic contract is that by just about any measure, he isn’t the best player in the major leagues. He might not even be the best player in New York, at least as long as Aaron Judge is wearing pinstripes. Nonetheless, there are two primary reasons to explain why Soto commanded such an enormous sum.

The first, of course, is his otherworldly abilities. Soto is the closest thing baseball has to a living, breathing hitting robot. He almost never chases balls out of the strike zone—and then absolutely obliterates pitches inside it. His career on-base percentage of .421 ranks among the best of all time, while his .953 OPS tops all active players besides Judge and Mike Trout.

Soto’s rare combination of power and patience at the plate has drawn comparisons to Ted Williams.

But the statistic that ultimately made Soto such an alluring target had nothing to do with his performance on the field. It was his age.

Soto, who hails from the Dominican Republic, was just 19 when he reached the major leagues in 2018 and only recently celebrated his 26th birthday. Premier players almost never become free agents that young, which is why teams were so willing to break the bank for his services. In contrast, when the Yankees signed Judge for $360 million two years ago, he was already approaching 31.

The Washington Nationals, Soto’s first employer, tried desperately to convince Soto to accept a long-term extension while he was still under their control. They even dangled $440 million in front of him at one point, which would have been a record at the time. Soto said no. He believed he could do even better if he waited to test free agency—and he was right.

Though Soto took meetings with several interested franchises over the past few weeks, the battle to land him always seemed like a two-team race. Those two teams just happened to be neighbors, sparking a ferocious bidding war between two members of the MLB elite, with the balance of power in New York baseball also on the line.

The Yankees traded away five players to acquire Soto last year, knowing that they might only have him for one season. Their hope was to parlay that into a long-term relationship.

The team certainly put its best foot forward. Soto’s experience with the Yankees in 2024 went about as well as anyone could’ve imagined. Batting in front of Judge in the lineup, Soto posted a .989 OPS and blasted a career-high 41 home runs. He helped lead the Yankees to the World Series for the first time since 2009, hitting the decisive homer in their pennant-clinching win over the Cleveland Guardians.

The Yankees wound up losing to the Dodgers, but they and Soto looked like a perfect match. The question was whether Hal Steinbrenner, the son of George Steinbrenner, would be willing to take a page out of his father’s playbook and pony up the cash to keep him.

All along, Soto was clear that any reunion would come at a significant cost. Minutes after the Yankees fell in the World Series to the Dodgers, Soto declared that no team would have an advantage in the competition for his services. There would be no discounts for anybody.

That statement might as well have been a flare sent up to catch the attention of Cohen, baseball’s wealthiest owner. He has spent lavishly on players since buying the Mets four years ago and suddenly had the opportunity to claim his biggest prize yet. If Cohen coveted Soto badly enough, nobody would be able to outbid him. In the end, nobody did, and the Mets will be able to pair Soto with Francisco Lindor for years to come.

In his first news conference as Mets owner, Cohen said that he would be disappointed if his team didn’t win the World Series within five years. That was in November 2020, meaning 2025 will be his fifth season at the helm. Though the Mets advanced to the National League Championship Series this fall, Cohen has yet to fulfill his promise.

Now, with Soto on board, Cohen and the Mets are closer than ever—and it only cost them about three-quarters of a billion dollars.

Amundi, Allianz and the vagaries of M&A

Allianz pauses dealmaking talks with Amundi

As recently as Saturday morning Amundi and its majority shareholder Crédit Agricole were in exclusive talks with Allianz over plans to combine the German insurer’s €560bn investment management arm with its larger French rival.

A deal — which was projected to value Allianz Global Investors at north of €6bn — would have marked the culmination of more than a year of on-and-off discussions between the two sides, and formed a European giant with almost €2.8tn of assets under management.

On Saturday afternoon, Allianz unexpectedly paused the talks, Olaf Storbeck and I revealed later that day.

The hiatus — which may prove temporary — illustrates the difficulty of pulling off large-scale mergers and acquisitions in asset management and comes as a wave of consolidation is sweeping across the industry. 

One recent deal that has left almost everyone in Europe casting an eye around for potential dance partners is BNP Paribas’s €5bn acquisition of Axa Investment Managers to create a €1.5tn European champion. (Amundi also held talks to buy Axa Investment Managers earlier this year, but the two sides were not able to agree terms.)

For years investment managers around the world have been turning to M&A to pursue scale, growth markets and new clients as margins are squeezed by higher costs and lower fees. In Europe right now the pressure is particularly acute because of the continued march of the large American firms — think BlackRock, Goldman Sachs Asset Management and JPMorgan Asset Management — into the European market. 

Meanwhile, a further driver of consolidation is that banks and insurers are weighing up their commitment to their investment management divisions and evaluating the merits of doubling down (Legal & General), striking strategic partnerships (Generali) or quitting the business altogether (NN Group). 

The key sticking points between Allianz and the Amundi camp appear to be the structure of any tie-up and a struggle to agree on who would have control of an enlarged entity. Of course scale for scale’s sake is not enough, and so far neither side appears to have publicly articulated what the strategic logic of a tie-up was for their clients.

Others said that while Amundi saw a potential transaction as an “acquisition” of Allianz Global Investors, the Germans wanted a partnership that would help increase its income from asset management. 

As René Magritte might have said on Allianz’s behalf: “Ceci n’est pas une acquisition.”

Global green subsidy race draws investor attention

Europe, the US and China are vying to be the most attractive destination for investment in sustainability

As the global race for renewable energy accelerates, the billions of dollars of subsidies that the US, Europe and China dole out to vie for market dominance are likely to have implications for investors.

This year, the EU adopted the Net-Zero Industry Act, which aims to make investing in solar, wind and other clean technologies more appealing. The legislation eases bureaucracy, accelerates project approvals, and targets reaching 50mn tonnes of carbon dioxide storage capacity in Europe by 2030. 

Investors will have seen that these subsidies have begun to prompt companies to take action. For example, ArcelorMittal, the world’s second-largest steelmaker, has started testing a carbon capture project in Ghent, Belgium, according in a Morgan Stanley report in June. This facility will test the feasibility of a full-scale carbon capture at the site as the Act comes into effect, Morgan Stanley said.

Asset manager Invesco said the legislation is “expected to be a game-changer for EU companies transitioning to net zero emissions”, in its own report in August. The law will accelerate demand for European-based manufacturers, such as solar cell makers. “The €375bn in grants, tax credits, direct investments and loans from the NZIA will help to spur additional capital and operating expenditures,” the report concluded.

The EU’s action highlights how the bloc is eager to match renewable energy subsidies adopted by the US and China in recent years. The Biden administration’s 2022 Inflation Reduction Act angered many European officials, who worried the $369bn package would lure cleantech businesses and investments away from their region. 

It even prompted the EU to accuse Washington of breaching World Trade Organization rules. The head of carmaker Stellantis and other European executives called for Brussels to consider reciprocal measures, or change its rules to respond to the IRA.

The EU should “take action to rebalance the playing field . . . [and] improve our state aid frameworks”, European Commission president Ursula von der Leyen said shortly after the US adopted the IRA. The EU’s net zero law was quickly proposed in 2023 to counter the American legislation. “There is a risk that the IRA could lead to unfair competition,” von der Leyen warned.

Brussels’ net zero law aims to have EU manufacturers meeting 90 per cent of the bloc’s domestic demand for electric vehicle batteries by 2030. In addition to responding to the US, the law is an attempt by Brussels to prevent a flood of Chinese EVs in the EU market, says Marco Siddi, a senior researcher at the Finnish Institute of International Affairs.

China’s rapid development of electric vehicles, which the government subsidised heavily, has shocked competitors around the world. For example, EV maker Nio received government subsidies as well as grants to build and operate charging stations. Then, in 2020, Nio received a nearly $1bn bailout from state-backed investors. Chinese electric battery makers have been offered subsidies that could account for more than 50 per cent of the cost of the product.

In October, China’s biggest electric vehicle maker BYD posted higher quarterly revenues than US rival Tesla for the first time, highlighting how competitive the Asian powerhouse has become.

“In Europe, it is pretty clear that it is not just about subsidies but it is also about industry protection now,” Siddi says.

China’s top-down central planning for green subsidies cannot easily be replicated by Europe, with its 27 member states. Similarly, the US, which is also nervous about Chinese subsidies, has a complex federal-and-state regulatory apparatus. However, it also enjoys a booming stock market and venture investment ecosystem that can grow cleantech businesses. 

Compared with the IRA, Europe’s subsidies efforts are “a bit more convoluted”, Siddi says. “It is not easy to understand how the industry actually gets the support.”

Europe’s challenges are about to get tougher as Donald Trump returns to the White House in January. On one hand, the president-elect might roll back some of the 2022 clean energy subsidies. But a full repeal of the IRA is unlikely. In August, 18 Republican members of Congress wrote to Republican House Speaker Mike Johnson, urging him to preserve the law’s tax credits and warning that a full repeal would be “a worst-case scenario”. The IRA was heavily skewed to fund projects in Republican states.

Additionally, surging electricity consumption in the US is likely to drive demand for all energy sources. Adoption of artificial intelligence and moving manufacturing back into the US are leading to a historic rise in power demand, supporting the case for renewable energy. 

But the real problem for Europeans is US tariffs. The incoming Trump administration and its tariffs proposals make it hard for businesses to plan now, says Janka Oertel, director of the Asia programme and a senior policy fellow at the European Council on Foreign Relations.

Amid the political uncertainty, “you will have a lot of wait-and-see” — and that is slowing down investment, business expansion, and ultimately decarbonisation, Oertel observes.

“It is a stalemate,” she says. “It makes the competitiveness of European companies lower and it slows down decarbonisation.”

She adds: “So you have the worst of all worlds if you wait, but everyone is afraid to make the wrong move.”

One of the subsidies most at risk when Trump takes office is that for wind power. Trump’s election victory immediately hurt shares of European wind companies. The president-elect vowed on the campaign trail to end the offshore wind industry on “day one”. Shares of Danish wind manufacturer Vestas, whose biggest market is the US, are now trading at a five-year low.

“The sector I am most concerned about and where I am most interested in how things pan out is wind,” Oertel says. “If Chinese producers are able to take advantage of the slumping European wind manufacturers and are able to actually deliver turbines, then it will be very, very hard for the Europeans to maintain an industrial base in the wind energy space,” she adds.

For Europe, “that means full energy dependence in the renewable space on China”, she says. “That is game over, checkmate.”

Top 10 stocks in the S&P 500 now comprise 37 per cent of index weighting

Shares in US technology giants have risen so rapidly this year, driven by an artificial intelligence frenzy, that their index weighting has skewed Wall Street’s overall performance — and prompted investors to run remarkably similar portfolios.

Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — which are among the biggest 10 companies on the S&P 500 — have accounted for about half the bellwether index’s gains in the year to October.

This influence means that active fund correlation, a measure of how similarly funds perform, has tightened considerably.

This current situation mirrors that with the five biggest energy groups in the aftermath of Russia’s invasion of Ukraine in 2022. Back then, Chevron, ExxonMobil, BP, Shell, and TotalEnergies all outperformed as a result of the war, amassing total profits of nearly $200bn in the year. Fund managers with little exposure to oil majors at the time were caught in the crosshairs as their boards and investors demanded reasons for their underperformance.

James Thomson, who manages the equity-based Global Opportunities Fund at Rathbones Group, one of the largest listed wealth managers in the UK, says the issue with tech-stock correlation is a “source of anxiety”.

“It’s a struggle for active funds to outperform in a concentrated market, where the returns are coming from a small number of stocks with a high index weighting,” he says.

In the US, today, the top 10 stocks of the S&P 500 index make up more than 35 per cent of the entire benchmark — the most concentrated weighting in at least 40 years, according to Bank of America research. And the influence of the seven big tech stocks was laid bare in the first quarter of 2024 when the index fell 5 per cent without them but, including them, gained 7.6 per cent, according to JPMorgan data. 

Globally, at the end of June, the seven accounted for 12 per cent of the market value of the MSCI World Index, which contains about 1,397 stocks in total.

This means many actively-managed global equity funds are behaving like index trackers. Supposedly diverse managed portfolios and discretionary managed funds are behaving similarly, with little to differentiate themselves from one another.

As a result, more investors are now exposed to the danger of a correction, which would hit all the portfolios exposed to the top 10 stocks particularly hard. “They’re marching ever-higher up the stairs,” Thomson says. “But, if there’s an air pocket or even a normalisation, they’ll take the elevator straight down.”

For investors, such close correlation between active funds means a balance has to be struck between performance-chasing and bottom-racing. Shunning the outperformers will hurt in the short term but investing at the wrong time will bring long-term underperformance.

Given these risks, why are so many active funds behaving in this copycat fashion? According to Joe Wiggins, investment research director for St James’s Place, the increasingly concentrated nature of stock markets is giving them less flexibility.

Globally, new listings have dwindled since the pandemic, while merger and acquisition activity has helped to shrink equity markets while, at the same time, creating corporate giants. This increases index concentration, and gives active fund managers fewer opportunities to create portfolios that are significantly different to passive (or tracker) funds.

On top of that, there is the “zeitgeist” effect, whereby certain narratives change the overall market dynamic — such as the current obsession with artificial intelligence. More money is piled into these stocks, boosting their market capitalisation and increasing sector concentration.

“It can be hard to be a contrarian when narrow sectors and themes are leading the market,” says Wiggins. “Whether they are doing it deliberately, or it’s an unconscious behavioural bias, more managers are investing in the [seven big tech] stocks.”

Conflicts of interest can also come into play. When a fund’s investors and its board demand quarter-to-quarter growth, and the fund manager’s pay is at stake, it can be difficult not to chase winning stocks and, instead, take a contrarian view.

Dan Brocklebank, head of UK at Orbis Investment, warns that “this ripples through to the portfolio management and this influence can be very powerful”, resulting in more correlation between funds.

Communication is important, Brocklebank says. When he explains to investors why Orbis aims to keep fund correlations low, they are prepared to stay the course.

“There’s a danger in creating perverse incentives that mean active managers do not steer away from what other people are doing,” says Wiggins.

How, then, can active managers make sure they are diversified enough to avoid a correlation problem?

Chris Mellor, head of Emea ETF equity product management at Invesco, advocates for an equal-weight approach — keeping all holdings at the same percentage within a portfolio — as a means of navigating concentration and correlation bias.

This can mitigate the risks that high correlation brings, while still gaining from a small exposure to market favourites — leading to good long-term performance.

Alternatively, “top-slicing” the profits from the biggest seven tech stocks, and reinvesting them into other equity opportunities, can avoid the concentration problem.

For Brocklebank, corporate structures and incentives must also be addressed, allowing managers to have conviction in their holdings. Only then can active managers be truly active.

Advertising revenues set to hit $1tn in market dominated by technology companies

Google, Meta, ByteDance, Amazon and Alibaba expected to earn more than half the annual total

The global advertising industry will surpass $1tn in revenue for the first time this year, with Google, Meta, ByteDance, Amazon and Alibaba expected to earn more than half the total in a market dominated by the technology sector.

GroupM, the media agency owned by WPP, estimates that global advertising revenue will increase 9.5 per cent in 2024, more than it had expected at the mid-year point, despite tough economic conditions in larger, developed markets such as the US and UK. 

The group forecasts that the market will expand by a further 7.7 per cent in 2025, and that most of the growth will directly benefit the largest sellers of digital advertising in the US tech sector, rather than providers of marketing services such as advertising agencies.

GroupM has chosen to exclude US political advertising, citing its “skewing” effect on year-on-year comparisons. In 2024, US political ad revenue added $15.1bn to the total, close to a third more than in the 2020 presidential election year. 

In the report, GroupM said that “while the next several years are unlikely to have the same near-zero interest rates that further supported advertising growth following the financial crisis and through the pandemic, we do expect the further application of AI and automation . . . to more than offset that and drive further innovation”.

Digital advertising is forecast to account for 73 per cent of total revenue by the end of next year — growing at 12.4 per cent globally in 2024 and 10 per cent in 2025 — or 82 per cent when including revenue from streaming and digital newspapers and magazines.

Traditional advertising channels such as television, print and radio are suffering from the dominance of digital options. 

Globally, total print advertising revenue will decline 4.5 per cent in 2024 and a further 3 per cent in 2025, audio revenue will remain flat next year, while TV, including both linear and streaming, is forecast to grow just 2.4 per cent on a compound basis from 2024-29.

The US is the largest advertising market, forecast to be worth about $379bn in revenues in 2025, despite higher costs of borrowing and more cautious guidance from some retailers including electronics and home improvement stores.

The report warned that tariffs and a stronger dollar following the election of Donald Trump could have an impact on the market. “Both of these developments would likely further challenge consumer goods and luxury advertisers facing a period of more muted consumption.”

In China, total advertising revenue is expected to increase 13.5 per cent in 2024 to $204.5bn. In the UK, Europe’s largest advertising market at $53.2bn in 2024, this year’s growth is estimated at 8.3 per cent.

The report pointed to initiatives in China aimed at promoting consumer confidence and spending that, if successful, could “see more robust advertising growth as local and multinational advertisers look to capitalise on pent-up demand”.

‘Special situations’ funds hit by retreat from active investing

While managers enjoy greater flexibility, investors are deterred by the lack of a clear remit

With actively managed equity funds showing outflows for most of the past two years, according to research company Morningstar, even the most orthodox strategies are a tough sell. 

The few funds still gaining traction with investors have tended to focus on sub-sections of the market, such as technology or sustainability.

That has hit demand for “special situations” funds, a loosely-defined term that often refers to funds that see opportunities in one-off events such as restructurings or mergers and acquisitions, and whose investment philosophy emphasises manager skill above theme or factor.

Such is the scarcity of special situations funds that, among the thousands of active funds available to UK clients, only 26 currently carry the moniker, according to Morningstar.

The funds began as a way for investors to profit from corporate activity such as M&A, but while this is still popular among institutional investors, retail clients tend to be deterred by the lack of daily liquidity, according to Richard Swain, head of funds research at Bentley Reid, a wealth manager.

“For retail clients, special situations funds have tended to be deep value funds,” says Swain, referring to the strategy of investing in stocks whose market value is judged to be far below the asset value of the issuing company. “At a time when allocations to value strategies [and] to UK equities have been falling, it is perhaps inevitable that demand for these funds has dimmed.”

Some investors are put off by their institutional-style approach, which tolerates less liquidity while giving the fund manager greater flexibility.

“We tend to avoid them due mainly to the fact that you are never quite sure what’s in them,” says Simon King, chief investment officer at wealth manager Vermeer Partners. “The name is a bit of a catch-all and there’s a wide diversity of strategies within them, including many that have no strategy at all.” Because returns are often inconsistent and correlated with small and mid-cap share prices, it is better simply to hold funds aimed at these, he added.

“Many of the ‘star’ managers in the sector are ‘gunslingers’ and shift portfolios around a lot. If they are really good they tend to gravitate to running hedge funds.”

Ben Yearsley, co-founder of consultancy Fairview Investing, does use special situations funds in portfolios, but agreed the vagueness of the term deters many investment managers.

“It’s fair to ask, what is a special situations fund? Is it a value fund? A go-anywhere fund? Multi-cap? Even growth? The lack of an answer probably explains why the name is declining and I can’t think of any new launch in years,” he says. 

“Because there’s no definition of what a special situations fund is, there’s no defined portfolio place. Most [managers] construct portfolios with each fund having a specific place. Therefore, if you don’t know what the fund will invest in, how can you buy [it] in a portfolio?”

Advocates, however, can counter by pointing to the performance of some funds. Investment manager Ninety One’s UK Special Situations fund, for example, which launched in 1978, currently ranks fifth among the more than 200 funds on the Investment Association’s “UK All Companies” league table for its returns over the past five years.

Alessandro Dicorrado, who has run the 46-year-old fund for the past four years, described special situations funds as “a more flexible rendition of the value approach”. 

“Traditional value [investing] can be very systematic and rigid,” he says. “Special situations tends to be a bit more open-minded. It is about finding companies that are mispriced, but whereas value strategies and some of the institutional funds tend to focus on identifying a particular catalyst, we don’t believe it’s possible to do that — we focus on companies that are performing well and have good management.”

For Stuart Widdowson, managing partner of Odyssean Capital, the key is to find stocks that are underappreciated. “Typically, it’s a company that’s not fulfilling its current potential,” he says.

One indicator is a change of chairman in the past three years. “Such stocks are often underappreciated because investors who focus on momentum are looking for companies that are perfect, or almost perfect, so they wouldn’t be looking for special situations,” says Widdowson. He also checks out a company’s top 10 shareholders to see if “they are aligned with our thinking”.

He warned, however, that “special situations take a lot of work to identify and to work on. So, for example, if you run a 100-stock portfolio as some managers do, you wouldn’t be able to spend the time required.”