CrunchBase : The Week’s 10 Biggest Funding Rounds: Crusoe Energy, Insider And Bi

The Week’s 10 Biggest Funding Rounds: Crusoe Energy, Insider And Biotech Raise Big

There may not have been a $1 billion raise this week, but large money deals did abound. Two U.S. startups raised half a billion dollars apiece, and another eight raised $100 million or more, with industries from cybersecurity to biotech to AI represented.

1. (tied) Crusoe Energy Systems, $500M, energy: This is not the first time Crusoe has made this list. Back in 2022, the Denver-based company was helping power Bitcoin mining by harnessing natural gas that is typically burned during oil extraction and putting it toward powering the data centers needed for mining — raising a $350 million Series C equity round led by G2 Venture Partners, at a $1.75 billion valuation in the process. Well, Crusoe has now turned its energy to AI — literally. The company is a so-called “neocloud” — a data center firm providing outsourced cloud computing for those looking to build AI. That business plan was enough for Crusoe to reportedly lock up a $500 million round led by Founders Fund at a $3 billion valuation. Founded in 2018, the company has raised $1.2 billion, per Crunchbase.

1. (tied) Insider, $500M, digital marketing: Marketing tech platform Insider raised a $500 million Series E led by General Atlantic to fund its expansion in the U.S. and AI product development. The latest funding comes about 18 months after a round last year that valued it at $1.9 billion. The New York-based company declined to disclose its valuation with the latest round. Insider, which was co-founded in Istanbul in 2012, has now raised $772.1 million from investors, per Crunchbase. The company says it operates in 28 countries around the world and counts big names such as Nike, Samsung, L’Oreal, Unilever, Allianz and Disney among its customers.

3. Beta Technologies, $318M, aerospace: If you’re one of those people frustrated that the technology revolution has not yet delivered us the flying cars we were promised, take heart: Startups working on vertical-takeoff aircraft continue to get investor interest. The latest startup in the space to get a big chunk of cash is Beta Technologies, maker of electric vertical take-off and landing planes. The South Burlington, Vermont-based startup this week announced a Series C led by Qatar Investment Authority, Qatar’s sovereign wealth fund. Fidelity, TPG Rise Climate Fund and United Therapeutics also joined as investors. The company — which has now raised $1.4 billion from investors, per Crunchbase — said the fresh cash will be used to move its aircraft closer to certification and commercialization.

4. Armis Security, $200M, cybersecurity: Cybersecurity startup Armis Security closed a $200 million Series D led by Alkeon Capital and General Catalyst. The round boosts the company’s valuation nearly 25% to $4.2 billion. The San Francisco-based startup last raised a $300 million private equity round in 2021 led by One Equity Partners at a $3.4 billion valuation. The new cash comes just after Armis said it had surpassed $200 million in annual recurring revenue — growing ARR by an additional $100 million in less than 18 months. The company is targeting an IPO in 2026, per Bloomberg. In 2020, Insight Partners bought a large stake in the startup. Armis is one of a handful of companies that plays in the industrial security — also called operational technology security — and IoT security spaces. The sector typically sees an ebb-and-flow of investment interest, but 2024 has been good for startups in the sector. Earlier this year, New York-based Claroty secured $100 million in strategic debt/credit financing led by Delta-v Capital, and San Francisco-based Nozomi Networks locked up a $100 million Series E from investors including Mitsubishi Electric and Schneider Electric.

5. Sierra, $175M, artificial intelligence: If you want to have your company’s valuation skyrocket in the blink of an eye, start an AI startup. Ex-Salesforce co-CEO Bret Taylor’s conversational AI startup Sierra raised $175 million this week in a funding round led by Greenoaks Capital that gave it a $4.5 billion valuation. It was just in February when the San Francisco-based company raised $110 million led by Sequoia Capital and Benchmark at a reported valuation of nearly $1 billion. A 4.5x increase in value in eight months time is not too shabby. And yes, Taylor also is chairman of the board at OpenAI — whose large language models Sierra uses — although he has said there are no conflicts of interest.

6. Melio, $150M, fintech: Payments platform Melio raised a $150 million Series E led by Fiserv at a $2 billion valuation. The New York-based company last raised cash in 2021 at a $4 billion valuation, but a reported sale of the company fell through last year at half that value. Founded in 2018, the company has raised $654 million, per Crunchbase.

7. (tied) Axonis Therapeutics, $115M, biotech: Boston-based Axonis Therapeutics, a biotech startup developing neuromedicines, locked up a $115 million Series A co-led by Cormorant Asset Management and venBio Partners. Founded in 2020, the company has raised nearly $130 million, per Crunchbase.

7. (tied) Evommune, $115M, biotech: Palo Alto, California-based Evommune, a biotech startup developing new ways to treat immune-mediated inflammatory diseases, completed a $115 million Series C co-led by new investors RA Capital Management and Sectoral Asset Management. Founded in 2020, the company has raised $268 million, per Crunchbase.

7. (tied) Fingercheck, $115M, human resources: Small business payroll and human resource software company Fingercheck raised a $115 million growth investment led by Edison Partners. Fingercheck’s platform allows payroll and HR management to be set up in hours and supports posting jobs, onboarding, payroll, scheduling and shift management, and more. The round is impressive considering the precipitous fall in funding to HR startups in recent years. During the height of the venture market in 2021, few sectors seemed to benefit as much as human resources — likely due to the fact businesses were undergoing major changes in the way they handled employees due to the pandemic. In 2021, HR startups raised more than $10.5 billion in over 900 rounds, per Crunchbase data. In 2023, those numbers fell to $7.8 billion in more than 800 rounds, and then dropped to only $2.9 billion in 500 rounds last year. So far this year, HR startups have seen only $1.7 billion in fewer than 300 rounds, per Crunchbase data. In fact, Fingercheck’s round is only the fourth raise in 2024 of $100 million or more in the sector.

10. DoorLoop, $100M, property management: Miami-based DoorLoop, a property management software company, raised a $100 million Series B funding led by JMI Equity. Founded in 2019, the company has raised $130 million, per Crunchbase.



Big global deals
The biggest deal of the week came from China.
  • GDS International, a developer and operator of data centers, raised $1 billion from institutional private-equity investors.

FT : Boeing sets milestone with colossal equity issue

Boeing sets milestone with colossal equity issue
Bold action signals aerospace giant is trying to take risk of financial distress off the table

In the third season of Breaking Bad, Mike Ehrmentraut warns Walter White: “No more half-measures, Walter.” When you’re on a knife’s edge, you need to take decisive action.

Boeing’s management team seems to have taken that advice to heart, pulling off one of the boldest financial recovery manoeuvres in recent corporate history. On Monday, the beleaguered aerospace group went all-in with a humongous offering of shares and equity-linked instruments to shore up its balance sheet and stave off a credit rating downgrade to junk status.

This was no small ask. Market analysts had expected Boeing to tap the markets for $10bn-$15bn, but the company raised an eye-watering $24.3bn, following the exercise by the underwriters of the “greenshoe” option to increase the offering by an additional 15 per cent. Boeing has thus set a record for the largest ever US equity offering. The stock offering was priced at $143 per share, a roughly 5 per cent discount to Monday’s close — a reasonable level given the circumstances.

What’s perhaps most remarkable, though, is the market’s reaction. You’d think this level of shareholder dilution — where existing shares lose value due to a flood of new stock — would send the stock price plummeting. But Boeing’s shares took only a small hit, dropping a mere 2 per cent on the placement day. The shares have subsequently rallied to around $150, about 5 per cent above the placement price and giving the company a market capitalisation of $95bn. 

Part of the reason is that investors had already baked a large equity offering into their expectations. But the market is also giving Boeing a nod of approval for this move. By raising such a massive amount, Boeing is trying to take the risk of financial distress off the table. Avoiding a ratings downgrade is crucial, as losing investment-grade status would hamper Boeing’s ability to raise debt, unsettle suppliers and customers, and potentially damage core industrial operations. It sounds paradoxical but a hugely dilutive offering can cause the stock price to re-rate upwards by alleviating concerns over financial wherewithal.

In that context, it is telling that after a strong investor response on Monday morning, Boeing decided to upsize the common stock tranche by 25 per cent instead of pushing to maximise the offer price. In other words, management prioritised putting to rest any concerns about its financial health over squeezing out the last dollar on price. Boeing wasn’t trying to drive a hard bargain, but rather was determined first and foremost to bolster its battered balance sheet — even if it meant leaving some money on the table for investors.

And Boeing’s timing also speaks volumes: this offering came right before the US presidential election and amid an unresolved machinists’ strike, signalling confidence that neither would derail its recovery plan. For Boeing there was no better time than now to start rehab. And no one wants half of the world’s duopoly in aircraft manufacturing to collapse.

An intriguing twist to the deal is the $5bn three-year “mandatory convertible” bond, a hybrid security that converts into shares on maturity. Rating agencies treat these as (mostly) equity. Boeing’s common stock pays no dividends, but the mandatory instrument yields 6 per cent, appealing to equity-linked fund managers and thus diversifying the investor pool for the deal. The positive market response enabled the underwriters to skew allocations in favour of “outright” investors keen for exposure to Boeing’s stock price over arbitrageurs, who typically profit by shorting the stock while holding the convertible. As a result, pressure on the Boeing stock price was minimised during the offering.

Boeing’s choice of equity underwriters was also strategic, aiming to foster a supportive stable of relationship banks. The four leads — Goldman Sachs, Bank of America, Citigroup and JPMorgan — had arranged a $10bn bridge credit facility earlier this month. Although US regulations prohibit banks from “tying” a loan commitment to an investment banking role, Boeing rewarded the four arrangers by granting them the equity mandate, which should yield each bank more than $75mn in fees. This contrasts with National Grid’s decision to allocate the full £140mn in underwriting fees for its £7bn share offering solely to its two corporate brokers, thereby excluding its other relationship lenders.

In short, the Boeing record-breaking offering is a recognition by the company that a fortress balance sheet is a precondition for its turnaround. The big question, of course, is whether this colossal equity deal will pay off in the long run. While not a quick fix, the capital raise represents a bold, strategic choice — and a recognition by Boeing’s management that there’s no more time for half-measures.

FT : How the US election may unsettle Europe

How the US election may unsettle Europe
Europeans mostly prefer Harris to Trump but challenges lie ahead on democracy, defence and economics

Democracy in peril?
The contest between Kamala Harris and Donald Trump makes Europeans nervous for at least three reasons: democracy, defence and economics.

Let’s take democracy first.

In the latest edition of its annual report on freedom around the world, the non-partisan, US-based group Freedom House said that political rights and civil liberties had deteriorated in 52 countries last year, while only 21 countries had registered improvements.

Its conclusion was that global freedom had declined in 2023 for the 18th consecutive year.


Then the organisation linked these findings to Tuesday’s US elections:

As it has for decades, the US can play a vital role in the expansion of global freedom.

But much depends on whether the November 2024 presidential election reinforces or weakens America’s democratic values, processes and institutions, along with its will to uphold the cause of democracy around the world.

Writing for Social Europe, Harold James, a Princeton University historian, makes a similar point:

No one knows how the US presidential election will turn out. One possibility is that the Trump bubble will finally burst, allowing for a return to normalcy in America and around the world.

But it is also possible that the United States will lurch toward a radical militarised authoritarianism that would establish a new norm for despots elsewhere.

This is Europe’s most profound concern. If democracy were to stumble in its US stronghold, it would stimulate illiberal or extremist political forces that are already active — in some countries, even in or close to government — in Europe.

It would also make European democracies more isolated and vulnerable in a world where dictatorships and semi-authoritarian regimes are contemptuous of liberal norms and act aggressively to discredit them.

Defending Europe
Europe’s second worry is defence and security.

Many Europeans lose sleep at night at the prospect that Trump might act or speak in ways that would shatter the credibility of the US security guarantee of Europe, expressed through Nato and the nuclear umbrella.

European supporters of Ukraine also worry that he might try to settle the war there on terms that amounted, in effect, to a victory for Vladimir Putin’s Russia.

Some politicians recognise that, in certain respects, Europe has only itself to blame. Many governments have spent too little on defence for far too long (though military budgets are rising), and a united EU foreign policy is more an aspiration than a reality.

In this piece for Project Syndicate, Friedrich Merz, leader of Germany’s opposition Christian Democrats, laments what he calls “the desolate state of European foreign and security policy at a critical moment”.

Most Europeans would certainly feel more comfortable with Harris in the White House, as is shown by surveys such as this one by the Savanta data and market research company.

In six countries polled — France, Germany, Italy, the Netherlands, Poland and Spain — clear majorities thought Harris would be better for Europe’s security.

Change things so things stay the same
However, that is not the whole story — as is made clear in an impressive collection of commentaries issued by the US Council on Foreign Relations and associated think-tanks.

For instance, Patrycja Sasnal of the Polish Institute of International Affairs writes:

Harris as president [would epitomise] a generational change in American politics that [would mean] shifts and challenges for Europe, too.

. . . with US President Joe Biden we bid farewell to post-cold war politicians, viscerally connected with European countries for better or worse, who have regarded the transatlantic partnership with a semi-religious dogma.

With Harris, Europe [would] have to embrace a new United States, more West coast, deeply connected to Asia and Latin America, perhaps at the expense of the partnership with Europe.

We can learn something about how a Harris administration might act on the international stage by considering the career and outlook of Philip Gordon, her chief foreign policy adviser.

Writing for the Washington-based Center for European Policy Analysis, Samuel Dempsey says:

Gordon . . . has broad expertise in Europe, is firmly behind Ukraine, but has advocated for a European Nato that pays its way.

Europeans hoping that a Harris administration might return to the good old days where the US pays a lot and asks little in return will likely be disappointed.

In other words, whoever wins the presidency, Europe will have to get its act together if it wants to preserve its freedom and, one hopes, remain allied with the US.

Economic threats
A third concern for Europe is trade and the economy.

At a rally in Pennsylvania this week, Trump could hardly have sounded more menacing about what lies in store for the EU on the trade front, if he should return to the White House:

I’ll tell you what, the European Union sounds so nice, so lovely, right? All the nice European little countries that get together …

They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no, they are going to have to pay a big price.

The prospect of a Trump victory, followed by punitive US tariffs on European goods, is hurting the share prices of export-sensitive companies such as Diageo, LVMH and Volkswagen, the FT reported this week.

For sure, the EU has been working on a response. As my colleague Henry Foy wrote:

The [European Commission], which manages trade policy, has already drafted a strategy to offer Trump a quick deal on increasing US [exports] to the EU and only resort to targeted retaliation if he opts for punitive tariffs.

Not much better with Harris?
But the broader picture is that Europe has been falling behind the US — and, to some extent, China — in the technologies of the future (see the chart below).

Barron's : Move Over, Banks. Alternative Asset Giants Plunge Into Private Credit

Move Over, Banks. Alternative Asset Giants Plunge Into Private Credit.
Lending from asset managers has quadrupled over the past decade to nearly $2 trillion in assets.

When a business is repeatedly slammed by Jamie Dimon, you know it’s a big deal.

In his annual letter, the JPMorgan Chase boss tore into the private credit industry, warning that the business loans made by lightly regulated private funds will implode when the credit funds’ opaque valuations and illiquidity meet the economy’s next downturn.

“When the shit hits the fan—and it will one day, we don’t know when—there will be a lot of stranded borrowers,” Dimon told a May investor conference, “because some of these people simply cannot roll over loans like we would.”

A less remote concern for the JPMorgan chief may be that the deep-pocketed credit funds have become formidable competitors, even for the world’s biggest bank. Private credit has been one of the fastest-growing businesses at alternative asset giants like Blackstone, Apollo Global Management, and Brookfield, as well as specialists like Ares Management, Blue Owl Capital, and HPS Investment Partners. After quadrupling in the past decade to nearly $2 trillion in assets, private credit is as big as the market for banks’ syndicated loans.

Drawing investors to private credit are yields that exceeded 11% in the past few years, as rising rates swelled income from the funds’ floating-rate loans.

Bankers may grumble, but financial regulators like the Federal Reserve say they aren’t alarmed by what they see in private credit. In fact, commercial banks are joining with credit funds, or getting into the business themselves. At the same meetings where Dimon lashed out at his private credit rivals, his lieutenants explained how JPMorgan is building out a private credit operation.

Private credit’s breakneck pace of fund-raising from pensions, endowments, and sovereign-wealth funds has slowed since 2021. It is increasingly seeking money from wealthy individuals, with retail products that range from publicly listed business development companies, or BDCs, to insurance annuity products and limited partnerships.

What can individual investors expect if they put money into private credit?

Near term returns will likely trend down. Subsiding rates will lower the absolute yields on private credit, from their double-digit heights. Private credit’s spreads over base rates also have narrowed this year, as the cash-rich credit funds compete with each other, and with re-energized commercial banks, for borrowers.

And as Dimon notes, this new kind of finance hasn’t been through a deep downturn.

But private credit has lots of headroom. These nonbank players are set to become a big part of the world’s lending, and they are sure to get a growing slice of investors’ portfolios. As their share of commercial lending grows, so will their investment returns.

Private credit’s growth spurt began after the 2008 financial crisis. As regulators tightened capital requirements for depositor-funded institutions, the banks pulled back from riskier loans to small businesses and to companies bought by private equity. Into the gap stepped business development companies, a kind of untaxed loan fund approved by Congress in the 1980s, as a lender of last resort to small business.

“Your readers will remember the BDCs of 10 years ago,” says Blue Owl co-founder and co-CEO Marc Lipschultz. “They were like junkyards.”

Over the course of the 2010s, says Lipschultz, BDCs supplied capital to companies of increasingly higher quality.

Managers like Ares grew from humble roots into major lenders to mid- and small-size businesses. Ares, Blue Owl, and other alternative asset managers also became the main lenders to companies bought by each others’ private-equity funds.

An alt manager’s private-equity funds necessarily created opportunities for another firm’s credit fund, since it is a potential conflict to lend to companies you are buying. Even after private credit’s fundraising boom, there’s five times as much money on tap at private-equity funds. “We are a very large lender to a lot of those who people would perceive as our competitors,” says Chris Edson, who heads loan origination at Apollo.

Commercial banks also lend to these same noninvestment grade borrowers, in ways that don’t pinch the banks’ regulatory capital. High-yield bonds fund big loans. Smaller loans can be distributed to a broad syndicate of banks and investors.

But come the Covid economic shutdown of 2020, private credit kept on lending, while the high-yield and syndicated loan markets dried up. That touched off another growth spurt that has brought credit funds toe to toe with the banks. At business school job fairs, it’s the Golden Age of private credit.

Next year, private credit may get another competitive boost if the so-called Basel III Endgame rules for bank capital take effect in the U.S., Europe, and the U.K., further constraining the ability of banks to make loans.

Today, the large private credit managers have raised their sights beyond the senior, secured loans that have been their bread and butter. Offering investment-grade loans, asset-based loans, and other sorts of specialized credit, they think they can put tens of trillions to work.

Apollo’s Edson oversees 4,000 people at over a dozen units that each offer different kinds of loans. At Ares, the operating chief of direct lending, Jana Markowicz, has hundreds of investment professionals and loan officers based in local markets. “This is a people business,” she says. “It’s important to be close to the borrowers.”

Private credit has some advantages over banks. Lending from their funds’ capital, to borrowers they usually know, private credit managers can act quickly.

By comparison, most brokers can only tell a borrower that they will try to arrange a high-yield loan. “Their key word is ‘try,’” says Apollo’s Edson. “When a company speaks to us, we can say ‘Here is the money. Here is the documentation.’ That speed and certainty is incredibly valuable.”

How valuable? Private credit firms have been able charge a premium for their floating-rate loans that is two to three percentage points above banks’ broadly syndicated loans, and more than five percentage points above the benchmark known as the Secured Overnight Financing Rate.

As the benchmark rate rose from near zero to 5% in the past few years, these floating-rate lenders raked in investment income. Shares of Blue Owl have doubled since the alt manager announced in 2020 that it would come public via a special-purpose acquisition company, while those of Ares have nearly quadrupled over the same stretch.

For private credit’s borrowers, the rate cycle has been a kind of stress test, as borrowers with floating-rate loans saw their loan payments surge. “They’re obviously paying our funds a lot more interest than they had hoped when rates were close to zero,” says Blue Owl’s Lipschultz. “But their businesses are doing well, on average.”

Some loans have soured. In August, a group of credit funds that included Blue Owl, Ares, and others had to take ownership of a struggling workforce development firm called Pluralsight that fell behind on more than $1 billion of debt. Critics said the private credit bubble was bursting.

But most private credit borrowers have survived the stress test. Over a decade, default rates and losses in private credit matched those of the high-yield market. At the biggest private-credit firms, defaults are 0.1%.

Private-credit managers say they are smart lenders. But a big reason their losses are low is because most of their investors are locked up for as long as 10 years. Unlike commercial banks, they need not fear a run on the bank by spooked depositors. That gives private lenders time to work through problem loans.

The matching duration of private credit’s funding with its loans is one of the reasons that regulators aren’t too worried about the industry, said Sandra Lee, the Treasury Department’s liaison to the Financial Stability Oversight Council, when she spoke to a recent private credit gathering. What’s more, credit funds rarely leverage themselves above one times capital, while banks leverage themselves up to 10 times. Regulators do find the sector opaque, she said.

Pluralsight’s loan workout might have become a fractious mess if a bank had broadly syndicated its loans to many holders.

“If you have a large group of lenders in the mix, it’s much easier to create a cool kids club and pit that cool kids club against a non-cool kids club,” CEO David Golub told investors in his Golub Capital BDC in August. Squabbles happen less in the small, interdependent community of private debt.

Private credit is consolidating among a small number of alt-asset managers, and they must maintain relationships with each other, said Golub.

Like other parts of the alt asset industry, private credit’s bigs are getting bigger.

Goldman Sachs Group manages $140 billion worth of private credit funds. Brookfield has $240 billion, mostly at Oaktree Capital, the firm co-founded by fixed-income guru Howard Marks, and which is now majority owned by Brookfield. Last year, Oaktree raised $19 billion in one of the largest fundings in the industry’s history. That got topped this year, when HPS Investment Partners raised $21 billion.

It’s no surprise that Blackstone ranks near the top, with $355 billion in assets under management in various credit funds in September, including $36 billion in net assets at the BDC nicknamed BCRED, which doesn’t trade on an exchange and is the private credit counterpart to BREIT, Blackstone’s unlisted real estate investment trust.

Instead of lending mainly to buyouts and other leveraged borrowers, Apollo will grow its credit returns by lending to investment-grade corporate borrowers. As of October, Apollo ran $562 billion in credit assets. It’s made big loans to companies like Intel, Sony, AT&T, and AB InBev, and Apollo believes the market for investment-grade private credit could reach tens of trillions. The resulting income will service fixed annuities that Apollo sells through its insurance business Athene—which are one of its products for individual investors.

To bring in direct-lending borrowers, Apollo is joining with banks. In September, it announced a $25 billion program with Citigroup.

“We complement each other,” says Apollo’s Edson. “We don’t want their client because we can’t sell them any other services. We just want the loan asset. They don’t want the long duration loan asset because it doesn’t fit their liability structure. But they want all the other services.”

Then there are Blue Owl and Ares, the alt-managers most focused on credit. Shares in their management firms trade, respectively, for 29 and 42 times this year’s earnings. Since its founding in 2016, Blue Owl has been one of the fastest-growing private credit managers ever. As of June, it managed $95 billion in credit assets.

Over 25 years, Ares grew the credit assets it managed to nearly $325 billion in June, including the largest publicly traded BDC. Its U.S. senior direct-lending business has averaged 13% net returns, with losses of 0.02%. In May, Ares told investors that it thinks it can grow its credit and equity assets to $750 billion by 2028.

“The power of incumbency is very, very real,” says Ares’ Markowicz. “We’re one of the only large firms that has still kept its hand in the lower end of the market.”

With their steady returns in the low-double-digits, private credit managers think they can replace some of the 40% of portfolios that individuals traditionally put into bonds. To reap those returns, however, investors in private closed-end funds have to lock up their money for years.

There are publicly traded BDCs. But their shares are selling at historically high prices, relative to their net asset values, and at high dividend yield spreads to the 10-year Treasury. In other words, don’t be surprised if BDC shares trend lower in the near term.

But in the long term, the demand for credit still far exceeds the private lenders’ size.

Jamie Dimon may be complaining about private lenders for years to come.

Barron's : Looking for International Exposure? Consider This Vanguard Fund.

Looking for International Exposure? Consider This Vanguard Fund.

With the U.S. stock market trading at generous levels, investors might consider moving some of their portfolio into less heady parts of the market.

International funds, for example. The popular MSCI All Country World Index ex USA foreign stock index—which includes 22 developed and 24 emerging markets—sports a comparatively modest 14.2 price/earnings ratio. The S&P 500 index’s forward 12-month P/E is currently 22.9, about 30% higher than its long-term average.

A fund like Vanguard International Core Stock is a good way not only to play the MSCI benchmark’s diverse international exposure but also to beat it. Though the $2 billion fund is actively managed, its country and sector weightings are similar to those of the benchmark. Yet it has outperformed the index by almost two percentage points annually since its October 2019 inception, having an 8.3% five-year annualized return and also an even lower 13.3 P/E for its portfolio, according to Morningstar.

In the past three years, the fund’s 4.6% annualized return far outpaces the 1.9% average of its Morningstar Foreign Large Blend category, besting 92% of its peer group. Moreover, it has done this with less volatility and less downside risk than its peers, and its 0.48% expense ratio is low for an actively managed fund.

One can credit Vanguard for the low fees, but the outperformance is largely due to the fund’s subadvisor, Wellington Management, which oversees some $1.3 trillion. Co-managers F. Halsey Morris and Anna Lundén have an immense pool of analytical resources they can access to find a small subset of stocks to beat the benchmark while not deviating too much from its sector and country weightings. They can draw on some 60 portfolio managers, 55 global industry analysts, 13 macroeconomic strategists, and 13 quantitative analysts.

Though its sector/country/style weightings are similar to the benchmark, the fund holds only 86 stocks, while the MSCI index holds 2,094. That means the fund’s returns are almost entirely driven by stock-picking instead of sector and country bets. Moreover, even when Morris and Lundén buy a stock, their individual company weighting is typically within 0.5 and 1.75 percentage points of the benchmark’s weighting of that stock, Lundén says.

Currently, “the largest deviation from the benchmark on the sectors in our universe” is about two percentage points, she says. “So we’re not swinging for the fences in terms of our sector allocation. If you look below [the broad sector] level, you’ll see us maybe deviate a little bit more. So, for example, within financials, at different points in time, we might favor the banks more than the insurance companies, or vice versa. But on the whole, the premise is to try to not get caught out by sector rotations or factor rotations.”

Yet Morris and Lundén’s portfolio is by no means static. The fund recently had a 76% turnover ratio, indicating that about three-quarters of its positions shifted in size or changed completely in the past year.

A number of new positions were added to the fund in 2024. This past March, as China was struggling with its economic doldrums, the team picked up HSBC, a British bank that does most of its business in Asia. “The bulk of their business and profitability really hinges on their performance in Hong Kong and other regional Asia markets,” says Morris. “It’s added to our U.K. weight, but really, we think about it as more a play on what’s going to happen in China.”

Unlike state-run banks domiciled in mainland China, HSBC isn’t controlled by China’s onerous regulatory regime. It has a “very solid balance sheet and at its valuation, which was about half tangible book [value], there was really a mispricing there,” Morris says about the purchase’s timing. The bank also “had the capital to get through a tough period.”

In June, the team snapped up some tech stocks, such as Germany’s SAP and Korea’s SK Hynix. At 16% of the fund’s portfolio, tech represents a small overweight over the benchmark’s 14%. According to Morningstar, the fund has a slight overweight to Germany versus its fund category peers at 9.1% of its portfolio, but Lundén points to individual names such as enterprise software maker SAP as the reason, not any bets on Germany’s economy.

“We invested in [SAP] because it’s got a unique position in the software stack for most companies,” Lundén says. “Its [software is] very sticky. Once you’ve got it, you’d rather cut off your arms than try and change things.” The company is also shifting from selling on-premises installed software to more lucrative cloud-based software. “Because of their very sticky position with their customers, they can pretty much force their customers to do this,” she says. “It’s basically a shift that’s going to help the margin profile of the company.”

SK Hynix is a maker of memory chips, which are “largely a commodity product,” Morris says, dependent on cyclical economic demand, but now there’s a shortage. “We invested on the view that the cycle for the next couple of years is really going to be a tailwind, and that we’re still early in that process. On top of the normal supply-demand dynamics...[Hynix has] a product called high-bandwidth memory, which is very well suited for the needs of data centers related to generative AI training.”

Another purchase this June was MatsukiyoCocokara, which runs one of the largest pharmacy chains in Japan. One reason for the purchase, Lundén says, was to shift the fund’s Japan focus from exporters, which had benefited from the weak Japanese yen increasing their sales to foreign countries, to more domestic-oriented businesses, as Japanese consumers now have more money in their pockets to shop because of recent wage inflation.

MatsukiyoCocokara is a stable company with “an opportunity to consolidate a very fragmented [mom and pop pharmacy] market, and they’ve got a strong balance sheet, like many Japanese companies,” she says.

Such subtle portfolio shifts and smart active bets occur while the team still stays within the tight parameters of being a core fund. It’s an impressive balancing act.

Barron's : Investors in EM Bonds Uneasily Await the Outcome of the U.S. Election

Investors in EM Bonds Uneasily Await the Outcome of the U.S. Election

Emerging market bonds issued in dollars have more than held their own as global fixed income sold off over the past month. Local-currency bonds, not so much. Now comes the U.S. election.

Emerging markets have shifted massively toward issuing debt in their own currencies since a series of crises in the 1980s and ’90s. That makes them more stable but leaves $7 trillion or so in bonds extremely vulnerable to the electoral outcome on Nov. 5.

Donald Trump’s promised 10% tariffs on all imports to the U.S. would push exporting countries to weaken their currencies in response. Even the threat could crater bonds priced in those currencies. “Trump would use very hawkish rhetoric over the next few months,” says Arthur Budaghyan, chief emerging markets strategist at BCA Research.

That still leaves more than $1 trillion in emerging market debt issued in dollars, though. Spreads for this subasset class over U.S. Treasuries, investors’ key guidepost, tightened by 0.23%, or 23 basis points, during October, says Cem Karacadag, head of emerging markets sovereign debt at Barings.

Riskier credits outperformed. High-yield sovereigns tightened by 50 basis points as investors gained confidence in the solvency of onetime basket cases such as Argentina, Pakistan, and Sri Lanka.

That reflects markets’ view that “fundamentals are pretty good,” says David Robbins, group managing director for emerging markets at fixed-income specialist TCW. Both the U.S. and Europe still look to be headed for “soft landings,” enabling central banks to cut interest rates even as economies keep growing.

China may perk up as Beijing steps on the stimulus gas. Prices for oil, which most emerging markets import, are dipping again after a blip in early October on Middle East tensions. The more spreads tighten, the harder it is to find value in emerging market bonds. “The bulk of the bull run has happened,” Robbins says.

Investment-grade issuers leave little further upside, Karacadag thinks. “If you’re buying Saudi Arabia, Indonesia, or the Philippines, that’s basically a U.S. Treasury with a little spread on top,” he says.

He is trawling for appreciation in Central American and Caribbean countries including Costa Rica, Guatemala, and the Dominican Republic. They benefit from U.S. economic buoyancy through tourism and remittances without the political complexities of Mexico, he argues.

Robbins favors debt from Turkey and Egypt, where economic policy is improving and regional stress possibly receding. He also likes West African oil producers Angola and Gabon.

Kamakshya Trivedi, head of global FX and emerging markets strategy research at Goldman Sachs, sees value in South Africa, where a new coalition government is “addressing fiscal concerns in a fairly credible fashion.” He’s also bullish on paper from Czechia (the Czech Republic), Hungary, and Poland, whose interest rates may drop to converge with the euro zone.

In sum, “idiosyncratic” is the word of the moment.

A Kamala Harris victory might spur a relief rally in local-currency emerging markets debt. But it would leave a central challenge in place: U.S. economic outperformance that pushes the Federal Reserve, and the dollar, to stay higher for longer. “What’s most important for EM debt is a more balanced global growth picture,” Trivedi says. “China and Europe doing better takes the edge off the dollar.”

One way or another, investors should let some dust settle before making any dramatic moves, says Cathy Hepworth, head of emerging markets debt at PGIM Fixed Income. “It is too early to meaningfully add risk,” she says.

Barron's : Gold Mining Stocks Are a Bargain. Here’s How to Buy In.

Gold Mining Stocks Are a Bargain. Here’s How to Buy In.
The prospects for miners such as Barrick, Newmont, and Alamos look favorable as gold prices continue to rise.

Gold is rocking again, as it did in the 1970s when the metal was the decade’s hottest investment. The same can’t be said for gold mining stocks, but they deserve a closer look.

A lot has been going right for gold recently. Profligate U.S. fiscal policies have led to intractable $2 trillion annual deficits, while strong demand from central banks in the developing world has helped push the precious metal to a new high. Gold traded Friday at $2,750—and has risen 33% this year, its best annual gain since 1979. It has also left the S&P 500, which has returned 22%, in its dust.

Gold miners should outperform in a gold bull market due to operating leverage—profits ought to rise rapidly as the price of the commodity increases more than costs. That hasn’t been the case. The $15 billion VanEck Gold Miners, the top mining exchange-traded fund, has slightly underperformed the metal with a 30% gain. This continues a disappointing showing for the Gold Miners ETF which is still below its 2020 peak. It has been even worse for two industry leaders, Barrick Gold and Newmont , which have risen around 10% this year and are more than 30% below their record highs.

But the backdrop for the miners looks favorable, especially with gold potentially headed for $3,000 an ounce. Gold, for starters, is an underowned asset, even after ETFs like the $80 billion SPDR Gold Trust had their first quarterly net inflows since 2022 in the third quarter. The combined market value of leading miners is under $200 billion. That includes two well-run Canadian miners, Agnico Eagle Mines, which is the No. 3 global gold producer, and the higher-growth Alamos Gold; as well as two “streaming” companies, Franco-Nevada and Wheaton Precious Metal, which contract to buy gold and other metals over multiyear periods from producers but don’t actually mine it.

The miners also offer growth, some leverage to gold prices, and regular dividends, unlike the metal, which yields nothing. They can also be had at an attractive valuation, with depressed Newmont and Barrick trading for about 11 times projected 2025 earnings. “The equities are not pricing in current gold prices,” says Imaru Casanova, a portfolio manager at VanEck, which also runs the VanEck International Investors Gold fund. “They look relatively cheap.”

The industry does have some proving to do. Barrick, which is second to Newmont with about four million ounces of annual gold production, has been bedeviled by cost, production, and political issues. At around $20, the stock is where it stood in 2016 when gold was half its current price. The company’s pluses include a productive portfolio of mines led by a 60%-plus interest in a huge Nevada mine that it shares with Newmont. It has a balance sheet with virtually no net debt and plans to ramp up its copper production in coming years.

Africa is a chief investor concern, particularly a large mine in Mali where the increasingly anti-Western government is tangling with Barrick. CEO Mark Bristow, a South African with decades of experience operating in the sometimes dicey developing world, may just have the ability to handle it.

Newmont, the top global producer at about six million ounces annually, has seen its stock fall more than 20% since the company signaled higher costs and lower gold production heading into 2025 in its recent third-quarter profit report. “The market is frustrated that costs are eating into the margins at Newmont,” says Michael Dudas, an analyst at Vertical Research Partners. “But the correction in the stock is overdone.” He’s bullish on Newmont, the only gold stock in the S&P 500 index, and has a $60 price target.

Agnico Eagle is the class act of the industry, with 3.5 million ounces of annual production. It has a reputation for hitting production and cost targets, with operations primarily in politically safe Canada. “It has traded at a premium to the sector for 20 years for a good reason,” says Casanova.

The stock, at around $85, trades for about 22 times projected 2024 earnings, a 50% premium to Newmont and Barrick. CEO Ammar Al-Joundi emphasized costs, which are a few hundred dollars an ounce less than peers, and a commitment to grow value per share, on the company’s earnings conference call this past week. After the event, newsletter writer and gold bug Fred Hickey called Agnico “a shining example of how a gold mining company should be run.”

VanEck’s Casanova is partial to Alamos, a midtier miner with about half a million ounces of annual production. “It’s executing against plan, and has an excellent growth profile,” Casanova says.

The two streaming companies, Franco-Nevada and Wheaton, trade at a premium to the miners because they’re insulated from mining cost pressures as financial entities that provide capital to miners in return for future production.

Franco-Nevada, which has returned an impressive 15% annually since its 2007 initial public offering, gets about 75% of annual production from precious metals and the rest mostly from energy. There is some risk in the business, highlighted by a $1 billion write-down taken by Franco-Nevada last year when Panama closed a giant copper mine that interrupted the company’s streaming output.

The higher-growth Wheaton, which gets nearly all its streaming revenue from gold and silver, aims to boost its production to more than 800,000 gold equivalent ounces—with other metals converted to an equivalent amount of gold—by the end of the decade, up from about 600,000 this year. Rick Levin, a private investor, says the company is well managed. “It’s the J.P. Morgan of mine finance,” he says.

“The lack of available Western funding for mine development over the past decade has allowed Wheaton to negotiate tremendous streaming deals that allowed it to lock in low prices and other favorable terms,” Levin adds.

Given the risk of individual miners, investors may want to choose a mutual fund or ETF. The four top stocks in the VanEck Miners ETF—with a combined 35% of its assets—are Newmont, Agnico Eagle, Barrick, and Wheaton.