“Cognitive dissonance”, said Spy’s profoundly contrarian tech equity manager drinks companion last night, over several glasses of Patron Reposado tequila. “Apparently the chatterati are scoffing that President Trump and his team supposedly used ChatGPT to devise his bizarre new tariff schedule. Yet, many of these people have been wildly excited about AI, claiming these companies are worth hundreds of billions of dollars, precisely BECAUSE their output is so smart. Agentic intelligence; generalised super-intelligence; the equivalent of an IQ of 1000+, are just some of the plaudits thrown about new AI models, including ChatGPT, justifying Everest-level valuations. If this is true, why is it so silly to ask ChatGPT to solve your trade deficit problem? Clearly the overpaid and over lauded Ivy-league trained economists that have gone before you have not managed to solve the problem, have they?” Punchy, but thought-provoking all the same.
The ETF conversion juggernaut rolls on, notes Spy. This week it is the turn of BNY Mellon Investment Management, which has converted one of its veteran mutual funds into a more accessible listed strategy. The BNY Mellon Concentrated Growth ETF, with the ticker BKCG, is an active fund that began life in May 2004. It only holds 25-35 stocks but aims to beat the S&P 500. The strategy is managed by BNY IM’s boutique, Fayez Sarofim & Co. More than 32% of the fund is held in just six stocks: Microsoft, Apple, Amazon, Visa, Alphabet and ASML. The ETF is trading on NYSE’s Arca platform. Will the last person to convert a mutual fund to an ETF, please switch off the lights?
Spy can’t help but feel the managers behind the new Westwood LBRTY Global Equity ETF went on holiday, watched Moulin Rouge and drank one or two shots too many of absinth. The “idea” behind this new fund is it doesn’t invest in companies that are actively involved in less democratic nations, for example China. As they put it, “A global equity fund that seeks to reduce authoritarian country risk by investing in democratic developed and emerging markets.” Only the most cursory glance at the top ten list of their holdings makes Spy scratch his head. Apple (Greater China revenues, $73bn), Microsoft (China revenue, $4bn) and Amazon (American shoppers purchased approximately $200 billion worth of products from Chinese-owned businesses via Amazon marketplace in 2023.) It is as if the managers have absolutely no idea how modern companies and economies operate.
The markets are reeling from The Donald’s tariff machine gun. Spy has read as many asset manager insights on the tariffs as possible. (Only a handful were out by publication time.) There is universal belief the tariff outcome will be negative. Eastspring, put it: “The new US tariffs today have raised the US effective tariff rate from 2.2% at the end of 2024 to close to 20% in less than four months. Within Asia, Trump’s tariff shock is likely to weigh on growth in Vietnam, Korea, Japan, and China most, roughly in that order.” Vontobel wrote: “‘Liberation Day’ has landed, and not with a whimper. In extraordinary scenes in the Rose Garden of the White House, President Trump held up a board outlining the level of tariffs the US will impose on countries around the world, and in most cases they were worse than worst-case expectations.” But, perhaps, The Economist put it best, “Donald Trump has committed the most profound, harmful, and unnecessary economic error in the modern era. Almost everything he said—on history, economics and the technicalities of trade—was utterly deluded.” Why not tell us what you really think?
Spy has begun to look forward to BlackRock CEO Larry Fink’s annual newsletter to shareholders as much as Warren Buffet’s. If you have not read this year’s in full, Spy urges you to do so. Among many ideas and facts, it includes this little gem, “Over the past 40 years, global gross domestic product has grown more than in the previous two thousand combined. This extraordinary growth—partly propelled, it must be noted, by historically low interest rates—has driven exceptional long-term returns. But of course, not everyone has shared in this wealth.” Ahh, there’s the rub. Luckily, Larry has a few ideas.
If you work in a marketing or sales department, you have probably had compliance send the dreaded “Is this GDPR compliant?” question to you, reckons Spy. The EU’s draconian data protection law that spread around the world like an unwelcome rash after a stag weekend, has created a global bureaucratic burden for remarkably little benefit. After seven idiotic years, it seems the EU has finally realised its trophy piece of “Brussels effect” legislation is a nightmare for business and is planning to ditch swathes of it, especially for SMEs. There are “a lot of good things about GDPR, [and] privacy is completely necessary. But we don’t need to regulate in a stupid way. We need to make it easy for businesses and for companies to comply,” Danish Digital Minister Caroline Stage Olsen told reporters last week, according to Politico. Spy will watch with bated breath.
The aphorism, “You don’t need a lot of money to start investing. You do need the courage to put your capital at risk” has never seemed more apt. Since equities deliver a greater return than bonds or cash over the long term, volatility is the “price of admission”.
Until next week…
