Spy was enjoying one of the spiciest Bloody Mary he had tasted in a while in a less-than-salubrious bar in Wan Chai with an old friend who works for a VC on Wednesday evening. Spy asked if he had seen any interesting ideas of late? “Only 50 companies that all claim to be the next big thing in some niche AI field but whose demos make you wonder if their language models are drunk, let alone intelligent.” And yet, he added, “Someone somewhere is indeed on the cusp of something big, I am just not sure we can afford to throw money everywhere to find the shining gold among the coal.” Indeed.
The actively managed ETF juggernaut rolls on, notes Spy. This time, Dimensional, the singular asset manager from Austin, Texas, has just delivered its International Vector Equity ETF, with the ticker, DXIV. What appealed to Spy was that the managers are hunting for “companies with smaller capitalisations, lower relative prices, and higher profitability.” Ah, those overlooked, hidden, hard-to-find gems that should, in time, deliver something stellar. The managers have left themselves plenty of wiggle room: “The adviser aims for broad diversification and adjusts exposure based on short-term criteria like price momentum, short-run reversals, and investment characteristics. Additionally, the fund may use futures contracts.” Sounds rather ambitious to Spy – but that is the perfect attitude for active, isn’t it?
The story of the week is Fed Chairman, Jay Powell, refilling the punch bowl, asking the DJ to put some 50 Cent, eh, -0.50% on the turntable and keep those markets dancing. “Let’s party peeeeeeople!” The fact that an election is a mere seven weeks away, is surely, entirely, without question, absolutely coincidental. Whatever his motivations, the sluggish economy or keeping his job, the market at the time of writing was being all McDonald’s and “lovin’ it”. The S&P 500 and the Dow Jones hit new highs on Thursday as the animal spirits were taken off the leash. For the Dow it was a big round number – this time 42,000. That happens to be the fifth time it has gone through a new big round number this year. Enjoy it while it lasts.
Is the Hong Kong regulator being a little helpful for a change? With regards to ETF Connect, for a number of years, brokers and issuers have been rather frustrated that they could not easily share research with investors between the mainland and Hong Kong. This rather hindered promotion of funds and their strategies. In a bit of you scratch my back, I scratch yours, both sides have relaxed the rules allowing each other to share ETF research and product information in their respective markets. This rather simple tweak to the rules should help volumes grow at both ends of the Connect, hopes Spy.
Pub quiz for a Friday afternoon from your humble Spy. What percentage of world GDP is accounted for by the United States? Just over a quarter. Therefore, naturally, an alien from outer space, surveying the situation, would expect US stocks to make up a quarter of the MSCI World Index, wouldn’t it? The reality is in fact a whopping 64.5%; more than double the proportionate allocation. Tonnes of academic research will probably try and justify the disconnect but for Spy it comes down to the efficiency, transparency, liquidity, technology and, it must be said, the shameless of an effective self-promotion of the US markets. Can this situation last indefinitely? Probably not, but it is equally, very hard to see what is going to displace the status quo any time soon.
Hat tip to Ninety One: they have just put out a really readable insight piece on renewable energy and AI. It is filled with juicy nuggets that help explain the broad investment thesis and is definitely worth reading in full. Spy has been writing for a while on the staggering electricity demand that AI necessitates. The portfolio managers point out that “AI could, of course, be powered with dirty energy. But the biggest investors in AI thus far have been companies with strong commitments to net zero, which they regard as important for employee retention and brand positioning.” Brad Smith, of Microsoft is quoted as saying, “We fundamentally believe that the answer is not to slow down the expansion of AI but to speed up the work needed to make it more environmentally friendly.” And that, in a nutshell, is the opportunity, reckons Spy.
Spy spotted a contrarian investor’s dream in a piece this week written by Eastspring. “China is currently one of the most unloved equity markets amongst investors – global investor positioning in Chinese equities is at its lowest in 12 years. This suggests that the market has less room to fall further if overall investor risk aversion rises.” And, if Spy may be so bold, one of the best rebound cases if sentiment shifts a little in China’s favour!
Spy’s quote of the week comes from the venerable Albert Einstein: “If I had an hour to solve a problem… I would spend the first 55 minutes determining the proper question to ask.” Spy is unaware of a branch of the asset or wealth management industry that would not benefit from this rather profound thought.
Spy’s trusty and loyal photographers have spotted several new outdoor campaigns this week in Singapore. Bond giant, Pimco is pushing a joint income and growth strategy in Raffles Place.
With impeccable timing, CSOP, is promoting an S-Reit ETF with the expectation that rates would drop.
Until next week…
