“People say they want stability, they want calm, they want predictability – those are good for investments”, said a rather lively Scottish equity portfolio manager to Spy over a few too many glasses of Cragganmore 12-year-old single malt on Wednesday evening. “But what if that is only for a while. The problem is that stability leads to stultification, inertia; it is also enervating.” Spy knew there was a ‘but’. “Now, Trump comes along and his crassness, his punchiness, his swagger, his absurd determination and it gets people off the fence where they have been calmly sitting doing sweet nothings. So, decisions have to be made, risks taken, because risk is coming again whether you like it or not. Balance is going to be upended but happily, chance is also going to reappear too! Difficult decisions that were being delayed, are now forced to be made. This is good for markets, good for economies and ultimately good for investors.” Spy has no idea if he is right, but it sounded good three glasses in.
Spy tries to keep an open mind, but even he was a little taken aback by this week’s unusual fund launch. Fundstrat Capital have launched an ETF named, “Granny Shots”. Spy’s grandmother could be a pain in the bottom at times but never enough to take out the Colt 45 and get all Dirty Harry on her. Luckily, it turns out that a “Granny Shot” is ‘an unconventional basketball free throw style and for the manager, this basketball metaphor “represents Fundstrat Capital’s unique research process.” Phew! Granny is safe after all. This is nothing more than an actively managed US large cap equity fund and no old people will be harmed in the making of this ETF, so to speak.
Speculation on which sectors will do best or perhaps be affected under President Trump have been rife since his election landslide. Spy particularly enjoyed Capital Group’s insight, which is worth reading in full.
- For banks and financials, weaker regulation and lower capital requirements should help earnings growth of these companies.
- Aerospace / defence should benefit from potential increases in spending driven by sustained geopolitical tensions.
- Health care companies could be helped by proposed deregulation that promotes competition and efficiency.
- In oil and gas, domestic drilling and mining will be encouraged and deregulated but could result in a lower price per barrel.
- Industrials may benefit from companies moving manufacturing back to American soil. Assuming tariffs are not onerous, various Japanese and European industrial firms that supply specialised chemicals and niche automation components are well positioned, based on this pro-cyclical stance.
- Small-cap companies can be beneficiaries of a strong US economy, the reshoring of supply chains and a potential cut in the corporate tax rate.
- Multinational companies, especially those that trade with China, could face headwinds from tariffs.
Neuberger Berman, agrees with Capital Group on small caps and a fair amount else. “This election result is a major boost to small-business sentiment in the immediate term, as executives anticipate lower taxes, deregulation and a much friendlier attitude toward dealmaking and M&A. That is likely to sustain the flows into smaller companies, private equity and other financial sector stocks, health care, energy and cyclical industrials.” Spy is hopeful that NB and Cap Group are both right on small caps – it makes life so much more interesting.
When abrdn was still Aberdeen Asset Management, venerable manager, Hugh Young, wrote a small booklet titled “Ten Golden Rules of Equity Investing” and published in 2012. Spy was flipping through his battered copy this week and concluded, that it had stood the test of time admirably. For example, take rule number two: “Remember that companies are about people, not assets. A company is essentially a group of people with a common goal, namely to create the best possible product at the best possible price. This is what I call ‘quality’. Sure, companies need fixed assets but they are worthless without people. Once one thinks in these terms, one can appreciate that predicting the long-term performance of a company is all about assessing the quality of its people.” Nailed it.
Things to contemplate on a Friday afternoon. Why has Berkshire Hathaway raised its cash level to an eye watering $325bn? Why is oil down about 18% since July? Why are US credit card delinquency rates rising with more than 12% of outstanding balances now sitting beyond 90 days? Spy has no particular answers for these little nuggets, except to say that they make him go “hmmm”.
Spy’s quote of the day comes from Alexandr Wang, “I have never seen ordinary effort lead to extraordinary results.” The dream of every wannabe lottery winner is that this cast iron rule of life is defied and it almost always isn’t.
Spy’s photographers have been out in force. First up, M&G has been spotted on the side of Anywheel bikes in Singapore. Spy loves the positive brand association (as long as the firm keeps the bikes in good order.)
Also spotted in Singapore, is an advert campaign for Syfe – an investment platform. The firm claims to be the fastest growing MAS-approved platform in the City State.
Until next week…
