Posted inFSA Spy

The FSA Spy market buzz – 12 August 2016

Changes at Prudential and OMGI; J.P. Morgan’s charts; football transfers and crashes; galloping equity markets; Olympic silliness; no alternatives; advertising from HSBC and much more.

It may have been the sixth glass of Chianti, but your humble Spy thinks he has discovered an unspoken truth about the asset management industry this week: asset management is merely the Olympics in disguise. Firstly, it is truly global in nature (and from the proliferation of both shoddy and superb funds it seems to mix amateurs and professionals rather well). In both the Olympics and AM, the protagonists are constantly shooting for glory (alpha), measuring themselves against the best (benchmarks), competing with passion and dedication, and, sadly, some foolish players are not averse to doping up (by adding in leverage, derivatives and securities beyond their mandate). Spy thinks of long-only value investors as the distance runners patiently enduring the race, while hedge funds are the testosterone-filled sprinters making a large amount of noise but stopping abruptly. The ETF boys and girls have to be the synchronised swimmers – losing points if they deviate from the benchmark, so to speak. The extraordinary variety of Olympic sports echoes the variety of investment strategies, some of dubious worth (rugby sevens an Olympic Sport!? 3D-printing fund an ETF!?) The medals themselves are precious and base metals, for which our commodity investors get so excited. And finally, in Spy’s wine-adjusted mind, the stars (and portfolio managers) themselves can be petulant, talented, humble, hard-working, silly, brilliant and outright crazy. The rest of the world has to wait every four years for the fun, we get to see it every week and you don’t even need a cable subscription.

Spy has news that Xiong Jian of Prudential Assurance’s fund solutions team in Singapore is shortly stepping down from his role at the insurance giant. No news of where Xiong Jian is going and whether he is staying within the industry. Prudential has been in the news this week with stellar results from Asia. FSA’s sister publication, International Adviser reports that total premiums in Asia were up 12% in the last six months alone.

OMGI is not letting the grass grow under its feet. Hot on the heels of the departure of Diamond Lee, Spy hears that a new investment hire in Hong Kong has already been made. It should be announced as soon as next week. Watch this space.

Thank you to J.P. Morgan Asset Management for an interesting chart of the week, says Spy. Their analysts have pointed out that being a listed company has declined in popularity dramatically in the last 20 years. In December 1996, 8,025 companies were listed in the USA. That has now dropped to 4,333 by this June. M&A has probably accounted for the lion’s share of the change, but good old-fashioned bankruptcies, such as Enron, have helped. But so, too, have companies simply quitting the market, for example, Dell. The question is, has this change made life any easier for the asset management industry? Fewer stocks to analyse, yes, but also less choice. Spy, being a simple fellow of modest means has always been astounded that portfolio managers speak of companies with a market capitalisation of $300m to $2bn as being “small cap”. Life is tough in the “listed world” when you can be worth $2bn and be beyond the radar of most investors.

Hat tip to Paul Gambles of Bangkok based wealth advisory firm, MBMG. In a recent note, Paul points out that record high football transfers often coincide with imminent stock market crashes. He has published research that covers three periods: before the great early 1930’s crash, the 2000 meltdown and today’s frothy market action. In the 30’s it was the transfer of Bernabé Ferreyra “between Buenos Aires-based teams Tigre and River Plate that marked the peak of an overvalued market. In March 2000 Zinedine Zidane’s move to Real Madrid from Juventus did the same.  It should therefore alarm investors that Manchester United has just coughed up a record and jaw dropping $122m for Paul Pogba. Spy will happily remind Paul that correlation is not causation but admits the parallels are spooky and should give investors and football fans some pause for thought.

Major US and British indices with their new highs are helping to make a mockery of all those cautious calls in February when investors were selling blindly, thinking the four men of the apocalypse had just saddled up their horses. The Dow, S&P and Nasdaq have hit record highs together for the first time in 16 years, according to Bloomberg. A case of partying like it’s 1999? And, yet, Spy can’t remember such an unloved rally. Speaking to fund selectors, Spy hears they have been wary of US equities all year. One fund that has really been enjoying the ride: Fidelity America Fund up 19.82% year to date. Drinks on the boys in red, white and blue. How appropriate.

Spy thought he was listening to an episode of The Wire when people were talking about “TINA”, which sophisticated readers no doubt know is street slang for methamphetamine. It turns out TINA is Wall Street’s latest must-use acronym and it stands for: “There is no alternative”. Presumably, investors must accept TINA in the context of the FED, ECB, Bank of Japan and BoE printing money every single minute in vast quantities in the vain hope it will compensate for derisory political structural reform. Or perhaps wholesale fund sales people must accept TINA when selling to the private banks in Asia, no matter how hard it is.  Or portfolio managers must accept TINA when buying overpriced stocks or they will miss the hard rally. Spy can think of a few ‘alternatives’ but they might scare the horses.

HSBC has decided that having a bank on every street corner in Hong Kong is not quite enough. Spy’s photographers have spotted a tram pushing HSBC GAM trundling along its grimy streets.

Until next week, enjoy the Olympics in all its silly, magnificent glory.

Part of the Mark Allen Group.