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The FSA Spy market buzz – 10 November 2023

Dividend kings, JP Morgan’s active drive, Wellington Management’s biopharma video, M&G’s investment mega trends, soaring hedge fund pay, Ray Dalio’s biography, Ottawa madness and much more.

Spy was having a delightful drink with an Aussie equity portfolio manager of Irish descent this week (two pints of Guinness, should you ask.). Spy asked him whether he ever tried to “time the markets”.  He replied, with an alarming swiftness: “What do you call people who use the rhythm method for birth control? Parents. It is the same with market timing. Everyone thinks they can pull out at the right moment and almost everyone gets it wrong.”

Roundhill Investments has just launched a new income-focused, US ‘Dividend Monarchs’ ETF that targets those companies that have consistently paid and raise their dividend, not just for a few years, but for decades. The fund tracks the S&P Dividend Monarchs Index which selects its constituents from the broad S&P Composite 1500. This covers large-, mid-, and small-cap US stocks. Only companies that have increased their total dividend per share amount every year for at least half a century consecutively are included in the index. They have snaffled a brilliant ticker: KNGS. For Spy, it must be said that any company that can increase its divi for 50 years on the trot deserves a look.

J.P. Morgan Asset Management continues to roll out more active ETFs. This month the US giant launched another two to add to its growing roster of strategies. They are the J.P. Morgan U.S. Tech Leaders ETF (JTEK) and the J.P. Morgan Healthcare Leaders ETF (JDOC). What is interesting is that nearly 75% of all ETFs launched in the US in 2023 have been active varieties.  Nearly half of the 1,200 actively managed ETFs in the market are managed by just three firms, namely Dimensional Fund Advisors, First Trust and J.P. Morgan Asset Management. Some investors will no doubt not think too carefully about the fees. In this instance they are not ridiculous at 0.65%, but hardly low cost compared with major index trackers on which so many ETFs have built their thrifty reputations, reckons Spy.

Occasionally an asset manager pops out a simple video that makes Spy want to find out more. This week it is Wellington Management. They are discussing advances in biopharma and the portfolio manager, Rebecca Sykes, does a cracking job of sharing her enthusiasm and the exciting possibilities at the frontier of the industry . She focuses on three technologies that might change lives: GLP-1 Receptor Agonists – for obesity and diabetes, Antay Drug Contusates (ADCS) – for some cancers) and Amyloid plaque-clearing antibodies – for Alzheimer’s. Despite the medical word soup, the video really works.  Hat tip!

The idea of mega trends in investing is not such a new one. Equity asset managers every now and then re-evaluate the landscape and peer into the future to see what is coming on a large scale. This week, Spy notes that M&G Investments is getting in on the act. The British manager is thinking about three areas: digitisation, the food system and the natural world. Spy likes the idea of the natural world, particularly, being an investment mega trend. For too long, healthy ecosystems have been undervalued by too many. The tricky bit is how to make the idea pay and profit from them, when people in developed countries will start to think of clean healthy systems as “a right”.

In Hong Kong at an investment conference this week, Paul Marshall, co-founder of Marshall Wace, the hedge fund group, was lamenting the stunning pay packets offered to some portfolio managers. Pay has soared in the industry as top talent is hunted in a kind of merry-go-round. Who pays for all of this? Clients of course! Fees have been dramatically rising as hedge funds pass through every possible cost onto the client, Marshall argued. Chris Gradel of PAG, described as “absolute insanity” eight figure sign-on bonuses being offered to some staff to jump ship. Is any person really worth eight figures before they have even turned on their Bloomberg Terminal, wonders Spy?

Ray Dalio, the billionaire founder of Bridgewater Associates has become a Wall Street legend. He has course picked up a few critics during his long and very successful career. Now a new book has been published, “The Fund”, which is effectively an unauthorised biography of Dalio and Bridgewater. Ray always used the media effectively – some would say a shameless self-promoter. The book aims to strip away a few public myths he cultivated with interviews of people who worked there. A nice little Christmas read for hedge fund and trading enthusiasts.

Do you want to spook the markets? Jay Powell, Federal Reserve Chairman, said yesterday that the Fed is “not confident we’ve achieved stance to hit 2% inflation” You think? Even Spy can tell you that with low unemployment, fast US GDP growth and wages rising that inflation is not going tumble back to record lows any time soon.

If you are trapped in a kind of Dilbert-esque corporate world, spare a thought for the taxpayers of Ottawa province in Canada. The powers that be there, have just paid $670,000 to a consultant (KMPG) to give them a report on how to, er, cut the costs of consultants. Spy can’t make this stuff up. Spy is reminded of the wag who told him once he was called to a meeting to discuss how the firm could cut down on unnecessary meetings.

Until next week…

Part of the Mark Allen Group.