“You are getting it all wrong”, a jolly global equities manager told Spy this week over several strong coffees (sadly, wine was not an option). “It is not that central banks are distorting market fundamentals with money printing and artificially low interest rates. They ARE the market fundamentals.” And, when it is stated as clearly as that, it is very hard for Spy to disagree. One may rail at the unfairness of money printers going Brrr but that is what they do. After all, ask any Japanese investor. That is the only sound they have heard for 30 years. Welcome to the new normal.
Hat tip to Dawn Foo who has been promoted to regional head of wholesale in Asia ex Japan at Robeco. This comes as Tom Keenan has stepped down from the role and relocated back to Sydney from Singapore. Dawn has been with the Dutch manager for four and half years. She will now report to Javier Garcia de Vinuesa, head of EMEA wholesale and global financial institutions. Robeco has had success in the last year with its Global Consumer Trends strategy. It is up 46%.
What’s selling in Hong Kong? Spy takes his bi-annual peek at the Hang Seng Bank fund sales pecking order. It is filled with the usual suspects: AB American Income, UBS China Opportunities, J.P. Morgan Pacific Technology, etc. However, a new entry did catch Spy’s eye: Amundi’s Disruptive Opportunities has cracked the list for the first time, as far as Spy knows. It seems ‘disruption’ is the one trend that investors have grabbed and are running away with this year. (Spy reported a few months ago on Nikko’s success with its ARK Innovation fund, too.) Amundi’s strategy has delivered a very healthy 46% this year, so no surprise it has turned a few heads. In the year that COVID has disrupted everything, active managers are doing what they do best: finding great returns in amongst the chaos.
Is Spy worried about all-time highs? He shouldn’t be according to research by UBS. “All-time highs are no obstacle to subsequent equity gains. Even after record highs, subsequent 12-month returns have averaged 12% since 1960 in the US. Furthermore, while phasing market entry, for example on a monthly schedule over 12 months, can help mitigate investors’ fears of bad market timing, history suggests that investing all at once generates higher returns. Since 1960, average lump-sum performance has generated excess returns compared with phasing in over three, six, nine and 12 months, both when buying at record highs as well as at other market levels.” Close your eyes and buy seems to be the only possible solution if the trend holds.
Round. Spherical. Globose. Circular. That is how we should be thinking reckons J.P. Morgan Private Bank. We all know sustainability is a megatrend, but within that, the circular economy is going to drive growth in 2021 and beyond predicts the venerable wealth manager. In its outlook for next year, their team writes: “We expect a big step forward toward developing a more circular economy, especially in the food industry. By 2030, a circular economy could yield up to $4.5trn in economic benefits, solving the annual problem of 1.3 billion tons of food waste, 92 million tons of textiles in landfills and 45 trillion gallons of water wasted just through annual food production.” Spy can already picture the marketing for a suitable thematic fund…
Airbnb and DoorDash have just had their juicy IPOs this week creating millionaires aplenty with rocketing share prices on their respective debuts. SEA just raised a few more billion, Tesla the same. The list goes on and on. This frenzy of cash raising around the world is now looking “irrationally exuberant” in Spy’s humble opinion. It is sobering to think that over $140bn has been raised on US exchanges so far this year, beating the full-year record of $107bn set at the height of the dotcom boom in 1999, according to Dealogic data. And don’t even get Spy started on valuations. Snowflake is currently valued at about 245x sales. Yes, sales, not earnings! For those with a long memory, Cisco briefly hit a 39x sales valuation at the Dot.com peak, at the time considered extreme. Investors who bought at the top are still under water twenty years later. Which reminds, Spy – we need to revisit some Scottish wisdom.
Adam Smith, the Scottish economist and author of the Wealth of Nations, wrote about bubbles and raging bull markets. In some particularly marvellous prose, he wrote, “We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering survivors. Those who leave early are saved, but the ball is so splendid no one wants to leave while there is still time, so that everyone keeps asking “What time is it? What time is it?” but none of the clocks has any hands.”
If you need something to read that will cheer you up, Spy has a recommendation for the holidays. The book is titled Humankind (A hopeful history). It is written by a Dutch academic, Rutger Bregman. Bregman, with great humour and insight, challenges the all-too-common assumption that humans tend to behave with their worst instincts given half chance. Using painstaking research he challenges some of the most widely held negative beliefs, established by psychologists, historians and social scientists in the 20th century, about the way humans behave. It turns out that on the whole, humans are great deal kinder, more supportive and more co-operative than we have been given credit for. It is a delightful read and the perfect pick-me-up as the colder weather takes its grip.
Until next week…