Posted inFSA Spy

The FSA Spy market buzz – 12 April 2024

Equity that is not Kool, Abrdn’s fund closures, Lombard Odier loves private markets, China’s ugly debt graph, Mountainous interest rate analogies, US housing costs, Gold smuggling, Advertising and much more.

Spy’s (unpublished) prediction about the Hong Kong Sevens, that Fiji would win the rugby competition, was dashed by a rampant New Zealand, who eventually bested France in the final. A real touch of the old Hong Kong magic was back this past weekend with silly outfits galore. (Spy saw far too many tipsy Barbies to count and more than a few drunken samurai harmlessly ambling the streets of Wan Chai.) With the iconic tournament being moved from the Hong Kong Stadium to Kai Tak Sports Park in 2025, it will no doubt give Hong Kong veterans one more thing to grumble about. However, if Hong Kong is good at anything, it is about reinventing itself and the 120,000 strong sell-out crowd bodes well for the future, not just of the sport, but the city itself.

If you are going to launch an actively managed equity fund, Spy would suggest, humbly, you don’t follow in the footsteps of asset manager, Split Rock Private Trading & Wealth Management LLC, and apply for your ETF ticker to be ‘KOOL’. Not only will you sound like some 1990s reggae tribute outfit, but you are also unlikely to garner much street cred. The firm has launched the North Shore Equity Rotation ETF in the US, which basically can invest anywhere, in any equity, using any analysis in the hopes of beating the S&P 500. According to the blurb, “Investments are adjusted towards sectors the funds adviser identifies as possessing the greatest performance potential.” Now, where has Spy possibly heard this before?  Reading the small print, Spy discovers the strategy can also use options, lend securities and throw in some fixed income on a whim. In a word, not particularly “kool” if you were hoping to buy a pure equity fund.

Abrdn’s woes over the last few years have been well publicised. And yet, even Spy was rather surprised to read that the firm has now closed 120 funds over the last twenty-four months. It is a sign of just how bloated the firm’s product offering had become through its series of mergers over the previous era. When times are good, it is almost certain that asset managers will try and capture every possible dollar of potential flows through different share classes and currency variations. It is only when the tide goes out that one realises how much base cost has been added. It is a salutary lesson for all asset managers.

Insightful piece out from Lombard Odier this week concerning private assets. The Swiss private bank points out that private capital is less than 5% of global financial markets but represents a real growth opportunity. Their report states that: “Private assets are currently benefiting from secular tailwinds, including banks stepping back from some forms of lending and firms staying private for longer. More than half of all US companies with over $1bn revenue are privately owned.” The article quotes research firm, Prequin, as forecasting, “That the private assts industry will grow by 10% a year for the next five years” For Lombard Odier, “A combination of private and liquid assets is key to our new strategic asset allocation and ‘total wealth’ approach.” The rise of private equity platforms such as Moonfare and Titanbay are making the private world ever more accessible to wealth managers.

The asset management industry loves charts and Spy sees far too many on a daily basis for many to stand out. This week, however, thanks to Jeroen Blokland, Spy spotted one that made him go ‘hmmmm’. With this level of debt and an economically difficult environment, it does not make for a pretty picture in mainland China.

Spy has heard a huge amount of nonsense spouted by economists over the years. Analogies get stretched to breaking point to make a particular case. This week, Spy smiled wryly as the term ‘Table Mountain’ was punted around. Some economists now believe the US interest rate trajectory will look like Cape Town’s fabled mountain – that is, long and flat before eventually dipping. Previously mountainous rate forecasts were meant to look like Japan’s Mount Fuji or Switzerland’s Matterhorn – steep ups and rapid downs. Spy thinks the economists may be making mountains out of molehills.

The American consumer is remarkably good at spending money, bless them. For decades, Joe Public in the US has kept the world economy humming along by buying and replacing goods at a phenomenal pace. Spy does have to wonder how that can continue, in the short-term. Look at these figures on the monthly mortgage payment needed to buy the median priced home for sale in the US:

April 2020: $1,480

April 2021: $1,690

April 2022: $2,400

April 2023: $2,550

April 2024: $2,750

For the quick at maths, that is an 86% increase in the past four years. With more cash going to banks, that surely means less cash available for everyone else.

The oddest story this week must surely have been the crowd that was caught trying to smuggle 146 kgs of gold out of Hong Kong disguised as machine parts with a value of $11m. Apparently the dubious gilded shipment was destined for Japan, and the smugglers were trying to avoid local taxes.

Spy’s band of photographers have spotted several new advertising campaigns in Hong Kong. First up is Neuberger Berman which has plastered its branding above the Cross Harbour Tunnel.

Second, Abrdn returns to trams in Central. They are promoting a juicy income fund with a prospective yield of 6.35%

Until next week…

Part of the Mark Allen Group.