Posted inNewsFSA Spy

The FSA Spy market buzz – 13 December 2019

GSAM is hiring; FE Fundinfo loses; British election; UK Equity funds; iShares’s gets active; Temasek cuts out the PE middleman; Illiquid assets; QE4 and much more.

A decisive British election result and an enthusiastic trade tweet from Trump and investors may just receive yet another Christmas present from the markets, in a year that has already been filled with investment gifts. That was the view from Spy’s companions this week – two emerging market portfolio managers who enjoy Yamazaki whisky as much as Spy does. At the time of writing, their view looks awfully prescient. Trump may be doing nothing, but his usual tweet and bait, yet the S&P 500 simply loves it – notching up another record high this week. The bears are left licking their wounds, while momentum rides faster than Santa’s sleigh. What can Spy say? Close your eyes and enjoy the rally.

It may be a retailing nightmare in Hong Kong, but life above the shop floor goes on, thinks Spy. One firm trying to recruit in the city is Goldman Sachs Asset Management. GSAM is looking to expand its local marketing team and is actively recruiting. It has already expanded its wholesale business in Hong Kong dramatically over the last few years, working with pretty much all of the major distributors in the city. The firm has had particular success in 2019 with its Global High Yield Fund up more than 12%.

Fund data provider, FE, which recently merged with Fundinfo, is losing its local head of fund research in Hong Kong, Luke Ng. Luke was involved in selecting funds for FE’s model portfolio service and has held the role for five and half years. He is moving to a similar role at local MPF provider BCT. FE Fundinfo is one of the largest fund research businesses globally and has a popular factsheet download service used by a significant number of banks. FSA works with FE Fundinfo for its annual awards, which are due to be held in January.

For those investors who care about political stability, the stunning result in the British election may finally draw the curtain down on years of sclerosis in the world’s sixth biggest economy. Spanish, Italian, German and Dutch politicians must be looking with a touch of envy at Boris Johnson as he finally commands a solid outright majority in parliament, while they all languish with unwieldy coalitions on the continent. The Tories may be celebrating, but it is funds invested in the UK equity space that have the most to cheer, thinks Spy. The UK market has lagged the US for the last few years and may finally have a chance to play catch up. Funds such as Aberdeen Standard’s UK Equity (up a healthy 25.49% so far this year), Columbia Threadneedle’s UK Equity Opportunities (up a respectable 12%) and Schroder’s UK Equity (also up 12%) could all be set to enjoy further gains as risk appetite returns to UK assets. Spy is particularly keen on the FTSE 250 segment, which has been sadly neglected.

There has been so much emphasis on ETFs’ passive qualities, but what is this? Blackrock’s iShares, one of the global ETF behemoths is clearly trying to change the narrative. Spy spotted this advert and it made him sit up and take notice.

Spy expects a lot more of this. The idea is simple enough: build portfolios using ETFs that can generate your “active” position. Beyond that, of course, more and more ETFs are actually running active structures within them and only using the exchange as a distribution mechanism.

Spy sees countless fund sales-people knock on the door of GIC or Temasek hoping to get an allocation for whatever strategy they have in their briefcases. Private equity firms have usually been welcome and although Spy does not expect this to change, some new developments this week raised an eyebrow. Temasek’s division, Azalea, has just raised $650m of its own money for its inaugural PE fund which it calls Atrium. The original target was small, only $400m, but was oversubscribed.  Asset managers have always had to compete with inhouse expertise at sovereign wealth funds – it looks like the competition just became a touch stiffer in Singapore.

As the news has filtered out about M&G and Aberdeen gating their property funds because of liquidity issues, Spy has spoken to a number of fund selectors and wealth managers, asking which segment might be next? The same asset class has come up again and again – private debt. The liquidity profile of many of these funds is not suitable for wholesale investors and yet they have been sold en masse because of their juicier yields. Spy is not privy to any particular fund that has concerns, but rather mere speculation about the asset class. Caveat emptor.

Did you read the latest detailed reports from global investment banks on the situation in Hong Kong and its implications? No, neither did Spy. That may have a lot more to do with the fact that the banks are keeping their views awfully quiet so as not to antagonise Beijing. In fact, self-censorship in Hong Kong has rocketed in the last few years, but in the past six months especially. Spy may rather fearlessly report his views, but then all he has to lose is a steady supply of cold craft beers. It is, however, very hard to see how being a leading global financial centre is compatible with severe censorship.

Do you know anyone naïve enough to believe that the Fed is NOT engaged in QE4? If so, perhaps you should just show them this chart courtesy of Charlie Bilello. The recent rally in risk assets is not hard to explain when that chart is studied for 30 seconds.

Until next week…

Part of the Mark Allen Group.