“A bubble, is merely a bull market, in which YOU do not have a position”, said a rather well-heeled private investor to Spy this week. He was all-in on Bitcoin, Airbnb, Tesla, Nio, Plug Power – you name it. He spoke with the passionate zeal of a cult convert and had no time for the naysayers and no Devil’s Advocate counter-argument from Spy could detract from his enthusiasm. Spy did not want to argue too hard, after all, he was buying Johnny Walker Blue Label and pouring it out liberally. And, perhaps he is right, a touch of envy does cloud some public commentary on the current market froth. But, but, but – nothing goes up forever, and Spy can’t help but wonder if some surprises are in store before Q1 has gone to bed.
News reaches Spy that there has been a change at Standard Chartered in Hong Kong. Jason Yeung, who has been head of managed investments at the Private Bank, has stepped down. Jason had been with StanChart for nearly eight years, two and half of those in the current role. Previously he had the role as head of managed solutions advisory for Greater China and North Asia. Spy has no news of where Jason is heading to. Spy understands that Sabina Chiang, director of managed investments, is currently the best person to direct fund selection queries to in Hong Kong.
The numbers simply get more and more staggering, thinks Spy. The AUM of the largest managers is growing at a blistering pace. This week BlackRock announced it now has $8tn in funds under management. That includes $127bn of new assets that arrived in the last quarter. Vanguard, meanwhile, has just gone through the $7tn barrier with a net $186bn of new assets added last year. That is $15tn of assets between just two players. As most industry people know, many of those giant assets have tiny, if not microscopic, margins. Something everyone in the industry, except, perhaps consumers, must lament more than a little.
The asset management industry’s most fashionable active manager, ARK, run by Cathie Wood, just went all Buzz Lightyear on the industry. The firm, which has made investors a fortune backing Tesla and Bitcoin, announced its space industry active ETF with the ticker ARKX. (Sadly, not as cool as her competitor, Procure Space ETF, which has the ticker UFO). Nonetheless, doubtless, ARK’s move will encourage Star Trek and Star Wars fans, who also happen to have RobinHood accounts, to toss aside their fake subspace communicators and imitation light sabres in order to throw heaps of cash at this Undeniably Fantastic Opportunity. Speaking of ARK, because all its funds are active ETFs, it is possible to actually short those funds – something you can’t do with a traditional mutual fund. According to Bloomberg, that is exactly what is happening: short interest in the firm’s top-performing funds has been climbing steadily. Get out the popcorn.
Good old Jerome Powell, Fed Chairman, he played court jester yesterday. He talked a great deal about inflation and said with a serious face, that he will only raise interest rates when he sees troubling signs of inflation. He added, solemnly, “When the time comes to raise interest rates, we will certainly do that. And that time, by the way, is no time soon.” Clearly asset price inflation, including stocks, housing, crypto, IPOs are not “troubling” for old Jerome. Because as far as Spy can tell, it is utterly rampant. Gold was up 23% last year. Add to that, Joe Biden is now going to pump another $1.9tn of relief in his new economic plan. US inflation expectations measured by 5y5y swaps, have jumped to 2.36%, the highest level since 2018. Inflation? What inflation, Jerome?
Data is so thoroughly annoying, isn’t it? It has a nasty habit of playing with one’s convictions, thinks Spy. Morningstar, the fund data people, have a fascinating article out about what happens when a fund goes up more than 100% in a single year. Spoiler alert! It doesn’t usually bode well. According to their research, “Of the 123 stock funds that gained 100%-plus between 1990 and 2016, just 24 made money in the three years following their big gain, with the average fund losing around 17% per year.” There were in fact 18 equity funds, which made more than 100% gains, last year. If you are luckier enough to have clients in one of those, you have been duly warned.
Spy sees a huge amount of asset management marketing. Plenty of it looks the same and plenty of it is rather bland. Roaming asset management sites this week, Spy was struck by the joyful message put out by First Sentier Investors, formerly, First State Investments, who writes, “Curiosity is the heart of everything we do.” Curiosity is one of life’s most underrated qualities, in Spy’s humble opinion. Spy has seldom encountered people who are curious, who are not simultaneously interesting and fun, too. Long live the enquiring mind, and investor.
Balanced. It is such a lovely word. It has a rather yogic quality to it. It has been beloved by the investment industry for years. It makes investors feel calm. It makes them feel reassured. It makes them sleep well at night. After all, who doesn’t want to be balanced muses Spy? This week, our friends at Interactive Brokers, have clearly been regressing to their college sorority years with their latest pitch to investors about “getting a balanced portfolio”. Their example was: 25% each in Netflix, Google, Amazon and Tesla. That sounds about as balanced as the cheesy Spring Break joke – “I have a balanced diet: I drink tequila and vodka.
Spy can never resist a good quote. This week an anonymous Twitter user wrote “There is nothing quite as seductive as vertical movements in price. They are the lanterns that draw every last moth.” What could she possibly be referring to?
Until next week…