Posted inFSA Spy

The FSA Spy market buzz – 16 December 2022

JO Hambro loses, buying the dip automatically, Alliance Bernstein’s prediction, Goldman Sachs is bullish on commodities, central banks keep on raising, Nasdaq’s shocker and much more.

And so the Christmas break is now firmly in view. Spy gets the distinct impression that most people have practically given up on 2022 and simply want to escape the office and forget about what has been a rather horrible year, investment-wise. Even the news that Hong Kong has lifted all remaining Covid restrictions has not been enough to truly make the heart soar. What does next year hold in store? Spy predicts the number one investment issue to watch for the funds market is: will people fall out of love with ESG if tough times persist? Is ESG, fundamentally, only a bull market trade? A huge amount of marketing capital has been invested in the ESG juggernaut in the last five years. Can it survive a pinch in people’s living standards? Watch this space.

News reaches Spy that Andrew Ang, JO Hambro Capital Management’s director of Asian sales, based in Singapore, is stepping down after nearly a decade at the British asset manager. Spy has no news on where he is moving to or who is going to replace him. JOHCM has had success this year with its Global Opportunities Fund, which has returned nearly 10%.

Are you one of those investors who wants to buy when things are low, but suddenly does not have the courage? There’s now an ETF for that. A manager named Kaiju has launched an AI-driven ‘buy the dip’ fund. The strategy only invests in S&P 500 and Nasdaq 100 stocks and hopes to identify short-term, presumably unjustified, drops in a company’s value. Spy is, naturally, a little sceptical because we already have funds that blindly follow trends and do auto calculations and, often, an unexpected event throws the models out catastrophically. Even more alarmingly, the fund expects to chop and change a significant portion of its holdings daily because it expects to only hold on to the stocks it owns until they have had a rapid rebound. Still, if one really thinks the machine is going to do a whole lot better, it’s a free world.

Asset managers are putting out their usual predictions for next year. Alliance Bernstein’s caught Spy’s eye this week. Their prediction is rooted, as many have been this season, in a change of grand narrative. “Since the 1980s, returns of stocks and bonds have benefited from a combination of broad, powerful trends: globalisation, demographics, automation, and falling inflation and interest rates. Globalisation was a transformational force. When China joined the World Trade Organization in 2001, it turbocharged globalisation by redefining the way companies manufacture products and generate profits. The globalisation wave was accelerated by favourable demographics, as more than one billion working-age people were added to the world’s labour force between 1980 and 2000. Labour was cheap and capital was relatively expensive. Meanwhile, technology and automation boosted productivity and profitability.” But that is all over now as their delightful chart shows…

If you were hoping that next year might bring the price of commodities down, Goldman Sachs has a cold bath for you, reckons Spy. The Wall Street titan believes that because of significant under-investment in the last few years, the commodities complex is in for another bumper year in 2023. “Despite a near doubling year-on-year of many commodity prices by May 2022, capital expenditure across the entire commodity complex disappointed – this is the single most important revelation of 2022 – even the extraordinarily high prices seen earlier this year cannot create sufficient capital inflows and hence supply response to solve long-term shortages.” Investors might want to hold on to those commodity funds a while longer. Spy notes that Pimco’s GIS Commodity Real Return Fund did nearly 12% this year.  

Spy is beginning to think that at the Federal Reserve Annual Christmas party, the entire committee has had too much eggnog. Meanwhile, in Europe at the ECB, they have surely been glugging to much glühwein. Rates continue to rise rapidly despite the market screaming, “We can see a whopping great recession coming, and it is coming fast.” Housing is taking a beating; confidence is draining across the world but the rate setters are determined to keep on raising. Hold on to your hats, this hangover is going to be a nasty one.

How did the Nasdaq, that engine for hyper growth, do this year? Beaten with the ugly stick, in a word. Not since the financial crisis of 2008 has the blue-chip index suffered so badly. If one can find a positive in the numbers, it is that usually the Nasdaq bounces back the following year. The story for tech funds has been even worse, to be fair. Franklin’s tech fund is down 42% over 12 months, BlackRock’s Next Generation Technology Fund is down 44% and T Rowe Price’s Global Technology Equity Fund is off a brutal 51%. Ouch!

Until next week…

P.S. Spy’s sporting predictions are usually as terrible as his market predictions, but for the record, he is putting his money on Argentina to win the football World Cup this weekend. Sorry, France, but Europe is not going to bring home the cup again this year.

Part of the Mark Allen Group.