“Do a quick search for soft landing and see how many recent news articles appear”, commented an American equity portfolio manager to Spy this week over espressos in Central. “For once, the media seem to be buying into the narrative that we can raise rates dramatically and still not cause too much pain. Well, here is the truth, we have only ever managed that fancy trick once. Under Fed Chairman Alan Greenspan in the mid 90s – he pulled it off. The US escaped a recession, even if the rest of the world did not.” Ah, there’s the rub, thought Spy.
Dimensional Fund Advisors has rolled out another three actively managed ETFs this week, notes Spy. Each strategy has a fixed income focus and includes the Dimensional Global Credit ETF, Dimensional Global Core Plus Fixed Income ETF and Dimensional Global ex-US Core Fixed Income ETF. All three funds are trying to gather credit premia or, put another way, the expected incremental return from investing in securities with greater credit risk compared with US Treasuries. The funds are also ambitious on term premia or the expected relative return from investing in longer-dated securities compared with shorter-dated securities if the risk reward is in their favour. The Global Credit and Global ex-US Core Fixed Income funds have low expense ratios of just 0.20%, with Global Core Plus on a slightly higher 0.22%. All are listed in New York.
The debate around AI continues to be feisty as the one-year anniversary of ChatGPT going live rolled round this week. Spy has heard far too many horror stories of AI producing “hallucinations”, or in old fashioned speak, “incorrect results”, to think that the challenges surrounding revolutionary tech can be glibly overlooked. Nonetheless, an interesting piece by Janus Henderson is out this week, looking at where AI could be truly productive, and it is worth reading in full. The asset manager gives examples in the legal, accounting, creative content, healthcare, call centre and drug discovery industries which could derive significant benefits from the AI revolution. This one particularly caught Spy’s eye, “AI could be used in emerging nations or rural areas where doctors are scarce, for patients to self-diagnose issues.” Considering how a Google search for an innocuous health symptom can lead to unnecessary panic, Spy can only just imagine what horrors await if an AI tool confidently misdiagnoses patients.
The market is not in the mood for disappointment it seems to Spy. Alibaba got hammered yesterday as it announced that it was abandoning its plans to spin off its cloud computing unit into a separate entity. Alibaba’s shares remain down 73% since peaking in October 2020 when political issues clouded the firm’s activities. The company, widely held in China and Asia-focused funds, has been planning to break itself up into six different groups to unlock value. That goal seems further away now than ever before.
Bond markets have been on fire this week, rallying hard as everyone and his dog thinks central banks are done raising rates. One investor who thinks the pendulum is swinging in favour of debt holders is Fraser Lundie, Head of Fixed Income, Public Markets at Federated Hermes. He said this week: “Earnings momentum will begin to roll over and balance sheets will begin to reduce. Fundamentals will begin to bite by next year. In response, you might expect companies to dial down their current shareholder-friendly approach in favour of actions more beneficial for debt holders.”
Spy was pleased to see that Hong Kong has launched a new academy to nurture wealth management talent in the city. The Hong Kong Academy for Wealth Legacy (HKAWL) is aiming to produce the skills required to support the next generation of wealth and asset owners, particularly within family offices. The initiative is being supported by the Financial Services Development Council and will be chaired by entrepreneur, Andrew Cheng.
Little shot across the bows from the UK’s fund management industry: ESG funds suffered large outflows last month. Investors pulled more than half a billion pounds out of responsible strategies and switched the money to more traditional investments according to the country’s Investment Association. The UK has been at the vanguard of ESG investing but the controversies and politics surrounding the industry’s reporting, classification and, frankly, definitions seem to have cast a shadow and dented enthusiasm with investors.
American President Biden clearly needs to brush up on diplomatic skills, reckons Spy. Reiterating that he thinks President Xi is a “dictator” during a visit that is meant to calm the troubled US / China relationship seems about as idiotic, undiplomatic and unnecessary as possible. One can just imagine the heads of American business holding their heads in their hands and weeping.
Fun fact: the S&P 500 hasn’t made a new high in over 650 days. That just happens to be the longest such streak since the Great Financial Crisis. If anyone needs a reminder that the last two years have not been very easy for investors, this is surely it.
Spy’s photographers have spotted several new campaigns running outdoors. Foord, the South African-headquartered asset manager, has a new image in Singapore with a traditional message about risk and value.
Meanwhile in Hong Kong, BNY Mellon Investment Management has a new branding campaign with a jolly hot air balloon running on the sides of trams.
Until next week…
