Posted inFSA Spy

The FSA Spy market buzz – 18 August 2023

Anti-ESG fixed income, Citibank’s family office allocations, MPF names and retirement, Musk dumps Bitcoin, 10-Year treasury woes gather pace, McKinsey’s AI hype, Ferrari’s scarcity and much more.

The news is out today that a developer is trying to sell a house for HK$2.2bn ($281m) in Repulse Bay, Hong Kong. Good luck with that reckons Spy. Speaking to several property fund managers in Asia this week, the fear over China’s mainland property meltdown was palpable to Spy. Will the central government step in? Thus far the mutterings seem less than reassuring. As property plays such a central role in any country’s economic zeitgeist, one can’t help but feel a rollercoaster ride is ahead.

Check your conscience at the door. Welcome to the brave new world of ‘anti-ESG’ funds. Spy reckons this was inevitable and entirely predictable. A firm named Strive Asset Management, an ETF specialist, has launched two funds that are “free from politicisation”. Both of these funds, Strive Total Return Bond ETF and Strive Enhanced Income Short Maturity ETF are actively managed fixed income strategies. They are managed by Matt Cole, Strive’s CEO/CIO, who previously oversaw $70bn at CalPERS. The strategies explicitly seek value without worrying about “non-pecuniary factors.” In other words: get me the biggest possible return and don’t give a fig where the return comes from. Fossil fuel polluter? Meh. Tobacco? Meh. Those pesky child labor-using textile companies? Meh. Still, Spy would not be at all surprised if the funds grab a decent following and not just from the politically conservative.

Citibank has just released its quarterly Family Office report. To qualify and be included in the survey, family offices need at least $250m in investable assets and need professional managers involved. “Family offices in Asia Pacific put more of their cash to work in the second quarter. Allocations to cash fell on an equal-weighted basis (down 1.1% to 24.4%) and on a capital-weighted view (down 0.57% to 17.2%)”. Which asset class was the winner? “In line with the pattern elsewhere, fixed income weightings increased, with a focus on quality.” No massive surprise there, thinks Spy.

What’s in a name, wonders Spy? When it comes to MPF funds in Hong Kong, Spy was amused and pleasantly surprised to read that the best performing fund over the last 12 months was China Life’s Retire Easy Global Equity strategy. The fund is up a cracking 22%. If that was repeated annually, those investors would certainly be able to ‘retire easy’! The next best performers were AIA’s MPF-Prime Value Choice-European Equity, up 20% and AMTD’s Invesco Europe, up nearly19%. Looking across the MPF universe, these three strategies stand out, way out, with most MPF funds having a dismal year.

There has not been much headline grabbing excitement over crypto of late. Yesterday Bitcoin got whacked as it emerged that Tesla and SpaceX seem to have offloaded all their coins. Are Elon Musk’s high-profile companies anticipating a liquidity crunch and needed the money or have they lost their faith in the digital assets? Bitcoin, along with many other tokens, has dropped more than 10% this week, despite persistent market rumours that a US-based, freely tradeable ETF on a major exchange is imminent from BlackRock, Grayscale and others.

10-Year US Treasury Bonds have been the most reliable of performers for decades. It must come as a shock, therefore, to some investors that so far in 2023, the return has been negative. Why the shock? Well, the 10-Year is now down this year and for each of the two previous years, too. This has NEVER happened before. One has to go all the way back to 1958/59 for two consecutive losing years, let alone three. The times they are a changing.

There is hype and then there is management consultant hype. McKinsey has been breathless about AI claiming that the new technology could add as much as “$4.4trn of economic value” annually, citing all sorts of areas it will transform industries. If true, that would be a significantly larger amount of value than France’s annual GDP. Spy remains a sceptic, for now, and would sincerely like to be proven wrong.

Ferrari Group reported their earnings this week. And yes, they sold a whole bunch of very expensive cars. But that was not what caught Spy’s eye. The CEO, Benedetto Vigna, was asked about how many cars they would manufacture. He gave the most brilliant retort: “I understand there is a lot of curiosity on these numbers. What I can tell you is that we will always sell one car less than the market demand.” Nailed it. Scarcity works.

With the success of the Women’s Football World Cup (the English/Australia semi-final in Sydney this week broke all viewing records in Oz), surely the next thematic investment needs to be a “women’s sport ETF”? If it has not already been put in place by some enterprising rapid-fire manager.

Spy’s quote of the week comes from Charlie Munger. “If you’re just not crazy, you have an advantage over 95% of the population.” That epigram is probably true of investing, but when it comes to creating, Spy also remembers Apple’s brilliant early 2000s campaign celebrating the “Crazy Ones” who changed the world. We need both.

Until next week…

Part of the Mark Allen Group.