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The FSA Spy market buzz – 18 November 2022

T Rowe Price floats, income (again), AAII bulls vs bears, getting bookish on ESG and impact, The FTX saga rumbles on, Warren Buffet’s wisdom abounds, Disney crash, Franklin Templeton’s birthday and much more.

As another week wraps up and Spy contemplates a particularly good bottle of Quinault L’Enclos Saint Emilion Bordeaux for the evening tipple, thoughts turn to the outlook for China investment after such a beastly run. Eastspring’s chief investment officer, Bill Maldonado, was quoted by Bloomberg this week as wisely saying, “The worst is already priced in and you’ve got plenty of upside for Chinese equities. Valuations had gotten very cheap and earnings expectations had gotten very, very low.” A classic out-of-favour market is right on our doorstep and bargains abound for the bold. With even the tiniest thaw in US-China relations, decent opportunities may be far closer than we think. Spy will drink to that.

Spy imagines the timing for this is spot on. T Rowe Price has just launched another fixed income exchange traded fund in New York in yesterday. This time it is the T Rowe Price Floating Rate ETF and the strategy is an active format. Floating rate loans and debt instruments seem particularly useful in an era of increased rate volatility. Tim Coyne, head of ETFs at T. Rowe, commented: “Today’s launch of the Floating Rate ETF and the introduction last month of a US High Yield ETF represent the latest manifestations of our commitment to building a robust, active ETF business.”

Every now and then, it seems, some people need a gentle reminder that the appetite for income funds is practically insatiable in Asia. Spy peeked, as he does periodically, at Hang Seng’s bestselling fund list in Hong Kong. The names change every now and then but the central theme does not. Income, income and more income. Eight out of the top 10 selling funds are income funds. Spy can’t actually remember a time when Alliance Bernstein’s American Income was not on the list. Something new, but perhaps unsurprising, is HSBC’s Ultra Short Duration Bond that has made it to the list.

What’s in a survey? Bears have now outnumbered bulls in the American Association of Individual Investors sentiment poll for 34 consecutive weeks, since April 7. With data going back to 1987, this ties the February to October 2020 poll series, which was also 34 weeks, for the most persistent negative sentiment that the AAII pollsters have seen. The contrarian in Spy hopes this might in fact indicate some bottoming.

A new book is coming out that Spy imagines is going to cause a ripple. Terence Keeley, who was formerly at BlackRock and UBS in senior roles advising clients on ESG investments, came to the conclusion that the entire ESG premise is broken. He has written a book, that is due out at the end of the month, titled ‘Sustainable’, which in general terms argues that ESG does not really work and businesses need to think differently about impact investing. While Spy has not read an advance copy, Paul McCulley, former chief economist of Pimco has and he commented, “if you’ve been looking for the definitive book on how ESG investing does and does not work―you’ve found it”.

In the wake of the FTX crypto drama, Spy was rather amused to see that MSCI, the ratings business, is launching some indices for the digital assets world. The company is helping investors evaluate sources of “risk and return” across the global digital assets ecosystem. Spy might cynically suggest that the risk is stratospheric and the return devastating if you were not lucky (or bold enough) to invest in 2013. Still for the believers, the MSCI Global Digital Assets ex Proof-of-work Index and MSCI Global Digital Assets Smart Contract Index might prove useful to, err, justify an ‘investment’ position.

Speaking of FTX and its almost-certain fraud, good old Warren Buffet gets wheeled out, once again, for his more than prescient wisdom on the area. Watch the video here where he and Charlie Munger use rather colorful metaphors to describe the industry. In the testimony, he says, the problem with crypto is that “there is nothing being produced in the way of the asset; you also have the problem that it draws in a lot of charlatans”.  Sam Bankman-Fried, he seems to have been talking about you. Still, a few rather famous people, who also had issues with the truth to be fair, liked to keep Sam’s company. Temasek has had to write down its $275m investment in FTX to zero – luckily, it was only 0.09% of its portfolio. Singaporeans’ CPF funds remain safe and sound.

Are we coming to the end of the seeming endless cycle of superhero movies, sequels, reboots and worse? Disney, the absolute darling of the investment world just 18 months ago, has come down to earth like a supervillain trounced by a digitally enhanced Iron Man. Disney’s shares in early March last year were just shy of $200 each. They now languish at less than half that, merely $91. Disney controls a quarter of the US movie market by value annually. Perhaps it might go back to the drawing board and deliver us a new idea or two instead of the dismal Wakanda Forever drivel.

Building a business that lasts is hard, especially in the investment world. The history of asset management is a litany of optimistic start-ups that have burned brightly with a winning strategy or two that worked for a while and then spectacularly blew up. Therefore, Spy takes his hat off to Franklin Templeton, which has just rung the opening bell at the NYSE to celebrate its 75th year in business. Fund management is a marathon, never a sprint.

Until next week…

Part of the Mark Allen Group.