Posted inFSA Spy

The FSA Spy market buzz – 2 December 2022

BlackRock’s cracking playbook; Manulife takes control in China, Fidelity’s big ETF conversion, peak ETF naming lunacy, inflation boxing bout, old jokes for new times; four-day week and much more.

Spy has enjoyed more than a few late nights this week watching the football in Qatar. Despite the hot and dry desert surroundings, it has been a pleasure to see something optimistic, and meaningless, being played on saturated green pitches. The almost stealthy rally in equities and bonds in the last few weeks adds to the positive atmosphere. Is Christmas 2022 going to be saved by more dovish central banks and a feel-good World Cup? Spy would certainly raise a glass to that happy prospect. Cheers.

Absolute hat tip to BlackRock’s Investment Institute. They have released a new investment outlook, which they snappily call a new playbook for an entirely different era. The intro para reads: “The Great Moderation, the four-decade period of largely stable activity and inflation, is behind us. The new regime of greater macro and market volatility is playing out. A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market (DM) equities. We expect to turn more positive on risk assets at some point in 2023 – but we are not there yet. And when we get there, we don’t see the sustained bull markets of the past. That’s why a new investment playbook is needed.” Clear, readable and makes you want to know more. Read the rest of it here.

In April 2020, China said it would make it easier for foreign asset managers to own their businesses outright in the mainland. True to its word, this week, Manulife Investment Management, announced it had gained CSRC approval to buy out its local partner and now owns the entire business outright. It cost the firm about $237m to buy the 51% of Manulife TEDA Fund Management it did not own. In Spy’s experience, JVs seldom work long term and one partner usually prefers to take control eventually. It is a pleasure to see China letting the natural way of business take its course. Manulife IM’s parent company, Manulife Financial Corporation, is the largest pension provider in Hong Kong.

And so the floodgates open. A few weeks ago, Spy reported on Franklin Templeton converting some mutual funds to ETFs. This week, Fidelity jumped on that trend and announced it was converting six of its US mutual funds to ETFs, too. By 16 June 2023, Fidelity Disruptors, Fidelity Disruptive Automotive, Fidelity Disruptive Technology, Fidelity Disruptive Finance, Fidelity Disruptive Medicine and Fidelity Disruptive Communications mutual funds will all become active ETFs. Interestingly, these are all small funds with not one of these having more than $100m in assets, at the time of writing.

In the realm of fund marketing silliness, this week surely saw a peak, or should that be nadir, in ETF lunacy. An ETF named after a YouTube personality and so-called ‘influencer’, Kevin Paffrath, has launched in the US. ‘The Meet Kevin Pricing Power ETF’ – yes, THAT is its idiotic name – is an actively managed strategy that plans to allocate 70%-100% of its portfolio to investments in a selected group of companies which supposedly have “pricing power”. Spy is rather miffed nobody has asked to name a new ETF after him. After all, Jim Cramer got one a few months ago, too.

In the red corner we have “Inflation has Peaked”. In the blue corner we have “Inflation is here to stay”. At the sound of the bell, let the battle commence! With the first hints of inflation slowing down, pundits are falling over themselves to tell us the inflationary spiral we have all experienced in the last 24 months is going to abate. Bonds guys and girls are back in vogue on Bloomberg TV. Most of the pundits never saw the inflation coming in the first place so Spy recommends waiting a few rounds to see if we have a technical knockout by either side before drawing any firm conclusions.

Speaking to fund salespeople throughout 2022, an old Wall Street joke has seemed very appropriate this year. At noon, on the last day of the quarter, an asset management CFO asks the head of sales, “how are sales coming along?” “Hard to say,” the sales head says, “the quarter is only half over”.

It seems the world of work is about to have another major evolutionary change. Spy has seen more and more trials, across the world, for a four-day week, which have proven a success. One of the largest studies involving 33 companies in the US and Ireland, with more than 3,000 staff involved, overwhelmingly points to a boost in staff productivity, happiness and much lower truancy. This is all well and good, but what happens to stock markets if this happens? Do stock markets go to a four-day week, too? If everybody wants Friday off, who is there to fulfil the trades?

According to a new survey, Singapore and New York are the world’s most expensive cities to live in at the moment. Spy concurs. Spy’s regular visits over the years to Singapore have brought nothing but joy to his sense of wanderlust and taste buds and nothing but misery to his wallet. Hotels, bars and restaurants are eye watering, let alone cars, schools and housing.

Until next week…

Part of the Mark Allen Group.