Posted inFSA Spy

The FSA Spy market buzz – 3 November 2023

Human flourishing in a fund, SBF is guilty, year-on-year growth for mega-caps, Lombard Odier’s EV myth busting, Pinebridge’s active ideas, FSMone’s LSE ETFs, and much more.

Spy has already heard Christmas carols being played in some stores, which seems a travesty in the first week of November. It appears as if retailers are wishing the end of the year to arrive as soon as possible. In all fairness, most wealth and asset managers Spy has spoken to seem to have the same wish. After a rather tough year, Spy can hardly blame them. It was Mariah Carey who wanted ‘you’ for Christmas; for Spy an interest rate cut and a bottle of Glenmorangie would do just nicely, thank you.

Hat tip this week to the marketers at First Trust. They have just launched a fund that glories in the name, the First Trust Emerging Markets Human Flourishing ETF. Human flourishing? Spy thought initially this must be some sort of ‘wellness’ nonsense that reeked of fragrant bath salts and trips to Bali. It is a little more nuanced than that. The Emerging Markets Human Flourishing Index, on which the fund is based, is constructed to track the performance of companies that belong to countries within emerging markets that have a high “Human Dignity Score” according to Freedom House. The index is looking for more intangible factors such as freedom of expression, freedom from religious prosecution, equality among the population and other areas, and then investing in “quality” securities from those markets. Spy has no idea whether the idea will generate sensible returns, but it sure is something different.

News was out this morning that Sam Bankman-Fried, FTX’s woolly-haired founder has been found guilty on all seven criminal counts of which he was accused. Apparently, the craven fellow is now facing up to 115 years in prison. The Americans seem to prefer long prison sentences for financial fraud versus good old-fashioned murder, in some of their states. The jury did not seem to deliberate very long, with numerous reports suggesting that his testimony was wholly unconvincing. This news comes as bitcoin itself hovers around $34,000. Investment managers at Singapore’s Temasek must be rather pleased SBF is going to prison; the investment firm had to write of $275m when FTX crashed and burned.

Giant US tech firms dominate the major indexes, and most investors have exposure to them. How did they do in Q3? Well, not too badly it turns out. Year-on-year revenue growth:  Meta (Facebook, etc) +23%, Microsoft: +13%, Amazon: +13%, Google: +11%, Tesla: +9%, Netflix +8%, AMD: +4%, Apple: -1% and the S&P 500 itself +5%. So, of the biggies, Apple is on the naughty step. With 64% of companies having reported, S&P 500 Q3 GAAP earnings per share are 19% higher than a year ago — the third straight quarter of positive year-on-year growth. Quarterly earnings are now just 2% below the record high from Q4 2021.  However, before anyone gets carried away, what was the single most common phrase being heard during earnings calls in the season, wonders Spy? “Weak demand”, according to data compiled by Bloomberg. We have been warned.

Nice little electric vehicle myth buster out from Swiss private bank and asset manager Lombard Odier this week. You can read the whole piece here. The list includes these examples, Myth: EV batteries require more mining that internal combustion engine cars. Reality: only for the manufacturing phase. ICE cars are far more material-intensive overall because they burn fossil fuels. Another myth: EVs are too expensive. Reality: Current high prices are set to decrease as EV manufacturing scales up and in the long run, owning an EV is cheaper than ICE car today. The list of ten myths is pithy but useful.

Spy likes this insight piece from Pinebridge this week: “For now, US consumer spending and labour markets are holding up well, though it is difficult to see how it gets much better from here. The world is no longer seeing “synchronized global growth” like it did when China was driving world economic activity. Now the cycles vary a lot both within regions and across regions, which creates opportunities for active managers. We continue to find opportunities to upgrade the portfolio and invest in advantaged companies at valuations below typically high levels.” After a long period when passive investments seemed to have the edge, perhaps active management is going to have its time in the sun, again.

FSMOne, the fund platform, now allows investors to acquire London Stock Exchange-listed ETFs on its Singapore platform. The LSE is home to about 1,500 different ETFs. The firm notes that, “Singapore investors can potentially save more by paying less dividend withholding tax on LSE-listed ETFs, as compared with ETFs listed on a US exchange, which would in turn increase their total returns over the long run.” Spy has long felt that exchanges are the future of fund distribution. Period.

Spy’s photographers have spotted a new campaign out in Hong Kong’s MTR from Jupiter. The firm is promoting its Dynamic Bond Fund with a rather juicy 7%+ yield. The small print did surprise Spy a little, Jupiter is allowing payment out of capital in the fund, if necessary.

Until next week…

P.S. Spy was right about the rain sodden muscly mess in the Rugby World Cup final held in Paris last weekend, just not the winner. Well done to South Africa’s Springboks who broke Kiwi hearts.

Part of the Mark Allen Group.