Posted inFSA Spy

The FSA Spy market buzz – 20 November 2020

China goes negative; BNP Paribas’ Energy; Is the market overvalued; Standard Life Aberdeen and ETFs; FSMOne’s risk; Central Bank madness; Cash; RWC’s charity and much more.

Sharing is caring? The news this week that DBS is going to provide its staff with the opportunity to “job share”, got Spy thinking over his glass of single malt. On the one hand, this decision seems extraordinarily creative and progressive and will surely allow some people, especially mothers with young children, the chance to stay in the workforce. On the other hand, having even more people to manage just to get the same job done, seems cumbersome in the extreme. Spy is not sure how salespeople would feel about sharing their roles and, one would assume, any bonuses attached to that role? Would a private banker like to share their clients? Hats off to DBS for even thinking like this. Brave new world indeed. As for Spy, the only thing he is prepared to share, is a drink. Cheers.

Global debt watchers have gawked in amazement that Europe has issued so much debt at a negative yield. For those who believed this would be contained to Europe alone, they must be feeling a tad shocked this morning, reckons Spy. China has now joined that illustrious club and issued its first negative-yielding debt, too. China issued five year notes this week at a yield of -0.152%. This did not seem to deter investors as they subscribed to €18bn ($21.4bn) of it. What does this say about the state of the world that equity markets are at record highs and yields are negative?

In a year in which the markets have behaved in an extraordinary fashion, Spy was interested in standout funds that have blown the lights out. The gut instinct is it would be tech funds. Yet, according to Morningstar Hong Kong data, none of the top three is pure tech plays. In third place is Fullgoal China Small-Mid Cap Growth, which is up 87% year to date. Morgan Stanley’s ever-reliable US Growth is in second place, up 93% year to date. However, the outright winner is BNP Paribas’s Energy Transition Fund, which is up an astonishing 121%. Spy was mildly amused to note that Morningstar only rates the BNP fund as a two-star strategy.

Let’s play a fun game called “Is the market currently expensive?”. By almost any metric, the top momentum stocks are currently priced at eye-wateringly high premiums. This usually does not end well, if history is anything to go by. Spy strongly suspects that Tesla’s inclusion in the S&P 500 may indeed mark some sort of interim top. Have a peek at the PE and price-to-sales ratios of selected stocks.

Evidence A

Standard Life Aberdeen’s CEO, Stephen Bird, was quoted this week as saying that he wants his firm to compete effectively in the ETF market going forward. Whilst that may not be impossible, Spy suspects the challenge ahead for SLA and for most other new ETF contenders is enormous. The rise of active ETFs may provide a space for active managers to grab some market share but the true passive market is already held in an iron grip by BlackRock and Vanguard, who are unlikely to roll over any time soon. Still, the fight will be fun to watch. Get the popcorn.

FSMOne has recently put out its focus funds for 2020/2021. Spy looked at the core portfolio equity recommendations and they revealed a highly elevated appetite for risk. Of the 15 funds selected, only 1 has a risk rating of 7/10, 8 have 8/10, 2 have 9/10 and the remaining 4 are 10/10 risk-rated. FSMOne clearly thinks that 2021 should be another year when equity investors should stick with higher risk. Or, perhaps, this merely reflects their own clients’ risky appetites. Either way, it is a remarkably bullish recommendation.

Long-time readers of Spy will know that he has a healthy distrust of central bankers. That is putting it mildly. Part of the reason is that they speak an extraordinary amount of nonsense and print money at will – usually doing both at the same time. What are investors meant to think of these contradictory utterances in the last few years:

  • “You will never see another financial crisis in your lifetime.” Janet Yellen, spring 2018.
  • “I do worry that we could have another financial crisis.” Janet Yellen, autumn 2018.
  • “There’s no reason to think this (bullish) cycle can’t continue for quite some time, effectively indefinitely.” Jerome Powell, 2018.
  • “The US is on an unsustainable fiscal path; there’s no hiding from it.” Jerome Powell, 2019.

One might just forgive the average person for thinking madmen have taken over the asylum.

Is cash sitting on the side-lines? Not a bit of it reckons Spy. To use a poker term, it seems global asset managers are “all in”. According to Bank of America’s Global Fund Manager survey this month, asset managers are holding the lowest amount of cash in more than five years. It is currently 1.1 standard deviations below its long term average. The contrarian in Spy sees a canary in the gold mine.

The asset management industry is remarkably good at being generous. Spy is always impressed at the amount of time and energy given to charitable causes from the industry. This week RWC put out a heart-warming video on the £300,000 ($398,402) their team has managed to raise for Covid causes this year, benefiting charities in Miami, London and Singapore. A very positive bit of brand building and doing good at the same time. Hat tip from Spy.

Spy’s quote of the week comes from the celebrated economist John Kenneth Galbraith. “It is far, far safer to be wrong with the majority, than to be right, alone”. Never a truer word spoken.

Until next week…

Part of Mark Allen.