The FSA Spy market buzz – 20 September 2019

Latest News

Investec raids Julius Baer; Selling GEM funds; Thai fund selectors’ preferences; ETFs and Asian wealth management; Veggie ETF; Getting wealthy without the Fed and much more.

The rolling protests in Hong Kong have reached into the beating heart of our city. Spy was due to lose a few hundred Hong Kong dollars by going to the races on Wednesday evening with a portfolio strategist from New York. What horror was this? The Jockey Club took the almost unprecedented step of cancelling the race meeting, at very short notice too. Whilst Spy may have saved himself his losing bets, he can’t help but feel that something even more valuable was lost this week. The battle for Hong Kong’s soul – and who would deny that the Jockey Club is a part of Hong Kong’s freewheeling spirit – is reaching a deeply emotional and emotive stage. Hong Kongers, who love a flutter on the horses as much as they do dim sum, are truly sending a profound message to Beijing and Carrie Lam. Will they listen? Spy would not bet on it.

The worst kept secret in wealth and asset management in Singapore is being revealed today. John Cappetta, managing director and senior adviser, responsible for enthusiastically pushing so many funds at Julius Baer over the last few years, is moving to Investec Asset Management. John has held a prominent role in the Asian fund selection community, for, even if he never liked to use that term about himself, everyone knew that without John’s support a strategy was unlikely to get traction at JB. And so now he will find himself on the other side of the fence with a new set of challenges. Everyone Spy has spoken to remarked that a fund pitch to John was always robust and never less than entertaining. Investec Asset Management is expected to list on the London Stock Exchange in 2020 as it completes a demerger from the South African parent company. Investec has had phenomenal success with its Gold Fund in the last year. It has jumped a whopping 46%.

What is the challenge for asset managers trying to sell general emerging market funds in Asia? Well, Asia. Asia’s success in the last few decades has meant that any GEM portfolio is likely to carry a significant weighting of Asian stocks. Think Alibaba, Tencent, TSMC, Samsung, etc. When presenting the fund, the first question that comes up, is: “Why should I pay you for what we have so much of already?” And in some ways, this is a crying shame, because whilst a typical GEM fund may have 65% exposure to Asia, the other 35% includes the rest of the world and many Asian investors are woefully underexposed to non-Asia EM and are hard pressed to get that exposure. Who buys a Russia, Eastern Europe or Brazil fund these days? Yet, those markets have some great companies delivering Asia-like (or better) returns which Asian investors may well miss out on. Is there is now an argument for a GEM ex-Asia fund?

Spy’s colleagues have been in Thailand this week, hosting an FSA Forum. As usual there was plenty of polling of the forty or so fund selectors and analysts who joined the morning. The community was generally bearish on the global macro outlook, which is hardly surprising. Most attendees felt the next 12 months for both the Thai economy and the global economy look weak. That fits the global mood rather well. When asked what their clients were buying, it is no surprise fixed income polled top, but alternatives beating equities raised Spy’s eyebrow:

Spy heard whispers first. Now the chattering is getting louder. Loud to the point it is now unignorable. ETFs, long the preserve of institutional investors, are being adopted in the broader Asian wealth management space and the pace is picking up. Fast. Spy heard from one senior strategist at a prominent deep-retail asset manager that the big banks are recommending ‘ETFs beyond the core large cap indices’. Is it any coincidence that discretionary mandates are rising rapidly at the same time? Spy thinks not. What is the solution if you are an asset manager? If one has a benchmarking-hugging, beta-delivering, high-cost active fund, get the cleaver out and start turning that into a fully-concentrated, alpha-generating, higher-octane, lower-fees vehicle or expect to watch your AUM dwindle before your eyes…This is no time for ostriches.

Spy knew it was coming. With every dinner party Spy attends that seems to include a larger and larger number of vegetarians. The gentle wave of dietary changes is becoming a veritable tsunami. For those people who care or perhaps for those who simply want to benefit from that roaring trend while they munch a T-bone steak, they can now invest accordingly. The US Vegan Climate ETF, with ticker VEGN, debuted in September. Spy is happy to confirm it was only a rumour that one got a free salad with every purchase.

For those people who care about such things, the Fed minutes, timing of their rate changes and pronouncements on monetary policy, can generate a remarkable amount of noise and bluster. Spy’s best antidote to this dubious obsession was spotted on Twitter this week: “Lloyd Blankfein did not become a billionaire by timing the market based on Fed policy.” Correct.

Until next week…

P.S. The Rugby World Cup starts this evening and much to Spy’s disappointment – no private bank or asset management has sent Spy any tickets to the games in Japan. It is not too late, by the way…If you have an office sweepstake, count yourself lucky if you got Wales. That is Spy’s bet for the trophy this year. Most betting shops are offering 9-1 on Wales, Cheap at the price.


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