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The FSA Spy market buzz – 21 February 2020

Blackrock is hiring; Axa IM’s AUM; Long/short ESG; Mirae’s travels; Turning Japanese; Disclaimer absurdities; Software vs Pizza; Merger mania; advertising and much more.

With all of the merger and acquisition announcements in the market this week, Spy is positively disappointed nobody has offered to buy him! Jupiter snapped up Merian, Franklin Templeton is taking Legg Mason and then Morgan Stanley has snaffled E-Trade. Jupiter and Merian seem a really good cultural fit with product suites that do not overlap too much. Franklin Templeton and Legg Mason certainly have complementary distribution strengths: institutional versus retail, when looked at globally. However, it does seem to your humble Spy, musing over a cold glass of Chablis, that Jupiter and Franklin Templeton’s acquisitions do not solve the real underlying challenge of their portion of the industry: the threat posed by the ETF juggernauts. Spy understands the need to find scale and cost savings to be able to compete on price, but the trickier thing is ensuring wealth managers and asset allocators still want to hand over large sums of money to active players in the first place.

Spy has come across few people moves in the industry this week. Spy did, however, spot one firm that is actively hiring in Hong Kong. Blackrock’s Aladdin Wealth Enterprise unit is looking for a relationship manager — for those who are so inclined. In fact, poking around career sites in Hong Kong and Singapore, it seems there are a few asset managers still recruiting, but unless one is excited about the middle office, Spy is not too sure there is much in the listings. The tedious waiting game continues.

As most people in Hong Kong know, the number 8 is considered lucky by most Chinese people. If that is the case, Axa Investment Management may be entering a lucky year, thinks Spy. The firm has just announced its results and for the first time its AUM has exceed €800bn ($863bn). The firm had €12.8bn of net inflows over the last year, which is a happy reversal from 2018 when the firm suffered net outflows (alongside many in the industry.) Whilst Axa IM trails its larger French competitor Amundi, the firm has been steadily heading towards the magic €1trn club.

Spy can’t move these days without a variation on ESG being offered / encouraged / demanded. Spy spotted another permutation this week for people who not only believe in ESG but also believe that companies that do not, will suffer underperformance.  Direxion, the ETF provider, has introduced the long/short MSCI USA ESG – Leaders vs Laggards ETF. It is a 150/50 structure, actively shorting those firms that do not fit its specified ESG criteria. The top five long holdings are not particularly controversial: Microsoft, Home Depot, American Express, Blackrock and Proctor & Gamble. It was the short side that raised Spy’s eyebrow: Netflix, Monster Beverage, Intel, Pfizer and Oracle. On the factsheet page it had this disclaimer: “There is no guarantee that the fund will achieve its stated investment objective.” Spy thinks investors should pay very, very close attention to that line…

Spy was curious as to which equity funds in Asia are holding up in these very challenging times. Using Morningstar’s fund screener tool, Spy looked at Asia-ex Japan equity funds. The top performer is the Mirae Asia Great Consumer Equity Fund. It has eked out a 3.45% return so far this year – while the majority of the sector are under water, understandably so. What staggered Spy, was that its top holding is China International Travel Service Corp, the giant Chinese travel agent, which is a whopping 6.5% of the fund. Under the current circumstances that seems an unlikely hold.

Are we all turning Japanese? No, Spy is talking about the 1980’s song by The Vapors. Spy has not performed the customary human ritual of shaking hands with people he has met for more than two weeks. The coronavirus has made everyone in Asia wary of human contact and so everyone seems to have adopted the Japanese tradition of a little bow instead.

Spy, and probably everyone else who has ever used a financial services website, must quail at the absurdity of disclaimers they are asked to acknowledge. This week, on the ‘Market Outlook’ section of a very prominent retail bank, Spy spotted this: “This document is confidential and may also be privileged. If you are not the intended recipient, please destroy all copies and notify the sender immediately.” Spy wonders why on earth the document is confidential if it is prominently displayed on their website for all and sundry to see? The disclaimer then goes on to say in even bolder letters,  “THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.” Spy wonders who did write the market outlook if it was not their research team? The cleaning staff? So much of retail compliance seems to be a massive exercise in bottom covering.

Hands on buzzers everyone. Would you prefer to own the world’s biggest search engine or a pizza chain. Spy is convinced most people would prefer Google. This chart tells a different story. Since their summer 2004 IPOs, Google is up 2,936% but Domino’s Pizza is up a staggering 5,706%. Spy’s, er, takeaway, is that no matter how digital our world is, people need to eat and they seem to be eating pizza.

Some outdoor advertising was spotted by Spy’s eagle-eyed photographers this week. The advert was for none other than Axa IM, mentioned above, for their record AUM.  Axa wants clients to “make tomorrow yours”.

Until next week…

Part of the Mark Allen Group.