Spy was enjoying several Grey Goose vodka martinis, shaken, not stirred (of course) with a bond fund specialist in an overpriced bar in Kowloon this week. “Investors will often say, ‘we are in a period of uncertainty’ as if there were other moments in time that were very predictable, stable and certain”, he said to Spy. “The reality is, just when the consensus has reached peak certainty, you can be sure the pendulum will swing the other way, and usually violently. The market does not reward certainty. The brave souls who tiptoed into European stocks last year because they were undervalued must have been anything but certain that they had got their timing right.” He is as correct as the old adage: one martini is too few, three is too many.
There was a time when wealth managers had to delve into the darker corners of the alternatives market to get a little “sex and violence” into their portfolios; those high volatility strategies that could juice returns when they got it right. These days, you can simply need to grab an ETF. Invesco has just launched its own Managed Futures Strategy in an ETF format in the US under the ticker IMF. The strategy is “an actively managed exchange-traded fund that seeks to achieve its investment objective by taking both long and short positions in derivative contracts linked to over fifty global markets, including stock indices, bond indices and currencies. The derivative contracts in which the Fund may invest include futures contracts, foreign currency forward contracts and swaps.” All at the simplest click of the brokerage button, notes Spy.
What do the marines say? Blowback. Spy suspects there will be many people around the world having a chuckle at the unintended consequences of American attempts to contain Chinese tech and AI in particular. Asset manager, Ninety One, sums it up nicely “China’s approach to AI is deeply embedded in state-driven industrial policies, such as the ‘New Generation AI Development Plan’ and ‘Made in China 2025’. Unlike Western counterparts that rely on private sector funding, China’s AI ambitions benefit from a “whole of government” strategy, integrating AI into industrial, economic, and national security domains. The U.S. faces an uncomfortable reality: its export controls may be accelerating, rather than hindering, China’s AI capabilities.” Blowback, indeed!
If you are reading this, and your household happens to be in possession of a couple of teenage kids, you might be all too familiar with idea that our attention spans have grown shorter and shorter. Tiktok and Instagram might be the ultimate examples, but in investment markets it seems we have absolutely no patience either, reckons Spy. The average holding period of a stock during the 1960s was 8.3 years, according to Trahan Macro Research. By the 1980s it was down to 2.8 years. By the 2000s it had dropped further still, to a mere 1.2 years and now into the 2020s, it has plunged to a piddly six months. Building businesses takes a while and the returns after periods of heavy investment take a while to percolate. The internet has made it 10x easier to find good investments and 10x easier to research good investments but it seems that it is 10x harder to hold onto those good investments when we do find them. Ah, there’s the rub.
Standard Chartered’s best performing fund is the BlackRock’s World Gold Fund; it is up 55% in the last year. Spy has rather good news for gold investors, for if J.P. Morgan is to be believed, “We maintain a constructive outlook on gold over the next 12 months…Additionally, we expect gold to perform well under a Trump administration for two primary reasons: 1) ongoing concerns about the U.S. deficit, as fiscal policy is likely to be expansionary, and 2) a potential increase in USD reserve diversification amid trade tensions and rising geopolitical risks. Our current outlook projects gold prices to reach $2,900 to $3,000 by mid-year and $3,100 to $3,200 by year-end.” Since gold is already trading above $3,050 per ounce, that year-end figure may be awfully conservative, thinks Spy.
Fun fact: the S&P 500 has returned an average of 10% per year since 1928 despite an average intra-year drawdown of -16%. It so happens that international equities are outperforming US equities this year by the widest margin seen in a rather long time. Year to date: the MSCI World, ex-US is up a lively 10.2%, meanwhile, the S&P 500 is down 3.5%. There is no upside without the occasional downside and absolutely no reward without some risk.
How are driverless taxis coming along, wonders Spy? Alphabet owned Waymo One is now serving a whopping 200,000 paid trips every week across Los Angeles, Phoenix and San Francisco. That’s 20x growth in less than twenty-four months. The service will soon launch in Atlanta, Georgia, Austin, Texas and Miami, Florida. The future is truly upon us.
Spy’s quote of the week comes from William Cameron who said in 1963: “Not everything that counts can be counted, and not everything that can be counted counts.” Nailed it.
Until next week…
