The FSA Spy market buzz – 23 August 2019

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Franklin Templeton change; Hard to run a Swiss PB; Jupiter’s financials; Citigold’s fund managers; Skill versus luck; Shattering illusions; Bond yield madness and much more.

It is August. In Spy’s long experience, August’s reputation for being the silly season is well founded, and in his case, stretches back to his school days. August was the time of year when boys got expelled for drinking or smoking behind the theatre. More daring fellows escaped the confines of Spy’s draconian all-boy boarding school to illicitly visit the local girl’s school and typically got six hard lashings, if caught, for doing so. At least it broke the August lethargy. None of that juvenile silliness can compare to what is going on in the bond market across the world this August. Spy is literally wondering whether the entire investing world has lost its collective mind. At last count, a staggering $17trn of global debt is now paying a negative yield. Everywhere Spy looks, the madness continues. Take Ireland: after its banking bust eight years ago, yields of Irish govvies hit 14.6% and this week they are -0.16%. Or how about Italy? The government has just collapsed, yet the 10-year bond yield is a mere 1.3%. Apparently that is okay because the yield is more than Spain’s. Or so some investors reason.   Germany managed to sell more than €824m of 30-year debt with a zero coupon this week. There has been a rather staggering rally in debt this year. The Bloomberg Barclays Multiverse Index — the broadest bond market gauge that tracks debt with a market value of more than $59tn — has returned more than 7% already in 2019. Pimco has been rather public about concerns over the blistering rally that has gone too far. Dan Ivascyn, the firm’s group CIO, was quoted in the FT as saying the “balance of risks has now shifted”.  Spy reckons that is the understatement of August. Silliness does not even capture the current mood.

Spy has learned that Franklin Templeton in Singapore will be losing its head of marketing for Southeast Asia. Andrea Han, who was in the role for six years, is planning to step down. Spy has no news of her immediate replacement, although Hui Kheng Goh remains overall marketing director. Franklin Templeton has had huge success with its Gold and Precious Metals fund over the last year – up a whopping 43%.

It is apparently rather tough running a Swiss private bank these days, with many of the smaller ones struggling to make any money. SwissInfo covered a study of 87 private banks by consultants KPMG and the University of St Gallen that says 34% were “weak” performers in 2018. That’s a 50% increase from 2017. More than half of this category operated at a loss last year. Their conclusion is that Asia is partly to blame. The cost of running an Asian operation is very high and many simply can’t afford it. The snag? Without the Asia exposure, they struggle to attract new clients from this rapidly growing region. Catch-22 seems rather apt.


Consumers and businesses may love yields at rock bottom prices, but it is not great for banks. For evidence, only look at Japan. The TOPIX Banks Index peaked at 1,500 in 1989, and now it’s at 129. Let that sink in for a moment: it has plunged by 91% over those 30 years. Expect something similar in Europe if this madness continues, with banks’ share prices melting like ice-cream in summer. With that in mind, one would expect a financials fund to struggle. Yet, Spy was rather impressed to see that Jupiter’s two specialist financials funds, managed by Guy de Blonay, are both on a bit of a tear in 2019. To the end of July, the Jupiter Financial Opportunities Fund is up 34%. Their Financial Innovation Fund, available in Hong Kong, is up 32% year-to-date. The number one holding? Visa. Tap and pay – all the way to the bank, it seems. Just don’t buy the bank itself.

Spy is not sure whether Singapore-based wealth management banks are prone to not updating their websites or whether their ability to add new fund managers to their platform is non-existent. Spy was perusing Citibank’s Citigold Private Client portal and their list of fund management partners. The list appears to be exactly the same as it was seven years ago. One might call the 20 firms listed “the usual suspects”. With the incredible number of new managers that have arrived in the market over the last seven years, one would hope that Citigold customers are being given a little more choice than that. Citibank is not alone in listing stagnant fund management partners’ lists. Spy has seen this on numerous others too.

Spy has had to endure more than his fair share of portfolio managers boasting about their skill. A profession rather prone to hubris, especially among the hedge fund crowd, often seems to forget the role played by dumb luck. Spy’s August reading was a healthy splash of cold water on those who get carried away about their skill and forget to give luck some credit. “The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing” by Legg Mason’s former chief investment strategist, Michael J. Mauboussin, is a cracking read that helps to sort between the two. As useful a guide for the layman and the professional. Spy highly recommends it if you can find a copy.

Spy’s quote of the week would go to Dan Ivascyn, already mentioned above, but an even better one has come along. The German 19th century romantic writer and poet, Ludwig Borne, wrote, “Losing an illusion makes you wiser than finding a truth.” Spy can’t quite shake the feeling that with everything going on in Hong Kong, Brexit, Trump and bond yields, there is much wisdom to be gained here. Some illusions are crashing down around us with tumultuous roars. One can but hope that wisdom follows!

Until next week…

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