Posted inFSA Spy

The FSA Spy market buzz – 24 February 2023

Return stacked strategies, UBS and China, Allfunds in play (again), Vanguard sticks to its guns, First Sentier on India, amusement in Indonesia, flight price horrors and so much more.

Spy had a chat to an emerging markets fund manager in London this week who said, “We all knew in our heart of hearts this rally could not last, but I was hoping for a few more weeks.” That is always the rub. Wealth managers and asset managers Spy is chatting to are now wondering aloud if the past few months was a dead cat bounce and the cat is now truly dead. An ex-cat. Deceased. Rates won’t behave, inflation won’t behave and companies just keep on hiring. Policymakers are truly caught in a bind. One only has to look at Germany to get a little scared: food inflation in January was 20% year on year. With Germany’s painful 20th century history, that is not going to go down well with voters.

If you like your leverage with a dose of big words and technical excitement, Spy has just the ETF, or more specifically, a collection of ETFs for you. Newfound Research, which is headquartered in Boston has created some “return stacked” strategies that use managed futures and quantum investment techniques to juice returns. Basically, Return Stacked Bonds & Managed Futures ETF claims to give you, for each dollar invested, one dollar into the bond market and another dollar into the managed futures portion of the fund. Spy may be a bit of a cynic, but he would imagine that investors may soon “newly find” that leveraged managed futures have a nasty habit of blowing up just when you think it is going well. Another “return stacked” ETF is on its way, apparently, which promises magical capital efficient exposure to both equities and core fixed income. Spy can’t wait.

It comes as no surprise to Spy to read that UBS has become the latest asset manager to start the process of applying for a local, onshore, licence in China. Apparently, the Swiss giant has been in talks with the China Securities Regulatory Commission about the application and market gossip suggests the process will be underway as soon as possible. China’s relaxing of foreign ownership rules has opened the doors and every manager worth their salt appears to be looking at it now.

As long as Spy can remember, he has heard moans about the imminent death of the asset management industry. These woeful comments usually came from frustrated salespeople. In reality, the industry grows every year, despite “the perpetual pressure on fees”. Spy notes that Allfunds, the global fund platform, is in play as Euronext has launched a €5.5bn bid. If Euronext does eventually win the bid, Spy suspects they will have to pay quite a bit more. But, more importantly, it reminds everyone that the funds industry is both desirable and has a solid future.

Hats off to Vanguard for not backing down in their decision to exit the Net Zero Asset Managers initiative. Spy thinks the decision is incredibly useful because it focuses the entire industry on asking some tough, but really important questions. Tim Buckley, Vanguard CEO, was quoted in the FT saying, “We don’t believe that we should dictate company strategy…It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests with. We just want to make sure that risks are being appropriately disclosed and that every company is playing by the rules.” It is genuinely hard to argue with that. Disclosure is vital.

As the Adani/Hindenburg short selling saga rolls on, Spy enjoyed an insight piece covering India from First Sentier in Singapore. The piece opens with this line, “For everything you say about India, the opposite is also equally true,” paraphrasing a quote from the British economist Joan Robinson. Spy recommends reading the whole piece. It goes on, “For our part, we are quite happy with our investment biases that, in fact, favour backing some of India’s best business families. However, it is true that for every Indian family-owned business that has high standards of governance and has created enduring shareholder value over decades, there are several that we would never think about investing in.” It seems to Spy that India is an active manager’s dream environment. Real, on the ground research, is an absolute necessity.

Spy could not help but chuckle at news out of Indonesia this week. Apparently, President Joko Widodo is unhappy that everyone is sitting on their savings. He was quoted in the media as saying, “[People] don’t want to shop, don’t want to come to restaurants, don’t want to come to markets, don’t want to come to malls – no, [they think it is] better keep their money in the bank,” Jokowi added, “This is not allowed.” Spy’s emphasis. Thou shalt spend appears to be the command from on high. Buy an Indonesian equity fund, quick!

Pub talk of late has centred around the fact that airline tickets are like hen’s teeth and if you can get hold of them you are paying though your nose. Spy was not surprised to see Singapore Airlines’ results this week to back it up. “SIA group posts record quarterly and nine-month profits on strong demand; record passenger load factors for the SIA Group on robust demand across network; strong momentum in forward passenger sales for the fourth quarter.” If you were hoping prices might get cheaper towards the summer, get ready for disappointment.

Until next week…

Part of the Mark Allen Group.