Posted inFSA Spy

The FSA Spy market buzz – 27 November 2020

Direxion’s Moonshot; UBS and the next decade; Spotting unicorns; ESG money flows; Feeling lucky; Robeco’s futile yield; Schroders and the Fed; and much much more.

“Frothy does not even come into it. It is like a bubble on steroids, that has snorted a line of cocaine and popped some Viagra too,” was the memorable line shared with Spy, over a glass of Rioja, by a global macro portfolio manager this week. “Everywhere you look we are in a deal-making frenzy. Crypto, Nasdaq, the Dow, Chinese start-ups, Hong Kong IPOs, even staid European companies, for goodness sake! We are in a sort of peak FOMO – people are terrified of missing out and blindly throwing money in every direction.” Where does all the money come from, asks your humble Spy innocently? “G4 central banks are adding liquidity at a rate of $1.4bn an hour and it sure as hell is not going into the man in the street’s pocket”, said my cynical drinking companion. Indeed.

Legendary crooner Frank Sinatra sang, “Fly to me to the moon, let me play among the stars.” Investors may have forgotten about ‘ol blue eyes’ but the moon dream is alive and well, reckons SpyDirexion has recently launched an ETF it has named Moonshot Innovators with the ticker, Moon. The new fund “offers exposure to the 50 most innovative US companies at the forefront of changing our lives today,” according to the blurb. The fund is investing in sectors such as “smart transportation”, “clean power” and, eh, “human evolution”. Yes, you read that right, the blurb actually says, “human evolution”. Spy is really not sure what that can possibly mean, but if he spots anyone with webbed feet or gills on his neck, he is going to be looking carefully to see if there is Direxion data manager walking quietly behind her. One current holding is Virgin GalaticRichard Branson’s space leisure travel company. That, at least, has a chance of visiting the moon one day, Spy supposes.

UBS has been thinking about the next decade. Spoiler alert: the giant wealth manager thinks the best performing sectors will not be the same as the last decade. What does it think will perform?  Well, 5G+, fintech, healthtech and greentech. Spy is spotting a bit of a trend here. It is tech, tech, tech – but that which is disrupting other sectors. One intriguing idea from the Swiss giant is the “Future of Waste”. UBS seems pretty convinced that managing waste is going to be big business and presents some clear opportunities.

Mythological creatures seem to be in vogue. Spy is, of course, talking about unicorns – or should that be Unicorns? The world unicorn population has, apparently, reached 500. That is, 500 start-ups are now worth more than $1bn. The 500th unicorn company was named as Foster, a US-Israeli cybersecurity business. It is no surprise to Spy that most of the unicorns are found roaming the streets of the USA (242) and China (119) but South Korea (11), India (24) and the UK (24) have added a fair few to the list too. The data comes from a company called CB Insights which likes to track these things. What CB never said in its data, but Spy is happy to do so, “If you want to see evidence of real inflation, here is Exhibit A”.

Long term readers of Fund Selector Asia and our sister publication, ESG Clarity, will not be surprised to read that money is flowing to ESG products. How much? A lot. Inflows into ESG-themed exchange-traded funds have surged this month, taking the amount received in 2020 to more than $50 billion, more than double that of last year, according to Bloomberg Intelligence data. As Malcolm Gladwell might have put it, surely a tipping point has been reached as money flows and flows to greener more responsible ideas.

The 1971 classic thriller, Dirty Harry, includes these memorable lines spoken by Clint Eastwood who played police inspector, Harry Callahan: You’ve got to ask yourself one question: ‘Do I feel lucky? ‘ Well, Do Ya, Punk? This is a Magnum 45, the most powerful handgun in the world, and would blow your head clean off. So, you’ve got to ask yourself one question: Do I feel lucky? Well, do ya, punk? Spy can’t help but feel that short-sellers have been faced with a market that has been asking them the same question. It seems that despite the meteoric rise in Tesla, there are still punks out there willing to “feel lucky”. And it is not just Tesla: it is the Dow, the Nasdaq, China and everything in between.

The hunt for yield. According to the ever-reliable Jeroen Blokland of Robeco, this is becoming “futile”. As evidence, he shared a chart this week that wants to make any pension or wealth manager with an income mandate weep. It is the total amount of debt and what it yields. This has to be the scariest chart Spy has seen in years. Stephen King never dreamed up such a horror. Analyse it and shiver. Basically, more than 90% of global fixed income yields less than 2.5%. Compounding? What compounding?!

The economics team at Schroders have been worrying about the effect of low interest rates in the US and wondering if they will come back to haunt the Fed. They worry low rates could cause a “paradox of thrift” where people save more to meet investment goals instead of spending. Spy’s experience of America is that Americans love spending and if the worst recession since the 1930s has done little to dent consumer spending, he is not too sure what will.

Until next week…

P.S. For all of Spy’s American readers, he and the FSA team wish you all a very happy Thanksgiving.  We are thankful for your loyal readership.

Part of the Mark Allen Group.