Posted inFSA Spy

The FSA Spy market buzz – 29 October 2021

T Rowe Price’s acquisition; Hong Kong goes SPAC; A tiny ETF; The Metaverse is coming; Stock concentration; COP26 advertising; Bourne vs crypto; Buffet and Musk; and much more.

If one had a crystal ball in March 2020 and the future was revealed as nearly two years of pandemic-induced restrictions, total society disruption, and millions of deaths, one could have been forgiven for panicking out of the stock market and running off to a cave to hide. As results out this week from DWS have illustrated, that would have been a terrible decision. The German manager’s AUM has just hit a record high of €880bn ($1.03trn) and profits have been soaring along with it. No matter how tempting it is to get out the market at awful headlines, history proves that buy-and-hold investors are seldom proven wrong, if one can just hold one’s nerve, reckons Spy.

Spy has always felt that smaller, strategic acquisitions make a whole lot more sense than headline grabbing mega mergers, which, more often than not, destroy value. T Rowe Price this week has wisely gone for the former. Yesterday, the US giant agreed to buy manager Oak Hill Advisors in a cash-and-stock deal. The transaction moves T Rowe far deeper into the alternative investments space. Oak Hill has about $53bn under management and includes in its stable high yield bonds, leveraged loans, stressed and distressed strategies and private credit, among others. The firm is paying $3.3bn in cash and stock for the deal with a further $900m of incentives if certain targets are met. TRP currently has just over $1.6tn in AUM.

If you can’t beat ‘em, join ‘em, says Spy. The Hong Kong Government has backed a proposal from its financial advisory body to allow SPACs to be offered on the Hong Kong Exchange. This may be a case of opening the stable door after the horse has already bolted. Singapore has already tweaked its rules to allow for SPACs and in the US, the format has raised more than $140bn in funds this year alone. The government, perhaps wary from other dodgy shell company deals, is not going to allow retail investors to participate in the listings. SPACs will need to raise at least HK$1bn ($128m). Spy will watch with interest. Blank cheque companies seem a bull market phenomenon, if ever there was one.

Hats off to ProShares for their latest ETF thematic launch (name ticker: TINY). What are they investing in? Nanotechnology of course. Just when Spy thought every possible thematic had been exhausted, along comes an ETF that mines even smaller niches. One suspects it is suitable for a small number of investors in a small part of their portfolios. Since Sony practically started the miniaturisation craze in the 1960s, companies have been pushing the boundaries of mini in every tech line. Spy can still remember as a child marvelling in the Guinness Book of Records at the ‘world’s smallest television.” TVs are definitely not the focus now – this ETF has a strong emphasis on microchips and only holds thirty different stocks.

What do you do when everybody loves to hate the name of your company? Facebook announced last night it was doing a Google and switching its parent company name. It is now going to be known as Meta. Apparently The Zuck thinks we all want to live and play and chat in the Metaverse. Meta in Greek, if Spy remembers his school days correctly, means “beyond”. No doubt Facebook’s many investors will be hoping that a change to Meta will allow Facebook’s staunch critics to move “beyond” its products that spread political hatred and bullying in untold numbers and focus on its stream of still considerable profits. Spy also notes that with this change, the FAANGs can now be MAANGA (Meta, Apple, Amazon, Netflix, Google-Alphabet). Far more fun!

Talking of the MAANGA stocks, concentration of valuation is reaching epic proportions. The eight biggest stocks in the S&P 500 are now worth $11.7tn combined, and they are equal in valuation to the bottom 394 companies. This chart rather elegantly lays it all out. We have been talking about the 1% of the rich vs the rest for a while now, and is that becoming true of companies, too?

Unless one has been living in a cave, Spy suspects most people are aware that there is a new UN climate summit that starts on Sunday in the not-so-sunny city of Glasgow. (The Glaswegians may be secretly hoping for a bit of climate change to warm up their chilly, rain-battered town – but that is another matter.)  COP26 has asset managers touting their ESG credentials as never before. Of all the various ESG adverts Spy has seen this week, the Jupiter ad stood out for its witty pun. “Sustain Ability”.

In 2003’s movie, Lost in Translation, Bill Murray played an actor who goes to Japan to star in a whisky commercial far away from his adoring fans back home, supposedly leaving his acting credibility intact. This week the news broke that Matt Damon, of The Bourne trilogy fame, is going to be fronting a series of adverts for In Bourne, Damon plays a character who has forgotten his name with disastrous consequences. Spy can only hope the action star will be recommending investors don’t forget their crypto wallet passwords…

It must be rather galling. One sweats blood and sheds tears to go to a top Ivy League university. One works eyeball-crushing hours to pay off hundreds of thousands of dollars in tuition debt. One gets a half decent job as analyst back home in Hong Kong or Singapore. Some spotty-faced kid invests a few grand in Shiba-Inu and makes millions from his bedroom before he kisses his first girlfriend. Life in 2021.

Fun Friday factoid: Elon Musk has made more money in the last nine months than Warren Buffett has in 91 years. Does this mean we are all going to stop spreading Warren Buffet quotes in investment decks? Not likely!

Until next week..

Part of the Mark Allen Group.