The news this week that British 90’s mega band, Oasis, is getting back together for a reunion tour, made Spy contemplate fund managers who retire, get bored and come back to have another go. Nostalgia for previous great performance, may encourage investors to back the returning star. However, it doesn’t usually go particularly well. As the Gallagher brothers may have put it, “Today is gonna be the day that they’re gonna throw it back to you.” They, in this case, is often Mr. Market rather than investors. If a band does a terrible reunion tour, all that fans are likely to lose is an evening of their time and the price of their ticket, with returning fund managers, there is real money at stake.
Another week, another US-listed strategy promising to deliver upside returns with minimised downside, a so-called buffer strategy, notes Spy. The Innovator Hedged Nasdaq 100 ETF, with the ticker QHDG, offers exposure to the Nasdaq 100 “while seeking to smooth volatility and hedge drawdown risk.” As is common with all of these types of strategies, options are promised to help minimise the downside. The manager claims, “mitigating volatility during market declines [and] this dampened volatility is intended to lead to competitive risk-adjusted returns.” That all sounds hunky dory, but Spy prefers to look at the small print: “There is no guarantee that the Fund will be successful in implementing its strategy to provide hedged market exposure.” Investors should take a good long hard look at that line before diving in feet first.
If you are sick of hearing about and reading about and being told about the very largest companies in the world that seem to get all of the media coverage, Janus Henderson, has some good news. The manager thinks the tide may be turning for small cap stocks in the US, which at the very least gives us all something else to think about. The article is worth reading in full, here. Portfolio managers, Jonathan Coleman and Justin Tugman note that, “Historically, when small caps have reached current valuation levels, the worst outperformance on a five-year annualized basis has been 5%.” Furthermore, and this caught Spy’s eye, “small caps have historically outperformed large caps by roughly 10% in the first 12 months following an initial Fed rate cut.” As a rate cut seems almost certain in September, that is a rather compelling story.
Whilst most market watchers keep a steady eye on the oil price, Spy was rather intrigued to see this stat published by Chris Goodall, author of a new book ‘Possible’ on Pictet’s insights section, “Renewables are already the cheapest source of power in most parts of the world. The IEA expects the share of wind and solar in global electricity production to reach 70 per cent by 2050, from 10 per cent in 2021.” It is perhaps time a price index of renewable energy is published to help investors become more familiar with incredible energy change.
To date, there have been 129 IPOs in the US market; of those, a mere 49 are actually up since their listing. 80 are currently in down since their IPO, with 43 of those down more than 30% – many a lot more dire. Not exactly blowing the lights out. Excluding the delightfully named SPAC, AA Mission Acquisition Corp, which is up an absurd 125,900%, probably for technical rather than market reasons, the best performer is NANO Nuclear Energy Inc, up 166%, followed by Loar Holdings Inc, which produces aerospace equipment, up 162%. In contrast, FibroBiologics is down 95% since its listing at the end of January. If anyone thinks that passive is the right way to approach new listings, Spy has some snake oil to sell you.
Any idea how many ETFs come to market each month? According to Morningstar, in 2024, it has averaged 50 per month. Can the industry possibly continue to bring product out at this pace? It seems unlikely to Spy but betting against the innovative brains of the asset management world has proven a losing proposition.
Berkshire Hathaway joined the $1 trillion market cap club today for the first time. Buffet’s investment / holding company has more than doubled in value over the past 5 years. There are currently seven American companies with a market cap above $1 trillion: Apple, Nvidia, Microsoft, Google, Amazon, Meta, andnow Berkshire. Tesla briefly held that esteemed valuation but has dropped out of late.
Spy has spent a fair amount of time in aeroplanes over the last 25 years. For almost that entire period the seat was inside a Boeing, Airbus, Bombardier or Embraer jet. It seems pretty soon, a new name will be added to that list: COMAC, which stands for Commercial Aircraft Corp of China. China Southern Airlines and Air China took delivery of their initial C919 passenger jets this week. The deliveries of the Chinese aircraft, billed as a rival to Boeing’s 737 and Airbus’ 320, are now accelerating. This seems to be one of those moments to reflect on China’s astonishing advance since 1979’s opening up.
For Nvidia this week, a doubling of revenue and margins at 50% were just not good enough. It reminds Spy that for markets, it is always about expectations, summed up rather nicely by this image.
Spy’s photographers have been out and about and spotted a new outdoor campaign in Singapore. J.P. Morgan Asset Management has a new campaign promoting its Global Dividend Fund with some rather chilly and striking photography.
Until next week…
