Posted inFSA Spy

The FSA Spy market buzz – 6 January 2023

Mental health and profits, Asia’s IPO leadership, Standard Chartered’s focus list, Citic gets an asset manager, marketing pedantry, prediction woes, AMAMA sell off and much more.

Happy New Year to all of Spy’s readers. The Year of the Rabbit is almost upon us and if the talking heads are to be believed we are all in for a rocky ride. With the worst year for bond and equity markets in years behind us, surely, we are all due a little respite. Spy remains the eternal optimist that human innovation, creativity and hard work are up to the current challenge. After all, not a single entrepreneur wakes up in the morning and says, “How can I do nothing this year.”

Mental health was once the great taboo. Hushed up and not spoken about with sufferers left to their own devices. In financial services the issue has, thankfully, got a far greater airing in the last decade. Still, it caught Spy off guard to see an ETF has been launched focusing on the industries and companies trying to help people keep mentally healthy. With the rather great ticker, SANE, Subversive launched its Mental Health ETF in New York at the end of last year. This is an actively-managed fund, that is, “investing in a portfolio of publicly-listed equity securities of companies that intersect at least one area of mental health, including, but not limited to, metabolic devices, fitness, sleep, nutrition, and the companies that invest in such companies.” The one thing this fund can’t do is invest in ‘an afternoon walk with a dog’ – perhaps a shame, because, in Spy’s humble opinion, few quotidian activities do as much for one’s mental health as that.

Asia’s economic rise to global prominence continued last year in an unexpected sphere: IPOs. According to a report out by EY, the initial public offerings of companies within APAC turned out to be the most resilient of all the world’s regions in 2022. The region coped better than the Americas, Europe, the Middle East and Africa. Although the volume was down and amounts raised was also lower than 2021, the region, nonetheless, accounted for 67% of total global IPO proceeds. It is not necessarily the hugest surprise, after all, so many of Asia’s ‘family businesses’ are transitioning to traditional corporates as the founders and their initial heirs retire and professional managers take over. Asia is treading a well-worn path, which Europe and America has already gone through. That is great news for local capital and investment markets.

For the entire wealth management industry, 2022 was a year to forget. For Standard Chartered’s fund selection team, it appears that there was nowhere to hide. Out of the 278 funds on their focus list, only 16 are positive over a 1-year period. Over a 3-year period, the rate improves, but only to 91 funds, or just under a third. Interestingly, the bank’s current selection of funds includes 44 that are so young they don’t even have a 3-year track record yet. Still, things must improve from here. The best performing fund on the list over three years is GSAM’s India Equity, up a modest 10.5%.

Another asset manager is currently being born in China. Citic Securities, China’s largest brokerage, has gained approval to set up an asset management firm in the mainland. The business has been set up with registered capital of Rmb1 billion ($145m) – a fairly healthy sum to get going. With a large existing client base, Citic should have no problem with distribution. The real question is: does broking vast quantities of stocks translate into a solid range of investment strategies? Citic is the 25th brokerage to be granted an asset management licence and the firm does already own 62% of China Asset Management, according to Caixin.

Spy understands the imperative to catch attention with dramatic marketing statements, but he is not sure a logical impossibility is the best way to do so. Lion Global Investors is currently running a promo for its Disruptive Innovation Fund, which is, apparently, partially managed by an AI engine. On their microsite the blurb boasts, “The future is now. Discover an affordable and accessible way to invest in the growth disruptors of tomorrow, today.” No, LGI, the future is always in the future, or it would be the present.

Predictions are hard, especially about the future. Old joke, but especially true in financial markets, reckons Spy. If you have just waded through the great and good predictions made by leading asset managers and investment banks, you could be forgiven for taking them with a large pinch of salt. How did they do for 2022? Not great really, as the table shows below. The smartest minds on Wall Street were not even close. The S&P finished at 3,839.50.

Mama Mia. Or, perhaps, just AMAMA! That’s Apple, Microsoft, Alphabet, Meta and Amazon to you and Spy. Those five firms have now given up all their exciting gains that came so rapidly during the Covid pandemic. The firms have dropped from a combined market cap of $10.2tn to $5.9tn. Thanks to Holger Zschaepitz for the chart.

Spy’s expression of 2022 had to be the rather gruesome “Pig Butchering”. This is the practice of financial scammers “fattening up” victims by purportedly showing fabulous (fictitious) gains, which encourages the victim to part with even more cash. Sensible people, even those experienced in finance, can also be victims of such ruthlessness. If it is too good to be true, it almost certainly isn’t.

Until next week…

Part of the Mark Allen Group.