Posted inFSA Spy

The FSA Spy market buzz – 6 May 2022

Ugly-stick stock markets; Blackrock’s crypto ETF; Capital Group wants to be boring; Fee cuts galore; Jupiter public dressing down; HSBC break up; HKD digital; and much more.

Hold on to your hats. The pace of rate rises is gathering, and markets volatility is rising faster than a well-baked cake This week Spy’s conversations with everyone from bankers to wealth advisers to asset managers took on a distinctly bearish hue. There was no time for a beer or a glass of calming Chablis, because Warren Buffet’s proverbial tide is washing out and there are all too many pink naked bottoms on display. One Swiss private banker in Hong Kong quipped to Spy, “Inflation was, apparently, ‘transitory’. Now we are wondering if this stock market sell off is transitory, too.”

Yesterday, the markets got well and truly beaten with the ugly stick, and today’s action does not look much better. The Nasdaq plummeted more than 5% with many household darlings getting hammered. Retail investors may well notice stock markets’ woes, but it is in the bond markets, where pros play, that things are getting truly ugly. If the year ended today, it would be the worst in history for the US bond market with a loss of 10.2% already! Entering the year, the 2.9% decline for bonds in 1994 was the largest ever, to put things in perspective. The S&P 500 is down 13% in the first 86 trading days of 2022, the fourth worst start to a year in its history.  

Spy thinks Blackrock may be a little late to this party, especially since the DJ seems to be playing music that is currently clearing the dance floor…but if you want a crypto industry ETF, the big beast now has one to offer you. The iShares Blockchain and Tech ETF (IBLC) has been listed on NYSE Arca with a fairly punchy expense ratio of 0.47%. This being the USA, the fund does not invest in cryptocurrencies directly, since the SEC is still keeping that option off the cards. Naturally, the idea is to give exposure to a range of companies that are part of the entire crypto ecosystem. There are plenty of others to choose from: Amplify’s Transformational Data Sharing ETF (BLOK) or Fidelity’s Crypto Industry and Digital Payments ETF (FDIG), for example.

Boring. Dull. Plain. Has a new era of boring, but reliable companies appeared again? Capital Group makes a good case in this insight piece. And Spy loves the aerial train picture, too. Jonathan Knowles, equity portfolio manager, writes, “Fast-growing digital and tech companies generated a lot of investor excitement over the past decade…Since the start of 2022, however, many of these market darlings have taken a beating. Amid slowing economic growth, soaring inflation and the fear of rising interest rates, investors may be taking a second look at the high valuations many digital platform and software stocks command.” Spy reckons that last part may be the understatement of the week.

“The first cut is the deepest” sang ‘70s crooner, Cat Stevens. Well, perhaps. The fee cuts keep coming for the asset management industry and over time they just get deeper. In 2021, according to Morningstar Direct, the average expense ratio that investors paid for 25,000 different US funds dropped 2.7 basis points from 2020. 45% of fixed income managers and just over half of all equity managers cut their fees in 2021. This fee pressure is not restricted to the US; it is happening in Europe and Asia too.

With friends like these…Jupiter was the target of a punchy and critical public letter from a former non-executive director, Jon Little, this week. Little was pretty blunt in his assessment, saying the company has “lost its way” and that appointing Andrew Formica as chief executive had been a mistake and taken with undue haste. Ouch. Jupiter bought Merian Global Investors to achieve greater scale and efficiencies, but the stock market has not rewarded the takeover at all: over the last five years the company’s shares have dropped 70%. Little still holds millions of pounds worth of shares and is, no doubt, hoping a white knight might swoop in take Jupiter over at a premium to its current languishing share price.

HSBC has also had shareholders prodding it change. This week, news broke that Ping An wants HSBC to break itself up to avoid the regulatory tug-of-war it finds itself in. Spy has no view on whether that is a remotely good idea for shareholders, but it is a terrifying prospect if to do substantial business in China one is going to require a 100% separate business from the rest of the world. Is this the pass we have come to?

Do something! You can almost hear the panic among central bankers and financial regulators when it comes to digital currencies. Here in Hong Kong, the Hong Kong Monetary Authority is calling for public feedback on its policy and design issues surrounding its own so called ‘e-HKD’ or retail digital currency. This, just as Bitcoin gets absolutely hammered and volatility in crypto spikes egregiously. The biggest attraction of crypto is, surely, that it has nothing to do with central banks which have done a poor job of keeping value in their own currencies.

Spy saw a wealth adviser put out a message on LinkedIn today: “Choppy waters. Time to review and potentially reposition your investments.” Well, perhaps, but surely a better time would have been three months ago? The horse has bolted now.

The world is in a fair amount of turmoil and that suggests we need experienced hands at the wheel. Then someone reminds Spy that President Putin is 69 years old, President Xi is 69 and President Biden is 79. The average age of the people in the world today is a mere 29. Do these leaders really know what most of the world wants or needs?

Until next week…

Part of the Mark Allen Group.