“I call it ‘consenual hallucination’, said an investment analyst to Spy over several Diplomático Rum Old Fashioneds at the Argo Bar at the Four Seasons in Hong Kong this week. “It is the moment people stop worrying about valuations and buy because everybody else is buying. Or they buy because the banks are telling them to buy. It is FOMO writ large. And right now, we are seeing it all over the place, but especially in the idiotic meme-stock, Roaring Kitty crowd. But, like every dream, fantasy or hallucination, sooner or later people wake up” Ah, there’s the rub, reckons Spy.
“Diversification does not assure a profit.” Well, at least the fund’s small print has some honesty. Spy stumbled across a new ETF that breathlessly: “Aims to provide simultaneous exposure to US stocks and a futures yield strategy.” The US Stocks & Futures Yield ETF is managed by a firm called Return Stacked ETFs and uses some financial alchemy to give investors the best of both worlds. The fund listed in the US, with the ticker, RSSY, “seeks to provide exposure to a futures yield strategy that has historically exhibited low average correlations to both stocks and bonds.” The “historically” bit of that claim already rings alarm bells. Spy may be an old-fashioned fellow but has always felt that the simplest strategies in life work best – bundling of financial goals seldom works well in the long run. Marked in the “Expect to blow up” drawer.
Spy took at a peek at Standard Chartered’s best performing funds on its buy list. Neuberger Berman’s 5G Connectivity Fund tops the list with a health 46% return over the last year. The thematic has, undoubtedly, benefitted from tech’s rally. However, it was the second-best performer that had Spy in the mind of Baron Rothschild, fabled British financier and politician, who reportedly said, “Buy when there is blood on the streets, even if the blood is your own.” With war raging in Ukraine, Spy did not expect the Templeton Eastern Europe Fund to be up 39%. But markets seldom do what conventional wisdom dictates.
Keeping up with the Jones, Kurasawas or Wongs is getting harder. According to an annual report by Cap Gemini, the number of high net worth individuals (HNWI), defined as those with liquid assets of at least $1m, rose by 5.1% last year to 22.8 million across the world. The United States comes out top in the ranks of dollar millionaires, with 7.4 million. That is a 7.1% increase on 2023. Japan is second with 3.7 million while China ranks fourth with 1.5 million. Stock market gains have helped the numbers jump. The top 1% of the ultra-wealthy, those with assets of $30 million or more, hold about 34% of the total wealth.
Big number. Apparently, JP Morgan is going to spend $17bn on tech this year. That made bank analyst, Mike Mayo, quip that this unprecedented investment is turning JPM into the “Nvidia of Banking”. JP Morgan has a programme in development known as “Moneyball” which is using AI to try and get better investment outcomes from its teams. The AI will supposedly be able to challenge a buy or sell decision based on dynamic analysis of historic trading conditions, among other things. If successful, Spy can see AI moving from the back office, closer to the front office.
Western firms may be struggling with Chinese investments for geopolitical reasons. That does not seem to bother the Qataris who are splashing the cash around the world, reckons Spy. Their sovereign wealth fund has, apparently, just agreed to buy a 10% stake in China’s second-largest fund company, China Asset Management (CAM), according to Reuters. Their deep pockets surely can’t do CAM any harm.
Concentration risk: Spy is expecting to start hearing that a lot more frequently. Yesterday, the top three companies in the S&P 500, Microsoft, Nvidia and Apple, reached over 20% of the index. That is the highest concentration on record with data going back 44 years. With a total market capitalisation of about $9.2trn, the three most valuable tech firms have now overtaken all of the nearly $9trn worth of stocks actively traded on combined Chinese exchanges (excluding Hong Kong), according to data tracked by Bloomberg. Nvidia’s daily trade volume yesterday, was about as much as the rest of the top 20 list combined.
Apparently Shein, the fashion retailer now headquartered in Singapore, is going to list in London for as much as £50bn ($64bn). China’s answer to Spain’s Inditex has grown rapidly and is hoping for a juicy valuation. Some mutterings from the ESG crowd, worried about the fast fashion retailer’s supply chain, may try and put a dampener on the IPO, according to some fund managers. However, Spy asked around several female friends and every single one admitted to buying from the company. “It is like reading the Daily Mail”, quipped one stylishly-dressed mum, “I feel guilty but I do it anyway.” Follow the money.
Spy’s quote of the week comes from the gloriously named author, Ryan Holiday, “Be quiet, work hard, and stay healthy. It’s not ambition or skill that is going to set you apart but sanity.”
Until next week…
