Posted inFSA Spy

The FSA Spy market buzz – 8 December 2023

White Wolf’s PE howl, What’s in a (fund) name? Growth versus value – again, Wall Street makes its predictions, BlackRock joins the Gen AI trend, Pity Walmart, Albert’s genius, advertising and much more.

Spy was talking to a former hedge fund salesperson, over an indulgent Italian lunch this week in Hong Kong, who has joined the “sustainability” industry. At first, he waxed lyrical about his new industry,  “saving the world” and all that, but a glass or two of a surprisingly fine rosé wine and the truth came tumbling out. “So many of the presentations I have to endure are as dull as ditch water. I often want to poke my left eye out just to keep awake”, he lamented to Spy. Were the animal spirits awakened? Quite the contrary – so much of the industry is insomnia-inducing. Well, there is the problem reckons Spy.

Spy is a sucker for a good name. A new ETF caught his eye this week. An investment firm, the deliciously named White Wolf Capital Group, has just released the White Wolf Publicly Listed Private Equity ETF. The ticker? LBO of course. Golly, those names tick so many boxes, Spy wants to rush out and throw his few remaining dollars (after doing the Christmas shopping) at the CBOE-listed ETF.  LBO is an “actively managed ETF that provides investors with exposure to certain components of the publicly listed leveraged buyout ecosystem.” No doubt this comes with a commensurate degree of risk and cost.

Funds that have been playing fast and loose with the rules about naming conventions, have just had their cowboy-ish tendencies reined in by America’s SEC, reckons Spy. The Commission has recently adopted significant changes to Rule 35d-1 under the Investment Company Act of 1940 (Names Rule), as well as certain forms and disclosure requirements on 20 September 2023 (Amendments). Among other changes, according to law firm Dechert LLP, the rules “significantly expand the 80% investment policy requirement to include fund names with terms suggesting an investment focus in investments that have, or whose issuers have, ‘particular characteristics’ including ‘growth’ ‘value’ and terms indicating that the fund’s ‘investment decisions incorporate one or more ESG factors.” This is not before time, as far as Spy is concerned. How can investors possibly have confidence in their asset allocation, if a fund deliberately names itself one thing and promptly does another?

Growth or value? Ah the age-old dilemma. Well, for value fans, Spy has some rather bad news. Once again, according to Charlie Bilello: “Growth stocks are outperforming value stocks in 2023 by a whopping 30%. That is the second biggest outperformance on record, with data going back to 1979 (only 2020 was bigger). In 2022, value stocks outperformed growth stocks by 22%. The 52% swing in performance from value to growth outperforming is the second highest on record, trailing only 1999-2000 (55% swing from growth to value).” The problem is, in so much of the tech space, it is a winner- takes-all market. When a firm dominates, it REALLY dominates. There is no growth left for anyone else.

The predictions for 2024 are pouring in. The big investment banks all like to have a go and read the tarot cards. Morgan Stanley reckons the S&P 500 will close at 4500 next year, Goldman’s about 4650, SocGen 4700, Bank of America and RBC 5000. Most bullish of all are Deutsche Bank and BMO Capital Markets at about 5100. Get out the popcorn, sit back and watch the market do exactly what it wants.

Anyone familiar with BlackRock will not be surprised that the world’s largest asset manager, that really identifies as a tech firm, is rolling out a generative AI tool to some clients next month. The firm wrote in a note to its staff that it has used generative AI to construct a “co-pilot” for its eFront and Aladdin risk management systems. Clients will be able to use BlackRock’s large language model technology to help them extract information from Aladdin. Does this mean AI will be replacing humans at the giant? Not so fast! BlackRock has stated that in all cases, the AI would be producing “first drafts” and those must go through normal quality control, which sounds a lot like old fashioned human intelligence is needed to finish the job.

The next time you are worried about hitting your sales numbers, spare a thought for the head of sales at Walmart. In its next fiscal year, Wall Street is expecting the monster retailer to record sales of $666bn, that equates to $1,82bn every single day. Yes: Every. Single. Day.

Spy’s quote of the week comes from everyone’s favourite German theoretical physicist: “Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.” Albert Einstein not only had a phenomenal brain but a knack for words, too.

Spy’s photographers have been out and about. In Hong Kong, numerous branding campaigns have been visible, including this one by BNY Mellon Investment Management on the side of a jolly tram. Everyone loves a hot air balloon, don’t they.

Until next week…

Part of the Mark Allen Group.