Sporting metaphors in markets are overused and yet they persist for a reason, especially in active management. It takes discipline, incredible hard work and nerves of steel to outperform. Spy, similar to half the world, has been watching the Olympics, while safely drinking copious Campari and sodas to cope with the excruciating tension. Records have tumbled and unlikely heroes have emerged from Paris’s greatest spectacle since it won the gold medal for chopping off royal heads in 1789. Some of the disciplines are so arcane and niche, Spy wonders how anyone gets into them in the first place? Pole Vaulting, hammer throwing, women’s synchronised 10m platform diving. For us keyboard warriors, seeing the result of training for years, for a feat that often last only a few minutes, is utterly inspiring. A truly welcome respite from idiotic politics, senseless war and gyrating markets.
For better or for worse, we all now live in a world dominated by indices, reckons Spy. There is an index for almost every conceivable idea under the sun. From the broad monsters such as the MSCI World Index to niche ideas such as Education Technology. German index specialist, Solactive, now has 8,416 different indices to choose from. And it is just one provider of many. At the time of writing, the top five performing indexes over the last 12 months, were the MSCI ACWI Semiconductors & Semiconductor Equipment ESG Filtered up 35.94%, Bloomberg Coffee up 33.33%, MarketVector Global Defense Industry up 26.25%, MSCI Turkey up 25.97% and DAXglobal Gold Miners up 22.21%. The worst performers were: MVIS Global Rare Earth/Strategic Metals-down 37.26%, Bloomberg Natural Gas down -36.12%, Solactive Disruptive Materials down -33.55, Solactive Global Hydrogen Down -31.53% and Bloomberg Electric Vehicles ESG Screened down -29.36%. For any investor, the challenge, it appears, is to look for the right index before even choosing the fund that tracks it. Good luck with that.
The market volatility experienced in the last week, exacerbated by thin August trading, certainly caused a few heart stopping moments. Spy was pleased to see that the note put out by Janus Henderson’s portfolio manager, Richard Clode, has aged rather well. “The recent sell-off in tech stocks was unsurprising given the strong first half, but the ferocity of the moves was exacerbated by the rapid pricing in the US…The fundamentals of many technology companies remain strong. Market volatility provides opportunities for active managers to take advantage of price dislocations. The team’s outlook for tech remains very positive especially given that we are only in the early stages of capturing the potential of generative AI.” Almost before the ink was dry on that comment, markets had bounced again like an Olympic high jumper having their second, but successful, attempt.
Spy needs to thank Paul Markham, an investment director at GAM for introducing him to SharkNinja – a company that he had never heard of. In a lively note making the case for active investment management, especially in times of volatility, Paul referenced the firm. For those not in the know, this company makes devices such as vacuum cleaners, hairdryers and airfryers and has the most brilliant vision. They claim, “We’re in pursuit of extreme consumer delight and unwavering trust.” Any company that is pursuing ‘extreme consumer delight’ gets Spy’s vote. Most of the time, Spy feels consumer goods companies despise their customers the devices are so hard to set up and use.
Stats that make you go hmm. Berkshire Hathaway is now holding 25% of its assets in cash. That just happens to be the highest percentage since 2004. Their historical average cash position is just 14%. Either Buffet is going to massively underperform the market or he and his team of wizards are convinced cheaper prices lie ahead and are getting ready to pounce.
For those watching carefully, Spy is convinced that the next twenty-four months in private markets are going to be particularly interesting. More and more asset managers are trying very hard to crack the holy grail of access to private markets for moderately wealthy investors, while providing price transparency and some liquidity. This is a particularly complex trick to pull off; the rewards will certainly be bountiful for those who achieve it. Spy wishes the rainmakers all the luck in the world.
There is a famous scene in the classic film, Casablanca, where the corrupt police chief, played by Claude Rains, closes down Humphrey Bogart’s illegal casino. As he orders the closure, he deadpans, “I’m shocked — shocked — to find that gambling is going on in here!” At that moment, a croupier then hands him a wad of cash. “Your winnings, sir.” Spy was reminded of this moment when seeing a headline in the FT, “Funds offering protection for sell offs did not work.” What a surprise! The financial alchemy promised with overexcited use of options, covered calls and other such exotica, almost always get carried out when an unexpected wobble happens in the markets. Shocked, no; entirely expected by Spy and anyone else who has lived through more than one cycle.
Happy National Day, Singapore. The tiny island nation, Lion city and tropical banking paradise continues to defy its critics on its 59th year. Cynics often say, “the best revenge is living well” – in this case, Singapore’s revenge is constantly rising living standards for its citizens. While the sanctimonious West has queued up to criticise Singapore’s tougher social rules over the years, the government has got on with the job of improving its environment and economy. Spy wishes all Singaporean readers, colleagues, clients and friends a very happy day. Majulah Singapura.
Until next week…
