Posted inFSA Spy

The FSA Spy market buzz – 9 December 2022

Schroders and acceptance, the ESG tightrope wobbles, Vanguard abandons net-zero, ETFs flows in and out, fund salespeople’s biggest annoyance, branding, events and much more.

Has the world gone stark raving mad, wonders Spy? This week a bunch of right-wing lunatics wanted to perform a coup in Germany. Germany of all places! A country so dull it can barely open shops on Sunday. Now the staff of the New York Times have gone on strike. Journalists are used to poor pay and long hours so things must be bad. Meanwhile, Indonesia has got excited about whether you are married and can therefore share a hotel room. Other people’s sex lives seem to get Jakarta’s policy makers terribly excited. Apparently, these officials are unaware of the old joke. “What food kills your sex life? Wedding cake.”

Hat tip to Schroders’s group CIO, Johanna Kyrklund, from Spy. In her outlook for 2023, she has articulated the change in market sentiment. Investors have moved from “denial” to “acceptance”. What were they denying? That the interest rate environment has really changed. What have they accepted? That higher rates are here to stay and that changes everything. She comments that “we [investors] were forced to buy ever-more expensive assets in a world of endless liquidity to generate return”. And that, in a nutshell, has been the last decade of investment. Some truly crazy valuations, for very little yield. It is worth reading the entire outlook. Thoughtful and a touch optimistic, too.

The ESG tightrope is getting harder and harder to walk. The wind is swaying and the journey looks perilous. BlackRock’s PR woes over ESG are piling up as politically-inspired attacks on the firm roll in from Florida to Texas. Now a tiny activist shareholder is even calling for CEO, Larry Fink, to stand down over the perceived conflicts of interest in its ESG stance. There is hardly a progressive asset manager around that does not face the same dilemma. When does ESG become ‘anti-something’, rather than ‘for’ positive change? It is a rather tragic “with us or against us” mindset that is, to Spy, rather zero-sum in its thinking.

And talking of zero-sum, what about net-zero, wonders Spy? This week, ETF behemoth, Vanguard, has caused a massive ripple by pulling out of the asset management net-zero coalition. About $66trn of assets are represented by members of the coalition and Vanguard’s exit could be the canary in the coal mine. As the political pressure ramps up from high carbon-emitting countries and states, will more managers decide that net-zero grandstanding is simply unattainable and likely to alienate too many decision makers?

Up until yesterday, 422 ETFs have been launched in the US this year. Flows into these strategies have not exactly been stellar, down 40% from their all-time high in 2021, but the pipeline of new ETFs keeps on growing, nonetheless. It is not all a bed of roses. Apparently 139 ETFs have closed their doors, far more than the 39 that closed in 2021, according to VettaFi. Apart from new launches, the trend, as articulated by Spy in other columns, is the conversion of mutual funds to ETFs. JP Morgan Asset Management, Harbour, Franklin Templeton and Fidelity have all converted funds and Neuberger Berman is set to join them soon, too.

Spy has been chatting to fund salespeople about their fund marketing bugbears. If you are a portfolio manager, skip to the next paragraph. One issue that came up repeatedly was bringing along a PM to a client meeting and then have the manager waffle on about himself for most of the meeting instead of about the actual fund itself. Active PMs, with a decent track record, have, on occasion, been known to have rather large egos and it can get in the way of a decent pitch. The age-old dilemma, bring the PM along, or leave them at the office with their Bloomberg terminal?

And speaking of fund marketing, Spy heard the best and pithiest line about why investment is required in building an asset management brand. “Brand isn’t just your logo, or your colour scheme, or even your snappy strapline. Brand is what people think about you when you are not there.”

The towel is well and truly being thrown in for crypto investors. Spy is not just talking about retail “hodlers” who have lost most of their money. This week, the largest pension fund in Canada, CPP Investments has ended its investigation into crypto investment opportunities, according to Reuters. With rates above 4% and crypto more volatile than a teenage love affair, Spy is not surprised one bit. The ultimate contrarian may argue this capitulation is very bullish. Well, maybe.

Do as I say, not as I do? Or is it the opposite, ponders Spy? China’s central bank seems to be stocking up on gold at a furious pace. The People’s Bank added 32 tons of gold worth approximately $1.8bn to its reserves, which was the first disclosed increase in three years. The addition brought China’s total gold reserve to a juicy 1,980 tons, the seventh-biggest central bank bullion hoard in the world, data from the State Administration of Foreign Exchange showed this week. The barbarous relic never seems to quite go out of fashion.

Is Hong Kong back in action? This week, Fidelity threw an event for its outlook for 2023 and what do you know: 200 people turned up. That sounds like a good sign to Spy. People desperate to congregate and get chatting, debating and networking again.

Or as this fellow told the South China Morning Post….

Until next week…

Part of the Mark Allen Group.