The FSA Spy market buzz - 27 May 16

By FSA Spy

Added 27th May 2016

Vanguard goes to the dark side; CIOs and reality; Finance goes Game of Thrones; Asset managers may offer best value; Cow collateral; Natixis is advertising.

The FSA Spy market buzz - 27 May 16

There has been no let up from Spy’s domestic commander-in-chief on her latest health kick: daily flax seed smoothies, beer and cigar deprivation, gymnasium visits and other extreme austerity measures all in the name of living a few years longer, apparently. It is in this state of mind that Spy finds himself with a modicum of sympathy for the proletariat protesting around the world about government induced cutbacks, labour reforms or raised retirement ages. They may be good for you, but the benefits will be felt years away, and I might be in the next world by then…

It is undeniable that Vanguard has built a formidable business around ETFs and the benefits of low cost passive investment, even getting the mighty Warren Buffet’s hearty endorsement in the process. But what’s this? Spy suspects that Vanguard is coming over to the dark side, endorsing active management, too. Vanguard is now promoting their own and select 3rd-party actively-managed funds. It is with a touch of irony that on their “Other things to consider” section of their active vs passive funds comparison page on their website they explicitly state for active funds: “Though they attempt to beat the market, these [active] funds can also miss their goals, resulting in losses for the fund—and its investors.” Perhaps their marketing team forgot that a passive, following an index that has plunged, will also result in losses…

What happens when your CIO goes from underweight to neutral but only provides a fuzzy set of reasons for doing so. One Asia-based UBS portfolio specialist was overheard saying this week, “Our CIO has gone neutral on emerging markets but I still don’t have a single stand out reason to tell clients to buy and take advantage of the call.” In the case of EM it could be ‘cheap valuations’ but cheap has seldom made the crowd an enthusiastic investor, they usually need a little more ‘story’ to go with it.

Spy has regularly heard about white knight investors who come along with friendly bids to save a target company from a hostile takeover. Now, it seems Wall Street is channelling its inner Game of Thrones mania: enter the term ‘white squire’. According to Investopedia, a white squire is a new, significant investor in a company, but not a full takeover, that gives a strong endorsement to current management and strategy. In Asian fund distribution terms, Spy guesses, getting a fund listed on a conviction list of Julius Baer, UBS, Credit Suisse, HSBC, Citibank, etc. may qualify as help from a ‘white squire’ or perhaps just support from your Bannerman?

If clients are unsure of what fund to buy, perhaps they should just look at asset managers themselves, many of whom are trading way below their 52-week highs. As of today, you can buy Alliance Bernstein shares yielding 6.85%, Schroders at 4.22% or Henderson at 3.87% and no doubt many others with a little digging. If you believe long-term in the wealth and asset management industry, these might be worth a nibble, says Spy.

Spy has suspected for a while that China’s credit crunch is spreading and news from Bloomberg this week seems to endorse that view: “In the creative world of Chinese lending, there’s a new trade in town: the cow leaseback. China Huishan Dairy Holdings Co., which operates the largest number of dairy farms in the country, is selling about a quarter of its herd -– some 50,000 animals -- to Guangdong Yuexin Finance Lease Co. for 1 billion yuan ($152m) and then renting them back. With an estimated $1.3trn of risky loans in the country, Chinese banks are becoming more cautious about lending, forcing some companies to look for new ways to borrow. Finance leasing has been growing in popularity, especially for purchases of equipment. But cows? "It’s not very common to use cows as collateral," said Robin Yuen, an analyst at RHB OSK Securities Hong Kong. "The value of a cow would fluctuate depending on milk prices and other factors, so it’s a risky asset for lenders. It would be hard to do forced selling -- there’s no liquid market for a large number of cows."

Spy’s photographers have been searching the steamy streets of Hong Kong and Singapore. Perhaps the summer heat is keeping them in bars and away from the outdoors because not much new asset management advertising has been spotted or reported.

Natixis is, apparently, doubly endorsing its message, and forcing people to “get a new angle” by placing this ad at a neck-straining height in Raffles Place in Singapore.



Until next week…

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