The FSA Spy market buzz - 21 April 2017

By FSA Spy

Added 21st April 2017

Citi promotes; Merger mania; Strong results from Man; AM share prices; QE vs active management; French and Brit elections; advertising from Amundi and much more.

The FSA Spy market buzz - 21 April 2017

Your humble Spy breathed a sigh of relief this week with the news that Hong Kong’s rail operator, MTR, is going to be more tolerant of his foul language, according to an update of its draconian rules. Spy no longer risks a hefty fine of $5,000 for blurting out inappropriate expletives when reading the news on his daily commute. Apparently Spy will now only face a $2,000 fine for cursing Donald Trump, retail bank wealth management sales brochures and “artist illustrations” of HK condo blocks which bear absolutely no resemblance to the real thing. Don’t even get Spy started on politics. Actually, a bit more of that below, just whisper it out of the earshot of MTR officials.

Spy heartily congratulates Roger Bacon on his promotion at Citibank this week to head of investments in APAC. What is striking about this bit of news is that it is an actual internal promotion! With Asia’s private bank habit (see here, here and here) of poaching staff from competitors left, right and centre, it is nice to see a veteran get some recognition within his own organisation.

With three prominent asset management mergers taking place at the moment (Janus/Henderson, Standard Life/Aberdeen, Amundi/Pioneer) it is no surprise that a further wave of consolidation has been publicly predicted. This week Fidelity’s Charles Morrison and Blackrock’s Larry Fink both added to the cacophony as they said they, too, expected a further wave of consolidation as smaller asset managers seek to cut costs, achieve scale and find ways to beat the market (or more specifically beat the trend for roaring ETFs sales in Europe and the US). Yet, is this narrative nothing more than hopping on the latest trend? Something, it must be said, the industry has been accused of more than once… Time will tell, but Spy is old enough to have heard about the imminent consolidation of the industry before, only to see new names pop up with healthy regularity, proving that scale is not the only thing that counts in AM. It is not so long ago that Jupiter did not exist; Woodford is just a babe, RWC Partners and Polar Capital are recent players in global terms, and the list would only get longer if one had the time or inclination. Spy, with apologies to Mark Twain, suggests that the death of small asset managers is greatly exaggerated.

Spy has predicted for a while that alternatives are going to have stronger performance in the near future, especially as rates and volatility rise. On cue, Man Group Plc has delivered a stellar set of results this week announcing $3bn of net inflows in the last quarter – total new money of $8bn, bringing total AUM to nearly $90bn. Its share price has reacted accordingly and is trading at a recent high of 150p in London, a 27% return year-to-date. Hedge funds are not entirely out of the woods as some cardinal sins from the GFC linger. Nonetheless, Spy expects private banks in Asia to increase their exposure as the year drags on and has been hearing as much from the selectors themselves of late.

Man is not the only asset manager to have a bouncy share price at the moment. Spy spotted that Jupiter is trading near an all-time high at 455p this morning. Amundi is another manager whose shares are roaring – after floating at €45 they are now trading at €54 having dipped last January below €38. On a one-year basis they have delivered a healthy 42.26% return. Spy is not too sure how many of Amundi’s funds have done the same…

Oil and commodities in general have been in the news for weeks as bulls and bears play tug- of-war with resource prices. Spy took a look this week at which commodity funds in Hong Kong have been performing well and navigating the volatility. Blackrock’s World Mining Fund is up a healthy 18.2% over the last year, JP Morgan AM’s Global Natural Resources is just shy of 20%. But the clear winner is Allianz GI’s Metals and Mining Fund, up 21.6%. Judging on the dearth of excitement or discussion among fund selectors about commodity funds of late, despite these sorts of returns, perhaps these three need to find a way to add “tech” into their names. It might be the only way to get anyone to take notice.

Careful what you wish for. Old saying, good advice thinks Spy. Asset managers have benefitted enormously from QE, which has pushed asset prices up over the last nine years. Yet one recent study has suggested that QE may be (partially) to blame for active managers’ underperformance relative to the market. There appears to be a relatively strong correlation, as illustrated below, between Fed balance sheet growth and asset managers finding it hard to deliver alpha. Does this mean sunnier skies ahead for active asset managers as QE unwinds? Spy would bet on it.

 

 

Sometimes a picture says more than 1000 words. Whilst the image is clearly referring to student debt, Spy could not help think, might this be true of the wider credit markets?

 

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Spy feels a modicum of pity for portfolio managers this week who think the world is more confusing than ever and are finding it hard to have high conviction positions. British prime minister, Theresa May, stunned the market with her June snap election call, which prompted a massive rally in the pound. Across the channel, the French this weekend begin their election process with a round one that is the most unpredictable in generations and could end up with hard left and hard right candidates to choose from, both of whom are euro-sceptics. More so than usual, political events have been driving markets and it is far easier to look like a fool when politicians are driving the news instead of companies or even central bankers.

Spy’s photographers have seen some new outdoor advertising from Amundi promoting their Global Dynamic Allocation Protection 90 Fund with a handsome 90% guarantee. It is funny how guarantees often get wide billing near the top of bull markets, in Spy’s humble experience…

 

 

Until next week…

 

P.S. Spy’s recent sporting prediction successes: Fiji to win the HK Rugby Sevens and the New England Patriots to win the Super Bowl, have led to requests for tips on the upcoming British Lions Rugby Tour of New Zealand. Spy’s advice, don’t even bother putting your money on the Brits, the Kiwis will win all three tests starting with the June 24th test at Eden Park.

 

 

 

 

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