Spy was sinking a very satisfying glass of chilled Montrachet this week, when the great blusterer-in-chief, Donald Trump, claimed that India was a “dead economy” – apparently because it has not done a deal on his tariffs yet. With India’s annual GDP growth at 6.5%, Spy is going to take the Donald’s wild claim with a pinch of salt. Unless an extension has been given, numerous countries will, today, find themselves subject to punitive tariffs. So far, it is fair to say, most countries have capitulated with China, Mexico and India notable holdouts. It could be a lively August, despite the summer holidays.
The phrase, “choice overload”, popped into Spy’s mind this week. State Street Investment Management (SSIM), until recently known as SSGA, has launched a barrage of new sectoral income ETFs; twelve of them to be exact. These new funds add to the myriad already offered by the behemoth behind the SPDR range, including its monster S&P 500 tracker. The new sectors, trading under the snappy Select Sector SPDR Premium Income Fund moniker, are, respectively: technology, communication services, consumer discretionary, consumer staples, energy, financial, healthcare, industrial, materials, real estate, and utilities. SSIM is clearly doing something right – it recently went through the five trillion AUM mark. The manager will surely hope it is only Spy who is overwhelmed by the sheer number of options available.
Natixis Investment Management has surveyed a bunch of people and apparently (and not surprising in the slightest to Spy), 70% of investors responded that the “world feels unstable” and they’re “worried about their finances” and nearly a quarter felt “lost”. But, and Spy tips his hat to David Herro, Co-CIO – international equities at Natixis boutique, Harris | Oakmark, who has gently reminded everyone, “[The world is] unpredictable every day. We don’t know what’s going to happen in the future. First and foremost, people have to realise that unpredictability is just part of the environment. There are different things that cause this unpredictability. There are wars, there’s energy policy, there’s interest rate policy, there’s natural disasters, there’s pandemics, there’s trade war. We are constantly in a period of flux and uncertainty.” So, what is the answer to this pervasive uncertainty, you might wonder? Well, it turns out it to be quite simple really: “Think like an investor and not like a trader.” In other words, let time do its thing.
Spy loves a good thematic fund as much as the next chap. It always seems like such a good idea – back a theme that is going to transform an entire industry and own all sorts of companies that form part of that industry supply chain. The only problem, according to Morningstar, thematic ETFs underperform, and rather badly. Only 20% of thematic ETFs have outperformed their benchmark index, and on average, they lagged the broader market by 8.5 percentage points over the past five years, according to the fund data giant. The simple problem is, by the time investors dive into a theme, it is already too late. They are buying the hype when the fast money is starting to move on.
Do you feel like worrying? Apparently, Warren Buffet has a favourite measure of whether the stock market is overvalued. It is commonly known as the “Buffet Indicator”. It compares the total market capitalisation of publicly traded companies to a country’s gross domestic product. Buffett once called it “probably the best single measure of where valuations stand at any given moment”. When the ratio exceeds 100%, it indicates that the market is valued higher than the economy it reflects—often seen as a warning sign. Currently, the US version of this indicator has soared beyond 200%, marking its highest level on record. This surpasses even the peaks reached before the dot-com bubble (about 140%) and the 2008 financial crisis (around 100%). Markets and economies change, so who knows whether this measure still holds but nobody can say there aren’t signs of froth around.
Microsoft and Meta stole the show this week. Their shares have soared on the back of stellar, analyst-crushing earnings. Microsoft joined Nvidia above $4trn in market cap. The magnificent seven are not dead. Those two companies alone are worth about $6trn; combined they are worth more than the entire FTSE 100. If wealth managers and asset managers were hoping for a little respite from extreme concentration, they will be disappointed. And for all those people pushing the “end of American exceptionalism” narrative, Spy presents exhibit A for the defence.
Spy is marvelling at what collectors will buy and pay for. The news broke this week that a single sock, admittedly a glittery one, which was worn by the late pop icon, Michael Jackson, during a 1990s concert in France, was sold for over €7,688 ($8,667) this week, according to a French auction house that sold the item. Spy can just imagine, in an oversized boardroom, somewhere on Wall Street, a young executive is working out how to turn this marvel of human nature into a fund. “We need to buy up discarded memorabilia at concerts and then tokenise them and wrap them in a private markets fund…” Spy, for one, is just going to enjoy the concert.
Spy was lucky enough to attend the Hong Kong Football Festival this week and watch the Arsenal versus Tottenham Hotspur game with more than 49,000 other fans. It seems football and the English language remain Britain’s greatest exports, if the cheering fans are anything to go by.
As Spy stood waiting for the barista to make an espresso that seems to have jumped 50% in price, he was reminded of the line by Benjamin Franklin, “Beware of little expenses; a small leak will sink a great ship.”
Until next week…