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It’s a Kind of Magic..?

Market Commentary | February 15, 2019

You may not have heard of Modern Monetary Theory, but you soon will do; it is becoming increasingly popular in the US as the “democratic left” searches for an alternative narrative to that of Donald Trump and a way to harness popular discontent with the way capitalism appears to be working. As we have discovered recently, economic illiteracy is no barrier to popular acceptance and though this ideology is clearly of that idiom, it does look set to go mainstream in the run-up to the next Presidential election, set for November 2020. I will not attempt to debunk the theory itself (as my view of it is entirely independent of the likelihood of its’ coming to pass) but instead look at the consequences for asset prices in general should it do so. Forewarned is most definitely forearmed. So what is Modern Monetary Theory (MMT)?

Horses for Courses

Evidence Based Investing | January 25, 2019

“He’s like a man with a fork in a world of soup.” – Noel Gallagher on brother Liam, (Q Magazine, April 2009)

Something Wicked This Way Comes?

The passing of Jack Bogle this week leaves the world of investing much poorer, but his career has benefitted investors enormously (nearly $1 trillion) according to some. He eschewed the riches that most on Wall Street seem to covet and genuinely helped millions of investors get cheap access to capital markets returns. This post sums up what many of us owe to him; he has truly left an enormous legacy, which we should all try to keep alive. “Success is not final, failure is not fatal: it is the courage to continue that counts.” – Winston Churchill

Are Markets Becoming Less Illiquid?

Evidence Based Investing, Market Commentary | January 11, 2019

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price – Investopedia.

Balancing all the Factors

Evidence Based Investing, Factor Based Investing | January 4, 2019

As our clients are well aware, EBI uses “Factors” within our portfolios to “tilt” our holdings towards those areas that exhibit a premium over and above that of the market for exposure to various specific characteristics. All portfolios have a tilt towards Small Cap and Value shares, but for the World Portfolios, we also employ Momentum, via iShares and Vanguard managed ETFs. It begs the question as to why we don’t use more “Factors”, which we shall attempt to address here.As the chart below describes, the growth of Factor Investing has been enormous, quadrupling in the last 6 years, as US investor interest has mushroomed.

Will the Fed flinch?

Market Commentary | December 21, 2018

David Rosenberg @EconguyRosie:”One silver lining from the stock market’s horrible behaviour is that we haven’t had a presidential tweet since Oct 31st”. (Gluskin Sheff Chief Economist).

Equity Orphans

Evidence Based Investing | December 7, 2018

“Victory has a thousand fathers, but defeat is an orphan”. – John F. Kennedy As ESG/SRI goes mainstream, with more providers offering ethical options for investors, the spotlight has fallen on those shares that do not fulfill the criteria required for inclusion in “Responsible” portfolios. As a result of the potential tracking error risk for Investors arising from wholesale deletions of a large number of firms from the mainstream indices, Fund Management firms have been cautious in what they omit from their Index funds, mostly restricting themselves to 3 main sectors; controversial weapons, Coal producers and those firms that fail to comply with the UN Global Compact on Corporate sustainability.

Expert Analysis

Evidence Based Investing | November 30, 2018

“The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’ — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s” – Paul Krugman 1998 If we were in any doubt as to the value of predictions, the above quote should put it to rest. One wonders how one can be so spectacularly wrong and still retain credibility, but it does not appear to have damaged his reputation – he is a Nobel Prize winner no less!

Bond Features

Evidence Based Investing | November 23, 2018

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody”. -James Carville US Political Commentator. Bonds, like the companies that issue them, come in a bewildering array of forms, from the plain (Government bonds etc.) to the downright esoteric (High Yield, Municipal and even PIK varieties), but investors in all of them have to ask themselves, how confident am I that I will get my money back and (more importantly for the investor’s return on capital), when?

King Dollar re-ascends the Throne?

Evidence Based Investing | November 16, 2018

Up-Date to a previous blog; at the end of October, we discussed the recent travails of the Hedge Fund community (here). We will very shortly find out how bad it could get; this article picks up on the theme and points out that Investors who wish to redeem their HF holdings have to give 45 days notice of their intention to do so. So, November 15th is the deadline to get out (penalty-free), for year-end. After another really poor year and the likely shock of seeing October’s (lack of) returns, many could decide to head for the exits, which could (theoretically) scupper any chance of a year-end rally (as Hedge Funds could be forced sellers).