Are Markets Becoming Less Illiquid?
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.
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Balancing all the Factors
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?
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
“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
“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
“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?
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).
SJP – A Very High Bar
Found in a church in France.“When you enter this church it may be possible you’ll hear God’s call. It’s unlikely He will call you on your mobile. Thank you for turning off your phones… If you want to see God, send Him a text while driving”
A Brief History of Time (and Puts)
As of Friday last week, World Equities had lost $15 trillion in value (-7%), with almost two thirds of Global stocks now in “Bear market” territory (i.e. down 20% or more). In Wall Street, talk is already turning to the possibility of the “Powell Put” being in play – the idea that, should markets fall below a certain point, the Fed will ride to the rescue with rate cuts/money printing/buying assets directly etc. or whatever else is deemed necessary to ensure that asset prices don’t fall. As we pointed out a couple of weeks ago, asset prices appear to be the only relevant metric in policy decision-making – and don’t the markets know it!
Dark Days
A teacher asks a class a question: There are ten sheep in a pen. One jumps out, how many are left? Everyone but one boy said nine are left. That one boy said none are left. The teacher said you don’t understand arithmetic and he said: “You don’t understand sheep.”- Charlie Munger…