More than two years ago, we discussed the rise in social unrest across the globe as nations start to split apart. This has got much worse since then and it appears to have become generalised as the cleavage between populations has now spread to families. Why now and how will it all end?
A pub quiz question- what has been going on for more than 3 years, amid much frustration and bemusement to all involved, having got nowhere at all during that time and is not Brexit?
One could argue that good ESG starts at home, and not just with a product range. As demand and awareness around environmental, social and governance factors grow, ETF providers are under increasing pressure to showcase their own good practices.Fund houses will also have to become more transparent on ESG, whether they like it or not. By 2020, the European Commission will require investment houses to disclose how they integrate ESG opportunities and risks into their processes to stop funds being labelled as ESG when they normally wouldn’t qualify – otherwise called ‘greenwashing’.
In the context of financial markets, Repo’s refer not to repossessions but repurchase agreements. This is the process whereby banks who are (temporarily) short of money can borrow from those who have excess cash so that they stay within their legally required reserve requirements. Generally, the interest rates charged are that of the prevailing Fed funds rate, which s currently in a range of 1.75-2%.
Under the ESG umbrella, there is another category that pertains more to the ‘S’ and ‘G’ letters – gender equality. Given the rise of movements like MeToo and TimesUp, there is increased recognition and acceptance of gender equality and diversity at work. And thanks to UK government-backed initiatives like the Women in Finance charter, the Alexander Hampton review, which aims for 33% women on boards of all FTSE 350 companies by 2020, as well as mandatory gender pay gap reporting for companies with more than 250 employees, gender equality has become less an esoteric aim and more mainstream.
“At the end of the day, it’s not a normal condition to have interest rates at zero”- Lloyd Blankfein (Goldman Sachs CEO). Quoted in June 2014.
Equities can be seen as a “call option”on the future growth of a company; once the liabilities due to bondholders are paid, the surplus accrues to shareholders in the form of dividends/share buybacks, etc. or are re-invested to generate future growth in the firm. At least, this is what happens most of the time, but every now and then, things go awry, a company fails and the “call option” expires worthless. It is not a common occurrence, but when it does happen, the shareholders tend to lose everything.
“If all you’re trying to do is essentially the same thing as your rivals, then it’s unlikely that you’ll be very successful” – Michael Porter. In the last fortnight, there has been something of a reversal in the market’s favorite Factor trade – long Growth/Momentum and short Value. It began in the US, but as is normally the case, it soon went Global. As a result of this, months of gains in Momentum (long) and Value (short) were lost in a matter of days. But one would not have known anything of this, looking at the Indices, with all major markets seeing gains since the start of September.
The following blog was produced by Garrett Quigley of GSI (Global Systematic Investors LLP). GSI are the appointed sub-distributor for the Global Sustainable Value fund which EBI will be using in it’s Earth portfolio suite. You may wish to view former EBI blogs on the Value premium both here and here. Summary • In global developed equity markets, Growth has outperformed Value for a protracted period.• Growth is now trading at a historically high price level relative to Value.• Much of the recent outperformance of Growth vs Value is due to the change in the valuation spread between Growth and Value.• When Growth last traded at this valuation level, it subsequently underperformed Value for 20 years.
“If you gaze long enough into an abyss, the abyss will gaze back into you” – Friedrich Nietzsche. Amidst the sound and fury of trade war rhetoric, there are signs of problems in the banking system in China. In the last 3 months, there has been a spate of previously unknown events there – bank defaults. This week’s news of a delay in the implementation of (some of) the US tariffs on Chinese goods led to an immediate spike higher in shares (and lower in bonds) but has not changed the situation that has plagued the Chinese banks.
