La Rentrée 2024 ?? ??? ??
Hi folks! I hope all the back-to-schools went ok out there this week, goodness me our eldest (Leo) is only a year away from that now, with lots of his little friends at preschool having moved on this year and I can tell you we are absolutely NOT ready for that!
Hope you all had a wonderful summer, we absolutely did, plenty of croissants, water skiing and looking at castles. My big target of rounding that 3rd buoy of the slalom course sadly did not materialise this year as I needed a full technique rebuild to avoid the dreaded slack line effect as you round the marker. Luckily I have good coaches. Would love to hear if I have any other water ski fans out there and what your experiences have been. Hopefully I can report back with more progress next year. Separately who knew that letting little people loose with mini trolleys in large French supermarkets could be such a fun morning!
Remember, "la rentrée" is a state of mind as much as event on the calendar so in the spirit of renewal and fresh energy, lets do this.
Markets mumble
Things bounced back pretty solidly from the early August bout of volatility although a selloff in the last 2 days has taken the edge off returns. Currency is making a big difference now with a solid sterling rally since end July making a big difference opening up between hedged and unhedged for a GBP investor (the difference between the purple and blue lines below) with hedged having done better since the start of August. your global stocks are up about 9% if you don't hedge but more like 13% if you do.
The Nasdaq is now behind the S&P 500 for the year, rates are lower, pretty much the lowest levels they've been for 18 months, UK 10-year rates are above US for the first time since summer 2023 so US based fixed income has done better. The question remains - is this the start of that long-awaited rotation?
We're right at the start of what looks like a very solid industry conference season over September and October now we're all back. I'm looking forward to seeing folks at the ones I'm going to and apologies to those I had to turn down!
First one out of the blocks was with the good folks at Local Pensions Partnership yesterday and I've been musing on some of the good questions asked. One was on growth: most investible asset classes are linked to global growth, what if growth disappoints? My best answer to this is that investing into that uncertainty is what you get rewarded for as an investor. If there were no doubts about growth it would probably be priced in. I think the right response is to calibrate your exposure properly, but not try and get too cute around pursuing things that promise to decouple returns from growth, as these can hurt your returns. There will always be worries about growth and reasons to doubt.
Things I'm reading
This is worth featuring for the title alone, but the key points here are that yes, rate cuts are coming but epic changes to the labour markets mean that all is far from what it seems in the official data. That makes "data dependency" a trickier Fed posture for investors to grapple with. And the (counter-consensus) view being advanced here is that the US labour market could be stronger than thought, meaning cuts could be the wrong move.
2. Lindsey Stewart over at Morningstar is Recapping the US proxy season in 3 charts.
A key takeaway is that the number of environmental and social resolutions gaining at least 40% support fell again to just 37, down from 103 in 2022, likely driven by the pullback of some large managers. 37 doesn't seem like very many. The pushback from managers is that many of the resolutions were low quality or too prescriptive, but were they really? Obviously the high level stats don't tell the whole story, and one needs to look in the detail. But it does tell a story.
However also including resolutions that were "near misses" (30%+ support) gives a bit of a different picture with a similar number overall to last year. This maybe suggests the emergence of a smaller more progressive voting coalition that can't muster 40%+ support but is still supporting the same number of proposals as prior years.
Governance is one thing investors can agree on and votes against dual-class structures were on the rise.
There's really a lot to unpack here and I think any asset owner with real aspirations to make the most of their stewardship and have an impact on Responsible Investment matters ought to grapple more with this data and what it means.
I'm far from an expert in this area but thirty seven meaningful votes across environmental and social issues doesn't feel like much across the hundred of companies, thousands of votes and presumably hundreds of asset owner RI policies and priorities.
3. 31 years of stock market returns from Ben Carson. (link)
It's been a while since I've seen this great visual that shows long-run stock market (S&P 500) investment returns for different start points (horizontal) and timeframes (vertical).
The main message is obvious in that it is a see of "green" especially for periods over 10 years. Yes, you can have bad decades and the one starting 2000 was one of them. There have been a couple of 3-4 year periods of negative returns.
Things I'm listening to
The folks over at Excess Returns podcast must have been doing something right over the summer as they score two of this issue's recommendations:
Meb is talking about the beliefs he holds that (he thinks) the majority of peers would disagree with. I like this because I've said before that the test of a good belief is that a reasonable person could equally well take the other side of it. I think some of the beliefs he mentions do feel a bit more like strawman examples than genuine consensus but I probably disagreed with a few of the ones mentioned so it was sort of right. Meb's original written piece on this is here. The ones discussed in the episode include his beliefs that:
do you agree or not?
2.. Valuation with Aswath Damodaran (web)
A really good discussion with Aswath here that as usual covers a load of interesting and useful ground for investors.
"One of the most dangerous things you can do in investing is view the rest of the world with contempt, because you've ... done the right things"
Grab bag
The wild story of how a Charter City is suing Honduras for a third of its annual GDP and is expected to win (link).
Super illustration of the issue with leverage. Microstrategy shares are up 100% this year. The 3x levered etf is down big time (via Katie Greifeld at Bloomberg).
Till next time folks!
CIO @ LPPI | I manage large complex global portfolios for Pensions, Endowments & Sovereign Wealth | Chief Investment Officer @ UK LGPS Pool
6 个月Many thanks for sharing your thoughts at our conference, Dan Mikulskis. Hugely appreciated. Really interesting chart at the end - I assume the key point in the underlying article is about how the structuring of leverage really matters? I assume in this case it’s daily (or more frequently?) rebalanced and then has been chopped apart due to the underlying asset vol being too high for the leverage level of 3x. Hard to see how you could get that outcome from cost of leverage and likely excessive fees alone?
Reference Equity | Portfolio Manager | Global & International Small Cap Equities
6 个月On the excellent chart "31 years of stock market returns from Ben Carson"...I'd love to see it with real returns, or alternatively with yellow shading for periods with <5% equity returns. It's great to not lose money in the stock market, but I think we underappreciate the risks of failing to compound capital at a sufficient rate to grow retirement savings and beat inflation. This may be a key risk for equity investors over the next decade. Not a market crash, but simply an inability for indexes to provide attractive real returns following our 15-bull run.