One thing to start: The jig is up for ESG. Regulators are swarming. Investor enthusiasm is waning. Executives are revolting. For the armies of asset managers, data providers, consultants and advisers that have sprung up in the past 10 years this is an existential threat. Companies editor Tom Braithwaite has come up with a solution in this hilarious column: pivot to bullshit.
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Amanda Blanc, the boss of British insurer Aviva, this month became a social media sensation after calling out the casual sexism of some of her investors at the annual shareholder meeting.
Deputy editor Patrick Jenkins travelled to her hometown in the lush countryside of the south Wales valleys to hear from one of the City’s most authoritative figures on fighting back against sexism, investing in UK infrastructure — and how big business can do good.
Blanc is one of only nine female FTSE 100 chiefs. Her success in restoring the fortunes of one of Europe’s biggest insurers is legendary.
Within a few months of taking the top job at Aviva she had sold a string of foreign subsidiaries and returned capital to shareholders — spurred to go further and faster by Cevian, the Swedish activist that is now the company’s second-biggest shareholder after buying a 5 per cent stake a year ago.
Aviva’s shares have jumped almost 60 per cent under Blanc’s leadership, recovering from a dip after the Russian invasion of Ukraine.
Read the full interview here to hear how Blanc rose from a childhood in a rural mining community to the heart of the capitalist system. She also opens up about the sexism at that infamous AGM:
“You prepare for AGMs. You’re thinking you’re going to get the people who object to nuclear. You’re going to get the ESG [climate activists]. You’re going to get the shareholders that have got problems with claims. You prepare for everything. You do not prepare for comments like that.”
Trend followers get their groove back
Quant hedge funds that bet on market trends have had a rough time over the past decade or so. But 2022’s market turmoil is finally providing them with near-perfect trading conditions.
The so-called managed futures sector — $337bn of funds that use algorithms to identify and latch on to trends and other patterns in global futures markets — has been one of the highest-profile hedge fund victims of central banks’ lengthy quantitative easing programmes.
With much of the market volatility they love to trade squashed, funds on average lost money in six of the eight years between 2011 and 2018. The result was a “dead decade,” says one senior executive.
Paris-based quant firm CFM calculates that the period from 2008 to 2018 was the worst decade for a trend-following strategy since 1932 to 1942, a period that included the Great Depression and the onset of the second world war.
Things got so bad that the industry began to debate whether trend-following — a strategy as old as financial markets — even worked any more. David Harding, the ‘H’ in AHL and founder of Winton Group, caused controversy by moving his fund away from trend, a move that one rival said made it “impossible” for trend-followers to raise money from investors for a while.
But just as QE proved so damaging to the sector, the dramatic unwinding of the ultra-loose monetary conditions that have dominated for years is providing some major trends to trade, as my colleague Laurence Fletcher reports.
A major sell-off in government bonds and a surge in energy prices have been the most profitable, but nearly all asset classes are working at the moment for trend.
“The one underlying theme [this year] has been the end of the benign decade we’ve experienced”, says Leda Braga, founder of Systematica Investments. “Now there’s more volatility.”
With little sign that central banks will veer from a course of tightening interest rates anytime soon, trend-followers may finally have found their groove again.
Chart of the week
Behold, one chart to sum up markets since 2020. An equity valuation chart comparing ExxonMobil with Zoom Video Communications over the period illustrates just how incredibly powerful the ebb and flow of market trends has been, writes FT Alphaville. Zoom entered 2020 with a market capitalisation of under $20bn, but ended it a genericised verb valued at about $100bn. At its absolute peak in the autumn of 2020 it was worth more than $160, surpassing even ExxonMobil, an old-economy titan that traces its roots back to John Rockefeller’s Standard Oil. It couldn’t have better captured the zeitgeist.
Fast-forward to the early summer of 2022 and things look radically different. Zoom’s stock market value has collapsed back to $31bn, as investors have ditched most of the pandemic-era winners in favour of stocks that benefit from economies returning to normal. But the biggest recent winners have been old-school companies in out-of-fashion industries — and above all those that pump hydrocarbons out of the ground.
ExxonMobil’s stock market recovery first began when Pfizer et al announced that they had developed a strong slate of anti-Covid vaccines in November 2020. But it is the supply-chain disruptions and Russia’s invasion of Ukraine that has really sent oil prices and Exxon’s shares soaring. The oil major started 2022 with a market cap of $270bn, but it is now above $400bn — its highest since the big energy price collapse that started in 2014.
10 unmissable stories this week
HSBC executive Stuart Kirk’s provocative speech on climate change led to his suspension. But some in the asset management industry welcomed his willingness to expose groupthink and highlight some of the inconsistencies of ESG investing.
Fearsome activist investor Carl Icahn lost his proxy fight with McDonald’s over the fast-food chain’s treatment of pigs. He failed to bring home the bacon largely because he didn’t put his own money where his mouth was.
Markets have become a minefield, writes markets editor Katie Martin in her column. Investors are in an extremely unforgiving mood if companies disappoint on earnings.
Crypto is not yet dead, at least according to Andreessen Horowitz, the Silicon Valley venture capitalist which has just raised a $4.5bn cryptocurrency fund into the teeth of the collapse of digital asset markets.
Vanguard, the world’s second-largest asset manager, has refused to step up its climate measures, including stopping new fossil fuel investments. “Our duty is to maximise long-term total returns for clients,” says chief executive Tim Buckley. “Climate change is a material risk but it is only one factor in an investment decision.” It comes as major fund managers like PGIM, BlackRock and Pimco have called for more clarity around marketing ‘climate-friendly’ products.
It looks like US regulators agree. The Securities and Exchange Commission is plotting a crackdown after fining BNY Mellon’s investment adviser division $1.5mn for allegedly misstating and omitting information about ESG investment considerations, in the first case of its kind.
Private equity cannot avoid the reckoning in markets, writes Mohamed El-Erian, an adviser to Allianz and Gramercy. The real economy and the financial system are in a destabilising phase for both public and private investors.
The global outlook for dividends has stabilised, defying fears that Russia’s invasion of Ukraine would prompt cuts to shareholder payments. Almost 95 per cent of large companies increased or held their payout in the first quarter, according to Janus Henderson.
Commodity funds are making a comeback after years out of favour, as institutional investors seek hedges against stubbornly high global inflation. Raw material prices have surged as pandemic supply disruptions are compounded by war in Ukraine.
Changpeng Zhao, head of Binance, says it’s obvious that Terra, the collapsed crypto project that triggered a $40bn wipeout for investors, was built on a “self-perpetuating, shallow concept”. But just weeks ago his company, the world’s biggest crypto exchange, advertised the coin to small buyers as a “safe and happy” investment.
And finally
To Cambridge, where contemporary artist David Hockney has taken over with an exhibition across The Fitzwilliam Museum and The Heong Gallery, Downing College that explores his obsession with how we see the world. In the galleries of the Fitzwilliam his drawings, paintings and digital artworks are shown alongside works by Claude Monet, John Constable and Andy Warhol. Meanwhile also in Cambridge, don’t miss a visit to Kettle’s Yard, the one-time home of former Tate Gallery curator Jim Ede and his wife Helen, and their distinctive collection of 20th century art. Kettle’s Yard is currently showing a new exhibition by Chinese contemporary artist Ai Weiwei.
The newsletter is taking a break next week for the Queen’s Platinum Jubilee celebrations. Normal service will resume on June 13.
Future of Asset Management Asia
31 May 2022
The second edition of Future of Asset Management Asia will gather together leaders, experts and thinkers from the asset management industry to explore the best strategies for post-pandemic growth in the region. Learn more
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