Sat. Oct 16th, 2021

Let’s start today’s Weekly Roundup with a look at ETFs.


Robin Wigglesworth

In the FT, Robin Wigglesworth said ETFs have become much more than passive index trackers.

They are not the market leaders with a long box office:

Globally, there are more than 70,000 investment funds with combined assets of nearly $ 40 billion. The combined industries of private capital and hedge funds can account for one-fifth. Despite a decade of rampant growth, there are still only $ 9 million in ETFs.


But companies are starting to convert their mutual funds assets into the structure of the ETF:

  • Dimensional converted to $ 29 billion earlier this summer.
  • JP Morgan announced this month that four funds worth $ 10 billion would be converted.

Bloomberg Intelligence ETF analysts calculate that more than a million dollars of investment funds could be transformed into ETFs in the next decade.

And more ETFs are issued: 199 against 109 new investment funds during the first half.

US capital gains

One reason (in the US) is fiscal efficiency: there are no ongoing capital gains events.

  • But their distribution (through exchanges) is also much simpler.

And in the US, many ETFs have no commissions.

But they’re also flexible, ranging from S&P 500 trackers to ARK funds actively managed by Cathie Wood’s hypergrowth (and even anti-ARK funds that will reduce the same stocks).

  • There are also derivative-based funds, including short, leveraged funds.

Leveraged and reverse ETFs

Robin accepts that people are doing silly things within the structure, but:

At some point, critics have to stop blaming the wrapper for everything they sell, and instead point to people who put silly or dangerous things in it or invest without understanding what they are buying.

I think he’s pretty optimistic.


Trading volumes by type of investor

Buttonwood examined the role of retailers.

  • After a decade of drifting into passive index funds, active retailers have returned, thanks to Tesla, crypto, GameStop, Robinhood (zero commissions and options trading) and lockout.

Between October 2019 and February 2020, trading volumes in retail brokers almost doubled from a low level, before doubling again once closures began.

In 2019, approximately 59 million Americans had accounts with one of the seven largest runners. That number has risen to 95 million, with 17 million new accounts opened in 2020 and 20 million created this year.

Retail trade flows increased by 25% to more than 40% in the first quarter of the 21st.

  • The share of U.S. equities in the hands of households fell from the 1970s to 2015, but now returns to 38%.

At the same time, the S&P 500’s share of passive funds continues to rise and now stands at 18.3%.

And not all retail accounts are day traders:

On average, Charles Schwab’s 32 million account holders trade four times a month. This is more active than Vanguard customers (three-quarters of them are unlisted in any year), but quietly compared to the 34 trades that make up 1.5 million Interactive Brokers customers each month. .

Triple Lock

Amy Austin

At FT adviser Amy Austin analyzed the threat to the triple blockade of state pensions.

  • The recovery from last year’s pandemic success gains means pensions are well on their way to record highs next month.

At the same time, the UK state pension is sadly low in terms of income (the lowest in the OECD club of rich countries) and even lower than in 1979.

Figures from the Institute for Pension Policies showed that since 2010, the state’s basic pension is worth only 19% of average income, while the new state pension is worth 24.8%.

Just Group noted that even the 8% project increase would leave the pension below the standard £ 10.8,000 recommended by the Joseph Rowntree Foundation.

Just Group CEO Stephen Lowe said:

While for many an 8% increase in the state pension will seem extraordinarily generous, our analysis shows that even this level of raising would not yet give pensioners the only income the public believes provides a minimum standard of living. acceptable.

Research shows an intergenerational gap in support for the triple blockade:

Almost half of savers (46%) believe that the triple blockade of state pensions should remain, but it is more likely that those over 50 will want to stay [it] with 59% support, compared to about a third (34%) of those under 50.

I am old and biased, but it seems to me that the triple lock should be maintained until the pension has reached an acceptable level in relation to average income.

  • Getting everyone to agree on this percentage can be tricky.

Purchase of central bank assets

The Economist thought it was time for central banks to make it clear what QE was for, and then invest it.

  • 40% of the $ 28 trillion projected on central bank balance sheets is attributable to the pandemic.

However, there is only weak evidence that the accumulation or holding of bonds helps economies a lot when, for example, financial markets are quiet.

QE is rather a signal of when central banks could raise interest rates and fears of another “topical rage” support their continuation.

  • Banks should explain, instead, that QE is for the crisis and that government spending and tax cuts are more effective once interest rates are already zero.

The newspaper hopes this will break the link with interest rates and allow QE to end without any rage.

  • And reducing the central balance sheet would reduce the impact of rising interest rates on public finances.

Income available

A second article wondered whether economic recovery would survive the end of the stimulus.

  • Real disposable income increased by 3% in 2020, as GDP fell, based on additional profits worth 2.3% of GDP.

Corporate bankruptcies

Healthy household finances translate into increased demand for goods and services.

  • Along with loans, grants, and curricula, this led to a drop in business bankruptcies in most countries (and perhaps to an increase in the number of future zombie companies).

Stack of covida cash

There is a risk that the end of the stimulus will lead to lower spending, increased unemployment and more bankruptcies.

  • Households have saved more money, but will they want to spend it when they no longer come in?

The temporarily higher risk of unemployment is also clear, but again the most interesting question is whether people will want to go back to their previous job.

  • The example of Australia, which ended its job retention plan in March, suggests they will.

A third number is the unpaid bills of companies and households (taxes and rents).

  • And unpaid rents could eventually lead to evictions, as bans on this process would be lifted.

There is still much to play in this recovery.

Investment value

David Thorpe

Let’s go back to FT Advisor, where David Thorpe reported that star fund manager Nick Train believes investing in value is a “20th century” idea.

  • And that applying traditional valuation metrics to modern digital companies is a “mistake” and obsolete.

Nick Train

Train said in its monthly update letter to customers:

Investors, especially Americans, understand the value digital and data companies generate for their owners as they grow. Its capital intensity is low, that is, capital returns are high and abundant cash is generated.

Capital returns are so structurally higher than analog and brick businesses [valuation multiples] now we might consider it excessive 20 years ago that it can now be rightly designated “cheap”.

This is echoed in the comments a few years ago by James Anderson, of the Scottish mortgage.


PayPal announced that its encryption service would arrive in the UK before the end of August, but it “follows” soon according to my own account.

  • Not that I hope to take advantage of it, as the rates are huge.

PayPal encryption fees

In addition to the minimum commission of 1.5% of the transaction, there is also an “exchange rate margin”, which according to the Terms and Conditions, seems to be a double margin:

PayPal can dial:

  1. the price at which we buy or sell cryptocurrencies on your behalf from our commercial service provider. It is generally about 0.50% of the value of the transaction, although the actual rate will depend on market conditions; i
  2. the conversion between pounds sterling and US dollars using our current exchange rate offered to customers, which is based on the wholesale exchange rate or, if required by law or regulation, the exchange rates relevant government references.

I’m too expensive for me, I’m afraid.

Quick links

This week I have five for you, all from The Economist:

  1. The newspaper said the next decade would be tough for Apple
  2. Because Apple exemplified the era of global capitalism that has already passed.
  3. Instead, they thought Flutter Entertainment was in the process
  4. That Amazon’s department store plans aren’t surprising
  5. And this innovation has arisen from Bill Ackman’s SPAC problems.

Until next time.

Mike Rawson

Mike is the owner of 7 Circles and a private investor living in London. He has been managing his own money for 35 years, with some success.

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