elstonviews

Whilst advisers and investments are comfortable and familiar with the simple term “funds” (has anyone heard of an “CIS (Collective Investment Scheme) Conference” or being an “AUT (Authorised Unit Trust) investor”?  There is much less familiarity with the once-institutional and now pervasive ETFs (Exchange Trade Funds).  That lack of familiarity means that for some reason that particular TLA has stuck. Claer Barrett in FT Weekend’s FT Money section tries to demystify the jargon  – but ends up makes thing sound more complicated than they need to be. Advisers wanting to check or brush up on the difference between an ETP, ETF, ETN and ETC could do well to invest 2 hours of their time to earn accredited CPD (Continuous Professional Development) from the roadshow being run by Copia Capital Management to get a solid understanding of this increasingly popular and pervasive investment vehicle. As for civilians – customers and investors – it's actually quite simpl...

John Authers’ Long View article in the FT this weekend addresses market timing.  While he claims that just passive investors are such bad timers, we would go further: most are. Attempts to time the market (choosing the right moment to buy or sell into risk assets) are a mug’s game.  Great for brokerages that delight in investors’ fees levied to senselessly overtrade.  Bad for investor’s portfolio outcomes.  Despite the annual survey by Dalbar that investors’ attempts to time the market is really bad for their portfolio, people – including some portfolio managers – still try and have a go. The problem is that in timing the market, we become slaves to our behavioural biases around entry points, and the noise around market sentiment.  An investor fearing Brexit might have – out of emotion – sold everything to cash stocked up on gold sovereigns and run for the hills whilst tracing Irish ancestry.  The smart thing was to acknowledge sterling weakn...

2016 outcomes for our multi-asset Max Sharpe and Min Volatility did what they say on the tin. Dynamic risk-based strategies can provide low correlation differentiated returns to provide a low-cost, liquid alternative to traditional "Alternatives" A quant-based approach to alternative investing is likely to be cheaper and smarter than hedge funds which are vulnerable to manager's behavioural and emotional biases Smart beta strategies are “smart” because they take a scientific, quantitative and objective approach to investing by combining a range of index-tracking ETFs with different market risk or “beta” exposures. In contrast to the opacity of hedge funds, dynamic allocation “smart beta” investment strategies should do what they say on the tin. Elston runs a number of diversified multi-asset investment strategies, two of which have been offered as indices for asset owners and investment managers to benchmark against or track. Chart 1: Risk and R...

- Growth rates cut compared to pre-referendum estimates - Inflation estimates raised on weaker sterling, but possibly not far enough - Focused spending on infrastructure and innovation is welcome Growth estimates cut UK GDP’s growth rate has been downgraded relative to pre-referendum expectations, with a cut from 2.2% to 1.4% for 2017E and from 2.1% to 1.7% for 2018E. Inflation estimates raised Following post-referendum sterling weakness, estimates for UK inflation were increased from 1.6% to 2.3% for 2017E and from 2.0% to 2.5% for 2018E.    This compares to 2.4% and 2.8% for 2017E and 2018E respectively for UK swap breakeven rates. Rising interest rate environment With higher inflation expectations there is upward pressure on Bank Rates after a protracted “lower for longer” regime. Spending focus: infrastructure and innovation   The government spending plans shows clearly defined cous – with budget to increase infrastructu...

Trump looks set to become next US President Both pollsters and bookies called this totally wrong Asymmetric downside risk means near-term mark down of risk assets Voting results Trump swept to victory with 42 of 50 states declared, Trump leads Clinton 244 electoral votes to 215, with 26 to win, collecting 48.2% of the vote vs Clinton 47.1% (as at 0630 GMT today). The result with 46 of 50 states declared gives a Trump win of 278 electoral votes to 218, with 48.0% of the Vote vs Clinton 47.3% (as at Trump acceptance speech). Impact EQUITIES: expect US equities (NYSEARCA:SPX; LON:CSPX) and global equities (NYSEARCA:ACWI; LON:SSAC) to be volatile, with emerging markets (NYSEARCA:EEM; LON:IEEM) to be negatively impacted, particularly Mexico (NYSEARCA:EWW; LON:CMXC). From a sector perspective expect a positive reaction for financials (NYSEARCA:XLF; LON:SXLF), healthcare (NYSEARCA:XLV; LON:SXLV) and US infrastructure/utilities (NYSEARCA:XLU; LON:SXLU). BONDS: expect ...

Following the Brexit Referendum a private legal challenge was mounted against the Government. The challengers argued that Parliamentary approval (rather than prerogative power) was needed before Article 50 was triggered. A High Court ruling yesterday agreed with the Challengers, throwing the Brexit timetable and the viability of the current Cabinet into doubt. Who’s right? Given Referendums are only advisory in nature, and sovereignty rests with Parliament alone, the case had merit. And yesterday’s ruling in the High Court, the three ruling Judges agreed. The challengers maintain they are not contesting the referendum results, they just want legal process to be upheld.  Others suspect the campaign is partisan, but even if so, the case still deserves to be heard. Parliamentary approval was required on the way in to Europe.  It should be required on the way out. Rather than backing the down, the Government is taking the ruling to the Supreme Cou...

October saw a sharp one month loss for global sovereigns owing to inflation fears, raised interest rate expectations and declining Central Bank appetite for QE. In the US, prospects of a December Fed Rate hike saw 10 year yields clime 30bp on month and 76bp from summer lows to 1.26%, whilst stronger growth numbers raised inflation expectations and positive performance for TIPS. The USD performance for inflation-linked treasuries was -0.33% (LSE:ITPS), compared to for -1.32% (LON:IBTM) for conventional treasuries. In the EU, fears over the ECB’s commitment to QE contributed to the sell off.  The EUR performance for inflation-linked Euro government bonds (LSE:IBCI) was -1.78%, compared to for -2.14% for conventional Euro government bonds (LSE:IEGA). In the UK, the inflationary potential from Brexit, and vanishing expectations of any further BoE rate cuts on stronger economic growth led to a gilts sell off.  The GBP performance for inflation-linked gilts (LSE:INXG) was -0.6...