Little Doubt (TWTW – April 5-9, 2021)
Blow out March 2021 Payroll and TESLA delivery numbers kicked off this past week on a positive note.
These, however, did nothing to help Credit Suisse, which announced the damage sustained in that whole Archegos margin call episode. And that, well, isn’t pretty: Credit Suisse estimates Archegos loss at $4.7bn, shakes up Board. Credit Suisse Group AG on Tuesday announced an estimated loss of 4.4 billion Swiss francs ($4.7bn) from its relationship with Archegos Capital Management LP, suspended a share buyback programme and cut its proposed dividend. Ouch …
Seeing that, once upon a time, I worked for Credit Suisse, I am, needless to say, quite disappointed by this dire news.
To lighten up the mood, here is a picture that a former colleague of mine shared, and I guess, in a humorous way, it underscores a critical problem with what has happened to CS in regards to Archegos: in 3 words or less: Shitty Risk Control.
Translation: Credit Suisse Risk Assessment team at work. (Please do not try this in your own pool LOL – or, for that matter, anyone else’s. Swiss Banks, I am afraid to admit, aren’t what they used to be … recall that UBS did a great job getting itself near wiped out in the US mortgage mayhem of the Great Financial crisis … sad.
Looking for better news from a bank? I guess we got it this past week courtesy of JP Morgan’s CEO Jamie Dimon, who had this to say about what he sees coming up:
“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE [quantitative easing], a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom”.
In his annual letter to shareholders, he went on to say: “This boom could easily run into 2023 because all the spending could extend well into 2023″. Naturally, this carries quite a bit of weight, given Mr. Dimon’s reputation as one of, if not the world’s best banker.
So, good news ahead as far as the economy, and the reopening-related/stimulus boost to it. However, Jamie Dimon went on to paint a more challenging picture as far as his thoughts on America:
JPMorgan Chase CEO is deeply concerned about the future of America.
In his annual shareholder letter Wednesday, Dimon wrote that the Covid-19 pandemic, the “horrific murder” of George Floyd and the painfully slow economic growth of the past two decades are all symptoms of a broader problem: “inept” public policy and broad government dysfunction.
“Unfortunately, the tragedies of this past year are only the tip of the iceberg — they merely expose enormous failures that have existed for decades and have been deeply damaging to America,” Dimon wrote, adding that the nation was “totally unprepared” for the deadly pandemic. Read more: Click HERE!
Will that assessment change anything going forward? I’d like to believe it has the potential to, just as everyone buying into “ESG” (Environmental/Social/Governance) as a framework for selecting investments that can be aligned with everyone’s aspirations to see a better world ahead presumably does.
On that front – ESG – naturally you’d have had to have been living under a rock in the past 2 years to not take note of the fact that ESG is really becoming a thing! One of these things, which … (just like ETFs that have been around for 31 years in the making are an overnight success … ) at some point really begins to hit the mark. Is this the case and the current backdrop? Well, let’s just say that it definitely will bear watching and monitoring. In passing, I’d note that the investment industry is clearly behind a meaningful push of everything “socially responsible”, citing a strong demand pull. As soon as I have my entire Canadian ETF industry database fully backfilled, I should be able to provide more colour around how this is all coming along. For now, note that last week saw a meaningful launch to the south of us:
Investors poured about $1.25 billion into the BlackRock U.S. Carbon Transition Readiness ETF (ticker LCTU) on Thursday, making it the biggest launch in the ETF industry’s three-decade history, according to data compiled by Bloomberg. Read more: Click HERE!
So what’s in it … you might ask? And that’s where, today, I was surprised when someone on Twitter highlighted some of the top holdings, which … to me, look an awful lot like a mix of QQQ and XLF’s top holdings… Check the holdings out by clicking HERE!
At a minimum, this says: beware duplication risk … since you may very well already be significantly exposed to some of these top names either directly, or via mainstream market cap-based ETFs.
Pivoting to Canada, while staying on the ESG train, note that last month saw a meaningful “ticket” going into BMO ESG ETFs, notably ESGY.F and ESGY (3/4 of it going into the hedged units, ¼ into the non-hedged). The money, gauging by outflows out of S&P500 (hedged and unhedged versions) ZUE and ZSP, looks to have come straight from pure passive – so here, definitely a big deal! To check out ESGY (BMO MSCI USA ESG Leaders Index ETF, click HERE!
This incidentally, was first flagged in National Bank’s review of the ETF space as at Mar 31, 2021. To read more, Click HERE!
Further thoughts from CIBC on the future of ESG ETFs in Canada? Read more: Click HERE!
Where are Advisors and their clients at as it pertains to ESG? Well, let’s just say research from 2020 CREDO Consulting suggests to me, as in the case for ETFs in general, that continued and additional education efforts will be required.
I recently mentioned that I am in the process of backfilling my DB, and after kicking that effort off by updating all of BMO’s ETFs, I have now completed the exercise for iShares as well. At an aggregate level, looking at iShares for the month of March, I estimate AUM for the firm reached CAD 82.7 Billion, with modest net inflows in the iShares line-up (due to significant XIU outflows last month only partly offset by CIX inflows), offset partly by outflows in the firm’s former Claymore line-up (largest of which 1-10 Year Gov ladder partly offset by 1-10 inflows into corporate ladder product CLG, CBH). For its part, BMO ETFs looked to have experienced a modest (and fairly rare if memory serves) outflow in March, leaving market gains alone to prop up aggregate AUM at both firms. Both firms (iShares and BMO ETFs) incidentally look to have enjoyed AUM growth year-over-year of some 33%+ on a trailing 12 months basis (recall, of course that March 23, 2020, marked the bottom for equities markets by then experiencing the most downward pressure from fears associated with the unknown as far as the ultimate impact of COVID-19. (No 3 player Vanguard Canada, meanwhile, looks to have gained an estimated 55%+ in terms of aggregate AUM from the level they stood at as at Mar 31, 2020).
In other ETF “news”:
Mackenzie’s Michael Cooke speaking to the resilience of ETFs against a challenging pandemic backdrop: Click HERE!
CI First Asset – a number of changes to the line-up underway => Read more: Click HERE!
Horizons ETFs: AI Manager – Castle Ridge wins AI Award => Click HERE!
And I’ll leave it at that for now.
Don’t forget to join our webinar on Green / Alternative Energy with First Trust Portfolios Canada on April 21, 2021, at 14:00. To Register: Click HERE!
Enjoy the rest of your weekend 😉
PS: oh, and I forgot to include my thoughts about that nice little real estate bubble exercise we are currently witnessing here in Canada, which the government is going to attempt to “tackle” (that is one hot potatoe, that one…)
respectively the very inconvenient truth that apparently over 1/2 of Canadians are $200 or so from having big financial problems … (Could these be linked?) – Good luck to all of us …
Stay Safe, Stay healthy!