Business & Investment

Weekly Roundup, November 23, 2020

Today’s Weekly Roundup begins with FT John Redwood.

Biden’s victory

John Redwood ETF The portfolio overweights the United States at the expense of the United Kingdom, Europe, and emerging markets.

  • Because of this, he is up 6% in YTD.

In this month’s FT article, he Potential impact of President Biden on the market..

Biden wants the United States to rejoin the legitimacy of the world, become a good member of the global organization, embrace the Green Revolution and follow the lockdown mantra.

Despite the regulatory threat, the blocked tech stocks rebounded as Biden’s chances of victory increased.

  • Later, when the vaccine was announced, anti-blockade strains (travel, entertainment, and even oil).

John hopes Biden’s reaction to the virus will be more severe, but it’s an ongoing challenge to make the two Americas (he and Trump) coexist happily.

  • In addition to this, there will be more support for the Green and Digital Revolutions and more financial stimulus.

I switched some of my investment in technology to a more general global share and reduced my investment in a successful US-led digital revolution. The fund also holds a price-linked bond position in case the world eventually decides to break out of debt.

John also has a theme fund exposure Clean energy, battery technology, robotics, cyber technology.

Redwood Fund 201116

Currency trading

Joachim Klement

Joachim Klement reported on a new study showing that: Central bank virtually killed currency transactions..

The most popular anomaly (also known as a factor) traded in the currency market is carry trade (buying high currencies). Interest Low rates and currencies for sale Interest Fee), Momentum Trading and valuation trading (based on purchasing power parity).

Unfortunately, the profitability of each of these factors (and many others) has declined significantly since it was first reported in the academic literature.

Currency factors

Most factors made a loss, a loss, and a profit.

Value strategies lost money in the sample (that is, they should have bet on them according to academic research), but when that fact was known, so many people started betting on value, so the strategy It started working well after publication.

Unless your pair contained dollars, the only factor that kept working was carry trades.

Benefits of currency elements over time

Looking at the factors over time, it was profitable until 2008.

  • When did the central bank fall? Interest Price and start QE..

The new policy regime after the financial crisis has made it impossible to make money in currency in a systematic way.

Joachim speculates that the new regime has also contributed to the decline in equity factor performance over the last decade.

Investment trust

Madison Derbyshire

Elsewhere in the FT, Madison Derbyshire plugged in some Investment trust For the way they dealt with the pandemic.

  • However, this year was a turbulent year, as evidenced by the fluctuating average discounts on the internet. Assets value.

Investment trust discount

After shrinking to a record low of 1.3% for 10 years, the gap jumped to 12% in April (temporarily cheating at over 20% in March) and narrowed to 7% by October.

  • That sounds bad, but in 2008 many trusts got a 30% discount, averaging 18%.

Madison emphasized the use of IT reserves to support dividend:

The ability of trusts to maintain or increase payments to investors when many listed companies are reducing or arranging payments to investors spotlights the trust business model and is popular among investors. Has been resurrected.

According to AIC, about 58% of the 124 trusts reported so far this year have increased payments, with an additional 23% holding them.

We’ve covered many of the benefits of IT several times, but low cost is becoming more popular. ETF, Today is the second one that stands out.

  1. Conformity of closed-end structures to illiquid assets (eg real estate, VC, private equity)
  2. Usefulness in accessing esoteric and low-priced markets Assets class.

I no longer buy IT in major developed markets, but I still use it for themes and alternatives.

The three trusts that Madison introduced are:

  1. Bailey Gifford China Growth
  2. Hipgnosis Song Usage Fund
  3. City of London (Income Fund)
Money speed

The economist explains: Money slowed down Rapidly due to economic uncertainty and government distribution.

The “speed” of money is calculated by dividing a country’s quarterly GDP by the money supply for that quarter.

Based on various definitions of money, there are several versions of this number.

The most popular among economists is “Zero Maturity Money” (MZM). This includes assets that can be redeemed on demand at face value, such as bank deposits and money market funds.

Money speed

In the second quarter of 2008, MZM fell below 1. That is, the average dollar was used less than once from April to June.

  • In June, the Fed had to distribute a supply of coins, still packed in purses and purses.

In a downturn, consumers prefer savings to shopping. Investors are clinging to the safe assets that make up MZM. Both depression and the Great Depression began with a sharp drop in speed.

The speed recovered during the Great Depression, but after the 2008 crisis, the Dodd-Frank Act moved funds from the shadow banking system to the regular banking system and continued to slow.

The personal savings rate is at record levels this year, with the money supply increasing by more than 20%.

  • At the end of the pandemic, this savings glut could turn into spending, perhaps causing a repeat of the Roaring Twenties.

It can also lead to inflation, which can eventually cause a rise Interest Fee.

Bad year for quants

last weekWhy 2020 Bad year for quants, And this week Buttonwood covered the same topic.

  • The day of vaccination two weeks ago was the worst day I’ve ever had. Momentum..

Quants depend on history. If something unprecedented happens
Pandemic vaccines, they have problems.

As with chess, human strategy is different from the strategy used in the algorithm.

Humans hold the edges. They can use mental shortcuts to blow away endless possibilities. They can imagine a scenario where the past has not been thrown out. Scenarios such as “Vaccines may be available soon, given the amount and effort put into the vaccine.” “The news of such vaccines can cause the” curfew “strain to sell out and the” curfew “strain to recover.”

Liquidity may be the cause:

Speedy trading strategy like MomentumDepends on liquid A market for controlling sales. The strategy can be crowded. And if Quants suffers a loss, risk management rules can force them to close their positions. Since everyone goes out at the same time, the price will fluctuate extremely.

Of course, quant strategies like trend-following are not designed to predict the future. Designed to react to price.

  • And there is no quant that pretends that the factor is always working.

Quants games are about getting stock-like returns without the large drawdowns that stock markets tend to have.

  • And trend following is a long game.

I have no intention of abandoning the quant allocation yet.

  • Combining a long-only passive core with active satellites (including Quants) results in lower volatility and a higher Sharpe ratio.
Quick link

There are five this week, but the first three are from economists.

  1. They saw DoorDash IPO
  2. And Airbnb IPO
  3. And in Stellar district enjoyed by Wal-Mart..
  4. Seen by Alpha Architect Use quality to separate good and bad stocks
  5. And in an easy way Simplify and improve forecasts from Schiller CAPE..

Until next time.

Weekly Roundup, November 23, 2020 Weekly Roundup, November 23, 2020

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