AMCs on the Rise: High Street's AMC007

In September, the Federal Reserve Open Markets Committee (FOMC) opted to keep rates at their current levels reflecting a nuanced economic landscape characterised by inflationary levels declining from 2022 highs and concerns about robust economic growth exceeding expectations. While many inflationary pressures have eased, sporadic factors like rising oil prices persist. Strong consumer spending has propelled the economy but concerns remain about Covid era savings diminishing, potentially impacting future spending. Hawkish sentiment reared its head as the Fed remains open to an additional rate hike later this year, with the hope that rates may start to ease during the course of 2024.

The Good: The New 007 in Town

People fear the unknown, and for most people Actively Managed Certificates, or AMCs, are relatively unknown. However, AMCs are actually very similar to unit trusts - they pay the investor the performance of an underlying basket of securities that is managed by a portfolio manager according to a specific investment mandate. A key difference is that they are generally listed on an exchange. This means that the buying and selling of these certificates is extremely simple, a process very similar to that of buying shares. There is no paperwork required – all you need is a brokerage account!

AMCs have only recently appeared from obscurity in South Africa, with a spate of listings on the JSE in December last year. High Street was early onto the trend, listing AMC002 in association with Standard Bank on 1 December 2022. High Street acts as the investment manager, responsible for all investment decisions, while Standard Bank is the certificate issuer, acting as the market maker.

AMC002 has a relatively defensive investment strategy, focusing on quality global companies which are returning large amounts of capital to shareholders through dividends and share buybacks. Through the product investors are able to gain direct exposure to the world’s highest quality, multinational, global companies using local Rands. This means that AMC002 will always have 95%+ offshore exposure. Performance has been strong so far this year, returning 18% vs the JSE All Share Total Return Index return of just 2%. Strong share price performances of the AMC’s offshore companies have also been aided by Rand depreciation.

Off the back of AMC002’s strong performance on the 2nd of October we will be launching a second AMC with Standard Bank, AMC007. This AMC will mirror High Street Wealth Warriors, our offshore thematic growth fund that invests in companies driving technological innovation and changing consumer behaviour. For those of you with a higher tolerance for risk, this offers you an easy way to gain exposure to the world’s most disruptive companies, again through a Rand investment. No administrative burdens, no need to concern yourself with forex transactions or discretionary allowances; just 95%+ offshore exposure. If you wish to find out more about our exciting new AMC007 please don’t hesitate to contact us.

Source: dwglogo.com
 

The Bad: The September Effect – A Northern Hemispheric Hangover?

September - a month synonymous with summer excitement and allergy season in the southern hemisphere. One might relate the month with positive connotations, rather than the unfortunate reality that it has historically been the worst month for the S&P 500. The index has declined 0.7% on average during the month of September since 1945, according to data from CFRA, an investment research company. September 2023 has been no different, with the year’s winners such as Alphabet, Microsoft, and NVIDIA all falling during the month. While the fundamentals of the companies have not shifted, the pullback forms part of a market cycle that ebbs and flows. Shares can often pullback by 5% or more during the course of the year, and this month’s S&P pullback of 5.2% is just part of this normal cycle for markets. The VIX, often dubbed the ‘fear index’, rose 33.1% during the month, which reflects higher expected volatility in the market.

The most obvious driver was Jerome Powell’s hawkish speech, where he revealed the possibility of another US rate hike within 2023 and reinforced the Fed’s “higher for longer” narrative. This concerned the market, leading to 10-year US Treasury yields reaching 15-year highs at 4.566%. Investors already had to deal with the Brent crude oil price spiking by 9.1% during the month due to Saudi Arabia curbing oil supply, therefore one can understand why investor ‘fear’ has increased during the month and why riskier assets such as shares were sold off.

Source: Eurotrader

 

Each year has its own reasons for the ‘September effect’. This has not stopped speculation regarding the anomaly. Many believe that institutional investors’ quarterly portfolio rebalancing (typically at the end of September) adds to market volatility. Additionally, September marks the end of the summer season in the northern hemisphere, where investors returning from their vacations may cause additional volatility. The infamous phrase “past performance is not an indication of future performance” and its variants have been plastered across brokerages around the world, and not without good reason. One cannot solely rely on historical information to make investment decisions. At High Street, we have a forward-looking approach, where the fundamentals of a company and its future growth profile are at the forefront of our decision-making.
 
& Bulls in the China Shop: The IPO Window Breakthrough?
 
Initial public offerings (IPOs) mark a pivotal moment for a company, providing them the opportunity to raise capital from public markets and have their time in the sun. These events are not only significant for those participating but can also signal broader market enthusiasm and increased risk appetite. IPOs usually follow periods of robust market performance. A surge in IPO activity can inject further momentum into the market, leading to improved valuations across the board. The recent spike in IPOs could therefore be evidence that the light at the end of the tunnel may be approaching but investors should approach it with caution.

Source: istockphoto.com 

 
The use of cornerstone investors to help IPOs through the current market conditions is becoming increasingly popular. These cornerstone investors are allocated a predetermined number of shares providing early backing for the IPOs before they are floated to the market. The highly anticipated listing of ARM, a British semiconductor company, followed trend with pre-IPO interest from large tech players Apple, Google, and Nvidia. The share price initially shot up 25% above the IPO price, however, quickly gave back those gains in the ensuing days and has remained around the IPO price since then. The IPO pop experienced by ARM is not unique and is one of the reasons investors should be cautious in getting caught up in the pre-IPO hype and allowing it to influence their decisions.
 
September has seen a mini procession of tech IPOs being led by Instacart and ARM with many hoping they would smash open the IPO window and bring some positive momentum. The global IPO market has been subdued over recent periods, with the first half of 2023 recording a 5% and 36% decrease year on year in IPO listings and capital raised respectively. The depressed results are indications of an environment of reduced economic growth, hawkish monetary policy and geopolitical tensions remaining tense. Larger deals came to market in the second quarter and that momentum was predicted to follow on in the second half of the year. The increased interest within the IPO market is a positive sign that participants are eager to shake off the slump and launch into 2024.
 
With all the fearmongering being incited by the media these days, it is easy to fall
into the trap of being a reactionary investor. One must look at the bigger picture. There will always be something for the market to stress over, and as investors it is our responsibility to separate the signals from the noise.
 
Source - High Street Asset Management (Pty) Ltd An authorised financial services provider (45210)