Ten Months On, The “Covid Recovery Trade” Keeps On Giving
Our index of North American recovery stocks is up 100% relative to the S&P 500 (see chart below) since markets troughed at the end of March, and that of European stocks is up 50% relative to the Eurostoxx 600. They also each outperformed our traditional “long research candidates” indices by 60% and 30% respectively.
What to make of growth expectations reaching new highs vs. equity return expectations heading for new lows?
After dramatically rising last April and keeping above 10% for the following months, our indicator of global equity return expectations (iEMR) has dropped back to sub-4% over November and sub-3% in December (see screenshot above). Conversely, our indicator of global growth expectations (iGDP) is on the up again in November after a pause in October, beating the 6.6% peak of Feb-2018 and equalling the heights reached in Apr-2011 (albeit still far behind the 10% achieved in Aug-2009).
Anyone for Alpha?
Despite unprecedented (and still rising) levels of financial asset price manipulation by central banks since our note on “mindless passive investing” two and half years ago (and its follow-up parable “of elephants and mice”), we feel comforted in our view that going after alpha remains the superior (ex-post and ex-ante) alternative, especially when Butterwire is added to one’s equity research workbench.
When research, data science and technology come together to deliver complex bespoke investment solutions fast and without the need for large budgets.
Down to the Wirecard
If an interesting long idea consists of great-looking fundamentals and a high level of controversy, then Wirecard must have been one of the most interesting large-cap stocks we had seen in a while, if only in Europe. Instead, Wirecard went from nearly 200 euros a share two years ago (when it took Commerzbank’s place in the DAX), to 100 euros when the first scandal erupted in January 2019 (FT report), to 70 Euros last month (after KPMG was unable to verify WDI’s third-party profits), to now insolvent (E&Y not signing off on 2019 accounts and CEO arrested) and the European equivalent to Enron.