We Are Back

29th October 2018

Following the completion of our crowdfunding campaign, we were keen on re-engaging with you to introduce important improvements to the butterwire app that we trust you’ll find of value, especially given the current market environment. I realise this is lengthy but as you’ll see there’s plenty to report on, and there’s always the alternative to go directly at https://app.butterwire.com to discover the new features as you go along!

PLANNED MOVE TO DAILY DATA UPDATE AND PRICING PLANS (EARLY 2019)

But first a word on our planned move to charging for access. We’re on course to be able to switch to daily app updates by year end, and start charging for access early next year. There will be 3 pricing plans plus a free plan for users to choose from, depending on usage intensity, stock universe of choice, and number of portfolios to calculate. More details to come on our website but in a nutshell, the basic plan will cost the equivalent of a subscription to the Investors’ Chronicle (ie. £3/week) and allow to choose one region and run one portfolio, the next level will cost the equivalent of a Financial Times (£1.7/day) and allow for 2 regions and 2 portfolios, while the premium subscription will cost the equivalent of an FT and an espresso (£3/day) and give access to all 4 regions and running up to 4 portfolios. All registered users will get full free access for 30-days, after which they will invited to choose one of the 4 plans (qualifying shareholders will be automatically granted free premium access). We also intend to run a promotion to support the commercial launch by offering the premium subscription for the price of an FT, so for all our users during for their first year of usage, “the espresso is on us”.

BRIEF RECAP ON 2018 FOR INVESTORS AND FOR BUTTERWIRE

In contrast to 2017, 2018 hasn’t been easy on equity investors and on butterwire… the implementation of new regulations on the provision of research services (MiFiD 2) prevented us from engaging with (compliance-restricted) institutional investors over 1H18, then came GDPR that further slowed down our engagement with prospective users, then came a very time-consuming (but thanks to you successful) crowdfunding campaign, as all the while global growth expectations (a major driver of equity returns) were sliding into recession territory.

Our growth expectations indicator (iGDP) first dropping below 1.5% in August (see graph below) was announcing high chances of negative equity returns over the next 3 months, and when this happens more thinking and portfolio intervention than usual are required (from rotating into more defensive holdings to moving part of the portfolio into safe cash currencies).

iGDP graph

We did report on the implications of the unfolding situation over the summer, but we felt there was more we could do for you to make the best out of the butterwire engine’s outputs. We trust you find the following improvements to be timely and helpful to navigate through the current market turbulence.

NEW SCORING REPRESENTATION IN ‘STOCK SNAPSHOTS’

As some of you may already know, the calculation of a stock’s base score changes with the prevailing global macro conditions (as an attractive stock during times of economic growth may not look so attractive as a recession unfolds, and vice versa…). We decided to report both base scores, the upcycle and the downcycle ones, and keep on singling out the one that the engine would focus on in the prevailing macro context. So next time you search or click on a stock, you will see two base scores, one for upcycle and one for downcycle conditions, and one will be singled out by the app (in the present case… the downcycle base score). The other two scores reported remain unchanged (ie. recession-resilience and recovery-potential), and again, one of them may be singled out if macro conditions dictate it (in the present case… recession resilience).

Scores

NEW INSIGHTS IN THE ‘MARKETS’ SECTION OF THE APP

We brought in several improvements to the Markets section to help inform strategic allocation (which basically boils down to what % equities vs. % cash and precious metals to hold in one’s portfolio, given the unattractiveness of government bonds, notably in Europe):

  1. In addition to getting the market-implied return for global equities going forward (currently negative at -1%), the app provides a regional view of the most/least favoured equities by financial markets (unsurprisingly, expectations for Europe are lowest, thanks to Brexit, Italy and the general vulnerability that the eurozone inflicts on its constituents, while there are highest for the US).

  2. A technical indicator has been added to look for break-out trend in regional equity indices

  3. But the biggest improvement comes from being able to track the performance of stocks in each region according to their macro profile. Those familiar with our user manual will know that we track 3 proprietary global macro indicators (iGDP, iEMC, iLCI), each providing real-time insights derived from global asset price movements, respectively on global growth expectations, EM vs. DM growth expectations, and inflation vs. disinflation expectations.

We used the sensitivity of each stock to these indicators to determine their macro profile, reflecting how pro-cyclical a stock is, how geared to emerging economies and investments (vs. developed economies and consumption), and to rising inflation. Represented below is the result of the engine’s profiling of each stock covered.

Clear graph

You can look at the performance of each profile by region, and for instance in Europe, “Inflation Hedges” (mostly precious metals stocks but also a few specific stocks from sectors such as utilities and telcos) have clearly fared least badly recently.

Down

But while some stocks are less sensitive to global growth than other, equities are all much more growth-sensitive than, say cash, gold or government bonds. And so, in periods of collapsing growth and rising inflation, there’ll be little chance for an equity portfolio to beat cash held in a strong currency or gold (see graph below for an illustration covering the past month). Likewise with disinflation, when even defensive stocks will struggle to outperform safe long-dated government bonds. Note that the relative scarcity of inflation hedging stocks mean that they can get rapidly bid up as stagflation expectations rise, only for them to be promptly dumped as a recovery unfolds (hence why butterwire keeps a close watch on turning points in macro regimes and provide recession and recovery scores).

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OTHER UPDATES FOR THIS WEEK: EXPLORER, PORTFOLIOS

If you survived the above, then the other updates will be self-evident as you navigate the app – these like the ones referred to above will be live before midweek:

  1. The above macro profiles have been reflected in various parts of the app: new filters in stock explorer, new presentation of macro bets when assessing portfolios, new performance reporting chart

  2. And we have refined the way the app compares a portfolio’s % Winners and % Excess Returns, for a more transparent assessment of your portfolio in relation to the app’s suggestions and the broader market.