Share Tweet The market is experiencing turbulent conditions as worries over Italy’s political issues spread globally amid fears they’ll hurt the stability of Europe. Bank of America Merrill Lynch has formulated a seven-part game plan for active managers to continue adding to an already impressive run of performance in 2018.
Conventional wisdom suggests that when the stock market is on rocky footing, that’s when the best opportunities become available.
Stocks break free of the herd-like trading that characterizes calmer conditions and start fluctuating based on specific fundamentals. If you do your homework and make the right picks, it can be a lucrative time. And that’s certainly been true so far in 2018 as active managers have gotten off to their best start in history.
“One driver for the return of alpha in 2018 may be the fact that the market has grown ‘messier,'” Savita Subramanian, head of US equity and quant strategy at Bank of America Merrill Lynch, wrote in a client note. “Stock expertise matters during messy markets. Historically, higher idiosyncratic risk has been accompanied by stronger active returns.”
But there’s also increased downside risk associated with trading more volatile stocks. With that in mind, it’s important to note that “expertise” implies traders are making well-informed, correct decisions, which then translates to outsized returns.
And while that’s all well and good, knowing that you should be raking in big returns and actually doing it are two entirely different things.
That’s where BAML comes in. Subramanian has outlined seven ways for active managers to continue beating their benchmarks to a historic degree.
To put it in Subramanian’s words, it’s a “game plan that we think improves the odds of generating alpha over time.”
1) Pick your battles
BAML notes that not all idiosyncratic stock moves are created equal, and stresses the importance of choosing companies from the right sectors.
“The stock-picker’s paradise resides in … tech, healthcare, and consumer industries … where brand, pipeline, and innovation are likely bigger drivers than macro factors,” BAML said.
2) Focus on stocks that act like stocks
“By simply limiting the universe of stocks to companies with above average ‘idiosyncratic,’ or company-specific risk, we found that these attributes were rewarded by a much wider margin,” BAML said.
3) Take the road less traveled … especially by the sell side
“The more eyeballs on a stock, the less alpha you’re likely to harvest,” BAML said. “Another pitfall avoided by steering clear of the sell-side darlings is crowding. In three of the last five years, the most overweighted stocks by active managers have underperformed the most underweighted stocks. What do crowded stocks tend to have in common? High sell-side coverage.”
4) Add some Environmental, Social and Governance (ESG) stocks
“Adding an ESG factor to many traditional shorter-term fundamental factors enhanced returns and reduced risk in all factors we examined in our backtest,” BAML said.
5) Extend your time horizon
“With resources, trading strategies, systems and eyeballs increasingly trained on short term stock dislocations, alpha over short time horizons has become increasingly hard to come by,” BAML said. “But with the paucity of resources, investment strategies and eyeballs focused on the longer-term outlooks, the alpha opportunity over a longer time horizon has dramatically increased.”
6) Know your biases
“Our historical holdings database reveals that active funds have maintained persistent biases over time,” BAML said. “While there is some justification for these biases, they are not necessarily the right tilts to have in every market environment.”
7) Cheaters sometimes prosper
“Long-only portfolios managing against the losing benchmark tend to have an unfair edge in that they can tilt their portfolio to stocks in the winning benchmark,” BAML said. “And history suggests that this is a common practice – style funds tend to outperform during periods in which their style benchmark is the laggard, and vice versa.”
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Carluccio’s to go ahead with restructuring
Carluccio’s will go ahead with a restructuring programme that could see dozens of restaurants closed.
Some 91% of creditors approved the Company Voluntary Agreement (CVA), which allows the business to reduce rents while negotiating with landlords.
It is thought around 30 restaurants could close, putting 500 jobs at risk.
The Italian food business, founded by the late Antonio Carluccio in 1999, said it would try to minimise job losses and was relocating staff to remaining outlets where possible.
Mark Jones, chief executive of Carluccio’s, said: “I would like to thank our landlords for their support.
“We now look forward to a positive future and the on-going development of the Carluccio’s business and of course our passionate people.”
Carluccio’s is owned by Dubai-based Landmark Group, which bought it for £90m eight years ago and will invest a further £10m in the coming months.
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Will Wright, restructuring partner at KPMG and joint supervisor of the CVA, said: “This is an important step forward for the business, allowing Carluccio’s to complete its financial restructuring plan and embark on a comprehensive operational transformation programme.”
Other restaurants that have undertaken CVAs this year include Byron, Prezzo and Jamie’s Italian.
Business
Trump’s tariffs – What you need to know
By Sharon Marris, business reporter
Donald Trump’s administration has slapped tariffs on steel and aluminium imports from the EU, Canada and Mexico.
What is affected?
The US commerce secretary Wilbur Ross says there will a 25% tariff (basically a tax) on steel and 10% on aluminium, taking effect on 1 June.
The tariffs were actually announced in March but the EU (along with some other US allies) was given an exemption. This exemption was due to expire on 1 June.
What is at stake?
In March, Gareth Stace, director of industry group UK Steel, said the sector exported some 350,000 tonnes of products to the US in 2017, over 7% of its total exports.
He said on Thursday that this was equivalent to $0.5bn in steel exported from the UK to the US.
For the EU, the measures will affect exports that were worth €6.4bn (£5.6bn) in 2017.
The potential effect on jobs is not yet clear.
Image: Jobs could be affected by the tariffs
What has been the UK reaction?
A government spokesman said they were “deeply disappointed” and that the UK and other EU countries, being close allies of the US, should be “permanently and fully exempted” from the tariffs.
They added: “We will continue to work closely with the EU and US administration to achieve a permanent exemption, and to ensure that UK workers are protected and safeguarded.”
Perhaps they were also considering what this could mean for the possibility of a trade deal with the US post-Brexit.
What will the EU do next?
The EU, which says the tariffs are unfair and protectionism, will take its case to the World Trade Organization on 1 June (the day the tariffs take effect).
They had already revealed plans for “re-balancing” – placing tariffs on some US products (orange juice, denim, motorbikes and peanut butter are among some of the products mentioned), the level of which will “reflect the damage caused by the new US trade restrictions”.
They will also be trying to protect the EU market from a flood of extra steel that might be heading its way as a result of the effective closure of the US market.
0:52 Video: Juncker: US tariffs are ‘unacceptable’
What do those in the steel industry say?
UK Steel’s Gareth Stace said Donald Trump’s move has “started a damaging trade war”.
He added: “It is difficult to see what good can come of these tariffs, US steel consumers are already reporting price increases and supply chain disruption and with some half billion dollars of steel exported from the UK to US last year, UK steel producers are going to be hit hard.
“As stated time and time again, the only sustainable solution to the root cause of the issue, global overcapacity in steel production, is multilateral discussions and action through established international channels.”
What about others affected, such as Canada and Mexico?
Mexico said it would hit back with levies on US imports such as pork bellies, apples, grapes, cheeses and flat steel.
Canada’s foreign minister Chrystia Freeland said before the US announcement: “The government is absolutely prepared to and will defend Canadian industries and Canadian jobs. We will respond appropriately.”
Brazil, Argentina and Australia have agreed to limit steel shipments to the US in exchange for being spared the tariffs, the Commerce Department said. Tariffs remain on imports from Japan.
Image: The move on tariffs was not unexpected from Donald Trump
Why has Trump done this?
The US President says the reason is national security and, being an aggressive and confrontational move, it is perhaps not unexpected.
Donald Trump campaigned for the presidency on the promise of restoring jobs to the decaying steel towns across America’s rust belt – his core support area. Since 2000, 50,000 jobs have been lost in the steel industry and 40,000 in the aluminium factories.
And, for the US, there is a lot at stake – the White House says the country is the world’s largest importer of steel, bringing in nearly four times as much as it exports.
But will tariffs help?
Tariffs make imported goods more expensive and local products cheaper in comparison. And, meanwhile, the government gets a bit more money. But, long term, it’s more complicated.
Because imported goods are more expensive, there is less competition and less incentive for domestic producers to reduce their prices.
Tariffs also reduce efficiency, meaning that companies that would bow out in a more competitive market are able to remain in business.
All up, this can mean higher prices and lower quality products for the consumer.
Also, in this case, US farmers could be hit hard – EU retaliation is likely to focus on products important to them.
From a diplomatic point of view, the US move goes further towards isolating it from its closest friends in the world, at a time when it needs those friends on issues such as North Korea, Iran and the Middle East.
Image: Markets met the announcement with falls
How have markets reacted?
Financial markets dipped after the announcement, not so much due to the tariffs but fears of the trade war they might spark.
The Dow Jones industrial average was down almost 0.6%, the FTSE closed 0.15% down, France’s CAC lost half a percent and Germany’s DAX shed 1.4%.
Is this a trade war?
It isn’t strictly a trade war until the other side has retaliated.
We will have to wait to see exactly what the Europeans, Canadians and Mexicans do next…
Business
Melinda Gates has sharp words for the VC industry: Enough with your love for ‘the white guy in a hoodie’ Melinda Gates has a plan to fix the endless not-enough-women-in-tech problem. She’s become a power-player investor but not in the classic style. She’s using her money to put pressure on the whole VC industry in two significant ways. And she has some harsh criticisms for status-quo VCs, kicking at their love for “white guys in hoodies”and treatment of women, from a lack of partnerships to sexual harassment.
Melinda Gates has been putting her money where her mouth is when it comes to championing women in tech.
She’s become a power-player investor through her somewhat secretive investment firm Pivotal Ventures. But she’s not just investing directly into startups, like a classic venture investor. She’s also become a limited partner (LP), investing in other VC funds with a strategy that has far bigger implications, she told Fortune’s Polina Marinova.
First, she’s doing what you would expect, contributing to funds that invest in a lot of women run startups, as well as startups run by minorities or others that fall into the “diverse” category.
But more importantly, she’s investing in funds that are run by female venture capitalists. And that’s because women are grossly under-represented in the male-dominated venture finance industry, making up a mere 8% of partnerships among the top 100 funds as of 2017, according to Crunchbase.
Gates is trying to pressure the real power players in the VC game to clean up their industry, rife with accusations of sexism and sexual harassment.
“I can put money where I think there are levers. And I think the LP community is one of the levers,” Gates said. “When you see the LPs starting to move, that’s when I think you’ll start seeing pretty disruptive change, perhaps sometime in the next three to five years.”
The LPs are typically the rich people, foundation fund managers, and pension fund managers that supply the money that VCs use to invest in startups. And by “move,” Gates means having the LPs demand that their funds invest in more diverse startups and that their venture capital firms end the kind of sexism and sexual harassment practices that landed the industry in the press during much of 2017.
There’s already grass roots movements to help female financiers get seats at the table like an uprising of networks of women VCs who are helping each other, as well as young funds run by women like Aspect Ventures, Female Founders Fund, Cowboy Ventures.
But there’s no question that more needs to be done to change the industry because a female VC recently told Business Insider that the #metoo movement has in some ways backfired on the woman in the industry it was supposed to help.
“Guys in finance only hire who they can fire easily. Young men they can fire without a problem,” one female VC told us. “The unfortunate thing that happened in the #metoo movement is that men don’t want to ride the elevator with women who could pitch them for fear they would accuse them, let alone mentor that person alone,” this woman said.
Female VCs still feel a lot of pressure to keep their mouths shut about any sexism or sexual harassment they witness or experience. “It’s a weird dynamic with a lot of these limited partners,” this VC told us, because female VCs still fear any rocking of the boat could cause the LPs to pull their money from them. “They don’t want to lose their allocations.”
Gates is ready to be the Pied Piper towards those funds
Make no mistake, Gates’ plan involves pure capitalism. She expects to make big returns on her investment strategy because, Gates says, the white guys are overlooking a lot of great business ideas.
“These big firms often believe in the white guy in a hoodie disrupting a whole industry. So we’re going to disrupt it by making sure we’re indexing for women and minorities because they’ve got great ideas,” she says.
And the only way to do that is make sure a lot of women are in the loop.
“Many of them [traditional VCs] think if they have one female at the table, they’ve done their job,” she said. But that’s just an “excuse” to maintain the status quo, because when the firm only has a single woman, that woman is under pressure to assimilate into the boy’s club world, not free to change it.
“You put several women on a board and the questions asked of the business become different. So I think the VC firms haven’t quite woken up to that,” Gates said.
“They don’t know what investing in these areas looks like until they get several women who are partners in their firm … If they’re not seeing the latest innovative, disruptive technology because they don’t understand it or they don’t understand some things that women are spending money on, I think they’re not making great investments,” Gates said.
And that’s how she’ll change the VC industry. As these companies make money, those female VCs will gain power and other VC firms will start wooing LPs by adding more diversity to their ranks, too.
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Business
The most annoying things about the English language, from people who are learning it English has plenty of confusing aspects that annoy people learning the language. Non-native speakers have trouble with English spelling, the amount of synonyms in the language, and differences between American and British English. We looked through comment threads from around the internet to find the most annoying aspects of the English language.
English is the most studied language in the world, with 1.5 billion people learning it.
But just because English is popular doesn’t make it easy.
Many English learners have vented about the most annoying aspects of the language in the obvious place: the internet. Their complaints range from its confusing spelling to its abundance of synonyms with barely imperceptible differences in meaning.
We looked at comment threads on Reddit, Quora, and other forums to compile 11 of the most annoying things about English, straight from people who are attempting to learn the language themselves.
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English speakers say ‘an hour and a half,’ but not ‘two hours and a half’
“Hour and a half. Two and a half hours. I usually slip and say ‘two hours and a half’ because it’s the structure I’d use in Spanish.”
Source: Reddit
Prepositions can prove difficult, like how we get ‘on’ a bus, but ‘in’ a car
“Why am I ‘on’ the bus when I’m actually inside the bus, and why am I ‘in the car’ and not ‘on the car’ then? I walked through a door and sat down inside in both cases, so why is one ‘on’ and one ‘in’?”
Source: Reddit
The level of formality can be unclear
“I’d say I’m in an upper intermediate level, and the thing I find the hardest is to tell what’s formal and what’s less formal. Unless you look up in a dictionary and find out which register of language words are from, it’s kind of hard to figure out their nature.
“I remember saying once to my teacher, ‘Oh will you stop screwing around’ and to my friend, ‘should you wish to call me, here’s my phone number.’ I messed up with both partners and used sentences that just didn’t fit the context.”
Source: AnglaisFacile
See the rest of the story at Business Insider
Business
This map shows how much the iPhone 8 costs around the world
In many ways, the iPhone 8 represents the best parts of Apple’s past smartphone designs and its future ones.
From the outside, the iPhone 8 is the natural evolution of Apple’s iPhone 6, iPhone 6S, and iPhone 7 designs. On the inside, however, the iPhone 8 has the same brains and power as the futuristic iPhone X, which costs $300 more to start. It even has better battery life than the iPhone X.
The iPhone 8 checks several boxes for prospective iPhone buyers, but it doesn’t come cheap. In the US, before taxes and other fees, the iPhone 8 costs $699 for 64 GB of storage, or $849 for 256 GB. (The larger iPhone 8 Plus starts at $799 and $949 for the same storage options.) It’s only more expensive in other countries.
Notably, the iPhone 8 costs over $250 more in countries like the United Kingdom and Italy, but it’s most expensive in Brazil, where the phone costs a whopping $450 more than it does in the US. Brazil has long been the most expensive place in the world to buy an iPhone — mainly because the country applies a high flat import tax on most manufactured retail goods.
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