Weekly Roundup, 11th January 2021

Weekly Roundup, 11th January 2021

We begin today’s Weekly Roundup with a look at Hindsight Capital.


John Authers

At the end of each year, John Authers produces a report from the fictional Hindsight Capital, who always manage to put on the most lucrative trades of the year.

To boost their profits, they always relocate to the country with the weakest currency in order to boots returns.

  • This year it was the turn of Brazil.

Hindsight currencies

FAANG stocks were up 160% in reais, compared to only 76% in Swedish kroner (the strongest currency).

Hindsight energy

The energy trade was long solar, short oil and gas (+431%)

Hindsight covid

The Covid trade was Long FANG+, short Hotels, Resorts and Cruise lines (+178%).

Hindsight retail

The retail trade was long internet retail, short regional malls (+198%).

Hindsight duration

The duration trade was short banks, long the Austrian 100-year bond (+83%).

Hindsight lumber

There was also a housing trade – long lumber, short mortgage REITs (+213%).

Hindsight crypto

The crypto trade was long Ethereum, which made 631% in reais (464% in dollars).

  • John also looked at commodities trades, driven by China, and at the return of Asian trade, plus a bet on a Biden presidency.

For once, John notes that Hindsight’s trades were somewhat predictable:

Only a few assumptions were needed to make Hindsight’s trades: the pandemic would affect the economy, the West would deal with it far worse than Asia, and the main response would be cheap money. Throw in the implosion of OPEC+, and it turns out most of these trades could have been put on without much hindsight at all.

None of which helps with 2021.

Passive funds

Passive share

In a second newsletter, John looked at passive funds.

  • 2020 was the first year in more than a decade when they failed to gain market share in the US, remaining just below the 50% level.

Passive flows

Money continued to flow out of active funds though not into passive ones.

Big 5 allocations

Active funds did not have a good year in terms of performance, mostly because of their exposure to value, which underperformed once more.

  • The top 10 high-fee US value funds were massively under-allocated to the BIg 5 stocks.

Good year for non-members

But nor was the S&P 500 the best place to be, since three of the biggest winners of the year – Zoom, Tesla and Moderna – were not included.

  • For once, the carefully managed S&P (which aims to exclude volatile and speculative stocks) underperformed the Russell large-cap indices (which use market cap alone).

Every investment involves some kind of active decision, and that nothing is truly “passive.” The fact that the epochal switch from active to passive has halted this year (if not reversed) might reflect a growing understanding of this.

And the performance of Tesla, as active managers queued up to “front-run” the passive funds who would be obliged to buy the electric vehicle manufacturer as soon as S&P added it to the club, shows that no index can grow to be as influential as the S&P is now without moving the market it is tracking.

Factor drivers

David Stevenson

On ETF Stream, David Stevenson wrote about factor investing drivers in a post-QE world.

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