A game of two halves?| MBMG Investment Advisory Report and Outlook 1st July 2022
Game of two halves?1
On 12th September 1885 (a day that lives in infamy in Aberdeen), Arbroath Football Club entertained the visiting Aberdonian team, Bon Accord FC in the first round of the Scottish Cup. Arbroath were the favourites, being far better resourced than their visitors who reportedly didn’t even have a team strip and simply wore a variety of their own casual outfits. Even in an era when high scoring games were common the result was unprecedented.
Arbroath were 15–0 up by half time.
They scored another 21 goals in the second half – or possibly what should have been another 26 goals:
“The leather was landed between the posts 41 times, but five of the times were disallowed2 . Here and there, enthusiasts would be seen scoring sheet and pencil in hand, taking note of the goals as one would score runs at a cricket match.” – The Scottish Athletic Journal
https://en.wikipedia.org/wiki/Arbroath_36%E2%80%930_Bon_Accord – cite_note-Scotsman-1
It was claimed that Arbroath goalkeeper Jim Milne did not touch the ball in the entire game and spent a great deal of the match standing just off the pitch, sheltering from the rain under a spectator’s umbrella3.
This remains the biggest defeat in professional football other than the 149-0 defeat of Madagascan team SO l’Emyrne by AS Adema in 2002, which has been expunged from official records4 because it comprised 149 own goals scored in protest at refereeing decisions in previous matches.
At the mid-point of 2022, many investors must be feeling as uncomfortable
as Bon Accord’s goalie felt at half time.5
• U.S. equities posted their worst first half performance since 1970, as inflation concerns, Fed rate hikes and slowing economic growth weighed on markets.
• The S&P 500® posted a loss of 20%, while the S&P MidCap 400® and S&P SmallCap 600® performed marginally better.
• Dividend, value, and low volatility strategies outperformed, signaling [sic] the market’s continuing emphasis on defense [sic].
• Growth and High Beta have been the year’s worst performers.6
• The S&P Europe 350® dropped in June to close its worst quarter since Q1 2020.
• Portugal was the only region that registered a gain for the quarter7 .
• The S&P United Kingdom BMI was an outperformer on a relative basis, while the eurozone lagged the pan-European benchmark.
• Fixed income indices suffered broad based losses, with the S&P U.K. Inflation-Linked Gilt Index the worst hit, while implied equity volatility in Europe closed flat in Q2.8
1 “This cliché grew out of soccer and doesn’t yet have any traction in American English. In British and Irish English it is the favorite [sic] resort of the sportswriter in need of a thumbnail to characterize a game with sharply contrasting features.”- It’s been said before – Orin Hargreaves, OUP 2014; and “This football commentator’s cliché refers to games which have a different character in the two halves.” – https://www.phrases.org.uk/meanings/146175.html
2 In fact the match referee, Dave Stormont later claimed that had disallowed seven goals in total but on reflection, felt that this may have been harsh on the attacking side “My only regret was that I chalked off seven goals, for while they may have looked doubtful from an offside point of view, so quickly did the Maroons carry the ball from midfield, and so close and rapid was their passing, that it was very doubtful whether they could be offside.”- http://www.arbroathfc.co.uk/history/36-0-team.htm His leniency almost changed the history books as at exactly the same time in Dundee, just 18 miles away, Dundee Harp beat another Aberdonian team (Aberdeen Rovers) 37 nil according to the referee’s report but Dundee’s secretary ‘only’ recorded 35 goals and the referee deferred to the secretary, saying that it had been hard for him to keep count, so an official result of 35-0 was lodged.
3 http://www.arbroathfc.co.uk/history/36-0-team.htm
4 https://www.theguardian.com/football/2002/nov/29/newsstory.sport13
5 The unfortunate individual was Andrew Lornie – however, the names of teammates seem to have spared being recorded for posterity – http://heritage.scotsman.com/willspringer/A-day-when-Scottish-football.2685199.jp
6 https://on.spdji.com/rs/838-LDP-483/images/dashboard-us-2022-06.pdf
7 In honour of this achievement, we’ve replaced FTSE, which is down by -2.0% YTD with the PSI 20 on the following page
8 https://on.spdji.com/rs/838-LDP-483/images/dashboard-europe-2022-06.pdf
“I know you’re no good for me,
But free of you, I’ll never be
Nowhere to run to baby, Nowhere to hide,
Nowhere to hide
Got nowhere to run to baby,
Nowhere to hide, Nowhere to hide”
– Nowhere to run, Martha and the Vandellas
Having anticipated much of what happened in the first half, does that give us any more confidence than Andrew Lornie would have had, that the second half will be any better?
We cover that in ‘The Backdrop’, along with the exciting news that we might finally have found a use for Bitcoin, but below we’ve re-printed our advice from April about catching falling knives and picking bottoms:
“Don’t ever try to pick bottoms. It sounds disgusting and it’s likely to prove costly.”
– Christopher Lees, J O Hambro
In our analysis section, The Technicalities, we ‘celebrate’ that Thailand has now reached the information age, or rather more accurately, the inter-governmental information-sharing age, following the introduction of PDPA and BEPS as the path that inevitably leads to greater automatic and on demand exchange of information.
1. MBMG Portfolios based on the average performance of MBMG IA’s private client portfolios of USD 1 million or more, from 1st January 2017 to 30 June 2022 (based on latest actual & provisional data to 30 June 2022).
2. Average US$ portfolios based on estimated ARC Research Private Client Indices from 1st January 2017 to latest available data to 30 June 2022) – https://www.suggestus.com/pci.
Over the past ½ years, MBMG’s average portfolios have generated cumulative gains of over 45%. This equates to almost four time the return of the average wealth manager portfolio across all asset classes and is equivalent to an annual rate of return (CAGR) for MBMG IA advisory portfolios of 7.1%, versus the industry average of 2.11%.
The average MBMG portfolio loss of -3.48% year to date compares favourably with the average wealth manager loss of –16.3% this year:
MBMG IA is disappointed to report that our advisory portfolios overall have now logged their second losing semester since their inception at the beginning of 2017, although there is some comfort to be taken from the limited scale of the losses (it would take a gain of 3.6% to return to profitability YTD, whereas if you’ve and also the fact that our advisory portfolios in Euros, Sterling, Australian Dollar, and Thai Baht were able to lodge positive average returns.
It’s not in the stars to hold our destiny but in ourselves-
Julius Caesar (Cassius talking to Brutus), William Shakespeare
The Backdrop
In an atmosphere of prevailing uncertainty, global markets remain extremely volatile, with investor attitudes to and appetites for risk continuing to oscillate wildly. In times like this, investing outcomes can owe as much to psychology as to fundamentals. We may have found an unlikely tool to help us….
In our recent three-part series on Bitcoin, crypto and the blockchain,[1] we pointed out that crypto is essentially a Sphinx without a riddle, a showy solution to a problem that doesn’t exist, a videogame without any graphics, on a platform (the Blockchain) that is a sub-optimal form of file-sharing, all based on protocols designed by US governmental agencies:
“Bitcoin is a line of digital computer code, generated from an activity analogous to powerful computer processors playing Battleship against each other. This uses extreme amounts of energy to produce game tokens that as yet have no known use or utility.
The Blockchain is an online sharing protocol that has some attractions but at this stage is generally less useful in the vast majority of situations than Windows One Drive or Google Drive.”
It turns out that we might have to re-think that. There may be a use for Bitcoin after all, albeit an unintended one that may be relatively short-lived.
Disclaimer: The above information has not been independently verified. This investment brief is given for information only and does not represent an investment proposal, recommendation or advice to invest in the shares or business of the subject company. Additional information shall be made available to interested parties subject to the execution of the requisite confidentiality undertakings. The financial information, actual and/or forecast, provide herein is based on management representation.
