In August 2017, we wrote a piece about pricing pressure in the US generic drugs market. We focused on the acceleration in generic drug approvals, which is only one of the factors in today's deflationary environment. At the time, we did not believe we would see pricing equilibrium in the near-term under the current regulatory and business conditions, and predicted that prices for generic drugs would continue to decline until manufacturers gained negotiating leverage.
For all those data geeks out there like us, analyzing fund flow data can be an incredibly interesting and revealing exercise. So much so, that we devoted another blog to the topic. Regular readers might have caught last week’s blog in which we highlighted the massive divergence of YTD net flows between International Equity and U.S. Equity ($60.7 billion of inflows vs. -$58 billion of outflows, respectively, for mutual funds, both active and passive, through Q2). The data appeared to suggest that U.S. equity investors were diversifying their domestic exposure overseas. If that is true, then where is the money going? Where are investors seeing opportunity in the international markets?
Throughout the first half of 2018, we have seen a massive divergence in fund flows as International Equity has dominated U.S. Equity. As we can see in the table below, International Equity has attracted $60 billion in positive net flows YTD across all mutual funds, both active and passive strategies; U.S. Equity on the other hand, has lost an almost identical amount, posting outflows of -$58 billion. On the surface, it appears that many U.S. investors have reallocated some of their domestic equity exposure overseas.
Remember when Strava, the fitness tracking app, gave away the location of secret U.S. army bases in Afghanistan and Syria? We wrote about it back in February. It was an embarrassing and dangerous leak of sensitive customer data. It also highlighted the intrusion and potential abuse of location-based cell phone data.
Well, good news for cell phone users in the United States – they got a couple of small wins:
There has been a lot of focus recently on the yield curve. For the purposes of this blog, we define it as the spread between 10-year US treasury yields and 2-year US treasuries.
Today it is tracking at ~30 bps, the tightest it’s been since the Financial Crisis.
One would typically expect a positive yield spread since a 10-year instrument has higher risk than a 2-year instrument. For example, investors should demand a premium yield for 10-years vs 2-years. Historically, this spread has averaged 100bps, with a range of roughly -100bps to +300 bps (see chart below).
If you haven't heard, designer babies may be on the horizon. Thanks to CRISPR-Cas9 technology ("Clustered Regularly Interspaced Short Palindromic Repeats"), some scientists believe they can edit human genes for the purposes of treating diseases.
The new regulatory requirement of MiFID II has been in effect for six months and it appears to be working. This recent Bloomberg article really caught our attention as it highlights an astonishing +70% increase in the reported trading volumes for European ETFs.
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Below, we have highlighted our top 3 most popular blog posts from the first half of 2018. Enjoy!
- The R Squared Team
Topics: From the Desk of Richard Pell
There have been numerous academic studies on the economic benefits of hosting the World Cup. A few, out of a long list of studies, can be found here:
- The Economic Impact, Costs and Benefits of the FIFA World Cup and the Olympic Games: Who Wins, Who Loses?
- Russia predicts World Cup will have $31 billion economic impact
- Economic Impacts of the FIFA World Cup in Developing Countries
Infrastructure spending, increased tourism (both short- and long-term), higher labor/civic morale, and increased profile of the host country are often cited as the benefits. On the other hand, the cost of building (and financing) the stadiums, crowding out of private investment, congestion, and the cost of security are some potential disadvantages.
But as international equity investors, we are more focused on the simple question:
what about the impact on equity prices?
This old chestnut is variably attributed to Henry Ford, John Wanamaker, J.C. Penny, William Hesketh Lever, amongst others. Each one is a great symbol of consumerism, but we’ll never know which or if any of them really said it.