🤐 ETFs are overrated

The vapes of wrath | The stock pickers of wrath |

Hi Reader, here's what you need to know for June 9th in 3:03 minutes.

🚽 Grocery stores have done well out of the pandemic, and not just because of all the TP people have been buying. So join Shopfloor insights founder on June 10th for How Not To Get Lost In Supermarket Stocks, and find out how to pick grocery’s big winners. Get your free ticket

Today's big stories

  1. British American Tobacco gave an upbeat forecast for the rest of the year, as a record number of people flocked to its vaping products
  2. The S&P 500 has a little-known sibling, and it’s been outperforming its older brother for the last two decades – Read Now
  3. Stock picking funds are having an incredible start to the year

Puff Piece

Puff Piece

What’s Going On Here?

British American Tobacco (BAT) announced an upbeat forecast for the rest of the year on Tuesday, and investors were left breathless.

What Does This Mean?

If you think you’ve been seeing more longboard-riding startup execs leaving trails of vape smoke in their wake, you’re not imagining it: BAT added a record 1.4 million new customers of its “non-burning products” last quarter, bringing the total to 15 million (tweet this). And of all its brands, Vuse has been the standout: the vaping mainstay now boasts a market share of more than 30% in five of the world’s biggest vaping markets.

The upbeat results encouraged BAT to bump up its sales growth forecast for the rest of the year, but it left its profit forecast where it was. That might be because the company’s investing heavily in its non-burning products business in an effort to grow sales, and it’s admitted that the segment won’t become profitable till 2025.

Why Should I Care?

The bigger picture: Smoking’s not cool anymore.
Tobacco stocks have been feeling the heat lately, partly because traditional cigarette businesses – which still make up the bulk of their sales – are increasingly at risk of tighter regulation. And it’s true that smoking rates have been falling around the world, with cigarette sales expected to fall by 3% this year. Not everywhere, mind you: Pakistan, Bangladesh, and Vietnam all have flimsier anti-smoking rules, which might be why BAT singled them out on Tuesday as key areas for growth.

For markets: Nice-to-haves are out, must-haves are in.
Then again, one investment research group thinks now might actually be the perfect time to buy tobacco stocks. See, the economic recovery is transitioning from “early-cycle” to “mid-cycle”. That’s when growth rates start to peak, and when consumer staples stocks – like tobacco – should outperform consumer discretionary stocks, like fashion. That’s down to their more stable earnings potential, and, as an added bonus, how much cheaper they currently look.

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2. Analyst Take

The S&P Is Being Upstaged By Its Little Brother

What’s Going On Here?

Sure, you probably already know that the S&P 500 gives you broad exposure to the US stock market.

But what you might not know is that the index has a much less famous sibling – one that’s generated almost double the returns over the past two decades.

Seriously: $100 invested into a fund tracking the S&P 500 on the last day of 1999 would be worth $287 today. The same sum invested into its brother would be worth $539 – 88% more.

So that’s today’s Insight: the index that’s generated twice the returns of the S&P 500, and how best to profit from it.

Read or listen to the Insight here

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Let’s Get Physical

Let’s Get Physical

What’s Going On Here?

Investors have been keeping active this year: fresh data from Bank of America on Tuesday showed May saw particularly historic levels of outperformance at “actively managed” funds.

What Does This Mean?

Active fund managers research and invest in individual stocks they think will shine, rather than “passively” tracking the performance of an index. That approach paid off last month: 70% of active funds focused on large US stocks outperformed the wider market – one of the highest percentages in recent history. A similarly strong showing in February means more than 60% of these funds are currently beating the market in 2021 so far.

That impressive outperformance is partly due to sluggish price rises among market-dominating tech stocks: actively managed funds typically invest more in the smaller shares that have received an outsized boost from progress on coronavirus vaccination. They also tend to prefer cheap-looking “value” stocks over “growth” stocks, which have fallen in investors’ favor this year.

Why Should I Care?

The bigger picture: It’ll never last.
Beating benchmarks is a big deal for most active managers: it's how they justify fat fees from investors who could instead just passively track an index’s performance via a cheap exchange-traded fund (ETF). But investors don’t seem convinced active funds will be able to keep it up: a record $305 billion has flowed into US stock ETFs in 2021 so far, compared to $250 billion in the whole of 2020.

Zooming out: Activists matter.
An activist fund is both actively managed and aggressive in seeking change at the companies it invests in. Europe’s biggest activist investor, Cevian Capital, announced on Tuesday that it’d built a 5% stake at Aviva, and that it was pushing the British insurance giant to cut costs and distribute an additional $7 billion to shareholders – who promptly sent the stock’s price up 3%.

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💬 Quote of the day

“We are an impossibility in an impossible universe.”

– Ray Bradbury (an American author and screenwriter)
Tweet this

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🎯 ON OUR RADAR

  1. Inside NorCal’s Zoom town. How techies took over Tahoe.
  2. The battle of platforms is coming. Where Youtubers and TikTokers beat the crap out of each other.
  3. Men are from Mars. But NASA’s going to Venus.
  4. The most important thing you’ll read all year. Or, how to teach your cat tricks.
  5. Monster Lake Ranch. What happened when Kanye came to Wyoming.

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😎 Take that, the Man.

You’re a rule-breaker with a heart of gold: you don’t play by no one’s rules but your own. You’re an unorthodox cop, but darned if you don’t get results. They say jump, you say, “Nah.” And we, for one, can’t wait to welcome you to How To Make Your Own Investing Rules, where you’ll hear from Utor Wealth’s Jenifer Sapel on how to make a profit while you stick to your principles.

😎 How To Make Your Own Investing Rules: 5pm UK time, June 9th
🛒 How To Not Get Lost In Supermarket Stocks: 6pm UK time, June 10th
💰 How To Get Yield From Crypto: 12pm NYC time, June 14th
💡 How To Build A Robust Portfolio: 5pm UK time, June 15th
💵 How To Bet On The Rise Of Open Banking Payments: 1pm UK time, June 16th
🤑 How To Earn A Passive Income From Crypto: 12pm NYC time, June 24th
🌿 Why Now’s The Time To Invest In Cannabis: 6pm UK time, June 28th
🍔 How To Make Money Going Meat Free: 6pm UK time, June 29th
💄 How To Give Your Portfolio A Beauty Makeover: 6pm UK time, June 30th

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