📈 BlackRock will take that all-time high, thanks

And don't mind if ETFs do too | Ferrari, unplugged |

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Today's big stories

  1. The amount of money invested in exchange-traded funds topped $9 trillion last month, and investment giant BlackRock is loving it
  2. There are three assets you need to build a medium-term portfolio that'll never lose you money – Read Now
  3. Ferrari’s planning to spend big on electric vehicles, but investment bank Goldman Sachs isn’t impressed

Funds And Games

Funds And Games

What’s Going On Here?

Investors are having the time of their lives: fresh data out on Monday showed the amount of money invested in exchange-traded funds (ETFs) hit a record high in May.

What Does This Mean?

ETF investments topped $9 trillion for the first time last month, according to consultancy ETFGI. And thanks to rising demand for both bond ETFs and environmentally focused ones, BlackRock – the world’s biggest provider of ETFs – said it's expecting that number to hit $15 trillion by 2025.

That suits the investment giant just fine: the amount of money its ETF business looks after hit its own all-time high of $3 trillion last month. Not that there’s any guarantee of surging profits, mind you: BlackRock’s noticed that Vanguard – the world’s second-biggest ETF provider – brought almost $40 billion more into its ETF business this year, and now the two are in an all-out price war (tweet this).

Why Should I Care?

The bigger picture: Active vs. passive.
According to BlackRock, ETFs – which have historically passively tracked an index – account for just 3% of assets held in stock and bond markets globally. A much higher percentage is in more expensive active funds, whose managers research and invest in stocks and bonds they think will perform well. But those managers are under increasing pressure to meet in the middle and offer active ETFs, whose growing popularity could help them fend off BlackRock and Vanguard.

Zooming out: Short sellers vs. retail investors.
Speaking of which, new data out on Monday showed US active investment managers have gradually been reversing their short positions – that is, bets that certain stocks will fall – over the past year. That might have something to do with the constant government and central bank support, which has only been pushing stocks in one direction for the last 12 months. Or it might be in response to the GameStop saga, which left short-sellers with bruised pride and profits alike.

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2. Analyst Take

How To Build A Fool-Proof Medium-Term Portfolio

What’s Going On Here?

Stocks have historically made up the core of most medium-term portfolios.

And there are good reasons for that: they’ve historically generated high returns, plenty of cheap ETFs track them, and they’re the asset class investors are most familiar with.

But while stocks are a good starting point, too much focus on them is risky.

So you’ll want to add in a couple of other assets that, together, ensure the same returns on average without all the risk.

That’s today’s Insight: the extra assets you need to build a medium-term portfolio that’ll never lose you money.

Read or listen to the Insight here


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Green Turismo

Green Turismo

What’s Going On Here?

Goldman Sachs changed its recommendation on Ferrari’s stock from a buy to a sell on Monday, and the Italian car company’s eco-friendly ambitions might be the reason it runs out of juice.

What Does This Mean?

Ferrari’s negotiating a new stretch of track at the moment: the legendarily gas-guzzling auto giant recently announced the development of its first-ever all-electric vehicle (EV) and appointed a new, tech-savvy CEO. But according to Goldman Sachs, this shift in focus could be costly for investors in the short term.

The investment bank agrees a push toward EVs is important for Ferrari’s future, but it reckons the costs involved – an extra $50 million a year of spending between now and 2030 – will put a significant dent in the company’s profitability. In a rare reversal of fortunes, that prompted Goldman to downgrade its recommendation for Ferrari’s shares straight to a sell.

Why Should I Care?

The bigger picture: Ferrari isn’t alone.
The EV transition has made carmakers some of the highest-spending companies out there right now: they’ve collectively spent more on research and development over the last decade than they’ve made in profit, according to Bloomberg. And all that new tech won’t necessarily pay off: Jaguar Land Rover-owner Tata Motors, for example, recently wrote off over $1 billion worth of previous research spending.

For markets: Beware electric shocks.
The combined global market value of carmakers’ stocks doubled to more than $2 trillion in 2020, despite a stall in overall car sales. But investment firm Research Affiliates thinks shareholders are deluding themselves: almost all automakers’ stock prices have benefited from exciting EV developments, even though many are direct competitors. That means some of them are bound to lose out. Investors got a sharp reminder of that on Monday: electric truck maker Lordstown Motor's shares slumped after its top two executives resigned, days after the firm warned it was on the verge of running out of cash.

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💬 Quote of the day

“One never notices what has been done. One can only see what remains to be done.”

– Marie Curie (a Polish and French physicist and chemist)
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🎯 On Our radar

  1. Because sometimes stocks aren’t enough. Retail investors are flocking to this emerging alternative investing platform.*
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  3. The Zoom effect. How the pandemic made plastic surgery popular.
  4. Who needs SpaceX anyway? Fantastic meteorites and where to find them.
  5. It’s all about the novelty. Why quirky people are attractive.

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