Asset allocation: Why less is sometimes more

The image above shows a grid of horizontal, vertical and diagonal lines with 12 black dots at various intersections. Most people are only able to see one or two of the black dots at any one time. Named Ninio’s Extinction Illusion after Jacques Ninio, the French scientist who first published it in 2000 – it speaks to the weakness of peripheral vision in humans but also to the brain’s tendency to fabricate patterns when confronted with uncertainty.

In our view, this optical illusion serves to illustrate another point. It demonstrates a wider truth in investing: that the more expansive a portfolio is, the harder it is to maintain oversight of all the underlying holdings. Far better, we believe, to define your universe, allocate capital with conviction and zone in on what’s important to you as an investor.

Nick Clay – Newton, a BNY Mellon company

The image above shows a grid of horizontal, vertical and diagonal lines with 12 black dots at various intersections. Most people are only able to see one or two of the black dots at any one time. Named Ninio’s Extinction Illusion after Jacques Ninio, the French scientist who first published it in 2000 – it speaks to the weakness of … read more

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On the road to an EV future

At Newton, we are predicting the end of the road for the internal combustion engine as electric vehicles gain traction.

First there is the environmental angle. The European Commission has laid out plans not only to tighten emissions testing for automakers but also to leverage far higher penalties on companies that fail to make the grade. As of 2019, this levy will take the form of a €95 fine per CO2 g/km above the limit for each vehicle produced if the average fleet emission breaches targets. For a company like Volkswagen with 3.65 million units sold in Europe in 2016, even just being three grams above the EC’s emissions target would translate into a €1bn fine.

We also think electric vehicles offer numerous benefits over petrol or diesel engine cars. For one thing, they have fewer moving parts which makes them far more reliable and cheaper to maintain. They are also potentially safer and, as anyone who has test driven a Tesla can testify, they can offer a fun driving experience with 100% of torque available at 0rpm.

In our view, it’s not a question of if but when EVs overtake their fossil fuel counterparts.

Mathieu Poitrat Rachmaninoff, Newton

At Newton, we are predicting the end of the road for the internal combustion engine as electric vehicles gain traction. First there is the environmental angle. The European Commission has laid out plans not only to tighten emissions testing for automakers but also to leverage far higher penalties on companies that fail to make the grade. As of 2019, this … read more

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US banks ‘ace’ Fed stress tests

In our view, this year’s CCAR[1] process – which all 34 systemically important US banks passed – points the way to a brighter future for the financial services sector.

The results support our belief that the market has been under-appreciating the magnitude of capital return both this year and importantly next year when the new administration chooses their pro-business appointees at the Federal Reserve.

As long-term relative price-to-book ratios in the sector suggest, a whole group of undervalued companies in the sector have good prospects even if only part of the reform package of President Donald Trump gets through.

John Bailer – The Boston Company, a BNY Mellon company

[1] The Comprehensive Capital Analysis and Review (CCAR) is an annual exercise by the Federal Reserve to assess whether the largest bank holding companies operating in the United States have sufficient capital to continue operations throughout times of economic and financial stress

In our view, this year’s CCAR[1] process – which all 34 systemically important US banks passed – points the way to a brighter future for the financial services sector. The results support our belief that the market has been under-appreciating the magnitude of capital return both this year and importantly next year when the new administration chooses their pro-business appointees … read more

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Shielding from inflation

If you are looking to invest for the long term, we believe you should look to protect your assets against the potential ravages of inflation. Unlike cash and most conventional bonds, assets with inflation-linked contracts, such as renewables and infrastructure, are very attractive for long-term investors/savers because they offer a degree of in-built inflation protection. A large proportion of the revenue streams of these assets are backed by government subsidies making them a generally robust and stable proposition.

Renewables can provide stable long-term cash flows, with a good line of sight. Yet it is an asset class that tends to get overlooked despite being less affected by quantitative easing and zero interest-rate policies compared to other financial assets.

As long as the sun comes up every day, you’re going to sell power for something. In some senses, investing in renewables is like investing in bonds, except with some sensitivity to the price for generating power.

Paul Flood – Newton, a BNY Mellon company

If you are looking to invest for the long term, we believe you should look to protect your assets against the potential ravages of inflation. Unlike cash and most conventional bonds, assets with inflation-linked contracts, such as renewables and infrastructure, are very attractive for long-term investors/savers because they offer a degree of in-built inflation protection. A large proportion of the … read more

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