Growth-value rotation to prompt major rebalancing in ETFs
Investors in a $15bn exchange traded fund are being warned to brace for a major rebalancing at the end of May that could see a number of major holdings removed.
iShares MSCI USA Momentum Factor ETF is currently heavily weighted to growth stocks in the broader information technology sector, which accounts for 42% of assets. Amazon, which currently accounts for 4.6 % of the portfolio, could be removed altogether. This ETF currently has minimal exposure to traditionally value-oriented financials, at 1.5% and no energy sector holdings at all. In a sign of the market rotation, energy companies such as Occidental Petroleum and Valero Energy, which have more than doubled in value over the past six months, are likely to be added. Other stocks at risk of ejection from this ETF include Costco Wholesale, Netflix and Nike.
Crypto vs. Fiat, and why newer isn't always better
While opinions vary on Bitcoin, we have seen particularly enthusiastic endorsement emanating from the technology/software industry, including many high-profile industry figures. Some Silicon Valley companies like Square and Tesla have purchased Bitcoin at the corporate level, and Paul Graham even went as far as likening Turkey's recent crypto ban to banning the microprocessor in 1976. To these folk, Bitcoin is obviously the way of the future. This zeitgeist recently prompted someone to ask on Twitter, why are so many intelligent & capable software people so quick to embrace Bitcoin and the "future of money" with little in the way of critical thinking and only a cursory understanding of the issues?
The answer, I believe, is that these folk have - based on many decades of experience - a strong predisposition to believe that anything that is both *new* and *digital* must be superior to prior "old world" solutions.
Instead of uncritically embracing the hype, let's take a step back and think through the issues. There are really only two potential applications/needs cryptocurrency might hope to fulfil, aside from functioning purely as instruments of speculation:
(1) to function as a currency/means of exchange/payment, displacing/acting as a (superior) alternative to fiat currencies; and/or
(2) to function as a "store of value". The default presumption is that - owing to putative problems/shortcoming associated with fiat currency (some true, some imagined) - Bitcoin et al are unquestionably superior - indeed a natural evolution towards next-generation solutions.
Unfortunately, the reality is a lot more complicated than that.
How high could prices go? It's anyone's guess, because prices are driven purely by demand and supply, and demand is partly a function of price increases. However, the total amount of global wealth was estimated by Credit Suisse to be some US$360tr at 2019 year-end 1. It has probably increased since then - let's say to US$400tr. The total market cap of crypto, at some US$2.0tr, is therefore now already about 0.5% of total global wealth.
Could it go to 5%? Anything is possible. History cautions against trying to call the peak of human speculative excess - things can be taken to utterly unimaginably absurd extremes. But in the long run, I must say it is very difficult for me to imagine crypto settling out even at 2.5-5% of total global wealth levels, let alone anything higher. US$2tr in combined market cap also also represents about US$250 per global capita - including children and people from less developed countries in Africa etc. There is still room to run further in the short term - there always is - but on the long sweep of things I wouldn't be investing today with the expectation of making 100x your money.
I used to believe Bitcoin would likely eventually go to zero. I no longer believe that. My prediction now is that we see repeated waves of speculative excess - huge giddy run ups, followed by spectacular collapses; long periods of disinterest/sideways action; and then renewed eco booms. People will always like to speculate, and the smaller the market cap gets after any bust, the less buying will be required to support and push up the price. After a bust, at some level the price will get low enough for a number of people to step up to the plate and bet on another boom that windfalls them 20x. And the cycle will repeat. It doesn't make a lot of rational sense, but then again nor does Vegas.