Week In Review – June 26th

This past week marked my exit from Exchange Traded Funds (ETFs).  Investing via ETFs was a relatively new phenomenon for my portfolio – only since 2018.  As with most types of investing, there are pros and cons though the trade offs with ETFs are more individualized.  At a high level, fees are the con side with simplicity on the pro.

My use of them was to streamline the expansion of the foreign portion of my portfolio.  Over the past two years I’ve added most of the individual issues I wanted, like Novartis and ABB in Switzerland; Kirin Holdings and Nintendo in Japan; Computershare and Coca-Cola Amatil in Australia and more.

I don’t have a significant issue with most fee structures as ADRs have fees as well, so it’s essentially a wash.  My issue is more along the lines of managing to the average.  For people with no time or inclination, average is better than not being invested.  I’ve gotten used to bettering the average (34 of my 39 investing years) so the feeling was similar to sitting in the passenger seat ceding control to a committee, quant or index weighting.

Consider the tale of two companies in Vanguard’s VGK, Bayer AG and Wirecard AG.  On purchasing the ETF, I rated Bayer a 3 (on a 10 to -1 scale) largely on the uncertainty regarding their legal issues (Roundup).  Wirecard was rated -1 as I had some operational questions.  I bought neither individually but if I were rating them today, Bayer would be a 5 whereas Wirecard would be a -100 if my system went so low.  Point being – the overall ETF return will manage to the average incorporating both the highs and lows..

Continuing on my Aunt Jemima theme from last week, the plot continues to thicken.  Subsequent to my post, there were a few calls to boycott which seemed to fizzle when Glenn Beck weighed in on the side of Quaker.  Then the narrative seemed to evolve into “the Cancel Culture is erasing our history” as his next breath added, “While we’re at it, why don’t we just cancel everything named after anybody who isn’t a BLM activist, tear down all the statues, ruin sketch comedy, and not care about the context of anything ever again?”.  While it’s a little ironic that the right co-opts a strategy with its genesis in black culture, it then devolves to an off-topic argument.  Partial  lyrics to Razzle Dazzle come to mind to describe this narrative,

Give ’em the old flim flam flummox

Fool and fracture ’em

How can they hear the truth above the roar?

What is surprising is the corporate reaction.  Unilever perhaps said it best, “Given our Responsibility Framework and the polarized atmosphere in the U.S., we have decided that starting now through at least the end of the year, we will not run brand advertising in social media newsfeed platforms Facebook, Instagram and Twitter in the U.S. … Continuing to advertise on these platforms at this time would not add value to people and society. We will be monitoring ongoing and will revisit our current position if necessary.”  No picking a side – just putting all on notice that if the polarization continues, the cash cow that Social Media depends on for survival is at risk.  The real question becomes, “Do any of the participants from the President, the Left, the Right see themselves as part of the cause?  Or will the polarization these platforms enabled be the beginning of their end?  Or will messaging become so segmented (Parlor for Conservatives, etc.) that the result will be isolated echo chambers in which all lose.  Stay tuned …

Final thought for the day – if invested in banks, keep an eye on the news this week.  Analysts are identifying Wells Fargo and Capital One as ones to watch in particular, the issue being dividend sustainability.  I expect no dividend increases or buybacks in the near term.  My eyes are squarely on any dividend cuts which in my mind is a sign of weakness.  My intermediate concern is the Fed wanting to ensure minimum capital ratios, which could be a signal of further economic deterioration or they don’t want the headline news of any bank failures on the cusp of the election (or both).  With the release of this data, I should start getting initial results of my theory on low-cost deposits.

Hope your month is ending on a high note despite last weeks’ trouncing.  As always, stay safe.