Hatch Weekly: The Credit Suisse yearbook has landed with a thud

The yearbook has landed with a thud

Credit Suisse has recently released its Global Investment Returns Yearbook, which is a reference volume providing 119 years of financial history and analysis on 23 stock and bond markets. At 256 pages, the annual report contains many takeaways for the investor, but perhaps the 43-page summary or the 4-minute video is more palatable? The value of a report like this isn’t necessarily a roadmap for returns, but instead gives us a better sense for where we have been.

Food for thought

  • Rail companies made up the majority of companies listed on the share markets in the US (and the UK) in 1900

  • The US share markets now make up 53% of the total value of all share markets across the globe

  • 2018 was the worst year (surprise!) for returns from global equities since the GFC with a decline of 9%

  • China’s growth (and share of emerging markets) is estimated to continue

  • On average, shares have had the best returns for investors, outperforming cash assets like bonds

  • The popularity of exchange-traded funds (ETFs) will continue to grow

Emerging markets, we see you

Emerging markets and frontier markets now account for 59% of the world’s population and produce almost half of the world’s economic output. Yet, emerging markets still make up only 12% of global share market offerings. Credit Suisse researchers argue that diversifying into emerging-markets stocks can reduce risks for investors in developed markets because emerging markets can go up when developed markets go down.

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Vanguard invests in ethics

Vanguard (V), the fund management behemoth that made index investing so popular, announced that it’s jumping on the environmental, social and governance (ESG) bandwagon. ESG strategies consider environmental, social and governance factors when choosing stocks and bonds and are making a remarkable rise.

From passive to active ESG

Vanguard has a long-standing tradition of low-cost passive investment options but has filed for its first actively managed fund based on environmental, social, and governance criteria. The Vanguard Global ESG Select Stock Fund will hold around 40 shares and will be managed by Wellington Management (sadly not our Wellington!). They’ll aim to beat the FTSE All-World Index, a benchmark covering a majority of developed and emerging markets and should be available via Hatch midyear.

The DL on ESG

ESG funds are attracting a record number of assets. For instance, in 2018 they received $5.5 billion in net inflows, which is a record for the third straight year. Imagine making money and doing good at the same time! But buyer beware. Some basic funds have reclassified themselves as ESG-focused to profit from its popularity but have holdings that run counter to ESG principles. The bottom line is if you wanna ESG, do the research.

Airbnb is making hotels hot again

The home-sharing giant Airbnb is diversifying by branching out and purchasing hotel startup HotelTonight. Word on the street is they paid close to HotelTonight’s last private valuation: a gasp-worthy $463m.

Last-minute booking is clearly cooking

The business model is apparently working – who knew people were so spontaneous? Companies like One Night and Recharge are accommodating a trend of last minute hotel stays, and Airbnb can smell the opportunity, which might be why they penned the deal.

Land Grab

In 2018, Airbnb introduced boutique hotels to its platform and saw rapid growth in this space. Founded in 2010, HotelTonight has raised $127 million in venture funding, and like many startups, is prioritising growth over profits. The company is burning through $30 million a year, according to Sam Shank, HotelTonight’s chief executive and co-founder. It’s worthwhile noting that Airbnb has been successfully land grabbing AND been profitable for the last two years.

Future-facing unicorn

Airbnb’s long-term goal is to become an end-to-end travel platform that offers home sharing, hotel booking, experiences, and... transportation? Just last month, Airbnb hired Fred Reid, who happens to be the former chief executive of Virgin America, to seek out partnerships in the transportation industry. Valued at $31 billion, we are curious about an impending IPO though, unlike Uber and Lyft, it seems as though Airbnb is in no rush to go public.

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