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How did our stockpickers fare in the time of Covid-19?

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January is a time of reflection. After our new year’s hangovers have worn off, many of us try to take stock of the previous year, in a bid to understand what went wrong and how we could have done better.

To this end, we often engage in the typically futile tradition of setting ourselves new year’s resolutions, in the mistaken belief that this year it will all be different. 

For the past few years, January has also been the month when I look back on the results of the FT’s stockpicking contest. It is usually a fun exercise, particularly when auditing which of my colleagues’ confident predictions of corporate trends came utterly undone.

But this year, with the coronavirus pandemic throwing our lives into turmoil in ways many of us previously thought impossible, I tallied up the results in a rather different light. Glancing through some of our FT scribes’ stock choices from a year ago was akin to sifting through relics of a bygone age, from pub companies to cruise liners.

Before we get into our writers’ success and failures, however, a bit of background for the uninitiated.

For the past five years, FT journalists have held a charity stockpicking contest. It gives the know-it-all writers of the pink paper an opportunity to test our mettle against the market, most importantly, in a safe setting where no actual money is wagered. The only potential loss is your pride.

It is frankly difficult for many of us at the FT to invest in single stocks, particularly those of us who write about companies on a daily basis. It is also frankly unwise, given the existence of low-cost index funds.

Yet, just as you can have a crack at prime London real estate investing in Monopoly, you can have a go at being an equity fund manager in the FT contest. For the past couple of years, we’ve also opened it up to our readers (more on that later).

The rules are simple. Contestants have to choose five stocks listed anywhere in the world that they think will achieve the highest percentage return that year. They can take either a long or short position — betting that the shares will either rise, or fall. The portfolios are equally weighted and have no base currency (meaning foreign exchange movements have no effect on the end result) and dividends do not contribute to the returns. 

And, in a bid to make our contestants actually take bold bets on the fortunes of companies, ETFs and other listed instruments that provide exposure to a diversified basket of assets are outlawed.

Shadow of the pandemic

One year ago, as FT writers were locking in their choices at the end of January 2020, Covid-19 was already firmly part of the popular lexicon. Yet, to many of us in the FT’s headquarters in London, the brewing pandemic still seemed primarily a problem for Asia.

One FT writer even confidently submitted an “Everyone will have forgotten about coronavirus by December 2020” portfolio. Spoiler alert: he did not go on to win the competition.

The top-performing stockpickers, unsurprisingly, all included bets on online shopping.

Our second-placed journalist, who booked an impressive overall return of 60 per cent, explicitly described his portfolio as a “pro-internet shopping, anti-shopping centre” portfolio. 

His bets on warehouse and distribution centre owners — as a proxy for the increased logistics and deliveries that go in hand with an uptick in online retail — held their value well. His short positions on heavily indebted UK mall operators Hammerson and Intu, meanwhile, delivered massive gains.

Bar chart of Share price change (%) showing Big Tech dominated readers' most popular long picks

Yet he was bested to the crown by the FT’s Rome correspondent Miles Johnson, who proved that perhaps he was more the beneficiary of skill than luck by winning the contest for the second year running.

Miles rode through the market turmoil to notch up a frankly bewildering 104 per cent return, propelled to victory by the fivefold increase in the stock price of UK online retailer AO World. Having ordered a new television from AO in the Boxing Day sales, I feel I should take some of the credit for his victory.

These contestants who bet heavily on online shopping companies, or shorted bricks-and-mortar retailers, would be the first to admit they did not eerily predict the lockdowns across the world that shuttered many stores. 

But a lesson from our contest, as in markets this year, is that the coronavirus crisis accelerated many secular trends that were already well under way. The shift from physical to online retail had been gathering pace for years, before Covid-related lockdowns gave it even more impetus.

Tallying up the winners and losers in a year unlike any other also served to reinforce just how quickly things change in markets. When share prices around the world were plunging in the dark depths of March, our leading contestant was the particularly maladjusted pessimist who consistently takes five short positions year after year.

By the year’s close, he was sitting on huge losses. This was due in large part to a short position on Tesla, the electric car company whose stock surged to make it by far the most valuable carmaker in the world in 2020.

© Paul Morris/Bloomberg

Still, his losses were not quite as painful as our losing contestant who made the even bigger mistake of betting against Tesla’s Chinese rival Nio, an electric car manufacturer whose stock rose more than 1,200 per cent during the course of our contest.

The age-old risk of short selling — that you can lose more than your initial investment — proved a recurrent one in our writers’ portfolios, in a year when central banks and governments took unprecedented steps to help keep companies afloat.

So how did I perform? Well, last year I decided to get thematic with my investment process. I devised the “Mike Hunter Portfolio”, in tribute to a stalwart of the FT markets desk who had recently departed the paper, reflecting the great man’s loves and pet hates.

Unfortunately, Mike’s fondness for a cheap pint and a hot pastry served my portfolio badly in lockdown Britain, resulting in losses on my exposure to Greggs and Wetherspoons. The longtime Manchester City fan’s hatred for Manchester United served me better, booking profits on a short position on the football club’s New York-listed stock. 

Bar chart of Share price change (%) showing Performance of readers' most popular short picks

Even better was a bet against the stock of GoAhead Group, the bus and rail company that operated the former FT scribe’s commuter train from Kent to London. As the world shifted to working from home in 2020, the company’s stock more than halved.

Mike Hunter had long held the unofficial role of the FT’s “teamaker-in-chief” and it was his love of the quintessentially British beverage that provided the portfolio’s star performer: Tetley-owner Tata Consumer Products, whose stock finished the year up more than 50 per cent.

While I will not try to claim that this portfolio was particularly based on trying to read the tea leaves of markets, it did result in a positive — if not benchmark beating — overall return of 14 per cent.

As our FT writers lock in their choices for this year’s contest, they have some big questions to grapple with: will vaccines deliver us from coronavirus for good? Can anything arrest the rise of Big Tech? How will the end of the Trump presidency shape markets?

I have some informed guesses, although I am keeping my cards close to my chest. I hope you will play along with us.

How to enter this year’s competition

The aim of the FT’s stockpicking competition is to select companies you think will deliver the highest percentage return this year (to be precise, the period from February 1 to December 31) or those whose shares will fall the furthest.

The rules are simple. Contestants must pick five stocks and take either a long or short position on each — betting that the share price will rise, or fall. Perhaps you will stick to five companies that you know well, or you might decide to pick a range of companies from different sectors and operating in different countries to create a more diversified portfolio. 

The portfolios are equally weighted and have no base currency (meaning foreign exchange movements have no effect on the end result) and dividends do not contribute to the returns. 

The competition entry form is at FT.com/stockpick2021 where you can enter your five picks from today until midnight on January 31. The form lists thousands of stocks from exchanges around the world. Once you start typing, for example the letter “C”, the form will jump to all companies starting with C to make the selection easier. 

Entrants must choose five individual companies — investment trusts and funds are not allowed and readers who pick the same company more than once will be disqualified.

The three readers whose portfolios perform the best in 2021 will be invited to the FT’s Bracken House offices when lockdowns and travel restrictions have been lifted.

FT Money readers: the 2020 winners

© REUTERS

The winner of FT Money’s 2020 stockpicking competition is Giacomo from Rome, who beat more than 400 readers — and the FT’s in-house experts — to secure the top spot with a portfolio returning 496 per cent, writes Nikou Asgari

He shot to the top of the leaderboard in the final month of the year after the price of bitcoin surged and caused the share prices of his two cryptocurrency mining companies to rocket.

Bitcoin climbed to record heights in the last few months of 2020, before breaching the $30,000 mark for the first time in early January. Its rapid ascent has led to renewed debates and warnings about the asset’s stability while retail and institutional investors continue to put money into the cryptocurrency.

Giacomo, who did not give permission for his full name to be published, chose Nasdaq-listed bitcoin mining companies Riot Blockchain and Marathon Patent Group. Their share prices rose 1,149 and 924 per cent respectively from February 3 (the start of our competition) to December 31. As the only reader to choose these companies, coupled with his long bets on Tesla and Apple, Giacomo comfortably clinched the top spot.

In second place with a return of 391 per cent is James Bennett, a Manchester-based graduate analyst at BNY Mellon, who judged that coronavirus infections would accelerate and chose his stocks accordingly.

His best performing pick was Nasdaq-listed biotech company Novavax, which has a coronavirus vaccine in late-stage trials and funding from the US government. Novavax’s share price rose 1,537 per cent last year and it was the single best performing company picked by FT readers.

“Back in January I was reading about the virus in China and I saw there being real scope for the need for a vaccine,” says Mr Bennett. He also picked Tesla and several Chinese tech companies which have benefited from increased online activity, including Baidu, China’s leading search engine.

In bronze medal place is Peter Menedis, owner of a medical device company from Florida, who also picked Novavax and Tesla, as well as Amazon. “Novavax was a pure flyer that turned out to be a great hit,” says Mr Menedis.

He adds that Tesla, a favourite among retail investors, was “probably undervalued at the time . . . I looked at it as a tech company rather than a car company and the valuations are different for tech companies.”

The coronavirus crisis battered the US oil sector as consumption and prices collapsed, leading to a surge in bankruptcies. A long bet on US energy company EOG Resources, whose share price fell 30 per cent, meant that Mr Menedis’s total returns of 379 per cent landed him third place.

As a whole, the great majority of FT readers were more comfortable with making optimistic choices at the beginning of 2020: 78 per cent of all stock picks were long, meaning that FT readers bet that the company’s price would rise.

The three winners have been invited to visit the FT offices in central London — when lockdowns and travel restrictions are lifted — where they will tour Bracken House and meet FT journalists.



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Powell inflation remarks send Asian stocks lower

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Asian stocks were mostly lower after a rout in US Treasuries spread to the region after comments from Jay Powell that failed to stem inflation concerns in the US.

Hong Kong’s Hang Seng dropped 0.3 per cent following the remarks by the chairman of the US Federal Reserve while Japan’s Topix rose 0.1 per cent and the S&P/ASX 200 fell 0.8 per cent in Australia.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped as much as 2 per cent before pulling back to be down 0.5 per cent by the end of the morning session, after Beijing set a target of “above 6 per cent” for economic growth in 2021.

Premier Li Keqiang hailed China’s recovery from an “extraordinary” year and said the government wanted to create at least 11m urban jobs at a meeting of the National People’s Congress, the annual meeting of the country’s rubber-stamp parliament.

“A target of over 6 per cent will enable all of us to devote full energy to promoting reform, innovation and high-quality development,” Li said, adding that Beijing would “sustain healthy economic growth” as it kicked off the new five-year plan.

Analysts were less sanguine on China’s economic outlook, however, pointing to the markedly lower growth target relative to recent years.

“There is, in fact, not much surprise from the government work report except for the super-low GDP target,” said Iris Pang, chief economist for Greater China at ING, who estimated growth would be 7 per cent this year. “This makes me feel uneasy as I don’t know what exactly the government wants to tell us about the recovery path it expects.”

The mixed performance from Asia-Pacific stocks came after Powell failed to alleviate fears that the US central bank was reacting too slowly to rising inflation expectations and longer-term Treasury yields, which rise as bond prices fall.

Powell on Thursday said he expected the Fed would be “patient” in withdrawing support for the US economic recovery as unemployment remained well above targeted levels. But he added that it would take greater disorder in markets and tighter financial conditions generally to prompt further intervention by the central bank.

“As it relates to the bond market, I’d be concerned by disorderly conditions in markets or by a persistent tightening in financial conditions broadly that threatens the achievement of our goals,” Powell said.

Yields on 10-year US Treasuries jumped 0.07 percentage points to 1.55 per cent following Powell’s remarks. In Asian trading on Friday, they climbed another 0.02 percentage points to 1.57 per cent. The yield on the 10-year Australian treasury rose 0.07 percentage points to 1.83 per cent

“Based on our growth forecast, longer-term rates will likely rise for the next few quarters — but more slowly,” said Eric Winograd, a senior economist at AllianceBernstein. “And we think the Fed is prepared to push in the other direction if rates rise too far, too fast.”

The S&P 500, which closed Thursday’s session down 1.3 per cent, was tipped by futures markets to fall another 0.1 per cent when trading begins on Wall Street. The FTSE 100 was set to fall 0.8 per cent.



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Financial bubbles also lead to golden ages of productive growth

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Sir Alastair Morton had a volcanic temper. I know this because a story I wrote in the early 1990s questioning whether Eurotunnel’s shares were worth anything triggered an eruption from the company’s then boss. Calls were made, voices raised, resignations demanded. 

Thankfully, I kept my job. Eurotunnel’s equity was also soon crushed under a mountain of debt. Nevertheless, the company was refinanced and the project completed. I raised a glass to Morton’s ferocious determination on a Eurostar train to Paris a decade later.

With hindsight, Eurotunnel was a classic example of a productive bubble in miniature. Amid great euphoria about the wonders of sub-Channel travel, capital was sucked into financing a great enterprise of unknown worth.

Sadly, Eurotunnel’s earliest backers were not among its financial beneficiaries. But the infrastructure was built and, pandemics aside, it provides a wonderful service and makes a return. It was a lesson on how markets habitually guess the right direction of travel, even if they misjudge the speed and scale of value creation.

That is worth thinking about as we worry whether our overinflated markets are about to burst. Will something productive emerge from this bubble? Or will it just be a question of apportioning losses? “All productive bubbles generate a lot of waste. The question is what they leave behind,” says Bill Janeway, the veteran investor.

Fuelled by cheap money and fevered imaginations, funds have been pouring into exotic investments typical of a late-stage bull market. Many commentators have drawn comparisons between the tech bubble of 2000 and the environmental, social and governance frenzy of today. Some $347bn flowed into ESG investment funds last year and a record $490bn of ESG bonds were issued. 

Last month, Nicolai Tangen, the head of Norway’s $1.3tn sovereign wealth fund, said that investors had been right to back tech companies in the late 1990s — even if valuations went too high — just as they were right to back ESG stocks today. “What is happening in the green shift is extremely important and real,” Tangen said. “But to what extent stock prices reflect it correctly is another question.”

If the past is any guide to the future, we can hope that this proves to be a productive bubble, whatever short-term financial carnage may ensue.

In her book Technological Revolutions and Financial Capital, the economist Carlota Perez argues that financial excesses and productivity explosions are “interrelated and interdependent”. In fact, past market bubbles were often the mechanisms by which unproven technologies were funded and diffused — even if “brilliant successes and innovations” shared the stage with “great manias and outrageous swindles”.

In Perez’s reckoning, this cycle has occurred five times in the past 250 years: during the Industrial Revolution beginning in the 1770s, the steam and railway revolution in the 1820s, the electricity revolution in the 1870s, the oil, car and mass production revolution in the 1900s and the information technology revolution in the 1970s. 

Each of these revolutions was accompanied by bursts of wild financial speculation and followed by a golden age of productivity increases: the Victorian boom in Britain, the Roaring Twenties in the US, les trente glorieuses in postwar France, for example.

When I spoke with Perez, she guessed we were about halfway through our latest technological revolution, moving from a phase of narrow installation of new technologies such as artificial intelligence, electric vehicles, 3D printing and vertical farms to one of mass deployment.

Whether we will subsequently enter a golden age of productivity, however, will depend on creating new institutions to manage this technological transformation and green transition, and pursuing the right economic policies.

To achieve “smart, green, fair and global” economic growth, Perez argues the top priority should be to transform our taxation system, cutting the burden on labour and long-term investment returns, and further shifting it on to materials, transport and dirty energy.

“We need economic growth but we need to change the nature of economic growth,” she says. “We have to radically change relative cost structures to make it more expensive to do the wrong thing and cheaper to do the right thing.”

Albeit with excessive enthusiasm, financial markets have bet on a greener future and begun funding the technologies needed to bring it to life. But, just as in previous technological revolutions, politicians must now play their part in shaping a productive result.

john.thornhill@ft.com



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US tech stocks fall as government bond sell-off resumes

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A sell-off in US government bonds intensified on Wednesday, sending technology stocks sharply lower for a second straight day.

The yield on the 10-year US Treasury bond, which acts as a benchmark for global borrowing costs, climbed to nearly 1.5 per cent at one point. It later settled around 1.47 per cent, up nearly 0.08 percentage points on the day.

Treasury trading has been particularly volatile for a week now — 10-year yields briefly eclipsed 1.6 per cent last Thursday — but the rise in yields has been picking up pace since the start of the year and the moves have begun weighing heavily on US stocks.

This has been especially true for high-growth technology companies whose valuations have been underpinned by low rates. The tech-focused Nasdaq Composite index was down 2.7 per cent on Wednesday, on top of a 1.7 per cent drop the day before.

The broader S&P 500 fell by 1.3 per cent.

The US Senate has begun considering President Joe Biden’s $1.9tn stimulus package, with analysts predicting that the enormous amount of fiscal spending will boost not only economic growth but also consumer prices. The five-year break-even rate — a measure of investors’ medium-term inflation expectations — hit 2.5 per cent on Wednesday for the first time since 2008.

Inflation makes bonds less attractive by eroding the value of their income payments.

“I would expect US Treasuries to continue selling off,” said Didier Borowski, head of global views at fund manager Amundi. “There is clearly a big stimulus package coming and I expect a further US infrastructure plan to pass Congress by the end of the year.”

Mark Holman, chief executive of TwentyFour Asset Management, said he could see 10-year yields eventually trading around 1.75 per cent as the economic recovery gains traction later this year.

“It will be a very strong second half,” he said.

Line chart of Five-year break-even rate (%) showing US medium-term inflation expectations hit 13-year high

Elsewhere, the yield on 10-year UK gilts rose more than 0.09 percentage points to 0.78 per cent, propelled by expectations of a rise in government borrowing and spending following the UK Budget.

Sovereign bonds also sold off across the eurozone, with the yield on Germany’s equivalent benchmark note rising more than 0.06 percentage points to minus 0.29 per cent. This was an example of “contagion” that was not justified “by the economic fundamentals of the eurozone”, Borowski said, where the rollout of coronavirus vaccines in the eurozone has been slower than in the US and UK.

The tumult in global government bond markets partly reflects bets by some traders that the US Federal Reserve will be pushed into tightening monetary policy sooner than expected, influencing the costs of doing business for companies worldwide, although the world’s most powerful central bank has been vocal that it has no immediate plans to do so.

Lael Brainard, a Fed governor, said on Tuesday evening that the ructions in US government bond markets had “caught my eye”. In comments reported by Bloomberg she said it would take “some time” for the central bank to wind down the $120bn-plus of monthly asset purchases it has carried out since last March.

After a series of record highs for global equities as recently as last month, stocks were “priced for perfection” and “very sensitive” to interest rate expectations that determine how investors value companies’ future cash flows, said Tancredi Cordero, chief executive of investment strategy boutique Kuros Associates.

Europe’s Stoxx 600 equity index closed down 0.1 per cent, after early gains evaporated. The UK’s FTSE 100 rose 0.9 per cent, boosted by economic support measures in the Budget speech.

The mid-cap FTSE 250 index, which is more skewed towards the UK economy than the internationally focused FTSE 100, ended the session 1.2 per cent higher.

Brent crude oil prices gained 2 per cent at $64.04 a barrel.



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