pretty acceptable. Often investors notice the speed of change in yields   develops over three days may not be as noticeable. The same occurs in markets. Investors can get so embroiled in their ideologies; they often miss one tenet of their strategy changing, until it changes very quickly.


Chart 2


I mention this because recently the popular press has  in its scripted adulation with the less catchy MCBM (Mega C-class Ballistic Missile ...that’s the one North Korea has). In stock market parlance, MCBM stands for McDonalds, Caterpillar, Boeing and 3M. From 2000 to 2015, these stoic boring stocks traded rigidly between 1.5 and 2.5 times EV to revenues. Their revenue growth during that period averaged roughly 5%.


However, since 2016, MCBM’s valuation on an EV to revenues basis has powered up to 4.3 times. Over the last year their stock market performance has left FANG in their wake, gasping for air. They have been doing well. One would assume their revenues must have accelerated quickly? Actually, this year revenue  time this century.


Of course it could be an earnings dream and this to an extent is true, obviously assisted with a bit of buyback magic, the truth is that the moves have 


Source: Bloomberg


As an artist ....no really, I love seeing chart patterns where one set of lines are identical but opposite to another set of lines below. Let me give you an example.


Chart 3: Active vs. Passive U.S. Equity Flows ($Billion)


I read recently that the ease of making one investment decision to swerve ZIRP in the retail mind-set is the glory of ETF’s. Obviously what has been ‘inside’ the ETFs over the last two years where  is paramount.


MCBM is well represented!


32 ETFs count McDonalds is their top 15 holdings, 25 ETFs count Caterpillar in the same. 83 ETF’s overweight Boeing to this degree and 44 overweight 3M. NONE of these 4 stocks are in the top 20 of the S&P.


Source: Morningstar Direct Asset Flows


I got the above chart from Morningstar. It shows something we all know and has been well reported, being the move from active equity fund management to passive management in the last 10 years. It looks like  pond. It is just beautiful. However, most active managers would not see  has gone into ETF passivity.


Sometimes (virtually always), when a sell eventually  sees a giant rotation betwixt stocks and sectors. This is frequently more painful for investors - especially geared long short funds, who think they have neutral    totally disproportionate and have caused valuation issues that will be revealed when the fundamental rotation evolves.


When retail sells equities nowadays it will be MCBM  safety might be weird.


Andy Ash E: andy.ash@admisi.com T: +44(0) 20 7716 8520


11 | ADMISI - The Ghost In The Machine | January/February 2018


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28