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Volume 12, Edition 6 | February 27 – March 3, 2023

Casting a Wide Net with Open Source Investing

Doug Walters, CFA
Investing is hard enough without limiting your options. We take a moment to remind investors to cast a wide net when searching for the perfect fund.

Contributed by Doug Walters, Max Berkovich, David Lemire, Eh Ka Paw

Stocks stabilized after a tough previous week. Separately, we were active in our strategies, changing our allocation to international equities. The move reminded me of the importance of maximizing choice in your investment process.

As we look across the equities landscape, we currently see more opportunity for upside in international stocks, and in particular international value. Great, we like opportunity! But how do we express this view? We generally prefer exchange-traded funds (ETFs), but there are numerous options, particularly for open source investors like us.

What do we mean by open source? We mean we are not beholden to any one provider of funds. It is common sense that when choosing a fund, you want all options available to you so that you can choose the best. But that is not always common practice. For us, maximizing our pool of options is part of our evidence-based approach to investing.

Fund analysis is tricky, and I’m lucky to have one of the best in the industry sitting by my side (shout out to David Lemire). Fund selection is much more than looking at past performance. Do you understand the fund’s process, and does it consistently provide the exposure you seek? Will the ETF trade efficiently when you want to buy and sell? Is there an experienced and proven management team? Is there a reputable firm behind the fund? Are the fees reasonable? All of these questions are important, and by casting a wide net with open source investing, you can ensure you are not unnecessarily constraining your search before it begins.

Headline of the Week

Round 1 to the Fed

We have written extensively around the “higher for longer” narrative that has dominated headlines the past few months. February may have provided an inflection point in this battle as the market largely acquiesced to the Fed’s point of view. The markets retreated in February with the goal to live to fight another day. They were not necessarily wrong to price in declining inflation and economic vibrancy, but they were arguably early.

The markets and Fed agree that inflation needs to be soundly defeated. But Round 2 sets up as a contest for the markets to try to even the score by convincing the Fed to pause and/or move to the sidelines before a more severe recession becomes likely.

The Week Ahead

After a dud of a week for news, things perk up next week. A big week for China, with a Federal Reserve Chairman testimony, revised Gross Domestic Product releases in Europe, the United Kingdom, and Japan, on top of a notable central bank meeting in Japan and the jobs report for February.

The Xi & I

This weekend the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC) kicks off. This weeklong session is commonly called the National People’s Congress.

  • President Xi will open festivities with a speech on Saturday.
  • Power consolidation is expected, with Xi reshuffling party ranks and formalizing his 3rd term as Premier.
  • Economic targets and Central Bank appointments are also expected.
  • Experts are predicting the Government will adopt a 3% budget deficit target to spur growth to reach the Gross Domestic Product target they will set.
  • Mid-Week, the Bank of China has a rate decision to make, and inflation numbers will be released on Thursday.
  • Despite strong economic numbers post the Covid unshackling of China, inflation isn’t expected to pop quite yet, with the Chinese Consumer Price Index coming in at around 2%.

Last Chance

The Bank of Japan is on deck for a rate decision on Friday.

  • This is the outgoing Governor Kuroda’s last meeting before he hands over the keys to the printer to Kazuo Ueda.
  • With inflation over 4%, twice the target, will Kuroda set the stage for Ueda to start tightening policy, or will he exit and leave all the heavy lifting to his successor?

Capital Bound

Federal Reserve Chairman Powell will testify before the Senate and then Congress mid-week.

  • It’s hard to predict what our legislators will ask the Chairman, but what he sees from the economy and when he will stop hiking rates will surely come up.

Hard Labor

Friday, the Department of Labor will release the non-farm payroll numbers.

  • The average estimate is 216,000 jobs created in February, well below the 369,000 12-month average.
  • In January, we had a surprising 517,000 jobs created.
  • Important figures to watch are the labor participation rate, average hourly earnings, and average weekly hours worked.

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