Market Pulse
Wednesday, December 20, 2023
Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
Our stories this week:
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Cyril (Chief Investment Officer), and the rest of the Sidekick team.
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
Ferrari needs little introduction. It’s been a sought after luxury car brand for almost a century. Since the Ferrari IPO back in 2015, the shares compounded at just under 30% per year, more than double the return from the SP500 stock index. Let's have a look under the hood to better understand the fundamentals that make Ferrari one of the most profitable listed car companies in the world[1].
One can think of Ferrari owners as members of an exclusive club and Ferrari revenues as the club membership fees. As new Ferraris generally get sold to previous Ferrari owners, the constant revenue stream from existing customers resemble multi-year subscription fees that just so happens to come with a really impressive Italian supercar. But, like most exclusive clubs, money alone is not enough to join. Becoming a fully fledged member can take a lot of time, money and effort.
Last year Ferrari sold more than 13,000 cars, almost 9,000 of which were sold to existing members [2]. All 599 SP3 Daytonas, costing more than $2m each, were sold out before launch netting Ferrari more than $1.35bn. That’s more than a quarter of their total revenue last year. From a single new model. And 499 of the 599 were sold to owners who had previously purchased Icona series cars, a range of cars that appeals to enthusiasts and draws inspiration from iconic Ferraris [3].
The Ferrari business model, a relentless focus on carefully nurturing existing relationships and building strong lifelong bonds with ‘club members’, is a key part of what drives industry leading profitability at Ferrari. It should come as no big surprise that the Ferrari board includes the CEO of Dior, the CEO of Yves Saint Laurent and the president of Chanel[4].
UK inflation slowed far more than economists expected in November, rising only 3.9% from a year earlier, less than the expected 4.3%. This is now the third downwards surprise in four months and this is good news, especially for anyone with a mortgage.
The market narrative around interest rates is very quickly shifting away from ‘higher for longer’. Thanks to better than expected inflation data, traders have ramped up bets that the Bank of England will cut interest rates by up to 1.45% in 2024. This means 5 rate cuts have been pencilled in by the market for next year [5].
The rising expectations of rate cuts have had a big impact on markets. UK stocks have done well, rising just over 3% since late October. UK bonds, on the other hand, have had a much stronger period of performance, rising more than 10% over the same period.
Traditionally bonds do well during periods of falling interest rates and as the 2023 narrative increasingly shifts from ‘higher for longer’ to a 2024 narrative of ‘inflation is under control so let's cut rates to boost the economy’ bonds could continue to perform strongly.
There are many studies that highlight the benefits of being an optimist, someone who tends to be hopeful and confident about the future. A study by Boston University of Medicine showed that people with an upbeat disposition have a much better chance at enjoying exceptional longevity[6].
In 2023, being optimistic about the stock market really paid off and, according to a recent study, no one was more optimistic than our American friends across the Atlantic.
A global survey by Natixis revealed a few interesting insights [7]. Firstly, investors are far more optimistic about long-term returns than financial professionals. Financial professionals mostly expect returns in the 6%-8% range while investors expect on average almost 4% more.
Chart from Visual Capitalist: https://www.visualcapitalist.com/
The second interesting insight is that American investors and UK investors appear to be opposite sides of the long-term expected returns coin. Americans expect long term returns of almost 16% per year while investors in the UK expect a much more modest 8% return. This 8% return expectation of UK investors is much closer to their professional counterparts, who expect around 6% per year over the long-term. US investors appear to be anchoring on the exceptional stock market returns over the last decade and are expecting the tech driven bull market to continue.
We don’t know who is going to be right over the long-term, but as far as 2023 is concerned, US investors were spot on and their optimism paid dividends. The MSCI World Index of global stocks is up almost 25% so far this year[8].
Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.
[1] https://fiatgroupworld.com/2023/04/26/ferrari-and-tesla-the-worlds-most-profitable-carmakers/
[2] https://www.motor1.com/news/650529/ferrari-set-sales-record-in-2022/
[3] https://www.caranddriver.com/ferrari/daytona-sp3
[4] https://www.ferrari.com/en-EN/corporate/board-directors
[5] https://www.ft.com/content/b27ae951-df80-41eb-8058-f8313ce8648e
[7] https://www.im.natixis.com/sg/resources/2023-individual-investor-survey-full-report
