New research from Fidante Capital concludes that there are clear indications of an overhyped investment market in diversified listed private equity and high yield bonds, and that both asset classes are top contenders for a market correction in the near future.
Fidante Capital used three inputs to assess the investment hypes in diversified private equity and high yield bonds: Google searches, ETF funds flows and Closed End Fund Premiums. The three indicators have been combined into a single hype index which, together with a momentum index, forms the basis of the analysis.
Joachim Klement (pictured), Head of Investment Research, who joined Fidante in November 2017 from Credit Suisse and who has developed this new quarterly hype cycle research, says: “In September, we saw the biggest spike in Google searches for the term “private equity fund” ever recorded since measurements began in 2004. This was followed in October by a very strong increase in the number of shares outstanding of the PowerShares Global Listed Private Equity ETF and a fast-paced narrowing of discounts to NAV of listed investment trusts invested in this asset class. At the same time, price momentum for diversified listed private equity companies has been gradually weakening since summer.
“When taken together, this forms a picture of a textbook overhyped investment and we recommend investors to be careful with this asset class. While there are still opportunities in technology related private equity investments, investors in the diversified listed private equity market should brace for potential corrections in the near future.”
The research finds that the best opportunities can be found in technology-driven investment themes. While bitcoin, blockchain and artificial intelligence have all the ingredients of a bubble in the making, other technology themes continue to enjoy a boom that is based more on fundamentals rather than excessive hype.
Property markets worldwide remain in a boom phase despite some early signs of investor fatigue in the UK and other markets.
The research is the first in a quarterly series from Fidante Capital that includes investment hypes in all kinds of financial markets, from alternative investments to technology hypes and specific areas within financial markets that are of interest to investors. The research identifies investment hypes and, together with an analysis of price momentum, can warn investors of near-term risks of a correction.
Cathy Hales, Global Head, says: “It is important for investors to understand the hypes in financial markets and take them into account when making investment decisions, yet, as far as we know, no one seems to track investment hypes on a systematic basis. Our new quarterly research is going to change this.”
