It seems like many of you are sitting on the sidelines. When I spoke with Gemma Dale from nabtrade during the week, she let me know that investors are cashed up and ready to pounce.

Gemma says she's seeing the highest levels of cash on record in individual accounts, recording a 100% increase between October 2020 and the end of last month. She says investors have held onto the massive payouts from reporting season and then added even more cash to the pile.

"We have seen really aggressive buying but cash levels aren’t falling, which means people are bringing in money from other sources as well," she says.

But why aren't investors deploying this cash into the market? It can't be the returns--currently hovering around 1%. Dale put it down to a belief that markets are a bit toppy and many feel an opportunity to buy is coming.  

"When they're bringing in cash from other sources, guaranteed this is a sign they're waiting for something to buy," she says.

"We view it as a strong signal of anticipation."

So, at what point will investors buy-in? Dale believes nabtrade's investor base, which she describes as being seasoned investors, is ready to pounce at the first sign of opportunity. They’ve eagerly taken advantage of the market pullback this last month, buying the dip in some of their favourite names. However, she says they're really waiting for something even bigger.

"Our investor base has been through multiple market cycles and multiple economic cycles. They will 'buy a dip' but not at 2% - or if it is 2%, they'll buy a little bit here but they'll keep a lot of cash on the sidelines because they feel the market is toppy. They don't want to be fully exposed to a downturn," she says.

Dale adds that when a correction arrives, these cashed-up investors are likely to buy back in with a small percentage of their capital, not their entire stockpile.

"They know that in the GFC the market fell for 18 months, not 3 weeks," she says.

But I feel this is only one side of the story. The covid-rally birthed a new kind of investor. A cohort who believes markets only go up because that has been their lived experience. When markets fall, it's short, sharp and very quickly corrected as central banks and governments prop up the economy and bailout 'too-big-to-fail’ companies – in other words, crises are buying opportunities. They've also learnt that being conservative doesn't pay, watching those burnt by holding cash during the covid-rebound or not buying into the property market. They may as well take insane risks because there's limited upside in being prudent. Everyone is a genius in a bull market.  

I understand the desire to keep some cash on the sidelines, especially if you don't have the time to make up deep equity losses, but the tricky part is knowing when to get back in. For fresh-faced investors, buying the dip only works when the market continues its upwards trajectory, temporarily punctuated with momentary pullbacks in stock prices. While it's difficult to spot catalysts for a downturn when the only one you've known is a global pandemic, markets are entering a volatile period as the Federal Reserve unwinds its bond-buying program and inflation fears return.

But whether you're waiting for the 2% or the 20% dip, timing the market is incredibly difficult. If your prediction is completely wrong and the market continues its steady climb upwards, those are returns you're missing out on. A study by Morningstar Canada found that if you missed just two of the best market days in 2008 and 2020, your portfolio would be down 19%.

As you ponder your re-entry remember that investing during a bear market is scary - saying you'll do it is different to actually doing it when you're gripped by uncertainty. The only way to ensure you'll catch it is to be invested. Invest gradually and often.


Crypto (adjacent) ETF hits the market

It's here! Well kind of…ETF issuer BetaShares announced the launch of a cryptocurrency equities ETF (CRYP) this week but it's not what you're thinking. The fund invests in companies linked to the cryptocurrency economy rather than the digital currency itself. Think crypto exchange Coinbase (COIN) and Bitcoin miner Riot Blockchain (RIOT).

Most of the Bitwise Crypto Industry Innovators Index (which the BetaShares Crypto Innovators ETF tracks) is focused on companies that derive at least 75% of their revenue from directly servicing cryptocurrency markets, or that have at least 75% of their net assets in direct holdings of liquid crypto-assets. The rest is invested in diversified large-cap companies with at least one significant business line focused on the crypto economy.

When a fund like this launches my first question is why? There are hundreds of "themes" out there for issuers to choose from – why did they select this one? BetaShares CEO, Alex Vynokur says this fund is designed for investors who are excited about the prospects for the crypto sector but aren’t comfortable holding actual cryptocurrency. He cites a Mark Twain quote - when everyone is digging for gold, it's good to be in the pick and shovel business.

There's good evidence to suggest the cryptocurrency market is "hot". Crypto exchange CoinSpot claims they've managed to double their Australian user base in a little over six months, hitting 2 million users in September. Meanwhile, companies are increasingly looking to cut out traditional monetary intermediaries and verify, process and settle their payments via the blockchain. But is it a good investment? As we've written many times before, investing via thematics force investors to make a trifecta bet – that they're picking a winning theme, that they're selecting a fund that is well-placed to harness that theme, and that the market hasn't already priced in the theme's potential. On these questions, we'll have to wait until the full portfolio (and pricing) is released. By BetaShare's own admission, given the very early stages of the crypto industry, the fund should be considered by investors who have "a relatively high tolerance for risk as part of a broader equities allocation".

On the "ETF we've all been waiting for" (direct exposure to digital currencies), Vynokur says it's coming, but that they're still waiting on regulatory approval. The ETF product wrapper will certainly make crypto investing appear "safer" for some investors who want to get into the asset class via their traditional broker and/or diversify their exposure across a range of coins. But the risk then is put on the product issuer and the exchange (ASX) to list a fund that contains real and observable assets and is compliant with rules around custody, risk management and disclosure. For those wanting to see where ASIC's head is at, they put out a crypto ETPs consultation paper in June.

I personally think BetaShares wasted their ticker-game on CRYP if they've got another one in the pipeline, but Vynokur insists they've got a good name on ice. BTCN perhaps? It's all about that recall.


Inflation is back in the headlines. Data from the US Labor Department data released on Wednesday showed the consumer price index rose 0.4% in September, pushing annual inflation back up to 5.4%. This reflected higher goods, energy and housing costs. In Your Money Weekly, Peter Warnes laid out the cases for 'stubborn inflation' and 'transitory inflation'. He says in both scenarios; equities markets could be heading toward a corrective phase. Attending the Citi Investment Conference, Lewis Jackson picked up on comments from legendary investor Larry Summers blasting the Federal Reserve for perceived inaction on rising inflation.

In Firstlinks, Graham Hand reviewed the first batch of letters sent out to over 1.1 million Australians in APRA-classified underperforming superannuation funds.

Morningstar analyst Lan Anh Tran looks under the hood of so-called meme ETFs – US-listed BUZZ, FOMO, SFYF and MEME.

Is there a connection between tech-stock performance and bond yields? Tom Lauricella explores.

Finally, global energy prices are going haywire. The price of natural gas in the UK has doubled since August. Lewis Jackson looks into the reasons behind the price spikes.

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