FINSUM + Magnifi: Watch Out for the New DOL Rule’s Nasty Surprise
(September 2020)
Generally speaking the wealth management industry has been fairly placid about the new fiduciary rule. The current version of the DOL rule is significantly watered down from the then-apocalyptic first version. It is mostly consumer protection groups who are fighting it. However, within the rule is a nasty surprise—for the insurance industry. Independent insurance agents are likely to be very harmed by the rule because they will become de facto fiduciaries, making their role significantly more complicated. Insurance IMOs (independent marketing organizations) will also become very complicated from a regulatory perspective. Ironically, this will likely benefit the wealth management space generally.
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FINSUM + Magnifi: How Failing Stimulus Plans Could Stoke Volatility
(September 2020)
One of the things the market has been banking on is a new fiscal stimulus package from the government. In particular, Congress has been squabbling over a new package for several weeks and now seem to be further apart than ever. The situation has grown so bad that the conversation is turning more towards blame than the typical narrative of “a package will be coming very soon”. In many ways the economy is relying on such a deal and that is why it is so crucial to markets. Tens of millions of Americans are going to need aid in order to carry on like they did pre-COVID, and if a stimulus deal does not appear, the country risks a much deeper recession than if stimulus were to arrive.
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FINSUM + Magnifi: How to Protect Against Market Risk with ETFs
(September 2020)
Markets have been very bumpy lately, and many think the topsy-turvy nature of stocks will continue until the election. Therefore, investors may want some protection from the volatility. With that in mind there is a breed of ETFs that specialize in exactly that. Many different providers offer such ETFs and there are different methodologies for doing so. One of the most common and effective is simply to track an index of the stocks with the lowest volatility over a set time period, for example the preceding twelve months. Some of the funds in this area include State Street’s SPDR Large Cap Low Volatility Index ETF, the Invesco S&P Low Volatility ETF, and the iShares Edge MSCI USA Min Vol Factor ETF.
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FINSUM + Magnifi: Stocks May Drop Big on New Vaccine Shortage Announcement
(September 2020)
Ask yourself what is really keeping market and economic expectations aloft (besides the Fed). Very quickly most will realize that it is the expectation that a COVID vaccine will be available sometime before the middle of next year, which would ensure a smooth recovery by allowing everything to “get back to normal”. Therefore, disruptions to that assumption can be very damaging, which market volatility around vaccine news has already proved. Well, big news has just come out on that front: the largest producer of vaccines has just said there will not be enough vaccines for everyone until 2024. The CEO of the Serum Institute, the largest producer of vaccines in the world, said that the vaccine will most likely be two-dose, meaning that 15 BN doses would be needed to protect the whole world. “I know the world wants to be optimistic on it . . . [but] I have not heard of anyone coming even close to that [level] right now”.
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FINSUM + Magnifi: How to Separate Good ESG Investments from Bad Ones
(September 2020)
Anyone who has invested in ESG will be well aware that under the surface, things can get quite murky. Most ESG funds—especially ETFs—hold stocks that many would never consider to be “green”. For example, oil and utilities companies. Therefore, it is important to understand that ESG ratings vary widely and are provided by a number of companies. This means that even funds who don’t advertise as being ESG-focused often have high scores (for example, see XLU, the popular utilities sector SPDR). Generally, there are three types of ESG funds: ESG-focused funds which use ESG as part of their security selection, impact funds that invest with a certain ESG goal in mind, and ESG sector funds. The first group is the largest by far.
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FINSUM + Magnifi: Why the Pandemic Means You Should Invest in ESG
(September 2020)
Any advisor who has been paying any attention to ESG lately will know the sector has been doing well. This is true not only on a returns basis, but also in terms of AUM growth. While many articles have covered this, one thing that is rarely mentioned is the real reason why. The true crux of the rise of ESG during COVID is the fact that at its heart, ESG is about risk mitigation. In particular, protection from environment, social, and governance risks. Therefore, the underlying mindset of ESG is closely aligned with the conservative and protectionist pandemic-era mindset that has prevailed over the last six months.
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FINSUM + Magnifi: Why the New Fiduciary Rule is a False Victory for Brokers
(September 2020)
There has been a lot of consternation about the new DOL fiduciary rule. Some of it from brokers, more of it from fiduciaries and investor protection groups. What has been much less covered, however, is the insidious rise of state level fiduciary rules that are threatening to create a national patchwork of regulations that could isolate the industry into little islands. Therefore, the introduction last week of a new fiduciary rule for Massachusetts is a big deal. It comes on the heels of nearly a dozen other state fiduciary rule proposals and highlights that many states are unsatisfied with the new federal rule and still want to take matters into their own hands.
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FINSUM + Magnifi: This Sector Will Benefit from “Decoupling” With China
(September 2020)
Over the last few years, President Trump has been leading a so-called “decoupling” with China, or a concerted effort to lessen the economic links between the US and China. This has involved many spats over trade tariffs etc, but this week the president is refocusing on the issue and reiterating that he intends to both lower the trade deficit and make the US less reliant on Beijing. If this move continues it could have profound effects on the economy. One sector that seems very likely to gain is robotics and automation. A central tenet of Trump’s push is to re-assert the US’ manufacturing prowess. As US firms bring production home, costs will become an issue because domestic manufacturing is more expensive. Therefore, they will likely turn to robotics companies to automate as much of the manufacturing process as possible.
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FINSUM + Magnifi: Go Long China Because Decoupling" is a Myth"
(September 2020)
There has been a lot of media coverage about the US’ “decoupling” with China. Most of this has been centered around President Trump’s push to lessen economic ties with Beijing. This has worried some investors as it could disrupt decades-long global supply chains and raise costs for US companies. However, an analysis of underlying economic activity reveals that, if anything, the US and China have grown closer over the last year. This increasing closeness has largely happened on the financial front, as Beijing has been allowing more and more access to US companies. For instance, since the start of 2019, PayPal, JP Morgan, Goldman Sachs, American Express and others have all secured deals that allow them varying forms of greater access to the Chinese market. This has coincided with increasing cross-border capital flows between the two countries.
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