(New York)

ESG has been on the rise. In its infancy, ESG was largely diminished to a niche sector, but increasingly large amounts of investor capital are flowing based on ESG considerations and clients are getting more and more focused on it. Now there is a new tool to score and rank mutual funds based on ESG factors. The tool is from As You Sow. It is still a work in progress, but is quite useful for getting an idea for where funds rank against one another.

FINSUM: This tool is still in development, but we could imagine that this could become quite useful as ESG is famously hard to grade.

(Los Angeles)

For many years Pimco was the undisputed leader in bonds. While that reputation may now be arguable given Bill Gross’ departure, Pimco is still undoubtedly highly respected. Therefore, their warning this week is worrying. The firm says it is shunning corporate bonds because of the big risk of a quick fall in prices. The firm’s CIO, Dan Ivascyn, says “The credit sector has been well behaved but if people begin to really fear recession, we can see underperformance quickly … this is the sector most prone to overshooting on the downside”. Pimco is also worried about Treasuries as they see no further room for a rally and instead are favoring agency MBS.

FINSUM: Total debt has grown hugely and a lot of it is of borderline credit quality, so a real downturn in economic expectations could lead to a lot of selling and downgrades. We tend to agree with Pimco here.

(New York)

There is a lot of investor anxiety about a recession right now. The big economic expansion of the last decade does have the feel of an ending coming, but even if that is true, how should one react? According to Barron’s the answer is to employ a long-term buy and hold strategy. That said, many don’t have the stomach or cash for such a strategy. A better way to think about allocation is to consider the type of recession we might have: will it be driven by a real economic downturn, a policy error, or a crisis—each have highly different return profiles? In this instance, a recession seems more likely to come from a real economic slowdown, which is good news for investors. Such recessions generally have significantly lesser falls in stock prices than the other varieties.

FINSUM: The reality is that we are likely having a “soft landing” type of recession where the economy slows gradually. That means we might not have a bear market at all.

(New York)

Stocks are in an interesting place right now. They are at all-time highs, but at the very same time, there are fears over the economy and trade war. Bearishness seems to be at a peak alongside the market. So what does all of this mean? It means that this may be an ideal environment for the market to keep rising. For those who adhere to the idea that the market loves to climb a wall of worry, there is a perfect wall to climb right now. According to Bespoke Investment Group “When the public has viewed a new high in the market with skepticism (more bears than bulls), the S&P has seen gains over the next year every single time”.

FINSUM: We think the market outlook appears better than worse at the moment. Even if the economy continues to weaken, as long as it does so at a slow and predictable pace, we don’t think there will necessarily be a bear market.

(New York)

New US GDP data has been released and it is not good news. Though, it is isn’t exactly terrible either. US third quarter growth was 1.9%, the lowest level of 2019. The fall in pace was caused by a reduction in business investment. The pace of growth was 2.0% in the second quarter. The 1.9% rate actually exceeded estimates of 1.6% despite still being the weakest result of the year.

FINSUM: So the big question here is how the Fed will react to this news. They have generally had a glass-half-full approach, so this may keep them from proceeding with cuts, but we’d bet they undertake one more “insurance” cut.