A Texas statute that targets environmental, social, or governance funds, includes a notable number of funds that don’t have an ESG focus. Out of 348 funds singled out by Texas Comptroller Glenn Hegar, 14% don’t qualify as ESG, according to Morningstar. In addition, almost 40% of the funds invest in the oil and gas industry based on data compiled by Bloomberg. The findings highlight just how much ESG investing has become a hot-button political issue. In fact, many of the leaders of investment firms that have been attacked for pushing ESG policies, have themselves been attacked for their continued investment in the oil and gas industry. In regards to the findings, Hortense Bioy, Global Director of Sustainability Research at Morningstar stated, “The fact that many funds on the banned fund list hold companies involved in the oil and gas industry raises questions about the research done by the Texas comptroller on these investments. Clearly, these funds aren’t boycotting energy companies.”

Finsum: A significant number of funds singled out by Texas Comptroller Glenn Hegar due to their ESG activities, don’t qualify as ESG.

Location? Location? Location?

Actually, it’s more a matter of opportunity -- at least in the case of market conditions and active fixed income, according to wellington.com.

Said the authors: In our judgement, having an opportunistic element to asset allocation implementation will be key to exploiting the regional imbalances that are likely to arise later this year and beyond,” stated the authors, who emphasized the views were theirs at the time of writing and that other teams might view the situation differently and make different investment decisions. They continued that by homing in on strategies evolving around global investment -- with flexible regional allocations – to pinpoint opportunities like early and teak heir geographic weights in light of fresh information, investors can cast their chips on the skills and depth of active portfolio managers.

Speaking of opportunity, inflation can be exactly that for investors in active fixed income, according to us/allianzgi.com.

While escalating price tags for goods and services are a blaring red flag for those who pluck down cash in conventional government bonds, when it comes to whipping up returns in the midst of climbing or receding inflation, let’s just say active managers have their ways.

Earlier last week, the SEC and the Commodity Futures Trading Commission disclosed that they levied fines of more than $1.71 billion on several Wall Street firms. The regulators issued penalties to 16 financial companies for the failure to monitor the use of unauthorized messaging apps. The banks that were penalized include some of the largest firms on Wall Street, including Bank of America, Goldman Sachs, Citigroup, Morgan Stanley, Credit Suisse, and Barclays. The SEC’s probe revealed that between January 2018 and September 2021, employees of the aforementioned firms used WhatsApp, personal email, and other unauthorized services on their personal devices to communicate work-related matters. Personal devices can pose risk to an organization's data since it may not be as protected from cyberattacks as a secure company device, which enforces corporate security policies. Making matters worse, the 16 companies also failed to adequately maintain records of the communication, which hindered the investigation. In fact, the firms were not charged for the lax security, but their negligence in the documentation.

Finsum: The SEC and Commodity Futures Trading Commission fined 16 Wall Street firms a combined $1.71 billion for not maintaining documentation on the use of unauthorized messaging apps.

In a recent article in FT Adviser, Lumin Wealth Investment Manager Elliott Frost wondered how much alpha left is in active fixed income. Frost believes that a fixed income allocation should include a strategic mix of active and passive management. He notes that active fixed-income managers have generally outperformed passive strategies in the fixed-income space due to several reasons. The first is that companies with the most debt typically make up the largest component of a fixed income market index, leaving the portfolio more exposed to unfavorable changes in credit. Another reason is the lack of risk mitigation. Passive managers cannot “dial up or dial down risk.” However, he noted that the alpha generated by active managers has been to some degree, due to a long-term overweight on credit. Frost believes that if we account for a manager’s credit exposure, fees, and other factor exposures such as volatility, there might not be much alpha left. This is why he recommends not putting “all your eggs in one basket” and incorporating a passive fixed index into a portfolio for cheap access to a liquid market.

Finsum: Lumin Wealth’s Elliott Frost wonders if there is much alpha left in active fixed income once a manager’s credit exposure, fees, and volatility are accounted for.

Last week, Charles Schwab announced the upcoming launch of the Schwab Municipal Bond ETF (SCMB). The ETF, which is expected to begin trading on October 12, will trade on the NYSE Arca. SCMB will have an expense ratio of only 0.03%, which will be much lower than comparable funds. The ETF will provide access to the broad U.S. investment grade, tax-exempt bond market. The fund’s goal is to track the total return of the ICE AMT-Free Core U.S. National Municipal Index, which measures the performance of the U.S. AMT-free municipal bond market. SCMB seeks to provide income exempt from federal taxes and is not subject to the federal alternative minimum tax. The ETF will have a high credit quality profile, investing only in investment-grade rated securities. John Sturiale, Head of Product Management and Innovation, Schwab Asset Management, stated, “As bond yields have risen, fixed income investing is more attractive than it has been in years, making this an opportune moment to introduce a new choice for investors seeking a low-cost, straightforward approach to income, diversification and risk management in their portfolios.”

Finsum: Charles Schwab is launching an ultra-low-cost Municipal bond ETF targeting investment-grade securities.