(New York)

The FINSUM team came across an interesting ETF recently, run by a team that we really liked. We always pay special attention to small caps because we think it is an area where strong research and a well defined strategy can create a lot of value. That is exactly the feeling we get with the LeggMason Small-Cap Quality Value ETF (SQLV). The fund is run by George Necakov, and experienced portfolio manager from Royce & Associates, themselves a specialist in small and microcap portfolio management that has been around since 1972. The fund seeks to create outperformance by tracking the results of an index made up of small cap stocks with relatively low valuations. The fund uses a multi-factor approach to choose companies with high profitability and low relative valuations. SQLV has an expense ratio of 60 bp.

FINSUM: This fund is still small but we like their approach and George seems like a very competent manager. Small cap value is an area where one needs a considered and labor-intensive approach and this ETF appears a great way to get some simple and reliable exposure.

(New York)

Investors have been very worried about the yield curve’s recent inversion, and with good reason—an inversion is the most reliable indicator of a forthcoming recession. That said, there are two important factors to note. The first, of which most readers will be aware, is that it takes an average of 18 months for a recession to arrive once the curve inverts. However, the second factor, which is less well understood, is that the specific pairing of yield curves that are inverted also makes a difference. The media and market have been totally focused on how the 3-month and ten-year yield has inverted, but the best indicator historically has been the two-year and ten-year, which is still 18 basis points or so shy of an inversion.

FINSUM: The signal from the 2- and 10-year pairing has been a much better indicator. Accordingly, the inversion the market has been obsessing about may be less relevant.

(New York)

Every investor seems to assume that this bull market is nearing its expiration date. Good things must come to an end, after all. However, Barron’s is arguing (rather adamantly) that this bull market could perhaps go on for another ten years. Reminding us of the old adage that bear markets don’t die of old age, Barron’s says there is just no sign of real weakness. “As far as the U.S. economy is concerned, there is no obvious sign that it has deteriorated”, says the publication. What about the yield curve? They say that is just an adjustment to tighter monetary conditions and not predictive of a recession in this case.

FINSUM: There is undoubtedly an element of superstition/intuition which is making investors feel like this bull run must come to an end soon. But the reality is that the underlying conditions for that to happen may not be in place.

(New York)

A year ago, annuities looked like a product that had outlived its regulatory life cycle. The pending DOL fiduciary rule seemed completely incompatible with the product and its selling practices, so annuities appeared likely to take a big hit. Then the rule got shot down in court, and the whole picture changed. Data is now in on 2018 annuity sales and it looks strong—sales smashed all previous records. In virtually every category of annuities, sales were up considerably, in many case 20% or more.

FINSUM: The annuity sales outlook has completely changed. The next five years—as the number of people 65 or older hits 60 million—looks to be very strong.

(New York)

You certainly won’t think of it this way, but Morgan Stanley is arguing that Apple is now a great healthcare play. The bank’s research team says Apple is on the verge of a major new product that will transform the healthcare space, meaning there could be a lot of value in the stock that is not being priced in. Katy Hubert of MS says “Apple is building a healthcare ecosystem and is poised to emerge as a leader in consumer-centric healthcare … Healthcare is a large, greenfield services opportunity for Apple”. She continued, saying “Unlike recent announcements on news, gaming, video, and payments, where Apple is joining existing competitors, healthcare is a market where Apple has the potential to lead digital disruption”. The stock is up strongly this year because investors are happy with its shift to a more services-oriented business model.

FINSUM: It is hard to speculate on the potential impact without know the product, but we must say Apple does seem to have a major opportunity if it can map a healthcare product onto the hundreds of millions of users of its products in the US alone.