(New York)

ETFs are obviously the biggest financial product of the decade, and have been very broadly adopted by advisors. However, how advisors actually use them varies greatly, partly due to the diversity of the asset class. There are around 2,200 ETFs covering a seemingly endless variety of niches. But within that cornucopia of offerings, which can be dizzying, lays the opportunity to personalize. Specifically, the large variety of highly specialized approaches allows advisors to be very tactical with portfolios without the need to buy specific stocks. Further, since ETFs are replicating a benchmark, they do not suffer from “style drift” like mutual funds do. In that way, the sectors/niches they track are more reliable and can be depended on for the role they play in a portfolio.

FINSUM: This might be obvious to some, but there are many out there who still only use ETFs are ultra-cheap trackers. Some of the new offerings provide really interesting exposure to specific areas—part of the reason they have been heavily adopted by hedge funds.

(New York)

Yesterday was an ugly reminder of the fourth quarter. The Nasdaq fell 3.4%, its worst decline since December 4th. The S&P 500 wasn’t much better. The big falls came on the announcement that Trump was considering raising tariffs on a further $300 bn of Chinese imports following the failure of negotiations last week. Investors are anxious that the trade war may continue to escalate and impact the global economy. One economist summarized the situation this way, saying “The confrontation has now escalated to a battle of testosterone between two leaders who believe they have much to prove to their constituents. But the longer this exhibition of chest-beating lasts, the greater the odds of a US, if not global, recession”.

FINSUM: Though recently we have been more placid, a couple of months ago we were worried that a deal might be hard to complete because of how much China has on the line politically. The country’s unelected leaders need to keep their people happy, which means the stakes are incredibly high for them.

(Detroit)

Investors looking at the automotive sector need to think carefully about their allocation. In particular, it might be smarter to put money into automakers themselves, like GM and Ford, rather than parts suppliers. This runs counter to the typical investment strategy of buying into suppliers in major industries rather than producers themselves. Parts maker in autos have outperformed makers over the last several years, but there is a big catalyst for a reversal: auto makers are no longer looking to slash prices to increase volume. Instead, they are shifting to a higher priced margin-oriented model, which favors the makers’ stocks versus suppliers’.

FINSUM: We think the concept of a higher margin business favoring makers is logical.. However, we aren’t sure the customer is actually going to buy into this model, in which case neither makers nor suppliers would do well.

(New York)

Markets are getting more volatile by the day. Last week was a rough one and yesterday was total carnage. Investors might be thinking about allocating shares into some safer sectors. With that in mind, here are 7 safe dividend payers to take shelter in: JP Morgan (2.8% yield), Sempra Energy (3.1%), NextEra Energy (2.6%), Air Products & Chemicals (2.3%), Honeywell International (1.9%), McCormick (1.5%), Microsoft (1.5%).

FINSUM: One of the big things to remember here is that with the Fed on hold, the big headwind against dividend stocks is pretty much removed.

(New York)

Many investors may not be aware of it, but those with assets in the sector could be sorry. Alcohol stocks, and specifically bourbon shares, are in a bubble. Tech has stolen all the limelight, but whiskey stocks—one of America’s oldest industries—have had a great decade. Millennials have revived American whiskey makers, such as Brown-Forman and MGP Ingredients, the latter of which’s shares have jumped from $6 in 2014 to $98 in 2018! P/E ratios are at about 30x and the stocks have recently started to fall sharply. It looks like the bubble is bursting.

FINSUM: The performance of this sector is pretty amazing—doubled revenues in the last decade. That is outstanding for such an old industry. However, valuations seemed to have significantly outpaced realistic value.