(New York)

In our ongoing coverage of the best funds and products we met at the Inside ETFs conference (and in our regular course of business), we today want to highlight Exponential Funds’ American Customer Satisfaction ETF (ACSI). We met with the founding team of the issuer and the fund last month and were impressed with both their concept and implementation. The fund itself takes a different tack in choosing quality companies with good outlooks—instead of focusing solely on financial performance as most other funds do, it looks to extensive customer satisfaction surveys, and chooses the companies which are scoring most highly with consumers. It uses the American Customer Satisfaction Index, which was founded in 1994 at the University of Michigan, as the basis for its models. Customer satisfaction is a widely recognized metric and is ultimately a statement of economic value, so companies that score highly in the area are serving their customers well and are likely to thrive. The fund has an expense ratio of 0.66%.

FINSUM: We really like the angle this fund has developed as it takes a totally different view than mainstream ways of judging company outlooks. We see this as a long-term play that could have significant rewards.

(New York)

Right now might not seem like the most important time to buy rate-hedged or short duration funds. The Fed is supposed to be on “pause” after all. However, in our view, now might be a critical time to have some rate hedged assets in the portfolio. The reason why is that yields have pulled back strongly from just a couple of months ago, including yesterday, but given the fact that it is almost purely the Fed which has caused the sharp reversal, rates could swing just as wildly higher if their comments, or economic data, changes. In other words, the bond market looks overbought right now because of Fed comments, but it could easily snap back to where it was in December in violent fashion.

FINSUM: We think this is a time for caution on rates and yields given how strongly the market has reversed over the last couple of months.

(New York)

The high end of the real estate market is faltering, and banks are feeling it acutely. So-called jumbo mortgages, or those outside of Fannie and Freddie backing, have been shrinking recently. In a sign of caution from rich home buyers, issuance of jumbo mortgages fell 12% last year and were off 27% from their post-Crisis peak a couple of years ago. That compares to just a 7% decline in normal mortgages last year. Jumbo mortgages dominate some cities. For instance, 61% of mortgages in Manhattan qualify as such. Banks are feeling the sting as jumbo mortgages have been a big profit center for them in recent years.

FINSUM: The housing market is slowing in all areas. The big question is whether this is a leading indicator of a recession, or just an isolated asset-level downturn.

(New York)

Bloomberg has put out a very bearish article on the economy. The publication is arguing that there is a 2/3 chance of a recession beginning this year, and that a bear market is likely to happen alongside it. As evidence of the pending downturn, the article cites these as indicators: the nearly inverted yield curve, the big fall in stocks in Q4, weak housing activity, terrible February payrolls, and the fact that the rest of the world is slowing. One of the most acute worries though is that the Fed will keep hiking as part of an effort to leave itself room to cut rates in the next recession, an action which could drive the economy into a recession.

FINSUM: Again, much of the direction of assets and the economy depends on the Fed’s mindset. If the central bank returns to hiking, a recession looks like a sure thing. But if not, it is far from certain.

(New York)

There are a lot of good reasons to own Treasuries right now, and a lot of reason to be nervous about them. Let’s take a look. The biggest risks in the market at present are mostly about the budget deficit, which makes Treasuries look weak and inflation likely to jump (as it has historically during such spending). However, there are a lot of positives too. The big one is that the Fed looks ever more likely to adopt a permanently dovish stance as it may be changing its thinking about inflation. Additionally, economic weakness will be bullish for Treasuries, so coming to the end of the cycle is not catastrophic.

FINSUM: The best place to be on the yield curve is clearly at the short end—less rate risk and decent yields.