FINSUM

FINSUM

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Wednesday, 16 October 2019 08:35

Big Regulatory Trouble Coming for Rollovers

(New York)

The SEC’s new Regulation Best Interest (Reg BI) is causing a lot of headaches and anxiety for brokers. Particularly, brokers are worried that the new rules governing rollovers are going to end up being a trap. Reg BI does address rollovers, even laying out some (but not all) of the factors that one should be considering when recommending them. But brokers feel the rules are too vague, which could lead to big trouble. In particular, there are fears that of all the factors, cost will have by far the most weight, which could lead to heavy penalties when recommendations are viewed in hindsight.


FINSUM: In addition to the Reg BI anxiety about rollovers, there is also growing tension because everyone is expecting the new DOL Fiduciary Rule to try to grab some power in the rollover area, which means there will be new complications to deal with.

(New York)

Barron’s has published a wide-ranging article look at the whole “income” universe and where investors should put their money. The caveat is that it is a hard time to invest for income because yields are so low. That said, there are some opportunities. A few short-term bond funds look quite compelling at the moment. Two funds from Pioneer (MAFRX) and Pimco (PFIAX) both look interesting, sporting yields of 3-3.5% on bonds with much lower rate risk. Junk bonds are yielding 6%, but you can get over 7% in closed end junk funds. Munis look like a good buy on a fundamental basis, but their yields are quite low; versus Treasuries they still have good relative value, however.


FINSUM: The trick here is that many want to keep some bonds in their portfolio despite what has gone on in fixed income markets. We would stick to short-term bonds for the most part as they have comparable yields to longer-term offerings, but less risk.

(New York)

Investors and advisors—don’t get too excited about the zero fee shift among the big brokers, it is not all that it appeared to be. In particular, mutual funds seem to have been entirely left behind in the zero fee shift. Essentially, none of the big brokers has scrapped fees on mutual fund trades. While ETFs are now free to trade, mutual funds in some cases have transaction fees as high as $75.


FINSUM: This is going to wound the mutual fund market further, as not only do mutual funds have higher fees, but trading them will now be commensurately more difficult than ETFs too.

Wednesday, 16 October 2019 08:30

How to Invest in the Coming Baby Boom

(New York)

A lot of demographers think there is going to be a coming baby boom, as Millennials finally have children. There is some disagreement over this as many think the boom is already a bust, but the reality is that there is likely to be a lot of babies born the next few years as Millennials make a last push to have children. The parents are likely to be older, which means more disposable income, and more spending. Therefore, buying into baby-oriented stocks seems like a good idea. Take a look at Carter’s, Bed Bath & Beyond (which has a baby unit), and Children’s Place.


FINSUM: We think there will be a baby rush over the next five years as Millennials try to have kids before aging out. That presents an opportunity for the baby sector.

(New York)

JP Morgan has gone on the record with two worrying recession warnings this week. The first came from the consumer focused analyst in their research division, who warned that the US consumer—who has been the key support for the economy—will weaken rapidly in 2020. Now, the analyst at JP Morgan who covers GE says that markets are likely to sink alongside falling economic expectations. The key point being made is that just having lower expectations won’t allow markets to rebound. “Don’t expect to see enough to justify a meaningful rebound in sentiment”, he said.


FINSUM: The whole of the economy, other than consumers, has been pretty weak lately. If the consumer falters, it is hard to imagine the US staying out of a recession for long.

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