(New York)

Active funds have been much maligned in the press over the last couple of years. The rise of passive investing has drawn the value of active investing into question, and the media has focused lot of attention on large groups of underperforming funds. That said, active funds, at least in fixed income, are winning right now. In every period from one to ten-years, actively managed bond funds have outperformed ETFs. Such funds are less constrained in their ability to seek out safe high yields, whether that be in junk bonds or emerging markets.

FINSUM: In many ways this makes sense, as there are many more bonds than there are equities, which means that there is likely more alpha to be generated through an unconstrained approach.

(Washington)

The fiduciary topic has mildly faded into the background in the media lately. The reason why is that the SEC and DOL are both in major revision/redrafting mode, with new versions expected to be released later this year. No one is sure how those will play out, but the most likely case right now appears bleak for advisors and the industry—a broad and relatively mild SEC best interest standard undergirded by much stronger and strict state-level fiduciary rules. That vision may be terrifying to some as it would create a complicated, and likely contradictory patchwork of state and federal rules, making inter-state business more difficult.

FINSUM: Patchwork from hell?

(New York)

On the surface of it, this does not seem like a good time to buy bank stocks. Bank shares have done really well in the last month, but the Fed’s sudden and dramatic dovishness on rates would seem to be a catalyst for a move lower in bank shares. Countering that theory stands Mike Mayo from Wells Fargo, an equity analyst who thinks the picture of bank shares looks better. Many big bank stocks are trading at relatively cheap 10x p/e ratios, with yields of 3% or more. According to Mayo, “The negative sentiment has created an opportunity with uniquely attractive valuations”. Banks are also expected to do a large amount of buybacks in 2019, with some like Wells Fargo and Citi, expected to spend more than 100% of earnings on dividends and buybacks.

FINSUM: Banks do seem like a good value play. But at the same time, they have been trading for years more on a macro basis. Which side seems more realistic? Stick with the trend—bank stocks now have a weaker outlook because of the Fed.

(New York)

A terrible December and then a great January. There is certainly reason for optimism on shares, but investors may well be nervous after a such a dramatic swing. February is not traditionally a very strong month for stocks, but this year could be different. That is for two reasons. The first is that February tends to mimic January, and secondly, because the Fed has just made a historic u-turn on rates, which should provide much smoother sailing.

FINSUM: The other big factor here is that p/e ratios have fallen dramatically over the last year because of the big move lower in stocks and the healthy gains in corporate profits. We are increasingly optimistic.

(New York)

December was the worst month for stocks since the Financial Crisis. It was a bleak for almost all investors. Then something magical happened—we just had the best January in thirty years. Forget the shutdown and the polar vortex, the S&P 500 rose a whopping 7.9% in the month. Banks and smaller companies did particularly well, outpacing the broader market. The market has been calmed by much more soothing language from the Fed, which has lessened fears about a recession.

FINSUM: What a month it was for stocks! We think the market had a very healthy correction which put earnings multiples back into a reasonable place, and there is a much better runway from here.