FINSUM

FINSUM

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Thursday, 15 November 2018 14:14

Buffett Just Bet Big on Banks, Should You?

(New York)

The biggest and most famous investor of them all just took a big position in US financials. In particular, Warren Buffett just made a large investment in JP Morgan to the tune of $4 bn. Buffett already holds a $23 bn position in Wells Fargo. Berkshire Hathaway has a history of making successful investments in banks, including in Bank of America. Buffett also boosted its holdings in BAC, Goldman Sachs, and US Bancorp.


FINSUM: Rising rates are good for banks. Recessions are not. The risk and reward is clear.

Thursday, 15 November 2018 14:12

Why Small Caps’ Outperformance is Over

(New York)

One of the guiding mantras of small cap investing has always been that small caps tend to outperform their larger peers over the long-term. While always cyclical, small caps have outperformed large caps over the last several decades. However, in recent years that has all changed. In fact, since 2005, the relative performance between the two share classes has been trendless, with no discernible relationship. This is directly counter to the almost century-long trend that preceded it. One CIO explained the change this way, saying “Market-cap tilts have historically been about catching, and riding, strong and persistent performance waves … Over the last 13 years, in an unconventional fashion, the opportunities to add performance from cap tilts have been relatively small and have required frequent and expert timing”.


FINSUM: Interesting change for small caps. We suspect the change has to do with a combination of the pre-Crisis boom and the extraordinary liquidity thereafter.

Thursday, 15 November 2018 14:08

Is Walmart Starting to Threaten Amazon?

(Seattle)

Amazon may get all the fan fare, but Walmart is lurking. For many years, Amazon was considered so far ahead of rivals in ecommerce, that anyone catching up with it was considered unlikely. And while Amazon is still the undisputed leader, that view is changing. Walmart’s most recent earnings show that its commitment to ecommerce is thriving. Walmart is leveraging its food business particularly well in transforming its operation. The company is already operating click-and-collect food businesses in 600 US locations. Amazon only has such operations in 22 cities, via Whole Foods.


FINSUM: Both companies seem to want to be the “everything” of 21st century retail, but they are going about it from different angles. Amazon is going from ecommerce into groceries, and Walmart is doing the opposite.

Wednesday, 14 November 2018 10:58

How the Democrats Could Block the SEC Rule

(Washington)

One of the big concerns advisors should have right now is how the newly Democratic House might affect fiduciary regulation. Most will be aware that the SEC Best Interest rule was much lighter touch than the first version of the DOL rule. However, on top of the DOL rule making a return in 2019, the SEC could be derailed by the House. Maxine Walters, a staunch fiduciary advocate, will now head the House Financial Services Committee and it seems liklye the House will call SEC head Jay Clayton in for a questioning session where they press him to add a fiduciary element to the current Best Interest rule.


FINSUM: The exact path to derailing the SEC rule is still a little unclear. Because Trump has already appointed the heads of the relevant agencies, the House has an unclear ability to get in the way.

(New York)

One of the safe bets during bouts of volatility since the Financial Crisis has been to pile into Treasury bonds anytime things got tough. Every time stocks dipped, the bonds tended to rally strongly and became a safe haven. However, since the recent downturn in equities, this correlation has ceased. Even amidst stock and oil’s plunges recently, Treasuries have basically remained flat, giving no comfort to investors.


FINSUM: The big difference this time around is that the volatility is coming during a period of rising rates, which means Treasury bonds are not as safe a bet as in the past several years.

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