Friday, 17 January 2020 10:55

The Calm Before the Storm?

(New York)

At this point it might seem natural to think that the stock market simply rises a bit everyday. Stocks have been so steady and so quiet for so long that it is almost disconcerting. The current “quiet” streak is one of the longest ever. The current number of days without a 1% move is the sixth longest streak since 1969 and the third longest since 1995. One analyst described the situation this way, saying “Right now it’s very, very tough to fight this trend … There’s a reinvigoration in the idea that we will see better growth”.


FINSUM: The huge rise in stocks from the Crisis through the last decade was generally characterized by steadiness. We don’t see this as any surprise.

Published in Eq: Large Cap
Tuesday, 08 October 2019 10:47

ETFs That Guarantee to Limit Your Losses

(New York)

Have you ever thought to yourself “I would love if they could put the downside protection of structured products into an ETF”? Probably not, but someone did, as there is a new category of ETFs, called Buffer ETFs, which are seeing big capital inflows. The ETFs work by guaranteeing only a certain level of losses in exchange for limiting potential gains. The ETFs have a year-long term, and their details change constantly. But a good example would be one with a 9% “buffer”. This means that if the ETF loses 12% in the year, the holder would only see a 3% loss and the product provider would absorb the rest. The first and only provider of these ETFs is called Innovator and has partnered with MSCI, Nasdaq and more to create a handful of exchange traded funds. Check out KOCT, NOCT, EJUL, and IJUL.


FINSUM: These are very tricky ETFs, just like the structured products from which they drew their inspiration. That said, they seem like they have some utility if they are executed properly.

Published in Wealth Management

(New York)

The market has been very up and down lately. 50 bp losses or gains in a day feel pretty standard by now. But all of that may be wreaking havoc on investors’ nerves and portfolios. So what is the best way to hedge against the volatility? Most low volatility funds invest in stocks with a low beta, or those that change little compared to market movements. However, there may be an even better way to go about hedging. AGF has an ETF call BTAL, which not only buys low beta names, but also shorts high beta ones, all in equal weight with equal sector balance. In bouts of volatility, those shorts tend to really help gains in a way that holding long-only positions does not.


FINSUM: This seems like a smart approach that gives a sophisticated level of protection to investors. Worth a look.

Published in Eq: Value
Tuesday, 03 September 2019 13:13

The Best Way to Invest in this Market

(New York)

How to defend against this tough equity market? Some say to buy defensive sectors like healthcare and consumer staples. Others buy gold. Ironically, however, the best protection may be to stick with the old 60/40 balanced portfolio. Despite all the market turmoil recently, if you had been holding a 60% SPY and 40% AGG portfolio over the last month you would have had a net return of negative 0.62%, which is pretty good considering how ugly markets were. If you had been holding it for the whole year, you would have a sterling return of 14.45%.


FINSUM: These stats are a testament to old fashioned diversification!

Published in Eq: Value

(New York)

There are a handful of safe haven stock sectors that investors tend to rely on during market downturns. Healthcare, utilities, and REITs come to mind. Lately, some have been saying bank shares may also prove a good defense. However, investors should be very wary of two of those just mentioned: healthcare and banks. While on the surface healthcare stocks look very good for a recession—it is not as if people stop getting sick—the reality is that there has never been more regulatory pressure on the sector (from both sides of the aisle), which means it is far from safe. Additionally, the idea that banks have become safe, utility-like dividend machines is flawed, as bank earnings are very exposed to the economic cycle, and thus will likely see big moves in both price and yield.


FINSUM: We agree with this assessment entirely. Healthcare is more vulnerable than it has been in memory and banks are a long way from being dependable utilities (excellent PR job by Wall Street though!).

Published in Eq: Dividends
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