Displaying items by tag: stocks
Bonds Once Again a Safe Haven from Equity Risk
Fixed-income professionals at Franklin Templeton and its affiliates expect fixed-income investments to be a safe haven from equities volatility since the financial markets are showing signs of stress. Tracy Chen, a portfolio manager at Brandywine Global, stated that “We believed something would break, even before this banking crisis happened. Now bonds provide safe haven protection for people’s portfolios because our timeline for recession is pulled forward because of this banking stress.” She recently spoke at a webinar on fixed-income mega-trends, entitled “Navigating Rates and Risk.” She was also joined by Jennifer Johnston, senior vice president and director of municipal bond research at Franklin Templeton, and Annabel Rudebeck, head of non-US corporate credit at Western Asset. Currently, yields are around 5% for corporates, which is considered attractive when compared to the longer-term history and government issuances. Johnston added that the tax-free attributes of municipal bonds provide an extra boost, while the muni market tends to be of higher quality than the corporate market. She stated, “We do see some opportunities, particularly out long, where munis are still relatively cheaper than where they’ve been in the past.” Chen also added that “This banking stress is very unique. It’s not driven by credit risk, but by mismanagement of duration.”
Finsum:With the financial markets showing stress, bond professionals at Franklin Templeton and its affiliates believe that fixed-income instruments provide a safe haven for the current stock volatility.
ESG Investors Take Notice of Surging Oil Stocks
While many ESG investors are drawn to the appeal of helping the environment with their investments, the two-year rally in oil and gas stocks has become too much to ignore. The energy sector has led the market for two years rising 135% in 2021 and 2022 compared with a 2.2% gain in the S&P 500 Index. Analysts expect the sector to jump another 22% in 2023, despite its 5.8% decline so far, according to data compiled by Bloomberg. ESG firms have taken notice. Rockefeller Capital Management takes pride in its ESG investing record. While the firm’s larger portfolio follows multiple strategies that include ESG and non-ESG, its $19 billion equity portfolio now has a 6% energy weighting. This is even more than the S&P 500’s energy weighting of 4.8%. Plus, clients in Rockefeller’s wealth management arm, which is separate from its asset management arm, have almost tripled their holdings in Chevron Corp. In fact, the stake’s value has quintupled to $251 million over two years. Their clients have also been buying tens of thousands of shares in Brazilian oil producer Petroleo Brasileiro SA, Diamond Offshore Drilling Inc., and several other S&P 500 Energy Index members, including Exxon Mobil Corp. and APA Corp.
Finsum:With a massive two-year run, and a strong return expected this year, energy stocks have attracted clients of firms such as Rockefeller Capital Management that take pride in their ESG investing record.
Offshore Oil Rebound Underway
While offshore oil drilling has been growing slowly in recent years, research firm Rystad Energy expects a surge in new spending over the next two years. Energy companies had previously been hesitant to commit to expensive new projects that can take years to pay off. But with oil and gas demand rising after the pandemic, some companies are now looking for projects that can offer reliable production in the longer term. According to Rystad Energy, the offshore oil and gas industry has $214 billion of new project investments lined up in the next two years, the highest two-year total in a decade. In fact, it will mark the first time since 2012-2013 that companies have spent this much to develop offshore projects. According to Rystad, “Offshore activity is expected to account for 68% of all sanctioned conventional hydrocarbons in 2023 and 2024, up from 40% between 2015-2018.” Middle Eastern producers will account for most of the growth, however, there are projects off several continents. For example, U.K. offshore spending is expected to rise 30% this year to $7 billion, while spending on Norwegian projects could increase 22% to $21 billion, according to Rystad. Plus, North America, Brazil, and Guyana are all seeing growth as well.
Finsum:According to research firm Rystad Energy, a surge in new spending for offshore oil drilling is expected over the next two years as companies look for projects that can offer reliable production in the longer term with oil and gas demand rising.
Hedge Fund Chief: Inflation to Remain High in Volatile Markets
According to Man Group boss Luke Ellis, investors should get used to volatility in the markets. Last Tuesday, Ellis predicted inflation will remain high because of strong wage growth in much more volatile markets. He stated, “It will take a lot of years before inflation is put to bed again. We’re in a different paradigm.” He added, “The base effects are running out and we still have very significant wage inflation. It’s not squeezing services [sector] wage inflation, and services is such a big part of the economy. You can’t get consistently to [a] 2 percent [inflation target] when you have 6 to 7 percent wage inflation.” Ellis also said that he did not believe stocks had yet bottomed out. He compared the current environment to the 1970s when the real return from equities after inflation was about zero. His comments come as U.S. stocks fell in February with investors growing concerned that the strength of the economy might require higher interest rates, and the Fed’s preferred measure of inflation rose more than expected in January. In addition, both France and Spain also reported a rise in inflation, beating forecasts.
Finsum:Man Group boss Luke Ellis predicts inflation will remain high due to strong wage growth in volatile markets.
Direct Indexing Better at Minimizing Taxes Than ETFs
There’s no question that ETFs are a popular way to gain access to the market. They’re low-cost and tax efficient when compared to mutual funds. But, according to a new research paper, ETFs are not the most profitable after taxes are paid. That distinction belongs to large baskets of individual stocks that aren't found in a fund. The paper, which was posted recently by Roni Israelov, the president and chief investment officer of NDVR, and Jason Lu, a research economist in the economic modeling division of the International Monetary Fund, sought to quantify tax-loss harvesting, the strategy of selling losing assets to offset taxable gains that arise when selling winning ones. The paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs. In a recent interview, Israelov said "You make more money harvesting single stocks across an entire portfolio than you do in an ETF." The paper adds to a growing body of wealth management firms that have been promoting the merits of tax-loss harvesting and boosting the case for direct indexing, a strategy in which investors chose a basket of securities that mirror an index, but is personalized to their specifications.
Finsum: A new research paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs, boosting the case for direct indexing.