The so-called “feemageddon” in the asset management industry has been unequivocally good for investors. Fees have dropped across the board, starting with ETFs, but also flowing through to actively managed mutual funds. However, the downward pressure on fees has also created interesting new fee structures. The first one to discuss is the most obvious—free funds. Both Fidelity and Sofi have introduced free index mutual funds and free ETFs, so the line in the sand on fees has been crossed. Other firms, such as Westwood Holdings and AllianceBernstein, have come up with entirely new concepts. AllianceBernstein has a “Flex Fees” actively managed mutual fund which has a low basic fee (ETF-level fee) and then only charges a mark up if it outperforms, offering much better economics to investors. Westwood Holdings, has a little bit different but similar fee arrangement which tries to mitigate the potential for misaligned incentives in “fee only when you outperform” structures, which incentivize portfolio managers to take risks. Their approach is called Sensible Fees, and only rewards incentive compensation to managers based on risk-adjusted performance.

FINSUM: We think the fee disruption going on in the industry is leading to some healthy innovation amongst fund managers. These new funds seem like they will only grow in popularity, especially as fiduciary advisors get more popular.

(Washington)

In what likely comes as frustrating news for a lot of the wealth management industry, it is time to start worrying once again about the return of the fiduciary rule. And we are not talking about state level rules, or new interpretations of the SEC rule, we mean the old DOL rule itself. The DOL announced towards the end of 2018 that it was planning to re-release a new version of the rule in fall of 2019. However, it had been quiet until now. This week, a top industry lawyer has commented that the DOL is again working on new fiduciary regulations and may launch in tandem with the SEC, though specifics are lacking.

FINSUM: So what do we know? Firstly, we know the DOL said it would re-release the rule in the fall of this year. We also know that it seems to be actively working on crafting new fiduciary regulation. We’ll let you put two and two together.

(New York)

Anyone paying attention will have noticed there has been a change in linguistics surrounding the global climate situation in recent years. What was once called “global warming” is now referred to as “climate change”. However, we think that fact has helped to obscure perhaps the best way to play the changing environment. The world has been getting warmer (whether you think it is human created or not), so what better way to invest in the transformation than in air conditioning companies. HVAC companies, such as Ingersoll-Rand and United Technologies, are also good recession hedges. The companies earn the bulk of their revenue from servicing and repairs, businesses which hold up well even in recession because nobody wants to live without air conditioning.

FINSUM: We see this as a good long-term play with nice short-term downside protection. Asymmetric risk on this idea, heavily skewed to the upside.

(New York)

The end of the bull market could be near, and with that in mind (and really any time), it is a good idea to have a preparation plan in mind. Markets have risen sharply this year, and are back near their peak from 2018, explaining why hedging activity is growing. So how to hedge? Defensive sectors and bond markets are popular, but what about things like options and the VIX? Well, that latter has been diminishing in popularity recently, as the CBOE’s VIX did not respond to Q4’s volatility the way many expected. This has led to claims the market is fixed, and in any case, it has not performed well as an S&P 500 hedge. That leaves S&P 500 hedges themselves, such as 30-day SPX put options.

FINSUM: If you understand and are comfortable with options, use them. If you don’t, stay away and stick to sector and asset class-based hedging.

(Washington)

Is the US economy breaking out of its short-term data tailspin? Maybe. This week has seen some improved news, none more so than new hiring data released this morning. US hiring in March was much better, with the economy creating 196,000 jobs, significantly higher than forecasted and up hugely from February’s barely positive numbers. Wage growth decreased slightly in pace, but was solid at 3.2%. The unemployment rate remained steady at 3.8%.

FINSUM: This could mean the weak data recently was just a blip and things are still on course. The data is lining up to show this might have been a big bond market overreaction…