(New York)

Starting with the huge gains of tech shares over the summer, and now the whole index, investors have grown increasingly uneasy with market valuations. By some metrics, markets are as stretched valuation-wise as they have ever been. Take for instance Robert Shiller’s famed CAPE ratio. As it stands now the S&P 500 has a CAPE valuation of 33.4x. That is the highest it has been since 1929 and almost double the long-term average of 17x. ”There are great expectations built into this market … We are in the seventh inning of Federal Reserve-supported equity markets”, says the CIO of CIBC Private Wealth Management.

FINSUM: As scary as the valuations are, they are not entirely irrational given the level of stimulus and the way the economy has held up.

(New York)

One of the big annual market traditions has begun: banks and their analysts put of their year-ahead forecasts. This year has seen a wide range of forecasts, but one thing is becoming apparent—analysts are bullish, and more so than usual. Jefferies has the most aggressive forecast, saying the S&P 500 will close 2021 at 4,250; it is at 3,662 now. Analysts are bullish because of the coming vaccine and central banks which will continue to be accommodative. However, Barclays adds a third consideration—that the economy is doing much better than anyone thought it would be at this point. According to Barclays “with central banks set to remain accommodative for several years, a likely drop in global trade tensions, and unappetizing fixed income returns, we remain overweight risk assets over core bonds”.

FINSUM: Yes valuations are high, but given the overall economic position the US is in (including the vaccine), it is hard not to be optimistic.

(New York)

There has been a lot of talk about stocks this year, and a great deal of consternation about rates and bond prices. Yet despite all this, or maybe because of it, a middle-ground asset class has become one of the best performing of the year. Convertible securities are having a banner year. The $325 bn sector has returned over 36% through the end of November. A big portion of the gains has come from the outperformance of Tesla, which accounts for about 10% of the convertibles market. But there have been other nice victories too, such as “reopening” stocks like Carnival, Southwest Airlines, Lyft, American Airlines, and Dick’s Sporting Goods.

FINSUM: Converts do a good job capturing upside while protecting against upside, and this year has been a perfect storm for them.

(New York)

With markets at all-time highs, but COVID restrictions tightening and the potential for a blue Senate looming, many advisors are feeling that now might be a good time to retreat into value stocks. Lower priced stocks have done very well over the last couple of months, showing good momentum on top of their theoretical valuation insulation. With that in mind, here are three very highly ranked large cap value mutual funds. The first is American Funds’ Washington Mutual Investors Fund Class A (AWSHX), sporting an expense ratio of 0.59% and an average three-year return of 9.7%. The second is the MFS Equity Income Fund Class A (EQNAX), which holds a more diversified group of securities, including some international stocks and convertibles. Finally, check out the Fidelity Equity-Income Fund (FEQIX), which tends to focus on income-producing securities.

FINSUM: A nice hybrid between appreciation and income is a good approach for right now, so the latter two seem look good buys. More broadly, value stocks appear a smart choice given the particular moment in markets.

(Washington)

As Biden takes the White House, all eyes in the wealth management industry are on regulations. Biden seems likely to take a much harder line on industry regulations than Trump did. The most focus is on the DOL, as the Biden team has made it clear that a “true” fiduciary rule is part of the agenda. No one quite knows if that will come from a tweaking of Reg BI or a restoration/update of the original DOL rule. One thing that has caught the attention of the industry is that Bernie Sanders appears a top candidate to take over the DOL, which could bring his unique approach, and almost certainly a new hardline fiduciary rule.

FINSUM: Bernie Sanders taking the helm at the DOL would be very ominous for wealth management. That said, one thing that has been clearly broadcast by the administration is that the DOL’s first agenda will be on healthcare (because of the pandemic) and secondly, it will be on raising the minimum wage to $15.

(San Francisco)

One of the questions swirling in the back (or front!) of investors’ minds is whether big tech megacaps are overvalued. They have had a stellar run this year and are trading at rich multiples, which has led to fears of overvaluation. On the other hand, they still seem like they might be the best growth play in the market. At the end of September one could argue things had gotten out of hand. FAAMG stocks were trading at 35x earnings while the rest of the S&P 500 was at 12x, the widest gap since 2000. However, since then fortunes have reversed, with the spread now only 31x to 20x.

FINSUM: So the big question is whether the shrinking of the spread means there is margin for FAAMG growth, or it is a part of a larger trend towards valuation parity? We think it depends on the regulatory path that new administration takes.

(New York)

Make no mistake, in the long run Morgan Stanley is bullish. The problem is that the short-term does not look so bright, according to the bank. While MS raised their S&P 500 target for 2021 to 3,900 (well above today’s 3,350 level), they think the market might be rough in the near term. Citing “the second wave of virus, remaining election uncertainties and the specter of higher rates”, the bank says prices will swing from as low as 3,150 to 3,550 in the short-term. According to Morgan Stanley, “Once sentiment turns from euphoric bullishness, reality will strike and we expect to see the S&P 500 begin to feel the pressure”.

FINSUM: The bank says that without the vaccine news, the market would have fallen 5% already and they basically think that fall is due at any moment.

(New York)

There are many reasons to change firms, whether that means going independent, jumping between brokers-dealers, or moving from RIA to RIA. In all the talk on recruiting one of the elements that often gets lost is how certain firms can or cannot help you grow, and this fact is doubly true in the RIA space. Most of the discussion around joining RIAs has to do with freedom, better income, and better services for clients, but one narrative advisors need to think more about is whether a firm actually has the power to help transform your growth. Most advisors don’t really think too much about an RIA’s brand power when moving because the main focus is on the freedom to run their own business. In reality though, some RIAs have much better capabilities for really boosting client acquisition and aum growth than others. For example, does an RIA have a particularly strong view on the markets, or a unique marketable approach to investing? Do they have a well-developed network/infrastructure for COI referrals? Other factors, like how strong their actual marketing support is, are all critical to whether joining that firm will help you win new clients and grow your business.

FINSUM: Whether you are already at an RIA or thinking of joining one from a B-D, advisors need to think carefully about how a particular RIA’s brand and offering may help them grow. It can be a major differentiator for success.

(New York)

If you are like most advisors, you probably have some difficulty in identifying which funds you want for your clients. Alongside the sheer proliferation of funds has been a massive near duplication of them. Dozens of funds now seemingly look exactly the same and it is very difficult to choose one from another—even asset managers create cheaper versions of their own funds. Between these incredibly overlapped offerings and thousands of new funds, it also becomes very challenging to find niche funds that exactly fulfill the role you’d like them to in client portfolios. Well, here is the good news—a new company with a hyper-useful tool is solving the issue. Check out Magnifi, they are bringing investment selection into the 21st century. Magnifi uses patented technology focused on natural language search to seek out exactly the funds you need. No more checking endless boxes and drop-down menus, just type exactly what you want and the perfectly matched funds appear. For example, imagine you wanted ESG funds that did not include oil and gas companies. Just search “ESG no oil” and bang, you have ten perfectly matched funds, including the stocks that comprise them, their fees, and performance against one another.

Magnifi also integrates FI360’s fiduciary risk score for every fund, allowing advisors peace-of-mind on the regulatory front when choosing client investments.

FINSUM: Magnifi is nothing short of a revolution for finding and choosing investments. They bring the easy exploration and selection of e-commerce to the world of investment management. Check them out, there is a reason they are being called the “Google for investors”.

(New York)

The market has been doing very well since October 30th, up around 9%. Goldman thinks even bigger gains are coming for the S&P 500. The bank has been encouraged by investors’ response after the election and thinks that the vaccine is really in the driver’s seat. The bank’s research team has significantly upgraded their earnings forecasts for next year and 2022 based on the better-than-expected recovery. According to Barron’s, a few assumptions underpin Goldman’s outlook, “at least one vaccine becoming widely available in the U.S., less drastic changes in policy because Congress is most likely to be divided, and the continued V-shaped economic recovery”. Goldman’s official forecast for the S&P 500 at the end of 2022 is 4,300 and a 20% gain from now through the end of 2021.

FINSUM: The “continued v-shaped recovery” is the most volatile aspect of these assumptions, but they also discounted a potentially positive one—another stimulus package. The forecast seems reasonable.