(New York)

There has been a lot of speculation about rising rates and whether the Fed might increase the pace of its hikes. However, until yesterday, that fear had not really exhibited itself in yields. Now everything is changed. Accordingly, Barron’s has run a piece highlighting two funds to help protect your portfolio from rising rates. One is the Loomis Sayles Bond fund (LSBRX) and the other is the Oakmark Equity & Income Fund (OAKBX). The former takes an all-bond approach to offset rate rises by loading up on shorter maturities. The Oakmark fund usually holds around 60% equities, with a mix of bonds making up the rest.

FINSUM: These are interesting choices. Whether to buy passive or active funds to offset rate hikes right now has to be the advisor’s choice. ETFs and mutual funds can both be good options depending on the approach one wants to take.

(New York)

The big global selloff in sovereign bonds, which included US treasury bonds, has spilled over into the corporate bond sector in a big way. One of the biggest ETFs tracking US corporate bonds fell to 2013 lows today. “The jump in rates is inevitably detrimental to long-duration credit performance, with LQD a classic example”, said an analyst, citing BlackRock’s popular LQD corporate bond ETF. While corporate earnings look healthy, the big issue is that investment grade bonds tend to have higher durations than high yield, which means they suffer more when rates rise.

FINSUM: We wonder how much this jump in yields might start to really affect the giant mass of BBB bonds. This kind of move in yields could prove a tipping point.

(New York)

The biggest dividend sectors, such as utilities and REITs, are getting hammered alongside the selloff in bonds. With treasury yields surging on Wednesday, utilities and REITs fell as much as bond prices. Dividend stocks had been experiencing a month of strong performance, but fears have been rising since the last Fed meeting, when the central bank took on a decidedly more hawkish tone.

FINSUM: We are concerned for dividend stocks right now because we think the big move higher in yields might have reset the market’s thresholds. Is the next stop 3.5% on the 10-year?

(Istanbul)

The big selloff in bonds has caused a wipeout in emerging markets. The sector, which has seen broad turmoil this year, just witnessed its biggest selloff since March. That fact is quite eye-opening given that the period includes all the worries over Turkey. The big losses have largely been driven by the appreciating Dollar, which hurts EM economies and assets. With the US economy going so well and the Fed likely to increase the pace of hikes, EMs look vulnerable. The MSCI EM Index fell 2% today.

FINSUM: There are some idiosyncratic problems, but EM economies don’t look as weak as this year’s market performance would suggest. It is really US strength that is hurting EM assets.

(New York)

Have you heard of the new “doom loop”? The term may seem vaguely familiar, and follows in a long line of sensationalist financial terms. Just like in its origin during the European debt crisis, the term once again refers to a European state sinking under the crushing weight of its own debt. You guessed it, Italy. The doom loop refers to the European bank habit of loading up on sovereign bonds, and in turn creating a negative reinforcment cycle where bonds fall in value, which leads to serious concerns over a bank meltdown, which then exacerbate the original economic fears. That is exactly what is now occurring after Italian bonds sold off steeply following the country’s wild budget approval.

FINSUM: Italy is one of the very largest debt markets and economies in the world, and a full scale meltdown there would surely impact global markets, even the Teflon-coated US stock market.

(New York)

Rates are rising, and with it, investors need to take a closer look at their portfolios. Rising rates can have serious effects on some dividend-focused sectors, such as utilities, REITs, or consumer discretionary, and most bonds. With that in mind, here is an ETF to help combat rising rates. One fixed income ETF built for the current rate environment is the iShares Interest Rate Hedged Corp Bd ETF (LQDH). What makes this ETF special versus others is that it is actively managed and has longer-term fixed income exposures, which stands in sharp contrast to the mostly short-term bonds these funds typically hold. It holds a 3.62% yield and charges 0.24% per year.

FINSUM: That seems a good expense ratio and yield given that this is an actively managed fund. Interest rate hedged ETFs seem like a good idea right now given the strong economy and increasingly hawkish Fed.

(New York)

It has just been announced that New York state is opening a tax probe into the Trump family. The scope of the investigation will be extensive, digging into the president’s inheritance form decades ago. The investigation was prompted by an extensive article published by the New York Times which alleges fraud in Trump’s tax affairs. The NY state department of taxation said it was “vigorously pursuing all appropriate avenues of investigation”. The New York times alleges that Trump undertook “dubious tax schemes during the 1990s, including instances of outright fraud”.

FINSUM: Here comes another potential legal headache for Trump.

(Washington)

Interesting news out of the media-shy Mueller investigation today. Two prosecutors on Mueller’s team are leaving or have already left the probe. The departures come following the prosecution of Paul Manafort. The news comes after an announcement in August that two other prosecutors had already left the probe. The newest departures mean there are 13 members remaining on Mueller’s team. James Comey comments that the investigation may be in its “fourth quarter” following the Manafort plea.

FINSUM: It looks like the Mueller investigation is either winding down or falling apart. Either way it seems likely it may finally conclude.

(Chicago)

Small cap stocks have been taking it on the chin. They have been getting hammered this week, and their performance (Russell 2000) has lagged the S&P 500 by almost 3% the last few days. That is a rare occurrence, which means there may be a buying opportunity. After such a bout of bad performance, the Russell 2000 has historically outperformed the S&P 500 by a percentage point over the next 20 days.

FINSUM: This could be a good short-term buying opportunity, but as ever, we struggle with these kinds of trade ideas because they seem to be based purely on historical precedent and lack any catalyst.

(New York)

Dividend stocks may have done well over the last month, but generally speaking, the last decade has been bleak. With the exception of a few months and quarters, dividend stocks have been largely out of favor with investors, who have instead devoted their capital to quick-growing growth stocks, especially in the tech sector. That said, the next year may be very good for good dividend payers, as yields are attractive and payouts are growing quickly. According to one portfolio manager in the space, “We are getting those yields and dividend growth—this is going to be a very good year for dividend growth—from the usual suspects”.

FINSUM: This seems like a risky bet to us. While dividend stocks have a place in the portfolio, the risk of rate rises to dividend sectors is considerable.