(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.