(New York)

Vanguard is a pretty tough firm to beat in the mutual fund space. Their sterling reputation is hard to top, and no one seems to outdo them in the asset class. However, there may be a viable competitor: boutique manager Dodge & Cox. In fact, the fund manager just got ranked first out of 150 mutual fund companies by Morningstar. The rankings are based “on a variety of factors, including analyst fund ratings, expense ratios, and corporate stewardship”. Perhaps most importantly for investors, almost all Dodge & Cox mutual funds beat their category averages over the last decade.

FINSUM: Dodge & Cox has outperformed Vanguard in many ways, though obviously Vanguard can offer lower costs than anyone else. In many cases, though, performance has been good enough to more than account for the difference in fees.

(New York)

If you look at some of the areas hardest hit by fears over the economy and the trade war, there is cautious optimism starting to show up. One of the best examples of this is the corporate bond market. Investors have been pulling money from the stock market and sticking it in bonds. They appear to be unworried about high debt levels or the possibility of default. In this move, there is an underlying faith that the US economy will stay solid, otherwise credit-worthiness would be seriously in question. Spreads to Treasuries are very low too, further reflecting the optimism.

FINSUM: It seems like the market is worried that stock valuations are tapped out, but that there may not be a significant downturn. In such a case, corporate bonds look like a good bet.

(New York)

You may not know the name Michael Burry off hand, but you probably should. He was one of the investors who made a fortune as part of the “big short” during the Financial Crisis. Well, he has come back into the limelight this week with an eye-opening warning. He argues that ETFs, and indexing generally, are essentially the same as CDOs were before the crisis. He explains that the massive capital inflows into ETFs have eliminated any realistic pricing mechanism for underlying stocks, just like huge demand for structured credit inflated all asset prices before 2008. Additionally, the daily liquidity underlying many of the stocks in index funds is vastly lower than the index funds themselves (again, just like CDOs). Burry uses a theater metaphor, saying that the theater has grown much more crowded, but the exits are still the same size.

FINSUM: This is a great argument, and one that seems to have fundamental truth to it. However, even Burry admits that he has no idea when this “bubble” might actually burst.

(New York)

It is a rough time to find income. The big move downward in yields has crimped payouts to a significant extent. So where can investors find good yield without taking excess risk? Treasury yields are paltry, most stocks aren’t offering much, and high yield bonds look vulnerable in the context of a possible recession. So where can investors look? The answer might be RMBS, or residential mortgage backed securities, especially those unbacked by federal agencies. These are offered by a number of high profile funds, such as the Pimco Mortgage Opportunities and Bond Fund (PMZIX), or the Metropolitan West Unconstrained Bond fund (MWCIX). Yields are typically between 3% to 5%, and critically, the underlying return is linked to the health of the US consumer, a group that has been doing very well despite broader macroeconomic headwinds.

FINSUM: We like this call given the housing market is not broadly feeling bubbly and consumers seem to be in quite good shape.

(Seattle)

Amazon’s move towards one-day shipping is likely to be a big win for UPS and FedEx, but not in the way you think. A superficial glance might lead one to assume Amazon is going to increase one-day shipping contracts with the logistics providers, but that is not so. Amazon is building out its own network to do so. So how will it help FedEx and UPS’ beat-up stocks? The answer is that other ecommerce companies will need to increase their shipping speeds in order to better compete with Amazon, and in order to do so, they will be paying for a lot more one-day shipping through UPS and FedEx.

FINSUM: This is quite an interesting angle and one that makes a lot of sense. Walmart, Target, and many other big retailers will need to rely on UPS and FedEx to meet the one-day shipping challenge that will be required to stay competitive with Amazon.