Displaying items by tag: Fidelity

(New York)

Despite the big losses in Treasuries, high yield bonds have been doing well, and according to Fidelity that seems likely to continue. Advisors could be forgiven if they are wondering “how?”. The answer is that the big reason bonds are losing is interest rate risk, and it so happens that high yield bonds have some of the lowest interest rate risk around because of their higher coupons and shorter terms. According to Adam Kramer, who managers Fidelity’s Strategic Income Fund, “an economic recovery may be on the horizon and the Fed may avoid tightening monetary conditions for some time”, which he says means the high yield market “could offer investors the best of both worlds in 2021”.

FINSUM: High yield bonds have the lowest exposure to the market’s major risk at the moment and also the upside of an economic recovery. The picture is bright.

(New York)

One of the biggest changes in the advisor-oriented ETF market in recent years has been the sharp rise in broker-owned ETFs, such as those from Schwab and Fidelity. Both have jumped to be major players in the ETF market thanks to their ability to sell these funds on their own platforms. One of the important things advisors need to understand is that a lot of new funds are seeded by the provider itself. Some ETFs have hundreds of millions put into them by their sponsors, which means they are not as liquid, or in-demand as they appear. Hartford and John Hancock are examples of this approach.

FINSUM: Brokers deposit huge sums in new ETFs to make them look established and in-demand. The best way to actually double-check that AUM figures are representative of reality is to look at the volume of shares traded, which is much less likely to be misleading and gives a true picture of liquidity.

(New York)

It actually took longer than we expected. Last week there was a big splash in markets and media when Schwab, TDA, and E*Trade all cut their commissions in response to a first move by Schwab. Now, unsurprisingly—except for how long it took—Fidelity has followed suit. The unique part about Fidelity’s move is that in addition to free trades, it is also offering free money market funds for any cash left in accounts. Those are currently 1.58%, and way ahead of the near zero yield you get on cash at Schwab, TDA, and E*Trade.

FINSUM: The whole market has gone to zero on trading commissions. One wonders if the same is going to happen on large ETFs.

(New York)

There is a new digital custodian in the industry who is promising 90% cost savings to RIAs on their technology and custodial costs. That new company is called Altruist, and is a commission-free custody service that intends to compete with the big players in the space at their own game. “Our goal is for everyone to really pay almost nothing”, says founder Jason Wenk, continuing “How much has really changed over the last 10 years? The change is way overdue. It’s not like this is some epiphany for us”. The new Altruist platform will launch in October and be very easy to integrate with the existing platforms from major competitors.

FINSUM: Technology costs are eating up a huge chunk of revenue across the industry, so anyone that can lower them and still provide stellar service will have a competitive edge.

(New York)

Here is a mundane but important question: what is the best single fund to track the whole market? There is now a wealth of options, from Fidelity’s free index tracker all the way to popular, but more costly SPY. The answer to this question is not as straightforward as one might think, as each of the funds has its own characteristics. For instance, while Vanguard’s VTI is popular, it has a quirky structure that can boost unrealized gains. It is also harder to trade without fees. Fidelity’s zero fee index mutual fund is a good choice, but only available on its own platform. Blackrock’s ITOT might be the best choice overall when considering fees, performance, and availability.

FINSUM: For being considered “vanilla”, there certainly are a lot of different flavors of index tracker these days.