(New York)

InvestmentNews has run a very ominous article. The piece cites recent evidence published by the Wall Street Journal showing that large discount broker-dealers often mislead clients by saying they do not have incentive fees when they do. Firms like Charles Schwab and TD Ameritrade often brand themselves in a very positive light, saying things like being “champions of investors" and putting clients first etc. However, such misleading behavior may lead to the current or future fiduciary rules being extended to cover broker-dealers entirely, not just regarding disclosing conflicts of interest.

FINSUM: We don’t think the current DOL rule is going to be extended in any way, but it does seem likely that the SEC might take this into account as it creates a new, more comprehensive rule.

(New York)

Speaking at a large ETF conference yesterday, the head of Vanguard has a big warning for all advisors. He said that the industry needs to change rapidly or face a huge loss of jobs. Citing evidence that almost 60% of advisor jobs may be lost to automation. He argues that portfolio construction and rebalancing are now super cheap commodities and that advisors should instead focus more on managing client behaviour, which will be a continued niche.

FINSUM: This was a pretty grave warning for advisors. We are not sure the outlook is so bleak.

(New York)

A lot of analysts and market gurus are currently talking down the high yield sector. Credit spreads have been rising and it does look like we are headed into a higher rate environment, so the arguments seem reasonable. However, Barron’s says there is still time to get in on high yields. One of the best parts of the market right now is that only 10% of it is comprised of CCC rated bonds, way below its average of 15-20%. That means credit-worthiness is better. Additionally, junk firms have been refinancing for years at ultra-low rates, which will keep default rates pinned. Finally, oil and gas firms, which comprise a high share of the market, are in better shape as prices have been recovering.

FINSUM: There are definitely some strong points here, but it would be a highly contrarian view to say that the prospects for the sector look good after surging for so many years. At best, the fundamentals look solid, but the macro environment looks poor.

(Washington)

The whole market seems to have become punch-drunk with blockchain fever. The recent cases of small companies seeing their share prices surge on the back of adding “blockchain” to their name has been well documented. Now the SEC is cracking down. Jay Clayton, chairman of the SEC had this to say on the issue, amidst an even larger statement shaming the rebranding practice: “The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed-ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering.”

FINSUM: The final straw seemed to be when a publicly traded company that specializes in Long Island ice teas changed its name to Long Blockchain and saw its shares skyrocket.

(New York)

The US stock market had a stellar 2017, with S&P 500 soaring 21.8% in the year. However, while still rising, REITs lagged far behind at just 8.7%. This year, the bad news has continued, with stocks overall up 6% and REITs down more than 2%. The underperformance has led to a debate amongst REIT managers as to why times are rough. Some think that it is because of the view that we are in a rising rate environment and the perception that there is a coming surge in new office buildings, apartment complexes, and storage units. Others, though, think that REITs are simply being forgotten because the big party has been in tech shares.

FINSUM: We do not think REITs are being forgotten, we just think they are getting less attractive because the both the macro cycle (higher rates coming) and their industry cycle (there is more inventory now) are shifting.