(Washington)

This whole year it is has been assumed—almost as an unquestioned default—that taxes would rise under the Biden administration. For example, munis have surged in value on this expectation. However, that assumption seems to have gotten well ahead of itself as new developments suggest tax changes may be a way off yet. The big change is that the infrastructure package is coming up for a vote—potentially this week—and the deal which has materialized between the parties has no tax rises whatsoever in it. That means Biden’s plan to hitch tax rises to increased infrastructure expenditure have fallen through, at least for the time being.

FINSUM: So if this plan gets approved without any tax changes—which looks quite likely—it seems clear that clients will escape 2021 without any major changes to federal taxes (including long-term capital gains taxes). Therefore, any planning should take account of the fact that 2021 may be much more advantageous than 2022.

(New York)

If you listen to the industry chatter, it appears Gary Gensler, Biden’s head of the SEC, may be poised to define “best interest” as part of the SEC’s Regulation Best Interest. If advisors recall, when the BI rule was first proposed the main criticism was that they did not define the term “best interest”. Many thought this would allow loopholes, while the SEC said it would make enforcement stronger because by defining a term, it actually creates ways around it. According to Blaine Aikin, from Broadridge, “I think there’s an appetite for the Biden administration … We’ve had certain calls from many different audiences: ‘Wouldn’t it have been better if the SEC had actually defined best interest?”. Aikin added that he believes there is “huge collaboration” going on between the SEC and DOL on the topic of Reg BI and Fiduciary Rule synergy.

FINSUM: The big question here is whether a definition of the term will somehow change enforcement in some way. It seems a toss-up as to whether the definition creates loopholes or weakens them, but for the average advisor enforcement makes all the difference.

(New York)

You may not be paying much attention to it, but the last month has been very good for investment grade bonds. The reason why is that ratings agencies are in the midst of a massive wave of upgrades to companies that got downgraded at the start of COVID. This has sent demand for debt soaring as companies re-enter the investment grade market. For example, just in the week ending July 16th alone, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) pulled in $1.1bn in inflows. According to a credit strategist at Citi, “It’s like something that I have not seen in my time [in the industry] … After the financial crisis we didn’t get major companies moving back to investment grade so quickly”.

FINSUM: This is the early innings of yet another corporate bond bull run. Only credit specialists have mostly paid attention to this point, but investment grade bonds seem a good choice given the credit rating tailwind.

(New York)

Market volatility has been rising substantially and advisors may be interested in looking for holistic ways to diversify risk. Take a look at WisdomTree’s lineup of models, which are quite comprehensive. Using a factor-based approach, WisdomTree has a number of models to help investors hedge risk. This kind of approach can be quite useful right now as the market has been so unpredictable. According to the CIO of WisdomTree “We see an almost total factor performance reversal. In Q1 (when interest rates were rising), the market was led by value, dividends, and quality, with growth and momentum trailing far behind … But since then (as interest rates have fallen), it has been exactly the opposite—growth, momentum, and quality have led the way, while value and dividends dramatically underperformed”.

FINSUM: Models are an increasingly popular way for advisors to achieve a lot of investing goals, and they may be most useful because they can help save time by giving a single point-of-access to a comprehensive strategy.

(New York)

Two of the biggest problems facing many investors are how to handle potential inflation and taxes but…see the full story on Magnifi’s site