Eq: Large Cap

(New York)

High yield stocks have been wounded during the pandemic. The 100 worst performing S&P 500 stocks since the pandemic began have returned minus 39% and yield an average of 3.07%; the top 100 have returned over 35% and yield just 0.85%. However, now might be the time to buy in as there are some exceptional values. The core idea is that many of these wounded names are going to be bid up over the next several months as yield-starved investors try to find some income.

FINSUM: Right now it is very important to be selective about dividend stocks, as their returns are all over the map. For example, the Vanguard Dividend Appreciation ETF (VIG) has returned 4% this year, while the iShares Select Dividend ETF has returned minus 18%! The reason why is that the latter was weighted towards utilities and financials, which have suffered. Be careful what you choose!


Asset managers, other industry participants, and others on the left have been outraged over the last several weeks about a new DOL proposal that would essentially bar ESG investments from being included in 401(k)s. Multiple large asset managers, including BlackRock and T. Rowe Price have issued statements asserting how out of touch the new DOL policy would be with current wealth management trends. The general attitude of asset managers is that the DOL is trying to solve a problem that doesn’t exist. According to T. Rowe Price, “There is no factual support for the proposition that ESG is being misused currently … Accordingly, the proposed rule’s efforts to impose new requirements on fiduciaries’ consideration of ESG is not necessary”.

FINSUM: We understand the concern about making sure 401ks put economics first, but there just does not seem to be enough evidence of misbehavior to warrant this kind of restrictive policy. Furthermore, ESG funds have been outperforming conventional ones since the start of the pandemic!

(New York)

Anyone who has been looking at the bond markets is likely to be shocked at the recent moves in the space. Many “high yield” bonds (it is now necessary to use quotes) are yielding what very high quality investment grade bonds were just months ago. A recent sale saw $1 bn of new issuance for a BB+ company at a 3% yield. The huge move downward in bond yields is the result of the Fed’s unprecedented stimulus action, and in particular, their mandate to backstop corporate bonds.

FINSUM: The Fed’s actions have been so warping that they have called into question the very definition of a high yield bond. If every bond is backed by the Fed, then it makes perfect sense that their yields would equalize. In this way the market’s reaction is entirely predictable.

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