Displaying items by tag: equities

(New York)

Markets have been very turbulent lately with no clear path forward. With that in mind, and given the stage of life (retirement) of many clients, a lot of advisors may be looking for some good yields to add to portfolios. Well, it might be good to take a look at utilities stocks. While the focus on investors has been on growth, utilities look good at the moment. Despite the fact that utilities generally lose ground when rates rise, and have lost 2.4% this year, well-run regulated utilities still look like a good buy. In particular, look for utilities that do not have massive amounts of capital tied up in a single asset, like a power plant. This means one should focus on utilities in the electricity transmission and distribution areas.

FINSUM: Beyond the yields, utilities would also seem to be quite good at defending against a downturn, as spending on them would be quite resilient in a recession.

(New York)

Is value dead? That question has been asked for years now as value stock have chronically underperformed their growth oriented peers. Even now investors look first and foremost to technology (especially FAANG) stocks, prioritizing the richly valued, but quickly growing companies. However, value may be ready to turn around, says Barron’s. One of the big reasons why is that loose monetary conditions, which have held value stocks back, are finally tightening. Some even think value might really soar, as it is exceedingly rare for strong value stocks to be trading at such low P/E ratios this late in a bull market.

FINSUM: We think the biggest problem facing value stocks has been that everyone senses technology is coming to dominate all aspects of life, the economy included. This has meant that investing in tech companies is seen as the way of the future, and that one is foolish not to. It is going to take time, and maybe some cataclysm (e.g. a big regulatory crack down on tech) to disabuse them of that notion.

(New York)

This was supposed to be the year when stockpickers would finally have their way, grabbing control of the fund management market away from passive ETFs as correlation fell away and analysis of individual stocks paid off. So much for that. No sooner than investors imagined a different market, correlation has returned in a big way. Correlation has once again surged, and markets are moving more in-sync than they have at any time since the stock market crash of 1987.

FINSUM: The rise of passive investment vehicles seems relentless, and the one thing that seemed like it might get in its way has evaporated. In many ways the rise of correlation makes sense though, as when the market worries about macro issues, stocks tend to move in the same direction.

(New York)

When you think of gold’s role in a portfolio, most would immediately say it is for hedging against inflation. However, new research shows that gold is only a good hedge for inflation over very long periods, such as decades or centuries. In normal time horizons, say one to five years, it is a very weak hedge, and equities have performed much better. Now this is not to say gold cannot be a good asset class in its own right, just that its traditional role should be rethought.

FINSUM: If gold is really a poor inflation hedge, then investors and their advisors need to think very carefully about how they conceptualize it within their portfolios.

(New York)

Morgan Stanley has just come out with a big warning for investors. The bank says that the selloff over the last few weeks, which amounted to around 10% at its peak, was just a tiny start to what is to come. Describing the recent losses as the “Appetizer, not the main course”, Morgan Stanley says that big trouble will occur when growth weakens but inflation keeps moving ahead. “Strong global growth and a good first-quarter reporting season provided an important offset. We remain on watch for ‘tricky hand-off’ in the second quarter, as core inflation rises and activity indicators moderate”.

FINSUM: If growth starts to weaken, but inflation and rates are still rising, that is the catalyst for a big correction, or more likely, a prolonged bear market. But we are not there yet.