Eq: Large Cap
(Detroit)
The auto sector has had a pretty wild ride since the Financial Crisis. The first half decade after the bailout was pretty strong for autos, with sales growing and high margin SUVs jumping in volume. However, the shift to SUVs and away from cars has grown so great that it is causing the industry some headaches. Further, self-driving cars are a new source of opportunity, but also anxiety. A new survey shows the car industry is likely to join energy and retail as the most embattled sectors this year. Sales are widely expected to fall across the industry, putting further stress on car companies.
FINSUM: In great industry-speak, the threats facing the industry are currently called the “Bermuda triable: unfavorable economic conditions, disruptive forces, and changing consumer preference”. We can’t help but agree.
(New York)
One of the big challenges in digesting earnings is trying to parse through what are and what are not material statements made by company executives on earnings calls. Executives at publicly traded companies have become experts at deflecting tough questions and use sophisticated and evasive language to obfuscate the direction of their companies. However, American Century Investments is debuting a new piece of language processing software which can intelligently understand the commentary and identify material versus immaterial statements, or what they call “BS”. The software is highly sophisticated in spotting not just key words, but patterns and relationships between statements. It cites four areas that can help it find BS: omission, “spin”, obfuscation, and blame.
FINSUM: This seems as though it could be a useful tool, especially as it is more sophisticated than just using key words (which people can easily adapt to).
(New York)
Safe and stable income is the name of the game for many investors, especially as the country ages. That means many advisors are on the look out for stocks that can offer that combination. With that in mind, here is a list of ten safe dividend stocks. The “safe” in this context means stable dividends. It should be noted that the S&P 500 is only current yielding around 2% as a whole, but there are many stocks with over 3% yields. Here is the list: AbbVie, Broadcom, SL Green Realty, Regions Financial, Phillips 66, Marathon Petroleum, T. Rowe Price Group, PNC Financial Services, JPMorgan Chase, Comerica.
FINSUM: This is a nice diversified group. One thing we like in S&P 500 dividend stocks is that they tend to be value picks as well, since higher dividends are often a buy-product of previous share price declines.
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(New York)
If you hold bank shares, now might be a good time to pay attention. JP Morgan just put out a warning yesterday, and it is the type that seems likely to be representative of the whole industry. The bank warned of a “high teens” percentage fall in trading revenue. Most analysts have been expecting much more modest falls of around 3%.
FINSUM: Trading revenue falls tend to sweep across the big banks all at once as they are all subject to the same market conditions and underlying investor sentiment.
(New York)
Quantitative ETFs are growing in popularity. Using rules-based approaches to stock-picking is cost effective and has proven successful in many cases, making quantitative methods a good fit for ETFs. With that in mind, here are seven of the best quantitative ETFs: QuantX Dynamic Beta US Equity ETF (XUSA, 0.59% fee), Hull Tactical US ETF (HTUS, 0.92% fee), Cambria Global Momentum ETF (GMOM, 1.03% fee), U.S. Quantitative Value ETF (QVAL, 0.49% fee), IQ Chaikin U.S. Small Cap ETF (CSML, 0.35% fee), Vesper US Large Cap Short-Term Reversal Strategy ETF (UTRN, 0.75%), and the SPDR MFS Systematic Growth Equity ETF (SYG, 0.61% fee).
FINSUM: CSML was the most interesting of the group for us, as we think there is more alpha to be had in small caps with these sorts of approaches. We also ran this story in case anyone has clients who have been asking for more quant funds.
(New York)
As our readers will know, we spent the better part of last week at the Inside ETFs conference. As part of our time there, we are planning to feature a couple of ETFs which we think might be interesting to advisors. The first one we want to feature is a special fund from Legg Mason, the fund is called the Legg Mason Low Volatility High Dividend ETF (LVHD). We were lucky enough to meet with one of the fund’s specialists, Josh Greco, at the conference, and his passion for the fund’s approach really shined through. The fund’s own words describe it best, it seeks to track “the investment results of an underlying index composed of equity securities of U.S. companies with relatively high yield and low price and earnings volatility … LVHD may benefit investors who want income but are concerned about the volatility that can come from traditional equity income investments”. Basically, the idea is to get yield and upside, without so much of the volatility that is traditionally associated with equities. Mr. Greco contextualized the utility of the approach succinctly and convincingly, explaining that as clients’ lives elongate they are going to need to stay in equities longer to get capital appreciation. Accordingly, this fund seeks to de-risk some of that necessary exposure while still giving significant upside and yield. The fund has about $600m in AUM, is widely available, has an expense ratio of 0.27%, and a dividend yield of 3.48%.
FINSUM: In our mind, this fund does an excellent job of fusing some of the best elements of fixed income (yields and less volatility) with the best part of stocks (capital appreciation). It may be a great fit for older clients that need to keep a significant allocation to equities. It is also quite affordable at 0.27%.