Eq: Large Cap
ESG has been on the rise. In its infancy, ESG was largely diminished to a niche sector, but increasingly large amounts of investor capital are flowing based on ESG considerations and clients are getting more and more focused on it. Now there is a new tool to score and rank mutual funds based on ESG factors. The tool is from As You Sow. It is still a work in progress, but is quite useful for getting an idea for where funds rank against one another.
FINSUM: This tool is still in development, but we could imagine that this could become quite useful as ESG is famously hard to grade.
Most analysts and investors are quite bearish on the market at the moment despite the fact that the trade war is looking less worrying. That said, there is still a lot of indecision over where the market is headed. With that in mind, Barron’s is arguing that buying beat up but high-quality dividend stocks is a safe bet no matter which way the market heads. Here are five stocks to look at: UnitedHealth, food products company Ingredion, drug company Eli Lilly, Kohl’s, and Ralph Lauren.
FINSUM: There are a lot of different types of names here. We are most interested in Ralph Lauren, which is trading at a 25% discount to its historical valuation. The company is very healthy—easily covering its 3% dividend with earnings—and it it not facing the same headwinds as other retailers because it is mostly a wholesale business, meaning it is agnostic to the shift to online selling.
There is serious trouble brewing in the riskiest corners of the debt market. The lowest rated group of corporate bonds have seen their yields rise for months as a host of factors are causing losses. Whether it be the switch to ecommerce, poor energy prices and renewables, or prescription drug regulations, companies across multiple sectors have been getting hammered. The problem is that the issues hurting these CCC rated companies are not just isolated to them, the move in sentiment and selling is spreading to the broader high yield and speculative loan market. More companies are being downgraded too, and default rates are picking up.
FINSUM: Rather than a panic, this is a broad-based and fundamental move away from risky debt. It may not lead to huge losses—yet—but expect spreads to keep rising.
Barron’s has published a wide-ranging article look at the whole “income” universe and where investors should put their money. The caveat is that it is a hard time to invest for income because yields are so low. That said, there are some opportunities. A few short-term bond funds look quite compelling at the moment. Two funds from Pioneer (MAFRX) and Pimco (PFIAX) both look interesting, sporting yields of 3-3.5% on bonds with much lower rate risk. Junk bonds are yielding 6%, but you can get over 7% in closed end junk funds. Munis look like a good buy on a fundamental basis, but their yields are quite low; versus Treasuries they still have good relative value, however.
FINSUM: The trick here is that many want to keep some bonds in their portfolio despite what has gone on in fixed income markets. We would stick to short-term bonds for the most part as they have comparable yields to longer-term offerings, but less risk.
Remember when everyone was really worried about corporate bonds several months ago? A lot of that anxiety faded as yields tumbled. That led companies to once again issue mountains of debt this year. Now, we are circling back towards worries over a recession, and with that progression there is reason to worry about corporate bonds, especially the BBB variety. The big anxiety, as ever is that a whole section of the BBB bonds universe (the lowest rung of investment grade) will get downgraded to junk status in a recession, causing a massive selloff.
FINSUM: So these fears are not new, but the likelihood of a recession appears to be growing. Here is what really worries us—the BBB market is enormous, amounting to $3 tn in the US versus just $1.2 tn for the whole high yield bond market.
The Dow is oversold. That is what at least one Wall Street analyst (and Barron’s) is saying. The manufacturing report this week made recession worries flare up in a big way, leading to a sharp sell-off. However, it may only be a matter of time until the Fed’s more accommodative policy starts rippling through the economy with positive benefits. This is arguably already being seen in the housing market, where new and existing home sales were up sharply in August.
FINSUM: The market may be poised for a nice rebound if economic figures start to improve, as prices are currently being held back by recession fears.