The SEC’s new Reg BI rule has been in full force since June 30th. However, many brokers are still nervous about complying with the rule as the whole industry is still waiting on more practical guidance. Many firms feel reasonably comfortable following the principals of the rule, but certain items—rollovers being key among them—are still a little uncertain. The SEC has said it will take “good faith efforts” into account in this initial enforcement period, but that is not nearly as comforting as knowing you are following the letter of the law.
FINSUM: Given this is a whole new regulatory package and there is no historical precedent, anxiety is high. We expect new guidance will be issued soon.
Investors are doing a lot of economic data analysis these days. As the economy picks up (for the most part) after the COVID lockdown, everyone is trying to guess the trend of the expansion. Well, in our search for new economic data, we found something that really stuck out to us as a positive: lumber demand. The whole lumber sector got hurt very badly in the first quarter as COVID shut down real estate construction. The collapse in demand led to a halt in production in the lumber industry. However, lumber demand for construction projects has come back faster than anyone anticipated and the supply chain cannot even keep up. Lumber prices rose 60% in the second quarter alone.
FINSUM: We think it is an excellent sign that builders and consumers have enough confidence in the economy and their financial positions to be able to create this kind of demand. V-shaped recovery?
It has not gotten much major media attention yet, but there is a big battle brewing between asset managers and the Trump administration. The reason why is a new rule proposal by the DOL which seeks to require private pension plan administrators to prove that they are not sacrificing client returns by putting money into ESG-oriented investments. The proposal was not some by-product or unintended consequence of a larger regulation, it was the point. In the words of Eugene Scalia, head of the DOL, “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan”.
FINSUM: In our opinion, this rule by the DOL is very out-of-step with current market trends. We totally understand the need for the DOL to protect retail investors, but Millennials and Gen Xers love ESG and will be the ones inheriting wealth soon. This seems heavy-handed.
For those interested in dividend investing, REITs have always been a key area. While rate sensitive, they can also provide strong and steady income streams. REITs may seem particularly risky as a whole right now because of the ongoing reckoning in commercial real estate as a result of the pandemic, but there are still some good opportunities to be had. The reason why is that REIT dividends, which have fallen 20% since the beginning of COVID, have likely hit their floor. JP Morgan says “that the current 3.5% dividend yield for the REIT group should be sustainable at this point.” Some of JPM’s best REIT picks right now include Brandywine Realty Trust (BDN, yielding 7.6%), Four Corners Property Trust (FCPT, 5.5%), Welltower (WELL, 5%), Medical Properties Trust (MPW, 6%), and W.P. Carey (WPC, 6.3%).
FINSUM: As obvious as it is to say, in our view, the key to REITs right now is the area of real estate they focus on. Mall REITS—probably not, storage/industrial RETS—much better.
Coronavirus cases across the country are surging. On Wednesday the US announced there were 62,000 new COVID cases, exceeding the record set the previous Friday by almost 5,000 cases. Some states, like California have actually started to reverse opening plans, not merely pause them as so many other states have. The huge surge in cases is leasing investors to fret that large-scale second lockdowns may be in the works. Anthony Fauci even openly said this yesterday, adding to fears.
FINSUM: Whether or not you think the case rise is just because of increased testing, the fact remains that as numbers soar, there is growing discourse about lockdowns. That is an undeniable risk to markets.