(New York)

Investors beware, the market might be losing its nerve. Back and forth markets for most of this year appear to be making investors very wary, as the market is fleeing to cash. Investor holdings in “cash sanctuaries”, which include money market funds, are approaching 2%, the highest level seen in a decade. According to one prominent asset manager “Cash is an asset class once again”. According to Crane’s, “Money funds were on a starvation diet with yields at zero percent … Rate increases have given them a stay of execution”.

FINSUM: Aside from volatility, the other big driver is that yields on money market funds have risen considerable alongside the Fed hikes, making them much more attractive.

(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)

In what comes as an interesting article, Bloomberg has published a piece arguing that instead of the status quo, asset managers should be paying investors for the chance to manage their money. The idea comes from Mercer, a top asset management consultant, and argues that to overcome the problems plaguing active management, investors should agree to pay out a fixed percentage return to investors over a certain timeframe, with the manager keeping any excess that is produced. “We keep getting told by managers that their value creation process tends to be longer than the typical horizon of an investor … This in turn leads to short-termism. Under the new model their investment time horizon can be aligned to their value creation process”.

FINSUM: This would be a total reconceptualization of the way the industry works. The big question is how the investor would get paid if the manager fails to meet the minimum payout. It sounds like third party insurers would have to take part. This is a very interesting proposition.

(Washington)

We urge our readers in strong terms to not get their hopes too high about the new SEC “fiduciary rule”. Putting that in quotes was at the heart of why the rule looks very likely to suffer setbacks and ultimately fail to become an industry standard. The rule is already facing an onslaught of attacks, both externally and internally by the SEC’s own commissioners. The rule has been lambasted as not being a true fiduciary rule, and the long and arduous rulemaking process, combined with a formal public commentary period, mean the rule seems likely to fail.

FINSUM: We don’t think there is any way this rule will turn into an industry standard looking anything like it currently does. We suspect it is time to go back to the drawing board.

(New York)

JP Morgan has just put out a guide which may be very interesting to investors—a manual for how to navigate the end of easy money. The bank thinks the equity market’s response to earnings has been very worrisome lately, and they are very bearish. The bank recommends that in 2019, investors go underweight equities and long gold and long duration as the economic cycle ends and real rates “collapse”.

FINSUM: This is an extraordinarily bearish outlook from JP Morgan, and it seems mostly dictated by weakness in equity prices lately. Investors should take this warning seriously.