(New York)

Every investor and advisor knows the mantra: past success does not predict future performance, or some iteration thereof. Countless market studies have proven the mantra. However, what about areas where the saying does not hold true? In private, non-liquid markets, studies actually show the opposite—that past performance actually does a good job predicting future success. For instance, in private equity and venture capital, funds with performance in the top and bottom quartile are very likely to continue in that quartile time and again.

FINSUM: So this is quite an interesting finding, but one with an equally curious subplot. It is not actually the funds that are predictive of the performance, instead it is the individual dealmakers in the funds, the study found. All these results make sense to us because VC and PE are not like large liquid markets, a lot of who gets access to the best deals depends on reputation, which allows winners to keep thriving.

(New York)

Investors beware, the strongest predictor of recession has just rung its bell. An inverted yield curve has predicted all six of the US recessions going back 60 years. And while all of investors’ focus has been on whether the Treasury yield curve will invert, the global yield curve already has. The yield on the ICE Bank of America index of government bonds due in 7 to 10 years has already inverted, with such yields being lower than for 1 to 3 year bonds. While the US economy is currently looking strong, there is growing weakness in Europe, China, and emerging markets, which seems to have inverted the curve. The IMF says the clouds over the world’s economy are “getting darker by the day”.

FINSUM: It is seeming more and more like we will have a global recession. Though, the US seems like it will be the last to succumb to it. One thing to remember—in the US it takes an average of 18.5 months from when the curve inverts to when we reach the peak of the growth cycle.

(New York)

That headline might have played with your mind a bit, and rightly so. Since financials generally trade alongside the direction of the economy, buying them ahead of a recession seems like folly. However, the truth is that financials tend to perform strongly for the 18 months that follow a yield curve inversion (or near one). Inversions do tend to strongly signal a forthcoming recession, but it generally takes 18.5 months from when it happens for the cycle to actually reach its peak, a period when stocks had median gains of 21%.

FINSUM: So this is a purely historical performance-based article, which is always dicey. However, it is a good point that the length of time between a yield curve inversion and a growth peak can be considerable.

(New York)

Back in late 2016, Merrill Lynch announced that it was abandoning commissions for its brokers. On the back of the shift to the DOL’s fiduciary rule, the firm was forcing clients to either move to fee-based accounts or downgrade to its Merrill Edge discount brokerage. Now, with the DOL rule gone, the firm is considering reversing that decision. Merrill admits that some clients left the firm because the cost of fee-based accounts was more expensive than commissions. Merrill will be considering a change for a 60-day review period.

FINSUM: Having only fee-based accounts always seemed like a bad idea to us because a large subset of customers would see their total fees rise significantly. However, the move fit nicely with the pre-DOL rule environment. Now that things have changed, we suspect the stance might be reversed.

(Washington)

There have been a handful of articles lately presenting how one can protect their portfolio from the current trade war (hint, stay away from food companies and autos). But there have been many fewer saying how to buy into the trade war. The answer is that investors should buy less vulnerable sectors, such as semiconductors and biotechnology, which will not be as impacted by tariffs. Banks are also likely to prosper as the economy continues its run.

FINSUM: We think the idea of biotech and banks is quite a solid one. Both seem to have little direct exposure to tariffs.