(New York)

Advisors will see it first hand, but it is still worth discussing the intensification of the current ETF price war. While the industry has been slashing fees for years, things have escalated significantly over the last few months. State Street has introduced a suite of ultra cheap funds, but more recently, BlackRock and Vanguard have made major moves. BlackRock cut fees on several stock and bond ETFs last month, and just last week, Vanguard announced that almost every ETF on its platform would be commission-free. The ETF market is supposed to grow to $10 tn in the next decade, and fees have fallen 30% in the last decade.

FINSUM: This is great news for investors, but it will certainly drive further consolidation in the ETF business as massive scale is needed to support these prices cuts. We ultimately worry about such imbalance in the market.

(New York)

Advisors need to be aware. In less than 8 weeks, everything you know about the market make up of the tech sector is going to change. Both MSCI and S&P are shifting the way they group technology companies. Netflix, Google, and Facebook will be the biggest movers, and the changes are expected to have a material affect on prices. Those three stocks will be moved to the newly formed “Communications Services” sector, and away from the two sectors they are currently split into. That will greatly lower the total weight of the Information Technology sector from 26% to 20% of the S&P 500.

FINSUM: This could really change prices as it will have a significant effect on ETF demand and other funds linked to specific indexes/sectors.

(New York)

Pensions have been on a long and miserable path since the Financial Crisis. They have been chronically underfunded and suffered from poor returns, but after a weak decade, there is finally some good news. That news is that interest rates are up, which means that US corporate pension plans are now 92.8% funded versus 87.6% funded at the beginning of the year. The shift is almost entirely because of changes in yields. Higher yields make it easier for pension funds to meet their future cash needs.

FINSUM: Higher interest rates will be better for all retirees, and it is good that pensions are finally catching a break. One wonders if we are approaching a sweet spot in rates where mortgages remain affordable, but yields are high enough to satisfy pensions and retirees.

(New York)

Are you worried about an inverted yield curve and the arrival of a recession? Morgan Stanley thinks you should be, as the bank has just called for a big bust coming to markets and the economy. MS thinks the Fed will end its contraction of its balance sheet soon, which will be supportive for long-dated Treasuries. Accordingly, with short-term rates still rising, the yield curve will invert soon; by mid-2019 says the bank. Morgan Stanley recommends investors to be overweight US Treasuries and underweight corporate credit.

FINSUM: The spread between two-years and ten-years is only 27 bp right now. We think it will much less than a year before an inversion, especially given the hawkishness of the Fed coupled with the threat of a trade war.

(New York)

Those who only pay causal attention to muni bonds might be scared away from the market by negative stories about big buildups in debt, bankruptcies, and a general erosion in credit quality. However, this year, nothing could be further from the truth. There has been a massive deleveraging of the sector in 2018, with total US muni bond issuance down a whopping 17% to-date, and on pace for 25% by the end of the year. The dearth of issuance has pushed yields down and prices up. “It’s a seller’s market”, says one muni bond analyst.

FINSUM: Part of the lack of new issuance is due to the federal tax changes, but nonetheless, the market is looking increasingly healthy.