Wealth Management
Amid ongoing market volatility, technology stocks centered on AI, cloud computing, 5G, and IoT continue to gain traction, offering long-term growth potential. Small and mid-sized companies like UiPath Inc., Five9 Inc., and Innodata Inc. are drawing attention with strong revenue growth and recent positive earnings estimate revisions.
Despite challenges stemming from concerns over high valuations and Federal Reserve policy shifts, the tech sector remains buoyed by relentless innovation and adaptability. Investors are particularly interested in companies providing automation platforms, intelligent cloud solutions, and advanced AI-driven data services.
For example, UiPath has introduced generative AI features tailored to business needs, Five9 focuses on enhancing customer engagement through its cloud contact center platform, and Innodata supports Big Tech with AI data engineering services.
Finsum: While the AI battle will happen at scale these companies could prove to be fruitful growers in the AI age.
Donald Trump's proposed tariffs are already unsettling global markets, with steep duties on imports from China, Canada, Mexico, and elsewhere threatening to disrupt trade flows and spark retaliatory measures.
China, facing tariffs as high as 60%, is grappling with a weakened yuan and struggling stock markets, with analysts forecasting further currency declines to cushion exporters. In Europe, the euro faces pressure from trade uncertainty and weakening Chinese demand, with the potential for parity with the dollar amid economic concerns and tariff impacts.
The European auto sector is particularly vulnerable, with shares swinging sharply on tariff news and broader economic weaknesses prolonging market underperformance. Canada’s currency has also dropped significantly amid threats of tariffs and a turbulent political climate, while Mexico’s peso remains volatile, reflecting ongoing risks tied to U.S. trade policies.
Finsum: These developments underscore the widespread economic uncertainty and market fragility as Trump’s trade agenda looms.
ETFs are generally more tax-efficient than mutual funds, potentially making them a better vehicle for delivering alpha in taxable accounts. Active ETFs combine the adaptability of active management with the tax advantages of ETFs, as only 16% of active ETFs have distributed capital gains in the past five years, compared to 53% of active mutual funds.
The ability to defer capital gains through in-kind redemptions can significantly reduce tax costs, allowing for better compounding of returns over time. Tax efficiency plays a critical role, especially in strategies like active equities, where minimizing taxable distributions has a notable impact on performance.
Evaluating active ETFs involves assessing the manager’s skill, the market’s alpha opportunities, and the investor's ability to select and stick with quality managers. Incorporating active ETFs into a portfolio requires careful consideration of the fund's exposure, risk profile, costs, and long-term performance.
Finsum: Thinking of tax as alpha is really the correct quantitative approach that gives a holistic view of your portfolio.
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Scott Bessent, President-elect Donald Trump’s nominee for Treasury Secretary, emphasized the critical importance of maintaining the U.S. dollar as the world’s reserve currency during his testimony to the Senate Finance Committee.
He advocated for prioritizing productive investments over wasteful spending to stimulate economic growth while addressing vulnerabilities in supply chains and strategically using sanctions for national security. Bessent reiterated support for making Trump’s 2017 tax cuts permanent, warning of a historic $4 trillion tax hike if Congress fails to act.
He also outlined plans for pro-growth policies, including reducing the corporate tax rate to 15% for U.S.-based manufacturers and exempting tips and Social Security income from taxation. Bessent underscored Trump's aggressive tariff plans to counter perceived unfair trade practices and strengthen domestic industries.
Finsum: This administration could usher in a transformative era but we’ll see how tariffs and tax cuts off set for economic Growth.
Public pension funds, including CalSTRS and LACERA, are enlisting consultants and specialists to navigate the intricate structures used by private equity firms to extend the lifespan of investments. LACERA, managing $82 billion as of November, has allocated resources for a new role focused on operational due diligence within its private markets portfolio.
With private equity increasingly relying on financial engineering, experts stress the need for limited partners to stay informed to adapt to these complex arrangements. Examples of strained assets rolled into continuation vehicles, like Upstream and United Site Services, highlight the challenges of managing leveraged investments in a high-interest-rate environment.
Despite these pressures, some private equity firms, such as Audax, maintain optimism about long-term recovery through operational improvements and strategic adjustments.
Finsum: Although pockets of distress exist, we remain confident in the resilience of private markets and their ability to weather economic headwinds.
The private credit market faces significant risks due to relaxed lending standards and the influx of capital, warns Nick Moakes of the Wellcome Trust. He anticipates substantial losses for investors if the U.S. economy enters a recession.
While private credit is less systemically risky than traditional banking, diminished checks on borrowing have raised concerns. Rating agency KBRA projects defaults in the sector to rise to 3% by 2025, driven by higher interest rates and vulnerable business models.
Moakes also criticized large alternative asset managers, noting their focus on asset growth may not align with investor interests. Despite the risks, the Wellcome Trust avoids direct private credit investments but monitors the market through its private equity allocations.
Finsum: With rates moves slowing down we think private credit could have an advantage over traditional fixed income products.