Wealth Management

(Washington)

In what comes as very disappointing news to many advisors, the DOL has just confirmed worst fears—it is officially bringing the fiduciary rule back. The DOL mentioned this idea in passing last year, but not given formal word on it. However, speaking before Congress yesterday, DOL chief Acosta confirmed that the fiduciary rule was coming back and that the agency was coordinating with the SEC. Acosta declined to give a timeline, but late this year is the anticipated unveiling of the new rule. According to one industry commentator, "We see this as a positive for financial advisers and active [investment] management as the Labor standard is unlikely to include class-action liability”.


FINSUM: It is too early to know if this is good news or bad because no one has clarity on what the DOL is doing. That said, our instinct is the new rule will be less onerous than previously.

(New York)

Vanguard funds have been performing well for years. That performance, mixed with ultra low costs is the reason they have thrived over the last decade and now contend for being the largest asset manager. However, there is a little known reason they have done so well—they employ a patented system for minimizing taxes in mutual funds. Vanguard uses a trading technique employing “heartbeat” trades which move stocks between ETFs and mutual funds in such a way that completely eliminates the taxability of their capital gains. Vanguard employs the strategy on 14 funds, and those have reported a combined $191 bn in gains while reporting zero to the IRS. Vanguard says the technique is entirely legal and has a patent on it through 2023.


FINSUM: This is an excellent competitive advantage and we thought advisors would like the view under the hood as to why Vanguard is thriving as one of the very best fund providers.

(New York)

Any investor in ETFs will have noticed the marked rise of “factors” over the last few years. These are technical or conceptual overlays that managers use to create a theme for a fund. They are generally predicated on some type of data, like “quality” or “momentum”, both of which are well-studied. However, lately there has been an explosion of new factors which are being employed in funds. The problem is that many of these are not being observed on a long enough timeline to see if they are relevant. In practice, this means that a lot of funds are predicated around strategies that do not have any proof of concept.


FINSUM: So we have mixed feelings about this. On the one hand, some factors seem clearly frivolous, while others which may also be quite new, seem to be a good angle on the current market environment. The key is to be very discerning in choosing these types of funds.

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