As part of our ongoing coverage of the best funds we found and met with at the recent Inside ETFs conference, we want to today suggest our readers take a look at TTAC, TrimTabs Asset Management’s US-focused quality ETF. The fund is predicated on providing investors with the highest quality stocks. In order to do so, TrimTabs focuses on free cash flow, strong balance sheets, and reducing share count. Free cash flow is a particularly important component as it is one of the hardest for companies to doctor, meaning it is a reliable indicator of quality. In order to implement this strategy, the fund uses a quantitative rules-based approach with human overlays that allow for flexibility in terms of sectors, industries, and market caps. TTAC seeks to outperform the Russell 3000 by holding the 100 companies in the index which best embody its investment criteria. The fund has about $125m in AUM and has an expense ratio of 0.59%.
FINSUM: We were very impressed by the folks at TrimTabs. Not only does the CIO, Theodore (Ted) Theodore have the best name in the business, but their enduring passion for their strategy was compelling. We feel this fund has a smart approach and is very competently managed. Definitely worth a look.
Several weeks ago the Fed slammed the brakes on more rates rises. The market has taken a deep sigh of relief to the tune of major gains in stock indexes. But within the pause is a more sophisticated, and perhaps more consequential, rethink of the Fed’s goals. The Fed is puzzled by weakness in inflation. With the labor market so tight, inflation should be rising strongly. Yet it has failed to reach the Fed’s two percent goal and appears to be weakening again. Accordingly, there are discussions going on internally at the Fed, about the disconnect and how to approach it.
FINSUM: There is a major question here—will the Fed revise its target higher and take a more aggressive approach to boosting the economy, or will it leave the target at 2% and be content. In either scenario, rates look unlikely to rise soon.
The yield curve narrowed continuously throughout most of 2018. The spread between 2- and 10-year Treasuries fell to just over 9 basis points in December and sits at 14 now. Where is it headed? The answer is likely towards an inversion. The Fed is releasing its minutes, and once it does, it seems likely the spread will continue to narrow. There are two scenarios that would likely create an inversion. The first is if the Fed minutes show that the central bank may raise rates again soon (sending short term yields higher). The other, and perhaps more likely, scenario is that the Fed expresses some anxiety about a recession (pushing long-term yields lower).
FINSUM: This is interesting because the two most likely scenarios for what the Fed might say/do in the near-term both add up to the same thing—a yield curve inversion.
FINSUM is at the Inside ETFs conference in Hollywood, FL this week, and we wanted to bring you a little live coverage. Yesterday, there was a major session at the event discussing the outlook for fixed income. The consensus was that even though the Fed has paused, there is now way to tell when rates may rise again. Further, while China’s economy looks weak right now, that could turn around rapidly in the event of a trade deal with the US. Finally, all of the five panelists discussing fixed income said the ”liquidity mismatch” between ETFs and fixed income instruments is overblown and that there is not nearly as much to worry about as some think.
FINSUM: Fixed income’s outlook is murky right now. On the one hand, the Fed has paused, but on the other, rates could start rising anytime. On balance, we do think the risk-reward is slightly in favor of a shorter-duration long position.
Some advisors are always searching for the next blow up on the horizon. Well, with that in mind, Fitch has just put out a warning to investors that the next big market storm will likely start in credit funds. Fitch’s warning is predicated on the well-trod idea of a liquidity mismatch between the daily liquidity that open-end bond funds offer, and the relative illiquidity of their underlying holdings. In December, open-ended loan funds saw steep withdrawals, which led to big losses.
FINSUM: This is a fairly well-covered topic, but it is still a big risk. It has not yet happened on a major scale, but if it did, the potential for losses is massive.
Active funds have been much maligned in the press over the last couple of years. The rise of passive investing has drawn the value of active investing into question, and the media has focused lot of attention on large groups of underperforming funds. That said, active funds, at least in fixed income, are winning right now. In every period from one to ten-years, actively managed bond funds have outperformed ETFs. Such funds are less constrained in their ability to seek out safe high yields, whether that be in junk bonds or emerging markets.
FINSUM: In many ways this makes sense, as there are many more bonds than there are equities, which means that there is likely more alpha to be generated through an unconstrained approach.