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Tuesday, 11 January 2022 21:27

Corporate Bond Funds Looking Ripe

Investors have been wary of tech stocks as of late and instead are parking their money in investment-grade corporate bond funds. This week the sector garnered a whopping $2.9 billion in inflows which is the biggest week since July, over six months ago. Markets are expecting the Fed to hike this year, which means borrowing rates will start to hurt the growth-oriented stock, and the Nasdaq slumped to its worst start since 2008 as a result. However, the rising yields are also pushing more investors into relatively riskless corporate debt. Junk bonds didn’t get the same bump as many indices were down with a hawkish Fed.

Finsum: Don’t sell on tech stocks just yet, but it could be a bearish year for the number one market segment the last year if the Fed hikes four times!

Monday, 10 January 2022 14:50

The Housing Bubble Burst Looms

House prices are at all-time highs, and since a small slump at the start of the pandemic have really seen rapid growth but are they in a bubble? Long story short, probably not, because a few key metrics are keeping them elevated. Federal Gov assistance programs have diminished the foreclosure numbers. Added to that the trillions poured into countless QE and MBS purchases have made mortgage rates be at near all-time lows. Finally, there appear to be real shortfalls in different housing markets, and the pandemics work from anywhere policies are having strong growth in places like Boise, Austin, and Orlando. All of these factors come together to say that there is a relatively low risk of a housing bubble but to keep your eyes peeled.

Finsum: The Case Shiller home price index is at an all-time high but more importantly growing at an all-time rate, this is getting close to bubble territory but it is lacking the speculative component.

Timing is everything in the market, and investors have a lot of reasons to be cautious in the bond market. A confluence of factors is making it likely that bond yields might jump up in 2022, particularly on longer-duration government debt. This is concerning as bond yields and prices move in the opposite directions so jumping on long-term debt right now could be deadly. For instance, the latest treasury yield rise sent an equivalent of an 800-point Dow Jones plunge in the iShares 20+ Year Treasury ETF (TLT). This is potentially scary as the markets are expecting three 25 basis points hikes from the Fed this year and inflation could also send bond yields rising. Most funds would see between a 1-3% hit on a 30-basis point yield spike.

Finsum: It’s critical to time the market but you might just stay away from long-term bonds, and stay on the shorter end of the duration.

A slew of new technological advancements are coming to Financial services and portfolio management software in 2022. The biggest changes will be modernizing networks, edge computing, and decentralized infrastructure like Web3. This means a lot of financial technology will begin moving to the cloud. In addition, actual payment transactions will take place on the technological device and not through a central network, which improves efficiency and processing speed. This doesn’t come at a big cost either as it’s a more robust and safer technology for payments solutions. Finally, in a decentralized financial industry, anyone can turn their personal capital into collateral and extract yield others can borrow from eliminating financial middlemen.

Finsum: These are wild changes in decentralized finance but undoubtedly a couple of years off, however cloud computing is a game-changer for portfolio management software.

According to a report from Charles Schwab registered investor advisor firms with less than $100 million in assets are improving recruiting efforts as of late. In a poll, it was the fourth listed initiative among RIAs in 2021, up five spots from the previous year. How these new recruiting efforts are delegated is also interesting with a quarter of RIA’s planning on adding relationship managers and 15% looking to add a client-facing management role. Additionally, more than half the firms are also adding back office and admin staff. Talent is an increasingly important commodity in the average RIA firm and many new efforts will be made to obtain it.

Finsum: It will be interesting to see exactly how the details of obtaining new talent come out: whether that’s specific programs or bonus-based incentives.

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