(New York)

We wanted to write an article about a new fund we discovered in our regular course of business, but that got us excited. One of our gripes with ETFs is that there always seems to be a dearth of ways to express short-term tactical opportunities, or own a fund that does so. That is why we were excited to find a fund in New York Life’s IndexIQ ETF lineup. The fund, the IQ Merger Arbitrage ETF (MNA), seeks to gain capital appreciation by buying companies that have had public takeover announcements. The fund also includes a short on global equities as a partial hedge. Merger arbitrage is a common hedge fund strategy.

FINSUM: This is one of those area where we often wish we had exposure, but don’t have the time to actually enact a strategy, so this IndexIQ fund is very useful. The fund has a 75 basis point expense ratio.

(New York)

It has been a long time since value stocks had a chance to shine. A LONG time. Growth stocks have handily outperformed their growth cousins, so much so that even some diehard value investors have talked about giving up on the practice. Value stocks took a pounding in March following the Fed’s dovish turn and spreads versus the market’s most expensive stocks are at their widest in 70 years. This means it may be a good time to buy, says Bernstein’s equity research team. If you look away from financial value stocks, the sector did not actually get wounded much last month. The reason why it may be time to buy is two-part: the first is that value stocks tend to outperform when the economy is slowing, but not in outright recession. The second is that high value stock spreads are seen all across the economy, and not just in challenged sectors, which means they are less likely indicative of real challenges and are more likely just a market symptom.

FINSUM: We understand this analysis, but have to disagree. We just don’t think the old precedents for value stocks hold much water at the point. Our view is that as growth slows, investors will buy the stocks with the most growth, not the cheapest ones.

(Washington)

The fiduciary rule saga has been long and confusing. Firs the DOL Rule fell flat, then the SEC proposed its own rule, only to face harsh criticism from everyone but the brokerage industry. Now there is a new piece of news that we find encouraging: the SEC is apparently working directly with states as part of an effort to craft a new framework that will eliminate any conflicts with state-level fiduciary rules. The SEC is consulting with states like Maryland, Connecticut, Nevada, and New Jersey to make sure there aren’t grey areas or loopholes that create nightmares for advisors and their clients.

FINSUM: There are two positive developments here. On the one hand, it is great that the SEC is trying to iron out any conflicts with state-level rules, but on the other, it is even better that this consultation might actually lead to the dissolution of those state rules.

(New York)

Headline fourth quarter growth got downgraded this week to just 2.2% (from 2.6%). That may not seem like a devastating fall, but if you take a closer look at the figures, they are worse than at first glance. In particular, it becomes clear that growth was actually weakening all throughout 2018 (versus 2017). While the fourth quarter especially showed weakness, it was really only two one-time quirks that kept growth as high as it was for the year: increased military spending and higher spending by non-profits. Neither of those factors are very tied to the underlying economy and consumers.

FINSUM: This is pretty eye-opening and does sap our confidence a bit. Consumer spending also barely rose in January, which is another negative sign.

(New York)

The yield curve is the center of attention right now. The short end is yielding more than the long end, everything feels upside down. So how to play it? Yields on long-term bonds have fallen so steeply that it seems foolish to think they will continue to do so. Inflation is still around and the Fed still has a goal to get the country to 2%, which means yields seems more likely to rise than fall (unless you think a recession is imminent). Accordingly, there are two ways to play this curve. The first is to use a “bullet” strategy by buying only intermediate term bonds, which tend to do well when the yield curve steepens, especially if short-term rates actually fall. For this approach, check out the iPath U.S. Treasury Steepener ETN (STPP). The other option is to remain agnostic as to direction, buying something like the iShares Core U.S. Aggregate Bond fund (AGG).

FINSUM: Our own view is that we are not headed into an immediate recession, and thus the long end of the curve looks overbought.