Eq: Total Market
David Booth’s Dimensional Advisors hasn’t been a part of the active ETF market for long in fact just a meager 14 months, but that hasn’t stopped it from rising to the top of the active market. Since last November they have rocketed to over $46 billion in active assets. Overall active management is growing rapidly and going to be a trillion-dollar trend of converting mutuals to ETF’s. However, Dimensional’s newly launched active fixed-income is flying off the shelves with nearly $1 billion in assets since their inception in November. While the lion’s share has been converted, this fixed-income segment is among some of the fastest pure growth in the fixed income ETF market.
FINSUM: Within the ETF segment, active ETFs have been growing strongly, and this is at the forefront of a new trend.
Goldman and many other Forecasters have upped their projections for the number of rate hikes in 2022, but most are calling for a timid four in order for the fed to better combat inflation. CEO of JPMorgan Dimon, however, sees a much more aggressive Fed. Dimon says the Fed will hike rates six or seven times in 2022, which would bring the baseline FFR up to a whopping 2%. Dimon says 200 basis points used to be an overnight adventure for the Fed during the Volcker administration. Despite these wildly hawkish projections Dimon still sees the fed threading the needle and maintaining a balanced growth path while fighting inflation. Others called Dimon’s projections irresponsible and said the market would suffer greatly for hikes that severe.
FINSUM: There is no way the Fed could hike rates 2% in 2022 and maintain a balanced growth path, however, the Powell Fed bringing inflation back down and not taking the economy is still the most likely outcome, just not under seven rate hikes.
Goldman Sachs updated its path for Fed tightening in 2022 calling for four rate hikes instead of three in 2022. This is a fairly aggressive path for tightening as the current Fed target interest rate is between 0%-.25% which means it will hit around 1-1.25 by Goldman’s forecast. The biggest reason for the rate rises is the tightening labor market. Previously the Fed leaned on slack in the labor market as an excuse to brush off inflation concerns but now they are no longer doing that. Goldman has the hikes penciled in for each quarter March, June, September, and now December. Goldman saw regional San Francisco President Mary Daly’s comments of shedding some balance sheet weight of indicating the Fed’s future path.
Finsum: The Fed hasn’t tightened this quickly in the post-financial crisis era, but broadly the markets and yields are in lock step with Goldman’s predictions.
JPMorgan Chase & Co issued a statement for investors to remain bullish about global equities moving forward. They believe the largest sources of risk are hawkish central banks, slowing growth in China, and global covid restrictions, but most of these threats are already priced in. Even if they aren’t quite priced in the chances of them really materializing is minimal. They remain positive as benchmark indices remain at near all-time highs. This sentiment is shared by lots on Wallstreet, like Credit Suisse. Moreover, to best take advantage of this growth, they advise to overweight Euro stocks, financial, commodity miners, and automobile manufactures.
FINSUM: The bears haven’t stopped barking but equities remain high and P/E ratios aren’t crazy, there’s room to run.
Omicron is sweeping the U.S. and once again threatening to cripple the economy, already major airlines are canceling flights and potential Christmas plans. This makes moderate Dems walkout on the Build Back Better even more critical as the country could desperately be in need of stimulus at the moment. This caused Goldman to cut its GDP growth by 1% annualized in Q1 2022 and a half a percent in Q2. CPI rose at a 39-year record in November, which could make the possibility of a big BBB bill even less likely as price pressures deter policy makers. Goldman still sees the possibility that congress will aid a bit with the new omicron surging.
FINSUM: It’s tough to justify another trillion-dollar stimulus package with roaring inflation, and it might be futile with the Fed pumping the breaks; lookout for stagflation!
Some trends were definitely starting to take hold in 2021, but those are going to continue to flourish in 2022. The first of which is an active fund take over, as it appears active fund starts will outpace passive funds and see huge inflows on top of it. The next biggest trend will be more RIA’s rolling up their proprietary model portfolios into ETF launches. These model-based funds are the best way for professionals to package their expertise and deliver it effectively to clients. A number of recent SEC policies make it easier for a variety of ETF launches to happen this year so expect this explosion to continue in 2022.
FINSUM: It makes sense that model portfolios will explode, firms can be more transparent about their areas of expertise by delivering them in fund form explicitly.