(Rio de Janeiro)

Emerging markets make up a fraction of US investors' portfolios even though they account for a quarter of global stocks weighted by market value, and they are one of the most important tools to beat the markets moving forward. The biggest factor driving the divergence in emerging markets and US markets has definitely been earnings, which has pushed the gap to its widest levels in the last two decades. However, earnings aren’t the only component of stock valuation. Dividend growth is expected to double up on US markets with 3% as compared to 1.4-1.5% in the U.S. Meanwhile, emerging markets are trading at a ridiculous discount as their P/E is about 12x where the S&P 500 is an average of 20. The common ratio of P/E to expected earnings growth and dividend yield favors emerging markets, which is already assuming high earning growth for US stocks. Finally the last time the gap between emerging markets and U.S. stocks was this bad the EM went on to beat the S&P by 14% over the next 7 years.

FINSUM: This is the perfect opportunity to move abroad because presently the discount is just unjustified for emerging markets.

(Washington)

The SEC is sending some very disconcerting (if you are advisor), and not so subtle signals on its plans. This version of the SEC has taken a very different tact in its appointment of critical staff. Effectively, it has closed the revolving door. And what we mean, is that in contrast to previous SECs, this one has brought almost no one in from the industry at a senior position. Instead, it is being staffed with prosecutors, consumer advocates, and other regulatory-oriented government types. The appointments seem to be a reflection of Gensler’s policies priorities and views on how he wants the SEC to conduct itself during the Biden era.

FINSUM: The SEC is sending the loudest message it possibly can without writing it on the wall. The “read between the lines” is clear: enforcement is going to be intense.

(New York)

When clients think about retiring early, Social Security benefits and their timing are often a critical consideration. However, what most don’t realize is that health insurance costs are often the biggest hindrance to retiring early. This means advisors have a crucial role to play in helping advisors plan for retirement healthcare costs. One of the main options for keeping costs lower is to use Obamacare (ACA insurance) for the period between retirement and Medicare eligibility. However, this takes significant planning, as the pricing for this is based on modified adjusted gross income (MAGI). The way MAGI is calculated includes some standard forms or income, but excludes others, such as Roth RIA contributions.

FINSUM: Advisors need to be careful in how to structure client income during this period of retirement as it can have a very material effect on insurance pricing and thus cost of living.

(Washington)

Since May, the prospect of huge tax hikes on the wealthy has weighed over the advisor and HNW landscapes. Biden is planning to significantly increase capital gains taxes, and most alarmingly, is planning to get rid of the step-up in basis at death. With that in mind, a new product has been surging to the forefront as the work-around to Biden’s new proposals: private placement life insurance. PPLI is a type of life insurance where payouts flow through to beneficiaries tax-free. However, they are complex for clients to understand and take some significant diligence. According to a law professor at the University of Chicago, “Private placement life insurance poses a serious obstacle to President Biden’s goal of guaranteeing that high-income individuals pay tax on large gains at least once per lifetime … PPLI is a massive loophole — entirely legal, easy to exploit, and politically very hard to close”.

FINSUM: So this seems to be a good, if complicated and restrictive, work-around to the inheritance tax issue, but it does not address capital gains.

(New York)

Annuities have had a very strong 18 months or so. Ever since the pandemic began, demand has risen. Additionally, the pending inclusion of annuities in 401(k) plans will be a tailwind. However, a new regulation was just put in place in Connecticut which could spell trouble for the asset class. The state just put annuities under a best interest rule, the 16th state to do so. States have continued to use the National Association for Insurance Commissioners’ model rule as a template for covering annuities under BI legislation.

FINSUM: How far might this go? We think not too much further, if only because many of the states that would want to pass a fiduciary rule for annuities have already done so, which means that even if the DOL drags its feet on its new rule, most of the state-level regulations would have already happened.

(New York)

Bank of America just put out a big warning that advisors need to pay attention to. The bank is warning that earnings growth could get “vaporized” across a couple of sectors. The reason why is tax hikes. BofA's Savita Subramanian posits that in a scenario where taxes rise to 25% next year (from 21% this year), 5% would be wiped off earnings growth, a huge margin in a year that is already set up to see some cooling after the red hot earnings growth of 2021.

FINSUM: Investors don’t seem to be adequately accounting for this risk. Despite the fact that Biden’s proposals will likely get watered down, there appears a high likelihood that taxes will rise next year.

(New York)

When you say bond legend, only one name likely comes to mind (let’s leave Gundlach out of this for a minute): Bill Gross. And old Bill always has an opinion, and this week it is a very strong one: “bonds are trash”. Bill says that bonds are now in the investment garbage can because Fed tapering in the first half of 2022 will likely cause a rise in Treasury yields from 1.3% now to 2% next year, causing an overall loss of around 3% over the next 12 months. According to Gross, “Cash has been trash for a long time but there are now new contenders for the investment garbage can. Intermediate to long-term bond funds are in that trash receptacle for sure”.

FINSUM: This is logically sound, but the timing is entirely dependent on the Fed.

(New York)

The annuities market is healthy and doing well. According to Ken Burger, national sales director for annuities at Luma, “When you look at our current market environment of minimal low fixed-income yields, high levels of volatility, and fears of mounting inflation, it’s easy to see the attractiveness of the annuity category”. The issue for advisors though is that annuities have long been a complicated and crowded space that is too complex and time-consuming for advisors. That is where Luma is trying to expand the market, as they have a slick annuities comparison tool that allows advisors to easily compare annuities side-by-side.

FINSUM:Annuities are a great fit for the current market given ultra-low rates and the huge mass of Americans who are retiring. Check out Luma.

(New York)

Advisors, try to breathe just a tiny sigh of relief, your clients just got a victory. It is being reported by prominent political paper The Hill that big Washington lobbyists have already succeeded in greatly watering down Biden’s tax plans, and perhaps eliminating their chances. Evidently lobbyists have done very well at getting middle of the road Democrats to turn against Biden’s tax plans. Biden’s plans include increasing long-term capital gains taxes to regular income tax levels and eliminating the “step-up in basis” at death in inheritance.

FINSUM: This has two clear effects on Biden’s plan. Firstly, because the numbers are so tight, Biden can’t afford to lose anyone from his party in a vote. Secondly, and relatedly, this means the middle of the road Democrats have a lot more power to shape the proposal that makes it to a vote.

The decade of the 2010’s was marked by the meteoric rise of fast-growing companies, many of which have become household names. Not coincidentally, the market dominance of these large-cap tech stocks also powered the popular broad market averages to all-time highs, and their trajectory has been nothing short of remarkable. This begs the question: Which companies are poised to disrupt the status quo to such an extent that they will be the next market dominators? Identifying those stocks and piling in before they are household names is the ultimate challenge for growth-oriented investors. For example, who wouldn’t want to say that they picked up Amazon when it was just a bookseller? The VictoryShares Nasdaq Next 50 ETF (QQQN) offers investors an opportunity—just maybe—to find the next decade's biggest story.

The VictoryShares Nasdaq Next 50 ETF is a passive fund that invests in the constituents of the Nasdaq Q-50 Index, which tracks the 50 non-financial companies that are next in line for inclusion in the iconic Nasdaq-100 Index. In other words, this offers investors an easy way to gain broad exposure to a new generation of innovative companies we feel are poised for growth. These mid-cap firms may be transitioning into large or, possibly, even mega-cap status. It’s an interesting approach that offers growth investors several possible advantages.

For starters, it’s a systematic way to allocate to companies that have already been vetted given that these stocks have demonstrated strong growth to date in terms of their market cap positioning. These companies have long-graduated from fledgling startups. Moreover, this ETF rebalances quarterly, which helps ensure that the portfolio remains updated and in tune with an oft-changing environment. We believe such a quarterly rebalancing is an advantage versus some competitive products that rebalance only annually because it puts QQQN in the position to capture the value of any intriguing, rapidly growing companies and potentially IPOs that immediately become eligible for inclusion in the Nasdaq Q-50 Index. Quarterly rebalancing also ensures that investors aren’t stuck with laggards that have dropped out of candidacy for graduating into the Nasdaq-100 Index.

The current investment environment is indeed tricky and there are many challenges ahead, but there will always be innovative companies that are disrupting the status quo, regardless of market volatility, interest rates, or Federal Reserve policies. The VictoryShares Nasdaq Next 50 ETF offers investors an opportunity to allocate across 50 companies that we believe should be in excellent position to grow. Why not invest in these stocks before they are household names?

Carefully consider a fund's investment objectives, risks, charges and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit www.vcm.com/prospectus. Read it carefully before investing.

Investing involves risk, including the potential loss of principal. In addition to the normal risks associated with investing, investments in small- and mid-cap companies and narrowly focused investments typically exhibit higher volatility. International investing may involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, or economic or political instability. Technology companies are often subject to severe competition and product obsolescence. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited, and commissions are often charged on each trade. ETFs may trade at a premium or discount to their net asset value. The Fund is not actively managed and may be affected by a general decline in market segments related to the Index. The Fund invests in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Fund may diverge from that of the Index.

The Nasdaq Q-50 Index is a market-capitalization weighted index designed to track the performance of companies that are next-eligible for inclusion into the Nasdaq-100 Index. The Index is comprised of 50 securities and reflects companies across major industry groups, except financial companies. Nothing in this illustration should be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

VictoryShares ETFs are distributed by Foreside Fund Services, LLC.

Victory Capital Management Inc. is the adviser to the VictoryShares ETFs. Victory Capital is not affiliated with Foreside Fund Services, LLC. Nasdaq is a registered trademark of Nasdaq, Inc. and its affiliates (together, “Nasdaq”) and is licensed for use by Victory Capital. The product(s) are not issued, endorsed, sold, or promoted by Nasdaq. Nasdaq makes no warranties as to the legality or suitability of, and bears no liability for, the product(s).

©2021 Victory Capital Management Inc.

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N.b. this is sponsored content and not FINSUM editorial.