(New York)

Financial technology is one of the fastest-growing sectors in the market…see the full story on our partner Magnifi’s site

(Las Vegas)

Tesla Inc. Stock dropped recently after…see the full story on our partner Magnifi’s site

(New York)

The whole market—including advisors—has pretty much been panicking lately about to invest in what could be a period of high inflation. The duress is understandable considering we haven’t had significant inflation in decades. However, those trying to diversify into assets which are likely to thrive during inflation should look no further than the SPDR S&P Regional Banking ETF (KRE). The normally sleepy sector is surging this year, up 37% versus the S&P 500’s 11%. The reason why is simple: higher rates mean better earnings for banks, which earn the majority of the revenue from interest income.

FINSUM: If you think inflation is going to stay elevated, this is a great hedge. However, if it falls, it is easy to imagine regional banks tumbling in value.

(New York)

BAML’s chief investment office has put out some comments on how to help position ESG for clients. The ESG sector is plagued by misinformation and vagueness which clouds the overall value proposition. Accordingly, the best way to approach it is to have a matter-of-fact conversation to demystify things. According to BAML, “Advisors find clients are generally looking to avoid certain areas depending on their preferences, or because they have found investments score poorly by ESG metrics; favor investments they think will benefit various social or environmental practices; or help contribute to measurable outcomes around such an initiative”. They continued “It's an opportunity to demystify the conversation and also to keep it in a dialogue, because where we find this goes awry is when anyone feels like there's a moral superiority or mandate going on as opposed to a dialogue around your personal preferences”.

FINSUM: It is easy to get lost in the world of things claiming to be ESG. The best way to approach the sector is to be specific (e.g. I want a portfolio without fossil fuels), or at least specifically vague (I only want to invest in companies with high ESG scores).

(New York)

The model portfolio world has grown highly confusing over the last few years. The explosion in popularity of models has led to thousands on the market, making it very hard to sort one from another. Luckily, Morningstar has launched a new product to help do just that. Morningstar’s new ratings are on a one to five scale (like their mutual fund ratings) and they have increased coverage recently from 76 models to 139. They are also now covering not just SMA models, but theoretical ones. Morningstar gave only 2 out of 1,500 models its top “gold” rating, and one of the pair was Vanguard’s CORE portfolio. According to Morningstar, CORE has “an extremely appealing price tag along with top notch, highly diversified underlying index funds”.

FINSUM: This rating system will be a great resource for advisors, especially as coverage continues to increase. These scores will be useful not just for investment selection, but also for highlighting their utility and legitimacy to clients.

(Washington)

The muni market has been heating up with a huge influx in cash and stimulus. Additionally, as concerns grow…see the full story on our partner Magnifi’s site

(New York)

Goldman Sachs released a key report to its clients this week detailing…see the full story on our partner Magnifi’s site

(Beijing)

China saw a rise in both imports and exports that outpaced…see the full story on our partner Magnifi’s site

The conventional wisdom in markets has always been that large caps hold up better in periods of volatility, and small caps outpace in returns when markets start to recover. The reality, however, is far different. If you take a look at a series of turbulent periods of the last few decades, you can see a clear trend: midcaps actually perform better. They suffer similar losses during periods of volatility, but actually recover faster than both “domestically-focused” small caps and “mature” large caps. In periods of high volatility, midcaps have fallen by 41% on average, slightly less than large caps at 42.93% and small caps at 45.05%. In periods of recovery, it has taken midcaps only 304 days to recover versus 544 for large caps, and 432 for small caps.

The data highlights the significant outperformance of midcaps versus their peers. So how can investors best commit capital to midcaps? Take a look at State Street’s SPDR S&P MIDCAP 400 ETF.

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n.b. This is sponsored content and not FINSUM editorial.

Source: https://www.ssga.com/library-content/pdfs/etf/us/mid-caps-defy-conventional-wisdom.pdf

(New York)

Bank of America put out a very refreshing outlook today, reminding investors of an asset that has traditionally thrived in times of high inflation. And no, it isn’t gold or other commodities. That asset is…small caps. BAML says that small caps, and value stocks as well, have traditionally performed well in high inflation environments, such as in the 1960s. According to the firm, “Our US Regime Indicator has shifted to Mid-Cycle, a phase where inflation is typically strongest. In this phase, small caps and Value have typically outperformed large caps and Growth - further supported by the profits recovery and economic rebound we expect this year. Small caps and Value stocks were also some of the best-performing assets during the inflationary period of the late 60s”.

FINSUM: History aside, we cannot really agree about the idea that small caps will thrive. Relative to large caps, small caps have a higher employment cost base because their employees are more often in the US. Their supply chains are more domestic too. That means all their costs will rise alongside their revenue. Take a larger multinational—Apple for example—most of its manufacturing and supply chain costs are offshore, which means it can enjoy rising inflation-driven revenue, but take advantage of lower inflation rates in its cost base.