(New York)

There are a lot of good reasons to own Treasuries right now, and a lot of reason to be nervous about them. Let’s take a look. The biggest risks in the market at present are mostly about the budget deficit, which makes Treasuries look weak and inflation likely to jump (as it has historically during such spending). However, there are a lot of positives too. The big one is that the Fed looks ever more likely to adopt a permanently dovish stance as it may be changing its thinking about inflation. Additionally, economic weakness will be bullish for Treasuries, so coming to the end of the cycle is not catastrophic.

FINSUM: The best place to be on the yield curve is clearly at the short end—less rate risk and decent yields.

(New York)

Picking small caps is an art, a point that any serious investor in the space knows. Well, one of the best in the business is giving out tips today and advisors would be wise to listen. Samantha Lau, co-CIO of AllianceBernstein’s AB Small Cap Growth Portfolio is giving out her “rules” for small cap investing. Her fund has an admirable record, rising an average of 20% per year for the last decade, better than 95% of her peers. Some of her rules: “If you think something is wrong, exit and revisit”, “CFOs don’t quit to spend more time with family”, they leave because they see better performance elsewhere or something bad is coming. She continued “A good company is not always a good stock”. Her team uses a rigorous methodology that mixes quantitative and qualitative factors.

FINSUM: These are great tips for any investor, but we are particularly fascinated by the comment about great companies not being great stocks. It is an interesting and underappreciated point.

(New York)

Just three months after flashing a dreaded “death cross”, the Dow is now showing some very bullish indicators. The Dow is signaling a “golden cross”, or a strongly bullish sign. The last time the market showed this kind of technical sign was three years ago, a moment which was followed by a 30% rally. The “golden cross” is when the 50-day moving average passes the 200-day moving average, and is taken as a sign of when a rally becomes a longer-term uptrend.

FINSUM: We don’t give a lot of weight to technical analysis unless it is accompanied by some fundamental news. In this case the bullish signs seem to exist in isolation.

(Washington)

There seems to be a big misconception is the industry. That misconception is that the SEC’s best interest rule is somehow a less stringent standard than the DOL’s fiduciary rule. The core reason this is believed is that advisors understand it to be somewhere between the suitability standard and fiduciary standard in rigor. However, a new article by Benefits Pro is arguing that it is anything but. Just because the rule intentionally does not define “best interest”, the entire package is drafted in a way that makes very clear it is a fiduciary standard. SEC’s chief Jay Clayton sees it this way, saying “we’ve called it the best interest standard, but I want to be clear — for broker dealers there are core fiduciary principles embodied in that best interest standard. In fact, those fiduciary principles are, I believe, the same as fiduciary principles that are embodied in the investment adviser standard”.

FINSUM: The SEC rule seems to work by creating situations in which one is compelled to act as a fiduciary rather than defaulting to terminology that dictates so. That may be a difference in conception, but in practice it could be very similar to a fiduciary rule.

(Washington)

The market seems to have forgotten about 2013’s Taper Tantrum. The bond markets appear to feel like they are back in the driver’s seat, and seemingly no one expects the Fed to suddenly turn hawkish. A similar set up existed in 2013 prior to the big market meltdown referred to as the “Taper Tantrum”. The thing to bear in mind is that Fed chief Powell has made clear he doesn’t like being bossed around by the White House or the markets, so will not be afraid to be one step ahead of markets in making a sudden hawkish move. It is important to remember then that a survey of economists shows that they expect another rate hike this year.

FINSUM: The Fed is made up of economists, so that survey could have value. That said, we do lean towards the “no further hikes” in 2019 camp.

(New York)

If you have doubts about where the market is heading and no fundamental view about direction, one place to search for one is in historical parallels. Sometimes looking at history prompts bullishness, but in this case, looking for past market parallels is terrifying. At the moment, the chart making the rounds is one comparing the current S&P 500 to 1937. Doing so makes it look as though the market is going to revert back into a bearish grip at any moment. But guess what, the same chart floated around in 2010, 2013, and 2015, and the big fall never happened.

FINSUM: This bull run has defied gravity many times, and it is hard to see why his time would be different. That said, all good things must come to an end at some point.

(New York)

Big bank Credit Suisse thinks the stock market rally will keep going. They say the big gains this year are mostly because of improved investor sentiment on the back of a more dovish Fed, weaker inflation, and the better prospects for a US-China deal. Further, the bank’s chief US equity strategist says “Our work indicates that investors have not fully re-risked portfolios following 4Q’s turbulence—despite a sharp decline in volatility and spreads—and that valuations will drift higher as they do so”.

FINSUM: We have to tentatively agree with this view. Sentiment is up, and combined with lower valuations and the fact that investors have not fully re-entered the market, there does seem to be a good runway higher.

(New York)

It is time to get out high yield. The sector has been seeing heightened fears for months, and prices have performed so well in the first two months of the year, that there is little value left. High yields returned 6.4% in January and February after the market came to a virtual standstill at the end of 2018. Part of the reason for the outperformance is that investors are demanding less spread to Treasuries, a fact that has not carried over to the investment grade market.

FINSUM: The pendulum has swung too far, and investment grade bonds now appear a much better value than high yield.

(New York)

Stocks have been doing well this year, but we are willing to bet that the sectors that have been performing best over the last 12 months are not the ones you expect. With all the fears over rate hikes in the last year, it is hard to imagine that utilities and REITs are both up nearly 20% in the last 12 months, far ahead of the S&P 500’s 4.08%. Even tech is only up about 5%.

FINSUM: The most exciting thing about this performance is that the runway for income investments looks like quite strong—the Fed is unlikely to hike, which means there seems to be little rate risk.

(New York)

Barron’s has been running a series of articles outlining the best dividend funds by different category. They have also put out a piece outlining the best performing dividend funds overall. The funds mentioned below have all provided top performance over the last half decade. The three top funds are the Vanguard Dividend Growth Fund (VDIGX), The Bishop Street Dividend Value Fund (BSLIX), and the Madison Dividend Income Fund (BHBFX). The Vanguard fund has achieved an annual 10.19% average return over the last five years, just under the S&P 500’s 10.67%. Its fees are much lower than the others at only 0.26%.

FINSUM: VDIGX is a great option for solid dividends and returns, but the field of these kinds of funds is growing and diverse.