Wealth Management
Donald Trump's proposed tariffs are already unsettling global markets, with steep duties on imports from China, Canada, Mexico, and elsewhere threatening to disrupt trade flows and spark retaliatory measures.
China, facing tariffs as high as 60%, is grappling with a weakened yuan and struggling stock markets, with analysts forecasting further currency declines to cushion exporters. In Europe, the euro faces pressure from trade uncertainty and weakening Chinese demand, with the potential for parity with the dollar amid economic concerns and tariff impacts.
The European auto sector is particularly vulnerable, with shares swinging sharply on tariff news and broader economic weaknesses prolonging market underperformance. Canada’s currency has also dropped significantly amid threats of tariffs and a turbulent political climate, while Mexico’s peso remains volatile, reflecting ongoing risks tied to U.S. trade policies.
Finsum: These developments underscore the widespread economic uncertainty and market fragility as Trump’s trade agenda looms.
ETFs are generally more tax-efficient than mutual funds, potentially making them a better vehicle for delivering alpha in taxable accounts. Active ETFs combine the adaptability of active management with the tax advantages of ETFs, as only 16% of active ETFs have distributed capital gains in the past five years, compared to 53% of active mutual funds.
The ability to defer capital gains through in-kind redemptions can significantly reduce tax costs, allowing for better compounding of returns over time. Tax efficiency plays a critical role, especially in strategies like active equities, where minimizing taxable distributions has a notable impact on performance.
Evaluating active ETFs involves assessing the manager’s skill, the market’s alpha opportunities, and the investor's ability to select and stick with quality managers. Incorporating active ETFs into a portfolio requires careful consideration of the fund's exposure, risk profile, costs, and long-term performance.
Finsum: Thinking of tax as alpha is really the correct quantitative approach that gives a holistic view of your portfolio.
Scott Bessent, President-elect Donald Trump’s nominee for Treasury Secretary, emphasized the critical importance of maintaining the U.S. dollar as the world’s reserve currency during his testimony to the Senate Finance Committee.
He advocated for prioritizing productive investments over wasteful spending to stimulate economic growth while addressing vulnerabilities in supply chains and strategically using sanctions for national security. Bessent reiterated support for making Trump’s 2017 tax cuts permanent, warning of a historic $4 trillion tax hike if Congress fails to act.
He also outlined plans for pro-growth policies, including reducing the corporate tax rate to 15% for U.S.-based manufacturers and exempting tips and Social Security income from taxation. Bessent underscored Trump's aggressive tariff plans to counter perceived unfair trade practices and strengthen domestic industries.
Finsum: This administration could usher in a transformative era but we’ll see how tariffs and tax cuts off set for economic Growth.
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Public pension funds, including CalSTRS and LACERA, are enlisting consultants and specialists to navigate the intricate structures used by private equity firms to extend the lifespan of investments. LACERA, managing $82 billion as of November, has allocated resources for a new role focused on operational due diligence within its private markets portfolio.
With private equity increasingly relying on financial engineering, experts stress the need for limited partners to stay informed to adapt to these complex arrangements. Examples of strained assets rolled into continuation vehicles, like Upstream and United Site Services, highlight the challenges of managing leveraged investments in a high-interest-rate environment.
Despite these pressures, some private equity firms, such as Audax, maintain optimism about long-term recovery through operational improvements and strategic adjustments.
Finsum: Although pockets of distress exist, we remain confident in the resilience of private markets and their ability to weather economic headwinds.
The private credit market faces significant risks due to relaxed lending standards and the influx of capital, warns Nick Moakes of the Wellcome Trust. He anticipates substantial losses for investors if the U.S. economy enters a recession.
While private credit is less systemically risky than traditional banking, diminished checks on borrowing have raised concerns. Rating agency KBRA projects defaults in the sector to rise to 3% by 2025, driven by higher interest rates and vulnerable business models.
Moakes also criticized large alternative asset managers, noting their focus on asset growth may not align with investor interests. Despite the risks, the Wellcome Trust avoids direct private credit investments but monitors the market through its private equity allocations.
Finsum: With rates moves slowing down we think private credit could have an advantage over traditional fixed income products.
Despite the ongoing challenges in the residential REIT sector, some companies are well-positioned to benefit from strong demand and strategic advantages. Equity LifeStyle Properties, for example, focuses on manufactured home communities and RV resorts in high-demand locations, benefiting from favorable demographics and constrained supply.
Veris Residential, with a modern Class A portfolio and a tech-driven approach, is poised to capitalize on scalable growth in the Northeast market. UMH Properties, which operates manufactured home communities across several states, is likely to see continued demand, particularly due to high mortgage rates that make renting a more viable option for many.
These REITs are leveraging technology to enhance operations and optimize revenue, allowing them to adapt to evolving market dynamics.
Finsum: Including an influx of new rental units and increased concessions, these companies offer strong prospects for future growth.