Solely one blog post to include this week to discuss the impact of market-weighted and factor-based ETFs
Invesco – Are smart beta ETFs skewing stock valuations? – Despite the growth of smart beta, market-cap-weighted strategies still account for the vast majority of ETF ownership. Those ETFs do not have the rules-based mechanisms cited by critics as contributing to herding behavior.
AB – Five Ways Populism Could Impact Investors – A greater willingness to use fiscal stimulus alone has the potential to lift inflation, particularly because central banks are likely to keep interest rates low to ease the process. Against this background, populism could make a stronger political case for aggressively pursuing growth, which would increase inflationary pressures.
Aberdeen – All aboard the gloom train? – The OBR has undertaken a “stress test” of the public finances to model the effects of an economic downturn. The result? A resounding fail. Describing the potential fiscal effects as “severe,” the OBR warned that the deficit would rapidly rise in the event of a recession. And Brexit could well make things worse. The OBR noted that even a small drop-off in economic activity could have a big impact on the public purse. In comparison with a fall in Britain’s underlying growth rate caused by reduced European trade, any “divorce bill” paid to the European Union (EU) would pale into insignificance.
American Century – Impact Investing: Making Good With Your Money – Impact investing can be summed up as investing to make a difference, or to be a financial force for good. How that good happens is where descriptions start to diverge.
Three robust posts from the last two weeks. The quality of charts in asset manager blog posts is dramatically improving as seen in all three posts. I want include the Van Eck and WisdomTree posts not only for the salient point each makes, also to show how product marketing is infiltrating some blogs. It’s an interesting trend occurring at a few of the firms we follow.
AB – Evaluating the Trump Effect on Global Equities – focusing a lens on potential policy outcomes is an increasingly important component for isolating select investment candidates that could deliver solid returns in highly unpredictable times.
Van Eck – Follow the Flows: Active versus Passive – For the three year period ending January 31, 2017, passively managed funds have attracted over $1.4 trillion of new assets according to Morningstar. In that same period, actively managed funds have experienced net outflows of $475 billion.
WisdomTree – An Asset Allocation Study for a Moderate Portfolio – or those willing to alter asset allocations, we believe a continuous improvement in returns per unit of risk could be realized.
_d3.jpg?uuid=b2e1d42c-ff23-11e6-b39d-76c7e3a9ddf6)
Last week ended with the 45th inauguration of an American President. The week was full of blog posts related to the new administration. Last week’s SSgA post kicked off the style and many other managers followed suit. Post types ranged from what to look out for to prognostications. Below are two of the higher impact posts.
AB – Trump and Asia: Now the Good News – The biggest impact in the short term is likely to be through reflation. Markets have quickly adjusted since the US election in anticipation of higher inflation, partly from Trump’s promise of fiscal measures, such as investment in infrastructure, to stimulate the domestic economy.
Putnam – Does the market rally really depend on Trump? – We see two forces at work in the rally: First, it reflects an improvement in nominal GDP since the middle of 2016, independent of the policy situation; and, second, it indicates optimism for the new Trump administration’s proposals for tax cuts, infrastructure spending, and regulatory easing.
The industry’s blogs are currently awash in two post types: the year in review (2016) and outlooks (for 2017). I reviewed a dozen (list here; PDF) 2017 outlooks posted over the last four weeks. No two posts are alike. The lack of any standardization in tone, length, and type of prediction is informative in its own right. For a time-strapped FA, I can clearly see why he/she may gravitate to same 2 – 3 firms known from years past.
Three interesting takeaways about outlooks:
Across the 12 firms, I counted 28 predictions (my threshold: need a definitive statement or graphic related to a 2017 prediction). The BlackRock post had the most (6) and the average was 2.3 predictions/post. In case you’re curious of some differences, here are four examples how firms provide predictions.
AB – Says it with a chart. (chart too large to include)
American Century – Casts winners and losers. “And the Potential Winners Are… Regional banks with commercial loan exposure could benefit from rising inflation expectations and a steeper yield curve.”
M & G – Makes it relative to a geography or asset class. “Brazil will not be the outperformer in 2017 as existing valuations are priced for a perfect execution of policy.”
TIAA – Uses Straight-talk and blunt languge. “The rise in the U.S. dollar pauses even if rates move higher.”
