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.
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.”
Three, as in the rule of three. As you may expect, the week between Christmas and New Year’s (plus an extra day) means a significant amount of prognostication. Everyone got the memo: say it in threes! Here are the posts I thought were most influential.
American Century – Trump Policies and Current Market Trends – The housing industry potentially sees headwinds from higher mortgage rates, with the existing trend of rising rates reinforced. Tighter labor markets may also have an impact on cost. The auto industry may also see an impact from rising rates as well as sub-optimal supply chains. In addition, export-oriented companies may see an offset from the impact of a stronger dollar.
BlackRock – Why stock market tranquility is unlikely to last – Political Risk is elevated but not reflected.
Columbia Threadneedle – 3 emerging market charts you need to see – Emerging markets forecasted to outpace developed markets
Russell – The Low-Return Imperative: Investing uncomfortably – The low return environment is real and it presents investors and their advisors with critical decisions.
SSgA – The Hunt for Yield in 2017: 3 Potential Investment Ideas – The appearance of high dividends is not necessarily indicative of actual delivery of yield or dividend yield growth.
Only a single post this week worth mentioning and more in format than content. American Century revisited macroeconomic themes in a straightforward manner. Revisiting themes or an outlook is done too irregularly. Yet, I think it’s a valuable way to tie thoughts together for an advisor seeking to insights over a medium or long-term.
American Century – Four Key Themes Revisited – This recalls our discussion of several issues ago about four key economic developments likely to influence large-cap growth stocks in the coming years. Here we revisit these themes in light of events so far in 2016, though we emphasize that our investment philosophy and security selection process remain unchanged.
