Part 1OPTIONS. Suggested is putting 80-90% in bonds and 10-20% in selling puts on the blue-chips one would like to own. Any put assignments would be financed from the bond portion. Risk is if the 10-yr keeps rising (now 4.25%).
Part 2FUNDS. Some funds are using AI for portfolio management – there are 11 AI-based ETFs such as DIP, QRFT, etc. But it is unlikely that AI will replace the managers of active or passive funds, and instead, may become another tool in managers’ toolbox. (By
@lewisbraham at MFO)
FUNDS. Marty FLANAGAN, Outgoing CEO, Invesco/IVZ; Trustee SMU; Chairman, Engage Capital. He is stepping down as CEO of IVZ but will continue as an Advisor until 2024. The new CEO and President is Andrew SCHLOSSBERG. During Flanagan’s tenure, IVZ grew into AUM $1.54 trillion powerhouse. He expanded hugely into ETFs (PowerShares, 2006) and Asia (a joint-venture in China). He thinks that the US and China will find some common grounds on business. The recent US investment bans in China were defined quite narrowly; the Secretaries of State BLINKEN and Treasury YELLEN have visited China – these are positive signs despite some tough talk. The fund industry trend towards lower fees has benefitted retail investors. ACTIVE ETFs are a natural development. Key for ETFs is marketing and distribution (an interesting insight into exchange traded products). Interest rates have normalized and fixed-income has become attractive in a very long time. Technological changes happen in stair-steps, and we are seeing one in AI and generative AI.
EXTRA. FUNDS. BlackRock/BLK has supported only a few ESG proposals this year. It said that many were overreaching or redundant. In reality, FINK/BLK has gone quiet from being overly pushy on ESG. BLK was starting to get backlash in its businesses. The new trend is to follow ESG quietly.
INCOME. CREDIT QUALITY issues may show up first in low-rated leveraged FR/BL, then in HY (spreads now are too low), then in investment-grade, and may finally spillover into the equity market. Investors and savers are enjoying high interest RATES, but the flip side for the borrowers isn’t pretty. Many small/medium-size companies that rely on low-rates are facing high variable rates (the traditional fixed-rate bond market is out of their reach). BANKRUPTCY filings are rising, 400 YTD (!), such as Party City, Bed Bath & Beyond, Yellow. It will take just one major, well-known company bankruptcy to change the sentiment. DEFAULT rate for low-rated debt has risen to 3.8% (to 5.8% in 2024/Q1?; even that is low for recessions). But it’s early in the credit cycle and problems may surface in 2024-25. The FED may still raise rates and will keep them higher for longer. Don’t chase returns, be cautious and take some chips off the table. (There are now also investment-grade FR and top-quality Treasury FRNs).
OTHER VOICES. Eugene STEUERLE, Urban Institute (DC think tank) and Urban-Brookings Tax Policy Center. Interest RATES are at 16-yr high, and they will affect people, businesses and the government. The impact on the government will be mixed – increases in deficits and payouts, but reduction in the value of outstanding debt. Savers will benefit from inflation and higher rates, but lenders will see lesser values for their loans; those on fixed income will also suffer. With the end of the cheap money era, hopefully, the allocation decisions will become more rational. Keep in mind the real rates (TIPS rates) vs nominal rates (T-Bills/Notes/Bonds); positive real rates, as now, are restrictive for the economy. There will also be a reckoning for the government when its debt-servicing costs will keep rising.
Comments
Yup, and probably should have been from the start. IMHO, the bulk of the masses who reject anything "ESG" or 'woke' or 'Pride' or similar have no idea what these mean at all other than they should be against it.
There's very little critical thinking involved...