FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Financial Advisors That Helped Make ETFs Mainstream Are Finally Feeling Vindicated (The Wall Street Journal)
Financial advisors who helped make ETFs a mainstream investment are feeling vindicated. The first ETF, SPDR S&P 500 (SPY) which is 20-years old, gained 8.4 per cent on average every year going into Friday.
While ETFs are popular now, early on advisors were either sceptical of the funds or shied away from them for fear of losing business since ETFs are easier to use. Ric Edelman of Edelman Financial Services told the Wall Street Journal, “We’ve found that using ETFs as part of a passive portfolio management strategy provides a very effective shield against the deceptive business practices so prevalent in the retail funds industry.”
Even as the Dow Jones Industrial Average (DJIA) is near the 14,000 mark, prices of high-yield bonds have fallen from their peaks and yields have gone north from their historic lows. Some have seen this is a sign of the Great Rotation from bonds into stocks, but bond expert Martin Fridson writes that it is because of the “extreme overvaluation” of high yield bonds.
“What appears to have changed is the financial markets’ willingness to exploit this cheap source of financing with animal spirits not seen since the onset of the financial crisis of 2007-08. With junk bonds hardly worthy to be called “high yield” at under 6%, they provide easy and cheap financing for deals, such as the proposed leveraged buyout of Dell (ticker: DELL), whose shares trade at a depressed valuation
“…It is apparent markets have reached that dangerous stage where there is lots of money looking for deals. The cache of cash on corporations’ balance sheets is huge, resulting in no small part from expansion the balance sheets of central banks. At the same time, all that cash is chasing record-low returns.
“To paraphrase Winston Churchill, never have a few invested so much for so little.”
“The survey of investment newsletter writers from Hulbert Financial Digest is theoretically better than most, since it focuses on actual trading recommendations instead of sometimes-ambiguous opinions. It’s a step closer to a real-money indicator than other surveys.”
And this survey shows that investment newsletter writers are recommending the highest exposure to stocks in 13 years.
The New Disturbing Signal In This Week’s Data On Fund Flows (Business Insider)
The week U.S. Treasury funds saw inflows of $0.5 billion after 10 consecutive weeks of outflows. The lack of outflows this week is evidence of a risk reversal according to Bank of America’s Michael Hartnett. Meanwhile, high-yield ETFs recorded their largely weekly outflows on record.
In an interview with Business Insider, Jim Rogers said he is extremely bullish on Chinese tourism for the next 20 to 30 years.
“The government is encouraging citizens to travel. There are billion three hundred million, that’s billion with a ‘B’ …you can see the staggering potential there is for Chinese tourism. And they’re going to see their own country, they’re going to see the world. I mean this is going to overwhelm many many places and it’s wonderful. Fortunes will be made.”
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