Financial regulators are finally admitting money market reforms put in place during the last crisis are insufficient to prevent runs on America’s non-Treasury money market funds. Part of the problem here is that investors bail at the first whiff of trouble. There just isn’t enough return offered in money markets to take the risk. Ultra-low interest rates are partly to blame for that. Reforms are likely to continue to fail unless the government requires an FDIC insurance guarantee for money funds. That’s a bad idea if you favor free markets, but less bad than the alternative. What’s the … [Read more...]

At the Financial Times, Billy Nauman examines ESG funds and their potential as victims of short-sellers. He writes: Whenever big money starts flowing into a hot new sector, it seems inevitable that companies that list on the stock market fall short of hype and hope around them. One of the market’s current hottest areas is environmental, social and governance investing. And, like the cryptocurrency boom and cannabis stock surge, the flood of money has been followed closely by allegations of fraud. These claims are often made by activist investors and short-sellers, who bet on the fall in … [Read more...]

At the Financial Times, Paul Woolley explains a troubling phenomenon in investing that he calls “the curse of the benchmarks.” He writes: All investing boils down to a choice of two distinct strategies implemented in a variety of ways. One is buying securities that are priced cheaply in relation to their expected future cash flows, which is what everyone assumes is done with their savings. Bizarrely, the other is almost the exact opposite: buying securities whose prices have recently been on the rise or that have already gone up most, both without reference to fundamental value. Another … [Read more...]

Just because you own an index fund, doesn’t mean your portfolio is properly diversified. Goldman Sachs estimates that only five stocks account for almost 40% of the Russell 1,000 Growth index. As Bloomberg points out here, if you are an active growth fund manager, the concentration of stocks such as Apple has reached such an extreme level that it has become the only stock that matters for relative performance. Lu Wang reports: Apple Inc.’s unprecedented market weight creates headaches for stock managers when it rallies: They never own enough of it. That dynamic played out vividly in the … [Read more...]

Are the activist shareholders coming for the mutual fund industry? In The Wall Street Journal, Corrie Driebusch explains that Trian Fund Management has taken positions in Invesco and Janus Henderson Group and plans to push a merger. She writes: Shareholder activist Trian Fund Management LP has taken big stakes in investment firms Invesco Ltd. and Janus Henderson Group PLC and plans to agitate for deal making aimed at building a rival to the biggest asset managers in the world. Trian has accumulated 9.9% stakes in both Invesco and Janus Henderson, with the two positions totaling roughly … [Read more...]