[ad_1]
Coronavirus Update: California drops COVID-19 vaccine requirement for students
[ad_2]
Tag: investing
-
Are we in a new bull market for stocks?
[ad_1]
News flash: We may be in a new bull market.
That’s the good news. The not-so-good news is that the recent rally may have gotten ahead of itself and a pullback would be health-restoring to the bull market.
Read: Jobs report shows blowout 517,000 gain in U.S. employment in January
The…
[ad_2]
-
Here’s What You Need to Know About the Changing Face of Venture Capital
[ad_1]
Opinions expressed by Entrepreneur contributors are their own.
Picture a venture capitalist. You might imagine an older white man in a suit, maybe with a gray beard. But the reality is that the VC landscape is changing — rapidly. Today, VCs are getting younger and more diverse. The rise of Gen Z angel investors perfectly illustrates this shift.
There are more than 20,000 Gen Z angels investing in startups globally. And they’re putting their money into some of the most innovative companies around, from the Web3 space to clean energy. On a broader level, recent data shows that the average age of the typical VCT investor has dropped by 11 years since 2017.
Related: Getting In On The Act: A New Generation Of Investors Is Here
Young people are seeking higher returns
What’s driving this trend? For starters, everyone under 58 is seeing the highest inflation of their adult lives. At the same time, young people have never seen healthy bond yields or bank deposit rates. The stock market offers little in the way of safety or stability, either, with millennials experiencing three “once in a lifetime” crashes in the last 20 years: the dot-com bubble, the financial crisis and Covid-19. Today’s bear market, too, is at risk of turning into a worse crash.
With low public market returns and inflation still high, young people are searching for alternative investments that offer higher potential returns. And they’re willing to take on more risk to get them.
VCs are also getting more diverse. For example, Base10 Partners is a black-led VC fund that raised over $130 million to fund seed-stage startups with between $500,000 and $5 million. Further, Arlan Hamilton has built a $36 million fund dedicated exclusively to black women founders, called Backstage Capital.
This diversity is, in part, being driven by a desire to invest in companies that reflect the founders’ own experiences and backgrounds. This heterogeneity is set to increase the aperture of evaluation for startup opportunities and lead to novel value propositions being funded.
Digital natives are flocking to VC
Another driving force behind the changing face of VC is the fact that young people are digital natives. They grew up with the internet and are comfortable with digital tools and platforms. This makes them more open to new models of investing, like online VC funds.
What’s more, digital natives are used to seeing startups succeed. They’re familiar with the stories of companies like Facebook, Tinder and Robinhood — all of which were founded by young people. This makes them more likely to view investing in startups as a viable option.
Related: Here’s What’s Driving the Trend of Self-Made Gen Z and Millennial Millionaires
Purpose-driven investors
Finally, millennials and Gen Zers are purpose-driven investors. They’re interested in making a positive impact with their money and are drawn to companies that align with their values.
This is reflected in the increasing interest in impact investing and environmental, social and governance (ESG) factors. In 2020, 33% of total U.S. assets under professional management were sustainably invested. This trend is only going to continue as more young people enter the VC landscape.
Comfort level with risk is also leading young people to invest in new areas, like cryptocurrency and blockchain. These technologies are still in their early stages, but as digital natives, young investors are more comfortable with the risks involved. They’re also more likely to be interested in the potential rewards — which can be significant.
The future of investing
The face of venture capital is changing. And it’s being driven by a desire for higher returns, more risk tolerance and a focus on making a positive impact. Private market investing platforms have emerged to help individual investors more effectively deploy their capital, and more new offerings will come. Gridline, for instance, is a digital wealth platform that raised $9 million to provide access to top-quartile alternative investments with lower capital minimums, fees and liquidity.
We’re at the beginning of a generational shift in terms of how people invest. As Gen Z gains more buying power, expect to see an even wider array of impact and venture investment products emerge — all tailored for this new investor class.
Related: What You Can Learn From This 21-Year-Old VC Who Started A $60 Million Fund
[ad_2]
Frederik Bussler
Source link -
How Startups and Investors Can Thrive in the Current Economic Environment
[ad_1]
Opinions expressed by Entrepreneur contributors are their own.
Today’s macro-economic environment has changed significantly and we see the signs everywhere. There’s an obvious economic slowdown, the stock market has declined, and recent reports of layoffs – especially in the tech sector – point to a looming recession. Despite the negative elements of such an economy, it also presents an opportunity for smart startup founders and savvy investors to thrive.
The impact of venture capital
It may be surprising how much venture capital (VC) investing impacts the global economy. Forbes reports that VC investing used to be very risky; even as it has grown, in the U.S., it accounts for only 0.8% of the gross domestic product, compared to about 5% for the private equity industry. The numbers are even smaller in the United Kingdom and Europe. Despite that, between 1980 and 2020, about 39% of all IPOs were venture-backed; VC-based companies have also been proven to grow more than two times as fast as their non-VC-backed peers over a ten-year horizon.
Data also shows that VC investing drives innovation and employment. Public companies with VC funding account for 44% of U.S. public companies’ research and development spending. Over ten years, employment by VC-based startups increased by 475% compared to 230% for the control group.
In my experience, startups are typically funded by the founder at first and later with the help of family, friends or angel investors. Beyond that, VCs often provide the additional capital needed for a startup to expand its market and scale to new geographies. VC firms are composed of experienced investors who provide not only funding but also valuable advice — helping startups avoid typical mistakes and connecting them with corporate partners to move their business forward.
Many of the most valuable companies in the U.S. were funded by venture capital. These include Pegasus investments in Airbnb, SpaceX, Stripe, DoorDash, Instacart and Robinhood.
Related: Why Some Startups Succeed (and Why Most Fail)
Succeeding in this environment
How should investors make decisions in this environment? I recommend they invest in stable, high-quality companies with limited debt, strong balance sheets and good cash flow. It’s ideal if the companies are in stable sectors that are expected to grow. Now is not the time for highly speculative investments, and it’s not the time to bet on highly leveraged startups. A reasonable debt-to-equity ratio — comparing liabilities to equity — indicates that companies are not taking on unnecessary risk in an attempt to grow.
A recessionary economy changes the game for both startups and VC firms. Since funding may be less available, startups need to refine their business strategy and be disciplined in spending money, making the companies more sustainable in the long term. Entrepreneurs may see it as riskier to start a business. Still, startup hiring becomes easier at the same time, given the number of tech layoffs in the corporate section, such as those at Meta, Amazon and Twitter in recent months.
This environment presents opportunities for investors to fund startups at better pricing than during the booming economy. Deals are typically less competitive, and lower valuations mean that investors get more for their investments. VCs also need to be extra careful to conduct due diligence to ensure their chosen investments are worthwhile.
In my experience, I’ve seen up to 30% lower pricing in venture investments during a down economy, spanning from the seed-round stage to later rounds. This reinforces that a slow macro economy helps VCs get good deals, and the pricing of shares tends to stabilize in such an environment — giving investors more peace of mind than they would otherwise have.
Related: Diverse Hiring and Inclusive Leadership Is How Startups Thrive
Act now to benefit
Despite the bad news in today’s economic environment, I recommend that startups refine their business strategy and that VCs take advantage of less competition to invest. Many successful companies were founded in recessionary times, so smart founders and investors can each benefit by actively participating despite the perceived risks.
[ad_2]
Anis Uzzaman
Source link -
Cash is no longer trash, says Dalio, who calls it more attractive than stocks and bonds
[ad_1]
“‘Cash used to be trashy. Cash is pretty attractive now. It’s attractive in relation to bonds. It’s actually attractive in relation to stocks.’”
Bridgewater Associates founder Ray Dalio no longer thinks “cash is trash.” In fact, just the opposite.
Over the past year, cash has become “pretty attractive” relative to both stocks and bonds, the famed hedge-fund manager said during a Thursday interview with CNBC.
While bonds might offer investors a higher yield, swollen public-sector debts in the U.S., Europe and Japan and negative real yields have made debt securities less appealing, Dalio said.
That’s a notable shift from last May, when Dalio said that cash was still “trash” but that stocks were “trashier” as the 2022 market meltdown got underway. Dalio offered an update in October, when he tweeted that he had changed his mind about cash and now viewed it as “about neutral.”
Dalio has become closely associated with the “cash is trash” line after using it in several interviews dating back to at least 2019. Back then, rock-bottom interest rates were bolstering valuations of both stocks and bonds.
During the cable-news interview, Dalio offered some criticisms of bitcoin
BTCUSD,
+0.56% ,
which, like stocks, has rebounded since the start of the year.“I think you’re going to see the development of coins that you haven’t seen that will be attractive, viable coins … [but] I don’t think bitcoin is it,” he said.
The billionaire recently stepped back from day-to-day management at Bridgewater Associates, the pioneering hedge fund that he built into the world’s largest in terms of assets under management.
Bridgewater announced on Thursday that the firm had promoted Karen Karniol-Tambour to the position of co–chief investment officer alongside Bob Prince and Greg Jensen.
[ad_2]
-
Wall Street to Jerome Powell: We don’t believe you
[ad_1]
Do you want the good news about the Federal Reserve and its chairman Jerome Powell, the other good news…or the bad news?
Let’s start with the first bit of good news. Powell and his fellow Fed committee members just hiked short-term interest rates another 0.25 percentage points to 4.75%, which means retirees and other savers are getting the best savings rates in a generation. You can even lock in that 4.75% interest rate for as long as five years through some bank CDs. Maybe even better, you can lock in interest rates of inflation (whatever it works out to be) plus 1.6% a year for three years, and inflation (ditto) plus nearly 1.5% a year for 25 years, through inflation-protected Treasury bonds. (Your correspondent owns some of these long-term TIPS bonds—more on that below.)
The second bit of good news is that, according to Wall Street, Powell has just announced that happy days are here again.
The S&P 500
SPX,
+1.05%
jumped 1% due to the Fed announcement and Powell’s press conference. The more volatile Russell 2000
RUT,
+1.49%
small cap index and tech-heavy Nasdaq Composite
COMP,
+2.00%
both jumped 2%. Even bitcoin
BTCUSD,
+1.00%
rose 2%. Traders started penciling in an end to Federal Reserve interest rate hikes and even cuts. The money markets now give a 60% chance that by the fall Fed rates will be lower than they are now.It feels like it’s 2019 all over again.
Now the slightly less good news. None of this Wall Street euphoria seemed to reflect what Powell actually said during his press conference.
Powell predicted more pain ahead, warned that he would rather raise interest rates too high for too long than risk cutting them too quickly, and said it was very unlikely interest rates would be cut any time this year. He made it very clear that he was going to err on the side of being too hawkish than risk being too dovish.
Actual quote, in response to a press question: “I continue to think that it is very difficult to manage the risk of doing too little and finding out in 6 or 12 months that we actually were close but didn’t get the job done, inflation springs back, and we have to go back in and now you really do have to worry about expectations getting unanchored and that kind of thing. This is a very difficult risk to manage. Whereas…of course, we have no incentive and no desire to overtighten, but if we feel that we’ve gone too far and inflation is coming down faster than we expect we have tools that would work on that.” (My italics.)
If that isn’t “I would much rather raise too much for too long than risk cutting too early,” it sure sounded like it.
Powell added: “Restoring price stability is essential…it is our job to restore price stability and achieve 2% inflation for the benefit of the American public…and we are strongly resolved that we will complete this task.”
Meanwhile, Powell said that so far inflation had really only started to come down in the goods sector. It had not even begun in the area of “non-housing services,” and these made up about half of the entire basket of consumer prices he’s watching. He predicts “ongoing increases” of interest rates even from current levels.
And so long as the economy performs in line with current forecasts for the rest of the year, he said, “it will not be appropriate to cut rates this year, to loosen policy this year.”
Watching the Wall Street reaction to Powell’s comments, I was left scratching my head and thinking of the Marx Brothers. With my apologies to Chico: Who you gonna believe, me or your own ears?
Meanwhile, on long-term TIPS: Those of us who buy 20 or 30 year inflation-protected Treasury bonds are currently securing a guaranteed long-term interest rate of 1.4% to 1.5% a year plus inflation, whatever that works out to be. At times in the past you could have locked in a much better long-term return, even from TIPS bonds. But by the standards of the past decade these rates are a gimme. Up until a year ago these rates were actually negative.
Using data from New York University’s Stern business school I ran some numbers. In a nutshell: Based on average Treasury bond rates and inflation since the World War II, current TIPS yields look reasonable if not spectacular. TIPS bonds themselves have only existed since the late 1990s, but regular (non-inflation-adjusted) Treasury bonds of course go back much further. Since 1945, someone owning regular 10 Year Treasurys has ended up earning, on average, about inflation plus 1.5% to 1.6% a year.
But Joachim Klement, a trustee of the CFA Institute Research Foundation and strategist at investment company Liberum, says the world is changing. Long-term interest rates are falling, he argues. This isn’t a recent thing: According to Bank of England research it’s been going on for eight centuries.
“Real yields of 1.5% today are very attractive,” he tells me. “We know that real yields are in a centuries’ long secular decline because markets become more efficient and real growth is declining due to demographics and other factors. That means that every year real yields drop a little bit more and the average over the next 10 or 30 years is likely to be lower than 1.5%. Looking ahead, TIPS are priced as a bargain right now and they provide secure income, 100% protected against inflation and backed by the full faith and credit of the United States government.”
Meanwhile the bond markets are simultaneously betting that Jerome Powell will win his fight against inflation, while refusing to believe him when he says he will do whatever it takes.
Make of that what you will. Not having to care too much about what the bond market says is yet another reason why I generally prefer inflation-protected Treasury bonds to the regular kind.
[ad_2]
-
Nasdaq logs best January since 2001 as stocks climb to cap off stellar month
[ad_1]
U.S. stocks finished in the green on Tuesday as the Nasdaq cemented its best January performance since 2001 amid a broad-based rally in equities that saw some of 2022’s worst performers take the lead. The S&P 500 SPX gained 58.83 points, or about 1.5%, to finish January at 4,076.60, a gain of 6.2% for the month, according to Dow Jones Market Data. That’s the large-cap index’s best monthly gain since October, and its best January since 2019, something that is also true for the Dow. The Nasdaq Composite COMP rose by 190.74 points, or 1.7%, to 11,584.55 on Tuesday, bringing its gain for January to 10.7%. January was also…
[ad_2]
-
These 20 stocks led the January rally
[ad_1]
The initial version of this story had incorrect price changes for 2023. It is now updated with information as of the market close on Jan. 31.
Investors staged a January rally, with solid gains for the S&P 500 and an even better showing for technology stocks that led the dismal downward action in 2022.
This…
[ad_2]
-
Ellevest Review 2023: Pros and Cons
[ad_1]
Women have fought for a place at the proverbial table, and now they’re showing up strong. During the pandemic, more businesses have been started by female founders, and more women than men have entered higher education.
Even so, fewer investors are female, and the gender pay gap persists. That’s where Ellevest comes in.
Ellevest is an investing service aimed at tackling women’s unique financial burdens, taking into account things like reduced wages growths, career breaks and longevity. We love this focus but also like that Ellevest is open to all users, regardless of gender or identity.
In fact, whether these gender burdens apply to you or not, Ellevest’s personalized advice for banking and investing makes Ellevest a good investing choice. Plus, with two membership plans, you can tailor the service to find your financial fit.
In our Ellevest review, we’ll start with a quick rundown on how investing with Ellevest works, then walk you through the membership options, and finally flesh out each of the important features Ellevest offers so that you can get all the information you need to decide how best to start growing your money your way.
How Does Investing With Ellevest Work?
Ellevest uses a robo-advisor to develop an investing portfolio that matches your targeted goals and timeline. You simply download the app, enter some basic information like your age, gender, income, etc, and then set a financial goal.
Do you want to buy a house in five years? Start a family? Create an emergency fund? Or build wealth in general? Ellevest will take specific goals into account and create a mix of ETFs (exchange traded funds) and mutual funds for you to invest in.
Before moving onto the portfolio specifics, however, you have to sign up for the specific Ellevest membership that you want. Starting at $5 a month, Ellevest offers two membership tiers with different costs and perks for each. Jump to the next section if you’re curious which one will work best for you.
Once you’ve signed up for your membership, you’re ready to invest. With Ellevest, you don’t get to choose individual stocks or bonds; instead, you simply pick between their two portfolio offerings:
While both are created with your particular risk tolerance and financial goals in mind, the Ellevest Impact Portfolios are focused on furthering positive social impacts and advancing women’s leadership positions.
Because Ellevest’s first priority is helping you meet your financial goal, not all of your funds will be placed in impact investments if you choose the Impact Portfolio, but Ellevest will find the best way to balance your financial needs with positive social change. Socially conscious and fiscally responsible, we love it!
This specialization and impact does come with slightly higher fund fees (between .13% to .19%), so if you’re strictly looking for financial gains, the Ellevest Core Portfolio is a good option. Like the Impact Portfolio, it’s diversified and personalized for you with slightly lower fund fees of .05% to .10%.
Once you’ve picked your portfolio, then you’re done–you’re officially an investor.
While the investing is done, Ellevest doesn’t stop trying to help you grow your wealth–and financial knowledge–with perks like automatic paycheck direct deposit that allows a set amount to be deposited into your investment each month or free financial workshops and articles. If there’s anything we love, it’s a no-stress way to grow wealth and stay well-informed. Well done, Ellevest.
Ellevest Membership Choices
In order to invest with Ellevest, you have to pick a membership. Most other investment options have a percentage-based fee that charges more the more money you put into your investment; Ellevest, on the other hand, has flat fee memberships. Basically, you can put in a dollar or a million and your fee doesn’t change.
Ellevest offers two different membership plans:
- Ellevest Plus
- Ellevest Executive
Both of these plans include discounted access to financial planners and career coaches, retirement services, and free educational resources. The differences come down to the discount on one-on-one help and the number of accounts you can set up.
Ellevest Plus
Best for Retirement Savers
Key Features
- 30% off financial planners and career coaches
- Access to retirement accounts
Ellevest Plus gets you investing and offers you access to a personal retirement plan and discounted financial planners and coaches. At $5 a month, we like the specialized help to start saving for retirement.
Ellevest Plus
Minimum opening deposit
n/a
Management or advisory fees
$5 a month
Accounts offered
Ind. taxable, traditional, Roth, and SEP IRAs
More Information about Ellevest Plus
Ellevest Plus members get all the learning perks Ellevest offers to help you expand your financial know-how, plus you also get access to a retirement account to help you build a bigger nest egg. We love the personalized retirement planning and guidance on things like the IRA transfer process or how to invest a 401(k).
At $5 a month, it’s perfectly reasonable, but it’s worth noting that you’ll need to invest a decent amount to keep it affordable. Basically, if you’re only investing $100, then $5 is a higher fee than most percentage-based fees that other robo advisor services offer on the market. If you’re looking to invest several thousand or more, however, then Ellevest’s affordability checks out.
Ellevest Executive
Best for Bigger Financial Goals
Key Features
- 50% off financial planners and career coaches
- Same features as Ellevest Plus
- Five customized investing accounts
Ellevest Executive is perfect for those with bigger financial goals. You get all the benefits of the previous membership — retirement accounts and learning resources— and now five customizable investing accounts.
Ellevest Executive
Minimum opening deposit
n/a
Management or advisory fees
$9 a month
Accounts offered
Ind. taxable, traditional, Roth, and SEP IRAs
More Information about Ellevest Executive
Ellevest Executive allows for more customization with the ability to save for multiple goals with different levels of risk at the same time. For $9 a month, you can now create high risk accounts and low risk accounts for different goals based on your timeline and risk tolerance. Plus, the added benefit of 50% off financial planners and career coaches lets you take advantage of more of these services, so you can build your wealth or reach your goals faster.
We love Ellevest memberships options because of their straightforward and simple membership-based model. You know exactly what you’ll be paying and what you’ll be getting. Just pick and start investing.
Ellevest Account Offerings
Ellevest offers individual taxable accounts, and traditional, Roth, and SEP IRAs. At first, we were a little disappointed in the simplicity of portfolio offerings. Ellevest doesn’t offer specialized accounts like 529 educational accounts or joint or custodial funds. While this is a bummer, it’s this simplicity that makes investing with Ellevest easy.
Basically, if you’re looking for every financial vehicle on the market, look elsewhere, but if you’re looking for an easy start, Ellevest is a good investing choice.
Private Wealth Management
Ellevest offers Private Wealth Management for high and ultra-high net worth individuals, families, and institutions. Again, Ellevest approaches private wealth management with personalization in mind. They work as a fiduciary with straightforward fees and well-published services that start with your financial goals.
Ellevest also brings its belief that every dollar can have an impact to its private wealth management services by allowing you to share your values with your advisors and helping develop an intentional strategy for your wealth.
Other Important Features
Coaching
Ellevest offers coaching in an a-la-carte fashion that allows you to get exactly what you need. There are special coaching sessions for all your financial needs: how to find a job, negotiate your salary, create a budget, prepare for retirement, etc.
Packages range from $20 for group workshops to several thousand for a full financial planning package. Remember, you get discounts on these packages depending on your Ellevest membership. You get anywhere from 30% off with Ellevest Plusto 50% off with Ellevest Executive.
Taxes Optimization
It’s aggravating to earn money through investments and then watch it all disappear to capital gains taxes. Ellevest does its best to develop the best strategy to leave your money in your own hands through Ellevest Tax Minimization Methodology (TMM). Through TMM, Ellevest strategically reduces your taxes, when possible, through a combination of taxable and tax-deferred investments.
Most robo-advisor services do automatic tax loss harvesting. Ellevest, however, believes that the benefit of tax loss harvesting depends on your specific tax situation, investments, and tax rate, so they don’t automatically apply tax loss harvesting. For some, this will be beneficial and for some this will be a loss. It just depends on your personal situation, so Ellevest does not apply it to your portfolio.
There are different perspectives on tax loss harvesting, but for Ellevest, it’s always about doing what’s right for each investor’s situation.
Pros and Cons of Ellevest
We know that’s a lot of information, so here’s the breakdown of how we think each feature and aspect of Ellevest stacks up.
Pros- Straight-forward fees
- Goal-focused investing
- Takes into account previously ignored gendered issues
- Impact portfolio options
- Discounted access to career/financial coaches
- A la carte one-on-one sessions with career and financial coaches and CFPs
- Private wealth management
Cons- No tax-loss harvesting automatically
- Can’t trade yourself — no active management
- No joint or custodial accounts
- Membership fees can be high if not investing a lot of money
So Is Ellevest Worth It?
In all honesty, we love Ellevest. With goal-focused investing, Ellevest makes investing manageable and achievable. We do wish they’d have more options for account types, missing joint, custodial, and 529s, but we applaud the simplicity.
On the flipside, while Ellevest’s flat-fee structure is simple, it can also be more expensive than other robo-advisor fee structures. It all depends on how much you’re planning on investing.
Overall, however, we love that Ellevest tackles sometimes ignored gendered issues like longevity and career breaks and makes gaining wealth approachable, achievable, and – with the impact portfolio option – socially responsible.
Frequently Asked Questions (FAQs) About Ellevest
Still have questions? We’ve gathered up all of the most common questions to help you make your decision.
Is My Money Safe with Ellevest?
Your money is safe with Ellevest. Ellevest uses Goldman Sachs Custody Solutions, a SEC-registered broker-dealer and custodian, to safeguard the securities and cash in your account. Because of this, in the unlikely event that the brokerage fails, the Security Investment Protection Corporation (SIPC) will cover losses up to $500,000.
Is There Risk with Ellevest?
There is always risk to your money when it comes to investing. Investing definitely follows the no risk, no reward way of life, but we think Ellevest does a good job navigating that risk.
Who Is Ellevest Owned By?
Sallie L Krawcheck is the CEO and co-founder of Ellevest. She formerly led Merrill Lynch Wealth Management and Smith Barney and was the CFO of Citigroup. Her co-founder is company president Charlie Kroll. Kross was the architect of the start-up Andera, an online banking software company.
What Broker Does Ellevest Use?
Ellevest uses Goldman Sachs Custody Solutions, an SEC-registered broker-dealer and custodian.
Who Are Ellevest’s Competitors?
Ellevest’s top competitors include Betterment, Wealthfront, and SoFi Automated Investing.
Contributor Whitney Hansen writes for The Penny Hoarder on personal finance topics including banking and investing.
[ad_2]
whit.hansen130@gmail.com (Whitney Hansen)
Source link -
UBS posts better-than-expected profit, as wealth-management unit brings in $23.3 billion in new client money
[ad_1]
UBS Group AG on Tuesday reported a surprise rise in fourth-quarter profit as its wealth-management arm attracted billions in new client money, offsetting a slump at its investment bank amid macroeconomic headwinds.
The Swiss bank
UBS,
-0.75% UBSG,
-2.80%
reported a net profit of $1.65 billion in the three months to the end of December, up from $1.35 billion for the same period a year earlier.Revenue was $8.03 billion compared with $8.71 billion in the fourth quarter of 2021.
It meant the Zurich-based bank beat 4Q estimates of net profit of $1.28 billion and revenue at $7.98 billion, according to analysts’ consensus provided by the company.
UBS said it took on $23.3 billion in net new fee-generating assets at its key wealth-management business in the quarter, at a time when its local rival Credit Suisse Group AG had struggled with client withdrawals.
Profit before tax at wealth management jumped 88% to $1.06 billion, it added.
It also attracted $25 billion in net new money at its asset-management business, UBS said.
But at its investment bank, profit before tax tumbled to around $100 million, down 84%, as dealmaking slumped.
The bank cited persistent inflation, rapid central bank tightening, the Ukraine war, and geopolitical tensions that affected asset-pricing levels and investor sentiment in the year.
“While the macroeconomic outlook remains uncertain, our operational resilience, capital strength and capital generation put us in a great position to serve our clients, fund growth and deliver strong capital returns to shareholders,” Chief Executive Ralph Hamers said.
Its common equity tier 1 ratio, a measure of financial strength, at the end of December was 14.2%, down from 14.4% at the third quarter.
The company said it would propose a dividend of $0.55 for 2022, a 10% year-on-year increase.
The lender added that it would remain committed to a progressive dividend and expects to repurchase more than $5 billion of shares in 2023, after $5.6 billion in 2022.
Write to Ed Frankl at edward.frankl@dowjones.com
[ad_2]
-
The Fed and the stock market are set for a showdown this week. What’s at stake.
[ad_1]
Let’s get ready to rumble.
The Federal Reserve and investors appear to be locked in what one veteran market watcher has described as an epic game of “chicken.” What Fed Chair Jerome Powell says Wednesday could determine the winner.
Here’s the conflict. Fed policy makers have steadily insisted that the fed-funds rate, now at 4.25% to 4.5%, must rise above 5% and, importantly, stay there as the central bank attempts to bring inflation back to its 2% target. Fed-funds futures, however, show money-market traders aren’t fully convinced the rate will top 5%. Perhaps more galling to Fed officials, traders expect the central bank to deliver cuts by year-end.
Stock-market investors have also bought into the latter policy “pivot” scenario, fueling a January surge for beaten down technology and growth stocks, which are particularly interest rate-sensitive. Treasury bonds have rallied, pulling down yields across the curve. And the U.S. dollar has weakened.
Cruisin’ for a bruisin’?
To some market watchers, investors now appear way too big for their breeches. They expect Powell to attempt to take them down a peg or two.
How so? Look for Powell to be “unambiguously hawkish,” when he holds a news conference following the conclusion of the Fed’s two-day policy meeting on Wednesday, said Jose Torres, senior economist at Interactive Brokers, in a phone interview.
“Hawkish” is market lingo used to describe a central banker sounding tough on inflation and less worried about economic growth.
In Powell’s case, that would likely mean emphasizing that the labor market remains significantly out of balance, calling for a significant reduction in job openings that will require monetary policy to remain restrictive for a long period, Torres said.
If Powell sounds sufficiently hawkish, “financial conditions will tighten up quickly,” Torres said, in a phone interview. Treasury yields “would rise, tech would drop and the dollar would rise after a message like that.” If not, then expect the tech and Treasury rally to continue and the dollar to get softer.
Hanging loose
Indeed, it’s a loosening of financial conditions that’s seen trying Powell’s patience. Looser conditions are represented by a tightening of credit spreads, lower borrowing costs, and higher stock prices that contribute to speculative activity and increased risk taking, which helps fuel inflation. It also helps weaken the dollar, contributes to inflation through higher import costs, Torres said, noting that indexes measuring financial conditions have fallen for 14 straight weeks.
The Chicago Fed’s National Financial Conditions Index provides a weekly update on U.S. financial conditions. Positive values have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions.
Federal Reserve Bank of Chicago, fred.stlouisfed.org
Powell and the Fed have certainly expressed concerns about the potential for loose financial conditions to undercut their inflation-fighting efforts.
The minutes of the Fed’s December meeting. released in early January, contained this attention-grabbing line: “Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”
That was taken by some investors as a sign that the Fed wasn’t eager to see a sustained stock market rally and might even be inclined to punish financial markets if conditions loosened too far.
Read: The Fed delivered a message to the stock market: Big rallies will prolong pain
If that interpretation is correct, it underlines the notion that the Fed “put” — the central bank’s seemingly longstanding willingness to respond to a plunging market with a loosening of policy — is largely kaput.
The tech-heavy Nasdaq Composite logged its fourth straight weekly rise last week, up 4.3% to end Friday at its highest since Sept. 14. The S&P 500
SPX,
+0.25%
advanced 2.5% to log its highest settlement since Dec. 2, and the Dow Jones Industrial Average
DJIA,
+0.08%
rose 1.8%.Meanwhile, the Fed is almost universally expected to deliver a 25 basis point rate increase on Wednesday. That is a downshift from the series of outsize 75 and 50 basis point hikes it delivered over the course of 2022.
See: Fed set to deliver quarter-point rate increase along with ‘one last hawkish sting in the tail’
Data showing U.S. inflation continues to slow after peaking at a roughly four-decade high last summer alongside expectations for a much weaker, and potentially recessionary, economy in 2023 have stoked bets the Fed won’t be as aggressive as advertised. But a pickup in gasoline and food prices could make for a bounce in January inflation readings, he said, which would give Powell another cudgel to beat back market expectations for easier policy in future meetings.
Jackson Hole redux
Torres sees the setup heading into this week’s Fed meeting as similar to the run-up to Powell’s speech at an annual central banking symposium in Jackson Hole, Wyoming, last August, in which he delivered a blunt message that the fight against inflation meant economic pain ahead. That spelled doom for what proved to be another of 2023’s many bear-market rallies, starting a slide that took stocks to their lows for the year in October.
But some question how frustrated policy makers really are with the current backdrop.
Sure, financial conditions have loosened in recent weeks, but they remain far tighter than they were a year ago before the Fed embarked on its aggressive tightening campaign, said Kelsey Berro, portfolio manager at J.P. Morgan Asset Management, in a phone interview.
“So from a holistic perspective, the Fed feels they are getting policy more restrictive,” she said, as evidenced, for example, by the significant rise in mortgage rates over the past year.
Still, it’s likely the Fed’s message this week will continue to emphasize that the recent slowing in inflation isn’t enough to declare victory and that further hikes are in the pipeline, Berro said.
Too soon for a shift
For investors and traders, the focus will be on whether Powell continues to emphasize that the biggest risk is the Fed doing too little on the inflation front or shifts to a message that acknowledges the possibility the Fed could overdo it and sink the economy, Berro said.
She expects Powell to eventually deliver that message, but this week’s news conference is probably too early. The Fed won’t update the so-called dot plot, a compilation of forecasts by individual policy makers, or its staff economic forecasts until its March meeting.
That could prove to be a disappointment for investors hoping for a decisive showdown this week.
“Unfortunately, this is the kind of meeting that could end up being anticlimactic,” Berro said.
[ad_2]
-
The Fed and the stock market are set for a showdown this week. What’s at stake.
[ad_1]
Let’s get ready to rumble.
The Federal Reserve and investors appear to be locked in what one veteran market watcher has described as an epic game of “chicken.” What Fed Chair Jerome Powell says Wednesday could determine the winner.
Here’s the conflict. Fed policy makers have steadily insisted that the fed-funds rate, now at 4.25% to 4.5%, must rise above 5% and, importantly, stay there as the central bank attempts to bring inflation back to its 2% target. Fed-funds futures, however, show money-market traders aren’t fully convinced the rate will top 5%. Perhaps more galling to Fed officials, traders expect the central bank to deliver cuts by year-end.
Stock-market investors have also bought into the latter policy “pivot” scenario, fueling a January surge for beaten down technology and growth stocks, which are particularly interest rate-sensitive. Treasury bonds have rallied, pulling down yields across the curve. And the U.S. dollar has weakened.
Cruisin’ for a bruisin’?
To some market watchers, investors now appear way too big for their breeches. They expect Powell to attempt to take them down a peg or two.
How so? Look for Powell to be “unambiguously hawkish,” when he holds a news conference following the conclusion of the Fed’s two-day policy meeting on Wednesday, said Jose Torres, senior economist at Interactive Brokers, in a phone interview.
“Hawkish” is market lingo used to describe a central banker sounding tough on inflation and less worried about economic growth.
In Powell’s case, that would likely mean emphasizing that the labor market remains significantly out of balance, calling for a significant reduction in job openings that will require monetary policy to remain restrictive for a long period, Torres said.
If Powell sounds sufficiently hawkish, “financial conditions will tighten up quickly,” Torres said, in a phone interview. Treasury yields “would rise, tech would drop and the dollar would rise after a message like that.” If not, then expect the tech and Treasury rally to continue and the dollar to get softer.
Hanging loose
Indeed, it’s a loosening of financial conditions that’s seen trying Powell’s patience. Looser conditions are represented by a tightening of credit spreads, lower borrowing costs, and higher stock prices that contribute to speculative activity and increased risk taking, which helps fuel inflation. It also helps weaken the dollar, contributes to inflation through higher import costs, Torres said, noting that indexes measuring financial conditions have fallen for 14 straight weeks.
The Chicago Fed’s National Financial Conditions Index provides a weekly update on U.S. financial conditions. Positive values have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions.
Federal Reserve Bank of Chicago, fred.stlouisfed.org
Powell and the Fed have certainly expressed concerns about the potential for loose financial conditions to undercut their inflation-fighting efforts.
The minutes of the Fed’s December meeting. released in early January, contained this attention-grabbing line: “Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”
That was taken by some investors as a sign that the Fed wasn’t eager to see a sustained stock market rally and might even be inclined to punish financial markets if conditions loosened too far.
Read: The Fed delivered a message to the stock market: Big rallies will prolong pain
If that interpretation is correct, it underlines the notion that the Fed “put” — the central bank’s seemingly longstanding willingness to respond to a plunging market with a loosening of policy — is largely kaput.
The tech-heavy Nasdaq Composite logged its fourth straight weekly rise last week, up 4.3% to end Friday at its highest since Sept. 14. The S&P 500
SPX,
+0.25%
advanced 2.5% to log its highest settlement since Dec. 2, and the Dow Jones Industrial Average
DJIA,
+0.08%
rose 1.8%.Meanwhile, the Fed is almost universally expected to deliver a 25 basis point rate increase on Wednesday. That is a downshift from the series of outsize 75 and 50 basis point hikes it delivered over the course of 2022.
See: Fed set to deliver quarter-point rate increase along with ‘one last hawkish sting in the tail’
Data showing U.S. inflation continues to slow after peaking at a roughly four-decade high last summer alongside expectations for a much weaker, and potentially recessionary, economy in 2023 have stoked bets the Fed won’t be as aggressive as advertised. But a pickup in gasoline and food prices could make for a bounce in January inflation readings, he said, which would give Powell another cudgel to beat back market expectations for easier policy in future meetings.
Jackson Hole redux
Torres sees the setup heading into this week’s Fed meeting as similar to the run-up to Powell’s speech at an annual central banking symposium in Jackson Hole, Wyoming, last August, in which he delivered a blunt message that the fight against inflation meant economic pain ahead. That spelled doom for what proved to be another of 2023’s many bear-market rallies, starting a slide that took stocks to their lows for the year in October.
But some question how frustrated policy makers really are with the current backdrop.
Sure, financial conditions have loosened in recent weeks, but they remain far tighter than they were a year ago before the Fed embarked on its aggressive tightening campaign, said Kelsey Berro, portfolio manager at J.P. Morgan Asset Management, in a phone interview.
“So from a holistic perspective, the Fed feels they are getting policy more restrictive,” she said, as evidenced, for example, by the significant rise in mortgage rates over the past year.
Still, it’s likely the Fed’s message this week will continue to emphasize that the recent slowing in inflation isn’t enough to declare victory and that further hikes are in the pipeline, Berro said.
Too soon for a shift
For investors and traders, the focus will be on whether Powell continues to emphasize that the biggest risk is the Fed doing too little on the inflation front or shifts to a message that acknowledges the possibility the Fed could overdo it and sink the economy, Berro said.
She expects Powell to eventually deliver that message, but this week’s news conference is probably too early. The Fed won’t update the so-called dot plot, a compilation of forecasts by individual policy makers, or its staff economic forecasts until its March meeting.
That could prove to be a disappointment for investors hoping for a decisive showdown this week.
“Unfortunately, this is the kind of meeting that could end up being anticlimactic,” Berro said.
[ad_2]
-
ETF vs. Mutual Funds: What Are the Differences?
[ad_1]
Disclaimer: This article is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other financial professional to determine what may be best for your individual needs.
When it comes to investing, there are many different options to choose from. Two of the most popular types of investments are ETFs and mutual funds. But what are the differences between these two investment options–and which is right for you?
Here, you’ll get a full breakdown of the key differences between ETFs and mutual funds, so you can decide which type of investment is best for you.
What are ETFs and mutual funds?
Both types of investment products offer benefits and drawbacks, so it’s essential to understand how they work before you invest.
ETFs (exchange-traded funds) are baskets of stocks bought and sold on an exchange.
On the other hand, mutual funds are managed by investment professionals who buy and sell stocks according to a defined set of criteria.
You can use ETFs and mutual funds to invest in various assets, including stocks, bonds, and commodities. They also offer an affordable path to diversification through real estate.
However, ETFs tend to be more transparent than mutual funds, meaning you can see individual stocks in the basket. Mutual funds are also more expensive to manage than ETFs. As a result, mutual funds typically have higher fees than ETFs, including a load (a fee paid to brokers for their efforts) and management fees (paid to the investment management firm).
When deciding which type of product to invest in, consider your financial goals and risk tolerance. An actively managed ETF may be a good choice if you want lower costs while diversifying your portfolio. However, if you’re willing to pay for a portfolio manager, an actively managed mutual fund may be a better option.
Related: Why ETFs Are A Good Choice For A Properly Diversified Portfolio
How are ETFs and mutual funds structured?
ETFs and mutual funds are both structured as investment vehicles that allow investors to pool their money together to buy a basket of individual securities.
A fund manager typically manages mutual funds, while ETFs are usually passively managed, meaning they track an underlying market index. Both types of funds can be bought and sold on stock exchanges and are typically aimed at outperforming benchmarks like the S&P 500 index.
One key difference between ETFs and mutual funds is that ETFs trade like stocks, meaning they can be bought and sold on a stock exchange throughout the day.
On the other hand, mutual funds are priced only once per day after the markets close. If you want to sell your fund shares in a mutual fund, you must wait until the day’s end.
The market price of an ETF often differs from its net asset value (NAV), which is the value of the ETF shares and underlying securities calculated at the end of the trading day. Mutual funds don’t have this discrepancy, giving them a lower liability to the short-termintradayfluctuations of the stock market.
How are ETFs and mutual funds taxed?
When creating an investment strategy for index ETFs and mutual funds, one must consider how they are taxed. While both types of investments are subject to capital gains tax, there are some key differences to understand.
ETFs are generally taxed at a lower rate than mutual funds, as they are not subject to the same level of turnover. In addition, ETFs tend to have a lower expense ratio than mutual funds, making them a more efficient investment.
Expense ratios, essentially, are fees that cover administrative costs associated with portfolio management — ETFs, which track market indexes, are less work to run on the administrative side, which is why their expense ratios tend to be lower.
Remember that you should make all investment decisions with a financial advisor. Taxes are just one factor when investing in ETFs and mutual funds.
What are the key similarities between ETFs and mutual funds?
ETFs and mutual funds share several similarities, and each can significantly benefit the investor.
You can use both investment types to:
- Diversify your portfolio
- Access different asset classes (groups of investments with similar characteristics, subject to the same regulations; i.e., equities, currency, fixed-income, commodities, real estate)
- Save for retirement
- Reinvest your dividends
Whichever type of investment you choose, research and consult with a financial advisor to ensure it’s the right move.
What are the primary differences between ETFs and mutual funds?
Now that you know the basics of ETFs and mutual funds, it’s time to take a closer look at the key differences between these two investment products.
Here are seven of the most important differences to keep in mind:
- ETFs are bought and sold on an exchange, while mutual funds are not.
- Mutual funds are more expensive to manage than ETFs.
- ETFs typically have lower fees (such as management fees and redemption fees) than mutual funds.
- ETFs offer more transparency than mutual funds.
- Mutual fund managers make all investment decisions, while with ETFs, you can see which stocks are in the basket.
- Both ETFs and mutual funds are subject to capital gains tax. A capital gains tax is a tax on the profit an investor makes once an investment is sold.
- ETFs are generally taxed at a lower rate than mutual funds.
There is no right or wrong answer when deciding between ETFs and mutual funds. It ultimately depends on your financial goals and risk tolerance.
The benefits of ETFs
For the average investor, exchange-traded funds (ETFs) offer many advantages over traditional mutual funds. ETFs are typically more transparent than mutual funds, meaning investors can see what they hold.
Additionally, ETFs tend to be tax efficient, as they only generate capital gains when sold. This is in contrast to mutual funds, which are subject to annual capital gains taxes.
Related: The Difference Between Direct Indexing and ETFs
Furthermore, ETFs often have lower expense ratios than mutual funds or index funds, making them more affordable for investors. Finally, ETFs tend to be more liquid than mutual funds so you can buy and sell them more easily. And ETFs can be even more attractive for investors who prefer active management.
The benefits of mutual funds
Exchange Traded Funds (ETFs) have become a popular investment vehicle for many investors. But mutual funds still offer some distinct advantages that make them worth considering.
One of the most significant advantages of mutual funds is that they offer professional management. This is particularly important in markets subject to high volatility, where having a reputable fund company making investment decisions can help minimize losses and maximize gains.
Related: Which Mutual Fund Plan Should You Choose – Regular or Direct?
Additionally, mutual funds typically offer a higher level of diversification than ETFs. By investing in various asset classes, mutual funds can help reduce risk and improve returns over time. And mutual funds typically have lower fees than ETFs, which can lead to better returns.
When is it best to use an ETF or a mutual fund?
When it comes to investing, there are many different options to choose from. ETFs and mutual funds are two of the most popular choices. So, how do you know which one is right for you?
Generally speaking, ETFs are more efficient than mutual funds. They have lower expense ratios and are more tax-friendly. You can also trade ETFs throughout the trading day, while mutual fund trades are only executed once per day (after the markets close).
On the other hand, mutual funds often have a longer track record than ETFs, which can make them more appealing to some investors. Not to mention mutual funds usually provide greater diversification than ETFs. Further, some investors prefer the hands-off approach of mutual funds, where they don’t have to manage their investments actively.
Related: Mutual Funds: Thing You Should Know Before Investing
Ultimately, your best choice will depend on your individual investment goals and preferences.
If you’re looking for a low-cost investment that you can actively manage, an ETF may be a good option. A mutual fund may be the better choice if you want a hands-off investment with a long track record.
Comparing costs between ETFs and mutual funds
When comparing costs, ETFs typically have lower expense ratios than mutual funds. This is because ETFs are passively managed, so they don’t require a team of fund managers to make decisions about buying and selling stocks. However, ETFs can also incur other costs, such as brokerage fees and bid-ask spreads (the amount by which the ask price exceeds the bid price).
On the other hand, mutual funds are actively managed, meaning they have higher expense ratios. But since mutual funds are bought and sold directly through the investment company, there are no additional transaction costs.
So when it comes to cost comparison, it depends on the type of fees you’re looking at. If you’re focused on expense ratios, then ETFs may be the better choice. But if you’re looking at total costs — including transaction fees, operating expenses, and trading commissions — then mutual funds may be a better option.
Related: Why You Should Invest in Mutual Funds vs. Individual Stocks
ETF vs. mutual funds: Which is right for you?
ETFs and mutual funds are popular investment vehicles. They both have unique benefits as well as drawbacks.
Regarding costs, ETFs tend to be cheaper than mutual funds. However, there are some instances where it may be better to invest in a mutual fund instead of an ETF.
Ultimately, the best way to decide whether or not an ETF or a mutual fund is right for you is to continue researching and consult a financial advisor. Both vehicles can help you achieve your investment objectives if you approach them strategically.
For more informational articles like this one, explore Entrepreneur’s Money & Finance articles here.
[ad_2]
Entrepreneur Staff
Source link -
6 cheap stocks that famed value-fund manager Bill Nygren says can help you beat the market
[ad_1]
These are tricky times in the stock market, so it pays to look to the best stock-fund managers for guidance on how to behave now. Veteran value investor Bill Nygren belongs in this camp, because the Oakmark Fund OAKMX he co-manages consistently and substantially outperforms its peers.
That isn’t easy, considering how many fund managers fail to do so. Nygren’s fund beats its Morningstar large-cap value index and category by more than four percentage points annualized over the past three years. It also outperforms at five and…
[ad_2]
-
Stocks finish lower, Dow clings to gains after latest batch of earnings
[ad_1]
U.S. stocks finished lower on Tuesday with only the Dow clinging to gains for the session as investors digested more earnings reports from major American firms. The S&P 500 SPX shed roughly 3 points, or 0.1%, to finish just shy of 4,017. The Nasdaq Composite COMP dropped by 30 points, or 0.3%, to roughly 11,334. The Dow Jones Industrial Average gained 104 points, or 0.3%, to finish at roughly 33,734. More earnings from major U.S. companies, including Microsoft Corp. MSFT are due out after the bell.
…
[ad_2]
-
Stocks finish at highest level in a month as Nasdaq leads with 2% gain
[ad_1]
U.S. stocks finished at their highest level in a month on Monday as strong performances by consumer-technology giant Apple Inc.
AAPL,
+2.35%
and chipmaker NVIDIA Inc.
NVDA,
+7.59%
pushed the Nasdaq Composite
COMP,
+2.01%
further into the lead. The Nasdaq gained roughly 223 points, or 2%, to finish at around 11,364, bringing the tech-heavy index’s year-to-date gain to 8.6%, according to FactSet data. The Dow Jones Industrial Average
DJIA,
+0.76%
gained 254 points, or 0.8%, to close at roughly 33,630. The S&P 500
SPX,
+1.19%
gained 47 points, or 1.2%, to 4,020. The Dow is up approximately 1.5% since the start of the year, while the S&P 500 is up roughly 4.7%. The tech-heavy Nasdaq has outperformed the other major U.S. indexes since the start of 2023, a reversal of the trend from 2022, when the value-heavy Dow outperformed the Nasdaq by the widest margin since 2000, according to Dow Jones Market Data. Investors await a batch of earnings from megacap technology stocks this week, including Microsoft Corp
MSFT,
+0.98% .[ad_2]
-
Microsoft Invests $10 Billion in ChatGPT Maker OpenAI | Bank Automation News
[ad_1]
Microsoft Corp. is investing $10 billion in OpenAI, whose artificial intelligence tool ChatGPT has lit up the internet since its introduction in November, amassing more than a million users within days and touching off a fresh debate over the role of AI in the workplace. The new support, building on $1 billion Microsoft poured into […]
[ad_2]
Bloomberg News
Source link -
Why naked short selling has suddenly become a hot topic
[ad_1]
Short selling can be controversial, especially among management teams of companies whose stocks traders are betting that their prices will fall. And a new spike in alleged “naked short selling” among microcap stocks is making several management teams angry enough to threaten legal action:
Taking a long position means buying a stock and holding it, hoping the price will go up.
Shorting, or short selling, is when an investor borrows shares and immediately sells them, hoping he or she can buy them again later at a lower price, return them to the lender and pocket the difference.
Covering is when an investor with a short position buys the stock again to close a short position and return the shares to the lender.
If you take a long position, you might lose all your money. A stock can go to zero if a company goes bankrupt. But a short position is riskier. If the share price rises steadily after an investor has placed a short trade, the investor is sitting on an unrealized capital loss. This is why short selling traditionally has been dominated by professional investors who base this type of trade on heavy research and conviction.
Read: Short sellers are not evil, but they are misunderstood
Brokers require short sellers to qualify for margin accounts. A broker faces credit exposure to an investor if a stock that has been shorted begins to rise instead of going down. Depending on how high the price rises, the broker will demand more collateral from the investor. The investor may eventually have to cover and close the short with a loss, if the stock rises too much.
And that type of activity can lead to a short squeeze if many short sellers are surprised at the same time. A short squeeze can send a share price through the roof temporarily.
Short squeezes helped feed the meme-stock craze of 2021 that sent shares of GameStop Corp.
GME,
+10.45%
and AMC Entertainment Holdings Inc.
AMC,
+2.54%
soaring early in 2021. Some traders communicating through the Reddit WallStreetBets channel and in other social media worked together to try to force short squeezes in stocks of troubled companies that had been heavily shorted. The action sent shares of GameStop soaring from $4.82 at the end of 2020 to a closing high of $86.88 on Jan. 27, 2021, only for the stock to fall to $10.15 on Feb. 19, 2021, as the seesaw action continued for this and other meme stocks.Naked shorting
Let’s say you were convinced that a company was headed toward financial difficulties or even bankruptcy, but its shares were still trading at a value you considered to be significant. If the shares were highly liquid, you would be able to borrow them through your broker for little or almost no cost, to set up your short trade.
But if many other investors were shorting the stock, there would be fewer shares available for borrowing. Then your broker would charge a higher fee based on supply and demand.
For example, according to data provided by FactSet on Jan. 23, 22.7% of GameStop’s shares available for trading were sold short — a figure that could be up to two weeks out-of-date, according to the financial data provider.
According to Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF
HDGE,
-2.65% ,
the cost of borrowing shares of GameStop on Jan. 23 was an annualized 15.5%. That cost increases a short seller’s risk.What if you wanted to short a stock that had even heavier short interest than GameStop? Lamensdorf said on Jan. 23 that there were no shares available to borrow for Carvana Co.
CVNA,
+10.63% ,
Bed Bath & Beyond Inc.
BBBY,
-12.24% ,
Beyond Meat Inc.
BYND,
+11.31%
or Coinbase Global Inc.
COIN,
+1.45% .
If you wanted to short AMC shares, you would pay an annual fee of 85.17% to borrow the shares.Starting last week, and flowing into this week, management teams at several companies with microcap stocks (with market capitalizations below $100 million) said they were investigating naked short selling — short selling without actually borrowing the shares.
This brings us to three more terms:
A short-locate is a service a short seller requests from a broker. The broker finds shares for the short seller to borrow.
A natural locate is needed to make a “proper” short-sale, according to Moshe Hurwitz, who recently launched Blue Zen Capital Management in Atlanta to specialize in short selling. The broker gives you a price to borrow shares and places the actual shares in your account. You can then short them if you want to.
A nonnatural locate is “when the broker gives you shares they do not have,” according to Hurwitz.
When asked if a nonnatural locate would constitute fraud, Hurwitz said “yes.”
How is naked short selling possible? According to Hurwitz, “it is incumbent on the brokers” to stop placing borrowed shares in customer accounts when supplies of shares are depleted. But he added that some brokers, even in the U.S., lend out the same shares multiple times, because it is lucrative.
“The reason they do it is when it comes time to settle, to deliver, they are banking on the fact that most of those people are day traders, so there would be enough shares to deliver.”
Hurwitz cautioned that the current round of complaints about naked short selling wasn’t unusual and even though short selling activity can push a stock’s price down momentarily, “short sellers are buyers in waiting.” They will eventually buy when they cover their short positions.
“But to really push a stock price down, you need long investors to sell,” he said.
Different action that can appear to be naked shorting
Lamensdorf said the illegal naked shorting that Verb Technology Co.
VERB,
+69.65% ,
Genius Group Ltd.
GNS,
+45.37%
and other microcap companies have been recently complaining about might include activity that isn’t illegal.An investor looking to short a stock for which shares weren’t available to borrow, or for which the cost to borrow shares was too high, might enter into “swap transactions or sophisticated over-the-counter derivative transactions,” to bet against the stock,” he said.
This type of trader would be “pretty sophisticated,” Lamensdorf said. He added that brokers typically have account minimums ranging from $25 million to $50 million for investors making this type of trade. This would mean the trader was likely to be “a decent-sized family office or a fund, with decent liquidity,” he said.
Don’t miss: This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount
[ad_2]
-
Elon Musk tells court Saudi Arabia wanted to take Tesla private; $420 ‘not a joke’
[ad_1]
Elon Musk testified Monday he believed he had funding secured to take Tesla Inc. private, both from a Saudi Arabia investment fund and from his stake in SpaceX.
The Tesla chief executive resumed testimony in a federal trial in San Francisco over investor losses allegedly caused by tweets he fired off in 2018, including his “funding secured” tweet.
Representatives of Saudi Arabia’s investment fund “were unequivocal about moving forward,” Musk said. He also mentioned his large stake in privately held aerospace company SpaceX, and that “alone meant funding was secured.”
Tesla
TSLA,
+8.48%
stock added to gains as Musk’s testimony got underway, and at last check was up nearly 8% and far outperforming the broader equity indexes.The stock traded as high as $143.50, its highest intraday since Dec. 20, and was on pace to close at its best since that date.
The CEO told the court that the $420-a-share price on the deal “was a coincidence” as it was roughly a 20% premium over Tesla’s stock price at the time, and “not a joke.”
In certain circles, the number 420 refers to marijuana use.
Lead defense lawyer Nicholas Porritt also asked several questions that led Musk to say he hadn’t talked to major Tesla shareholders such as Baillie Gifford and T. Rowe Price about possibly taking Tesla private. Musk also said he couldn’t recall specifics around speaking with the board about the plan.
Firing off the now famous “funding secured” was a way to stay ahead of a soon-to-be-run Financial Times story about the Saudi fund taking a large stake at Tesla and as a way to keep all Tesla investors informed, Musk said. Moreover, he tweeted that he was “considering” the move, “not saying that it would be done,” Musk told the court.
Musk gave brief testimony Friday before the court adjourned for the day, taking pains to make clear that his tweets are not always taken to the letter. The trial started last week and it is expected to go into February.
“Just because I tweet something, it does not mean people believe it, or act accordingly,” Musk said on Friday to a defense attorney.
The trial revolves around Musk’s tweets from August 2018, including one where he told his millions of Twitter followers he was “considering taking Tesla private at $420” and then added “funding secured.” The plan later fizzled out.
Investor Glen Littleton, the lead plaintiff in the case, alleges he lost money due to the false tweets and is seeking damages.
U.S. District Judge Edward Chen already has ruled that Musk’s tweets about taking Tesla private were not true and that Musk acted with recklessness.
It is still up to jurors to decide, however, if the tweets were material to investors and if the falsehoods caused investor losses.
The CEO and Tesla each were fined $20 million in September 2018 to settle civil charges around the “funding secured” tweets and Musk was stripped of his chairman role at Tesla.
Musk and Tesla agreed to settle the charges against them without admitting to nor denying the SEC’s allegations.
Musk’s bid to end the SEC settlement deal over the Tesla tweets was denied last year.
Tesla shares have lost 55% in the past 12 months, compared with losses of around 9% for the S&P 500 index.
SPX,
+1.58% [ad_2]
-
This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount
[ad_1]
Most investors want to keep things simple, but digging a bit into details can be lucrative — it can help you match your choices to your objectives.
The JPMorgan Equity Premium Income ETF
JEPI,
+0.20%
has been able to take advantage of rising volatility in the stock market to beat the total return of its benchmark, the S&P 500
SPX,
+1.19% ,
while providing a rising stream of monthly income.The objective of the fund is “to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility,” while paying monthly dividends, according to JPMorgan Asset Management. It does this by maintaining a portfolio of about 100 stocks selected for high quality, value and low price volatility, while also employing a covered-call strategy (described below) to increase income.
This strategy might underperform the index during a bull market, but it is designed to be less volatile while providing high monthly dividends. This might make it easier for you to remain invested through the type of downturn we saw last year.
JEPI was launched on May 20, 2020, and has grown quickly to $18.7 billion in assets under management. Hamilton Reiner, who co-manages the fund with Raffaele Zingone, described the fund’s strategy, and its success during the 2022 bear market and shared thoughts on what may lie ahead.
Outperformance with a smoother ride
First, here’s a chart showing how the fund has performed from when it was established through Jan. 20, against the SPDR S&P 500 ETF Trust
SPY,
+1.20% ,
both with dividends reinvested:JEPI has been less volatile than SPY, which tracks the S&P 500.
FactSet
Total returns for the two funds since May 2020 pretty much match, however, JEPI has been far less volatile than SPY and the S&P 500. Now take a look at a performance comparison for the period of rising interest rates since the end of 2021:
Rising stock-price volatility during 2022 helped JEPI earn more income through its covered call option strategy.
FactSet
Those total returns are after annualized expenses of 0.35% of assets under management for JEPI and 0.09% for SPY. Both funds have had negative returns since the end of 2021, but JEPI has been a much better performer.
““Income is the outcome.””
The income component
Which investors JEPI is designed for? “Income is the outcome,” Reiner responded. “We are seeing a lot of people using this as an anchor tenant for income-oriented portfolios.”
The fund quotes a 30-day SEC yield of 11.77%. There are various ways to look at dividend yields for mutual funds or exchange-traded funds and the 30-day yield is meant to be used for comparison. It is based on a fund’s current income distribution profile relative to its price, but the income distributions that investors actually receive will vary.
It turns out that over the past 12 months, JEPI’s monthly distributions have ranged between 38 cents a share and 62 cents a share, with a rising trend over the past six months. The sum of the past 12 distributions has been $5.79 a share, for a distribution yield of 10.53%, based on the ETF’s closing price of $55.01 on Jan. 20.
JEPI invests at least 80% of assets in stocks, mainly selected from those in the S&P 500, while also investing in equity-linked notes to employ a covered call option strategy which enhances income and lowers volatility. Covered calls are described below.
Reiner said that during a typical year, investors in JEPI should expect monthly distributions to come to an annualized yield in the “high single digits.”
He expects that level of income even if we return to the low-interest rate environment that preceded the Federal Reserve’s cycle of rate increases that it started early last year to push down inflation.
JEPI’s approach may be attractive to investors who don’t need the income now. “We also see people using it as a conservative equity approach,” Reiner expects the fund to have 35% less price volatility than the S&P 500.
Getting back to income, Reiner said JEPI was a good alternative even for investors who were willing to take credit risk with high-yield bond funds. Those have higher price volatility than investment-grade bond funds and face a higher risk of losses when bonds default. “But with JEPI you don’t have credit risk or duration risk,” he said.
An example of a high-yield bond fund is the iShares 0-5 Year High Yield Corporate Bond ETF
SHYG,
-0.10% .
It has a 30-day yield of 7.95%.When discussing JEPI’s stock selection, Reiner said “there is a significant active component to the 90 to 120 names we invest in.” Stock selections are based on recommendations of JPM’s analyst team for those that are “most attractively priced today for the medium to long term,” he said.
Individual stock selections don’t factor in dividend yields.
Covered call strategies and an example of a covered-call trade
JEPI’s high income is an important part of its low-volatility total-return strategy.
A call option is a contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.
A covered call option is one an investor can write when they already own a security. The strike price is “out of the money,” which means it is higher than the stock’s current price.
Here’s an example of a covered call option provided by Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev.
-
You bought shares of 3M Co.
MMM,
+1.63%
on Jan. 20 for $118.75. - You sold a $130 call option with an expiration date of Jan. 19, 2024.
- The premium for the Jan. 24, $130 call was $7.60 at the time that MMM was selling for $118.75.
- The current dividend yield for MMM is 5.03%.
- “So the maximum gain for this trade before the dividend is $18.85 or 15.87%. Add the divided income and you’ll get 20.90% maximum return,” Roberts wrote in an email exchange on Jan. 20.
If you had made this trade and 3M’s shares didn’t rise above $130 by Jan. 19, 2024, the option would expire and you would be free to write another option. The option alone would provide income equivalent to 6.40% of the Jan. 20 purchase price in the period of a year.
If the stock rose above $130 and the option were exercised, you would have ended up with the maximum gain as described by Roberts. Then you would need to find another stock to invest in. What did you risk? Further upside beyond $130. So you would have written the option only if you had decided you would be willing to part with your shares of MMM for $130.
The bottom line is that the call option strategy lowers volatility with no additional downside risk. The risk is to the upside. If 3M’s shares had doubled in price before the option expired, you would still wind up selling them for $130.
JEPI pursues the covered call options strategy by purchasing equity-linked notes (ELNs) which “combine equity exposure with call options,” Reiner said. The fund invests in ELNs rather than writing its own options, because “unfortunately option premium income is not considered bona fide income. It is considered a gain or a return of capital,” he said.
In other words, the fund’s distributions can be better reflected in its 30-day yield, because option income probably wouldn’t be included.
One obvious question for a fund manager whose portfolio has increased quickly to almost $19 billion is whether or not the fund’s size might make it difficult to manage. Some smaller funds pursuing narrow strategies have been forced to close themselves to new investors. Reiner said JEPI’s 2% weighting limitation for its portfolio of about 100 stocks mitigates size concerns. He also said that “S&P 500 index options are the most liquid equity products in the world,” with over $1 trillion in daily trades.
Summing up the 2022 action, Reiner said “investing is about balance.” The rising level of price volatility increased options premiums. But to further protect investors, he and JEPI co-manager Raffaele Zingone also “gave them more potential upside by selling calls that were a bit further out of the money.”
Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders
[ad_2]
-
You bought shares of 3M Co.
