Updated Jan. 11, 2024 3:06 pm ET
Bitcoin’s trip to Main Street just took a detour.
Vanguard said Thursday it won’t offer the new spot bitcoin exchange-traded funds on its brokerage platform.
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In 1989, author Marsha Sinetar wrote a bestselling book, “Do What You Love, The Money Will Follow.” She urges readers to pursue a career that stokes their passion.
Many advisers take that advice. They love what they do. And the money follows: Median pay for U.S. financial advisers was $95,390 in 2022, according to the Bureau of Labor Statistics.
Lately, though, the passion is waning for some advisers. They still love the practice of wealth management — customizing financial plans, constructing client portfolios and analyzing the ever-growing menu of investment products.
They’re just not as enamored of their clients’ wealth. Reassuring wealthy retirees that they can afford to buy a second (or third) vacation home has its merits. But helping them accumulate more and more wealth rings hollow after awhile.
Steve Oniya, a Houston-based certified financial planner, works with a diverse mix of clients. He enjoys helping them achieve their goals, regardless of their net worth. “It’s more gratifying helping them get over some hurdles to get to the life that they really want,” he said. “You make more of an impact that way.”
He compares his work to a firefighter’s job. Some days, they rescue people from burning buildings. Other days, they put out a dumpster fire. Yet they’re always driven to excel and perform at a high level.
Nevertheless, if an adviser serves rich clients who hoard their money, don’t give to charity and lack perspective on what matters most in life, a day at the office can feel dispiriting. “Sometimes advisers may be passionately opposed to certain clients’ values,” Oniya said. “In those instances, end the relationship or limit the scope.”
Oniya said he does not find clients’ wealth objectionable. He sees his role as an ally who seeks to understand — and not judge — others’ beliefs and values.
“I like to stay in the neutral camp,” Oniya said. “It’s easy to empathize with another person and see they are a person who needs help just like others. We’re generally here to advise them on how to be more efficient and effective financially in attaining their goals.”
The arc of an adviser’s career comes into play as well. To build a practice, newly minted financial planners might welcome pretty much anyone with sufficient assets.
Once they establish a stable book of business, advisers may get picky in deciding whom to serve. Their onboarding process might get more rigorous in an effort to determine if they’re aligned with a potential client’s aspirations, goals and priorities.
Some advisers shift gears as they gain experience working with different types of clients. They come to realize what they like most about the job and adjust their practice — and the type of clients they serve — accordingly.
“Everyone evolves,” said Angeli Gianchandani, a professor of marketing at University of New Haven’s Pompea College of Business. “Advisers may see there’s a greater reward and opportunity helping people in a different income bracket.”
As a self-test, advisers at a career crossroads might want to ask themselves how they’d respond to two clients. The first one says, “You saved me $5 million. Now I want to save $10 million to buy a bigger yacht.”
The other says, “You helped me pay off my student debt” or “You helped me save enough for a down payment to buy my first house.”
“You may feel more valued and appreciated as an adviser” if you pave the way for someone who lacks vast wealth to build a nest egg for the future, Gianchandani says.
Advisers who have misgivings about helping wealthy people attain greater wealth are not alone. Brooke Harrington, a sociology professor at Dartmouth College, interviewed 65 wealth managers between 2007 and 2015. About one-quarter expressed qualms about helping lower ultra-wealthy clients’ tax liabilities.
Still, another 25% did not feel such qualms. They saw their role as defending their clients from an unjust tax code.
More: Wall Street legend Byron Wien dies at 90. Here are his ’20 life lessons’
Also read: The IRS is auditing the rich. Can you fly under the radar if you’re not wealthy?
““I don’t want to own debt, you know bonds and those things.””
That was the response by the billionaire founder of one of the world’s biggest hedge funds when asked where he would put capital to work right now.
“Temporarily right now, cash, I think is good…and the interest rates are fine. I don’t think they will be sustained that way,” Bridgewater Associates’ Ray Dalio said Thursday at the Milken Institute’s 10th annual Asian Summit in Singapore.
The move into cash has been growing with the yield on the 30-day Treasury bills atop 5%, while investors can also get 4% on certificates of deposit and high-yield savings accounts, but there has also been pushback.
Wells Fargo Investment Institute strategist Veronica Willis told clients last month that even if cash yields stay higher in the near term, history shows investors lose out in the long run as cash tends to underperform and act as a drag on their investments.
Hence the word “temporarily” from Dalio. But his clear disdain for bonds might also run against the crowd, as the 10-year Treasury yield
BX:TMUBMUSD10Y
topped its highest since 2007 last month.
Saira Malik, chief investment officer at Nuveen, recently advised investors to make the shift into longer-dated bonds sooner than later because she says the broader market tends to outperform after a Federal Reserve pause on interest rates and often continues to do well in the following year.
Investors have become less concerned, as of late, that the Fed will keep hiking rates, with inflation data out Wednesday only showing a couple of surprises. Markets are pricing in slim chance of a Fed rate hike in borrowing costs after next week’s meeting, though a hike in November may still be up in the air.
Dalio, who has a net worth of $16.5 billion, according to Bloomberg’s Billionaires Index, said when it comes to investing, he wants to “be in the right places, geographies,” and have diversification. “What I don’t know is going to be much more important than what I do know.”
“Diversification can reduce your risk without reducing the return if you know how to do it well. And then I have to pay attention to the implications of the great disruptions that are going to take place because the world will be radically different tin five years…the next election, the debt situation, all of those things are going to change. And then with the new technologies…it’s going to be like a time warp. It’s a different world.”
And that will “disrupt the disrupters,” so it will be important to know who will be using those technologies in the best way, said Dalio.
Read: Investors need to be wary of ‘priced for perfection’ stock markets, warns Larry Summers
Their shared hippie spirit brought them together over a vegan potluck dinner, but the prospect of years in federal prison for allegedly stealing millions from a mentally-ill Malibu doctor, has driven a wedge between them.
A federal fraud prosecution against a pair of yoga gurus accused of siphoning cash from Dr. Mark Sawusch’s $60 million fortune took a significant turn at the end of August when one pleaded guilty and agreed to testify against the other, her ex-boyfriend, according to court documents and people familiar with the matter.
Anna Moore’s guilty plea before a federal judge in Los Angeles on Aug. 28 represents a serious legal challenge to her longtime partner, Anthony Flores, who faces decades behind bars if convicted in the case. Flores pleaded not guilty after his arrest in January.
Details of Moore’s agreement with federal prosecutors remain under seal, but people familiar with the matter say her ultimate sentence in the case will largely be determined after her level of cooperation is evaluated. A sentencing hearing for Moore was set for Nov. 6.
“We are aware of Ms. Moore’s decision to plead guilty. Obviously this changes Mr. Flores’ legal situation in the case, and we are currently reviewing our options,” Flores’ attorney Ambrosio Rodriguez said.
Messages left with Moore’s attorney weren’t immediately returned. A spokesman for the U.S attorney’s office for the central district of California declined to comment.
The tragic end to Sawusch’s life began on June 23, 2017, when the brilliant, but troubled, ophthalmologist met Flores and Moore in a chance encounter at a vegan ice cream parlor in Venice Beach, Calif.
Flores, who went by Anton David, was a guru-esque figure with long, flowing hair and a beard. He worked as a hair stylist on film shoots. Moore, a pixie-like blond, was an actress and singer. The couple had met years earlier at a vegan potluck dinner and had fallen in love over what they described as a shared hippie spirit. Together, they ran a yoga center in Fresno, Calif., while going back-and-forth to L.A.
Their spiritual vibe cast a spell on Sawusch, who had just days earlier been released from a mental health facility, where he had been committed after suffering a breakdown, court filings said. Within a week, Flores and Moore had moved into Sawusch’s multi-million dollar beachfront home in Malibu, Calif., federal prosecutors said.
Over the next year, the pair gained increasingly firm control over the doctor’s life and finances, with Flores establishing power of attorney over Sawusch’s vast fortune while plying him with a steady diet of marijuana and LSD as he also underwent experimental ketamine treatments for his bipolar disorder that left him addled, investigators said.
Sawusch later died in May 2018 of a lethal mixture of ketamine and alcohol, according to a coroner’s report. The Los Angeles County medical examiner’s office ruled the death an accident.
In her guilty plea, Moore said she was not immediately aware of the scope of Flores’ alleged efforts to steal the doctor’s money, but admitted that following Sawusch’s death she participated in a later effort in probate court to keep the stolen money. Prosecutors have alleged that this was a separate fraud.
When Sawusch’s family sought to take control of his estate, they discovered that almost $3 million had been transferred from his accounts to ones controlled by Flores in the days before and after the doctor’s death, federal prosecutors said.
Sawusch’s family launched a civil lawsuit against the yogi couple and convinced a California state judge to issue a restraining order freezing Flores’ and Moores’ accounts, and order they return the money. Instead, federal prosecutors say, the two engaged in a second fraud by making false claims in probate court that Sawusch had verbally told them he would give them a third of his fortune plus his Malibu beach house.
The couple claimed that the doctor had given them the money in return for them taking care of him and as part of an effort to protect his fortune from his family, from whom he was estranged. The family said those claims were untrue and that the pair had kept Sawusch isolated from his friends and family.
Eventually, the couple returned around $2 million of the doctor’s money, but around $1 million remained unaccounted for, according to federal prosecutors.
Flores and Moore broke up during the pandemic after nearly a decade together. Moore moved to Mexico while Flores remained in Fresno, where he was arrested in late January. Moore was arrested at George Bush Intercontinental Airport in Houston upon her return to the U.S. around the same time. Both have been held without bail since.
Read the series:
Part 4: Money, mania and LSD: A Malibu doctor’s tragic final weeks under yoga gurus’ sway
Another big corporate borrowing blitz to kick off September has gotten under way, but this one isn’t looking like the rest.
Instead, the flurry of new bond issues shows how the Federal Reserve’s higher interest rate environment has begun to seep in a year later, by making major companies far more hesitant to tap credit for longer stretches.
“The…
Yearly returns in the Treasury market slipped into negative territory this week as the market sold off on signs that the Federal Reserve may need to keep rates high for a while to contain inflation.
While negative returns might stir bad memories of last year’s shocking losses for bonds, stocks and nearly everything else, investors holding Treasury debt issued at 2023’s higher yields might want to sit back and take stock.
“This is the top thing we hear,” said Ryan Murphy, director of fixed-income business development at Capital Group, of evaporating returns in what’s been a tough August. “You saw the worst bond market in 40 years last year. Investors, they are tired, and feel beaten up.”
Murphy’s message to clients is this: “In bonds, you earn the money over time.” And those dwindling bond returns since January? “Approach it with a deep breath, and know this is going to work out in the end.”
Capital Group’s laid-back style and lack of “a star CEO” earned it recognition by Institutional Investor in March as “a new bond leader” without a king, in large part because it attracted $100 billion in funds over the past five years, or twice the total of its peers.
Recent volatility in interest rates again zapped yearly gains in many bond funds, as Fed officials continued to warn that a roaring labor market and robust spending could keep inflation from receding to the central bank’s 2% annual target.
The spike in long-term bond yields makes older, lower-yielding securities look comparatively less attractive. That’s reflected in the yearly return on a key Bloomberg U.S. government bond and note index, which turned negative for the first time since March (see chart), when several regional banks failed, stoking fears of a broader banking crisis.
FactSet
However, a look back at August 2022 shows the 10-year Treasury yield starting around 2.6%, according to FactSet.
By contrast, Treasury bill yields
BX:TMUBMUSD06M
neared 5.5% on Thursday, or “north of anything we’ve seen over the past 15 years,” Murphy said. And for investors looking to lock in longer-term yields, the 10-year Treasury rate
BX:TMUBMUSD10Y
touched 4.307% on Thursday, its highest level since November 2007, according to Dow Jones Market Data.
See: How BlackRock’s Rick Rieder is steering his active fixed-income ETF as bond funds struggle
“It’s becoming more expensive for the government and companies to finance debt because of the rapid climb in rates,” Murphy said of the drag of higher long-term interest rates.
On the flip side, it’s also been one of the best stretches for lenders and bond investors in terms of getting paid to act as creditors since the 2007-2008 global financial crisis, but without a U.S. recession — or at least not yet.
What’s also different from last year is that the Fed already jacked up interest rates to a 22-year high of 5.25%-5.5% in July, and has signaled it’s likely nearly finished with hikes in this cycle.
Murphy pointed to a mountain of cash on the sidelines, in the form of assets in money-market funds, as another potential stabilizer for markets.
Assets in money-market funds hit a record $5.57 trillion for the week ending Wednesday, according to data from the Investment Company Institute.
“What’s really interesting is that there’s been two bursts of investors going into money-market funds. There was a big shift right at the onset of COVID, and another burst over the past 12-18 months since the beginning of the rate-hiking cycle,” Murphy said.
Looking back to 2008, he pointed to a similar buildup in money-market assets, and a roughly $1.1 trillion wall of cash subsequently leaving the sector, as financial assets began to recover in the wake of the financial crisis.
“What we did see, while not all of it, was a healthy amount went back into fixed-income in the following years,” Murphy said.
Stocks closed lower Thursday and were headed for another week of losses, with the Dow Jones Industrial Average
DJIA
2.3% lower on the week so far, the S&P 500 index
SPX
down 2.1% and the Nasdaq Composite Index off 2.4%, according to FactSet.
Icahn Enterprises L.P.’s stock tumbled 30% on Friday, after the company said it’s cutting its quarterly distribution to $1 from $2 previously.
The company
IEP,
made the announcement as it reported a surprise quarterly loss with Chairman Carl Icahn, the billionaire activist investor, blaming the news squarely on one thing.
“I believe the second quarter partially reflected the impact of short selling on companies we control or invest in, which I attribute to the misleading and self-serving Hindenburg report concerning our company, “Icahn said in a statement.
“It also reflected the size of the hedge book relative to our activist strategy.”
Icahn was referring to a report by short seller Hindenburg Research published on May 2 that accused IEP, Icahn’s publicly traded investing arm, of overstating asset values. Hindenburg also revealed that Icahn himself had borrowed from the company, among other issues.
That had been disclosed in a footnote to financials that Wall Street had overlooked.
Read: What we know about Carl Icahn’s margin loan
The report shaved billions off IEP’s market cap and was firmly rebutted by Icahn, who recently said he has finalized amended loan agreements with banks that untie his personal loans from the trading price of his company’s shares.
Icahn said IEP has paid out distributions for 73 continuous quarters and does not intend for a “misleading” report to interfere with that practice.
“The payment of future distributions will be determined by the board of directors quarterly, based upon current economic conditions and business performance and other factors that it deems relevant at the time that declaration of a distribution is considered,” said Icahn.
On a call with analysts, IEP’s Chief Executive David Willetts highlighted the long-term “lumpiness” of the business, given its many moving parts.
“We have large wins at times and we have volatility, we’re not a company that necessarily has predictable cash flow, there are no guarantees,” he told analysts.
But IEP is not changing its strategy on distributions, he added.
The stock was headed for the biggest one-day selloff since it went public 36 years ago. The next biggest drop was 20.0% on May 2, when the Hindenburg Research report was released.
The company, which is 84% owned by Icahn and his son, Brett, offers exposure to Icahn’s personal portfolio of public and private companies, including petroleum refineries, car-parts makers, food-packaging companies and real estate. Its unit holders are mostly retail investors.
The fund has performed poorly in the past decade. For many years Icahn has publicly expressed suspicion of the bull market that raged around him. He shorted the stock market in a big way as a hedge against his long activist positions. Going into 2021, for example, Icahn’s investment fund had a short exposure of 142%, SEC filings show.
For more, see: Carl Icahn admits he was wrong to take a huge short position on the market that lost $9 billion
Hindenburg, the short selling firm founded by Nate Anderson, took a victory lap on Elon Musk’s X platform, the renamed Twitter, noting that it had predicted that IEP’s poor investment performance would eventually force it to cut the distribution.
Icahn has himself waged endless activist campaigns against companies and their management teams, and most recently succeeded in his effort to shake up management at gene sequencing test maker Illumina Inc.
ILMN,
In June, that company accepted the resignation of its Chief Executive and director, Francis DeSouza, ending a monthslong heated battle over its $7.1 billion acquisition of cancer test maker Grail that has faced regulatory hurdles, as the Associated Press reported.
Icahn had urged shareholders to vote out its chairman, John Thompson, and DeSouza. Company shareholders voted out Thompson in late May.
Past activist campaigns by Icahn’s company have generated billions of dollars for shareholders and helped boards and CEOs capture untapped value, Icahn has argued, citing Reynolds, Netflix
NFLX,
Forest Labs, Apple
AAPL,
CVR Energy
CVI,
Herbalife
HLF,
eBay
EBAY,
Tropicana, Cheniere
LNG,
and Occidental
OXY,
as examples.
IEP said it had a loss of $269 million, or 72 cents per depositary unit, for the second quarter, wider than the loss of $128 million, or 41 cents per depositary unit, posted in the year-earlier period.
Revenue fell to $2.684 billion from $3.796 billion.
The FactSet consensus was for income of 25 cents per depositary unit and revenue of $2.657 billion.
Meanwhile, investors are waiting to see the outcome of a federal probe of IEP’s corporate governance and other issues, which was disclosed along with first-quarter earnings.
IEP’s stock is down 35% in the year to date, while the S&P 500
SPX
has gained 18%.
The Institute for Supply Management’s manufacturing index is due for release Tuesday, which outside of inflationary periods (i.e., now), tends to be one of the more important economic indicators for financial markets, given its record as a bellwether.
Even compared to other rate-hike cycles, the ISM manufacturing series has been one of the worst in history, points out Jason Daw, head of North America rates strategy at RBC Dominion Securities. Daw makes the case that the U.S. economy overall is not very strong for this period of the cycle, and the manufacturing data, not just ISM but also industrial production, has been particularly feeble.
But the call of the day comes from JPMorgan’s economic team. They note that while global manufacturing stalled in the first half, the non-manufacturing components rose at a 3.2% annualized rate, allowing the global economy to grow at an above trend 2.7% rate.
The team led by Bruce Kasman say that the typical channels through which weak manufacturing would bring down the broader economy haven’t materialized. “A major channel by which weakness in goods sectors broadens out is through depressing corporate income and pricing power. While our start-of-year outlook anticipated elevated wage gains to pressure corporate profits, the surprising strength in [first-half] global GDP was accompanied by upside surprises to inflation,” they say. In turn, there have been solid gains in both labor income and profits, and while margins have come off their peaks, they are well above pre-pandemic levels.
Business hiring, they add, is the ultimate signal of confidence, and employment growth has continued even though expectations have soured.
Now, say the JPMorgan team, the stage is set for a goods sector recovery. Labor income, when adjusted for inflation, is rising, while finished goods inflation is falling sharply.
Also, business capital spending continues to expand, particularly in emerging economies outside of China. And importantly, inventories are swinging from a drag to a lift. In the first half, the step down in the pace of stock building depressed global industrial production by 3.4 percentage points.
“Even if the pace of stockbuilding was only to level off, the impulse to global industry would be material. Add to that a potential desire to align the pace to firming demand growth and the boost could generate a jump in factory output in the coming months,” they say.
Finally, they note, the tech spending decline after the 2020 to 2021 surge looks to be ending, and global motor vehicle production is picking up as supply-chain bottlenecks ease.
After an okay finish for the S&P 500
SPX,
to a strong July, U.S. stock futures
ES00,
NQ00,
were a bit lower as the seasonally weak month of August commenced. Gold futures
GC00,
were trading below $2,000 an ounce. The dollar
DXY,
rose.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
The ISM report is due out at 10 a.m. Eastern, when the job openings and construction spending reports also come out. Monthly auto sales also will be released throughout the day.
Pfizer
PFE,
Caterpillar
CAT,
Uber Technologies
UBER,
and after the close, Starbucks
SBUX,
and Electronic Arts
EA,
highlight the day’s earnings reports. Pfizer lowered its sales guidance while Caterpillar beat Wall Street earnings estimates and Uber reported a surprise profit.
JetBlue Airlines stock
JBLU,
slumped as the airline says it no longer expects to report a profit in the third quarter, owing to what it called a challenging environment in the northeast, as well as a preference by consumers for long-haul international flights.
CVS Health
CVS,
is going to cut 5,000 corporate jobs, according to The Wall Street Journal.
BlackRock
BLK,
and MSCI
MSCI,
are targets of a Congressional probe into facilitating U.S. investment in China.
The first new U.S. nuclear reactor in nearly seven years starts operations.
Modern-day Oppenheimers see the future of nuclear energy — and it’s mobile.
Here were the most active stock-market tickers as of 6 a.m. Eastern.
| Ticker | Security name |
|
TSLA, |
Tesla |
|
TUP, |
Tupperware Brands |
|
NIO, |
Nio |
|
AMC, |
AMC Entertainment |
|
PLTR, |
Palantir Technologies |
|
GME, |
GameStop |
|
NVDA, |
Nvidia |
|
AAPL, |
Apple |
|
NKLA, |
Nikola |
|
AMSC, |
American Superconductor |
The inflation-adjusted equity premium is looking pretty bleak. That’s calculated by taking the expected return to the S&P 500 and subtracting 10-year TIPS yields. “While admittedly this graphic is skewed by the few megacaps trading at huge multiples, it’s sobering nonetheless,” says Michael Ashton, better known as the Inflation Guy.
Granted, Philadelphia’s a big sports town, but there were actual tailgates to get the Eagles’ throwback Kelly green jerseys that went on sale.
A Chinese zoo has denied that a bear is human after video of the creature standing on two feet.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.
Funds associated with Cathie Wood’s ARK Investment continued to cull shares of Coinbase Global Inc. and Tesla Inc. on Monday, according to recent trade disclosures.
The ARK Fintech Innovation ETF
ARKF,
dumped 76,788 Coinbase shares
COIN,
on the day, while the ARK Innovation ETF
ARKK,
sold 127,266 and the ARK Next Generation Internet ETF
ARKW,
sold 44,784 shares.
Those were worth $26.3 million based on Coinbase’s Monday closing price of $105.55, and the sales follow ARK’s move to dump about $50 million in Coinbase’s stock Friday.
Coinbase represents 0.78% of the Fintech Innovation ETF, along with 0.15% of the Innovation ETF and 0.30% of the Next Generation Internet ETF. ARK disclosed the transactions and weightings in the daily trade notifications it posts to its website.
Read: Coinbase’s spectacular stock surge after Ripple ruling sparks fierce debate
Meanwhile, the ARK Innovation ETF shed 38,329 Tesla shares
TSLA,
on Monday, while the ARK Next Generation Internet ETF sold 6,855. Those shares were worth $13.1 million based on Tesla’s Monday closing level of $290.38. Tesla represents about 0.12% of both funds as they continue to unload shares.
Don’t miss: Tesla is looking at its best sales quarter ever
ARK scooped up 455 shares of Meta Platforms Inc.
META,
within its Next Generation Internet ETF and bought up 3,729 shares within the ARK Innovation ETF. That amounted to $1.3 million worth of stock based on Meta’s $310.62 Monday close.
Two ARK funds bought a combined $790 million in Robinhood Markets Inc.’s stock
HOOD,
with the fintech fund scooping up 25,641 shares and the Next Generation Internet ETF buying 37,630 shares. ARK added 4,608 shares of SoFi Technologies Inc.
SOFI,
to the fintech fund, worth $43,683 based on Monday’s close.
See also: SoFi’s stock catches another downgrade as analyst says it ‘needs to be valued more like a bank’
ARK was also active in shares of Twilio Inc.
TWLO,
buying 15,702 within the Fintech Innovation ETF, 133,499 within the Innovation ETF and 22,748 within the Next Generation Internet ETF. That amounted to $11.4 million in Twilio’s stock based on Monday’s $66.47 closing price.
At a time when many investors seem euphoric, others are warning that stock valuations have once again turned frothy. It may pay to take a look back at valuation and performance and consider your own risk tolerance.
A value-based approach that offers lower volatility and good long-term returns can be expected to be less flashy than one focused on the hottest technology stocks. But depending on how much it bothers you when the stock market gyrates, it may be a better way for you to invest. Lower volatility might help you to avoid the type of emotional reaction that can lead to selling into a declining market or attempting to time the market, both of which tend to be losing strategies.
Aaron Dunn is a co-head of the value equity team at Eaton Vance, which is based in Boston and is a unit of Morgan Stanley. During an interview, he explained how he and Brad Galko, who co-heads the team, select stocks for the Eaton Vance Focused Value Opportunities Fund. The fund’s performance benchmark is the Russell 1000 Value Index
RLV,
First, let’s take a broad look at how aggregate forward price-to-earnings ratios have moved for exchange-traded funds tracking several broad indexes over the past 10 years:
The valuations are lower than their 2020 peaks. But for all but one, the valuations still appear to be high when compared with their 10-year averages:
| ETF | Ticker | Current forward P/E | 10-year average forward P/E | Current valuation to 10-year average |
| SPDR S&P 500 ETF Trust |
SPY, |
19.06 | 15.93 | 120% |
| iShares Russell 1000 ETF |
IWB, |
18.94 | 16.02 | 118% |
| iShares Russell 1000 Value ETF |
IWD, |
14.33 | 13.94 | 103% |
| iShares Russell 1000 Growth ETF |
IWF, |
26.63 | 19.00 | 140% |
| Source: FactSet | ||||
All of the listed ETFs listed here are trading well above their 10-year average P/E valuations except the iShares Russell 1000 Value ETF, which is only slightly higher. These numbers back the notion that the broad market is expensive and that a value approach may be more reasonable. It is also worth keeping in mind that during 2022, when the SPDR S&P 500 ETF Trust
SPY,
declined 18.2% and the iShares Russell 1000 ETF
IWB,
fell 19.2%, the iShares Russell 1000 Value ETF
IWD,
pulled back 7.7% and the Eaton Vance Focused Value Opportunity Fund’s Class I shares were down only 3.3%, all with dividends reinvested.
If we look at 10-year total returns, the nonvalue indexes, so heavily weighted to the largest technology-oriented companies, have been excellent performers for investors who could remain committed through thick and thin:
| Fund | Ticker | 3-year average annual return | 5-year average annual return | 10-year average annual return |
| SPDR S&P 500 ETF Trust |
SPY, |
13.2% | 11.4% | 12.3% |
| iShares Russell 1000 ETF |
IWB, |
12.5% | 11.0% | 12.1% |
| iShares Russell 1000 Growth ETF |
IWF, |
11.2% | 14.0% | 15.0% |
| iShares Russell 1000 Value ETF |
IWD, |
13.7% | 7.3% | 8.7% |
| Eaton Vance Value Opportunities Fund – Class I |
EIFVX, |
14.8% | 8.7% | 9.7% |
| Source: FactSet | ||||
For five and 10 years, the growth-oriented approaches have shined. But for three years, which includes the 2022 disruption, the Eaton Vance Value Opportunities Fund has fared best, even outperforming its benchmark.
The Eaton Vance Focused Value Opportunity Fund’s Class I
EIFVX,
shares are rated four stars (out of five) within Morningstar’s Large Value fund category. The fund’s Class A
EAFVX,
shares are rated three stars. The difference is that the Class I shares, which are typically distributed through investment advisers, have annual expenses of 0.74% of assets under management, while the Class A shares have an expense ratio of 0.99%. You can purchase Class I shares directly through brokerage platforms for a $50 fee.
Dunn said that when selecting stocks for the fund, he and Galko take a bottom-up approach to identify quality companies. The want to see high returns on invested capital (ROIC) over the long term, as well as a “good competitive position” for a company and a strong management team.
They also prefer companies with low debt. “We do not want to buy overlevered companies and be in a situation where we are diluting through equity raises and putting capital at risk,” he said.
Dunn added that he and Galko look closely at free cash flow generation. A company’s free cash flow is its remaining cash flow after capital expenditures. This is money that can be used to fund expansion, acquisitions, dividend increases or share buybacks, or for other corporate purposes.
“Philosophically, what this results in is that we hold up well in markets such as last year’s. And we find upside in stocks trading below intrinsic value,” he said.
“We focus on finding ideas where there is a good skew for upside relative to downside,” he added.
According to Morningstar, the fund’s active share when compared with IWD is high, at 91.45%. Active share is a measure of how much an actively managed fund differs in investment exposure from its benchmark index. If you are paying more for active management than you would to invest in an index fund, active share is something to consider. If it is low, you might be overpaying for a “closet indexer.” You can read about how Morningstar assesses active shares here.
The fund is concentrated, typically holding between 25 and 45 companies.
According to Morningstar’s most recent data, these were the fund’s top 10 holdings (out of 28 stocks) as of May 31:
| Company | Ticker | % of Eaton Vance Focused Value Opportunity Fund | Forward P/E | 2023 total return |
| Alphabet Inc. Class A |
GOOGL, |
5.0% | 19.6 | 32% |
| Micron Technology Inc. |
MU, |
4.8% | N/A | 25% |
| American International Group Inc. |
AIG, |
4.3% | 8.1 | -7% |
| Reinsurance Group of America Inc. |
RGA, |
4.2% | 8.0 | 1% |
| Bristol Myers Squibb Co. |
BMY, |
4.1% | 7.7 | -11% |
| Wells Fargo & Co. |
WFC, |
4.0% | 8.9 | 4% |
| ConocoPhillips |
COP, |
4.0% | 10.5 | -10% |
| Constellation Brands Inc. Class A |
STZ, |
3.9% | 20.4 | 9% |
| NextEra Energy Inc. |
NEE, |
3.8% | 21.9 | -13% |
| Charles Schwab Corp. |
SCHW, |
3.8% | 16.0 | -30% |
| Source: FactSet | ||||
Click the tickers for more about each company, fund or index.
There is no forward price-to-earnings ratio for Micron Technology Inc.
MU,
because the company’s combined EPS for the next 12 months are expected to be negative.
Micron is a company in transition, caught up in diplomatic conflict between the U.S. and China, whose government directed some manufacturers in May to stop purchasing memory chips made by the company. Then again, in June, Micron highlighted its “commitment to China” when announcing a new investment in its plant in Xi’an.
Read: Micron recovery debated by analysts as bottom is called in memory-chip market
Dunn said downside for Micron’s stock was “mitigated” because of the company’s relatively low debt. He also said that as companies continue to adopt more cloud services and deploy artificial-intelligence technology, demand for memory chips will increase.
While there is no current forward P/E for Micron, the stock always trades at low valuations relative to most other large tech companies. Dunn touted Micron’s strong cash flow and said the stock was “underappreciated” and remained “an interesting play on cloud and AI.”
While it is not among the top 10 holdings listed above, Dunn highlighted Dollar Tree Inc.
DLTR,
as an example of the type of value stock he favors. The company “was not well run” following its acquisition of Family Dollar in 2015. But he has been impressed with its more recent turnaround efforts, including improvements in how products are shipped to stores, better efficiency and “a lot of work going on with culture, how they operate, how they treat employees [and] adding some shelf space to move more product.”
It is interesting to see NextEra Energy Inc.
NEE,
among the fund’s largest holdings. This has been quite a strong grower over the past 10 years, with a total return of 346% as the owner of Florida Power & Light has grown along with its customer base and has become a leader in the build-out of solar-power generation.
Dunn said the company is “still growing in the mid-single digits. For a utility company, that is a strong profile.”
When discussing Alphabet Inc.
GOOGL,
the fund’s largest holding as of May 31, Dunn said that “it is really an advertising business with other businesses around it” and that its P/E valuation was “not extremely taxing.” He said Alphabet had been “less aggressive with cost cutting” than other technology giants and added that the company’s “targeted search” through Google and other properties, such as YouTube, “probably provides a better return on investment than broadcast advertising, and that really is the key.”
Don’t miss: This stock investing strategy has blown away the S&P 500. Here’s a way to refine it for quality.
Cathie Wood Sold More Tesla Stock. She Might Not Be Done.
“‘Icahn’s favorite Wall Street saying: “If you want a friend, get a dog.” Over his storied career, Icahn has made many enemies. I don’t know that he has any real friends. He could use one here.’”
That was billionaire hedge-fund manager Bill Ackman, founder and chief executive of Pershing Square Capital Management, resurrecting his longstanding feud with billionaire activist investor Carl Icahn in a tweet Wednesday.
Ackman was referencing the fallout from the recent report by short-selling firm Hindenburg Research that accused Icahn’s publicly traded investment vehicle, Icahn Enterprise Partners LP
IEP,
of inflating asset values and causing his company to trade at a large premium. The report from May 2 has cost IEP about $10.9 billion in lost market cap, after the stock tumbled another 21% on Thursday.
Ackman said he is neither long or short IEP but merely “watching from a distance.”
But he seemed to agree with Hindenburg’s founder and CEO, Nate Anderson, who questioned margin loans extended to Icahn using his roughly 85% stake in IEP as collateral. Icahn has not disclosed the terms of those loans although he recently told the Financial Times that he used the money to make additional investments outside of his publicly traded vehicle.
“Over the years I have made a great deal of money with money,” he was quoted as having said. “I like to have a war chest, and doing that gave me more of a war chest.”
Ackman said the margin lender or lenders “must be extremely concerned with the situation,” particularly after IEP has disclosed a federal investigation of its business and corporate governance.
For his part, Icahn has called Hindenburg’s analysis “misleading and self-serving” and said it was designed solely to hurt long-term IEP shareholders.
Ackman compared the situation to that of failed investment fund Archegos, “where the swap counterparties were comforted by each having relatively smaller exposures to the situation.”
“The problem is that multiple lenders make for a more chaotic situation. All it takes is for one lender to break ranks and liquidate shares or attempt to hedge, before the house comes falling down. Here, the patsy is the last lender to liquidate.”
Ackman also expressed his surprise that Icahn has not disclosed the margin-loan terms, or even said who provided them. “My understanding of 13D SEC rules is that they require disclosure of sources of financing and even copies of financing agreements, although many investors ignore these requirements.”
Ackman also questioned how IEP’s large dividend yield is feasible, as it’s not supported by operating cash flows.
“The yield is generated by returning capital to outside shareholders, which is in turn funded by the company selling stock to investors,” said Ackman.
Icahn’s problem now is that his system has been outed by the short seller, Ackman wrote.
“Transparency is not the friend of $IEP having caused a more than 50% decline in the shares, which has caused Icahn to post more shares, now more than 65% of his holdings,” he said in the tweet.
The bad blood between Icahn and Ackman goes back to a business dispute the two had over a 2003 deal involving Hallwood Realty. The litigation between them went on for years.
But their animosity for one another hit a crescendo in 2013, when Bill Ackman publicly waged a $1 billion short-selling campaign against Herbalife. Sensing weakness, Icahn took a long position in Herbalife’s stock
HLF,
and helped deal Ackman significant losses on his bet over time.
The two claimed they had made up in 2014, sharing a stage at a conference broadcast by CNBC.
Ackman had previously had taken a soft shot at Icahn over the Hindenburg report, saying there was a “karmic quality” to it. But now their battle of Wall Street titans appears to be back in full force.
Berkshire Hathaway Sold U.S. Bancorp, Bank of New York Stock. Here’s What It Bought.
Warren Buffett’s Berkshire Hathaway Inc. made a change in banking targets for investment, sending two banks’ shares in opposite directions Monday afternoon.
Capital One Financial
COF,
shares rallied more than 5% in after-hours trading while Bank of New York Mellon Corp.
BK,
sold off in the extended session Monday after filings with the Securities and Exchange Commission showed Berkshire
BRK.B,
BRK.A,
switched its position. The quarterly filing showed a new stake of 9.9 million shares in Capital One as Berkshire sold off its 25.1 million-share stake in Bank of New York Mellon.
At Berkshire’s annual meeting, Buffett weighed in on recent scares for regional banks.
“In terms of owning banks, events will determine their future and you’ve got politicians involved, you’ve got a whole lot of people who don’t really understand how the system works,” he said.
Other changes included an increased stake in HP Inc.
HPQ,
which grew by 16% to about 121 million shares. That growth was part of a combination of the holdings of General Re Corp., which Berkshire has owned since 1998 but had previously reported its holdings separately as part of New England Asset Management Inc.
“Beginning with the Form 13F to be filed later today, the holdings of Gen Re will be included in Berkshire’s 13F filing,” Berkshire said in a news release earlier Monday. “The NEAM Form 13F filings will no longer include Gen Re’s holdings but they will continue to include NEAM client holdings where NEAM is acting as an investment manager.”
Other holdings affected by that change included Apple Inc.
AAPL,
Bank of America Inc.
BAC,
and Chevron Corp.
CVX,
Berkshire said in its news release.
Other stocks that Berkshire made moves with during the first three months of the year included the former Restoration Hardware — RH
RH,
shares fell 3% after Berkshire disclosed selling off its 2.4 million stake. Berkshire also officially reported selling of its 8.3 million stake in Taiwan Semiconductor Manufacturing Co.
TSM,
Icahn Enterprises LP’s stock was trading down 0.7% Thursday, after short seller Hindenburg Research intensified his bearish bet on Carl Icahn’s investing arm, and said he’s now taking aim at its bonds.
Hindenburg, run by Nate Anderson, said the latest disclosures made Wednesday by IEP raised more questions about Icahn’s personal margin loans, or debt, from the company as well as portfolio losses at IEP. The short seller also said disclosures, intended to counter Hindenburg’s May 2 report, failed to address the issues raised.
The original report raised questions about asset valuations and Icahn’s own borrowing from the company using his units as collateral.
Hindenburg Research, which typically aims to profit from the decline in value of the shares of companies that it writes negative reports about, kicked off such a bet against Icahn Enterprise earlier this month but has now also set its sights on the company’s debt.
For more, see: Icahn calls Hindenburg short-seller report self-serving, as market value of his company’s stock plunges by $4 billion
“As noted in our earlier report, Icahn had not disclosed “basic metrics around his margin loans like loan to value (LTV), maintenance thresholds, principal amount, or interest rates.” This is still the case,” said Hindenburg.
IEP has not said why Icahn had borrowed against his holdings. The company didn’t respond to a request for comment on Thursday’s report.
On Wednesday, IEP disclosed a federal probe into its corporate governance and other issues. It is unclear if that investigation by the Southern District of New York is related to Hindenburg’s report and allegations, but the news put further pressure on the stock.
The bonds, which have been more active than usual since the first report, took another leg down on Thursday, as the attached charts from market-data company BondCliQ show, as Hindenburg said it has taken a short position in them.
The longest-dated bonds, the 4.375% notes that mature in February of 2029, were trading at around 75 cents on the dollar, as of midmorning.
Icahn owns 84% of IEP shares and disclosed in a 2022 filing with the Securities and Exchange Commission that he had pledged more than 181 million units, or 60% of his holdings, for margin loans.
On Wednesday, IEP
IEP,
said that pledge had increased to 202 million units, which Hindenburg estimates was valued at $6.5 billion as of Wednesday’s close, based on his calculations.
The battle between the iconic activist investor and the short seller has clobbered IEP’s stock, which has fallen 39% in the month to date at a cost of more than $6 billion of market cap.
Also read: What we know about Carl Icahn’s margin loan
IEP posted an unexpected loss on Wednesday of $270 million, or 75 cents per depositary unit, for the first quarter, after income of $323 million, or $1.06 a unit, in the year-earlier period. The FactSet consensus was for income of 19 cents.
Revenue fell to $2.758 billion from $2.968 billion a year ago, ahead of the $2.559 billion FactSet consensus. Analysts on its conference call didn’t pose any question of executives who briefly outlined the quarterly numbers.
The company on Wednesday also issued a rebuttal of the May 2 report from Hindenburg and said it would “take all appropriate steps to protect our unit holders and fight back.”
Icahn acknowledged that the investment segment has underperformed in recent years, which he blamed on its bearish view of the market and large net short position, which it has now scaled back.
IEP offers exposure to Icahn’s personal portfolio of public and private companies, including petroleum refineries, car-parts makers, food-packaging companies and real estate. Its unit holders are mostly individual investors, which means the market-cap loss prompted by the report has hurt those individual investors, said Icahn.
Icahn Enterprises LP stock tumbled 25% Tuesday to put it on track for a record one-day decline, after short seller Hindenburg Research issued a negative report against the investment arm of activist investor Carl Icahn.
The stock’s previous one-day record decline was a loss of 19.5% on Nov. 20, 2008. The market cap loss today is about $4.48 billion.
Icahn…
Block
stock rose Thursday after the payments group responded to some of a short seller’s allegations.
Last week, Hindenburg Research disclosed a short position in the company, alleging that Block (ticker: SQ) had inflated user metrics and didn’t rein in illicit activity by users on its Cash App platform. A short position is a bet that a stock will fall: Traders who try it borrow shares of a company and then sell them, hoping to buy them back later at a lower price.
“‘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,
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.
Mobileye Global Inc. priced its initial public offering higher than its targeted range late Tuesday to raise nearly $1 billion, most of which will go to Intel Corp.
Mobileye priced its initial public offering at $21 late Tuesday, the company announced in a news release, after previously stating a targeted range of $18 to $20; shares are expected to begin trading on the Nasdaq under the ticker symbol “MBLY” on Wednesday. Intel
INTC,
will sell at least 41 million shares of Mobileye, which would raise $861 million, and also agreed to a $100 million concurrent sale of stock to General Atlantic, which would make the total raised at least $961 million.
Intel paid $15.3 billion to acquire Mobileye in 2017, and was reportedly aiming for a valuation as high as $50 billion when originally planning this IPO, but instead will settle for a basic valuation of roughly $16.7 billion. After a record year with more than 1,000 offerings in 2021, the IPO market has largely dried up in 2022.
Read: Mobileye IPO: 5 things to know about the Intel autonomous-driving spinoff
Underwriting banks — Intel listed two dozen underwriters, led by Goldman Sachs Group Inc.
GS,
and Morgan Stanley
MS,
— have access to an additional 6.15 million shares for overallotments, which could push the total raised higher than $1 billion and make Mobileye the second-largest offering of the year. Only two offerings thus far this year have raised at least $1 billion — private-equity firm TPG Inc.
TPG,
raised exactly $1 billion in January, and American International Group Inc.
AIG,
spinoff Corebridge Financial Inc.
CRBG,
raised at least $1.68 billion in September.
Intel will receive the bulk of the proceeds of the offering — after promising to make sure that Mobileye has $1 billion in cash and equivalents, the chip maker will take the rest of the proceeds for its own coffers. Wells Fargo analysts calculated that Mobileye will need about $225 million to hit that level, leaving at least $736 million for Intel before fees and other costs.
Intel will also maintain control of the company after spinning it off, keeping class B shares that will convey 10 votes for each share while selling class A shares that convey one vote per share. Intel will retain more than 99% of the voting power and nearly 94% of the economic ownership of the company, and the Mobileye board is expected to include four members with ties to Intel, including Chief Executive Pat Gelsinger serving as chairman of the board.
Read also: Intel files for Mobileye IPO, creating a share structure that will keep the chipmaker in control
Mobileye will continue to be led by founder Amnon Shashua, who served as chief executive before Intel acquired the company and stayed at the helm while it was part of the Silicon Valley chip maker. Shashua founded Mobileye in 1999 and turned it into a pioneer in the field of automated-driving technology and one of Israel’s most prominent tech companies.
Mobileye filed for the initial public offering at the end of September, when executives were still reportedly hoping for a $30 billion valuation.
