Money-market mutual-fund reform, slated to take effect on Oct. 14, has pushed up the London interbank offered rate sharply. Three-month Libor has risen about 50 basis points (one-half percentage point), to a hair over 0.85%, twice as much as the Federal Reserve has lifted its federal funds target range, which has stood at 0.25%-0.50% since last December.
Most regular folks haven’t benefited from the rise in Libor. To be sure, adjustable-rate mortgage rates are set to rise, which could hit some homeowners, as noted in Up and Down Wall Street in this week’s Barron’s. But the benefit generally hasn’t flowed through to savers.
One exception: municipal money-market funds. Clients of Vanguard seem to be coming out ahead, according to Dan Wiener’s Independent Adviser for Vanguard Investors October newsletter. That’s especially true of investors in the upper tax brackets, who can most readily take advantage of tax-free income from muni funds.
Holders of the Vanguard Tax-Exempt Money Fund (VSMXX) earn the equivalent of 1.2%, more than twice the 0.56% paid on the Vanguard Prime Money Market Fund (VMMXX,) according to the just-released advisory. And if you’re fortunate enough to live in high-tax New York, the Vanguard NY Exempt Money Market Fund (VYFXX), you’d net the equivalent of 1.3%.
Those taxable-equivalent yields, of course, assume you actually pay taxes. On the other hand, if you’re financially savvy enough to lose over $900 million and not have to pay any taxes for upwards of two decades, the tax advantages of muni money-market funds don’t apply.
Utility stocks started the fourth quarter weakly with the Utilities Select Sector SPDR (XLU) losing over 1% Monday. The usual suspect, an uptick in bond yields, could be fingered with the Treasury 10-year note yield moving back above 1.60% after the Institute for Supply Management’s widely watched manufacturing gauge moved back into expansion territory in September.
The acquisition of Janus Capital Group (JNS) by London-based Henderson Group Plc (HGG.London) for about $2.6 billion marks the latest defensive move by active managers trying to fend off the attack by lower-cost passively-managed strategies that continue to woo investors.
You can’t lose ‘em all. Hedge funds’ biggest holdings handily outperformed the broad stock market in the third quarter, Bank of America Merrill Lynch estimates. And hedge funds lived up to their names as their long positions outperformed their shorts by the biggest margin in more than four years.
BofA ML estimated hedge funds’ core holdings returned 9.86% through Sept. 27, more than half again the 6.44% total return of the Standard & Poor’s 500 through that date. Based on the June 30 13Fs,the most popular stocks among hedge funds were, not surprisingly, some of the big tech winners, notably Facebook (FB), which hit a record in early September; Amazon.com (AMZN); Microsoft (MSFT), the new fave in old tech; Alphabet (GOOGL.)Apple (AAPL); Allergan (AGN) and Charter Communications (CHTR).
Is the $6 billion merger between Henderson Group and Janus Capital Group (JNS) is just the tip of the M&A iceberg? Todd Rosenbluth, director of ETF and mutual fund research at S&P Global Market Intelligence, predicts that more such deals are likely to take place among asset managers given pressure the growing competition from index funds.
It’s a big day for Janus Capital Group (JNS). At $15.87, shares of the investment manager are soaring 13.4% on news of an all-cash $6 billion merger with Henderson Group in a deal aimed at widening the firms’ distribution reach. But the WSJ’s Heard of the Street column reports that Henderson is getting the better value in this so-called merger of equals. reports that
Here are some news items of interest for mutual fund and ETF investors:
Investment management firms Henderson Group and Janus Capital (JNS) announced an all-share $6 billion merger aimed at widening their distribution reach.
The Wall Street Journal reports that hedge funds are profiting from short positions on Deutsche Bank (DB). The German bank and the DOJ continue to discuss a settlement in the high-profile mortgage-backed securities case.
Demand for the Fed’s overnight repo program continues to grow, with money markets and other eligible investors pouring $412.5 billion into the program on Friday.
At Barron’s, ETF writer Chris Dieterich advised readers how to use ETFs to play the next round of biotech mergers and acquisitions.
Also in this weekend’s edition, Jack Willoughby profiled Michael Beall, chief investment officer at Davenport & Co, citing the strong returns he’s posted by investing in value stocks with the power to raise dividends. In his weekly Up And Down Wall Street column, Randall Forsyth weighed in on the evolving crisis at Deutsche Bank. And Lewis Braham answers the question, why “clone” funds won’t go extinct.
BlackRock‘s (BLK) Richard Turnill told CNBC on Monday that while putting money into the stock market continues to make sense, investors must have a care for where they take risk amid a shifting global economic dynamic.
ETF.com writes that September proved to be yet another record-setting month for ETF launches.
Some personal news: today is my last as Barron’s funds blogger, although magazine readers will see my byline in the weeks ahead. It’s been an entertaining two years reporting on the industry, particularly the fast-growing world of exchange-traded funds.
Barron’s readers are among the savviest out there and it’s been great to hear from so many of you. I sifted through my column archives in order to highlight a few big-picture ideas that, to me, are worth reiterating about ETF due diligence. Consider what follows to be a quick summary of lessons I’ve learned on the ETF beat.
Buyout chatter is heating up in the brokerage space. One analyst says that now is the time to cash out if you own TD Ameritrade (AMTD).
Bloomberg reports that privately held online broker Scottrade Financial is for sale. Ben Levisohn noted that TD Ameritrade, Charles Schwab (SCHW), E*Trade Financial (ETFC) and maybe some banks all are potential buyers.
William Katz at Citigroup notes that, TD Ameritrade’s shares are up 6% so far this month (in part because of separate speculation about a TD/E*Trade deal), and that now is probably the time to sell. He asks, “Time to Fade the M&A Euphoria?”
“While both potential deals offer EPS accretion, we believe the sharp rally in [AMTD] shares: 1) amply discounts most likely accretion scenarios; yet, 2) leaves no room for a bad outcome, which we define as: AMTD opts not to pull the deal trigger; ETFC acquires Scottrade; or, a third party enters the M&A fray outbidding AMTD. As such, we are inclined to fade the rally, particularly as rate(s) expectations remain largely muted. …
Of the two prospective combinations, we believe AMTD/Scottrade is the more likely though could raise strategic, long-term questions for investors around growth, strategy and resultant P/E multiple.”
Here’s why Scottrade appears to be the likelier deal, according to Katz:
“Several factors lead us to conclude that a deal between AMTD and Scottrade may be more likely than a deal between AMTD and ETFC. We also believe it would be easier for AMTD to craft a deal for Scottrade relative to ETFC – though this latter point is based on several very broad metrics based on Consensus expectations (Figure 6). In turn:
There is greater EPS accretion for Scottrade than ETFC; The deal is smaller and seemingly offers lower execution risks; Such a deal is less likely to drive a strategic response by SCHW given the smaller size of Scottrade, and thus better protects EPS accretion upside; and, the revenue dis-synergies and cost reductions are more manageable, we believe.”
Links to the best reading in funds investing:
As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.
Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.
Write to Chris at [email protected]