Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Bespoke Investment Group warned ETF investors they may not be getting the diversification they’re expecting. The focus is on U.S.-traded funds, but the trend is widespread,
“All of the focus of the S&P 500′s ‘top-heaviness’ centers on the S&P 500, but within individual sectors, there’s a similar trend. The first chart below shows the largest company in each S&P 500 sector ETF and what percentage that company’s market cap represents as a percentage of the ETF’s total market cap based on screens at ETF Database. Within the Communication Services sector ETF (XLC), Alphabet (GOOGL and GOOG) represents more than a quarter of the ETF’s total market cap. Outside of Communication Services, there are another three sectors where the sector’s largest components account for more than a fifth of the ETF’s total market cap. Additionally, there are only two sectors – Health Care (XLV) and Industrials (XLI) – where the largest company accounts for less than 10% of the ETF’s total market cap. Even in the Utilities sector (XLU), NextEra (NEE) accounts for 18% of that ETF’s total market cap.”
“Bespoke warns ETF investors they may not be getting the diversification they’re expecting” – (research excerpt) Twitter
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CIBC analyst Paul Holden adopted a somewhat skeptical view of BMO’s major U.S. acquisition in a report called Acquisition Merits Will Take Time To Prove Out ,
“We think the Bank Of The West acquisition has clear financial and strategic merits. However, we expect the stock will be handicapped for a time given the long time to closing (end of 2022), pending equity issuance and time to realize cost synergies (2024). Also, we have removed assumed share repurchases from our financial model resulting in a reduction to our EPS estimates (3.5%). Our price target decreases from $157 to $145 from the reduction in our EPS estimates and a lower multiple to account for transaction-related risks. We are downgrading BMO from Outperformer to Neutral effective December 20.”
“CIBC from “Acquisition Merits Will Take Time To Prove Out”” – (research excerpt) Twitter
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BofA Securities quantitative strategist Jill Carey Hall analyzes asset flows for the firm’s clients and finds some interesting results,
“Everybody bought equities last week across all of our client categories. US equity net inflows were positive ($5.0B) for the third week, mostly driven by passive (ETF) buying and corporate buybacks. Excluding buybacks, the last four weeks saw the biggest inflows in three months. Individuals most bullish YTD: Private clients led inflows last week and have been the most bullish subset of our clients this year, with private client flows into stocks and ETFs the least negative, and hedge fund net flows the most negative … The 10-wk. buying streak in Energy is the longest of all sectors, with room for more inflows in ‘22 based on still attractive relative valuation, light positioning and corp. buyback guidance. Energy and Real Estate—both Late Cycle sectors that offer inflation-protected yield—have seen the largest cumulative stock ETF inflows in ‘21.• Last week, clients bought stocks in six of the 11 sectors. Excluding corp. buybacks, flows were largest in Comm. Services, Consumer Discretionary and Financials. Health Care and Industrials saw the largest outflows. Industrials has seen outflows most weeks since Aug., and the biggest outflows of any sector YTD … Hedge Funds net sellers since late Nov. on a four week avg. basis”
“BofA: Inflation-protected yield was the theme in 2021″ – (research excerpt) Twitter
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Diversion: “Our favorite photographs from 2021″ – M.I.T. Technology Review
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