ETF Inflows Top $1 Trillion for First | Stock Market News Today


A historic surge of cash has swept into exchange-traded funds, spurring asset managers to launch new trading strategies that could be undone by a market downturn. 

This year’s inflows into ETFs world-wide crossed the $1 trillion mark for the first time at the end of November, surpassing last year’s total of $735.7 billion, according to Morningstar Inc. data. That wave of money, along with rising markets, pushed global ETF assets to nearly $9.5 trillion, more than double where the industry stood at the end of 2018.

Most of that money has gone into low-cost U.S. funds that track indexes run by Vanguard Group,

BlackRock Inc.


BLK 0.66%

and

State Street Corp.


STT -0.50%

, which together control more than three-quarters of all U.S. ETF assets. Analysts said rising stock markets, including a 25% lift for the S&P 500 this year, and a lack of high-yielding alternatives have boosted interest in such funds.  

“You have this historical precedent where you have tumultuous equity markets, and more and more investors have made their way to index products,” said

Rich Powers,

head of ETF and index product management at Vanguard.

Asset managers are looking to actively managed funds, some with narrow themes, in search of an unfilled niche not already dominated by the industry’s juggernauts, analysts and executives said. VanEck, for example, earlier this month rolled out an active ETF targeting the food industry. In March, Tuttle Capital Management launched its

FOMO ETF,

which is bullish on stocks popular with individual investors. 

Firms including Dimensional Fund Advisors have converted mutual funds into active ETFs. Meanwhile, bigger firms have rolled out ETFs that mimic popular mutual funds, including Fidelity Investments’ Magellan and Blue Chip Growth funds.

“We should have a broad offering of ETFs that stand alongside a broad offering of mutual funds,” said

Gerard O’Reilly,

Dimensional’s co-chief executive, of his company. “Choose your own adventure.” 

As ETFs, baskets of securities that trade as easily as stocks, have boomed this year, investors poured a record $84 billion into ones that pick combinations of securities in search of outperformance rather than tracking swaths of the stock market. That represents about 10% of all inflows into U.S. ETFs, up from nearly 8% last year, according to Morningstar. 

Asset managers long known for running mutual funds are rushing to take advantage of investors’ interest in active ETFs. More than half of the record 380 ETFs launched in the U.S. this year are actively managed, according to FactSet. Fidelity, Putnam and

T. Rowe Price

are among the firms that have rolled out actively managed ETFs in 2021. Firms new to ETFs have also entered the fray. 

The top 20 fastest-growing ETFs, largely run by Vanguard and BlackRock, this year pulled in nearly 40% of all flows, charged an average fee of less than 0.10 percentage point and tracked benchmarks of some sort. 

Many active ETFs remain comparatively small and charge fees higher than passive funds, putting a swath of new products at risk of closing over the next several years. ETFs usually need between $50 million and $100 million in assets within five years of launching to become profitable, analysts and executives say; funds below those levels have tended to close. 

Of the nearly 600 active ETFs in the U.S., three-fifths have less than $100 million in assets, according to FactSet data. More than half are below $50 million. 

“You’re going to see a lot of those firms take a hard look at their future,” said

Elisabeth Kashner,

FactSet’s director of ETF research.

The stock market’s bull run has helped buoy many ETF providers, Ms. Kashner said, adding that firms have in 2021 closed the fewest number of funds in eight years. But a market pullback, which most stock-market strategists anticipate, could flush out weaker players, she said. 

Vanguard has been a beneficiary of high inflows to funds that track indexes. A statue of founder John C. Bogle.



Photo:

Ryan Collerd for The Wall Street Journal

ETF closures generally climbed over the past decade, and firms closed a record 277 ETFs last year as the coronavirus pulled markets down. Many held few assets. About a third of all active ETFs are marked as having a medium or high risk of closure, according to FactSet data that take into account assets, flows and fund closure history. 

Factors that have helped stoke active launches, analysts and executives said, include rules streamlined by regulators in late 2019 that made ETFs easier to launch. The approval of the first semitransparent active ETFs, which shield some holdings from the public’s eye, followed.

Analysts also said the success of ARK Investment Management Chief Executive

Cathie Wood

in 2020 showed how active ETFs can score big returns and pull in substantial sums of money. Several of ARK’s funds doubled last year, and its assets approached $60 billion earlier this year, though many of its bets have slumped in 2021. 

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Most other active managers aren’t doing much better. Two-thirds of large-cap managers of mutual funds have fallen short of benchmarks this year, while roughly 10% of the 371 U.S. active ETFs with full-year performance data are beating the S&P 500. More than a third are flat or negative for 2021. 

“Active management is a zero-sum game,” said FactSet’s Ms. Kashner. “Beating the benchmark quarter after quarter, year after year, is a very difficult task at which active managers have traditionally struggled. The ETF wrapper doesn’t change that calculus.” 

Write to Michael Wursthorn at [email protected]

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Paytm and Zomato IPOs Point to Coming Wave of Indian Tech | Sidnaz Blog


NEW DELHI—India is gearing up for tech IPOs, including two worth more than $1 billion, as startups look to tap a stock market that has proved resilient despite Covid-19.

The initial public offerings reflect the maturing of a generation of e-commerce and digital-economy companies, bankers say, many of which have grown rapidly during the pandemic as well-off city-dwellers turn to them when purchasing products from milk to medicines.

On July 16, the operator of the Paytm digital-finance app, One97 Communications Ltd., filed a prospectus for what would be India’s largest IPO in local-currency terms. The group offers services such as a mobile wallet, loans and stock-trading, and is backed by

Jack Ma’s

Chinese financial-technology giant Ant Group Co. One97 aims to issue new and existing shares worth a total of up to 166 billion rupees, the equivalent of $2.23 billion.

Other companies considering IPOs include digital-payments platform One MobiKwik Systems Ltd., which filed its prospectus earlier this month, and logistics and supply-chain-services provider Delhivery Pvt., according to a company spokeswoman. Online cosmetics seller Nykaa E-Retail Pvt., API Holdings Pvt., the parent company of online pharmacy PharmEasy, and PB Fintech Pvt., the parent of insurance aggregator Policybazaar.com, are also considering listings, according to people familiar with their plans.

“This is the first set of these companies coming to the public market” in India, said

Kaustubh Kulkarni,

the head of investment banking for India at the local unit of

JPMorgan Chase

& Co.

Demand for the shares is likely to be strong, given the companies’ brand recognition, said Mr. Kulkarni, who is also the bank’s co-head of investment banking for South and Southeast Asia. “Most of these companies are offering products, services or capabilities which millions, if not hundreds of millions, of customers are utilizing on a day-to-day basis,” he said.

Last week investors placed orders worth 38 times the shares being offered by Zomato Ltd., India’s answer to

DoorDash Inc.

The food-delivery group raised around 94 billion rupees, the equivalent of $1.26 billion, and its shares are due to start trading on July 27.

Some market-watchers say Indian tech has plenty of room to grow, as more consumption shifts online. Earlier-stage investors have poured about $16 billion into Indian startups this year, creating 16 new unicorns—young private companies valued at $1 billion or more—according to data firm Venture Intelligence.

India’s unicorn population will rise to 150 by 2025 from 60 now, predicted

Gaurav Singhal,

the head of India consumer technology at

Bank of America Corp.

’s investment-banking arm. Many will eventually look to float, he said, translating into a big increase in market capitalization.

“India will see $300 billion to $400 billion of market-cap creation in the internet ecosystem in the next five years,” said Mr. Singhal.

The deals already under way show how India’s financial sector has been swept up in an international boom, even as the country records more than 30,000 new Covid-19 cases a day, among the highest daily counts in the world.

Already this year, India has hosted a rush of IPOs—joining a global surge fueled in part by tech companies from elsewhere in Asia, such as China’s

Kuaishou Technology

and South Korea’s

Coupang Inc.

The operator of the Paytm digital-finance app filed a prospectus for what would be India’s largest IPO in local-currency terms.



Photo:

Dhiraj Singh/Bloomberg News

India’s 22 IPOs in the first six months of 2021 brought in $3.7 billion, a record half-year haul, according to Prime Database Group, a research firm in New Delhi. Shares in some recently listed companies are trading at twice their IPO price.

At the same time, Indian stock indexes have soared as investors bet on big listed companies. The S&P BSE Sensex has hit a series of record highs, most recently on July 15, and international investors have poured about $7.7 billion into Indian shares this year, official data shows.

Millions of individual Indian investors are trading stocks for the first time, again mirroring trends seen in the U.S. and some other markets.

Harpreet Singh,

a 23-year-old from the northern city of Pathankot, started dabbling in the market last year while waiting for the chance to study abroad.

Relying on advice from videos on YouTube and Telegram, Mr. Singh said, he has lost money at times—but still finds trading stocks more appealing than getting a job in his hometown, where he said private-sector work pays barely 10,000 rupees a month, equivalent to about $134.

“If you have knowledge of stocks,” he said, “then in three to four months you can earn hundreds of thousands of rupees, sitting at home.”

Write to Shefali Anand at [email protected]

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How Jitters About the Global Economy Are Rippling Through Markets | Sidnaz Blog


Stocks, bond yields and oil prices declined Monday in the most acute sign yet that investors are second-guessing the strength of the global economic recovery that sent markets soaring this year.

Markets rallied in the first half of 2021, thanks to investors’ bets that economies would bounce back, as countries rolled out Covid-19 vaccinations and lifted restrictions on businesses. Reports on everything from retail sales and housing prices to employment have shown swaths of the U.S. economy healing, helping send the S&P 500 to 39 record closes this year and almost double from its March 2020 trough.

Monday’s pullback put a dent in that narrative. The Dow Jones Industrial Average fell 725.81 points, or 2.1%, to 33962.04, logging its steepest decline since October. Meanwhile, the yield on the 10-year U.S. Treasury note, which falls as bond prices rise, sank to its lowest level since February. And U.S. crude oil prices slid 7.5%—marking their worst session since September.

Behind the rout, investors say, is a growing list of concerns about the recovery. The Delta coronavirus variant has spread rapidly, reigniting the debate in several countries about whether governments should resume lockdowns and curb activity. Meanwhile, inflation has accelerated faster than many anticipated, and strained U.S.-China relations have put pressure on trillions of dollars’ worth of U.S.-listed Chinese companies.

Many money managers believe the global economy will be able to keep growing. They just don’t know how quickly—and whether the gains will be enough to keep increasingly pricey-looking markets rising after a banner first half.

“The market is saying the economy is going to slow down fairly significantly in the next weeks or months,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management.

Peak Growth?

Investors say much of what drove markets’ reversals on Monday is concern that the best of the economic recovery may be in the rearview mirror.

The 2020 recession in the U.S. lasted just two months—the shortest on record, according to the National Bureau of Economic Research. The economy powered higher in the year that followed.

Gross domestic product grew at a 6.4% seasonally adjusted annual rate in January through March, leaving the U.S. within 1% of its peak reached in late 2019.

Economists surveyed by the Journal estimate that the economy expanded at a 9.1% seasonally adjusted annual rate in the April-to-June period, the second-fastest pace since 1983. Corporate earnings are also poised to soar. Analysts are projecting profits for S&P 500 companies to rise almost 70% in the second quarter from a year earlier, a growth rate that would be the highest in more than a decade.

Now, some investors are asking: Is this as good as it gets?

Economists believe the pace of U.S. growth this year likely peaked in the spring and will moderate to 6.9% for 2021 as a whole before cooling to 3.2% next year and 2.3% in 2023. These dwindling expectations have stoked big moves among stocks and sectors within the S&P 500 as well as across the bond market.

“That’s what the market has been doing…starting to digest peak growth rates and realizing these growth rates are unsustainable,” said

John Porter,

chief investment officer of equities at Mellon Investments Corp.

Elsewhere around the world, growth also looks poised to slow—potentially pointing to further challenges for investors. The S&P 500 has continued to outperform the Stoxx Europe 600 and Shanghai Composite for the year. However, some investors wonder if the gap between U.S. and overseas indexes will narrow, if the recovery in the U.S. begins to stall more.

Oil Prices Tumble

One area of the markets where fear about growth quickly reared its head: the oil market.

For months, investors had piled into bullish bets on oil, assuming that demand would boom and the economy would stage a robust recovery. Many of those wagers have been unwound in recent sessions. Monday’s declines were driven by fears about the Delta variant halting travel and crimping demand for fuel.

Shares of energy producers, which tend to be sensitive to changes in the economic outlook, also pulled back. The S&P 500’s energy sector is now down 13% this month, the worst-performing group within the index.

Investors say much of what drove markets’ reversals on Monday is concern that the best of the economic recovery may be in the rearview mirror.



Photo:

Richard Drew/Associated Press

Sentiment Stalls

For months, people around the U.S. opened their wallets and spent on everything from cars to travel. Investors grew more optimistic about the economy, as Americans got vaccinated, businesses reopened and many people found themselves flush with cash, helped in part by stimulus checks. One survey by Gallup showed that the percentage of Americans who considered themselves to be “thriving” in life reached 59.2% in June, the highest in more than 13 years.

Recently, signs have emerged that this optimism is starting to fade. Fresh data last week showed that consumers stepped up spending in June. However, new figures also showed that consumer sentiment in the U.S. declined in early July, missing expectations from economists polled by The Wall Street Journal. Meanwhile, the unemployment rate has stagnated, and some investors are now concerned about a labor shortage snarling the economy.

One of the biggest factors weighing on sentiment? Inflation. Consumer complaints about rising prices on homes, vehicles and household durables reached a record, particularly hitting lower and middle-income households. The Labor Department said its consumer-price index rose 5.4% in June from a year ago, the fastest 12-month pace since August 2008.

Because consumer spending drives much of U.S. economic growth, investors tend to heed signs that households are beginning to become more wary about major purchases. Inflation can also eat into corporate profits, making stocks look less attractive.

According to a recent Charles Schwab survey, 15% of all U.S. stock market investors said they first began investing in 2020. Picking a stock, however, may not be as easy as it sounds. WSJ’s Aaron Back explains the factors at work when stock-picking. Photo illustration: Rafael Garcia

“Last week we had high inflation readings. Now we have concerns that the rise in Covid cases is dimming the economic outlook. High inflation and lower economic growth is not a good combination,” said

Dave Donabedian,

chief investment officer of CIBC Private Wealth Management, U.S., in emailed comments.

The Bond Market’s Warning

Even before Monday, bets that economic growth will cool rippled across the bond market. Investors have been gobbling up government bonds for weeks.

One effect of the slide in bond yields? The real yield on the 10-year Treasury note has been negative, and on Monday it slipped to 1.05%, the lowest since February. Real yields are what investors get on U.S. government bonds after adjusting for inflation. When those bond yields are negative, as they have been lately, investors are effectively locking in losses when parking their money in government bonds.

“People are worried about inflation but also a growth scare,” said

Giorgio Caputo,

a portfolio manager at J O Hambro Capital Management. “You’ve never had a modern economy that’s reopened after a pandemic.”

These fears have driven investors into government bonds and helped push those real yields lower and lower, he said.

While a souring outlook for growth is generally negative for stocks as a whole, one area of the market has actually benefited from negative real yields. Lower yields weigh on the discount rate in formulas used to estimate what stock prices should be, making future corporate earnings more valuable. The recent drop in yields has boosted shares of technology companies and other fast-growing firms and helped drive a mammoth shift in the stock market in recent weeks. Tech behemoths like

Apple Inc.,

Amazon.com Inc.

and

Microsoft Corp.

have risen to fresh highs, even as many other parts of the market have floundered.

And on Monday, the tech-heavy Nasdaq Composite outperformed its peers. Many investors returned to the bets that had flourished when people around the country were stuck at home during the Covid-19 pandemic.

Peloton Interactive Inc.

shares jumped 7.1%, while

Slack Technologies Inc.

added 1%.

Wayfair Inc.

shares advanced 3.3%.

In contrast, shares of cyclical companies that benefit from a speedier economic recovery—like banks, energy companies and airlines—were among the worst-performers in the stock market.

“It seems like the market overextrapolated the good times…and now we’re seeing a little bit of the air being let out,” said

Jason Pride,

chief investment officer of private wealth at Glenmede.

Covid-19 Weighs on Investors

More WSJ coverage of markets, selected by the editors

Write to Gunjan Banerji at [email protected] and Akane Otani at [email protected]

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Nvidia Stock’s Surge Makes Chip Maker 10th-Biggest U.S. Listed | Sidnaz Blog


Nvidia chips’ parallel-computing capabilities make them better than rivals’ for artificial-intelligence performance and mining cryptocurrencies.



Photo:

nvidia corp/Reuters

The post-pandemic boom in the semiconductor business has powered

Nvidia Corp.


NVDA -4.25%

into the top 10 U.S. public companies, joining the likes of Apple Inc. and JPMorgan Chase & Co.

Shares of the Santa Clara, Calif., firm have risen nearly 80% over the past year, giving it a market value of around $453 billion. That is more than rivals

Intel Corp.

and

Broadcom Inc.

combined.

Nvidia makes processors that power gaming and cryptocurrency mining. Chip shares have risen in part thanks to a pandemic-induced global shortage of semiconductors that has driven up the prices of everything from laptops to automobiles.

One reason for Nvidia’s outperformance, analysts say, is that its chips’ parallel-computing capabilities make them better than rivals’ for artificial-intelligence performance and mining cryptocurrencies. Nvidia’s graphics processors are used for mining ethereum and the cryptocurrency’s value has soared this year, even after a recent correction.

That surge has exacerbated the shortage of gaming chips. Nvidia plans to sell cards aimed at the crypto market and has employed technical adjustments to make gaming processors less useful to miners. Analysts also expect Nvidia to get a boost from tech and autonomous-vehicle companies using its chips to navigate traffic or track online behavior.

SHARE YOUR THOUGHTS

How do you think Nvidia will perform in the next year? Join the conversation below.

“The company is the biggest and best supplier of parallel computing,” said

Ambrish Srivastava,

analyst at BMO Capital Markets. “It’s hard to compete against that.”

While Nvidia has a leg up in the data-center industry, competitors are catching up, analysts said. The recent slide in crypto also could spur miners to dump their chips on the secondary market, as happened when a previous ethereum skid hit revenue in 2018.

A global chip shortage is affecting how quickly we can drive a car off the lot or buy a new laptop. WSJ visits a fabrication plant in Singapore to see the complex process of chip making and how one manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

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Are Power Companies Playing Texas Hold’em? | Sidnaz Blog


It isn’t even close to the peak of Texas’s sizzling summer season and already the state’s power grid has given out two warnings of tight conditions after a higher-than-usual volume of plants went offline. Wear and tear from the February winter storm is one possible explanation; market manipulation is another. They aren’t mutually exclusive.

Warm weather and low wind output played a role, but what was surprising about the alerts—one in April, the other in June—was the number of power plants that were offline at the same time. On June 14, the Electricity Reliability Council of Texas, the state’s grid operator, said some 11 gigawatts of generation (roughly 15% of that day’s peak load forecast and enough to power 2.2 million homes in the summer) was on forced outage for repairs. In April, Ercot had said roughly 33 GW of generation was out of service for maintenance. Of course, that isn’t entirely surprising after the February disaster that strained the entire system and left millions without power.

The exact causes of the outages aren’t all accounted for. Texas regulators on Wednesday ordered Ercot to release that kind of information within three days instead of the usual 60 days for any outages that occur this summer. Ercot is expected to release information on the June outages this week. While that will offer some color, it likely won’t be the full story, especially given that the information will be based on whatever the power plants have told Ercot. The independent market monitor, Potomac Economics, will investigate whether any market manipulation took place in those two events.

The tight supply conditions are a reminder of two separate but potentially compounding risks of a grid that offers large carrots in times of market tightness (up to $9,000 a megawatt-hour) but barely any sticks for being unavailable. Such a market gives generators little reason to maintain their power plants beyond the bare minimum, increasing the chances of unplanned outages. Secondly, in such a market, manipulation—withholding power from certain plants to reap outsize profits from others—is tempting. The combination seems to make for a potentially reinforcing spiral of risks, especially given the worn-down physical and financial state of power plants in Texas after the February storm.

The most obvious culprit for the outages is the storm itself, which left the grid severely strained. Beth Garza, former director of Ercot’s independent market monitor, pointed out that the June outages occurred on a Monday and that it isn’t uncommon for power plants to plan to go offline over the weekend for a quick fix only to have that outage extended because repairs took longer than expected.

Another possibility that can’t be ruled out is market manipulation. The electricity market fiasco in February led to high rewards for certain market participants and painful losses for others. The former group’s appetite for reward might have been piqued by the scarcity event, while for the latter, the rewards of spiking profits could start to overwhelmingly outweigh any costs of being caught out for manipulation.

Selling electricity in Texas isn’t terribly rewarding. Based on an analysis of annual reports that Ercot’s independent market monitor publishes every year, Ed Hirs, an energy economist who teaches at University of Houston, found that in eight out of the last 10 years revenues received by generators haven’t been enough to cover their costs.

A crew in Odessa, Texas, made repairs after the February storm. The exact causes of the widespread outages aren’t fully accounted for.



Photo:

Eli Hartman/Odessa American/Associated Press

Part of the problem is that market manipulation rules are rather lax. For example, Texas has a “small fish” rule that means companies controlling less than 5% of the system’s total capacity aren’t considered to have market power. Yet the independent market monitor has pointed out in previous reports that there were times when small fish would have been pivotal to the grid and able to increase the market’s power price.

A more far-fetched but nonzero possibility is that the winter’s strain provides easy cover for any power plant owners who need an explanation for withholding power from the market.

Ironically, Texas’s attempt to fix the winter problem could end up exacerbating these very risks. In June, the state passed a mandate ordering the public utility commission to establish rules for the weatherization of power plants, giving the commission power to levy fines as large as $1 million for those that don’t comply. Such measures would probably require more downtime among existing power plants and create more costs for them. And more financial strain could, theoretically, cause more market-manipulative behavior from power plants unable to recoup enough of their costs through normal course of business.

Moreover, Mr. Hirs notes that it is “entirely possible that some companies will just withdraw from the grid because they haven’t been covering their costs to date,” adding that some participants were running power plants that were already “essentially broken.”

On the other hand, there is already a lot of scrutiny following the cold snap in February. The Federal Energy Regulatory Commission opened an examination to determine whether any market manipulation was involved in both wholesale natural gas and electricity markets during the power shortage earlier this year. And, because the market was already under tight conditions for long spells in February, the maximum price that power plants can reap has come down to $2,000 per megawatt-hour, down from $9,000. Still, that cap is still well above the roughly $22 per MWh day-ahead prices seen for the market overall in 2020.

Scrutiny or not, power producers might be messing with Texas.

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Google’s Cookie Delay Is Bittersweet for Trade Desk | Sidnaz Blog


The Trade Desk, which went public in September 2016, helps other companies buy ads across the internet.



Photo:

CHRISTOPHER GALLUZZO/NASDAQ

The

Trade Desk


TTD 0.18%

lives, but it can’t escape the cookie monster’s shadow.

When Google announced plans Thursday to delay its phaseout of third-party tracking cookies, Trade Desk’s stock jumped 16%, leading a strong uptick among other so-called ad-tech players. It was a nice bump that didn’t quite bring the stock back up to its level from before Google announced its original plan in early March. That news—with a plan to phase out cookies by early next year—cost Trade Desk about 20% of its market value over a two-day period.

While the recent change is good news for the company, the market’s stark reaction reflects the continued belief that Trade Desk is highly vulnerable to the whims of its massive rival. The ad-tech company, which helps other companies buy ads across the internet, has built a formidable business in its own right, with close to $900 million in trailing 12-month revenue and still growing at a strong double-digit rate. The vast majority of that business takes place on platforms such as connected televisions that lie outside of the search ecosystem that Google dominates. But the digital advertising business is a very big pond; eMarketer estimates the global market grew nearly 13% to reach about $378 billion in 2020. And Google is by far the biggest fish in that pond, with advertising revenue reported by parent company

Alphabet Inc.

now just under $158 billion a year.

That lopsided relationship means the search giant’s actions cause major ripples. Cookies—bits of code that follow users around the internet—have historically been a major tool for online advertisers to target their spending. But their poor image with privacy advocates also has made them unfashionable.

Apple Inc.

began blocking cookies with its Safari web browser in 2017, and Google has long teased that it will do the same with its Chrome browser. Those two together account for about 83% of the world’s browser market share, according to Statcounter.

Trade Desk has thus been working to build up an alternative solution. The company’s effort—an open-sourced initiative called Unified ID 2.0—uses email and artificial intelligence to help advertisers with their targeting. Analysts at ISI Evercore set a buy rating on Trade Desk in April—after Google announced its original cookie phaseout plan—citing the company’s strong position relative to peers “because brands trust them with their first-party data.” The Unified ID 2.0 program also has drawn the support of major advertisers such as Walmart, which sits on “one of the most robust sets of consumer retail data in the world,” ISI noted.

Google’s latest move to delay the implementation of its cookie plan gives Trade Desk “more time to refine their offering, attract more partners and increase adoption” of its alternative solution, Truist analyst

Youssef Squali

wrote on Thursday. Success of its cookie alternatives could also help the company better convince investors that it can survive Google’s scramble to get on the right side of the privacy debate. But the concentrated nature of the online advertising business still means that when Google makes a splash, everyone else gets wet.

Write to Dan Gallagher at [email protected]

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Reopening Bets Pay Off Big for Stock Pickers | Sidnaz Blog


Investors are amassing hefty gains by loading up on economically sensitive stocks that have flourished during this year’s explosion of business activity.

More than two dozen actively managed exchange-traded funds have surged at least 20% so far this year, outpacing the S&P 500’s 12% climb. Goldman Sachs analysts say 56% of stock-picking large-cap mutual funds are beating their benchmarks, the highest percentage in more than a decade.

Some of the best performers include companies with smaller market capitalizations and so-called value stocks—those deemed inexpensive relative to measures of a company’s net worth. The energy-focused

InfraCap MLP ETF,

for example, has risen 48% this year thanks to a recovery in oil prices. It includes top holdings such as

Energy Transfer


ET -1.10%

LP, up 62% since December.

The

Cambria Shareholder Yield ETF,

which focuses on companies returning the most cash to shareholders, has also jumped 48% this year. Primary holdings include

Rent-A-Center Inc.


RCII -0.83%

and

Toll Brothers Inc.,


TOL 0.26%

which have both gained more than 50%. The Avantis U.S. Small Cap Value ETF, which has soared 36%, boosted by

Goodyear Tire & Rubber Co.


GT 0.20%

’s 82% gain and a climb of 72% from aluminum maker

Alcoa Corp.


AA 1.69%

Alcoa’s stock has helped lift the Avantis U.S. Small Cap Value ETF to a 36% gain this year.



Photo:

Justin Merriman/Bloomberg News

The moves mark a reversal of last year’s trend, when the pandemic slowed economic activity and stock pickers flooded into shares of technology companies that many believed could benefit from the crisis. Now business activity is expected to surge to its highest level in at least four decades, driving investors toward shares of manufacturers, energy companies and others tied to economic growth. That includes steelmaker

Nucor Corp.


NUE 1.47%

, which has gained 93% this year to lead the S&P 500 and

Marathon Oil Corp.


MRO 0.17%

, which has climbed 82%.

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Banks from UBS to Wells Fargo expect that the U.S. economy will continue accelerating, with many analysts saying cheap stocks that tend to rise during periods of growth are poised to benefit. Investors will get new clues on the pace of the rebound this week with the release of the Federal Reserve’s “beige book” report on regional economies and May’s unemployment numbers.

“The beginning of this reopening trade has been a bounce for value stocks and smaller-cap names. But it hasn’t even really started yet,” said

Meb Faber,

chief investment officer of Cambria Investment Management LP.

Mr. Faber’s fund targets inexpensive stocks with sound fundamentals that make relatively large cash payouts to shareholders via dividends, stock buybacks or other means. This year’s rally has put it on track for its best year since its 2014 launch.

Some worry that the big gains racked up in recent months suggest the reopening trade could reverse just as quickly as last year’s tech surge if growth falters.

Ford Motor Co.


F -2.35%

, for example, has gained 65% so far this year, including a 26% leap in May. The surge comes despite the company in late April predicting a drop in earnings due to a continuing shortage of microchips used in vehicles.

Cathie Wood

of ARK Investment Management LLC provides an example of how quickly the ground can shift. Ms. Wood was crowned last year’s star stock picker after her flagship

ARK Innovation ETF

soared almost 150%. Now, her fund has slipped 10% for the year and lost 30% from its mid-February high, buffeted by worries that inflation will force the Fed to step back from economic stimulus, which many fear would hurt tech stocks.

The risks are also apparent in the highly volatile energy sector, where rebounding demand has driven an increase in oil prices, powering gains in scores of stocks. That has helped make

Virtus Investment Partners


VRTS 1.05%

’ InfraCap MLP ETF into the U.S.’s best-performing actively managed ETF.

Some analysts say a crush of demand for oil this summer could push prices even higher. But oil prices can be volatile and the ETF uses borrowed money to juice returns, which some analysts said could leave it vulnerable to sharp swings. Just last year, the fund lost 58% during a brutal stretch for oil, and it is down 89% since its 2014 inception.

“This fund started doing well when vaccines were approved” last fall, said

Jay Hatfield,

the InfraCap fund’s portfolio manager. “But it is less about stock picking. Ideally, energy would be this stable sector, and you pick one stock or another and you’re brilliant. But it gets caught up in the macro stuff.”

Write to Michael Wursthorn at [email protected]

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Meituan’s Record Revenue Burns Up in Groceries | Sidnaz Blog


Meituan’s core businesses are doing well; a Meituan delivery man carrying drinks in Beijing, May 13.



Photo:

wang zhao/Agence France-Presse/Getty Images

Chinese internet giant Meituan delivered strong results in its core businesses last quarter. The bad news: New ventures may keep burning cash for a while.

The company said Friday that its revenue for the quarter ending in March rose 121% from a year earlier to a record. Operating profit for its core food delivery business rose 26% from a quarter earlier. Revenue at its in-store, hotel & travel segment also grew 113% year-over-year for the quarter. As Covid-19 is largely under control in China, spending on travel and other in-store services have gone up too. While most of Meituan’s revenue comes from online delivery, the in-store and travel segment is the most profitable. Operating profit margin there was 42% against 5% for food delivery.

But the whole company remained in the red for the second quarter in a row as spending on new businesses picked up markedly. Its new-initiatives segment lost the equivalent of $1.26 billion in the quarter, nearly six times the losses of a year earlier. Meituan started ramping up investments in areas like community group buying, a way to deliver groceries to the country’s less-developed regions. Losses will likely continue to widen as the company invests in delivery infrastructure, especially of the cold-chain variety for frozen food. Morgan Stanley, for example, expects the equivalent of $5.4 billion of operating losses for the segment in 2021.

But investors seem to be taking comfort that at least Meituan’s core businesses are doing well enough to help to fund such spending: The company’s shares jumped 11% Monday.

The big investment, however, comes when other internet giants are also raising their spending on new opportunities including community group buying. Alibaba says it will put “all incremental profit” back into areas like technology innovation and supply-chain capabilities. Tencent says it will increase its rate of investment in business services, games and short-form videos.

Meituan’s shares have lost around a third of their value since their February peak as regulatory risks weighed on the stock. China’s antitrust regulators announced an investigation into the company in April.

The new challenge will be making its new investments work out. For both investors and the company, it’s likely to be a long haul on the way to profitability.

Write to Jacky Wong at [email protected]

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Inflation Expectations May Be Suffering From Inflation | Sidnaz Blog


Inflation expectations could be getting somewhat inflated.

Capital markets are signaling mounting concerns about inflation among investors. At Thursday’s close, bond prices implied average consumer-price growth of 2.6% over the next five years. In recent weeks, this “inflation break-even” rate has surged to highs not seen since 2008, bolstered by the U.S. reporting official inflation of 4.2%—also a 13-year high. Respondents to the May Fund Manager Survey by

Bank of America

saw inflation as the biggest “tail risk” to the bull market.

Overpaying for inflation insurance, though, is also a risk.

Market inflation expectations are calculated as the yield difference between regular Treasurys and Treasury inflation-protected securities, or TIPS, which compensate holders for consumer-price index increases. As

UBS

’ head of U.S. rates Mike Cloherty noted in a report this week, it is a fall in TIPS yields that has been driving the recent rise in breakevens. This tight inverse correlation is reminiscent of the 2009-2013 period of economic weakness, but uncommon for a recovery, when both usually rise in tandem.

TIPS are notoriously less liquid, so their prices can move a lot when demand is strong. It currently is: The TIPS inventories of dealer banks are getting depleted. The Federal Reserve, for one, is buying a lot of them. The yield on the five-year note is now hovering around a record low of minus 1.8%. This all points to a reversal.

The implication is that breakevens may be overestimating how high inflation might go as a result of a burst in demand for shorter-term inflation hedges. CPI was always expected to surge this year relative to 2020’s steep fall, and longer-term inflation expectations are still within historical ranges. This picture is consistent with the Fed’s new policy of tolerating near-term overshoots, while still making sure inflation stays around 2% in the long run.

It would be wrong, however, to say the market isn’t worried. Other traditional inflation hedges have done very well lately, including cheap “value” companies and gold, which is up 9% in two months. Investors know there isn’t a surefire way to know that a short-term spike in prices won’t fuel a lasting spiral. The University of Michigan survey of consumers shows that households expect CPI to be 3.4% over the next five to 10 years, which is the highest figure since 2014.

Yet, as the Bank of America survey underscores, the current market jitters reflect fear of tail risks rather than probable outcomes. Even among consumers, average inflation expectations are being skewed by a few respondents who see CPI surging by 10% or more, rather than most households factoring in greater inflation.

Shoppers in Chicago this month. The University of Michigan survey of consumers shows that households expect CPI to be 3.4% over the next five to 10 years.



Photo:

Nam Y. Huh/Associated Press

There is little convincing evidence to support the deeply held belief among economists that expectations themselves can fuel inflation. Workers demanding bigger pay increases in anticipation of inflation can indeed make it worse, but there needs to be some initial trigger, such as the 1970s oil shock or sharp currency depreciations. Even unusually rapid economic recoveries like today’s don’t typically qualify.

Investors who truly fear such worst-case scenarios may still want inflation hedges. For the rest, they are becoming a pricey insurance policy.

At The Wall Street Journal’s CEO Council Summit, Janet Yellen expressed her confidence that the U.S. economy and employment will return to normal by next year.

Write to Jon Sindreu at [email protected]

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