Daily Commentary

MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations. But we do think investors benefit from doing thorough due diligence and knowing all relevant facts about any investment they are considering, and we bring you this piece because private funds’ tax implications are a big factor … and one that doesn’t get much mention. This article highlights a study showing how much taxes can eat at these investments, knocking a full two percentage points off annualized returns. The control group, which invested in publicly traded assets, had a smaller tax burden and higher post-tax returns. “If you think about it, that makes perfect sense. An index fund holding publicly traded stocks can generate almost no tax bills for as long as you own it, especially if it’s a broadly diversified ETF. On the other hand, private-credit funds specialize in high-interest loans; many hedge funds trade rapidly, generating short-term capital gains; private-equity funds produce big payouts when they sell portfolio companies. Other alternative strategies, including private real estate, also tend to produce titanic tax bills.” Obviously, any study dealing with portfolio simulations will have some flaws, as the article concedes. And in tax-deferred accounts, the calculus changes. But private funds are spreading far beyond 401(k)s and traditional IRAs, making it important to take a cold, hard look at the tax math. “Remember that with publicly traded stocks, dividend income is usually low and you can defer capital gains at will. With private funds, however, if you’re a typical upper-income individual investor, [financial planning researcher Andrew] Ang thinks a ‘reasonable assumption’ is that your after-tax rate of return would be roughly one-third lower than the reported pretax return.” Think long and hard about how that meshes with your long-term goals.

MarketMinder’s View: Mark your calendars! UK Chancellor of the Exchequer John Healey has scheduled the next Budget for October 28, teeing up 89 days of speculation and, if recent history is a guide, Treasury trial balloons. We won’t hazard a guess as to what ends up in this fiscal policy package, but a summer full of rumors and alleged Treasury leaks would likely help markets pre-price it and raise the likelihood the final product will be milder than feared (or hoped). That is the story of the last two summers. Former Chancellor Rachel Reeves’s Treasury floated many, many trial balloons before the 2024 and 2025 Budgets, gauging markets’ and the public’s reaction—and then fine-tuning, watering down or scrapping those that received the proverbial heckler’s veto. Both Budgets ended up bringing some relief by merely tinkering with taxes at the margins. If this happens again, rumors may hit sentiment and spark volatility at times, but they help markets price probabilities and move on.

MarketMinder’s View: China’s official purchasing managers’ indexes (PMIs) were rather sad in July, contracting across the board. The article focuses on manufacturing, but services and construction also slipped. Yet none of this indicates to us that China’s economy is going down the tubes, which this piece does an ok job showing. Start with the headline results. PMIs are surveys measuring how many businesses grew. Readings over 50 mean a majority of businesses reported growth, implying economic expansion. The manufacturing PMI hit 49.2, while services hit 49.0. Both mild contractions, and both down from slightly expansionary readings in June. That doesn’t necessarily mean output actually fell, as the surveys don’t capture growth’s magnitude. Plus, as the article shows, manufacturing PMIs spent much of the last four years in contraction, yet China’s output data (GDP, industrial production) fared fine. Consider, too, the backdrop. The releases note typhoons temporarily shut businesses in July, hitting results. Businesses also spent the past few months frontrunning anticipated higher US tariffs, leading to a natural cooling off in July. So nothing here represents a break from the status quo stocks are already familiar with, as far as we can tell.