Daily Commentary

MarketMinder’s View: Investors, as shareholders, can vote on major corporate decisions—like electing the board of directors, executive compensation and M&A activity—though in practice, few do. But many also own stock indirectly as beneficial owners—e.g., through mutual funds and ETFs, whose providers are often the registered owners on corporations’ books. (As the article lists some, please note MarketMinder doesn’t make individual security recommendations.) These providers can amass large chunks of voting shares, and while they offer beneficial owners ways to register their preferences, again, few do, leaving the funds themselves with big voting power. This piece dives into those waters, explaining how major index-fund managers employ investment-stewardship teams “able to put the necessary resources into voting their shares in accordance with their fiduciary duties to clients” while smaller fund managers typically enlist proxy advisory firms to do similar. Either way, “These index-fund managers tend to vote with corporate management.” But not everyone is on board with this arrangement. “Critics have said voting recommendations from [proxy advisors] often carry the day, forcing boards to follow pay and governance practices they might otherwise eschew.” More importantly, perhaps—and the subject of this article—such critics appear to have the White House’s ear, which could “curb the influence of proxy advisers and index-fund managers [including] a broad ban on shareholder recommendations or an order blocking recommendations on companies that have engaged proxy advisers for consulting work ... .” Now, any possible changes discussed here are speculation—the White House hasn’t issued any executive orders—but since the practice is a matter directly affecting shareholders (and potential shareholder activism) we think it is one worth watching for investors.

MarketMinder’s View: As this article explores, firms with Chinese manufacturing operations are looking elsewhere, “motivated by a fear of getting caught on the wrong side of what they expect to be an even more unpredictable bilateral relationship” between the US and China. We think this piece illustrates a couple key points for investors: 1) Businesses don’t like uncertainty, and 2) they can adapt. With US-China trade relations anything but predictable, it isn’t a stretch to find firms seeking alternatives. But where? “[President Donald] Trump’s trade policy remains in flux, including how he will respond if the Supreme Court nullifies the legal underpinning for many of his tariffs. For manufacturers in China sorting future plans, uncertainty hangs over how Mr. Trump will ultimately define products that contain raw materials or investment from China. Will products made in factories in Vietnam that have close ties to China be considered Vietnamese or Chinese?” Trade policy can move faster than companies can relocate factories, so no wonder they are spreading their options, as one described here “now has 15 production facilities around the world, including in Mexico and Eastern Europe.” (Once again, given specific firm references, please keep in mind MarketMinder doesn’t make individual security recommendations.) Smaller firms, though, may have less latitude, highlighting how tariff effects aren’t uniform. Trade barriers aren’t great, but it isn’t as if affected companies are standing still, which is one reason why reality is turning out better than thought when first imposed. However, not everyone is in the same boat, and some firms are more adaptable than others—an important factor for investors to consider.

MarketMinder’s View: Loan delinquencies are on the rise, especially among those with questionable credit. “The share of subprime borrowers at least 60 days past due on their auto loans rose to 6.65% in October, the highest in data going back to 1994, according to Fitch Ratings. ... The share of consumers in the riskiest credit category has grown this year, reaching levels not seen since 2019, according to TransUnion. Subprime borrowers accounted for 14.4% of consumers tracked in the third quarter, up from 13.9% in the same period last year.” Some think this is “the latest sign of weakness in the U.S. economy” but take a step back. Overall default rates remain below average and credit spreads—among the most sensitive indicators of borrowing problems—don’t signal any untoward stress. High yield (or below-investment grade) credit spreads have actually fallen to 3.0 percentage points through yesterday from 3.2 in mid-October when subprime auto issues started gaining attention. And that is well off early-April’s 4.6 points in the wake of Liberation Day (much less the high-teens during the global financial crisis). Investment-grade credit spreads are even lower, and while those have risen slightly in recent days, they remain historically narrow. (All data from the St. Louis Fed.) Rising subprime loan delinquencies aren’t great, but they aren’t shocking markets, either. Nor do they necessarily suggest any economic distress beyond the “riskiest borrowers.”