TRENDS

Mutual Funds Are Heading For Retirement After Century-Long Run — And ETFs Are Up Next

Mutual funds, the famous investment vehicle that helped Main Street access the stock and bond market, have just celebrated a generational milestone by reaching 100 years. Today, over half of US households own a stake in corporate America through mutual funds, primarily held in 401(k)s and IRAs, replacing the once-popular pension plans as a cornerstone of American wealth.

However, despite their instrumental role in America's century-long rise into an economic superpower, the country’s greatest financial invention may finally be heading to the graveyard.

Time to retire: Since the start of 2021, over $1.3T has exited mutual funds — a trend expected to continue thanks to the rise of passively managed exchange-traded funds (ETFs). Money managers have embraced these alternatives, which offer lower fees, tax advantages, and transparent pricing.

• Since 2014, US ETF assets have quadrupled to $8T, with iShares reporting that ETFs now account for as much as 13% of US equity assets and 2.8% of US fixed-income assets.

• Morningstar’s John Rekenthaler, who has been tracking mutual funds since the ‘80s, believes it’s unclear what “a mutual fund can do better than [an] ETF” — expecting mutual funds to eventually die.

Passive problems

While some older investors may still prefer mutual funds, the growing appeal of ETFs, particularly due to their lower fees and ease of trading, signals a significant and positive shift. But that doesn’t mean they come without consequences.

• Concentration: Most ETFs track indexes like the S&P 500, Russell 2000, and Nasdaq-100 — resulting in fewer companies owned by more investors.

• Frontrunning: Institutional investors could game index changes by buying before companies are added to the index and selling right after their inclusion. (See: Tesla and Super Micro.)

• Selection: Investors may face limited and weaker choices, especially in small and mid-cap stocks, where active managers have “higher odds of success,” according to Morningstar.

Snooze-worthy investing: If mutual funds sound boring (but safe) to you, passive ETFs could potentially lead to even more “terribly boring” markets, as noted by Morningstar’s Jose Garcia-Zarate. However, “boring” in investing often translates to lower returns and higher volatility in markets — but also stability. And that’s all for Boring Money With The Average Joe.

PARTNERED WITH RAD AI

AI Startups Are Flourishing Under The Success of Nvidia and Other Big Tech Giants

Nvidia has been throwing money at AI startups. Apple has resorted to acquiring startups to catch up. And Microsoft continues to extend partnerships with startups.

The success that big tech giants have had is trickling down to AI startups — leading to a massive funding boom in the industry.

And RAD AI is shaping up to be a serious player in the race. Their AI is changing the $633B marketing technology industry by helping companies increase return on their marketing efforts.

• It’s so powerful that they’ve attracted customers like Skechers, Sweetgreen, MGM and more — having grown their revenue by ~3x in 2023.

• RAD AI has raised $27M from over 6K investors, including big shots from Google, Amazon, Meta- and the company is even backed by the Adobe Fund for Design.

Download the RAD AI investor deck.

LARGECAP RECAP

📈 Banks & funds predict stocks will continue to rally, but CEOs are uncertain

Would you bet against Goldman Sachs or Jeff Bezos? Probably not, but what happens when they’re both forecasting completely different outcomes? Last year, Goldman Sachs ($GS) predicted that the S&P could reach 5,200 by the end of 2024 — a milestone it achieved last week. At the same time, Bezos and many tech leaders are now selling, leaving investors to ponder whether to hold or sell.

• Goldman’s Chief US equity strategist David Kostin believes the S&P 500 could climb another 15% to 6,000 by year-end — but for that to happen, megacap tech stocks would need to keep rising.

• T. Rowe Price’s Tony Wang suggests this is feasible as multiples remain reasonable — and AI businesses continue to be the “most” attractive place for investment opportunities.

But execs themselves aren’t so sure… Tech leaders like Mark Zuckerberg and Peter Thiel have also been selling their companies’ stock — with insider sales reaching the highest volume since Q1 2021. That was right before the market peaked that year, beginning its year-long decline — and today, this could serve as a warning for investors. “If they [tech leaders] think we’re at the top … that’s a rather stark signal to everyone else,” remarked Charles Elson of the University of Delaware (FT). After all, who knows more about the company than insiders?

Ring, acquired by Amazon. Nest, acquired by Google: These are just two examples of major billion dollar plus exits in the smart home space. After launching in 100+ stores with their Smart Shades, RYSE is looking to break into the club. Learn more about investing in RYSE here →*

Markets & Economy

Boeing ($BA) CEO Dave Calhoun to resign: Calhoun will remain until year-end as the plane manufacturer looks to clean up a production mess involving their 737 MAX 9 jets. Flying a Boeing plane is still much safer than driving, but the high-profile issues have ravaged the company’s shares. [Read]

The problem with college Computer Science departments: A professor’s essay underscores the problem in computer science right now: as the major gains popularity, many departments are isolated in separate “colleges of computation,” — depriving CS students of valuable instruction in the humanities and social sciences. [Read]

Despite promises, Biden has mostly cut taxes: He pledged $5T in tax increases on the wealthy and corporations — but three years in, his policies have led to tax cuts of ~$600B over the next four years. [Read]

Business & Wealth

United’s ($UAL) growth could stall amid FAA scrutiny: United Airlines has warned employees of heightened FAA monitoring as the airline recovers from a string of mishaps — potentially hampering plans for new routes and other growth strategies. [Read]

GM ($GM) ends driver data sharing with analytics firms: The decision follows concerns over insurers accessing driver profiles via companies like LexisNexis and Verisk, often leading to higher insurance premiums for drivers. [Read]

AT&T ($T) silent on source of leaked customer data: Despite authenticity confirmed by third-party analysis, the carrier remains uncertain about the origin of the dataset — which includes sensitive info like home addresses and SSNs. The leak affects 73M customers, but AT&T asserts that their system isn’t compromised. [Read]

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DIGIT OF THE DAY

The Era of Entrepreneurship Flourishes With a Record 5.5M Businesses Formed in 2023

Constant firefighting and sleepless nights haven’t scared away the millions of Americans who dream of entrepreneurship. According to the US Census Bureau, the number of new businesses “likely to hire” employees surged to a record 1.78M — marking a 37% increase from the same period in 2019.

• This trend isn’t confined to traditional business hubs; cities like Atlanta are experiencing notable growth — fueled by layoffs that prompt workers to seek opportunities in more affordable areas.

• Wyoming saw the highest growth in likely employers, thanks to its low incorporation costs, making it an appealing destination for startups.

That’s good because… Historically, startups have accounted for ~20% of new jobs, according to Economist John Haltiwanger. Moreover, it helps decentralize power from large corporations, reviving entrepreneurship to its pre-Great Recession glory. Brendan Duke, Senior Director for Economy Policy at the Center for American Progress, notes that this resurgence has “the potential to reverse decades of stagnant business formation, could generate even more job creation, productivity growth, and wage growth for years to come.”