This is the best time in history to be an investor. I’m not just talking about the fact that we are in the middle the of the second-longest bull market in history. (I say “the middle” because the prior record was a 15-year rally that started after World War II, and at roughly nine years in I see no sign of the stock market slowing down.)
The profits from rising stocks are nice, but even better are all the innovations that have allowed cheaper and easier access to capital markets. Deregulation in the 1970s led to the creation of discount brokers. Innovation in the 1980s fueled electronic trading platforms such as eTrade Financial
. The 1990s saw the first exchange-traded funds that tracked the S&P 500
come into their own.
The improvements have continued in this century. Platforms such as Robinhood offer commission-free trading on mobile devices, while Vanguard Group is pushing fees on many funds as close to zero as it can. To top it off, talented investors feature their best trades and advice at no cost on sites like Marketwatch.com or on social media via Stocktwits.
If you want to make money on this trend, then it’s also a great time to invest in specific companies that are profiting from this investing revolution. Here are five stocks to follow the money:
The ETF revolution is here, with roughly 5,000 exchange-traded funds globally and almost 2,000 in the U.S. But as many investors move away from individual stocks and toward ETFs, they are entering a small list of megafunds — chief among them, those in the iShares family.
This includes the top asset-gathering fund of 2017, iShares Core S&P 500 ETF
which saw more than $30 billion in inflows out of roughly $874 billion in total new money going to ETFs last year. Meanwhile, emerging-markets centered iShares Core MSCI EAFE ETF
attracted $20 billion to grab the No. 2 spot. That’s about 6% of all new ETF money going into these two iShares names last year.
The iShares universe is managed by BlackRock, Inc.
so it’s no surprise that shares of this investment firm have gone sky-high lately as a result. But beyond the roughly 50% gain in BlackRock shares over the past year, long-term investors should be encouraged by the fact that BlackRock has a huge commitment to return capital to its shareholders. Dividends have soared from just 78 cents quarterly in 2009 to $2.88 at present, a roughly 270% surge across this bull-market run. As those assets stick around and BlackRock continues to reap the management fees, you can expect those dividends to grow nicely.
The vast majority of investors are piling into a select group of rather conventional broad-market funds like those offered by iShares and Vanguard. However, there is still a highly profitable niche for issuers such as Invesco Ltd.
that provide a spicier menu of more tactical funds.
For starters, Invesco manages the popular PowerShares QQQ
that was founded in 1999 and is benchmarked to the Nasdaq 100. The ETF boasts more than $60 billion in assets thanks to a demand for a fund with bias towards big tech stocks, including Apple
Another example is PowerShares S&P 500 Low Volatility Portfolio
, a fund designed to smooth out the ride investors would get from a typical large-cap fund. This ETF has more than $7 billion in assets.
Yes, the lion’s share of funds flow into a select group of mega-ETFs. However, there is plenty of room for Invesco in this thriving market for exchange-traded funds. The brand currently boasts about $1 trillion across its family of funds, and is well-positioned to see that figure grow even more in 2018.
3. Charles Schwab
You may think that the rise of ETFs means the days of stocks and stockbrokers are over. However, the ever-evolving Charles Schwab Corp.
has figured out how to continually connect with investors and expand its brand — and assets.
That shouldn’t be surprising, since Schwab came onto the scene with a bang in the 1980s and has continued to gain share from stodgy old investment shops ever since. That’s thanks to combination of low fees, an embrace of technology, and shrewd acquisitions.
It all adds up to an impressive full-service investing company offering everything from hands-off brokerage accounts with slick tools and rock-bottom fees to private wealth management to its own index funds with many billions of dollars under management.
Shares of Schwab surged 30% last year thanks to its exposure to all these elements of the investing ecosystem. And with an effective tax rate around 37% in 2017, you can be sure that the recent tax cuts will supercharge profits of this firm in 2018.
One approach to building an investing business is to be like Vanguard and compete on cost and go for scale with the little guy. AllianceBernstein Holding
is the other side of the coin, catering to well-off clients with deep pockets.
And as the wealth gap between haves and have nots is only growing, there are clearly benefits to being on the rich side of that divide. Its client base of high net-worth investors and institutional players has given AllianceBernstein a massive $550 billion portfolio of assets under management.
The low-cost revolution for retail investors is meaningful, but you can be that AllianceBernstein will continue to see demand for its alternative investments, hedge fund, and private equity placements from wealthy individuals looking to outperform the market average.
Perhaps the biggest reason of all to give this stock a look is its commitment to huge dividends, with a yield of around 7.9% currently. That payout fluctuates quarter-to-quarter based on the underlying performance of the company, but it’s worth noting that in calendar 2013 the firm paid out $1.59 in total dividends and dished out $2.13 last year — a 34% increase over four years. So if you’re looking for long-term income potential, this investment giant seems a safe bet.
5. Morgan Stanley
Traditional asset managers are not the sexiest way to play the next generation of investing, but things are looking pretty good for investment bank Morgan Stanley
Unlike rivals such as Goldman Sachs Group
, Morgan Stanley performed nicely in 2017 thanks to a series of earnings beats — including new records in its wealth-management division. Turns out the bargain basement acquisition of Smith Barney during the depths of the 2008-09 financial crisis has benefitted Morgan Stanley.
But don’t think this is company is doing business the same old way. Morgan Stanley has seen the writing on the wall of the low-cost investing revolution and has been moving clients into fee-based relationships instead of commission based structures that depend on trading activity. That is good for everyone, since the clients get the best advice and Morgan Stanley gets a more reliable revenue stream. And a projected 15% jump in fiscal 2017 earnings and another 22% projected in 2018 should give investors confidence that this traditional wealth manager is doing quite well in this new age of Wall Street.