Wall Street is divided over the future of banks

• Joe Ciolli
 

• 7h
• 4,192
 

Mutual funds and hedge funds are divided over bank stocks.Reuters / Richard Drew

Battle lines have been drawn between hedge funds and their mutual fund counterparts.

Their battlefield? The financial sector.

Large-cap mutual fund portfolios carry a 141-basis-point overweight position in financial stocks, relative to their benchmark, making it the group's second-most bullish bet, according to data compiled by Goldman Sachs. At the same time, hedge funds have the industry as their most bearish position, with a 438-basis-point underweighting relative to the Russell 3000 Index.

This divergence in outlook gets even more pronounced when you drill down into the banks, long the most influential segment of the financial sector. Banks are the most underweightgroup out of 71 sectors for hedge funds, according to Goldman data. That stands in stark contrast to mutual funds, for which banks make up the third-most overweight group.

That mutual funds are relatively isolated in their preference for bank stocks isn't particularly surprising, given the group's recent history of bucking consensus. While many investors have thrown in the towel on the chances of President Donald Trump enacting any sort of bank-friendly major tax or deregulatory policy, mutual funds are staying strong in their conviction.

Nonetheless, if you dig deeper into the positioning war between mutual funds versus hedge funds, there is some semblance of consensus at the single-stock level. Most notably, JPMorgan and Citigroup are among the most popular holdings for both groups of investors.

The two types of funds also agree on tech stocks, with mutual and hedge funds holding matching 26% overweight positions, making that the most bullish sector for both groups.

To compare the two types of funds, Goldman Sachs analyzed the holdings of 803 hedge funds with $1.9 trillion of gross equity positions as well as 543 mutual funds with $2 trillion of assets under management.

Mutual funds and hedge funds are split on the future of financial stocks but can agree that tech is the place to be.Goldman Sachs

SEE ALSO: An influential group of investors refuses to give up hope that Trump will get something done

NOW WATCH: There are cracks forming under the surface of the stock market

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A former manager at Target became a millionaire using one of Wall Street's favorite trades

• Joe Ciolli
 

• 20h
• 28,359
 

AMC

You don't have to be a professional investor to make a killing in the volatility market.

Just ask Seth M. Golden, who previously worked as a logistics manager at a Target store.

The 40-year-old, who lives in a suburb of Ocala, Florida, says he's grown his net worth from $500,000 to $12 million in five years by shorting the CBOE Volatility Index — or VIX — according to a report from Dealbook's Landon Thomas Jr.

It's a trade that's worked extremely well this year: The VIX has fallen 19% as investors have looked unperturbed by middling economic data and escalating geopolitical tension. The so-called stock market fear gauge even went as far as to hit a record low on July 21.

Golden's investment vehicles of choice are the Barclays iPath S&P 500 Short Term Futures ETN (VXX) and the ProShares Ultra VIX Short Term Futures (UVXY), Thomas found. Both are popular exchange-traded products used to bet on the VIX, and he shorts them. The VXX is the biggest vehicle of its type, attracting more than $14 billion of inflows since 2012, according to data compiled by FactSet and reported by Dealbook.

He employs a strategy that's the inverse of the "buy the dip" trade, which involves adding to long positions on weakness. In Golden's case, he waits for the VXX and UVXY to surge, then shorts them further.

A large part of his investment thesis is that, because the VXX and UVXY are simply vessels used to track the VIX, they're predisposed to fall over time as they near expiration. Golden also sees a longer-term trend of volatility moving downward into a new, more subdued regime, Thomas found.

Yet while Golden has found major success trading VIX-linked instruments, the massive short positions on the fear gauge — regularly identified as one of the market's most dangerously crowded trades — have been a source of consternation for some in the investment community. JPMorgan quant guru Marko Kolanovic, for one, has repeatedly warned of the ever-present possibility of a big, unexpected market move, which could result in a painful unwind.

Still, those shorting the VIX continue to double down, Golden included. He plans to start a hedge fund that will short the VIX, according to Thomas' report. And he says investor interest is strong — so strong, in fact, that they're offering him $100 million for starters.

“Yes, it is a crowded trade,” Mr. Golden acknowledged to Dealbook. “But I don’t worry about crowds — I just worry what the next existential shock might be.”

See the original New York Times Dealbook article here...

SEE ALSO: Traders are doubling down on one of the market's hottest trades

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New Westminster mayor sees bridge toll removal as a mixed blessing

By Simon Little and Matt Lee CKNW

WATCH: Tolls to be eliminated on Port Mann and Golden Ears bridges

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The mayor of New Westminster has mixed feelings about the provincial government’s plan to remove tolls from the Port Mann and Golden Ears bridges.

In the short term, removing the tolls will alleviate some of the congestion that has built up on the aging Pattullo Bridge over the years, said Jonathan Cote.

READ MORE: B.C. NDP eliminating Golden Ears and Port Mann bridge tolls starting Sept. 1

That congestion, which feeds into New Westminster’s downtown core, has become a major headache for the city.

But at the same time, Cote said he’s worried about how the region will now fund the replacement project for the 80-year-old span.

“The new Pattullo Bridge was anticipated to have 70 per cent of the costs covered by tolling,” said Cote.

“So the ball is in the provincial government’s court to make up the funding that has not only been lost on the Port Mann and Golden Ears, but also the funding that was anticipated to cover the costs of building the replacement of the Pattullo Bridge.”

WATCH: NDP announce the removal of Metro Vancouver bridge tolls

Earlier this summer, TransLink CEO Kevin Desmond called replacing the bridge “the highest infrastructure issue on our agenda,” and said the goal was to have a replacement completed by 2023.

Axing the tolls will also increase the urgency for a regional conversation on road and mobility pricing, Cote said.

“I think that’s going to be absolutely critical if we’re going to manage congestion and reduce congestion in the region.”

READ MORE: Infrastructure funding in the spotlight as bridge tolls fall

The Metro Vancouver Mayors Council has voted to move forward with some form of mobility pricing — a scheme that would charge drivers for road use — in order to fund future infrastructure development.

The federal and provincial governments have committed to funding 80 per cent of the transit projects in the mayors’ 10 year plan, leaving Metro Vancouver on the hook for the remaining 20 per cent.

The Metro Vancouver Mayors’ Council established a commission to sketch out a plan for a mobility pricing scheme earlier this summer.

A report is due by the spring of 2018.

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