Investing

ETF Strategist

The first exchange-traded fund was launched in the early 1990s.
ETFs have steadily gained market share relative to mutual funds.
Tax savings and low costs are among the primary benefits of ETFs for investors, experts said. But mutual funds may still make more sense in certain cases.

Moyo Studio | E+ | Getty Images

Exchange-traded funds have steadily gained popularity among investors in recent years — a trend experts say is largely due to advantages like lower tax bills and fees relative to mutual funds.
The first ETF debuted in 1993. Since then, ETFs have captured about $9.7 trillion, according to Morningstar data through August 2024.

While mutual funds hold more investor funds, at $20.3 trillion, ETFs are gaining ground. ETF market share relative to mutual fund assets has more than doubled over the past decade, to about 32% from 14%, per Morningstar data.

“The simple fact is, the structure of an ETF is a superior fund structure to a mutual fund, especially for taxable accounts,” said Michael McClary, chief investment officer at Valmark Financial Group, who uses ETFs to build financial portfolios for clients.
Here are four reasons why McClary and other experts say ETFs took off.

1. They have ‘tax magic’

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ETFs resemble mutual funds in many ways. They’re both baskets of stocks and bonds overseen by professional money managers.
But there are a few distinctions.

At a high level, ETFs trade on a stock exchange, like the stock of a publicly traded company. Investors generally buy mutual funds directly from an investment company.
On a more micro level, many ETF investors can sidestep the fund-level capital gains taxes incurred by many investors who own mutual fund shares, experts said.

More from ETF Strategist

Here’s a look at other stories offering insight on ETFs for investors.

Investors generally owe capital-gains tax to the IRS on investment profits, typically from the sale of investment funds or other financial assets like individual stock and real estate.
However, mutual fund managers can also generate capital-gains taxes within a fund itself when they buy and sell securities. Those taxes then get passed along to all the fund shareholders.
In other words, these investors get a tax bill even if they personally didn’t sell their holdings.
The structure of an ETF, however, allows most managers to trade a fund’s underlying stocks and bonds without creating a taxable event for investors, experts said.
This is “tax magic that’s unrivaled by mutual funds,” Bryan Armour, director of passive strategies research for North America and editor of the ETFInvestor newsletter at Morningstar, wrote earlier this year.

In 2023, about 4% of ETFs distributed capital-gains taxes to investors relative to more than 60% of stock mutual funds, Armour said in an interview.
But the advantage depends on a fund’s investment strategy and asset class. Investors who hold actively managed mutual funds that trade often are more susceptible to tax loss, whereas those with market-cap-weighted index funds and bond funds “don’t benefit that much from the tax advantage of ETFs,” Armour wrote.
Additionally, “the taxable argument doesn’t matter in a retirement account,” McClary said.  
That’s because workplace retirement plans like a 401(k) plan and individual retirement accounts are tax-advantaged. Investors don’t owe capital-gains taxes related to trading as they would in a taxable brokerage account.
“The 401(k) world is a place where mutual funds can still make sense,” McClary said.

2. Costs are low

The first ETF was an index fund: the SPDR S&P 500 ETF Trust (SPY).
Index funds, also known as passively managed funds, track a market index like the S&P 500.
They tend to be less expensive than their actively managed counterparts, which aim to pick winning stocks to outperform a benchmark.
Investors have equated ETFs with index funds since their inception, even though there are also index mutual funds, experts said. The first actively managed ETF wasn’t available until 2008.

ETFs have therefore benefited from investors’ long-term gravitation toward index funds, and away from active funds, as they seek lower costs, experts said.
The average ETF costs half as much as the average mutual fund, at 0.50% versus 1.01%, respectively, according to Armour.
ETFs accounted for 80% of net money into index stock funds in the first half of 2024, Morningstar found.
“Low costs and greater tax efficiency are an easy win for investors, so I think that’s the simple answer that’s been so effective for ETFs,” Armour said.
That said, investors shouldn’t assume ETFs are always the lowest-cost option.
“You may be able to find an index mutual fund with lower costs than a comparable ETF,” according to a March 2023 report by Michael Iachini, head of manager research at Charles Schwab.

3. Financial advice fee model changes

Nitat Termmee | Moment | Getty Images

Financial advisors have also undergone a shift that’s benefited ETFs, said Morningstar’s Armour.
Retail brokerage firms historically earned money from commissions on the sale of funds and other investments.
However, many firms have moved toward a so-called fee-based model, whereby clients incur an annual fee — say, 1% — based on the value of the holdings in their account. A virtue of this model, according to advocates, is that it doesn’t influence an advisor’s investment recommendation as a commission might.

Low costs and greater tax efficiency are an easy win for investors, so I think that’s the simple answer that’s been so effective for ETFs.

Bryan Armour
director of passive strategies research for North America at Morningstar

The shift is “one of the most important trends in the retail brokerage industry over the past decade,” according to McKinsey.
ETFs work well for fee-based advisors because they’re less likely than mutual funds to carry sales-related costs like sales loads and 12b-1 fees, Armour said. The latter is an annual fee that mutual funds charge investors to cover marketing, distribution and other services.
While brokerage firms may charge a commission to buy ETFs, many large brokerages have ditched those fees.
“There was a whole generation of advisors who only used mutual funds,” McClary said. “Now, it’s hard to find a quality [advisor] that doesn’t use ETFs to some capacity.”

4. SEC rule made ETF launches easier

The Securities and Exchange Commission issued a rule in 2019 that made it easier for asset managers to launch ETFs and streamlined portfolio management for active managers, Armour said.
As a result, financial firms have been debuting more ETFs than mutual funds, increasing the number of funds available for investors.
In 2023, for example, fund companies issued 578 new ETFs, relative to 182 mutual funds, according to Morningstar.

Potential drawbacks of ETFs

Stock traders on the floor of the New York Stock Exchange.
Michael M. Santiago | Getty Images News | Getty Images

That said, ETFs have drawbacks while some of their stated benefits may be oversold.
For example, while most ETFs disclose their holdings every day (unlike mutual funds), such transparency “adds little value” for investors, who have little need to check underlying securities frequently, Armour wrote.
Additionally, ETFs trade throughout the day like a stock, while investors’ orders for mutual funds are only priced once a day, when the market closes.
But the ability to trade ETFs like a stock is “not much of an advantage for most investors,” Armour said. That’s because frequent buying and selling is generally a “losing proposition” for the average investor, he said.
Certain ETFs may also be tough to trade, a situation that could add costs for investors due to wide differences between the asking price and the bidding price, experts said. By contrast, mutual funds always trade without such “bid/ask spreads,” Iachini said.
Unlike mutual funds, ETFs can’t close to new investors, Armour said. If the fund gets too big, it can sometimes be difficult for certain actively managed ETFs to execute their investment strategy, he said. More

Traders work on the floor of the New York Stock Exchange (NYSE) on September 19, 2024, in New York City. 
Spencer Platt | Getty Images

Stocks @ Night is a daily newsletter delivered after hours, giving you a first look at tomorrow and last look at today. Sign up for free to receive it directly in your inbox.
Here’s what CNBC TV’s producers were watching as stocks capped a winning September and what’s on the radar for the next session.

The port strike

It’s very possible port workers in the Gulf and East Coasts will go on strike.
CNBC TV’s Frank Holland and Lori Ann LaRocco have been covering the development and will continue on Tuesday morning. LaRocco’s analysis is also CNBC.com’s most-read story of the day. 
She is reporting that shipping company Maersk is one of the stocks to watch closely: If there’s a work stoppage, it could mean the company will charge higher rates. The stock rose more than 3% on Monday. It is up about 13% in the last month. The stock is 19.5% from the 52-week high hit back in January.
Zim is the biggest shipping gainer in the last month. The stock is up 40% in a month, bolstered by better-than-expected quarterly numbers this summer. The company also declared a dividend.
Star Bulk Carriers is up roughly 11% in a month.
Golden Ocean is up about 9% in a month.
Euroseas is up nearly 8% in a month.

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Star Bulk Carriers’ performance in the past month

Bring on Q4

We are keeping track of Wall Street’s top picks by the year and quarter.
Of the stocks labeled by analysts as a “top pick,” D.R. Horton was tops in the third quarter, up about 35%. Wells Fargo made the pick in late August. It is also on UBS’ list.
Toll Brothers was second, up around 34% in the quarter. This was another Wells Fargo call.
DoorDash is third, up 31% in the period. This is a Bernstein pick.
Fortinet was up 28% in Q3. Bank of America is behind this one.
Howmet Aerospace was up 29% in the period. This is also a call from Bank of America.
On the other end of the spectrum, Snap is down 35% in the third quarter.
Pinterest is down about 27% in the period.
CrowdStrike down 27%. This is admittedly unscientific, but I follow, track and list the calls as closely as I can.

Hungry for earnings

Lamb Weston reports before the bell. Shares of the potato processing company are down 23% in the past three months. The stock is 42% from the January high.
McCormick, the spice guys, report Tuesday before the bell. McCormick is up 16% in the past three months. The stock hit a high two weeks ago and has dropped 3.5% since then.
Cal-Maine Foods, the egg producer, is up 22% in three months. The stock is just off the 52-week high last week.

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Cal-Maine Foods’ performance over the past three months

Nike

Nike reports Tuesday after the bell. CNBC TV’s Sara Eisen will have the numbers and catch analysis all afternoon.
The stock is up about 17% over the past three months.
However, it is 29% below the 52-week high hit in December.
The new CEO Elliott Hill is set to take over in two weeks.

September and Q3 auto sales

CNBC TV’s Phil LeBeau will watch the numbers as the come in.
General Motors dropped 3.5% Monday. It is down about 10% in a month, and stands 11.4% from the July high.
Stellantis took a big hit Monday after warning of lower-than-expected sales across the globe. The stock fell more than 12% during the session. It is down 16% in a month, and it’s 55% from the March high.
Toyota dropped 2.3% on Monday. The stock is 30% from the March high, and shares are down 6% in a month
Honda fell 1.5% on Monday. It is down nearly 4% in a month and 16% from the March high.

Cannabis

There was a jump for a few stocks in the sector Monday after Democratic presidential nominee Kamala Harris said she’s in favor of legalizing marijuana use.
Canopy Growth picked up 5% Monday. It is now almost a $5 stock. It was above $500 a share at one point in 2021. It is 67% from the April high.
Trulieve picked up 3%. The stock is down 16% from the April high. 
Tilray was up 1% on Monday. It was once a $300 stock in 2018, but it closed Monday at $1.76. More

Establishing a Roth individual retirement account for youngsters is a powerful way to set them on the path to financial security.
Minors will need an adult to help them open a Roth IRA.
There’s no minimum age requirement for contributing to a Roth IRA; if a child can earn money, they can have a Roth IRA. 

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As a financial advisor mom of three kids, I know well the power of compounded interest and the value of early work experience and learning to save and invest for yourself. 
My kids — ages 15, 12 and 11 — have been tutoring, filing, shredding, sweeping, and even researching and creating infographics for friends and our own companies for a while.

This has not only helped them develop responsible work habits and meet deadlines around their usual school work and extracurricular activities, but it also gives them hands-on experience managing an income. It teaches them at an early age the value of saving for the future and prioritizing important goals such as retirement.

More from CNBC’s Advisor Council

For kids, that seems like eons away. But getting started early can offer tremendous advantages. Then, you might be wondering — like many of my clients do — what’s the best way to save for our kids?
I believe the answer is for them to save in their very own Roth individual retirement accounts.

How a Roth IRA for kids works

Yes, kids can have their own Roth IRA — and, just like for adults, the IRS rules are pretty straightforward. 
For 2024, the total contribution an individual under age 50 can make to any IRA account — whether Roth, traditional or some combination of the two — is $7,000. If someone’s earned income is less than that, they can contribute only up to the amount of income that they earned — no “gift money.”

While the child needs to have earned income to qualify for contributions, the money used to fund the Roth IRA can be contributed from someone else. This means the child can keep their earnings for immediate spending, while the Roth IRA is funded separately, helping them build a financial foundation without dipping into their own pockets.
Parents, grandparents or any generous relative or benefactor can set up a Roth IRA for a child. 
There’s no minimum age requirement for contributing to a Roth IRA; if a child can earn money, they can have a Roth IRA. 
But if the child is a minor — under age 18 in most states but under age 21 in some — a parent or guardian must open a custodial Roth IRA in the child’s name and manage the investments until the child reaches the age of majority. Although the custodian makes decisions on the account, the child is the beneficial owner, meaning the funds must be used for their benefit.

More about those income requirements: To contribute to a Roth IRA, the child must have earned income. This income could come from traditional employment, such as a part-time job, or from self-employment activities such as babysitting or lawn mowing. Money received from parents for chores or as an allowance does not count, nor do cash gifts. 
Most kids, at least the younger ones, are unlikely to earn the $7,000 maximum allowable annual contribution for 2024 and are limited to the total amount they earned during the year. 
Even if the child is not required to file an income tax return, the parent or other custodian must still keep careful records of the earnings that are used to contribute to the Roth. Self-employment income might be subject to additional taxes such as Medicare and Social Security. It’s wise to consult a tax professional to ensure compliance and maximize benefits.

Why I like the Roth IRA for youngsters

I think of the Roth IRA as the “golden egg” savings vehicle for young people because not only is the account tax-sheltered, it also has the benefit of liquidity.
A Roth can be treated like the long-term savings vehicle it is designed to be, but in case of an emergency, since kids have decades ahead of them before retirement, there are ways to access the contributions without penalties or other drawbacks. 
Establishing a Roth IRA for youngsters is a powerful way to set them on the path to financial security. By starting early, they can take full advantage of the benefits of tax-free growth, potentially amassing a significant retirement fund by the time they reach retirement age.
There are other advantages as well. Contributions are made with after-tax dollars, so withdrawals during retirement can be tax-free, provided certain conditions are met. This is particularly advantageous for children, who are likely in a low or zero tax bracket now, which allows them to grow their investments without the burden of taxes.

In addition, starting early allows the account to benefit from decades of compound interest, significantly growing the balance over time. For instance, if a 15-year-old contributes $2,000 annually until age 65, with an average annual return of 7%, the account could grow to nearly $1 million. 
Unlike traditional IRAs, contributions to a Roth can be withdrawn at any time without penalties or taxes, and under certain circumstances, even earnings can be withdrawn without penalties for a first-time home purchase, for example.
As another benefit, unlike traditional IRAs, Roth IRAs do not require withdrawals at a certain age, allowing the account to continue growing tax-free for as long as the owner chooses. This gives young people more control over their retirement funds and can be advantageous in managing their retirement income.
Furthermore, starting a Roth IRA can help young people learn about investing, saving and financial planning from an early age. The structure of a Roth IRA encourages a long-term outlook on finances, helping young people build a secure financial future.
— By Winnie Sun, co-founder and managing director of Irvine, California-based Sun Group Wealth Partners. She is also a member of the CNBC Financial Advisor Council. More

The Target Corp. flagship store in Edina, Minnesota, US, on Thursday, Sept. 5, 2024. 
Ben Brewer | Bloomberg | Getty Images

The Federal Reserve recently cut interest rates by 50 basis points, setting a favorable backdrop for dividend-paying stocks.
Wall Street analysts’ recommendations and in-depth analysis can help investors choose dividend stocks that can enhance total returns with passive income and stock price appreciation.

Here are three dividend stocks, highlighted by Wall Street’s top pros on TipRanks, a platform that ranks analysts based on their past performance.
Northern Oil and Gas
This week’s first dividend stock is Northern Oil and Gas (NOG), a non-operated, upstream energy asset owner. It acquires minority interests in assets across multiple basins operated by leading operators.
In August, NOG announced a dividend of 42 cents per share, payable on Oct. 31. This dividend marked an 11% year-over-year increase. NOG offers a dividend yield of 4.8%.
Recently, Mizuho analyst William Janela initiated a buy rating on NOG stock with a price target of $47. He thinks that the combination of NOG’s extensive scale, diversification and a growing shift toward co-purchase deals has “created a unique business model, preserving the benefits of non-operatorship while mitigating some of the typical drawbacks.”
Janela also highlighted other advantages like higher cash operating margins and a solid M&A track record, which make NOG a compelling investment. He pointed out that the company offers attractive cash returns via its above-average base dividend yield and growing share buybacks.

Coming to the debate on whether NOG’s non-operator business is attractive compared to operator exploration and production players, Janela contends that NOG’s differentiated scale and diversification across major U.S. basins and operators give it capital flexibility. Such flexibility supports NOG’s active investment approach, defying the historical view that non-operators are passive investors/vehicles.
Janela ranks No. 567 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 53% of the time, delivering an average return of 22.6%. (See NOG Ownership Structure on TipRanks) 
Darden Restaurants
The next dividend stock is Darden Restaurants (DRI). The company recently announced lower-than-expected results for the first quarter of fiscal 2025. However, shares jumped after the results, as the company maintained its full-year guidance and announced its partnership with Uber.
Coming to shareholder returns, Darden repurchased about 1.2 million shares for $172 million in Q1 FY25 and paid $166 million in dividends. With a quarterly dividend of $1.40 per share (annualized dividend of $5.60), DRI stock offers a dividend yield of 3.3%.
Following the print, BTIG analyst Peter Saleh reaffirmed a buy rating on DRI stock. He boosted the price target to $195 from $175, citing multiple sales drivers — including increased promotions, price point advertising and the Uber Eats partnership — that are expected to significantly boost same-store sales at the company’s Olive Garden chain.
The Uber Eats partnership will start this fall with a pilot for delivery at about 100 Olive Garden units. Saleh expects the Uber Eats partnership to generate a mid-single-digit comparable sales benefit over time. The analyst noted that while Q1 FY25 performance was impacted by unexpected industry weakness in July, the company’s comparable sales growth turned positive across all brands, except Fine Dining, in September.
Overall, Saleh remains bullish on DRI stock, given that it is a “combination of an industry-leading operator with consistent earnings growth at an attractive valuation.”
Saleh ranks No. 422 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, delivering an average return of 10.7%. (See DRI Stock Buybacks on TipRanks)
Target
Big-box retailer Target (TGT) is this week’s third dividend pick. In June, Target announced a 1.8% rise in its quarterly dividend to $1.12 per share. This marked the 53rd consecutive year in which the company increased its dividend. TGT stock offers a dividend yield of 2.9%.
Last month, Target announced better-than-anticipated results for the second quarter of fiscal 2024 amid macro challenges. The company paid $509 million in dividends and repurchased shares worth $155 million in the fiscal second quarter. 
Recently, Target announced the appointment of Jim Lee as the company’s new CFO. Following the news, Jefferies analyst Corey Tarlowe reaffirmed a buy rating on TGT stock with a price target of $195. The analyst is upbeat about the hiring of the new CFO and thinks that he could enhance the company’s food and beverage focus, given his experience at consumer staples giant PepsiCo.
Tarlowe noted the company’s commentary during the Q2 earnings call about food and beverage being a traffic-driving category. He added that the company’s price reduction across nearly 5,000 items over the summer fueled higher unit and dollar sales. With the appointment of Lee as the new CFO, the analyst sees the opportunity for further price cuts and increased volumes. He also expects TGT’s margins to improve under Lee.
Despite near-term pressures, Tarlowe is bullish on TGT’s long-term prospects. He emphasized that the company’s “significant investments in price, omnichannel, and stores are showing solid returns and share gains.”
Tarlowe ranks No. 319 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 67% of the time, delivering an average return of 17.1%. (See TGT Stock Charts on TipRanks) More

Immigration is a top issue in the 2024 U.S. presidential election for supporters of former President Donald Trump, the Republican nominee.
Trump has said at campaign events that immigrants are taking jobs away from U.S.-born workers.
Labor economists say immigrants benefit the overall job market and economy. There’s an ongoing debate about impact on wages for workers without high school degrees.

The first debate between Vice President Kamala Harris and former President Donald Trump is shown on television at the Juventud 2000 migrant shelter in Tijuana, Mexico, on Sept. 10, 2024. Immigration has been a hot topic throughout the presidential campaign.
Carlos Moreno/NurPhoto via Getty Images

The idea that immigration has a negative impact on the U.S. job market is a common theme of former President Donald Trump’s speeches on the presidential campaign trail.
“They’re taking your jobs,” the Republican nominee told supporters on Sept. 21 in Wilmington, North Carolina.

Immigration is also a top issue for Republican voters: 82% of Trump supporters say immigration is “very important” to their vote in the 2024 presidential election, second only to the economy, according to the Pew Research Center. It’s the lowest-priority issue for Democrats, Pew found. Pew polled 9,720 U.S. adults from Aug. 26 through Sept. 2.
However, evidence suggests immigrants help the overall economy. And, at a high level, they aren’t taking jobs from or reducing the wages of U.S.-born (or so-called native) workers, according to economists who study the impact of immigration on the labor market.
“Overall, the consensus is very strong that there are not significant costs to U.S.-born workers from immigration, at least the type of immigration we have historically had in the U.S.,” said Alexander Arnon, director of business tax and economic analysis at the Penn Wharton Budget Model.

Immigrants expected to boost the economy

There are several reasons why immigrants largely benefit the economy and job market, economists said.
For one, the job market isn’t static.

Immigrants take jobs but they also create new ones by spending in local economies and by starting businesses, economists said. One 2020 research paper from the National Bureau of Economic Research found immigrants are 80% more likely to become entrepreneurs than native workers.
A recent “surge” of immigrants to the U.S. is expected to add $8.9 trillion (or 3.2%) to the nation’s GDP over the next decade, according to the Congressional Budget Office, a nonpartisan scorekeeper for Congress.

“That’s enormous,” said Michael Clemens, a professor at George Mason University and an economist whose research examines the economic causes and effects of migration. “That creates jobs, that raises pay, that is an increase in the size and complexity of the U.S. economy.”
Immigrants also aren’t perfect substitutes for U.S. citizens in many job positions; in fact, the two groups often complement each other rather than compete, economists said.
However, some economic research suggests immigration can impact the wages of certain subgroups of U.S.-born workers, especially those with lower levels of educational attainment.

Overall, the consensus is very strong that there are not significant costs to U.S.-born workers from immigration.

Alexander Arnon
director of business tax and economic analysis at the Penn Wharton Budget Model

Some economists contend an influx of immigrants can reduce wages for such Americans in the short term, though other researchers have found that Americans ultimately benefit, partly because those in direct competition with immigrants are able to find higher-paying jobs.
“Not everybody agrees about it,” Clemens said.
A big supply of new labor due to immigration can be “difficult and anxiety-inducing” for American workers who must adjust, he added.
“But people end up in better circumstances,” he said.

Immigration helped cool ‘overheated’ job market

The El Chaparral pedestrian border crossing at the San Ysidro Port of Entry in Tijuana, Mexico, on Jan. 4, 2024. 
Carlos Moreno/Bloomberg via Getty Images

Immigrants accounted for about 14% of the U.S. population in 2022, according to Pew, citing most recently available federal data.
Most are in the U.S. legally: Undocumented immigrants represented 3.3% of the total U.S. population and 23% of immigrants in 2022, Pew said. Their number has increased in recent years, to 11 million, but remains below its 2007 peak of more than 12 million.
The number of immigrants coming to the U.S. has “increased sharply in recent years,” the CBO wrote in July.
More from Personal Finance:How the presidential election could affect your taxesJudge blocks Biden’s new student loan forgiveness planHarris wants to raise the top capital gains tax rate to 28%
Net immigration is expected to be 8.7 million people higher from 2021 to 2026 than would have been extrapolated from pre-Covid migration trends, the CBO said. (Its analysis excludes those with green cards.)
The influx has been beneficial for the pandemic-era economy, economists said.
It “helped cool an overheated labor market” over the past two years, Elior Cohen, an economist at the Federal Reserve Bank of Kansas City, wrote in May.
Demand for workers hit historic highs as the U.S. economy started to reopen in 2021. Wages rose sharply — at their fastest pace in decades — as businesses competed for workers, putting upward pressure on high inflation.

Immigrant labor alleviated “severe staffing shortages,” especially in industries like leisure and hospitality, helping dilute those inflationary wage pressures, Cohen wrote.
In this sense, immigrants weren’t competing with U.S. citizens for jobs but instead taking a surplus of available jobs, said Giovanni Peri, an economics professor and director of the Global Migration Center at the University of California, Davis.
In fact, a long-term net decline in the number of non-college-educated immigrants to the U.S. from 2010 to 2021 likely contributed to those recent labor shortages, he said.
“If there is a time when low-skilled immigration isn’t competing with natives and helping fill shortages, it’s been the last two years,” Peri said.

‘Little evidence’ of employment impact

Even before the Covid-19 pandemic, economists from varying sides of the debate published a “consensus” viewpoint in 2017 on the job market effect of immigration, Clemens said.
The panel of economists found “little evidence that immigration significantly affects” overall employment levels among Americans, they wrote for the National Academies of Sciences, Engineering, and Medicine.
“I’d say the consensus has gotten [even] stronger” since then, said Arnon of the Penn Wharton Budget Model, who authored a separate 2016 analysis of existing research on immigration’s economic impact.
To the extent there’s job competition from new immigrants, it tends to fall mostly on prior immigrants rather than native U.S. workers, according to the National Academies paper.
Prior immigrants are most likely to experience “negative wage effects,” it said.
However, native-born high school dropouts may experience that effect, as well, since they “share job qualifications similar to the large share of low-skilled [immigrant] workers,” the National Academies paper said.
Immigrants without a high school degree account for the largest share of foreign-born workers, followed by those with graduate or professional degrees, according to the Penn Wharton analysis.

A heated debate on low-skilled workers

A boat arrives in Key West, Florida with Cuban refugees in April 1980 from Mariel Harbor after crossing the Florida Straits.
Tim Chapman | Miami Herald | Getty Images

One influential — and controversial — paper by Harvard economist George Borjas echoes that finding about high school dropouts.
Borjas — who was among the more than three dozen economists who authored the National Academies consensus paper — studied the Mariel boatlift, a mass emigration of 125,000 Cuban refugees to South Florida from April to October 1980.
At least 60% of these “Marielitos” were high school dropouts, he said. Borjas found that the large boost in labor supply caused the wages of high school dropouts in Miami to drop “dramatically,” by 10% to 30%.
Stephen Miller, a senior policy adviser during the Trump administration, cited the paper in 2017 as a justification for a new proposal to curtail legal immigration, particularly among lower-skilled workers.
Asked to comment on Trump’s campaign statements about immigration and jobs, Anna Kelly, a spokeswoman for the Republican National Committee, said in an emailed statement that the former president “has never wavered in his promise to put America First, including workers born in the USA and incentivizing companies to keep jobs at home.”

Borjas’ finding was in contrast with earlier work by economist and Nobel laureate David Card, who had found the Mariel boatlift didn’t increase unemployment or negatively affect wages of “less-skilled” non-Cuban or Cuban workers.
Some economists, including Clemens, dispute Borjas’ findings. Borjas didn’t return a request for comment.
“Sudden surges of immigration obviously affect the ability of native workers to find and take jobs on a given afternoon,” Clemens said.
But immigrants “also create jobs,” Clemens said. “A large preponderance of evidence is the job creation effect overwhelms the competition effect, even in the short term.”

Effect may depend on the economic environment

Migrant workers pick strawberries during harvest south of San Francisco.
Joe Sohm/Visions Of America | Universal Images Group | Getty Images

Native U.S. workers and immigrants, even those with similar educational backgrounds, tend to complement each other via their skills, making each other more productive and in essence jointly creating each other’s jobs, Clemens said.
For example, in a restaurant, a native worker with better command of spoken English might be a waiter, while an immigrant might do kitchen-prep work or wash dishes, tasks that don’t require such language dexterity. On farms, native workers might be supervisors or run high-tech equipment while immigrants handpick crops, Clemens said.
Research by Peri and Alessandro Caiumi of the University of California, Davis, finds that factors like “occupational upgrading” generally lead native workers who initially compete with immigrants for jobs to earn higher wages in the future.
For example, from 2000 to 2019, such factors helped boost wages for less-educated native workers by a “significant” 1.7% to 2.6%, and there was also “no significant wage effect on college educated natives,” Peri and Caiumi wrote. Similarly, from 2019 to 2022, estimates suggest “small positive effects” on wages.
Ultimately, “what might have happened in Florida during the Mariel boatlift in the 1980s may be different than what happens in Arizona in the 2010s,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.
“From a policy perspective, you have to figure out which of the studies are most relevant to the current economic environment you’re considering,” Strain said. More

Google earth view of Sanwa Holdings Corporation, Shinjuku Mitsui Building, 52F 2 Chome-1-1 Nishishinjuku, Shinjuku City, Tokyo 163-0478, Japan
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Company: Sanwa Holdings Corp. (5929.T)

Business: Sanwa Holdings is a Japan-based company mainly engaged in the manufacture and sale of building and commercial facility construction materials, as well as the provision of maintenance and renovation services. It operates in three geographic segments: Japan, North America and Europe. Its offerings include shutters, doors for buildings and housing, partitions, stainless products, front-desk products, windows and exterior products.
Stock Market Value: 874.8 billion Japanese yen (3,820.00 yen per share)

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Shares of Sanwa Holdings in 2024

Activist: ValueAct Capital

Percentage Ownership:  5.94%
Average Cost: n/a
Activist Commentary: ValueAct has been a premier corporate governance investor for over 20 years. The firm’s principals are generally on the boards of half of ValueAct’s core portfolio positions and have had 56 public company board seats over 23 years. ValueAct has been a pioneer of U.S.-led international activism, primarily in Japan. A significant amount of their portfolio is invested internationally. Rob Hale, co-CEO of ValueAct and co-portfolio manager of ValueAct’s Japan fund, is on the boards of Japanese companies. This is somewhat of an unprecedented and industry-leading action for U.S. activist funds. ValueAct has had 27 prior international activist investments and has had an average return of 48.15% versus an average of 7.60% for the MSCI EAFE Index over the same periods. Moreover, two of the firm’s best international investments have been two Japanese companies where Hale is on the board: Olympus (177.82% versus 19.68% for the MSCI EAFE) and JSR Corp (135.77% versus 44.35% for the MSCI EAFE).

What’s happening

On Sept. 25, ValueAct Capital reported holding 5.94% of Sanwa Holdings.

Behind the scenes

Sanwa is a manufacturer of shutters, garage doors and other related products for residential and commercial applications globally. The company commands a compelling position in its industry as the No. 1 player in Japan (50% to 60% market share), and is a top-two player in the U.S. (30%) and Europe. In the last fiscal year, Sanwa generated 43% of its revenue in Japan, 37% in North America, 18% in Europe and 2% in the rest of Asia. This is a high-quality and growing business and a company that is not plagued by many of the issues typically present at activist targets in Japan.

ValueAct Capital has disclosed, in a large shareholding report, that it has accumulated a 5.94% position in the company with an investment purpose of providing advice to management or making important proposals. This makes them one of the top five shareholders of Sanwa based on the company’s most recent disclosure of its principal shareholders in June 2024. This is a typical activist position for ValueAct in that it is a good company with a strong management team where there is an opportunity for the firm to work with management to maximize shareholder value. There are three value creation opportunities here: (i) U.S. margin expansion; (ii) Japan margin expansion; and (iii) capital allocation and balance sheet efficiency.
The U.S. business accounts for nearly 37% of the company’s revenue and 50% of its earnings before interest and taxes (“EBIT”). This business was built through many good acquisitions that were not efficiently integrated. As a result, Sanwa operates over 15 factories across the U.S. (versus two to four for peers), and there remain duplicative corporate functions and regional management teams.  Accordingly, U.S. EBIT margins are in the mid-teens, versus 30%+ for peers Clopay (owned by Griffon Corp) and C.H.I. Overhead Doors (which KKR sold to Nucor in 2022). There is a tremendous opportunity to centralize, consolidate and professionalize its U.S. operations, which could lead to margins that are at least in the low-to mid-twenties over the next few years.
In Japan, there is also a margin opportunity. Currently, Sanwa’s Japanese business has EBIT margins of about 11%, which can likely be improved a few hundred basis points in the next few years. Margins are much lower in Japan for a variety of reasons: An important one is that the company is vertically integrated in Japan, doing installation in addition to manufacturing, which is more labor intensive and expensive given recent wage inflation. However, in Japan, demand remains strong from urban redevelopment, and the first inflationary environment in quite a while should make passing on price increases more palatable. As the main player in Japan by market share, Sanwa could likely exercise additional pricing power down the road.
Lastly, ValueAct will likely focus on capital allocation and optimizing the balance sheet of Sanwa, which has been a major component of the firm’s theses at other investments in Japan. The company currently holds about 10% of its market capitalization in cash. Compared to peers, this is clearly excessive, and it is quite typical in Japan for companies to unnecessarily accumulate cash and investment securities without reason and far beyond their working capital requirements. Ahead of any shareholder value creation, ValueAct will likely call for increased shareholder returns in the form of buybacks to capitalize on the Sanwa’s relatively low valuation.
Continuing to increase margins at both businesses and buying back shares should lead to a continuous re-rating of the company’s value from the 8.5-times enterprise value/earnings before interest, taxes, depreciation and amortization (“EV/EBITDA”) it currently trades at to the low-teens of peers.
ValueAct has an earned reputation as a collaborative and amicable activist, and there is no reason why this situation should be any different, particularly since Sanwa has been doing a lot of the right things for a long time. For several years, and especially post-Covid, the company has consistently grown sales, profits, return on equity, return on assets, earnings per share and dividends with a target payout ratio of 40% of consolidated profits. Since the beginning of 2020, the company has delivered a share price return of +180% and a total shareholder return of +225%, healthily outperforming the S&P 500 and Nikkei 225 over this period. ValueAct and Sanwa are likely on the same page as to what needs to be done and are both confident that management can accomplish it. With ValueAct in the picture, there should be more urgency in accomplishing it much quicker. Historically, the firm has taken board seats in approximately half of its portfolio positions. But ValueAct does not take board seats just for the sake of it, but rather when it and management are aligned on the value creation potential from the firm’s presence in the boardroom. Moreover, the firm only needs to take a board seat if it does not feel that management is pursuing or realizing value creation opportunities or if it does not feel it could be effective as an active shareholder. Neither seem to be the case here. ValueAct is likely to continue as an active shareholder while Sanwa continues to do what it’s been doing, just on a faster timetable.
There is also a potential strategic opportunity here. The U.S. and Japan businesses are run independently of each other. If the U.S. business were sold for the 13-times EBITDA at which that KKR sold the C.H.I. Overhead Doors business, it would equal almost the entire enterprise value of both the U.S. and Japan businesses, effectively getting the strong Japanese business almost for free. This is not something that ValueAct has historically advocated for. It’s also not something that the firm is advocating for here, but if an unsolicited offer came in, as fiduciaries and economic animals, ValueAct would make sure management weighed it versus the long-term value of a standalone business and took the course that was best for shareholders. 
In closing, this is a good company. There’s the stock price, the key financial metrics – things are moving in the right direction. But sometimes good companies tend to enjoy the status quo, particularly in Japan, and they do not feel incentivized to take the steps to become great companies. As an engaged investor, ValueAct has historically closed the gap between “good” and “great” by supporting management in executing its plan. 
One final note: This company is no stranger to activists. Dalton Investments had previously exceeded the 5% filing threshold at Sanwa on June 30, 2023. The firm reported that it had submitted three shareholder proposals, but quickly withdrew those proposals due to the company proactively disclosing measures regarding improvements to capital allocation and corporate governance. Less than a year later, Dalton started selling down this position. Now ValueAct will pick up where Dalton left off, but we are sure that ValueAct comes in with a much longer-term mind frame.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. More

Power plant restarts like Three Mile Island represent only a fraction of the nuclear energy the U.S. needs in the coming decades, a senior DOE official said.
Building new reactors at shuttered coal plants could reduce costs and help the U.S. achieve its goal of tripling nuclear power, according to the official.

A bulldozer moves coal that will be burned to generate electricity at the American Electric Power coal-fired power plant in Winfield, West Virginia.
Luke Sharrett | Bloomberg | Getty Images

The planned restart of Three Mile Island is a step forward for nuclear power, but the U.S. needs to deploy new plants to keep up with rising electricity demand, one of the nation’s top nuclear officials said this week.
The U.S. needs to at least triple its nuclear fleet to keep pace with demand, slash carbon dioxide emissions and ensure the nation’s energy security, said Mike Goff, acting assistant secretary for the Office of Nuclear Energy at the Department of Energy.The U.S. currently maintains the largest nuclear fleet in the world with 94 operational reactors totaling about 100 gigawatts of power. The fleet supplied more than 18% of the nation’s electricity consumption in 2023.

The U.S. needs to add 200 gigawatts of nuclear power, Goff told CNBC in an interview. This is roughly equivalent to building 200 new plants, based on the current average reactor size in the U.S. fleet of about a gigawatt.
“It’s a huge undertaking,” Goff said. The U.S. led a global coalition in December that formally pledged to meet this goal by 2050. Financial institutions including Goldman Sachs and Bank of America endorsed the target at a climate conference in New York City this week.
Constellation Energy’s plan to restart Three Mile Island by 2028 is a step in the right direction, Goff said. The plant operated safely and efficiently, only shutting down in 2019 for economic reasons, he said.
The reactor that Constellation plans to reopen, Unit 1, is not the one the partially melted down in 1979.
Microsoft will purchase electricity from the plant to help power its data centers. Goff said the advent of large data centers that consume up to a gigawatt of electricity only reinforces the need for new reactors.

“A lot of the data centers are coming in and saying they do need firm, 24/7, baseload clean electricity,” Goff said. “Nuclear is obviously a perfect match for that,” he said.
But restarting reactors in the U.S. will provide only a small fraction of the nuclear power that is needed, he said. There are only a handful of shuttered plants that are potential candidates for restarts, according to Goff.
“It’s not a huge number,” Goff said of potential restarts. “We need to really be moving forward also on deploying plants,” he said.

From coal to nuclear

Coal communities across the U.S. could provide a runway to build out a large number of new nuclear plants. Utilities in many parts of the U.S. are phasing out coal as part of the clean energy transition, creating a supply gap in some regions because new generation is not being built fast enough.
Recently shuttered coal plants, those expected to retire, and currently operating plants with no estimated shutdown date yet could provide space for up to 174 gigawatts of new nuclear power across 36 states, according to a Department of Energy study published earlier this month.
Coal plants already have transmission lines in place, allowing reactors at those sites to avoid the long process of siting new grid connections, Goff said. The plants also have people experienced in the energy industry who could transition to working at a nuclear facility, he said.
“We can actually get a significant cost reduction by building at a coal plant,” Goff said. “We can maybe get a 30% cost reduction compared to just going on a greenfield site.”

Cost overruns and long timelines are major hurdles for building new nuclear plants. The expansion of the Vogtle plant in Georgia with two new reactors, for example, cost more than $30 billion and took around seven years longer than expected.
Expanding operational nuclear plants and building at retired sites in the U.S. could create a pathway for up to 95 gigawatts worth of new reactors, according to the DOE study. Between coal and nuclear sites, the U.S. potentially has space for up to 269 gigawatts of additional nuclear power.
The potential capacity would depend on whether advanced, smaller reactors are built at the sites, or larger reactors with a gigawatt or more of power.
More electricity could potentially be generated if the smaller reactors were rolled out on a large scale because there is space for more of them, according to the DOE study. Some of these smaller advanced designs, however, are still years away from commercialization.
But rising electricity demand from data centers, manufacturing and the electrification of the economy could provide a catalyst to build the larger plants as well, according to Goff. The Three Mile Island restart, for example, would bring back just under a gigawatt of power to meet Microsoft’s needs.
“That increased power demand, that will lead toward an additional push toward those gigawatt-size reactors as well,” he said.

Restarts likely to secure greenlight

While reactor restarts aren’t a silver bullet, shoring up and maintaining the existing fleet is crucial, Goff said. The U.S. went through a decadelong period in which reactors were shutting down because they could not compete with cheap, abundant natural gas.
The economics are changing, however, with tax support from the Inflation Reduction Act and nuclear increasingly valued for its carbon-free attributes, Goff said.
“One of the issues with the economics, especially in the non-regulated utilities, was there was no value necessarily for clean, baseload electricity,” he said. “There is a lot more recognition of the need for that clean, firm, reliable baseload for nuclear.”
Constellation’s decision to restart Three Mile Island follows in the footsteps of the Palisades nuclear plant in Michigan. The private owner, Holtec International, plants to restart Palisades in 2025. The two restarts are subject to review and approval by the Nuclear Regulatory Commission.
“They are an independent agency, but I expect if the safety cases are presented, they’re going to approve it,” Goff said of those potential restarts.
“Constellation obviously operated the Three Mile Island plant for years, and has a very large fleet of reactors that they’ve operated safely and efficiently,” he said. “They will continue to have a great expertise in moving those plants to continue their safe operation.”
But finding additional plants to restart could prove difficult, said Doug True, chief nuclear officer at the Nuclear Energy Institute.
“It gets harder and harder,” True previously told CNBC. “A lot of these plants have already started the deconstruction process that goes with decommissioning and the facility wasn’t as thoroughly laid up in a way that was intended to restart in any way.” More

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Here’s what CNBC TV’s producers were watching as the S&P 500 rose for another record, and what’s on the radar for the next session.

Tepper and China

“Everything, everything, everything… ETFs, I would do futures, everything, everything” said David Tepper, head of Appaloosa Management Thursday morning on “Squawk Box” when asked about China. He’s one of the most successful investors in history. He continued making his case by saying, “a long time ago in 2010 I think I said everything, and you know what was good, everything.”
Continuing on China, Tepper said, “This is incredible stuff for that place. So it’s everything. I would like to see a pullback… I would have another newfound limit in a pullback.”
The iShares MSCI China ETF (MCHI) was up 8.7% on Thursday. It is up 17.4% in four days.
The iShares China Large-Cap ETF (FXI) was up 8% Thursday. It is up 17.6% in four days.
The KraneShares CSI China Internet ETF (KWEB) was up 11.6% Thursday. It is up 22% in four days.
All three ETFs hit new 52-week highs during the session. We’ll be following on Friday.

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KraneShares CSI China Internet ETF (KWEB) in 2024

Tepper and the U.S.A.

Tepper was less enthusiastic about the U.S., but he wasn’t bearish. “I don’t love the U.S. markets on a value standpoint, but I sure as heck won’t be short, because I would be nervous as heck about the setup with easy money everywhere, a relatively good economy,” he said.
The S&P 500 hit a new high Thursday. It is up 2.3% in a month.
The Dow Jones Industrial Average is 0.29% from a high. The index is up nearly 8% in three months.
The Nasdaq Composite is 2.57% from a high. It’s up 2.6% in a month.
The Nasdaq 100 is 2.78% from a high. The index is up 3% in a month.
Alibaba, which is a stock Tepper has held, was up 10% Thursday, hitting a new high. The stock is up about 19% in four days.

Beyond China and the other side of the yuan

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The iShares MSCI India ETF (INDA) in 2024

China and China

On Friday, CNBC TV Megan Cassella will report on the tariff threat involving China which could be another overhang.
Robert Frank, CNBC TV’s wealth reporter will look at luxury stocks in China as economic stimulus plans go into effect. Burberry was up 12.5% Thursday. It remains 62% from the high hit in September 2023.
LVMH was up about 11% Thursday. It is 20% from the March high.
Hermes was up 9% Thursday. It is 8% from the March high.
Prada was up 6% Thursday. It is 14% from the May high.
Ralph Lauren was up 4.4% Thursday, hitting a new high. The stock is up 15.4% in September.

Copper

The China-linked commodity is up 10% in September.
It’s now about 8% lower than it was in mid-May, when it hit a high.

The shipping stocks

The sector was on the rise Thursday, perhaps in part due to Chinese stimulus.
At the same time, there’s a very serious strike threat in the U.S. CNBC TV’s Frank Holland and Lori Ann Larocco are heading up our coverage. Workers may walk off the job Monday night without a deal.
Cosco was up more than 10% Thursday. It is 18.6% from the June high.
Frontline was up 6.6%. It’s 22% from the May high.
Star Bulk was up 3.86% Thursday, and it’s 13.8% from the May high.
Diana Shipping was up 2.82%, and it’s 28.6% from the November high.
Nordic American Tankers closed up up 2.55% Thursday. It’s 25% from the October 2023 high. 

PayPal

CNBC’s MacKenzie Sigalos will report on the stock, one year since CEO Alex Chriss took the helm at PayPal.
The stock is up 36% in a year.
Affirm is up 110% during that time.
American Express is up 77% in a year.
Block is up 48% in a year, but it’s still 24% since the March high.
Mastercard is up 24% in a year.
Visa is up 18% in a year.
Global Payments is down about 17% in a year.

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PayPal over one year

Costco

The stock is down 1% in extended trading after the company posted earnings this afternoon. Results were mixed.
Costco is down 2.4% since hitting a new high about two weeks ago.
Jim Cramer, who returns next week, is a longtime holder. If you bought when he did in June 2020, you’d be outperforming the S&P 500 by far: The stock is up 210% since then. The S&P 500 is up 88% in the same time period.

Cassava Sciences

The biotech company settled a case with the U.S. Securities and Exchange Commission on Thursday over “misleading claims” about an Alzheimer’s clinical trial, according to the agency.
Cassava Sciences is down 11% after hours.
The name has been consistently high on the list of most-shorted stocks. More