Wealth Management
Bonds are generally lagging behind this year, with the Bloomberg U.S. Aggregate Bond Index down by 3% year-to-date as of April 2022. Municipal bonds are similarly affected, with the ICE AMT-Free US National Municipal Index showing a 1% decline since the year's start. However, pockets of strength exist within the municipal bond space, particularly in high-yield offerings like the VanEck High Yield Muni ETF (HYD), which has seen nearly a 1% increase year-to-date.
Despite the higher risk associated with high-yield bonds, HYD maintains a balanced risk profile, with a significant portion of its portfolio allocated to investment-grade bonds. Offering a 30-day SEC yield of 4.49%, HYD presents an attractive option for investors seeking enhanced yield opportunities, particularly those comfortable with added risk and in higher tax brackets.
Overall, high-yield munis could serve as a credible alternative to junk corporate bonds, especially considering their relative resilience amid rising interest rates and the potential for enhanced returns compared to traditional municipal bond funds.
Finsum: Munis market is capitalizing on the current environment and investors don’t want to miss out.
Amid ongoing concerns over inflation, the Federal Reserve opted to maintain its key interest rate at its highest level in over a decade, ranging between 5.25% and 5.5%. Despite solid economic expansion and strong job gains, the central bank noted a persistent lack of progress toward its 2% inflation target. Annual inflation rates remained elevated, with the consumer price index registering at 3.5%, driven primarily by surging housing and insurance costs.
Although there is optimism about reaching the 2% inflation goal, economists caution that significant progress is still needed. The Fed's strategy of keeping interest rates elevated to curb inflation has yielded mixed results, with inflation rates plateauing between 3% and 4% after initial declines. Complex factors, including rising costs passed on by insurance companies and varying consumer spending behaviors, contribute to the inflationary pressures beyond the Fed's control.
While concerns about the labor market and future business conditions persist, analysts believe the likelihood of a recession remains low. Fed Chair Jerome Powell emphasized the ongoing uncertainty, indicating a cautious approach to monetary policy adjustments in the near term.
Finsum: Expect rates to hold steadier than markets might expect with this stubborn of inflation.
Bitcoin faced a nearly 6% downturn on Wednesday, marking its weakest monthly performance since late 2022, as investors divested from cryptocurrencies prior to the Federal Reserve's interest rate decision. The primary cryptocurrency globally witnessed a drop of nearly 16% in April, as investors cashed out gains from a scorching rally that propelled prices above $70,000.
Bitcoin saw a decline of up to 5.6%, hitting its lowest point since late February, hovering at $57,001, while ether saw more modest losses, down 3.6% at $2,857, also reaching its lowest level since February. Despite being down 22% from March's peak, bitcoin remains up 35% this year and has doubled in value since this time last year, largely due to significant capital inflows into newly established exchange-traded funds since January.
Crypto-related stocks, including Coinbase, Riot, and Marathon Digital, dipped in U.S. premarket trading, reflecting broader market uncertainties surrounding the Federal Open Market Committee's stance on interest rates.
Finsum: The original link between bitcoin and inflation/interest rates has deteriorated, but regulation will clear up the future for cryptocurrency.
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Active ETFs have been steadily gaining market share from mutual funds, experiencing a consistent 20% growth in assets annually over the past five years, reflecting investors' growing preference for the cost-efficient and adaptable nature of ETFs. During this period, they have expanded their share of the overall ETF market, skyrocketing from 2% to 8.5%, as indicated by Morningstar's recent analysis on actively managed funds.
Despite their current assets standing just above $600 million amidst the $8.9 trillion U.S. ETF landscape, they are advancing at a faster pace than both the overall market and their passive counterparts. Investors have injected $375 billion into actively managed ETFs in the last five years, while active mutual funds have witnessed a staggering outflow of $1.8 trillion, according to Morningstar's data.
Investors can anticipate continued growth for active ETFs, asserting their burgeoning prominence within the fund industry, fueled by investor demand and their role in alleviating the outflows from active mutual funds.
Finsum: Investors tend to think pickers have their largest advantage in volatility and macro environments, so this trend could continue.
In the first quarter of 2024, the momentum of private credit fundraising decelerated, impacted by global economic uncertainties, as per the latest findings from Preqin. Fundraising in this sector amassed $30.6 billion during the period, marking a 14% decrease from the typical first-quarter figures recorded since 2017.
RJ Joshua, VP of research insights at Prequin, notes that there are large concerns around the future of interest rates and inflation, but this slow down might just be for a limited time. The slowdown in fundraising during the initial quarter may prove temporary and regain traction later in the year, according to Joshua.
Notably, there has been a noticeable rise in fund concentration, with the top 10 funds garnering a larger share of the total fundraising. Investors are very satisfied with private credit and over 90% feel the asset class is meeting their expectations.
Finsum: The future path of interest rates is appearing more certain, which could bode well for private debt through the end of the year.
In late 2022, the SEC amended its marketing rules for financial advisors. One change was that client testimonials were permitted under certain conditions. Many practices are seeing success by showcasing testimonials from satisfied clients.
Michelle Tigani, the director of marketing and communications at Cassaday & Co., added a client testimonial page to the firm’s website, which simply shares positive feedback that the practice has received over the years. She plans to use these testimonials in ads, emails, and targeted campaigns. She notes that the client testimonial page is the most visited on the firm’s website, underscoring their efficacy.
Susan Wilkinson, the founder of Wilkinson Wealth Management, recommends reaching out to long-term clients to ask if they would be willing to share a testimonial. The firm displays these on their website and integrates quotes from clients into various marketing mediums such as social media, emails, and print. She believes it’s more effective and authentic for prospects to hear from satisfied clients rather than traditional forms of marketing which many instinctively tuneout.
Finally, Terra McBride, the chief marketing officer at Prime Capital Investment Advisors, asserts that financial advisors are in the relationship business. Client testimonials are the most effective way to communicate your ability to form positive and successful relationships. She recommends using testimonials in multiple formats, including websites, videos, and marketing campaigns. Ultimately, it adds more credibility and layers to help prospects get a feel for the client experience.
Finsum: Late in 2022, the SEC amended its rules for client testimonials. Here’s why they are effective and how some practices are integrating testimonials into their marketing strategy.