Displaying items by tag: model

Risk adverse?

Well, perhaps you’ve pulled up to the right window. After all, a big upside of active fixed income management: risk mitigation, according to npifund-com.

Possible problems – before they damage client portfolios – can be traded out of by alert active fixed income managers. What’s more, the site states: “We believe the next problem to address with active management is the leverage bubble in corporate debt. The disproportionately large BBB market, in   particular, “poses a risk to the markets in the event of a wave of downgrades under the right recessionary scenario.”

Meantime, it seems investment strategy and fixed income teams at Vanguard have been burning a little midnight oil.

According to corpaemdisp.essp.c1.vanguard.com, new research from the company’s teams taken a close look into how the growth of a diverse coupon stack in the municipal bond market, followed by, down the line, “aggressive Fed rate hikes put negative convexity front and center in active muni investing.”

Those active managers steering through this environment of souped up rates are gaining leverage. Why? Because they’ve been able to wrap their heads around how to manage negative convexity risk – and they’ve been prudent while they’re at it.  

The model target segment, it seems, get around. Even without an Uber app. It goes like this: the segment represents 26% of industry advisor asset, with advisors checking in at 46% and advisory practices, 61%, according to fundssociety.com. Yep; spreading the wealth, so to speak.

So, what’s the draw? Well…if you have to ask. That said, if you do, tax efficiency’s among the headline requests for financial advisors deep diving the upside of the portfolios. Particularly noteworthy; 60% of model providers report receiving at least some requests from advisors surrounding this objective.

“This aligns with a broader industry trend regarding the importance of effective tax management as a way to add value to client portfolios,” says Matt Apkarian, associate director. “Advisors want to be able to effectively tax-loss harvest, and to be able to reduce the tax impact of changing investment solutions.”

What’s more, the popularity of model portfolio’s isn’t hightailing it out of doge anytime soon. Along those lines, the clients of advisors should keep an eye on the mail. Eighty two will be the recipients of targeted or comprehensive financial planning services by next year, according to napa-net.org.

Very few investment trends have caught on as rapidly as model portfolios which have seen widespread adoption, but this could be lowering asset flexibility. Model portfolios seek a variety of metrics for assets to be added to the fund. Assets may be excluded for categorical or qualifying reasons which can lead to a lack of adoption and lower returns. The selection bias in models leaves meat on the bone for investors and can keep them from getting exposure to products like covered calls or other investments.

Finsum: Model portfolios have their place, but they could create an inefficiency where some products are given their proper value.