Wealth Management
In an article for SeekingAlpha, Principal Financial Group previews the third-quarter and lays out the opportunities and risks it sees in fixed income. Overall, the firm expects the asset class to have a modest tailwind given its expectations for a recession by the end of the year.
As evidence, Principal Financial cites the unprecedented tightening over the last 16 months, slowing economies all over the world, tightening credit standards, and the inverted yield curve. It believes that the next 2 hikes will be the Fed's last in this hiking cycle.
However, the firm doesn’t believe the central bank will be successful in engineering a ‘soft landing’ despite this increasingly becoming the consensus position over the last couple of months. Instead, the firm anticipates a final lurch higher in yields with the breakout ultimately being rejected.
Amid this period of volatility and uncertainty, the firm believes that active funds are best positioned to take advantage of market conditions, and it sees the most upside in high-yield fixed income given that the firm’s base case is for a mild recession.
Finsum: In Q3, Principal Financial Group sees upside for fixed income due to a softening economy, and it sees the most value in high-yield.
In a piece for FutureVault, Kristian Borghesan covers some important items that financial advisors need to consider for succession planning. This type of thinking is increasingly important given the boom of M&A in the space in addition to the aging of advisors in the industry.
Advisors want to ensure a smooth transition in their business to the next generation of advisors while ensuring that client satisfaction is not sacrificed. Additionally, both parties need to be aware of regulatory requirements as well as potential impacts on other employees at the firm.
The goal of succession planning is to ensure continuity of the business, retain clients, preserve the value of the practice, and transfer skills and expertise. Advisors and acquirers have a variety of options to choose from when it comes to structuring the transaction. Increasingly, many advisors are choosing to stay on as employees in a limited capacity to ensure a smooth transition.
So much of the value of a financial advisor practice is due to the clients. Therefore, there needs to be a plan and transition period to ensure that relationships are successfully transferred to the new team. Some recommendations include joint meetings and a slow transition of responsibilities while maintaining active communication with clients during the transition process.
Finsum: Succession planning is essential for advisors to ensure a smooth transition of their business and maximizing the value of their firm. Here are some important considerations.
In an article for MarketWatch, Jamie Chisholm discusses whether stocks can still rally despite the recent surge in bond yields following a spate of positive economic data. Fixed income enjoyed strong performance for most of the first-half of the year, however the asset class gave up a portion of these gains in June as it became clear that the Fed was not done hiking rates given resilience in inflation data and the jobs market.
However, Chisholm warns that as yields get above these levels, they have a tendency to become a headwind for equities. He cites Mark Newton, the chief technical strategist at Fundstrat, who believes that bonds are due for a bout of strength. He believes this pullback in yields will fuel the next leg higher in equities.
Newton believes that yields will find resistance at these levels and sees more risk of a breakdown in yields rather than a sustained breakout to new highs. He also believes the market is going in the wrong direction in terms of over-rating the Fed’s hawkishness in response to recent data. As evidence, he cites trader positioning which shows that the bulk of traders are betting on more rate hikes into year-end.
Finsum: Bond yields are now trading at their 52-week highs following a series of better than expected economic data. Can equities still rally with yields at these levels?
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In an article for InvestmentWeek, Jeffrey A. Johnson, the head of Fixed Income at Vanguard, discusses why there is opportunity for investors in active fixed income funds. He sees attractive valuations coupled with elevated yields. However, he warns that more volatility is likely given that central banks aren’t yet finished raising rates.
According to Johnson, periods of volatility are when active fixed income really shines. Further, he believes investors can increase their odds of success with active investing by selecting funds with qualified and capable management teams in addition to low costs.
Over the long-term, most active funds fail to beat their benchmarks. The story isn’t so simple in fixed income given that active managers can take advantage of different durations and credit quality that aren’t available to passive funds.
Given the challenges of active management, Vanguard recommends a blend of active and passive funds. Although, it favors active management during periods of volatility and uncertainty. In contrast, passive funds offer predictability and lower costs, while active funds offer a higher degree of risk and reward.
Finsum: According to Vanguard, the outlook for active fixed income funds is improving. The asset class tends to outperform during periods of volatility and economic and monetary uncertainty.
In a piece for the ETF Database, Todd Rosenbluth examines whether the strong performance of fixed income ETFs will continue in the second-half of the year. In total, the asset class had $200 billion of inflows which represented 49% of all inflows despite fixed income ETFs only accounting for 19% of total assets.
Given the uncertainty around the economy and monetary policy, it shows that investors are looking to take advantage of higher yields as well as a structural shift towards the asset class. Both stocks and bonds have posted positive returns following a down year in 2022.
This is despite a headwind from the Fed’s rate hikes which look likely to continue into year-end following a recent spate of positive economic data. Due to this, yields on Treasuries have exceeded their March highs. So far, the strength in the bond market has been contained to the long-end especially following the recent inverting of the curve following a string of better than expected employment data.
Within the asset class, active fixed income ETFs saw $8 billion of inflows. Active fixed income ETFs have a better track record of outperforming their benchmark due to the ability to buy durations and assets that are unavailable to passive fixed income funds. While only 26% of active equity funds outperformed the S&P 500, 48% of active fixed income funds outperformed their benchmark in 2022.
Finsum: Fixed income ETFs saw a surge of inflows in the first-half of the year due to attractive yields. However, there remains considerable uncertainty in the second-half of the year given the economy and Fed.
In a piece for AdvisorHub, Karmen Alexander covers the latest developments in First Republic’s wealth management unit following the regional bank’s bankruptcy. The majority of the beleaguered bank’s assets were acquired by JPMorgan, but many of its financial advisors are choosing to move to new firms.
Overall, the general trend seems to be that the advisors with the most assets are moving to an independent model. One exception is Mark Alibrandi and Stephen Alibrandi who are joining UBS’ Private WEalth Management unit, taking an estimated $1.5 billion in assets and a total of $5.1 million in annual production. Both Alibrandis had been with First Republic for over a decade and were ranked #8 by Forbers for best wealth advisors in Massachusetts.
This move came on the heels of Shannon McAllister also exiting First Republic for UBS with around $1.3 million in assets earlier in June. While UBS is recruiting brokers in the New England area away from First Republic, NewEdge Wealth, a hybrid brokerage and advisory firm, was successful in recruiting John Froley in California. Froley was ranked as the #62 advisor in California by Forbes and has $309 million in assets under management.
Finsum: First Republic was acquired by JPMorgan. Yet, many of the companies’ wealth advisors are leaving the bank for greener pastures.