Wealth Management
Often, there is a mismatch between how an advisor spends his or her time, and what drives ultimate success for the practice. By embracing technology and model portfolios, advisors can free up more time to invest in activities that build their business such as client service, marketing, and prospecting.
Surveys show that client retention and satisfaction are ultimately linked to frequent communication. However, many advisors are spending a chunk of their time managing portfolios and researching investment ideas. In fact, some research indicates that advisor-managed portfolios underperform especially in more volatile markets.
Now, there are increasingly more complicated and sophisticated investment options which increases the burden on advisors and further compromises client services. With model portfolios, advisors can outsource large parts of the process such as research, portfolio management, and onboarding while providing more options and better performance.
By outsourcing this function, advisors can also reduce costs and create greater efficiencies. Model portfolios can also help in other areas such as tax management which is another priority for clients. By centralizing information, it can identify opportunities across portfolios and lead to a more personalized experience.
Ultimately, model portfolios are a way for advisors to leverage technology to drive better outcomes for their clients and business while creating a more efficient practice.
Finsum: Model portfolios offer many benefits to advisors. The primary one is it frees up more time for client service.
Yields on long-term Treasuries have broken out to 16 year highs. This has unleashed considerable volatility for bonds amid uncertainty about the economy’s trajectory and the Fed’s next move.
At the same time, many investors are looking to take advantage of this weakness and increase their exposure to the asset class especially with yields at such attractive levels. However, the current environment may be more suitable for active fixed income ETFs like the T. Rowe Price QM US Bond ETF (TAGG) rather than the typical passive options.
Active managers have more freedom and flexibility when it comes to credit quality and duration, meaning they are able to take advantage of market inefficiencies. And, there are likely more inefficiencies in the current environment due to the cloudy economic and monetary outlook.
As an example, TAGG invests in investment-grade fixed income securities, including corporate and government debt and mortgage and asset-backed securities across all sorts of maturities. Additionally, TAGG still retains many of the benefits of passive strategies such as low costs and diversification.
Finsum: The current environment is unusually uncertain and volatile for fixed income investors. Here is why active strategies are a better fit for the current environment.
Strive Asset Management, the upstart asset manager which was founded by Republican presidential candidate Vivek Ramaswamy, is launching its own model portfolio offerings. Strive is seeking to compete with Blackrock and Vanguard by solely focusing on economic factors when it comes to investing rather than also accounting for non-economic factors like ESG.
Strive’s model portfolios would also have the same investing and voting style as its funds. In its filing, the company said, “Strive engages in advocacy intended to encourage public companies to focus on economic factors in maximizing value for shareholders. This may include submitting or supporting shareholder proposals at public companies, advocating for changes in management or corporate structure at public companies, and a wide variety of corporate and/or public engagement.”
Its model portfolios would use existing Strive ETFs and one third-party ETF. In terms of fees, Strive would only receive its ordinary ETF fees and not charge any additional fees for its models. Currently, the asset manager has launched 11 ETFs with expense ratios between 5 and 49 basis points.
As of last month, these 11 ETFs had just over $1 billion in assets. The company aims to appeal to conservative-minded investors who are turned off by focus on ESG and other non-economic factors when it comes to investing and shareholder initiatives.
Finsum: Strive Asset Management is launching model portfolios as it looks to compete and take market share away from more established asset managers.
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Alternative investments encompass everything excluding equities, fixed income, and cash or money markets. According to Angie Spielman,the founding partner and a financial advisor at Manhattan West, this is a great time to invest in alternatives, and she recommends a 33% allocation for her clients assuming that it fits their risk profile.
Demand for alternatives is growing given that the asset class outperformed in 2022 while both stocks and bonds posted negative returns. Additionally, it’s proven to be a source of positive returns and diversification.
Spielman sees the new benchmark portfolio as being equally divided between equities, bonds, and alternatives. Although, she warns that this mix is not appropriate for more risk-averse clients. She also believes that private markets will outperform public markets over the next decade. Within the asset class, she favors private equity, venture capital, real estate, and private debt.
In addition to benefiting existing clients, providing access to these types of investments can also attract prospects who are more risk-tolerant and seeking diversification. She recommends easing new clients into these types of investments with smaller sums at the beginning. Alternative investments do typically have higher fees and tend to have less liquidity and transparency than traditional options.
Finsum: Alternative investments are growing in popularity and offer specific benefits to advisors and clients.
2023 has been the year of active fixed income based on inflows and new issues. Nearly every asset manager has been jumping on the trend as we’ve seen launches from Blackrock, Capital Group, and Vanguard in the last couple of months.
The latest to join the fray is JPMorgan which announced the JPMorgan Active Bond ETF (JBND) which will trade on the New York Stock Exchange. The ETF will invest in a diversified portfolio of intermediate and long-term debt securities with a focus on securitized debt products. It seeks to differentiate itself with an emphasis on value through careful security selection and aims to outperform the benchmark, Bloomberg US Aggregate Bond Index, over a 3 to 5 year time frame. In addition, JBND has a cost basis of 30 basis points.
Active fixed income is benefitting from the current volatility and uncertainty regarding monetary policy. There’s also a fundamental shift in the wealth management space as institutions and advisors are more familiar with these types of products vs mutual funds. And, many younger advisors and investors prefer the ease and familiarity of the ETF structure vs mutual funds. Therefore, asset managers are introducing ETF versions of their most popular active fixed income funds.
Finsum: Active fixed income continues to be a hot space with JPMorgan launching another offering. Here are some reasons for the category’s growing popularity.
2023 has been a volatile year for bonds due to a better than expected economy and hawkish Federal Reserve. Yet, inflows into bond funds are up 38% compared to this time last year at $235 billion according to Blackrock.
The firm sees fixed income demand driven by high yields and the desire to reduce portfolio volatility. Currently, the 10 year Treasury is yielding 4.6% which is 90 basis points higher than at the start of the year. In contrast, the 10 year was yielding around 1% in October 2021.
Currently, the central bank is in a ‘wait and see’ mode regarding further hikes and the duration of the current cycle. Wall Street analysts anticipate that flows should further pick up once it’s clear that the tightening cycle is over as they look to lock in yields at these levels.
In terms of fixed income ETFs, the iShares 20+ Year Treasury Bond (TLT) has been the biggest beneficiary with $17 billion of net inflows YTD despite a 13% drop. However, there is less enthusiasm for riskier fixed income due to concerns that a recession could lead to a spike in defaults as inflows into lower-rated bond funds have lagged.
Finsum: Fixed income inflows have been strong all year despite considerable volatility and uncertainty about the economy and Fed.