Wealth Management
In a piece for ETFTrends, James Comtois covers how Vanguard successfully helped its clients reduce their capital gains tax bill. This was especially salient in 2021 when many early-stage investors in companies that went public reaped massive profits as they cashed out during the IPO process.
Some advisors placed the capital gains of these clients into direct indexing. With direct indexing, investors own the actual holdings of the index rather than a fund. This means that tax losses can be regularly harvested and accumulated to offset capital gains and reduce a clients’ tax bill. Such a strategy is not possible with investing in traditional funds.
Further, investors can continue to track their benchmark as the positions that are sold can be replaced by different positions that have similar factor scores. Research shows that harvesting tax losses can boost portfolio performance but more benefits accrue with more consistent scanning.
These capital gains can be deferred for a couple of years into the future. Similarly, tax losses that are harvested can also be deferred for when the tax liability emerges. Overall, these strategies can provide considerable benefits to a select group of investors,
Finsum: Direct indexing provides significant benefits to investors that have a large tax bill now or in the future.
Blackrock’s Q2 earnings report gave some insights on the performance of its various funds in addition to commentary from its management team. Overall, the asset manager exceeded analysts’ consensus expectations with $9.28 in earnings per share vs $8.45. Compared to last year’s Q2, net income was up 25% while revenue was down 1%. Total assets under management climbed to $9.4 trillion.
However, the company did miss analysts’ estimates when it came to inflows into its equity and fixed income funds at $57 billion vs expectations of $81 billion. Active funds were particularly weak with $9.7 billion of outflows from active equity and $3.7 billion from active fixed income.
These disappointments have weighed on Blackrock’s stock price which has underperformed the S&P 500 YTD. Yet, the company remains confident that future growth will come from active fixed income. According to Blackrock President Rob Kaptio, “There is finally income to be earned in the fixed-income market.” He sees higher yields as a “once-in-a-generation opportunity” and that are supportive of inflows into its lineup of active fixed income products.
Finsum: In Q2, Blackrock saw negative inflows into active fixed income and equity funds. Yet, the company continues to see these products as key to its long-term growth.
In an article for TheStreet, David Dierking discusses two ETFs offering investors weekly dividends. It’s an innovative offering by SoFi as most equities pay out dividends on a quarterly basis, while fixed income ETFs offer monthly payouts.
In contrast, the SoFi Weekly Dividend ETF (WKLY) and the SoFi Weekly Income ETF (TGIF) are structured to give investors a weekly payout. WKLY is made up of a blend of equities and fixed income. It invests primarily in dividend-paying companies with a market cap of over $1 billion. Some of its largest holdings include Exxon Mobil, Johnson & Johnson, and JPMorgan Chase. It pays out $0.02 per share on a weekly basis which is a 2.2% annual yield.
TGIF invests primarily in high-yield fixed income and is considered a bond ETF. It mostly invests in short and intermediate-term duration and also has an active management structure which gives it wider latitude to take advantage of opportunities in the credit space. It pays out $0.07 per share on a weekly basis and has an annualized yield of 3.8%. Since inception, it had one dividend hike from $0.05 per share to $0.07.
FinSum: SOFI has introduced an equity fund and fixed income fund which offers weekly dividends. Here are some important considerations.
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In an article for InvestmentNews, Steve Randall shares some insights from a recent study conducted by Dynasty Financial Partners of investors who work with an advisor and have at least $500,000 in investable assets.
It finds that many wealthy investors seek out an advisor following a major life event such as a change in employment or inheritance. Interestingly, 57% end up working with the first advisor they meet. This is an indication that advisors should invest in efforts that increase their visibility especially among this set.
One caveat is that while high net-worth clients are quick to choose an advisor, they are also prone to switching especially if they feel a lack of trust or generating value. For high net-worth clients under 45, 61% had changed advisors.
Another finding from the research is that referrals remain an important source of new clients. About a little more than half of new clients come from family and friends with another quarter coming from a professional colleague. About a quarter of new business came from social media, blogs, or other online platforms.
Finsum: A recent survey of high net-worth investors by Dynasty Financial Partners has some interesting insights for financial advisors.
In an article for InsuranceNews, Ayo Mseka shares some tips on what advisors should do during the summer when existing clients are hard to reach, and prospecting for new clients is even tougher.
According to Brian Haney, advisors should embrace the downtime and use it as an opportunity to reassess your practice and client relationships. It’s also a time for longer-term planning and thinking about the firm’s future. It can also be used to refine processes and ensure that daily tasks are aligned with the long-term vision.
Another recommendation is to use the summer months to invest in building new relationships and deepen relationships with existing clients. This can include activities that involve the client and their family and even induce them to invite other potential prospects.
The final recommendation is to embrace the downtime and ‘bank’ some rest and leisure time especially given that the pace and intensity of work will increase once summer ends. But, the summer also does offer some unique opportunities for client relationships or prospecting efforts given the abundance of sponsorship opportunities during the summer months for events, concerts, or festivals.
Finsum: The summer months are typically slow for financial advisors. Here are some recommendations to best take advantage of this period.
Charles Schwab shared its midyear outlook for fixed income. It notes that the asset class has been unusually volatile despite not changing much in terms of fundamentals and monetary policy.
In the second-half of the year, Schwab sees Treasuries gradually strengthening, particularly on the short-end of the curve. So far, longer-term Treasuries have started to outperform, while shorter-term notes have weakened due to the Fed’s continued hikes.
However, the firm sees strength across the board in response to slowing inflation and the end of the Fed’s rate hikes due to a weakening global economy. While it anticipates a pause in Fed policy imminently, it believes that the next rate cut cycle will also quickly begin as rates at these levels are quite restrictive especially in an environment of lower inflation.
Further, Schwab believes that longer-term trends are also supportive of fixed income given that fiscal policy will be contractionary, the manufacturing sector is in a recession, wage growth is slowing, and key drivers of inflation such as food, used cars, and energy have also normalized. Loosening Fed policy and falling inflation will be strong tailwinds for fixed income.
Finsum: Charles Schwab shared its second-half outlook for fixed income. Overall, the firm is bullish and believes that underlying trends of fiscal policy, monetary policy, and inflation are supportive.